WALDORF APARTMENT HOTEL v OWNERS CORPORATION SP 71623

Supreme Court of NSW|2009-08-13|Before: Bryson AJ

CITATION : WALDORF APARTMENT HOTEL v OWNERS CORPORATION SP 71623 [2009] NSWSC 882

DECISION : I give Judgment for the Defendant with costs.

CATCHWORDS : STRATA TITLES - execution of deeds - deed executed by Strata Managing Agent without complying with s238(3) of Strata Schemes Management Act and attesting date of affixing seal did not bind the Owners Corporation - CONTRACT - repudiation - Building Manager used electricity through the meter of the Owners Corporation for five years without installing its own meter and without paying - HELD repudiatory conduct termination was effective

PARTIES : Waldorf Apartment Hotel, The Entrance Pty Ltd - Plaintiff Owners Corporation Strata Plan 71623 - Defendant

COUNSEL : Mr A Whitlam QC with Mr M Izzo - Plaintiff Mr G Sirtes SC with Dr E Peden - Defendant

SOLICITORS : HWL Ebsworth Lawyers - Plaintiff Verekers Lawyers - Defendant

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

2543/09 Waldorf Apartment Hotel, The Entrance Pty Ltd & ors v Owners Corporation Strata Plan 71623 JUDGMENT 1 HIS HONOUR: These proceedings relate to the affairs of the Owners Corporation of Strata Plan 71623 and the claim by the first plaintiff Waldorf Apartment Hotel, The Entrance Pty Ltd ("WAHTE") for remedies relating to the termination of the Building Management Agreement dated 13 December 2003 by which the Owners Corporation appointed WAHTE to be its building manager for an initial term of ten years. 2 Strata Plan 71623 was registered on 10 December 2003 and the Owners Corporation then came into existence. Strata Plan 71623 relates to a large part, but not all, of a building called the Waldorf on a site in The Entrance. The main entrance is accessible from the frontage to Duffys Lane and there are also frontages to Coral Street and Wilfred Barrett Drive. There are seven levels in the building. Two of them are owned by Wyong City Council and used for public parking. SP 71623 includes several parts of the ground floor and several parts of level three, including car parking spaces most of which form parts of lots which also include residential apartments, and residential apartments on levels four, five and six; and also the roof parts, of level seven. The Owners Corporation owns common property on each of these levels. 3 In all there are 108 strata lots. 103 are apartments and most or all apartments have car spaces. Lot 104 includes three spaces on the ground floor near the entrance lobby used by WAHTE in various ways; one part of 12 square metres adjacent to the entry foyer has been used as a reception area, and another part containing 44 square metres also adjacent to the foyer has been used as a breakfast room, sometimes spoken of as a restaurant. Another part comprising 18 square metres is also adjacent to the foyer. Lot 104 also includes the laundry on level 3, 12 square metres. Lot 104 does not contain a dwelling. Lots 105, 106, 107 and 108 are small areas suitable for various non-residential uses, an example being Lot 108, a display area on the Coral Street frontage. 4 The three plaintiffs are closely associated and Mr Avi Rubinstein is a director of each and the principal figure in their affairs; he speaks of these companies as part of the Waldorf Group. The second and third plaintiffs own lots in SP 71623. 5 Other strata plans also relate to parts of this building. Strata Plan 71770 relates to a number of residential units. Strata Plan 69927 relates to three shops and Strata Plan 74486 relates to a re-subdivision of four lots in SP 71623. 6 WAHTE also functions as the building manager of SP 71770. Access and management of shared facilities among strata schemes is regulated by a Strata Management Statement dated 3 November 2003 and signed by Wyong Shire Council on 18 November 2003. The Strata Management Statement provides for a committee representing each strata plan and the Council. This committee has not done very much. 7 The owners of residential units in SP 71623 can be categorised in various ways. Many are investment units, lettings and management of which are carried out by the Waldorf Group. This category included many owners who had the benefit of a rental guarantee given by the Waldorf Group when they purchased the units; but these guarantees have now expired. There are also many investor/owners who manage lettings themselves, or through other managers; and there may be some owners who live in their units. 8 In the Strata Schemes Management Act 1996 Chapter 2, Part 4 relates to Strata Managing Agents. SP 71623 has always had a strata managing agent; first a firm named Verdun Walsh the principal of which was Ms Deanne Hinton; and then from 1 September 2005 Strata Associates Pty Ltd, which has acted through its associate director Mr Anthony Kioussis. Part 4A contains provisions dealing with caretakers and others assisting in management, referred to in various ways, including (in s40A), on-site residential property manager, caretaker, building manager, resident manager. Section 40B(1) contains provisions about the manner in which a caretaker is to be appointed. The Owners Corporation sought to rely on what was said to be failure to comply with s 40B(1) but in my opinion the requirements of s 40B(1) do not relate to WAHTE's Building Management Agreement because WAHTE is not a caretaker within s 40A(1), one requirement of which is that the 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 …". There is no evidence that WAHTE has ever owned a lot, or had a lease of a lot, or had any other arrangements which entitled it (in any sense) to exclusive possession of a lot. I do not accept contentions to the effect that an arrangement between WAHTE and a resident employee to occupy a unit fulfil this requirement; necessarily some other unit owner would supply the unit and the entitlement of the employee is not an entitlement of WAHTE. In any event there is no evidence about the entitlements of a residential employee at the relevant early time, up to the first Annual General Meeting; see s 40B(a). The evidence relates to the entitlement of Mr Falzon, who was employed years later. 9 The Building Management Agreement (Exhibit A, page 201) is in purport a deed dated 13 December 2003 between the Owners Corporation and WAHTE. By clause 3(a) the Owners Corporation engages the manager for a term of ten years (with provision for extension) to "undertake the administration, caretaking, security and supervision of the Common Property and the supervision of the general repair and maintenance thereof as provided in this Deed". There are further provisions relating to the building manager's responsibilities and functions; and many related provisions. 10 I set out now some provisions in the Building Management Agreement which are referred to later. 11 Clause 6 Manager's Obligations and Reimbursement, after setting out in Clause 6.1 a number of things which the manager is to ensure provides (j) The Owners Corporation may by written notice to the Manager require that the Manager dismiss or replace any employee or agent (other than a shareholder or principal of the Manager) engaged by the Manager to discharge the Manager's responsibilities under this Agreement. The Manager shall, dismiss or replace the relevant employee as soon as possible after receipt of the notice. The Owners Corporation must act reasonably in exercising its discretion pursuant to this sub-clause; 12 Clause 6.2 is as follows: Reimbursement (a) The Owners Corporation will reimburse the Manager for all of its reasonable and proper fees and expenses incurred in carrying out the Manager's duties, including (without limitation) all overhead expenses out of pocket costs relating to cleaning materials or materials for the replacement of fittings, plant and equipment required in order for this Manager to discharge its responsibilities in terms of this Agreement, PROVIDED THAT the Manager submits claims in writing to the Owners Corporation with copies of invoices for all work done and in respect of which a claim for payment is being made and certifies that the details contained in such invoices are correct. (b) In addition to which re-imbursement the Owners' Corporation shall pay to the Manager by equal quarterly instalments the sum of $35000 per annum by way of remuneration. (c) The sum of $35000 provided in Clause 6.2(b) hereof shall be adjusted annually on the anniversary of he date of commencement of this deed by increasing the remuneration so provided by the annual increase in the Consumer Price Index (Sydney All Groups) for the year immediately preceding the date of adjustment. The review shall be based on the four published quarters immediately preceding the date of review. (d) Should the Australian Bureau of Statistics cease to publish the said Index then the parties shall agree on the index most akin to the said Index for substitution. If they cannot agree they shall refer the dispute to the Commonwealth Statistician whose determination shall be final. 13 Clause 12 provides: DEFAULT BY MANAGER The Owners Corporation may determine the appointment of the Manager under this Deed by notice in writing to the Manager if - (a) the Owners Corporation breaches the conditions of this Deed to be observed and performed by it and such breach continues for a period of thirty (30) Business Days after notice in writing has been given to the Owners Corporation by the Manager specifying the alleged breach and calling on the Owners Corporation to remedy same; or (b) The Building is wholly or substantially destroyed or damaged to such an extent that it may not be occupied for a period of at least twelve (12) months or is condemned or resumed by any competent authority. 14 In Clause 12 (a) the references to the parties are confused but the true meaning is obvious. Clause 17, "Owner of Lot 104 has managerial rights", contains curious provisions about the entitlement of the owner of Lot 104 to be appointed as manager by proprietors of lots in the building; but as WAHTE has never been the owner of Lot 104, this provision has no effect. 15 Clause 23, "Severability" is as follows:

I any provision of this Agreement is found to be illegal, unenforceable or invalid for any reason, that provision will be limited or eliminated to the minimum extent necessary so that this Agreement will otherwise remain in full force and effect. 16 The Building Management Agreement was executed under seal by WAHTE and purportedly executed under seal by the owners of the Strata Corporation, and the execution bears date 13 December 2003 (see Exhibit A, page 214). The persons who attested the affixation of the common seal were two directors of Coral Resorts Pty Ltd witnessed by the secretary of that company. Coral Resorts Pty Ltd was the developer which had brought about registration of the strata plan, and it should be understood that on registration Coral Resorts Pty Ltd was the only owner of lots in the strata plan, and that this was still the case on 13 December 2003. It was not disputed that this was so. That there was only one owner demonstrates that the initial period defined in Dictionary Part 1 had not ended on 13 December 2003. The deed did not purport to be executed by a Strata Manager, or by anyone other than the officers of Coral Resorts Pty Ltd. The affixation of the seal by Coral Resorts Pty Ltd and its officers was authorised by s 238(1) of Strata Schemes Management Act on 13 December 2003. 17 I find it quite strange that the deed itself on which the plaintiffs relied was not put in evidence, nor was its absence explained; the copy in evidence appears to be a photocopy of a print produced after a facsimile transmission on 15 December 2003. However the authenticity of the copy in evidence was not challenged. 18 The terms of the Building Management Agreement bring under consideration s 113 of the Strata Schemes Management Act, which I set out in full: 113 Restrictions on powers of owners corporation during initial period

(1) An owners corporation must not, during the initial period, do any of the following things unless the owners corporation is authorised to do so by an order of the Tribunal under section 182: (a) alter any common property or erect any structure on the common property otherwise than in accordance with a strata development contract, (b) incur a debt for an amount that exceeds the amount then available for repayment of the debt from its administrative fund or its sinking fund, (c) appoint a strata managing agent or a caretaker or other person to assist it in the management or control of use of the common property, or the maintenance or repair of the common property, for a period extending beyond the holding of the first annual general meeting of the owners corporation, (d) borrow money or give securities.

(2) An owners corporation may recover from the original owner: (a) as a debt, any amount for which the owners corporation is liable because of a contravention of subsection (1) (b), together with the expenses of the owners corporation incurred in recovering that amount, and (b) as damages for breach of statutory duty, any loss suffered by the owners corporation as a result of any other contravention of subsection (1). (3) An owner may recover, as damages for breach of statutory duty, any loss that has been suffered by the owner as a result of a contravention of subsection (1) (other than paragraph (b)). (4) It is a defence to an action under this section in debt or for damages if it is proved that the original owner: (a) did not know of the contravention on which the action is based, or (b) was not in a position to influence the conduct of the owners corporation in relation to the contravention, or (c) used due diligence to prevent the contravention. (5) A remedy available under this section does not affect any other remedy. 19 According to its terms, the Building Management Agreement does not comply with subsection 113(1)(c) because, of course, a period of ten years extended beyond the holding of the first Annual General Meeting of the Owners Corporation. Counsel for the Owners Corporation contended that the agreement was ineffective and had no binding effect because making the agreement fell outside restrictions on powers imposed by s 113. In my understanding an Owners Corporation is a corporation with limited powers; this is illustrated by a number of references in the Act to powers and duties of the Owners Corporation, and by its inherent nature. I am concerned rather with the restriction on powers explicitly imposed by s113(1). 20 Senior Counsel for the plaintiffs contended that s 113 and specifically s 113(1)(c) do not restrict the power of the Owners Corporation to enter into an agreement which does not conform or invalidate an agreement which does not conform; counsel contended to the effect that while the acts referred to in subparagraphs (a), (b), (c) and (d) are forbidden, they do not lack effectiveness if they are actually carried out. Counsel pointed out that remedies are given by subsections (2) and (3) and defences are conferred by subsection (4); and contended that the terms of the section show that these remedies are the only consequences of failure to comply. 21 I do not uphold this submission because in my opinion it does not conform with the plainly expressed terms of subsection (1) in which the Owners Corporation in strong language is forbidden to do the things referred to during the initial period. It is difficult to suppose any more imperative language than that used. In my opinion the purpose of the provision can be clearly understood to include to preventing people who buy strata lots from finding that they are bound by burdensome or adverse arrangements of the kinds in clauses (a), (b), (c) and (d) which were made when there was only one or a small number of owners of lots. Protection against conduct of that kind simply by an action for damages against the original owner, referred to in subsection (2), cannot have been intended to cover the whole field of consequences. It is common enough for the original owner to be unable to pay debt or damages. Actual recovery of debt or damages is a poor remedy for being committed to, for example, a Strata Managing Agent, or a caretaker or other manager for a long period such as ten years if one does not want to deal with that person and had no opportunity for a say in his appointment. Similarly for alterations, and, in a graphic way, for incurring excessive debts, borrowing money or giving securities, damages could not have been intended to be the only consequence of non-compliance. The section does not say that there is no other consequence. The heading introducing s113 confirms the reading 22 In my opinion s 113 has the effect, following subsection (1)(c), that the Building Management Agreement had no effect after the holding of the first Annual General Meeting of the Owners Corporation, which occurred on 25 February 2004. Insofar as it purported to have effect for a longer period it was beyond the powers of the Owners Corporation. 23 The first Annual General Meeting was held on 25 February 2004. Immediately at the conclusion of the Annual General Meeting the same persons held an Extraordinary General Meeting. Ms Deanne Hinton, the principal of Verdun Walsh Strata Management, was in the chair, and one of the motions at the Extraordinary General Meeting, motion 4, resolved for the appointment of Verdun Walsh Strata Management as strata managers, and for delegating the functions of secretary and treasurer. 24 Motion 2, of which notice had been given, was as follows: It was resolved that the agreement between Strata Plan 71623 and Waldorf Apartment Hotel (The Entrance) Pty Ltd (Waldorf) appointing Waldorf building manager of Strata Plan 71623 is tabled and the affixation of the seal of the Owners Corporation by the managing agent is approved. 25 Although no evidence dealt directly with it, I infer that the document tabled and referred to in the motion was the original Building Management Agreement of which a copy is in evidence. As that document shows, the motion has not been carried out and the seal of the Owners Corporation has not been affixed to it by the managing agent. The motion does not show, and no other event shows, an intention that the Owners Corporation should be bound by or adopted the Building Management Agreement in any other way than by way of affixation of its seal to that document by the managing agent. Although the terms of the document are not appropriate for an agreement made on or after 25 February 2004, the document would if sealed have had some effect. But I am not concerned with that, because it was not sealed. 26 The plaintiffs also rely on a later document, which describes itself as a Deed of Acknowledgement. Again the original document was not produced, nor was its absence explained, and no document such as a minute of a meeting of the Executive Committee, or a seal register or other record of a decision to affix the seal was produced. It is necessary to set out all its terms: DEED OF ACKNOWLEDGMENT THIS DEED OF ACKNOWLEDGEMENT is made the ------- day of ------- 2004. PARTIES: A. The Owners Strata Plan No. 71623 duly constituted under the laws of New South Wales (Owners Corporation) And B. Waldorf Apartment Hotel, the Entrance Pty Ltd ACN 098 532 257 of c/- Saidman & Levy & Associates, Suite 1001, Level 10, 31 Market Street, Sydney 2000 (the "Manager") Acknowledgment by the parties 1. Each of the parties confirms, acknowledges and adopts the agreement entitled "Building Managers Agreement Waldorf by the Sea" ("the Agreement") a true copy of which is annexed hereto and marked "A".

The document was previously executed on behalf of the Owners Corporation by the Developer, Coral Resorts Pty. Limited ACN 098 532 257, during the Initial Period on 13 December 2003.

The Owners Corporation by resolution at its First Annual General Meeting held on the 25 th February 2004 confirmed and adopted the Agreement and this acknowledgment is in formal recognition of that resolution.

EXECUTED AS DEED THE COMMON SEAL of Waldorf Apartment Hotel, The entrance Pty Ltd [Seal] ACN 098 532 257 is affixed by Authority of its Board of Directors And in the Presence of (Signature) (Signature) ------------------- ------------------------ Secretary/Director/Authorised Person Witness

AVI RUBISTEIN - WOLF ----------------------- --------------------------- Print Name of Signatory Witness: Print Name

THE COMMON SEAL of THE OWNERS - STRATA PLAN No. of was hereunto affixed on the Day of 2004 In the Presence of [Seal]

Being the persons authorized Section 238 of the Strata Schemes Management Act 1996 to attest Affixing of the seal (Signature) A. RUBINSTEIN ---------------------- ------------------------ Secretary/Director/Authorised Person Witness

DEANNE HINTON Signature ----------------------- ------------------------ Print Name of Signatory Witness: Print Name 27 The document in evidence has no annexure. The seal shows the number of the Strata Plan. 28 The Deed of Acknowledgement is not the document referred to in resolution 2 of the Extraordinary General Meeting. It was prepared by Bartels Business Lawyers after the general meeting and was sent to Ms Hinton by a letter dated 11 May 2004 (Exhibit G). Mr Rubinstein gave evidence that the seal was affixed at a meeting of the Executive Committee; no minute of the Executive Committee meeting to that effect is in evidence. The terms of the attestation clause state that the seal was affixed by Ms Deanne Hinton, principal officer of the Strata Manager, and witnessed by Mr Rubinstein. Execution by a Strata Managing Agent is supported by s 238(4) whether or not a supporting decision is shown. However execution by a Strata Managing Agent is regulated by s 238(3) the requirements of which include: (3) The strata managing agent must attest the fact and date of the affixing of the seal: (a) by his or her signature, or (b) if the strata managing agent is a corporation, by the signature of the president, chairperson or other principal officer of the corporation or by any member of staff of the corporation authorised to do so by the president, chairperson or other principal officer. 29 The requirement, in imperative language, that the date of affixing the seal be attested has not been complied with. Apart from the year 2004, no date is attributed to the document and the blank spaces at the head of the document for its date and in the attestation clause for the date of affixing the seal remain blank. In ordinary reasonable proceedings, a deed which is intended to take effect has the date written in. If an experienced Strata Managing Agent, which evidence shows Ms Deanne Hinton to be, affixed the seal and intended the document to have effect forthwith, it is a high probability that she would have written in the date. Having regard to the imperative language of subs 238(3) I am of the view that where the Strata Managing Agent affixes the seal observance of the manner of attestation prescribed including the date is essential for the affixing of the seal to be effective and for the Owners Corporation to be bound by it. 30 For this reason I am of opinion that the words of confirmation, acknowledgement and adoption in the Deed of Acknowledgement do not have any effect to bind the Owners Corporation to the terms of the document of 13 December 2003. It is not possible to understand what was meant by saying in cl 3 of the Deed of Acknowledgement "This acknowledgement is in formal recognition of that resolution" (referring to the resolution of 25 February 2004) as it does not accord with that resolution at all. 31 I conclude that the Owners Corporation was not bound by the document of 13 December 2003 after the conclusion of its first Annual General Meeting, and the principal claims made by the plaintiffs which are based on alleged breaches or repudiations in 2009 do not have a basis. 32 It was contended that the Owners Corporation is estopped from taking this position but there is no evidence that the first plaintiff or any of the plaintiffs ever acted on anything but their own interpretation of the events as the bases for thinking that the Deed of 13 December 2003 had continuing effect. There is of course no evidence of any express representation, and there is no evidence of any implied representation by conduct or otherwise, made by the Owners Corporation to the first plaintiff that the deed had effect, or continuing effect. Nor is there any evidence that the first plaintiff relied on anything which it regarded as an indication by the Owners Corporation. If there had been any such indication it would not be reasonable to rely on it because Mr Rubenstein, a principal figure in the affairs of the plaintiffs, took part in the events of the Extraordinary General Meeting and the affixation of the seal to the purported Deed of Acknowledgement, he was well informed about the business of Owners Corporations and of this one, and he was in a better position than anyone else to see what had actually happened in the events in which he participated and to understand their effect. I see no substance in the claim to rely on an estoppel. 33 The event which precipitated this litigation was a purported Notice of Termination given in a letter of 20 April 2009 signed by Mr Bartels as Chairman of the Executive Committee (and he then undoubtedly was a member and Chairman). The letter is headed in capital letters "NOTICE OF TERMINATION OF BUILDING MANAGEMENT AGREEMENT" and it was clearly so intended. 34 As earlier passages in this judgment show, I have decided that the Building Management Agreement was not in effect according to its terms. Its highest operation can have been that its terms showed, so far as applicable, the basis on which the Owners Corporation was treating WAHTE as building manager and WAHTE was acting as building manager, in a relationship which was continuing at the will of both parties and could be terminated by either on reasonable notice. The letter stated that the notice was effective on 27 April 2007; and it was not contended that this was less than reasonable notice. In my opinion, the Notice of Termination was effective on 27 April 2009, whether or not the grounds stated in it were correct and whether or not there were any other grounds for termination. Its effectiveness did not depend on anything other than the wish to bring the arrangement to an end on reasonable notice. However the effectiveness of the notice and the validity of the grounds asserted in it were the main subject of the hearing before me, and I propose to state my conclusions on them, although I do not regard them as determinative of the proceedings. 35 The Notice of Termination asserted among other things "The Owners Corporation has determined in General Meeting to terminate the agreement effective 27 April 2009." This refers to a decision made or purportedly made at an Annual General Meeting on 7 April 2009 which passed or purported to pass a motion directing the Executive Committee to terminate the Waldorf Building Management Contract. 36 In my opinion the Executive Committee's power extended to terminating the agreement when and if they decided to do so, whether or not they did so under a direction from the Owners Corporation and whether or not any such direction was given in an effective resolution. 37 In my opinion the resolution of the Annual General Meeting to which I have referred was not effective, and could not be relied on by the Owners Corporation against WAHTE, or the other plaintiffs, for several important procedural reasons. 38 The notice of the Annual General Meeting (Ex A, p 229 at 231) set out proposed resolutions 16 to 26 inclusive at the request of Mr Rubenstein representing the third plaintiff. These motions dealt with a variety of matters - disclosing the cost of legal services to owners, explaining levies the effectiveness of which was challenged in some way, and recovering or refunding overpayments, outstanding repairs and maintenance, fire safety certification, an alternative budget, subcontracting some cleaning maintenance and pool maintenance, reducing operational hours at reception; and some related matters. Resolutions 23, 24 and 25 were as follows: 23. The meeting should consider Waldorf proposal to sub contract cleaning, minor maintenance, pool maintenance to a sub contractor. 24. The meeting should consider & discuss Waldorf proposal for reduction in operational hours of the reception. 25. The meeting should instruct the Executive committee to enter into discussion & negotiation with Waldorf with regard to subcontracting of work & reception hours' operation. 39 In attendance, among many other members or their proxies, were Mr Rubenstein, Dr Wolf, Mr Wolf and Ms Peterson. All represented interests related to the plaintiffs; and all had been nominated by the holders of units except that Mr Rubenstein's nomination was made by or in the name of a transferee of the registered proprietorship of a unit where the change in ownership had not been notified to the Owners Corporation; for this reason (which although technical appears to be sufficient) Mr Bartels the Chairman excluded Mr Rubenstein from representing that owner, although Mr Rubenstein remained present. 40 Mr Rubenstein's evidence was that when these resolutions 23, 24 and 25 were reached and were to be considered Mr Bartels the Chairman said, addressing Mr Rubenstein, Dr Wolf, Mr Wolf and Ms Peterson "You have a conflict of interest and will need to leave the meeting." There were some discussions and Mr Bartels adhered to what he had said, and said "You need to leave the meeting. You are not entitled to participate." There were expressions of protest and these persons then left the meeting. They did not return. They left the premises and did not further participate in the meeting. There are slightly differing accounts in evidence of the terms in which Mr Bartels spoke and acted, and other details of the event, but in my finding Mr Bartels clearly ruled that these persons could not take part in discussion of Resolutions 23, 24 and 25 but should leave, they protested, and they did leave. 41 In my opinion the ruling was quite wrong and unfair. The fact that these persons represented members who had an interest in the matter under discussion, and a conflict of interest with the Owners Corporation, was not a reason why they could not take part in this part of the Annual General Meeting. Unlike Executive Committee members, or directors of a company who have fiduciary responsibilities, members of an Owners Corporation are entitled to participate in discussion at a general meeting, and to vote in accordance with their own interests. 42 Further, while these persons were absent the meeting accepted, debated and passed what was dealt with as a motion amending Motions 23, 24 and 25. The Amended Motion so passed was as follows: "In light of the Waldorf Apartment Hotel The Entrance Pty Ltd's (Waldorf) evident desire not to fulfil its obligations as building Manager/Caretaker under its Building Management contract; its self-evident failure to carry out its obligations under that contract in a proper and tradesmanlike manner; its egregious abuses of its position as Building Manager; its inherent inability to be able to differentiate between its obligations and those of the Strata Manager and its continuing legal actions against the Owners Corporation all of which conduct is severally and collectively to the detriment of the Owners Corporation as a whole the Owners Corporation directs that the Executive Committee: i) terminate the Waldorf Building Management contract at the end of the April School Holidays at the Executive Committee's discretion; ii) is authorised to appoint another Building Manger pro tem including providing it with office space within common property of the building; iii) seek tenders in accordance with the provisions of the Strata Schemes Management Act for alternative Building Managers/Caretakers; iv) appoint as soon as possible an appropriate Building/Manager Caretaker subject to later ratification by the Owners Corporation as a whole; and v) investigate and take such action as may be necessary to recover any overpayments made at any time under the Waldorf Building Manager's Agreement." 43 In my opinion what was described as an amendment was in no sense an amendment; it was to a completely different effect to Motions 23, 24 and 25. The representatives of the second and third plaintiffs, which owned units and were related to WAHTE, should in a fair proceeding have been given notice that the purported amendment was to be debated. It was quite unfair to treat it as an amendment and to pass it in their absence, even more unfair as their absence resulted from wrongful exclusion. If and in so far as the Owners Corporation's rights depended on the effectiveness of the resolution passing the amendment, that resolution should be treated as ineffective and the Owners Corporation should be prevented from relying on it. 44 However the effectiveness of the Notice of Termination is independent of whether or not the Executive Committee had been directed to act by the resolution; they had the power to decide to terminate a contract whether or not they were so directed. 45 The plaintiffs' counsel contended that the Notice of Termination was ineffective because clause 12 of the Building Management Agreement prescribes a procedure for termination which had not been followed. Clause 12 is set out above. If the Building Management Agreement and clause 12 had been in effect, clause 12 would have done no more than provide means for bringing about determination of appointment after notice to comply with any condition, irrespective of whether condition was of high importance. Clause 12 does not purport to state exhaustively the manners in which the agreement may be determined. In particular it contains no provision which would relate to termination by acceptance of repudiation, after repudiatory conduct. Further the provisions of clause 12 are not applicable to a relationship determinable at will on reasonable notice: they require much formality and too long a notice to be applicable to such a relationship 46 Considerable attention was given at the hearing to the basis for grounds asserted in the Notice of Termination. The first basis asserted was that the Building Management Agreement had expired according to its own terms; however this was plainly wrong and was not supported in argument before me. 47 The second ground was stated thus: 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. 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. 49 It is the plaintiffs' case that this advantage, for the successive owners of Lot 104 and for WAHTE as building manager, was not taken deliberately. Ms Petersen the bookkeeper gave evidence to the effect that, after receiving and arranging for the payment of many accounts for many different lots for some years, she adverted, late in 2007 to the fact that no account had been received for electricity for Lot 104; and this perception was the source of knowledge, by Mr Rubenstein, and eventually by persons representing the Owners Corporation, of what was taking place. This eventually led to some very forceful correspondence and exchanges between Mr Rubenstein and Mr Bartels. 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. 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. 52 What underlies the reference in the Notice of Termination to converting profit from vending machines was the subject of a considerable body of evidence. Late in 2007 a vending machine was installed on common property. There is no minute and no clear evidence of a decision by the Executive Committee approving of this use of the common property. However I regard it as probable on the evidence that at least one member of the Executive Committee knew that the vending machine had been installed, or that it was about to be installed. Later a further vending machine was put in position. From time to time the company which owned the vending machine sent commission payments to WAHTE; there were four of these payments, approximately quarterly. They were received and banked by WAHTE. For some time these payments did not claim the attention of anyone within WAHTE's organisation. There had been no prior arrangement or in any event no clear arrangement in advance for the vending machine company to pay commission. After some months the flow of commission payments attracted Ms Petersen's attention, and after a few more months the total received was transmitted to the Owners Corporation's bank account. The sum involved, while not insignificant, is not large. 53 In my finding there was a delay, of up to about 12 months, in accounting for the sums to the Owners Corporation, but this arose through lack of advertence to the unexpected receipt of commission payments, and delayed advertence to the obligation to pay them on to the Owners Corporation. It is unremarkable that there should be one or two vending machines in a building like this, for the convenience of residents. In my finding the subject is not of high importance and should not be treated as serious breach of contract or repudiatory conduct.

54 The Notice of Termination made other complaints. It purported to require the dismissal by WAHTE of two employees Ms Nanette Petersen and Mr George Falzon saying that they had "been intimately involved in the misconduct referred to above," that is in the matters relating to the electricity and the vending machines. However there was in my opinion no substantial ground for a conclusion that either of them had acted dishonestly, or in any other seriously unsatisfactory way in either the affairs relating to the electricity supply, or in the affairs relating to the vending machines. Clause 6.1(j) of the Building Management Agreement, to which the Notice of Termination referred, empowered the Owners Corporation to require dismissal or replacement of an employee but also said "The Owners Corporation must act reasonably in exercising its discretion pursuant to this subclause" and in my finding there was no ground upon which it could reasonably be decided that they or either of them ought to be dismissed. This holding is academic having regard to my views overall. There were other complaints in the Notice of Termination but in my opinion they lacked substance. 55 Overall however as there had been serious breach of contract and repudiatory conduct with respect to the electricity supply the Owners Corporation was entitled to terminate the Building Management Agreement. This entitlement existed whether or not the grounds were clearly stated, well stated or overstated in the Notice of Termination. 56 A further matter of complaint by the Owners Corporation received considerable attention in the evidence and submissions, although the complaint was not expressed in the Notice of Termination, and does not appear in the pleadings. The Building Management Agreement (continuing the assumption, which I do not accept that it bound the parties for a significant time) contains provisions in Clause 6.2 relating to charging. This clause was not altogether clear, as the provisions relating to copies of invoices cannot be readily related to costs which would not generate invoices such as employment costs, and it is unlikely that they were intended to refer to them. It is unlikely the certification requirement relates to the whole claim and it probably only relates to invoices. 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. 58 From October 2008 onwards the Executive Committee, which had come under the influence of Mr Bartels, objected to these claims and to the absence of the information required by the Building Management Agreement, and an extensive and forceful correspondence passed and made it altogether clear that Mr Rubinstein was not prepared to render claims for payment on the basis set out in the Building Management Agreement, or on any other basis than monthly amounts according to a pre-determined budget. Mr Bartels maintained this position, in a forceful manner, when giving evidence before me in August 2009. That is to say, repeated assertions by Mr Bartels that the claims were not in appropriate terms and did not give appropriate information have not produced any information or compliance, and the non-compliance is fully intended and is maintained. 59 WAHTE and Mr Rubinstein took the position to such an extreme as to sue the Owners Corporation, in two proceedings in the Hornsby Local Court for monthly charges. Those proceedings are still pending and have not been determined. On the information before me it appears altogether clear that WAHTE is not entitled to payment of any monthly claim made without compliance with the Building Management Agreement; unless perhaps it is WAHTE's position (and WAHTE has never conceded) that the Building Management Agreement does not bind the parties. That would be a very distant proposition from any advanced before me. The significance of the proceedings in the Local Court for the purposes of my decision is that they show that WAHTE adheres with great firmness to what has been asserted, and is altogether unprepared to claim payment on the contracted basis. 60 An aspect of this part of the controversy is that WAHTE disputes that Mr Bartels in fact became a member of the Executive Committee or the Chairman of the Executive Committee by any procedural steps taken in late 2008. Whatever may be the answer to this, it is altogether clear that he became a member of the Executive Committee at the next Annual Meeting, since when his conduct as a member and as Chairman of the Executive Committee has undoubtedly been regular. In any event WAHTE's lack of entitlement is altogether clear whether it has been challenged or not, and whether it has been challenged by someone with authority to do so. 61 WAHTE's conduct in this respect is relevant to the pleaded issue whether WAHTE has exhibited a repudiatory intention towards the Building Management Agreement. As my earlier observations show, repudiation, open to acceptance by a termination, already sufficiently clearly appears; but if there were any doubt about that, WAHTE's conduct in relation to its claims for payment further and strongly demonstrate its unwillingness to comply with fundamental obligations, except on wrong and unreasonable views of what those obligations are. 62 WAHTE's conduct in this respect takes it place with other conduct as a demonstration that it would be altogether inappropriate to grant any equitable relief which might keep alive a contractual relationship between the Owners Corporation and WAHTE. There is no question of granting or withholding equitable relief, but if there were, such relief would be altogether inappropriate, having regard to the breaches and conduct I have referred to. I would not be prepared to compel the Owners Corporation to continue in a contractual relationship with WAHTE. 63 For these reasons I propose to dissolve interlocutory relief and give Judgment for the Defendant with costs.

ORDER: Give Judgment for the defendant with costs. **********

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

At a glance

Court

Decision date

Before

Source

Judgment (21 paragraphs)

Parties

Cited By (4)