Quest Rose Hill Pty Ltd v White [2010] NSWSC 939 | Case summary

Quest Rose Hill Pty Ltd v White [2010] NSWSC 939 | Case summary | Zoe

[5]

Agricultural and Rural Finance Pty Ltd & Anor v John Edward Atkinson & Ors [2010] NSWSC 635 Ainsworth v Criminal Justice Commn (Qld) [1992] HCA 10; (1992) 175 CLR 564 Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242 Clerk v Laurie (1857) 2 H&N 199; 157 ER 83 Commonwealth of Australia v BIS Cleanaway Limited [2007] NSWSC 1075 Cordiant Communications (Australia) Pty Ltd v The Communications Group Dwyer v Herman (1881) 2 LR (NSW) L 280 Easy Buy International Pty Ltd v Macquarie Goodman Property Services Pty Ltd [2006] NSWSC 148; (2006) 13 BPR 24,655 Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 Eventang Development (Pyrmont) Pty Ltd v Owners Strata Plan 51573 [2001] NSWSC 452 Frith v Frith [1906] AC 254 Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421 Gaussen v Morton (1830) 10 B & C 731; 109 ER 622 Gill v Wright [1964-5] NSWR 1500 Hanson v Radcliffe UDC [1922] 2 Ch 490 Holdings Pty Ltd [2005] NSWSC 1005 Ibeneweka v Egbuna [1964] 1 WLR 219 In re Savile Settled Estates; Savile v Savile [1931] 2 Ch 210 CASES CITED : Integrated Lighting & Ceilings Pty Limited v Phillips Electrical Pty Limited (1969) 90 WN (Pt 1) (NSW) 693 James v Nesbitt (1954) 28 ALR 482 Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55 Midland Bank Ltd v Reckitt [1933] AC 1 Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41 Perpetual Trustee Co Ltd v Aroney (1944) 44 SR (NSW) 313 Re Hannan's Empress Gold Mining and Development Co [1896] 2 Ch 643 Re Judiciary and Navigation Acts (Advisory Opinions Case) [1921] HCA 20; (1921) 29 CLR 257 Re Olympic Fire and General Reinsurance Co Ltd [1920] 2 Ch 341 Re Steel & ors v The Conveyancing Strata Titles Act 1961 (1968) 88 WN Pt 1 467 Riz v Perpetual Trustee Australia Ltd (2008) NSW ConvR 56-198; [2007] NSWSC 1153 Saard v Doumeny Holdings Pty Ltd [2005] NSWSC 893 Smart v Sandars (1848) 5 CB 895; 136 ER 1132 Spina v Permanent Custodians Ltd (2009) 14 BPR 26,923 Thiel v Federal Commissioner of Taxation (1988) 85 ALR 80 Tingley v Müller [1917] 2 Ch 144 Walsh v Whitcomb (1797) 2 Esp 565; 170 ER 456 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 White v Cariste Pty Ltd [2004] NSWCA 460; [2005] ANZ Conv R 30

[11]

09/288819 QUEST ROSEHILL PTY LTD V BERNARD KEITH WHITE JUDGMENT 1 HER HONOUR: In this matter declaratory and other consequential relief has been sought by Quest Rosehill Pty Ltd (Quest) in relation to the construction of a clause contained in various registered leases entered into by it on 22 December 2000 as lessee in identical terms in respect of six lots in an apartment building at Rosehill from which the business of letting serviced apartments under a 'Quest' franchise is operated. The clause in question, in its terms, irrevocably appoints Quest as the attorney of the lessor (to the exclusion of the lessor) for certain purposes. The building was converted into apartments and a strata plan was registered in respect of the building by a developer, Roseprop Pty Limited, which entered into each of the said leases as lessor. (Although copies of not all of the building leases were in evidence, it does not seem to be disputed that Quest is, and has been at the relevant times, the lessee of all of the residential lots in the building.) 2 Other than the third defendant/cross-claimant (who acquired from her husband her interest in a lot now co-owned by her with her husband), each of the defendants/cross-claimants (to whom I will refer collectively as the Landlords) purchased his or her interest in the respective lots in the strata plan from Roseprop (some on 22 December 2000 and others on 27 March 2001) subject to the terms of Quest's registered lease in respect of that lot. The Landlords are some (but not all) of the owners of the residential lots within the building. Roseprop is now deregistered. 3 The Owners Corporation was established in February 2001. It granted a lease of the common property to Quest for a term of 5 years expiring on 22 February 2006. That lease has not been renewed. (The term of the initial leases granted by Roseprop to Quest in respect of each of the Landlords' lots has also expired and, other than in the case of the sixth defendant/cross-claimant (Mr Viler), those leases have not yet been renewed notwithstanding that Quest had an option to renew the leases for a further five year term (and has 4 such options in all); Quest presently occupies the Landlords' lots (other than that of Mr Viler) on a holding over basis on the terms of the expired leases in accordance with clause 7.2 of those leases. (The lease in respect of Mr Viler's lot was renewed in 2006 and will expire in 2011.) 4 Although copies of not all of the sale contracts entered into by the Landlords with Roseprop were in evidence, it appears that when the Landlords acquired their respective lots in the building there was annexed to the sale contract not only a copy of the relevant registered lease (containing the power of attorney clause) but also a copy of a Deed of Covenant on Disposal of Freehold (which was to be entered into by the purchasers) as between Roseprop, Quest and the purchaser(s) under which the latter covenanted (on any subsequent disposal of the property) to cause the purchaser to enter into a similar Deed of Covenant agreeing to be bound by the terms of the lease. 5 Mrs Maile gave evidence that in 2008 she acquired her 1/100th share in the lot owned by her husband in 2008 because she and her husband had some "concerns" about the property (as summarised in her affidavit in the proceedings) and felt she needed to be a part owner of the property (T 8.27; 8.31; 8.28). In apparent breach of clause 14.1 of the Deed of Covenant, Mr Maile did not procure Mrs Maile's entry into a corresponding Deed of Covenant at the time. 6 I note that it seems to be accepted that each of the Owners acquired his or her respective units in the building for investment purposes and that none has occupied the serviced apartments at any time. Evidence was given by way of affidavit by some of the Landlords as to the circumstances in which they acquired their interest in the building (and particularly as to the advice given to them, or otherwise as the case may be, at the time). 7 The nub of the dispute between the parties relates to the validity (and, if valid, operation) of clause 13 of the relevant leases (and particularly clause 13.2 by which Quest is appointed the attorney of the Landlords on the terms therein set out,) and a corresponding provision in clause 4 of the Deeds of Covenant. 8 Issues as to the ability of Quest to rely upon its appointment as attorney for the Landlords (and to act, attend and vote at all meetings of the Owners Corporation and its committee, to the exclusion of each of the Landlords even if present at such meetings) seem to have come to a head in March 2009 when Quest demanded that each Landlord give notice to the Owners Corporation under s 118 of the Strata Schemes Management Act 1996 (NSW) as to the conferral (under clause 13 of the lease) on Quest of a right to vote at meetings of the Owners Corporation and duly to appoint Quest and its directors as the Landlords' proxy. Not surprisingly, given the stance taken by them in the present proceedings, the Landlords did not do so. 9 In these proceedings, Quest seeks various declarations as to the proper construction of clause 13.2 of the respective leases; as to the intention of the Landlords as evidenced from clause 13 of the leases; as to certain alleged implied conditions of the leases; as to the condition to which it is said the Landlords' right to vote at meetings of the Owners Corporation or executive committee is subject; and that the Landlords are estopped from denying the limitation on their personal right to vote on any matter (namely that such a right is subject to exercising their vote in accordance with the reasonable directions of Quest). Consequential orders are sought to require the Landlords to take certain steps in relation to the appointment of Quest as their proxy. 10 It does not seem to be disputed that, in the past, Quest has not given any directions (reasonable or otherwise) in relation to the manner in which the Landlords, or any of them, should exercise their right to vote. Rather (and this seems to be at least part of the cause of the present dispute), it appears that a somewhat high-handed attitude has been taken by or on behalf of Quest as to the ability of Quest to act as it wishes in relation to the Owners Corporation or executive committee meetings, which attitude appears to have been met with an equally robust response from the Landlords who deny the validity of clause 13 for all purposes, (i.e. whether or not the exercise of rights as attorney would be limited to circumstances this would be in aid of a reasonable direction given for the purposes set out in clause 13.1 and given in good faith as required under clause 13.5). 11 The Landlords have cross-claimed seeking declarations that clause 13 of each of the leases is illegal and contrary to public policy and/or is void and/or unenforceable; and a declaration that, notwithstanding the terms of clause 13 (and notwithstanding the attendance and/or voting by Quest purportedly on behalf of the Landlords at any meeting of the Owners Corporation and/or any meeting of the executive committee), they are entitled to vote at meetings of the Owners Corporation and, if elected, to vote at meetings of the executive committee. (Similar declarations are sought in relation to clause 4 of the Deed of Covenant). 12 Further, declarations are sought that clause 13 of the leases (and, similarly, clause 4 of the Deeds of Covenant) is unjust in the circumstances relating to those documents at the time they were entered into by the parties (pursuant to s 7 of the Contracts Review Act 1980 (NSW)) as well as an order requiring that an instrument in registrable form be executed deleting clause 13 from each of the leases. 13 In the alternative, a declaration is sought that Quest, its directors and officers, in exercising the powers given to Quest under clause 13 of the leases or under clause 4 of the deeds of covenant, has not acted in good faith and has otherwise not complied with its obligations under those clauses to each of the Landlords. (The allegation as to lack of good faith appears to be based on some or all of the allegations made in paragraphs 24 to 30 of the Cross-Claim and, in particular, to matters occurring both beforehand and at each of the 2007, 2008 and 2009 Annual General Meetings of the Owners Corporation.) 14 At the commencement of the hearing on 21 June 2010, I gave leave to Quest to file in court an Amended Statement of Claim (which, relevantly, added various paragraphs pleading in more detail to the franchise arrangements in existence between the various entities for the operation of the serviced apartment business) and I gave corresponding leave for the Landlords to file in court their Defence to the Amended Statement of Claim. 15 In essence, as submitted by Counsel for Quest (Mr Van Aalst), the real issues for determination are those as to the validity of clause 13 of the leases (and clause 4 of the Deed of Covenant), as raised by the Landlords in their cross-claim, which form the basis of their defence to the claims for relief by Quest. 16 It was submitted at the outset of the hearing by Mr Van Aalst that the powers given to Quest under clause 13.2 of the leases are limited by reference to clause 13.1 and clause 13.5 (and hence it would seem that Quest no longer maintains any stance it may formerly have adopted that it has, in effect, carte blanche to do what it likes in relation to matters the subject of a vote at Owners Corporation or executive committee meetings). It is contended by Mr Van Aalst that clause 13.2 is in aid of the right of Quest to conduct the serviced apartments business (albeit that it is not the franchisee and does not presently conduct such a business) and the obligations of the Owners as expressed in clause 13.1 and that it is subject to 13.5. It is submitted that because the power of attorney is so limited, it can only be exercised in circumstances where an Owner fails or refuses to vote in accordance with the reasonable directions of Quest or, if the Owner consents to vote in accordance with such directions, it nevertheless fails to attend the meeting to do so. (I would agree with that construction of clause 13 - it seems to me that it is only where a Landlord refuses or fails to comply with a reasonable direction under clause 13.1 that the power under clause 13.2 is enlivened.) 17 For the Landlords, it is submitted by Mr Gray SC, among other things, that clause 13.2 in its terms is absolute and unqualified and that the irrevocable grant of power purportedly given by that clause (and there was a debate as to whether, as a matter of law, this would amount to an irrevocable power) both contravenes the Strata Schemes Management Act and is unjust for the purposes of the Contracts Review Act. Issues 18 Broadly speaking, the principal issues for determination can be grouped as follows:

[21]

(v) As to the Landlords' claim that there has been a breach of good faith on the part of Quest, I am similarly not satisfied that the evidence permits such a finding. A misguided (and erroneous) assertion of rights (however forcefully made) does not of itself evidence a lack of good faith. Background 21 I have set out briefly in the introduction to the reasons the background to the present dispute and do not repeat that here. 22 By way of additional background, I should, however, note the role of two others (not yet mentioned) in relation to this dispute, namely that of Mr Spencer Bailey and a company of which he is the sole director and shareholder, Food Concepts Pty Ltd. Mr Bailey, who swore an affidavit for Quest in the proceedings, became the director and secretary of Quest in 2004, at which time Food Concepts became the sole shareholder of Quest. 23 On 18 October 2004, Mr Bailey and Food Concepts (the latter as trustee for the Bailey Family Trust) entered into a Franchise Agreement with Quest NSW Pty Ltd (a separate entity to Quest), which agreement was also executed by Quest, pursuant to which Quest NSW, as sub-franchisor, granted to Mr Bailey and Food Concepts, jointly as franchisee, the right to establish and operate a "Quest Franchise" within the "Territory" as defined. The relevance of the franchise arrangements goes to the effect of the introductory words in clause 13.1 of the leases, to which I will refer shortly, insofar as they refer to the purpose of the Landlord's obligation in clause 13.1 being to allow the "Tenant" better to conduct the "Tenant's business". Suffice it for present purposes to note that although in its initial contentions Quest submitted it was the franchisee (and the relevant clause was in aid of its right as franchisee to conduct the serviced apartment business), in the Amended Statement of Claim Quest now pleads that Mr Bailey and Food Concepts are the franchisees of the business of operating the serviced apartments at the Rosehill property and that each lot is a serviced apartment "managed" by Food Concepts (paras 4(a) and 3(b) respectively). Quest's role, in relation to the serviced apartments business (if any), at present (other than as a conduit for the use of the serviced apartments for letting by Quest NSW) is not clear. 24 After Mr Bailey and his company took over the operation of the Quest franchise at Rosehill, it seems that concerns arose on the part of at least some of the owners of lots in the building as to the management of the property (and, in particular, as to the operation of the administrative fund and sinking fund maintained by the Owners Corporation). (Up until that time there seems no suggestion that clause 13.2 operated unjustly vis a vis the Landlords.) Those concerns relate to matters alleged in the cross-claim (para 25) and referred to in various of the affidavits served on behalf of the Landlords. There seems little doubt that there has been a degree of contention between Mr Bailey and one or more of the Landlords in recent years in relation to the conduct, inter alia, of matters in annual general meetings of the Owners Corporation. 25 It is alleged in paragraph 25 of the Cross-claim that, since at least 2007, the administration and management of the strata scheme and of the Owners Corporation (and in particular, of the sinking and administrative funds of the Owners Corporation) "have demonstrated" certain facts (by reference to the particulars, those facts as asserted are the reduction in the budget for the administrative fund; insufficiency of funds in the Owners Corporation's administrative funds to pay property insurance or moneys owing for Fire Compliance in January 2007; failure to pursue recovery of amounts due and outstanding to the administrative fund; amounts properly payable from the administrative fund being paid out of the sinking fund; moneys so paid not being repaid or recovered; unresolved disputes about who was or should be responsible for determining the priorities for which funds in the sinking fund should be used; unresolved disputes about the appointment and role of an executive committee; and unresolved disputes about whether proper and accurate accounts and records have been kept for the strata scheme). 26 Evidence was given by some of the Landlords as to the manner in which Mr Bailey had responded to issues raised by them in relation to those matters. The cross-claim makes allegations as to Mr Bailey's refusal initially to consent to the instigation of an executive committee; the fact that no executive committee meeting was convened in the six months after the 2007 annual general meeting notwithstanding an alleged agreement by Mr Bailey to do so for a "trial" period; assertions by Mr Bailey at the 2008 annual general meeting that lot owners did not have the right at the 2008 annual general meeting to vote either in person or by proxy; and conduct in relation to the 2009 annual general meeting. 27 The Landlords point in particular to the attitude exhibited by Mr Bailey to the power of attorney contained in clause 13.2 of the leases, by reference to assertions made by or on his behalf that he had "100% proxy voting rights" (for example, the email in CB Volume 2, 639 from Sharon Howard to the wife of the second defendant and the evidence of Tracey Maile in her affidavit of 11 December 2009 as to Mr Bailey's conduct at the 2008 Annual General Meeting, in which he is reported to have said that he did not accept the validity of Mrs Maile's proxy and intended to exercise proxy votes as specified in the leases, and, at a meeting of the executive committee on 16 October 2008, when it is said that Mr Bailey said it did not matter what had happened at the Annual General Meeting as he had power of attorney and would dismiss all the executive committee). 28 As noted earlier, the question of Quest's ability to control the exercise of votes at meetings, seems to have come to a head in March 2009, when lawyers acting for Quest wrote to the lawyers acting for the Landlords (some or all of which had apparently been concerned with the manner in which the business was being conducted) stating that Quest was seeking to formalise Quest's "lawful right to attend and vote at all meetings of both the Owners Corporation and its executive committee during the term of the lease". The Landlords were served with a notice requiring formal notification to the Owners Corporation (under s 118 of the Strata Schemes Management Act) as to the conferral of rights or appointment as proxy of Quest under clause 13 of the leases. 29 On 18 March 2009, Quest's lawyers confirmed that it was Quest's contention that Quest was entitled, under the powers of attorney granted by each lot owner in the leases to Quest, to attend and vote as their attorney at all meetings of the Owners Corporation and at the meetings of its executive committee and that, under the powers of attorney, Quest had the power to appoint and/or dismiss the Owners Corporation's strata manager. 30 Mr Bailey deposed in his affidavit of 14 May 2009 that as a business owner, on behalf of Quest he required to be able to direct the Owners Corporation and the strata manager on matters relating to the management and capital expenditure. Again, this was emphasised in a letter dated 14 May 2009 from Quest's lawyers. Lease provisions 31 The terms on which Quest initially took its leasehold interest in the building lots from Roseprop are seemingly in the same form for each of the lots in the strata plan. During the hearing, reference was made to the particular terms of the lease governing the lot acquired by the first defendant/cross-claimant, Mr Bernard White, but it is not suggested that there was any material difference between those terms and the terms pertaining to the other Landlords. 32 Roseprop, as lessor, granted to Quest, as lessee, a lease for a five-year term commencing on 23 February 2001 (with an option to renew for four further terms of five years each). 33 The permitted use provided for under the lease (by reference to clause 4.1 and item 2 of the First Schedule) was use as "Serviced Apartments or other long or short term lettings". Pursuant to clause 4.1, Quest covenanted with the Landlord(s) not to use or permit the lot or any part thereof to be used for any purpose other than that specified in item 2 of the First Schedule (other than with the consent of the Landlord(s)). 34 Reliance was placed by Mr Van Aalst on the acknowledgement contained in clause 8.2.1 (on the part of the Landlord(s)) that:

[24]

(b) may sell the said business and assign this Lease and/or transfer the Shares in the Tenant to a person who will conduct the said business pursuant to a franchise agreement or arrangement with the Quest Group. 35 Thus the Landlords were on notice that it might not be the Tenant (Quest) who conducted the serviced apartments letting business as franchisee from Quest NSW. Nevertheless, insofar as the expression "Tenant's business" is used in clause 13.1, it might be thought that this could only be referring back to the business which the Landlords had acknowledged that the "Tenant" or a related company intended to conduct from the premises. 36 Relevantly, perhaps, in light of the potential outcome of the current proceedings, clause 8.3 provided that "In order to better protect [sic] the rights of the Quest Group" the Landlords will also enter into the Deed (annexed and marked with the letter "A1") (which Deed, among other things made provision for circumstances in which, notwithstanding that the Tenant may have failed or become ineligible to exercise the option for renewal of the term of the lease the Franchisor (Quest NSW) would be entitled to take steps to become the Tenant as if it were an original tenant who had validly exercised the option for a further term. Thus, it remains open to Quest NSW to step in and take over the leasehold interest in certain circumstances. 37 Pausing there, it must therefore have been apparent to a person acquiring a lot in the building and having regard to the terms of the registered lease by which her or she was to be bound, that the apartment to which that person obtained rights under the strata plan might be used as a serviced apartment by the Tenant (Quest) and/or the franchisor (Quest NSW) for up to 25 years in all. (The Landlords, however, seem to have paid little regard to other terms of the leases, therefore it is a moot point whether they paid attention to this fact.) 38 The registered lease contains various covenants (described as the Landlord's General Covenants) on the part of the Landlords, such as clause 6.1.1 (the usual covenant by a landlord for quiet enjoyment) and clause 6.1.3 (a covenant not to interfere with the Tenant's business conducted at the Estate (as defined in clause 1.1.8, which included among other things all lots and common property on the strata plan)); as well as a covenant in relation to the repair and maintenance of the premises (clause 6.2.1, which makes reference to maintenance of the premises and the Estate to the high standard of other properties constructed for or used by the Quest Group). 39 Clause 13, the subject of the present dispute, provides as follows: 13 ATTORNEY

[26]

13.2 To better secure the performance by the Landlord of the obligations under this clause the Landlord irrevocably nominates and appoints the Tenant and each director and officer of the Tenant from time to time jointly and severally to be the attorney of the Landlord and to act, attend and vote as attorney in the Tenant's absolute discretion on behalf of the Landlord (including to allow the Tenant the power to appoint and dismiss the Owners Corporation manager and to grant to the Tenant any leases or licences in respect of the Common Property that are reasonably required for the operation of the Tenant's Business) at all or any meetings of the Owners Corporation or of the committee of the Owners Corporation to the exclusion of the Landlord if present at such but this appointment must not be used to vote on a motion to raise a Owners Corporation levy for capital charges or require a contribution to a capital Sinking Fund over an amount of One Thousand Dollars ($1,000.00) per annum in each year of the Term PROVIDED THAT a Sinking Fund will not be required to be established during the first two terms of the Lease although the Landlord may be required to make contributions in respect of specific Owners Corporation capital works as required from time to time. (my emphasis) 13.3 The Landlord hereby ratifies and confirms all acts, deeds and things done by the Landlord's Attorney hereby constituted or by any of them at all or any of the meetings referred to in this clause held while this Power of Attorney remains in full force and effect. 13.4 Without limitation, the terms "Attorney" used in this clause will include a "proxy" for the purposes of the Act and the by-laws from time to time of the Owners Corporation. 13.5 Notwithstanding the provisions of Clause 13.2, the Tenant hereby agrees that in exercising the powers hereunder either solely or through an attorney, the Tenant will act in good faith and provide the Landlord with details of all proposals to be dealt with by the Owners Corporation and will allow the Landlord the opportunity to attend all meetings of the Owners Corporation of which reasonable notice together with the agenda will be given the Landlord. 40 Clause 14, relevantly, provided as follows: 14.1 If the Landlord wishes to dispose of the Premises or any interest therein the Landlord will obtain from the proposed purchaser, prior to the disposal, a duly executed Deed of Covenant in the form of Annexure "A3" to this Lease in favour of the Tenant.

[29]

(i) Consistency with/contravention of policy implicit in Strata Schemes Management Act Construction of clause 13 43 Before turning to the particular contentions made in relation to clause 13, I consider the proper construction of that clause in the context in which it appears in the lease(s). 44 Mr Van Aalst contends that the rights or power granted under clause 13.2 is limited by both clauses 13.1 and 13.5. I agree. As far as clause 13.5 is concerned, while it does not strictly limit the power under clause 13.2, it provides a contractual limitation on the manner in which that power is exercised such that if a direction was given not in good faith by Quest, then while it might (if otherwise reasonable, assuming one could logically have a direction issued not in good faith but which was nevertheless reasonable) be a direction with which the Landlord has to comply, there might nevertheless be an issue as to whether Quest was in a position to exercise its power under 13.2 to enforce compliance with such a direction (as to the ability to have regard to the stated purpose of the contract when construing a clause, see Thiel v Federal Commissioner of Taxation (1988) 85 ALR 80, at 108, 119). 45 The first point to note in relation to the construction of clause 13 is that the opening words of clause 13.2 make it very clear that the purpose for which the appointment of Quest as the Landlords' attorney is being made is better to secure the performance by the Landlord of its obligations "under this clause". 46 The obligations "under this clause" as referred to in clause 13.2 must, it seems to me, encompass the Landlord's obligations contained in clause 13 as whole. Clause 13.2 does not itself contain any obligations on the part of the Landlord (unless it can be said that the words in parentheses impose an obligation on the Landlord to permit the Tenant the power therein referred to) rather than (as I think is the case) simply clarifying the scope of the power given by the appointment of the Tenant as the Landlord's attorney. 47 The reference to "under this clause" in clause 13.2 may be contrasted with the reference, in clause 13.5, to a particular sub-clause (clause 13.5 commencing "notwithstanding the provisions of clause 13.2"). Elsewhere in the lease (see, for example, in clause 14.2 and clause 8.1.1), where reference is made to a particular sub-clause, that sub-clause is identified. This suggests that, had clause 13.2 been limited to the securing of the performance of obligations under clause 13.2 alone, the reference would have been to clause 13.2 not to "this clause" more generally. In clause 11.3, rather than referring to a failure to comply with the provisions of "this clause", there is a specific reference to a failure to comply with the provisions of "this Clause 11.3". 48 Whether or not support can be drawn from the internal clause references as used by the parties, it seems to me that it is clear (from the absence of any stated obligation of the Landlord in 13.2) that the purpose of the power granted under clause 13.2 is to provide better security for the performance by the Landlord of its obligations under the whole of clause 13. 49 One of those obligations is the obligation under clause 13.1 of the Landlord (at all or any meetings of the Owners Corporation or of the Committee of the Owners Corporation held during the term) to vote in accordance with reasonable directions given by Quest. Indeed, that is the only obligation, as such, which can be discerned on the part of the Landlord within clause 13 (clause 13.3 itself simply being the ratification and confirmation of acts, deeds and things done by the Landlord's attorney whilst the power of attorney remains in full force and effect, and clause 13.5 imposing an obligation upon Quest, rather than the Landlord). 50 Accordingly, the nomination and appointment of Quest (and each director and officer of Quest) as the Landlord's attorney under clause 13.2, is better to secure the performance by the Landlord of its obligation to vote in accordance with reasonable directions given by the tenant. That makes sense insofar as it enables Quest, in the event that a Landlord does not physically attend a meeting, to exercise any vote which that Landlord would have been obliged under clause 13.1 to cast. (I consider in due course the position where a Landlord attends a meeting and purports to vote contrary to a reasonable direction given by Quest.) 51 The second point to note in construing clause 13 is that the Landlord's obligation (contained in clause 13.1) to cast its vote in any particular fashion is limited in the following ways. First, the obligation is only to vote in accordance with "reasonable directions" of Quest. Thus, if a direction is not objectively seen to be reasonable clause 13.1 does not oblige the Landlord to vote in accordance with it. Secondly, the Landlords' agreement is itself stated to be for the purposes, first, of allowing Quest "to better conduct the Tenant's business" and, secondly, "to ensure compliance with the Landlord's and the Owners Corporation's Covenants as contained in this Lease". 52 Pausing there, as noted by Mr Gray, the Owners Corporation is not a party to the lease. For it to be bound as a matter of contract by any covenants contained therein, it would need to have been joined as a party to the lease. Nevertheless, the lease appears to contain at least two covenants on the part of the Owners Corporation: clause 3.3, which purports to oblige the Owners Corporation in relation to insurance matters, and clause 10.2, which provides that the Owners Corporation will assign to Quest the benefit of any warranties applicable to or in respect of the common furnishings and fittings, to the extent required to enable Quest to fulfil its obligations pursuant to the lease. 53 In relation to clause 3.3, it could perhaps be read not as a covenant on the part of the Owners Corporation to do anything but an acknowledgment between Quest and the Landlord as to what was to fall within the sphere of insurance responsibility of the Owners Corporation (as opposed to what was within the sphere of responsibility of Quest or of the Landlord (clause 3.3.1)). I note that clause 3.3.1 itself obliges Quest and the Landlord to use their best endeavours to ensure that the Owners Corporation effects such insurances. Clause 10.2 is not so easily explained. In its terms, it appears to oblige the Owners Corporation itself to do certain things. However, it might perhaps be said that the purpose of the Landlords' agreement under clause 13.1 to vote in a particular way to ensure compliance by the Owners Corporation was simply a mechanism by which the Landlord might be required to procure the Owners Corporation to take steps (such as those in clauses 10.2) which it was not strictly bound to do (not being privy to the contract comprised by the lease). 54 As to the limitation arising from the reference to "reasonable" directions, as noted above this must have the effect that if no direction (or a direction which is not reasonable) is given by Quest, then the Landlords' ability to vote on any matter at Owners Corporation or executive committee meetings remains unaffected by clause 13. (What I do not accept is the proposition by Mr Van Aalst - T 31.15 - that clause 13.1 operates such that it only obliges a Landlord to vote in accordance with Quest's directions if the Landlord accepts that they are reasonable or is in agreement with them. That may be a practical consequence of the provision (since if there is disagreement as to whether the direction is reasonable Quest will not be certain whether the Landlord is obliged to vote in accordance with it and, hence, whether its power of attorney extends to it.) 55 Secondly, the obligation on the part of the Landlord to vote in accordance with reasonable directions given by Quest is also limited by the words "for the purposes of allowing the Tenant to better conduct [sic] the Tenant's business and to ensure compliance with the Landlord's and the Owners Corporation's covenants as contained in this lease". If Quest were to give directions for the Landlord to vote on a matter that was not necessary for either of those purposes, then in my view it would be open to the Landlord to refuse to vote in accordance with that direction, as it surely could not be said to be a reasonable direction if unconnected with either of those purposes. 56 One of the issues which has arisen in the present case is what is meant by the words "the Tenant's business". The "Tenant" is clearly defined in the lease as "Quest" (though in clause 1.1.27 the definition of "the Tenant" extends beyond the lessee referred to in item (f) of the coversheet to its executors, administrators, successors and permitted transferees and permitted assigns and (where not repugnant to the context) its employees, agents, contractors and invitees). 57 However, there is no definition of "Tenant's business". Light may be shed on this by reference to clause 8.2 which contains an acknowledgment by the Landlord that "the Tenant or a company (whose directors include directors of the Tenant or directors of Quest) to conduct a serviced apartment or similar business pursuant to a franchise agreement". What that acknowledgement clearly contemplates is that the serviced apartments business might be conducted either by the tenant (Quest) or by some other entity. However, if conducted by the latter, there is some doubt as to whether it can be said to be the "Tenant's business". 58 Here, as a matter of fact, it seems to be accepted that the business of operating a serviced apartment letting business from the Rosehill property is being conducted not by Quest at all, but rather by Mr Bailey (a director and shareholder of Quest) and by Food Concepts, together they being Quest NSW's franchisee. Leaving aside whether Mr Bailey might be (or be said to be) an employee or agent of Quest for the purposes of this definition, it is therefore by no means clear that a direction issued by Quest for a Landlord to vote in a particular way in order to enable Mr Bailey and Food Concepts, as franchisee, to conduct the Quest franchise from the premises could be said to be a direction for the purposes contemplated by clause 13.1 (and thus within the ambit of the power granted under clause 13.2), since that would not seemingly be for the better conduct of the "Tenant's business". 59 While it may well be, as a practical matter that Quest's "business" encompasses the provision of its rented premises for use by the Quest franchisee(s) for the purpose of the latter's business in carrying on serviced apartment lettings, that is not the "business" seemingly contemplated in the lease (either in the definition of permitted user or in the clause 8.2 acknowledgement). 60 The 18 October 2004 franchise agreement (as indeed, does Quest's amended pleading) in my view makes it clear that the relevant franchisee was the Food Concepts and Mr Bailey jointly. Mr Van Aalst submits that Quest was to be the tenant company referred to in the Franchise Agreement and that while the operators of the business on the face of the Franchise Agreement were the franchisees, there was a nexus between the franchisees and the actual premises in the form of Quest, since Quest had the exclusive right to possession pursuant to the leases. Thus, Mr Van Aalst appears to suggest that by a combination of references to the Franchise Agreement and the acknowledgement in clause 8.2 of the lease the term "Tenant's business" can be construed as meaning the serviced apartments letting business currently carried on by entities other than Quest. 61 It was said by Mr Gray in response that Quest is not a party of the Franchise Agreement, although it had executed it. Quest executed that agreement under the attestation clause for the "tenant co". Clause 1.1.67 somewhat circuitously defined the tenant co as having the meaning ascribed to it in clause 7.5.3. 62 Clause 7.5.3 referred to the situation where a company (tenant company) had been established for the sole or principal purpose of holding all or part of the leases and the tenant company was owned by a franchisee or an associate of the franchisee. In those circumstances there was an obligation on the part of the franchisee to provide various things to the sub-franchisor. Clause 7.12 provided that, for the purposes of clause 7 or any material that makes reference to clause 7, a reference to the term "franchisee" was to include "tenant co". The submission by Mr Van Aalst was that Quest was the "tenant co" referred to in the franchise agreement and thus included in the reference to franchisee. 63 That, however, does not mean that in practical terms the present serviced apartments letting business is that of Quest. 64 I consider that the term "Tenant's business" in clause 13.1 of the lease is to be construed as meaning the business conducted or permitted to be conducted Quest ("the Tenant") from the premises - i.e., a shorthand way of referring to the permitted use by Quest of the premises. If consent was given by the Landlord to the conduct by Quest of a different business from the premises, then that would be the business to which reference is made in clause 13.1. I do not think the expression in clause 13.1 is apt to encompass the serviced apartments letting business (or any other business) conducted from the premises by a company other than Quest even if related to Quest. That is because the opening words of clause 13.1 refer to the purpose of allowing "the Tenant" (i.e. Quest not someone else) better to conduct the said business. 65 I can see an argument that the effect of this acknowledgment, read in the light of 13.15 to preclude the Landlord not only from objecting if someone else carries on the serviced letting business while Quest remains as lessee, but also from denying that it is obliged under 13.1 to follow voting directions for the better conduct of that business as well. However, clause 13.1 (and the lease itself) operate in a meaningful fashion without so extending the meaning of clause 13.1. Therefore, I am inclined to Mr Gray's view that the better conduct by the Tenant of "Tenant's business" for the purposes of voting directions, does not permit Quest to issue directions solely for the purpose of enabling its related entities to carry on the serviced apartments business. 66 For the reasons set out below, however, I do not consider that much turns on this issue. Is the power of attorney irrevocable? 67 I turn then to the question whether the power of attorney so granted was irrevocable. This question arises in the context of Mr Gray's submission that the power granted under clause 13.2, if irrevocable, is contrary to public policy (as evidenced by the Strata Schemes Management Act) and unjust for the purposes of the Contracts Review Act by reference to the fact that the donee of an irrevocable power is not as a matter of law required to act in the interests of (and owes no fiduciary duties to) the donor. (Alternatively, it is said that if the power of attorney is not properly characterised as irrevocable then it can be revoked by the Landlords without breach of the contract, a submission which would seem at most to go to whether some of the declaratory relief sought by Quest should be granted even if it were otherwise successful in defending the cross-claim.)

[31]

Again, a recognised mode of dealing with land is through an attorney acting under a power of attorney. If such a power is made irrevocable, as is the case with that of May 20, 1915, then, in favour of a purchaser, not only can it not be revoked in the ordinary sense, that any act done by the donee within the limits of the authority conferred by the power will be as valid as if anything done by the donor of the power without the concurrence of the donee had not been done: Conveyancing Act, 1882, s 9. The attorney under such a power is not like an ordinary agent. As between him and a purchaser he is, so long as he does not exceed his authority, absolutely independent of the principal. He has no occasion to consult or confer with him, and he need pay no attention to any directions he may give. The attorney in fact, when dealing with a purchaser, is exclusively clothed with all the capacities of the principal in reference to the subject-matter. 70 Lord Justice Warrington's explanation of the effect of the grant of an irrevocable power of attorney was quoted by Palmer J in Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005, at [156]), in the context of a provision in a company's constitution permitting voting by the appointment of an attorney. His Honour noted on to say(at [152]) that statute had long recognised the irrevocable power of attorney as a special creature which, although constituting the donee as the donor's agent, does not fasten upon the donee the usual fiduciary obligations of an agent (referring to ss 15 and 16 of the Powers of Attorney Act 2003 (NSW) and precursors). His Honour accepted that an irrevocable power of attorney by its very nature was very different from an ir revocable power of attorney "whereunder the donee is constituted the agent of the donor and has fiduciary duties of loyalty to the donor" (there citing: see eg Midland Bank Ltd v Reckitt [1933] AC 1, at 14; Saard v Doumeny Holdings Pty Ltd [2005] NSWSC 893, at [24]). 71 Under s 160 of the Conveyancing Act 1919 (NSW) (now s 15 of the Power of Attorney Act 2003 (NSW), which was in force at the time the leases were entered into, a power of attorney which is expressed as being irrevocable and given for valuable consideration will constitute an "irrevocable power of attorney" for the purposes of the Act. Pursuant to that section (and s 16 of the present Act), the power conferred by an irrevocable power of attorney is not revoked or otherwise terminated by and remains effective despite the occurrence of anything done by the principal without concurrence of the attorney. 72 Accordingly, whether or not the power of attorney granted was one which met the common law requirements of being coupled with an interest, if it met the statutory requirement of irrevocability, ie being expressed to be irrevocable and given for valuable consideration, it would for the purposes of the statute be irrevocable.

[33]

In my opinion, it should now be accepted that, subject to any contractual provision to the contrary , as between donor and donee an irrevocable power of attorney confers on the donee the right to act within the terms of the authority conferred independently of, and even contrary to, the directions of the donor … (my emphasis) 74 The relevance of this is that if, as I consider to be the case, the exercise by Quest of the power of attorney granted under clause 13.2 is subject to the obligation of good faith in clause 13.5, and can only be exercised to secure compliance with voting directions reasonably given then much (if not indeed all) of the force of Mr Gray's submission as to the potential injustice flowing from the purported irrevocability of the appointment of Quest as the Landlords' attorney seems to me to fall away. 75 In other words, whatever may have been the case had the clause (properly construed) given to Quest an unqualified right to do what it wanted in the exercise of the power so granted (without reference to the Landlords and with no duties owed to them in that respect), that is not the position here. By contract, Quest is bound to exercise its rights under clause 13 in a particular manner (that indicated in clause 13.1) and in good faith (by reason of clause 13.5). 76 The power of attorney, insofar as it is for the purpose of securing performance of the Landlords' obligation in clause 13.1 to comply with reasonable directions as to how to vote as given by Quest, contains within it the practical limitation that there must have been a reasonable direction in the first place. 77 The possibility of the existence of a contractual restriction on the exercise of an irrevocable power of attorney was acknowledged by Palmer J in Cordiant, at [158]). Therefore, in light of the restriction arising from the purpose specified in clause 13.1 and the obligation of good faith under clause 13.5, I cannot accept the proposition that clause 13.2 is absolute or unqualified (or, to use the card-playing analogy used by Mr Gray, that clause 13.2 always trumps clause 13.1). 78 The suggestion by Mr Gray that, if irrevocable, the power was one which did not carry with it any duties to the Landlords seems to ignore both the effect of clause 13.5 of the leases, which clearly imposes an obligation on Quest to act in good faith in relation to the exercise of its rights under clause 13, and the contractual restriction on its exercise deriving from clause 13.1. 79 (As to the alternative argument, even if on the proper construction of the clause, the power is to be regarded at common law as not irrevocable, the question whether or not the Landlords would be in breach of contract if they were now to revoke the appointment of Quest as their attorney pursuant to clause 13.2, this does not seem to me to go to the questions presently in issue before me (other than, as noted earlier, insofar as it may be relevant to the exercise of discretion in relation to the grant of some of the declaratory relief which has been sought). 80 Therefore, it does not seem to me that for the purposes of the issues which are before me anything really turns on whether this power of attorney would, at common law, have been construed as an irrevocable power. That question having been argued, however, I will briefly deal with it. 81 Powers of attorney are instruments that have traditionally been strictly construed (Collier B. vand Lindsay S., Powers of Attorney in Australia and New Zealand, Federation Press, 1992, at 48-53; Dal Pont G. E., Law of Agency, Butterworths, 2001, at [25.20]7.7ff, p 165ff; Bowstead and Reynolds on Agency, 18th ed, Sweet & Maxwell, 2006, at [3-010]). The fact that a power of attorney is declared to be irrevocable is not conclusive as to whether, at common law, it is so (Collier vand Lindsay, at 238; Dal Pont, at [25.230], 748; Bowstead vand Reynolds at [10-007]). In Cordiant, Palmer J noted that: A power of attorney, to be irrevocable at common law, must be coupled with an interest so that it is given for the better securing of that interest as against the donor. 82 Thus, for a power of attorney to be irrevocable at common law, it is necessary that the grant of power be supported by consideration and that it be coupled with an interest (Cordiant, at [152]; Dal Pont, at [25.20], there citing Walsh v Whitcomb (1797) 2 Esp 565; 170 ER 456; Gaussen v Morton (1830) 10 B & C 731, at 734; 109 ER 622, at 623; Smart v Sandars (1848) 5 CB 895; 136 ER 1132; Dwyer v Herman (1881) 2 LR (NSW) L 280; Re Olympic Fire and General Reinsurance Co Ltd [1920] 2 Ch 341). 83 In Dal Pont, the example given of an authority being coupled with an interest focuses on the purpose for which the power or authority is granted, reference there being made to the situation 'where an agreement is entered into for sufficient consideration, whereby an authority is given for the purpose of securing some benefit to the donee of the authority', such an authority being irrevocable (Dal Pont, at [25.20], there citing Re Hannan's Empress Gold Mining and Development Co [1896] 2 Ch 643; Clerk v Laurie (1857) 2 H&N 199, at 200; 157 ER 83, at 83; Frith v Frith [1906] AC 254, at 259-260). 84 Lindley LJ in Re Hannan's Empress Gold Mining and Development, in considering a power of attorney given in the context of an agreement to apply for shares in a company and stated to be irrevocable, explained that:

[34]

It is part of the bargain by which, for valuable consideration, [C] agrees to take certain shares, and that is for the benefit of [P] as [C] knows, and in order to enable [P] the better to secure the performance of the contract, [C] authorises [P] to apply for the shares in his name, and agrees not to revoke that authority even if he could do it without such a clause . (my emphasis)Mr Gray notes that at common law the requirements for an irrevocable power of attorney are, first, that it be given for sufficient consideration or be created by deed and secondly, that it be given for the purpose of securing some benefit to the donee. The distinction at common law between a revocable power of attorney and an irrevocable power of attorney, reflected in s 160 of the Conveyancing Act 1919 (repealed by the Powers of Attorney Act 2003 , but relevantly applicable to the power of attorney created prior to February 2004) is that the holder of the latter owes no fiduciary duty to the donor and may act independently of and contrary to the directions and wishes of the donor ; the power being one whose rationale is to secure the interest of the donee against that of the donor. 85 The requirements for a power of attorney to be irrevocable at common law are demonstrated by reference to the facts in James v Nesbitt, where a lessee had granted a power of attorney to a financier (who had lent money to finance, and which was secured against, the lease). The power was expressed in the lease to be irrevocable and for the purpose of enabling the financier (in the event of default by the mortgagors) to assign the lease to such persons as they thought fit, and the power to give notice of determination of the lease and surrender the same. In circumstances where such a grant of authority was to "strengthen the security over the goodwill and chattels of the mortgagors" (at 484) given by the lessee in consideration for the provision of finance, the repayment of which was secured against the leased property, the grant was seen to be coupled with an interest and the power irrevocable. 86 It is accepted by Mr Gray that the clause 13 power was one that was initially coupled with the grant of an interest (being the leasehold interest) (and was made for consideration). (By contrast, the clause 4 power was said not to have been coupled with the grant of an interest between the purchaser and Quest (the leasehold interest having vested in Quest at an earlier point in time) and was not expressed to have been made for consideration (albeit that it was granted by deed) and was not made as a result of any consideration flowing from Quest to the purchaser at the time of purchase.) 87 It was submitted by Mr Gray that neither the clause 4 power nor the clause 13 power met the requirements for an irrevocable power because they did not protect or secure a benefit to Quest (since the franchisee and entities conducting the serviced apartments' business was not Quest, but rather Food Concepts and Mr Bailey). It was said that Quest merely held the leases (thereby presumably enabling access to the lots by the franchisee). 88 It seems to me that this does not sufficiently take into account two things: first, the fact that the power of attorney granted under the respective clauses is not simply expressed to be for the purpose (by reference to clause 13.1) of enabling Quest better to conduct "the Tenant's business" (the meaning of which I have considered above) but is also for the purpose of ensuring compliance with the Landlords' obligations under the leases (some of which at least, such as the obligation to maintain to the premises to the Quest standard) would arguably be for the benefit of Quest whether or not it was itself conducting the serviced apartments letting business from the premises at any particular time or was simply providing those premises for use by a related entity for such a purpose) and, secondly, that the leases contemplate that Quest may choose to conduct the permitted business itself or by a related company. It would be open to Quest, subject to its current arrangements with Food Concepts and Mr Bailey and to reaching agreement with Quest NSW, itself to take on the conduct of the serviced apartments letting business, for the benefit of which it might need to rely on the power of attorney in due course. 89 Thus it seems to me that the power of attorney under clause 13 can be seen to protect or secure a benefit for Quest (even if not a benefit immediately being enjoyed in the sense that Quest is not presently conducting the serviced letting business in its own right) and was one which was initially coupled (and remains connected) with the grant of the leasehold interest. What of the position in relation to clause 4 of the Deed? The covenant there contained is not only given under seal but it must be seen as given as part of the consideration for the transfer of the lots in question to the purchasers. The fact that consideration flows from a third party does not render the covenant one unsupported by consideration. Moreover, the covenant is still one related to (and in that sense coupled with) the grant of the leasehold interest, that being a subsisting grant at the time of the Deed albeit one which occurred at an earlier time. 90 Therefore, had it been necessary, I would have determined that the powers of attorney given by clauses 13 of the lease and clause 4 of the Deed were irrevocable, at common law, as they purport to be. 91 It would seem that the power of attorney given by clause 13 of the Lease would be capable of meeting the requirements of s 160 of the Conveyancing Act (now s 15 of the Power of Attorney Act), (being expressed as "irrevocable" and given for valuable consideration) such that the acts of the Landlords that are inconsistent with the grant of the attorney, will not terminate the power of attorney, although it is not the case at statute that such a power of attorney will necessarily preclude the application of fiduciary duties. 92 As to the alternative argument (based on the power not being properly construed as irrevocable), again this does not arise. However, I note that the consequences sought to be drawn from a conclusion (contrary to the above) that the powers of attorney given under the respective clauses (even if not void ab initio as the Landlords contend) were revocable were twofold. First, it is said by Mr Gray that, as the donee of a revocable power, Quest would owe the usual fiduciary duties to the Landlords (including a duty to act only for the benefit of the lot owner). Secondly, it is said that if a revocation of the power were to be effected, it would not constitute a breach of any contractual obligation owed by the Landlord or other lot owners to Quest.

[35]

93 Turning to the first argument, any fiduciary obligations owed in the exercise of a revocable power of attorney (had it been so construed) would in my view be seen as having been modified implicitly or expressly having regard to the agreement between the parties as to Quest's entitlements. In other words, it could surely not be said that Quest could not take into account its own interests in the compliance by the Landlords of their obligations under the leases when exercising the power of attorney given that this was the very purpose for which it was given. 94 As to the second argument, I have difficulty with the proposition that, having agreed irrevocably to appoint an attorney it would be open to the Landlords, without being in breach of their leases, now to revoke the power (even if, at common law, such a power would have been construed as revocable). Insofar as the Landlords are bound by the registered lease the terms of which include the grant of attorney, and that is expressed to be irrevocable, there is at least an implied contractual obligation not be revoke it. Were the Landlords to breach (or threaten to breach) that obligation then questions would arise as to what damage flowed therefrom (and/or whether any such breach should be restrained or other relief granted). However, those matters are not presently before me. Alleged contravention of Strata Schemes Management Act 95 Having considered above the construction of clause 13 and the nature of the power of attorney granted thereunder, I turn to the bases on which it is said by the Landlords that clause 13 is inconsistent and irreconcilable with the various provisions in the Strata Schemes Management Act which provide for the entitlement of lot owners to vote at general meetings and in the exercise of voting rights by proxy (s 14; Schedule 2 Part 1, Part 2 Division 1 clauses 10(3)-10(5), 11(1)-11(5), 11(7AA)-(7AC) and 11(7A); and Strata Schemes Management Regulation 2005 (NSW) clause 29(3), as well as with s 20 of the Act and Schedule 3 Part 1 clauses 2, 3 and 5 of the Act which provide for the constitution of the executive committee and its members. 96 Section 14 of the Act simply provides for the application of Schedule 2 to an Owners Corporation. Section 20 makes provision for the constitution of the executive committee, appointment of office holders and meetings of executive committee by reference to Parts 1 and 2, respectively, of Schedule 3 to the Act. 97 Schedule 2 to the Act deals with meetings and procedures of the Owners Corporation. In relation to proxies, clause 11(7) provides that if the instrument appointing a proxy limits the manner in which the proxy may vote at a meeting, a vote by the proxy that does not observe the limitation is invalid. (Clauses 11(7AA) and 11(7AB) make further provision in relation to the use of proxies but I deal with them in more detail below.) 98 Section 245 of the Act (with which clause 13 of the lease is said to be irreconcilable) prohibits contracting out of the provisions of the Act, providing: 245(1) The provisions of this Act have effect despite any stipulation to the contrary in any agreement, contract or arrangement entered into after the commencement of this section. (2) No agreement, contract or arrangement, whether oral or wholly or partly in writing, entered into after the commencement of this section operates to annul, vary or exclude any of the provisions of this Act.

[36]

99 Mr Gray submits that each of clause 13.2 and of the leases and clause 4 of the Deeds of Covenant contravenes or is prohibited by the Act (and impermissibly seeks to put in place a voting arrangement contrary to the Act) for the following reasons. (a) Alleged exclusion of right to vote in person 100 At law, the grantor of an irrevocable power of attorney still retains the legal capacity to do the same acts him or herself (James v Nesbitt; Collier v Lindsay, at 170). Mr Gray places weight on the fact that clause 13.2 purports to appoint Quest to act, attend and vote in its absolute discretion "to the exclusion of the Landlord if present" as being contrary to public policy insofar as it purports to preclude the Landlords from exercising the rights which at law they would have retained notwithstanding the grant of an irrevocable power of attorney. 101 This is also said to be inconsistent with the provisions of the Act that give to a lot owner a statutory right to vote (s 14 and clause 10(1) of schedule 2) and permit a lot owner who is eligible to vote to do so in one of two ways, either in person or by proxy. It is submitted that clause 13.2 purports to exclude one of those two ways, namely by voting in person. (At T 38, Mr Gray was prepared to accept that the mere appointment of a proxy would not contradict the provisions of the Act in relation to voting powers but says that the abandonment of a right to vote, and reposing that right to vote in the absolute discretion of the donee, does impermissibly exclude those statutory voting rights.) 102 Mr Van Aalst says, in response, that clause 13 does not exclude the statutory right to vote (whether in person or by proxy); it simply gives Quest the right to give a reasonable direction to a Landlord as to how to vote (and to exercise the power of attorney if necessary to ensure compliance by the Landlord with such a direction). 103 Mr Gray further submitted that what clause 13.1 did was to compromise or subvert the Landlords' right to vote because it made that right conditional on submission to the direction of a non-owner. It does not seem to me that clause 10(1) of Schedule 2 prohibits a lot owner from entering into an arrangement with a person (non-owner or not) to exercise his or her vote in a particular way. (If it had done so, then arguably the 2008 amendments to clause 11(7), which I consider below, would not have been necessary.) Nor does it seem to me that such an agreement (at least one which requires that the direction be exercised in good faith and in the context of the specific purpose for which it was given) "subverts" the right to vote. It does not seem to me that the proper construction of clause 13.1 is that the Landlord has a conditional right to vote; rather, the Landlord has a right to vote but in certain circumstances has committed to exercise that right to vote in a particular way. The difference in my view goes beyond semantics - what the Landlords have done is in effect to delegate decision making in some areas (not all) to Quest, a not surprising thing in circumstances where Quest (and a related entity if that be the case) is being permitted to operate a business from the premises which would require certain matters to be attended to in the regular management and operation of the business. 104 It is now accepted by Quest (though I accept this was not its previous stance) that it is incumbent on Quest (if it wishes to have a Landlord vote in a particular way) to give a reasonable direction to the Landlord so to do. Thus it is said that the power under clause 13.2 is not an open-ended right (and does not take away any statutory voting rights but rather grants rights which are complementary with the statutory rights conferred under the Act). It seems to me that this is correct. 105 Mr Van Aalst seemed to go so far as to submit that clause 13 operates such that clause 13.2 only applies (and the power can only be exercised) at a meeting at which the Landlord is present (and thus able to vote in person) if the Landlord has been given (and accepts that it is a) reasonable direction in accordance with clause 13.1. Insofar as it was suggested that Quest is entitled to exercise the proxy to ensure compliance with the Landlords' obligation to vote in accordance with reasonable directions, I would accept this to be the proper construction of the clause. However, insofar as it is suggested that clause 13.2 only allows Quest to vote at meetings where the Landlord is present if a direction has been given and the Landlord has accepted the direction (ie where there is consensus as to the reasonableness of the direction) (T 31.15), then I do not agree that this is the proper construction of the clause. (From a practical point of view, of course, it may well be that if there is a dispute then Quest will be unlikely to proceed to rely upon the power of attorney pending resolution in some fashion of the dispute. However, it does not seem to me that clause 13 contemplates or requires agreement by the Landlord to the reasonableness of the direction before Quest is able to exercise the power of attorney.) 106 It seems to me that clause 10(3) of schedule 2, which provides for the manner in which a vote may be exercised, is permissive in its terms. It is open to a Landlord to appoint a proxy or an attorney to act on his or her behalf without in any way contracting out of the Act in breach of s 245. Similarly, I see no reason why the Landlord could not (subject to compliance with any procedural requirements under the Act) irrevocably appoint someone to attend and vote on his or her behalf at meetings of the Owners Corporation (and/or executive committee, if so permitted under the rules of the Owners Corporation). There must be many lot owners of strata title units within New South Wales who, for whatever reason, do not seek personally to exercise their voting rights (whether or not they choose to attend such meetings) from time to time or at all and wish to do so by appointing proxies for that purpose. If they do so by contract, they surely cannot all be said to be so doing in contravention of the Act. 107 The fact that at common law, the donor of an irrevocable power of attorney would retain the legal capacity to exercise, if he or she so chose, the right to vote does not prevent the donor from entering into a contractual arrangement not to do so - and I see nothing contrary to the general voting provisions of the Act in him or her so doing (I turn in due course to the specific provisions which have been introduced in clauses 11(7AA) and (AB) in this regard). (b) Non-compliance with statutory requirements for proxy forms 108 It was pointed out that clause 13.4 of the lease includes, within the concept of the appointment of an attorney, the appointment of a proxy in accordance with the Act and the by-laws. (On that point, Mr Van Aalst sought to distinguish between a power of attorney of the kind granted by clause 13.2, and a proxy for the purposes of the Act. However, I do not consider that such a distinction can properly be drawn.) 109 By analogy with the position of proxies under the Corporations Act (2001) (Cth), it seems that a power of attorney will count as a "proxy" for the purposes of the strata titles legislation. Palmer J in Cordiant considered the position of powers of attorney in the context of the provisions relating to proxies in the former Act and said (at [24]):

[38]

I accept, therefore, that TCGH's constitution permits voting by the appointment of an attorney, provided that the appointment complies with the requirements for a valid proxy contained in CA s.250A and s.250B : Booth [20]-[22]. (my emphasis) 110 It is said by Mr Gray that clause 13 is not in the prescribed form for appointment of a proxy (referring to clause 11(1) of schedule 2 and clause 29(3) and form 3 schedule 7) and thus cannot be said to constitute a valid proxy appointment for the purposes of the Act. 111 What clause 13.2 does, in my view, is to appoint Quest as the Landlord's attorney (that expression including proxy) for the stated purpose(s). With that appointment would surely come the implied obligation on the parties to do what is necessary to enable the proxy rights so conferred to be validly exercised in accordance with any procedural requirements under the legislation. Therefore, to the extent that it is necessary for a Landlord or Quest to submit duly executed notices or forms to the Owners Corporation in order to comply with the statutory requirements for the valid exercise of a vote as proxy, that fact of itself does not seem to me to negate or contravene the Act. It simply means that further steps need to be taken before any vote is validly cast by the attorney acting as the Landlord's proxy. (c) Alleged inconsistency with provisions in effect for personal vote to override proxy 112 Clause 11(5) of the schedule 2 of the Act provides that a proxy cannot exercise a vote if the lot owner who appointed the proxy personally exercises a power to vote on that matter. That clause seems to me to do no more than (very sensibly) make provision designed to avoid the situation where there may be duplicate votes and certainty as to which is to prevail. It can thus be seen to be intended to make sure that a person cannot vote twice. The mechanism so put in place to deal with that situation is that if someone who has appointed a proxy then attends a meeting and purports to vote personally, that vote will override the proxy. (Whether the person could do so without being in breach of contract is a different issue.) It does not seem to me that there is any contracting out of the Act simply by reason of the fact that a lot owner may commit himself or herself to take a step which it is open to him or her to do under the Act (ie to appoint a proxy) and then to agree with that proxy that he or she will not override that proxy on any particular vote. (d) 2008 amendments 113 Mr Gray further relied upon the recent amendments to the Strata Schemes Management Act made by the Strata Management Legislation Amendments Act 2008 (NSW)), such amendments coming into effect on 1 August 2008, as evidencing an inconsistency between clause 13 and the Act. 114 Relevantly, clause 11 of Schedule 2 of the Act was amended to preclude an original owner or person "connected with" an original owner from casting a vote by means of a proxy or power of attorney given by another owner of a lot in the strata scheme concerned if the proxy or power of attorney was given pursuant to a term of the sale contract for the lot or an ancillary contract or arrangement. (Schedule 1, clause 9 of the Amending Act amends the Dictionary to the Act to define when a person is taken to be connected with another person.) 115 The relevant sub clauses of 11 of Schedule 2 of the Act provide as follows:

[44]

117 The background and policy behind the amendments has been explained in the second reading speeches relating to the Strata Management Legislation Amendments Bill 2008 (NSW) (the Hon. Frank Sartor, second reading speech in the Legislative Council, 15 May 2008 and the Hon. Penny Sharpe in the second reading speech in the Legislative Assembly, 4 June 2008) and in the Legislation Review Digest of the Legislation Review Committee (No 7 of 2008, 2 June 2008, at 48-49) as: Of great concern to many strata owners and the Government is the practice of including conditions in sale contracts requiring a potential buyer to give the developer unconditional proxy voting rights or power of attorney. An attempt by the owner to change their proxy or vote in person would be a breach of contract that could lead to financial or legal penalties. In some cases the contract goes even further and requires the owner to ensure that any future buyer of the unit also gives the developer unconditional proxy voting rights. (my emphasis) These types of contract conditions are, in effect, an attempt to override the proxy voting provisions in the Act and deprive owners of their right to participate in the decision-making process. This contractual voting power can be, and has been, used to prevent action being taken to address defective building work or to assign lucrative service contracts to firms connected with the developer. This is a highly questionable practice, and the amendment bill will introduce measures that will prevent the developer or a person connected with them from being given power of attorney, and being appointed as a proxy or casting a proxy vote pursuant to the terms of a sale contract. I emphasise that this will not stop owners from appointing a proxy, even if they want to appoint the developer, but this can only be done voluntarily and unconditionally. (my emphasis) 118 These amendments were made in the context of a broader concern to provide for further rights and protection for owner of lots who are not developers and in conjunction with other amendments to ensure greater transparency in the oversight of executive committees, greater governance of on-site caretakers, removing the ability of an owners corporation to make by-laws during the initial period authorising parking on common property and to require members of executive committees of strata schemes and candidates for membership of such committees to disclose connection with original owners and caretakers of those schemes. 119 In addition, these amendments were made in conjunction with amendments to the Home Building Act 1989 (NSW) to enable owners of lots in strata schemes to request the investigation of building disputes and allow access to common property for the purposes of such an investigation, so that so that an owner can notify the Office of Fair Trading of a building defect in relation to common property, (currently only an Owners Corporation can give consent for a Fair Trading inspector to access common property for purposes of inspection). 120 Relevantly, it seems to me that there is a point of differentiation between the mischief to which the legislative amendments were addressed (of unconditional proxies being required to be given to developers or the like who may have an interest in controlling the Owners Corporation so as to preclude claims being made against them in relation to building defects and the like) and the present situation, where the lots in the building as developed were leased to an entity (albeit with connections to the developer) for use as serviced apartments and sold to purchasers as investments which were to produce an income for them by reference to the use of the building as serviced apartments. Moreover, I am firmly of the view that clause 13 does not confer unconditional voting rights, it being limited to the grant of a power to ensure compliance with the obligation of Landlords to vote in accordance with reasonable directions for the purposes of the conduct of the "Tenant's business". (So, for example, a vote in relation to the maintenance of a suit for compensation for defective works or breach of statutory warranties against the developer or builder would surely not be encompassed within the scope of the power of attorney here granted.) 121 Whether or not the present situation falls within the mischief sought to be addressed by the legislation, the relevant question is whether it falls within the ambit of the amendments. It is not disputed that the relevant powers of attorney were given pursuant to a term of the sale contract for each lot or pursuant to another contract or arrangement ancillary to the sale contracts. However, 11(7AA) and 11(7AB) came into effect on 1 August 2008 (after the date of the respective sale contracts) and do not have retrospective effect. (Clause 25(1) of Schedule 4 of the Act, in effect provides that the amendments do not affect the casting of a vote by means of any proxy or power of attorney in any period in force immediately before the commencement of the amendments.) Thus Mr Van Aalst submits that this complaint is ill-founded. 122 However, clause 25(2) provides that clause 25(1) does not apply to any vote cast during a period in which the proxy or power of attorney is in force because of a renewal or extension of its term that took place after the commencement of the amendments. Thus, if there has been a renewal or extension of the term of a proxy or power of attorney held by Quest after the commencement of the amendments (1 August 2008), then any vote cast by it will be invalid and the provision in the lease requiring a proxy or power of attorney to be given to the original owner or person connected with the original owner given pursuant to a term of the sale contract for the lot or pursuant to another contract or arrangement that is ancillary to the sale contract, will be unenforceable (clauses 11(7AA) and (7AB)) but not otherwise. 123 This raises the question as to whether the effect of a renewal or holding over the leases in question, as the case may be, operates to renew or extend the terms of the power of attorney granted under those leases. 124 I interpose to note that the effect of the transitional provisions may well be to render largely futile the dispute which has raged between the parties leading up to the present litigation, because to the extent that the proxy/power of attorney arrangements entered into pursuant to the original leases must presumably come to be renewed or their term extended at some time (given that they are put in place by or pursuant to leases the term of which has expired), then thereafter the legislation would seem to render them unenforceable. (At that stage, the question of the extent to which any further proxy is given will presumably be a matter for negotiation between the parties.) 125 In respect of Mr Viler's lot, a new lease came into operation by exercise of the option clause in 2006. This brings into existence a new lease (and is thus not an extension of the original lease). Thus the power of attorney granted under the option lease would seem to be a new power (or, though this seems to me less likely, a renewal of the original power of attorney granted to Quest). As this option lease came into existence prior to the commencement of the amending legislation (1 August 2008), the amendments rendering such an arrangement unenforceable (under clause 11(7AB) of schedule 2 of the Act) will not apply (clause 25 of schedule 4 of the Act) to the power of attorney granted according to the terms of this lease. 126 The remaining leases in relation to the Landlords' lots have expired but have not yet been renewed. Quest's rights to possession of those units, as tenant, continues by way of a holding over tenancy which, pursuant to the terms of the expired leases, is continued on the same terms of the expired leases, save for the tenancy being expressed to be on a monthly basis (with rent payable monthly calculated at the equivalent to a monthly proportion of the annual rental otherwise payable) (clause 7.2). 127 Clause 7.2 provides:

[46]

It should be pointed out first that there are two situations concurrently described as "holding over". One occurs under a lease for a term which itself contains the contract for a possible holding over on expiry of the term. In this case "the holding over" is a holding over under and by virtue of the original lease and is a part of the original grant which becomes effective upon a contingency occurring. The other situation occurs where a tenant remains in occupation after the expiry of his term under a lease which contains no such contract. In the absence of any express agreement a new agreement is implied into which are imported so far as applicable the terms and conditions of the original lease, but it is a new lease under a new contract. 130 The holding over tenancy in respect of the Landlords' lots (other than that of Mr Vilers) would seem to be a tenancy of the former kind, arising by virtue of clause 7.2 of the leases and a part of the original grant. There is no suggestion that any amended tenancy arrangements have been agreed between these parties of the kind which led to the conclusion in White v Cariste Pty Ltd [2004] NSWCA 460; [2005] ANZ Conv R 30 (to which I refer below) that there was a new tenancy agreement. It would therefore seem that the proxy/power of attorney arrangements in place under these holding over tenancies would not be said to be by way of a renewal of the initial lease as such for the purposes of clause 25(2) of Schedule 4 of the Act nor is there a new agreement between the parties to which the amended provisions of the Act might apply. (Had the holding over not been by way of a provision contained in the original lease, that is if it were the latter of the situations explained above by Brereton J in Gill v Wright, then the amendments would arguably have applied, as the holding over would have constituted a new agreement for lease implied upon the start of the holding over agreement and the proxy/power of attorney arrangements would fall within that new arrangement.) 131 Is the holding over tenancy nevertheless an extension of the lease, such that it can be said that the term of the proxy/power of attorney has been itself extended for the purposes of clause 25(2) of Schedule 4 of the Act? I think not. Once the term of the lease has come to an end, the fact that the subsequent monthly tenancy operates to extend the period of time within which the tenant may remain in possession does not, as a matter of law, extend the term of the lease. What has arisen, as a consequence of the original grant, is that a new tenancy has come into existence (the term of which is separate from the expired term of the original lease and only in a practical sense an extension of that term). If so, then it would seem to me that the proxy/power of attorney must be one deriving from the new tenancy arrangement and thus there has not been an extension of the term of the old proxy/power of attorney. 132 In White v Cariste, the Court of Appeal (Hodgson, Ipp and Bryson JJA) considered the question whether or not directors of a lessee company who had guaranteed the performance by the lessee of "all terms and conditions" of the lease were liable under the guarantee for the payment of rent after the expiration of the term of the lease. The lease contained a holding over clause and it was noted that it was common ground that the holding over clause had applied for a time to the lessee's occupation after the lease term expired. There was, however, a change made in relation to the arrangements (particularly the rent payable) some 18 months after the holding over period began. 133 It was held that a new agreement came into existence at the time of the change to the tenancy arrangements by reference to the acceptance of rent at a different amount from the initial holding over rent for an extended period. That gave rise to a periodic tenancy which displaced the holding over under the previous lease (Hodgson JA, with whom Ipp JA agreed, citing In re Savile Settled Estates; Savile v Savile [1931] 2 Ch 210). It was not therefore necessary in Hodgson JA's view to consider whether the guarantee would in any event have applied to the lessee's obligations while holding over pursuant to the relevant lease provision in the first place (ie before the new periodic tenancy had arisen). 134 Bryson JA agreed in the result. In his Honour's separate reasons, he expressed the view, referring to Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242, that the obligation to pay rent under the holding over period was not one "under" the lease but, rather, by reference to the later agreement for holding over and that this was no less so because a determination of the terms of that holding over tenancy was made by reference to the terms of the lease itself. 135 Here, the monthly holding over tenancy (created as part of the operation of a clause under the original lease granted and the terms of which are referable to those contained in the original lease) seems to me to be neither a renewal nor extension of the lease, or the lease terms, as such. Accordingly, the amendments introduced into the Act in 2008 should not apply to preclude reliance by Quest on the power of attorney granted under its original lease. The position would, in my view, be different if there had been an exercise of the option for a further term of the lease after 1 August 2008 or an agreement for a new lease or periodic tenancy after that time which operated to renew or to create a new proxy or power of attorney. Meanwhile, the proxy/power of attorney arrangements which came into existence under the holding over tenancies that commenced in 22 February 2006, before the commencement of the relevant amendments to the Act, are not affected by subclauses 11(7AA) and 11(7AB) of Schedule 2 to the Act. (e) Alleged inconsistency with obligation of Owners Corporation to manage the interests of lot owners 136 It is further said that clause 13 of the leases and clause 4 of the Deeds are inconsistent with ss 12, 13 and 61 of the Act. 137 Section 61 of the Act provides for the administration of the strata scheme "for the benefit of the owners" (s 61(1)(b)) and the management of the finances of the strata scheme (62(2)(b)), both those matters being responsibilities of the Owners Corporation. 138 Those sections deal with the responsibilities or obligations of the Owners Corporation. They do not suggest that lot owners could not (together or individually) appoint proxies to perform their functions in relation to the Owners Corporation. I raised in discussion with Counsel the possibility that it could be said that, insofar as lot owners have identical contractual obligations in relation to the use of the property, it might be thought that it is in the interests of the lot owners for there to be compliance with those obligations. Whether or not that be the case, it seems to me that there is no necessary inconsistency between the grant of a power of attorney to secure compliance with an obligation to vote on certain matters in accordance with directions of a third party and the obligation to manage the strata scheme as required by the Act. (For example, I see no apparent reason why it would be necessary for the purposes of clause 13 for Quest to determine what amounts fall within the sinking fund or what amounts are put aside for insurance purposes or the like, or to sign off on financial accounts of the Owners Corporation. Where an operator of a serviced apartments business (or a related entity that has an interest in the continuation of that business) may well have an interest is in the amounts expended on upkeep of the premises and so on.)

[48]

The respondents have failed to appreciate the nature of duties cast on them as members of the council of a body corporate under the Conveyancing (Strata Titles) Act . Such persons are at least in a position analogous to company directors; and they even have a higher fiduciary duty, and when they are promoters as well, this duty has a dual basis. It is plain that the respondents have failed to recognise that it is their duty to manage the affairs of the body corporate for the benefit of all of the lot holders, and that the exercise of any of their powers in circumstances which might suggest a conflict of interest and duty requires them to justify their conduct, and that the onus lies on them to prove affirmatively that they have not acted in their own interests or for their own benefit. 140 There, breaches of the fiduciary duty which flows from membership of a council of a body corporate under the Act were found to have been established, the members of the council having failed to recognise it was their duty to manage the affairs of the body corporate for the benefit of all the lot holders. Here, as noted above, I do not see the proxy/power attorney arrangements as inconsistent with a recognition that the Owners Corporation is to be managed for the benefit of lot owners (and any inconsistency between a direction given by Quest and the obligations of the Act would surely lead to the conclusion that the direction was unreasonable). 141 It is said by Mr Gray that if the power of attorney is irrevocable, and has the characteristics identified under a common law irrevocable power as identified above, then it is one that is specifically designed and intended to secure the interests of Quest against those of the Landlords and to place the management of the finances of the strata scheme firmly in the hands of Quest and not the Owners Corporation inconsistently with the policy underlying the Act. Thus Mr Gray says that clause 13.1 is necessarily contrary to s 61 since any decisions will be for benefit of Quest not benefit of lot owners. The obligation of the Owners Corporation under s 61 is to administer the strata scheme for the benefit of lot owners. Thus is it said that clause 13.1 cannot stand with s 61. For the reasons set out above, I do not accept that this is the case. 142 In passing I note that in the course of argument I raised the question as to whether the logical extension of such a contention would be that one could not have a business of this kind in a strata title building because one could not enter into an arrangement permitting the manager of the business to exercise or direct the exercise of voting rights in a fashion necessary for the better conduct of its business. Mr Gray says that this is not the case since the party in the position of manager could do that very thing by way of a contractual regime with the Owners Corporation (as opposed to the lot owners committing themselves or subjecting themselves to such a regime at the time of entry into their sale contracts) or by reaching agreement as to how money is to be spent on the building in any period or manner. Thus Mr Gray says that the Act does not stand in the way of serviced apartment schemes such as this and there is simply a difficulty inherent in the model which has been adopted here. Whether or not that be the case (and whether or not there is the consequence to which I had adverted in the course of submissions) the argument put by Mr Gray in my view fails because I do not accept the fundamental premise of the submission, namely that the arrangement entered into in this case removes all managerial power from the Owners Corporation. 143 It seems to me that this again pays insufficient regard to the contractual restrictions on the exercise of the power of attorney (they being the obligation to act in good faith under clause 13.5 and the need for the exercise to be in the context of ensuring compliance with the Landlord's obligations, including compliance with reasonable directions as to voting at meetings). It does not seem to me to deprive the Owners Corporation of power to manage the strata scheme nor does it place the management of the finances wholly in Quest's hands. (The suggestion, for example, that Quest could utilise the power of attorney to strip funds out of the Owners Corporation seems to me to be inconsistent with the limitations on the power.) (f) Inconsistency with Executive Committee 144 In relation to the executive committee it is said that there is no provision in the Act in respect of the proceedings of the executive committee for voting by proxy, yet both clause 4 of the deeds of covenant and clause 13 of the leases purport to apply to meetings of the executive committee as well as to meetings of the Owners Corporation. Both are said therefore to be inconsistent with ss 16-20 of the Strata Schemes Management Act and schedule 3 part 1 clauses 2, 3 and 5. (It is further said that each would render the effective functioning of the executive committee impossible.) 145 I see no such inconsistency. The Act does not preclude voting in the executive committee by way of proxy (and, indeed, it may well be that voting in executive committees could, consistently with corporate committees, take place at times by alternates provided they were properly appointed). It seems to me that insofar as the Act leaves it to the executive committee itself to specify the procedures to be followed within committee meetings, the fact that a Landlord commits himself or herself to vote for certain purposes in a particular way (and to appoint a proxy or attorney to do so) does not involve any contracting out of the Act. 146 As far as the workability of the executive committee is concerned (by reference to the giving of directions from Quest or the like), the fact that the arrangements may be cumbersome is not of itself a reason not to enforce them. (Indeed the requirement that there be a reasonable direction, and that it be for one of the purposes specified in the clause, seems to me to be consistent with the policy underlying the 2008 amendments - namely that it is the overall abdication of authority to an entity connected with the original owner as part of the initial sale arrangements which is in issue; not a delegation of voting power for a specific purpose or purposes (even if to an entity connected with the original owner or as part of the initial sale arrangements). I note that Mr Van Aalst concedes that the good faith obligation in clause 13.5 extends to executive committee meetings as well. Public policy 147 A general complaint as to the relevant clauses was made on the basis that they were contrary to public policy, relying on what was said by Sully J in Eventang Development (Pyrmont) Pty Ltd v Owners Strata Plan 51573 [2001] NSWSC 452. There, his Honour said:

[49]

… it seems to me to be significant that s 245 of the Strata Act proscribes comprehensively any attempt to contract out of the provisions of the statute. This is consistent with the stated aims of the legislation, which are: to provide for the management of strata schemes; and for the resolution of disputes arising in connection with such management. Critical to the exercise of those legislative policy objectives is the orderly and consistent application of orderly and consistent requirements in the all-important areas of the vesting, and of the practical exercise, of proprietorial voting rights. An approach that had the practical effect of permitting an Owners Corporation or its Managing Agents, or particular owners or groupings of owners, to disregard the legislative requirements as to orderly and consistent voting principles and practices whenever it suited their convenience to do so, would be, in my opinion, an approach tending to undermine the public policy considerations which are clear from the comprehensive nature and scope of the legislation . (my emphasis) 148 It is said by Mr Gray that Mr Bailey and Quest have sought to disregard the legislative requirements governing voting by owners in the strata scheme because it "suits their convenience to do so", by (inter alia) attempting to exercise control of the executive committee and by insisting that Mr Bailey has the exclusive right to vote on behalf of Landlords even if they are present at a meeting and wish to exercise their vote. On that basis it is said that clause 13.2 and clause 4 are void for illegality and/or contrary to public policy and unenforceable. 149 I accept that the evidence indicates that Mr Bailey (and Quest) have taken a high handed and dogmatic approach to the ambit of the rights conferred by clause 13 of the leases (and clause 4 of the Deeds). It seems to me that they have done so without justification and that that stance has rightly been the subject of complaint by the Landlords. It is now openly disavowed by their Counsel. Nevertheless, there is nothing to suggest that Mr Bailey did not honestly believe that Quest's powers extended as far as he suggested that they did. 150 I do not accept that the clauses in question go so far as to be contrary to the public policy identified in Eventang as underlying the strata titles legislation. Rather, clause 13.2 in its operation is limited by clauses 13.1 and 13.5. There is not a wholesale abdication of responsibility by Landlords of the kind seemingly contemplated in Eventang. Nor are things permitted to be left to Quest to deal with 'at its convenience'. In my opinion, the potential for abuse of power is not the same as the power itself being an abuse or contravention of the Act. In circumstances where it seems to me that the power of attorney is limited for a purpose which is not inconsistent with the legislation (namely to permit the conduct of a business which it was anticipated would include a serviced apartments business and to ensure compliance with the lessee's obligations under the lease, none of which is otherwise suggested to be contrary to public policy) and which must be exercised by Quest in good faith, I do not find clause 13 of the leases or clause 4 of the Deeds contravenes or is inconsistent with the public policy underlying the Act. Summary re Strata Scheme invalidity/unenforceability arguments 151 In summary, therefore, I find that the clauses in question are not unenforceable or contrary to public policy as contended by the Landlords. (ii) Contracts Review Act 152 Under the Contracts Review Act, the court may grant relief in respect of unjust contracts where the court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made. 153 The matters to which the court is to have regard in determining whether a contract is unjust include whether there was any material inequality in bargaining power; whether or not the contract provisions were the subject of negotiations; whether or not it was reasonably practicable for the parties seeking relief to negotiate for the alteration of any of the provisions of the contract; whether or not the provisions of the contract imposed conditions with which it was reasonably difficult to comply or which were not reasonably necessary for the protection of the legitimate interests of any party to the contract. They also include those matters itemised in sub-ss9(2)(g), (h) and (i) - namely, the physical form of the contract and the intelligibility of the language in which it is expressed; whether or not and when independent legal or other expert advice was obtained by the parties seeking relief; and the extent, if any, to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the parties seeking relief and whether or not that party understood the provisions and their effect. 154 In addition to the factors set down in s 9(2), to which the court must have regard, to the extent relevant in determining whether a contract or a provision of a contract is unjust, s 9(1) provides that the court must have regard to the public interest and to all the circumstances of the case (West v AGC (Advances) Ltd (1986) 5 NSWLR 610, per McHugh JA, at 621). 155 In West v AGC at 620 McHugh JA recognised that a contract can be unjust "because of the way it operates in relation to the claimant or because of the way in which it was made or both." His Honour contrasted "substantive injustice", arising because the terms of the contract or its consequences or effects were unjust and "procedural injustice", arising because of the unfairness of the methods used to enter into the agreement, though recognizing that there could be both substantive and procedural injustice. At 621, his Honour observed that a contract could be "unjust" even if it not unconscionable, harsh or oppressive. However, it does not follow from the fact that a contract is unjust that relief will automatically be given (particularly where the injustice derives by reason of circumstances not known to one of the contracting parties). 156 McHugh JA (making it clear that what the Act regulates is contracts and not investments) said:

[59]

(c) The extent to which the provisions of the contract and its legal and practical effect were accurately explained and whether the provisions of the contract was understood (s 9(2)(1)). 171 It is said by Mr Gray that there was no or little advice given to the parties at the time of entry into the lease as to the effect of the power of attorney. To that I would add, it seems there was little or no interest by those of the Landlords who did give interest in what their arrangements might have been in that regard. The fact that they seem to have been content to ignore the content of the arrangements into which they were entering and to rely on whatever advice was given to them at the time does not point to any unconscionable conduct on the part of Quest in respect of which relief should now be given. 172 As to this, by way of defence to cross-claim filed 16 September 2009 Quest, amongst other things, pleads that each Landlord was independently represented and advised by respective legal representatives when entering into their contracts to purchase lots in strata plan; was or ought reasonably to have been aware that it was a condition upon which they and each of them severally acquired respective titles to lots that the whole of the common property was to be leased to Quest to conduct its business as serviced apartments; and that it was a condition of each lease that they would among other things (clauses 6.1.1, 6.1.2, 6.1.3) be bound by all covenants, terms and conditions imposed on them under and pursuant to the lease. Further, it is said that each Owner was aware or ought reasonably to have been aware that clause 13 had the express purpose of allowing Quest better to conduct its business from the whole of the premises within the strata plan. 173 Evidence was given by a number but not all of the Landlords and three were cross-examined by Mr Van Aalst. It would seem that all had at least the opportunity to obtain advice from solicitors at the time of entry into the transaction. Of the three who gave evidence and were cross-examined, I comment as follows. 174 Mrs Tracey Maile was a school teacher, as was her husband (who did not give evidence). They made a joint decision to purchase in the first place (T 8.47). They saw a solicitor. Mrs Maile said the solicitor did not take them through the documents in detail but gave them a copy of the lease and said that it was a standard Quest lease and there was nothing to be concerned about (T 9.14). Mrs Maile says that she read the lease when she purchased the unit (T 9.27). She knew that the investment involved a lease and she knew that the lease was contained in the contract. She accepted that she had no concerns about the lease at the time (T 11.1). Mrs Maile in her affidavit deposed that to the best of her recollection her solicitor did not go through the contract for sale of land and nor did say anything about the power of attorney nor proxy. 175 Mrs Lynette Naylor worked for some years as a Commonwealth public servant and at the time she entered into the contract, was an administrative team leader providing services to IT and HR and other departments within the Civil Aviation Authority. Although she and her husband had other investments at the time they acquired the property, they had no serviced apartments. Mrs Naylor indicated that she did not attach any importance to the lease (T 15.25). Her recollection was that it was straightforward, the property was leased through Quest and she would receive a set amount per month. She did not remember receiving any particular advice although in her affidavit she deposed to having been taken through the contract by her solicitor. The first time she applied her mind to it was when she received the letter from the solicitor. She did not recall having signed the cross-claim and did not recall having been party to the claim (and, indeed, was not certain whether she was challenging anything in relation to the claim) - though I place no weight on those as suggesting that there was any impropriety in the conduct of the proceedings, it perhaps is indicative of a lack of attention to any advice she may have been given at the time as to the lease arrangements - her evidence seems to have been that her focus was solely on the income which would be generated by the investment. 176 Mr Bernard White was also cross-examined. Mr White, who is a director of a number of companies but is not a company director by profession, had completed an SAB law course at Sydney University although had never been admitted as a lawyer and had never practised as a lawyer. His qualifications were in the area of intellectual technology (IT). Nevertheless, he said that "as best he could" he used his law degree in commerce and he said he had looked and read the contract. When asked if he had used his legal knowledge in so doing, he shrugged and said "yes". Mr White said he had looked at the lease and he saw and understood clause 13. In his affidavit, he deposed that, to the best of his recollection, he did not receive advice about the power of attorney or proxy appointment referred to in the lease, nor receiving any explanatory memorandum about the contract or lease prior to purchase. He appeared to accept that he had only had a problem after Mr Bailey acquired his shares and he agreed that he had had a conflict with Mr Bailey in relation to the management of the serviced apartments. He had no issue with the management at the time but said he was concerned to ensure that the Owners Corporation was managed in accordance with the Act. Mr White appeared to accept that his concern was that Quest had not properly given directions in relation to the exercise of the voting power. He accepted that his understanding was that if he was given reasonable directions by Mr Bailey, he would vote in accordance with those and regarded it as a moot point whether he would have a problem providing a proxy if he had received reasonable directions because he had never received reasonable directions. 177 I note that some of the Landlords did not give evidence (Mr Boban Kocoski, Mr Dabone Inthachanth, Mr Naylor, Mr Maile). I assume that they were therefore unable to provide any further evidence to assist their case that the clause was unjust in all the circumstances at the time. (While Mr Van Aalst further submitted that I could take into account that other lot owners not party to the proceedings had not challenged the leases in this regard, Mr Gray points out that it is Quest who determined against whom these proceedings should be brought and that nothing can be inferred from the fact that others did not give evidence. I accept that there is nothing to be drawn from the fact that other lot owners may not have complained about the validity of the power of attorney nor sought to have it revoked or set aside). 178 Whatever be the case with other lot owners, on the evidence before me it seems that all the Landlords had the opportunity to obtain legal advice and that they consulted solicitors (even if they chose to use that opportunity only for the purpose of arranging for the execution of the relevant documents and the necessary formalities relating to completion of the transaction). To the extent that they do not recall reading the contracts closely or what advice they may have been given, they appear to have been relatively unconcerned as to those matters and more concerned with their acquisition of the property as an investment. They are all educated people and, particularly Mr White who has legal qualifications, capable of determining whether they wished to obtain detailed advice as to the legal aspects of the transaction. There does not appear to have been any unconscionable conduct on the part of the vendor (or at least none was asserted) in marketing the properties nor was there any suggestion that there had been a refusal to enter into negotiations in relation to the terms of the contract or as to the transaction in general. 179 I am unable to see that there was any injustice in the contract at the time it was entered into, whether substantive or procedural. The nub of the present dispute appears to be that the Landlords consider that the building is not being properly managed and they have taken issue with the failure of Quest (or Mr Bailey) to take certain steps in relation to the management of the property or to issue formal directions in relation to voting at meetings (which would enable them to consider their position in relation to the matters in question). I have no doubt that the blanket terms in which Mr Bailey appears to have asserted (incorrectly) an ability to control the Owners Corporation has been a large contributor to the current dispute. However, Mr Bailey's misunderstanding as to Quest's rights does not of itself render the contract as entered into an unjust contract for the purposes of the Act.

[60]

(d) The commercial effect of the contractual provisions (as evidenced by the conduct of the parties) in relation to the performance of the contract since it was made (s 9(2)(l)). 180 It is said that, although headed an attorney clause, clause 13.1 of the leases is not in effect a power of attorney clause but purports to impose a contractual requirement on the Landlords to vote in accordance with reasonable directions of Quest, that having the commercial effect set out in the Landlords' submissions. In particular, it was said that there had been a notable absence of any reasonableness in relation to the exercise or purported exercise of powers under clause 13.1 and that this was a matter which could be taken into account when determining whether the contract was unjust at the time (on the basis, as I apprehend it, that it illustrated the potential for abuse of the powers contained in the lease in the first place). 181 Thus it is said that what was foreseeable at the time can be tested by reference to what has subsequently happened (and conversely that what has happened was entirely foreseeable). 182 (While Mr Van Aalst says, in this regard, that internal management problems are not pleaded and that the only case he came to meet was that the clause itself contravenes public policy and the Contracts Review Act claim, I note that these issues were raised in the context of the breach of good faith claim.) 183 The difficulty I have with Mr Gray's submission is that it does not seem to me that the terms in which this clause was cast are such as to make it by any means inevitable that an abuse of power would occur in its exercise and I do not accept that it was reasonably foreseeable at the time that it would (indeed it seems that there was a period of time in which no such complaints were made). Simply because it is open to a party to breach his or her contractual obligations or to exceed the powers given by contract does not make the relevant contract or power unjust. If that were to be the case then any contractual discretion would be open to similar complaint. There are safeguards or protections built into clause 13 by the limitations on its exercise (in clause 13.1 and 13.5). That they may have been ignored in the past does not mean that when the contract was entered into it must have been assumed that this would be the case. The contract does not in its terms enshrine or mandate any abuse of power so as to be unjust on its face.

[62]

(iii) Estoppel 185 Quest has alleged that, by entering into each contract and simultaneously granting leases, the Landlords represented to Quest that their relationship would be and remain governed well the covenants, terms and conditions of the leases; the powers conferred under clause 13 were intended to benefit and assist Quest to conduct its business; would not do anything or cause anything to be done to hinder, obstruct or prevent Quest exercising the power conferred under clause 13.2 and "implicitly they would do and cause to be done and perform by each of them all things reasonably necessary to be done and performed to enable to the plaintiff [Quest]… lawfully [to] have the benefit of exercising the right to act, attend and vote at all and any meetings of the Owners Corporation or at the committees of the Owners Corporation as provided in clause 13.2". 186 It is said that Quest was induced by the said representations and that, in reliance upon them, it committed itself to undertaking its investment to operate and operate the said business of serviced apartments and by reason thereof the cross-claimants are estopped by convention or alternatively by deed from denying that Quest was and remains entitled to have the benefit of all the covenants, terms and conditions in the leases. 187 True it is that most of the Landlords appear to have entered into Deeds under which they covenanted to appoint Quest irrevocably as their attorney in accordance with clause 13 of the leases. However, at that stage, Quest would seem already to have been committed to the leases and it is not clear that there was any detrimental reliance on the representations alleged. An estoppel by deed may well have arisen as to the matters the subject of the Deeds of Covenant but in circumstances where I have not found the clauses in question to be invalid it is not necessary me to consider this aspect of the matter. (iv) Breach of obligation of good faith 188 The Landlords have cross-claimed in the alternative that Quest has not acted in good faith and has not complied with its obligations to each of the cross-claimants under clause 13 of the leases. The relevant obligation must be the obligation of good faith (since there is no obligation as such that Quest issue a direction under clause 13.1 - just that if it does not do so there is no obligation on the Landlords to vote in any particular manner. 189 The affidavit evidence of Tracey Maile is that, prior to the letter of 6 March 2009, neither she nor her husband had ever received a request from Quest that they sign a proxy form or provide a s 118 Notice; and had not received notification from Quest or Mr Bailey that Quest required her to vote in accordance with a specific direction of Quest or of Mr Bailey at any meeting of the Owners Corporation or meeting of the Executive Committee (paras 60 and 61 Tracey Maile's affidavit 11 December 2009). To similar effect is Mr Keith White's affidavit 16 March 2010 (para 10). 190 It is submitted for the Landlords that Mr Bailey considered that, by virtue of having the benefit of the power of attorney, he could decide amounts to be raised by way of contribution to the administrative and sinking funds; appoint or dismiss the strata managing agent; choose the auditor; decide what repairs and maintenance needed to be done; sit on the executive committee; give orders to the strata managing agent as to the fund from which expenses were to be paid; have Quest pay bills and then seek reimbursement from the Owners Corporation; manage the Owners Corporation on the basis that lot owners merely had an investment and should leave management of the Owners Corporation to him; treat the administrative fund as his and the sinking fund as the Owners Corporation's fund; and run the Owners Corporation for the benefit of Quest rather than for the benefit of the Owners Corporation. At least the last of those matters might come close to a breach of good faith, if it were established that Mr Bailey had understood that it was not open to him to insist upon the right to take those steps. However, it seems to me that that has not been established. 191 The complaints by the Landlords as to the way in which Quest has managed the business to date do not seem to me to fall within the ambit of the claims before me. I am not satisfied that a misunderstanding of Quest's contractual entitlements, however forcefully that be asserted amounts to a breach of good faith. (It may of course be otherwise if, knowing that there are limitations on the exercise of the powers granted under the lease Mr Bailey continues to act in the manner he is said to have done in the past.) There is no suggestion that Mr Bailey or Quest has acted for some ulterior purpose or has used the powers other than in what they understood to be for the purposes of the serviced apartments business.

[74]

xii. As to the public policy argument more generally, I do not see that the effect of clause 13 is to permit particular owners or groupings of owners to disregard legislative requirements as to orderly and consistent voting principles and practices whenever it suits their convenience to do so for the purposes of Eventang . Rather, all of the Landlords, having acquired their units with a view to them being investment units and the serviced apartments business operating from those business, have agreed to a regime where, when necessary for the purposes of the business, to delegate the function of voting at Owners Corporation meetings and executive committee meetings to Quest, subject to the limitations which are placed thereon. 193 The fact that Mr Bailey appears to have misconceived (and been highhanded in asserting) the rights to which clause 13 of the leases or clause 4 of the deeds of covenant give to Quest is not the point in this regard; nor is it the point that there may have been deficiencies in the manner in which Quest has, through exercise of its powers of attorney to date, managed the sinking/administrative funds of the Owners Corporation. Remedy for those defects lies elsewhere. 194 Accordingly I do not conclude that clause 13.2 of the Quest leases or clause 4 of the deeds of covenant are void for illegality or contrary to public policy. I consider those provisions to be enforceable. 195 As to the Contracts Review Act claim, I consider that there is a distinction to be drawn between a contract or provision which of itself amounts to an abuse of rights or process and one which could if invoked in a particular fashion or exercised in a particular fashion amount to such an abuse. This is the latter. In fact, in its terms clause 13.2 is subject to significant limitations, it must be for the purposes provided in clause 13.2 which, by reference to clause 13.1 require it to have been exercised in support of a reasonable direction given by Quest for the purposes of securing performance of the Landlord's obligations and in the overall interest of enabling the tenant's business to be conducted. I accept that the tenant for this purpose is Quest and that is not the franchisee and that there is an argument that directions given to facilitate the operation of the business of the franchisee are not directions given for the purposes of facilitating the business of the tenant. Nevertheless, Quest has an interest in securing the compliance by the Landlord with its obligations and being in a position where, if it wished, it could assume the running of the business. Nevertheless it remains open under the lease for the tenant to conduct its In any event, it does not in my view lead to the clause being unjust simply because at a particular time in the term of the lease the clause may not be reasonably necessary for the immediate enjoyment of the rights of the tenant. There has been no unconscionable conduct suggested in relation to the entry into the documentation by which the Landlords subjected themselves to this regime and it seems to have been their decision not to take more complete advice in relation to the operation of the power of attorney arrangements under the leases. 196 I do not consider that s 7 of the Contracts Review Act is enlivened.

[75]

Relief 197 The court has a wide discretion to grant declaratory relief (Hanson v Radcliffe UDC [1922] 2 Ch 490, at 507; Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421, at 438; Ibeneweka v Egbuna [1964] 1 WLR 219, at 225; Re Judiciary and Navigation Acts (Advisory Opinions Case) [1921] HCA 20; (1921) 29 CLR 257; Ainsworth v Criminal Justice Commn (Qld) [1992] HCA 10; (1992) 175 CLR 564, at 581, per Mason CJ, Dawson, Toohey and Gaudron JJ; Forster v Jododex Australia Pty Ltd). Having said that, it is necessary, that there be a question before the court that is a real and not a theoretical question; the person raising it must have a real interest to raise it and there must be someone presently existing who has a true interest to oppose the declaration sought as judicial pronouncements ought not to be issued unless there are circumstances that call for their making (Forster v Jododex, at 435-436). 198 In relation to the utility of the declaration, this can be measured in terms of the effectiveness of the declaration in quelling the dispute between the parties and preventing further litigation. That is, it is considered it is generally inappropriate to grant declaratory relief if it will be inconclusive, in the sense that the proposed declaration would leave unresolved issues, with the parties still in dispute as to the consequences so that further litigation would be required to resolve the controversy (Commonwealth of Australia v BIS Cleanaway Limited [2007] NSWSC 1075, at [28], Brereton J). However, and as recognised in Meagher, Gummow and Lehane (4th ed), the fact that a declaration might not finally conclude the dispute between the parties can hardly ever be, of itself, a proper ground for not making a declaration. The authors (citing Hope J in Integrated Lighting & Ceilings Pty Limited v Phillips Electrical Pty Limited (1969) 90 WN (Pt 1) (NSW) 693) state that the likelihood of further litigation is something which should affect, but does not determine, the exercise of the court's discretion. 199 In the event, the declarations sought by the Landlords as to the illegality and/or unenforceability of the relevant clauses and the like are not open on the findings I have made. Other than in respect of the prefatory words there was no resistance by Quest to the making of a declaration in the terms claimed in paragraph C or F of the Cross-Claim and in light of the disputes which have arisen in the past there may be some utility in granting such declarations. 200 As to the declarations that have been sought by Quest, to the extent that they simply restate the relevant provisions I see little utility in making such declarations. Further, to the extent that they purport to address the position of any renewed term I do not consider it appropriate (in light of what I have said earlier) to make such declarations. I consider that it would be sufficient to make declarations in a more limited compass to address the disputes which have emerged as to the limitations on the exercise of the relevant powers (which largely do not seem to have been disputed by Mr Van Aalst) and to reflect the above reasoning. I set out below the declarations which I propose to make and will hear submissions from Counsel as to their terms and as to any further orders which should be made, including as to costs. 201 Accordingly, the declarations I propose to make are as follows: 1. A declaration that upon a proper construction of clause 13 in each of the registered leases entered into between Roseprop as lessor and Quest as lessee (identified in the schedule to the Amended Statement of Claim): (i) in the exercise of the power of attorney granted to it Quest is obliged to act in accordance with the obligations imposed by clause 13.5; (ii) Quest's right to exercise the said power is limited by the restriction that it be for the purposes of securing the performance by the Landlord under clause 13 (namely, that the Landlord vote in accordance at any particular Owners Corporation meeting or meeting of a committee of the Owners Corporation in accordance with a reasonable direction given by Quest); (iii) that a reasonable direction for the purposes of clause 13.1 is one which is for either of the purposes specified in that clause (namely that it be for the purpose of allowing Quest or others within the classes identified in that clause better to conduct such business as Quest may be conducting in the premises in accordance with the lease from time to time or that to ensure compliance with the Landlord's covenants under the lease); and (iv) in any event, any exercise by Quest of the said power must be in compliance with the requirements from time to time of the Strata Schemes Management Act 1996 (NSW) or other applicable legislation.

Quest Rose Hill Pty Ltd v White

At a glance

Court

Decision date

Before

Source

Judgment (79 paragraphs)

Parties

Legislation Cited (8)

Cases Cited (24)

Cited By (6)