Regis Towers Real Estate v The Owners - Strata Plan 56443 - [2002] NSWSC 1153 - NSWSC 2002 case summary

Supreme Court of NSW|2002-10-31|Before: Macready J

CITATION : Regis Towers Real Estate v The Owners - Strata Plan 56443 [2002] NSWSC 1153 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 5167/2001 HEARING DATE(S) : 23, 24, 25, 30, 31 October 2002 JUDGMENT DATE : 3 December 2002

PARTIES : Regis Towers Real Estate Pty Ltd v The Owners - Strata Plan 56443 JUDGMENT OF : Acting Justice Macready at 1

1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5167/2001 Regis Towers Real Estate Pty Ltd v The Owners - Strata Plan 56443. JUDGMENT 1 His Honour: This is the hearing of three separate questions in the present proceedings. The proceedings are complex and concern arrangements between the plaintiff, which was appointed as caretaker of a strata title complex in the city, and the defendant who is the owners corporation for the complex. The separate questions arise out of a further amended cross-claim filed on 2 October 2002 brought by the defendant against the plaintiff. In that cross-claim the defendant owners corporation raises questions of validity and illegality in respect of the written agreements between the plaintiff and the defendant under which the plaintiff was appointed the caretaker of the complex. 2 The separate questions which are before me are as follows: -- 1. Is the Deed dated 6 August 1999 as varied by the deed dated 17 October 2000 between the plaintiff and defendant ("The Management Agreement") void ab initio and/or unenforceable? 2. Whether any illegality of the Management Agreement is cured: (a) by the plaintiff/cross-defendant having obtained a licence under the Property, Stock and Business Agent's Act, 1941 in August 2002; (b) because of alleged representations made by Mr Bailey Compton, then employed by the Department of Fair Trading as to the licensing requirements for the Management Agreement. 3. Whether the cross claimant is required to enter into a further agreement with the cross defendant for services because of the alleged representations referred to in paragraph 23 of the First Amended Defence to the Further Amended Cross Claim and the operation of s 87 of the Trade Practices Act. 3 The representations referred to concern the necessity for the plaintiff to hold a strata managing agent's licence under the Property Stock and Business Agents Act 1941 (the "Agents Act"). It is suggested by the cross claimant that the two agreements dated 6 August 1999 and 17 October 2000 are void because of their illegality and also because they have not been entered into in accordance with requirements of the Strata Schemes Management Act 1996 (the "Strata Act"). Chronology of background events 4 The "Regis Towers complex" consists of three tower blocks known respectively as "Pitt Tower" of 29 stories, "Castlereagh Tower" of 35 stories and "Campbell Tower" of 29 stories erected on land bordered by Pitt, Castlereagh and Campbell streets in the city of Sydney. The complex contains 653 residential and commercial lots. There are common areas including foyers, car parks, service areas, barbecue facilities, three swimming pools, gymnasium, indoor golf range, saunas and spas, meeting rooms and squash courts. 5 Meriton Apartments Pty Ltd developed the complex. On 20 April 1999 Cesscut Pty Ltd entered into an agreement with Meriton Apartments Pty Ltd under which they paid $1,750,000 in order to acquire the rights to be the caretaker of the complex. The agreement provided for the developer to cause the owners corporation to appoint Cesscut Pty Ltd as caretaker in accordance with terms that were then agreed. Cesscut Pty Ltd changed its name to Regis Towers Real Estate Pty Ltd sometime shortly after the execution of this agreement. 6 John Emmanuel Rose and his wife Popi Rose are the shareholders in the plaintiff. Mr Rose is the only director of the plaintiff. His background is as a solicitor, having been admitted as a solicitor in 1986. Prior to that he was admitted as a barrister in 1985. As well as acquiring the caretaker and management rights there were also arrangements for the purchase by the plaintiff or other associated persons or bodies of some units in the complex. 7 In anticipation of the execution of the appropriate caretaker's agreement Mr Rose arranged to obtain what he was advised were the necessary licences. The evidence shows that he holds a real estate agent's licence which was issued on 1 June 1999 and is current until 31 May 2003. Since 5 August 2002 he has also held a strata managing agent's licence under the Agents Act and that is current until 31 May 2003. It is conceded that he did not hold a strata managing agents licence prior to 5 August 2002. 8 The plaintiff company held a corporation's licence under the Agents Act from 2 June 1999 and that is current 31 May 2003. The licensee in charge is nominated as Mr Rose. 9 On 21 June 1999 the first Annual General Meeting of the Body Corporate was held. Various resolutions were passed which led to the setting of levies and the constitution of the executive committee. It was also resolved that Bright & Duggan Pty Ltd be appointed as the owners corporation's managing agent and delegated functions to it for a term of three years on the terms and conditions set out in the management agreement that was tabled at the meeting. The management agreement provided for the delegation of all functions of the owners corporation other than the power to make a decision on a restricted matter within the meaning of s 113 and the power to make a delegation under s 26 of the Strata Act. 10 On 12 July 1999 there was held an Extraordinary General Meeting. That meeting by resolutions adopted a number of by-laws. Those by-laws gave power to appoint a caretaker manager on certain terms set out therein. The by-laws also gave exclusive use of reception areas and provided for non-competition with the caretaker who could also carry on business as a letting agent. 11 Immediately after the Extraordinary General Meeting on 12 July 1999 there was held a meeting of the executive committee of the owners corporation. There was a resolution passed authorising the execution of the management's rights agreement in the following terms: -- "Resolve that the strata managing agents, Bright & Duggan Pty Limited, be empowered to sign the Management Rights Agreement, immediately upon registration of the Special By-laws passed at the extraordinary general meeting, which had just been held." 12 On 16 August 1999 there was a further Extraordinary General Meeting of the owners corporation. There were resolutions to vary the terms of the by-laws that had previously been passed in a number of respects. In addition there were increases to levies and it was also resolved that amendments be made to item 2 in schedule 1 of the Caretaker Management agreement. That item dealt with the amount payable under the agreement and there was an increased from $520,000 to $676,000. The Caretaker Management agreement had not in fact been signed as at that date. 13 On 17 August 1999 the Caretaker Management agreement was executed. Although it is dated 6 August 1999 the parties are agreed that it was in fact executed and exchanged on the 17th after the Extraordinary General Meeting had approved the increase in the remuneration to be paid pursuant to the Caretaker Management agreement. By the agreement the owners corporation engaged the caretaker to perform duties set out in the agreement. The agreement was for initial term of 10 years with options to renew for three additional terms each of five years duration. It will be necessary at a later stage to consider the detail of the agreement in depth. 14 On 30 August 2000 the Annual General Meeting of the owners corporation was held. It was resolved at that meeting to amend the caretaker agreement between the owners corporation and the plaintiff as negotiated by the executive committee and set out in the revised caretaker agreement document tabled at the meeting. This led to the execution of the agreement dated 17 October 2000 between the plaintiff and the defendant. There was a variation to the original agreement in a number of respects including the detail of the duties to be undertaken pursuant to the caretaker's agreement. It will be necessary to consider the detail of this agreement at a later stage. Question 1. Are the deeds void ab initio and/or unenforceable? 15 The cross-claimant submitted that the deeds were void or unenforceable on two main grounds. The first concerned a defect in the appointment process. In summary the plaintiff's submissions on this aspect followed these steps:

(a) The management agreement appoints the plaintiff a strata managing agent of the scheme within the meaning of s 26 of the Strata Act 1996.

(b) The plaintiff is appointed as managing agent as the agreement delegates one or more functions of the owners corporation,

(c) Section 26 of the Strata Act does not give power to the owners corporation to enter into a management agreement except with a licensed strata managing agent and the plaintiff cross defendant did not hold such a licence,

(d) The owners corporation had no power to enter into the management agreement under s 27 of the Strata Act. That can only be done by resolutions of a general meeting of the owners corporation and this did not occur. Section 28 of the Strata Act requires that a delegation be authorised by a general meeting of the owners corporation and this also did not happen. 16 The cross-claimants submissions also were that there was illegality as the performance of the agreement was contrary to s 20 (3) of the Agents Act. That section is a prohibition on carrying on business as a strata managing agent without the relevant licence. 17 The cross-claimant relied on two earlier decisions of this court that dealt with the predecessor to the present legislation namely the present Agents Act and the Strata Titles Act 1973. The two decisions were firstly that of the Court of Appeal in Gillett v Halwood Corporation Ltd (1998) NSWSC 431 and the decisions of Owners Strata Plan No 51487 v Broadsand Pty Ltd [2002] NSWSC 770 a decision of Hamilton J. In the first case the Court of Appeal held that the provisions of the management agreement amounted to a delegation, which could only be made by the body corporate in general meeting and by instrument in writing. As these conditions were not fulfilled the body corporate did not become a party to the management agreement. In the second case there was no problem with the formalities for appointment and His Honour held that as the management agreement was a delegation in breach of the Strata Titles Act the agreement was void for illegality. 18 In order to understand the full effect of the submissions its necessary to look at the regime that replaced the provisions of the Strata Titles Act which was in force in both these cases. The present scheme is contained in the Strata Act and the Agents Act. The heart of the cross-claimant's submissions was that the caretaker agreement in its terms was a delegation of functions of the owners corporation. A key section in considering that proposition is s 13 of the Strata Act. That section is in these terms: -- 13. Owners corporation may employ persons to assist in exercise of functions (1) An owners corporation may employ such persons as it thinks fit to assist it in the exercise of any of its functions. (2) An owners corporation must ensure that any person employed to assist it in the exercise of a function has the qualifications (if any) required by this Act for the exercise of that function. Note. An owners corporation may employ such persons to assist it as, for example, caretakers and persons providing services to retirement villages. However, where a strata managing agent is appointed the appointment must be in accordance with Part 4. In addition, the Act requires certain functions to be performed by particular persons or persons having particular expertise. For example, section 24 places restrictions on the persons who can exercise functions relating to the finances and accounts of an owners corporation. (3) An owners corporation may not delegate any of its functions to a person unless the delegation is specifically authorised by this Act. 19 Here it is subsection (3) which is the core provision that prevents the delegation of functions unless specifically authorised. It is Part 4 of the Strata Act which contains specific provisions which authorise a delegation to a licensed strata managing agent. 20 The provisions of Part 4 of the Strata Act which authorised the delegation to a strata managing agent are sections 26,27 and 28. Those sections are as follows: 26. What is a strata managing agent? An owners corporation may appoint a person who is the holder of a strata managing agent's licence under the Property, Stock and Business Agents Act 1941 to be the strata managing agent of the strata scheme. Note. The Property, Stock and Business Agents Act 1941 defines strata managing agent as a person (whether or not such person carries on any other business) who, for reward (whether monetary or otherwise), exercises or performs any function of an owners corporation under this Act, not being: (a) a person who: (i) is the owner of a lot to which the strata scheme for which the owners corporation is constituted relates, and (ii) is the secretary or treasurer of the executive committee of the owners corporation, and (iii) exercises only functions of the owners corporation required, by the by-laws in force in respect of the strata scheme for which the owners corporation is constituted, to be exercised by the secretary or treasurer of that executive committee or by the owners corporation, or (b) a person who maintains or repairs any property for the maintenance and repair of which the owners corporation is responsible. 27. How is a strata managing agent appointed? (1) A strata managing agent is to be appointed by instrument in writing authorised by a resolution at a general meeting of the owners corporation. (2) An owners corporation may terminate the appointment of a strata managing agent in accordance with the instrument of appointment if authorised by a resolution at a general meeting of the owners corporation. 28. What functions of an owners corporation can a strata managing agent exercise? (1) An owners corporation may, by the instrument appointing a strata managing agent or some other instrument, delegate to the strata managing agent: (a) all of its functions, or (b) any one or more of its functions specified in the instrument, or (c) all of its functions except those specified in the instrument, but only if authorised to do so by a resolution at a general meeting and subject to subsection (3). (2) An owners corporation may, if authorised to do so by a resolution at a general meeting, revoke a delegation under this section. (3) An owners corporation cannot delegate to a strata managing agent its power to make: (a) a delegation under this section, or (b) a decision on a matter that is required to be decided by the owners corporation, or (c) a determination relating to the levying or payment of contributions. (4) A function delegated under this section may, while the delegation remains unrevoked, be exercised from time to time in accordance with the delegation. (5) A delegation under this section may be made subject to such conditions or such limitations as to the exercise of all or any of the functions, or as to time or circumstances, as may be specified in the instrument of delegation. (6) Despite any delegation made under this section, the owners corporation may continue to exercise all or any of the functions delegated. (7) Any act or thing done or suffered by a strata managing agent while acting in the exercise of a delegation under this section: (a) has the same effect as if it had been done or suffered by the owners corporation, and (b) is taken to have been done or suffered by the owners corporation. 21 Sections 26 and 27 explain the formalities for the appointment and s 28 permits a delegation by the owners corporation. Importantly, as also occurred in the former legislation, under s 28(6) there is reserved unto the owners corporation the ability to continue to exercise any of the functions delegated. 22 The cross-claimant's submission that the delegation of the function amounted to an appointment of a managing agent draws heavily upon the analysis of the earlier legislation by Priestley J. in the Court of Appeal. He was there considering s 78 of the Strata Titles Act and an important part of his reasoning process was that the Act did not define a managing agent. His Honour indicated that s 78 (1) indicated a two stage procedure which involves first the appointment of the managing agent and second a delegation to him of one or more of its powers, authorities, duties and functions. His Honour noted that managing agent is not a term which by itself carried a precise recognised meaning and undefined it may apply to a wide variety of contractual relationships. He noted that appointment without a delegation of any power would have no content and His Honour concluded that for the purposes of Part 4 Div 3 it was the delegation of some power, authority, duty or function which constitutes the delegate as a managing agent. His conclusion was expressed in these terms: "These considerations show, in my view, that step (i) of the apparent two step procedure is preliminary only, and of no effect until step (ii) is taken, and further that a Part 4 Div 3 managing agent becomes such by the delegation of one or more of the body corporate powers etc to him, her or it. " 23 There is no reference in the dictionary of the Strata Act to strata managing agent. The opening words in s 26 containing the question "what is a strata managing agent" have to be ignored as they are not part of the Act. See s 35 of the Interpretation Act 1987. The remaining words permit the appointment of a person who holds the appropriate licence. One seems to infer that a strata managing agent is a person appointed as such, provided he holds a strata managing agent's licence. Sections 26, 27 and 28 are part of a substantial restatement of the old s 78 in the Strata Titles Act. The two-stage approach is clearly maintained and there is a separation between the appointment of the strata managing agent and a delegation to him, her or it of functions. Under s 78 (1AA) the appointment of a person as managing agent was prohibited unless he held the appropriate licence. Section 26 conditions the appointment of a person as "the strata managing agent of the strata scheme" to one who holds a licence. This is a distinction of some substance in the new Act. It perhaps indicates a change in the method of appointment to make sure that only licensed agents can be appointed in contrast to the previous position where as a result of Gillett and Broadsand they are appointed, even if unlicensed, by the mere delegation of functions. 24 The reasons for the various changes in the Act were explained by the Minister for Fair Trading and Minister for Women in her second reading speech in the Legislative Assembly on 13 November 1996. In that speech she addressed the uncertainties in the existing Act in the following terms: One of the continuing uncertainties under the current Act is the extent to which a body corporate can go in having other organisations and individuals carry out its functions. There has always been some uncertainty about the effect of the present section 78, which only permits the delegation of powers, authorities, duties and functions of the body corporate to a licensed strata managing agent, as opposed to the present by-law 2. By-law 2, which is a mandatory by-law and cannot be altered, allows the council of the body corporate to employ others, as it sees fit, in connection with the exercise of the body corporate's functions. There is a view that these provisions contradict each other. The way these two provisions relate to each other certainly needs to be cleared up once and for all and I believe that the bill has done this and reflects the original intention of both provisions. It has been dealt with in this way. The body corporate's decision-making responsibilities under the legislation are important and are not meant to be made by anyone else. For instance the decision to paint the building or refurbish the foyer is one for the body corporate itself. A painter could not walk off the street and decide to paint the building on the body corporate's behalf. Only the body corporate has that decision making power unless it decides, or the Strata Titles Board decides, to delegate the decision-making power to a licensed strata managing agent. However, there is a difference between having the power to make a decision about painting the building and actually carrying out the work. The bill clarifies this separation. Only the body corporate or a licensed strata managing agent who has had the role delegated to him or her, and is accountable, can make the decision to paint the building. However, the body corporate can use the painter who walked off the street to do the work and the painter can decide how to go about the work. It will be clear that the body corporate, or, when it does not specifically restrict it, its council, can use appropriate persons including retirement village managers, property managers, caretakers, handypersons and others to assist it in its role under the legislation. However, it cannot shed its ultimate responsibilities to anyone other than a licensed strata managing agent. The main reason for strata managing agents having this status under the Act is that owners in strata schemes who use licensed agents are protected financially by the Property, Stock and Business Agents Act through the compensation fund. There are also education and competency requirements applying to licensed managing agents. 25 As can be seen from her concluding remarks the desire is to have only people who are actually licensed as strata managing agents as this gives to members of a strata scheme the benefits which flow from the licensing provisions. 26 The evident purpose of the change is to convert what merely might have been a breach of the old section into a condition precedent for the appointment to take effect. If this analysis is correct then it is not a delegation of functions which constitutes a person as the managing agent. What constitutes a person, as managing agent, is compliance with sections 26 and 27. 27 Support for this analysis comes from the terms of s 13 which in subsection (3) provides an express prohibition on the delegation of functions unless authorised by the Act. There was no such prohibition in the Strata Titles Act. This led to the construction of that Act by Priestley J in the way to which I have referred. 28 The scheme with which I am concerned, on this construction, if it were correct, is quite different from the one which was considered by the Court of Appeal in Gillett. Non-compliance with s 26 and s 27 means that no managing agent is appointed. In this case the management agreement expressly did not purport to be an appointment of a managing agent. This in my view is so notwithstanding the ingenuous arguments of the cross defendant about the terms of the by laws passed. That argument was rejected in the earlier cases due to the construction there adopted. 29 This does not mean that similar issues do not arise in the present case. If the terms of the management agreement in fact constitute a delegation of functions of the owners corporation then in such circumstances there would be non-compliance with s 28(1) and a breach of s 13 (3). This would raise questions of illegality, which is the second ground argued by the cross-claimant. The non compliance with s 28(1) would be in two respects, namely, delegation to a person who was not a managing agent and no approval by a resolution of a general meeting. These might raise interesting questions of construction and illegality but are probably otiose as s 13(3) is the obvious section to consider on the question of illegality. 30 In these circumstances it is necessary to turn to the terms of the first agreement to see whether there might be a delegation of functions by the owners corporation. This requires a consideration of what are the functions of the owners corporation. 31 Section 8 provides for the establishment of the owners corporation and states that it has the principal responsibility for the management of the scheme. Section 9 indicates that the owners corporation may be assisted in the carrying out of its management functions by either or both of the executive committee or duly appointed strata managing agent. Section 12 provides that an owners corporation has the functions conferred or imposed on it by or under the Strata Act or any other Act. It is s 61 that identifies the functions given to the owners corporation under the Strata Act. Section 61 is in the following terms; 61. What are the key management areas for a strata scheme? (1) An owners corporation has the control, management and administration of the common property of the strata scheme for the benefit of the owners. (2) The owners corporation has responsibility for the following: (a) maintaining and repairing the common property of the strata scheme as provided by Part 2, (b) managing the finances of the strata scheme as provided by Part 3, (c) taking out insurance for the strata scheme as provided by Part 4, (d) keeping accounts and records for the strata scheme as provided by Part 5. (3) Other functions of an owners corporation are included in Part 6. 32 Function is defined as "includes a power, authority or duty" in the dictionary. The use of the word functions in subsection (3) indicates that the matters in subsection (2) are what the Act describes as "functions". Thereafter the provisions of Parts 2, 3, 4, 5 and 6 give the detail of the functions. For example s 62(1) provides that an owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation. 33 If we return to s 13 it can be seen that subsection (1) allows the owners corporation to employ such persons as it thinks fit to assist it in the exercise of any of its functions. Subsection (3) permits the delegation of a function. The dichotomy that the section contains is a delegation of the function, one the one hand, in contrast to the exercise of that function by an owners corporation with the assistance of persons whether they be natural or corporate. In the Strata Titles Act 1973 by-law 2 in schedule 1 provided: "2. A council may employ for or on behalf of the body corporate such agents and servants as it thinks fit in connection with the exercise and performance of the powers authorities, duties and functions of the body corporate." 34 Section 13(1) is the replacement of by-law 2 under the old Act. The Minister in her reading speech to which I have referred explained the change in the following terms: "The old by-law 2 has now been included in the body of the legislation. Also, the previous reference to the council of the body corporate being able to employ servants and agents has been changed to refer to this function generally resting with the body corporate itself. The way it read before it seemed to imply that this role was reserved for the council only, which is totally inappropriate. It should be something for the body corporate to control. If it wants to let the council look after these administrative arrangements that is allowable, but any suggestion that only the council has these powers needs to be removed." 35 Although both s 13 (1) and the old by-law use the word "employ" there is a change of emphasis. Under s 13 (1) it is the owners corporation which is exercising a function and obviously, it being a body corporate, needs the assistance of others to exercise those functions. The function might be the maintenance function, a financial accounting function or any other given under the Act. The Act applies to owners corporations in respect of small and large complexes. The present complex is a very good example of the size of the task facing an owners corporation who has, for instance, to arrange for the cleaning of the premises. It could hardly be suggested that it was obliged to enter into contracts of employment on a master and servant basis with individuals to perform that function. There are many companies who contract to do such work and clearly the owners corporation must be able to engage such a corporation to assist in exercising its function. 36 The submissions of the cross-claimant referred to the common law test as to the status of an employee. Reference was made to Stevens v Brodribb Sawmilling Company Pty Ltd (1985) 160 CLR 16 and Hollis v Vabu Pty Ltd (2001) 207 CLR 21. Given the range of circumstances that might occur in the exercise of the function by an owners corporation it seems to me that detailed consideration of the word "employ" diverts attention from the primary matter which is whether the person or company so engaged is, under the agreement, assisting the owners corporation with its exercise of a particular function or whether the owners corporation has in fact delegated the function to the person so engaged. 37 This does not mean that notions of the degree of control exercised by the owners corporation over the person assisting are irrelevant but they are not the only consideration. The contract with the corporate garbage collector may give the owners corporation no control over how he performs his task. The owners corporation may have decided in the exercise of its function which touches upon garbage collection that the individual owner were to take some steps in this regard, such as putting out rubbish bins in a collection area on specific days. In such a case the correct characterisation may be that the exercise of the function occurred at the decision stage and the employment of the collecting company was only engaging assistance. 38 The terms of the 6 August 1999 agreement is annexed to this judgment. A perusal of the document indicates its structure. The recitals to the agreement are in the following form:

"A. The Owners Corporation has responsibility for the management of its strata scheme and has been authorised to enter into this Agreement with respect to the complex known as "The Regis" Cnr Campbell, Pitt & Castlereagh Street, Sydney.

B. To assist it in the performance of this responsibility, the Owners Corporation wishes to appoint a Caretaker.

C. The parties have agreed that for this purpose, the Owners Corporation exclusively will engage the Caretaker to perform certain functions, on the terms, set out in this Agreement." 39 Recital (b) notably uses the word "assist" and the defendants made a point about the fact that there is reference to the word "appoint" in contrast to the word "engage". Given the terms of the operative provision this is not of great consequence. 40 The operative provision which brings into play the range of duties which have to be performed is clause 1 which is in the following terms:- "The Owners Corporation engages the caretaker to perform the duties set out in schedule 2 in a conscientious, expeditious and workmanlike manner so as to maintain the common areas of the building and to permit them to be enjoyed to a standard appropriate to a residential development and the caretaker accepts the engagement upon the terms and conditions of this Agreement." 41 To the extent that the word "engage" is used this clause is thus, in introducing the main obligations of the caretaker, slightly different from that considered by Hamilton J in Broadsand. See paragraphs 3 and 30 of his judgment. Schedule 2 sets out duties in respect of caretaking, cleaning and concierge. It is the first of these that one finds in subparagraph (a): the duty to maintain and care for the strata scheme and attend to the gardening, cleaning and building maintenance of the building and common property. The general engagement which is made in clause 1 is thus split into three different areas of what are obviously different duties which need attention for the proper functioning of the body corporate. 42 There are a number of clauses in the agreement which deal with the control which is retained by the owners corporation under the terms of the agreement. The first of these is the concluding words to schedule 2 which are as follows:- "All of the foregoing activities shall be undertaken and carried out by the caretaker at the reasonable direction of the Owners Corporation and shall not be a delegation of any duty or obligation of the Owners Corporation. This agreement shall not operate as an appointment of the caretaker as a "Strata Managing Agent" under section 27 of the Strata Scheme's Management Act 1996." 43 It is plain that the statements at the end of this clause cannot change the characterisation of the agreement. See the cases referred to by Hamilton J in paragraph 24 of Broadsand. Importantly the opening words of the clause preserves for the owners corporation a substantial measure of control over the manner in which the works are carried out. 44 There are a series of other paragraphs which also preserve a substantial measure of control to the owners corporation. Paragraph 15 gives the owners corporation power to require the caretaker to dismiss or replace any employee or agent engaged by the caretaker in the discharge of his responsibilities under the agreement. Clause 27.1 and 27.2 concerning a corporate caretaker enable the owners corporation to keep control and approve the persons other than the principal shareholders or directors who are used to carry out the caretaker's duties and functions. No doubt before the caretaker was appointed the owners corporation satisfied itself as to the principal shareholders or directors. The clause imposes conditions designed to ensure that the owners corporation has sufficient information to exercise control over the people who do the work. 45 Clause 28 similarly is one which retains a degree of control over the caretaker where the caretaker is a natural person and obviously has to be absent during the period of annual leave of six weeks each year. 46 An important clause so far as control is concerned, is clause 15 which is in the following terms: "The Owners Corporation by written notice to the Caretaker may require that the Caretaker dismiss or replace any employee or agent (other than a shareholder or principal of the Caretaker) engaged by the Caretaker to discharge its responsibilities under this Agreement. The Caretaker shall do so as soon as possible after receipt of the notice. The Owners Corporation must act reasonably in exercising its discretion pursuant to this clause." 47 This is a clause which gives substantial control to the owners corporation. It extends not only to dismissing employees of the caretaker but also its agents. 48 Clause 21 in the agreement in Broadsand is similar to the concluding clause of the present agreement which I referred to above and it was considered by Hamilton J. In paragraph 30 His Honour commented on that clause in the following terms:- "Equally, the power to give directions in item 21 does not in my view indicate employee status; indeed the fact that it is included in the agreement suggests the contrary: directions could be given to an employee (as opposed to a contractor) without special stipulation. And the agent may in its own right engage persons for the provision of services for the performance of its duties: clause 3.3. The Court of Appeal has already pointed out in Gillett that the fact that a body corporate can retake complete control by termination of the contract in appropriate cases or by itself performing acts which fall within the scope of the contract under statutory power does not mean that the relationship is not one in which the wide discretion inherent in the role of an independent contractor is destroyed. The precautionary reservation in the agreement of a right to act does not have any different effect. In coming to the above conclusions I have taken into account all the terms of the agreement." 49 Both the parties in the present case and His Honour, Justice Hamilton, also referred to the principles to be applied in the construction agreement which were adumbrated by Gibbs J in Australian Broadcasting Commission v Australian Performing Right Association Ltd (1973) 129 CLR 99 at 109-110 as follows:- "It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority cited in Locke v Dunlop (1888) 39 Ch D 387, at p 393, which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case (1880) 16 Ch D 681, at p 686. Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, at p 514, that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, at p 437)."

50 His Honour referred to the fact that the power to give directions in item 21 is included in the agreement suggests to the contrary of employee status. To my mind, with respect, this avoids the question. His Honour seems to presuppose that there is something in the agreement that plainly makes it a delegation of functions by appointment of a managing agent and that these words seek to avoid that result. I would have thought that the appropriate way to approach this and the other clauses to which I have referred is the way in which the Chief Justice considers the matter of construction is to be approached. In particular one has to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. To do that one must take the words at their face value and place them along with all other words in the agreement in context and not imply some ulterior purpose which is not apparent elsewhere in the document. The fact that the words spell out an existing legal obligation in an employment situation is just as likely to be as a result of a desire to make that obligation apparent to the parties. 51 There is another clause in the main agreement which also assists in the construction. Clause 13 of the agreement is in the following terms: "The Caretaker must indemnify the Owners Corporation against liability for all loss, damage or injury to persons or to property caused by the negligence of the Caretaker or its employees or agents."

52 If there had been a delegation of a function to the caretaker then such a caretaker would be liable itself. The inclusion of this clause points strongly to there not being a delegation and for the reasons I have indicated above as to how one should approach the construction I do not see the inclusion of this clause as some internal inconsistency. It is just one other pointer indicating that there has not been a delegation of a function. 53 There are a number of indications in schedule 2 which also assist. The very detail in the schedule tells against a delegation in general terms of the function. Clause (a) is the obligation to maintain and care for the strata scheme. In the cross defendant's submissions it suggested that be obligations imposed by Schedule 2 are limited to repairs and maintenance for the following reasons:

"(a) Clause (a) specifically relates to maintenance and care;

(b) Clause (b) is limited to supervision - opposed to enforcement;

(d) Clause (d) requires the principal person to reside in the building;

(g) Clause (g) is limited to "arranging maintenance contracts" as reasonably instructed by the cross-claimant";

(h) Clause (h) permits the making of contracts, consistent with the intention of the parties to the 6 August 1999 CMA and subject to the cross-claimants approval.

(i) Each of clauses (i) to (ax) is limited to maintenance, repairs, inspecting or reporting.

(j) The cleaning duties specified in Schedule 2 are plainly maintenance duties;

(k) The concierge duties are consistent with maintenance. In a complex as substantial as the Regis Towers to assist in a maintenance function a caretaker manager would be required to arrange a concierge and security to prevent vandalism and unlawful entry to the building." 54 The cross defendant submitted that the duties of the caretaker in schedule 2 are thus limited to maintenance and repair activity. It was submitted that they do not give to the cross-claimant any discretion in relation to altering or changing in any way any of the property of the owners corporation. The duties it was said fit the example given by the Minister, namely, they require the caretaker to paint, maintain and repair but do not give to the cross-claimant any discretion to make any change to the property. I think that a little more analysis is required. 55 If one looks at particular functions such as to maintain and repair the common property there would be many incidents attached to the functions in relation to a large complex like the one with which I am concerned. Examples of the matters which come to mind are:-

(a) Cleaning (b) Minor repairs (c) Garbage removal (d) Supervision to prevent vandalism (e) Maintenance agreements on the lifts in the building (f) Maintaining the functioning of lifts and calling in contractors to repair problems (g) Upgrading as necessary lift services (h) Maintenance agreements for fire protection services in the building (i) Monitoring the functioning of fire protection systems and calling in contractors to rectify problems (j) Substantial repairs to deal with the ageing of the building (k) Repainting from time to time (l) Maintenance agreements concerning the security system in the building. (m) Monitoring the security system and issuing security passes to the residents. 56 Some of these tasks would be within the authority given by the caretaker agreement but many would not. Although it would be obliged to assist with the initial arrangement of the maintenance contracts in (f) (h) and (l) above (Schedule 2(g)) it could not enter into them and they would be at the cost of the owners corporation. Minor repairs (Schedule 2(ad)) are the responsibility of the caretaker but major matters such as (g) (j) and (k) above would not be the responsibility of the caretaker. 57 One thus has an agreement which gives only some of the powers necessary to maintain and repair the common property. The power to delegate in s 28 is quite specific. It includes the power to delegate any one or more of its functions. There does not appear to be a power to delegate part of a function. In these circumstances, the fact that the powers given under the agreement are not all of the powers which it is necessary to exercise in order to carry out a function, is a material consideration in determining whether there has by the instrument been a delegation of a function. 58 I would not have thought that precise identity is required but if it can be seen that there is a significant part of the functions that has not been dealt with in the agreement then this would be a factor which would tell against a construction that there had been a delegation of a function. 59 Section 61 (2) refers to the owners corporation having the responsibility for "maintaining and repairing the common property". It is arguable that each of "maintaining" and "repairing" is a separate function. On either construction there are significant powers which have not been vested in the caretaker. 60 Having regard to the whole of the agreement and the principles I have referred to I do not consider that is a delegation of functions or functions of the owners corporation. In these circumstances there is no breach of s 13 (3). The agreement of 17 October 2000 61 This agreement varied the agreement of 6 August 1999. It made changes to the remuneration and clarified some of the details of the arrangements in the earlier agreement. The details of the second schedule were changed in general by making matters more specific and giving greater control to the owners corporation. See for example the changes made to clause (h) and the more extensive cleaning duties set out in the schedule. 62 In my view the same conclusion follows and there is no breach of s 13 (3) of the Strata Act. Illegality 63 On my findings this does not arise. If there were a delegation of a function by the owners corporation which was not specifically authorised by the Strata Act then there would be a breach of section 13 (3). That section is merely a prohibition and we are not dealing with a case where the statute makes rights arising out of the transaction unenforceable in all circumstances. 64 The cross claimant in its submissions referred to section 20 (3) of the Agents Act which provides as follows: (3) A corporation shall not act as or carry on or advertise, notify or state that it acts as or carries on or is willing to act as or carry on the business of a real estate agent, a stock and station agent, a business agent, a strata managing agent, a community managing agent or an on-site residential property manager, as the case may be, unless the corporation has taken out a corporation licence and employs as the person in charge of its sole or principal place of business a person who holds a licence or licences of such one or more of the classes referred to in section 22 as may be appropriate. (3A) A real estate agent, stock and station agent, business agent, strata managing agent, community managing agent or on-site residential property manager need not hold more than one licence to perform lawfully any of the functions of the agent that are also functions of any other of those agents. (4) A person guilty of an offence arising under this section is, in addition to a penalty specified in section 87 (2), liable to a penalty not exceeding 1 penalty unit for each day on which the offence occurs. 65 That might be a separate area where illegality could occur in the performance of the agreement if it was a delegation of a function. However, the primary breach if one occurred would be in relation to s 13(3). 66 Reference was made by the defendants to Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410. At page 413 Gibbs CJ said: "There are four main ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful: (1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statue expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits." 67 Given the terms of the present Act if the agreements did in fact effect a delegation of the functions of the owners corporation illegality will arise in the second way indicated by His Honour. In these circumstances the fourth main way probably will not be relevant. Indeed the cross claimant in its initial submissions and in the conduct of the case indicated that the nature of the work that the plaintiff actually performed for the owners corporation was irrelevant as to whether or not the owners corporation appointed the defendant a strata managing agent by the terms of the management agreement. Although I admitted evidence of the way in which the work was performed by the cross defendant, in part as evidence of a breach of s 20(3) it seems to me that this is not relevant to the question of the primary illegality which arises in the second way indicated by His Honour. The first separate question which I have to determine is limited to the illegality of the deed and questions of performance of functions outside the scope of the powers given by the deed are not relevant. Ratification 68 There were arguments advanced by the cross defendant in respect of ratification in order to avoid the consequences of the failure to have the first agreement authorised by a resolution of the owners corporation. That question on my findings does not arise. Similarly questions of severance also do not arise and if they did would raise insuperable problems. Question 2. Was the illegality of the management agreement cured? 69 This question on my findings does not arise for determination. The matters in 2(b) were in the result not the subject of any evidence before me as the evidence was rejected at the admission stage for reasons which I then gave. Question 3. The representation case 70 This case was propounded in the event that the agreements were found to be void or illegal. It was suggested that there were representations via the cross claimant to the cross defendant that it was not required to hold a licence under the Agents Act to lawfully perform its obligations under the caretaker manager agreements. Given my findings that matter does not arise. 71 However, if I should note that the case as propounded had a number of bases. The first was reliance upon the statement in the agreements that the cross claimant was not delegating any function to the cross defendant. The second way it was said that there was a representation by conduct was because the appointment of Bright & Duggan as the strata managing agents and the provisions of clause 17 the caretaker agreement to the effect that the cross defendant was not to accept instructions other than from the strata managing agent was a representation that it did not delegate to the cross defendant any of its functions or duties. From both these propositions it was then suggested that this conduct was a representation to the cross defendant that it was not required to obtain a licence under the Agents Act. 72 It seems to me that that last logical step does not flow from the actual representations. There were many other difficulties with the representation case not the least of which were questions of reliance. The case ultimately propounded in submissions differed from the pleaded case which in part was a case of representation by silence. There was no appropriate evidence to link the knowledge by a relevant person who refrained from telling the plaintiff that matter. See Semrani v Manoun ; Williams v Manoun [2001] NSWCA 337. 73 In any event the question does not arise and, accordingly, I will not go in to the detail of these matters. Orders of the court. 74 The answers to the separate questions are as follows: 1. No. 2. Does not arise. 3. Does not arise. 75 I will hear submissions on costs at an appropriate time. **********

Last Modified: 12/10/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

Regis Towers Real Estate v The Owners - Strata Plan 56443

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