Body Corporate for Bay Village v Breeze MR Pty Ltd

In this case, the appellant and respondent were parties to a management rights agreement. On 31 May 2018, Westpac gave notice to the appellant under s 123(1) Body Corporate and Community Management Act 1997 that it was a financier for the contract. In early 2022, the appellant notified of its intention to terminate the management agreement for breach. Soon after, Westpac appointed a receiver and manager over certain property of the respondent, thereby preventing termination of the agreement under s 126(2) of the Act. In July 2022, Westpac issued the appellant notice under s 123(2) that it was no longer the respondent’s financier. The appellant sought to terminate the agreement based on the same breaches that had been previously notified. The issue was whether s 126(2) still prevented termination after Westpac had given notice under s 123(2) of the Act. Justice Bond and Justice Wilson (with Boddice AJA in dissent) held that on the proper construction of the Act, s 126(2) did not apply after Westpac ceased to be the financier.

Bond JA and Boddice AJA and Wilson J

5 May 2023

The appellant and the respondent were parties to a long-term management rights agreement (“the Agreement”). [1]. The respondent was the fourth assignee of the Agreement, having obtained rights under the Agreement by way of a transfer deed dated 20 August 2018. [2].

The Agreement was governed by the Body Corporate and Community Management Act 1997 (“the Act”). [11].

Under s 123(1), a person is a financier for a contract if the contractor and the person each notify the body corporate in writing that that person is a financier for the contract. [23]. Under s 123(2), “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)”. [23]. Notably, under Sch 6 of the Act, “financed contract” is defined as “a contract for which there is a financier”. [22].

Under s 126(1), “the body corporate under a financed contract may terminate the contract if” they, inter alia, gave notice to the financier of their right to terminate and at least 21 days have passed since the notice was given. [23]. However, under s 126(2), “the body corporate can not terminate the contract if, under arrangements between the financier and the contractor for the contract, the financier … has appointed a person as a receiver or receiver and manager for the contract”. [23].

In the present case, on 31 May 2018, Westpac and the respondent gave a notice to the appellant under s 123(1) of the Act that it was a financier for the contract. [34]. It was common ground between the parties that this notice was sufficient to make the contract a financed contract under the Act. [35]. On 28 January 2022, the appellant gave notice to Westpac under s 126(1) of the Act of its intention to terminate the Agreement. [39]. The right to terminate was said to arise from serious breaches of the Agreement by the respondent. [37]. On 17 February 2022, Westpac appointed a receiver and manager over certain property of the respondent, including the Agreement. [40]. As a result, s 126(2) of the Act was engaged to prevent the appellant from terminating the Agreement. [40].

In July 2022, Westpac settled all debts owed to it by the respondent. [42]. On 19 July 2022, Westpac retired the appointment of the receiver and manager. [42]. On the same day, Westpac gave notice under s 123(2) that it was no longer the financier for the Agreement. [42]. From that date, the Agreement was no longer a financed contract. [43].

Subsequently, the appellant took the view that s 126(2) no longer prevented termination of the Agreement. On 2 August 2022, the appellant notified its members of an extraordinary general meeting to be convened on 25 August 2022. [43]. The meeting was to consider whether the appellant should terminate the Agreement for the same breaches that had caused the appellant to issue the notice on 28 January. [43]. The respondent brought an application on 23 August 2022 seeking a declaration that a purported termination on that basis would be invalid. [44].

The issue before the Court was whether, on the proper construction of the Act, s 126(2) continued to prevent termination of the Agreement after the Agreement ceased to be a financed contract. [46]. Justice Bond (with Wilson J agreeing) held that it did not. [47]. His Honour noted, inter alia, that Ch 2 Pt 3 Div 4 (of which s 126 formed part) was titled “protection for financier of contract”, which suggests that the provision would not apply where there is no longer a financier. [50(b)]. Similarly, s 126, was titled “limitation on termination of financed contract” which suggests that the provision would not apply to contracts that are not financed contracts. [50(c)]. In addition, s 126(2), refers to “the contract” which must be a reference to the same contract referred to in s 126(1), which uses the phrase “a financed contract”. [50(d)]. As such, there was no textual support for the proposition that s 126(2) continues to apply after a contract ceases to be a financed contract. [49]–[50].

As to contextual support, his Honour noted that the purpose of Ch 3 Pt 2 Div 4 is to protect financiers. It does so by placing limits on the ability of the body corporate to terminate. However, once a financier issues a notice under s 123(2) of the Act, it is no longer a financier for the contract and no longer in need of protection. [51]. For those reasons, Bond JA and Wilson allowed the appeal. [55], [66].

Notably, Boddice AJA gave reasons in dissent. His Honour noted that the statutory purpose of protecting financiers would be better served if s 126(2) was construed as continuing to apply after the contract ceased to be a financed contract. [61]. That is because once s 126(2) is engaged following appointment of a receiver, the management agreement is an asset in the hands of the receiver. [62]–[63]. If the receiver must deal with third parties on the basis that there is a liability to terminate for pre-existing conduct, the value of the asset is undermined and the financier is not properly protected. [64].

L Inglis