THE OWNERS - STRATA PLAN No 64972 v RINBAC PTY LTD

Local Courts Act 1982 LEGISLATION CITED : Strata Schemes Management Act 1996 Strata Titles Act 1973

Australian Broadcasting Tribunal v Bond [1990] HCA 15; (1990) 170 CLR 321 Crown Glass and Aluminium Pty Ltd v Ibrahim [2005] NSWCA 195 Federal Commissioner of Taxation v Sara Lea Household and Body Care (Aust) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520 Gurr v Robinson (Court of Appeal, 10 February 1986, (unreported) CASES CITED : Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 Powercoal Pty Ltd and Foster v Industrial Relations Commission of NSW and Morrison [2005] NSWCA 345; (2005) 64 NSWLR 409 The Owners - Strata Plan No 51487 v Broadsand Pty Ltd [2002] NSWSC 770 The Owners Strata Plan No 56443 v Regis Towers Real Estate Pty Limited [2003] NSWCA 274 The Owners Strata Plan 61643 v183 On Kent Management Pty Limited [2007] NSWSC 281

PARTIES : The Owners - Strata Plan No 64972 (Plaintiff) Rinbac Pty Ltd (Defendant)

COUNSEL : Mr P W Gray SC/Ms P Koroknay (Plaintiff) Mr R Forster SC/Mr M Izzo (Defendant)

SOLICITORS : David Le Page (Plaintiff) Home Wilkinson Lowry Lawyers (Defendant)

LOWER COURT FILE NUMBER(S) : 2046/07; 2053/07; 2056-2060/07

LOWER COURT DATE OF DECISION : 17 March 2008; 5 May 2008

• 28 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2912/08 THE OWNERS - STRATA PLAN No 64972 v RINBAC PTY LTD JUDGMENT

1 HER HONOUR : This is an appeal from a judgment of the Local Court given on 17 March 2008 in respect of seven sets of proceedings brought by Rinbac Pty Ltd against the Owners Corporation of a registered strata plan. In the proceedings below, Rinbac claimed amounts allegedly due to it under a Management Agreement. Alternatively, it claimed some of those amounts pursuant to various "discrete agreements".

2 The Owners Corporation contended that the Management Agreement was void from the outset on the basis that, by entering the Agreement, the Owners Corporation had delegated some of its statutory functions contrary to s 13(3) of the Strata Schemes Management Act 1996. The Owners Corporation further contended that a Deed of Variation apparently calculated to cure any invalidity of the Management Agreement was of no force or effect because it could not validly amend an agreement that was itself invalid.

3 The learned Magistrate rejected each of those contentions by the Owners Corporation. Her Honour also found substantially in favour of Rinbac on its alternative claims founded on the discrete agreements. The Magistrate gave judgment for Rinbac in the sum of $90,482.96 plus interest. In a separate judgment, the Magistrate ordered the Owners Corporation to pay Rinbac's costs of all the proceedings on the indemnity basis from 1 February 2007. That judgment is the subject of a separate ground of appeal.

4 An appeal lies as of right from a judgment or order of the Local Court sitting in its General Division, but only as being erroneous in point of law: s 73 of the Local Courts Act 1982 (now repealed). An appeal on a ground that involves a question of mixed law and fact lies only by leave of this Court: s74(1) of the Act. The Owners Corporation acknowledges that some of the grounds in the further amended summons filed 11 February 2009 may not be relied upon without leave.

5 Rinbac has filed a cross-summons appealing against the decision to the extent that the Court disallowed its claims. The cross-summons is pursued only in the event that the Owners Corporation's challenge to the Magistrate's conclusions in respect of the Management Agreement is upheld. A threshold issue arising in that event is whether leave to appeal is required in respect of the cross-summons and, if so, whether leave should be granted. In addition, Rinbac has filed a notice of contention, which falls to be considered in the determination of the appeal in accordance with s 75 of the Local Courts Act .

6 The property in question is known as the "Waldorf Serviced Apartments" at Chippen Street, Chippendale. There are 73 lots in the strata scheme. Most of the lots are managed as serviced apartments by a company called Waldorf Apartments Sydney South Pty Ltd, which is wholly owned by Rinbac.

7 The strata plan was registered on 21 March 2001. Pursuant to s 8(1) of the Strata Schemes Management Act , the event of registration of the strata plan established the Owners Corporation. The following day, the Inaugural General Meeting of the Owners Corporation was held and it was resolved that the Management Agreement with Rinbac be executed by the Owners Corporation.

8 In its written submissions, the Owners Corporation described some of the "factual matrix" in which the Management Agreement was executed. The submissions stated that the developer of the strata scheme was FAI General Insurance Company Limited, which went into provisional liquidation on 13 March 2001. The only person "present" at the Inaugural General Meeting was Mr Avi Rubinstein, who had been an employee of FAI and was one of the two directors and shareholders of Rinbac.

9 The Owners Corporation observed that the factual context was one that is "familiar in the world of strata developments". It stated that what often happens, and what has essentially happened here, is that a developer, after registering a strata scheme, often commits the owners corporation to a management agreement with an entity connected to the developer on terms that are disadvantageous to the owners corporation and unduly favourable to the management entity.

10 That explanation of the events and personalities involved may serve to assist the Court to understand the vigour with which a broad array of issues has been pursued in the present litigation, which appears disproportionate to the amounts involved. It is not, however, relevant to the determination of the legal issues.

11 The Management Agreement was executed on 22 March 2001 following the Inaugural General Meeting. On 29 August 2002, this Court gave its decision in The Owners - Strata Plan No 51487 v Broadsand Pty Ltd [2002] NSWSC 770 which held (at [33] per Hamilton J) that the Management Agreement under review in that case was void for illegality because it appointed a managing agent and delegated some of the statutory functions of the Owners Corporation to it in breach of s 78 of the Strata Titles Act 1973. That section contained a proscription similar to that which is now contained in s 13(3) of the Strata Schemes Management Act .

12 On 29 November 2002, amendments to the Strata Schemes Management Act were gazetted making provision for the appointment of "caretakers" to "assist" owners corporations. On 7 February 2003, three days before those amendments came into force, the Owners Corporation resolved to execute a Deed of Variation to amend the Management Agreement.

13 It was, I think, common ground between the parties that the changes effected by the Deed of Variation were calculated to reduce the extent to which the Management Agreement bore similar characteristics to the agreement struck down as void in Broadsand and to bring the Management Agreement within the anticipated amendments to the Strata Schemes Management Act concerning caretakers. In particular, the Deed of Variation introduced a qualification that confined Rinbac to "assisting" the Owners Corporation in the exercise of its functions, so as not to infringe s 13(3). The parties disagree, however, as to whether the Deed of Variation validly achieved that end.

14 At some point in 2006 the Owners Corporation ceased to be controlled by interests associated with the developer and payments to Rinbac were stopped. Rinbac maintained its entitlement to be paid in accordance with the Management Agreement (as amended by the Deed of Variation) and commenced a series of proceedings in the Local Court claiming payment of various invoices issued to the Owners Corporation for services performed and expenses incurred between April and August 2006.

15 The amounts claimed included three invoices for monthly management fees pursuant to clause 5.1 of the Management Agreement, five invoices for security, access and caretaking services claimed by way of reimbursement of expenses pursuant to clause 5.3 of the Management Agreement and five invoices for other services (referred to as "the clause 4 expenses") also claimed by way of reimbursement under clause 5.3.

16 In the alternative, Rinbac claimed payment of amounts it alleged were due pursuant to discrete agreements for (a) the management fee, (b) common area cleaning, (c) pool barbeque and roof maintenance, (d) on site management and (e) cleaning material equipment usage. Further in the alternative, Rinbac made a claim in restitution.

17 The Owners Corporation's defence of the claims included the contention that the Management Agreement was void for illegality because, on its proper construction, it amounted to a delegation of some of the statutory functions of the Owners Corporation to Rinbac, in breach of s 13(3) of the Strata Schemes Management Act . Section 13 provides: Owners corporation may employ persons to assist in exercise of functions (1) An owners corporation may employ such persons as it thinks fit to assist it in the exercise of any of its functions.

(2) An owners corporation must ensure that any person employed to assist it in the exercise of a function has the qualifications (if any) required by this Act for the exercise of that function. Note: An owners corporation may employ such persons to assist it as, for example, caretakers and persons providing services to retirement villages. For example, a caretaker is required to be appointed under Part 4A. In addition, the Act requires certain functions to be performed by particular persons or persons having particular expertise. For example, section 24 places restrictions on the persons who can exercise functions relating to the finances and accounts of an owners corporation.

(3) An owners corporation may not delegate any of its functions to a person unless the delegation is specifically authorised by this Act.

18 Section 28 of the Act authorises the appointment of a strata managing agent to whom functions of the Owners Corporation may be delegated but it was common ground that Rinbac did not hold the necessary licence to be appointed on that basis.

19 In its submissions to the Magistrate, the Owners Corporation relied on clauses 3(a), 3(b) and 4 of the Management Agreement, which provided: "3. Management Appointment and Delegation by Manager (a) The owners corporation appoints the manager and the manager accepts that appointment, to administer the common property during the term upon the terms and conditions of this agreement. (b) That the owners corporation acknowledges that the manager may appoint a sub manager or agent to undertake such of the manager's duties under this agreement as the manager considers appropriate to delegate. 4. Managers Duties The manager must ensure that:- (a) The common property is properly cleaned; (b) Any broken light fittings, globes and tubes in the common property are replaced when required; ( c) The common property is repaired and redecorated when necessary; (d) The carpets in the common property are replaced when necessary; (e) The security and caretaker services are provided for the common property; (f) A concierge and reception service for the common property is maintained 24 hours a day, seven days a week; (g) Telecommunication services are provided (including pay tv and cable tv); and (h) all general common property maintenance and repairs are carried out as and when reasonably required by the owners corporation;"

20 The Magistrate stated at [32] of the judgment that the test to be applied in determining whether the Management Agreement violated s 13(3) was whether the agreement as a whole conferred "significant decision-making or control" on Rinbac. 21 The Magistrate identified three reasons for holding that the Owners Corporation did not, by entering the Management Agreement, hand over sufficient decision-making or control to Rinbac in relation to its maintenance and repair functions. First, her Honour rejected a submission that the appointment in clause 3(a) "to administer the common property" amounted to a conferral of authority to manage the common property. Her Honour was of the view that the powers of Rinbac under that clause were "tempered" by clause 4, which set out specific duties (at [33] of the judgment).

22 Secondly, the Magistrate held that the use of the term "when necessary" in clause 4 did not denote or suggest that the powers conferred under that clause were in the discretion of Rinbac or that the clause conferred significant decision-making or control on Rinbac. Her Honour placed particular reliance on the fact that clause 4(h) of the Agreement stated that the maintenance and repairs contemplated by that clause were to be carried out only "as and when reasonably required by the Owners Corporation" (at [34] of the judgment).

23 Finally, her Honour placed reliance on a comparison of the clauses in the present case with those under consideration in The Owners Strata Plan 61643 v 183 On Kent Management Pty Limited [2007] NSWSC 281 and The Owners Strata Plan No 56443 v Regis Towers Real Estate Pty Limited [2003] NSWCA 274 and concluded that the present Agreement was similar in effect to those agreements, neither of which was struck down as being invalid (at [35] to [41] of the judgment). For those reasons, the Magistrate concluded that the Management Agreement did not contravene s 13(3) of the Strata Schemes Act (at [42] of the judgment). As a consequence of that finding, the Magistrate rejected the contention of the Owners Corporation that the Deed of Variation could not validly vary the Management Agreement (at [48] to [56]).

24 On the basis of those conclusions, the Magistrate held (at [82]) that Rinbac was entitled, pursuant to the provisions of the Management Agreement, to recover the amounts claimed in the three invoices in respect of management fees and (at [120]) the amounts claimed in the five invoices for security, access and caretaking services.

25 The Magistrate held that the amounts claimed as clause 4 expenses were not expenses incurred by Rinbac within the meaning of clause 5.3 (at [138]), but upheld the claim in respect of most of those amounts on the basis that there were discrete agreements for the payment of those amounts (at [161] and [162(i)]). Her Honour rejected the claim for "postage, stationary and Waldorf administration" (at [162(ii)]) and "security equipment" (at [162(iii)]) on the basis that no agreement was reached in respect of those categories of claim. She omitted to consider Rinbac's restitutionary claim for those amounts, apparently proceeding on the basis that the claim in restitution was pressed only in the event that all of the claims in contract were unsuccessful (at [163]).

Was the Magistrate's determination in respect of the Management Agreement erroneous in point of law?

26 The first ground of appeal is that the Magistrate erred in law in finding that the Owners Corporation's entry into the Management Agreement with Rinbac on 22 March 2001 did not constitute an unlawful delegation of any of its functions in breach of s 13(3) of the Strata Schemes Management Act . The second ground is that the Magistrate erred in law in failing to find the Management Agreement void for breach of s 13(3) of the Act.

27 The determination of those grounds turns on whether the Magistrate applied the wrong test or alternatively whether, applying the correct test, the Magistrate erred in construing the Management Agreement. Those questions raise pure errors of law and do not require the leave of the Court under s 74 of the Local Courts Act .

28 Mr Gray, who appeared with Ms Koroknay for the Owners Corporation in the appeal, submitted that her Honour's formulation of the test at [32] (set out above) did not state with complete accuracy the question that arises under s 13(3). The correct test is whether significant decision-making or control had been given over in respect of "any" of the functions of the owners corporation: 183 On Kent. In my view, however, it is apparent on a fair reading of the relevant section of the judgment, including the Magistrate's conclusion at [42], that her Honour did identify the correct test. 29 With great respect to the Magistrate, however, I am of the view that her Honour misconstrued the agreement in her application of that test. In my view the Management Agreement, on its proper construction, did confer significant decision-making or control on Rinbac in respect of some of the Owners Corporation's statutory functions. Pursuant to s 61 of the Strata Schemes Management Act , the functions of an owners corporation include management and control of the use of the common property of the strata scheme. Section 61(2) states that the owners corporation has responsibility for the following matters: (a) maintaining and repairing the common property, (b) managing the finances of the Strata Scheme, (c) taking out insurance for the Strata Scheme, (d) keeping accounts and records for the Strata Scheme.

30 The functions of an owners corporation in respect of each of those responsibilities are specified in Parts 2, 3, 4 and 5 respectively of Chapter 3 of the Act, commencing with s 62, which lists the relevant functions in respect of maintenance and repair of the common property.

31 In my view, clause 3(a) of the Management Agreements contains a wholesale delegation of some of those functions. Contrary to the view reached by the Magistrate, I do not think that the powers conferred on Rinbac by that clause to administer the common property were tempered by the specific duties referred to in clause 4. On the contrary, in my view, the combined effect of clause 3(a) and clause 4 was to confer significant decision-making and control on Rinbac in respect of the Owners Corporation's function of maintaining and repairing the common property under s 61(2)(a) as elaborated in s 62 of the Strata Schemes Management Act .

32 Further, I accept, as submitted by Mr Gray, that her Honour's reliance on clause 4(h) was misconceived. In my view, that clause, on its proper construction, imposed a qualification on the entitlement of the Owners Corporation to make requests of Rinbac in respect of maintenance and repairs of the common property. I accept, as submitted by Mr Gray, that rather than reserving authority to the Owners Corporation, that qualification was a further indication of the weakness of its position.

33 The delegation of those functions of the Owners Corporation was, in my view, put beyond doubt by clause 3(b) of the Management Agreement, pursuant to which Rinbac was entitled to appoint a sub-manager or agent entirely at its discretion.

34 Contrary to the view reached by the Magistrate, I do not think that a comparison of the present agreement with the agreements considered in the decisions of Regis Towers and 183 On Kent militates a different conclusion.

35 In my view, the Magistrate should have held that, by the Management Agreement, the Owners Corporation delegated some of its functions to Rinbac, contrary to the proscription of s 13(3) of the Strata Schemes Management Act . 36 For those reasons, grounds 1 and 2 are made out.

37 The third ground of appeal is that the Magistrate erred in law in that she should have found the Deed of Variation dated 7 February 2003 void because the Management Agreement, which it purported to vary and otherwise affirm, was void.

38 The Owners Corporation's defence in the Court below included the contention (recorded at [47] of the judgment) that the Deed of Variation was invalid because it could not validly vary the Management Agreement if that Agreement was itself void. The Magistrate did not address that contention in terms. Her Honour observed, at [48] to [55], that the Deed of Variation was entered into shortly before the Strata Schemes Management Amendment Act came into force and that it clearly contemplated invoking the application of those provisions. Her Honour concluded, at [56]: "I am satisfied on balance that the Deed of Variation makes it clear that the parties intended to invoke the 2002 amendments to the Strata Schemes Management Act from the date of the amendment."

39 That conclusion proceeded on the premise, as her Honour had held at [42], that the Management Agreement was not void. Her Honour did not specifically address the question whether the Deed of Variation could have any force or effect on the assumption that the Management Agreement was void (as, in my view, it was).

40 The Owners Corporation contends that it follows inexorably from the conclusion that the Management Agreement was void from the outset that it was not capable of being varied on 7 February 2003. The Owners Corporation further contends that the Agreement as varied was not capable of attracting the application of the amending Act, which could only operate in respect of an agreement that was "in force" immediately before the commencement of that Act.

41 Mr Forster, who appeared with Mr Izzo for Rinbac, submitted that the validity of the varied Agreement is not dependent on the original Management Agreement subsisting. He noted, as accepted by the Owners Corporation, that the language of the Deed of Variation discloses that the parties were seeking to take advantage of the caretaker provisions introduced by the amendments to the Act. He submitted that, against that background, it is impossible to attribute to the parties an intention that the variation be premised on the subsistence of the original Agreement. Rather, the parties must have intended that a new contract would come into existence from the date of variation in terms that did not infringe the Act, notwithstanding the fact that the original Management Agreement may have infringed it.

42 The amendments that came into force on 10 February 2003 introduced sections 40A - 40C into the Strata Scheme Management Act . Those provisions state: "40A Who is a caretaker? (1) A caretaker is a person who is entitled to exclusive possession (whether or not jointly with another person or other persons) of a lot or common property and assists in exercising any one or more of the following functions of the owners corporation for the strata scheme concerned: (a) managing common property, (b) controlling the use of common property by persons other than the owners and occupiers of lots, (c) maintaining and repairing common property. (2) However, a person is not a caretaker if the person exercises those functions only on a voluntary or casual basis or as a member of the executive committee. (3) A person may be both a caretaker and an on-site residential property manager.

(4) For the purposes of this Act, a person is taken to be a caretaker for a strata scheme if the person meets the description of a caretaker set out in this section, regardless of whether the title given to the person's position is caretaker, building manager, resident manager or any other title. 40B How is a caretaker appointed? (1) A caretaker is required to be appointed by an instrument in writing (a "caretaker agreement") executed before or after the strata scheme commenced by the caretaker and: (a) by the original owner, if executed before the strata scheme commenced, or (b) under the authority of a resolution passed at a general meeting of the owners corporation of the strata scheme concerned, if executed after the strata scheme commenced. (2) Unless it expires or otherwise ceases to have effect earlier, a caretaker agreement (including any additional term under any option to renew it) expires: (a) at the conclusion of the first annual general meeting of the owners corporation, if the agreement was executed by the original owner, or (b) when 10 years have expired after it commenced to authorise the caretaker to act under it, in any other case. (3) The functions of a caretaker under a caretaker agreement may be transferred to another person only with the approval of the owners corporation. A person to whom those functions are transferred is taken to be appointed as a caretaker by the caretaker agreement. (4) An owners corporation may terminate a caretaker agreement in accordance with its terms, and may approve a transfer of the functions of a caretaker, if authorised by a resolution at a general meeting of the owners corporation 40C With which functions of an owners corporation can a caretaker assist? (1) A caretaker may, in accordance with the caretaker agreement appointing the caretaker, assist in exercising one or more of the functions of the owners corporation of managing and controlling the use of common property (otherwise than by the owners or occupiers of lots) and of maintaining and repairing common property. (2) However, the owners corporation may continue to exercise all or any of those functions, subject to the caretaker agreement. (3) A person is not a strata managing agent for the purposes of this or any other Act only because the person is a caretaker acting in accordance with a caretaker agreement." 43 The Deed of Variation explicitly invokes the language of s 40A, replacing clause 3(a) of the Management Agreement with the following clause: "The Owners Corporation appoints the caretaker, and the caretaker accepts that appointment, to assist the Owners Corporation in: (i) Managing the common property (ii) Controlling the use of the common property by persons other than lot owners or occupiers of lots and (iii) Maintaining and repainting common property in accordance with the terms of this Agreement.

44 The Deed of Variation further provides that clause 3(b) of the Management Agreement is deleted. Clause 4 is deleted and replaced with a clause which provides that "The caretaker must assist the Owner's Corporation in exercising the functions of the Owners Corporation outlined in clause 3" by ensuring that various activities are undertaken.

45 Further, as noted by Mr Forster, Recital B in the Deed of Variation explicitly refers to the parties' object of varying the Management Agreement so that it "clearly outlines the role and functions of the caretaker and complies with the requirements of the Act".

46 The Owners Corporation's submission rests heavily on the concluding clause of the Deed of Variation, which provides: "The parties affirm the terms of the Management Agreement otherwise than as varied by clause 1 and agree that except to the extent set out in clause 1, the terms and conditions of the Management Agreement remain unchanged". Mr Forster submitted that this was a short hand way of saying, "take the Management Agreement and rewrite it as follows".

47 At first blush, the logic of the contention put forward by the Owners Corporation appears unexceptionable. In my view, however, it would be unduly artificial to analyse the Deed of Variation on that basis when its stated object was to achieve compliance with the very legislation by reason of which it is alleged to be invalid. I accept, as submitted by Mr Forster, that the Agreement should be construed as a new Agreement entered into on 7 February 2003, which took the Management Agreement effectively as a draft.

48 Further, I accept, as submitted by Mr Forster, that the issue whether the Deed of Variation brings into existence a new contract, or leaves the original contract standing subject to the alteration, depends on the intention of the parties : Federal Commissioner of Taxation v Sara Lea Household and Body Care (Aust) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520 at [22]-[23]. The Magistrate found that the intention of the parties in the present case was to seek to take advantage of the caretaker provisions when the amendments came into force a few days after the Deed was executed. In my view, it was open to her Honour to come to that conclusion. It has not been demonstrated by the Owners Corporation to have been erroneous in point of law.

49 Accordingly, I have reached the conclusion that Ground 3 is not made out.

50 In light of that conclusion, it is not necessary to deal with the issue raised by Rinbac's notice of contention as to whether the Owners Corporation is estopped from denying the validity the Management Agreement (Ground 1 in the notice of contention filed 30 April 2008).

51 The Magistrate found at [161] that, in respect of certain services, the budget accepted by the Owners Corporation at the AGM on 2 April 2006 "constituted a discrete agreement between the parties as to the fees to be charged by Rinbac on a per annum Basis" (referred to as "the Budget Agreement"). Ground 4(i) in the further amended summons is that the Magistrate erred in law in so finding, in that there was no evidence capable of sustaining such a finding.

52 The question whether there is any evidence of a particular fact is a question of law: Australian Broadcasting Tribunal v Bond [1990] HCA 15; (1990) 170 CLR 321 at 355.

53 The Owners Corporation submitted that, since the issue was one on which Rinbac bore the onus of proof, the question is not whether there is any evidence at all but whether the evidence on the point is "sufficient, in the sense that it is evidence which if fully accepted could base the finding of fact": Crown Glass and Aluminium Pty Ltd v Ibrahim [2005] NSWCA 195 at [39] and [40].

54 It is important, however, to bear in mind that the question is not whether I would have reached the same conclusion on the strength of that evidence, but rather whether the conclusion was open on the evidence and bearing in mind that it was an issue on which Rinbac bore the onus of proof.

55 It is important also to bear in mind that an appellate Court should not "parse and analyse" the reasons of the Court below with a view to finding error but should, rather, consider the reasons fairly and as a whole: Powercoal Pty Ltd and Foster v Industrial Relations Commission of NSW and Morrison [2005] NSWCA 345; (2005) 64 NSWLR 409 at [69].

56 The Owners Corporation complains that the Budget Agreement as found by the Magistrate was said to be constituted only by the passing of the Budget. The Owners Corporation emphasised in its submissions that the passing of a resolution in respect of the budget was a unilateral act which could not, of itself, establish the existence of an intention to enter legal relations with another party.

57 Although the Magistrate expressed her conclusion at [161] in terms suggesting the discrete agreement was constituted in the budget alone, I think it is clear on a fair reading of her Honour's reasoning from [139] to [161] that her Honour's conclusion was based on the history of the dealings between the parties and the inference to be drawn from the passing of the resolution in that context. The Magistrate expressly referred to a submission put on behalf of the Owners Corporation that a budget is a unilateral estimate that is not capable of constituting an agreement. Her Honour concluded, however, that against the history of the dealings between the parties in the present case, the passage of the budget had a different significance.

58 Mr Forster submitted that there was "ample evidence" before the Magistrate to support the finding she made. He referred to the fact that, since 2001, management services had been provided to the Owners Corporation by Rinbac or Waldorf and paid for by the Owners Corporation. Mr Forster noted that, prior to the passing of the 2006 budget, there were discussions between Mr Rubinstein and Mr Silcock, the Treasurer of the Owners Corporation, concerning the amounts to be allocated in the budget to services to be provided by Rinbac. Prior to the AGM, the parties had adopted competing positions but there was evidence to support the conclusion that they were proceeding on the basis that the figures ultimately adopted at the AGM would be the amount Rinbac would be entitled to be paid by the Owners Corporation.

59 In my view, the conclusion reached by the Magistrate was open on the strength of that evidence. Accordingly, ground 4(i) is not made out.

60 Grounds 4(ii) and (iii) relate to an agreement referred to as the "Silcock Agreement" as to the hourly rate to be charged by Rinbac for onsite maintenance work (at [162(i) of the judgment].

61 The "no evidence" ground appears to be maintained in respect of that finding as well. In addition, the Owners Corporation relies on the following further grounds: (ii) As a matter of law Mr Silcock did not have the ostensible authority of the Owners Corporation to enter into a discrete agreement with Mr Rubinstein on behalf of Rinbac, since the unchallenged evidence before [the Court] (including from Mr Rubinstein) was that he (Mr Rubinstein) knew Mr Silcock had no power to enter into an agreement on behalf of the Owners Corporation because he (Mr Silcock) had told him that. (iii) Mr Silcock had no power under the Act on behalf of the Owners Corporation either:

(a) to settle the Budget; or (b) to enter into an agreement with Rinbac. 62 As observed by Mr Forster, the impugned finding was based on evidence from Mr Rubinstein as to a conversation in which Mr Silcock offered to pay $35 an hour for repairs and maintenance, to which Mr Rubinstein said "That's fine". The Magistrate plainly accepted that the conversation had occurred. On that basis, the no evidence ground, if it is pressed in respect of the Silcock Agreement, is not made out.

63 The remaining grounds in respect of the Silcock Agreement involve questions of mixed law and fact and require leave to appeal.

64 I am not satisfied that leave should be granted to argue those grounds. The requirement for leave reflects a public interest in finality and the discouragement of protracted litigation which it is the duty of the Court to protect: cf Gurr v Robinson (Court of Appeal, 10 February 1986, (unreported) per Kirby P.

65 The present grounds raise no question of general principle. The hearing below raised many questions of fact. Those questions were explored at length over four hearing days during which witnesses were cross-examined and many volumes of documents were tendered. The Magistrate has given close attention to the factual issues in a detailed and carefully reasoned judgment. I see no feature of the present case which marks it out as a proper case for the grant of leave under s 74(1) of the Local Courts Act .

66 Ground 4A is that the Magistrate erred in law in finding that the separate or "discrete" agreements, as alleged, existed and bound the Owners Corporation in the absence of any evidence that the agreements were comprised in a written instrument or instruments executed by the Owners Corporation under the authority of a resolution passed in general meeting, as required by s 40B of the Act.

67 As already noted, the Magistrate found that the invoices sent in respect of the claim for expenses were not payable under clause 5.3 of the Management Agreement but were recoverable pursuant to discrete agreements. In that context, Rinbac submitted that, so long as it is accepted that the Caretaker Agreement is valid, the discrete agreements could not be defeated by s 40B. It was submitted that the requirement of that section that a caretaker be appointed by an instrument in writing under the authority of a resolution passed at a General Meeting of the Owners Corporation is satisfied by the caretaker agreement itself.

68 In my view, that submission is correct and should be accepted. Nothing in s 40B imposes a requirement that each separate agreement between a caretaker and the Owners Corporation should be reflected in a single instrument of appointment.

69 The Owners Corporation submitted that, on the assumption that the Management Agreement is valid, the "difficulty for Rinbac" would not be s 40B but, rather, that the terms of the alleged discrete agreements would be fundamentally different from the requirements and provisions of the Management Agreement. That is a different proposition. It is not the subject of any ground of appeal and is not, in my view, a basis on which I should conclude that the Magistrate's finding in respect of the discrete agreements contravened the Act or was otherwise wrong in law.

70 Ground 5 in the further amended summons is in the following terms: "Even if it be assumed, contrary to the foregoing grounds, either that the Management Agreement as varied was valid or that one or more "discrete agreements", as alleged, was made, the Magistrate erred in law (i) in her construction of the Owners Corporation's solicitor's letter of 19 May 2006, in that she should have held that it was a direction under the Management Agreement as varied to cease engaging contractors (including Waldorf) to provide services (so as to preclude recovery of so much of the invoices as post-dated 19 May 2006) (ii) in holding that the instruction by the strata managing agent of 26 May 2006 (which admittedly was given) (a) was on its proper interpretation restricted only to services the cost of which went beyond the costs contained in the budget; or (b) was made without the Owners Corporation's authority (iii) in holding that Rinbac had incurred expenses as set out in invoices 10001, 10002, 10003, 10005 and 10007 when all the evidence before her was to the effect that: (a) Waldorf incurred such expenses as there were of security and caretaking; (b) Waldorf had not invoiced Rinbac for any of those services nor had Rinbac paid Waldorf for them; (c) such invoiced amounts were not reflected in the accounts of either Rinbac or Waldorf either as a liability in the case of the former or as an asset/receivable in the case of the latter; (d) the costs in those invoices were in fact costs incurred by Waldorf as the operator of a hotel/serviced apartment business relating to some 90% of the lots in the building; (e) the true cost of the services referred to in such invoices, including those of a receptionist, was far less than the amounts claimed in those invoices."

71 Although it is alleged that the Magistrate erred in law in the ways identified, the complaints articulated in Ground 5 involve questions of mixed law and fact. For the reasons identified above in respect of grounds 4(ii) and (iii), I do not think that leave should be granted to argue ground 5.

72 In light of those conclusions, the appeal so far as it concerns the primary judgment must be dismissed. Accordingly, the questions raised by Rinbac's cross-summons and its notice of contention do not arise.

73 Ground 6 is that: "The Magistrate erred in law in making the costs order 1(b) which she made on 5 May 2008, in that (i) neither the first offer of compromise nor the second offer of compromise was left open for a time which was "reasonable in the circumstances", contrary to the requirements of UCPR rule 20.26(7)(b); (ii) the Cross-Claimant recovered judgment for the whole of its Cross-Claim in proceedings No 2060 of 2007 yet was ordered to pay the Cross-Defendant's costs of those proceedings; (iii) in all the circumstances the order was so unreasonable and plainly unjust that it is to be inferred that there has been a failure properly to exercise the Magistrate's discretion, such that a substantial wrong has occurred."

74 In a separate judgment, the Magistrate ordered the Owner's Corporation to pay Rinbac's costs of all the proceedings on the indemnity basis from 1 February 2007. Costs are, of course, in the discretion of the Court. The grounds raised by the Owners Corporation in respect of the Magistrate's exercise of that discretion arguably involve questions of mixed law and fact. I am satisfied, however, that her Honour's discretion did miscarry so as to cause injustice. Accordingly, to the extent that leave is required under s 74 of the Local Courts Act , I am satisfied that it should be granted.

75 The Magistrate's decision as to costs was based in part on two offers of compromise served on the Owners Corporation by Rinbac. It was a requirement of the rules that the offer be left open for such time as was reasonable in the circumstances.

76 The first offer of compromise was, for practicable purposes, open for seven working days. Plainly, it was appropriate and reasonable for the Owners Corporation to consider the offer in General Meeting but the time constraints imposed by the offer did not permit that to occur. Further, at the time the offer was served, Rinbac had not put on all of its evidence, including the affidavit of Mr Rubinstein sworn 2 July 2007.

77 The second offer of compromise was open for only three working days. Again, that was insufficient time within which the Owners Corporation could consider the offer in General Meeting.

78 As submitted by the Owners Corporation, the obligation of a party that receives an offer of compromise to give serious thought to the risks of the proceedings and their outcome means that the Court "should not be ungenerous to an offeree in determining whether a time is reasonable": Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 per Giles and Tobias JJA at [2].

79 The Magistrate's failure to give any reasons for ordering indemnity costs on the strength of the two offers indicates, in my view, that her Honour did not pay appropriate regard to that principle.

80 Separately, as submitted by the Owners Corporation, there does not appear to have been any basis for ordering the Owners Corporation to pay Rinbac's costs of the Owners Corporation's successful cross-claim, let alone on the indemnity basis. I am satisfied that the Owners Corporation's appeal in respect of the Magistrate's order as to costs should be allowed.

81 I do not think it is necessary in the circumstances to remit the matter to the Local Court. In my view, it is appropriate to vary the terms of the orders made by the Magistrate so as to require the Owners Corporation to pay Rinbac's costs of Rinbac's claims on the ordinary basis and Rinbac to pay the Owners Corporation's costs of its cross-claim, also on the ordinary basis. Orders

82 The appeal against the decision of the Magistrate given on 17 March 2008 is dismissed.

83 In respect of the decision of the Magistrate given on 5 May 2008, the order of the Magistrate is varied so as to require the Owners Corporation to pay Rinbac's costs of Rinbac's claims on the ordinary basis and Rinbac to pay the Owners Corporation's costs of its cross-claim, also on the ordinary basis.

84 I will hear the parties as to costs. **********

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