The Owners - Strata Plan 74602 v Eastmark Holdings Pty Ltd; Eastmark... [2015] NSWSC 1981 | Case summary

The Owners - Strata Plan 74602 v Eastmark Holdings Pty Ltd; Eastmark... [2015] NSWSC 1981 | Case summary | Zoe

[6]

The SMS

Section 28R of the SSFD Act provides that a SMS must be registered in all cases where (as occurred here) a strata development occurs by way of a part building strata scheme. Broadly speaking, a SMS sets out the rules for the administration and maintenance of common areas, shared facilities and other operational aspects of the building.
Pursuant to s 28W of the SSFD Act, a registered SMS takes effect as an agreement under seal between, amongst others, lot owners and the owners corporation containing joint and several covenants by lot owners to carry out their obligations under the SMS and to permit the carrying out by the other lot owners of those obligations.
Thus, cll 1.1 and 1.2 of the SMS in this case provide: "1.1 Management of the building A strata management statement is a set of rules that regulate the management and operation of buildings where part of the building is subdivided by a strata scheme or schemes. These types of strata schemes are called 'part building strata schemes'. Beau Monde Apartments is a part building strata scheme. 1.2 Rights and obligations A strata management statement confers rights and imposes obligations on the owners corporations and owners and occupiers of lots in a building in which there is a part building strata scheme. It contains provisions about a wide range of issues including meetings, financial management and the maintenance of shared facilities."
The SMS provides for the establishment of the BMC, as required by s 28S(2) of the SSFD Act.
The SMS states that "Beau Monde has four distinct components" and that the owner of each component is to be a member of the BMC and must comply with the SMS. Thus, upon registration of the strata scheme, the members of the BMC were the Owners Corporation in respect of Beau Monde Apartments and Eastmark as owner of Beau Monde Commercial, Beau Monde Retail and the Beau Monde Car Park. Each lot owner has one vote at BMC committee meetings if it is a "member entitled to vote" for the purpose of the SMS (that is, if it was "financial").

[7]

Shared facilities

The SMS makes provision for "shared facilities" which are defined in the "Dictionary" in cl 60 of the SMS as: "(a) [S]ervices, facilities, machinery, equipment and other items used by two or more members [that is lot owners]; (b) costs for items like the strata manager [that is Strata Associates] and premiums for insurances effected by the [BMC]; and (c) other facilities and services nominated by or according to [the SMS] as shared facilities. Shared facilities include the items in clause 46.2…and schedule 1 [of the SMS]."
Clause 46 of the SMS is headed "Overview of shared facilities" and is in the following terms: "46.1 What are they? There are a number of facilities and services in Beau Monde which are: (a) used by two or more members; or (b) located on the land of a member but used by another member. These facilities and services are called shared facilities. 46.2 What do shared facilities include? Subject to the description of each shared facility in schedule 1, shared facilities and costs for shared facilities include: (a) plant and equipment which constitute a shared facility; (b) any part of Beau Monde that gives access to and from a shared facility by the most direct route or by the rout[e] nominated by the committee acting reasonably; (c) pipes, wires, cables and ducts which are connected to or from part of a shared facility, but excluding any of those things which exclusively service a member's part of Beau Monde; (d) any rooms or areas in which shared facilities are located; (e) the maintenance, repair, operation, cleaning and replacement of shared facilities; (f) parts or consumables used in the maintenance, repair, operation, cleaning and replacement of shared facilities; (g) labour used in the maintenance, repair, operation, cleaning and replacement of shared facilities; (h) the inspection of shared facilities (if applicable) by a government agency; and (i) the certification of shared facilities for the purposes of the law."
Clause 46.7 of the SMS provides: "46.7 How to apportion costs for shared facilities Schedule 2 sets out how much each member must contribute towards the costs of shared facilities. The committee must charge members for shared facilities according to schedule 2. If schedule 2 does not make a provision for a charge, then the committee may determine the charge by unanimous resolution."
From 15 April 2005, Schedule 1 of the SMS listed "shared facilities" in 13 categories as follows: 1. building management services; 2. electrical services; 3. fire services; 4. hydraulic services; 5. insurance; 6. mechanical services; 7. roof sign; 8. strata management services; 9. bike racks; 10. security services; 11. loading dock; 12. water consumption; 13. miscellaneous.
Schedule 2 of the SMS provides for the "division of costs for shared facilities" and allocates, to each lot owner "the percentages…of the total cost for each shared facility that each member must pay".
It is that allocation of expenses (particularly for electricity) that is at the heart of the dispute in these proceedings.
In order to understand the controversy between the parties it is necessary to have regard to the whole of Schedules 1 and 2. The Schedules, when read together, are in the terms annexed to these reasons (Annexure - Schedules 1 and 2 (50.8 KB, pdf)).
The SMS thus provides for general descriptions of shared facilities (in the definition in cl 60) and in cl 46.1, states that shared facilities include the matters set forth in cl 46.2, and lists 13 categories of shared facilities in Schedules 1 and 2.
The SMS provides no mechanism to allocate the costs of shared services between BMC members otherwise than for those listed in Schedules 1 and 2.
However, in my opinion, it does not follow that the only shared facilities at Beau Monde are those listed in Schedules 1 and 2.
Clause 46.2 makes clear that there can be shared facilities which are not referred to in the Schedules.
There was debate before me as to whether the courtyard fronting onto Berry Street and the commercial car park and roller door entrance to the commercial car park were shared facilities.
The Owners Corporation submitted that shared facilities could not include areas in Beau Monde not listed in Schedule 1 or not related to areas listed in Schedule 1 and that, in particular, a shared facility could not include an area of land not identified in Schedule 1.
I do not agree.
The definition of "shared facilities" in cl 60 includes: "(a) [S]ervices, facilities, machinery, equipment and other items used by two or more members; … (c) other facilities and services nominated by or according to [the SMS] as shared facilities".
The definition also states that "shared facilities include the items in cl 46.2".
Clause 46.1 states that shared facilities are those "facilities and services" which are: "(a) [U]sed by two or more members; or (b) located on the land of a member but used by another member".
Clause 46.2 states that shared facilities include, amongst other things: "(b) [A]ny part of Beau Monde that gives access to and from a shared facility by the most direct route; … (e) the maintenance, repair, operation, cleaning and replacement of shared facilities."
In my opinion, both the commercial car park and the courtyard satisfy these definitions.
The commercial car park (and the roller door entrance to it) are used by two or more members of the BMC because members of the Owners Corporation must use the commercial car park to access their own car park. The commercial car park is also used to access other shared facilities, such as electrical switchboards.
The courtyard is the area at the front entrance of Beau Monde, facing Berry Street. That area is used by two or members for access to the Beau Monde Apartments, Beau Monde Retail and Beau Monde Commercial. The courtyard also provides access to other shared facilities.
By reason of cl 46.2(e), the costs of maintenance, repair and operation of the commercial car park and the courtyard are themselves "shared facilities".
The Owners Corporation pointed out that the SMS includes references to "easements" and that there was an easement permitting the Owners Corporation to use both the courtyard and the car park. The Owners Corporation submitted that it would not be necessary for such an easement to exist if shared facilities included such areas as the courtyard and car park.
I do not agree. The object of the easements over the courtyard and car park is doubtless to allow lot owners the right to cross the courtyard and pass through the car park to access other parts of the complex. I do not see that as being inconsistent with the courtyard and car park being shared facilities. Indeed, cl 46.9 of the SMS states that "some shared facilities are the subject of easements", thus demonstrating that the concepts are not mutually exclusive.

[9]

Appointing a strata manager

Clause 2.3(a) of the SMS provides that the BMC may: "[A]ppoint a strata manager to assist in the operation and management of Beau Monde and to perform secretarial and financial functions."
Clause 9.1 of the SMS provides that the BMC: "Has the power to appoint and enter into agreements with a strata manager to assist the [BMC] perform its functions and, in particular, perform the functions of the secretary and treasurer."
The functions of the "secretary and treasurer" are set out in cll 8.2 and 8.3 of the SMS which are in the following terms: "8.2 The secretary In addition to the functions elsewhere in this management statement, the functions of the secretary are: (a) to convene meetings and emergency meetings; (b) to prepare and distribute notices, agendas and minutes for meetings and emergency meetings; (c) to serve notices for the committee; (d) to answer communications sent to the committee; (e) to perform administrative and secretarial functions for the committee; (f) to keep records (other than records which the treasurer must keep) for the committee according to this management statement and the Management Act; and (g) to make the books and records of the committee available for inspection according to clause 23 ('Inspecting the books and records of the committee'). 8.3 The treasurer In addition to the functions elsewhere in this management statement, the functions of the treasurer are: (a) to prepare budgets for the administrative fund and sinking fund; (b) to prepare outstanding levy certificates; (c) to prepare (or arrange for the preparation of) financial statements; (d) to prepare (or arrange for the preparation of) audit reports; (e) to send notices of administrative fund and sinking fund contributions to members; (f) to collect contributions from members; (g) to receive, acknowledge, bank and account for contributions and other money paid to the committee; (h) to pay accounts; and (i) to keep accounting records for the committee."
Clause 9.3 of the SMS provides that the BMC can delegate to the strata manager: "Some of [sic: or] all of the functions of the [BMC] and the [secretary, treasurer or chairperson of the BMC]".

[15]

Breach of fiduciary duty

Eastmark was the developer and promoter of the Beau Monde scheme.
It is well established that a promoter or developer of a strata scheme may owe the subsequently created owners corporation the recognised proscriptive fiduciary duties: per McDougall J in Community Association DP No 270180 v Arrow Asset Management Pty Ltd [2007] NSWSC 527 at [211] and [225] citing with approval the observations of Else-Mitchell J in Re Steel and Others and The Conveyancing (Strata Titles) Act 1961 (1968) 88 WN (Pt 1) (NSW) 467; see also Meriton Apartments Pty Limited v The Owners Strata Plan No 72381 [2015] NSWSC 202; 105 ACSR 1 per Slattery J at [384].
So much was accepted by Eastmark.
The proscriptive duties of a fiduciary were summarised by Gaudron and McHugh JJ in their Honours' familiar observations in Breen v Williams (1996) 186 CLR 71 at 113: "In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed."
Although the Owners Corporation contended that Eastmark owed it a fiduciary duty "to act with absolute candour and honesty" and to "act in [its] interests in developing the SMS", there is, in my opinion, no such prescriptive fiduciary duty. Indeed a duty of this nature was rejected, in terms, by McDougall J in Arrow (on which case the Owners Corporation otherwise placed great reliance) at [226].
The Owners Corporation referred to the observations of Austin J in Aequitas Ltd v AEFC [2001] NSWSC 14; 19 ACLC 1006 at [343] that: "As fiduciaries, [company promoters] are required to act in good faith for the benefit of their fledgling company, and to avoid placing themselves in a position where there is a real sensible possibility of conflict between their duty and their personal interest."
I do not understand his Honour to be saying in that passage that fiduciaries owe a prescriptive duty of the kind contended for by the Owners Corporation or that the duties of a fiduciary rise higher than the "no conflict" rule and "no unauthorised benefit" (or "no profit") rule enunciated in Breen v Williams. As I read his Honour's observations, he was doing no more than reciting the "no conflict" rule.
As developed in its closing submissions, the Owners Corporation contended that Eastmark breached its fiduciary duties because it: 1. registered an SMS "that was not in the Owners Corporation's best interest"; 2. amended the SMS to add to the Schedules category 13 (the "Miscellaneous" category) which was not in the Owners Corporation's best interests"; 3. procured that on 21 June 2005 the Owners Corporation appoint Bondlake Pty Limited (trading as Building Management Australia) ("Bondlake") as caretaker, concierge, and cleaner; and 4. procured that on 3 January 2006 the Owners Corporation: 1. amend the relevant by-laws to add by-law 36 which authorised the installation of air conditioners in two lots owned by Eastmark (lots 240 and 241) and to introduce by-law 37 which authorised balcony enclosures for lots 236, 237, 238, 239, 240 and 241 (all owned by Eastmark); 2. approve a sub-division of lots 49, 120, 130, 185, 201, 223, 238, 239, 240 and 241 (all owned by Eastmark); and 3. convert common property into new lots (248, 249, 250 and 251; all owned by Eastmark), and then to transfer those lots (and thus, the common property) to Eastmark for no consideration.

[16]

Breach of fiduciary duty by registering a SMS that was not in the Owners Corporation's best interests

The Owners Corporation alleges that, by registering the SMS, Eastmark acted in breach of its fiduciary duty not to place itself in a position of conflict or to profit by the establishment of the management and operational structure for Beau Monde.
The Owners Corporation thus sought to make out a case which is quite different from that considered by Else-Mitchell J in Steel, by McDougall J in Arrow or by Slattery J in Meriton.
In Steel, the question was whether irregularities in the conduct of affairs of the body corporate were such as to justify the appointment of an administrator. As Eastmark submits, the discussion of fiduciary duties was incidental to that central question.
In Arrow the developer/promoter (Australand) caused the Community Association to enter into a management agreement pursuant to which Australand was paid a very significant and undisclosed "premium".
In Meriton the developer/promoter (Meriton Apartments) caused the owners corporation to enter into a wide ranging and profitable caretaker agreement with Meriton Apartments itself.
In Arrow and Meriton the court accepted that fiduciary duties may be imposed in circumstances where the developer/promoter entered into or caused the entry into an agreement from which it profited.
That is not the allegation here (at least in this part of the Owners Corporation's case).
In this case, the Owners Corporation contends that Eastmark, as developer/promoter, acted in breach of its fiduciary duty by the very act of registering the SMS.
The manner in which the Owners Corporation contended that the SMS is (and was at the date of registration of the strata plan) not in its "best interests" were that: 1. the Owners Corporation, as the owner of one of the four lots at Beau Monde, is only entitled to one vote in four so that it can always be outvoted on "resolutions" by Eastmark and Denison Street, as owner of the remaining lots; 2. changes to the costs of shared facilities can only be made with a unanimous resolution of lot owners; 3. the Owners Corporation's entitlement to vote is not proportionate to its contributions to levies; 4. items are included in the SMS as "shared facilities" that are not used by the Owners Corporation and not located on the Owners Corporation's land; 5. the Owners Corporation is obliged to contribute to public liability insurance for shared facilities that are not utilised by the Owners Corporation; 6. there are items included in the shared facilities which the Owners Corporation does not use (those nominated being Switchboards A and B, public liability insurance, retail air conditioning, roof signage, and security services); 7. the inclusion of "Miscellaneous" category 13 "creating confusion as to what costs should be paid as shared facility costs"; and 8. costs of shared facilities have been allocated to the Owners Corporation in circumstances where the Owners Corporation does not use the shared facilities or where it does not use the shared facilities to the extent of the contributions it is required to make to their upkeep.
Certain of these matters can be disposed of immediately, as a number of the matters of which the Owners Corporation complains were clearly disclosed to prospective purchasers of lots at Beau Monde in the draft copy of the SMS annexed to the Sale Contracts.

[17]

Disclosure in the Sale Contracts

The Owners Corporation pointed to the fact that, under the terms of the SMS, it (as the owner of Lot 1) is entitled to only one of four votes at the BMC so that it can "always be outvoted by Eastmark (as owner of Lots 2, 3 and 4)".
This is because of the provisions of cll 17.2 and 32.3 of the SMS and the definition of "member" in the dictionary to the SMS.
However, identical clauses appeared in the draft SMS annexed to the contracts whereby the initial lot owners purchased lots off the plan.
The Owners Corporation also pointed to cl 48.1 of the SMS which provides that changes to the costs of shared facilities cannot be made without a unanimous resolution of the BMC. But an identical provision (cl 43.1) appeared in the draft SMS annexed to the relevant contracts for sale.
In those circumstances, I cannot see upon what basis the Owners Corporation can complain about these aspects of the SMS.
In respect of the remaining matters, the Owners Corporation submitted that: 1. Eastmark was in a position of conflict (or likely conflict) in that it had a commercial interest in minimising the contribution made to shared facilities by it as the owner of Lots 2, 3 and 4 (the Commercial, Retail and Car Park lots); 2. upon registration of the SMS, the BMC (and its members) was bound to allocate and seek contributions by the Owners Corporation that did not reflect a fair share of the Owners Corporation's costs of the facilities at Beau Monde; 3. the terms of the SMS ensured that Eastmark, by reason of its ability to control voting at the BMC, could resolve for the payment of contributions by the Owners Corporation that did not reflect a fair share of the Owners Corporation's costs of the facilities in Beau Monde that the Owners Corporation actually shared with other lot owners; 4. Eastmark "actually preferred" its own commercial interest to those of the Owners Corporation by registration of the SMS which included terms enabling Eastmark to make resolutions to, in effect, set forth in (c) "with the intention of making use of those terms to advance Eastmark's commercial interests to the detriment" of the Owners Corporation; 5. Eastmark failed to take account of the fact that the interests of the Owners Corporation required that a SMS which provided "a fair and reasonable transparency" for the implementation of the cost liability relating to shared facilities, and the requirement for proper monitoring of shared facilities to ensure that the Owners Corporation would not be required to contribute for costs of shared facilities that it either did not use, or alternatively, to pay more than its fair share for those facilities; 6. Eastmark failed to take into account that the interests of the Owners Corporation in the SMS required that it have a voting entitlement as a member of the BMC which was commensurate with the level of contribution that was envisaged that the Owners Corporation would be required to pay for the costs of shared facilities in Beau Monde; and 7. Eastmark acted to the detriment of the Owners Corporation by failing to vote to ensure that the SMS properly described the nature of the shared facilities, and how the use of the Owners Corporation would be determined, and to include terms in the SMS to ensure that the Owners Corporation would not be required to pay more than its fair share for the use of facilities which are used in common with other lot owners.
Despite the generality of those complaints, the Owners Corporation's closing submissions focused on what it described as the "practical effect of the SMS terms" on the Owners Corporation, namely the allocation of costs of: 1. electricity, and in particular, that passing through or measured by Switchboard C (which contains what the parties described as the "House Lights 1" and "House Lights 2" meters); 2. gas; 3. water and fire services; and 4. insurance costs.

[18]

Electricity

In monetary terms the most serious complaint made by the Owners Corporation concerns the allocation of electricity costs arising from Switchboard C.
Clause 2.3 of Schedule 1 of the SMS allocates 100 per cent of the electricity costs referable to Switchboard C to the residential lot (Lot 1), and thus to the Owners Corporation.
In respect of Switchboard C, cl 2.3 of the SMS states: "A separate main switchboard (C) is located in the car park of Beau Monde Apartments and services the apartments in that stratum lot. Each apartment is metered by an individual authority meter. House meters cover the common areas".
It is common ground that this description does not accurately reflect the equipment that is in fact serviced by Switchboard C. Switchboard C does not only supply electricity to the Beau Monde Apartments (Lot 1). It also provides electricity for plant, including plant that provides air conditioning to both the residential apartments (Lot 1) and the commercial levels (Lot 2). And some of the plant supplied through Switchboard C is not associated with air conditioning at all, nor referable only to Lot 1; for example supply and exhaust fans in the residential and commercial car parks (part of Lots 1 and 2), cold water booster pumps that service the residential and commercial lots (Lots 1 and 2) and fire services booster pumps that service the residential, commercial, retail and car park lots (Lots 1, 2, 3 and 4).
Further, there is a tension between cl 2.3 and cl 6.3 of Schedule 1 of the SMS. Clause 6.3 deals with the costs of the electricity used to service air conditioning delivered to Lot 1 (the residential lot) and Lot 2 (the commercial lot) and allocates those costs according to "consumption". Clause 6.3 states that: "Consumption [is] to be paid as per sub-meter reading for Beau Monde Apartments and Beau Monde Commercial."
The tension between cl 2.3 and cl 6.3 is thus that: 1. cl 2.3 states that 100 per cent of electricity passing through Switchboard C is to be allocated to Lot 1, and thus the Owners Corporation; whereas 2. cl 6.3 states that the cost of electricity used to service air conditioning (that also passes through Switchboard C) is to be allocated between Lot 1 and Lot 2 in accordance with the "consumption" of such electricity by those lots (to be measured by sub-meters).

[19]

The proper construction of cll 2.3 and 6.3

The SMS is deemed by s 28W of the SSFD Act to be an agreement under seal. Thus, a tension between these provisions is to be resolved by applying conventional principles as to contractual construction.
As far as concerns internal inconsistency, the authors of K Lewison and D Hughes, The Interpretation of Contracts in Australia, (2012, Lawbook Co) suggest at [9.08] that the relevant principle is that: "If a clause in a contract is followed by a later clause which destroys the effect of the first clause, the later clause is to be rejected as repugnant and the earlier clause prevails. If, however, the later clause can be read as qualifying rather than destroying the effect of the earlier clause, then the two are to be read together, and effect given to both."
In his work, The Construction of Commercial Contracts, (2013, Hart Publishing) Professor J W Carter states at [13-49], on the question of "resolving inconsistency": "An obvious basis for choice of meaning in relation to a particular contractual provision is to achieve harmony with other provisions. For example, in Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522, Gleeson CJ, McHugh, Gummow and Kirby JJ referred (at [16]) to the role of the rule that a contract must be construed as a whole in achieving a construction of the contract which ensures the 'congruent' operation of the various components of the whole".
In my opinion, the manner in which cll 2.3 and 6.3 of Schedule 1 of the SMS can be "read together" so as to ensure a "congruent" operation of the SMS is to construe the clauses together so that: 1. the cost of that component of the electricity passing through Switchboard C as services air conditioning in Lots 1 and 2 is to be borne by those lots in proportion to the consumption of electricity by the air conditioning units in those lots; and 2. otherwise, the cost of the electricity passing through Switchboard C is to be allocated to, and borne by the Owners Corporation.

[27]

Circumstances leading to creation of the SMS

By reason of cl 51(1) of the D & C Contract the builder, Brookfield, was obliged to prepare, amongst other things: "A strata management statement for the residential stratum lot, which statement is in accordance with the strata management statements in the Principal's Project Requirements".
My attention was not directed to a "strata management statement" in the "Principal's Project Requirements" forming part of the D & C Contract. However, those requirements contain detailed provisions concerning electrical, fire protection, hydraulic and mechanical services.
Eastmark nonetheless participated in the process of preparation of the SMS and obtained a substantial amount of legal and technical advice. Legal advice was sought and obtained from Mallesons in respect of the SMS. Several drafts of the SMS were developed on the basis of advice received by Eastmark from Mallesons from time to time. Eastmark also received technical advice from consulting engineers, Connell Mott MacDonald, and from project management consultants, Incoll Management. That advice included advice as to the use and design load of proposed shared services.
The evidence suggests that, unsurprisingly, the manner in which shared services were to be provided to the Beau Monde complex evolved over time and that, as constructed, the development did not contain shared services precisely of the kind identified in some of those documents.
It is true, as the Owners Corporation emphasised in its final submissions, that Eastmark did not call Mr Park or Mr Shin (another director of Eastmark and "project manager" of the development of Beau Monde) to give evidence, notwithstanding the fact that the Owners Corporation had settled its claim against Mr Park and that Mr Shin had sworn two affidavits in the proceedings, one only a number of days before the trial commenced. I must assume that those witnesses, particularly Mr Shin, were not able to give evidence to assist Eastmark's case.
Nonetheless, the documents to which I have referred suggest that Eastmark gave careful consideration to, and obtained professional advice about how shared services were to be accommodated at Beau Monde and about the form that the SMS should take.
Eastmark accepted that there can be a breach of fiduciary duty even if the party in a fiduciary position has acted innocently. A fiduciary's obligation to account for any profit made in breach of duty does not depend on fraud or absence of bona fides (for example, Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 at 144G-145E; Chan v Zacharia (1984) 154 CLR 178 at 199 per Deane J).
But, in my opinion, to make out a case of breach of fiduciary duty by Eastmark, the Owners Corporation must do more than show that, as things have turned out, the SMS operates unfairly to the Owners Corporation and thus advantageously to Eastmark (although that fact, if established, may well be relevant to its claim under the Contracts Review Act 1980 ("the CRA"), which I deal with below).
To the extent that the SMS does operate to Eastmark's advantage, the Owners Corporation must show that it obtained that advantage by reason of its position as fiduciary. The Owners Corporation must show, in my opinion, unconscionability on the part of Eastmark, such as to warrant the intervention of equity.
The authors (J D Heydon, M J Leeming and P G Turner) of Meagher, Gummow and Lehane's Equity: Doctrines & Remedies, (5th ed 2014, LexisNexis Butterworths) summarised the principle as follows at [5-255]: "There is a precondition to the availability of most remedies for breach of fiduciary duty: causation. Thus even if the defendant is a fiduciary, and even if the defendant obtains a benefit at the expense of the principal, the defendant will not be in breach of fiduciary duty if the fiduciary position had no operative part in the gaining of the benefit".
The learned authors cited Re Property Force Consultancy Pty Limited (in liq) [1997] 1 Qd R 300 as authority for that proposition.
In Re Property Force Consulting, Derrington J considered the following observations of Mason CJ and Brennan, Deane, Dawson and Gaudron JJ in Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557-588: "…the authorities in Australia and England deny that the liability of a fiduciary to account depends upon detriment to the plaintiff or the dishonesty and lack of bona fides of the fiduciary… A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves 'at a level higher than that trodden by the crowd'. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage. Thus, it is no defence that the plaintiff was unwilling, unlikely or unable to make the profits for which an account is taken or that the fiduciary acted honestly and reasonably."
Derrington J said: "The conflict between a trustee's fiduciary duty and personal interest is relevant where it affects his personal conduct; but in circumstances…where he has no knowledge that gives rise to a conflict of conscience and interest that might affect his conduct, there can be no occasion for the appearance of the duty. Alternatively, his taking advantage of an opportunity or knowledge derived from his fiduciary position would have a direct link between the benefit derived and the fiduciary's personal conscience if he retained the benefit. This arises as a consequence of the event and does not depend on any dishonesty or lack of good faith at the time of the fiduciary's conduct; but the matter of conscience is evoked because of the use of the fiduciary's position in obtaining the benefit in the first place. If that is not the means of obtaining the benefit, there is no relevant issue of conscience. … In order to have the necessary element of conscience in accordance with what was said before, the purpose described in the citation [in Warman v Dwyer] must be read more fully as follows: (i) that the fiduciary must account for what has been acquired by reason of his position as fiduciary at the expense of the trust. It is the unconscionability of a fiduciary's acquisition of the benefit by reason of his position that gives rise to the intervention of equity, not merely the fact that although he was innocent, his acquisition was at the expense of the trust. If there was nothing unconscionable in his deliberate (i.e. conscious) action or in his mode of acquisition of the benefit such as by using his position, then there is no operative fiduciary element."
I agree with those observations.
In order that a breach of fiduciary duty be actionable it must be shown that the fiduciary's conduct has been unconscionable and that the fiduciary's position played an operative part in the loss.
I cannot see a basis for concluding that Eastmark's conduct in formulating and registering the SMS was unconscionable or that such benefit as it may have obtained from the manner in which the SMS has operated is a benefit it has obtained "by reason of" its position as a fiduciary.
I see no basis to conclude that Eastmark "loaded up" the SMS so as to disadvantage the Owners Corporation and advantage itself.
In particular, I cannot conclude that Eastmark could have foreseen, and thus been conscious of (let alone intended) the practical problems that have arisen concerning allocation of the costs of electricity, gas, water, fire services and insurance that I have outlined above.
I am not prepared to infer from the absence from the witness box of Messrs Park and Shin that Eastmark knew or intended that the SMS not fairly allocate costs of shared services between the lot owners.
I am not able to conclude, as the Owners Corporation submitted (without elaboration), that the "inequitable nature of the SMS was evident to Eastmark from the moment of (if not before) registration" because "the spilt of costs in the SMS is clearly of itself an unfair bargain" and "the SMS does not correctly reflect the operation of the Beau Monde Complex". It may be that aspects of the "split of costs" in the SMS are unfair; the SMS "does not correctly reflect the operation" of Beau Monde in the respects I have outlined above. But I cannot see how, on the basis of the evidence, I could conclude that these matters were "evident" to Eastmark when the SMS was registered.
In closing submissions, the Owners Corporation pointed to only one document that it contended showed that Eastmark knew that the SMS Schedules had not been amended "to reflect changes that would result in a fair allocation" of the costs of shared services. That document was a letter from Brookfield to Incoll concerning proposed changes to the air conditioning system. I see nothing in that document which suggests that Eastmark knew, or should have known that there was any such unfairness.
Further, as Eastmark submitted, the expert evidence made it clear that it was virtually inevitable that there would be some problems with the SMS.
The Owners Corporation called an expert strata title manager, Mr Robert Anderson, to give evidence. Mr Anderson said that a SMS is: "…a working living document that would need amendments over time. Usually once a building has been operating for two or more years those required amendments become apparent. The amendments include but are not limited to adding categories and percentages, removing unused categories, amending percentages… It is prudent to take the view that a SMS is a living document with deficiencies and possible errors and a document that needs to be amended when required."
The strata title expert called by Strata Associates, Mr Peter Callaghan expressed a similar opinion when he said: "Over time, experience with the operation of a building may indicate that amendments need to be made to the [SMS] to reflect the reality of how the building works and is used."

[29]

Informed consent - disclosure

Eastmark submitted that, in any event, "there was full disclosure".
I took Eastmark's submission to be that it had obtained the informed consent of purchasers of apartments at Beau Monde (and thus, in effect, of the Owners Corporation: see s 11 of the SSMA).
As stated in P W Young, C Croft and M L Smith, On Equity, (2009, Lawbook Co) at [7.360]: "A fiduciary may not be in breach of their duty where they have obtained the fully informed consent of the person or persons to whom the fiduciary duty is owed. Full disclosure and informed consent can prevent what would otherwise be a breach of a fiduciary duty." [Citations omitted]
In Arrow McDougall J said (at [242]): "Informed consent would require, at a minimum, the disclosure of all relevant information: Queensland Mines Limited v Hudson (1978) 52 ALJR 399 at 403. I say 'at a minimum' because, as the majority pointed out in Maguire [v Makaronis (1997) 188 CLR 449] at 466, '[w]hat is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given…'."
As I have mentioned, the Sale Contracts annexed a draft SMS which disclosed a number of the provisions of the SMS of which the Owners Corporation complains.
The draft SMS did not, however, reveal all of the percentage apportionments of the costs of the shared facilities. In many cases the apportionment was simply noted as "TBC %".
The Sale Contracts stated that: 1. "it may be necessary to make changes" to documents including the SMS "to meet the requirements of the vendor or various entities and bodies" (cl 24.1); 2. the cost allocations for the shared facilities "will be set out" in the SMS (cl 24.2); 3. the "shared facilities" and the "division of costs of the shared facilities" listed in Schedule 1 to the draft SMS were "not final" and that, depending on the final design of the building Eastmark would "acting reasonably", "remove or add items to and generally complete" the SMS "in its absolute discretion" (cl 24.3); 4. the shared facilities "may not all be identified" in the draft SMS attached to the Sale Contracts (cl 25.1); and 5. if there was a difference between the draft SMS annexed to the Sale Contracts and that finally registered, the purchaser could rescind the contract within 14 days after Eastmark served notice of registration of the strata plan and SMS if "the difference detrimentally affects the property to an extent which is substantial" (but that otherwise there was no right of rescission) (cl 35.1).
The Owners Corporation submitted that cl 35.1 did not in fact allow any purchaser a right to rescind and pointed to cl 24.12 of the Sale Contracts which provided that a purchaser could not rescind "in respect of any matter referred to or disclosed" in cl 24. But cl 24 only referred to the draft SMS. Thus cl 24.12 prevented a purchaser from rescinding the contract on the basis of that document. Clause 35 addresses a different question, namely any difference between the draft SMS and the SMS as registered and provided a right of rescission which was not, in my opinion, affected by cl 24.12.
The Sale Contracts provided that completion was to take place 14 days after Eastmark served notice of registration of the strata plan and SMS.
Each of the Sale Contracts completed. I infer, in those circumstances, that in each case Eastmark served notice of registration of the strata plan and the SMS.
Eastmark must thereby have given notice to each purchaser of the final form of the SMS, or at least that it was registered and could be inspected.
The purchaser would thus have had an opportunity (albeit one to be availed of within 14 days) to carry out an analysis of the final form of the SMS and to assess whether it would detrimentally affect the property in a substantial way.
The Owners Corporation submitted that it would be an "impossibility" for any purchaser to form any such view as: "There could be no way that any individual purchaser could identify how the percentages placed in the final SMS would impact on the residential tower let alone their individual unit".
That may be right, but the question is one of disclosure. Eastmark disclosed in the contract the draft of the SMS and the fact that it might be varied. By operation of the provisions for completion of the Sale Contracts, Eastmark was obliged to give the purchaser 14 days' notice of registration of the strata plan and the SMS. The SMS was available for inspection at the Registrar General's office and its terms were thus, in effect, fully disclosed to the purchaser. There is no evidence that Eastmark then knew anything of the manner in which the SMS would, as a practical matter, operate beyond what was stated in the SMS. The terms of the SMS were, in my opinion, all the "relevant information" that Eastmark had at hand to disclose.
It follows, in my opinion, that if, contrary to my conclusions, Eastmark would otherwise have been in breach of its fiduciary duty to the Owners Corporation by registering the SMS, any such breach was cured by disclosure by it to the purchasers of the precise and final terms of the SMS prior to completion of the Sale Contracts; and in circumstances where those purchasers had an opportunity to rescind the Sale Contracts if they could show detriment.
The position in relation to contracts entered into after registration of the SMS is even clearer, as by registering the SMS, Eastmark disclosed its terms to such purchasers.
In any event, although there is no direct evidence of this, it seems probable that the SMS was attached to such contracts, as required by cl 4 of the Conveyancing (Sale of Land) Regulation 2005 and 2010 (NSW) and required to be available for inspection by real estate agents by reason of the combined operation of the Conveyancing (Sale of Land) Regulations and s 63 of the Property, Stock and Business Agents Act 2002 (NSW).

[31]

Breach of fiduciary duty by procuring the appointment of Bondlake as caretaker, concierge and cleaner - the 21 June 2005 meetings

At the first annual general meeting of the Owners Corporation held on 21 June 2005, the Owners Corporation resolved to appoint Bondlake as its caretaker.
At an extraordinary general meeting of the Owners Corporation held on the same day, the Owners Corporation resolved to appoint Bondlake as its concierge and cleaner.
The Owners Corporation had earlier resolved to appoint Bondlake as its caretaker, concierge and cleaner at its inaugural extraordinary general meeting held on 8 April 2005. I understand that those agreements were only for a short term. In any event, in its closing submissions the Owners Corporation made no complaint about the 8 April 2005 resolutions.
The Owners Corporation alleges that at the 21 June 2005 meetings Eastmark procured Bondlake's further appointments and thereby acted in breach of its fiduciary duty. That is said to be because the Bondlake agreements were "not in the Owners Corporation's interests" because, as developed in final written submissions, each of the caretaker, concierge and cleaning agreements were "above market price".
The Owners Corporation also pointed out that the amount payable to Bondlake under the caretaker agreement was in excess of that provided for in the relevant by-laws. The Owners Corporation claimed no relief against Eastmark by reason of that fact but contended that that fact was corroborative of the Owners Corporation's contentions that the amount payable to Bondlake under the caretaker agreement was above market price.
I see a number of other difficulties associated with this aspect of the Owners Corporation's case.
The first is that the Owners Corporation's case assumes that Eastmark attended the two 21 June 2005 meetings in its capacity as a developer or promoter.
In my opinion it did not.
By 21 June 2005 the development was complete. There was nothing further to promote. Eastmark attended the 21 June 2005 meetings as a lot owner and was entitled to vote at any meeting of the Owners Corporation in its own interests.
At the 21 June 2005 annual general meeting, and before the resolution to appoint Bondlake as caretaker, those present elected an executive committee. That committee comprised seven people and did not include any Eastmark representative.
Members of an owners corporation do not occupy a fiduciary position vis-à-vis other members. Their position is analogous to that of shareholders in a company. In that regard Dixon J observed in Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457 at 504: "The shareholders are not trustees for one another, and, unlike directors, they occupy no fiduciary position and are under no fiduciary duties. They vote in respect of their shares, which are property, and the right to vote is attached to the share itself as an incident of property to be enjoyed and exercised for the owner's personal advantage".
Further, there is no suggestion in the evidence that Eastmark had any association with Bondlake or that it obtained any benefit from Bondlake's appointment. The situation is thus quite unlike that in the Arrow and Meriton cases.
The Owners Corporation submitted that: "It is only necessary to show that Eastmark acted for a purpose other than for the benefit of the Owners Corporation - to which it owed a duty to act in the Owners Corporation's best interests".
But this submission assumes the existence of a prescriptive duty on the part of Eastmark, namely to act in the Owners Corporation's best interests. In my opinion, there is no such prescriptive fiduciary duty.
Further, the Owners Corporation submitted: "In the absence of any evidence from Eastmark in relation to the matter and in circumstances where all three agreements (concierge, cleaning and caretaker) were made with one entity and without further quotes, the Owners Corporation submits that the Court should infer that those agreements were to Eastmark's advantage, rather than in the Owners Corporation's interests".
I see no basis upon which I could draw such an inference. In particular, I see no basis from which I could infer from the fact that each agreement was made with the one entity "and without further quotes" (if that be true) could give rise to an inference that Eastmark gained some advantage from the entry by the Owners Corporation into the agreements. So far as the evidence reveals, Bondlake was an arm's length independent contractor. There is simply no basis to conclude that Eastmark gained any benefit from Bondlake's appointment.
Indeed, as Eastmark pointed out, if it be true that Bondlake's charges were in excess of market, as Eastmark, on 21 June 2005, still owned 101 of the 241 apartments at Beau Monde, it "stood to lose as much as anyone else", at least during the period during which it continued to hold those apartments (it sold the last apartment in October 2014).
In any event, although Eastmark held the majority of votes of those who attended the 21 June 2005 meetings, it did not then hold either the majority of lots in the building or lots having a majority of unit entitlements.
The minutes of the meetings show that 14 lot owners, all but two of which were by then registered proprietors of their lots, actually attended the meetings.
A further 102 lots were "present by proxy". The minutes stated that Mr Park was present as "company nominee" for Eastmark "representing" those 102 lots.
A total of 116 lot owners thus attended, in person or by proxy. There are 241 lots at Beau Monde. The remaining 125 lot owners (almost all of which were by then registered proprietors of their lots; a small number became registered proprietors shortly after 23 June 2005) did not attend. There is no suggestion they were not notified of the meeting.
Voting rights at general meetings of an owners corporation depend on an owner being recorded in the strata roll (cl 10 of Schedule 2 to the SSMA). A party, having purchased a lot from the registered proprietor (here, Eastmark), but not yet itself registered as proprietor, may nonetheless become recorded on the strata roll and thus be entitled to vote (to the exclusion of the registered proprietor: see the definition of "owner" in the dictionary to the SSMA).
The lot owners shown in the minutes to be present were lots 54, 55, 70, 99, 114, 122, 125, 126, 135, 168, 185, 205, 213 and 214. All but two of those lot owners were by 21 June 2015 registered as proprietors of the lots in question. Two of the lot owners present at the meeting (the owners of lots 99 and 135) were registered as proprietors after the 21 June 2005 meeting. However, as there is no suggestion that they were not entitled to attend and vote at the meeting, it appears probable that, although not yet registered as proprietors of the lots, they were recorded as owners in the strata roll. I say "appears probable" as the strata roll was not in evidence.
Eleven of the lots represented by Eastmark and shown to have been "present by proxy" (lots 37, 48, 61, 81, 108, 111, 117, 140, 148, 159, 178) were, by 21 June 2005, registered proprietors of their lots.
It appears probable that the owners of these lots had given Eastmark a proxy to vote on their behalf.
It was a term of the contracts whereby Eastmark sold lots off the plan prior to registration of the strata plan on 6 April 2005, that the purchaser would if required by Eastmark, vote in favour of particular motions and appoint Eastmark as proxy. The form of proxy annexed to the Sale Contracts did not authorise Eastmark to vote on any matter if the "person appointing the proxy is present at the relevant meeting and personally votes on the matter".
The remaining 91 lots for which Eastmark voted at the 21 June 2005 meeting were registered in its name and were, I would infer, recorded in its name on the strata roll.
On 21 June 2005 Eastmark was the registered proprietor of eight lots that it did not purport to represent at the 21 June 2005 meeting (lots 18, 58, 155, 171, 173, 189, 203 and 217).
In each case Eastmark ceased to be the registered proprietor shortly after 21 June 2005. It appears probable that, in the case of those lots, Eastmark had settled a sale to those lot owners and was no longer on the strata roll in respect of those lots. As Eastmark submitted, there is no reason why Eastmark would be selective about these matters.
The 91 lots in respect of which, in these circumstances, I infer Eastmark remained on the strata roll represented 46.23 per cent of the overall unit entitlements at Beau Monde.
Thus, Eastmark did not hold the majority of unit entitlements.
Clause 18 of Schedule 2 to the SSMA provides that, unless a poll is demanded, or the motion is for a resolution that, to be effective, must be a special resolution, voting at a general meeting is on a "one lot/one vote" basis: see Alex Ilkin, NSW Strata and Community Schemes Management and the Law, (4th ed 2007, Lawbook Co) at [1214].
There is no suggestion from the minutes that a poll was demanded, or that a special resolution was necessary (the minutes refer simply to a resolution). If that is so, Eastmark was entitled to exercise only 102 votes out of the 241 votes (42.3 per cent) available to all lot owners (125 of whom did not attend) and thus could not command a majority.
Clause 18 provides that, if a poll is demanded, or a special resolution needed, voting is by unit entitlement. Thus, if a poll had been demanded at the 21 June 2005 meeting, or if a special resolution was required Eastmark was still not able to command a majority as it held only 46.23 per cent of the unit entitlements.
According to Eastmark's calculations, which the Owners Corporation did not dispute, even if the proxies that Eastmark exercised on 21 June 2005 were taken into account, it was able to exercise 49.74 per cent of the votes by unit entitlement.
For those reasons, I do not accept the Owners Corporation's submissions concerning the 21 June 2005 meetings.

[32]

Breach of fiduciary duty by amending by-laws and approving subdivision of lots and converting common property into new lots - the 3 January 2006 meeting

A further extraordinary general meeting of the Owners Corporation took place on 3 January 2006. Some 92 individual lot owners (including Eastmark) were present (with one further present by proxy). On that date, Eastmark was the registered proprietor of 76 of those 92 lots. With one exception (lot 121) Eastmark remained the registered proprietor of those lots for many months (and in some cases years) after 3 January 2006. Accordingly, it is safe to assume that the strata roll reflected the same position, or one very nearly the same.
At the meeting, the following special resolutions were passed (each in respect of lots owned by Eastmark): 1. to amend the relevant by-laws to permit the installation of air conditioners in lots 240 and 241; 2. to amend the relevant by-laws to authorise balcony enclosures for lots 236, 237, 238, 239, 240 and 241; 3. to approve the subdivision of lots 49, 120, 130, 185, 201, 223, 238, 239, 240 and 241; and 4. to convert common property into new lots (238, 239, 250a and 251) all owned by Eastmark and to transfer those lots to Eastmark for no consideration.
The Owners Corporation submitted, with little elaboration, that "Eastmark's actions in appropriating property…were clearly not exercisable for a proper purpose - but were only to benefit Eastmark. The relevant decisions were only to benefit Eastmark".
Again, I see a number of difficulties with this aspect of the Owners Corporation's case.
First, I do not accept that Eastmark attended the 3 January 2006 meeting in a fiduciary capacity. Its role as a developer and promoter of Beau Monde was long complete.
Second, the resolutions which were passed on 3 January 2006 were foreshadowed at a meeting of the executive committee of the Owners Corporation on 17 October 2005. The minutes bear the date "17 October 2004"; this is clearly a typographical error. As I have mentioned, Eastmark had no representative on the executive committee.
The minutes of the 17 October 2005 meeting include, as part of general business: "Strata manager to arrange meeting with developer and Executive Committee to discuss proposed changes to the penthouses in the building".
The "proposed changes to the penthouses" were, I would infer, the amendments ultimately proposed and passed at the 3 January 2006 extraordinary general meeting of the Owners Corporation. The fact that the executive committee of the Owners Corporation proposed on 17 October 2005 to meet with the "developer" (obviously, Eastmark) to discuss the proposal suggests that the executive committee had, or proposed to exercise an independent judgment about the proposal.
Further, although Eastmark commanded the majority of the votes exercised at the 3 January 2006 meeting it was, by then, clearly a minority owner. On the Owners Corporation's own calculations, Eastmark then controlled only (at the most) 41.76 per cent of the voting rights at Beau Monde. The resolutions passed were special resolutions requiring 75 per cent approval.
There is no suggestion in the evidence that proper notice of this meeting was not given to all lot owners; yet 148 lot owners did not attend the meeting. As Eastmark submitted, the owners of the lots within Beau Monde had more than ample power to defeat the special resolution proposed by Eastmark, if they wished.
For those reasons, I do not accept the Owners Corporation's submissions concerning this meeting.
For completeness, I add that the Owners Corporation called evidence from a valuer, Mr Grant Jackson, who gave evidence that the effect of the resolutions passed on 3 January 2006 was to add some value to the lots owned by Eastmark, although he agreed that minds could differ as to whether the uplift in value was 1 per cent or 2.5 per cent.
There is no suggestion in the evidence that passage of the resolutions caused any damage to the Owners Corporation or to any other lot owner.

[35]

Fraud on the minority

The Owners Corporation submitted that, alternatively to its claim that Eastmark acted in breach of its fiduciary duty as a developer by procuring the appointment of Bondlake as a caretaker, concierge and cleaner (at the 21 June 2005 meeting) and amending the by-laws (at the 3 January 2006 meeting), Eastmark also committed a fraud on the minority.
The Owners Corporation referred to the decision of the Court of Appeal in Houghton v Immer (No 155) Pty Ltd (1997); 44 NSWLR 46. Eastmark accepted that that case was authority for the proposition that the doctrine of fraud on the minority, although generally concerned with the voting behaviour of shareholders in company meetings, may have application to an owners corporation (per Handley JA at 53).
The relevant principles were summarised by Rimer J in Redwood Master Fund Ltd v TD Bank Europe Ltd [2002] EWHC 2703 (Ch) at [105] in a passage cited with approval by Black J in In the matter of Metal Storm Ltd (subject to Deed of Company Arrangement) [2014] NSWSC 813; 100 ACSR 637 at [49]: "The vice against which control on the exercise of majority power is directed is the potential for a dishonest abuse of that power. The starting point in assessing the validity of its exercise in any case must be to assess, by reference to all available evidence, whether the power is being exercised in good faith for the purpose for which it was conferred. If it is, then the mere fact that it can be shown that a minority of those affected by it have been relatively disadvantaged by it as compared with the majority cannot automatically mean it has been exercised improperly. Of course, if it can be shown that the power has been exercised for the purpose of conferring special collateral benefits on the majority, or if the obtaining of such collateral benefits can be shown to have been the motive for the exercise of the power, that will be likely to lead to a conclusion that the exercise has been bad. It would not have been exercised for the purpose for which it was conferred, and its exercise in those circumstances would or might amount to a fraud on the minority".
The Owners Corporation's submissions on the subject repeated the submissions it had made concerning the 21 June 2005 and 3 January 2006 meetings.
In my opinion, the short answer to this aspect of the Owners Corporation's case is that Eastmark was not a majority lot owner (whether in terms of lots owned or unit entitlements) at the time of the relevant meetings.
Further, in the circumstances that I have discussed in relation to the meetings of 21 June 2005 and 3 January 2006, I see no basis to conclude that there has been a "dishonest abuse of power" by Eastmark or that Eastmark has acted in bad faith.

[36]

Rewriting the SMS - Contract Review Act claim

As I have mentioned, by reason of s 28W of the SSFD Act, a registered SMS takes effect as an agreement under seal between, amongst others, lot owners and the owners corporation.
Section 28U(1)(b) of the SSFD Act provides that a SMS may be amended only if, relevantly, such amendment is "ordered under this or any other Act by a court".
A SMS can be varied if found to be "unjust" within the meaning of the CRA: The Owners Corporation Strata Plan 70672 v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2011] NSWSC 973 at [62] per Sackar J.
Section 4 of the CRA provides that the term "unjust" includes "unconscionable, harsh or oppressive".
Section 7 of the CRA provides for principal relief: "7 Principal relief (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that: (i) varies, or has the effect of varying, the provisions of the land instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument. (2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order. (3) The operation of this section is subject to the provisions of section 19."
Section 9 provides the matters that must be considered by this Court in determining whether relief ought to be given pursuant to s 7. Relevantly s 9(1) provides: "(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract."
The Owners Corporation's submissions concerning this aspect of its case were barely developed.
The Owners Corporation simply submitted that: "(a) The split of the costs in the SMS is clearly of itself an unfair bargain; (b) the SMS does not correctly reflect the operation of the Beau Monde complex - in particular, the lack of metering makes the cost allocations in the SMS unsupportable - an issue that has only come to light after the final form of the SMS was registered."
The Owners Corporation then submitted, without elaboration, that: "The appropriate remedy in the circumstances is for the Court to rewrite the SMS in terms found in exhibit N, tab 3. That rewrite should be retrospective, as provided for under s 7(2) of the CRA."
Eastmark did not address any submissions to the particular changes that the Owners Corporation contended should be made to the SMS.
Rather, it submitted that the SMS (as a whole) was "not unjust when made" and that, in any event, there were "strong discretionary considerations" for declining to make any order under the CRA.
Before considering Eastmark's submissions, I will consider the particular changes that the Owners Corporation contends should be made to the SMS.

[37]

The proposed changes to the SMS

Exhibit N proposed numerous changes to the SMS. The Owners Corporation's submissions did not, in terms, address any of those changes. Some of the changes sought were implicit from the Owners Corporation's submissions concerning the practical difficulties arising from the SMS, particularly so far as concerns Switchboard C. However, many of the changes, particularly concerning matters of detail, were not adverted to by the Owners Corporation (or Eastmark) in submissions. Some proposed changes did not appear to reflect any controversy that had arisen in the proceedings.
Unassisted by any detailed submissions from the Owners Corporation, on my reading of Exhibit N, the significant changes proposed by the Owners Corporation to the SMS are: 1. a proposed amendment to cl 27.2, which deals with the obligations of the owners of Lot 1 (the Owners Corporation) in the event that the owners of Lots 2, 3 and 4 (the commercial, retail and car park lots) propose to redevelop their lots (cl 27.2); this clause, in its current form, is relevant to Eastmark's cross-claim, which I deal with below; 2. changes to the clause dealing with shared facilities (cl 46.2) to make clear that a shared facility excludes "any plant or equipment which exclusively services a member's part of Beau Monde" and to specify that the courtyard is not a shared facility; 3. to vary the cost allocations in Schedule 2 to the SMS to reduce the Owners Corporation's costs in respect of: 1. building management services from 65 per cent to 25 per cent; 2. electrical services through Switchboard C (House Lights 1 and 2) from 100 per cent to 60 per cent; 3. domestic cold water hydraulic services from 100 per cent to 88.5 per cent; 4. fire services from 65 per cent to 25 per cent; 5. insurance costs from 70 per cent to 62.3 per cent; 6. repairs and maintenance from 100 per cent to 47 per cent; and 7. strata management services from 65 per cent to 25 per cent; and 1. to delete category 13 ("Miscellaneous") from Schedule 1.
Of the cost allocation changes proposed by the Owners Corporation to Schedule 2 of the SMS, only those concerning electricity, gas, water, fire services and insurance were addressed in the Owners Corporation's final submissions. I will deal with those in turn.

[38]

Electricity - Switchboard C

I have described the practical problems that have arisen relating to Switchboard C.
The SMS allocates all of the cost of electricity passing through Switchboard C to Lot 1; the residential lot. It is common ground that Lot 1 does not use all this electricity. Although this outcome may not be have been ascertainable at the time the SMS was registered, or known to Eastmark, the SMS is clearly unjust to this extent; and was at the time the contract it represents was made.
In their Joint Expert Report, the Owners Corporation's expert, Mr Floth, and Eastmark's expert, Mr Clarke, agreed that at least some 56 per cent of the electricity consumption from Switchboard C is attributable to Lot 1 and some seven per cent to Lot 2.
What divided the experts was how the balance of some 37 per cent should be divided. This portion of electricity consumption relates to the shared heating, ventilation and air conditioning ("HVAC") plant located within Lot 1 on levels 8 and 37.
Mr Clarke said: "The remaining sub meters…are shared HVAC plant and represent 36.8% to be apportioned by some method, as the individual components of these sub-meters are not measured".
Based on a survey he conducted of shared HVAC plant operation over an 11 day period from 14 to 24 March 2014, Mr Floth expressed the view (which I allowed only as a contention) that the major portion of this 37 per cent was attributable to Lot 2, that only a negligible portion was attributable to Lot 1 and that, overall, electricity consumption through Switchboard C should be attributed 60 per cent to Lot 1 and 40 per cent to Lot 2.
Mr Clarke did not agree. In his opinion, the 11 day period used by Mr Floth to ascertain how electricity passing through Switchboard C had actually been used was too short.
Mr Clarke said: "My observations and photos on different site inspection days than those 10 [sic: 11] days of monitoring showed different plant and equipment operating than indicated in the Floth Report. While I have no doubts as to the validity of the data gathered during those 10 days [2014]…I don't believe 10 days of…operation monitoring is enough data to conclude that pattern necessary [sic] similar over a 12 month period as an accurate estimate of the…consumption over all seasons. In my opinion, the…operation requires further monitoring over the same period to the 12 months total…consumption monitoring to be able to account for any variations and short term anomalies."
Accordingly, Mr Clarke said that it was not possible to say, on the information currently available, how the 37 per cent of Switchboard C consumption should be allocated.
Savills' expert, Mr Koulos, agreed that monitoring of data over a 12 month period was required but that: "Notwithstanding this I have calculated the load allocations taking into account circuit ratings and the estimated diversity based on typical operation of this type of building".
Mr Koulos's "calculated allocations" were very similar to those of Mr Floth. He said: "I generally concur with the assessment provided by Mr Floth as a high level calculation with a number of assumptions applied."
Mr Koulos accepted in cross-examination that he had not given the question the detailed attention that Mr Floth and Mr Clarke appear to have given; at one point he accepted that "I did not do that level of calculation". But he maintained his position that a 60:40 split between Lots 1 and 2 was a "fair allocation of the consumption" and said that, in coming to his conclusion, he had taken into account Mr Clarke's views.
On this state of the evidence, it is not possible to come to a conclusion that is certainly correct. The experts agree at least 56 per cent of the Switchboard C electricity should be allocated to Lot 1. It seems likely that the correct figure exceeds 56 per cent. If the consumption over the 11 day period of Mr Floth's survey is representative, the correct figure is only a little more than 56 per cent; something in the order of 60 per cent. Mr Koulos arrived at a figure close to that in his calculations.
It may be, as Mr Clarke said, that further monitoring would enable the experts to arrive at an apportionment about which one could be more confident than the 60:40 split contended for by Mr Floth and Mr Koulos. However, considerable effort has now gone into the investigation of this matter, and I am reluctant to require further expense to be incurred on the question. Overall, and despite Mr Clarke's misgivings, in the absence of any competing apportionment I am persuaded that a 60:40 split between Lots 1 and 2 more probably than not reflects something very close to actual usage.

[42]

Insurance

The Owners Corporation contends that the provision in the Schedule to the SMS concerning insurance should be changed so that the Owners Corporation bears only 62.3 per cent of the costs of public liability and other insurance premiums, rather than 70 per cent as currently provided in the SMS.
Again, the Owners Corporation directed no submission to me on this topic.
As I have mentioned, Messrs Keating, Silliss and Driscoll were appointed joint experts by the parties in relation to the question of insurance.
Evidence was given on their behalf by Mr Keating.
The experts expressed the opinion that the "fair and equitable allocation" of insurance premiums for property and machinery breakdown insurance was 59 per cent to Lot 1 (the Owners Corporation) with the balance to Lots 2, 3 and 4.
The experts opined that certain other insurance premiums should be allocated to Lot 1 which, I assume, explains why the Owners Corporation only seeks a reduction of the insurance allocation to the Owners Corporation from 70 per cent to 62.3 per cent (rather than 59 per cent).
However, this was not explained in submissions.
The experts explained their conclusion that 59 per cent was a "fair and equitable" allocation for property and machinery breakdown insurance by reference to a table in their report which was not explained to me but which appears to take into account the floor space ratios and unit entitlements of each lot.
The experts concluded: "The equitable allocation of cost would be via a risk adjusted apportionment by way of floor space ratio and/or unit entitlement as proxy. Given the variation of approaches insurers use, this information should be obtained from Chubb Insurance. Failing this we are confident our example as outlined in table 5 is a fair and equitable allocation, namely [59 per cent to Lot 1]."
So far as machinery breakdown insurance is concerned, the experts opined: "On the assumption that all machinery covered form part of common or shared property, that operation is critical for the use and/or amenity of all Lots, we would recommend allocation of costs in the same proportions as the Property policy".
In his cross-examination, Mr Keating agreed that he thought that the "best approach" to ascertain what adjustments should be made to the SMS was to seek information from the current underwriter, Chubb Insurance, but that this had not been done. Mr Keating also agreed that he had not read the terms of the existing policies and that, had he done so, such terms "might have made some material difference to [my] opinions had [I] read them".
In those circumstances, and absent any submission from the Owners Corporation beyond its simple assertion that Mr Keating's report showed that "the [Owners Corporation] is overpaying" I do not feel able to draw any such conclusion.

[44]

Is the SMS unjust?

As I have said, Eastmark did not address any submissions as to whether any particular aspects of the SMS were unfair (although it submitted that, in light of Mr Clarke's evidence, there was no acceptable evidence as to how the 37 per cent of Switchboard C consumption to which I have referred above should be allocated).
Eastmark drew attention to the observations of Sackar J in the Roman Catholic Church case to which I have referred.
In that case, the SMS apportioned shared services between the owners corporation (which owned lot 1) and the trustees of the Church (which owned lot 2, comprising underground parking and commercial offices) in the ratio 95:5. His Honour stated at [88]: "It is not suggested here that a split of 95:5 is in and of itself an unfair bargain but rather because of the way in which costs have escalated the Owners are desirous of having the split changed to approximately 83:17."
The owners corporation's case was that relief should be granted under the CRA because it had been "absent from the negotiations which led to the final form of the SMS".
In that regard his Honour said at [80]: "The fundamental difficulty with this argument is that the legislation contemplates that very process and outcome. It is only upon the registration of a strata plan and the SMS and that the plaintiff exists. Until registration therefore it cannot expect to participate in negotiations, nor could putative purchasers."
This led his Honour to make the following observations, which are relied upon by Eastmark: "84 The [SMS] was arrived at after these arms length negotiations and with the input of independent consultants. It was not arrived at for example peremptorily or more importantly arbitrarily. 85 It was negotiated at arms length with [the developer] who had to make the terms of the contract attractive to putative purchasers and had a clear commercial interest in aligning itself with those purchasers. … 89 Developments of this type are generally financially highly complex transactions which are intended to have long term and far reaching implications. The statute expressly contemplates the whole transaction relevantly and necessarily will be conducted in the absence of the very entity the process ultimately brings to life, namely the Owners Corporation. Although it cannot be gainsaid that the Trustees clearly understood that incoming purchasers would be contractually bound by the SMS it cannot be unfair for it to have focussed on its own commercial interest. All incoming purchasers would be advised by their respective lawyers that they would be bound by such an arrangement and would know…the legal consequences of purchasing and in particular the effect of s28W."
A number of the matters identified by his Honour have some relevance to this case. As I have set out above, in the context of discussing the Owners Corporation's claim against Eastmark for breach of fiduciary duty, Eastmark sought the advice of independent consultants when formulating the SMS. Further, incoming purchasers had the right of rescission to which I have referred.
However, the circumstances before his Honour were different from those before me.
First, the Owners Corporation in this case does not rely on its "absence from negotiations" leading to the final form and registration of the SMS as itself bespeaking injustice for the purposes of the CRA.
Second, unlike the case before his Honour, in this case the Owners Corporation does submit that the allocation of expenses under the SMS is, itself, an unfair bargain.
In those circumstances I do not find his Honour's observations, which were no doubt apposite on the facts before his Honour, determinative of the question before me.
Eastmark also referred to the dispute resolution provisions in the SMS.
As I have said, it is not easy to achieve a reconciliation between the provision in cl 56.12 for expert determination of a dispute concerning "the proportion of a member's costs for a shared facility" and the requirement in cl 48 for a unanimous resolution of the BMC to "adjust the division of costs" of shared facilities. And no matter what an expert appointed under cl 56 determines, Eastmark has the power to prevent a unanimous resolution.
The mechanism in cl 56 is thus not a certain means by which any inherent unfairness in the operation of the SMS can be resolved. Accordingly, I do not see the existence of cl 56 itself as compelling the conclusion that other aspects of the SMS cannot be seen to be unjust.

[45]

Discretionary considerations - delay

Eastmark submitted that the Owners Corporation's "gross delay" in bringing these proceedings was a "strong discretionary consideration" for declining relief under the CRA.
Eastmark pointed to a note in the minutes of the meeting of the executive committee of the Owners Corporation of 17 October 2005 (to which I have referred in the context of the Owners Corporation's submissions concerning Eastmark's alleged breach of fiduciary duty arising from the 3 January 2006 meeting of the Owners Corporation).
Those minutes also recorded that: "It was resolved that the Strata Manager be instructed not to pay any further contributions to the Building Management Committee until the assessment of cost allocation has been discussed".
Thus the question of "cost allocation" has been a matter of concern to the Owners Corporation since as early as October 2005 (only six months after the Owners Corporation was created).
The Owners Corporation did not commence these proceedings until August 2013.
Before then: 1. in August 2009 the Owners Corporation raised the possibility of an "audit" being conducted to see "what needs to be done" to "separate/relocate the shared services"; in response to which Mr Park "agreed in principle to have the current proportions reviewed"; 2. on 30 November 2009, Eastmark, through its solicitors, said that it was "prepared to carry out a joint review and audit of the Shared Services to determine whether the apportionments of costs as set out in the [SMS] are fair and reasonable", albeit not retrospectively ("there is to be no readjustment in respect of past payments"); 3. between March and June 2010 the parties exchanged correspondence debating how any review to changes in the apportionment of costs should be conducted, who should pay for the review and whether or not it should be retrospective; following which, on 10 June 2010, Eastmark's solicitors wrote to the Owners Corporation's solicitors as follows: "However, we reiterate that our client will only continue the negotiations if agreement can be reached quickly. Our client has now incurred substantial legal costs and does not want to incur any other costs to determine whether it is worthwhile to carry out the review. Therefore, if your client's position is that there are still significant items in dispute, our client does not see any reason to continue these negotiations." 1. on 21 November 2011 Eastmark sent the Owners Corporation an earlier version of the "Relocation Proposal" that I consider below in the context of Eastmark's cross-claim. Eastmark enclosed a report prepared by Rider Levett Bucknall, which it had commissioned to carry out an audit of shared facilities. That report was stated to "compare the methods of apportioning costs under the SMS" and to identify "some minor errors and omissions" in the shared facilities schedule. Eastmark stated it was prepared to "correct" those matters but only if the Owners Corporation agreed to the then version of the Relocation Proposal.
There the matter rested. The Owners Corporation has not pointed to any further discussion of the question between November 2011, and when it commenced proceedings in August 2013.
There thus has been some delay by the Owners Corporation in making its application to seek to have the SMS rewritten.
I do not see that delay as being a reason to refuse the Owners Corporation any relief under the CRA. I do, however, see it as a reason not to grant the Owners Corporation retrospective relief under the CRA.
Levies have been struck on the basis of the SMS being in its current form. Were it to be rewritten retrospectively, it would be necessary to reassess the amount of those levies. Were the cost allocations for, to take one example, Switchboard C to be retrospectively reassessed between Lots 1 and 2, it is likely that the Owners Corporation would receive a credit and Eastmark would be liable for additional levies. According to the evidence of Mr Neil Gray, the Owners Corporation's accounting expert, were the SMS to be retrospectively amended in all the respects contended for by the Owners Corporation, Eastmark and Denison Street would become liable for additional levy contributions in the order of $3.2 million.
Leaving aside the potential injustice of that result, a retrospective revision of the levy obligations of the parties would very likely affect whether they had been "members entitled to vote" at BMC meetings. As I discuss in more detail below when considering Eastmark's cross-claim, members of the BMC are not entitled to vote at BMC meetings unless they are up to date in their levy payments; that is, to use the expression adopted by the parties, they are "financial".
Neither the Owners Corporation nor Eastmark have developed any submissions as to what the precise consequences of a retrospective disqualification of either as a "member entitled to vote" would be. They would doubtless be far reaching. Mr Leopold said (albeit without elaboration) they "would undoubtedly wreak havoc on the Beau Monde complex as a whole".
There are at least two meetings of the BMC in respect of which this question is critical; namely those which occurred on 25 October 2013 and 10 January 2014 concerning the amendments of the shared facilities necessary to implement Eastmark's "Relocation Proposal" the subject of its cross-claim which I discuss in detail below (see [613ff] below).
As I discuss below, a fundamental (and I have found decisive) part of the debate about the Relocation Proposal is whether the Owners Corporation and Eastmark were "members entitled to vote" at those meetings. At no point during submissions on that question did the Owners Corporation submit that the position in relation to that vital question was liable to be changed, retrospectively, by the outcome of the Owners Corporation's CRA case. The Owners Corporation conducted that part of the case on the implicit basis that the quantum of levies (struck at earlier meetings) relevant to the entitlement to vote issue was correct (although the authority of the BMC to strike the levies was, for other reasons, challenged).
This factor, alone, persuades me that any amendment to the SMS should not be retrospective.

[48]

THE OWNERS CORPORATION'S CLAIM AGAINST SAVILLS AND STRATA ASSOCIATES - RECEIPT, ALLOCATION AND PAYMENT OF INVOICES BY SAVILLS AND STRATA ASSOCIATES

In order to understand the claims made by the Owners Corporation against Savills and Strata Associates, it is necessary to understand the role that those two entities played in the receipt, allocation and payment of invoices for expenses incurred in relation to the shared services.
Savills, as the building manager, was responsible for allocating work to entities that performed services at Beau Monde.
Invoices for such services, and for utilities such as electricity, water and gas were received, in the first instance, by Savills.
Savills reviewed the invoices and determined whether to approve them for payment. If Savills determined to approve an invoice for payment, it affixed a particular stamp to it. Savills then completed the sections of the stamp entitled "date", "invoice no", "a/c code", "amount", "prepared by" and "signed".
With respect to the entry for "a/c code" Savills selected a code from what the parties described as a "chart of accounts" provided to Savills by Strata Associates. That chart of accounts listed the ledger accounts and account codes of the BMC. Those account codes did not correspond to the categories in the Schedule to the SMS nor identify how the costs of invoices were to be allocated between members of the BMC in accordance with Schedule 2 of the SMS.
Savills did not make any allocation of the expenses for shared facilities between members of the BMC or separately identify proportions of invoices for shared facilities for payment by members of the BMC, other than in relation to House Lights 1 and House Lights 2 (see below).
Once the above entries were completed, Savills sent the invoice to Strata Associates for payment and recording in the accounts of the BMC.
Strata Associates prepared what the parties described as "Wash-Up Spread Sheets" (which expression I will adopt) annually. In the Wash-Up Spread Sheets Strata Associates apportioned the amounts allocated to the BMC account codes between each of the four Lots using the percentages in the Schedule to the SMS. I will return to this below.

[50]

The Building Management Agreement

On 8 April 2005 the BMC and Savills entered into the BMA.
The initial term of the BMA was two years. It was extended on a number of occasions until 29 June 2014, when it was terminated.
The BMA recited that: 1. the BMC was responsible to operate, maintain, repair and replace "shared facilities" according to the SMS; 2. under the SMS the BMC had power to enter into an agreement with a building manager to assist it perform those functions; and 3. Savills had the expertise to assist the BMC perform those functions.
The BMA provided that the role of Savills was "supervisory and advisory in nature" and that Savills did not have authority to exercise the functions of the BMC or deal with the shared facilities.
Pursuant to the BMA, Savills agreed to perform the "Duties".
The "Duties" that are relevant are those in respect of "Service Contracts" and "shared facilities".
"Service Contracts" were defined in cl 25.1 of the BMA to mean "a contract with a Service Provider for the operation, maintenance, repair or replacement of shared facilities (e.g. a contract for the provision of cleaning services)".
"Service Provider" was defined to mean a person who provides operational, maintenance, repair and replacement services for shared facilities under a Service Contract.
"Shared Facilities" was defined to have the same meaning as in the SMS.
So far as concerns "Service Contracts" the BMA provided that: 1. the BMC appointed Savills as its authorised agent to negotiate, subject to authorisation of the BMC to enter into, and supervise Service Contracts for shared facilities (cl 10.1); and to develop the scopes of work for Service Contracts (Schedule 1, cl 2.1); 2. once the scope of work for a Service Contract was agreed by the BMC, Savills could invite tenders for the Service Contract, negotiate with Service Contractors about the Service Contract and the scope of the contract, make recommendations to the BMC about tenders received and to develop a form of contract for Service Contracts acceptable to the committee (Schedule 1, cl 2.2); 3. Savills should supervise each Service Contractor to ensure that the Service Contractor performed its duties according to the Service Contract (in that regard to keep a log of service calls and maintenance works carried out by each Service Contractor, ensure the Service Contractors cleaned and removed rubbish and materials after they had done works at Beau Monde and to ensure that Service Contractors used suitable materials) (Schedule 1, cl 4.2).
Critically, cl 2.4 of the BMA provided, under the heading "Obligations when an invoice is received" as follows: "When an invoice under a Service Contract is issued (or re-issued) by a Service Contractor, the Building Manager must: (a) review and, where appropriate, approve the invoice for payment by the Committee; and (b) forward the approved invoice to the Strata Manager within a reasonable time; and (c) for an invoice which the Building Manager does not approve for payment, clarify the invoice with the Service Contractor and arrange for it to be re-issued (until the Building Manager is satisfied and approves the invoice for payment)."
So far as concerns shared facilities, Savills' duties were to: 1. generally supervise the use of shared facilities (with residential and commercial visitor parking referred to in terms) (Schedule 1, cl 1.2(c)); 2. regularly read water meters and sub-meters comprising shared facilities and make a record of water consumption by each member (Schedule 1, cl 1.2(c)); 3. provide assistance to BMC members, lot owners and occupiers about using shared facilities (Schedule 1, cl 1.2(e)); 4. monitor the compliance of BMC members, lot owners and occupiers with the SMS (Schedule 1, cl 1.2(f)); 5. keep a register of complaints related to shared facilities and report any complaints to Strata Associates as strata manager (Schedule 1, cl 1.2(i)); 6. at least every three months provide the BMC with a written report identifying any problems or defects with the operation, maintenance and repair of shared facilities (Schedule 1, cl 3.1); 7. arrange for the repair of all damaged shared facilities and keep a log of all costs associated with the repair and maintenance of shared facilities (Schedule 1, cl 3.2); 8. regularly monitor the operation of shared facilities and report any faults to Strata Associates (Schedule 1, cl 3.3); 9. keep and maintain a register of all plant and equipment that makes up the shared facilities (Schedule 1, cl 3.4); 10. schedule and arrange routine and preventative maintenance and statutory certification and inspections of shared facilities (Schedule 1, cl 4.3); and 11. carry out an annual audit of shared facilities identifying the adequacy and maintenance programs, changes required to existing maintenance programs and the adequacy of the budget for the maintenance and repair of shared facilities (Schedule 1, cl 6.1).
The BMA also obliged Savills to: 1. monitor the compliance with the SMS of the members of the BMC, and owners and occupiers of Beau Monde (Schedule 1, cl 1.2(f)); and 2. maintain a close working relationship with Strata Associates and provide information reasonably requested by Strata Associates (Schedule 1, cl 1.2(j)).
In substance, Savills' obligations under the BMA were to: 1. negotiate, invite tenders for and, if it had the BMC's authority, enter into, and thereafter supervise Service Contracts; 2. arrange for the repair, maintenance and operation of, and supervise the use of shared facilities; and 3. review and approve, and where appropriate clarify invoices from Service Contractors, and forward approved invoices to Strata Associates for payment.

[52]

Allocation of invoices

The Owners Corporation's claim in relation to the alleged incorrect allocation of costs to the Owners Corporation is framed either as a breach of cl 2.4 of Schedule 1 of the BMA or as a breach of a term that is said to be implied into the BMA "in fact or as a matter of construction".
In its Further Amended Commercial List Statement, the Owners Corporation alleged that Savills "had to carry out the following tasks" to comply with its obligations under the BMA (particularly under cl 2.4): 1. understand the terms of the SMS, the nature and location of all shared facilities and the proper categorisation of the various parts of the shared facilities; 2. appreciate that any facility not actually used by a member of the BMC was not a shared facility; and 3. accurately determine all actual charges made for each of the shared facilities by: 1. the assessment of the usage of the shared facility by each member of the BMC; 2. the proper examination and evaluation of the adequacy of all invoices or other claims for payment; and 3. making investigation of charges from those providing the services to ensure that only costs incurred by the BMC were approved and forwarded to the strata manager.
The Owners Corporation alleged that these "requirements" were implied into the BMA "in fact or as a matter of construction".
The Owners Corporation's case that Savills had a duty concerning the allocation of invoices for shared facilities is seemingly derived from these allegations; although, as can be seen, invoice allocation is not stated to be one of the tasks Savills "had to carry out".
The Owners Corporation pleaded that in breach of cl 2.4 and the alleged implied term Savills: 1. allocated invoices to the BMC when they were not invoices in relation to shared facilities; 2. allocated invoices to the wrong shared facility category in the SMS; 3. incorrectly allocated invoices to BMC members; 4. allocated invoice apportionment inconsistently with the SMS allocations; and 5. allocated invoice apportionment inconsistently with actual consumption (presumably by members of the BMC).
There is no term of the BMA that imposes an obligation on Savills to allocate invoices for shared expenses between BMC members. There is only one clause in the BMA directed to the question of Savills' "obligations when an invoice is received". That is cl 2.4, which says nothing about allocation of invoices. That clause imposes on Savills an obligation, on receipt of an invoice under a Service Contract, to do no more than review and, as appropriate, clarify or approve the invoice for payment by the BMC, and to forward the approved invoice to Strata Associates within a reasonable time for payment.
How then, could such a term be implied?
In order to imply a term into a contract it is necessary to establish each of the conditions referred to in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283 (and in the numerous cases in which the High Court has repeatedly endorsed those statements: see the cases gathered at footnote 556 in N Seddon, R Bigwood and M Ellinghaus, Cheshire & Fifoot: Law of Contract, (10th ed 2012, LexisNexis) at [10.55]): 1. it must be capable of clear expression; 2. it must be necessary to give the contract business efficacy and that the contract be ineffective without it; 3. it must be so obvious it goes without saying; and 4. it must not contradict an express term of the contract.
The High Court has recently restated the principles relevant to the construction of commercial contracts in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 325 ALR 188.
In that case French CJ, Nettle and Gordon JJ said (at [47] to [51]): "[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. [48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. [49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals. [50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations. [51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption 'that the parties…intended to produce a commercial result'. Put another way, a commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'." [Citations omitted]
In the same case, Kiefel and Keane JJ said at [108]: "That regard may be had to the mutual knowledge of the parties to an agreement in the process of construing it is evident from Codelfa Construction Pty Ltd v State Rail Authority of New South Wales. Mason J, with whom Stephen and Wilson JJ agreed, accepted that there may be a need to have regard to the circumstances surrounding a commercial contract in order to construe its terms or to imply a further term. In the passages preceding what his Honour described as the "true rule" of construction, his Honour identified "mutually known facts" which may assist in understanding the meaning of a descriptive term or the "genesis" or "aim" of the transaction. His Honour had earlier referred to the judgment of Lord Wilberforce in Prenn v Simmonds, where it was said that: [t]he time has long passed when agreements…were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations." [Citations omitted]
In this case, the mutual knowledge of the parties included the SMS. The BMA expressly acknowledged the existence of the SMS. It recited that the BMC has sought Savills' assistance to perform its functions under the SMS concerning the operation, maintenance, repair and replacement of shared facilities (see [332] above). The SMS was thus, in effect, incorporated by reference into the BMA.
Under cl 2.3(b) of the SMS, the BMC had power to appoint a building manager to "assist in the operation, maintenance and repair of shared facilities" and, under cl 10.1, to provide "operational and management services" for Beau Monde. By reason of cl 10.2 of the SMS the BMC was not empowered to delegate any other functions to a building manager (see [58] above).
Under cl 2.3(a) of the SMS, the BMC had the power to appoint a strata manager to perform "secretarial and financial" functions and, under cl 9.1, the functions of "treasurer". Treasury functions included collecting contributions from BMC members (cl 8.3).
By cl 6.1 of the SMS the BMC's functions included the operation, maintenance, renewal and replacement of shared facilities and the ability to "deal with and make decisions about" shared facilities. By cl 46.7 of the SMS, the BMC was obliged to "charge" (that is, seek contributions from) its members for the costs of shared facilities "according to" Schedule 2 to the SMS (see [29] above). Thus, part of the treasury functions under the SMS involved the allocation to each member of the BMC the costs of the shared facilities.
The SMS thus contemplates that the BMC could delegate to a strata manager, but not to a building manager, the treasury function of recovering contributions, including in respect of costs of shared facilities, and of allocating those costs between BMC members.
The BMC could not have delegated to Savills the function of allocating the costs of shared facilities between BMC members. There could not have been an express term of the BMA obliging Savills to allocate such costs. In that circumstance, there cannot, in my opinion, be an implied term to that effect. The parties to the BMA must be taken to have intended to produce a commercial result. Absent clear words to the contrary, they should not be taken to have agreed that the BMC delegate to Savills a function that the BMC was not, under the SMS, permitted to delegate to a building manager, let alone to have implicitly agreed to do so. To look at the same question from a different viewpoint, an implied term of the kind contended for by the Owners Corporation would not be necessary to give business efficacy to the BMA. On the contrary, it would have the effect to which I have referred. And the BMA is perfectly effective without such a term.
If any party had an obligation correctly to allocate invoices from Service Contractors, it was Strata Associates, and not Savills. As I have set out above, this is in fact what happened. Savills simply allocated invoices in accordance with the account codes provided to it by Strata Associates in its chart of accounts. It was Strata Associates that, in the Wash-Up Spread Sheets, allocated the invoices to the categories in the Schedule to the SMS. I will return to this when considering the Owners Corporation's claim against Strata Associates.

[53]

House Lights 1 and House Lights 2

I have set out above the process that Savills followed concerning the electricity invoices it received in respect of House Lights 1 and House Lights 2 (being part of Switchboard C).
I fail to see how Savills can be criticised in relation to this matter.
I have found that it had no responsibility for allocation of invoices.
It recognised that the cost allocation set forth in the Schedule to the SMS for Switchboard C did not reflect usage. It suggested that the BMC install sub-meters so that actual consumption could be measured. That suggestion was not adopted. Although it was no part of its duties under the BMA, it made a suggestion about how costs might be allocated. I have set out above the practical difficulties arising from Switchboard C and the debate between the experts about reasonable allocation of electricity concerning the HVAC plant. Savills suggested allocation for House Lights 2 (albeit not House Lights 1) turns out to be exactly as the Owners Corporation now advocates - 60:40.
I am not able to see how Savills, as a building manager, could in those circumstances have provided a more accurate apportionment. Assuming it had a duty to exercise reasonable care in relation to its suggestion about House Lights 1 and 2, I see no basis to conclude it did not do so.
In any event, a question arises as to what loss has been caused to the Owners Corporation arising from Savills' suggested allocation.
In the chart of accounts that Strata Associates provided Savills there were two separate account codes for the allocations that Savills proposed in relation to House Lights 1 and 2.
According to the evidence served by the Owners Corporation, the total amount allocated to the account code that Strata Associates used for the monies to be recovered from the Owners Corporation was $1,166,901.
Had 100 per cent of the costs of Switchboard C (House Lights 1 and House Lights 2) been allocated to the Owners Corporation (as called for by the SMS) the amount that would be allocated to the Owners Corporation was, according to Mr Floth's calculations, $2,144,712.
Had 60 per cent of the costs of House Lights 1 and House Lights 2 been allocated to the Owners Corporation (the Owners Corporation's case in these proceedings) the amount to be allocated to the Owners Corporation would be, again according to Mr Floth's calculations, $1,304,502.
Both these amounts exceed the amount actually allocated to the Owners Corporation.
Thus assuming, contrary to my conclusions, that Savills had some obligation in relation to this matter, the Owners Corporation has not shown that it has suffered any loss as a result.

[60]

The 18 July 2011 meeting of the BMC

The Owners Corporation alleges that the BMC agreed to enter into the Second Agreement at its meeting of 18 July 2011.
At that meeting the Owners Corporation's representative, Mr Kabraji, proposed a motion: "To review the Strata Manager's Performance, review the current contract and consider alternate strata managers".
That motion was defeated. The minutes noted: "Eastmark is satisfied with the performance of [Strata Associates] as the current BMC strata manager. A proposal will be submitted at the meeting by [Strata Associates] for a new 2 year contract between [Strata Associates] and the BMC. If Eastmark determines that the fee is appropriate, Eastmark will vote to approve that new 2 year contract under resolution 49. Disagreement to be Noted. Mr Kabraji seeks to obtain three (3) quotes from alternate sources for the services which [Strata Associates] provide."
Later in the meeting (as resolution 49) the BMC resolved (by majority with the Owners Corporation voting against the proposal) that: "The BMC table and accept the strata management contract 2 years".
The "strata management contract" was the Second Agreement.
The document tabled at the 18 July 2011 meeting was marked "Draft Only". It provided for a term of two years with a commencement and expiry date "TBA" (presumably "to be advised"). The document also wrongly described the "management statement" to be the "Strata Management Statement dated 11th May 2011 relating to management of the building". The SMS is dated 6 April 2005.
Neither the BMC (nor any of its members) or Strata Associates executed the Second Agreement. Neither the Owners Corporation nor Strata Associates led evidence to explain this.
Mr Bermingham, from Strata Associates, was "in attendance" at the 18 July 2011 meeting. Indeed he is noted in the minutes as being the chairperson. Strata Associates did not call Mr Bermingham (or anyone else) to explain why it had not executed the agreement.
Nor did the Owners Corporation call Mr Kabraji (or anyone else) to explain why it did not execute the agreement. Mr Kabraji represented the Owners Corporation at the 18 July 2011 meeting and, on behalf of the Owners Corporation, not only proposed that the BMC "review" the 8 April 2005 Contract, and "consider alternate managers" but also, on behalf of the Owners Corporation, voted against acceptance of the Second Agreement. In those circumstances, Ms Rees submitted that, looking at the matter objectively (see Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at [25] per Gaudron, McHugh, Hayne and Callinan JJ) it is unlikely that the Owners Corporation would consider that it, as a member of the BMC, was bound by the Second Agreement until it had actually executed that document. I consider there is force in this submission.
The Owners Corporation pointed out that it was only one of four members of the BMC and should be taken to have understood that, once it had been outvoted on this question, it accepted it was bound by the result.
But, if this was the case, and if the Owners Corporation accepted it was bound by the Second Agreement notwithstanding voting against its acceptance and notwithstanding not having executed it, Mr Kabraji could easily have given evidence to this effect. He did not. He was certainly available. I was told he was in Court throughout the hearing. And it was for the Owners Corporation to prove the point.
Post-contractual conduct is admissible on the question of whether a contract was formed (per Heydon JA in Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153 at [25]).
In that context there was debate before me as to whether the manner in which Strata Associates rendered invoices after 18 July 2011 showed that it regarded the Second Agreement as governing its relationship with the BMC.
However, I find the evidence dealing with that matter to be equivocal.
The Owners Corporation pointed to two invoices rendered by Strata Associates at an hourly rate specified in the Second Agreement, but not in the SA Agreement. However those two invoices were rendered in September 2009 and July 2010; well before the 18 July 2011 meeting.
The terms of the Second Agreement draw a distinction between work done within business hours and work done outside business hours. No such distinction is drawn in the SA Agreement. Some invoices rendered by Strata Associates after 18 July 2011 referred to a business hour rate.
On the other hand, most of the post 18 July 2011 invoices to which my attention was drawn were rendered at rates that, although higher than those in the SA Agreement, do not correspond with those in the Second Agreement. Strata Associates suggested that the latter fact might be explained by CPI or other like increases. However, the Owners Corporation's analysis of the particular invoices to which my attention was drawn show that that is unlikely.
Mr David Linders, a director of Strata Associates, gave evidence that Strata Associates dealt with "hundreds of plans" which were all on "different agreements" and that accordingly Strata Associates gave its employees "one list of rates" from a "template" for use with all its customers. That might explain why the post 18 July 2011 invoices to which my attention was drawn did not correspond with the rates in either the SA Agreement or the Second Agreement.
Mr Linders also gave evidence of the usual procedures that Strata Associates followed at the time when entering into a new agency agreement (such as the Second Agreement) and said that his researches revealed that Strata Associates had not complied with many of those requirements (including executing the Second Agreement and complying with various internal formalities).
Ms Rees also drew my attention to the meeting of the BMC on 16 September 2013 (more than two years after the 18 July 2011 meeting) at which it was proposed that the BMC enter into a further agreement with Strata Associates. Unlike the draft agreement tabled at the 18 July 2011 meeting, the agreement tabled at the 16 September 2013 meeting specified a commencement date and was executed on behalf of Strata Associates. Although the Owners Corporation's pleaded case refers to this third agreement, its closing submissions did not. I was given no explanation for this, although Ms Rees stated in her submissions that the motion to approve that contract was withdrawn from the agenda "as a result of the Owners Corporation's threats to sue". I have assumed that the Owners Corporation abandoned reliance on this third agreement.

[62]

The Owners Corporation's pleaded case

It is important to identify, precisely, the pleaded case that the Owners Corporation makes against Strata Associates as there was a tendency, in its final submissions, for the Owners Corporation to make broad complaints about Strata Associates' conduct that do not find an anchor in its pleadings.
Those broad complaints were summarised by the Owners Corporation in the opening paragraphs of its final submissions against Strata Associates as follows: "183. The [Owners Corporation] contends that Strata Associates breached the BMC Agreements and/or was negligent in implementing the terms of the SMS when it purported to exercise its functions assumed under the BMC Agreements. This resulted in: a. the [Owners Corporation] paying more than its fair share of the costs of the facilities in Beau Monde; b. the [Owners Corporation's] funds being used to pay for costs which were not properly payable by the [Owners Corporation] under the SMS but rather were: i. payable by any of the Commercial Scheme, Retail Scheme, the Car Park Scheme; or ii. for works or services that did not relate to any component of Beau Monde; and c. failure to appropriately levy lot owners, such that the BMC accounts were in arrears; … 184. The [Owners Corporation] claims the contributions that it paid to Strata Associates for the purposes of the BMC [that] were not properly dealt with. 185. The [Owners Corporation] claims damages against Strata Associates for these payments."
In discussing the Owners Corporation's pleadings I shall ignore the references within it to the Second Agreement (which I have found the parties did not embrace). I shall also ignore the agreement tabled at the meeting of 16 September 2013 (which is described as the "Third Agreement" in the pleadings) as I take the Owners Corporation to have abandoned reliance on that agreement (see [418] above).
In its Amended Statement of Claim, the Owners Corporation relied on four express terms of the SA Agreement. Each was said to arise from a number of Agreed Services.
Only three were relied on in final submissions. Those three terms were described as the "Administration Terms", the "Payment Terms" and the "Recovery Terms". The services to be provided pursuant to those terms were described in the pleadings as the "Administrative Services", the "Payment Services" and the "Recovery Services". (The pleaded "Secretarial Terms" were not mentioned in submissions; I took them to be abandoned).
In relation to each of these terms, the Owners Corporation alleged that, in order to comply with those terms, Strata Associates "had to carry out" specified tasks. Each of those "requirements" was said to be a term implied as a matter of fact or by construction of the relevant express terms.
Before dealing with each of those matters, I will consider the relationship between the SA Agreement and the SMS.
As I have mentioned in the context of discussing the Owners Corporation's claim against Savills, under cll 2.3(a) and 9.1 of the SMS, the BMC had the power to appoint a strata manager to perform "secretarial and financial functions" and the functions of "treasurer". Treasury functions included the collection of contributions from BMC members (cl 8.3 of the SMS) and, by reason of cl 46.7 of the SMS, the allocation to each member of the BMC the costs of the shared facilities.
Thus, the SMS contemplated that the BMC could delegate to a strata manager (although, as I have found, not to a building manager) the treasury functions of recovering contributions, including in respect of the costs of shared facilities, and of the allocation of those costs between BMC members.
Mr Linders explained that from 2005 Strata Associates offered three types of strata management services: acceptance of all functions able to be delegated by a BMC; acceptance of most of such functions, and acceptance of only specified functions.
The SA Agreement was of the latter type. Thus, Mr Linders said: "The third type is specific delegation, where Strata Associates only carries out specific duties agreed with the Owners Corporation or Building Management Committee with a facility for additional services to be provided at additional cost. For these types of agency agreements, Strata Associates is usually required to perform administrative and secretarial functions only except when specifically requested, and Strata Associates accepts to provide the additional service (such as advice or other duties) for an additional fee. The remuneration for this type of agency agreement is less than the two other types of agency agreements which Strata Associates enters into. … These types of agency agreements are common for schemes with on-site building managers, or very active Committee Members who have day to day involvement in the operation of the scheme."
Thus, cl 2.1 of the SA Agreement was in the following terms: "The members [of the BMC]: (a) appoint [Strata Associates] as the strata managing agent under the [SMS]; and (b) delegate the agreed services [being the services set out in Schedule A to the Agreement] to [Strata Associates]".
Clauses 2.2 and 2.3 of the SA Agreement were in the following terms: "2.2 At any time during the term or any successive term [Mr Shin] may request [Strata Associates] in writing and in accordance with the [SMS] to accept a delegation and to perform any or all of the additional services [being the services set out in Schedule B] for the additional services fee [being the fee set out in Schedule C]. 2.3 [Strata Associates], at its absolute discretion, may elect not to accept a delegation of any or all the requested additional services."
The effect of cl 2.1 was that the Owners Corporation delegated to Strata Associates the Agreed Services in Schedule A. Strata Associates agreed to perform those services for the "agreed service fee".
The relevant "accounting services" specified in Schedule A to the SA Agreement so delegated to Strata Associates (that is, those pleaded) are: "2. Prepare levy notices 3. Monitor and identify levies in arrears 4. Pay accounts on behalf of the BMC (eg for water charges, council rates and maintenance) … 7. Provide statutory reconciled accounts including balance sheet, statement of income and expenditure and levy status report 8. Prepare administrative fund budget and arrange for sinking fund budget 9. Manage administrative fund and sinking fund".
None of those services, in terms, included recovery from members of the BMC of the costs of shared facilities, or allocation of those costs between members of the BMC. That no doubt explains why, in its pleading, the Owners Corporation relied on terms said to be implied from those express terms. I return to this below.
The effect of cl 2.2 of the SA Agreement was that the Owners Corporation might delegate to Strata Associates further functions, being all or some of the Additional Services in Schedule B; but only if Strata Associates agreed to accept such a delegation (see cl 2.3). In that event, Strata Associates was entitled to charge the "Additional Services fee" set out in Schedule C.
One of the "Additional Services" referred to in Schedule B to the SA Agreement was to "Provide Additional Reports - Provision of additional financial reports or statement". I have mentioned that Strata Associates prepared the Wash-Up Spread Sheets in which they allocated the invoices forwarded to them by Savills to the various categories in the schedule to the SMS. During the hearing much attention was focused on the Wash-Up Spread Sheets. However, as I explain below, they are not referred to in the Owners Corporation's pleaded case against Strata Associates. Those pleadings only refer to the particular Agreed Services I have mentioned. The pleadings make no reference to the Additional Services, or the Wash-Up Spread Sheets.

[63]

The Administration Terms

This term is pleaded as follows: "By the express terms of the BMC Agreements, Strata Associates agreed to provide services ('the Administrative Services') including providing accounting information to the members of the BMC, to provide them with the basis to make informed business decisions that would allow them to be better equipped in their management and control of the costs of shared facilities under the SMS, and to manage and control the BMC funds to be used in paying for the cost of the shared facilities under the SMS ('the Administration Terms')".
Particulars of the agreed services said to give rise to this term were cl 2.1 and the following "agreed services": "7. Provide statutory reconciled accounts including balance sheet, statement of income and expenditure and levy status report. 8. Prepare administrative fund budget and arrange for sinking fund budget. 9. Manage administrative fund and sinking fund."
The Owners Corporation alleged that in order to carry out the Administration Terms and to provide the Administration Services, Strata Associates "had to" and that it was an implied term of the SA Agreement that Strata Associates would: "(a) understand the terms of the SMS, the nature and location of all physical shared facilities nominated in [the] BMC, and the use that each individual member may have of those shared facilities; (b) appreciate that any facility not actually used by a member of the BMC was not a "shared facility" for the purposes of the SMS; (c) accurately determine all actual charges made for each of the shared facilities nominated in the SMS (and each members usage and share of cost) by the assessment of the usage of the shared facility by each member of the BMC, the proper examination and evaluation of the adequacy of all invoices or other claims made for payment, and by making investigation of those charges from those providing the services to ensure that only costs actually incurred by the BMC were reflected in the BMC accounts and budgets; (d) provide information to the members of the BMC about the financial position, performance and changes in the BMC's financial position by reference to the past income and expenditure by each member of the BMC by reference to the actual usage of the facility by each BMC member to enable the members of the BMC to assess the likely future expenditure on shared facilities, and the likely contribution to be made by each member of the BMC. (e) prepare accounts that would correctly account for the allocation of shared facility costs amongst BMC members reconciled against the contributions made by BMC members; (f) only allocate invoices to the BMC when they were invoices in relation to shared facilities; (g) only allocate invoices to the correct shared facility category in the SMS; (h) properly allocate invoices to BMC members; (i) properly apportion pursuant to the SMS allocations; and (j) properly apportion costs of each shared facility referred to in the SMS pursuant to actual consumption."
The Owners Corporation alleged that Strata Associates, in breach of the Administration Terms (including the alleged implied terms): "(a) did not understand the terms of the SMS, the nature and location of all physical shared facilities nominated in [the] BMC, and the use that each individual member may have of those shared facilities; (b) did not appreciate that any facility not actually used by a member of the BMC was not a 'shared facility' for the purposes of the SMS; (c) did not accurately determine all actual charges made for each of the shared facilities nominated in the SMS (and each members usage and share of cost) by the assessment of the usage of the shared facility by each member of the BMC, the proper examination and evaluation of the adequacy of all invoice or other claims made for payment, and by making investigation of those charges from those providing the services to ensure that only costs actually incurred by the BMC were reflected in the BMC accounts and budgets; (d) did not prepare accounts that would correctly account for the allocation of shared facility costs amongst BMC members reconciled against the contributions made by BMC members; (e) did not provide information to the members of the BMC about the financial position, performance and changes in the BMC's financial position by reference to the past income and expenditure by each member of the BMC by reference to the actual usage of the facility by each BMC member to enable the members of the BMC to assess the likely future expenditure on shared facilities, and the likely contribution to be made by each member of the BMC in that the budgets and annual financial statements which were based on an incorrect: (i) allocation of invoices to the BMC when they were not invoices in relation to shared facilities; (ii) allocation of invoices to the wrong shared facility category in the SMS; (iii) allocation of invoices to BMC members; (iv) apportionment pursuant to the SMS allocations; and (v) apportionment pursuant to actual consumption."
In its closing submissions, the Owners Corporation contended that "it would appear non-contentious" that the terms set out at [442] above should be implied into the SA Agreement as part of the Administration Terms.
I do not agree.
In substance, the Owners Corporation's case is that, by reason of the identified Agreed Services, there should be implied into the SA Agreement an obligation on Strata Associates to "provide information" and "prepare accounts" and budgets which only allocated invoices to the BMC that related to shared facilities and which "correctly" allocated the costs of shared expenses between the BMC members.
I cannot see how such an implication can arise from the identified Agreed Services.
Agreed Service 7 represents a delegation by the BMC to Strata Associates of its obligation under cl 40.1(b) to prepare a "financial statement for each of its accounts" at the end of each financial year.
Agreed Service 8 represents a delegation by the BMC to Strata Associates of its obligation under cl 38.1 of the SMS to "prepare an administrative fund budget and sinking fund budget" for each financial year.
Agreed Service 9 does not, in my opinion, advance matters and simply means that Strata Associates agreed to manage the administrative and sinking funds "to the extent of the delegation" represented by the SA Agreement (to adopt the words of Strata Associates' expert, Mr Peter Callaghan).
I do not see it to be implicit in Strata Associates' obligation to provide Agreed Services 7, 8 and 9 that it would also be obliged to allocate shared expenses correctly between BMC members.
Further, it was an express term of the SA Agreement that the Owners Corporation could request, and Strata Associates could (at its discretion and for an additional fee) agree to provide an Additional Service (the provision of additional financial reports) that could do just that. It cannot be an implied term of the SA Agreement that Strata Associates, by performing an Agreed Service, also perform an Additional Service.
In those circumstances, I cannot see how (to adopt the language in BP Refinery), it would be necessary to give business efficacy to the SA Agreement to imply an obligation to provide the kind of information that the agreement contemplates, in terms, could be called for. I do not see how such a term could be said to be "so obvious it goes without saying".
As I have pointed out, the Owners Corporation's pleaded case makes no complaint about the Wash-Up Spread Sheets. It makes no reference to any Additional Service. It refers only to Agreed Services and the implication said to arise therefrom.
In its reply submissions, the Owners Corporation suggested that that "point can be dealt with, if necessary, by including a further particular (which the [Owners Corporation] seeks leave to include if required) to refer to the 'additional services' part of the relevant agreement". In later submissions, delivered several weeks after the conclusion of the proceedings, the Owners Corporation sought leave to amend its pleadings relevant to the Recovery Terms and Strata Associates' alleged duty of care to the Owners Corporation.
I am not prepared to permit such an amendment at this very late stage of the proceedings.
The Owners Corporation also made this submission: "Relevant to this, Strata Associates also suggests that its obligation to provide accounting under the BMC Agreement did not require it to allocate expenses between members. This raises the obvious question again: without allocating costs how could Strata Associates determine the appropriate levies to be paid by members? The fact is that Strata Associates did keep financial records, including accounting records (from which the 'wash up spread sheets' were prepared) and determined such levies (for example the additional levies claimed to be payable by the [Owners Corporation] in September and November 2013 …) - without allocating costs there could be no basis for any levies."
But the Owners Corporation does not, in its pleading, rely on any obligation on the part of Strata Associates to "determine the appropriate levies to be paid" by BMC members as giving rise to the implication contended for in relation to the Administration Terms. As I discuss below, the Owners Corporation's pleading does rely on Strata Associates' agreement to prepare levy notices and monitor and identify levy arrears in relation to the Recovery Terms. But the only breach alleged in relation to that term is not charging Eastmark interest on levies (a complaint about which Eastmark has a separate answer, which I discuss below when considering the "Levy Proceedings" (being proceedings numbered 2013/340426)later in these reasons).

[64]

The Payment Terms

This term was pleaded as follows: "By the terms of the BMC Agreements, Strata Associates also agreed to pay all BMC accounts, creditor invoices, costs and expenses of the BMC in accordance with the terms of the SMS ('the Payment Services')."
Particulars of the agreed services said to give rise to this term were cl 2.1 of the SA Agreement and the following "agreed services": "3. Monitor and identify levies in arrears. 4. Pay accounts on behalf of the BMC (e.g. for water charges, council rates and maintenance)."
The Owners Corporation alleged that in order to carry out the Payment Terms, Strata Associates "had to", and it was an implied term of the SA Agreement that Strata Associates would: "(a) understand the terms of the SMS, the nature and location of all physical shared facilities nominated in [the] BMC, and the use that each individual member may have of those shared facilities; (b) appreciate that any facility not actually used by a member of the BMC was not a "shared facility" for the purposes of the SMS; (c) accurately determine all actual charges made for each of the shared facilities nominated in the SMS (and each members usage and share of cost) by the assessment of the usage of the shared facility by each member of the BMC, the proper examination and evaluation of the adequacy of all invoices or other claims made for payment, and by making investigation of those charges from those providing the services to ensure that only costs actually incurred by the BMC were paid by Strata Associates."
These allegedly implied terms mirror implied terms (a), (b) and (c) contended for in relation to the Administration Terms, save that the last words of (c) are "were paid by Strata Associates" rather than "were reflected in the BMC accounts and budgets".
The Owners Corporation alleged that Strata Associates, in breach of the Payment Terms (including the alleged implied terms): "(a) paid invoices [addressed] to the BMC when they were not invoices in relation to shared facilities; (b) paid and allocated invoices to the wrong shared facility category in the SMS; (c) paid and allocated invoices to the wrong BMC members; (d) paid and allocated invoices apportioned incorrectly pursuant to the SMS allocations; and (e) paid and allocated invoices that were not apportioned pursuant to actual consumption when required under the SMS."
In its closing submissions, the Owners Corporation did not develop its submissions on this topic, but simply repeated its pleading.
In its reply submissions, the Owners Corporation put its case this way: "Further, Strata Associates' express obligation (not an additional service) to pay the BMC accounts correctly required it to: (a) decide what was payable from the BMC account, and (b) prepare a budget which would enable the correct administrative and sinking fund levies to be struck. In order to do this, Strata Associates had to determine what costs should be borne by the different members. The only way to do this would be to allocate expenses."
I do not agree.
It may well have been implicit in Strata Associates' obligation to "pay" BMC invoices that it would exercise reasonable care to ensure that only costs related to shared expenses under the SMS were paid from the "BMC account".
But I cannot see how an obligation to allocate such expenses between BMC members also arises from the obligation to pay the expenses. And, unlike its pleading concerning the Administration Terms, the Owners Corporation's pleading of the implied terms allegedly arising from the Payment Terms did not allege any obligations concerning allocation of invoices.
So far as payment of invoices was concerned, and as I have set out above, once Savills approved an invoice for payment pursuant to cl 2.4 of the BMA, it forwarded that invoice to Strata Associates for payment. The information available to Strata Associates was what appeared on the face of the invoice and the fact that Savills (which had engaged the relevant contractor to perform the service) had approved the invoice for payment.
I accept Ms Rees' submission that Strata Associates was entitled to rely on "Savills' expertise in knowing the development intimately, particularly when it came to allocating work orders and approving and coding invoices before forwarding to [Strata Associates] for payment".
In its pleading, particulars of the payments Strata Associates is said to have made in breach of the Payment Terms are said to be in Schedule G to the List Statement. But that schedule is concerned with the alleged discrepancy between the contributions sought from the Owners Corporation and the contributions that ought to have been sought had the SMS been followed.
I was not taken to payments that the Owners Corporation contended Strata Associates made that did not relate at all to shared facilities (apart from the electricity recoveries payments, which I deal with below).
Rather, in its submissions, the Owners Corporation focused on allegedly misallocated payments; payments that it alleged Strata Associates had allocated to the "Miscellaneous" category 13 in the Schedule to the SMS and the alleged over-allocation to the Owners Corporation by Strata Associates in respect of mechanical services, gas, fire services, House Lights 1 and 2 and the allocation to the Owners Corporation of all of the electricity recoveries.
I deal with these matters below in the context of Ms Rees' submissions concerning damage.

[65]

The Recovery Terms

This term was pleaded as follows: "Further, by the terms of the BMC Agreements, Strata Associates agreed to monitor and identify levies in arrears, and to take steps necessary to recover money owing to the BMC by any of its members."
Particulars of the agreed services said to give rise to this term were cl 2.1 of the SA Agreement and the following agreed services: "2. Prepare levy notices. 3. Monitor and identify levies in arrears. … 9. Manage administrative fund and sinking fund."
The Owners Corporation alleged that in order to carry out the Recovery Terms Strata Associates "had to" and it was an implied term of the SA Agreement that Strata Associates would: "(a) understand the terms of the SMS; (b) accurately determine all actual charges made for each of the shared facilities nominated in the SMS (and each members' usage and share of cost) by the assessment of the usage of the shared facility by each member of the BMC, the proper examination and evaluation of the adequacy of all invoices or other claims made for payment, and by making investigation of those charges from those providing the services to ensure that only costs actually incurred by the BMC were reflected in the BMC accounts and budgets; and (c) charge any BMC member interest in respect of all arrears in levies and contributions as the SMS provides at clause 43 of the SMS."
The only allegation of breach of the Recovery Terms (including the alleged implied terms) was that Strata Associates "did not charge members [presumably, Eastmark] interest for late contributions" according to the SMS. How that breach arose from the term pleaded was not explained.
Clause 43.1 of the SMS obliges each member of the BMC to pay interest on outstanding levies.
On 8 December 2005 the BMC unanimously: "Resolved that the Financial Statement to the period 30 November 2005 be noted. Further, the [BMC] resolved to remove interest from all lots and remain interest free".
The Owners Corporation submitted that, because the BMC did not thereafter resolve to amend the SMS to delete cl 43.1, Strata Associates "ought to have continued to charge interest on outstanding levies".
I do not accept this submission. Strata Associates was entitled to conduct itself in accordance with the unanimously expressed resolution of the BMC. In any event, for the reasons I set out below in the context of Eastmark's cross-claim, my conclusion is that the Owners Corporation is now estopped from complaining about non-payment of interest on outstanding levies.
As I have mentioned, the Owners Corporation, in its reply submissions, sought leave to add to its pleaded case concerning Recovery Services what it described as a "reference to Schedule B1 additional accounting services in the [SA Agreement]". The Owners Corporation did not attempt to explain what that "reference" might be, or how it would relate to the Owners Corporation's case concerning the Recovery Terms.
In any event, I am not prepared to grant the Owners Corporation leave to make an amendment only referred to in closing submissions.
As Ms Rees submitted: "The [Owners Corporation] did not plead any failure by Strata Associates in respect of the wash up spread sheet. Strata Associates did not come to meet such a case, which was only put by the [Owners Corporation] in final submissions."

[67]

Contractual limitations

Strata Associates relied on the contractual limitations in cll 6.4 and 6.5 of the SA Agreement.
Clause 6.4 of the SA Agreement provided: "6.4 [Strata Associates'] maximum liability to the members arising out of the provision or non provision of the agreed services or the additional services, whether under the law of contract, tort or otherwise, shall be the agreed services fee for the year of the term or successive term in which the liability arose".
Strata Associates submitted that the effect of this clause was that any liability of Strata Associates to the Owners Corporation was limited to an amount equal to the Agreed Services fee for the relevant year.
The Owners Corporation submitted that cl 6.4 was not enlivened because its claim against Strata Associates did not arise out of the "provision" or "non-provision" of services but because Strata Associates breached the SA Agreement "by taking steps contrary to the agreement".
I do not accept that submission.
As Ms Rees submitted, the thrust of the Owners Corporation's allegations in this case is that Strata Associates: 1. paid expenses that were not BMC expenses; and 2. did not properly allocate shared expenses between the Owners Corporation and the other members of the BMC.
Both these allegations relate to, and arise out of the provision (or the non-provision) of services, even if they also involve an allegation that Strata Associates took steps "contrary to" the SA Agreement.
Clause 6.5 of the SA Agreement provided: "6.5 [Strata Associates] is deemed to be discharged from all liability in respect of the agreed services and the additional services, whether under the law of contract, tort or otherwise, at the expiration of two years from the date of the act or omission giving rise to the liability, and the members (and persons claiming through or under the members) shall not be entitled to commence any action or claim against [Strata Associates] in respect of that act or omission after that date."
The Owners Corporation submitted that this clause was not enlivened because Strata Associates' "failure to allocate invoices pursuant to the SMS was on an ongoing failure each month and each year".
I do not accept that submission.
If there was a failure by Strata Associates to perform an obligation to pay or allocate invoices for shared expenses correctly, that failure occurred each and every time that it incorrectly paid or allocated such invoices. Such liability as it might have arose, and time under cl 6.5 began to run, on each of those occasions.
Ms Rees submitted, and the Owners Corporation did not dispute, that the Owners Corporation commenced proceedings against Strata Associates on 2 September 2013.
Accordingly, the combined effect of cll 6.4 and 6.5 is that : 1. the Owners Corporation is not entitled to recover any damages from Strata Associates for acts or omissions before 2 September 2011 (cl 6.5); and 2. any damages for acts or omissions after 2 September 2011 will be limited to the amount of the agreed services fee for those years: totalling $58,202.32.

[70]

Category 13 invoices - alleged over allocation $148,795

Category 13 in the Schedule to the SMS is entitled "Miscellaneous" and is described as being "costs associated with maintaining, repairing and replacing shared facilities". The Schedule to the SMS allocates 65 per cent of the costs of such shared facilities to Lot 1 (the Owners Corporation) and 13 per cent, 16 per cent and 6 per cent to the commercial, retail and car park lots respectively.
It is the Owners Corporation's case that Strata Associates incorrectly allocated to category 13, and paid, 291 invoices and that it has suffered damage in the sum of $148,795 as a result of that misallocation.
Some of those invoices relate to costs associated with maintaining the car park and courtyard. As I have said earlier, the Owners Corporation's case was that neither the courtyard or the car park were shared facilities and that, accordingly, the costs associated with maintaining or repairing them were not amenable to allocation under the SMS at all. For the reasons I have set out above, I do not accept that submission.
The Owners Corporation contends that Strata Associates wrongly allocated the remaining invoices either because: 1. although they related to shared facilities, they related to a different category within the Schedule to the SMS; 2. they related "to an area owned only by one member".
As to the latter category, the "one member" was, I infer, Eastmark rather than the Owners Corporation. But the mere fact that invoices related to one "area" owned by Eastmark does not necessarily mean the invoices did not relate to a shared facility. Many shared facilities are located on a lot owned by Eastmark. Thus, in its reply submissions, the Owners Corporation submitted that these invoices "should either not have been allocated to the BMC at all, or not to Category 13". The Owners Corporation's submissions did not identify, in terms, which invoices fitted into which of these categories.
Leaving aside the difficulties in the Owners Corporation's case to which I have already referred, I see a number of difficulties in relation to this aspect of the Owners Corporation's case.
The first is that it relies upon the evidence given on the Owners Corporation's behalf by Ms Angela Chan.
Ms Chan is the current strata manager at Beau Monde.
Ms Chan swore affidavits in which she made assertions as to how various invoices "should" have been allocated. For the reasons I gave in an ex tempore judgment delivered on 23 September 2015 in these proceedings, I allowed that evidence only as a contention.
Ms Chan exhibited to her affidavit a bundle of invoices in respect of which she deposed, at par 26 of her affidavit of 31 October 2014: "These invoices were determined by Strata Associates to be an expense relating to a shared facility and payable pursuant to category 13 of the SMS. These invoices were paid from the BMC account and allocated pursuant to category 13 of the SMS."
In cross examination, Ms Chan gave this evidence: "Q. I see. So what did you have at your disposal when you prepared this affidavit of 31 October 2014? A. I had business records of the BMC given to me by the residential members BMC representative. Q. And who is that? A. Mr Eddie Kabraji. Q. What did he give you? A. He gave me invoices that were paid and allocated to category 13 of the SMS."
A short time later Ms Chan gave this evidence: "Q. So you understood Mr Kabraji had been given a CD with business records and did he give you that CD? A. No. Q. What did he give you which formed the basis of the records you looked at for the 31 October 2014 affidavit? A. Like I've already said, I was given printouts of all the category 13 invoices to review."
Ms Chan said that in addition to the invoices, she had access to the ledgers and financial statements of the BMC.
However, as Ms Rees submitted, what Ms Chan did not have was a document which linked the account code used by Strata Associates to the various categories in the schedule to the SMS.
Ms Chan gave this evidence: "Q. So you could not tell from the invoice which shared facility category it had been paid under, correct? A. Yes. Q. You're agreeing with me? A. Yes. Q. You couldn't tell from the general ledger which category of shared facility it had been paid under either, correct? A. You could make assumptions based on the invoice and the ledger, but it wasn't definite. Q. And that's what you had to do, that is, make assumptions, in order to conclude that these invoices had in fact been paid under shared facility 13, correct? A. Yes. Q. And that's what you did in respect of each of the invoices which is in exhibit AC1 to your affidavit of 31 October 2014, correct? A. Yes."
So far as concerns par 26 of her affidavit (set out at [522] above) Ms Chan gave this evidence: "Q. Paragraph 26, just read that to yourself. So what you've said there in that paragraph is based on an assumption that you made at the time that the invoices [exhibited to your affidavit] were paid by Strata Associates and allocated as shared facility 13, correct? A. Yes. Q. Were you asked to make that assumption? A. I came to my own conclusions. I don't recall being asked. Q. So it was your own assumption generated by yourself, is that right? A. Yes. HIS HONOUR Q. You don't actually know whether what you said in the [sentences from paragraph 26 set out above] is correct? A. It was based on work that was already done by the BMC representative before the documents were given to me. Q. That didn't answer my question. You don't actually know, is this right, whether what you've said in paragraph 26 is correct? A. No. Q. You're agreeing with me? A. Mm. MS REES Q. The BMC representative that you refer to, is that Mr Kabraji? A. Yes. Q. You can't now say with certainty as you sit there in the witness box that each of the invoices in exhibit AC1 was, in fact, paid by Strata Associates and allocated as shared facility 13, is that right? A. Yes."
Thus, Ms Chan accepted that she did not know whether the invoices upon which her affidavit was based had in fact been allocated by Strata Associates to category 13.
Ms Chan said that if an invoice was for work that did not seem (to her) to fall into one of the 12 categories in the Schedule to the SMS other than category 13 ("Miscellaneous") "it would be a reasonable assumption that it would have been paid from 13". Evidently, this was the assumption Ms Chan in fact made.
Ms Rees demonstrated, by reference to the account codes allocated by Strata Associates to, and endorsed by Savills on, invoices, and the Wash-Up Spread Sheets that a number of invoices that Ms Chan had assumed had been allocated by Strata Associates to category 13 had either been allocated to other categories in the Schedule to the SMS or had not been allocated to the BMC at all.
Ms Rees took Ms Chan to these examples in cross-examination. Nonetheless, Ms Chan was not prepared to accept that her assumption had been shown to be incorrect, at least so far as concerns those examples.
In its reply submissions, and in answer to Strata Associates' submissions that the Owners Corporation had not proved that the invoices of which it complained had been allocated to category 13, the Owners Corporation submitted: "To the extent that Strata Associates suggested the identified invoices were not allocated to category 13 it has brought forward no evidence to this effect. Relevant to this, there is evidence that the coding number applied to an individual invoice by Savills (using Strata Associates' code) is not actually reflective of the SMS categories in any event."
The answer to the first of these propositions is that it was not for Strata Associates to prove that invoices had not been allocated to category 13. It was for the Owners Corporation to prove that they had.
As to the second proposition, it is true that Strata Associates' account codes did not reflect the SMS categories. Rather, as I have said, they reflected BMC's accounts. But that does not bear on the question of whether the Owners Corporation has shown that any of the 291 invoices were allocated by Strata Associates to category 13.
Overall, I do not accept that Ms Chan's evidence shows that any of the 291 invoices were allocated by Strata Associates to category 13. There is no other such evidence.
In any event, as Ms Rees pointed out in her final submissions, had the Owners Corporation proved that all of the 291 invoices had been allocated by Strata Associates to category 13, and had it proved that, in every case, Strata Associates should have allocated the invoices to another SMS category, it would not follow that the Owners Corporation was entitled to recover the figure for which it contends ($148,795). That is because, on that hypothesis, the invoices would have to have been allocated to other categories. According to the SMS, 65 per cent of category 13 costs are allocated to the Owners Corporation. The same percentage of costs is allocated to the Owners Corporation under some of the other categories in the SMS (for example categories 1, 2.1, 2.2, 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 4.5 and 4.6. Other categories allocate a higher (or lower) proportion of costs to the Owners Corporation. The figure of $148,795 can only be correct if all of the invoices relied upon by the Owners Corporation were allocated to category 13 and should have been allocated to a category which allocated no portion of the relevant cost to the Owners Corporation.
The Owners Corporation has not made out this part of its case.

[71]

Mechanical services - alleged over allocation $143,972

The Owners Corporation's case concerning the payment of mechanical services invoices relies upon the evidence of Mr Rodney Jackson. I referred to Mr Jackson when considering the Owners Corporation's claim against Savills.
Mr Jackson is a mechanical engineer and a director of Dallas Air Conditioning.
In his affidavit Mr Jackson purported to allocate mechanical services invoices rendered to the BMC by Dallas Air Conditioning, and by Trilogy Maintenance Solutions and Active Air Conditioning and Refrigeration.
I allowed Mr Jackson's evidence only as a contention.
The mechanical services on which Mr Jackson focused were those related to air conditioning. Mr Jackson engaged in what he described as "an apportionment exercise to split the costs of" mechanical services invoices "between the residential, retail and commercial components" of Beau Monde. I do not accept that Mr Jackson's "apportionment exercise" provides a basis upon which I can reach any conclusion as to what the SMS required.
Mr Jackson said he was able to undertake that task "due to the knowledge I had gained of the operation and layout of the mechanical services" at Beau Monde including what he said was his knowledge concerning the components of the building served by various chillers and the hot water system.
Mr Jackson reviewed 141 invoices rendered by Dallas Air Conditioning to the BMC between 2 September 2011 and 30 January 2014. Mr Jackson was cross-examined in relation to those invoices. The result of the cross-examination was that: 1. Mr Jackson agreed with the allocation made by Strata Associates in respect of 113 invoices; 2. Mr Jackson was unable to allocate eight of those invoices to any particular SMS category; and 3. as to the remaining 20 invoices, Mr Jackson maintained that his allocation was correct, but said that he did so because, although the invoice contained a general description of the work done and did not refer to any particular part of Beau Monde, he had personal knowledge as a result of having done the job to which the invoice related.
The Owners Corporation did not suggest that Strata Associates did, or should have had, the kind of personal knowledge that Mr Jackson used to conduct his allocation exercise.
Indeed, in final submissions, the Owners Corporation did not seek to develop any submissions in support of the particular allocations made by Mr Jackson.
In those circumstances, I am not satisfied that the Owners Corporation has established that there was any shortcoming in the manner in which Strata Associates allocated mechanical services invoices.

[72]

Gas - alleged over allocation $12,511

As I have mentioned earlier, the Schedule to the SMS allocates gas costs between the various lots on the basis of "consumption". The clause assumes the existence of sub-meters. There are none.
It is thus not possible to allocate invoices for gas in accordance with the SMS.
In the Wash-Up Spread Sheet, Strata Associates allocated gas expenses in accordance with the relative floor areas of the lots. The strata title management experts called by the Owners Corporation and Strata Associates (Mr Anderson and Mr Callaghan) both agreed that this was an appropriate allocation.
Whether or not allocation of gas costs in accordance with relative floor areas accurately reflected gas consumption between the lots, it is clear that the cost of gas consumption cannot be allocated in the manner called for by the SMS. Accordingly, it is not possible to arrive at an allocation of gas invoices which is "correct" in the sense of being in accordance with the SMS.
The Owners Corporation contended that the allocation by Strata Associates was "wrong" because the relative floor areas of the lots have no relationship to gas consumption. For example, the Owners Corporation pointed out that the car park lot does not use any gas. But, according to the Wash-Up Spread Sheet, Strata Associates allocated six per cent of gas costs to the car park (which, if anything, is in the Owners Corporation's favour).
In any event, the amount claimed by the Owners Corporation is based upon its contention as to the "correct" allocation of gas costs and that contention is based on the evidence of Mr Floth. Mr Floth purported to allocate the gas invoices by reference to his knowledge of metering configuration.
Ultimately, in cross-examination by Ms Rees, Mr Floth accepted that, because of the absence of sub-meters, he could not allocate gas consumption between the residential and commercial lots and that the dollar figure he arrived at as the "allocation required under SMS" could not be justified.
Because of the shortcomings of the SMS, it is not possible properly to calculate allocation for this shared expense. Mr Floth's evidence certainly provides no basis for any conclusion as to what the "correct" figure might be.

[73]

Fire services - alleged over allocation $224,538

The Schedule to the SMS deals with seven fire service categories and, save for the fire mimic panel which services Beau Monde Retail, allocates 65 per cent of those costs to the residential lot.
The Wash-Up Spread Sheets show that Strata Associates allocated "fire protection" costs to the Owners Corporation in that proportion.
Thus on the face of it, it is hard to see what criticism can be directed to Strata Associates about this aspect of the matter.
The over allocation of expenses alleged by the Owners Corporation relies upon the evidence of Mr Floth.
In his report Mr Floth said: "The records provided show evidence that costs and charges for repairs and maintenance on many 'exclusive use' fire services systems works have been allocated as shared fire services costs in lieu of direct allocations to the separate lots as per the provisions of Part 6 clause 46.2(c) of the SMS."
As I have set out above, cl 46.2(c) of the SMS provides that shared facilities include: "Pipes, wires, cables and ducts which are connected to or form part of a shared facility, but excluding any of those things which exclusively service a member's part of Beau Monde."
Based on his reading of this clause, Mr Floth formed an opinion about whether or not particular fire services as a whole were for the "exclusive use" of a particular lot owner.
Thus he gave this evidence: "Q. So from that reference you have embarked upon a task of allocating fire services within Beau Monde as being either shared fire services or "exclusive use" fire services, is that right? A. That's correct. Q. You weren't asked to undertake that exercise in your letter of instruction, were you? A. No, but I thought it was relevant to the exercise."
Mr Floth said this was based on his knowledge of what was "actually behind the design and installation" of the various fire services.
He gave this evidence: "Q. The knowledge and expertise which you have brought to bear on the question of how you say fire safety services should have been allocated, is your appreciation as an engineer as to the function that each particular piece of equipment serves in the overall fire safety system of the building, is that right? A. I think that's correct, yes."
I can see nothing in the SMS which justifies such an approach. The reference to exclusivity in cl 46.2(c) (which relates only to pipes, wires, cables and ducts) does not, in my opinion, provide any such justification.
It is an odd notion that fire services in a multistorey building operate exclusively for the benefit of particular parts of the building.
Thus, I had this exchange with Mr Floth: "Q. What if there was an invoice for the say repair of a sprinkler in the carpark, would you allocate - A. I would think that's an exclusive use space myself. Q. So you would allocate that kind of invoice to the carpark? A. Correct. Q. Even though a [fire] in the carpark might affect the whole building? A. To the extent that it's possible that it could affect the building by way of smoke et cetera, the fire transfer issue really isn't the proposition. Smoke transfer is probably the bigger issue and the entire system would have to be down for that to be a major issue. Q. Is it because you think that a fire in the basement wouldn't migrate say to the commercial area or to the… A. Immediately above not in any quick circumstances that would prejudice the supply safety of the occupants in terms of egress, no."
In my opinion, Mr Floth's analysis was born of a misunderstanding of the effect of the SMS.
It certainly cannot lead to a conclusion that the manner in which Strata Associates dealt with the fire invoices was incorrect.

[75]

House Lights 1 and House Lights 2

I have discussed the problems that have risen in relation to Switchboard C and the House Lights 1 and House Lights 2 meters and the manner in which Savills and Strata Associates determined to allocate the cost of electricity flowing through Switchboard C and House Lights 1 and 2.
I have also concluded that the Owners Corporation has not made out its pleaded case so far as concerns Strata Associates alleged duty to allocate the costs of shared services.
The Owners Corporation submitted, "the evidence is that it is, and always was, appropriate that [House Lights 1 and 2 invoices] be paid 60% by the [Owners Corporation] and 40% by the Eastmark parties".
Based on the evidence of Mr Floth and Mr Koulos, and despite the misgivings of Mr Clarke, I have accepted that a 60:40 allocation more probably than not reflects electricity usage through House Lights 1 and 2.
However, I have concluded that any rewriting of the SMS pursuant to the CRA should not be retrospective.
Further, I am not able to determine what, if any, loss the Owners Corporation has suffered by reason of the costs allocations adopted by Savills and then Strata Associates for Switchboard C.
As I have construed the SMS (see [97] above), it required that the component of Switchboard C electricity costs that related to air conditioning of Lots 1 and 2 be borne by Lots 1 and 2 in accordance with their consumption of power, and the balance by the Owners Corporation (Lot 1). As I have mentioned, that consumption cannot be measured, as there are no relevant meters.
Savills and Strata Associates caused these costs to be allocated between Lots 1 and 2 as I have set out above; namely from 2005 to 2010, 95:5 for House Lights 1 and 60:40 for House Lights 2; and thereafter 78:22.
In final written submissions, my attention was not directed to any evidence which would enable me to say whether the amount thus allocated to, and paid by, the Owners Corporation was more or less than would be payable by it according to the SMS, as I have construed it. That may well be because the absence of meters renders any such calculation impossible.
In any event, Strata Associates' liability would be limited to damage occurring after 2 September 2011 and only to the extent of its agreed services fees (see [502] above).
In its reply submissions the Owners Corporation submitted that "it was not appropriate for Strata Associates to decide how costs should be allocated and paid, without guidance from the BMC" and that the "only appropriate thing" for Strata Associates to do was to "put forward a motion in relation to the SMS and its application in the actual facilities in place" and to "go back to the BMC for direction and to formalise the arrangement it had put in place".
How that contention related to the Owners Corporation's pleaded case was not explained.

[76]

Electricity recoveries

I have set out earlier the circumstances in which Savills forwarded invoices to the BMC for electricity recoveries.
There is no evidence as to how Strata Associates allocated these costs for the financial years ended 30 June 2007, 2008 and 2009.
For subsequent years, Strata Associates allocated 100 per cent of these costs to the Owners Corporation. In the most recent Wash-Up Spread Sheet the allocation is stated to be by reason of cl 2.3 of the Schedule to the SMS (Switchboard C).
As I have set out above, Savills' invoices were directed to "Berry Square Office Tower", "North Sydney Shopping World" and "Retail Car Park" (see [388] above); not to the Owners Corporation.
Savills sent Strata Associates a letter of demand on 1 February 2010 which attached "arrears reports" for "The Shopping Centre", "The Commercial Office Tower" and "The Commercial Car Park"; again not the Owners Corporation.
That document, and the form of the invoices themselves, were quite inconsistent with an allocation of those costs to the Owners Corporation or payment of them from the BMC account.
In these circumstances, I am not able to understand upon what basis Strata Associates made this allocation or how it can be justified. I do not accept Ms Rees' submission that it was reasonable for Strata Associates to understand from Savills' communications that the invoices "were properly payable by the Owners Corporation". I cannot see how it can be said that the Owners Corporation was liable for these amounts.
The Owners Corporation did not explain, in its submissions, by reference to which part of its pleaded case Strata Associates had a liability to it in respect of electricity recoveries (although I assume it relies on the Payment Terms).
The total amount of the invoices for electricity recoveries was $993,218.45.
Such liability as Strata Associates has in relation to this matter will be limited to its payments made after 2 September 2011 and will be limited to the amount of its agreed services fees for that period.
I understand that the levies said to be payable by the Owners Corporation include an amount referable to the electricity recoveries.
In the Levy Proceedings, Eastmark contends that the Owners Corporation is indebted to the BMC for approximately $2 million for arrears of levies. As the electricity recoveries should not have been charged to the Owners Corporation at all, they must be set off against those arrears.
In those circumstances, I will invite submissions as to what loss the Owners Corporation has suffered by reason of any act or omission of Strata Associates relevant to this matter.

[77]

The Owners Corporation's claim in respect of "other shared facilities"

I have found that the commercial car park and courtyard are shared facilities.
The Owners Corporation submitted that, if I came to that conclusion: "…there are a number of other areas in the Beau Monde complex which would also [be shared facilities], but for which the [Owners Corporation] is currently responsible for paying 100% of the costs. This is because those facilities are also used by more than 1 member and/or used to access other shared facilities. Accordingly, it would not be appropriate to single out costs associated with the Car Park and Courtyard as being 'shared', without also considering these facilities."
Those "other shared facilities" were said to include the residential tower block lifts, the lobby to the residential tower, and the common areas on levels 8 and 35.
The Owners Corporation referred to an annexure to its submissions which, without further elaboration, it contended showed "the financial consequences if certain additional areas are treated as shared facilities".
The Owners Corporation made no attempt to explain how that further claim was accommodated in its pleaded case against Strata Associates.
The amount claimed by the Owners Corporation in respect of this matter is said to be $324,255.16.
The basis of the claim is said to be invoices and financial statements annexed to Ms Chan's affidavit of 3 September 2015.
On the second day of the hearing (22 September 2015) there was a debate before me about the basis upon which Ms Chan's affidavit of 3 September 2015 should be allowed into evidence.
The affidavit was served very shortly before the commencement of the hearing. Strata Associates' position was that it was not in a position to meet it.
In a letter from its solicitors to Strata Associates' solicitors, the Owners Corporation stated it was content to limit its reliance on the invoices annexed to Ms Chan's affidavit to be "evidence of the types of services in invoices issued, not as evidence on quantum or totality of the invoices".
The Owners Corporation now submits that no limitation was agreed or given with respect to the balance of Ms Chan's evidence, and in particular independent audit reports that Ms Chan also annexed to her affidavit.
The debate concerning Ms Chan's affidavit led to me making this statement: "Ms Rees, do you want to say anything more about the proposition that the 3 September affidavit is in reply, therefore not caught by the order, but will only be read as evidence of the types of services invoiced and not as to quantum claimed?"
No party demurred from my observation which I intended to have the effect of an order under s 136 of the Evidence Act 1995 (NSW) limiting the basis upon which the whole of Ms Chan's affidavit (not just the invoices) be received into evidence.
In those circumstances, there is no evidentiary basis for the Owners Corporation's claim and I am not prepared to accept it.

[79]

eastmark and Denison street's cross-claim against the owners corporation

Eastmark and Denison Street bring a cross-claim in the proceedings against the Owners Corporation. The cross-claim concerns what I have earlier (at [302]) referred to as the Relocation Proposal; a proposal by Eastmark and Denison Street to relocate certain fire, hydraulic and electrical services from Lots 3 and 4 (the retail lot and the car park; both owned by Denison Street) to Lot 2 (the commercial lot; owned by Eastmark) and, in one case, to another part of Lot 3.
For convenience, when discussing the cross-claim, I will simply refer to "Eastmark", unless the context otherwise requires.
The Relocation Proposal was summarised in a report prepared by Aurecon Australia Pty Ltd of 9 August 2013 (the "Aurecon Report").
On 13 August 2013, Eastmark gave the Owners Corporation a copy of the Aurecon Report and sought its consent to the Relocation Proposal. Eastmark had put a larger and more complex proposal to the Owners Corporation earlier, in November 2011.
In the cross-claim, Eastmark seeks a declaration that it is entitled to proceed with the Relocation Proposal.
Eastmark also seeks orders to the effect that, if this be necessary, the Owners Corporation be required to vote in favour of a resolution approving the Relocation Proposal at a duly convened meeting of the BMC.
Clause 46.3 of the SMS provides that the BMC "must operate, manage, control, maintain, repair and replace shared facilities".
The Relocation Proposal involves the change, modification or replacement of existing shared facilities. Accordingly, a unanimous resolution of the BMC is required (cll 34.4(c) and 47.1(c) and (e) of the SMS).
Eastmark contends that there have been two such unanimous resolutions by the BMC; on 25 October 2013 and 10 January 2014. The Owners Corporation did not vote in favour of the resolutions on those occasions.
The minutes of the BMC meeting for 25 October 2013 record that Mr Park was present on behalf of Lots 2, 3 and 4 and that it was unanimously resolved: "…to change and/or relocate the shared facilities as set out in the Aurecon Report of 9 August 2013, in connection with the upgrade and redevelopment of lots 3 and 4."
The minutes of the BMC meeting of 10 January 2014 record that Mr Park was again present to vote on behalf of Lots 3 and 4 and that it was unanimously resolved: "That the BMC ratifies unanimous resolution of…25 October 2013 and re-resolves [the motion] of the BMC meeting dated 25 October 2013 to change and/or relocate the shared facilities as set out in the Aurecon Report of 9 August 2013."
According to the minutes, the Owners Corporation did not attend either meeting.
The Owners Corporation and Eastmark each contend that on each of 25 October 2013 and 10 January 2014 the other was not a "member entitled to vote" as they had not paid all monies due to the BMC (that is levies). By reason of cl 32.1 of the SMS, a member of the BMC is only entitled to vote at a meeting of the BMC if it is a "member entitled to vote".

[80]

Were Eastmark and Denison Street on 25 October 2013 and 10 January 2014 "members entitled to vote"?

The SMS defines a "member entitled to vote" at a meeting as a member who, before the commencement of the meeting in question, has paid to the BMC all administrative fund and sinking fund contributions "up to date" and all other money "due and payable" under the SMS.
The records maintained by Strata Associates show that on 25 October 2013 Eastmark's and Denison Street's "current owner accounts" were in credit.
The Owners Corporation contended that Eastmark had not paid all money due and payable because it had not paid interest on outstanding levies as required by cl 43.1 of the SMS.
However, as I have set out above (at [480]), on 8 December 2005 the BMC unanimously resolved: "…that the Financial Statement to the period 30 November 2005 be noted. Further the [BMC] resolved to remove interest from all lots and remain interest free".
The Owners Corporation submitted that this resolution was ambiguous and that it could be read as meaning that only financial statements to the period 30 November 2005, as opposed to all periods thereafter, be interest free.
I do not accept that submission. The resolution was to "remove" interest from all lots and for lots to "remain" interest free. That makes clear that the intent of the resolution was prospective.
Prior to 8 December 2005 interest was regularly charged to BMC members whose contributions were overdue. Since 8 December 2005, with one exception, no interest has been charged to any member of the BMC (including the Owners Corporation) despite numerous late payments. On one occasion after 8 December 2005, interest charges were accidentally made for a brief period; but they were promptly reversed without payment.
Having passed the 8 December 2005 resolution, the BMC did not resolve to amend or remove the clause in the SMS which requires interest to be paid on the amounts owing by lot owners to the BMC (cl 43.1).
However, Eastmark submitted, and I accept, that in the circumstances I have set out, a conventional estoppel has arisen so as to prevent any member of the BMC from contending that cl 43.1 should be enforced in accordance with its terms.
The relevant principle is summarised in On Equity at [12.100] in the following terms: "In addition to estoppel by conduct (in pais), the common law recognises the subspecies of estoppel by convention and estoppel by representation. Estoppel by convention provides that where parties have conducted their relations with each other on the basis of agreed or assumed facts, they will both be estopped from denying those agreed or assumed facts. It is established where the parties adopt an assumption as to the terms of their legal relationship, they conduct themselves on the basis of that mutual assumption, each party knows or intends that the other will act on that basis, and departure from the assumption will cause detriment to one of them: Waterman v Gerling Australia Insurance Co Pty Ltd [(2005) 65 NSWLR 300 at 322-323]; and Ryledar Pty Ltd v Euphoric Pty Ltd [[2007]; Aust Contract Reports 90-254; 69 NSWLR 603 at [200]]."
The principle applies not just to a conventional factual position, but also to a conventional legal position (or to a mixed issue of fact and law): Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 at 472; Commonwealth v Verwayen (1990) 170 CLR 394 at 409 - 410. Estoppel by convention can arise if parties "adopt as the conventional basis of a transaction between them an assumption which they know to be contrary to the actual state of affairs" (see Ryledar Pty Ltd v Euphoric Pty Ltd at [195] per Tobias JA).
The Owners Corporation submitted that there could not have been any mutual assumption by the parties to this effect as, in December 2005 "Eastmark had control of the [Owners Corporation's] vote". For the reasons I have set out in relation to the meetings of 21 June 2005 and 3 January 2006, Eastmark did not "control" the Owners Corporation's vote at this time. Indeed, at the 8 December 2005 meeting, the Owners Corporation was represented by a Mr Harold Upton who was stated to be "member and representative of Beau Monde apartments". The resolution was passed unanimously.
The fact is that, since 8 December 2005, members of the BMC have conducted their relationship upon the basis of the mutual assumption that late payment of levies would not give rise to an obligation to pay interest.
I accept Eastmark's submission that it would occasion it and Denison Street detriment were the Owners Corporation to now depart from that assumed state of affairs. Just two days prior to the 25 October 2013 meeting, Eastmark and Denison Street made a sufficient payment to ensure that each was in credit and entitled to vote at the 25 October 2013 meeting.
In those circumstances, I accept Eastmark's submission that the Owners Corporation is precluded by conventional estoppel from relying on the terms of cl 43.1 of the SMS to contend that Eastmark and Denison Street were not "members entitled to vote" at the 25 October 2013 and 10 January 2014 BMC meetings.

[81]

Was the Owners Corporation on 25 October 2013 and 10 January 2014 a "member entitled to vote"?

On 25 October 2013 and 10 January 2014 the Owners Corporation's current owner account was in debit $707,715.30 and $1,786,160.25, respectively.
Thus, on the face of it, it was not a "member entitled to vote" on either occasion.
One reason that the Owners Corporation's current account was in debit on both 25 October 2013 and 10 January 2014 was because its account was debited with an administrative fund levy of $415,369.45 and a sinking fund levy of $24,720.95.
Those levies were approved at a meeting of the BMC held on 16 September 2013 (by majority, with the Owners Corporation opposing the relevant motion). I have mentioned the 16 September 2013 meeting earlier in the context of the Owners Corporation's claim against Strata Associates.
At the same meeting, the BMC also resolved (with the Owners Corporation opposing) that an "additional" administrative and sinking levy be raised. That levy was in the sum of $711,630.73 and was directed only to the Owners Corporation. That sum was also debited to the Owners Corporation's current owner account prior to the 25 October 2013 meeting.
On 8 October 2013 the BMC had a further meeting at which it purported to resolve that a further "sinking fund levy" be raised in the sum of $760,250 for the purpose of funding upgrade works concerning the building's business management system ("BMS"). As a consequence of that resolution, the Owners Corporation's current account was debited with sums of $347,054.15 on 8 November 2013 and again on 2 December 2013. Corresponding debits were also made to Eastmark's current owner account as the owner of Lot 2. In its reply submissions of 23 October 2015, Eastmark accepted that the 8 October 2013 resolution was not effective, as the notice of that meeting did not contain an audit report as required by cl 29.4(b) of the SMS. This has implications for Eastmark's claim in the Levy Proceedings (see below).
However, assuming that either of the resolutions at the earlier meeting of 16 September 2013 was valid, the Owners Corporation's current account was in debit on both 25 October 2013 and 10 January 2014. Accordingly, the Owners Corporation was not a "member entitled to vote" at either of the BMC meetings held on those dates.
The Owners Corporation challenges the 16 September 2013 resolutions on a number of bases, to which I will now turn.

[83]

Bad faith

The Owners Corporation submitted: "An inference might be drawn that the Eastmark parties were very interested in the idea of the [Owners Corporation] having been found to have "underpaid" for BMC expenses at a time when Eastmark was asking the [Owners Corporation] to consent to its Aurecon 2013 proposal. It is not difficult to draw the inference that the intended effect of the Eastmark parties exercising their vote to require the [Owners Corporation] to pay over $1 million of expenses in a very short period of time was to declare the [Owners Corporation] 'unfinancial' and then to claim that it was not a 'member entitled to vote', so that the Eastmark parties completely controlled the BMC for the purposes of all resolutions, both ordinary and unanimous."
As I read the Owners Corporation's submissions, it invited me to draw that inference and pointed to the facts that: 1. on 13 August 2013 the Owners Corporation commenced these proceedings, sent it a copy of the Aurecon report and sought its consent to the Relocation Proposal; 2. as at 16 September 2013 the Owners Corporation was up to date with its levy payments; and 3. the 25 October 2013 meeting occurred within a week of the Owners Corporation's current owner account going into debit.
This is a serious allegation. In effect, it is an allegation of bad faith. But, so far as concerns the critical resolutions of 16 September 2013, it is not pleaded.
In its Commercial List Response filed in the Levy Proceedings the Owners Corporation did plead that resolutions passed to raise levies were invalid due to, amongst other things, a breach of the obligation of good faith imposed upon the parties by cl 17.1 of the SMS.
However, that allegation was narrowly confined to the "levies purportedly raised…in respect of the BMS"; that is those purportedly raised at the meeting of 8 October 2013 (which, as I have said, Eastmark now accepts was not effective to raise such levies).
There is no allegation in the Owners Corporation's Commercial List Response that the resolutions of 16 September 2013 were passed in bad faith or otherwise in the circumstances now suggested by the Owners Corporation.
The Owners Corporation made no application to amend its pleadings. If it had made such an application, I would have refused it.
As Eastmark said in its submissions: "[Eastmark] needed to be given a fair opportunity to consider such a serious allegation in the lead up to the hearing. [It] needed to be given the opportunity to consider what documents may exist which might be relevant to meeting the allegation…[it] was entitled to take this serious allegation into account when making the forensic decision in the first week of the trial not to call the General Manager…, Mr Shin. That last point is of particular significance given the suggestion by the Owners Corporation…that Mr Shin, said to be the relevant decision maker at the time, has not been called in relation to this issue".
I accept that Eastmark may well have conducted its case differently had the suggestion, now made for the first time in closing submissions, been the subject of the Owners Corporation's pleaded case (whether in response to Eastmark's claim in the Levy Proceedings or otherwise).
For those reasons, I am not prepared to allow the Owners Corporation to rely upon this un-pleaded allegation.

[85]

Clause 39.1 of the SMS

Clause 39.1 of the SMS provides that: "The [BMC] must levy members for contributions it will need for its administrative fund and sinking fund for each financial year".
Clause 39.5 of the SMS provides, relevantly: "…the [BMC] may determine contributions by resolution. The amounts of contributions: (a) for the administrative fund, must be the amount determined by the [BMC] in the budget for the administrative fund…; and (b) for the sinking fund, must be the amount determined by the [BMC] in the budget for the sinking fund…".
In that regard, the Owners Corporation submitted: "There is also a question as to whether cl 39 of the SMS allows for the additional levies in circumstances where levies are not related to amounts required for the sinking and administrative fund for "each financial year" (as specified in clause 39.1 and 39.5 - in relation to budgets".
The Owners Corporation did not seek to advance a definitive answer to that "question".
In any event, it appears to me that there are a number of answers.
The first is that the first of resolutions passed on 16 September 2013 did relate to the amounts required for the administrative and sinking funds for that financial year.
Evidently, the Owners Corporation's submissions in this regard were directed to the "additional" administrative and sinking fund levies referred to at [645] above.
The Owners Corporation pointed to cl 36 of the SMS which provides that the administrative fund is to "pay day to day expenses of operating and maintaining shared facilities, administrative costs and other costs which are not sinking fund costs" and that the sinking fund was to "pay for the renewal and replacement of shared facilities".
But the additional resolution was passed pursuant to cl 39.6 of the SMS which provides that the BMC must determine: "Additional contributions to the administrative fund if it cannot (or will not be able to) pay its administrative fund debts during the current financial year".
According to the minutes of 16 September 2013, that is exactly what the BMC was purporting to do. A note to the additional resolution stated that it was passed pursuant to cl 39.6 for the purpose of paying "administrative fund debts that the BMC cannot pay during the current financial year". My attention was not drawn to any evidence to suggest this was not true.

[89]

Clause 27

I have set out the terms of cl 27 of the SMS above. For convenience, I will set the clause out again here: "27.1 Acknowledgment The members acknowledge that, throughout the life of Beau Monde, upgrading and redevelopment works may take place. The members agree to act reasonably and not unreasonably withhold their consent if a proposal is made to upgrade or develop parts of Beau Monde, in particular, any redevelopment of the Beau Monde Retail, Beau Monde Commercial or Beau Monde Carpark components. 27.2 Change to Beau Monde If the owner or owners of Beau Monde Commercial, Beau Monde Carpark or Beau Monde Retail propose to redevelop part of [sic: or] all of their stratum lot (including by incorporating land adjacent to or neighbouring Beau Monde) the other members agree to act reasonably and not unreasonably withhold their consent to such a proposal provided that: (a) any changes to shared facilities which that member is to use; and (b) access to and from their component in Beau Monde; is [sic] not detrimentally affected to an extent that is substantial. The other members must also act reasonably in agreeing to amend, add to or delete provisions of this management statement as required to give effect to any such upgrade or redevelopment proposal. 27.3 Paying costs The member proposing an upgrade or redevelopment must pay the reasonable costs of other members in complying with their obligations under this clause 27."
Clause 27.1 is directed to a circumstance where a "proposal" is made to "upgrade or redevelop" parts of Beau Monde, and in particular, of Lots 2, 3 and 4 (Beau Monde Commercial, Beau Monde Retail and Beau Monde Car Park).
By cl 27.1 the four members of the BMC agree to "act reasonably and not unreasonably withhold their consent" to any such proposal.
Clause 27.2 is directed to the more particular circumstance of a proposal by the owners of Lots 2, 3 or 4 (Beau Monde Commercial, Retail and Car Park: i.e. Eastmark and Denison Street) to "redevelop a part of [sic: or] all" their lots including by incorporating land adjacent to or neighbouring Beau Monde.
In those circumstances, the "other members" (relevantly, the Owners Corporation) agree to "act reasonably and not unreasonably withhold their consent to such a proposal" subject to the proviso specified.
The clause is awkwardly drafted in a number of respects.
First, the two elements of the proviso (identified as (a) and (b)) do not fit easily into the proviso's final words.
Further, the word "and" between (a) and (b) appears to me to be used disjunctively and should be read as "or".
It appears to me that the proviso should be read as if it stated: "…provided that: (a) the proposal will not cause any changes to the shared facilities that the member is entitled to use that will detrimentally affect that member's use of such shared facility to an extent which is substantial; or (b) the proposal will not affect the member's access to and from their component of Beau Monde to an extent that is substantial."
The further question which arises is whether the obligation to act reasonably and not to withhold consent unreasonably, only applies if the provisos are not enlivened; or whether the provisos represent the only circumstances in which consent can be reasonably withheld.
In my opinion the former construction is to be preferred.
Clause 59.1 of the SMS provides that a member can "refuse its consent in any way it considers appropriate" unless the SMS expressly states otherwise.
Clause 27.2 of the SMS provides a qualification to that right in that a member cannot unreasonably withhold consent in the circumstances specified in cl 27.2.
That points to the probability that a reasonable business person in the position of the parties (see [354ff] above) to the SMS would read the provisos in cl 27.2 as providing conditions precedent to the member's obligation to act reasonably and not to withhold its consent unreasonably.
Thus I read cl 27.2 as providing that if either of detrimental affectations (a) or (b) can be established (i.e. that the proposal will have a substantial detrimental effect on the relevant member's shared facilities or access) then the member can withhold consent "in any way it considers appropriate" (to adopt the language in cl 59.1: that is whether reasonably or not); but that if neither of the detrimental affectations in (a) or (b) is established (that is the proposal will have no substantial detrimental effect on shared facilities or access) then the member can only withhold consent reasonably.

[90]

The relationship between cl 27.2 and cl 47.1 of the SMS

Clause 27.2 is directed to a circumstance where the owner of Beau Monde Commercial, Retail or Car Park proposes to redevelop part or all of those lots.
Clause 47.1(e) is directed to the question of modification or replacement of shared facilities.
The Relocation Proposal involves both of these elements; namely the redevelopment of Lots 2, 3 and 4 and the modification of shared facilities. Indeed the proposed redevelopment of Lots 2, 3 and 4 comprises no more than modification of shared facilities by their relocation from Lots 3 and 4 to Lot 2 and, in one case, from one part of Lot 3 to another.
The Owners Corporation submitted that cl 27 is a "stand alone" provision and that: "Clause 47 concerns the change to a shared facility that does not fall within clause 27".
I do not agree.
Clause 47 deals with any change to a shared facility; whether or not such change is proposed in the course of redevelopment of all or part of Lots 2, 3 or 4.
The effect of the two provisions is that, where a redevelopment proposal under cl 27.2 also involves a modification of shared facilities for the purpose of cl 47.1(e): 1. until such time as there is a unanimous resolution of the BMC pursuant to cl 47 to change or modify a shared facility, a member of the BMC (such as the Owners Corporation) is entitled to withhold its consent if one of the provisos in cl 27.2 is enlivened and, providing they act reasonably, withhold its consent even if neither of those two provisos is enlivened; 2. if that member was not entitled to withhold its consent (other than reasonably) under cl 27, it could be compelled to join in a resolution under cl 47 to modify the shared facility; and 3. if that member was entitled to withhold its consent under cl 27, it could not be so compelled.
But it could not have been the intention of the parties to the SMS that where a redevelopment proposal also involved a modification of shared facilities, it would remain open to a lot owner to withhold its consent under cl 27 once there had been a unanimous resolution under cl 47 directed to the same proposal.
In that circumstance, cl 27 must give way to cl 47.
Had the Owners Corporation actually participated in the resolutions of 25 October 2013 and 10 January 2014, it could hardly argue that it was thereafter entitled to withhold its consent under cl 27.2.
The position cannot be different where, as here, the Owners Corporation was not entitled to vote on those occasions.
For those reasons, I accept Eastmark's submission that by reason of the 25 October 2013 and 10 January 2014 resolutions it is, without more, entitled to proceed with the Relocation Proposal. No consent from the Owners Corporation is now necessary.
Lest I be wrong in coming to that conclusion, I will now turn to consider the other issues which arise in relation Eastmark's cross-claim.

[91]

What is the "proposal"?

The Relocation Proposal is that set forth in the Aurecon Report.
The Aurecon Report states, relevantly: "1. [Denison Street] is proposing to relocate some of the existing services from current locations to new locations as recommended in this report. The services are: ● Fire Sprinkler Pump Room, ● Water Meter, ● Sprinkler and Hydrant Booster Assembly, ● Main Switchroom, and ● Fire Services Mimic Panels and EWIS [Emergency Warning System] Panels This report demonstrates these changes will have no adverse impact on existing users and compliance with the current codes will be achieved. It is intended that a minimal downtime (if any) is expected as a result of these services being relocated. These services will, once relocated, provde the same level of service to the same users as currently installed, i.e., existing users will suffer no detriment from the relocation. The proposed location of the booster assemblies will fully meet compliance requirements of Australian Standards for both Fire Hydrants as well as Fire Sprinkler Systems."
The proposal is relocation of existing services from Lots 3 or 4 to Lots 2 or 3. With two exceptions, all of the shared facilities are proposed to be relocated to two car park spaces within basement level B1 of the car park within Lot 2 (the commercial lot).
The Owners Corporation apprehends that Eastmark's purpose in making the Relocation Proposal is to clear the way for a substantial redevelopment of one or more of its lots within Beau Monde.
Thus the Owners Corporation submitted: "…the purpose of the Aurecon 2013 proposal is the preliminary step in the larger development [Eastmark's] lots to create a large commercial tower next to the existing Beau Monde residential tower… … It is apparent that the Eastmark parties have intentionally put forward the 2013 Aurecon proposal in an attempt to remove any argument about the wider issues concerning the development…The true 'proposal' is to take the first step in the development. If the particular shared facilities are moved, then the Eastmark parties do not need to seek any further consent to the large development that would dramatically alter the community landscape. ... The Aurecon proposal was not merely a 'concept' but was a subset of a larger development proposed".
On 25 February 2010 the Minister for Planning granted approval pursuant to s 75J(1) of the Environmental Planning and Assessment Act 1979 (NSW) to a "major project" concerning Lots 2, 3 and 4 which involves: "Demolition of existing buildings and erection of a mixed use development comprising retail/commercial building and a hotel building".
There is some suggestion in the evidence that the Relocation Proposal comprises "enabling works" absent which the "major project" cannot proceed. And the 25 October 2013 resolution recorded that the "relocation" of shared facilities was "in connection with the upgrade and redevelopment of lots 3 and 4".
However that may be, that is not the proposal that the Owners Corporation has been asked to consider. What the Owners Corporation is now asked to consider is that in the Aurecon Report; no more than that.
If and when Eastmark makes a proposal to the Owners Corporation under cl 27.2 of the SMS to redevelop Lots 2, 3 or 4 consistently with the Minister's approval, questions will no doubt arise as to the circumstances in which the Owners Corporation can withhold its consent. But that question does not arise at present.

[92]

Are the cl 27.2 provisions enlivened? Substantial detrimental effect on shared facilities or access

In par 22(g) of its Response, the Owners Corporation pleaded that it had: "Received expert and legal advice that the [Relocation Proposal] would detrimentally affect the [Owners Corporation's] component in Beau Monde".
Eleven named reports and letters were particularised as being the "expert…advice" received.
Following objection from Eastmark, those reports and letters were only tendered by the Owners Corporation as going to the question of the reasonableness of the Owners Corporation's state of mind for the purpose of cl 27 of the SMS.
One of those reports was from Dickson Rothschild, who are architects and planners. Shortly before the hearing, correspondence was exchanged between the solicitors for the parties concerning the evidence that Ms Kathleen McDowell, an urban designer and town planner from Dickson Rothschild, would give.
On 20 August 2015, Eastmark's solicitors wrote to the Owners Corporation's solicitors as follows: "We accept that it is appropriate that Ms McDowell's affidavit may be admitted as evidence of your client's continuing state of mind. However, we do not accept that that evidence may be admitted as 'confirm[ing] that [your] client act and continues to act reasonably'. The word 'confirms' in this subparagraph of your letter strongly suggest that you[r] client seeks to use Ms McDowell's affidavit as evidence of the fact of the alleged detrimental impact. That is the very thing which led to the revision of paragraph 22(g) in the first place. Please confirm that, in the light of what we have just said, the words 'and confirms that our client acted and continues to act reasonably' should be treated as being omitted from your letter. Once those words are omitted from paragraph 2(c)(i) of your letter, there is no longer any reason for your client to rely on paragraphs 10 to 18 of Ms McDowell's affidavit. Please confirm that your client will not seek to rely on those paragraphs". [Emphasis in original]
On the same day, the Owners Corporation's solicitors replied: "(a) Paragraphs 10-18 of the affidavit of Ms McDowell will be read as demonstrating an available basis for the reasonableness of our client's state of mind in relation to clause 27. (b) Our client does not intend to litigate whether, as a matter of fact, the proposal is factually detrimental or not."
In final submissions, Mr Leopold characterised this statement as the Owners Corporation's "disavowal". Mr Leopold drew the "disavowal' to my attention repeatedly throughout the course of the trial, including in his opening of Eastmark's cross-claim concerning the Relocation Proposal. Mr Corsaro made no attempt to resile from it.
On the final day of oral submissions Ms Holmes took me to references in the transcript to Mr Leopold's reference to the "disavowal" at the conclusion of which Mr Corsaro said: "And having heard that I stand by the submission…there has been no concession, and the first we heard of this was during the course of submissions".
I do not accept that. I regard the statement made by the Owners Corporation's solicitors on 20 August 2015 as clear and unequivocal. It was not confined in some way to the fate of Ms McDowell's evidence. Eastmark was entitled to treat it as an unambiguous and unqualified statement, made very shortly before trial, that there was no longer to be any issue about whether the Relocation Proposal was "factually detrimental" to the Owners Corporation. In effect, the Owners Corporation, through its solicitors, admitted absence of detriment. That admission overtook any assertions in the Owners Corporation's Cross-Claim Response to the contrary.
Eastmark was entitled to conduct its case upon that basis. I am not prepared, in those circumstances, to permit the Owners Corporation now to adopt a different position.
In its Amended Commercial List Cross-Claim Statement, Eastmark pleaded the notice given on 13 August 2013 on its behalf to the Owners Corporation of the Relocation Proposal as described in the Aurecon Report.
In its Commercial List Cross-Claim Response, the Owners Corporation stated, in answer to that allegation that it: "(a) admits that [Eastmark] gave a notice as alleged (Notice); (b) says that the Notice proposes minor relocation of shared facilities".
In my opinion, the Owners Corporation thereby admitted that the Relocation Proposal involved only a "minor" relocation of shared services.
In written submissions, the Owners Corporation contended that this was "merely an admission of the terms of the notice, not its legal effect".
I do not agree. What was admitted, in plain terms, was that that which was proposed in the "Notice" (that is, in the Aurecon Report) represented a "minor relocation" of the shared facilities.
And so it is.
As I have said, the proposal is to relocate certain services from locations within lots owned by Eastmark and Denison Street to other locations within their lots. No part of the Owners Corporation's lot will be touched.
The Owners Corporation submitted that, for the purposes of proviso (b) in cl 27.2, "access to and from their component in Beau Monde" might include "access" to views. Thus the Owners Corporation submitted: "Further, 'access' (in the phrase 'access to and from their component') must be given a wide meaning in the context of the surrounding circumstances at the time of the formation of the SMS. This included the fact that Eastmark as developer advertised Beau Monde as boasting world class views…therefore, a detrimental effect on the views from lots in the Residential Lot would fall within the meaning of clause 27.2(a) [sic: (b)]".
I do not accept that submission. The reference in the SMS to "access" to and from the Owners Corporation's "component" in Beau Monde clearly means physical access.
In any event, there is nothing in the Relocation Proposal that would affect the view from the Beau Monde apartments.
In my opinion, neither of the provisos in cl 27.2 is enlivened.
It follows in my opinion that, assuming it to be relevant to consider the Owners Corporation's consent to the Relocation Proposal, the Owners Corporation may only withhold such consent if it is reasonable to do so.

[93]

Has the Owners Corporation unreasonably withheld consent?

The starting point for consideration of this question are the admissions that the Owners Corporation has made that the proposed relocation of shared services that will result from the Relocation Proposal is "minor" and that will not, as a matter of fact, be detrimentally affected by the proposal.
Further, as stated in the Aurecon Report, what is proposed is to: 1. implement the relocation of shared services in a way which would "not detrimentally affect the [Owners Corporation's] use of the shared facilities, or its access to them"; 2. achieve compliance with the "current codes" and Australian standards; 3. ensure that the services, once relocated, will provide "the same level of service to the same users as currently installed"; 4. procure that installation of the new facilities be completed before disconnection and changeover from, and decommissioning of, the old facilities to be replaced, resulting in no substantial disruptions; 5. replace old assets with assets of equal or better quality and performance; and 6. ensure that rights of access to shared facilities not be impaired and there be no downtime in the operation of them.
It is true that Eastmark has not provided the Owners Corporation with what Mr Leopold described as a "fully fledged works program". But the substance of what is proposed has been revealed and the Owners Corporation must know that before the Relocation Proposal can be implemented a construction certificate for it would have to be issued by the relevant certifying authority. I accept Eastmark's submission that the Owners Corporation ought reasonably be satisfied that a process will be followed which will be consistent with the relevant legislative and regulatory requirements to ensure that the Relocation Proposal is implemented without unduly incommoding the Owners Corporation. It is, of course, possible to point to risks which might eventuate; but the probability is that they will be dealt with by the time a construction certificate is issued by the relevant authority. It appears to me that the Owners Corporation can have no reasonable concern that a proper process will not be conducted.
It appears to me that the Owners Corporation has lost perspective about this aspect of the matter. It is obviously concerned about what the future may hold should Eastmark, following implementation of the Relocation Proposal proceed with the development that is contemplated by the Minister's approval of the "major project" to which I have referred. There may well be a sound basis upon which the Owners Corporation could reasonably withhold its consent to that proposal; if and when it arises. But that is not a matter now before the Owners Corporation or before me.
What is involved in Eastmark's current proposal is a relatively modest relocation of a relatively small number of shared services, to be done entirely on lots owned by Eastmark and Denison Street, to be done entirely at Eastmark and Denison Street's cost and which will involve replacing shared facilities which have been in operation now for almost a decade with new facilities.
I am not satisfied that the Owners Corporation has acted reasonably in refusing to give its consent to the Relocation Proposal. On the contrary, my opinion is that it has been, and is, unreasonable of the Owners Corporation to withhold its consent to the Relocation Proposal.
The final sentence of cl 27.2 of the SMS has the effect that, in these circumstances, the Owners Corporation must also act reasonably in agreeing to amend the provisions of the SMS "as required" to give effect to the "redevelopment proposal".
Therefore if, contrary to my conclusions, the Owners Corporation's consent to the redevelopment proposal continues to be relevant (notwithstanding the unanimous resolutions of 25 October 2013 and 10 January 2014), the Owners Corporation is now bound to join Eastmark and Denison Street in passing a resolution pursuant to cl 47.1 to approve modification of the shared facilities "as required" by the Relocation Proposal.

Legislation Cited (9)

Conveyancing (Sale of Land) Regulation 2005(NSW)

Conveyancing (Sale of Land) Regulation 2010(NSW)

Property, Stock and Business Agents Act 2002(NSW)

Strata Schemes (Freehold Development) Act 1973(NSW)

Strata Schemes Management Act 1996(NSW)

Contracts Review Act 1980(NSW)

Corporations Act 2001(Cth)

Environmental Planning and Assessment Act 1979(NSW)

Evidence Act 1995(NSW)

Cases Cited (20)

ealth v Verwayen (1990) 170 CLR 394 Community Association DP No 270180 v Arrow Asset Management Pty Ltd [2007] NSWSC 527 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 In the matter of Metal Storm Ltd (subject to Deed of Company Arrangement) [2014] NSWSC 813; 100 ACSR 637 Maguire v Makaronis (1997) 188 CLR 449 Meriton Apartments Pty Limited v The Owners Strata Plan No 72381 [2015] NSWSC 202; 105 ACSR 1 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 325 ALR 188 Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457 Queensland Mines Limited v Hudson (1978) 52 ALJR 399 Re Property Force Consultancy Pty Ltd (In Liquidation) [1997] 1 Qd R 300 Re Steel and Others and The Conveyancing (Strata Titles) Act 1961 (1968) 88 WN (Pt 1) (NSW) 467 Redwood Master Fund Ltd v TD Bank Europe Ltd [2002] EWHC 2703 (Ch) Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Ryledar Pty Ltd v Euphoric Pty Ltd [2007] Aust Contract Reports 90-254; 69 NSWLR 603 Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 The Owners Corporation Strata Plan 70672 v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2011] NSWSC 973 Warman International Limited v Dwyer (1995) 182 CLR 544 Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300 Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522 Texts Cited: Alex Ilkin, NSW Strata and Community Schemes Management and the Law, (4th ed 2007, Lawbook Co) J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane's Equity: Doctrines & Remedies, (5th ed 2014, LexisNexis Butterworths) J W Carter, The Construction of Commercial Contracts, (2013, Hart Publishing) K Lewison and D Hughes, The Interpretation of Contracts in Australia, (2012, Lawbook Co) N Seddon, R Bigwood, M Ellinghaus, Cheshire & Fifoot: Law of Contract, (10th ed 2012, LexisNexis) P W Young, C Croft and M L Smith, On Equity, (2009, Lawbook Co) Category: Principal judgment Parties: Parties in 2013/239085: The Owners - Strata Plan No 74602 (Plaintiff) Eastmark Holdings Pty Ltd (In Receivership) (First Defendant) 1 Denison Street Holdings Pty Ltd (In Receivership) (Second Defendant) Strata Associates Pty Limited (Fourth Defendant) Savills (NSW) Pty Limited (Fifth Defendant)

[2015] HCA 37

(1977) 180 CLR 266

(1996) 186 CLR 71

(1984) 154 CLR 178

(1990) 170 CLR 394

(2002) 209 CLR 95

(1997) 44 NSWLR 46

(1997) 188 CLR 449

(1939) 61 CLR 457

(1978) 52 ALJR 399

(1988) 13 NSWLR 466

(1995) 182 CLR 544

(2005) 65 NSWLR 300

Cited By (3)

DIF III - Global Co-Investment Fund LP v Babcock & Brown International Pty Limited

The Owners - Strata Plan 74602 v Eastmark Holdings Pty Ltd; Eastmark Holdings Pty Ltd v The Owners - Strata Plan 74602

The Owners - Strata Plan 74602 v Eastmark Holdings Pty Ltd; Eastmark Holdings Pty Ltd v The Owners - Strata Plan 74602

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (98 paragraphs)

Legislation Cited (9)

Cases Cited (20)

Cited By (3)