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  • Unreported Judgment

The Sands Gold Coast Pty Ltd v The Body Corporate for the Sands

 

[2019] QCAT 336

QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL

CITATION:

The Sands Gold Coast Pty Ltd v The Body Corporate for the Sands [2019] QCAT 336

PARTIES:

the sands gold coast pty ltd

(applicant)

v

the Body corporate for the sands cts 14967

(respondent)

APPLICATION NO/S:

OCL026-14

MATTER TYPE:

Other civil dispute matters

DELIVERED ON:

4 November 2019

HEARING DATE:

29 and 30 August 2019

HEARD AT:

Brisbane

DECISION OF:

Member Gordon

ORDERS:

The Body Corporate for The Sands CTS 14967 is ordered to pay The Sands Gold Coast Pty Ltd the sum of $220,451 by 31 December 2019.

CATCHWORDS:

REAL PROPERTY – STRATA AND RELATED TITLES – MANAGEMENT AND CONTROL – BODY CORPORATE: POWERS, DUTIES AND LIABILITIES – where at first instance the tribunal found that a body corporate was entitled to terminate a service contract – where, after the tribunal’s decision, the body corporate did terminate the contract – where the Appeal Tribunal reversed the tribunal’s decision and found that body corporate was not entitled to terminate the contract – where the service contractor sought damages for wrongful repudiation – consideration of the correct award of damages on remission to the original tribunal

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – REPUDIATION AND NON-PERFORMANCE – ELECTION AND RESCISSION – EFFECT OF ELECTION NOT TO RESCIND – where a fixed term service contract provided for fees to be paid monthly over the term – where a wrongful repudiation by the party obliged to pay those fees was not accepted by the contractor – where the contract continued on foot but the contractor was unable to continue performance under the contract due to non – cooperation of the other party – whether the contractor is able to claim the whole contract sum or is limited to loss of profit

DAMAGES – MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT – REMOTENESS AND CAUSATION – LOSS OF PROFITS – where loss of profits falls to be assessed over the remainder of a fixed term after a wrongful repudiation – where repudiating party contends it would legitimately have brought the contract to an early end – whether the award can be reduced for this contingency even if below a 50% chance

DAMAGES – MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT – GENERAL – where innocent party claims damages for loss of use of money which should have been paid over the remainder of the contractual term – whether evidence sufficient to permit an award on this basis

Body Corporate and Community Management Act 1997 (Qld)

Body Corporate and Community Management (Standard Module) Regulation 2008 (Qld), s 131

Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435

Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64

Gettens v XFar Homes Pty Ltd & Anor [2012] QCAT 150

Golden Strait Corpn v Nippon Yusen Kubishika Kaisha, The Golden Victory [2007] UKHL 12

Highfield Property Investments Pty Ltd v Commercial & Residential Developments (SA) Pty Ltd [2012] SASC 165

Hungerfords v Walker (1989) 171 CLR 125

Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC 2178 (Ch)

North Sydney Leagues’ Club Ltd v Synergy Protection Agency Pty Ltd [2012] NSWCA 168

Reynolds v Body Corporate for Mount View Apartments [2018] QCAT 283

Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147

Robinson v Harman (1848) 1 Ex 850

The Sands Gold Coast Pty Ltd v Body Corporate for the Sands [2016] QCAT 69

The Sands Gold Coast Pty Ltd v Body Corporate for the Sands (No 2) [2016] QCAT 365

The Sands Gold Coast Pty Ltd v The Body Corporate for the Sands [2018] QCATA 160

White & Carter (Councils) Ltd v McGregor 1962 SC(HL) 1

XMR Holdings Pty Ltd v Body Corporate for Xanadu [2016] QCAT 27

APPEARANCES &

REPRESENTATION:

Applicant:

B W J Kidston, counsel, instructed by Mahoney Lawyers

Respondent:

J C Faulkner, counsel, instructed by Matthews Hunt Legal

REASONS FOR DECISION

  1. [1]
    This is a decision about the correct award of damages for a wrongful repudiation of a service contract by a body corporate.
  2. [2]
    This litigation has been most unfortunate for the parties. The dispute is now in its sixth year. I am told that the Contractor has incurred an extraordinary $800,000 in legal fees. This appears to be in connection with this and allied litigation and in dealing with the events surrounding the litigation.[1] The legal fees incurred by the Body Corporate are said to be less.
  3. [3]
    The detailed facts in this particular matter can be seen from the previously published tribunal decisions. There was an interlocutory decision[2] followed by the original decision at first instance[3] and then the decision of the Appeal Tribunal.[4]
  4. [4]
    I repeat the facts in so far as necessary to explain this decision. The Sands Apartments complex in Surfers Paradise is a 10-storey property of 99 units which is about 50 years old. The Contractor had been engaged for many years to provide gardening, cleaning and repair of the common property of the complex and other duties, the relevant contract being dated 20 April 2012 called the Ground Maintenance Contract (‘GMC’). The GMC was for a 10-year term commencing on 1 January 2012. It therefore was to expire on 31 December 2021.
  5. [5]
    The Contractor was also engaged under a management agreement to manage the scheme for the complex and was also its letting agent under a letting agreement. Both these agreements were for 10 years from 1 January 2012. These agreements continue and are to expire on 31 December 2021.
  6. [6]
    A dispute arose about quality of the work done by the Contractor under the GMC, and the Body Corporate passed two resolutions to terminate it.
  7. [7]
    The first resolution to terminate the GMC followed a statutory route. There was a professional inspection of the complex which found a number of items which needed attention. The Body Corporate served on the Contractor a Remedial Action Notice (‘RAN’) on 30 January 2014 which specified the items. Then, following a further inspection enabling the Body Corporate to claim that the Contractor had failed to comply with the RAN, on 28 March 2014 the Body Corporate resolved to terminate the GMC. The Contractor disputed the RAN. It claimed that it had provided services properly and so was not in breach of the service contract to a degree sufficient to justify the RAN. In addition to this, a number of technical points were taken about the validity of the RAN. It was also said that it would be unreasonable to allow the contract to be terminated on the bases relied on. On application to the tribunal by the Contractor, the tribunal made an order restraining the Body Corporate from giving effect to the resolution until these matters were determined.[5] I determined these matters in my decision dated 22 September 2016. I decided that although the Contractor had failed to comply with the maintenance obligations and had failed to comply with the RAN in many respects, the RAN was defective because it was insufficiently certain and the time to remedy was too short.[6] Accordingly I declared that the Body Corporate could not give effect to its resolution of 28 March 2014 to terminate the GMC.
  8. [8]
    There was no appeal against these findings at first, however the Body Corporate sought to argue effectively a cross appeal about them. The Appeal Tribunal refused to permit this.[7]
  9. [9]
    The second resolution to terminate the GMC followed three contractual routes. The contractual routes were provided in the GMC itself. The first route applied if there was an unremedied RAN. The second route applied if there were three RANs in a period of six months, in which case the Body Corporate could terminate. The third route applied if the Contractor had been grossly negligent or incompetent.[8] For these routes the Body Corporate served the Contractor with three more RANs dealing with various matters. The Body Corporate also served the Contractor with four directions seeking information and documents which, when they were not complied with, resulted in four more RANs. On 24 June 2014 the Body Corporate resolved to terminate the GMC on the basis of routes two and three in the alternative. Again the Contractor disputed the matter. It said that as a matter of law the contractual routes were not available, but even if they were available, the facts did not justify the giving of the RANs and the times to remedy were too short. It was also said that it would be unreasonable to allow the contract to be terminated on the bases relied on. Again, on application to the tribunal by the Contractor, the tribunal made an order restraining the Body Corporate from giving effect to the resolution until these matters were determined.[9] Again I determined these matters in my decision dated 22 September 2016. I decided that the contractual routes were available as a matter of law.[10] I decided that the only RANs which were justified and valid were those given upon the failure to give information and documents pursuant to the directions.[11] I decided that the breaches were not serious enough to enable the third route (gross negligence or incompetence) to be used.[12] On that basis only the second contractual route was available to the Body Corporate.[13] I decided that, since in all the circumstances the decision to terminate using the second contractual route was reasonable, the Body Corporate could give effect to its resolution of 24 June 2014 to terminate the GMC.[14]
  10. [10]
    The Appeal Tribunal however, reversed my decision about the second contractual route. It decided that none of the contractual routes were available as a matter of law,[15] and that in any case the decision of the Body Corporate on the second contractual route was unreasonable, it being conceded by counsel that this was a question of mixed fact and law.[16] Hence the Body Corporate could not give effect to its resolution of 24 June 2014 to terminate the GMC.
  11. [11]
    The decision of the Appeal Tribunal was made on 7 November 2018.
  12. [12]
    Meanwhile however, between my original decision and the Appeal Tribunal decision, the Body Corporate did seek to terminate the service contract. The letter of termination, written by its solicitors, was dated 27 October 2016.[17] It stated that the Body Corporate ‘considers that the GMC has been terminated’ and stated that the payments under the contract would cease from midnight 31 October 2016. It is agreed between the parties that the Body Corporate made no payments under the GMC from that date.[18]
  13. [13]
    In the light of the Appeal Tribunal’s later decision, the letter of 27 October 2016 was not a valid termination. Instead, it amounted to a wrongful repudiation of the GMC by the Body Corporate.
  14. [14]
    The Contractor’s response was not to accept the repudiation but to affirm the GMC. Arising from that, as we see below, there is an issue about the appropriate remedy in the light of the fact that on basic contractual principles, the GMC remained on foot. Bearing in mind that issue, I need to examine more closely what happened in response to the letter of 27 October 2016.
  15. [15]
    The response was on 8 November 2016 by the Contractor’s solicitors.[19] It stated:-

Your client’s purported termination of the GMC constitutes a repudiation of that agreement. Our client does not accept that repudiation and affirms the GMC and all rights are hereby reserved.

Our client remains ready, willing and able to perform its obligations under the GMC however, given your client’s attitude and with a view to avoiding futile performance, we request that you confirm that your client does not require our client to perform the obligations under the GMC until such time as our client’s position is vindicated by the appeal. Please provide that confirmation within 48 hours. Our client will continue to perform the duties pursuant to the GMC pending your reply.

  1. [16]
    On the same day the solicitors for the Body Corporate wrote to say that they did not accept there was a repudiation in the light of the tribunal’s decision and pointed out that the Contractor could have applied for a stay but had not done so.[20] This was a reference to a stay of the order made in the original decision pending appeal to the Appeal Tribunal.
  2. [17]
    The Body Corporate engaged a new contractor on about 1 November 2016 although the Contractor continued to perform duties under the GMC until 9 November 2016.[21]
  3. [18]
    The Contractor contends that the legal effect of the above events on basic contractual principles is that the GMC remained on foot because the Contractor affirmed the contract and did not accept that it was at an end. The Body Corporate does not contend otherwise.
  4. [19]
    It is agreed by both sides however, that the GMC came to an end on 4 October 2017. This arises from the fact that at the hearing of the appeal on 4 October 2017 counsel for the Contractor informed the Appeal Tribunal that the Body Corporate’s repudiation had been accepted. This appears to be on the basis that the non-payment of the contract sum and the engagement of other contractors to carry out the duties under the GMC in place of the Contractor were continuing acts of repudiation and were accepted by the statement made by counsel.[22]
  5. [20]
    Further facts are agreed between the parties:-[23]
    1. (a)
      on 1 January 2016 the annual remuneration under the GMC was reviewed to $83,580 plus GST per annum;
    2. (b)
      each year thereafter as from 1 January the annual remuneration would have increased by the movement in the Consumer Price Index (‘CPI’) over the 12 month period prior;
    3. (c)
      the Contractor has not found other remuneration to replace that lost by the termination; and
    4. (d)
      as at March 2019 the Body Corporate was paying other contractors $37,400 per annum to perform the duties required under the GMC.

The jurisdiction and the claim

  1. [21]
    This remains a complex dispute under the Body Corporate and Community Management Act 1997 (Qld) which has not yet been determined, because the Appeal Tribunal remitted ‘all other matters’ back to the tribunal to decide, and that came back before me.
  2. [22]
    The damages claim therefore falls to be decided. The tribunal has jurisdiction to award damages as explained by Member Barlow QC in Reynolds v Body Corporate for Mount View Apartments [2018] QCAT 283.
  3. [23]
    Subject to the Contractor’s claim to be paid the full contract sum until the acceptance of the repudiation, it is agreed that loss of profit should be assessed in accordance with the principle in Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365:-

That where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, be placed in the same situation, with respect to damages, as if the contract had been performed.

Was the contract profitable?

  1. [24]
    In the original decision, the Contractor’s obligations under the GMC were identified. They were to do its best to keep the common property in first class order and repair and if necessary to engage others to achieve that (and to pay the labour costs of others, but not the cost of materials).[24] Bearing in mind the age and condition of the complex it might be questioned whether these onerous obligations meant that the service contract was profitable at all. But this was not the case argued on behalf of the Body Corporate and nor was it the position in factual reality.
  2. [25]
    The evidence of Mr Evans, the chair of the Body Corporate, was that since 1 November 2016 the Body Corporate had engaged other contractors on a monthly basis. At the time of the hearing in August 2019, this was costing $37,400 per annum. Mr Evans said that the Body Corporate was very happy with the standard of work being done, and the scheme common property was being maintained to a high standard.[25]
  3. [26]
    Since the remuneration payable in 2019 under the GMC was some $87,820, it was clearly a very profitable contract for the Contractor.

Loss 1 November 2016 to 4 October 2017

  1. [27]
    This is the period over which the Contractor contends that the tribunal should order the Body Corporate to pay the full contract sum payable under the GMC. It starts with the first day of non-payment under the GMC (1 November 2016) and ends at the hearing of the Appeal Tribunal when counsel for the Contractor stated that the Body Corporate’s repudiation of the service contract had been accepted (4 October 2017).
  2. [28]
    For the Contractor it is accepted that the situation is not the same as in the Scottish House of Lords case of White & Carter (Councils) Ltd v McGregor 1962 SC(HL) 1, where a contractor refused to accept a wrongful repudiation, then continued to perform its obligations under the contract and then sued for the full contract sum. The difference is that here the Contractor could not perform its obligations without the co-operation of the Body Corporate which was not given. Despite this, it was argued that the terms of the GMC are such that the monthly fees are due in full from the beginning to the end of the period bearing in mind that the Contractor remained ready and willing to perform its obligations.
  3. [29]
    On behalf of the Body Corporate it is argued that the terms of the GMC are such that the Contractor is not entitled to the full contract sum over this period, and that to make that award would over compensate the Contractor because it would offend the principle in Robinson v Harman.
  4. [30]
    It is understood that in some cases, an innocent party who is unable to continue performance under the contract because of the non-cooperation of the other party who has wrongfully repudiated the contract may be able to claim the full contract sum instead of being limited to a loss of profit claim. It depends on the terms of the contract. As suggested in Cheshire and Fifoot’s Law of Contract, a contract might unequivocally provide for payment at a specified time irrespective of performance.[26]
  5. [31]
    In Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435, an employee was demoted in repudiatory breach of his contract of employment, which he did not accept. The High Court considered the general position at common law in the case of employees to be that an employee who was wrongfully dismissed could not stand by and sue for the wages that he would have earned had he not been dismissed. However, the rule was stated to be subject to an exceptional case where the payment of money to the employee does not depend on his doing work.[27] Latham C.J. said:-[28]

An agreement may amount to an agreement for an annuity or other periodical payment with an independent promise by the beneficiary to do work for the other party to the agreement, but the ordinary contract of employment is not of that character.

  1. [32]
    Dixon J considered the matter from a wider perspective:-[29]

In certain forms of executory contract where the promise of one party is to pay the other money in consideration of his transferring property, of his doing work, of his serving the former as his master, and, perhaps, of his providing other tangible things or definite services, the money to be paid is regarded as the price of or reward for the property or service when and so often as the transfer of the one or the performance of the other affords an executed consideration. In these contracts the promise to pay the price or reward is not construed as a simple obligation to pay a sum or sums at a future date supported solely by a consideration consisting in the corresponding promise to transfer the property, do the work, serve, or provide the things or services by the other party, so that a mere readiness and willingness on the one side of the latter to perform his part is enough to entitle him to the payments, notwithstanding that, whether owing to the fault of the former, or without fault on either side, the property is not transferred, the work is not done, the relation of master and servant ceases, or the things or services are not provided. The most familiar example is that of the sale of goods. There the common understanding of an agreement to sell is that it is the goods and not the promises to deliver that are to be paid for.

It is, of course, open to contracting parties to make what agreement they like about the matter. They may, if they choose, contract for payment of a sum certain at a time certain and make it clear that the payment is independent of the transfer of the goods. But that is not how an agreement to sell is ordinarily understood.

A contract for the establishment of the relation of master and servant falls into the same general category of agreements to pay in respect of the consideration when and so often as it is executed, and is, therefore, commonly understood as involving no liability for wages or salary unless earned by service, even though the failure to serve is a consequence of the master’s wrongful act.

It is, of course, possible for the parties to make a contract for the payment of periodical sums by the master to the servant independently of his service. Indeed that is, in effect, what the Duke of Westminster persuaded the majority of the House of Lords he had done in Inland Revenue Commissioners v. Duke of Westminster (1936) AC 1. But, to say the least, it is not usual. The common understanding of a contract of employment at wages or salary periodically payable is that it is the service that earns the remuneration and even a wrongful discharge from the service means that wages or salary cannot be earned however ready and willing the employee may be to serve and however much he stand by his contract and decline to treat it as discharged by breach.

  1. [33]
    The usual case appearing from Automatic Fire Sprinklers is that where the contractor is unable to perform the contract because performance requires the co-operation of the repudiating party, the contractor is limited to damages for loss of profit. In White & Carter this was stated by Lord Reid thus (referring to a decision of the Lord President of the First Division in Langford & Co Ltd v Dutch 1952 S.C. 15):-[30]

Of course, if it had been necessary for the defender to do or accept anything before the contract could be completed by the pursuers, the pursuers could not and the court would not have compelled the defender to act, the contract would not have been completed and the pursuers’ only remedy would have been damages. But the peculiarity in that case, as in the present case, was that the pursuers could completely fulfil the contract without any co-operation of the defender. The Lord President cannot have meant that because of non-acceptance the contract had not been completely carried out, because that in itself would have been a complete answer to an action for the contract price.

  1. [34]
    This principle has been called the ‘co-operation principle’.[31]
  2. [35]
    The determination which needs to be made therefore has been described as being whether the obligations under the contract are dependent (that is, conditional upon performance of the other party or of a third party), interdependent (mutual, reciprocal or concurrent obligations) or obligations which are independent of performance.[32] This is to be determined from the objective intention of the parties to the contract.
  3. [36]
    None of the decided cases it seems, have involved Body Corporate service contracts.
  4. [37]
    Illustrative is the English case of Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC 2178 (Ch); [2003] 2 All ER (Comm) 823 where Nicholas Strauss QC (sitting as a deputy judge of the High Court) reviewed the authorities including Automatic Fire Sprinklers.[33] Ministry of Sound had two obligations under a two year fixed term contract under which they were entitled to be paid eight quarterly payments by World Online. One obligation was to publicise on its website World Online’s service, and the other was to package and distribute CDs provided by World Online. After six months, in breach of contract, World Online ceased to provide the CDs so Ministry of Sound was unable to perform the second obligation. They did continue to perform the first obligation however. When the last quarterly instalment was unpaid, Ministry of Sound claimed this against World Online. On appeal from the master who had refused summary judgment, Nicholas Strauss QC allowed the claim. Although he found the issue ‘not at all easy’ and contrary to the ‘commercially just result’, he concluded that under the contract payments were due irrespective of the failure to perform all the obligations under the contract.[34]
  5. [38]
    At [50] he said:-

I do not think that a right to payment is to be treated as ‘dependent’ on the performance of services, as the master held, solely because the payment was to be made in return for services. It is dependent only if the right to payment is conditional upon the prior or simultaneous performance of services or other contractual obligations (common example are contracts for the sale of land or goods). That this is the meaning of ‘dependent’ in this context is illustrated by the early case of Pordage v Cole (1669) 1 Wms Saund 319, 85 ER 449 ... in which it was held that an obligation to pay £775 on a specified date ‘for all the plaintiff’s lands’ was independent of the plaintiff’s obligation to convey the lands, so that the plaintiff could recover the payment without any conveyance, because the contract specified a date for payment.

  1. [39]
    Do the terms of the GMC allow the Contractor to sue for the full contract sum prior to the termination despite the Contractor’s non-performance where the Contractor is not at fault?
  2. [40]
    For the Contractor, Mr Kidston pointed to the terms of clauses 2.1, 3.2, 3.4, 4.1 and 4.4 of the GMC[35] as showing that payment was intended to be independent of performance. This he says was shown by the fact that although the fee was payable monthly, the duties under the GMC were not to be performed monthly, but could be weekly, monthly or at greater intervals. Arguing to the contrary, Mr Faulkner pointed to the same clauses as showing that the obligation to pay depended on performance by the Contractor and they were reciprocal obligations, as shown by the fact that payment was in arrears.
  3. [41]
    There is nothing in the GMC showing that the obligation of the Body Corporate to pay the fee was conditional upon performance. In contrast, the renewal clauses 2.3 and 2.4 were conditional upon good performance. These clauses permitted the Contractor to opt to extend the original 3 year term for another 3 years (clause 2.3) and for another 4 years (clause 2.4), if the Contractor had carried out the functions and duties of the contract to the satisfaction of the Body Corporate. It is notable that the same condition was not extended in the contract to the Body Corporate’s obligation to pay. This could have been done in the GMC. It is also true that there is a disconnect between the timing of the performance and the obligation to pay the fees as submitted by Mr Kidston.
  4. [42]
    The GMC must also be construed in the light of the statutory framework under which it was drafted. Suppose the Contractor left site and said it was not returning. Then this would be a failure of the Contractor to carry out its duties under the engagement and it would result in a RAN under section 131(3) of the Body Corporate and Community Management (Standard Module) Regulation 2008 (Qld). This would give a minimum of 14 days’ notice to the Contractor requiring it to carry out its duties under the engagement. If the Contractor failed to comply with the RAN the GMC could be terminated by an ordinary resolution of the Body Corporate, in this case by secret ballot.
  5. [43]
    The GMC itself also provided a remedy for non-performance,[36] although in the light of the Appeal Tribunal’s decision these contractual provisions may well not be enforceable, they remain valid to assist in showing the objective intention of the parties.
  6. [44]
    These things tend to suggest that payment was independent of performance.
  7. [45]
    On the other hand, if payment was independent of performance then it would mean that if the Contractor stopped performing its duties under the GMC and left the site it would still be able to claim the monthly fees. In that scenario, to avoid the continuing obligation to pay the fees, the Body Corporate would need to terminate the GMC using the statutory RAN process. On a practical basis, if the Contractor had abandoned its duties in this way, it would be entirely reasonable for the Body Corporate to take the view in the absence of legal advice to the contrary, that it was free to appoint other contractors and that it was unnecessary to go through the formalities required to terminate the GMC. Yet it would clearly be unfair if the result of this would be that the Body Corporate would still be liable for the fees of the outgoing contractor. For that reason it is unlikely to be the objective intention of the parties.
  8. [46]
    The same result is achieved when considering the converse scenario of the Body Corporate locking out the Contractor and engaging other contractors. In those circumstances, restricting the Contractor to a loss of profit award would normally be fair and would accord with the principle of Robinson v Harman. The result is therefore likely to be the objective intention of the parties to the GMC.
  9. [47]
    Overall, I take the view that the objective intention of the parties to the GMC must have been that the Contractor needed to perform its duties to be entitled to recover full monthly payments. In those circumstances, it is necessary to calculate the Contractor’s loss of profit starting in 1 November 2016.

Principles to apply when calculating the loss of profit

  1. [48]
    In the loss of profit calculation, neither side contends that this is straightforward assessment of actual loss calculated to the date of assessment plus future loss based on the number of years left in the GMC, with a discount for early receipt. Instead, each side asks me to take contingencies into account. For the Contractor, I am asked to say that the chance of re-engagement of the Contractor upon the expiry of the GMC in December 2021, has been diminished by the termination and so losses continue beyond that date. For the Body Corporate I am asked to take into account the possibility, and on its case strong likelihood, that it would legitimately have brought the GMC to an early end soon after the wrongful repudiation of 1 November 2016, so that the losses should be very much truncated.
  2. [49]
    Whether or not it is right to take such contingencies into account even if the possibility of the event happening is below 50%, was touched upon by the parties in final submissions.
  3. [50]
    Certainly it is established law that in a loss of profit claim a loss of chance of a renewal of a contract can be compensated, as contended for by the Contractor.[37]
  4. [51]
    As for whether it is right to reduce an award for loss of profit for the possibility that a fixed term profit making contract would legitimately have been brought to an early end by the repudiating party, some doubt was cast on this by Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64, but that case concerned wasted expenditure and not loss of profit as here. The matter was considered in the UK case of Golden Strait Corpn v Nippon Yusen Kubishika Kaisha, The Golden Victory [2007] UKHL 12; [2007] 2 AC 353. In that case, the charterers who had wrongfully repudiated a long-term time charterparty and faced the owner’s claim in damages, at their option would have been able subsequently to repudiate the charterparty under an express cancellation clause triggered by the 2003 war in Iraq. The majority of the House of Lords decided that it was necessary to take account of the fact that the contract was likely to have been cancelled. This was because where there was a known event affecting the loss as at the time of assessment by the court, it should be taken into account.
  5. [52]
    The principle that an adjustment of the award can be made to allow for such contingencies helps to ensure that the innocent party is not overcompensated by for example, obtaining a windfall by reason of the repudiating party’s breach which it would not otherwise have obtained, and so accords with the principle in Robinson v Harman. It is necessary of course, as explained in The Golden Victory, for the chance of the event happening to be of ‘some real and not just minimal significance’.[38]
  6. [53]
    There was some debate in final submissions about what hypothetical basis should be assumed in order to assess the possibility that the Body Corporate would legitimately have brought the GMC to an early end. In this matter the circumstances were unusual. It was two years after trying to terminate the GMC relying on the original decision that the Body Corporate discovered from the Appeal Tribunal’s decision that it had been wrong to do so and in fact it had wrongfully repudiated it, and was liable to pay damages to the Contractor.
  7. [54]
    Although there was no actual agreement by the parties about the correct hypothetical basis, the way it was argued by both sides was that I should assume that the original decision given on 22 September 2016 had corresponded with the Appeal Tribunal’s decision of two years’ later.
  8. [55]
    This does appear to be correct. Amongst other authorities, The Golden Victory is authority for the proposition that damages should be assessed as at the date of the breach (1 November 2016). And so it is at that date that an assessment has to be made as to whether there was a real possibility that the Body Corporate would legitimately have brought the GMC to an early end. And it would appear to be right to assume that the Body Corporate would at that time have been properly advised that all its attempts to terminate the GMC had failed on the various technical grounds as found by the tribunal in the original decision and as found on appeal. So that is the hypothetical basis on which I propose to deal with this matter.
  9. [56]
    In the calculation of the loss of profit claim I was assisted to some extent by the forensic accountants’ evidence of Simon Cook of Lotus Amity Pty Ltd (on the Contractor’s behalf) and Ian Otto of Otto Chartered Accountants (on the Body Corporate’s behalf). They were instructed to give an opinion of the monthly profit lost by the Contractor by reason of the termination, and other matters.
  10. [57]
    As for the expenses saved by not having to perform the GMC, the figure suggested by Mr Cook as at the date of the hearing was $44,169 for the year.[39] Mr Cook made his calculation using a three pronged approach, based on (a) current Body Corporate expenditure to achieve the desired result (b) past expenditure by the Contractor on sub-contractors, and (c) an estimated daily rate using sub-contractor invoices. These figures accord with the evidence both from the Body Corporate and from the Contractor, and the agreed facts. I am content to accept these figures. I do not think I am assisted by the IBIS World Industry N7313 Gardening Services in Australia report (giving average profit margins for these types of contract), as suggested by Mr Otto, because the GMC was unique in its remuneration levels and in the Contractor’s internal structure.
  11. [58]
    There is an issue about overheads. Mr Otto suggested that they should be taken into account when assessing loss of profit. However it is clear that in assessing the loss of profit, fixed and variable overheads should only be deducted to the extent to which they have been saved by the Contractor by reason of not having to perform the contract and should not be deducted if they were not saved.[40] Having regard to the evidence of Mr Rockett about the Contractor’s overheads, I do not think that any of them have been reduced by reason of the termination of the GMC. This tends to be corroborated by the fact that the Contractor’s operating expenses increased in the years after 1 November 2016.
  12. [59]
    There was an issue whether the cost to the Contractor of Ms Rockett’s own time saved in managing and supervising any sub-contractors who may have been engaged by the Contractor from 1 November 2016 to the end of the term of the GMC should be deducted. An understanding of the time saved in management comes from the evidence of Mr Evans, who told me that he spends a couple of hours a week supervising the contractors currently engaged by the Body Corporate.
  13. [60]
    The starting point is that as a matter of fact, the Contractor did not pay Ms Rockett anything for this work except possibly a nominal amount. Hence it is said, there was no saving to the Contractor by not having to do this work anymore.
  14. [61]
    Mr Cook was of the view that this cost should not be deducted anyway because any such management and supervision would have been done under a different contract between the Contractor and the Body Corporate which remained extant (the management agreement). To my mind however, it does not matter under which contract the management and supervision was done. Had the Contractor been paying Ms Rockett for doing the work, the fact is that the Contractor would be saved those payments by the termination.
  15. [62]
    Mr Otto expressed the view that despite the negligible payments to Ms Rockett there was still an impact on the loss of profit to the Contractor, and the value of her work should be deducted anyway. On that basis he provided costings based on 5, 10 and 15 hours a week.
  16. [63]
    In my view since no substantial amount was paid by the Contractor to Ms Rockett for this work, it cannot be a saving to the Contractor if the work is no longer done. I do not agree with Mr Otto that in some way it should be taken into account.
  17. [64]
    It follows that I should not make any changes to the figures to allow for any management and supervision work which would have been done by Ms Rockett if the GMC had continued.
  18. [65]
    It is not suggested that the Contractor should have mitigated its loss up to the date of assessment so as to reduce its past loss or would be able to do so in the future so as to reduce its future loss.

Would the GMC legitimately have been brought to an early end?

  1. [66]
    The possibility of the Body Corporate legitimately bringing the GMC to an early end if it had not repudiated it on 1 November 2016, was canvassed in depth by the parties.
  2. [67]
    Mr Cook attempted an assessment of the possibility by considering recognised risk factors in various types of investments, which he called ‘the risk profile of the cash flows’.[41] He concluded that if all calculations were based on figures known as at 1 November 2016 and adjusted to allow for inflation each year for the remaining term of the GMC, then it would be appropriate to apply a discount rate of 16% per annum to the bare loss of profit over the whole period, to allow for the possibility of legitimate termination but also to allow for early receipt of future loss. Mr Otto agreed. The difficulty with this of course, is that the experts have not considered the evidence available to me both at the original hearing and at this remitted hearing, and the submissions of the parties, and the practicalities of the situation in the unique circumstances, which have enabled me to reach a clear conclusion on the prospects of the GMC being legitimately brought to an early end. The result is that I was not assisted by the experts’ calculations in this respect.
  3. [68]
    On behalf of the Body Corporate it was said that it would have wished to terminate the GMC because the Contractor had demonstrated that it was incapable of performing the GMC and as found in my original decision, it had failed to perform the maintenance obligations and failed to respond properly to the information directions. It was said that the Body Corporate had simply used the wrong procedure before, and given the opportunity it would use the correct procedure instead.
  4. [69]
    In his affidavit, Mr Evans explained how determined the committee would have been to terminate the GMC, and then he explained how it would have been done.[42] I regret I found his evidence about this quite unconvincing. I do not think the committee or unit holders generally were nearly as determined to terminate the GMC as he has been. In this respect it is necessary to take into account the time, trouble and considerable expense already expended by the Body Corporate in trying to terminate the GMC. The only witness who told me that, despite these things, the committee was still determined to terminate the GMC, was Mr Evans himself. This is despite the adverse comments about his evidence in my original decision.[43] In the circumstances I have little alternative but to find that there would have been little support in the Body Corporate to terminate the GMC had it remained on foot.
  5. [70]
    Although that is enough to determine this particular issue in favour of the Contractor, there is also the evidence of Ms Rockett. She says that she would have ensured that the Contractor would have remedied any RANs served by the Body Corporate. Ms Rockett gave evidence that the litigation had been a salutary and unwelcome experience which she would wish to avoid in the future. I accept this evidence.
  6. [71]
    Further, I do not agree that the Contractor was chronically unable to perform the obligations under the GMC. The Contractor had a simple way of doing so, which it had used in the past, and which was available to it again, and that was to engage sub-contractors to do the work and to manage them. In this way the Contractor was perfectly capable of performing the obligations under the GMC at least to the satisfaction of the Body Corporate.[44]
  7. [72]
    In reaching my conclusion on this issue, I have taken into account that the remuneration payable under the GMC was high, and that this may have given the Body Corporate reason to wish to terminate it. However, this point goes both ways – the GMC was valuable to the Contractor and so adds credence to Ms Rockett’s evidence that she would have worked to keep it on foot.
  8. [73]
    I have also taken into account the particular opportunity that the Contractor had, through Ms Rockett, of knowing in advance the Body Corporate’s plans with respect to the GMC, of lobbying for termination not to happen and indeed, of influencing the vote.[45]
  9. [74]
    On the above basis the chance of the GMC being terminated lawfully before the expiry of the term was slim. In the words used in The Golden Victory, the chance of such lawful termination was not real and was of minimal significance. Therefore I do not think there should be any discount from the award to allow for that possibility.

Is there a loss arising from loss of chance of the GMC being renewed?

  1. [75]
    It is common ground that it is possible to compensate the Contractor for the loss of a chance to be engaged under a new service contract after 31 December 2021, which is when the GMC would have ended naturally.
  2. [76]
    On behalf of the Contractor, Ms Rockett explained that she would have lobbied lot owners to support a renewal of the GMC, and believed that this would have been successful bearing in mind her advantage arising from living in the complex and controlling 14 lots there and other matters.[46]
  3. [77]
    On behalf of the Body Corporate it was said that having regard to the failures of the Contractor in the past, the difficulty dealing with Ms Rockett on a personal level and other matters, it would not have been renewed.[47]
  4. [78]
    It was also said that as a matter of law in this particular case such a head of claim was not compensable because it was too remote. I have concluded that this head of claim fails on other grounds, so I do not need to deal with the remoteness argument.
  5. [79]
    First it is necessary to consider exactly what chance may have been lost. At the expiry of the GMC the Body Corporate would have had a choice of organising its maintenance on a periodic basis as it does now or offering a new fixed term maintenance contract. The Body Corporate may well have taken the opportunity to reduce the remuneration from that in the GMC.
  6. [80]
    It seems to me that whatever route the Body Corporate decided to take, the Contractor had a good chance of obtaining the work. But it seems to me that this chance was the same as before and not affected by the wrongful repudiation on 1 November 2016.
  7. [81]
    Ms Rockett says in her affidavit that ‘but for the termination, the Applicant would have had the chance to rebuild the relationship with the Respondent’s committee’. But equally, it seems to me, this could be done in the events which have happened. This is because of the Contractor’s close contact with the lot owners as a resident, a lot owner, letting agent and manager of the scheme for the complex, and also because, as she told me when she gave evidence, the support for her amongst lot owners.
  8. [82]
    Mr Evans was asked to give his view about the Contractor’s prospects of securing maintenance work beyond 31 December 2021 in the hypothetical scenario of continuation of the GMC, but he had very great difficulty in doing so. I have no confidence that his answers were given with an understanding of the scenario that was put to him. I am unable to rely on his answers on this topic.
  9. [83]
    Both Mr Cook and Mr Otto expressed a view about the chances of the renewal of the GMC or a contract like it beyond 31 December 2021. I am not assisted by the experts’ view on this because they have considered this from a much narrower perspective than available to me.
  10. [84]
    Overall the Contractor has been unable to show that the chance of obtaining maintenance work beyond 31 December 2021 was diminished to any extent by reason of the early termination of the GMC. Hence there is no loss under this head.

Loss of use of money (claimed as damages)

  1. [85]
    The Contractor does not ask for an award of interest. This is in recognition of the likelihood that the tribunal has no jurisdiction to award interest in matters of this sort.[48]
  2. [86]
    Instead, loss of use of money has been claimed as a head of damages. It is said that the tribunal can award damages on the basis that the Contractor had a use for the money which should have been paid by the Body Corporate. The claim appears to be on the basis of Hungerfords v Walker (1989) 171 CLR 125, which type of claim succeeded in the tribunal in Gettens v XFar Homes Pty Ltd & Anor [2012] QCAT 150 when assessing compensable financial loss.
  3. [87]
    Clearly damages would be available under the principle in Hungerfords if loss were proved and not too remote. The problem here is the proof of the loss. On behalf of the Contractor, Mr Kidston accepts the burden of proof under this head. Therefore the Contractor needs to show that had the payments been made by the Body Corporate the Contractor would not have distributed its profits in the usual way as director’s fees or dividends to Ms Rockett, or repayment of loans she made to the company, but instead would have found some other use for the money which it has not been able to do because of the non-payment, and that therefore the Contractor suffered financial loss.
  4. [88]
    The evidence about this is that contained in paragraphs 30 and 31 of the affidavit of Ms Rockett dated 23 August 2019 and in her oral evidence. She says that the Contractor would have loaned to her the fees which should have been paid by the Body Corporate. She would then have paid interest on this loan to the Contractor at market rates. Hence the Contractor has lost this interest because it was unable to make the loans to her.
  5. [89]
    Naturally Ms Rockett was asked about this in cross examination. I thought she was very vague about the reason for the arrangement or how it would have worked. It was clear that neither she, nor the Contractor, had received any advice about the efficacy of any such arrangement. Certainly, over the period when the Contractor was being paid the fees by the Body Corporate, there was no such arrangement in place. I formed the view that the submission of Mr Faulkner on behalf of the Body Corporate was probably correct – that the arrangement was contrived in order to form the basis for a claim for loss of use of the money.
  6. [90]
    This view seems to be supported by the fact that the arrangement was not previously mentioned prior to the affidavit of 23 August 2019. It did not feature in any of the experts’ reports. Instead, the Contractor’s expert Mr Cook was still calculating interest in the usual way in his email of 28 August 2019, and not on the basis now being put forward. Indeed, an entirely different arrangement was described by counsel in contentions filed with the tribunal close to the hearing. In those contentions, it was said that the fees which should have been paid by the Body Corporate would have gone to reduce the Contractor’s own borrowings, thereby saving interest on the borrowings at the rate of 5.07% per annum prior to 14 June 2019 and 6.20% on and after that date. But there is no evidence to support that proposition.
  7. [91]
    Overall, I take the view that the evidence is insufficient to support this head of claim.

Final calculations

  1. [92]
    First I shall calculate the loss of profit to a date certain. Since all the figures are known for this year, and because it is convenient to do so, I shall calculate the loss of profit to 31 December 2019.
  2. [93]
    Each year on 1 January the remuneration for the GMC was revised in accordance with inflation for the year just ended. On 1 January 2016 it was revised to $83,580 per annum plus GST.[49] Inflation rates are known for 1 January 2017, 2018 and 2019.[50] The resulting annual remuneration is shown in this table.

Year commencing

Inflation rate applied

Remuneration ex GST

1 January 2016

$83,580

1 January 2017

1.57%

$84,892

1 January 2018

1.91%

$86,514

1 January 2019

1.51%

$87,820

  1. [94]
    Taking into account the expenses saved by not having to perform the GMC the calculation for loss of profit to 31 December 2019 becomes:-

Dates

Remuneration

Expenses[51]

Loss of profit

1 Nov 2016 – 31 Dec 2016

$13,930

$7,010

$6,920

2017

$84,892

$42,696

$42,196

2018

$86,514

$43,512

$43,001

2019

$87,820

$44,169

$43,651

Total loss of profit to 31 December 2019:

$135,768

  1. [95]
    The continuing loss of profit as at the date of this assessment is $43,651 per annum. On my findings, this loss continues from 1 January 2020 to 31 December 2021, a period of two years from the date to which the loss is calculated. This loss is therefore $87,302. This ought to be reduced for early receipt on the assumption that it will be received on 31 December 2019 in accordance with my order, instead of in monthly instalments spread over the two year period. On the other hand, it ought to be increased to allow for the uplifts for inflation which would have occurred on 1 January 2020, and 1 January 2021. On balance, the two effects can be allowed for at the same time by applying a modest discount rate of 3% per annum. Since half this amount should have been received by the end of 2020, the 3% should be applied for one year. On that basis the future loss reduces to $84,683.
  2. [96]
    The total award is therefore $135,768 plus $84,683, amounting to $220,451 in total.

Footnotes

[1] Paragraph 11 of the affidavit of Lynette Joy Rockett made on 23 August 2019. Ms Rockett is the sole director and shareholder of the Contractor.

[2] The Sands Gold Coast Pty Ltd v Body Corporate for the Sands [2016] QCAT 69 (application by the Contractor to strike out parts of the response).

[3] The Sands Gold Coast Pty Ltd v Body Corporate for the Sands (No 2) [2016] QCAT 365.

[4] The Sands Gold Coast Pty Ltd v The Body Corporate for the Sands [2018] QCATA 160.

[5] First there was an interim order of 27 March 2014 which restrained the Body Corporate from giving effect to the resolution if it were passed at the meeting to be held the following day. The injunction was continued by consent on 4 April 2014.

[6] Paragraph [254] of the original decision.

[7] Paragraph [108] of the Appeal Tribunal’s decision.

[8] The routes are described in paragraph [37] of the original decision.

[9] The Body Corporate consented to an interim order of 24 June 2014 restraining the Body Corporate from giving effect to the resolution if it were passed at the meeting to be held that day.

[10] Paragraph [70] of the original decision.

[11] Paragraphs [263], [269], [296], and [298] of the original decision.

[12] Paragraph [300] of the original decision.

[13] Paragraph [298] of the original decision.

[14] Paragraphs [313] and [323].

[15] Paragraph [48] of the Appeal Tribunal’s decision.

[16] Paragraphs [28], [81] and [88] of the Appeal Tribunal’s decision.

[17] Page 27 of Exhibit JF-1.

[18] Paragraph 22 of the Agreed Statement of Facts.

[19] Page 48 of Exhibit JF-1.

[20] Page 49 of Exhibit JF-1.

[21] Paragraphs 16 and 23, Statement of Agreed Facts.

[22] This also accords with a letter from the solicitors for the Contractor dated 16 August 2018 which stated that the Contractor having initially affirmed the contract ‘had accepted the repudiation’.

[23] Paragraphs 24 to 27 of the Statement of Agreed Facts.

[24] Paragraph [87].

[25] Paragraphs 38 to 40 of his affidavit of 19 August 2019.

[26] NC Seddon and MP Ellinghaus, Cheshire and Fifoot's Law of Contract (LexisNexis, 9th ed., 2008) 26.12.

[27] Latham C.J. at page 452, Starke J at page 463 (expressing the view that in employment cases a clear and distinct provision would be required to alter the established rule of law).

[28] Page 452.

[29] Page 464-465.

[30] Page 429.

[31] The question is whether the sum has been ‘earned’, not whether the contract has been breached: Carter and Tilbury ‘Remedial Choice and Contract Drafting’ (1998) 13 JCL 5 (page 12).

[32] For example Blue J in Highfield Property Investments Pty Ltd v Commercial & Residential Developments (SA) Pty Ltd [2012] SASC 165, [212] and in Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147, [196].

[33] In Doherty v Fannigan Holdings Ltd [2018] EWCA Civ 1615, [30] the English Court of Appeal described the judgment in Ministry of Sound as a ‘full and careful decision’.

[34] At [61].

[35] These were references to the deed of 10 June 2003, which was ‘re-adopted’ in the deed of 20 April 2012.

[36] Clauses 8.1 and 9.1.

[37] For example in Chaplin v Hicks [1911] 2 KB 786 a loss of a small chance of some financial gain was recoverable.

[38] Lord Carswell paragraphs 61 and 64, Lord Scott paragraph 30, and Lord Brown paragraph 76.

[39] That is, $42,618 in direct expenses (which would otherwise have been paid to sub-contractors) and $1,552 saved in Workcover insurance, adjusted for rounding.

[40] North Sydney Leagues’ Club Ltd v Synergy Protection Agency Pty Ltd [2012] NSWCA 168, [82].

[41] Section 9 and appendix 9 of his report of 26 April 2019.

[42] This would rely on existing and continuing breaches in a RAN with which the Contractor would have been unable to comply, so that a secret ballot could soon follow: affidavit of 19 August 2019.

[43] Paragraphs [174] to [176].

[44] Performing the obligations to the strict legal standard required by the GMC was more difficult because of the onerous obligations under the GMC, explained in my original decision at [87], but Mr Evans had expressed satisfaction with the standard achieved by the use of sub-contractors – see paragraphs 38 to 44 of his affidavit of 19 August 2019.

[45] As she explains in paragraphs 8 to 10, 20, and 26 of her affidavit of 23 August 2019.

[46] Paragraphs 28 and 29 of her affidavit of 23 August 2019.

[47] Paragraph 58 of Mr Evans’ affidavit of 19 August 2019.

[48] XMR Holdings Pty Ltd v Body Corporate for Xanadu [2016] QCAT 27.

[49] Paragraph 24 of the statement of agreed facts.

[50] Although the experts have used Brisbane CPI rates, clause 4.2 of the GMC might suggest all-Australia rates. But since the inflation rate for those years is agreed, I have used those agreed rates.

[51] Using the figures in Mr Cook’s report.

Close

Editorial Notes

  • Published Case Name:

    The Sands Gold Coast Pty Ltd v The Body Corporate for the Sands

  • Shortened Case Name:

    The Sands Gold Coast Pty Ltd v The Body Corporate for the Sands

  • MNC:

    [2019] QCAT 336

  • Court:

    QCAT

  • Judge(s):

    Member Gordon

  • Date:

    04 Nov 2019

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.
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