Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 71623

Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 71623 - [2010] NSWCA 226 - NSWCA 2010 case summary — Zoe

[89]

27 The document in evidence has no annexure. The seal shows the number of the Strata Plan. 16 Between 25 February 2004 and 20 April 2009, the Owners Corporation treated WAHTE as its building manager and WAHTE acted as the building manager. 17 On 20 April 2009, a letter to WAHTE on the letterhead of the Owners Corporation, signed by Mr Bartels the Chairman of the executive committee of the Owners Corporation, purported to terminate the Building Management Agreement effective 27 April 2009. Relevantly, this notice stated the following ground: The Owners Corporation relies upon various acts of the Manager which would entitle it to terminate the Agreement immediately including but not limited to the failure to make proper provision for the electrical metering of Lot 104 and the conversion of electricity for a period of at least five (5) years to the knowledge of the Manager and its failure when required so to do to metre the unit or to make any proper offer of restitution or provision for the calculation of the default. It further relies upon the Manager's improper conduct in converting to itself profit from vending machines installed upon the common property. 18 In respect of this ground concerning electrical metering, the primary judge said this: 48 There was not and has not at any time since the Strata Plan was registered been any separate electricity supply to Lot 104, or any electrical metering for Lot 104. Electricity for the various parts of Lot 104 has always been drawn from electricity supply for the common property, electricity which has passed through a meter the charges on which have always been paid by the Owners Corporation on bills rendered to it by the Electricity Supply Authority. This is no slight matter and must have had a large impact on the charges for electricity rendered to and paid by the Owners Corporation throughout its history. Lot 104 includes office space near the foyer, a restaurant area, described by Mr Rubenstein as a breakfast room, and a laundry where WAHTE has carried out a considerable part but not all of the laundry work required to meet WAHTE's responsibilities as building manager, to the other significant Owners Corporation in the building as well as this one. The usage of electricity must have been considerable. WAHTE has not at any time, up to 20 April 2009 or since, made any arrangements with the supply authority to purchase electricity from it and have its supply carried through its own meter. 19 At the hearing, the Owners Corporation relied on a further repudiatory breach justifying termination, namely the insistence by WAHTE on payment otherwise than in accordance with cl 6.2 of the Building Management Agreement. 20 The practice of WAHTE was to render monthly invoices, specifying charges for items such as "reception" (initially about $9,000 including GST, and increasing to about $11,000 including GST), "manager" (initially about $2,400 including GST and increasing to about $3,000 including GST), "cleaning, garbage removal" (initially about $2,400, increasing to about $4,100), "cleaning of shared facilities" (initially about $1,100, increasing to about $1,300), and "pool cleaning and maintenance" (initially about $550, increasing to about $570). 21 Up to September 2008, the Owners Corporation paid the invoices. From October 2008, the executive committee objected to the invoices and to the absence of information allegedly required by cl 6.2. WAHTE still persisted in making its claims for payment in substantially the same way; and when its claims were not paid, it commenced proceedings against the Owners Corporation in the Hornsby Local Court seeking payment. 22 On or about 21 April 2009, the Owners Corporation appointed ASM Management Pty Limited to manage the building while it called for tenders, to commence duties on 28 April 2009.

[90]

Decision of primary judge 23 The primary judge held that the effect of s 113 of the Act was that the Building Management Agreement had no effect after the holding of the first annual general meeting of the Owners Corporation on 25 February 2004; that the motion passed at the extraordinary general meeting held thereafter showed no intention that the Owners Corporation should be bound by the Building Management Agreement in any way other than by the affixation of its seal to that document by the strata managing agent, and this did not happen; and that the later document headed Deed of Acknowledgment did not bind the Owners Corporation, because it did not give effect to the motion passed at the extraordinary general meeting, and the authority of the strata managing agent to sign it was not supported by s 238(4) of the Act because the requirement of s 238(3) of attestation of the date of affixing the seal was not complied with. On that basis, the primary judge concluded that the Owners Corporation was not bound by the Building Management Agreement. 24 The primary judge rejected a contention of WAHTE that the Owners Corporation was estopped from denying the Building Management Agreement, holding that there was no evidence that any of the appellants acted on anything but their own interpretation of the events concerning the Building Management Agreement. 25 However, the primary judge went on to consider, on the assumption that the Building Management Agreement was operative, whether WAHTE had committed fundamental and/or repudiatory breaches of that agreement, justifying termination as from 27 April 2009. 26 As regards the use of electricity, the primary judge said this: 50 The claim that a company such as WAHTE whose whole business was managing strata buildings and had close associations with this building on behalf of two different Owners Corporations, and conducted significant business operations including electricity consumption for the laundry and breakfast room, did not avert for four or five years to the fact that it was not receiving bills for its electricity consumption, or to the fact that the Owners Corporation whose affairs it was managing was being charged for electricity used for Lot 104, is improbable to an extremely high degree. People in business can be relied on to have a fairly good idea of the costs which are characteristic of their own business. Mr Rubenstein's firm assertion in evidence about his lack of knowledge, given in his characteristically combative style, was not credible. But even if Mr Rubenstein was unaware of what was going on, a building manager which was getting an advantage like that for years and years at the expense of its principal would not be tolerated; no reasonable person would want them on the premises. If there was no dishonesty, they were too incompetent to be put up with. In the circumstances I do not find Mr Rubenstein's evidence on this matter credible. In any event a company carrying on business of this kind, involved deeply in the management of the building should have attributed to it that it knew that it was drawing its electricity supply from its principal and not paying for it out of its own pocket, even if Mr Rubenstein missed noticing it. The combative responses when Mr Bartels began to raise complaints enhanced the grounds for grievance on the part of the Owners Corporation. WAHTE did not stop using the Owners Corporations' electricity, and continued to draw electricity from the same source, and made no arrangements to obtain its own supply. It made no arrangements for equipping itself with an electricity meter and whatever wiring work was necessary to use its own supply. Mr Rubenstein maintained to the effect that WAHTE was not obliged to do these things. This was still what was happening when he gave evidence before me.

[91]

51 WAHTE has in this respect been in breach of a number of obligations to the Owners Corporation. It has misapplied its principal's resources; this indeed is the case whether or not there was actual advertence to the difficulty. It has not acted as building manager with reasonable care and skill. An implied obligation to take reasonable care in carrying out its work as building manager was breached by continually using the principal's electricity supply without acknowledgement and without payment, over some years, and was so breached in a fundamentally important way, whether or not the breach was deliberate. There is additionally, in my opinion, a breach of fiduciary duty which fell upon WAHTE because of its control of its principal's property. All these events, including the continuation and resistance when called upon to desist, constitute repudiatory conduct, which the Owners Corporation was entitled to accept so as to bring the contractual relationship to an end. 27 As regards the claims for payment under cl 6.2, the primary judge said this: 57 Until September 2008, WAHTE made monthly claims for payment, which were in fact paid, but which plainly on their face did not comply with clause 6.2, did not contain any information about the quantum of expenses which had actually been incurred, there were no copies of invoices; nor was there any certification. The charges rendered monthly were based on budgets for the current year, presented at some time early in each year by WAHTE to the Executive Committee, and as Mr Rubinstein's evidence would show, approved by the Executive Committee; or in any event known to them in advance. Minutes of approving resolutions are not forthcoming. However that may be, although the claims did not accord with what the Owners Corporation was entitled to have, they must have been found acceptable by the Executive Committees of those years, on which persons associated with WAHTE and related companies were in a majority, because they were all paid.

[129]

Deed of Acknowledgement 32 It was submitted by Mr Whitlam QC for the appellants that the managing agent had authority to execute the Deed of Acknowledgement so as to bind the Owners Corporation, this authority arising from the motion passed at the extraordinary general meeting of 25 February 2004 and/or a meeting of the executive committee. The primary judge made reference to the evidence of Mr Rubinstein that the Deed of Acknowledgement was signed at a meeting of the executive committee which took place after 11 May 2004 (the date on which the document had been prepared by Mr Bartels, with a view, according to Mr Bartels, of its being executed at a meeting of the executive committee); and Mr Whitlam referred to evidence of an executive committee meeting occurring on 15 May 2004. Mr Whitlam submitted that the primary judge should have found that the document had been executed at an executive committee meeting, and/or that it was approved by the executive committee. 33 Mr Whitlam also submitted that the document had been executed in accordance with s 238 of the Act. Section 238(2)(a) was complied with, because it was executed by Ms Hinton (who was the secretary of the Owners Corporation as well the strata managing agent) and Mr Rubinstein (who was a member of the executive committee). He submitted that it was also executed in accordance with s 238(2)(b); and that s 238(3) was not breached because, since the document was being dated, there was no date which the strata management agent needed to endorse. In any event, he submitted, authority could be established by s 238(4). 34 It was submitted by Mr Sirtes SC for the Owners Corporation that the motion passed at the extraordinary general meeting did not authorise the strata managing agent to sign the Deed of Acknowledgement; that this document had to be executed as a deed, because there was no consideration; that one could not infer an intention to make a simple contract from an invalidly executed deed; and that here should be no inference drawn that approval for the execution was given at a meeting of the executive committee. 35 In my opinion, the motion passed at the extraordinary general meeting did not authorise the strata managing agent to sign the Deed of Acknowledgement: it did not authorise entry into the Building Management Agreement otherwise than by the method it specified. However, I accept that the motion did disclose the intention of the Owners Corporation that it would bind itself to the Building Management Agreement; and I accept that this could, with the aid of presumptions of continuance and regularity, help support a finding that the signing of the Deed of Acknowledgement was authorised by some act of the Owners Corporation. 36 As submitted by Mr Whitlam, the primary judge did refer to evidence of Mr Rubinstein that the Deed of Acknowledgement was executed at a meeting of the executive committee; but that evidence was given in vague and uncertain terms, the primary judge did go on to say that there was no minute of the executive committee to that effect in evidence, and plainly the primary judge did not make a finding that the document was executed at such a meeting. Further, the minutes of the meeting of the executive committee held on 15 May 2004 (Blue 381) contained no reference to the matter, and the minutes show that Mr Rubinstein was not present at that meeting. In another respect, the primary judge did not find Mr Rubinstein's evidence credible (judgment [50]). 37 The question is whether this Court should make a finding that the executive committee approved the execution of this document, on the basis of Mr Bartel's evidence that this was the intention, Mr Rubinstein's evidence, and any relevant presumptions, such as a presumption of continuity and a presumption of regularity. In my opinion the material does not justify this Court making that finding, when it was not made by the primary judge, when the most likely executive committee meeting does not record such approval, and when Mr Rubinstein (who signed the document) was not present at that meeting. 38 A question then arises whether there was an affixing of the seal of the Owners Corporation in accordance with s 238 of the Act, which could have the effect of binding the Owners Corporation. In my opinion, for s 238(4) to apply, there would have to be an execution of the document conforming to s 238(3); and in my opinion, there was not such an execution in circumstances where the strata managing agent did not attest the date of affixation of the seal. In my opinion, even if it can be said that the seal was affixed in accordance with s 238(2)(a) of the Act, that would only comply with requirements for valid affixation of the seal, and not carry with it any implication of authorisation by the executive committee or by the Owners Corporation itself. 39 Accordingly, in my opinion, the appellants did not establish that the Owners Corporation became bound by the Deed of Acknowledgement. 40 I should say finally on this matter that I do not accept Mr Sirtes' submission that a deed was required: there was consideration, because the effect of the Deed of Acknowledgement would have been that both parties became bound to the terms of the Building Management Agreement, which had obligations on both sides. The problem that I see is that the Deed of Acknowledgement was not executed by a person or persons shown to have authority thereby to bind the Owners Corporation.

[130]

Contract based on conduct 41 Mr Whitlam submitted that the conduct of the parties after February 2004, acting in all respects as if they were bound by the Building Management Agreement, justified the inference that a contract in the terms of the Building Management Agreement had come into existence between them, relying on cases such as Empirnall Holdings Pty Limited v Machon Paull Partners Pty Limited (1988) 14 NSWLR 523. The primary judge had found there was a relationship moulded on the terms of the Building Management Agreement, but which continued at the will of both parties and was terminable on reasonable notice; but Mr Whitlam submitted there was no reason why the inferred or implied contract should not be on all the terms of the Building Management Agreement, including its duration. 42 Mr Sirtes submitted that the appellants had not relied on this contention below, and should not be permitted to rely on it on appeal. 43 However, the appellants did rely below on a contention that the Owners Corporation was estopped by their conduct from denying the existence of an agreement in terms of the Building Management Agreement. Mr Sirtes was not able to point to any particular way in which the case would have been conducted differently below, had the implied agreement point been raised, and I do not think the case would have been conducted differently. In my opinion, the appellants are not precluded from advancing this argument, on the basis of Suttor v Gundowda Pty Limited [1950] HCA 35; (1950) 81 CLR 418. 44 Accepting that the true position was, as I have decided, that representatives of the parties had in various ways attempted to enter into an agreement in the terms of the Building Management Agreement, but not succeeded in doing so, I would regard the conduct of the parties undertaken in conformity with the terms of that agreement as manifesting an intention to comply with an agreement that they mistakenly believed was in place, rather than an intention to make a contract in those terms that had not already been made. 45 However, I do accept that, on the assumption that there was no such contract, the conduct sufficiently manifested an intention that there be services provided by WAHTE and paid for by the Owners Corporation on reasonable terms, with the document providing appropriate evidence as to what would be reasonable terms. In my opinion, this would be what would be implied when WAHTE first began providing services and the Owners Corporation first began paying for them; and the continuance of that practice over a number of years would not justify a finding that an intention was manifested to enter into any other agreement. I would add that, in my opinion, this was the position before the first annual general meeting, as well as after it: the effect of s 113 was in my opinion to make the Building Management Agreement signed on 13 December 2003 entirely ineffectual, not merely to limit its operation in time.

[131]

Use of electricity 46 Having regard to my findings as to the existence of an agreement for a term of ten years, the outcome of this appeal will not turn on further issues. However I will proceed to consider them. 47 In relation to the use of electricity, it was submitted for the appellants that the primary judge erred: (1) In finding that WAHTE knew or ought to have known it was using the Owners Corporation's electricity without payment; and (2) In finding that, when complaints were raised, WAHTE responded combatively, failed to make alternative arrangements and maintained it was not obliged to do so. 48 As regards the first point, Mr Whitlam submitted that the evidence of Ms Peterson, the bookkeeper/accountant for the appellants, was that she first realised the electricity used by Lot 104 was not being charged to Lot 104 was in late 2007, although she could not be sure about this; and in those circumstances, even if Mr Rubinstein's evidence that he first learned of the problem in September 2008 was disbelieved, the evidence did not support a finding that Mr Rubinstein knew of the problem before late 2007 at the earliest. There was a detailed and reasonable explanation given by Mr Rubinstein as to why he did not advert to the problem earlier: the Waldorf Group was receiving bills for many lots, the bills were dealt with by Ms Peterson (who was found by the primary judge not to have acted in any seriously unsatisfactory way), and WAHTE itself was not the owner of Lot 104. 49 As regards the second point, Mr Whitlam submitted that in September 2008, Mr Rubinstein sent an email offering to reimburse the Owners Corporation for electricity it has consumed, and suggested that a separate meter be installed (Blue 232). The strata managing agent responded (Blue 310) by insisting that Waldorf arrange for its installation; to which Mr Rubinstein responded that the meter was a good idea and that it was the obligation of the Owners Corporation to provide meters, and that he would obtain a quote and subject to the Owners Corporation approval install it. It was submitted for the appellants that ss 62 - 65 of the Act supported the view that the obligation to provide the meter was on the Owners Corporation; and the evidence disclosed that Mr Rubinstein was endeavouring to ascertain the nature of the work required and pricing details. 50 In my opinion, no error is shown in the primary judge's conclusion. 51 I read the primary judge's judgment as accepting that Ms Peterson told Mr Rubinstein before the end of 2007 that the Waldorf Group was using electricity being paid for by the Owners Corporation. There was evidence that the electricity charges for the common property were of the order of $2,000 - $2,400 per month (Blue 66); and while the electricity use for lifts on the common property was no doubt very substantial, Lot 104 was being used for a commercial laundry, and a coffee shop and also for an office used by WAHTE in its business relating to the letting of units within the building. In my opinion it is reasonable to conclude that the cost of the electricity being used by Lot 104 was substantial. WAHTE was charging the Owners Corporation about $20,000 per month essentially to manage the common property for the Owners Corporation, yet was knowingly using electricity which was costing the Owners Corporation substantial amounts, for a substantial period of time between some time in 2007 and September 2008, without acknowledgement and without making any provision for payment. 52 Although the Owners Corporation did have a duty under s 62 of the Act to maintain the common property, and power under ss 63 - 65 to carry out work to cause Lot 104 to be separately metered, WAHTE also had power to do this under By-law 21, with the consent of the Owners Corporation, such consent not to be unreasonably withheld (Blue 266-7). In my opinion, there was no obligation on the Owners Corporation to provide Lot 104 with an electricity supply, and thus no obligation on the Owners Corporation to provide it with a separate meter: to the extent that there was a deficiency in Lot 104 in not having an electricity supply which it could use otherwise than by arrangement with the Owners Corporation, this was not the fault of the Owners Corporation but of the developer from whom WAHTE obtained Lot 104. 53 In my opinion, there was a clear obligation on WAHTE, implied under its contract to manage the common property for the Owners Corporation, not to benefit itself by incurring substantial debts payable by the Owners Corporation through the use of electricity provided to the common property, at least without disclosing this and obtaining consent and/or taking reasonable steps to indemnify the Owners Corporation. To the extent that it was not possible immediately to quantify the accrued and ongoing debts incurred by WAHTE and payable by the Owners Corporation, at least WAHTE should immediately have made its best estimate and tendered payment of this on account, and immediately made prompt arrangements for more accurate assessment of its contribution. If it were not possible to make a reasonable quantification of this amount without installing a separate meter, WAHTE should have either ceased using the electricity or installed a separate meter. Instead, WAHTE did no more than express willingness to pay when the Owners Corporation had established an appropriate amount, assert it was the Owners Corporation's responsibility to provide separate metering, and undertake some enquiries as to what was required to do this, while at the same time continuing to use electricity paid for by the Owners Corporation. In my opinion, this amounted to a very serious breach of the contract and displayed an extremely cavalier attitude to obligations under the contract. 54 The question whether WAHTE's breach of the contract manifested an intention to repudiate is a matter of judgment, in respect of which the view of the primary judge is not, in my opinion, shown to be in error. As I have said, the breach was serious, and the conduct of WAHTE up to the time of hearing did not indicate any genuine intention to rectify it.

[133]

Discretion 57 It was submitted by Mr Whitlam that what the appellants were seeking was enforcement of a negative stipulation in a contract, and appropriate matter for injunctive relief. He submitted that the requirement that the Owners Corporation give notice to WAHTE of an alleged breach, and an opportunity to fix it, is an important part of the agreement; and that it was appropriate that the Owners Corporation be compelled to give effect to it. 58 Mr Whitlam submitted that, even if it were appropriate to consider the relief sought by WAHTE as being in substance specific performance of the contract, this was a contract appropriate for that relief. This was not a situation like that of employer and employee, or any other contract involving close personal relationships. To the extent that personalities could be involved in the relationship, cl 6.1(j) gave the Owners Corporation power to require the manager to dismiss or replace employees, so long as it acts reasonably in doing so. 59 In my opinion, this is a case where the grant of an injunction as sought by WAHTE would be an indirect way of compelling specific performance: cf J.C. Williamson Ltd v Lukey (1931) 45 CLR 282 at 299. And specific performance is not generally granted "if the contract involves the performance by one party of services to the other or requires their continual co-operation": ibid at 298. This principle applies with particular force to contracts of employment, but can apply also to contracts such as this. 60 The Building Management Agreement is an agreement that still had over four years to run when it was purportedly terminated, and it was one which could work satisfactorily only if there was a reasonable degree of trust and goodwill between the parties. The conduct of WAHTE, particularly in relation to the use of electricity and the rendering of invoices, has been detrimental to trust and goodwill. Even if appellants succeeded on all other points, I would not grant injunctions that indirectly compelled specific performance of this agreement. Since the appellants never sought damages or led evidence of damages, I would dismiss the appeal on this ground alone.

[134]

Conclusion 61 I propose the following order: Appeal dismissed with costs. 62 MACFARLAN JA: I have had the advantage of reading the judgment of Hodgson JA in draft. I agree with his Honour that the appeal should be dismissed with costs, and, subject to what follows, I agree with his reasoning. 63 I agree with his Honour's conclusion that the Deed of Acknowledgement was not properly executed by the Owners Corporation (see [32] - [40]) but consider, contrary to his Honour's view (see [41] - [45]), that it should be inferred from the parties' conduct that they entered into a contract on the terms of the Building Management Agreement, including the term as to its duration. To my mind this conclusion is not negated by the fact that the parties' conduct may, as his Honour suggests, have manifested "an intention to comply with an agreement that they mistakenly believed was in place" (compare [44] above). 64 I see no reason why it should matter whether WAHTE thought that the Owners Corporation's reason for acting in accordance with the agreement was that the Owners Corporation thought that it had validly executed the document or indeed whether that was in fact the reason for the Owners Corporation so acting. 65 In the seminal decision in Brogden v Metropolitan Railway Co (1877) 2 App Cas 666, Brogden sent a signed form of contract to the Metropolitan Railway Co, which Metropolitan did not execute. In concluding that the parties subsequently acted in accordance with the terms of that document and, in consequence, in inferring that the parties had agreed to be bound by them, the House of Lords did not undertake an enquiry as to whether or not Brogden mistakenly believed that Metropolitan had signed the document. Rather, their Lordships treated the relevant question as being simply whether Metropolitan's conduct showed that it had accepted that the parties were bound by an agreement in the terms set out in the document (at 680, 682, 686, 687, 696 and 697). 66 Similarly, it was not suggested in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 that it may be relevant to enquire whether the party seeking to enforce the contract had a belief (mistaken or otherwise) as to whether the other party had executed a proposed contractual document. 67 To my mind the question of whether parties who have manifested an intention to be bound by a contract are mistaken is only relevant in those limited circumstances (which are not suggested to be present in this case) in which mistaken beliefs of parties to an apparent contract render it void or voidable (see generally N C Seddon and M P Ellinghaus, Cheshire and Fifoot's Law of Contract, 9th Australian Edition (2008) LexisNexis Butterworths Australia at pp 639-696). 68 Although I therefore consider that a relevant contract came into existence in the present case, I agree with the view expressed by Hodgson JA that the Owners Corporation terminated the contract following upon repudiation of it by WAHTE (see [46] - [54]). I also agree that relief would in any event be refused as a matter of discretion (see [57] - [60]). I accordingly agree with Hodgson JA that the appeal should be dismissed with costs. **********

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Judgment (135 paragraphs)

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Cases Cited (7)