The Law as it Has Always Been
Onsite building managers of BCCM Act schemes will be pleased to know that the long running court action between the manager and the body corporate at Merrimac Heights has concluded.
SPG Lawyers, acting for the managers, obtained a judgement confirming the validity of the Landscape Management Agreement, where the manager is contracted to the body corporate to maintain the lot owners’ lawns etc in exchange for monthly payments from the body corporate.
Also the judgement confirmed the continuation of the caretaking agreement which the body corporate had also sought to treat as terminated for default.
The case is Henderson -v- Merrimac Heights CTS 19563 – QSC336 and the decision of the Supreme Court was handed down on 11 November 2011 in favour of the managers. It declared that both contracts were valid and neither contract had been correctly terminated by the body corporate. Substantial damages were awarded to the managers against the body corporate.
The case also particularly highlights the jurisdiction of the Supreme Court in certain instances to decide on the validity of the contract and on the question of whether or not the attempt by the body corporate at termination was lawful. The Supreme Court confirmed its jurisdiction to decide particular matters notwithstanding the various roles attributed under the act and regulations for determination of certain categories of disputes by the Body Corporate Commissioner, specialist adjudication or by QCAT.
As Peter George of Short Punch & Greatorix Lawyers points out, the decision makes it very clear that there is a category of contract for services which will be binding on a body corporate if made as an ordinary resolution at a general meeting of the owners. This category covers contracts made under section 158 of the act (Standard Module S169 and Accommodation Module S167) for the supply of services by a body corporate for the benefit of owners and occupiers of lots. Once such a contract is made and performed, the decision of the court is that it is valid, whether or not the body corporate acts to recover from the individual lot owner, as the benefiting party, the cost of supplying the service.
For many years some lawyers had cast doubt on the validity of these contracts if the body corporate did not have a corresponding form of agreement with the owners who benefit and now the Supreme Court decision removes any such doubt. The lawyer for the body corporate stated to the body corporate that the contract was invalid.
On the position of action by the body corporate to terminate the caretaking agreement, the court found that the act and module “codifies” what must occur as the activity of the body corporate before it may terminate a service contract (caretaking or management agreement) or a letting agents authorisation (letting agreement). The process is set out in each of the modules of regulation. The court decided that an attempt to terminate such contracts without following the requirements set out in the modules of regulation was not lawful.
The case was complicated by an argument that the managers had in law repudiated the agreement. The judgement notes that the body corporate’s committee considered an opinion from its solicitor that the landscape maintenance agreement was not enforceable and that later the strata manager wrote on behalf of the committee of the body corporate to the plaintiffs (the managers), stating that they would be informing owners that the landscape maintenance agreement was invalid. The decision confirms that the managers had not repudiated the agreement in their dealings with the issue.
Owners of lots in the scheme have already been charged a special levy for the schemes lawyers costs of the trial and will have to find further money from levies to pay the managers’ damages, and, more than likely, a costs order from the extensive trial.
The lesson should be learnt from this decision by all bodies corporate and persons with any authority, either through a position on the committee or involved in the management, about embarking on a course of action which is likely to lead to litigation. Such action should only be an absolute final recourse because of the heavy cost and the unlimited liability of all owners in the scheme. Whilst the lawyer for the body corporate gave initial certain advice to the body corporate as to the invalidity of the contract for services, instead of seeking a path to amicably and practically resolve the dispute, the committee took a path that lead to litigation. All owners (whether they voted in favour of the termination or not) have had to pay extensive costs and now incur a judgement for damages plus likely further costs to be awarded. The collective liability of all owners should be weighed up against the determination and desires of only some members of the body corporate in situations such as these.
Martin Punch
Short Punch & Greatorix
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