Santai v The Owners - Strata Plan No. 77971 - [2010] NSWSC 628 - NSWSC 2010 case summary

Carney v Herbert [1984] 3 NSWLR 85 Fitzgerald v FJ Leonhardt Pty Limited (1997) 189 CLR 215 Houghton v Immer (No. 155) Pty Ltd (1997) 44 NSWLR 46 Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 CASES CITED : Nelson v Nelson (1995) 184 CLR 538 Owners-Strata Plan No 56443 v Regis Towers Real Estate Pty Ltd (2003) 58 NSWLR 78 Owners Strata Plan No. 61643 v 183 on Kent Management Pty Limited [2007] NSWSC 281 White v Betalli (2006) 66 NSWLR 690 White v Betalli (2007) 71 NSWLR 381 Yango Pastoral Company Pty Limited v First Chicago Australia Limited (1978) 139 CLR 410

Santai Pty Ltd (First Plaintiff) PARTIES : Consolidated Domain Resorts Pty Ltd (Second Plaintiff) Casuarina Rec Club Pty Ltd (Third Plaintiff) The Owners - Strata Plan No 77971 - Santai (Defendant)

COUNSEL : E A J Hyde (Plaintiffs) J B Simpkins SC / P J Bambagiotti (Defendant)

SOLICITORS : Norton Rose (Plaintiffs) Leverage Australia Pty Ltd (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

2009/298685 SANTAI PTY LIMITED v THE OWNERS - STRATA PLAN NO. 77971 JUDGMENT 1 HIS HONOUR: The defendant (the Owners Corporation) is the owners corporation of a strata scheme known as the Santai resort. It has entered into some four agreements with one or other of the plaintiffs. The Owners Corporation has purported to terminate two of those agreements by written notice, and has made plain its intention to seek to terminate each of the agreements. The plaintiffs seek declaratory relief as to the validity and enforceability of the agreements, and (in respect of the two termination notices) injunctive relief to restrain the Owners Corporation from acting on those notices. The agreements and the issues 2 I will describe briefly each of the agreements, and set out what I understand to be the issues in relation to each of them. The caretaking agreement 3 The first agreement is a "Caretaking Agreement" made on 22 March 2007 between the Owners Corporation and the first plaintiff (Santai). That is one of the agreements that the Owners Corporation sought to terminate by notice. It is now common ground that:

(1) that agreement is a "caretaker agreement" for the purposes of s 40B of the Strata Schemes Management Act 1996 (NSW) (the SSM Act); (2) the termination notice dated 4 May 2009 given in respect of it was ineffective; and (3) the grounds of termination stated in that notice were and are unsustainable. 4 The issues for decision in relation to the caretaking agreement are:

(1) given the agreed state of affairs just set out (which reflects substantially but not wholly the issues arising on the "pleadings"), should the Court as a matter of discretion grant any, and if so what, declaratory or injunctive relief? (2) Alternatively, should the Court leave any questions to arise in respect of the caretaking agreement to the Consumer, Trader and Tenancy Tribunal (the Tribunal) pursuant to s 183A of the SSM Act? The letting agreement 5 On 20 December 2006, the Owners Corporation entered into a "Letting Agreement" with Santai. By that agreement, the Owners Corporation authorised Santai to provide "Letting Agent's Services" to owners of lots in the Santai resort. At the time the letting agreement was made, Santai did not hold any licence under the Property, Stock and Business Agents Act 2002 (NSW) (the Agents Act) that would authorise it to carry on a letting business as agent for those owners. It did not become the holder of the requisite licence until 8 December 2008. 6 The letting agreement was made pursuant to by-laws created on registration of the relevant strata plan. It was said to have been authorised by by-law 27.1(2). By-law 40.2 was also referred to in submissions. I shall set out the texts of those by-laws when dealing with the issues relating to the letting agreement. 7 On 4 May 2009, the Owners Corporation gave what purported to be a termination notice for the letting agreement. The grounds of termination relied upon related to the failure to be licensed from 20 December 2006 until 8 December 2008, and what were said to be consequent breaches of specified provisions of the letting agreement. 8 The issues relating to the letting agreement are: (1) is it a "caretaker agreement" for the purposes of the SSM Act? (2) Were the by-laws that authorised the making of the letting agreement invalid? (3) Is it illegal, because it contemplated that Santai would provide services to owners for which it was required to hold, but did not hold, a licence, so that any contract for the provision of services would breach the prohibition set out in s 9(1) of the Agents Act? (4) Did Santai give consideration for such rights as were granted to it by the letting agreement? (5) Was the termination notice valid (this issue overlaps with the issue of illegality under the Agents Act)? (6) Should the Court grant any, and if so what, declaratory relief?

The security services agreement 9 On 20 March 2007, the Owners Corporation entered into a "Security Services Agreement" with the second plaintiff (Resorts). By that agreement, the Owners Corporation engaged Resorts to provide "security services necessary for the security of Owners Corporation Property". 10 It was, at least at the conclusion of the submissions for the Owners Corporation, common ground that the security services agreement was not a "caretaker agreement" for the purposes of the SSM Act. 11 By the end of the hearing, the issue in relation to the security services agreement appeared to be whether it is a valid "employment" of Resorts pursuant to s 13(1) of the SSM Act, or whether it amounts to an impermissible attempt to delegate to Resorts any of the functions of the Owners Corporation. The facilities agreement 12 On 22 March 2007, the Owners Corporation entered into a "Facilities Agreement" with the third plaintiff (Club). By that agreement, Club agreed to give the Owners Corporation and owners of lots in the strata scheme (including their invitees and guests) the use of recreational facilities owned and maintained by Club near, but not adjacent to, the Santai resort. 13 It was common ground that the facilities agreement was not a "caretaker agreement" for the purposes of the SSM Act. 14 It was Club's case that the facilities agreement was authorised by by-law 22.1 or, alternatively, by by-law 27.1(4). I shall set out the texts of those by-laws when dealing with the issue in relation to the facilities agreement. That issue was whether those by-laws were valid. Issues as to the validity of the by-laws: general comments

The "pleadings" 15 The plaintiffs sought, in respect of each of the agreements, a declaration that it "remains on foot and binding on" the Owners Corporation. The bases on which that relief was sought were set out in an Amended Commercial List Statement filed on 14 August 2009. In essence, the amended list statement set out details of the agreements, of the notices given on 4 May 2009 purporting to terminate the caretaking agreement and the letting agreement, and of resolutions proposed to be put to an extraordinary general meeting of owners to be held on 10 July 2009. Those resolutions, which were passed, were to the effect that the Owners Corporation should proceed to terminate each of the agreements. The summons was filed the day before the meeting was due to be held. 16 The amended list statement asserted that Santai had performed its obligations under the caretaking agreement and the letting agreement, and that they had not been terminated by the notices of 4 May 2009. It asserted, further, that there were no grounds available to the Owners Corporation to terminate any of the agreements. In those circumstances, the amended list statement asserted, each of those agreements remained on foot and binding. 17 The Commercial List Response dealt with the allegations that were made. It raised a number of issues (some of which have been abandoned). Specifically, in relation to the termination notices, the list response asserted that the Owners Corporation "has withdrawn and/or abandoned the said termination notices". It therefore accepted that the caretaking agreement and letting agreement had not been terminated by those notices. Nonetheless, it did not concede that the grounds relied upon in those notices were invalid. Should the Owners Corporation be permitted to rely on invalidity? 18 The list response raised no issue as to the invalidity of the by-laws relied upon to support entry into the letting agreement and the facilities agreement. Mr J B Simpkins of Senior Counsel, who appeared with Mr P J Bambagiotti of Counsel for the Owners Corporation, submitted that it was not necessary to do so. That followed, he said, because the plaintiffs had "pleaded" that there were no grounds to terminate any of the agreements, and that each of them was valid and binding; and the Owners Corporation had denied those allegations. In those circumstances, Mr Simpkins submitted, it was the relevant plaintiff who bore the onus of proving all matters going to validity of each of the agreements. 19 Mr E A J Hyde of Counsel, who appeared for the plaintiffs, submitted that even if his clients bore the onus of proof, nonetheless any matter relied upon specifically in answer to the claims for relief that were made should have been specifically "pleaded". He submitted that he had been taken by surprise, and that, in respect of the facilities agreement, he would have sought to lead evidence had he been apprised of the issue as to validity of the relevant by-law. 20 This problem was resolved in a practical sense. Mr Hyde sought and was granted leave to adduce the evidence in question, and availed himself of that leave. As I understood his position, that dealt with the question of prejudice, because what remained was a legal issue, which he was in a position to meet. 21 In those circumstances, it is unnecessary to express a view as to whether it had been incumbent on the Owners Corporation specifically to flag, in its list response, the question of invalidity of the relevant by-laws. Since the question of prejudice no longer remains alive, there is no reason why the Owners Corporation should not be permitted to rely upon the "defence" of invalidity.

A discretionary argument in relation to declaratory relief 22 Mr Simpkins' primary position appeared to be, however, that the Court should not entertain the question of the validity of the by-laws. He submitted, correctly, that the validity of by-laws could be dealt with under the dispute resolution scheme established by Ch 5 of the SSM Act. By s 159, an "adjudicator" may make an order declaring a by-law to be invalid if the adjudicator considers that the Owners Corporation did not have power to make it. Alternatively, the adjudicator may refer an application for such an order to the Tribunal, if satisfied of one or other of the grounds set out in s 164 of the SSM Act. In addition, if the adjudicator himself or herself dealt with the application, an appeal would lie against the order made (s 177). Where the matter goes to the Tribunal, any question with respect to a matter of law could be referred to the Supreme Court; alternatively, if the Tribunal itself decides the matter, an appeal with respect to a matter of law lies to the District Court. 23 In those circumstances, Mr Simpkins submitted (notwithstanding that it was he who, in his written submissions, had raised the issue of invalidity), the Court should decline to deal with the questions of invalidity and should leave it to the parties to take the matter to the Tribunal if it were thought desirable to do so. 24 I do not agree. For better or for worse, the plaintiffs approached the Court in respect of what they perceived to be a threat to their rights under the various agreements. The Owners Corporation defended the claims for relief. In doing so, it raised the question of invalidity of the by-laws authorising two of the agreements. In my view, it would be inconsistent with the objectives stated in s 56 of the Civil Procedure Act 2005 (NSW) for the Court, having heard full argument on the issues, to decline on discretionary grounds to decide them. 25 Mr Simpkins raised a "floodgates" argument. He submitted that if the Court were to deal with the validity of the relevant by-laws, instead of leaving them to be dealt with through the statutory process, then it would encourage other parties to seek to bypass adjudicators and the Tribunal, and to have their disputes resolved by the Court. He relied on the proposition that the statutory process for dispute resolution was intended to provide "a very acceptable and low-cost opportunity for review" even for "complex contractual arrangements" (referring to the Second Reading Speech (Hansard, Legislative Assembly, 30 October 2002)). 26 The legislative purpose, as explained in the Second Reading Speech, is evident in the scheme of the legislation. I accept that the Court should recognise and give due weight to the legislative purpose. But in circumstances where proceedings have been regularly commenced in this Court, and where particular issues are raised, it is this Court's obligation to deal with the issues. See s 63 of the Supreme Court Act 1970 (NSW), which of course is to be read in conjunction with relevant provisions - specifically, s 56 - of the Civil Procedure Act. 27 The plaintiffs approached this Court because it is the appropriate forum for the resolution of the particular disputes that they wished to agitate. It cannot be said that they sought to bypass Ch 5 of the SSM Act. On the contrary, as I have said, it was the Owners Corporation that raised the relevant issue that is susceptible of determination under Ch 5 of that Act. I do not think that the particular circumstances of this case could be taken as opening the floodgates. My decision to proceed with the merits of the arguments relating to the invalidity of the by-laws in question is based on the particular circumstances in which those arguments have come before the Court. It should not be taken as giving some general licence to bypass the statutory scheme and raise such questions directly in this Court.

Issues relating to the caretaking agreement 28 What I have just said deals, to some extent, with the second issue - whether the Court should leave the matter to the Tribunal. I accept that the Court should not usurp the Tribunal's function, and I do not propose to do so. However, I see no reason why the Court should not grant declaratory relief, in respect of the termination notice and its grounds, if otherwise satisfied that it is appropriate to do so. 29 Mr Simpkins submitted that, in circumstances where the termination notice relating to the caretaking agreement had been withdrawn, there was no utility in granting declaratory relief. I do not agree. The terms of the list response dealing with the termination notice appear to have been carefully drafted, to avoid making a concession that the grounds relied upon were insufficient. I accept, of course, that things have moved on a little since then. However, in circumstances where there is clearly a degree of animosity between the parties, and where it is likely that disputes as to the caretaking agreement will end up in the Tribunal, it is important for the Court to ensure that abandoned issues are not revived. 30 Equally, it is important that the Court not grant any declaratory relief that would have the effect of circumscribing the Tribunal's role in dealing with any application that may be made to it, in respect of the caretaking agreement, under s 183A of the SSM Act. 31 I think that an appropriate balance would be struck by making declarations to the effect that the caretaking agreement is a "caretaker agreement" for the purposes of the SSM Act, and that the purported termination notice dated 4 May 2009 was ineffective. 32 I see no reason for granting injunctive relief, in circumstances where (notwithstanding what I have said as to the state of animosity between the parties) there is no present threat on the part of the Owners Corporation to terminate the caretaking agreement in reliance on the notice of 4 May 2009. Issues relating to the letting agreement

Was the letting agreement a caretaker agreement? The parties' submissions 33 Mr Simpkins, displaying admirable versatility, submitted that:

(1) by-law 27.1(2) was invalid because it was not made for "the regulation of the rights and responsibilities of lot owners, occupiers, or the owners corporation, in respect of the lots, or the lots and common property, for the strata scheme" (see White J in White v Betalli (2006) 66 NSWLR 690 at 697 [37(d)]).

(2) Alternatively, the letting agreement was a caretaker agreement because, by virtue of cl 4.1(14), (15) and (17), "Santai is given use of the Common Property… and is authorised to attend to … functions on the common property" (written outline of submissions, para 42). 34 Mr Simpkins submitted, as an alternative to the second argument just summarised, that the letting agreement was in any event a caretaker agreement simply because it was an agreement made with Santai and Santai was a caretaker because of the caretaking agreement. He relied on s 40B of the SSM Act. 35 Mr Hyde submitted that the letting agreement was not a caretaker agreement because, although undoubtedly Santai had exclusive possession of a lot, it did not, by the letting agreement, assist the Owners Corporation in exercising any of its relevant functions. Decision 36 Santai is entitled to exclusive possession of a lot in the strata scheme. It is a caretaker, for the purposes of s 40A of the SSM Act, because, pursuant to the caretaking agreement, it assists the Owners Corporation in one or other of the ways set out in s 40A(1). 37 In my view, for the reason given at [51] below, a caretaker agreement as referred to in s 40B(1) of the SSM Act is an instrument in writing appointing a person to be a caretaker. Thus, it is an instrument in writing appointing a person to assist an owners corporation in one or other of the ways set out in s 40A(1). 38 The suggestion that any agreement entered into with a caretaker is a caretaker agreement could lead to obvious absurdity. Suppose an owners corporation and a caretaker had a dispute, and agreed to resolve their dispute. Would the instrument in writing whereby they resolved it itself be a caretaker agreement, even if (for example) it provided only for the payment of a sum of money to the caretaker and for the release of all claims? It is very hard to see why this should be so: particularly when that agreement, even though made freely and on legal advice, would be susceptible of review under s 183A of the SSM Act. 39 It follows that the letting agreement is not a caretaker agreement simply because it was entered into between the Owners Corporation and someone who, at the time the letting agreement was made, was a caretaker. Is it a caretaker agreement because, by it, Santai assists the Owners Corporation in the exercise of one or more of the functions set out in s 40A(1)? In my view, the answer is "no". I shall explain why. 40 To the extent that Santai has any authority to manage the common property, or to control the use of common property by persons other than the owners and occupiers of lots, that authority is derived from the caretaking agreement. The letting agreement does not devolve any such authority onto Santai. That is so, even though the nexus between the letting agreement and common property forms a basis for my conclusion that the by-law authorising the making of the letting agreement is valid (see at [66] to [70] below). 41 A by-law authorising an owners corporation to make an agreement may be justified because the agreement contemplated has a sufficient relationship with common property, even though the agreement itself does not give the other party to it any right of management or control, or any obligation whatsoever, in respect of common property. The sufficiency of the nexus between the agreement and common property may be demonstrated not just from the agreement itself but from its context, including the nature of the activities authorised by it. On the other hand, if an agreement is to amount to a caretaker agreement, the relevant rights or obligations in respect of common property must be conferred by that agreement itself. 42 If, as I conclude below, the letting agreement has a sufficient nexus with common property so as to authorise the making of the by-law empowering the Owners Corporation to enter into it, that conclusion would be unaffected by the fact that Santai does in fact have the exclusive possession of a lot. Yet, on Mr Simpkins' first submission, the mere fact that Santai has the exclusive possession of a lot would transform the letting agreement into a caretaking agreement. If the letting agreement had been made between (say) the Owners Corporation and Club, it would not be a caretaking agreement even though it, and the hypothetical by-law authorising it, were in terms relevantly indistinguishable from the agreement and the by-law actually made. 43 Mr Simpkins submitted that his preferred construction should be adopted because there was to be discerned in the SSM Act some underlying policy that the obligations of caretakers should not be split up among several agreements, one of which was, and the others of which were not, agreements appointing a caretaker. It is not clear where that policy is to be found in the wording of the SSM Act. On the contrary, it seems to me, the legislature has gone to some lengths to control the appointment of caretakers, and to provide a statutory mechanism for resolving disputes relating to caretaker agreements (s 183A of the SSM Act). But it has given to owners corporations a wide power of making by-laws, and thus a wide power to enter into agreements authorised by those by-laws, without providing for the review of agreements thus made. 44 Perhaps more importantly, any such underlying policy is not infringed in the present case. That is because the letting agreement does not confer on Santai any obligation as a caretaker. On the contrary, it authorises Santai to do something which is quite distinct from the obligations that Santai has, as a caretaker, under the caretaking agreement. Discretion 45 Essentially for the reasons given in relation to the caretaking agreement at [29] to [32] above, I think that limited declaratory relief should be granted, but that injunctive relief should not be granted, in relation to the letting agreement. Were the by-laws invalid? Relevant terms of the agreement and the by-laws 46 By cl 4.1 of the letting agreement, the Owners Corporation authorised Santai "to provide a letting agency service… to the Owners". The things that Santai could do included such matters as taking bookings, agreeing on terms, collecting rents and the like. They also included the following: 4. Letting Agency 4.1 The Letting Agent is authorised to provide a letting agency service for the Property to the Owners which may include (without limitation) any or all of the following services; … (14) providing for the operation and location of vending machines in some or all of the floors of the Building; (15) operating and administering laundry facilities; … (17) use of those parts of the Common Property necessary to enable the Letting Agent to carry out these activities. 47 The Owners Corporation was authorised to enter into the letting agreement (if at all) by cl 27.1(2) of the by-laws. That reads as follows:

By-law 27 - Power of Owners Corporation to Enter into Other Agreements 27.1 Without limitation to its other powers, the Owners Corporation has the function to and the power and authority appoint and to enter into other agreements to provide for Services to the Common Property or Residents as necessary including but not limited to: … (2) an agreement and authorisation with a person or corporation to provide for the management of letting of Lots and ancillary services and amenities for some or all Residents and on an exclusive basis; …

48 By-law 40 dealt with the use of lots. It provided, by by-law 40.2, that lot 18 (which Santai owns, and of which it has exclusive possession) could be used for the provision of caretaking and letting services and other commercial purposes, and sought, by by-law 40.3, to prevent others from doing so from within the strata scheme: 40.2 Lot 18 (and/or other lot nominated by the Original Owner from time to time) may be used for the provision of caretaking and letting services and/or management office and/or day spa or any other commercial purpose determined by the owner of Lot 18 ("Caretaking Lot"). The owner or occupier of the Caretaking Lot will be the only person or entity that may carry on within the Strata Scheme the business of the caretaking of the Strata Scheme and/or the letting of lots in the Strata Scheme and/or the provision of ancillary services to the caretaking/letting business (all of which services are referred to in these By-laws as the management and letting services). 40.3 The Owner's Corporation will not allow any other person or entity to provide from anywhere within the Strata Scheme any of the management and letting services. Relevant provisions of the SSM Act 49 In Part 1 of the dictionary to the SSM Act, the word "caretaker" is defined to mean "a person described in s 40A as a caretaker". There is no definition of "caretaking agreement". 50 Sections 40A, 40B and 40C of the SSM Act deal with caretakers. They read as follows: 40A Who is a caretaker?

(1) A caretaker is a person who is entitled to exclusive possession (whether or not jointly with another person or other persons) of a lot or common property and assists in exercising any one or more of the following functions of the owners corporation for the strata scheme concerned: (a) managing common property, (b) controlling the use of common property by persons other than the owners and occupiers of lots, (c) maintaining and repairing common property.

(2) However, a person is not a caretaker if the person exercises those functions only on a voluntary or casual basis or as a member of the executive committee. (3) A person may be both a caretaker and an on-site residential property manager. (4) For the purposes of this Act, a person is taken to be a caretaker for a strata scheme if the person meets the description of a caretaker set out in this section, regardless of whether the title given to the person's position is caretaker, building manager, resident manager or any other title. 40B How is a caretaker appointed? (1) A caretaker is required to be appointed by an instrument in writing (a caretaker agreement ) executed before or after the strata scheme commenced by the caretaker and: (a) by the original owner, if executed before the strata scheme commenced, or (b) under the authority of a resolution passed at a general meeting of the owners corporation of the strata scheme concerned, if executed after the strata scheme commenced.

(2) Unless it expires or otherwise ceases to have effect earlier, a caretaker agreement (including any additional term under any option to renew it) expires: (a) at the conclusion of the first annual general meeting of the owners corporation, if the agreement was executed by the original owner, or (b) when 10 years have expired after it commenced to authorise the caretaker to act under it, in any other case. (3) The functions of a caretaker under a caretaker agreement may be transferred to another person only with the approval of the owners corporation. A person to whom those functions are transferred is taken to be appointed as a caretaker by the caretaker agreement.

(4) An owners corporation may terminate a caretaker agreement in accordance with its terms, and may approve a transfer of the functions of a caretaker, if authorised by a resolution at a general meeting of the owners corporation.

40C With which functions of an owners corporation can a caretaker assist?

(1) A caretaker may, in accordance with the caretaker agreement appointing the caretaker, assist in exercising one or more of the functions of the owners corporation of managing and controlling the use of common property (otherwise than by the owners or occupiers of lots) and of maintaining and repairing common property. (2) However, the owners corporation may continue to exercise all or any of those functions, subject to the caretaker agreement.

(3) A person is not a strata managing agent for the purposes of this or any other Act only because the person is a caretaker acting in accordance with a caretaker agreement. 51 It follows from s 40B(1) that a caretaker agreement is an agreement in writing by which a person who is entitled to exclusive possession of a lot or common property is appointed to assist in the exercise of one or more of the functions of the owners corporation set out in s 40A(1). 52 The power to make by-laws is found, principally, in s 43 of the SSM Act. It reads: 43 What can by-laws provide for? (1) By-laws may be made in relation to any of the following:

safety and security measures details of any common property of which the use is restricted the keeping of pets parking floor coverings garbage disposal behaviour architectural and landscaping guidelines to be observed by lot owners matters appropriate to the type of strata scheme concerned.

(2) Subsection (1) does not limit the matters for which by-laws may be made.

(3) The regulations may prescribe model by-laws which may be adopted as the by-laws for a strata scheme.

(4) A by-law has no force or effect to the extent that it is inconsistent with this or any other Act or law. 53 There are limitations on the power to make by-laws: see, for example, ss 49 and 50. It is not necessary to set out those sections.

The parties' submissions 54 As I have noted at [33(1)], Mr Simpkins submitted in substance that by-law 27.1(2) was invalid because there was no sufficient connection between it and the role or functions of the Owners Corporation. Mr Hyde submitted to the contrary.

Decision 55 White J stated in White at 696-697 [36] that the various subjects specified in s 43(1) were not exhaustive of the topics on which by-laws could be made. Having said that, his Honour observed at 697 [37] that the only limitations on the power to make by-laws were those found in the SSM Act itself, or any other relevant legislation, and the requirement that the by-law be made for a proper purpose and fall fairly within the concept of a by-law. His Honour explained the concept of a by-law in the terms on which Mr Simpkins relied as set out at [40(1)] above: [36] Section 43(1) of the Strata Schemes Management Act sets out matters in respect of which by-laws may be made. It is clear from s 43(2) that this is not an exhaustive statement of those matters. For example, all of the matters which may be the subject of by-laws made by an owners corporation can be included in the original by-laws, but without the restrictions which apply only to an owners corporation. Thus an original by-law could confer on a lot owner the right to occupy common property exclusively (as does by-law 21) (s 51-s 56). 56 His Honour's decision was taken on appeal (White v Betalli (2007) 71 NSWLR 381). The Court of Appeal, by majority, dismissed the appeal. The majority (Santow and Campbell JJA) gave separate reasons. At 389 - 390 [40], Santow JA set out what White J had said at [37]. Santow JA then referred to the Second Reading Speech and said, at 390 [42], that there was "a broad capacity under [the SSM Act] to create by-laws, subject only to there being no incompatibility or inconsistency with any Act or law". Santow JA did not pick up specifically what White J had said at [37(d)] as to the need for a by-law to fall fairly "within the concept of a by-law". 57 McColl JA (who would have upheld the appeal) referred at 402 [100] to what White J had said at [37]. Her Honour did not express a view as to what his Honour had said in subpara (d). 58 Campbell JA commenced by tracing at 418 - 419 [195] - [203] the etymology and history of by-laws. His Honour noted at 419 [204] that this "ancient notion" had been adopted "without definition or explanation" in this State when the legislature first enacted legislation dealing with strata titles. His Honour then said at 419 [205]: [205] There is nothing in the notion of a by-law that, of itself, imposes any kind of limitation on the kind of regulation that might be adopted, beyond that it is for the regulation of the particular community to which it applies. Any limitation on the type of restriction or regulation that can be a by-law must arise from the statute that enables the by-laws to be created, or from the general framework of statute law, common law and equity within which that local community is created and administered. 59 It is arguable that the views of the majority in the Court of Appeal, as to the width of the power to make by-laws, were even broader than the views expressed by White J. As I have noted, Santow JA thought that the power to make by-laws was limited only by incompatibility or inconsistency with other acts or laws. Campbell JA appeared to regard the limiting factor as coming either from any relevant statute or from the general legal framework, including applicable principles of equity and the common law, within which the strata scheme operates. Thus, a special resolution authorising a by-law (see s 47 of the SSM Act) may be struck down because it was, in all of the circumstances, a fraud on the statutory power to make it: Houghton v Immer (No. 155) Pty Ltd (1997) 44 NSWLR 46. 60 A by-law is, as Campbell JA said at 419 [205], something "for the regulation of the particular community to which it applies". The "particular community" for which an owners corporation may make by-laws is the strata scheme - that is to say, the owners of lots and the owners corporation itself. 61 Any limitations on the power of an owners corporation to make by-laws (I leave aside express limitations either under the SSM Act or under other legislation) must derive from a consideration of the legislative framework of the SSM Act as a whole. Under that framework, an owners corporation is established on registration of a strata plan for a strata scheme (see s 8(1) of the SSM Act). Once established, an owners corporation has vested in it the common property shown in the strata plan. See s 18(1) of the Strata Schemes (Freehold Development) Act 1973 (NSW) (SSFD Act). It holds that common property as agent for the proprietors of lots from time to time (see s 20 of the SSFD Act). Common property is to be dealt with in accordance with the SSFD Act and the SSM Act. 62 Further, once established, an owners corporation has principal responsibility for the management of the strata scheme (see s 8(2)). In aid of that responsibility, the owners corporation has functions conferred or imposed on it under the SSM Act and other relevant legislation (s 12 of the SSM Act). Those functions are spelled out in some detail in Ch 3, which deals with "key management areas". Section 61 says what those key management areas are: 61 What are the key management areas for a strata scheme? (1) An owners corporation has, for the benefit of the owners: (a) the management and control of the use of the common property of the strata scheme concerned, and

(b) the administration of the strata scheme concerned.

(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.

63 Thus, it seems to me, for a by-law to be valid, it must be fairly referable to the role of an owners corporation as "owner" of the common property or to its role as "manager" of the strata scheme. Reference to those roles picks up the functions of the owners corporation. In general terms, those functions include the key management areas set out in s 61. In more specific terms, they include the detailed duties and functions set out in Pts 2 to 6 of Ch 3 of the SSM Act. 64 Some support for this view is found in s 47 of the SSM Act. That section deals with the circumstances in which an owners corporation can add to or amend its by-laws. That may be done, by special resolution, "for the purpose of the control, management, administration, use or enjoyment of the lots or the lots and common property". I set out s 47: 47 Can an owners corporation add to or amend the by-laws?

An owners corporation, in accordance with a special resolution, may, for the purpose of the control, management, administration, use or enjoyment of the lots or the lots and common property for the strata scheme, make by-laws adding to, amending or repealing the by-laws for the strata scheme. 65 Of course, this case concerns by-laws established on registration of the relevant strata plan, not by-laws created by amendment of or addition to those original by-laws. But if amendment or addition can be justified because what is changed or added is associated with the control, management, administration, use or enjoyment of lots or common property, the criteria for assessing the validity of the original by-laws should be no narrower. 66 Whether one views the matter in those broad terms, or in the terms used by White J, the answer in this case seems to me to be clear. By-law 27.1(2) is valid, at least as an exercise of the power to make by-laws. It is clear that the letting of lots to individual holiday-makers will require that those holiday-makers have the use not only of the particular lot let to them but also of common property. It is equally clear that Santai, as letting agent, needs to be in a position, as agent of the owner whose lot is let, to exercise some contractual authority over the activities of holiday-makers. To take but one example: one would expect a letting agent in Santai's position to have the power, pursuant to the terms of a particular lease, to require tenants not to make a nuisance of themselves by obstructing pathways or driveways that are part of the common property, or by behaving excessively noisily at excessively late hours. 67 By-law 27.1 cannot be divorced from its context in the by-laws. That context includes by-law 40.2, which expressly contemplates that the lot owned by Santai (of which it had exclusive occupation) - lot 18 - would be used for, among other things, the provision of letting services, and by-law 40.3.

68 Those provisions of by-law 40 indicate that there is a nexus with common property, and indeed with lots. Mr Simpkins did not submit (for example) that the restrictive provisions of by-law 40.2 were invalid; indeed, he did not submit that by-law 40.2 itself was invalid. 69 No doubt, by-laws 27.1(2), 40.2 and 40.3 reflect the fact that the strata scheme was developed for use as a holiday resort. It would have been contemplated that many, if not most, of the lots would be let from time to time. One can understand why, in those circumstances, it was thought to be relevant to the strata scheme to have provisions in its by-laws regulating the provision of letting services. Quite apart from anything else, it would be in the interests of owners generally that the Owners Corporation should have the right to regulate the conduct of the letting agent, to the extent that this could be done through the mechanism of some agreement such as the letting agreement. Again, this indicates that there is a real nexus between the interests of owners and the management of the strata scheme on the one hand, and the by-laws in question on the other. 70 To put it another way, it seems to me that it was clearly open to the Owners Corporation to regard the relevant by-law (and its associated by-laws) as relating to the control, management, administration, use or enjoyment of lots and common property. There was no suggestion that the by-law was made in fraud of power, or in the exercise or effectuation of some improper purpose. The only suggested circumstance of invalidity was that the by-law was beyond power because it lacked a sufficient nexus with lots or common property. For the reasons that I have given, I do not accept that argument. 71 I conclude that by-law 27.1(2) has a sufficient connection with the functions of the Owners Corporation in its capacity as owner of the common property, or with lots and common property, to constitute a valid exercise of the power to make by-laws.

Illegality of consideration The parties' submissions 72 The submission that there was no consideration was withdrawn. Mr Hyde pointed to cl 4.17 of the letting agreement, which cast an independent and positive duty on Santai, as letting agent, to maintain certain records on behalf of the Owners Corporation. Mr Simpkins accepted that this promise constituted some consideration moving from Santai for the purposes of the letting agreement. 73 However, Mr Simpkins maintained his submission that the grant of letting rights was illegal because Santai did not, at the time, hold the requisite licence. He relied on s 9(1) of the Agents Act. I set out the whole of s 9: 9 Corporations require corporation licence

(1) A corporation must not act as or carry on the business of (or advertise, notify or state that the corporation acts as or carries on the business of or is willing to act as or carry on the business of) an agent unless the corporation holds a corporation licence. Maximum penalty: 200 penalty units.

(2) A corporation is not entitled to bring any proceeding in any court to recover any commission, fee, gain or reward for any service performed by the corporation as an agent unless the corporation was the holder of a corporation licence at the time of performing the service. 74 Mr Hyde submitted that there was no necessary illegality. It had been open to Santai to obtain the requisite licence before it began to provide, or to hold itself out as willing to provide, letting services. Further, he submitted, to the extent that the provision of letting services was illegal, it was a matter arising not under the letting agreement but under individual agreements between Santai and owners. 75 Mr Hyde submitted, more fundamentally, that where the statute spelled out the consequences of contravention of the prohibition, and did not evince any intention to strike down agreements that contravened s 9(1), the Court should not hold the letting agreement to be illegal and void simply because (to the extent that it happened) Santai did provide letting services, and hold itself as willing to provide letting services, in contravention of s 9(1). The relevant principles 76 Many cases have considered the consequences of making a contract that is affected by illegality. It is convenient to start with the decision of the High Court of Australia in Yango Pastoral Company Pty Limited v First Chicago Australia Limited (1978) 139 CLR 410. That case concerned the consequences of a statutory prohibition on a body corporate's carrying on banking business in Australia unless possessed of an authority to do so. The respondent carried on an unauthorised banking business. In the course of that business, it lent money to the first appellant, and received in exchange a mortgage. The other appellants gave guarantees to the respondent of the first appellant's liability. The High Court held that neither the mortgage nor the guarantees were void or unenforceable. 77 Gibbs ACJ described at 413 the ways in which the enforceability of a contract may be affected by a statutory prohibition rendering particular conduct unlawful. His Honour said that:

(1) the contract might be one to do something forbidden by the statute.

(2) Alternatively, it might be a contract prohibited (expressly or impliedly) by the statute.

(3) Again alternatively, a contract, although lawful on its face, might be made to effect a purpose rendered unlawful by statute.

(4) Finally, a contract, although lawful according to its terms, might be performed in a manner prohibited by statute. It is clear that his Honour did not intend that elaboration to be exhaustive.

78 Gibbs ACJ then moved to the consequences of illegality. He said (again at 413) that the general rule was that where a contract was expressly or impliedly prohibited by statute, it was void and unenforceable. His Honour recognised that there might be "rare" cases where a contract could be valid and enforceable notwithstanding that it was forbidden by statute. But in all cases, "the test is whether the contract is prohibited by the statute". His Honour recognised that where a statute imposed a penalty on the making or performance of the contract, the question of construction arose of whether the statute intended to render the contract void and unenforceable, or whether it intended only to inflict the penalty. 79 Mason J (with whom Aickin J agreed) wrote to similar effect at 423. In dealing with the question of construction, Mason J noted at 426 that where a statute imposes a penalty for contravention of an express prohibition against carrying on a business in breach of the prohibition and a person carries on that business in breach of the prohibition and enters into contracts, the question arises whether the statute intends only to penalise the contravener, or to go further and prohibit, so as to render void, contracts so made. At 429, his Honour said that "[t]here is much to be said for the view that once a statutory penalty has been provided for an offence the rule of the common law in determining the legal consequences of commission of the offence is thereby diminished". 80 The decision in Yango Pastoral was considered in Hurst v Vestcorp Ltd (1988) 12 NSWLR 394. Kirby P at 411 summarised the principles emerging from Yango as follows: 1. The fact that a transaction is made which results from or involves a breach of the requirement of statute may result in a conclusion that the transaction itself is illegal such that, to give effect to the statute, a court will decline to enforce the transaction or will treat it as void;

Such a result will not, however, always follow. Because statutes rarely provide, in terms, for the effect of the breach of their provisions upon such transactions, it is for the court, in applying the potentially crude instrument of the doctrine of illegality, to determine the imputed legislative intention. It must do so from the language, history and apparent policy of the statute: the court necessarily filling the gaps left by the legislature;

In reaching its conclusion, the court will consider the extent to which the statute itself already provides adequately for securing the attainment of its apparent objects and for punishing breaches of and non-compliance with its terms. It will also have regard to the possible consequences upon innocent third parties of a rigorous application of the principles as to illegality; and

Because of the sometimes drastic consequences of the application of the doctrine of illegality upon transactions, the proscription may not be extended beyond those transactions which are clearly in breach of the statute, lest, by casting the net more widely, serious injustice may be done to third parties beyond that necessary to give effect to the presumed legislative intention. 81 The decision of the High Court in Fitzgerald v FJ Leonhardt Pty Limited (1997) 189 CLR 215 provides another illustration of the applicable principles. In that case, the work carried out by the respondent (which was licensed to carry out that work) for the appellants was illegal only because the appellants, whose responsibility it was to obtain the requisite permit, had failed to do so. 82 Dawson and Toohey JJ referred at 218 - 219 to what Gibbs ACJ had said in Yango Pastoral at 413. Their Honours concluded that, in the case under consideration, the first three instances were inapplicable, so that the contract could only be illegal if it fell into the fourth category. Their Honours said of that category, at 219, that it "does not stand for the proposition that a contract which is itself legal, will be unenforceable if something illegal is done in the course of its performance". 83 At 220, their Honours pointed out that although performance of the contract meant that the appellants - the landowner - committed an offence, the manner of performance did not turn it into a contract forbidden by the relevant statute. 84 McHugh and Gummow JJ considered illegality from 226. Having noted that the contract did not in terms call for the commission of any illegal act, and that the statute did not prohibit any particular act that was essential for the performance of the contract, their Honours said that performance could have been legal if the appellants had obtained the relevant permit. Thus, their Honours said, it was possible for the contract to have been performed without contravening the statute. 85 Against that background, McHugh and Gummow JJ said, at 227, that the relevant question was whether public policy required that the contract should not be enforced "because of its association with the illegal activity of the owner in, if not causing, then at least suffering or permitting the construction and drilling of bores… without the grant… of permits". That required consideration of "primarily… the scope and purpose of the statute to consider whether the legislative purpose will be fulfilled without regarding the contract as void and unenforceable." 86 McHugh and Gummow JJ said, at 228, that the case before them was not one of an unlicensed person seeking to recover payment for work done in contravention of the relevant statutory prohibition. The appellants' breach of the relevant legislative prohibition had an insufficient association with the statutory requirement so as to deprive the respondent of its right to payment for the work. 87 At 230, their Honours approved the formulation of McHugh J in Nelson v Nelson (1995) 184 CLR 538 at 613: …Courts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless: (a) the statute discloses and intention that those rights should be unenforceable in all circumstances; or (b) (i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct; (ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and (iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies. 88 McHugh had noted in Nelson that "[e]lements (ii) and (iii) may often overlap." 89 It is unnecessary to go to the many other cases that have considered the question of the impact of illegality on a contract. One needs to look at the terms and effect of the statutory prohibition, taking into account whether any penalty is prescribed, and ask whether the contract falls within the statutory prohibition or, alternatively, whether it requires the doing of some act that is the subject of the statutory prohibition, or cannot be performed without doing that which the statute prohibits. Decision 90 In this case, the relevant contract is the letting agreement. By that agreement, as the "Introduction" states, the Owners Corporation authorised Santai "to provide the Letting Agent's Services from the Scheme land for the benefit of Owners of lots in the Scheme". That authority was given by cl 4.1, which specified that Santai was "authorised to provide letting agency services for the Property to the Owners which may include (without limitation) any or all of" the seventeen specified services that followed. Clause 4.2 noted that Santai could perform those services personally or could engage, at its own cost, "other appropriately qualified service contractors" to do so. Santai did not in terms undertake or promise to provide those services; this indeed was a point on which Mr Simpkins had relied in support of the withdrawn submission that Santai gave no, or merely illusory, consideration. 91 Returning for a moment to the four instances of the impact of statutory illegality on a contract given by Gibbs ACJ in Yango Pastoral at 413:

(1) the Agents Act did not forbid the Owners Corporation to give Santai the authority to provide the relevant services to owners;

(2) the Agents Act says nothing at all about the making of contracts such as the letting agreement, and accordingly cannot be said expressly or impliedly to prohibit it;

(3) it was not suggested that the parties intended that Santai should provide letting services without holding the requisite licence; on the contrary, cl 4.3 required Santai to comply with all relevant statutory and other requirements, and cl 10.1(1) provided that the letting agreement could be terminated if Santai ceased to hold any required licence; and

(4) to the extent that the letting agreement involves any "performance" by Santai, it was open to Santai to perform in a lawful manner by holding, or ensuring that any subcontractor held, the requisite licence. 92 In my view, there is no necessary illegality in the letting agreement. It did not provide for illegal performance, or require the performance of any illegal act. On the contrary, it required that Santai should hold all necessary licences (cl 4.14(2)) and should comply with all applicable laws in performing its duties (cl 4.14(1)). 93 The parties intended that Santai should comply with the law when it exercised its privileges to the letting agreement. There is no reason to think that this aspect of their agreement was a sham. That suggestion was not put in submissions; nor could it have been put in circumstances where it had not been put to the plaintiffs' witness Mr Arnold. 94 It was open to Santai to perform its duties as letting agent in accordance with all relevant legal requirements. If, for a time, it did not do so, that was not because of any provision of the letting agreement. The letting agreement is not necessarily inconsistent with lawful performance by Santai of its obligations as a letting agent. Nor does it necessarily require the performance by Santai (or anyone else) of an unlawful act. On the contrary, as I have shown, the letting agreement required Santai's services to be provided lawfully. 95 In my view, the situation is directly analogous to the suggested illegality, as to payment, considered and rejected by the Privy Council in Carney v Herbert [1984] 3 NSWLR 85; see in particular at 96. 96 If there were any illegality, it occurred not in the performance of the letting agreement, but in the performance of individual contracts made between Santai and owners whilst Santai was unlicensed. I do not think that any such illegality ought be, as it were, reflected back into, so as to invalidate, the letting agreement. 97 It is therefore unnecessary to consider, as the parties urged me to do, whether an agreement that necessarily required breach of s 9(1) of the Agents Act would be not merely illegal but void. The termination notice 98 As I have said already, the termination notice has been withdrawn, and it appears to be common ground that it was not validly given. Essentially for the reasons given above in relation to the termination notice for the caretaking agreement, I think that it is desirable to make a declaration as to the lack of effect of the termination notice for the letting agreement. Further, in case the same arguments are raised in the future, I should say why the grounds relied upon for termination were unsustainable. The Owners Corporation relied, first, on cl 10.1(1) of the letting agreement, dealing with the consequences of Santai's ceasing to hold a licence. The concept of ceasing to hold something suggests that there was a pre-existing state of affairs in which that thing was held. In this case, Santai held no licence from 20 December 2006 until 8 December 2008. It is a misuse of language to say that, because Santai never held a licence in that period (or, on the evidence, before that period commenced), it "ceased" to hold a licence during that period. 99 The other ground relied on was said to be based on cl 14.4: apparently, an erroneous reference to cl 4.14. That clause required Santai to comply with all relevant legal requirements and to hold any requisite licence. Undoubtedly, Santai breached its obligations under that clause during the period in question. But that did not render the letting agreement "void ab initio" (as the termination notice stated) or, indeed, void at all. It may well have been a breach of contract. It may well have entitled the Owners Corporation to give notice under cl 10.1. But a breach of contract does not, of itself, mean that the contract is or becomes void. 100 Further, if there were a breach of contract that could be characterised, in terms of cl 10.1(2), as "a fundamental breach", the consequence was that the Owners Corporation was required to give written notice, and allow 21 days for the breach to be rectified, before it could proceed to termination. The termination notice truncated that process by failing to give any opportunity for rectification. The security services agreement 101 As the case was argued, the only issue in relation to the security services agreement is whether it constituted an impermissible delegation of the functions of the Owners Corporation. It is common ground that the security services agreement does not amount to a caretaker agreement for the purposes of the SSM Act. In those circumstances (there being no suggestion that Resorts was a strata managing agent, or that the security services agreement purported to appoint a strata managing agent), the security services agreement could be justified, if at all, as an "employment" of the kind authorised by s 13(1) of the SSM Act. The relevant principles 102 Section 13(1) of the SSM Act provides that "[a]n owners corporation may employ such persons as it thinks fit to assist it in the exercise of any of its functions". By sub-s (3), "[a]n owners corporation may not delegate any of its functions to a person unless the delegation is specifically authorised by this Act". It follows that there is a distinction drawn between, on the one hand, employment and, on the other, delegation. 103 Section 13 was considered by the Court of Appeal in Owners-Strata Plan No 56443 v Regis Towers Real Estate Pty Ltd (2003) 58 NSWLR 78. In that case, Hodgson JA (with whom Handley and McColl JJA agreed) said at 91 [28] that s 13(1) authorised the engagement of contractors to contribute to the performance of the owners corporation's functions. His Honour said that the word "employ" did not restrict an owners corporation "to setting up a master/servant relationship". 104 At 91[29], Hodgson JA said that s 13(3) prohibited the engagement of another "to undertake significant decision-making and control in relation to the various areas of responsibility of an owners corporation". In the context of the agreement under consideration in that case, his Honour said the following at 91 - 92 [30]: [30] Turning to the deed in this case, in cl 1 it requires the performance of duties, rather than giving a general authority to make decisions or exercise control. The cleaning methods and schedules are left to the contractor, at least in the original agreement: however, in my opinion this is still fairly regarded as the carrying out of tasks rather than decision-making or control. The deed also requires repairs to be reported (par (f)), contracts made as "reasonably instructed" by the owners corporation (par (g)), and orders to be placed "subject to the approval of the owners corporation" (par (h)). Furthermore, all reasonable requests and directions of the owners corporation are to be complied with (par (i), final paragraph of Sch 2). Clauses 10, 15, 17 and 26.3 tend to confirm the control of the owners corporation. 105 I set that out because, although (as I said in the Owners Strata Plan No. 61643 v 183 on Kent Management Pty Limited [2007] NSWSC 281 at [55]) there is no bright line dividing test between employment and delegation, his Honour's analysis indicates how one approaches the task of deciding into which category particular agreements may fall. In essence, as I understand his Honour, the question is whether the engagement requires the person engaged simply to do what the owners corporation says, or whether it gives the person engaged a significant role to make decisions and control the performance of the activities in question. The parties' submissions 106 In this case, Mr Simpkins pointed to the broad and non-specific statements of the duties required to be performed under the security services agreement: the provision of "[s]ecurity services necessary for the security of Owners Corporation Property". As he noted, there was no direction whatsoever as to the content of the services to be provided, or the manner of their provision. Further, Mr Simpkins submitted, there was no requirement that Resort should perform or provide the services in accordance with the directions of the Owners Corporation. 107 Mr Hyde did not really grapple with this problem. He did refer to cl 5.1, as containing some implication that the Owners Corporation could give directions to Resort in relation to the services. But he did not address what I might call the Regis Towers test. Decision 108 In my view, the security services agreement does amount to an impermissible delegation of the Owners Corporation's functions. I have no doubt that the functions of an owners corporation may extend to making appropriate provision for the security of the property of the strata scheme. I have no doubt that, pursuant to s 13(1), an owners corporation may employ people to assist it in the performance of that function. But the characteristic of employment under s 13(1) is that the owners corporation retains responsibility for decision-making, and control of the activities. In this case, it is left to the complete discretion of Resort as to what services should be provided, and how and by whom they should be provided. The only relevant qualification on the width of the discretion given is that the services should be "necessary for the security of Owners Corporation Property". 109 Clause 5.1 does not require or indicate that the services are to be provided at the direction and under the control of the Owners Corporation. Clause 5.1 is facultative, in that it says who from time to time may give directions. It says nothing as to the content of directions that may be given. 110 Accordingly, as I have said, I conclude that the security services agreement is an impermissible delegation of the Owners Corporation's functions. It follows that the declaration sought in relation to the security services agreement should not be made. 111 At one stage, Mr Simpkins appeared to suggest that I should declare that the security services agreement was void. However, Resort did not file a cross-claim seeking that relief, and I see no reason to grant relief to a party that has not sought it. The appropriate order is, relevantly, to dismiss the prayer for declaratory relief in respect of the security services agreement. The facilities agreement Relevant provisions of the by-laws 112 In terms, the making of the facilities agreement was authorised by by-law 22. That by-law reads as follows: By-law 22 - Facilities Agreement 22.1 The Owners Corporation has the power and function to enter into the Facilities Agreement to provide access to the Facilities for Residents. 113 Mr Hyde relied, in the alternative, on by-law 27.1(4). That by-law reads as follows (and I include paras (2) and (3) as well): By-law 27 - Power of Owners Corporation to Enter into Other Agreements 27.1 Without limitation to its other powers, the Owners Corporation has the function to and the power and authority appoint and to enter into other agreements to provide for Services to the Common Property or Residents as necessary including but not limited to: … (2) an agreement and authorisation with a person or corporation to provide for the management of letting of Lots and ancillary services and amenities for some or all Residents and on an exclusive basis; (3) an agreement and authorisation with a person or corporation to provide for security services to be provided to the Owners Corporation and lots in the Strata Scheme; (4) an agreement and authorisation to enter into an agreement relating to the use of Residents of facilities (such as gymnasium facilities). The parties' submissions 114 The issue in relation to the facilities agreement was whether the by-law by which the Owners Corporation was authorised to enter into it was valid. Mr Simpkins submitted that the relevant by-law was invalid, on the basis that it did not regulate the rights and responsibilities of lot owners, occupiers, or the owners corporation, in respect of the lots, or the lots and the common property, for the scheme. 115 Mr Hyde submitted that, even if the by-law that expressly authorised the making of the facilities agreement (by-law 22.1) were beyond power, the agreement was nonetheless authorised by by-law 27.1(4). That followed, he submitted, because whereas by-law 22.1 was directed to the specific agreement that was made, by-law 27.1(4) simply authorised the making of agreements giving "Residents" the use of "facilities (such as gymnasium facilities)". Mr Hyde submitted that if the facilities in question were on common property, then the by-law would be valid. Decision 116 I start with by-law 22.1. I have set out at [59] to [66] above what I perceive to be relevant limits on the power of an Owners Corporation to make by-laws. In my view, that power does not extend to making a by-law authorising the Owners Corporation to enter into an agreement with an owner of nearby (but not adjacent) facilities that gives lot owners and other residents the use of those facilities, at least where that agreement has nothing to do with the lots or the common property, or the rights of lot owners as between themselves or as between themselves and the Owners Corporation. 117 In this case, the relevant by-law does not involve the management or control of the common property, or any of the functions of the Owners Corporation under the SSM Act or other relevant legislation. 118 It could perhaps be said that the use of the gymnasium and recreational facilities provided by Club might contribute to the "enjoyment" by lot owners or tenants of their time spent at the Santai resort. But it does not follow that a by-law authorising the making of the facilities agreement was, therefore, one for the "enjoyment" of the lots concerned. In the context of s 47 of the SSM Act, "enjoyment" seems to me to pertain to the lots (or lots and common property). If those who own or occupy lots wish to enjoy the benefits of recreational facilities nearby, they should do so at their own expense, rather than, through the Owners Corporation, at the expense of all owners. 119 I do not accept that the facilities agreement is authorised by by-law 27.1(4). On its proper construction, that by-law should be read as authorising only the making of agreements that have the necessary degree of connection with lots or common property, or the rights of owners and the Owners Corporation in relation to them, or the other functions of the Owners Corporation. If it extended to authorising agreements of the kind in question, then it would be void for the same reason that by-law 22.1 is void. 120 It follows that the Owners Corporation was not authorised to enter into the facilities agreement, and is not bound by it. As with the security services agreement, the appropriate response is to dismiss the relevant prayer for declaratory relief, but not to make any declaration of invalidity in circumstances where no such declaration was sought by way of cross-claim on behalf of Club. Conclusion and orders 121 The plaintiffs are entitled to relief to the extent stated earlier in these reasons. Otherwise, the amended summons should be dismissed. The parties should have an opportunity to address on costs. 122 I make the following declarations and orders:

(1) Declare that the "Caretaking Agreement" made on 22 March 2007 between the defendant and the first plaintiff is a "caretaker agreement" within the meaning of s 40B of the Strata Schemes Management Act 1996 (NSW) (the SSM Act).

(2) Declare that the document purporting to be a notice of termination of the said caretaking agreement given by the defendant to the first plaintiff on or about 4 May 2007 was ineffective to terminate that agreement.

(3) Declare that by-law 27.1(2) made on registration of strata plan number 77971 is valid.

(4) Declare that the "Letting Agreement" made on 20 December 2006 between the defendant and the first plaintiff was not illegal and void because the first plaintiff did not then, or at any time prior to 8 December 2008, hold a corporation licence issued pursuant to the Property, Stock and Business Agents Act 2002 (NSW).

(5) Declare that the said letting agreement is not a "caretaker agreement" for the purposes of s 40B of the SSM Act.

(6) Declare that the document purporting to be a notice of termination of the said letting agreement given by the defendant to the first plaintiff on about 4 May 2007 was ineffective to terminate that agreement.

(7) Order that the amended summons be otherwise dismissed.

(8) Reserve for further consideration the question of costs.

(9) Stand proceedings over to 9:30am on 8 July 2010 for argument on the question of costs.

(10) Direct the parties to exchange and submit to my Associate by 2 July 2010 a statement of the orders as to costs that it seeks, together with a brief outline of the reasons why such orders should be made.

(11) Reserve liberty to apply on three day's notice.

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.

Property, Stock and Business Agents Act 2002(NSW)

Strata Schemes Management Act 1996(NSW)

Strata Schemes (Freehold Development) Act 1973(NSW)

Santai v The Owners - Strata Plan No. 77971

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