Ehrensperger Nominees Pty Limited v Italian Continental Bakery Pty Limited

[2006] ACTCA 11

EHRENSPERGER NOMINEES PTY LIMITED v ITALIAN CONTINENTAL BAKERY PTY LIMITED & Anor [2006] ACTCA 11 (5 May 2006)

EX TEMPORE JUDGMENT

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

No. ACTCA 14 - 2005
No. SCA 67 of 2004

Judges:   Crispin P, Gray & Spender JJ  
Court of Appeal of the Australian Capital Territory
Date:           5 May 2006

IN THE SUPREME COURT OF THE  )   No. ACTCA 14 - 2005
  )  No. SCA 67 of 2004
AUSTRALIAN CAPITAL TERRITORY  )
  )

COURT OF APPEAL  )

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:EHRENSPERGER NOMINEES PTY LIMITED

Appellant

AND:ITALIAN CONTINENTAL BAKERY PTY LIMITED

First Respondent

AND:THE OWNER – UNITS PLAN 1609

Second Respondent

ORDER

Judges:  Crispin P, Gray & Spender JJ
Date:  5 May 2006
Place:  Canberra

THE COURT ORDERS THAT:

1. the appeal be dismissed;

2. the respondents pay the appellant’s costs of the appeal.

IN THE SUPREME COURT OF THE  )   No. ACTCA 4 - 2005
  )  No. SCA 67 of 2004
AUSTRALIAN CAPITAL TERRITORY  )
  )

COURT OF APPEAL  )

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:EHRENSPERGER NOMINEES PTY LIMITED

Appellant

AND:ITALIAN CONTINENTAL BAKERY PTY LIMITED

First Respondent

AND:THE OWNER – UNITS PLAN 1609

SecondRespondent

Judges:  Crispin P, Gray & Spender JJ
Date:  5 May 2006
Place:  Canberra

REASONS FOR JUDGMENT

THE COURT:

1. This is an appeal against the decision of the Chief Justice of this court upholding an appeal against a decision of a magistrate and ordering that the administration of a company be terminated.

1. The circumstances which gave rise to the proceedings in the Magistrates Court may be briefly stated. The appellant and respondent are corporate owners of units in a building governed by the Unit Titles Act 2001 (ACT). The second respondent is the owner of the unit plan.

1. The building has four units, and each party owns two.  The building is located in a regional commercial shopping centre at Mawson, each party operates a bakery in the downstairs unit that each party owns, and from which they sell goods to the public.

1. Problems emerged which gave rise to disputes between the parties who are the only members of what has been described as a two member owners’ corporation. Section 40 of the Unit Titles Act provides that the members of such a corporation are the people who own the units and there is no provision for rights based upon the number of units held.

1. The Act contains provisions for the Magistrates Court to make deadlock orders to deal with particular issues that cannot be resolved, see ss 123 to 125 of the Unit Titles Act, but in the present case, the Magistrates Court made some such orders without the level of disputation apparently being materially reduced.

1. Accordingly, an application was made for the appointment of an administrator and on 9 March 2004, on the application of the first respondent, the Magistrates Court appointed Mr Henry Kazar as administrator of the Owners’ Corporation.  The appointment was for a period of six months. 

1. On 8 September 2004 the appellant applied to the Magistrates Court to extend Mr Kazar’s appointment as an administrator indefinitely.  The learned Magistrate did not accede to that application, but he did extend the appointment until 14 September 2004 until the matter could be fully considered by the court and, on 24 September 2004 when the hearing resumed, he made an order extending the appointment until 30 June 2005.  It was from that decision that the appeal lay to the Chief Justice, whose decision is the subject of the present appeal.

1. On 14 March 2005, his Honour allowed the appeal and terminated the appointment of Mr Kazar from the date of that decision.  It has been submitted by Mr Robb QC, who appears with Mr Erskine for the appellant, that in doing so his Honour fell into appellate error. 

1. It is necessary to first return to the decision of the learned Magistrate.  The learned Magistrate noted:

Until the appointment of Mr Kazar in March 2004, the commercial enterprise functioned or at least can be said to have struggled to operate due to enduring difficulties and strain between the parties.  Despite the cost and expense to this process, Mr Kazar has kept the units plan working.  The Italian and Continental Bakery argues that notwithstanding this relationship issue, there have been successful business meetings on 24 June 2002 and 29 July where the parties have resolved to progress the commercial enterprise citing a minimum of 20-odd resolutions being passed to achieve the objective of the unit plan. 

But between those dates and March 2004 there must have been some seriously irreconcilable problems necessitating Mr Kazar’s appointment in March 2004.  There is no doubt in my mind on balance that to ensure the commercial viability of this enterprise that an administrator is required.  Mr Kazar is independent.  There is clearly a significant budgetary impact by reason of him seeking an extension of his appointment and I’m mindful of what counsel for the Italian and Continental Bakery, Mr Walker, says about this.  It seems to me that this factor is secondary to the more important consideration that a viable commercial enterprise continuing to exist. 

The appointment of a manager and in particular Mr Enders, does not present on balance to be truly independent and unbiased and as the evidence suggests, he does have a business and commercial relationship or link to the D’Ambrosio enterprise, nor does it present to me to be an appointment that does not have a potential for an element of conflict of interest or bias, giving rise to further problems within the unit plan administration.

1. It is, with respect, abundantly clear that in making these comments, his Honour misunderstood the proposal that had been made in relation to the involvement of Mr Enders.  That proposal is clear from the affidavit of Mr Maurice Sebastian Falcetta, which was sworn on 20 September 2004.  Mr Falcetta, who was a solicitor having the carriage of the matter on behalf of the appellant, deposed in that affidavit to his awareness of the history of the disputes between the parties and of his knowledge that the applicant and its representatives had been dissatisfied with the level of service and the level of fees charged by the administrator.  He went onto say:

Given that previous models of management and dispute resolution have not produced the desired results I am instructed by my client to put forward the following proposal for future management of the Owners’ Corporation:

(a) the applicant (and if the first respondent so desires, the first respondent) will appoint an agent with complete authority to vote at meetings and also in other respects to negotiate and agree to the resolution of any day to day disputes with regard to the Owners’ Corporation and other associated issues.  This should avoid the need for future personal interface between the principals of the applicant and first respondent, and also provide a mechanism for dispute resolution.  I propose that the applicant’s agent be Mr Peter Enders, who has specific knowledge of building matters should that be required, and has been able to have a meaningful personal contact with Mr Ehrensperger.

(b) The management of the Owners’ Corporation be handed over either to the professional body corporate manager or alternatively to an accountant to be agreed by the parties or in fault of agreement, chosen by the President for the time being, at the ACT Branch of the Institute of Chartered Accountants or CPA Australia.

1. It seems clear that the learned Magistrate failed to understand that these were alternative proposals.  His Honour seems to have had a less than clear understanding of them.

1. After those passages that have been read onto the record, his Honour went on to observe that:

. . . the concept of a manger was not presently sufficiently as wide as that as the role of an administrator.

And to conclude on balance that:

It would be better to extend the appointment of the administrator rather than to have a manager such as Mr Enders appointed to the Owners’ Corporation.

1. This misconception had a fundamental effect on his Honour’s approach to the matter, in that he seems to have wrongly assumed that the decision had involved the choice of extending the appointment of the administrator or, in lieu thereof appointing a manager. In reality the first of the proposals, and that involving Mr Enders, required him to decide whether he needed to intervene at all by appointing an administrator or whether the approach suggested by the first of the two options put forward by Mr Falcetta, might have provided reasonable grounds for avoiding disputation without any need for the appointment of either an administrator or manager to the owner of the unit’s plan.

1. Accordingly, it seems to be clear that the learned Magistrates’ discretion was vitiated. 

1. It is noted that, in dealing with this matter, the Chief Justice said in passing:

I agree with Mr Erskine that it was a decision that was open to the magistrate on the material before him. 

1. Mr Robb understandably argues that if this passage were to be taken literally, it would indicate that there had been no finding of any appealable error on the part of the learned Magistrate, and in that event the appeal should have been dismissed.

1. It should be noted, however, that in paragraph five of his judgment his Honour said:

However, as I have said, his Worship did not act invalidly in appointing the administrator. 

1. There is no antecedent reference in his Honour’s judgment to the validity of the decision and it seems that those words must be taken to refer back to the earlier passage that was quoted.  Furthermore, it is clear from the balance of his Honour’s judgment that he did take the view that there were appealable errors evident in the learned Magistrate’s decision and that he approached the matter afresh against that background.

1. It must be added that there is no doubt that the learned Magistrate’s discretion had been vitiated and that it was entirely appropriate for his Honour to proceed on that basis.  There were therefore two options available to him; one was to send the matter back to the Magistrates Court for rehearing; and, the other, to resolve it there and then.  His Honour was right to proceed to attempt to resolve the issues between the parties.

1. It is noted that there had been no oral evidence adduced before the learned magistrate and it was not suggested in argument before us that his Honour was placed in a difficult position by reason of the need to assess the credibility of any of the witnesses.

1. Mr Robb nonetheless submits that his Honour fell into error in a number of respects.  It is unnecessary to deal with the more precise arguments advanced in support of those contentions.  The position is really quite clear.

1. His Honour was faced with a situation in which there had been an appalling history of disputation between parties who seemed unable to make sensible decisions for their resolution.  Accordingly, it is entirely understandable that the administrator was initially appointed.  However, it was obvious that that appointment had proved very expensive.  Furthermore, the principal areas of dispute, which had prompted the initial appointment of the administrator, had been substantially resolved by the time they came back before the learned Magistrate.

1. There was also evidence, which appears to have been unchallenged, that the general level of disputation had in recent times substantially abated.  Furthermore, other options had been presented to the learned Magistrate, including the possibility of appointing Mr Enders to act as a representative of one party in the hope that this would avoid the need for face-to-face confrontation between the principals of the companies and hence reduce the level of likely dispute.

1. It is noted that Mr Robb suggested that the appointment of Mr Enders as a representative of one party was not viable because s 43 of the Act provides that a corporate owner shall be represented by an officer of the company or an employee. That issue had also been raised in the proceedings before the learned Magistrate and Mr Walker, who then appeared for the proponent of that offer, submitted that it was a relatively superficial impediment because it would not be a matter of any great difficulty to achieve what he described as “one or other of those ends for that purpose”, and added that, given the stakes involved in the matter, he did not see it as something that was of any significant consequence.

1. It must be said we cannot readily see why that suggestion should not have been taken seriously.  It would seem that it would have been within the capacity of the corporation in question to employ Mr Enders, at least on a part-time basis, for that purpose.

1. A further factor, of course, is that during the time that the corporate owner was subject to administration, very substantial expenses were incurred by reason of the administrator’s fees.  In these circumstances it would seem that it was open to his Honour to adopt the view that the need for the continuing appointment of the administrator had not been established and that, even if the pessimism of counsel for the appellant in the proceedings before his Honour had proven correct and further disputation had broken out, it would have been open to that party to go back to the Magistrates Court and seek a further appointment of an administrator.

1. Plainly, however, there were grounds for the view that that course should have been adopted as a last resort having regard to the cost involved.  In circumstances where the initial disputes had been resolved, the recent level of disputation had fallen, there were alternative proposals put forward for the resolution of disputes and the costs of having an administrator had proven so heavy as to have some possible influence on the future attitude of the parties, it seems to us that it was open to his Honour to come to the conclusion that he did. 

1. Nothing in what has been put in the submissions of Mr Robb have suggested that, in coming to that decision, his Honour fell into an appealable error, and even if an appealable error had been demonstrated, it would have been our view that the correctness of the ultimate decision could not have been doubted.

1. For these reasons, the order of the court is that the appeal be dismissed. We order the respondents to pay the appellant’s cost of the appeal.

   I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

   Associate:

   Date: 5 June 2006

Counsel for the Appellant:  Mr S Robb QC with Mr C Erskine

Solicitor for the Appellant:   Snedden Hall and Gallop

Counsel for the First and Second Respondent:  Mr G Blank

Solicitor for the First and Second Respondent:  Meyer Clapham

Date of hearing:  5 May 2006

Date of judgment:  5 May 2006