Meriton Apartments Pty Limited v The Owners Strata Plan No. 72381

[2015] NSWSC 202

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Meriton Apartments Pty Limited v The Owners Strata Plan No. 72381 [2015] NSWSC 202

Hearing dates:

8, 9, 10, 11, 14 & 15 October 2013, 4 April 2014 (completion of post-hearing written submissions and judgment reserved )

Date of orders:

13 March 2015

Decision date:

13 March 2015

Jurisdiction:

Common Law

Before:

Slattery J

Decision:

See paragraphs [496] of judgment.

Catchwords:

CONTRACT – caretaker agreement made under the Strata Schemes Management Act 1996, Part 4A – caretaker appointed in 2004 to provide caretaking services to two strata schemes and one additional stratum lot of a commercial/residential building complex divided into 3 parts – the caretaker, the two owners corporations and the owner of the stratum lot are all parties to the caretaker agreement – one of the two owners corporations alleged breaches of the caretaker agreement and in July 2012 unilaterally acted to terminate the caretaker agreement – whether caretaker agreement binds owners corporation that did not formally execute it – whether parties intended contractual termination provision to exclude common law rights of termination – whether the caretaker was in “serious persistent and continuing” breach of the caretaker agreement, entitling the owners corporation to give a notice of termination thereunder – whether the owners corporation can act unilaterally to terminate the caretaker agreement for breach – whether the owners corporation has complied with the procedural requirements to entitle it to termination – whether agreement still on foot following repudiation – whether agreement may be specifically performed following repudiation – following repudiation whether innocent party may continue to perform contract and claim the whole of the promised contractual benefit – co-operation limitation – what damages flow from any alleged breach.

EVIDENCE – Surveillance Devices Act 2007 (NSW), s 7 – admissibility of evidence obtained by use of listening device – implied consent to listening device being used in circumstances – use of listening device reasonably necessary for protection of interests

EQUITY – fiduciary duty – developer causes an owners corporation to be bound by a caretaker agreement in February 2004 – developer establishes the owners corporation in April 2004 – whether developer owes a fiduciary duty as a promoter to the owners corporation, to be established – what is the relevant content of any such fiduciary duty – whether any fiduciary duty owed to the owners corporation was breached, when the terms of the owners corporation became bound to the caretaker agreement – whether the owners corporation affirmed the caretaker agreement in October 2004 – whether the owners corporation is now barred by delay from being granted relief setting aside the caretaker agreement.

Legislation Cited:

Civil and Administrative Tribunal Act 2013 (NSW)
Consumer Claims Act 1998 (NSW)
Consumer Claims Regulation 2014 (NSW)
Consumer, Trader and Tenancy Tribunal Act 2001 (NSW)
Environmental Planning and Assessment Act 1979 (NSW)
Home Building Act 1989 (NSW)
Limitation Act 1969 (NSW)
Strata Schemes (Freehold Development) Act 1973 (NSW)
Strata Schemes Management Act 1996 (NSW)
Strata Schemes Management Amendment Act 2002 (NSW)
Strata Schemes Management Regulation 2010 (NSW)
Surveillance Devices Act 2007 (NSW)

Cases Cited:

Allied Pastoral Holdings Pty Ltd v Commissioner of Tax (1983) 1 NSWLR 1
Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527
Apriaden Pty Ltd v Seacrest Pty Ltd (2005) 12 VR 319
Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435
Australian Breeders Co-operative Society Ltd v Jones (1997) 150 ALR 488
Balog & Stait v Independent Commission Against Corruption (ICAC) (1990) 169 CLR 625
Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24
Bropho v State of Western Australia (1990) 171 CLR 1;
Bolwell Fibreglass Pty Ltd v Foley [1984] VR 97
Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd
[1999] 1 AC 266
Branir Pty Ltd v Owston Nominees (No. 2) Pty Ltd
(2001) 117 FCR 424
Bray v Ford [1896] AC 44
Breen v Williams (1996) 186 CLR 71
Clayton’s Case (Devagnes v Noble) 1 Mer 572
Clea Shipping Corp v Bulk Oil International Ltd
(No. 2) (The Alaskan Trader) (1984) 1 All ER 129
Coco v R (1994) 179 CLR 427
Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Community Association DP No 270180 v Arrow Asset Management Pty Ltd [2007] NSWSC 527
Concut Pty Ltd v Worrell (2000) 176 ALR 693
Directors of Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640
Emma Silver Mining Co Ltd v Lewis & Son (1879) 4 CPD 396
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty
Ltd (1988) 14 NSWLR 523
Erlanger v New Sombrero Phosphate Co. (1878) 3 App. Cas. 1218
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672
Fitzwood Pty Limited v Unique Goal Pty Ltd (in liquidation) (2001) 188 ALR 566
Green v Sommerville (1979) 141 CLR 594
Heyman v Darwins Ltd [1942] AC 356
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
Hospital Products v USSC (1984) 156 CLR 41
Howard v Pickford Tool Co Limited [1951] 1 KB 417
Hughes v Western Australian Cricket Association Inc (1986) ATPR 40-676
Johnstone v Milling (1886) 16 Qbd 460
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115
Kyren Pty Ltd v Wunda Projects Australia Pty Ltd [2012] SASCFC 23
Ledger v Cleveland Nominees Pty Ltd [2001] WASCA 269
Lee v NSW Crime Commission (2013) 251 CLR 196
LMI Australasia Pty Limited v Baulderstone Hornibrook Pty Ltd (2001) 53 NSWLR 31
Lockland Builders Ltd v Rickwood (1995) 77 BLR 38
MacLeod v Proprietors of Strata Plan No 6544 [1980] 2 NSWLR 691
Maguire v Makaronis (1997) 188 CLR 449
Measures Bros Ltd v Measures [1910] 2 Ch 248
Meriton Apartments Pty Ltd v Owners of the Strata Plan No 72381 [2013] NSWSC 1037
North Sydney Leagues Club Ltd v Synergy Protection Agency Pty Ltd (2012) 83 NSWLR 710
Owners of Strata Plan 50276 v Thoo [2013] NSWCA 270
Pilmer & Ors v Duke Group Ltd (in liquidation) & Ors (2001) 207 CLR 165
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
Queensland Mines Ltd v Hudson (1978) 18 ALR 1
Radford v The Owners of Miami Apartments, Kings Park Strata Plan 45236 [2007] WASC 250
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134
Re Footman Bower & Co Ltd [1961] Ch 443
Re Leeds and Hanley Theatres of Varieties Ltd [1902] 2 Ch 809
Re Steel and the Conveyancing (Strata Titles) Act 1961 (1968) 88 WN (Pt 1) (NSW) 467
Santos Coffee Co Pty Ltd v Director Freight Express Pty Ltd [2010] NSWCA 14
Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574
Showcase Video Pty Ltd v Tambarle Pty Ltd (Court of Appeal (NSW), 28 April 1987, unrep)
Tracy v Mandalay Pty Ltd (1953) 88 CLR 215
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632
United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1
Walden Properties Ltd v Beaver Properties Ltd (1973) 2 NSWLR 815
Waldorf Apartment Hotel The Entrance Pty Ltd v Owners Corp SP 71623 [2009] NSWSC 882
Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 71623 [2010] NSWCA 226
Wiley v Eastern Elevators Pty Ltd (2003) 175 FLR 344
Warman International Ltd v Dwyer (1995) 182 CLR 544
Western Export Services v Jireh International Pty Ltd (2011) 282 ALR 604
White & Carter (Councils) Ltd v McGregor [1962] AC 413

Texts Cited:

JW Carter, Carter’s Breach of Contract, (1st ed 2011, LexisNexis, Butterworths)
JD Heydon, MJ Leeming & PE Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies, (5th ed 2014, LexisNexis, Butterworths).

Category:

Principal judgment

Parties:

First Plaintiff: Meriton Apartments Pty Ltd
Second Plaintiff: Meriton Properties Pty Ltd (ACN 000 698 626)
Defendant: The Owners Strata Plan No. 72381

Representation:

Counsel:
Plaintiffs: M.G. Rudge SC; M.R. Hall
Defendant: G.A. Sirtes SC; J.P. Knackstredt

Solicitors:
Plaintiffs: Zena Nasser, Office of the General Counsel – Meriton Group
Defendant: David Edwards, Doyle, Edwards, Anderson Lawyers Pty Ltd

File Number(s):

(2012/148356)(2011/402191)

Publication restriction:

No

Judgment

1. The World Tower building in Sydney’s Central Business District is divided into three parts. The building faces north on Liverpool Street and covers much of the northern end of the city block bound by George, Liverpool and Pitt Streets. Meriton Apartments Pty Limited (“Apartments”) developed the building into one commercial and two residential portions which, as their respective names suggest, segment the structure vertically into low-rise, mid-rise and high-rise sections.

2. The developer reserved the mid-rise and high-rise sections for residential units and the low-rise section for commercial occupation. But it only created two strata schemes in World Tower: one for the commercial low-rise section and the other for the residential mid-rise section. Each strata scheme facilitated the planned sale to third parties of units in these two sections of World Tower. Apartments kept the remaining high-rise section of the building as one single undivided stratum lot which was not planned to be sold but rather to be retained by a related entity, Meriton Properties Pty Limited (“Properties”) for use as serviced apartments.

3. In February 2004 during World Tower’s development, Apartments, Properties, and the respective owners Corporations for the other two parts of the building all entered into a single form of Caretaker Agreement (“Caretaker Agreement”) for World Tower under the Strata Schemes Management Act 1996 (“the Management Act”), Part 4A. In these reasons, references to Parts of the Management Act are references to Chapter 2 of that Act.  At about the same time Apartments as the developer registered a Strata Management Statement for the building under the Strata Schemes (Freehold Development) Act 1973, Part 2, Division 2B (“the Freehold Act”). This Caretaker Agreement appointed Apartments as a caretaker to provide caretaker services to the three other parties to the agreement: the Owners SP 72381, the mid-rise body corporate (called for convenience in these reasons “Mid Rise”); the Owners SP 71067, the low-rise body corporate (called for convenience in these reasons “Low-Rise”); and Properties, a related entity of Apartments and the registered proprietor of the remaining high-rise single stratum.

4. The parties to the February 2004 Caretaker Agreement took steps to renew it at an extraordinary general meeting of Mid Rise held on 11 October 2004. It is common ground that from October 2004 Apartments provided caretaker services to the three other parties to the Caretaker Agreement for almost eight years through until July 2012, when Mid Rise claims to have ended it using its termination provisions.

5. Apartments brings these proceedings. It alleges as plaintiff that Mid Rise breached the Caretaker Agreement: (1) by its ineffective attempt to terminate the agreement; and (2) by not paying the fees and performing the obligations due under the agreement. The other parties to the Caretaker Agreement, Properties and Low-Rise are also parties to the proceedings but Apartments seeks no relief against them. In other claimed relief Apartments: seeks declarations that the Caretaker Agreement remains on foot despite Mid Rise’s acts of termination; and contends that Mid Rise has breached the Strata Management Statement registered on 17 September 2003 for the World Tower building. Apartments has the benefit of interlocutory orders made by consent and without admissions restraining Mid Rise from breaching the Caretaker Agreement until further order.

6. Apartments also commenced separate proceedings in the Local Court to recover unpaid contributions from Mid Rise under the Caretaker Agreement. Once the present proceedings were commenced, the Local Court proceedings were transferred into this Court, so all proceedings by and against Mid Rise are being heard and determined together.

7. Mid Rise contests Apartments’ contentions and defends its July 2012 termination of the Caretaker Agreement at several levels. At the primary level Mid Rise assumes the validity of the Caretaker Agreement but contends that it was entitled to utilise the agreement’s termination clause to bring it to an end. And it seeks to excuse any proven breaches of the Strata Management Statement by saying that other parties have also failed to observe aspects of that instrument.

8. The issues joined in Apartments’ case against Mid Rise raise the following questions:

1. Whether the Caretaker Agreement was validly made on 4 February 2004, and/or validly continued after 11 October 2004?

2. Whether Apartments breached the Caretaker Agreement as Mid Rise alleges?

3. Whether any breach of the Caretakers Agreement, was a “serious, persistent and continuing” breach and therefore sufficient to found a notice of termination issued under that agreement?

4. Whether Mid Rise was entitled to act unilaterally to terminate the Caretaker Agreement for breach?

5. Whether Mid Rise has complied with the procedural requirements of the Caretaker Agreement, for termination?

9. Mid Rise has also cross claimed. Its Cross Claim challenges the basis of the Caretaker Agreement at a more fundamental level: alleging that its February 2004 making and its October 2004 continuation were each voidable in equity, because Apartments breached fiduciary duties it then owed to Mid Rise. And Mid Rise further alleges that Apartments took advantage of its control over Mid Rise at the time, so that Mid Rise can now set aside the Caretaker Agreement against Apartments.

10. Mid Rise’s Cross Claim raises the following issues:

1. Whether at the time of making the Caretaker Agreement in 2004 Apartments owed fiduciary duties to Mid Rise, whether before or after that entity came into existence?

2. What was the content of any fiduciary duty Apartments owed to Mid Rise in relation to the making or continuation of the Caretaker Agreement?

3. Whether Apartments breached any fiduciary duty owed to Mid Rise in relation to the making of the Caretaker Agreement, and if so, to what relief is Mid Rise entitled?

11. Mr M.G. Rudge SC and Mr M.R. Hall appeared on behalf of Apartments and Mr G. Sirtes SC and Mr J. Knackstredt appeared on behalf of Mid Rise. The hearing proceedings took place over the following days in 8, 9, 10, 11, 14 & 15 October 2013. At the conclusion of the hearing the Court made further directions permitting the parties to advance supplementary written submissions. The program of written submissions concluded on 4 April 2014, when the Court reserved judgment.

12. Throughout these reasons the area of World Tower for which Mid Rise holds the common property is referred to as “mid-rise” and the area for which Low-Rise holds the common property is referred to as “low-rise”. The top portion of the World Tower comprising the single stratum that Properties owns is called “high-rise” in these reasons.

Development and Operation of the World Tower – 2003 to 2012

13. This section of these reasons contains an overview of the main events relevant to the disputes between these parties. More detailed findings about contested matters are considered later.

The Caretaker Agreement – February to October 2004

14. Apartments began selling lots off-the-plan in the mid-rise and low-rise sections of the World Tower building as those sections were being constructed during 2003. The building was close to completion when in June 2003 Apartments was actively selling units off-the-plan, well before the first deposited plan for World Tower had been registered.

15. The form of contract for sale of these early off-the-plan sales became part of a wider contest about the form of the Caretaker Agreement to which each of the lot owners had bound themselves: an issue relevant to the legal effect of the October 2004 general meeting of Mid Rise. One of these early purchasers, Mr Kim Ong, who became a long term mid-rise owner, acquired his lot off-the-plan on 27 June 2003. The form of the Caretaker Agreement annexed to his contract with Apartments is examined later in these reasons. Suffice it to say for present purposes that Mr Ong’s sale contract contained a draft Caretaker Agreement that was different in material respects from the one that Mid Rise and Apartments ultimately contended was in effect between them.

16. The strata plan of the World Tower developed in two phases. On 10 September 2003 Apartments first lodged a deposited plan (Deposited Plan 1057924) in respect of all of the land known as “World Tower” as a high-rise, mixed-use, commercial, residential and serviced apartment development. That original deposited plan comprised only three lots: Lot 801, the lot which Apartments ultimately transferred to Properties for use as serviced apartments in the high-rise section of the building; Lot 802 of which Mid Rise subsequently became the owner of the common property and comprised the mid-rise section of the building; and Lot 803, of which Low Rise subsequently became the registered proprietor of the common property and which comprised the low-rise section of the building.

17. The strata plan for the low-rise section of the building came into existence in September 2003, over six months before the strata plan for the mid-rise section in April 2004. On 17 September 2003 Apartments lodged SP 71067 creating a strata plan over the low-rise area (the old Lot 803) and bringing Low Rise into existence as its body corporate. The low-rise section of the building comprises carparking on levels 2 and 3, a loading dock on level 8, the street entry foyer on level 10, commercial offices on levels 8 to 17, and some residential apartments on levels 18 to 36 of the building. Thus Low Rise comprises a mixture of carparking, commercial and residential lots.

18. The Freehold Act, s 28R prohibits the Registrar General from registering a strata plan creating any strata parcel unless a strata management statement is also registered for the building and site concerned. As the strata plan that created Low Rise on 17 September 2003 was the first strata parcel created for this site, it was necessary for Apartments to lodge a section 28R strata management statement by that date. So on the same day, 17 September 2003, World Tower’s Strata Management Statement was registered. It created the World Tower Committee, comprising representatives from Low Rise and the two other stratum lots in SP 71067 that subsequently became the mid-rise and high-rise sections of the building. The Strata Management Statement also made the World Tower Committee responsible for the maintenance, repair and operation of certain identified “shared services” comprising various items of plant and equipment located throughout the building and which were shared by occupants of each of the low-rise, mid-rise and high-rise areas of the building. This statement was generally in conformity with the policy purpose of Freehold Act, Division 2B – Strata Management Statement. The detail of the World Tower Strata Management Statement will be considered later.

19. The low-rise section of the building was further developed into sections for commercial and residential use and for this purpose was subdivided on 6 November 2003, when Apartments registered Strata Plan SP 71357.

20. As a result of these events, by February 2004 Low Rise had been brought into existence, with control over the common property of the old Lot 803 in DP 1057924. But Apartments itself still held the other two lots in that deposited plan, Lots 801 and 802. The February 2004 Caretaker Agreement was executed against this background. On 4 February 2004 Apartments entered into a form of Caretaker Agreement with itself in various capacities (as caretaker and in respect of the mid-rise and high-rise sections of the building that it still owed) and with Low Rise. In February 2004 the Caretaker Agreement principally provided:

1. Low Rise and the bodies corporate that would in the future become incorporated as Mid Rise and Properties must for the ten year term of the agreement pay an annual fee to Apartments commencing at a base rate of $1.58 million per annum exclusive of GST in the first year indexed to the consumer price index (a figure set by Apartments), with the yet-to-be-incorporated Mid Rise being responsible for 33 per cent of that fee: Caretaker Agreement, clause 1, 2, and Schedule 1.

2. Apartments would perform duties as caretaker and building manager of the World Tower building for Low Rise and for the yet-to-be-incorporated Mid Rise and for Properties: Caretaker Agreement, Schedule 2.

3. Apartments had the benefit of termination clauses without penalty in a wide variety of circumstances, including where neither party under the Caretaker Agreement was in breach: Caretaker Agreement, clauses 5.1 and 5.2.

4. Low Rise and the yet-to-be-incorporated Mid Rise and Properties had rights of termination under the Caretaker Agreement but only in limited circumstances where Apartments had engaged in “serious persistent and continuing breach of the terms of the Agreement”: Caretaker Agreement, clause 5.3.

21. On 25 March 2004 an additional lot was created within the low-rise part of the building upon lodgement of another strata plan, SP 72262. The mid-rise section of the building became ready for occupation and then the creation of a strata plan in April 2004. On 2 April 2004 an interim occupation certificate was issued in respect of World Tower levels 39 to 50 and 61. At this stage no occupation certificate had yet been issued in respect of levels 51 to 60.

22. On 20 April 2004 Apartments lodged the strata plan for the mid-rise section of the building, SP 72381, which on registration brought Mid Rise into existence. Mid Rise thereby became the registered proprietor of the common property in respect of the following parts of the World Tower building, the storage areas on levels 4, 5, and 6, the residential apartments on levels 38 to 59 and parts of the plant and equipment rooms on levels 60 and 61. Upon coming into existence it became bound by the Caretaker Agreement which provided (in clause 12.4) that upon Mid Rise “coming into being” that it would “automatically become bound by this Agreement” as if it were an original executing party.

23. In June 2004 an occupation certificate was issued for levels 51 to 59, the remaining part of the mid-rise section of World Tower. On 23 June 2004 a development lot within mid-rise was created by further subdivision upon lodgement of another strata plan, SP 72843. No other matters of significance occurred between June 2004 and Mid Rise’s inaugural annual general meeting held in October 2004.

Mid Rise’s 2004 AGM – October 2004

24. The February 2004 Caretaker Agreement was replaced with a further Caretaker Agreement on 11 October 2004, the day of the first annual general meeting of the newly formed Mid Rise. Management Act s 40B(2) provides that a caretaker agreement comes to an end when the first annual general meeting of a newly formed owners corporation takes place. An extraordinary general meeting held immediately after the Mid Rise annual general meeting passed a resolution affirming the Caretaker Agreement.

25. To the extent that it is necessary for these reasons to distinguish between the Caretaker Agreements before and after 11 October 2004, the form of the Caretaker Agreement that was made in February 2004 and existed until October 2004 is called in these reasons the “February 2004 Caretaker Agreement”. And the form of Caretaker Agreement that operated after October 2004 is called in these reasons the “October 2004 Caretaker Agreement”.

26. A representative of Apartments, Mr Ray McDowell, attended Mid Rise’s first annual general meeting. He held proxies for Apartments in respect of 7,395 Mid Rise unit entitlements. He voted those unit entitlements on behalf of Apartments. Mr McDowell also attended the 11 October 2004 extraordinary general meeting, and voted the proxies on behalf of Apartments for a majority of the unit entitlements. The extraordinary general meeting resolved to appoint Apartments as its Building Manager, as the resolution in question states on “the terms and conditions marked Exhibit ‘A’ tabled at the meeting…”. No document marked ‘A’ was attached to or was with the minutes of that meeting. The parties accept that a form of the Caretaker Agreement was before this meeting even though none was ever executed on behalf of Mid Rise. But they are at issue as to the precise form of the terms and conditions that Mid Rise adopted at this meeting.

27. It is claimed by Mid Rise that no one signed the Caretaker Agreement on behalf of Mid Rise after 11 October 2004. But Mid Rise accepts that it became bound by the essential elements of the Caretaker Agreement as a result of the course of dealings between the parties over a long period between October 2004 and July 2012. But Mid Rise says that it did not become bound by all the terms of the Caretaker Agreement and especially the terms providing: (1) that it was to operate for 10 years (clause 4.1); and (2) that right to termination was restricted (clause 5.3).

Operation of the Caretaker Agreement – October 2004 to July 2012

28. But the parties put strongly competing contentions about the course of events during the period October 2004 to July 2012. But a brief overview of relevant events during that period is necessary.

29. Apartments contends that it and the other parties to the Caretaker Agreement, Low Rise, Mid Rise and Properties, acted at all times between October 2004 and July 2012 as though they were each bound by the Caretaker Agreement and that Mid Rise also exercised rights during this period granted under the Caretaker Agreement, namely rights to issue notices, to demand access to documents and records, to make and receive payments, and ultimately to seek to terminate the Caretaker Agreement according to its terms. Apartments says that as a result it is now too late for Mid Rise to be granted relief avoiding that agreement.

30. Much of what Apartments says about delay in challenging the Caretaker Agreement can be accepted. Mid Rise’s first intimation that the October 2004 Caretaker Agreement should be set aside came in Mid Rise’s Cross Claim filed in these proceedings.

31. World Tower was completed during 2005. On 4 January Apartments, then still the owner of the high-rise section of the building, transferred it to Properties. The high-rise section of the building was every part of the World Tower building not controlled by either Low Rise or Mid Rise, namely levels 6, 7 and 10 and 61 to 79.

32. On 5 August 2005 the City of Sydney Council issued a final occupation certificate in respect of levels 2 to 38 of World Tower. On 31 August 2005 Advance Building approvals issued a final occupation certificate in respect of levels 39 to 85 of World Tower.

33. Between 2004 and 2010 Apartments performance of the Caretaker Agreement was reasonably uncontentious. In 2010 the first Apartments – Mid Rise tensions appeared, tensions that ultimately led to the termination of the Caretaker Agreement in July 2012. The mid-rise lot owner Mr Ong, who gave evidence for Mid Rise says, and I accept that relations between Mid Rise and Apartments “significantly deteriorated” from about April 2010 to the point where the relationship as at July 2012 was completely paralysed and dysfunctional.

34. This standoff is evident at the World Tower reception (the Liverpool ground level) of the building. Since about mid 2012 Apartments has displayed a sign at the desk on Level 10 that states Mid Rise’s residents are to direct any inquiries to Mid Rise’s office on Level 38. The two parties now mostly communicate through their lawyers. The particular allegations of breach of the Caretaker Agreement during this period are best considered when individual breaches of the Caretaker Agreement are being analysed, later in these reasons rather than as part of this general chronology. But some particular events are still relevant.

35. On 15 April 2011 Mid Rise commenced related proceedings in this Court against Apartments and another Meriton company alleging defects in the construction of the World Tower building.

36. On 13 December 2011 Apartments commenced these proceedings by summons and notice of motion seeking urgent interlocutory relief in relation to Mid Rise’s alleged breaches of the Caretaker Agreement and the Strata Management Statement. The application for interlocutory relief was ultimately resolved through consent orders entered without admission.

37. On 18 May 2012 the World Tower Committee constituted under the Strata Management Statement met for the first time.

38. On 12 July 2012 Mid Rise resolved at its annual general meeting to terminate the Caretaker Agreement. On 13 July 2012 Mid Rise served a notice of termination upon Apartments.

39. Since then there has been a legal stand-off. Apartments has continued to treat Mid Rise’s termination as a wrongful repudiation of the Caretaker Agreement and has affirmed the Caretaker Agreement by continuing to offer to perform services under the agreement. But Mid Rise has refused to accept those offered services and has communicated that it considers its termination to be valid and that it will no longer accept Apartments services under the Caretaker Agreement.

40. On 30 May 2013 Mid Rise engaged building services provider, Moreton & Moreton to assist it in building management of its common property.

The Caretaker Agreement – Legislation and Terms

The Legislative Framework

41. The Management Act governs the making and operation of the Caretaker Agreement. The Management Act provides for the management of strata schemes created under the related Strata Schemes (Freehold Development) Act 1973: Management Act, s 3. After registration of a strata plan the body corporate of a newly created strata scheme has principal responsibility for the management of the scheme: Management Act, s 8. But the body corporate may be assisted in carrying out its management functions by an executive committee, established in accordance with Management Act, Part 3, by a strata management agent appointed in accordance with Management Act, Part 4, and by a caretaker appointed in accordance with Management Act, Part 4A: Management Act, s 9. On registration of the strata plan for a strata scheme Management Act, Part 5 provides for a set of by-laws to be applied to the strata scheme: Management Act, s 10.

42. These reasons deal later with the interrelationship of aspects of the Management Act: namely Management Act, Part 2 – The Principal Manager – the Owners Corporation, with Part 3 – Others Involved in Management – the Executive Committee, with Part 4 – Others Involved in Management – Strata Managing Agents, and with Part 4A – Others Assisting in Management – Caretakers.

43. Of principal significance to the present dispute is Management Act, Part 4A, which was introduced into the Management Act by the Strata Schemes Management Amendment Act (“the 2002 Amendment Act”) 2002 . Part 4A provides who may be a caretaker to a strata scheme, how a caretaker is appointed and the specific owners corporation functions in which the caretaker is permitted to assist. Caretakers have a special exclusive relationship with a lot or common property in the strata scheme, as Management Act, s 40A provides:

“40A Who is a caretaker?

(1)   A caretaker is a person who is entitled to exclusive possession (whether or not jointly with another person or other persons) of a lot or common property and assists in exercising any one or more of the following functions of the owners corporation for the strata scheme concerned:

(a)   managing common property,

(b)   controlling the use of common property by persons other than the owners and occupiers of lots,

(c)   maintaining and repairing common property.

(2)   However, a person is not a caretaker if the person exercises those functions only on a voluntary or casual basis or as a member of the executive committee.

(3)   A person may be both a caretaker and an on-site residential property manager.

(4)   For the purposes of this Act, a person is taken to be a caretaker for a strata scheme if the person meets the description of a caretaker set out in this section, regardless of whether the title given to the person’s position is caretaker, building manager, resident manager or any other title.”

44. Caretakers must be appointed by a written caretaker agreement that has been created and continues in operation in accordance with provisions of Management Act, s 40B:

“40B How is a caretaker appointed?

(1)   A caretaker is required to be appointed by an instrument in writing (a caretaker agreement) executed before or after the strata scheme commenced by the caretaker and:

(a)   by the original owner, if executed before the strata scheme commenced, or

(b)   under the authority of a resolution passed at a general meeting of the owners corporation of the strata scheme concerned, if executed after the strata scheme commenced.

(2)   Unless it expires or otherwise ceases to have effect earlier, a caretaker agreement (including any additional term under any option to renew it) expires:

(a)   at the conclusion of the first annual general meeting of the owners corporation, if the agreement was executed by the original owner, or

(b)   when 10 years have expired after it commenced to authorise the caretaker to act under it, in any other case.

(3)   The functions of a caretaker under a caretaker agreement may be transferred to another person only with the approval of the owners corporation. A person to whom those functions are transferred is taken to be appointed as a caretaker by the caretaker agreement.

(4)   An owners corporation may terminate a caretaker agreement in accordance with its terms, and may approve a transfer of the functions of a caretaker, if authorised by a resolution at a general meeting of the owners corporation.”

45. Management Act, s 40B makes clear a caretaker agreement may be made before a strata plan is registered, and thus before an owners corporation which is proposed to be a party to that agreement has come into existence. Apartments submits that Management Act, Part 4A sets out a comprehensive scheme dealing with the making of caretaker agreements for strata schemes and therefore leaves no room for the operation of equitable doctrines relating to promoters. Mid Rise contests this submission and submits that Apartments owes fiduciary duties as a promoter of Mid Rise.

46. A caretaker may only assist with defined functions of an owners corporation: those related to the maintenance and repair of common property. Management Act, s 40C provides:

“40C With which functions of an owners corporation can a caretaker assist?

(1)   A caretaker may, in accordance with the caretaker agreement appointing the caretaker, assist in exercising one or more of the functions of the owners corporation of managing and controlling the use of common property (otherwise than by the owners or occupiers of lots) and of maintaining and repairing common property.

(2)   However, the owners corporation may continue to exercise all or any of those functions, subject to the caretaker agreement.

(3)   A person is not a strata managing agent for the purposes of this or any other Act only because the person is a caretaker acting in accordance with a caretaker agreement.”

47. The 2002 Amendment Act also amended Management Act: (1) to include caretaker agreements in the documents that owners (and persons authorised by Owners, such as prospective purchasers) may inspect among the records of the Owners Corporation (s 108); and (2) to include caretaker agreements among the information in relation to a strata scheme that may be the subject of a certificate to be provided on request by an Owners Corporation.

48. Finally, the 2002 Amendment Act conferred jurisdiction on the Consumer Trader and Tenancy Tribunal to make a range of orders in relation to the caretaker agreements: s 183A. These provisions will be discussed in more detail later in these reasons.

49. The February 2004 Caretaker Agreement was drafted within this legislative framework.

The Terms of the February 2004 Caretaker Agreement

50. In the February 2004 Caretaker Agreement Low Rise then described as The Owners Strata Plan 71067 was called the “Lot 803 Owner”, and Meriton in its capacity as owner of the mid-rise section of World Tower was called the “Lot 802 Owner” and in its capacity as owner of high-rise section was called the “Lot 801 Owner”.

51. The 4 February 2004 Caretaker Agreement set out the following relevant definition of particular terms:

“‘Common Property’

(a)   has the meaning given in the Act if the stratum lot is or will be subdivided by a strata plan of subdivision;

(b)   means all areas of a stratum lot in common use if the stratum lot has not or will not be subdivided by a strata plan of subdivision; and

(c)   the World Tower Shared Facilities.

‘Complex’ means the building known as ‘World Tower’, 85-95 Liverpool Street, Sydney, New South Wales.

‘Duties’ means the duties in Schedule 2.

‘Lot’s Representative’ means the representative of each of the Lots appointed under clause 16.3.

‘Occupation Certificate’ means a certificate issued by a Council pursuant to Part 4A of the Environment Planning and Assessment Act 1979.

‘Owners’ means the Lot 801 Owner, the Lot 802 Owner and the Lot 803 Owner.

‘Owners Representative’ means the representative of the Owners appointed under clause 16.2.

‘Remuneration’ means the sum specified in Item 1 of Schedule 1 subject to clause 2.

‘Term’ means a term of 10 years commencing on the date of this Agreement and expiring 10 years from the date of this Agreement.

‘World Tower Committee’ means the management committee established under Section 2 of the Strata Management Statement in relation to the Complex.

‘World Tower Shared Facilities’ has the meaning given in the Strata Management Statement.

…

A2.   In this Agreement unless the context requires another meaning:

(a)   a reference:

(i)   to the singular includes the plural and vice versa;

…

(b)   Where a word or phrase is defined, its other grammatical forms have a corresponding meaning.”

52. Clause 1 provides for the appointment of the Caretaker:

“1. Appointment of Caretaker

1.1   The Owners engage the Caretaker to assist the Owners to manage the Common Property, to control the use of the Common Property by visitors and to maintain and repair the Common Property by performing the Duties in a conscientious, expeditious and workmanlike manner and to assist the Owners to secure, clean and maintain the Complex and to permit the Complex to be enjoyed as a high class residential development.

1.2   The Caretaker accepts the engagement under clause 1.1 upon the terms and conditions of this Agreement.

1.3   In consideration for the performance by the Caretaker of the Duties, the Owners must pay the Caretaker the Remuneration. The Owners must pay their proportion of the Remuneration in accordance with Item 2 of Schedule 1 of this Agreement subject to clause 1.6. The Owners acknowledge that the Owner’s proportion of the Remuneration is payable whether or not the Duties are performed in respect of their Lot or the World Tower Shared Facilities.

1.4   The Owners must pay their share of the Remuneration:

(a)   by equal fortnightly instalments in advance, each payment being one-twenty sixth of the Remuneration then due as fixed or varied under this Agreement;

(b)   upon demand by the Caretaker and without deduction or set-off;

(c)   by any method required by the Caretaker, including by direct debit into an account as directed by the Caretaker, by cash, by cheque, or by banker’s order on the Caretaker’s bank; and

(d)   as reasonably directed by the Caretaker.

1.5   If an instalment of Remuneration is for a period of less than 14 days, then that instalment is the Remuneration divided by 365, multiplied by the number of days remaining in that period.

1.6   Despite anything to the contrary in this agreement, an Owner is not liable to pay its proportion of the Remuneration unless and until the following:

(a)   In respect of Lot 803:

(i)   As to the sum of $200,000.00 per annum – on and from the date an Occupation Certificate for Stage 1 of Lot 803 has been granted by Council.

(ii)   As to the sum of $447,800.00 per annum – on and from the date an Occupation Certificate for Stage 2 of Lot 803 has been granted by Council.

(b)   In respect of Lot 802:

(iii)   As to the sum of $300,000 per annum – on and from the date an Occupation Certificate for Stage 1 of Lot 802 (including the pool) has been granted by Council.

(iv)   As to the sum of $221,400.00 per annum – on and from the date an Occupation Certificate for Stage 2 of Lot 802 has been granted by Council.

(c)   In respect of Lot 801:

As to the sum calculated in accordance with the following formula – on and from the date an Occupation Certificate has been granted by Council for each stage of Lot 801:

$410,800.00 per annum x (A/B)

Where:

A is the number of Units in that stage of Lot 801 that has been granted an Occupation Certificate by Council.

B is the total number of Units in Lot 801.

For the avoidance of any doubt, the amounts referred to in clause 1.6 are with respect to the Remuneration for the first year of the Term only.”

53. Clause 2 provides for review of the “Remuneration” as defined from a Review Date which is the anniversary of the Agreement, so that there is a consumer price index (CPI) review each year and then after six years a review to market on the “market review date” although these reviews cannot reduce the Caretaker’s Remuneration.

54. The Caretaker is permitted to undertake functions of the buying, selling, leasing, assigning or disposal of strata lots in the complex and to perform property management services including rent collection for the lease of strata lots in the complex. These are defined as “agents and services”, which are regulated by clause 3, that provides:

“3.   Agency Services

3.1   The Caretaker may provide the Agency Services to the registered proprietors of Units in the Complex, at their request and subject to agreement between the Caretaker and the registered proprietors of the terms on which the Agency Services are to be provided.

3.2   Under no circumstances will the Owners be liable to pay the Caretaker any consideration for the Agency Services or to reimburse the Caretaker for any expenses incurred in providing the Agency Services.”

55. Clause 4 fixes the ten year term of the agreement defined as the Term but subject to termination provisions in clause 5. Clause 5 provides for a procedure for termination of the Caretaker Agreement in certain defined circumstances:

“5. Termination

5.1   In addition to the termination rights under clause 5.2, the Caretaker may terminate this Agreement without penalty to the Caretaker:

(a)   at any time and for any reason by giving to the Owners not less than three months’ notice in writing; and

(b)   if the Lot has been subdivided by a plan of strata subdivision, at any time by giving not less than 14 days notice in writing to the Owners should the By-Laws be varied or repealed without the consent of the Caretaker.

5.2   The Caretaker may terminate this Agreement at any time by notice in writing to the Owners if any of the following occur:

(a)   any serious, persistent and confirming breach by any one or more of the Owners of their obligations under this Agreement and such a breach is not remedied by the relevant Owner or Owners in breach within 30 days after written notice has been given to that Owner specifying the breach; or

(b)   an order is made for the Owners or any one of them to be wound up, or any one or more of the Owners enters into a deed of arrangement or a receiver or receiver/manager is appointed to any one or more of the Owners.

The Owners covenant to compensate the Caretaker for the loss or damage suffered by the Caretaker as a consequence of the breach, whether or not this Agreement is terminated for the breach or on any other ground.

5.3   The Owners may terminate this Agreement at any time by notice in writing to the Caretaker if any of the following occur:

(a)   any serious, persistent and continuing breach by the Caretaker of its obligations under this Agreement and such a breach is not remedied by the Caretaker within 30 days after written notice has been given to the Caretaker by the Owners specifying the breach; or

(b)   an order is made for the Caretaker to be wound up, or the Caretaker enters into a deed of arrangement or a receiver or receiver/manager is appointed to the Caretaker.

The Caretaker covenants to compensate the Owners for the loss or damage suffered by the Owners as a consequence of the breach, whether or not this Agreement is terminated for the breach or on any other ground.”

56. Clause 6 provides for certain consequences of either the expiration of the Term or of termination:

“6.   In the event of the expiration of earlier termination of this Agreement under clause 5, the Caretaker must:

(a)   remove:

(i)   alterations, additions, fixtures, partitions and fittings made or installed by the Caretaker in the Complex and the Caretaker’s plant, equipment and other articles or items belonging to the Caretaker in the Complex;

(ii)   all signs and notices erected or affixed by the Caretaker to the Complex;

(iii)   all nails and screws inserted by the Caretaker into any part of the Complex;

(b)   reinstate the Complex to their condition before any alterations, additions, installations and partitions were made or installed by the Caretaker; and

(c)   make good, in a proper and workmanlike manner, any damage caused to the Complex by the installations and their removal.

57. The Caretaker is required to effect all necessary insurance required by law (clause 7) and to indemnify the owners from liability or loss occasioned by the Caretaker’s negligence (clause 8).

58. Clause 9 defines the level and standard of services required from the Caretakers Employees and of the equipment that will be provided under the contract:

“9. Caretaker’s employees and Equipment:

9.1   The Caretaker must use its best endeavours to hire employees, contractors and agents that are competent, appropriately trained and have the proper skills, qualifications and licences to perform the Duties under this Agreement including at least the following:

(a)   two security guards for 24 hours per day 7 days per week;

(b)   one general manger for 54 hours per week;

(c)   one maintenance manager for 54 hours per week;

(d)   one assistant manager for 40 hours per week; and

(e)   one concierge for 105 hours per week.

9.2   The Caretaker must ensure that its employees, contractors and agents have adequate training, instructions and supervision so as to permit the performance of the Duties to the appropriate standard.

9.3   The Caretaker must appoint the Caretaker’s Representative to liaise with the Owners’ Representative and the Lot’s Representative.”

59. Several provisions define the nature of the Owners – Caretaker relationship. It is non-exclusive (clause 10) and is not one of partnership, employer and employee, or principal and agent (clause 11).

60. The Caretaker may assign the Caretaker Agreement with the consent of the owners by means of the procedures described in clauses 12.1, 12.2 and 12.3. Clauses 12.4 and 12.9 provide for the Owners Corporation coming into being:

“12.4   On the date the Owners Corporation comes into being, the Owners Corporation automatically becomes bound by this Agreement. From that date, the Owners Corporation is entitled to the rights and is bound by the obligations of an Owner under this Agreement as if the Owners Corporation was one of the original Owners who executed this Agreement

…

12.9   Each Owner must take all steps, execute all documents and do all things necessary to give effect to the intent of this clause 12 including passing a resolution to ratify this Agreement at a meeting of the Owners Corporation where the Lot has been subdivided by a plan of strata subdivision.”

61. Clause 14.1 provides a mechanism for dispute resolution:

“14.1   If there is a dispute in respect of this Agreement, any party to this Agreement (or parties if the dispute is common to two or more of the parties) may serve upon the other parties a notice (‘Dispute Notice’) setting out:

(i)   what that party considers is in dispute; and

(ii)   what that party requires to be done to resolve the dispute and the grounds it has for those requirements.”

62. The Caretaker Agreement contains a severance clause (clause 15) allowing illegal, invalid, unenforceable or void provisions to be ignored, read down or severed to preserve the essence of the bargain between the parties.

63. The Agreement deals with a number of other subsidiary issues: it is acknowledged that the Caretaker is not appointed as a Strata Managing Agent or to have any functions of the owners delegated to it under Management Act, s 28 (clause 17); or prices under the agreement are exclusive of GST (clause 18); the Caretaker may use the benefit of the Agreement for security for the financing (clause 19); the Caretaker has a right of exclusive use of the Caretaker’s area to carry out the Duties and Agents and Services.

64. Finally, the parties acknowledge the incomplete state of the complex at the time the agreement was signed in clause 21:

“21.   Complex not yet completed

21.1   Despite anything to the contrary in this Agreement, the Owners acknowledge and agree that as at the date of this Agreement, the Complex is not yet fully completed and fully occupied. The Owners agree that the Caretaker will perform the Duties that are reasonably appropriate and at the frequency reasonably necessary having regard to the stage of completion of the Complex, the number of occupants in the Complex and the monies available from the budgets of the Lots.

21.2 Without limiting clause 21.1, the Caretaker’s obligations under clause 9.1 are subject to clause 21.1”

65. In such a complex, the parties contemplated that the most efficient way for the parties to the Caretaker Agreement to communicate with one another was through designated representatives, who could liaise with and meet one another. To that end clause 16 provides:

“16. Duties of the Owners

16.1   The Owners must do all acts and attend to all matters and generally do all things as are reasonably required to facilitate the carrying out by the Caretaker of the Duties including assisting the Caretaker in obtaining appropriate notices, consents or licences from any person, company, statutory authority or other body.

16.2   The World Tower Committee must appoint the Owners’ Representative to liaise with the Caretaker on behalf of the Owners in respect of the World Tower Shared Facilities.

16.3   The Executive Committee for each of the Lots must appoint a Lot’s Representative to liaise with the Caretaker on behalf of each Lot in respect of the Common Property of Lot 801, Lot 802 and Lot 803 that does not comprise World Tower Shared Facilities.

16.4   The Caretaker is not required to comply with any direction in respect of the Duties from any person, other than the Owner’s Representative and the Lot’s Representative and not to follow any direction that is inconsistent with the rights of any of the Owners.”

66. Caretaker Agreement, Schedule 1, identifies as “Item 1” Remuneration of $1,580,000 per annum (exclusive of GST) subject to Clause 2, the clause providing a review mechanism for the Remuneration linked to the Consumer Price Index.

67. Schedule 2 provides for the duties of the Caretaker. The parties contested Apartments’ performance of a number of these duties in Mid Rise’s breach of contract case. Clauses 1, 2, 3, 5, 8, 9, 16, 17, 23, 24, 26, 27, 30, 33, 34, 38, 39 and 41, were the subject of or relevant to these contests.

“GENERAL DUTIES

The Caretaker will by its employees, contractors or agents at the cost of the Owners in all respects:

1.   Attend to the security, cleaning and maintenance of the Common Property and any improvements thereon and in so doing it will use its best endeavours to maintain the Common Property in a good state of repair (fair wear and tear excepted).

2.   Report on any breaches of security, the by-laws or rules made by the Owners in respect of each Lot by the proprietors or occupiers of a Unit and their invitees. If directed by the Owners’ Representative or the Lot’s Representative, the Caretaker must serve notices on the same in relation to the breaches and must record all breaches for future references.

3.   At the request of the Owners’ Representative and the Lot’s Representative advise them concerning the performance of the Duties by the Caretaker and provide other advice that they request in respect of the maintenance, security and care of the Common Property.

…

5.   Report promptly on all things requiring repair and on all matters creating a hazard or danger of which the Caretaker has notice and take remedial action where practicable.

…

8.   Comply with and carry out all reasonable directions from time to time given by the Owners’ Representative and the Lot’s Representative to the Caretaker in and about the security, maintenance and care of the Common Property.

9.   At all times ascertain and use its best endeavours to be aware of the general condition of the Complex and all machinery thereon and appurtenances thereto so that at all times the Caretaker is able to keep informed the Owners’ Representative and the Lot’s Representative in respect therof.

…

16.   Regularly inspect or cause to be inspected the lifts and electric or electronic security or other systems in the Complex and recommend to the Owners quotes for acceptance by the Owners and supervise the maintenance or other works necessary to keep them in efficient working condition at the expense of the Owners.

17.   Use its best endeavours to ensure that all common electrical apparatus including lighting is kept fully functional throughout the Complex and recommend to the Owners quotes for acceptance by the Owners and supervise the maintenance or other works necessary to keep such apparatus in efficient working condition by a duly qualified person provided however that the cost of any light globes, tubes, fuses and maintenance and other works will be borne by the Owners.

…

23.   Inspect all maintenance matters raised by registered owners and occupiers of Units relating to the Common Property within the Complex prior to referral of such maintenance matters to the Owners.

24.   Account promptly and faithfully to the Owners and to the occupiers and registered proprietors of Units, as the case may be, for all their funds or other property (if any) in the possession or custody of the Caretaker.

…

26.   Be in attendance at the reception areas of the Complex between the hours of:

Monday to Friday inclusive      8.00am – 6.00pm

Saturday            9.00am – 1.00pm

27.   Keep and maintain the reception areas of the Complex at all times in a clean and tidy condition.

…

30.   Be available to attend the World Tower Committee meetings and meetings of the Executive Committee of the Lots to provide progress reports and general information regarding the operation of the Complex along with recommendations for improvements if required.

…

33.   Be observant to trespassers and any improper use of the Common Property of the Complex, including visitor parking by non-visitors. Keep a log of offenders to be used by the Strata Managing Agent. Contact law enforcement or local authorities for assistance where appropriate.

34.   Establish rapport with firms and individuals to improve services for the cohesive performance of the Complex.

…

38.   Keep maintenance and service records for all work carried out to the Common Property and fixtures and fittings of the Complex. Develop proactive schedules from this information to assist in budgeting for the World Tower Committee and the Executive Committees for the Lots.

39.   Organise, schedule and co-ordinate all people moving in or out of the Complex to minimise damage and inconvenience to residents.

…

41.   Records all purchases made by or directed by the World Tower Committee and the Executive Committee for the Lots and maintain supporting documentation.”

Apartments’ Claims on the Caretaker Agreement and the Strata Statement

68. Apartments originally pleaded its claim for money and answered some of Mid Rise’s allegations of breach of the Caretaker Agreement, through the terms of the Strata Management Statement, registered in respect of the World Tower building on 17 September 2003.

69. This registration occurred at the same time that Low Rise’s Strata plan was created. Strata management statements are compulsory where more than one strata plan or stratum parcel is to subsist in the same building or on the same site: Freehold Act s 28R(1). Under Freehold Act s 28W a strata management statement takes effect as an agreement under seal and by which the relevant Owners Corporation covenants with each other party to carry out its obligations under the statement.

70. Apartments originally contended that the obligations that bound Mid Rise under the Strata Management Statement obliged Mid Rise to pay a proportion of the costs of the World Tower Shared Facilities (as such costs are defined in the Strata Management Statement, Part 2) and to permit nominated contractors to access those facilities, if the facilities are located on a particular lot (clause 3.6). Apartments says that Mid Rise has failed to pay its proportion of the costs of the World Tower shared facilities and has refused access to those shared facilities in breach of clause 3.6.

71. Ultimately Apartments abandoned any positive case it had pleaded based on the Strata Management Statement. But Apartments nevertheless continued to deploy the instrument as an aid to construction of the Caretaker Agreement. Some background to the Strata Management Statement for the World Tower is therefore useful.

72. Mid Rise originally contended that no action on the Strata Management Statement for a proportion of the World Tower shared facilities was maintainable against it, because Apartments has not observed certain other requirements of the Strata Management Statement, such as with respect to the holding of meetings. Apartments contended that it had in fact observed these requirements of the Strata Management Statement. Apartments also contended that: (1) as a document registered against the title of Mid Rise the Strata Management Statement has statutory force as an integral part of the regulation of this complex development established under the legislation; and (2) its own compliance with the Strata Management Statement is not a precondition to it enforcing the statutory obligations the same statement creates.

73. The parties abandoned their Strata Management Statement contest in the course of the hearing. Apartments made clear in final submissions that it was no longer pressing for relief against Mid Rise in connection with the Strata Management Statement. This came as no surprise, as very little had been said about Strata Management Statement related claims on either side during the hearing. The money relief Apartments claimed under the Strata Management Statement was a little over $10,000. The whole argument was overshadowed by the far higher value issues at stake under the Caretaker Agreement.

74. This eliminates a number of issues that occupied the parties’ time in the proceedings. Low Rise had been joined in the proceedings after passing a resolution under Management Act, s 80D. The resolution was qualified with requirement that Apartments supply the Executive Committee of Low Rise with written legal advice and that Apartments indemnify Low Rise with respect to the proceedings. Mid Rise called for access to that legal advice. That advice was produced to the Court which ruled against Mid Rise’s application for access to it. Mid Rise sought in final submissions to re-visit that ruling, in accordance with a liberty the Court granted for that purpose.

68. The abandonment of this part of the proceedings will still require orders to finalise the position of the parties. In April 2013 Windeyer AJ granted an injunction to prevent work being performed on Mid Rise’s common property by Apartments without Apartments’ prior consent. Mid Rise contends this injunction should be made permanent. In light of the detailed findings in these reasons the injunction may no longer be necessary. But if it is thought to be necessary, that can be debated at the time final relief is granted.

69. The abandonment of this part of the case also means that the World Tower Committee with representatives of Low Rise, Mid Rise and Properties should continue to operate in accordance with the Strata Management Statement, unaffected by any part of these proceedings. Such future problems as may arise with respect to the operation of the Strata Management Statement can be dealt with under the Freehold Act, s 28U(1)(b).

Was Mid Rise’s July 2012 Termination Effective?

Overview of the Termination Issues

77. Apartments contests Mid Rise’s claim that it validly terminated the Caretaker Agreement in July 2012 either under its express termination provision (clause 5.3) or at common law.

78. Apartments disputes Mid Rise’s claims on three main bases. Apartments says that: (1) the precondition for the exercise of the termination clause, that the caretaker was in “serious, persistent and continuing” breach of the agreement, had not been met; (2) there is no unilateral right for a single party to the Caretaker Agreement to terminate it but that properly construed the termination clause requires joint action of the three owners together to effect valid termination; and (3) Mid Rise failed to comply with the notice provisions of the Caretaker’s Agreement and denied Apartments the opportunity to remedy any breach that had allegedly occurred. These reasons deal with each of these contentions in turn. Apartments’ first contention requires detailed analysis of Mid Rise’s individual allegations of breach. Apartments’ second and third contentions deal together with all Mid Rise’s allegations of breach.

79. On the issue of Mid Rise’s unilateral termination, Apartments contends that, properly construed, the Caretaker Agreement, clause 5.3 does not provide a unilateral right of termination for any single owner. The Caretaker Agreement defined the term “Owners” to mean all three owners of different stratum lots, reducing the scope to interpret the word to include each owner alone. Moreover, Apartments says that interpretation is not attractive in a building of complex interrelated service systems such as World Tower, where common fire control, building security, and other systems service the three parts of the building, low-rise, mid-rise and high-rise. Mid Rise says it may terminate the agreement unilaterally, as any other construction of clause 5.3 would be oppressive to it.

80. On the issue of contractual notice of breach, Apartments alleges that: (1) Mid Rise has failed to comply with the Caretaker Agreement notice of breach provisions as any notice that Mid Rise gave neither identified a breach nor provided a period for any such breach to be remedied; (2) Mid Rises’s failure to comply with these notice provisions is demonstrated by Mid Rise’s inability to identify and give particulars in these proceedings of the precise notices of breach on which it relies; and (3) Mid Rise cannot avail itself of the Caretaker Agreement’s termination provisions without strictly conforming to the procedural mechanisms that the clause requires preceding termination. As a result Apartments says that it is entitled to declarations that the Mid Rise attempted termination was ineffective, that the agreement remains on foot and that Apartments is now entitled to judgment against Mid Rise for the unpaid contributions

81. Mid Rise contests these claims but says in the alternative that Apartments’ breaches of the Caretaker Agreement were breaches of an essential term or were sufficiently serious breaches of an innominate term as will permit Mid Rise to terminate the Caretaker Agreement at common law: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115, 136-139. The serious breaches Mid Rise relies on are Apartments: (1) failure to account for monies received by it on behalf of Mid Rise (Caretaker Agreement Schedule 2 clauses 1.1 and 24); (2) demanding the wrong amount of remuneration as due to it under the Caretaker Agreement (clauses 1.3 and 1.4); and (3) a refusal to accept instructions from Mid Rise’s contractually nominated representative (clauses 1.6, 16.3 and 16.4 and Schedule 2 clause 8).

82. It is necessary to examine Mid Rise’s individual allegations of breach. But first there are differences between the parties about the scope of the Caretaker Agreement and in particular whether or not it includes a termination clause.

The Scope of the Caretaker Agreement

83. The parties are at issue as to which terms of the written form of Caretaker Agreement are binding between them; an issue arising because in October 2004 there is no proof that Mid Rise executed the Caretaker Agreement. It is unclear whether Mid Rise did execute the agreement. Apartments contends that all the written terms of the Caretaker Agreement are binding on its parties, Apartments, Low Rise, Mid Rise and Properties. But Mid Rise contends that it never became bound by all the terms in the written form of the agreement.

84. Mid Rise does accept that it became bound by parts (only the essential elements), of the Caretaker Agreement as a result of both its conduct between February and October 2004 and of the course of dealing between Mid Rise and Apartments over a lengthy period of time after October 2004: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, at 534-535 (McHugh JA, Samuels JA agreeing) and Branir Pty Ltd v Owston Nominees (No. 2) Pty Ltd (2001) 117 FCR 424 at 525 (Allsop J, Drummond and Mansell JJ concurring).

85. But Mid Rise contends that Caretaker Agreement clause 4.1 (the 10 year term of the Agreement) and clause 5.3 (Mid Rise’s right of termination) did not bind it. Mid Rise further contends that Mid Rise and Apartments did not reach “mutual assent” in relation to those two particular terms of the Caretaker Agreement, because they were not essential elements of the bargain between the parties: Branir Pty Ltd v Owston Nominees (No. 2) Pty Ltd (2001) 117 FCR 424 at 525.

86. Put simply Mid Rise’s contention is that its conduct in accepting the benefit of the caretaking services that Apartments was providing and in its paying for those services signifies little more than its assent to those services being provided in turn for that payment. It does not signify assent to all the written forms of the Caretaker Agreement. But in my view Mid Rise’s conduct which relies on aspects of the Caretaker Agreement over such a lengthy period after the resolutions passed on 11 October 2004, is quite inconsistent with any conclusion that Mid Rise is only bound by parts of the Caretaker Agreement. It was bound by the whole agreement.

87. Leave aside for the moment the consequences of the parties not being bound by clause 4.1, Mid Rise contends that as it was not bound by clause 5.3, it was entitled to terminate the Caretaker Agreement at common law, untrammeled by any restrictions clause 5.3 might infer for those common law rights. That question will be briefly considered separately. Although it is not strictly necessary to decide it, as the Court later finds in these reasons that Apartments has not breached the Caretaker Agreement, so as to permit Mid Rise to terminate at common law.

88. Mid Rise further contends even if it were bound by clause 5.3, that the clause does not purport to exclude Mid Rise’s common law rights to terminate in any event. This is said to flow from the language of clause 5.3 itself. Again, the Court’s later findings make clear that Mid Rise cannot exercise any common law rights to terminate this Caretaker Agreement. So it is also not strictly necessary to decide this question. But as the parties argued it thoroughly the Court’s conclusions are briefly recorded here.

89. Mid Rise argues the following on this issue. First, clause 5.3 provides that the Owners “may” terminate pursuant to those provisions, importing thereby the idea that the Owners may terminate otherwise than pursuant to its provisions. Secondly, the Caretaker Agreement expressly contemplates that it might be terminable by the Owners on grounds other than those in clause 5.3 itself. The concluding words of clause 5.3 contain this indication:

“The Caretaker covenants to compensate the Owners for the loss or damage suffered by the Owners as a consequence of the breach, whether or not this Agreement is terminated for the breach or on any other ground”. [emphasis added]

90. Thirdly, in the absence of express indication to the contrary, common law rights of termination would continue to subsist: Progressive Mailing House Pty Ltd vTabaliPty Ltd (1985) 157 CLR 17, 29-30, (“Progressive Mailing”), Apriaden Pty Ltd v Seacrest Pty Ltd (2005) 12 VR 319; [2005] VSCA 139; [32] – [50] and [74] (“Apriaden”) and Concut Pty Ltd v Worrell (2000) 176 ALR 693, 699-700; [2000] HCA 64 (“Concuts”); and see also Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 715623 [2009] NSWSC 882 at [45].

91. Apartments submits that clause 5.3 comprehensively regulates the rights of Mid Rise to terminate the Caretaker Agreement and that giving a notice of termination without following that mechanism renders the purported termination invalid. Apartments relies upon Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527; 92 ALR 601 (“Amann Aviation”) and Lockland Builders Ltd v Rickwood (1995) 77 BLR 38 (“Rickwood”). Apartments puts this argument the following way.

92. Apartments contends that clause 5.3 is a complete code for the termination of the Caretaker Agreement and displaces any common law rights of termination that would otherwise exist and that failure to comply with the notice provisions of the clause renders a purported termination ineffective. Apartments says that JW Carter, Carter’s Breach of Contract, (1st ed 2011, LexisNexis, Butterworths), [10-16], p 455 accurately states the applicable law:

“It is, of course, easy to understand why an express right should not displace a right to terminate on the basis of repudiation of obligation in the form of an express refusal to perform, including a wrongful termination. It is less easy to accept that, in addition to rights expressly conferred, all common law rights of termination remain available to a promisee. From a commercial perspective, express rights are designed to provide certainty. Parties to commercial contracts do not agree on such regimes merely to supplement common law rights. The commercial intention is to replace those rights. If an event within the express clause occurs, there is no commercial justification for permitting parties to second-guess their agreed regime. The starting and finishing point in relation to such clauses ought to be that the parties have spoken. An express right of termination is not analogous to an exclusion clause. The better conclusion, therefore, is that the express provision deals exhaustively with bases for termination which activate the clause. For example, an express provision dealing with notice to complete a sale of land contract must displace the common law procedure applicable following delay in performance. Only an express refusal to perform should stand on a different footing.”

93. Apartments submits that it has not expressly refused to perform and has not wrongfully terminated the Caretaker Agreement: thus the balance of Professor Carter’s statement of principles is applicable.

94. Apartments relies on two cases as practical applications of the principle stated by Professor Carter. The first is the decision of the Full Court of the Federal Court of Australia in Amann Aviation But Amann Aviation has partly informed Professor Carter’s analysis above.

95. Apartments also relies on Rickwood, a decision of the English Court of Appeal. In Rickwood the clause in question, contained machinery for termination of the agreement in case of certain events and was not expressed to be without prejudice to the parties’ common law rights. The Court held that the contractual machinery and common law rights could only co-exist where the contractor displayed a clear intention not to be bound by its contract. In the absence of such circumstances the termination clause created in Rickwood the only effective way to terminate the contract. Apartments argues that Rickwood is an example of a clause, such as clause 5.3 in the Caretaker Agreement, that does not express itself as “without prejudice to other rights and remedies”. In Rickwood that meant that common law remedies were found not to co-exist except where the other party displayed a clear intention not to be bound by the contract.

96. Moreover, Apartments relies upon surrounding circumstances said to be known to both parties at contract as justifying why clause 5.3 should be read as a code governing all Mid Rise’s rights of termination: the extreme impracticality of having multiple systems in the three parts of the World Tower Building, for example for fire alarms and building security passes. Apartments says this is the only way “that the three separate parts of the building for which the Caretaker Agreement must cater can be properly managed”. To give certainty to the parties' arrangements Apartments says that it is necessary to construe the termination clause as exclusively regulating the basis upon which Mid Rise may terminate.

97. But another construction of clause 5.3 is open. The clause may only apply to breaches that affect all three owners. It does not in my view apply to breaches that relate only to one of the Owners, such as Mid Rise in this case. If clause 5.3 does not cover the situation of a breach relevant only to one owner then common law rights of termination are still open in respect of such a breach.

98. Such a construction would give proper effect to the language of clause 5.3, using “Owners” in the plural in relation to a single “breach” of the agreement. The clause would make commercial sense so construed. This construction avoids the strange consequence flowing from Apartments’ Construction: that all three Owners are required to join in giving a notice to remedy and a notice of termination. Why would all three Owners Corporations be interested and even remotely likely to co-operate to remedy a minor breach occurring on the property of only one of them. And a construction that gives another Meriton entity Properties (or indeed any third party) an effective veto over Mid Rise’s right of termination for breaches in the mid-rise area of the building does not present as a very commercial construction of clause 5.3.

99. And Apartments’ surrounding circumstances argument based on the impracticality of only one of the three owners corporations terminating, is not persuasive. The consequences of Mid Rise’s July 2012 termination did not turn out to be devastating for the interoperability of the three common areas. This factor is unlikely to have been a commonly understood surrounding circumstance at the time of contracting.

Grounds for Mid Rise’s Termination – Individual Allegations of Breach

100. Mid Rise alleges eight breaches by Apartments in its role as caretaker under the Caretaker Agreement. Mid Rise says that each one of these eight breaches is a sufficient ground for termination of the Caretaker Agreement. Apartments answers that many of the alleged breaches were trivial and could never trigger a termination, even if established. Apartments says that it remedied any alleged breaches.

101. Mid Rise alleges a range of breaches against Apartments, which may conveniently be expressed as questions, as follows:

1. Whether Apartments appropriately accounted to Mid Rise for security deposits collected for the issue of security “swipe” cards to operate doors and lifts at the World Tower.

2. Whether Apartments denied access to contractors to the mid-rise common property in World Tower.

3. Whether Apartments used the store room on World Tower, level 5 to provide maintenance services, beyond its occupation entitlements under the Caretaker Agreement.

4. Whether Apartments has failed properly to manage lift bookings for owners and tenants moving into and out of apartments in the mid-rise section of the building.

5. Whether staff operating under Apartments’ direction have misused security swipe cards.

6. Whether Apartments has levied charges on Mid Rise over and above the fees to which Apartments is properly entitled under the Caretaker Agreement.

7. Whether Apartments replaced the locks to the plant room on World Tower building, level 61, thereby denying Mid Rise access to that room.

8. Whether Apartments excluded Mid Rise representatives from World Tower building committee meetings.

102. These alleged breaches range from the serious to the less serious, and are now briefly introduced.

103. (a) Breach Allegation – Accounting for Security Deposits. Mid Rise alleges that Apartments has not paid it all the amounts that Apartments collected on account of security deposits for the issue of security “swipe” cards to operate World Tower’s doors and lifts. Apartments disputes there was any failure to account. It says it has been difficult to extract historical data from the security access system and that once all necessary data was provided, there was no foundation for any claim of improper withholding of money. Apartments further claims that any difficulties in accessing historical data are a result of Mid Rise’s unilateral removal and replacement of the mid-rise security access system. Moreover, Apartments says that on Mid Rise’s best case, if there were any other payment due from it to Mid Rise on this account, the amount of that payment is uncertain.

104. (b) Breach Allegation – Access for Contractors. Mid Rise claims that Apartments did not give a fire control service provider, Guardian Fire Services, access to shared facilities in the mid-rise common property. But Apartments says that Mid Rise itself retained Guardian Fire Services and was at all times responsible for its access to the shared infrastructure facilities for the three building sectors.

105. (c) Breach Allegation – The Level 5 Storeroom. It is common ground that Apartment’s maintenance manager used a storeroom on World Tower, Level 5 (part of the mid-rise common property) as a base for providing maintenance services throughout the whole World Tower building. But Apartments says: that this was well known to Mid Rise representatives, who regularly attended meetings between 2004 and 2012 at that location; and that Mid Rise accepted and benefited from the services that Apartments provided from that location in the building and is now estopped from alleging that using this storeroom was a breach of the Caretaker Agreement.

106. (d) Breach Allegation – Lift Bookings for Owners and Tenants. Mid Rise says that Apartments did not provide exclusive access to a lift to allow owners and tenants to move in and out of the various apartments in the mid-rise section of the building. Apartments says that the evidence demonstrates only a single instance of denial of exclusive access to the mid-rise area and that that particular incident arose because Mid Rise unilaterally imposed unreasonable conditions on the use of the lifts, which conditions Apartments’ caretakers and security staff could not immediately meet. Apartments says that it could not provide exclusive access to the lift in that single instance because Mr Chen had some days earlier cancelled all access to the mid-rise lift system for Apartment’s staff.

107. (e) Breach Allegation – Misuse of Security Swipe Cards. Mid Rise alleges that Apartments and its security staff gained unauthorised access to the mid-rise area of the building. Apartments responds that Mr Chen sought to impose a condition that only Mr Chen himself could personally authorise access for persons to inspect vacant apartments, such as contractors carrying out work on mid-rise common property, cleaners engaged by unit holder in mid-rise, and for real estate agents conducting potential mid-rise tenants. Apartments further contends that Mr Chen’s self-imposed condition lacked any legal foundation in the Caretaker Agreement or the Management Act and was impractical. Apartments also says that when individual cleaners and estate agents actually entered the mid-rise common property to conduct their ordinary business, contrary to Mr Chen’s self-imposed condition, Mr Chen retaliated and overreacted by cancelling all the swipe cards issued to Apartments staff and contractors.

442. But there is a procedural footnote to this. Once the applicable law is correctly formulated, the extent to which damages or equitable compensation may be available for any proven breach of a promoter’s fiduciary duty is questionable: see Re Leeds and Hanley Theatres of Varieties Ltd [1902] 2 Ch 809. And see Meagher, Gummow & Lehane, para [5-275]. And Mid Rise has not formulated such a claim. It elected an account of profits. These are matters that have not been explored by the parties in any submissions. This is one of the reasons why the Court has decided to pause at this point to hear supplementary submissions from the parties on these questions.

(b) Did Apartments Breach its Fiduciary Duty?

447. The issue of breach raises the question: what must a fiduciary-promoter disclose? Early formulations of the duty state that “the utmost candour and honesty” is required: Directors of Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99. And as Finkelstein J explained in Fitzwood (at [31]), the obligation of utmost honesty and candour does not require a promoter to disclose every aspect of the proposed dealing that is within his knowledge, as that would place too great a burden on the already onerous obligations of fiduciary. Rather the fiduciary must disclose “material” information and does not have to disclose information that is not “material”: Fitzwood at [31].

448. But what information is material? The New South Wales Court of Appeal considered the issue of the necessary materiality to require a fiduciary’s disclosure in Waldon Properties Ltd v Beaver Properties Pty Ltd (1973) 2 NSWLR 82 (“Walden”). In their reasons Kerr CJ and Hope JA (Hutley JA concurred in the result but not in their reasons) said certain information as to the value of a property dealt with by a person with fiduciary duties was material “not because it would necessarily, or even probably, have caused [the principal] to come to a different conclusion… But because it was material to the question which the [principal] had to decide and may have had an effect on the [principal’s] Board’s decision”. Although in the same case Hutley JA (at 847) left open the possibility that the fiduciary could displace an inference of materiality by showing (and the onus was on the fiduciary) that the information not disclosed was incapable of affecting the result, even if it had been disclosed.

449. Finkelstein J’s decision in Fitzwood contains useful examples (at [35], [36] and [37]) for present purposes as to how different kinds of information may be assessed for materiality and adequacy of disclosure. In a case in which the question was whether an information memorandum to potential investors disclosed a fiduciary’s annual rental profits in addition to profits on the sale of a property Finkelstein J concluded: that (1) if a fair reading of the information that was given should have alerted a potential investor that the making of profit concerned might occur, disclosure was adequate (at [35]); that (2) if in the circumstances which obtained at the time disclosure was required a particular kind of profit was not anticipated by the fiduciary then, the distribution of that kind of profit (which happened unexpectedly to occur later) was not material (at [36]); and (3) that the equitable obligation of disclosure does not require the fiduciary to speculate about matters that may not occur (at [37]).

450. The decision of the Full Court of the Federal Court of Australia in Australian Breeders Co-operative Society Ltd v Jones (1997) 150 ALR 488 (“Jones”) is also instructive for present purposes on the issue of materiality. In Jones the issue was whether certain promoters of a horse breeding syndicate who were vendors at a profit of horses into that syndicate should disclose the level of their sale profits. Wilcox and Lindgren JJ said (at 512) that if the profit “being realised by [the fiduciary] was within reasonable limits and was not such as to cast doubt on the viability of the venture, there would have been no undisclosed material fact; there would have been no inconsistency with [the principal’s] implicit understanding that the fiduciary had no existing information detrimental to the venture.” Giving effect to findings of the trial judge, Wilcox and Lindgren JJ applied this formula (at 512). After finding that the fiduciary was making more than a reasonable profit on the sale, indeed more than three times his costs, that the quantum of the profits was so great as to cast doubt on the financial viability of the venture and that the principal would not have proceeded with knowledge of these facts, their Honours concluded that the nondisclosure was material.

451. The decision in Jones also makes clear an important distinction about the time at which the judgement of materiality relevant to disclosure must be made. Not all information will be known to the fiduciary at the time that disclosure is required. So far as existing information the fiduciary holds is concerned, their Honours said (at 511 – 512) that an obligation of good faith and disclosure of relevant information exists at the moment that consent to a transaction is sought and it “is sought on the implicit understanding that the fiduciary presently has no reason to believe that the transaction (including the granting of the consent) is contrary to the person’s interests. A fiduciary who was aware of circumstances that made a particular transaction disadvantageous to a cestui que trust would be bound to disclose that fact in discussing the prospect of the transaction proceeding…” (emphasis is in the text). Whereas in relation to future information, their Honours said (at 511) “it must be sufficient that the person said to have been given a fully informed consent was informed, in precise terms, the nature of the duty he or she is being asked to waive and, where they are not apparent, the ramifications of granting consent”.

452. These principles inform the Court’s analysis of the issue of breach in the present case.

February to October 2004

453. The relevant circumstances of the making of the February 2004 and the October 2004 Caretaker Agreements may be described briefly. Some the facts including the resolutions of the 11 October 2004 Extraordinary General Meeting are set out earlier in these reasons under the heading “The Caretaker Agreement – February to October 2004” and are not repeated. Mr Ong an experienced architect and a resident of the mid-rise sector of the building gave an account of Mid Rise’s internal records from this period, which I accept.

454. As earlier indicated in these reasons Apartments entered into the 4 February Caretaker Agreement with itself as the then owner of the original lots which later became High Rise and Mid Rise. Clause 12.3 of the Caretaker Agreement contemplates that once the mid-rise part of the building was subdivided that the owner of the lot immediately before the registration of the strata plan should “as soon as practicable” procure the new owners corporation, in this case Mid Rise, to sign what is described as an “Acknowledgement Document” and deliver it to the World Tower Committee. Mr Ong says he cannot find such a document among Mid Rise’s records. Apartments has not adduced any evidence of this document or of a version of this agreement signed on behalf of the interests of the mid-rise sector of the building. I infer nothing like this was ever signed or delivered.

455. But Apartments provided and charged for caretaker services from the time of Mid Rise’s formation in April 2004, when the strata plan was registered, in accordance with the February 2004 Caretaker Agreement. Both parties conducted themselves in accordance with these terms until October 2004. I infer that by their conduct the parties became bound at law by the terms of the February 2004 Caretaker Agreement: Waldorf Apartment Hotel, the Entrance Pty Ltd v Owners Corporation SP 71623 [2010] NSWCA 226 at [64] – [66], per Beazley and Macfarlan JJA. But Management Act s 113 prohibits a newly formed owners corporation from making commitments beyond the initial period fixed under that Act, a period which expires at the holding of the first annual general meeting of the owners corporation: Management Act s 14 and Schedule 2, cl 2. This first agreement expired at the holding of the annual general meeting.

456. Versions of the draft caretaker agreement were in circulation before February 2004. Apartments was marketing units off-the-plan during 2003 and a draft version of the agreement was attached to these contracts. It differed in material respects from the February 2004 version. Both the draft and final versions were prepared by in-house lawyers that the Meriton Group employed. Mid Rise was critical that these lawyers were not called to give evidence to explain the rationale for the drafting changes before February 2004. But the nature of the changes themselves and evidence from other Apartments witnesses, detailed below, gives a sufficient explanation for why the changes were made. The differences are detailed below. I do not draw any inference against Apartments because it did not call its own lawyers who worked on the Caretaker Agreement during this period.

457. On 11 October 2004 Mid Rise’s annual general meeting (AGM) was followed by the extraordinary general meeting (EGM) that dealt with the Caretaker Agreement. The AGM concluded the “initial period” that had commenced in April 2004 upon the constitution of Mid Rise and ended when one third of Mid Rise’s aggregate unit entitlement were owned by individuals other than the original owner, Apartments: Management Act Dictionary. The business at the AGM was routine.

458. There is no issue on the evidence that Mid Rise’s EGM immediately followed the AGM. The notice of the EGM dated 21 September 2004 foreshadowed the proposed resolution to appoint Apartments under item 2, of the meeting’s business, “Appointment of Building Manager” in the following terms:

“That according to by-law 28 the owners corporation appoint Meriton Apartments Pty Ltd as its building manager, as in the terms and conditions marked Exhibit ‘A’ tabled at the meeting, further the owners corporation affix the common seal in accordance with section 238 of Strata Schemes Management Act 1996.

(Due to the costs associated with the copying and circulation of caretaker agreement it has not been included with the agenda.

A copy of the document is available upon request at the offices of Body Corporate Serves, lower ground floor, 323 Castlereagh Street, Sydney).”

459. Although the proposed Exhibit “A” was not attached, the notice declared it could be inspected at the offices of Body Corporate Services (“BCS”). The February 2004 Caretaker Agreement was the only signed version of the agreement at that time. It is the same version used later by the parties. No one gave evidence that they had tried to inspect the document at BCS and had been unable to do so. I infer that the document subsequently adopted by the parties was available for inspection at BCS.

460. An extract of the minutes of the extraordinary general meeting that followed are set out earlier in these reasons. The full text is as follows:

“RESOLVED that according to by-law 28 the owners corporation appoint Meriton Apartments Pty Limited as its building manager, as in the terms and conditions marked Exhibit ‘A’ tabled at the meeting, further the owners corporation affix the common seal in accordance with section 238 of the Strata Schemes Management Act 1996.

A copy of the document is available upon request at the offices of Body Corporate Serves, lower ground floor, 323 Castlereagh Street, Sydney).”

461. The minutes of the extraordinary general meeting contemplate the affixation of Mid Rise’s common seal in accordance with Management Act s 238. The minutes infer there was an exhibit “A” before the meeting. I have no reason to infer that the meeting was not regularly conducted. But no version of the Caretaker Agreement, executed on behalf of Mid Rise after this meeting in conformity with this resolution, has been found. But after October 2004 the parties conducted themselves in accordance with a version of the Caretaker Agreement identical to the February 2004 version. For the same reasons, based on Waldorf, as apply in respect to the February 2004 agreement, in my view, the parties bound themselves at common law to the full terms of that agreement. The parties’ equitable rights are separate. I also infer from this conduct after October 2004 that this was the version of the agreement before the AGM meeting.

462. The EGM resolution refers to by-law 28 of Mid Rise’s strata scheme, a by-law that contemplates that Mid Rise could engage a caretaker under a caretaker agreement to provide the kind of services for which the Caretaker Agreement actually stipulates. The by-law gives Mid Rise the discretion (by-law 28.4) in relation to a caretaker to grant necessary consents, execute documents, pay agreed remuneration, grant special privileges to the caretaker to occupy parts of the common property and to assist the caretaker to perform its duties. The by-law only permits Mid Rise to engage one caretaker (28.5) and prevents Mid Rise or occupiers from obstructing the caretaker fulfilling its duties.

463. Mid Rise’s strata plan constituted itself with a total unit entitlement of 10,000. I accept Mr Ong’s evidence based on Mr Chen’s calculations that at the AGM Mr Ray McDowell held 173 proxies for Apartments representing a total unit entitlement of 7395, or just under 74% of the total. Although the initial period had concluded and one third of the unit entitlement (3333) was in independent hands, I infer that Apartments had proxies from some of the new owners whose contracts had exchanged but not yet settled.

464. Part of Mid Rise’s argument goes to showing that disclosure before 4 February 2004 was in substantially different terms to the agreement that was brought into existence on 4 February 2004. But even if this case were made out it would only relate to the agreement that subsisted between February and October 2004. Contrary to Mid Rise’s submissions any non-disclosure that occurred during this period would not be committing Mid Rise to an agreement for a decade. The February 2004 Caretaker Agreement could only be binding for about eight months, no matter what it said. Any longer commitment would be in contravention of Management Act, s 113.

465. Mid Rise’s case looked at various alleged non-disclosures prior to February 2004 and sought to argue that these non-disclosures, if established, were a basis to avoid the October 2004 Caretaker Agreement. In my view such non-disclosures as occurred before February 2004 could only affect the February 2004 Caretaker Agreement that existed for only eight months. That agreement came to an end on 11 October 20004 by force of s 113. No question now arises as to whether that agreement should be affirmed or avoided.

466. In these reasons the Court deals with the position as at 11 October 2004 at the time of the EGM. It is clear that Mid Rise wants relief for just this February – October 2004 period on any ground. If it is, that is something that can be addressed in the course of other supplementary submissions.

467. Once this distinction is made, some but not all of Mid Rise’s non-disclosure criticisms of Apartments are not effective against the October Caretaker Agreement. This is because whatever may have been the deficiencies of the off-the-plan version of the Caretaker Agreement, the February 2004 Caretaker Agreement was in circulation for 8 months before the October 2004 AGM.

468. I accept the evidence of Mr Tony Paskell, the Meriton Group’s operations manager from the late 1990s and covering the period of the Meriton Group’s development of the World Tower Building that the February 2004 Caretaker Agreement had been executed by the Executive Committee of Low Rise before it was even adopted by Mid Rise. Moreover, Mr Paskell says, and I accept, that after the agreement was executed by Low Rise that it was being performed, as caretaker services were being provided to Low Rise. This further strengthens the inference that the February 2004 Caretaker Agreement was the one in general circulation among potential purchasers in the mid-rise sector in the period February to October 2004.

469. Some 75 purchasers of apartments in the mid-rise sector of the building acquired their apartments off-the-plan before 4 February 2004. This was established by Robyn McCully, the Secretary of the Meriton Group since 1990, who searched the Group’s archive records for the relevant period. Relevantly she was also the Group’s Conveyancing Manager during this period. These purchasers probably did, I infer, purchase under contracts that annexed the pre-February 2004 off-the-plan version of the Caretaker Agreement. Mid Rise argues that the existence of these 75 purchasers is fatal to Apartments’ attempts to show that it has given full disclosure to Mid Rise and is not in breach of duty.

470. But although this argument may found a challenge to the February 2004 Caretaker Agreement, it does not impair the inference, which I draw, that mid-rise purchasers were being shown the February 2004 Caretaker Agreement between then and October 2004. I accept Robyn McCully’s evidence that the February 2004 Caretaker Agreement was being included in sale contracts some time after February 2004. I found Ms McCully a credible witness, who was plainly an efficient employee. Her evidence was that although she could not “give an exact date” when she was given the February 2004 Caretaker Agreement for her to annex to contracts in her role as Conveyancing Manager, she thought it was “a quicker time” than “weeks or months”. Although she speaks of budgets being received within 1 to two weeks I interpret her evidence as a whole as saying she thought she would have had the February 2004 Caretaker Agreement ready for annexing to contracts within a fortnight of 4 February 2004. I infer that she would have started annexing that agreement (and directing others to do the same) almost immediately.

471. The off-the-plan and final versions. The pre-February 2004 off-the-plan version of the Caretaker Agreement and the final version differ in material respects. They differ as to their description of the proposed caretaker and the remuneration payable, the term of the Caretaker Agreement, their termination provisions, making good on termination, Mid Rise being bound on it coming into existence, Mid Rise’s approval of the persons to be engaged by the caretaker, and the areas for the exclusive use of the caretaker within the building. The duties of the caretaker in Schedule 2 and the draft by-laws in Schedule 3 of the off-the-plan versions and the final versions are largely similar. The details of the areas of some of these areas of difference are important and will be discussed with Mid Rise’s contentions.

472. One change that does not fall under any single Mid Rise contention relates to the term of the agreements. The off-the-plan version provides for a term of ten years, plus three 5 year options exercisable by the caretaker (draft clause 8.1). The February 2004 agreement provides for a ten year term. This change is to be accounted for by an appreciation of the effect of the introduction of the 2002 Amendment Act which prohibited Caretaker Agreement terms of more than 10 years.

473. The Non-Disclosure Contentions. Mid Rise has made a range of allegations of non-disclosure. But by the time the parties written submissions had taken their course these allegations had reduced to four main contentions under which Mid Rise’s non-disclosure case can be organized. Some of Mid Rise’s non-disclosure contentions were of more substance than others.

474. Mid Rise alleges that Apartments did not disclose to it (a) the remuneration payable under the Caretaker Agreement or the identity of the caretaker; (b) the relationship between Properties and the caretaker; (c) the limited scope for termination and (d) that remuneration was well in excess of market rates. These reasons deal with these allegations of non-disclosure in turn so far as they can be taken. As the earlier statements of principle make clear, the time at which non-disclosure to Mid Rise should be assessed is at the 11 October 2004 EGM when Mid Rise gave assent to the October 2004 Caretaker Agreement.

461. (a) (i) The Remuneration Payable. Mid Rise says the remuneration payable under the off-the-plan version was blank. It is not in contest that the remuneration in the off-the-plan version was blank. The off-the-plan version makes the Remuneration payable as specified in Schedule 1, as does the 2004 agreement. But the pre-February 2004 off-the-plan version’s Schedule 1 is blank, so that the remuneration cannot be ascertained just by looking at it.

462. But Apartments says that the caretaker’s remuneration was disclosed in other ways. Apartments says that the form of disclosure was that it provided an estimate of total contributions by way of strata levies that each lot would be expected to make to the strata plan.  In order to determine that amount Apartments staff made a pre-estimate of the likely remuneration under the Caretaker Agreement during 2003 as a preliminary to marketing units in Mid Rise. Apartments points out that neither Mid Rise nor any lot owner within the Mid Rise area of the building has complained these pre-estimates were wrong.

463. But it is not necessary to go into these alternative estimates for the purpose of ascertaining whether remuneration was disclosed. In my view, as the February 2004 Caretaker Agreement was in circulation to purchasers and it could be inspected at the offices of BCS, as was notified in the notice of meeting for the EGM, the figure was sufficiently disclosed.

464. (a) (ii) Identity of Caretaker. Mid Rise contends that the identity of the proposed caretaker was not disclosed. Moreover Mid Rise says that this was a stratagem because by the time it started marketing the off-the-plan apartments it would have been quite easy for Apartments to have disclosed a caretaker agreement which identified Apartments as the caretaker.

465. But Apartments says that the caretaker was disclosed. Apartments says that Mr Ong’s contract for his off-the-plan apartment (exchanged in August 2005) was typical of those exchanged before February 2004. Clause 45 of Mr Ong’s contract makes provision for the Caretaker Agreement and relevantly says “the vendor discloses that the vendor intends to procure the Owners Corporation to enter into an agreement with the vendor or the vendor’s nominee…” [emphasis added] in relation to the provision of caretaking services. I am prepared to infer that the contracts exchanged prior to February 2004 for off-the-plan apartments did contain an equivalent of clause 45, as aspects of it (e.g. clause 45.3) are highly favourable to Apartments. All that clause 45 relevantly says is that the vendor may be one of the possible caretakers and may be the caretaker or Apartments may nominate someone else. It may be readily inferred from a fair reading of the clause that Apartments would have control over who would be appointed and it was at least open that Apartments would appoint either itself or another member of the Meriton Group as Caretaker. That is a clear disclosure that Apartments would either be the caretaker or would have a say in who it was. In my view that is sufficient disclosure.

466. In my view the notice to Mid Rise’s lot owners for the EGM and the use of the February 2004 Caretaker Agreement in conveyancing contracts gave sufficient disclosure of the identity of the caretaker.

467. (b) Properties’ Relationship to the Caretaker. Mid Rise alleges that Apartments failed to disclose that the Caretaker Agreement was structured so that one of the three parties, Properties, the ultimate owner of the high-rise area of the building, did not make any actual payments of the fees to Apartments. Mid Rise says this had the effect that Mid Rise and Low Rise were subsidizing Properties’ serviced apartments business.

468. Apartments submits that the only impact on Mid Rise or purchasers of apartments in the mid-rise area of the building of the remuneration payable by Low Rise or Properties is that it reduces the amount Mid Rise is obliged to pay to Apartments. Apartments submits that it does not matter whether this was done by an accounting entry or by an actual transfer of funds between Apartments and Properties; all that really matters is that Properties was bearing its fair share of costs incurred under the agreement.

469. It is important to distinguish two aspects of this particular non-disclosure issue: one is a question of the identity of the owner of the high-rise sector of the building and the other is an accounting issue. As to the former there was no non-disclosure, in my view. A fair reading of the February 2004 Caretaker Agreement, which was available in October 2004, shows that at the time that agreement was made Apartments was the original owner of the high-rise sector of the building. This meant that Apartments would control whether it retained or transferred this part of the building. It was quite open that an entity related to Apartments would continue to control this part of the building.

470. The other aspect, the accounting question will be reserved for further consideration for the reasons explained below.

471. (c) Limited Scope for Termination. Mid Rise also contends that on Apartments’ construction of the Caretaker Agreement, it was designed to render any right that Mid Rise had to terminate illusory by requiring the consent of another Meriton Group entity, Properties, for the issue of a notice of breach.

472. Mid Rise puts this contention in the alternative to its principal construction of clause 5.3 that termination is possible without the concurrence of Low Rise or Properties. But these reasons have earlier found that clause 5.3 does not apply to breaches that relate to Mid Rise alone. And the Court has found that Apartments has not breached the agreement in a manner that would warrant termination at common law or under clause 5.3. Therefore it is not strictly necessary for the Court to decide this point. But were it necessary to decide the issue the finding would be that this was not an item of non-disclosure because like all other parts of the February 2004 Caretaker Agreement clause 5.3 was available to all those who were voting at the October 2004 EGM.

473. (d) Remuneration at Above Market Rates. Mid Rise alleges Apartments did not disclose to it or to the lot owners that the Caretaker Agreement provided for Apartments to charge well in excess of market rates for the services being provided under the Caretaker Agreement. This contention is not simply answered by saying that Mid Rise could compare Apartments charges under the Caretaker Agreement with other market rates at any time. It raises the question, raised in Jones, as to whether Apartments’ profits were on this agreement excessive to the point that their disclosure was required.

474. The Court’s analysis of the applicable principles in relation to fiduciaries has somewhat changed the landscape of these proceedings since the parties lodged their final submissions. It is now clear that Mid Rise’s right may be of quite a different nature than Mid Rise has been contending for, if it were to establish a breach of fiduciary duty. Mid Rise may arguably be able to claim equitable compensation and not an account of profits, if it is successful. This may well have implications for the way that the parties wish to put their submission about issues such as the discretionary equitable defences to Mid Rise’s claim: if the nature of any applicable remedy is different from what seemed apparent during final submissions, then the operation of these defences may well be different. It seems therefore to be potentially procedurally unfair for the Court to proceed to any further findings without hearing supplementary submissions from the parties. Such submission will be permitted for the sole purpose of the parties recasting submissions in light of the Court’s legal conclusions and other core factual findings. The parties are not at liberty to contest existing findings.

475. All other issues in the proceedings are reserved for further consideration after hearing the parties’ supplementary submissions. In particular the accounting issues concerning claims whether Apartments has derived an excessive profit that should have been disclosed to Mid Rise will then be determined.

(c) Do any of Apartments discretionary equitable defences succeed?

490. Apartments’ principal “defence” to the Cross Claim was that Mid Rise so delayed bringing its claim that it should not now be permitted to do so. For the reasons stated above these issues will be decided after the parties have had an opportunity to advance any supplementary submissions.

(d) Is Mid Rise entitled to an Account of Profits?

491. It is clear from the Court’s earlier reasons that Mid Rise is not entitled to an account of profits in the form that it has sought in these proceedings. But Mid Rise kept contending at the hearing that was the relief that it wanted. But if an account of profits is not open to Mid Rise as the Court has found the parties must now address in submissions:

1. Whether if its claim were otherwise made out, a claim for equitable compensation is now open to Mid Rise;

2. Whether or not at this stage of the proceedings Mid Rise is precluded as a matter of its conduct, including its conduct of the proceedings from claiming equitable compensation; and

3. If equitable compensation is claimable, how such compensation should be measured.

Conclusions in Relation to Fiduciary Duty

492. On Mid Rise’s claim that Apartments owed it fiduciary duties as a promoter, Mid Rise has succeeded in establishing that Apartments owed it fiduciary duties of disclosure as a promoter. Apartments’ arguments that the application of these fiduciary duties has been displaced, or the content of those duties limited by Management Act, Part 4A fails. Mid Rise has failed to established a number of its non-disclosure allegations against Apartments. But for procedural reasons the Court has reserved for further consideration all the remaining questions including the question whether Apartments has breached its duty of disclosure to Mid Rise because Apartments did not disclose to Mid Rise in October 2004 the profit that it was making on the Caretaker Agreement.

493. The Court has found that the applicable law in relation to promoters gives the parties and Mid Rise somewhat different rights and remedies and defences in relation to the Caretaker Agreement than either party addressed in final submissions. In particular Mid Rise does not have a right to an account of profits against Apartments in the circumstances of this case. It has a right to affirm or disclaim the Caretaker Agreement for Apartments’ non-disclosure and possible rights to equitable compensation. As these issues were largely unaddressed in the existing submissions the Court has declined to proceed beyond its statement of the applicable law and made some core findings but instead will give directions to the parties to put on further submissions about the unaddressed issues.

494. As there are a number of issues still to be determined. It will be more appropriate to consider costs questions once the matters reserved for further consideration have been resolved.

495. There are interlocutory orders in place in the proceedings. Some of these will need to be discharged, some varied and some made final. Close analysis of these reasons will be required to determine the disposition of each of these existing orders. They will remain in place until the parties have undertaken that analysis. What is to happen with these orders can be decided when the Court is hearing submissions as to the matters reserved for further consideration and the final form of orders, at a further hearing for that purpose.

496. In the result therefore the Court will order as follows:

1. Direct the parties to bring in short minutes of order to give effect to these reasons.

2. Direct the parties to file with my Associate and exchange any submissions in relation to any contest concerning the matters reserved for further consideration or the form of the short minutes of order by 5pm on Thursday, 9 April 2015.

3. List the proceedings for further directions and argument on any outstanding issues at 9.30am on Thursday, 16 April 2015, or such other time as the parties may arrange for their mutual convenience through my Associate.

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Amendments

23 September 2016 - [42] "Others Involves" to "Others Involved"

[76] "unaffected by an" to "unaffected by any"

[87] "Caretaker Agreement so as to permit it to" changed to "Caretaker Agreement, so as to permit Mid Rise"

[96] "parties arrangements" changed to "parties' arrangements"

[99] "have been commonly understood" changed to "have been a commonly understood"

[198] "Contemplating contractual flexibility" changed to "Contemplating the contractual flexibility"

[221] in quote, fourth line "officer" changed to "office"

[235] "will shows this" changed to "will show this"

[260] "(2) when did Icebrink" changed to "(2) when did Icebrink"

[267] "in February 2004" changed to "in February 2012"

[271] "occasion. Buit" changed to "occasion. But"

[342] "MacFarlan" to "Macfarlan"

[428], (b) "hars, oppresive" to "harsh, oppressive"

[451] "to have given" to "to have been given"

[476] "estimate of a total contributions" to "of total contributions"..."stratan oplan in order" to "strata plan. In order"

[482] "purchasers of Apartments" to "purchasers of apartments"

[487] "market at any time" to "market rates at any time"

06 May 2015 - [90] NSWSC 882 at [45]

06 May 2015 - 25] "11 October 2002" to "11 October 2004"

[39] "Midrise" to "Mid Rise"

[90] Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 715623 [2009] NSWCA 882 at [45].

06 May 2015 - [25] "11 October 2002" to "11 October 2004"

[39] "Midrise" to "Mid Rise"

[90] Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 715623 [2009] NSWCA 882 at [45].

20 March 2015 - Para 3: addition of: In these reasons, references to Parts of the Management Act are references to Chapter 2 of that Act.

Decision last updated: 23 September 2016