Kingsmead Management Pty Ltd v Shalom Jubilate Pty Ltd
[2010] QCAT 377
•9 August 2010
| CITATION: | Kingsmead Management Pty Ltd v Shalom Jubilate Pty Ltd [2010] QCAT 377 |
| PARTIES: | Kingsmead Management Pty Ltd ATF The IC Lai Family |
| v | |
| Shalom Jubilate Pty Ltd ATF Abundant Blessing Trust |
| APPLICATION NUMBER: | OCL038-10 |
| MATTER TYPE: | Other civil dispute matters |
| HEARING DATE: | 9 August 2010 |
| HEARD AT: | Brisbane |
| DECISION OF: | Peta Stilgoe |
| DELIVERED ON: | 9 August 2010 |
| DELIVERED AT: | Brisbane |
ORDERS MADE: | 1. The respondent pay the applicant $2,860.00 on or before 4 pm on 1 September 2010. |
| CATCHWORDS : | Sale of management rights – consent of the body corporate – where management agreement expired – whether time of the essence - McPhee v Zarb & Ors – costs |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Nancy Lin and Ian Lai |
| RESPONDENT: | Lily and Tim Lye |
REASONS FOR DECISION
On 11 January 2010, Kingsmead Management Pty Ltd ATF The IC Lai Family (“Kingsmead”) signed a contact to purchase the management rights for a body corporate at Oakleaf Street Eight Mile Plains from Shalom Jubilate Pty Ltd ATF Abundant Blessing Trust (“Shalom”).
The sale was subject to body corporate consent to the transfer being obtained by 15 February 2010. It was also subject to Kingsmead conducting due diligence within 21 days of the date of contract. Settlement was to occur contemporaneously with the sale of the manager’s unit. The date for settlement of that contract was 1 March 2010.
The parties apparently consented to an extension of time to 5 March for provision of the body corporate’s consent and/or settlement.
The parties agree that Kingsmead’s bank became aware that the management rights the subject of the contract had expired in 2009. As Shalom explained, unless it could secure a further term, it had nothing to sell under the contract. The correspondence before me records:
(a)An email from Kingsmead dated 17 February 2010 advising that its bank will require a deed of renewal prior to settlement;
(b)An email from Shalom the same day recording that “Rosemary” was doing a flying minute to the committee and that it will be completed ”before settlement date”.
(c)An email from Shalom to Kingsmead on 24 February 2010 in these terms: “I have just got off the phone with the chairman of the committee. He advised the management rights is currently being exercised by the Body Corp solicitor and we should have it in the next few days.”
(d)An email from the lawyers for the body corporate to Kingsmead at 3.48 pm on 5 March 2010 recording: “As previously advised, it is difficult to confirm how long it will take to obtain unconditional Body Corporate consent.”
By letter of 5 March 2010 from its lawyer, Shalom terminated the contract.
It seems to me that, after 17 February 2010, the parties focussed their attention on the issue of the renewal, rather than whether or not the body corporate had consented to the transfer. I am of the view that the “consent” referred to in the emails is consent to the renewal of the management rights. In the end, whether the email refers to consent to the renewal or consent to the transfer is irrelevant.
Although Kingsmead argues that the body corporate chairman gave an indication that the body corporate was likely to consent and that this was enough to keep the transaction alive, clearly there had been no body corporate resolution giving consent to the transfer of the management rights to Kingsmead.
Kingsmead did not have the body corporate’s consent to the transfer because Shalom had no management rights to sell.
The real question is whether Shalom had a right to terminate the contract on 5 March 2010. That depends on whether time remained of the essence. Justice Williams gives a useful summary of the law in relation to time being of the essence at paragraph 20 of McPhee v Zarb & Ors[1]. The propositions are:
(a)A mere extension, substituting a new date for the date specified in the contract, will not destroy the essentiality of time.
(b)The position is otherwise where at least one party by conduct gives the other grounds for believing that precise performance as to time will not be insisted upon.
(c)In some cases the court is able to conclude that neither party regarded time as being of the essence.
[1] [2002] QCA 530
Shalom asserted that time was still of the essence. In support of that contention, it provided a copy of an email dated 5 February 2010, in which Kingsmead sought an extension of the time for finance approval “with time to remain of the essence”.
Understandably, the parties’ language was not so precise when discussing an extension of time for obtaining the body corporate consent. The date by which consent should have been obtained had already passed when the parties because aware of the real reason why consent was not forthcoming.
The extensions of this contract for sale cannot be categorised as “mere extensions”. This was the sale of a business. In clause 8.1(e)(iii) of the contract, Shalom warranted that on completion, the management and letting agreements will be valid and subsisting. The time by which Kingsmead had to obtain the body corporate’s consent could not be of the essence when Shalom had no idea when it would have an agreement that was capable of transfer. I understand that the parties were striving towards settlement on 5 March 2010, but that is not the test. I find that, by endeavouring to obtain an agreement that was capable of transfer, Shalom, by its conduct, gave Kingsmead grounds for believing that precise performance as to time would not be insisted upon.
As time was no longer of the essence, Shalom was not entitled to terminate without notice. It did not give notice. Even if time was of the essence, because Shalom was not in a position to settle on 5 March 2010, it was not entitled to rescind the contract.
I find that Shalom wrongfully terminated the contract. It is therefore necessary for me to determine what remedy flows from that.
Kingsmead has provided a list of its losses:
| Date | Detail | Amount |
| 24/12/09 | Registration of company with ASIC | $400.00 |
| 03/02/10 | Fees to audit Shalom accounts | 1,430.00 |
| 12/02/10 | Body corporate information certificate | 74.80 |
| 17/02/10 | Jason Wong Accountant – initial advice fee | 110.00 |
| 09/03/10 | NAB finance fees | 2,610.00 |
| 21/01/10 | CITEC search fees | 260.25 |
| 20/01/10 | REIQ licence fee | 1,050.00 |
| 19/01/10 | OFT licence fee | 1,085.00 |
| OFT criminal check fee | 35.00 | |
| Total | $7,055.05 |
I have already noted that the contract was subject to due diligence. The due diligence period was 21 days from the date of contract. Therefore, it expired on 1 February 2010.
A fundamental question for any purchaser is the term of the management rights it is buying. It is almost inconceivable that proper due diligence would not have alerted Kingsmead to the fact that the management agreement had expired.
It follows, then, that any expense incurred before 1 February 2010 would have been incurred in any event because, until then, Kingsmead had the right to terminate the contract. It cannot be said that these expenses were “thrown away” by Shalom’s wrongful termination.
The same argument applies to the audit fees, body corporate information certificate and accountant’s initial advice fee – these expenses would have been incurred in the course of due diligence.
That leaves the bank finance fee. The letter from National Australia Bank dated 9 March 2010, notes that all the associated fees, totalling $5,567.00, were outlined in the approval letter dated 8 February 2010. The bank waived some of that fee and charged $2,610.00. By 8 February 2010, the due diligence period had expired and Kingsmead was satisfied that it wanted to proceed with the transaction. As I have found that the failure of the transaction was due to Shalom’s inability to transfer any management rights. Kingsmead is entitled to recover that sum.
Kingsmead has also claimed for legal fees incurred since the termination of the contract. Section 100 of the QCAT Act provides that other than as provided under the QCAT Act or an enabling Act, each party to a proceeding must bear the party’s own costs of the proceeding. Nothing in the BCCM Act changes this presumption. Kingsmead has not made any application for costs pursuant to section 102 or 103 of the Act. I do not allow Kingsmead to recover legal costs.
Kingsmead claims $250.00 filing fee to QCAT. That cost is allowed.
I order that Shalom pay Kingsmead $2,860.00 on or before 4 pm on 1 September 2010.
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