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[2022] QSC 195
This case turned upon the proper construction of s 126(2) Body Corporate and Community Management Act 1997 (“the Act”). The respondent body corporate gave the applicant service contractor a statutory notice requiring that the applicant remedy alleged breaches of the management agreement between them. The breaches went unremedied, so the respondent notified the applicant’s financier, pursuant to s 126(1) of the Act, that it intended to terminate its agreement with the applicant. The financier appointed receivers and managers in respect of the applicant’s rights under the agreement. The receivers recouped the applicant’s debt and retired before the rights under the agreement were sold. The respondent later sought to rely on the breaches identified in the statutory notice to terminate its agreement with the applicant, the applicant sought declaratory and injunctive relief. Kelly J concluded that, on its proper construction, s 126(2) of the Act permanently precluded the respondent from relying on the statutory notice to terminate the management rights agreement.
Kelly J
16 September 2022
Background
The applicant was a service contractor appointed under a management rights agreement with the respondent by which it was to provide essentially caretaker services in respect of Bay Village Community Title Scheme 33127 (“Bay Village Scheme”). [1], [6]. The applicant held its rights in respect of the Bay Village Scheme, and together with management rights in respect of another community title scheme located in Noosa (“Noosa Scheme”), subject to a mortgage granted to its financier, Westpac. [3], [8]– [11]. The respondent was the body corporate for the Bay Village Scheme. [1].
In August 2021, the respondent gave the applicant a remedial action notice under s 102 Body Corporate and Community Management (Commercial Module) Regulation 2020 (“RAN”), requiring that the applicant remedy certain breaches of the management agreement between them within 21 days. [7]. The breaches were not remedied. [8]. In January 2022, the respondent notified Westpac, pursuant to the requirement in s 126(1) Body Corporate and Community Management Act 1997 (“the Act”), that the respondent intended to terminate its management agreement with the applicant. [9].
Shortly after receiving the respondent’s notice, Westpac appointed receivers and managers over the applicant’s property, including its management rights in respect of the Bay Village and Noosa Schemes. [10]. In July 2022, the receivers sold the applicant’s rights under the Noosa Scheme. [13]. The proceeds of the sale discharged all debts owing to Westpac. [13]. As a result, Westpac retired its receivers and notified the respondent that, as it was no longer acting, the management agreement for the Bay Village Scheme had ceased to be a “financed contract” for the purposes of the Act. [14].
The respondent subsequently notified owners in the Bay Village Scheme that it intended to terminate its agreement with the applicant as a result of the breaches identified in the RAN. [15]–[16]. The applicant in turn sought declaratory and injunctive relief preventing the respondent terminating the agreement on that basis. [4]. The applicant’s argument in support of the application was to the effect that the proper construction of s 126 of the Act permanently prevented the respondent from relying on the breaches in the RAN to terminate the agreement after receivers had been appointed. [4], [30].
The respondent resisted the application on the basis that the prohibition against termination under s 126(2) of the Act only prohibited it from relying on the RAN to terminate the agreement for as long as the agreement remained a “financed contract” under the Act. [31]. The respondent argued, in effect, that its right to terminate in reliance upon the RAN either always existed but was temporarily displaced by s 126(2) of the Act while the agreement remained a “financed contract”, or else had been “revived” once the agreement was no longer a financed contract for the purposes of the Act. [4], [31].
Proper construction of s 126 of the Act
Kelly J commenced his consideration by noting that the prohibition in s 126(2)(b) of the Act refers only to an existing fact, being the appointment of receivers. [36]. By contrast, s 126(7) of the Act contemplates future events, permitting terminating of a relevant agreement based on breaches arising after receivers have been appointed. [37]. In that context, reading ss 126(1), (2) and (7) together, his Honour observed that s 126(2) operates to prohibit a body corporate from terminating an agreement for breaches occurring before a financier acts under the subsection, but not as a result of breaches after that time. [38].
Having considered the explanatory notes to the Bill and the provision as originally enacted, his Honour found that the purpose of ss 126(1) and (2) of the Act is to provide protection to a financier by giving it the right to protect itself against the loss of its secured asset. [39], [41]. Kelly J explained that, effectively, s 126(2) of the Act confers a right or power on a financier to adversely affect the legal position of a body corporate. [41]. However, while the prohibition prevents termination for conduct arising before a financier act in one of the ways contemplated by s 126(2) his Honour noted that other remedies, such as damages, remain available in respect of that conduct. [42].
Kelly J went on to explain that the respondent’s submission that the prohibition in s 126(2) of the Act lifted or no longer applied after a financier ceased acting was not supported by the language of the provision and was inconsistent with its purpose. [44]–[45]. The subsection must be taken as having contemplated the usual appointed of receivers, including their exercise of powers of sale. [46]. His Honour clarified that a right to terminate an agreement for conduct pre-dating receivership would diminish or render the value of the rights under an agreement illusory in the hands of a receiver. [48]. In contrast, operating as identified, the provision both prevents the loss of the financier’s secured asset, and facilitates a sale to recoup the value of the secured debt. [49].
Disposition
In the result, Kelly J granted the declaratory and injunctive relief sought by the applicant. [52]–[53].
B McNamara