Brikmore Pty Ltd v. Poinciana Co-Operative Housing Society Ltd

[2007] QSC 109

[2007] QSC 109

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

FRYBERG J

No 3397 of 2007

BRIKMORE PTY LTD (ACN 009 962 958)

Applicant

and

POINCIANA CO-OPERATIVE HOUSING SOCIETY LIMITED

And

COUNTRYWIDE CO-OPERATIVE HOUSING SOCIETY LIMITED

And

SUNSHINE CO-OPERATIVE HOUSING LIMITED

and

REDCOMB CO-OPERATIVE HOUSING LIMITED

First Respondent 

Second Respondent 

Third Respondent  

Fourth Respondent

BRISBANE

..DATE 03/05/2007

ORDER

HIS HONOUR: Section 116 of the Financial Intermediaries Act 1996 provides,

"Management contracts

(1)A society must not enter into a management contract without the registrar's written approval.

Maximum penalty - 800 penalty units.

(2)The registrar may give the registrar's approval on terms.

(3)A management contract entered into in contravention of subsection (1) is void."

The respondents are all societies within the meaning of that section and have been Co-operative Housing Societies for more than 30 years. 

The applicant, since its incorporation in 1976, has been the manager of those four societies.  Originally the applicant was a company established by Mr Knowles, the Director of the four societies who are the respondents.  However in 1998, Mr Knowles sold his shareholding in the applicant to the late Joseph Thomas Cliff.  Under Mr Cliff's ownership, the applicant continued to provide management services amicably to the respondents.  However, Mr Cliff died in August 2005.  The applicant is now under the control of Mr Wright who was Mr Cliff's Executor and Trustee.  Quite properly, Mr Wright saw the need to realise the assets of the estate and proposed to sell the late Mr Cliff's shareholdings in the applicant.  This would effectively give someone else control of the management company. 

The respondents were not averse to this proposal and in order to make the sale more attractive to a potential purchaser, it was decided that the then current management agreements would be superseded by new agreements.  Those were in similar terms to the existing agreements which at the time of which I speak, 2006, had been made or most recently renewed in 2004, for a period of three years.

The idea was that given there was a year or less to run under the agreements, a new period of time, a fresh term of three years commencing on 1 July, would be provided together with two options of three years by way of extension. 

The applicant addressed an argument to suggest that if the 2006 agreements were void, the 2004 agreement had none the less been extended but that seems improbable.  In any event, I need not deal with that argument. 

In May 2006, steps were taken to implement what I have just described.  On 23 May 2006, meetings were held of the Directors of each of the four respondents and it was

resolved:

"That the new management with Briknow, to commence on the 1st July 2006 for a period of three years, with two three year options, as tabled at the meeting, be signed.  The Chairman advised that he was taking Colin Grant and David Ross to meet officials of the Registry after lunch, and that a draft of the new agreement would be taken to them for their approval."

Following those meetings, the applicant and the respondents each executed contracts in the approved form. 

It is unclear what happened next. Certainly Mr Knowles and the two gentlemen named went to see the Registrar, but the evidence is inconclusive in relation to whether or not the Registrar was given a draft of the agreement or an executed copy of the agreement. It seems not to matter. The Registrar did not deal with the matter under section 116 that day. He dealt with it on the following day and he then gave his approval under section 116 in relation to what he said was the "draft contract".

Subsequently, on and after 1st July the parties conducted themselves as if the new contracts were in effect.  All of their dealings thereafter were consistent and only consistent with those contracts being in force. 

In October 2006 a need was seen to make a slight variation in

the form of the contracts, one effect of which was slightly to reduce the amount of remuneration paid to the applicant.  Those variations were also approved by the four respondents, the resolution in question being recorded in the minutes as follows,

"Management Fee structure:  A report recommending changes to the management agreement was tabled, setting out in more detail the suggested changes to clause 7 of the existing agreement.  The Board resolved to approve these changes and for new agreements incorporating these to be prepared and signed."

The respondents apparently took the view that these amendments were just that and were not new agreements, for they did not submit them to the Registrar for approval, notwithstanding that they were incorporated into new documents which substantially repeated the remaining clauses of the May agreement.  A copy was given to the Registrar for information only. 

The good times never last. The parties have now come into a situation of dispute for reasons which need not be discussed. The respondents now assert that the May agreements were void under section 116 because their entering into those agreements was not approved by the Registrar in advance.

They further content that the same is true of the October agreements.  Since the earlier 2004 agreement has now expired by effluxion of time if not for other reasons, they submit that no binding contract exists between the parties.  The applicant contends that such a contract does exist.  It does so, on a number of bases. 

First it submits that the Act does not void the May agreements, merely because approval was one day late. They submit that section 116 does not require the approval to be given prior to the making of the agreement. Many interesting debates might be had about that question. I find it unnecessary to determine.

The applicant is content for the case to be approached on the basis that the respondents are correct in their assertion that the October agreements were void.  It is content to join issue on the basis that what is now in force are contracts embodying the terms of the May agreements.  It submits that even if the May contracts were effectively void under the Act, the parties have by their conduct in July, made management contracts within the meaning of the Act which are still in force.

Management contract is defined in the Act to mean,

"A contract or other arrangement under which..."

There is no doubt that the remaining parts of the definition are satisfied.  The question is whether by their conduct in July and subsequently in adhering to the terms of the May agreements, the parties have effectively entered into a contract or other arrangement within the meaning of that definition. 

This is essentially a question of fact.  In my judgment, the parties did make a contract by their conduct in July (if one assumes that the May contracts were indeed void as the respondents contend). 

The parties regulated their dealings, including their financial dealings from the 1st of July precisely in accordance with the terms of the earlier agreement.  In the end, I did not understand Mr Gotterson QC, who appeared for the respondents seriously to contend that there could not be a contract formed by conduct on the terms that were earlier set out in the written documents. 

Rather, Mr Gotterson's response to this submission was that by entering into the October contracts, the parties demonstrated an intention to terminate all earlier existing arrangements.  In support of that submission, he relied upon a passage in the judgment of Lord Phillimore in Rose and Frank Company -v- J R Crompton Brothers Limited [1925] Appeal Cases 445 at pages 455 to 456.

"The unenforceable agreement cannot (it is true) be relied upon as cancelling the previous agreements, because it was to have no legal weight.  But the parties who entered into the relations implied by the unenforceable agreement must have previously cancelled, as they could do by mutual consent, all the earlier agreements."

The question therefore is whether in the present case, by entering into the October agreements which, on the assumptions presently being made, were void, the parties cancelled the earlier agreement. 

In my judgment on the facts of the present case, that was not the effect of what occurred in October. 

The only matter to which the respondents could point in support of that implication was the fact that the October contracts set out the terms of the agreements in full.  However, it is plain from the resolution referred to earlier that the parties regarded what happened in October as no more than an amendment to the earlier agreements which suggests an intention that the earlier agreements should continue as amended. 

The fact that the terms were with relatively minor changes,

unchanged, also supports the inference that the October contracts were not intended to replace the existing contracts unless the former were valid.  In other words, I would not infer an intention that the existing arrangements be cancelled, come what may.

The fact that the October contracts were not submitted for approval supports the view that the parties so regarded the situation. 

In my judgment, one should not infer an unconditional intention on the part of the parties in making the October contracts to repeal all existing arrangements between them.  Rather the intention was that the variation should take effect if and only if it were valid.  Since the parties are content to approach the case on the basis that the variation was not valid, it follows that the contracts made in July remained in effect.  Those contracts were, as I have said, made by conduct in and following the beginning of July 2006, upon the terms set out in the documents purporting to be the May contracts.  For that reason, there is in my judgment in force between the respective parties, management contracts as defined in the Act and indeed contracts at common law. 
It is sufficient for the purposes of the proceedings, to declare that the applicant has a management contract as that term is defined in schedule 2 of the Financial Intermediaries Act 1996 with each of the respondents, on the terms set out in the document entitled, "Agreement made 23rd May 2006", being Exhibit JSW6, to the affidavit of James Stewart Wright, filed 20th April 2007.

...

HIS HONOUR:  The respondents must pay the applicant's costs of the application to be assessed.

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