Body Corporate for Ocean Pacifique CTS 8379 v Pugliese & Anor

In this significant judgment, Cooper J considered the validity of a deed executed by the applicant’s committee. First, his Honour considered the effect of a clause in the deed requiring ratification of the applicant’s entry into the deed by a general meeting of the applicant within 90 days of entry into the deed. Second, his Honour considered whether the deed was ineffective because of defects in the appointment of the applicant’s committee-members.

Cooper J

23 November 2022

The applicant, “Ocean”, and the second respondent, “Orchid 17”, are the bodies corporate for neighbouring buildings. [1]. Ocean and Orchid 17 were, in 2019, involved in a dispute which materially related to the ingress of water into the basement of the building controlled by Ocean from a retaining wall it shared with the building controlled by Orchid 17. [2]. The parties entered into a deed of settlement in respect of the dispute on 19 July 2019. [2]. Ocean brought proceedings claiming that the respondents failed to comply with the deed, in response to which the respondents asserted the deed was invalid. [4].

Under cl 3.4 of the deed, Ocean was required to provide, within 90 days of entry into the deed, a copy of the minutes of the general meeting at which Ocean “lawfully resolved to enter into and/or ratify the Committee’s resolution to enter into” the deed. [19]. In the event it did not do so, it was required to repay the “Plumber Amount” on demand from the respondents. [19]. Ocean held two annual general meetings in September 2019, the minutes of which were emailed to Mr Pugliese by 16 October 2019. [20]. However, both general meetings were declared void for irregularity by an adjudicator from the Office of the Commissioner for Body Corporate and Community Management. [21].

Against this background, Cooper J considered that, on a literal reading, the only consequence of non-compliance with cl 3.4 would be that Ocean was required to repay the Plumber Amount. [37]. On this reading, his Honour considered that the respondents might comply with their obligations under the deed, but Ocean would be able to challenge the effectiveness of the release granted by the deed and seek further remedies in respect of the dispute. [38].

However, having regard to the context of the deed as a whole and to the commercial purpose of cl 3.4, his Honour rejected this literal interpretation. [39]. In particular, Cooper J concluded that although the deed had legal effect from the time of its execution, cl 3.4 caused the deed to operate conditionally until its requirements were satisfied or the period in which Ocean had to satisfy those requirements expired. [40]–[41]. Thus, upon a failure to comply with cl 3.4, the obligations on the respondents to undertake remedial works and the release granted by Ocean ceased to have operative effect. [42]. The reference to the “Plumber Amount” in cl 3.4 arose because “this was the only act of performance required during the period of conditional operation of the Deed.” [43]. Accordingly, Cooper J concluded that the respondents did not need to terminate the deed as, following Ocean’s failure to comply with cl 3.4, the only operative obligation remaining was Ocean’s obligation to repay the Plumber Amount. [44].

Justice Cooper also dealt with an alternative argument raised by the respondents: that the deed was void as it was not validly executed by Ocean. [7]. Ocean accepted that its committee was not properly constituted at the time it entered into the deed. [50]. However, it relied upon s 100(4) Body Corporate and Community Management Act 1997 (“BCCM Act”) as validating the deed. [52]. Under s 100(4), where a person honestly and reasonably believes they are on the committee for a body corporate and make a decision purportedly acting as the committee, “the decision is taken to be a decision of the committee despite a defect in the election of 1 or more of the persons”. [52].

Justice Cooper found that s 100(4) BCCM Act was to be considered in light of s 99 BCCM Act, which is headed “Composition and election of committee”, but which refers to the way in which committee-members are “chosen”. [57]–[59]. In his Honour’s view, when ss 99 and 100 are read together, the defect in the “election” of a committee-member in s 100(4) is a reference to a defect in the way they were chosen as members of the committee for the purposes of s 99(2). [61]. His Honour found further support for this position in the Body Corporate and Community Management (Accommodation Module) Regulation 2008. [62]–[68]. Ultimately, his Honour found “no reason why” the curative effect of s 100(4) should have only been intended to protect elected, as opposed to appointed or otherwise chosen committee-members. [73]–[76].

Justice Cooper considered that, for the purposes of s 100(4) BCCM Act, the task of determining whether a people acting as a committee honestly and reasonably believed they are the committee requires an assessment of, subjectively, whether the people had that belief and, objectively, whether there was a reasonable basis for the belief. [77]. His Honour was satisfied that each purported committee-member held an honest belief that they were the committee. [85]–[89]. However, in respect of one committee-member, Cooper J held that the belief, while honestly-held, was not objectively reasonable. [89]–[94]. This was because that committee-member was the one who purported to appoint the other people to the committee, without checking to see if he had authority to do so. [96]. In the circumstances, Cooper J found that s 100(4) BCCM Act did not operate here. [101].

Finally, Cooper J turned to the question of whether Ocean had validly ratified the decision to execute the deed. [107]. For the purposes of ratification by a body corporate, his Honour distinguished between:

a) acts done by the body corporate that it has no power or capacity to do – which cannot be ratified; and

b) acts which the body corporate had the power to do, but the instrumentality through which it exercised the power (e.g. its committee) was not competent to exercise the power when it did so – which can be ratified. [111].

Against this background, his Honour found that Ocean had the power under s 95 BCCM Act to enter into the deed, but its committee was not competent to exercise that power when it entered into the deed. [116]. Accordingly, the decision to enter the deed was capable of being ratified by Ocean’s members at a general meeting. [116]. At an extraordinary general meeting of Ocean’s members on 18 May 2022, they passed a resolution “to apply to the District or Supreme Court of Queensland for an injunction and/or enforcement orders” for the respondents to comply with the deed. [117]. In the circumstances, Cooper J was satisfied that Ocean’s members had impliedly ratified the entry into the deed, as they accepted the deed as binding upon them. [120]–[122].

In the event, Cooper J concluded that, had his Honour found that the deed was not void by reason of it not having been validly executed by Ocean. [123]. However, because of the non-compliance with cl 3.4, the deed was no longer valid and binding on the parties, save for Ocean’s obligation to repay the Plumber Amount. [45].

M Paterson