West v The Owners Strata Plan No 54288

Industrial Relations Commission (NSW)|2009-03-13|Before: Staff J

CITATION: West v The Owners Strata Plan No 54288 [2009] NSWIRComm 30

FIRST APPLICANT: John Hosking West

PARTIES: SECOND APPLICANT: Heather West

CATCHWORDS: Unfair Contract - Application under s.106 of the Industrial Relations Act 1996 - Applicants engaged as caretakers of strata unit complex - Assignment of caretakers agreement to applicants by previous caretakers - Agreement for ten years with option for further ten years - Whether contract or agreement unfair because of failure to provide a review to market of the remuneration payable during the term of the contract - Whether contract unfair in respect of the amount of remuneration paid - Contract not designed to or did avoid the provisions of an award - Contract not unfair - Application dismissed - Costs

LEGISLATION CITED: Industrial Relations Act 1996 Strata Schemes Management Act 1996

A & M Thompson Pty Ltd and others v Total Australia Ltd (1980) 2 NSWLR 1; (1980) AR(NSW) 399 CASES CITED: Agius v Arrow Freightways Pty Limited [1965] AR (NSW) 77 at 89 Baker v National Distributions Services Limited (1993) 50 IR 254 at 271 Davies v General Transport Development Pty Limited [1967] AR (NSW) 37

HEARING DATES: 20/10/2008, 21/10/2008, 22/10/2008, 2/2/2009

APPLICANT: Mr C Taylor of counsel Solicitors: Haynes Lawyers LEGAL REPRESENTATIVES: RESPONDENT: Mr A Rogers of counsel Solicitors: Somerville Laundry Lomax

JOHN HOSKING WEST & ANOR v THE OWNERS STRATA PLAN NO 54288

Application under s 106 of the Industrial Relations Act 1996

1 John and Heather West ("the applicants") in this matter claim that a caretaking agreement ("the contract") between themselves and the Owners Strata Plan No 54288 ("the respondent"), under which they were engaged as the caretakers of the common property known as "Beachside" at 58 Armstrong Street, Suffolk Park in the State of New South Wales, was unfair. They seek relief under s 106 of the Industrial Relations Act 1996 ("the Act"). 2 Beachside consists of 24 units which includes a caretaker's unit and a pool. The complex was completed at the end of 1998, when the contract dated 12 December 1998 was entered into between the owners of the strata plan and Eric and Sylvia Robertson. This contract was for a period of ten years with a right of renewal for a further ten years, giving a potential term until 2018. A deed of assignment assigning all right, title and interest in the contract and the letting services agreement to the applicants was executed on 19 April 2000. The applicants, whose principal place of residence is Unit 24 in the complex have been the caretakers since the deed of assignment. They renewed the contract for a further period of ten years in November 2008. The Claim 3 The applicants claim, as pleaded, relied on the various elements that constitute the definition of an unfair contract under s 106 of the Act. The applicants sought the following orders: (1) An order declaring the Caretaking Agreement ("the Contract") between the Applicant and the Respondent partly void and from 19 April, 2000 on the basis that pursuant to Section 106 of the Industrial Relations Act 1996 (NSW) ("the Act"), the Contract is in part an unfair contract. (2) An order that: (a) the Contract be varied such that upon the exercise of the option to renew the Contract, the remuneration shall be not less than the remuneration payable as at the expiration of the first term of the Contract; (b) the remuneration payable under the Contract be $42,426.00 per annum in relation to the twelve months commencing 13 December, 2006; (c) the remuneration payable pursuant to the Contract be reviewable to market: (i) at the expiration of the first term; and (ii) at the expiration of 5 years into the second term; (d) the remuneration payable pursuant to the Contract shall not in any event be less than the annual remuneration paid during the immediately preceding twelve month period; (e) the Respondent pay the Applicants the sum of $60,409.55, or such other amount as the Commission considers just in the circumstances of the case; (f) the Respondent pay the Applicants interest on any such amount awarded to the Applicants; (g) the Respondent pay the Applicants costs of these proceedings. 4 The remuneration figure of $42,426 (as claimed in 2(b) of the summons) was said in evidence given by Mr Kent O'Brien, who was called by the applicants as an industry expert, to be a reasonable level of remuneration when the duties of the applicants were taken into account, using a benchmark classification based on what were regarded as comparable award rates and making various allowances for relevant loadings such as annual leave, public liability insurance, workers compensation, sick leave, long service leave and an overnight stay allowance. The additional amount of $60,409.55 which was amended to $115,158.00 (Claim 2(e)) represents the difference between the remuneration paid to the applicants since December 2003 and the market value of such remuneration, Consumer Price Index (CPI) adjusted since December 2003. 5 It was common ground that the respondent entered into a caretaking agreement with the Robertsons on or about 12 December 1998 and that on or about 19 April 2000, the applicants entered into an agreement entitled "Deed of Assignment of Management Rights" whereby the Robertsons assigned, with the consent of the respondent, all their rights, entitlement and interest in the caretaking agreement to the applicants. It was also common ground that the contract provides that the applicants undertake work for the purposes of s 106 of the Act. It was also acknowledged that the term of the contract was ten years, with the applicants being at liberty to renew the contract for a second term of ten years. It was also agreed that the contract did not provide for a review to market of the remuneration payable pursuant to the contract, whatsoever. 6 Mr A Rogers of counsel who appeared for the respondent contended that the contract is not unfair because it gives a guaranteed period of engagement to them in excess of that generally awarded to persons throughout the community. Furthermore, it contended it would be unfair to impose upon the respondent a cost burden which was not the subject of request at the time of entry into the contract (nor for a considerable period thereafter) in circumstances where the respondent is bound to the contract for a further period of ten years.

7 In the alternative, the respondent submitted that if the contract was found to be unfair in respect of remuneration, the Court should amend the contract so that it is terminable upon reasonable notice which Mr A Rogers who appeared for the respondent proposed be twelve months notice. 8 The issues for determination are therefore whether the contract was unfair firstly, in respect of the amount of remuneration paid to the applicants and secondly, because of its failure to provide for a review to market of the remuneration payable during the term of the contract. In my view each issue should be answered in the negative. The Contract 9 The contract between the applicants and the respondent relevantly provides: 3.2 The Caretaker may renew this Agreement for a second period of 10 years by written notice to that effect to the Body Corporate, which notice shall be given prior to the expiry of the first term of this Agreement, and the parties shall thereupon execute, at the cost and expense of the Caretaker, an agreement on the same terms and conditions of this Agreement, except that the term specified in Clause 3.1 shall commence from the due date of expiry of the first term of this Agreement and shall be for the period of 10 years and this clause 3.2 shall be deleted. 4.1 The remuneration payable to the Caretaker by the Body Corporate during the first twelve calendar months of this Agreement shall be the sum of $18,000.00. ... 4.3 At the expiration of each twelve month period of this Agreement (including any extension of renewal hereof), the remuneration of the Caretaker shall be reviewed for the next ensuing twelve month period and shall, subject to clause 4.4 be the remuneration paid for the immediately preceding twelve month period multiplied by: 4.3.1 a fraction obtained by dividing the Index for the quarter ending immediately preceding the commencement of the particular 12 month period for which the remuneration is to be calculated by the Index for the quarter ending immediately prior to the date of commencement of twelve month period immediately preceding the twelve month period for which the remuneration is to be calculated. 4.4 In no event shall the annual remuneration payable to the Caretaker pursuant to the previous provisions of this clause be less than the annual remuneration paid to the Caretaker during the immediately preceding twelve month period. 4.5 No part of the remuneration paid to the Caretaker pursuant to this Agreement is referable to the provision of letting services if any provided by the Caretaker or interests associated with the Caretaker to members of the Body Corporate. 10 Clause 5 provides that the Caretaker's duty are those set out in Sch 1 to the contract: SCHEDULE ONE - CARETAKER'S DUTIES The caretaker shall have the following duties:- 1. Provide the services of resident Caretaker. 2. Keep the Common Property clean and in good working order and repair (fair wear and tear excepted). Nothing in this Agreement shall be construed as requiring the Caretaker to pay for repairs and replacements of Common Property or to perform work that requires the services of a skilled tradesperson. 3. Police the observance of the By-Laws of the Body Corporate by the owners and the occupiers (including their guests and licensees) for the time being of the lots in the Plan. The Caretaker is hereby authorised by the Body Corporate to evict or deal with any person creating a nuisance or annoyance on the Common Property or committing any breach of the By-Laws of the Body Corporate to the same extent as that exercisable by the Body Corporate itself. Regularly during each day inspect Common Property to ensure that no unauthorised persons are using Common Property facilities and so far as the Caretaker is reasonably able and lawfully capable of so doing ensure that proper behaviour standards are maintained by persons using Common Property. 4. Keep in the Caretaker's possession the master key or keys for any areas under the control of the Body Corporate PROVIDED HOWEVER that the possession of those keys shall be surrendered to no person other than a fully authorised person in the course of his duties free access to any part of the Complex as authorised at all reasonable times and as necessary in any emergency. 5. Report promptly to the body Corporate Representative on all things requiring repair beyond the scope of the Caretaker's duties and on all matters creating a hazard or danger and take interim remedial action where applicable. 6. Arrange maintenance contracts as required by the Body Corporate and ensure that any such contracts in force are carried out in accordance with their terms. 7. Compile and maintain a list of all items in the Complex which require regular maintenance and keep a record of work performed with respect to such items, which list and records shall be produced for inspection on request by the Body Corporate. 8. Obtain quotes and insurance quotes for repairs or replacements and complete insurance claim documents as requested and where appropriate for the Caretaker to do so. 9. Account promptly and faithfully to the Body Corporate and to the lot owners as the case may be or all its or their funds or other property (if any) coming into his hands or custody, and secure for and credit to the Body Corporate any discounts, commissions or rebates obtained with respect to any purchase or expenditure on behalf of the Body Corporate. 10. Comply with and carry out all reasonable directions from time to time given by the Body Corporate to the Caretaker in and about the control, management and administration of the Common Property (excluding Body Corporate management/administration). The Assignment 11 On or about 19 April 2000, the applicants purchased the managements rights at the complex known as "Beachside" Suffolk Park. They also purchased a unit within the complex from the Robertsons. At an executive committee meeting of the respondent on 29 March 2006, Mr West asked that a review be undertaken of the salary contained in the contract and put a proposal to the Committee. The request to review the salary was refused by the Committee. The proposal contended that the salary had fallen behind in industry standards because the contract had been in place for an extended period of time, regular reviews had not been carried out and that the CPI was only a measure of "household expenditure". 12 Mr West set out the management services provided in addition to the contractual remuneration received between 2000 and 2006. He then set out the daily and weekly services provided in addition to the contractual requirements. Mr West submitted in his proposal that annual CPI increases had resulted in a 21.25 per cent increase in remuneration to the managers between 2000 and 2006, while unleaded fuel had increased by 43.5 per cent, the cost of renewing the required licence had increased by 364 per cent and the cost of professional indemnity insurance premiums had increased by 398 per cent over the same period. Mr West observed that he was currently paid $24,445 gross per annum, or $22,223 per annum, excluding GST. This equated to $17.80 per owner per week, excluding GST. He enclosed an accompanying independent review which he said concluded that the correct remuneration should be $44,000 per annum gross, or $40,000 per annum, excluding GST, which equated to $32.05 per owner per week, excluding GST. 13 The applicants again asked the respondent to review their salary at an Executive Committee Meeting of the respondent on 6 April 2006. The executive committee stated that the owners should decide if a review was appropriate and refused to support it. The respondent confirmed the rejection of the proposal at the Annual General Meeting of the respondent on 9 May 2006. At the conclusion of this meeting, the applicants handed a notice of dispute to the Secretary of the Executive Committee, as required by the contract. 14 On 19 May 2006, Ms C Shannon, on behalf of the Executive Committee wrote to the applicants advising them that in the Executive Committee's view, there was no dispute as the Committee was bound by the terms of the contract. 15 The applicants subsequently sought advice from solicitors and obtained an expert opinion in respect of the contract from Mr Colin Myers, an accredited specialist in Property Law. Mr C Taylor of counsel who appeared for the applicants read an affidavit of Mr Myers who was required for cross-examination. A report was also obtained from Mr K O'Brien of K & G Strata Consultants Pty Ltd dated April 2006 and provided to the respondents in an attempt to resolve the dispute. 16 Mr Myer said that he was admitted to practice as a solicitor of the Supreme Court of Queensland on 2 November 1981 and as a solicitor of the Supreme Court of New South Wales on 12 February 1982. He was certified by the Law Society of New South Wales as an accredited specialist in Property Law in November 1997. Mr Myers has practiced exclusively in the areas of Property Law with particular emphasis on Strata Law and management rights, business law and commercial law. Mr Myers agreed to be bound by Sch 7 of the Uniform Civil Procedure Rules 2005, which deals with expert witnesses code of conduct. After setting out his extensive experience, Mr Myers stated that he considered it unfair to have a caretaking agreement for a term of 10 years without provision for a review to market at any stage during the 10 year term. In his experience, most caretaking agreements provide for market reviews every 3 to 5 years, but mostly at 5 year intervals. In the 5 year scenario, the remuneration for the 2nd, 3rd, 4th and 5th year of the caretaking term is generally linked to increases in the CPI. A similar situation generally exists in the 7th, 8th, 9th and 10th years. 17 Mr Myers' evidence was that a market review midway through a 10 year term provides the caretaker with the comfort of knowing that there is a mechanism in place to review the remuneration in circumstances where CPI increases fail to keep pace with other inflationary costs impacting on caretakers' remuneration. He said that it is almost non-existent to find an agreement (such as the agreement in question) where there is no review of remuneration to market after an initial 10 year period, particularly where there was also no review to market during the 10 year period. He said it was almost unheard of to find a caretaking agreement which (with options) runs for a period of 20 years without a remuneration review to market. His evidence was that having looked at hundreds of caretaking agreements in both Queensland and New South Wales during his years in practice, he could confidently say that no more than 1 per cent of the caretaking agreements had been drawn on the basis that there was no review to market at all throughout the initial term and the term of any option. Mr Myers said that it is only fair that there should be a mechanism in the agreement that at least allows the caretaking remuneration to be reviewed to market at least once every 5 years. By way of analogy, he said it was very rare that a lease of general or commercial premises did not contain a provision for the rental to be reviewed to market at the end of (at least) every 5 years period. This was because landlords were aware that increases based on the cost of living only do not necessarily keep up with fair market trends. 18 Mr Myers said that management rights which he described as the right of the developer to grant caretaking and letting rights in respect to a complex had operated in New South Wales for many years. The absence of any regulation under the Strata Schemes Management Act 1996 in respect of this issue often led to litigation where the validity of management rights agreements were challenged. This led the New South Wales Government to introduce what were described as "caretaker provisions" into the Strata Schemes Management Act effective from 10 February 2003. The "caretaker provisions" recognised the role that caretakers play in the maintenance and management of strata schemes in New South Wales. The relevant provisions are contained in s 40A of the Strata Schemes Management Act. As a result of the amending legislation, caretaking agreements made after 10 February 2003 were limited to a maximum of 10 years. The legislation was not retrospective so that agreements made prior to 10 February 2003 were not affected. 19 Mr Myers' evidence was that as a result of the introduction of s 40A, almost all developers who incorporate caretaking agreements into strata complexes grant caretaking rights for the maximum ten year term. Banks or lending agencies will rarely lend against agreements where the tenure is less than 7 years. However, Mr Myers said that in his experience, at the time this caretaking agreement was entered into with the applicants, it was usual for such agreements to have a term of 20 to 25 years. This was not thought to be excessive at that time. 20 During cross-examination, Mr Myers said that the reason the maximum period for a caretaker's agreement was wound back to 10 years was that developers were adding the price of the caretaker's agreement to the cost of the overall development. If the term was reduced to 10 years, that reduced the cost of units in a complex. Mr Myers was cross-examined about his opinion that the caretaker agreement was unfair. His evidence was that if the fee in the original caretaker's agreement was incorrect, that is, it had not been set properly, then it is going to be unfair, particularly in circumstances where it is pegged to the CPI. If there is no review provided for in the agreement then the fee will never catch up with the true value of the caretaking agreement. Only a market review will do that. 21 Mr Myers also said that such a situation was unfair because pursuant to s 182A of the Strata Scheme Management Act, the Body Corporate or the Owners Corporation has the right to seek a review in an agreement. Mr Myers could not understand why Parliament had given a statutory right of review of the remuneration in an agreement to an owner's corporation, but denied giving the same right of review to a caretaker who is locked into a contract. Mr Myers acknowledged that a possible explanation may be that an owner's corporation inherited a contract from a developer that was so extreme that it needed to be reviewed. Section 182A was made retrospective for all caretaking agreements. Mr Myers further acknowledged that one of the advantages of not having a review to market was that it gave complete certainty to both parties as to what would occur over an extended period of time, subject only to the rate of inflation, providing that both parties entered the contract fully aware of the consequences. 22 Mr West gave evidence on behalf of the applicants outlining the background to the assignment of the contract. During cross-examination he said that he obtained the advice of a solicitor, Mr Tetley, prior to agreeing to the assignment of the caretaker's agreement. Mr West had a meeting with the Owners of the Strata Plan prior to entering into the assignment. His evidence was that in about 2000 he came to Byron Bay from Brisbane looking to purchase a business. He had considered the purchase of a mini supermarket but the figures on the business 'didn't stack up' and his accountant advised against the purchase. Mr West and his wife, who currently works as a school teacher, were looking for a life style change. He was informed by a person he met while playing golf at Byron Bay that the management rights at "Beachside" were for sale. He said that he did not fully understand all the ramifications of the management rights agreement. He was not aware that the contract only provided for CPI increases, or that the contract would lead to a situation where the remuneration was out of step with reality. Mr West acknowledged that although he had been requested to provide timesheets in respect of the work he carries out for the respondent, on legal advice, he had not provided such information. Mr West said that he did not provide his accountant with a copy of the caretaker's agreement at any stage, although he did speak to her by telephone about the agreement.

23 The applicants also relied on a report prepared by K & G Strata Consultants Pty Limited dated April 2006. The author of the report was Mr K O'Brien who described himself as an industry expert. He agreed to be bound by the Uniform Civil Procedure Rules 2005 which deals with expert witnesses code of conduct. Mr O'Brien gave evidence via video link from Dubai. The report comprised the following sections: (a) An interpretation of the duties prescribed in the Management Contract, in particular cl. 5, Caretakers Duties and Sc. 1 Pt A, General Duties and Obligations and Pt. B, Planning, Gardening and Maintenance Duties. This material enabled Mr O'Brien to provide an assessment of the hours needed to satisfy the contract obligations; (b) Establishing a benchmark classification for the position of resident caretaker based on contractual responsibilities using comparable award rates as criteria for the purpose of determining an annual remuneration evaluation. Mr O'Brien approached this task by analysing the loaded hourly rate, setting out the methodology used to determine office expenses, making some general observations which influenced evaluation and, finally, estimating the remuneration value; (c) Mr O'Brien also looked at other considerations such as contemporaneous agreements and by-laws. 24 In analysing the duties prescribed generally in the contract, Mr O'Brien prepared a yearly hours summary which was analysed on the basis of the duties required to be carried out at various locations in the complex. These locations included the entrance precinct, rubbish enclosure and collection, common property - lawns and gardens, barbeque and other common property, recreational areas, security, pool and toilet precinct, body corporate and the coordination of specialised trades and services. 25 Mr O'Brien then calculated the loaded hourly rate observing "in considering the duties, the level of expertise required of the position has dictated the value of each task and subsequent application of a wage rate to the job description". It was observed that there was no industry award rate applying directly to resident managers, however, it was said that the compilation of a benchmark rate is possible from existing comparable industry awards that reflect a market valuation 26 Mr O'Brien stated that "Beachside" required only unskilled rates applicable to gardening, lawn mowing and the general cleaning of pools and toilets. He considered the following three awards which were described thus: Award Description Rate/Hr Contract Cleaning Industry Level 2 - Building Services Employee $15.86 Accommodation Industry Level 2 - Maintenance officer $15.21 Accommodation Industry Level 2 - Gardener $14.33 27 For the purpose of Mr O'Brien's report, an average was taken of the three supposed awards and then the relevant loadings (as determined by Mr O'Brien) were applied to calculate a loaded hourly contract rate of $28.14. 28 Mr O'Brien asserted the prescribed contract hours per annum to be 1470 hours. He determined that the applicable base rate for a resident manager was $15.30 per hour with appropriate loadings providing a gross grossed up Hourly Labour Cost Rate of $28.14. The contract was valued on the basis of a permanent engagement based on contractual obligations with allowance for loadings for items such as leave, insurances, superannuation and other charges specific for the Scheme concerned. 29 Mr O'Brien annexed a schedule to his report which detailed his calculations as follows: K and G Strata Consultants Pty Ltd

CALCULATION OF GROSS ANNUAL CONTRACT WORTH FOR A RESIDENT BUILDING MANAGER

Award Rates Sept 2005

Accommodation Industry (Other than Hotels) Award ** Contract Cleaning Industry Award

Base Rates Maintenance Officer* Cleaning Supervisor** Gardener* Total Average $ 15.21 $ 15.86 $ 14.33 $ 45.40

Gross Weekly Hourly Rate (before applying loadings ) $ 15.13 1

Number of ordinary days per annum 261

Equivalent Hours Per Anr (Normal Rate)(7.6 x 261) 1983.60 2 Assessed Hours p.a.in accordance with Management Agreement 1409.33 Total hours extra at penalty loading for late work early finish allowance 3 Plus: 150% loading impact for 8 Public Holidays 60.80 Total Hours Per Annum (Prescribed) 1470.13

Gross weekly hourly rate (1) above. $ 15.13 Annual Leave loading 17:50% (4x38x14.01x.175/1983) $ 0.19 Superannuation 9.00% $ 1.36 Other Allowances $ 0.88 4 Insurances $2,500.00 $ 1.26 Public Liability Insurance $ 0.50 Workers Compensation (Building caretaking duties) $ 0.45 5 Sick Leave (10x8/1983) $ 0.04

Long Service Leave (13x5x38/1011983) $ 0.12 Overnite stay allowance (33.43x7x52)/1983 $ 6.13 N/A Saturday penalty loading N/A Administration Overhead Costs $ 2.07 Total cast per hour including allowances $ 28.14

NETT ANNUAL CONTRACT WORTH PER YEAR $41,365.15 Add GST $ 4,136.51 GROSS ANNUAL CONTRACT WORTH PER YEAR (Including GST) $45,501.66

NOTES:

Average worth of the three award rates working normal hours
Ordinary hours in attendance based on a normal week
Assessed hours to be in attendance outside normal working hours
Allowances for refuse cleaning as per awards
Statutory Workcover premium rate for contractor performing basic maintenance and cleaning tasks
Compensation for attendance on site after hours based on award rates

Loaded Rate Determination Beachside SP 54288 30 Mr O'Brien expressed his conclusions regarding the valuation of the remuneration paid to the applicants in what he described as the Executive Summary as follows: EXECUTIVE SUMMARY Beachside Strata Plan No. 54288 comprises a total of 24 lots and common property. Most of the common property is comprised of the roadways, gardens and pool. The Management Contract makes provision for an annual remuneration of $22,223 per annum plus GST, this equates to a rate of $925 plus GST per lot per annum, which is at the lower end of market rates at this time for the type of complex and extent of facilities to be maintained by the Caretaker/Manager.

In summary I make the following points; 1. I have reviewed the existing agreement and conclude that if the Caretaker/Manager undertakes only the prescribed duties as interpreted from the contract, I estimate a reasonable level of remuneration at $41,365 per annum plus GST. The basis for this valuation is discussed in the following report.

The remuneration amount is based on a minimum hourly rate of $28.14 plus GST, which has allowed all the relevant loadings such as leave and insurances, including those specific to this agreement. It is also qualified to the extent of notes attached thereto.

As it relates to the foregoing, my findings confirm the inadequacy of the current management remuneration. The property will be difficult to maintain at an acceptable standard unless the management remuneration is reassessed.

The problems created by the vegetation (an abundance of shrubs to be maintained) give rise to enormous clean up work load and the subsequent cost penalty is reflected in the annual remuneration assessed.

5.This evaluation does not purport to benchmark a standard of performance to be achieved by management but to value the duties based on reasonable expectations of the Owners Corporation. In addition, personal preferences and characteristics of members of the Body Corporate can be quite varied and when determining a valuation for any contractual obligations, these attributes should not influence thinking whereby the Body Corporate overlooks reasonable operational considerations.

Kent 0'Brien K & G Strata Consultants Pty Ltd Resident Managers Remuneration Review BEACHSIDE STRATA PLAN NO 54288 31 During cross examination, Mr O'Brien acknowledged that he was given a copy of the management agreement and a list of other work that was performed by Mr West over the previous couple of years. In undertaking the evaluation of the remuneration paid to Mr West, he said that he also interpreted some of the duties and other functions that the manager performed as they may have affected the evaluation of the remuneration to be paid. He acknowledged that this meant that he may have been possibly valuing something other than the duties in the management agreement. Mr O'Brien was unable to specifically recall whether he received instructions in relation to the traditional duties performed by the caretaker. Mr O'Brien said that he normally assessed such duties based on his own interpretation. When pressed on what he meant by this, Mr O'Brien said that he looked at other properties to work out benchmarks as to what managers perform in their general duties. He then gave the following evidence in answer to what he meant by the word benchmark: A: That's supply, quoting properties, you can imply that there will be a standard level of duties that most managers have to perform and then you apply variables to those duties which go above the norm which the norm is benchmark basically (inaudible) before they function and it is the same for property percentage or a benchmark, if you view a property and it takes a measure of three hours to do something, it takes an extra hour of what is the norm.

Q: Do you identify anywhere in the report the benchmarks that you used?

A: Only from past - only from prebilling quoting the actual properties.

Q: Can you tell me where in the report the actual benchmarks that you've just described appear?

A: Well, there are no benchmarks in the actual report because there is confidential information from other properties which I don't disclose in other reports but the schedules attached to the report provide times which are based on similar properties. 32 Mr O'Brien acknowledged that in his assessment of the benefits under the management agreement he had not taken into calculation that, all things being equal, "the applicants' guaranteed term of 18 years engagement as caretakers". His assessment was undertaken on the value of the work performed. Mr O'Brien explained that he reached the hourly rate by examining the rate for an employee under various awards and loading the rate to assess it as a contract rate by adding any component which one would actually associate with an employee. The awards that Mr O'Brien referred to in his report were awards made by the Queensland Industrial Relations Commission. He said, at the time he prepared his report, there was no award in New South Wales that would have been of assistance in undertaking his analysis in preparing his report. He said he only examined awards relating to the accommodation industry and the contract cleaning industry. Mr O'Brien subsequently acknowledged that he was aware of an award in New South Wales which covered gardeners. His reference to the overnight stay allowance was taken from a hotel/motel industry award which allowed an employee to claim an overnight stay allowance which he applied in an attempt to place some value on the requirement of Mr West to remain overnight at the complex, (where of course he lives with his wife). 33 Mr O'Brien accepted that what he had done was to "cherry pick" from various awards those elements which might be added to the base rate for Mr and Mrs West that enabled him to build up a rate that was relevant to their management duties. In his view, the fact that Mr and Mrs West lived in a unit in the complex was irrelevant to the exercise although it emerged that he was not aware that the applicants owned their own unit. He disagreed that the payment of $43 per week for living in their own unit was extravagant and unnecessary. Such an amount, he said, was compensation for a unit holder contacting the caretaker if they had locked themselves out of their unit. Mr O'Brien conceded that he did not know at the time he prepared his report the actual hours the applicants worked. He said his review was based on evaluation of the time a nominal or reasonable person, acting efficiently as a manager, would take to complete his duties. Mr O'Brien accepted that he did not undertake a market rate evaluation of what comparable persons in reasonably comparable sites earn. He stated his approach was to look at the job/s that Mr West would be required to undertake and make an assessment of how long he thought the job would take and then add the various time periods together. 34 Mr O'Brien was also cross-examined in respect his view (expressed in his report) that sections of the common property showed evidence of below standard upkeep prior to the applicants assuming the management rights. This appeared to result in Mr O'Brien making an assumption that the gardens and grounds had not been maintained properly and that the applicants would be required to put in additional hours to rectify this situation on a weekly basis. It appears that Mr O'Brien may have mistakenly been of the view that the applicants had only assumed the management rights approximately six months prior to Mr O'Brien preparing his report (April 2006). Mr O'Brien could not recall if he had been informed that the applicants had been undertaking their role as managers for approximately six years prior to Mr O'Brien preparing his report. This led Mr O'Brien to concede that his observations of below standard upkeep may not be relevant. He rejected the proposition that evidence of below standard upkeep of the common property must have occurred during the period the applicants had been the managers. This led to the following exchange with Mr Rogers: Q: Can I suggest to you you've drafted the report and that sentence is an example of it, (reference to below standard upkeep) trying to put the very best spin on it you could for Mr and Mrs West?

A: Well yes, that would be right, yes. 35 In re-examination, Mr O'Brien stated that the average rate for these types of complexes would range from something like $800 per unit per annum to something like $1,100, $1,200 per unit per annum. Mr O'Brien was not sure what figures precisely comprised the market rate, stating that such rates are very fluid. Mr O'Brien said that to use an average rate is extremely dangerous because complexes vary which affects the amount of work that is required to be carried out in respect of the size of lawns, the size of gardens and swimming pools. Mr O'Brien confirmed that the method he had adopted to determine what he regarded as an appropriate rate for the work carried out by the applicants was a time and motion study based upon an assessment of the amount of time that the applicants would allocate to the duties found in the management agreement. 36 During his re-examination of Mr O'Brien, Mr Taylor of Counsel who appeared for the applicants, tendered a letter dated 21 February 2008 prepared by Mr O'Brien which set out the remuneration that the applicant would receive based on Mr O'Brien's methodology, adjusted for CPI increases. Using Mr O'Brien's methodology, a remuneration figure of $38,703 would have applied as at September 2003. This figure increased with CPI adjustments to $42,966 as at September 2007. Leave was given to Mr Rogers to cross examine Mr O'Brien in respect of this letter. Mr O'Brien explained that he had reached the remuneration figure for 2003 by commencing with the remuneration figure that he assessed in April 2006 and discounting that figure by CPI increases back to 2003. He accepted that he had not applied any award rates in arriving at the 2003 figure. 37 Mr Rogers did not call any evidence in the respondent's case. Counsel tendered the following documents: (i) Letting service agreement between the respondent and Eric John Robertson and Sylvia Robertson dated 12 December 1998 which was assigned to the applicants; (ii) A document headed Travel Australia with Oz Guide - Tourism Accommodation, Festivals and Places; (iii) Copy of advertisement in Byron Shire Echo dated 27 May 2008 advertising unit 22 in the complex for sale with the contact person being Mr West; (iv) Document headed properties managed by the applicants; (iv) Miscellaneous Workers' - General Services (State) Award dated 7 July 2005 (IG 354 p 637) Consideration

38 A contract to which Pt 9 of Ch 2 of the Act applies may be an unfair contract if it: (i) is unfair, harsh or unconscionable; or (ii) is against the public interest; or (c) provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) is designed to or does avoid the provisions of an industrial instrument. 39 The applicants' claim, as pleaded, relied on paras (a) and (c) of s 105 of the Act. I will deal with each of these in turn. Was The Contract Unfair, Harsh Or Unconscionable 40 The applicants contended the contract was unfair primarily by virtue of its failure to include a market review clause.

41 Both Counsel referred to the court to A &M Thompson Pty Ltd and others v Total Australia Ltd (1980) 2 NSWLR 1; (1980) AR(NSW) 399, a decision of a Full Bench of the former Industrial Commission of New South Wales. The majority (Perrignon, Dey JJ, Cahill J dissenting observed at [69 -70] ... it is being said that fairness is determined by the common sense approach of a juryman, and that it is a moral and not a legal issue ( Davies ' case(5b) ). Whether this be so or not, it does seem that, in distinguishing between what is fair and what is not fair, the judge must apply standards which appear to him to provide a proper balance or division or advantage and disadvantage between that parties who have made the contract or arrangement. In doing so, he would always have to bear in mind the conduct of the parties, the capabilities to appreciate the bargain which they had made and their comparative bargaining positions when entering into the contract or arrangement. Again, in our opinion, a case involving the issue of unfairness of a contract how it would be disposed of simply by concluding that the complaining party was fully aware of the nature of the transaction before entering into it, and later came to regret the bargain. It is insufficient to claim, as Total has done here, that the Thompsons" had their eyes open" when they entered into the subject licence agreement in 1977. Section 88F envisages a much more searching examination of the circumstances than that. Otherwise, its purpose would not be achieved. Again, the absence of fraud, deceit or cheating is not, in itself an answer to a claim of unfairness --- in a proper case, in which fraud is not present and in which the complaining party fully understood the bargain, an order may be made based on unfairness ----- one looks to see whether there were genuine negotiations between parties prior to the contract; or whether it can be said that the contract was "moulded" by negotiations; or whether, on the other hand, it was the case of the imposition of a "standard form" upon a party who had no choice" take it or leave it". 42 Mr West's evidence was that he became aware that the management rights at "Beachside" were for sale after he had considered purchasing a mini supermarket in Byron Bay. He said that he obtained the advice of his solicitor prior to agreeing to the assignment of the caretakers agreement although he said he did not fully understand all the relevant ramifications of the contract. 43 The negotiations took place between the applicants and the Robertsons. There were no negotiations with the respondent. The applicant were not confronted with a choice of "take it of leave it" with no other option available to them. The above consideration must therefore be carefully weighed against the factual background of this case. The applicants were looking to purchase a business. They wanted a "sea change". They engaged a solicitor and sought his advice. They asked questions of the vendors through their agents and asked questions of their accountant. In light of this evidence in my view, and I find, the applicants were fully aware of the provisions of the contract. 44 There was no claim by them of fraud or misrepresentation on the part of the respondent or indeed the Robertsons. There is no claim that the applicants misunderstood the provisions of the contract in respect of remuneration at the point of agreement. I therefore do not accept that the contract is unfair on the grounds that it does not contain a market review clause. Indeed the applicants have recently renewed the contract for a further ten years. No doubt when purchasing a unit in the complex each owner took into account, as Mr Myers conceded, such matters as the body corporate fees and outgoings. The practical effect of granting the applicants application would be to impose unexpected burdens upon the owners of the units in the complex via the respondent in circumstances where the respondent was not a party to the negotiations between the Robertsons and the applicants. An argument might well be mounted to take that action at this stage would be to act unfairly against the respondent. The respondent negotiated the contract with the Robertsons on the basis that it did not include a market review clause and no doubt, important terms of the contract including its term and the option for an additional term of ten years was formulated on that basis. This is a further fact weighing against the applicants case. 45 Mr Rogers submitted that if the Commission was persuaded to grant the application and vary the contract to include a market review clause and the payment of monies retrospectively that the Commission should also vary the contract by inserting a reasonable notice provision of twelve months notice. This was opposed by the applicants on the basis that such a clause would undermine the nature of the contract and the value of the contract. It was submitted by the applicants using the comparison of a commercial lease that the value of a small business is largely depended upon the term of the lease and the security that it provides. It would, the applicants, submitted be extraordinary for a landlord to retain the entitlement to simply terminate the lease, without clause, on notice even if the notice was reasonable. The security of tenure under the contract, which the applicants have chosen to renew for a further ten years gives the applicants a significant benefit. For the foregoing considerations I have not been persuaded that the contract was unfair in its failure to provide a market review clause and that it should be varied to insert such a clause. Whether the contract was unfair because it provides total remuneration that is less than a person performing the work would receive as an employee performing the work. 46 The first matter which might be commented on in this regard is that the applicants expert, Mr O'Brien was unable to point to any award in New South Wales that purported to cover the role undertaken by the applicants. 47 Mr O'Brien's evidence was that he identified two industries, the contract cleaning industry and the accommodation industry and applied rates extracted from awards made by the Queensland Industrial Relation Commission. His methodology was to select classifications that he thought were close in terms of the duties and responsibilities carried out by the applicants and to calculate an average rate of pay per hour. The rate was then grossed up to include whatever additional items Mr O'Brien believed the applicants were entitled to for example the over night stay allowance which was set at $6.13 per night. This was taken into account despite the fact that the applicants live on site and the over night stay allowance was not a feature of the awards that were relied upon by Mr O'Brien. In addition and there was no evidence that the applicants were called out. 48 A fundamental problem with Mr O'Brien's analysis is that Mr West declined to provide Mr O'Brien with details of the hours that he actually worked at the complex. He declined to provide time sheets of the hours of work because it was not a requirement of the contract and secondly based upon legal advice. This lead Mr O'Brien to speculate about the hours Mr West worked and to calculate a notional number of hours. The hourly rate calculated by Mr O'Brien was applied to the notational hours to arrive at a net figure or contract figure of $40,365.15 as representing an appropriate market review. 49 A more fundamental issue in respect of Mr O'Brien's report is that Mr O'Brien acknowledged that the current annual remuneration for the applicants of $20,223 per annum plus GST equates to a rate of $925 plus GST per unit per annum which Mr O'Brien stated is at the lower end of market rates payable for the type of complex and the extend of facilities maintained by the applicants. His evidence was that the rate per unit for this type of complex would range from $800 per unit per annum to approximately $1,100 to $1,200 per unit per annum. The average of those figures is $970 per unit per annum. Clearly, in light of this evidence the respondent is within the range and slightly below the mid point of the market. After undertaking that exercise Mr O'Brien appeared to engage in a comparative wage justice exercise. Mr O'Brien acknowledged that what he had done was to try to pick items contained in certain awards and conditions enjoyed by employees, and that he believed to be sound analysis of this industry, to build up a rate that was relevant to the applicants management duties. 50 I find Mr O'Brien's report is of little assistance to me as clearly he did not value the work performed under the contract. What he did was to value some duties and functions that the applicants said they performed and some duties performed which were not contained in the management agreement. Mr O'Brien couldn't specifically recall what additional duties and functions he had taken into account but said that he would normally assess them based on his own interpretation. His evidence was that he had been provided with a list of other work that the applicants performed over the previous couple of years. This must lead to a finding that he valued not only the functions and duties under the management agreement but other work which the applicants said they were called upon to perform from time to time. The management agreement provides that such additional duties and functions not set out in the management agreement are to be separately remunerated which occurred from time to time particularly in the early years when Mr West carried out certain maintenance work. The value that therefore can be placed on Mr O'Brien's report must be seriously questioned in these circumstances. The Court has not been provided with a calculation based on the management agreement but a report based on a different analysis. Whatever the exercise undertaken by Mr O'Brien was, in my opinion, it was not a review of the market particularly in circumstances where Mr O'Brien was not even provided by the applicants with the actual hours that they worked. That matter remains unknown. 51 The final factor weighing against the applicants case and Mr O'Brien's report - a factor really going to the question of the exercise of the Commission's discretion to make orders, if the contract were held to be unfair - is that the applicants in November 2008 renewed the contract for a further ten years. Mr O'Brien did not take into account the guarantee of work for this period of the arrangement or that it was a saleable asset in attempting to determine the valuation of the remuneration paid to the applicants. The applicants enjoy a security of tenure under the contract which is a valuable benefit to them. In this regard Mr Rogers submitted that what the applicants were really seeking to achieve an increase in the overall value of the contract which could be realised if the applicants chose to sell the contract. Although there was no evidence that this is what the applicants had in mind it follows that if the application was granted it would inevitably increase the value of the contract. So much was accepted by Mr West. 52 I am unable to find pursuant section 105 (1) (c) of the Act that the contract between the applicants and the respondent was unfair in that it provided a total remuneration that was less than a person performing the work would receive as an employee performing the work. The contract was not designed to or did avoid the provisions of any award in New South Wales. 53 To the foregoing consideration must be added the important fact, about which there was no dispute, that the applicants were fully aware of the provisions of the contract before the assignment. As earlier stated, this is not a case where the applicants claim fraud, deceit or misrepresentation, or that they misunderstood the terms of the contract. As the majority (Fisher CJ, Hungerford J, Hill J dissenting) observed in Baker v National Distributions Services Limited (1993) 50 IR 254 at 271 The test of unfairness within the meaning of s 88F of the Industrial Arbitration Act, and hence s 275 of the present Act [section 106 of the current Act] has received much attention by the Court and by the previous Industrial Commission over very many years,, but, in our review of the cases, the approach stated by Sheldon J in Davies v General Transport Development Pty Limited [1967] AR (NSW) 37 over 26 years ago has endured; his Honour commented (at 374) that unfairness of a contract or arrangement was to be determined according to "the common sense approach characteristic of the ordinary juryman ..... It is a plain matter of morals not law." His Honour cautioned, however, (at 374, 375) that the section's "massive power makes it imperative that it should be exercised with proper restraint .... it should not permit itself to become a refuge for those who are merely disgruntled with a bargain entered into on even terms .... the discretion should be exercised to protect victims of wrong dealing not to prescribe anodynes." Those words by his Honour echoed what had been said earlier by Beattie J in Agius v Arrow Freightways Pty Limited [1965] AR(NSW) 77 at 89 that it was a matter of deciding "in each particular case by the application of the tribunal's common sense and sense of justice whether a particular transaction is unfair, harsh and unconscionable". 54 The majority went on to refer, with approval, to the observations of the majority in a A & M Thompson Pty Ltd v Total referred to earlier in this judgment. 55 As I have earlier determined the mere absence of a review to market, in my opinion, is not itself indicative of unfairness. It is not in point for it to be said there is, indeed, a market at all. The mere existence of the market does not of itself mean one has to fit within the range within that market see Baker at 272. However to the extent that Mr O'Brien contended there was a market the applicants fall within it. 56 In light of my determination that the contract between the applicants and the respondent is not unfair it is unnecessary to consider the application by the respondent that the contract be varied to insert a reasonable notice provision of twelve months notice. 57 With regard to all I have said I make the following orders:

The application is dismissed
The applicants shall pay the respondent costs as agreed or as assessed.

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