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  4. Body Corporate for Bay Village Community Titles Scheme 33127 v Breeze MR Pty Ltd - [2023] QCA 91

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Body Corporate for Bay Village Community Titles Scheme 33127 v Breeze MR Pty Ltd[2023] QCA 91

Reported at (2023) 15 QR 185

Body Corporate for Bay Village Community Titles Scheme 33127 v Breeze MR Pty Ltd[2023] QCA 91

Reported at (2023) 15 QR 185

SUPREME COURT OF QUEENSLAND

CITATION:

Body Corporate for Bay Village Community Titles Scheme 33127 v Breeze MR Pty Ltd [2023] QCA 91

PARTIES:

BODY CORPORATE FOR BAY VILLAGE COMMUNITY TITLES SCHEME 33127

(appellant)

v

BREEZE MR PTY LTD

ACN 607 362 167

(respondent)

FILE NO/S:

Appeal No 12614 of 2022

SC No 10028 of 2022

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

Supreme Court at Brisbane – [2022] QSC 195 (Kelly J)

DELIVERED ON:

5 May 2023

DELIVERED AT:

Brisbane

HEARING DATE:

15 March 2023

JUDGES:

Bond JA and Boddice AJA and Wilson J

ORDERS:

  1. The appeal is allowed.
  2. The   orders  made   on    16   September   2022   and 20 September 2022 are set aside and in lieu thereof it is ordered that the respondent’s originating application is dismissed with costs.
  3. The parties are each directed to provide submissions as to the costs orders which should be made in relation to the appeal, limited to 4 pages, which the Court will determine on the papers.

CATCHWORDS:

REAL PROPERTY – STRATA AND RELATED TITLES – MANAGEMENT AND CONTROL – BODY CORPORATE: POWERS, DUTIES AND LIABILITIES – GENERALLY – where the appellant entered into a 25-year management agreement with an original manager in 2005 – where the agreement contemplated that, with the consent of the appellant, the manager could transfer the business conducted under the agreement – where the respondent was the fourth assignee of the agreement having obtained its rights in 2018 – where, after three years, the appellant determined that the respondent had misconducted itself in various ways and issued a remedial action notice – where the appellant suggested that if the respondent did not comply with the notice the appellant might terminate the agreement – where the respondent failed to take what the appellant contended was the requisite remedial action – where the appellant took steps towards putting itself in the position of terminating the agreement – where the respondent sought relief aimed at restraining the appellant from acting on its intention to terminate – where the respondent argued, and the primary judge agreed, that s 126 of the Body Corporate and Community Management Act 1997 (Qld) prevented the appellant from lawfully terminating the management agreement in reliance upon the remedial action notice and/or the contractual breaches alleged in the remedial action notice – whether the primary judge erred in law in making that declaration

Body Corporate and Community Management Act 1997 (Qld), s 15, s 21, s 122, s 123, s 124, s 125, s 126, s 127

Body Corporate and Community Management (Commercial Module) Regulation 2020 (Qld), s 99, s 100, s 102

R v A2 (2019) 269 CLR 507; [2019] HCA 35, cited

COUNSEL:

P P McQuade KC, with S J Gibson, for the appellant

S W Couper KC, with B W J Kidston, for the respondent

SOLICITORS:

Butler McDermott Lawyers for the appellant

Mahoneys for the respondent

  1. [1]
    BOND JA: On 17 October 2005, the appellant body corporate entered into a 25-year management agreement (the agreement) with an original manager. The agreement contemplated that, with the consent of the appellant, the manager could transfer the business conducted under the agreement.
  1. [2]
    The respondent was the fourth assignee of the agreement having obtained its rights under a “transfer deed” dated 20 August 2018, to which the appellant, the previous manager (itself the third assignee) and the respondent were party.
  1. [3]
    In August 2021, the appellant issued a remedial action notice to the respondent which set out the appellant’s reasons for holding the belief that the respondent had misconducted itself in various ways and which ultimately suggested that if the respondent did not comply with the notice, the appellant might terminate the agreement.
  1. [4]
    After the respondent failed to take what the appellant contended was the requisite remedial action, the appellant took steps towards putting itself in the position of terminating the agreement.
  1. [5]
    Before the appellant could act on its intention to terminate, by originating application the respondent sought relief aimed at restraining the appellant from so doing. The respondent obtained declaratory relief in these terms:

“On the proper construction of s. 126 of the Body Corporate and Community Management Act 1997 (Qld), the [appellant] cannot lawfully terminate the management agreement in reliance upon the remedial action notice dated 12 August 2021 and/or the contractual breaches alleged in the remedial action notice.”

  1. [6]
    The appellant appeals to this Court contending that the primary judge erred in law in making that declaration. I agree. For the following reasons, the appeal should be allowed; the orders made below should be set aside and in lieu thereof it should be ordered that the respondent’s originating application should be dismissed with costs. The parties should be given an opportunity to make submissions as to the costs of the appeal.

The relevant contractual framework

  1. [7]
    As mentioned, the agreement was originally entered into by agreement in writing dated 17 October 2005 between an original manager and the appellant pursuant to which the original manager conducted a caretaking and letting business for the Bay Village on Hastings Community Titles Scheme 33127.
  1. [8]
    Amongst other terms, the agreement contained terms to the following effect:
    1. (a)
      (by cl 2) the appellant engaged the manager to perform defined duties during a 25-year term for a particular fee;
    2. (b)
      (by cll 3 and 4) the minimum requirements for the manager’s duties and certain other specific requirements were set out in detail;
    3. (c)
      (by cl 5) the manager was given the right to transfer the business conducted under the agreement if it first obtained the written approval of the appellant. The circumstances in which the appellant would be permitted to refuse the transfer were set out and certain guidelines about how the manager should apply for a transfer were also set out. The appellant was required to notify the manager whether the transfer was approved within 30 days of receiving the requisite information. Upon approval the appellant, the proposed new manager and the existing manager were required to enter into a deed in which the existing manager’s interest in the agreement would be transferred to the new manager and the appellant and the proposed new manager would agree to comply with the agreement from the transfer date and the appellant would release the existing manager from obligations arising under the agreement after the transfer date;
    4. (d)
      (by cl 6) provision was made regulating the manner by which the appellant could terminate the agreement. The circumstances included where the manager:
  1. “(a)
    does not remedy a breach of this agreement within at least 14 days after notice from the Body Corporate specifying the breach and requiring it to be remedied; or
  1. (b)
    is guilty of gross negligence or gross misconduct in performing the Duties or providing the Letting Service; or
  2. (c)
    transfers the caretaking and letting business carried out under this agreement without the prior written consent of the Body Corporate; or

…”

  1. [9]
    Pursuant to the transfer provisions in the agreement the manager’s rights under the agreement were transferred and appropriate transfer deeds obtained on 27 November 2007, 17 June 2010 and 1 August 2014. On 22 January 2016 the appellant and the assignee pursuant to the last-mentioned deed of assignment entered into a deed of variation of the agreement. Amongst other things the deed of variation gave the manager for the time being an option to obtain a five-year extension of the agreement if notice exercising the option was provided by the day before the agreement would otherwise terminate by effluxion of time.
  1. [10]
    The transfer to the respondent was effected by the transfer deed dated 20 August 2018 to which reference has already been made. That deed recited that the then current manager had agreed to transfer its interest in the agreement to the respondent and that the appellant had consented to the transfer. Amongst other operative terms the transfer deed contained terms to the following effect:
    1. (a)
      (by cl 3) the then current manager transferred its right title, estate and interest as manager under the agreement and the respondent as the new manager accepted that transfer. The then current manager also indemnified the respondent against any loss suffered by it by reason of any breach which had occurred prior to the transfer date;
    2. (b)
      (by cl 5) the respondent as new manager agreed to perform the manager’s obligations under the agreement from the transfer date and indemnified the previous manager against loss suffered by reason of any breach suffered after the transfer date;
    3. (c)
      (by cl 6) the then current manager warranted that to the best of its knowledge the agreement was in full force and effect and had not become void or voidable and that all of the conditions which on its part were required to be performed had been performed up to the transfer date;
    4. (d)
      (by cl 7) the body corporate consented to the transfers set out in earlier clauses and specified its agreement with the respondent that to the best of its knowledge there was no existing breach by the then current manager, the interest of the current manager was not liable to forfeiture or surrender, and all of the conditions about transfer had been fulfilled and the transfers were unconditional. It also specified that the appellant would not rely upon any breach of the agreement by the current manager or any of its predecessors in its dealings with the respondent as new manager.

The relevant statutory framework

  1. [11]
    Once the transfer to the respondent of rights under the agreement became effective, the respondent became a “service contractor” within the meaning of s 15 of the Body Corporate and Community Management Act 1997 (Qld) (the Act), as had all its predecessors in that role.
  1. [12]
    Chapter 3 of the Act governs the management of community title schemes. Chapter 3 pt 1, entitled “Management structures and arrangements”, deals with the functions of body corporates, their powers, constraints on their conduct, the committees that govern decisions by the body corporate and the like. Chapter 3 pt 2, entitled “Body corporate manager and service contractor engagements and letting agent authorisations” is presently most relevant because, via two mechanisms, it provides for possible regulation of the means by which a body corporate under the Act might bring about the termination of its engagement of a service contractor under the Act.
  1. [13]
    The first possible source of regulation may be found in the applicable regulation module created under ch 3 pt 2 div 3 of the Act, entitled “Regulations”. The second possible source of regulation may be found in ch 3 pt 2 div 4 of the Act, entitled “Protection for financier of contract”. It is appropriate to explain how each mechanism works.

The manner by which ch 6 pt 4 of the Regulation regulates termination

  1. [14]
    Section 21 of the Act provides that a “regulation module” is a regulation under the Act that states it is a regulation module for the Act. Amongst other things, the section states that each community title scheme must have only one regulation module applying to it.
  1. [15]
    Section 122 of ch 3 pt 2 div 3 of the Act provides that the regulation module applicable to a community title scheme may prescribe certain things about the engagement of a person as a service contractor for a scheme, including, by s 122(1)(d), “particular circumstances under which the engagement or authorisation may or may not be terminated or transferred, despite anything in the engagement or authorisation or in another agreement or arrangement”.
  1. [16]
    It is common ground that the regulation module applicable to the community title scheme for which the appellant is body corporate and the respondent a service contractor is the Body Corporate and Community Management (Commercial Module) Regulation 2020 (Qld) (the Regulation).
  1. [17]
    Chapter 6 pt 4 of the Regulation is relevant for present circumstances. It relevantly provides:

“Part 4 Termination of engagements and authorisations

  1. 99
    Purpose of part [SM, s 149]

This part provides for—

  1. (a)
    the grounds on which the body corporate may terminate a person’s engagement as a body corporate manager or service contractor, or authorisation as a letting agent; and
  2. (b)
    the steps the body corporate must follow to terminate the engagement or authorisation.
  1. 100
    Termination under the Act, by agreement etc. [SM, s 149]
  1. (1)
    The body corporate may terminate a person’s engagement as a body corporate manager or service contractor, or authorisation as a letting agent—
    1. under the Act; or
    2. by agreement; or
    3. under the engagement or authorisation.
  1. (2)
    The body corporate may act under subsection (1) only if the termination is approved by ordinary resolution of the body corporate.

…

  1. 102
    Termination for failure to comply with remedial action notice [SM, s 152]
  1. (1)
    The body corporate may terminate a person’s engagement as a body corporate manager or service contractor if the person, including, if the person is a corporation, a director of the corporation—
    1. engages in misconduct, or is grossly negligent, in carrying out functions required under the engagement; or
    2. fails to carry out duties under the engagement; or
    3. contravenes—
      1. for the body corporate manager—the code of conduct for body corporate managers and caretaking service contractors; or
      2. for a service contractor who is a caretaking service contractor—the code of conduct for body corporate managers and caretaking service contractors or the code of conduct for letting agents; or
    4. fails to comply with section 104(2), 105(2) or 106(2); or
    5. for a body corporate manager—commits an offence under section 118(2).
  2. (2)
    Also, the body corporate may terminate a person’s authorisation as a letting agent if the person, including, if the person is a corporation, a director of the corporation—
    1. engages in misconduct, or is grossly negligent, in carrying out obligations, if any, under the authorisation; or
    2. fails to carry out duties under the authorisation; or
    3. contravenes the code of conduct for letting agents or, for a caretaking service contractor, the code of conduct for body corporate managers and caretaking service contractors; or
    4. for a caretaking service contractor—fails to comply with section 104(2), 105(2) or 106(2).
  3. (3)
    The body corporate may act under subsection (1) or (2) only if—
  1. (a)
    the body corporate has given the person a remedial action notice under subsection (4); and
  2. (b)
    the person fails to comply with the remedial action notice within the period stated in the notice; and
  3. (c)
    the termination is approved by ordinary resolution of the body corporate; and
  4. (d)
    for the termination of a person’s engagement as a service contractor if the person is a caretaking service contractor, or the termination of a person’s authorisation as a letting agent—the motion to approve the termination is decided by secret ballot.
  1. (4)
    For subsection (3), a remedial action notice is a written notice stating each of the following—
    1. that the body corporate believes the person has acted—
      1. for a body corporate manager or a service contractor—in a way mentioned in subsection (1)(a) to (e); or
      2. for a letting agent—in a way mentioned in subsection (2)(a) to (d);
    2. details of the action sufficient to identify—
      1. the misconduct or gross negligence the body corporate believes has happened; or
      2. the duties the body corporate believes have not been carried out; or
      3. the provision of the code of conduct or this regulation the body corporate believes has been contravened;
    3. that the person must, within the period stated in the notice but not less than 14 days after the notice is given to the person—
      1. remedy the misconduct or gross negligence; or
      2. carry out the duties; or
      3. remedy the contravention;
    4. that if the person does not comply with the notice in the period stated, the body corporate may terminate the engagement or authorisation.”
  1. [18]
    Section 99 of the Regulation reveals the mandatory intent of ch 6 pt 4 of the Regulation. For a community title scheme subject to the Regulation, s 102(1) would operate to confer on the body corporate the right to terminate a service contractor’s engagement in the circumstances specified in s 102(1)(a) to (d). But s 102(3) sets out procedural steps which must be followed before the body corporate could terminate in that way.
  1. [19]
    The result is that in any case in which the body corporate for a community title scheme subject to the Regulation seeks to terminate the engagement of a service contractor pursuant to ss 102(1) or (2), before the body corporate may acts on that intention, the body corporate –
    1. (a)
      must be able to demonstrate the existence of one or other of the circumstances specified in s 102(1)(a) to (d) of the Regulation; and
    2. (b)
      must have taken the procedural steps specified in s 102(3) of the Regulation.
  1. [20]
    Those constraints on the ability of a body corporate to terminate the engagement of a service contractor will apply to every community title scheme subject to the Regulation.

The manner by which ch 3 pt 2 div 4 of the Act may regulate termination

  1. [21]
    Whilst the constraints on termination of the engagement of a service contractor specified in ch 6 pt 4 of the Regulation will apply to the body corporate of every community title scheme subject to the Regulation, the constraints on termination set out in ch 3 pt 2 div 4 of the Act will not. As will appear, the terms of div 4 only commence to apply in respect of the contract of engagement when a particular notice is given to the body corporate, and they cease to apply when another different notice is given to the body corporate.
  1. [22]
    It is appropriate first to record relevant definitions set out in sch 6 of the Act. They are:

“contract, for chapter 3, part 2, division 4, means the contract or other arrangement under which a person is engaged as a service contractor, or authorised as a letting agent, for a community titles scheme.

financed contract means a contract for which there is a financier.

financier, for chapter 3, part 2, division 4, see section 123.”

  1. [23]
    Having regard to those definitions, it is now appropriate to set out the relevant provisions of ch 3 pt 2 div 4 of the Act:

“Division 4 Protection for financier of contract

  1. 123
    Meaning of financier for div 4
  1. (1)
    For this division, a person is a financier for a contract if a contractor for the contract and the person give written notice signed by each of them to the body corporate under the contract that the person is a financier for the contract.
  2. (2)
    For this division, a person stops being a financier for a contract if the person gives the body corporate under the contract a written notice withdrawing the notice given under subsection (1).
  3. (3)
    A notice under subsection (2) may be given without the contractor’s agreement.

…

  1. 124
    Requirement for financier’s address for service
  1. (1)
    This section applies if a notice under section 123 given to a body corporate does not state the financier’s address for service for notices given by the body corporate under this division.
  2. (2)
    The financier must, as soon as practicable after the notice is given, give the body corporate a further written notice stating the address for service.
  1. 125
    Notice of changes affecting financed contract

If the body corporate and a contractor for a financed contract change the contract or enter into an arrangement that affects the contract, the body corporate must give the financier written notice of the change or arrangement.

  1. 126
    Limitation on termination of financed contract
  1. (1)
    The body corporate under a financed contract may terminate the contract if—
    1. the body corporate has given the financier for the contract written notice, addressed to the financier at the financier’s address for service, that the body corporate has the right to terminate the contract; and
    2. when the notice was given, circumstances existed under which the body corporate had the right to terminate the contract; and
    3. at least 21 days have passed since the notice was given.
  2. (2)
    However, the body corporate can not terminate the contract if, under arrangements between the financier and the contractor for the contract, the financier—
    1. is acting under the contract in place of the contractor; or
    2. has appointed a person as a receiver or receiver and manager for the contract.
  3. (3)
    A financier may take the action mentioned in subsection (2)(a) or (b) only if the financier has previously given written notice to the body corporate of the financier’s intention to take the action.
  4. (4)
    The financier may authorise a person to act for the financier for subsection (2)(a) if—
    1. the person is not the contractor or an associate of the contractor; and
    2. the body corporate has first approved the person.
  1. (5)
    For deciding whether to approve a person under subsection (4), the body corporate—
    1. must act reasonably in the circumstances and as quickly as practicable; and
    2. may have regard only to—
      1. the character of the person; and
      2. the competence, qualifications and experience of the person.
  2. (6)
    However, the body corporate must not—
    1. unreasonably withhold approval of the person; or
    2. require or receive a fee or other consideration for approving the person, other than reimbursement for legal or administrative expenses reasonably incurred by the body corporate for the application for its approval.
  3. (7)
    Subsection (2) does not operate to stop the body corporate from terminating the contract for something done or not done after the financier started to act under the subsection.
  4. (8)
    Nothing in this section stops the ending of a financed contract by the mutual agreement of the body corporate, the contractor and the financier.
  5. (9)
    In this section—

address for service, for a financier, means the financier’s address for service—

  1. (a)
    for notices given by the body corporate under this division; and
  2. (b)
    stated in a notice given to the body corporate under section 123 or 124.
  1. 127
    Agreements between body corporate and financier prohibited
  1. (1)
    A financier for a financed contract must not enter into an agreement or other arrangement with the body corporate under the contract for a matter about—
    1. the role of the financier for the contract; or
    2. arrangements entered into between the financier and contractor for the contract under which the financier is acting, or may act, under the contract in the place of the contractor; or
    3. the operation of this division in relation to the contract.
  2. (2)
    An agreement or arrangement is void to the extent it contravenes this section.”
  1. [24]
    Some propositions concerning the proper construction of ch 3 pt 2 div 4 may safely be essayed.
  1. [25]
    First, contracts by which service contractors are engaged by body corporates create valuable rights, which may extend over the long term. Financiers lend monies on the security of such rights. The express purpose of the division is to provide protection for financiers of financed contracts.
  1. [26]
    Second, a contract which falls within the definition of “contract” is not necessarily a contract which falls within the definition of “financed contract”. Nor, if the contract does fall within that definition, is that necessarily a permanent state. When a s 123(1) notice is given a person becomes a financier for the contract, and the contract then becomes a financed contract. At that time (and not before) the financier obtains the protection contemplated by the division. When a s 123(2) notice is given, the person who had been the financier stops being the financier, and the contract is no longer a financed contract because there is no longer a financer for the contract. The person who had been the financier has, by giving the s 123(2) notice, opted out of the protection contemplated by the division. Until that has occurred, the financier is entitled to the protection contemplated by the division.
  1. [27]
    Third, and accordingly, the evident purpose of s 123 is to provide clarity to the body corporate as to when a contract of engagement of a service contractor becomes a “financed contract” and thereby becomes subject to the constraints specified in the division which are aimed at protecting the financier. Conversely, the section also provides clarity to the body corporate as to when a “financed contract” ceases to be such, and therefore is no longer subject to the constraints specified in the division.
  1. [28]
    Fourth, although s 126(1) is set out in permissive terms, in context it must be taken to constrain a body corporate from terminating a financed contract until the considerations set out in s 126(1)(a), (b) and (c) are met. Given the use of the defined term the constraint in s 126(1) can only apply if the contract is a “financed contract”. The effect of this constraint is to require the financier to be given 21 days’ notice of the body corporate’s intention to terminate, thereby enabling the financier to take steps to protect itself under whatever contractual or security arrangements it has with the contractor. The advantage conferred on the financier of having 21 days forewarning of the body corporate’s intention to terminate is the first layer of protection conferred on the financier.
  1. [29]
    Fifth, “the contract” referred to in s 126(2) is the financed contract which was the subject of the 21 days’ notice referred to in s 126(1). The subsection operates against an assumption that under whatever contractual or security arrangements the financier has with the contractor under the financed contract, the financier is likely to have been authorised to take either or both of the steps referred to in s 126(2). The protection for the financier is that if the financier has taken one of those steps, the body corporate will be prohibited from exercising its existing right to terminate the financed contract. This is the second layer of protection conferred on the financier.
  1. [30]
    Sixth, the body corporate will know of the existence of the second layer of protection because the financier cannot act under s 126(2) unless, pursuant to s 126(3), it has notified the body corporate of its intention so to do.
  1. [31]
    Seventh, under the first of the s 126(2) steps, the contractor which the body corporate wanted to terminate is effectively replaced by the financier or someone authorised by the financier.  The latter option would bring s 126(4), (5) and (6) into play.
  1. [32]
    Eighth, under the second of the s 126(2) steps the financier inserts someone into the contractor’s business who is authorised to interfere with the way in which the contractor conducts its business in particular ways.
  1. [33]
    Ninth, the division does not specify any time limit for the period during which the financier might act in place of the contractor (if the financier has acted under s 126(2)(a)) or have in place a receiver or receiver and manager (if the financier has acted under s 126(2)(b)). However, at least two limitations may be discerned:
    1. (a)
      The body corporate does not have to suffer forever whatever was the state of affairs which caused it to wish to terminate its manager in the first place. Section 126(7) of the Act permits termination for things done or not done after the financier has started to act. If the effect of the financier’s action is to have some other person now performing the contract, effectively in place of the manager, and that person is not discharging their duties satisfactorily, there is no reason why the body corporate could not give that person a remedial action notice and recommence the process aimed at termination under ch 6 pt 4 of the Regulation.
    2. (b)
      The action taken by the financier might result in it being paid out and no longer having any interest in the financed contract. If the financier gives the body corporate notice under s 123(2) of the Act, then the financier stops being the financier, and the contract is no longer a financed contract because there is no longer a financer for the contract. Chapter 3 pt 2 div 4 would no longer apply to the contract.

Relevant chronology of events

  1. [34]
    By letter dated 31 May 2018, Westpac Banking Corporation (Westpac) gave notice to the appellant that it was the financier of the agreement for the purposes of the Act and requested the appellant to retain that information in its Register of Engagements and Authorisations and to inform Westpac of any intention to terminate the agreement or in the event of a notice to perform being issued to the respondent. The respondent had separately signed an indorsement on that letter which confirmed that it had granted Westpac a charge over the agreement and confirmed that the appellant was authorised to enter Westpac’s charge in the Register of Engagements and Authorisations.
  1. [35]
    It may be remarked that this notice was given before the previous manager had assigned its rights to the respondent; the deed of transfer to the respondent not being entered into until some 3 months later on 20 August 2018. The evidence did not reveal an explanation for that discrepancy. It is not clear how it could be that an indorsement signed by the respondent could be regarded as a notice under s 123(1) when the respondent was not yet the contractor. Nevertheless, it is not necessary to resolve that conundrum because it was common ground before the primary judge and is common ground before this Court that the agreement became a financed contract under the Act.
  1. [36]
    On or about 19 August 2021, the appellant gave the respondent the remedial action notice (the RAN) which contained serious allegations to the effect, inter alia, that the respondent had engaged in gross misconduct, gross negligence, and had failed to carry out the duties contained in the agreement. It was not in dispute before the primary judge that the breaches identified in the RAN had not been remedied by the respondent.
  1. [37]
    On 27 January 2022, at an extraordinary general meeting of the members of the body corporate, the members passed an ordinary resolution by a secret vote which resolved that:
    1. (a)
      the respondent had –
  1. (i)
    engaged in gross misconduct for the purposes of cl 6 of the agreement;
  2. (ii)
    engaged in misconduct and/or gross negligence in carrying out the functions required under the agreement, in the way mentioned in s 102(1)(a) of the Regulation;
  3. (iii)
    failed to carry out the duties set out in the agreement in the way mentioned in s 102(1)(b) of the Regulation;
    1. the respondent had failed to remedy that misconduct and contraventions in response to the RAN issued by the body corporate to the manager dated 12 August 2021;
    2. by reason of those matters, the body corporate had a right to terminate the agreement pursuant to cl 6 of the agreement and ss 100(1) and 102(1) of the Regulation; and
    3. pursuant to s 126(1) of the Act written notice be given to the manager’s financier, Westpac, that the body corporate had a right to terminate the agreement.
  1. [38]
    Two matters may be noted. First, the parties accepted that the passing of that resolution satisfied the requirements of s 102(3) of the Regulation. Second, it may be inferred that the appellant was aware that the agreement was a financed contract; that its ability to terminate was constrained by ch 3 pt 2 div 4 of the Act; and, that it knew that before it could terminate in was required to give to the financier the notice contemplated by s 126(1) of the Act.
  1. [39]
    On or about 28 January 2022, Westpac received a notice from the appellant pursuant to s 126(1) of the Act advising of its intention to terminate the management agreement after the expiry of 21 days. After the expiry of 21 days from that date, and unless something further happened, there would have been no procedural impediment to the appellant terminating the respondent’s engagement under the agreement.
  1. [40]
    However, something further did happen. On or about 17 February 2022, Westpac appointed a receiver and manager over certain property of the respondent, namely a home unit at Noosa and (relevantly) all the respondent’s “right, title, estate and interest” in the agreement. Westpac’s action was that referred to in s 126(2)(b) of the Act. The result was that the prohibition against termination of the financed contract specified in s 126(2) was engaged.
  1. [41]
    On or about 14 June 2022, the receiver and manager caused the respondent to enter into, relevantly, a contract of sale for the respondent’s business under the agreement. The special conditions to that contract relevantly provided:
    1. (a)
      (by cl 4.6) cl 6 of the standard conditions – which provided for the manner by which the sale would be completed – was deleted and new cl 6 inserted;
    2. (b)
      (by the new cl. 6.3(b)) on completion the purchase price would be paid in exchange for, inter alia, a deed of assignment of the respondent’s interest in the agreement in the form of annexure B to the special conditions;
    3. (c)
      (by cl 26) the contract was conditional upon and subject to the appellant consenting the assignment; and
    4. (d)
      (by the terms of the deed of assignment in annexure B to the special conditions) the respondent assigned to the buyer its interest in the agreement and the buyer accepted that assignment; the appellant consented to the assignment and agreed to be bound by the agreement as if the buyer was the original manager named in the agreement; the appellant agreed that as against the buyer it would not rely on any breach or default by the respondent; the buyer would agree to comply with the agreement from the assignment date and the appellant would release the respondent from obligations arising under the agreement after the transfer date.
  1. [42]
    In early July 2022, Westpac settled all debts owed to it by the respondent, including the debt secured by the agreement, out of the proceeds of the sale of other unrelated assets owned by the respondent. As a result, Westpac retired the appointment of the receiver and manager on 19 July 2022. On the same day Westpac notified the appellant that it was no longer a financier for the agreement.
  1. [43]
    The appellant took the view that consequent upon receiving that notice the agreement was no longer a financed contract for the purposes of s 126 of the Act. Accordingly, on or about 2 August 2022, the appellant notified its members of an extraordinary general meeting to be convened on 25 August 2022 to consider whether or not the appellant should exercise its rights to terminate the management agreement. The explanatory material sent out with the notice –
    1. (a)
      recapitulated the outcome of the extraordinary general meeting held on 27 January 2022;
    2. (b)
      explained that Westpac had been served with the notice contemplated by the meeting;
    3. (c)
      recorded that Westpac had appointed a receiver and manager over the respondent’s interest in the agreement;
    4. (d)
      recorded that on 19 July 2022 the appellant had received notice from Westpac that it was no longer a financier for the agreement;
    5. (e)
      recorded that:

“In the circumstances, the Management Agreement is now no longer a "financed contract" for the purposes of section 126 of the Body Corporate and Community Management Act 1997 (Qld), and the limitation on termination of the Management Agreement imposed by that section no longer applies”; and

  1. (f)
    explained that given the earlier resolution as to the respondent’s conduct and the appellant’s right to terminate, the appellant was convening the meeting to consider whether or not it should exercise its rights to terminate.
  1. [44]
    On 23 August 2022, the respondent filed an originating application seeking (amongst other things) a declaration that any purported termination of the agreement in reliance upon the RAN was invalid and of no effect.
  1. [45]
    By order made on 16 September 2022, the primary judge made the declaration recorded at [5] above. By order made on 20 September 2022 the primary judge ordered the appellant to pay the respondents costs of the originating application.

Consideration

  1. [46]
    The primary judge characterized the real issue before him in this way:

“The real issue in dispute concerns the proper construction of s. 126 of the Act. More particularly, if s. 126(2) is engaged, does it prohibit a body corporate from terminating a contract under which a person is engaged as a service contractor in reliance upon the circumstances which existed prior to the financier starting to act under s. 126(2) or does it merely prohibit termination in reliance upon such circumstances for such time as the contract remains ''a financed contract"?”

  1. [47]
    The primary judge construed the section in favour of the first of the two possibilities which he had identified. But in so doing, the primary judge was in error.
  1. [48]
    The relevant principles of statutory interpretation were set out in R v A2 (2019) 269 CLR 507 at 520 to 522 per Kiefel CJ and Keane J with whom Nettle and Gordon JJ agreed (at 554).
  1. [49]
    There is neither textual nor contextual support for construing the constraint against termination which is expressed in s 126(2) of the Act as applying to a contract which is no longer a financed contract.
  1. [50]
    As to textual support:
    1. (a)
      The question is whether, when the respondent approached the Court to enforce the constraint, one could say that that constraint presently applied to the appellant. It matters not at all that it once did. The only thing that matters is whether it still does.
    2. (b)
      Division 4 expresses itself as containing “Protection for financier of contract”. That suggests it does not apply where there no longer is such a person.
    3. (c)
      The heading to s 126 is “limitation on termination of financed contract”. That suggests the limitation does not apply to a contract which is not a financed contract.
    4. (d)
      The relevant text in s 126(2) is “the body corporate cannot terminate the contract”. The use of the definite article reveals that “the contract” is that which is referred to in s 126(1), namely a financed contract. The contract must be a financed contract for the constraint to apply.
  1. (e)
    The first layer of s 126 protection commenced to apply when the s 123(1) notice was given. The second layer of s 126 protection commenced to apply when Westpac appointed the receiver and manager. But the agreement had ceased being a financed contract when Westpac gave notice under s 123(2) on 19 July 2022. If the question is asked at any time after receipt of that notice, the only answer deriving from the text of the statute is that the constraint could not apply.
  1. [51]
    As to contextual support:
    1. (a)
      The whole purpose of ch 3 pt 2 div 4 of the Act is to protect financiers by creating certain constraints against bodies corporate terminating such contracts to the disadvantage of financiers who may have lent money in reliance on, amongst other things, security over the contracts.
    2. (b)
      The division confers that protection in the way explained at [25] to [33] above. Financiers can both opt in and opt out of the protection conferred by the division. The manner by which they do so is by giving notice to the body corporate. That notice tells the body corporate when they may be subject to the constraints, and, importantly, when they no longer have to worry about being subject to the constraints.
    3. (c)
      Once the financier has opted out of protection by giving the s 123(2) notice, there is no imperative to read s 126(2) in any other way than its text suggests. The financier needs no protection: it has told the body corporate that.
    4. (d)
      It was suggested in argument that there was some imperative to construe the s 126(2) constraint as extending past the time when the s 123(2) notice was given because the Act must have contemplated such a protection in order that potential buyers from the financier would know that they were protected from termination for past failures by the previous manager, thereby protecting the value of the asset to the financier. But that argument does not withstand scrutiny. First, potential buyers know how to protect themselves. They do so in precisely the manner by which the potential buyer did in this case, namely conditioning the contract on obtaining the consent of the body corporate and ensuring that completion does not occur unless they obtain the transfer deed in a form which protects them. Second, and most obviously, the financier can keep the protection mechanism in place by the simple expedient of not giving a s 123(2) notice until there is no need to keep the protection in place, namely once the sale has been completed. Third, the expressed purpose of the division is for the protection of financiers, not of anyone else.
  1. [52]
    The appellant was right to express the view to its members recorded at [43](e) above.
  1. [53]
    If s 126(2) does not apply then the only other potentially operative constraints against termination were those expressed in the Regulation. No argument was suggested that s 102 of the Regulation operated to constrain the appellant against termination. It follows that the declaration made by the primary judge should not have been made.
  1. [54]
    Much of the argument advanced by the appellant in support of its appeal focussed on whether the constraint expressed in s 126(2) once engaged on 17 February 2022 could continue to operate once the receiver and manager had retired from that role on 19 July 2022. This argument was entirely theoretical because on the same day as the receiver and manager retired, Westpac gave notice under s 123(2) that it was no longer a financier for the agreement. But if Westpac had not given such a notice and the agreement had continued to be a financed contract, there would be no reason to construe the s 126(2) protection as no longer operative. First, the text does not support such a construction. While s 126(2)(a) is expressed so as to condition the existence of protection on a continuing state of affairs, s 126(2)(b) is conditioned on the financier having taken a particular action. It is not conditioned on a continuing state of affairs. Second, the text supports the protection turning on whether or not the contract is a financed contract, not on whether, for example, a receiver and manager has died or resigned. That would be a most inconvenient construction. Third, no inconvenience is caused to the body corporate because nothing would stop it taking the steps referred to at [33](a) above, if circumstances justified that course.
  1. [55]
    I would order as follows:
    1. (a)
      The appeal is allowed.
    2. (b)
      The orders made on 16 September 2022 and 20 September 2022 are set aside and in lieu thereof it is ordered that the respondent’s originating application is dismissed with costs.
    3. (c)
      The parties are each directed to provide submissions as to the costs orders which should be made in relation to the appeal, limited to 4 pages, which the Court will determine on the papers.
  1. [1]
    BODDICE AJA: Bond JA’s comprehensive summary of the relevant factual circumstances and statutory framework, which I gratefully adopt, allows me to state in short compass my reasons for dismissing this appeal.
  1. [56]
    Section 126 of the Act provides a limitation on the termination of a financed contract. By its terms, the limitation operates in respect of circumstances existing at the time when the relevant notice was given under section 126(1) of the Act.
  1. [57]
    Nothing in the words of section 126 provides for a temporal limitation of its operation, in respect of those circumstances. To the contrary, the inclusion of section 126(7) supports a conclusion that the limitation is effective to extinguish the right to terminate the contract on the basis of those circumstances, where the financier has appointed a receiver or receiver and manager for the contract, in accordance with section 126(2) of the Act.
  1. [58]
    This conclusion is consistent with the relevant text in section 126, as well as the expressed terms of division 4, namely, “Protection for financier of contract” and the heading to section 126.
  1. [59]
    I do not agree that those terms are consistent with an interpretation that once a contract is no longer a financed contract, there is resurrected a right to terminate, in respect of the same circumstances.
  2. [60]
    The conclusion that the constraint against termination, in section 126(2) of the Act, applies permanently to those circumstances (but only those circumstances) is also supported by the context of the legislation. The whole purpose of chapter 3, part 2, division 4, is to protect financiers by providing, relevantly, a limitation on termination of a financed contract in respect of specified circumstances in respect of which a notice has been given under section 126(2) of the Act.
  1. [61]
    I agree with the primary judge that the statutory purpose is better served “by regarding the prohibition in s 126(2) as operating once and for all from the point when the financier has acted under that subsection.”
  1. [62]
    That statutory purpose is consistent with the consequences which flow from an appointment of a receiver or receiver and manager, and the purpose of a power to appoint a receiver, namely, to protect the financier against the loss of the secured asset, the financed contract. It would be contrary to that purpose to interpret the legislation as having a temporal limitation, in respect of the circumstances the subject of a relevant notice, applicable for only so long as the relevant contract is a financed contract.
  1. [63]
    On that interpretation, the financier would be dealing with any sale of the asset in circumstances where upon the contract no longer being a financed contract, the body corporate can proceed to take action in respect of the very circumstances which were the basis for the giving of the notice under section 126 of the Act.
  1. [64]
    That scenario undermines the protection afforded by the legislation. A receiver, properly securing the asset, ought to be able to deal with third parties on the basis of the existence of the relevant contract, and there being no liability to terminate for pre-existing conduct which was the subject of a relevant notice prior to the appointment of that receiver.
  1. [65]
    Once it is concluded that the limitation operates permanently in respect of the circumstances the subject of the notice, there is no reason why a declaration, in the terms made by the primary judge, ought not to be made. The appellant was purporting to act on those circumstances, to the respondent’s detriment.
  1. [66]
    WILSON J: I agree with the reasons for judgment of Bond JA and the orders proposed by his Honour.
Close

Editorial Notes

  • Published Case Name:

    Body Corporate for Bay Village v Breeze MR Pty Ltd

  • Shortened Case Name:

    Body Corporate for Bay Village Community Titles Scheme 33127 v Breeze MR Pty Ltd

  • Reported Citation:

    (2023) 15 QR 185

  • MNC:

    [2023] QCA 91

  • Court:

    QCA

  • Judge(s):

    Bond JA, Boddice AJA, Wilson J

  • Date:

    05 May 2023

  • Selected for Reporting:

    Editor's Note

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2022] QSC 19516 Sep 2022Proceeding for relief restraining body corporate from terminating management agreement; declaration that termination unlawful: Kelly J.
Appeal Determined (QCA)[2023] QCA 91 (2023) 15 QR 18505 May 2023Appeal allowed, orders below set aside, originating application dismissed: Bond JA (Wilson J agreeing), Boddice AJA dissenting.

Appeal Status

Appeal Determined (QCA)

Cases Cited

Case NameFull CitationFrequency
Breeze MR Pty Ltd v Body Corporate for Bay Village CTS 33127 [2022] QSC 195
1 citation
Jump To
Cite 1 - [2022] QSC 195
R v A2 [2019] HCA 35
1 citation
Jump To
Cite 1 - [2019] HCA 35
R v A2 (2019) 269 CLR 507
2 citations
Jump To
Cite 1 - (2019) 269 CLR 507
Cite 2 - (2019) 269 CLR 507

Cases Citing

Case NameFull CitationFrequency
Linali Pty Ltd as trustee for the Chakra Family Trust v Body Corporate for Crown CTS 41282 [2024] QCAT 4462 citations
1

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