Owners Corporation of Strata Plan 71623 v Waldorf Apartments Hotel, the Entrance Pty Ltd

[2015] NSWSC 1658

Supreme Court

New South Wales

Medium Neutral Citation:

Owners Corporation of Strata Plan 71623 v Waldorf Apartments Hotel, The Entrance Pty Ltd [2015] NSWSC 1658

Hearing dates:

16, 17, 18 and 19 June 2014; 3, 4 and 5 August 2015

Date of orders:

12 November 2015

Decision date:

12 November 2015

Jurisdiction:

Equity

Before:

Hallen J

Decision:

(1)    Grant leave to the Defendants to file second further amended Defence.

 

(2)   Order that whole of the Statement of Claim be dismissed.

 

(3)   Order that the Plaintiff pay the Defendants’ costs of the proceedings.

(4) Direct that the Exhibits be dealt with in accordance with the Uniform Civil Procedure Rules 2005 (NSW) (rule 31.16A and rule 33.10), and Practice Note No SC Gen 18 (Para 26).

Catchwords:

REAL PROPERTY – Strata scheme – Agreement for managing common property – CONTRACT – Where one of the Defendants provided cleaning and other services to the Plaintiff – Entitled to reimbursement of all reasonable and proper fees and expenses incurred in carrying out its duties under the contract – No dispute that it carried out duties – Breach alleged related to submission of claims in writing in order to be reimbursed its costs and expenses – Whether Manager of common property of strata scheme complied with contract in submitting claims

EQUITY – Remedies – RESTITUTION – Whether Plaintiff entitled to refund of all moneys reimbursed to the Defendant for work done and services provided to Plaintiff

 

PRACTICE & PROCEDURE – Application to amend further amended Defence to rely upon s 42 Real Property Act 1900 (NSW)

  REAL PROPERTY – Different Defendant company registered proprietor of two different Lots in Strata Plan – Company at time of purchase of each Lot controlled by one or more directors on Executive Committee of Plaintiff – Indefeasibility – Whether in personam exception to indefeasibility arises – Whether registered proprietor knowingly received property transferred in breach of alleged fiduciary duty – Whether registered proprietor is a constructive trustee under the first limb of Barnes v Addy – In personam exception to indefeasibility does not extend to cases of a constructive trust under the first limb of Barnes v Addy at least in relation to proprietary claims

Legislation Cited:

Civil Procedure Act 2005 (NSW)
Limitation Act 1969 (NSW)
Real Property Act 1900 (NSW)
Strata Schemes Management Act 1996 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345
Barnes v Addy (1874) LR 9 Ch App 244
Break Fast Investments Pty Ltd v Giannopoulos (also known as Giannopoulos) (No 5) [2011] NSWSC 1508
Community Association DP No 270180 v Arrow Asset Management Pty Ltd [2007] NSWSC 527
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Kelly v Mina [2014] NSWCA 9
Re Steel & Conveyancing (Strata Titles) Act 1961 (1968) 88 WN (Pt 1) (NSW) 467
Super 1000 v Pacific General Securities [2008] NSWSC 1222; (2008) 221 FLR 427
Sze Tu v Lowe [2014] NSWCA 462
Waldorf Apartment Hotel v Owners Corporation SP 71623 [2009] NSWSC 882
Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 71623 [2010] NSWCA 226

Category:

Principal judgment

Parties:

Owners Corporation of Strata Plan 71623 (Plaintiff)
Waldorf Apartments Hotel, The Entrance Pty Ltd (first Defendant)
Avi Rubinstein (second Defendant)
Rinbac Pty Ltd (third Defendant)
Waldorf Australia Group Pty Limited (fourth Defendant)
Frank Michael Wolf (fifth Defendant)

Representation:

Counsel:
Dr E Peden; Ms J D Williams (Plaintiff)
Mr M Izzo; Ms Z Heger (Defendants)

  Solicitors:
Pikes & Verekers Lawyers (Plaintiff)
Paul Bard Lawyers (Defendants)

File Number(s):

2013/37320

Judgment

Introduction

1. HIS HONOUR: The Plaintiff, the Owners Corporation of Strata Plan 71623 (hereafter referred to as “the Owners Corporation” or “the Plaintiff”), commenced these proceedings by Statement of Claim filed on 6 February 2013. It seeks various forms of declaratory, and other, relief against Waldorf Apartments Hotel, The Entrance Pty Ltd (“WAHTE”), Waldorf Australia Group Pty Ltd (“WAG”), Rinbac Pty Ltd (“Rinbac”), Avi Rubinstein (“Mr Rubinstein”) and Frank Michael Wolf (“Dr Wolf”). I shall return to the relief claimed against each of these Defendants later in these reasons. The proceedings concern a building located at The Entrance, in New South Wales.

2. (I should mention that the identity of the Defendants in the court’s computerised record system is different from how each appeared in the pleadings. For this reason, and to avoid any inconsistency, I have used the name, or initials, of the individual parties, rather than his, or its, role in the proceedings. On occasions, I have been able to refer to the Defendants together, where appropriate, as such.)

3. It is not the first occasion on which the parties have litigated against each other. There is a judicial trail leading to these proceedings involving some, or all, of the parties. It will be necessary, in these reasons, to refer to two earlier reasons for judgment, one of Bryson AJ, the medium neutral citation of which is Waldorf Apartment Hotel v Owners Corporation SP 71623 [2009] NSWSC 882, and the other being the Court of Appeal decision, from Bryson AJ’s orders, the medium neutral citation of which is Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 71623 [2010] NSWCA 226.

4. (There was a dispute about the effect of these judgments and whether any issue estoppel arises as a result of them. However, during the course of the hearing, the Court was provided with a document, which was subsequently marked as Ex. P7, which provided some measure of agreement on this area of dispute. I have endeavoured to incorporate matters of agreement within these reasons for judgment. In light of my conclusions, it is unnecessary to determine whether there is any issue estoppel.)

5. The hearing was listed for four days commencing on 16 June 2014. The proceedings did not finish within that time and it was necessary to adjourn the matter for over 12 months, whilst evidence from a single expert was obtained. At various times during the intervening period, the Court, pursuant to Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) rule 31.20, made consensual directions providing for the engagement, and instruction, of the single expert in relation to specified issues relating to the estimated costs for carrying out the building management supervisory works to be done by WAHTE for the Owners Corporation pursuant to the written agreement between them.

6. The delay between the conclusion of the hearing and its recommencement may be explained, at least in part, by the time taken by the parties’ legal representatives to agree upon the questions to be posed to the single expert, and the time taken to complete the expert report dealing with those agreed questions. Why the parties had previously come to the view that such evidence was unnecessary, and whether that view was justified, does not require elaboration.

7. Three reports by the single expert were prepared, but only the last, dated 22 May 2015 (which amended the contents of the earlier two reports and which reflected his evidence in chief), was tendered by the Defendants, without objection (Ex. D2), when the matter recommenced.

8. The single expert was not cross-examined by either party. I shall return to his evidence later in these reasons.

9. The matter recommenced on 3 August 2015, and continued until 5 August 2015. Almost all of this time was spent on the submissions of the parties.

10. Throughout the hearing, Dr E Peden and Ms J D Williams appeared for the Plaintiff, and Mr M Izzo and Ms Z Heger appeared for all of the Defendants. Even though the hearing was not concluded within the allocated time, the proceedings were conducted with extreme efficiency on the part of counsel and solicitors. As well, it was argued with extreme thoroughness, for which the Court is, and the parties should be, most grateful. The written submissions of the parties, which I have found most helpful, will remain with the court papers.

Dramatis Personae

11. Before turning to the claims for relief, it is necessary to identify the participants, and others, who, or which, have played a part in the events leading to the claims made by the Owners Corporation. It will be necessary to refer to parts of the evidence given by the witnesses who are identified.

12. Gladly, there were few significant issues of credit raised in relation to the evidence given by the witnesses who were cross-examined.

13. Prior to 10 December 2003, Wyong Shire Council (“the Council”) was the registered proprietor of certain land at The Entrance.

14. The Plaintiff is, and was, from 10 December 2003, a body corporate constituted under the Strata Schemes Management Act 1996 (NSW) (“the SSMA”). An owners corporation for a strata scheme has the principal responsibility for the management of the scheme: s 8(2) SSMA.

15. Pursuant to an agreement made between Coral Resorts Pty Ltd (“Coral”) and the Council, Coral developed, on the land, a residential unit complex and a car park. On 28 May 2001, the Council granted Development Consent for the development. The consent was subject to the conditions described in the Development Consent.

16. One of the directors of Coral was Robert Barr, who was described by Mr G P Bartels, a solicitor, as “the principal” of Coral. His son, Gregory Barr, was another director. When he was acting for Coral, Mr Bartels took instructions from both of them.

17. Coral brought about registration of the Strata Plan, and on registration, it was the only owner of the lots in the Strata Plan. That remained the position as at 13 December 2003.

18. Coral was placed into liquidation on 29 September 2005. Mr David Mansfield and Mr Richard Porter, both of Messrs Moore Stephens, were appointed as liquidators.

19. WAHTE is, and was at all material times, a duly incorporated Australian proprietary company limited by shares. It provided building management services (such as cleaning and maintenance) for the Owners Corporation between 25 February 2004 and 20 April 2009, when its services were terminated in circumstances to which I shall return.

20. The Owners Corporation and WAHTE entered into a contract styled “Building Managers Agreement Waldorf by the Sea” (“the BMA”) on the terms set out therein, including the term as to its duration: Ex. P7/1 and Ex. P7/3.

21. From 24 October 2001, when it was first registered, Mr Rubinstein has been, and continues to be, a director, the secretary, and one of WAHTE’s two shareholders. Between 24 October 2001 and 20 May 2012, the other director was Dr Wolf.

22. Mr Rubinstein has been, and remains, the principal figure in the affairs of the various companies comprising what is described as “the Waldorf Group”. He speaks on behalf of those companies. He has been, and remains, the controlling mind of WAHTE. He swore two affidavits that were read in the proceedings and he was cross-examined.

23. Mr Rubinstein was a member of the Executive Committee of the Owners Corporation in 2004, and attended the meeting of that Committee held on 8 March 2004; in 2005, and attended the meeting of that Committee held on 4 July 2005; in 2006, and attended the meeting of that Committee held on 2 May 2006; and in 2007, and attended the meeting of that Committee held on 30 August 2007.

24. From 24 October 2001, Pluteus (West) Pty Ltd (“Pluteus”), an Australian proprietary company limited by shares, of which Dr Wolf was a director at all material times, was the other shareholder in WAHTE, each shareholder holding, beneficially, one ordinary share.

25. (Dr Wolf and Ms Karen Wolf were the sole shareholders of Pluteus, each owning one ordinary share. However, the shares are currently held by two different companies that have played no part in the proceedings.)

26. Mr Rubinstein stated that Dr Wolf has “a lot of input” into Rinbac, and “some input” into WAHTE. Dr Wolf did not swear any affidavit and was not otherwise a witness in the proceedings.

27. Dr Wolf was a member of the Executive Committee of the Owners Corporation in 2004; in 2005, and attended the meeting of that Committee held on 4 July 2005; in 2006, and attended the meeting of that Committee held on 2 May 2006; and in 2007, and attended the meeting of that Committee held on 30 August 2007. He was the Chairperson of the Executive Committee of the Plaintiff on 18 December 2008. At a meeting held on that date, a motion of no confidence was passed and he was removed as Chairperson.

28. WAG is, and was at all material times, a duly incorporated Australian proprietary company limited by shares. From 11 March 1993, Mr Rubinstein has been a director and the secretary. From 11 March 1993, Dr Wolf has been the other director. The sole shareholder of this company is Rinbac. It is said not to own the shares beneficially.

29. Rinbac is, and was at all material times, a duly incorporated Australian proprietary company limited by shares. From 11 April 2002, Mr Rubinstein has been a director and the secretary. From 11 April 2002, Dr Wolf has been the other director. Each of Mr Rubinstein and Dr Wolf owns, beneficially, one ordinary share in the company.

30. WAG became the registered proprietor of Lot 104 in about November or December 2003. It transferred Lot 104 to Rinbac in about October 2007: Ex. P7/2.

31. Mr Bartels swore two affidavits (one in chief and one in reply) that were read in the proceedings. He gives evidence of the history of the development, how the strata plans changed, the agreements between Coral and WAHTE, the sale of Lot 104, and the work done by WAHTE.

32. As stated, Mr Bartels was the solicitor acting for Coral in respect of aspects of the development and the sale of some lots. However, his role did not extend to preparing the by-laws for Strata Plan 71623, although he had some communications with another firm of solicitors, retained by Coral, for that purpose. He also played a role in advising Coral with respect to, and assisting in the negotiation of the BMA, as well as an agreement known as the Tourist Unit Operator Agreement (“TUOA”) (a copy of which is Ex. PGB1/135-169) entered into with WAHTE.

33. Subsequently, he also acted for the liquidators of Coral in respect of the sale of some of the units.

34. In addition, Mr Bartels has been on the Executive Committee of the Owners Corporation since 2008. He has given instructions to the solicitors for the Owners Corporation, on its behalf, in connection with these proceedings.

35. Mr Bartels is also a director of Telulu Pty Ltd (“Telulu”), which is currently, and has been since February 2004, the registered proprietor of Lots 100, 101, 114 and 115 in Strata Plan 71623, the latter two of which (comprising car spaces) were purchased from the liquidator of Coral in early 2006. Telulu is “the trustee of the family trust” (T30.14).

36. Another director of Telulu is Ms Jelena Momcilovic. She is the wife of Mr Bartels. She affirmed one affidavit that was read in the proceedings. She gave evidence of the attendees at relevant Executive Committee meetings and what was asserted to be the failure of WAHTE to provide documentation, or to advise on invoices issued.

37. Although notice was given to her to attend for cross-examination, ultimately, Ms Momcilovic was not cross-examined. (The court was informed that cross-examination was unnecessary because the Owners Corporation, whilst not asserting that the parties were bound by a finding made by Bryson AJ that WAHTE, and those associated with it, had a majority on the Executive Committee, could maintain the proposition and ask me to make a finding in that regard.)

38. Ms Momcilovic was appointed to the Executive Committee of the Owners Corporation, as Chairperson, at the Annual General Meeting of the Owners Corporation on 21 March 2005. At a subsequent Annual General Meeting of the Owners Corporation held on 30 August 2007, she was appointed Secretary and Dr Wolf was appointed Chairperson. She remained on the Executive Committee until the new Executive Committee was appointed in April 2009.

39. On behalf of Telulu, Ms Momcilovic manages, without the intervention of an agent, the holiday lettings of one of the units (Unit 630) that it owns.

40. A firm, Verdun Walsh Strata Management (“Verdun Walsh”), was the strata manager appointed by the Owners Corporation from the commencement of the operation of the Strata Plan until about late August 2005. The principal of that firm was Ms Deanne Hinton. Ms Hinton is identified as the Chairperson of the Owners Corporation at its first Annual General Meeting, which was held on 25 February 2004.

41. At the Extraordinary General Meeting, held on the same date, it was resolved that the Owners Corporation delegated to Verdun Walsh the functions of secretary and treasurer of the Owners Corporation. It also kept the Minute Book of the Owners Corporation.

42. From 1 September 2005 until 6 May 2010, Strata Associates Pty Ltd (“Strata Associates”) was appointed to be the strata manager. Mr Anthony Kioussis, who swore an affidavit that was read, in chief, by the Plaintiff, described himself as an employee of Strata Associates between March 2003 and May 2010. The building was part of his portfolio whilst he was an employee of Strata Associates. Mr Kioussis was cross-examined.

43. Shortly after May 2010, Mr Kioussis became a director of Result Property Group Pty Ltd. Since about May 2011, it has acted as the strata manager of the Owners Corporation. The building remains in the portfolio looked after by Mr Kioussis.

44. On about 13 December 2003, WAHTE executed under seal, the BMA. I shall return to the terms of the BMA later in these reasons. It was WAHTE that was to provide cleaning and maintenance services of the common property and the provision of reception, security and caretaker services.

45. As stated previously, the Owners Corporation terminated the BMA in April 2009.

46. Following the termination of the BMA, and until May 2012, ASM Management Pty Ltd (“ASM”) provided building management services to the Plaintiff.

47. On 7 May 2012, Sage Building Management Services Pty Ltd (“Sage”), through its sole shareholder and director, Ms Jacinda Dow, entered into an agreement with the Owners Corporation to provide building management services to the Plaintiff in respect of the common property areas of the building and the car park.

48. Ms Dow affirmed two affidavits, one read in chief and one in reply, by the Owners Corporation. She gave evidence about the need for a building manager to have space for an office, and for storage, and the problems alleged to have been caused to the Owners Corporation by reason of it not having the use of the “necessary common property”.

49. She also gave evidence that the annual fee for building management services is $119,920. The Contract Summary, which forms part of the Contract between the Owners Corporation and Sage, refers to “Staffing and hours” (1 caretaker and cleaner – 40 hours per week; 1 cleaner – 10 hours per week) and “Attendance” (Caretaker/Cleaner 7:30 a.m.- 4:30 p.m. Monday to Friday (Public Holidays excluded), Cleaner 7:30 a.m.-12:30 p.m. Saturday & Sundays (Public Holidays excluded), Cleaner 7:30 a.m.-10:30 a.m. Public Holidays).

50. In response to evidence from Mr Falzon (to whom reference will be made), Ms Dow gave evidence about the current inadequacy of the space available to the Owners Corporation for common property maintenance services (because it is alleged to have been deprived of the necessary common property of Lot 104).

51. Ms Dow was not cross-examined.

52. Ms Johanna Adriana Cornelia Peterson (who goes by the first name “Nanette”), is employed by WAG and works under the direction of, and reports to, Mr Rubinstein. Ms Peterson affirmed an affidavit and was cross-examined.

53. From early 2004, Ms Peterson’s role “was to provide bookkeeping and administration services for WAHTE, which included, invoicing, receipts and payments (that is accounting for debtors and creditors), banking, tallying employee total hours and allocating the hours to the correct shifts and applicable rates on time sheets, and entering monthly payroll totals in WAHTE’s accounts in accordance with the monthly payroll costing report provided to [her] by WAG head office”.

11. Ms Peterson was the person responsible for the preparation and submission of written claims in connection with the work undertaken by WAHTE for the Owners Corporation.

12. Ms Peterson was appointed the Treasurer of the Owners Corporation at the Executive Committee meeting held on 30 August 2007 for the following year.

13. WAHTE engaged Mr Robert Pullen and his wife, Anne, as the resident Caretaker/Manager, under contract dated 6 December 2003. Mr Pullen affirmed an affidavit, read in the Defendants’ case, and he was cross-examined.

14. Mr and Mrs Pullen worked in that capacity until 2 June 2006. They now work for WAHTE in The Waldorf, Sydney. (I shall return to the terms of their contract with WAHTE later in these reasons.)

15. WAHTE engaged Mr George Falzon and his wife, Gayle, as the resident Caretaker/Manager, under Contract dated 13 November 2007. Mr Falzon affirmed an affidavit, read in the Defendants’ case, and he was cross-examined.

16. Even though the BMA was terminated in April 2009, Mr and Mrs Falzon continued to work until the end of November 2010, and returned to work in the operations of WAHTE, at the building, in February 2012.

17. Three Expert Reports dated, respectively, 28 November 2014, 15 April 2015 and 22 May 2015, were prepared by Mr Stephen Ballesty, of Messrs Rider Levett Bucknall. The topic of each was “Estimated Costs of Building Management Supervisory Works”. I have earlier referred to the last of the three Expert Reports, the only one tendered (Ex. D2).

18. Counsel for the Owners Corporation acknowledged that Mr Ballesty had concluded that “a reasonable amount [for the work to be done by WAHTE] could be more than what was charged”: T250.01-T250.18. Counsel added, however, that this did not mean that there could be no recovery by the Owners Corporation of amounts that had been paid by way of reimbursement, but that “there would be recovery in relation to some aspects but not all”: T250.25-T250.26.

Factual History

62. There are a number of other facts that are not in dispute, or not seriously in dispute. The following narrative represents the court’s findings in relation to the further factual history.

63. On 10 December 2003, Strata Plan 71623 was registered in respect of the land and part of the building that had been developed by Coral. That Strata Plan relates to a large part, but not all, of a building called “The Waldorf”. There are seven levels in the cement rendered building.

64. The building that was developed included:

(a)   A multi-level public car park owned by Wyong Shire Council on the ground floor and first floor;

(b)   16 tourist units on level 3 and car spaces that have a separate strata plan (Strata Plan 71770). (These units are managed by WAHTE.)

(c)   103 residential units, an entrance foyer, reception and management offices, coffee shop, lift lobby on the ground floor, large car parking area on level 3 (over 120 car spaces), utility rooms on each other floor and a large terrace area with a swimming pool and surrounds. WAHTE manages 26 of the rental units.

(d)   Lot 104 which is identified by the By-laws of the Owners Corporation as the “Management Lot”, and the registered proprietor of that lot is given certain privileges by By-laws 20 – 24 and part of By-law 29, which are confirmed by By-law 33.

(e)   Lot 104 which includes three spaces on the ground floor near the entrance lobby used by WAHTE in various ways; one part of 12 square metres adjacent to the entry foyer has been used as a reception area, and another part containing 44 square metres also adjacent to the foyer has been used as a breakfast room, sometimes spoken of as a restaurant. Another part, comprising 18 square metres, is also adjacent to the foyer. It also includes the laundry on level 3, which is of 12 square metres and a conference room of about 46 square metres. There are a number of storage areas as well on each of Level 4, 5 and 6, each of about 13 square metres: Ex. P2/75-83. Lot 104 does not contain a dwelling.

(f)   Lot 105 which is a rooftop utility space. It comprises an area extending 10 metres vertically from the upper surface of the roof on Level 7 of the Building.

(The Strata Plan, as registered, reveals, that parts of Lot 104 are to be found on various levels of the building (the ground floor, and levels 3, 4, 5 and 6) and that Lot 105 is to be found on levels 4 and 7. In relation to level 7 it is noted that it “is limited in height to 10 metres above the upper surface of the metal roof it stands above”.)

65. The common property of Strata Plan 71623 includes the foyer area (but not the reception area which is part of Lot 104); a room on Level 3, which was designated in the Strata Plan as a gymnasium, but which is used as the building manager’s office; a swimming pool and its surrounds which includes a very large terrace; a car park (except for individual car spaces, which form part of an owner’s lot); and common walkways and corridors.

66. Other Strata Plans also related to parts of the building. Strata Plan 71770 related to a number of residential units. Strata Plan 69927 related to three shops, and Strata Plan 74486 related to a re-subdivision of four lots in Strata Plan 71623.

67. In relation to Strata Plan 71623, Bryson AJ found, at [7]:

“The owners of residential units in SP 71623 can be categorised in various ways. Many are investment units, lettings and management of which are carried out by the Waldorf Group. This category included many owners who had the benefit of a rental guarantee given by the Waldorf Group when they purchased the units; but these guarantees have now expired. There are also many investor/owners who manage lettings themselves, or through other managers; and there may be some owners who live in their units.”

68. On 31 January 2002, Coral had entered into the TUOA.

69. Under the TUOA, WAHTE agreed to be appointed the operator of a number of the tourist units in the building and to provide a 6.25% per annum return to purchasers of tourist units on the purchase price of each unit for 5 years. Coral also agreed to sell to Waldorf “the units comprising the Apartment’s foyer, reception and dining areas and unit 402 for the sum of $100 each unit subject to Waldorf providing Coral an irrevocable option [to repurchase the units] should Waldorf within 5 years of commencing operations cease to be the manager of the common property of the development”.

70. It was also a term of the TUOA (Clause 3) that WAHTE would be appointed the Property Manager in the development for five years, and that there would be a Building Management Agreement entered into between the Owners Corporation of the Strata Plan, when registered, and WAHTE, in terms similar to an example Agreement which was attached to the TUOA.

71. (The copy of the TUOA in evidence contains handwritten amendments to various clauses. It is not necessary to refer to the handwriting on this document or otherwise to refer to the document. It was not the subject of submissions by either party.)

72. The form of the TUOA was the subject of correspondence between Mr Bartels on behalf of Coral and solicitors acting for WAHTE.

73. The BMA (a copy of which is Ex. PGB1/74-88) is, in purport, a Deed dated 13 December 2003 between the Owners Corporation and WAHTE.

74. In relation to the execution of the BMA, Bryson AJ, at [16], noted:

“The persons who attested the affixation of the common seal were two directors of Coral … witnessed by the secretary of that company. Coral … was the developer which had brought about registration of the strata plan, and it should be understood that on registration Coral … was the only owner of lots in the strata plan, and that this was still the case on 13 December 2003. It was not disputed that this was so. That there was only one owner demonstrates that the initial period defined in Dictionary Pt 1 had not ended on 13 December 2003. The deed did not purport to be executed by a Strata Manager, or by anyone other than the officers of Coral … The affixation of the seal by Coral … and its officers was authorised by s 238(1) of Strata Schemes Management Act on 13 December 2003.”

75. At the hearing, the parties agreed it should be inferred from their conduct that they had entered into a contract on the terms of the BMA and, by their conduct, became bound by the BMA. (They accepted that the majority of the Court of Appeal had held that, whilst the purported execution of the Deed of Acknowledgement was not effective to bind the Owners Corporation to the BMA, the parties’ conduct had formed a sufficient basis to infer a contract between them on the terms of the BMA: per Hodgson JA, at [63] (Beazley JA agreeing, at [1]).

76. The front sheet of the BMA bears the reference “Geoff Bartels – Business Lawyers”.

77. Condition 38 of the Development Consent required the preparation of a “Management Statement” which was said to be “a set of rules that regulate the management and operation of buildings where part of the building is subdivided by a strata scheme or schemes”. It was also said to “confer rights and impose obligations on the owner’s [sic] corporations and owners and occupiers of lots in a building”, and that it contained “provisions about a wide range of issues, including meetings, financial management, redevelopment and maintenance of shared facilities” and to have effect as an agreement under seal.

78. The Council and Coral executed the Management Statement in November 2003. A copy of the Management Statement, which formed part of the evidence, comprised 136 pages. It provided for a committee representing each Strata Plan and the Council. It is not necessary to rehearse its contents otherwise.

79. In April 2002, Mr Bartels prepared the draft Contract for Sale of Lot 104 from Coral to WAHTE. In May 2002, he received instructions from Mr Barr that the reception area on the ground floor was to be included within Lot 104, and a short time later that it was to be included “as part of that transferred to the ownership of the Waldorf entity”. Subsequently, he prepared an amended draft Strata Plan identifying the reception area as part of Lot 104. He sent an amended draft Contract for Sale of Lot 104 to the solicitors for WAG in late August 2002 and another in May 2003. There were other amendments made to the Strata Plan and to the draft Contact for Sale of Lot 104 in July and August 2003.

80. WAG became the registered proprietor of Lot 104 in late 2003 or early 2004, and it transferred the Lot to Rinbac in about October 2007. The copy of the undated Transfer (Ex. PGB1/41) appears to bear the signature of Mr Rubinstein on behalf of both vendor and purchaser.

81. The Contract for the sale of Lot 112 by Coral (in liquidation) to WAG was exchanged on 1 February 2006, and was completed on 16 March 2006. The sale price was $15,000. Title to the Lot was registered in the name of WAG in March 2006. The copy of the undated Transfer (Ex. PGB1/44) appears to bear the signature of “R J Porter/Liquidator”, and the solicitor for WAG, Mr S M Freeman. Mr Bartels was identified as the vendor’s solicitor on the Contract for the sale of Lot 112. (This Lot has no real relevance to the proceedings other than to note that Mr Bartels described it as “a triangular Lot on the external wall of the Coral Street façade to the building which can be adopted for advertising or other commercial use”.)

82. The initial meeting of the Owners Corporation was held on 25 February 2004. Immediately following the initial meeting, an Extraordinary General Meeting was held.

83. Between 25 February 2004 and 20 April 2009, the Owners Corporation treated WAHTE as its building manager, and WAHTE acted as the building manager.

84. WAHTE’s practice, during this period, was to submit monthly claims, in writing, specifying charges for services such as “reception” (initially about $9,000 including GST, and increasing to about $11,000 including GST), “manager” (initially about $2,400 including GST and increasing to about $3,000 including GST), “cleaning, garbage removal” (initially about $2,400 including GST, increasing to about $4,100 including GST), “cleaning of shared facilities” (initially about $1,100 including GST, increasing to about $1,300 including GST), and “pool cleaning and maintenance” (initially about $550 including GST, increasing to about $570 including GST): Ex. P7/11.

85. Other invoices, described in the submissions, as “Third Party Invoices”, sought reimbursement for payments made by WAHTE to third parties in respect of goods and/or services provided to WAHTE by third parties. (There is a dispute about whether a copy of Third Party Invoices were provided to the Owners Corporation.)

86. Until about October 2008, the Owners Corporation paid the written claims and the Third Party Invoices that had been submitted by WAHTE. I shall return to the manner in which this was done later in these reasons.

87. From October 2008, the Executive Committee of the Owners Corporation objected to the written claims and to the absence of information said to be required by Clause 6.2 of the BMA.

88. WAHTE persisted in making its claims for reimbursement in substantially the same way; and when its claims were not paid, it commenced proceedings against the Owners Corporation in the Hornsby Local Court seeking payment.

89. In the Chairman’s Report dated 19 March 2009, under the name of Mr Bartels, the following passages appear:

“Dispute With Waldorf:

The Executive Committee has required Waldorf to justify it’s [sic] ‘at cost’ charges which it has demanded payment for over the last five (5) years and had previously sued for. The Strata Manager has been instructed not to pay without proper justification. That earlier matter was settled by a Waldorf dominated executive. Again rather than justify the charges raised they have issued a Statement of Claim. This Executive Committee has instructed Verekers Lawyers to defend the action and to advise what action should be taken to enforce a proper taking of account. We await that advice.

Appointment of Auditor for Charges under Management Agreement:

Owners who were present at the October EGM will recall that Waldorf agreed to the appointment of an auditor to review the possible over charging under the Building Management Agreement. Before we could nominate an auditor Waldorf advised me that the auditor I was intending to recommend to the Executive Committee, Moore Stephens PMN, was unacceptable to it. No bona fide reason was put forward to support that objection. One must anticipate therefore the reason was that one of the partners of Moore Stephens PMN is the liquidator of Coral Resorts P/L, the developer, and he has commenced an audit to verify the imposts made on the income support deposit that Coral has given Waldorf under its original agreement to manage the serviced apartments. Moore Stephens therefore has much foreknowledge of Waldorf whereas an auditor with no background would be at a significant disadvantage in that regard.

The reasons I proposed to nominate Moore Stephens to the Executive Committee were that they are already fully conversant with the contracts, the obligations and the building, they have already commenced an audit and much of the information to be reviewed will be the same, also in informal talks with the partners I was assured that we would get significant cost savings due to those facts, which later matter was to the benefit of both the Owners Corporation and Waldorf.

The audit will be a matter to be pressed by the incoming Executive Committee.

…

Waldorf Electricity Conversion:

Owners may not be aware that much of the utility space in the Strata Plan is contained within Lot 104. This includes the reception and management offices, the coffee shop and all the utility units. Lot 104 is owned by a Waldorf company, Rinbac Pty. Ltd. Again the independent members of the Executive i.e. non-Waldorf members, established that Lot 104 had not been separately metered for all the time that it been [sic] by Rinbac i.e. since the opening of the building – 5 years. In consequence the Owners Corporation has been paying Waldorf’s power bill, this not only includes its office account but also for the coffee shop and for the laundry it runs for its own clients on Level 3. This is a simple conversion at common law. Again, this is a situation of which Waldorf and its appointees on the Executive Committee must have been aware.

The electricity account for the owners’ corporation is approximately $2400 per month.

Confronted with this abuse of their fiduciary position Waldorf offered the nominal sum of $400 a quarter. They were directed, as Building Manager, to have the Lot metered. No action has been taken by them to have the Lot metered.

Use of Premises to Manage Other Buildings:

Waldorf manages units in at least two other buildings in The Entrance. Observation of their web site indicates that management is done using SP 71623 facilities. The independent members of the Executive Committee have objected to that practice. Time will reveal what if any notice is taken of our position.

On an inspection of the building in mid-January we discovered Waldorf had appropriated several significant areas of common property (the former gym and most of the plant lock-up) to run its business without advice to the Executive Committee or compensation to the Owners Corporation. It was instructed to rectify the situation and it has only partly complied.

Maintenance and Cleaning:

As Chairman I have been very disappointed in the standard of maintenance and cleaning of the common property. I have requested on many occasions a professional scope of works of their duties under the Building Management Agreement from Waldorf so that we can monitor, verify and appraise the value and standard of work being done under the Building Management Agreement. No scope of works has been provided. Indeed the Executive Committee has been advised that Waldorf do not know how to do one. Believe it or not?

Waldorf’s Conflicts of Interest:

Since the service of the Statement of Claim noted above the Waldorf representatives on the Executive Committee have had an irreconcilable conflict of interest. As Chairman I demanded their resignations. They have refused to resign.”

90. (Whilst there was a reference to “the standard of maintenance and cleaning of the common property” in the correspondence referred to immediately above, and in Mr Bartel’s affidavit in chief, it is important to note that in the Statement of Claim, the Owners Corporation relevantly pleaded WAHTE’s obligation in Clause 3(a) of the BMA (Paragraph 10) and its duties were identified in Clause 6.1 of the BMA (Paragraph 11). However, the Owners Corporation did not plead a breach by WAHTE of either Clause. The relevant breach of the BMA pleaded, as against WAHTE, related to Clause 6.2(a) of the BMA (Paragraph 14 of the Statement of Claim).)

91. Relevantly, on 7 April 2009, at the Annual General Meeting of the Plaintiff, a new Executive Committee of nine was elected. All those elected were owners of Lots in the building. Following the Annual General Meeting, Mr Bartels was elected as Chairman at the subsequent Executive Committee meeting.

92. On 20 April 2009, a letter to WAHTE, on the letterhead of the Owners Corporation, signed by Mr Bartels as Chairman of the Executive Committee of the Owners Corporation, purported to terminate the BMA effective 27 April 2009: Ex. P7/4.

93. Relevantly, the letter giving notice of termination stated the following ground:

“The Owners Corporation relies upon various acts of the Manager which would entitle it to terminate the Agreement immediately including but not limited to the failure to make proper provision for the electrical metering of Lot 104 and the conversion of electricity for a period of at least five (5) years to the knowledge of the Manager and its failure when required so to do to metre the unit or to make any proper offer of restitution or provision for the calculation of the default. It further relies upon the Manager’s improper conduct in converting to itself profit from vending machines installed upon the common property.”

94. On about 21 April 2009, the Owners Corporation appointed ASM to manage the building whilst it called for tenders, with duties to commence on 28 April 2009: Ex. P7/6.

The BMA

95. In the Recitals to the BMA, it was noted that the Owners Corporation had agreed to engage WAHTE, and WAHTE had agreed to accept such engagement as Manager to assist the Owners Corporation in respect of certain obligations.

96. By Clause 3(a) of the BMA, the Owners Corporation engaged WAHTE for a term of ten years (with provision for extension) to “undertake the administration, caretaking, security and supervision of the Common Property and the supervision of the general repair and maintenance thereof as provided in this Deed”. Its responsibilities were described as being “primarily supervisory on behalf of, and advisory to, the Plaintiff”.

97. Yet, the Owners Corporation acknowledged that WAHTE “may in addition to the performance of its obligations under this Agreement, offer to provide services to a Lot Owner or Occupier of either tourist or residential units”. The Plaintiff was “not to bear any of the costs or liabilities associated with such services”.

98. Clause 4(a) of the BMA described the relationship of the parties as “that of a principal and a contractor” and was not to be construed as creating any partnership between them. Clause 4(b) made clear that the BMA was not to operate “as an appointment of the Manager as a Strata Managing Agent under s 27” of the SSMA.

99. The BMA did not identify operating hours, or the hours per day, of the Building Manager, and it did not specify the level of qualification of the Building Manager.

100. Clause 6.1 of the BMA provided:

“6.1   Obligations

Without affecting the generality of clause 3 the Manager will ensure, subject to any other agreement between the parties, that:

(a)   The Common Property is property cleaned at the cost of the Owners Corporation;

(b)   Any broken light fittings, globes and tubes in the Common Property are replaced when required at the cost of the Owners Corporation;

(c)   The Common Property is redecorated when necessary at the cost of the Owners Corporation;

(d)   The carpets in the Common Property are replaced when necessary at the cost of the Owners Corporation;

(e)   The reception area, volleyball courts (if any), swimming pool, gym and spa are maintained repaired and serviced when necessary at the cost of the Owners Corporation; the Manager may contract out any necessary maintenance repairs and service requiring specialist expertise at cost to the Owners Corporation.

(f)   An 18 hour reception/security caretaker service is provided at the cost of the Owners Corporation;

(g)   A telecommunication/pay TV/Cable TV is provided at the cost of the Owners Corporation.

(h)   All general Common Property maintenance and repairs are carried out as and when required at the costs of the Owners Corporation.

(i)   Employ a live-in Manager at cost to the Manager.

(j)   The Owners Corporation may by written notice to the Manager require that the Manager dismiss or replace any employee or agent (other than a shareholder or principal of the Manager) engaged by the Manager to discharge the Manager’s responsibilities under this Agreement. The Manager shall dismiss or replace the relevant employee as soon as possible after receipt of the notice. The Owners Corporation must act reasonably in exercising its discretion pursuant to this sub-clause; and

(k)   The Manager must indemnify the Owners Corporation against liability for all loss, damage or injury to persons or to property caused by the negligence of the Manager or its employees or agents.”

[Amendments are shown to reflect the correct terminology.]

101. Clause 6.2 of the BMA provided:

“Reimbursement

(a) The Owners Corporation will reimburse the Manager for all of its reasonable and proper fees and expenses incurred in carrying out the Manager’s duties, including (without limitation) all overhead expenses and out of pocket costs relating to cleaning materials or materials for the replacement of fittings, plant and equipment required in order for this Manager to discharge its responsibilities in terms of this Agreement, PROVIDED THAT the Manager submits claims in writing to the Owners Corporation with copies of invoices for all work done and in respect of which a claim for payment is being made and certifies that the details contained in such invoices are correct.

(b) In addition to which re-imbursement the Owners Corporation shall pay to the Manager by equal quarterly instalments the sum of $35000 per annum by way of remuneration.

(c) The sum of $35000 provided in Clause 6.2(b) hereof shall be adjusted annually on the anniversary of the date of commencement of this deed by increasing the remuneration so provided by the annual increase in the Consumer Price Index (Sydney All Groups) for the year immediately preceding the date of adjustment. The review shall be based on the four published quarters immediately preceding the date of review.

(d) Should the Australian Bureau of Statistics cease to publish the said Index then the parties shall agree on the index most akin to the said Index for substitution. If they cannot agree they shall refer the dispute to the Commonwealth Statistician whose determination shall be final.”

102. Clause 10 of the BMA provided that WAHTE “shall advise [the Plaintiff] from time to time or as directed by [the Plaintiff] as to its recommendation for the management and care of the Building”. This confirmed that “[t]he Manager’s responsibility shall, in nature, be primarily supervisory on behalf of the Owners Corporation and advisory to the Owners Corporation”.

103. Clause 12 of the BMA provided:

“DEFAULT BY MANAGER

The Owners Corporation may determine the appointment of the Manager under this Deed by notice in writing to the Manager if—

(a) the Owners Corporation breaches the conditions of this Deed to be observed and performed by it and such breach continues for a period of thirty (30) Business Days after notice in writing has been given to the Owners Corporation by the Manager specifying the alleged breach and calling on the Owners Corporation to remedy same; or

(b) the Building is wholly or substantially destroyed or damaged to such an extent that it may not be occupied for a period of at least twelve (12) months or is condemned or resumed by any competent authority.”

104. (In Clause 12(a) the references to the parties are confused – the reference to the Owners Corporation should be a reference to the Manager, and the reference to the Manager should be a reference to the Owners Corporation. This was not disputed.)

105. Clause 15 of the BMA provided that the parties acknowledged and agreed that “they have not and do not rely on any warranty or representation except such as is expressly provided … and this Deed contains all the terms of the agreement between the parties”.

106. Clause 17 of the BMA provided:

“17.   OWNER OF LOT 104 HAS MANAGERIAL RIGHTS

(a)   The parties acknowledge that the owner from time to time of Lot 104 on the Strata Plan or any entity nominated in writing by such owner may be appointed by the proprietors of the lots in the Building, or some of them to manage their lots and as the owner of Lot 104 or the nominee of the owner of Lot 104 will have the exclusive right to occupy such Lots.

(b)   Nothing contained or implied by this Deed gives the Manager the right to occupy or share the occupation of Lot 104 if the Manager is not the owner of Lot 104.”

107. Clause 19(a) of the BMA provided that no waiver by a party of any term or condition shall be deemed to be of any effect unless in writing, whilst Clause 19(b) provided that the failure by either party to exercise any right provided for in the BMA “will not be deemed a waiver of any further rights hereunder”.

The Earlier Proceedings

108. In about 2009, WAHTE commenced proceedings seeking a declaration that the notice of termination of the BMA, served by the Owners Corporation, was void and of no effect, and it sought an injunction to restrain the Owners Corporation from taking any action to give effect to the notice of termination.

109. Bryson AJ, who heard the proceedings in August 2009, held that the Owners Corporation was not bound by the BMA, and that, whether or not the grounds stated in it were correct, the notice of termination was effective to bring to an end to whatever contractual relationship had subsisted between the parties.

110. His Honour wrote, at [56]-[59]:

“A further matter of complaint by the Owners Corporation received considerable attention in the evidence and submissions, although the complaint was not expressed in the Notice of Termination, and does not appear in the pleadings. The Building Management Agreement (continuing the assumption, which I do not accept that it bound the parties for a significant time) contains provisions in Clause 6.2 relating to charging. This clause was not altogether clear, as the provisions relating to copies of invoices cannot be readily related to costs which would not generate invoices such as employment costs, and it is unlikely that they were intended to refer to them. It is unlikely the certification requirement relates to the whole claim and it probably only relates to invoices.

Until September 2008, WAHTE made monthly claims for payment, which were in fact paid, but which plainly on their face did not comply with clause 6.2, did not contain any information about the quantum of expenses which had actually been incurred, there were no copies of invoices; nor was there any certification. The charges rendered monthly were based on budgets for the current year, presented at some time early in each year by WAHTE to the Executive Committee, and as Mr Rubinstein’s evidence would show, approved by the Executive Committee; or in any event known to them in advance. Minutes of approving resolutions are not forthcoming. However that may be, although the claims did not accord with what the Owners Corporation was entitled to have, they must have been found acceptable by the Executive Committees of those years, on which persons associated with WAHTE and related companies were in a majority, because they were all paid.

From October 2008 onwards the Executive Committee, which had come under the influence of Mr Bartels, objected to these claims and to the absence of the information required by the Building Management Agreement, and an extensive and forceful correspondence passed and made it altogether clear that Mr Rubinstein was not prepared to render claims for payment on the basis set out in the Building Management Agreement, or on any other basis than monthly amounts according to a pre-determined budget. Mr Bartels maintained this position, in a forceful manner, when giving evidence before me in August 2009. That is to say, repeated assertions by Mr Bartels that the claims were not in appropriate terms and did not give appropriate information have not produced any information or compliance, and the non-compliance is fully intended and is maintained.

WAHTE and Mr Rubinstein took the position to such an extreme as to sue the Owners Corporation, in two proceedings in the Hornsby Local Court for monthly charges. Those proceedings are still pending and have not been determined. On the information before me it appears altogether clear that WAHTE is not entitled to payment of any monthly claim made without compliance with the Building Management Agreement; unless perhaps it is WAHTE’s position (and WAHTE has never conceded) that the Building Management Agreement does not bind the parties. That would be a very distant proposition from any advanced before me. The significance of the proceedings in the Local Court for the purposes of my decision is that they show that WAHTE adheres with great firmness to what has been asserted, and is altogether unprepared to claim payment on the contracted basis.”

111. At [61], his Honour added:

“WAHTE’s conduct in this respect is relevant to the pleaded issue whether WAHTE has exhibited a repudiatory intention towards the Building Management Agreement. As my earlier observations show, repudiation, open to acceptance by a termination, already sufficiently clearly appears; but if there were any doubt about that, WAHTE’s conduct in relation to its claims for payment further and strongly demonstrate its unwillingness to comply with fundamental obligations, except on wrong and unreasonable views of what those obligations are.”

112. WAHTE appealed. The Court of Appeal, which heard the appeal in July 2010, upheld his Honour’s decision (albeit as to part only of the grounds). It was held that WAHTE’s breach of contract in relation to the use of electricity for Lot 104 manifested an intention to repudiate the BMA, entitling the Owners Corporation to terminate the BMA: Ex. P7/5.

113. In the Court of Appeal, Hodgson JA, with whom Beazley JA (as the learned President then was) agreed, at [56], expressed the opinion that the meaning of Clause 6.2 of the BMA was “obscure”. Hodgson JA wrote:

“In my opinion, as stated by the primary judge, the meaning of cl 6.2 of the Building Management Agreement is obscure. I think the better view is that what it contemplates is that WAHTE’s services be provided for $35,000 per annum (CPI indexed) plus the cost to WAHTE of providing the services; and that WAHTE’s invoices should appropriately justify what it claims as the cost to itself of the services, inter alia by provision of copies of invoices rendered to it. In my opinion the better view is that WAHTE has not complied with this. However, having regard to the unclarity of cl 6.2 and to WAHTE’s practice of submitting budgets, I do not think WAHTE’s conduct in this regard can be considered repudiatory.”

114. Macfarlan JA agreed with Hodgson JA that the appeal should be dismissed with costs. He disagreed with part of Hodgson JA’s view, but the disagreement is irrelevant to the issues in the current proceedings.

The Evidence of the Witnesses

115. No party suggested that any witness should not be believed. I formed the view that each witness who was cross-examined was endeavouring to tell the truth.

Mr Bartels

116. Telulu is the trustee of his and his wife’s family trust. It has owned Lot 100 and Lot 101 in the Strata Plan since about 27 February 2004 and two car parking Lots, being Lot 114 and Lot 115, since early 2006, having purchased each from the Liquidator of Coral.

117. He sets out the circumstances of the purchase of Lot 104, which circumstances are not necessary to repeat, in his first affidavit. Although negotiations for the sale, and purchase, of this Lot commenced in 2002, Mr Bartels confirmed that the Contract for Sale of Lot 104 was completed on 25 February 2004; the Transfer was dated the same date; was stamped on 5 March 2004; and was registered on 9 March 2004.

118. Mr Bartels had expressed some dissent to Mr Barr about the Lot 104 transaction in correspondence sent as early as December 2001, and then again, in May 2002. He expressed the view that “[u]nder no circumstances should the manager be able to add in any of the lots by sale or by mortgage”. He was particularly concerned about the utility spaces and the reception area. His advice on this issue was not taken by Mr Barr.

119. He had discussed his concerns with his wife, Ms Momcilovic, when she became Chairman of the Executive Committee of the Owners Corporation but could not remember precisely the circumstances of their discussion.

120. Mr Bartels accepted that when he became Chairman of the Executive Committee in late 2008, he did not, in that capacity and on behalf of the Owners Corporation, make any claim asserting that Lot 104 was held on trust. He seemed to accept that there was no correspondence sent to the registered proprietor of Lot 104 asserting that the Owners Corporation was claiming that Lot 104 was held on trust for it.

121. Mr Bartels confirmed that because the reception area in the foyer was not common property, but rather, part of Lot 104, it could not be used for the purpose of providing a physical reception area.

122. He found out about the sale of Lot 105 by the liquidators of Coral to WAG at, or about, the time of its sale. He did not consider buying the Lot. At the time, he did not remember discussing its sale with his wife.

123. He could not recall whether and, if so, when, any letter had been sent, on behalf of the Owners Corporation, advising that it was claiming that Lot 105 was held on trust for it.

124. Mr Bartels stated that the Owners Corporation had a need for utility areas, including lockable storerooms, for the storage of cleaning materials and equipment on each floor, and to store furniture and equipment, principally pool furniture and equipment, during the periods when they were not required to be used.

125. He also stated, because of the size of the building, that an on-site building manager, was required to be present on site, at least on a part time basis, and that he needed office space for the storage of records and small items of cleaning and maintenance equipment.

Ms Momcilovic

126. She stated that at none of the meetings of the Executive Committee, at which she attended, did Mr Rubinstein, Dr Wolf or Ms Peterson:

(a)   raise any issue, or question, in respect of any of the invoices issued by WAHTE;

(b)   table, or refer to, any supporting documents for invoices issued by WAHTE, including third party invoices or other documents demonstrating the incurring of expenses by WAHTE;

(c)   make any statement, or comment, concerning the sale of Lot 105 by the liquidator of Coral or the purchase of Lot 105 by WAG.

Ms Dow

127. She gave evidence that an office was required by Sage for use by the on-site caretaker and for the keeping of records. The caretaker would also need a central location where he, or she, could be found by residents and others or where messages, by telephone, or otherwise, could be left. She added that a storage area or areas would also be required to house cleaning equipment, cleaning products, items for repair, such as light globes, door handles and rollers, and otherwise for use by the caretaker.

128. Ms Dow stated that Ms Melissa Roach was working as a cleaner, with IC Cleaners, in the building, cleaning the common property areas of Strata Plan 71623 and also Strata Plan 71770 (comprising level 3). Sage subsequently took over her contract and, thereafter, employed her.

129. Ms Roach, who did not make an affidavit that was read in the proceedings, now performs her duties, as a cleaner and caretaker, on a full-time basis, for Sage, at the building. (I mention also that Ms Roach was contracted with Telulu to clean for it and to launder linen, a service which Telulu provided to a number of guests.)

Mr Kioussis

130. He had been carrying out the functions of strata manager since September 2005, apart from a period of about 12 to 18 months following May 2010. The relevant building formed part of the portfolio that he was required to manage.

131. He was the individual, on behalf of Strata Associates, who had prepared the various documents such as notices of meetings. Strata Associates was responsible for making payments on behalf of the Owners Corporation.

132. Strata Associates prepared the annual budget in relation to WAHTE. It was the “invariable practice” that the budget “would be presented at the annual general meeting each year to be approved by the meeting”: T67.02-T67.10.

133. Strata Associates had received monthly claims in writing from WAHTE. In addition, it received what was described as “ad hoc” invoices, which he explained were for expenses, incurred by WAHTE, paid to a third party for particular goods or services: T57.29-T57.37.

134. Mr Kioussis stated that it was the practice of Strata Associates, after it took over, to record electronically, by scanning to PDF, the written claim that had been submitted by WAHTE, and any supporting invoices, or other documents, attached to the written claim, issued to the Owners Corporation, and then to dispose of the originals after they were checked and paid. Upon receipt of the invoices, they would be entered into the system by the account manager. Once entered, the invoice would be passed to the supervisor who would check that the data had been entered correctly, and then pass it to Mr Kioussis for final approval for payment.

130. Mr Kioussis would identify the budget code to which the expense on the invoice would be allocated. In this way, “when it would appear on the income and expenditure statement, it was allocated again as a budgetary item”: T58.46-T59.11.

131. Where necessary, if there were two strata schemes in the building to which an expense related, there would be an allocation of the expense between the two strata schemes based upon what he described as “a deed which is referred to as a strata management statement”: T67.33-T67.42.

132. Mr Kioussis accepted that when he received the invoices, he would endeavour to work out what the invoices were for. He “paid the invoices based on historical information from Verdun Walsh (the previous strata manager) … presuming that they had been paid correctly”: T61.13-T61.16. He acknowledged that it was possible that the previous strata manager should not have paid those invoices. He followed this course until the Owners Corporation identified that the written claims that had been submitted by WAHTE were not produced in accordance with the BMA.

133. Mr Kioussis stated that Strata Associates had received from Verdun Walsh a number of records relating to the Plaintiff, including a minute book and copies of the invoices issued by WAHTE to the Plaintiff.

134. Mr Kioussis acknowledged that some supporting documents in relation to some invoices may have been received, although he believed that, for the most part, they were not. He indicated that it was possible that the Accounts Department of Strata Associates had been provided with the supporting documents and had paid them without him having seen them. (In cross-examination, he admitted that he really did not know one way or another whether the Third Party Invoices had been received: T66.)

135. Although Mr Kioussis acknowledged that he ought to have considered the BMA, he stated, in re-examination, that he had been given no instructions as to its operation and that he had never been asked to explain its operation to the Owners Corporation.

136. Mr Kioussis did not say that he believed that the Owners Corporation was under a legal obligation to make the payment on the claim submitted in writing by WAHTE. There is no evidence that he even directed his mind to that issue. He gave no evidence as to the reasons why Strata Associates paid each monthly claim.

137. Nor did Mr Kioussis say that he gave any consideration to any right of the Owners Corporation to withhold reimbursement of payments to WAHTE because of the belief that there had been a breach of Clause 6.2(a). Again, there is no evidence that he even directed his mind to that issue.

138. Also, he did not say that prior to the payment of the claims in writing submitted by WAHTE, he had informed any members of the Executive Committee that Strata Associates intended to pay those claims. This is hardly surprising as in regard to such payments, the Owners Corporation had delegated the function of payment to Strata Associates. There is no evidence that the Owners Corporation, through the Executive Committee, or otherwise, continued to exercise the function that it had delegated.

139. In a letter dated 19 November 2008, Strata Associates sought from WAHTE “all supporting documentation relating to Clause 6.2 of your Agreement… going back to September 2008” and “evidence of out of pock [sic] costs to Waldorf Australia Pty Limited and any associated company”: Ex. PGB1/279.

Mr Rubinstein

145. Relevantly, Mr Rubinstein, in cross-examination, confirmed that he had extensive experience in providing building managers’ services to apartment buildings.

146. He accepted that the BMA contained an obligation upon the Manager to provide supervision on behalf of, and advice to, the Owners Corporation. WAHTE was also to provide recommendations, from time to time, to the Owners Corporation of its own volition, as well as when requested.

147. It was his understanding that WAHTE was to recommend to the Owners Corporation the work that was needed to be done, and that, after the recommendation, if the work was performed, then the Owners Corporation would reimburse WAHTE for the reasonable and proper fees for doing that work.

148. Mr Rubinstein acknowledged that he had given directions to Ms Peterson about billing amounts to the Owners Corporation by reference to annual budgets. He had been involved in the preparation and the review, of those budgets, and had provided an explanation of how the amounts stated were calculated. He also gave evidence that in December 2003 he had received a revised budget for 2004 and 2005 which he had agreed to. Subsequently, it was Mr Kioussis who had prepared the annual budget, which budget he sent to Mr Rubinstein “to amend or comment [upon]”.

149. Mr Rubinstein gave evidence that, as company director of WAHTE, his responsibilities included decisions relating to the employment and salary of permanent staff at the building.

150. Although Mr Rubinstein agreed that the invoices provided by the caretakers should have been provided to the Owners Corporation as Third Party Invoices, he disagreed with the proposition that the provision of those invoices would have altered the way in which WAHTE had invoiced for the 18 hour reception. He stated that such invoices would have merely supported the fee that WAHTE was charging.

151. Mr Rubinstein confirmed that there were two people employed, full time, to assist with reception. Other people (such as Mr Falzon, Ms Peterson or a cleaner) would, occasionally, relieve the reception staff if necessary, or assisted them otherwise during peak time. Although, initially, it had been in Mr and Mrs Falzon’s job description to man the reception, they did less and less reception work over time. They did, however, look after the reception after hours, if necessary.

152. He agreed that he would have been able to identify the persons who were to man reception and his, or her, annual income, but, this information was not provided to the Owners Corporation. He was never asked by the Owners Corporation to identify the full time staff, on reception, or the annual income paid to that staff.

153. Mr Rubinstein denied that invoices needed to be provided to the Owners Corporation for WAHTE’s own employees who were performing work for the Owners Corporation, as those employees were on WAHTE’s payroll. He said that had he known that invoices for WAHTE’s own employees were required, he would have organised the production of those invoices.

154. Mr Rubinstein agreed that he never informed the Owners Corporation, either through the Executive Committee, or in any other way, of which persons working in the building, doing work pursuant to the BMA, were independent contractors or WAHTE’s employees. He thought that the Owners Corporation would have known, from speaking to the caretaker, but he had not turned his mind to it.

155. He agreed that, had the Owners Corporation required WAHTE to keep time sheets, he would have arranged for this to be done and would have negotiated an increased management fee for doing so. WAHTE would have been entitled to an increased fee as it would be carrying out additional work to have this done.

156. In fact, when WAHTE was requested by email to complete “daily verifications”, Mr Rubinstein replied that it would be possible, subject to being paid for the costs of undertaking the verifications. He expressed the opinion that he did not think that daily verification was practical, or necessary, and it would only increase the operational budget of the Owners Corporation. He had never calculated how much it would cost to provide a daily verification.

Dr Wolf

157. Dr Wolf was not called as a witness by the Defendants. Mr Rubinstein’s evidence was that whilst Dr Wolf had “a lot of input” into Rinbac, the role Dr Wolf played was “part time”: T125.19-T125.22.

158. The Owners Corporation submits that in these circumstances a Jones v Dunkel inference is appropriate. (The circumstances for drawing such an inference are found where the uncalled witness is “a person presumably able to put the true complexion on the facts relied on [by a party] as the ground” for any inference favourable to the plaintiff: Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345, per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ, at [168].)

159. The submission was not developed in any way during the hearing. I have borne in mind, however, that Dr Wolf has played no part in the proceedings.

Ms Peterson

160. She gave evidence that she is an experienced bookkeeper and that she did bookkeeping services for the Waldorf group of businesses. She has never been employed by WAHTE.

161. She had seen a copy of the BMA prior to the earlier proceedings, she thought in about 2009. Whilst she had been on the Executive Committee of the Owners Corporation, she had not looked at the BMA.

162. Ms Peterson accepted that employees of WAHTE, who were allocated different roles, had time sheets to complete. They did not identify the different Strata Plans in respect of which the hours were being spent.

163. Between 2003 and 2009, her role had been to collect the time sheets and manually enter the hours in the correct columns, add the hours up and send, by facsimile transmission, the time sheets to head office for processing.

164. In addition, between 2003 and 2009, her “usual practice” was to attach to the invoice sent by WAHTE, any Third Party Invoice that it had paid and for which it was seeking reimbursement from the Owners Corporation. Naturally, she could not specifically remember whether she had done that on every single occasion. After the budget was approved, Ms Peterson would divide the total amount by 12 and then issue monthly invoices. Expenses to third parties were paid in addition to these invoices.

165. Ms Peterson denied the evidence of Mr Bartels that WAHTE did not provide supporting evidence for expenses incurred or claimed by WAHTE in the Third Party Invoice.

Mr Falzon

166. I have also noted that WAHTE engaged Mr and Mrs Falzon as Resident Managers under a contract dated 13 November 2007. That contract provided for a total remuneration of $65,000 plus GST per annum, plus accommodation. They were required to invoice WAHTE for their services fortnightly “on an appropriate tax invoice”. The Front Office was to be manned between the hours of 7:00 a.m. and 7:00 p.m., on Sunday to Thursday and from 7:00 a.m. to 9:00 p.m. on Friday and Saturday, each week. In “Peak Times”, the Front Office was to remain open until 11:00 p.m. on weekends. Duties included management, caretaking and cleaning of the common property in the building and what was described as “The Sea Breeze Property”, attending the reception area when required for meeting and greeting new guests (with the assistance of one additional front office person only). No specific working hours were stated but were “as required”. However, they were “not expected to perform duties more than 38 hours per person” for a 6 day on site service.

167. Mr Falzon stated that he was required to carry out the management and caretaker duties stated in his contract. He was also required to clean the building, “to ensure that the front desk was manned and that the Plaintiff’s common areas were cleaned and that facilities shared with Strata Plan 71770 were clean”. He also was required to manage the Waldorf Letting Business, which required him to ensure that the apartments were clean after the departure of the long-term tenants. Finally, he was required to ensure that the caretakers of a nearby Hotel properly managed their premises.

168. Mr Falzon agreed that when he was carrying out his duties, he did not distinguish between the different aspects of the WAHTE business. He also stated that some days were very busy, whilst on others, “you’ve got all the time in the world”: T193.23-T193.24.

169. He was taken to the schedule prepared by Mr Rubinstein and stated that those figures did not reflect the actual time that was spent carrying out duties. He agreed that the references to “plant watering” and “large pot plants level 4” had been duplicated.

Mr Pullen

170. He was the building manager, with his wife, between 2003 and 2006.

171. I have earlier noted that WAHTE engaged Mr and Mrs Pullen as Caretaker/Manager under a contract dated 6 December 2003. That contract provided for a total remuneration of $55,000 per annum, plus accommodation. They were required to keep the Reception office operational and open to the public during “Peak Time” 24 hours per day and outside “Peak Time” between 7:00 a.m. and 12:00 p.m., 7 days per week. Caretaker duties included “cleaning the lobbies, lifts, car parking, rubbish room, corridors, and vestibules; monitoring the watering system, cutting the small lawn areas, sweeping paths, cleaning the pool, and removing leaves from the common areas”. In addition, it was anticipated that they would have “to be available to attend to minor repairs and when necessary co-ordinate and monitor tradesmen who visit the site, monitor and review their work”.

172. Mr Pullen gave evidence that their duties were limited to levels 4, 5 and 6 of the building, the common areas on those levels (which he describes as “Waldorf Property”), and the swimming pool, terrace, lifts, gymnasium and garbage facilities (which he describes as “Shared Facilities”).

173. He acknowledged that he was not required to keep a time sheet, but he would monitor how much time he spent carrying out different jobs. He was not told how much time he was required to spend on each task. He knew that he was required to keep the reception office open for certain times and that he and his wife manned the reception office. On occasions, they had the assistance of a part-time switchboard operator.

174. He would supply a tax invoice for himself, and his wife, to WAHTE each fortnight. However, he did not identify the time spent performing the different work activities that he, and she, did.

The Expert Report

175. As stated, the Expert Report was Ex. D2 in the proceedings.

176. The instructions to Mr Ballesty, which were jointly provided by the solicitor for the Owners Corporation (Mr Tassell), and by the solicitor for WAHTE (Mr Bard), and those respective parties in the proceedings, were identified in the Report as the “Instructing Parties”.

177. Mr Ballesty included his Curriculum Vitae (Appendix 5) as part of the first report. He described himself, in the body of the report (at Paragraph 1.8) as “a professionally qualified quantity surveyor since 1986 and … currently a Fellow of the Royal Institution of Chartered Surveyors (FRICS), a Fellow of the Australian Institute of Quantity Surveyors (FAIQS), a Life Member (fellow) of the Facility Management Association of Australia and a Certified Facility Manager (CFM) by the International Facility Management Association”.

178. He also stated, at Paragraph 1.9 of the Report, that where he referred to his “experience, I am referring to my experience as a Quantity Surveyor in estimating the costs of works of a similar nature to those that are the subject of this matter”.

179. By way of background instructions, the solicitors wrote to Mr Ballesty stating that “[t]he Proceedings, so far as they are relevant to the preparation of the expert report, are concerned [with] the cost of carrying out the services set out in paragraphs 6.1(a) to (h) of” the BMA.

180. The specific question, in the first report, on which the expert was required to answer or express his expert opinion, or conclusion, was:

“For the period 13 December 2003 to 23 October 2008, assess the quantum of the ‘reasonable and proper fees and expenses that [WAHTE] could have been expected to have incurred in carrying out the Manager’s duties within [the] meaning of Clause 6.2(a)’ of the BMA.”

181. The expert inspected “the Facility” in September 2014 for the purpose of identifying “the site and the Facility so that [he] could form the opinion of the scope and nature of the works required for carrying out the limited building management supervisory works set out in” the BMA.

182. Mr Ballesty concluded:

“6.30   In my opinion, in the period 13 December 2003 to 23 October 2008, the likely reimbursable costs for the works anticipated under clause 6.1(a) to (h) under the Building Management Agreement are as follows:

Year	Estimated Costs
	Supervisory Works	Anticipated Works	Total
2003	$1,780	$11,720	$13,500
2004	$36,900	$262,100	$299,000
2005	$37,800	$275,100	$312,900
2006	$41,200	$275,400	$328,600
2007	$42,200	$297,500	$339,700
2008	$35,903	$252,047	$287,950
Totals	$195,783	$1,385,867	$1,581,650

6.31   The estimates are indicative only and are provided as an ‘order of magnitude cost allowance’ for specifically identified works as described in my report. The items of work are not fully described or detailed, and reflect the nature of the assessment and the amount of information available. Further, the items of work have been estimated on the basis of being undertaken as isolated tasks.

6.32   The estimated rates do not include the following costs:

a)   Negotiated, staged or other special forms of contract;

b)   Work outside the Facility’s external wall footprint, including pathways, kerb and gutter, roadways and infrastructure;

c)   Any resulting change in the scope of works following further investigation; disruption to business or building occupants or tenants;

d)   Costs associated with the relocation, temporary accommodation, disruption to business or building occupants or tenants;

e)   Costs associated with redevelopment, refurbishment (including guest room and suite refurbishments), expansion or repositioning of the asset;

f)   Future changes to current building codes, standards or regulations, including access for people with disabilities;

g)   Future changes to environmental compliance or performance requirements;

h)   Goods and Services Tax (GST); and

All costs associated with future taxation charges and the implication and operation of the Carbon Tax Pricing Mechanism.”

183. The Owners Corporation, in submissions, complained about one part of the Report. The following appears in counsels’ Outline of Closing Submissions, at [82]-[85]:

“In relation to clause 6.1(f) BMA, Mr Ballesty’s opinion is that the likely cost of compliance would be the ‘Outsourcing of onsite security (allow 1 person at desk 10 hours per night’) at $185,000 per annum. The defendants have conceded that no such outsourced service was contracted.

Because the defendants have conceded that no such service was provided, a discount of that annual (adjusted) sum must (at the very least) be given for all of the relevant period between 2003 and 2008.

As outlined in Appendix A to these submissions, between December 2003 and October 2008, WAHTE charged the OC $489,863 for ‘reception’. However, there is no evidence that ‘reception’ was provided 18 hours a day, and it is conceded that no night-time security was provided.

Therefore, WAHTE cannot prove it provided the work required in clause 6.1(f), and was not entitled to charge for that. Instead, all that WAHTE can prove is that it contracted a caretaker couple, and paid them in accordance with Exhibit ‘P6’. At the least, WAHTE ought to repay to the OC the difference between the amount WAHTE charged the OC (being $489,863) and $307,242.01, being the total of the amounts identified in P6 which is $186,620.99 plus interest. This is subject, of course, to an amount referable to work performed by the caretaker couple which was not for the OC.”

184. On a number of occasions, the court enquired of leading counsel for the Owners Corporation, whether she intended to cross-examine the expert. Indeed, more than once, it was suggested that she would “need to consider whether or not you have any obligation to put anything to Mr Ballesty in relation to these things that you’re mentioning because I do think it’s a fairly important aspect of the case in the event that I find in your favour” or if I found that WAHTE was entitled to the benefit of just allowances: T280.29-T289.36.

292. For example, every employee of WAHTE, who performed work at the building for the Owners Corporation in order to carry out a duty or duties identified in Clause 6.1 of the BMA, would have had to keep a record of the particular duty, or duties, identified in Clause 6.1 of the BMA that was being performed by him or her, when he or she had performed the duty or duties and the time spent doing so. It would have had to provide that record to WAHTE at the end of each month.

293. WAHTE, upon receiving the written record from each of its employees, would then have had to satisfy itself that the duty, or duties, that had been performed were in performance of its Manager’s duties. Then, it would have had to consider whether the time recorded as having been spent carrying out the duty, or duties, was reasonable and proper, in order to certify it. Then, it would have had to translate the duty, or duties, performed, and the time spent performing the duty or duties, to an actual cost, by multiplying the time spent by the employee’s hourly rate for that work. To do so, would have required WAHTE to regularly investigate its payroll records to ensure that the rate charged was current and correct.

294. WAHTE then, if it wished to add overhead expenses, would have had to include overhead expenses, itemising how those expenses were calculated.

295. From the Owners Corporation’s point of view, having received the document providing all of this information, it would have to consider “the numbers” to determine whether the invoice reflected WAHTE’s reasonable and proper fees and expenses incurred in carrying out its Manager’s duties. (There is a difficulty with the submission regarding “numbers” because Clause 6.2(a) required “copies” of the invoices. It follows that all the Owners Corporation would have been provided with was the information on the copy invoice provided.)

296. The Owners Corporation would, presumably, have incurred substantial costs of its delegate in inspecting, for example, the records from WAHTE to which reference has been made.

297. Rather, it seems to me that what the parties intended by Clause 6.2, was that amounts to be reimbursed, if including “overhead expenses and out of pocket costs relating to cleaning materials, or materials for the replacement of fittings, plant and equipment, required in order for the Manager to discharge its responsibilities”, would be identified in invoices showing how the overhead expenses, sought, if any, were calculated. To establish the actual cost of such things as cleaning materials, or materials for the replacement of fittings, plant and equipment, required in order for the Manager to discharge its responsibilities, incurred by, and paid for, by WAHTE, it was required to attach the copy invoices from third parties.

298. Bryson AJ seems to have expressed a similar view of the construction of the Clause because he concluded that the provisions relating to “copies of invoices” could not be readily related to costs which would not generate invoices, an example of one such cost being the cost of WAHTE using its own employees. In addition, his Honour noted that the requirement for “copies” suggested that WAHTE, as Manager, at some stage, had received an original invoice (from the third party) and that it was a copy of that invoice which would form part of the claims in writing submitted to the Owners Corporation.

299. However, as stated above, it made commercial sense, to require WAHTE to certify the details contained in a Third Party Invoice, which invoice would disclose out of pocket costs relating to cleaning materials, or materials for the replacement of fittings, plant and equipment. The invoice might, in the appropriate case, also reveal the work performed by the third party in order for WAHTE to carry out a duty or duties as Manager.

300. Furthermore, it would make little sense to require WAHTE to “certify” details contained in an invoice relating to services that it provided as Manager, through its own employees performing the duty or duties. The rendering of the claim itself was sufficient to indicate that WAHTE considered the details to be accurate.

301. I agree, also, that it is unlikely the certification by WAHTE related to the whole claim that was submitted for reimbursement. It is more likely that what the parties intended was that certification was required in relation to any Third Party Invoice, which certification was intended to go to four aspects, namely that the goods or services the subject of the invoice had been received, or provided, in order to perform the duty, or duties, in Clause 6.1 of the BMA for the Owners Corporation; that those goods and services had actually been provided by the third party; that the Third Party Invoice had been paid by WAHTE; and that the amount paid was reasonable and proper.

302. But, even if this construction is not correct, what the Owners Corporation did receive was the performance by WAHTE carrying out the Manager’s duties in the discharge of its responsibilities in terms of the BMA. That the Owners Corporation may not have received, at the time, all of the documents demonstrating “all overhead expenses and out of pocket costs relating to cleaning materials for the replacement of fittings, plant and equipment required for the Manager to discharge its responsibilities in terms of the BMA”, does not go to the discharge of those duties.

303. In other words, there was not a failure of the “purpose” for which money had been reimbursed to WAHTE by the Owners Corporation. There is no suggestion that the documents that were required to be provided by Clause 6.2(a) had any relevant bearing on the benefit that the Owners Corporation received in WAHTE discharging its responsibilities in terms of the BMA.

304. Importantly, there was no dispute that WAHTE had performed the work required by Clause 6.1 of the BMA during the period 13 December 2003 to 23 October 2008 (T77.29-T77.40; T85.24-T85.30). However, counsel submitted that was only part of what WAHTE was required to provide. It was also required to provide the information identified in Clause 6.2(a), which information was not provided.

305. Nor could it be reasonably submitted that the Owners Corporation was to receive the benefit of the services WAHTE provided under Clause 6.1 of the BMA, and which the Owners Corporation accepted, free of any charge whatsoever. (In this regard, I do not accept the submission made on behalf of the Owners Corporation that “in the circumstances there has been no true acceptance of the performance and therefore no sum is payable”. This submission flies in the face of the established facts and the paragraphs of the Statement of Claim to which reference has been made.)

306. Thus, there is a relatively straightforward, and perhaps, obvious, way of dealing with the determination of the first claim made by the Owners Corporation which will make it unnecessary to resolve all the possible issues upon which submissions were made. It requires the court to keep in mind the cardinal principles of equity that the remedy must be fashioned to fit the nature of the case and the particular facts, and that unconscionability of the retention, by WAHTE, of the money reimbursed to it by the Owners Corporation, ultimately, will be the bedrock on which the result will rest.

307. Doing so, leads me to conclude that this is a case where, even if each of the bases for the first claim of the Owners Corporation were established, which, in adopting this course is unnecessary to express a concluded view, it would be quite inequitable, and unjust, to order WAHTE to refund the amount that the Owners Corporation reimbursed to it.

308. In reaching this conclusion, I accept that it is for WAHTE to establish that it has a relevant defence to each of the claims made. In my view, it has discharged its onus in that regard by establishing that the Owners Corporation has received the benefit of the services WAHTE was to provide under Clause 3(a) and Clause 6.1 of the BMA, which services the Owners Corporation accepted until termination of the BMA.

309. That this is an appropriate way of dealing with the first claim, being the refund claim, is supported by counsel for the Owners Corporation, who stated that if the Court were to find that the Owners Corporation received what it had bargained for (namely good consideration or the benefit of the contract), WAHTE would be entitled to retain what it had received, to the extent that it could prove that the amount incurred for fees and expenses was “reasonable and proper”: T295.05-T295.22; T296.20-T296.26.

310. Furthermore, the following exchange had occurred between the Bench and Bar, at T230.36-T231.20:

“HIS HONOUR: Then the result of that, if that is where it stopped, would be that WAHTE would have to repay all of the amounts that had been paid by the Owners Corporation to it and would get nothing for the work that it actually did over the six years or however long the contract was in existence. Have I captured that correctly or am I wrong?

PEDEN: Your Honour, there are two ways that we seek the repayment of the money. One is through equity which is through the fiduciary duty and that obviously in equity equity can give a just allowance. I accept that.

HIS HONOUR: Well, equity would mould the result.

PEDEN: Yes, appropriately.

HIS HONOUR: Yes. One of the ways of moulding the result would be, for

example, to work out what the reasonable costs and expenses ought to have been and if they come to equal to or greater than the amount that WAHTE charged, then that might be the end result, that there would be no reimbursement.

PEDEN: Yes, your Honour.

HIS HONOUR: There is no cross claim for payment of any overcharge so that would be the result of that. If it were less than the amount, then that might be the amount that would have to be repaid.

PEDEN: Yes, your Honour.

HIS HONOUR: And from your point of view, Mr Izzo, if the argument be correct that you never claimed a reimbursement because you never did all that you were supposed to do and all of your defences are wrong, then you would say that the appropriate result would be that you get a just allowance or that it be what was reasonable and proper on the basis of the contract?

IZZO: Yes.”

324. Also, the Owners Corporation did not make any specific allegation in the Statement of Claim, which would enable the court to conclude that an issue in the proceedings related to whether the claims submitted in writing by WAHTE during the period until 2008, and that had been reimbursed by the Owners Corporation, were not for reasonable and proper fees and expenses incurred in carrying out the Manager’s duties and in order for WAHTE to discharge its responsibilities in terms of the BMA. (The matter was raised on a number of occasions during the first part of the hearing (e.g. T85-T87; T214). Counsel for the Owners Corporation made no application to amend the Statement of Claim to make a specific allegation relying simply on the allegation in the Statement of Claim that there had been a breach of Clause 6.2(a): T216.11- T216.36.)

325. Rather, what was alleged, was that WAHTE “was not entitled to such of the amounts claimed in the Disputed Invoices” for the reasons identified previously. These reasons had to do with WAHTE’s failure to comply with its obligations under Clause 6.2(a) of the BMA and its entitlement to reimbursement under the terms of the BMA. It was not, and could not be, suggested, that its claims for payment by way of reimbursement were unenforceable.

326. Nor was it asserted that the amounts paid by WAHTE to third parties, as identified in documents produced to the Owners Corporation, by the date of the hearing, and which had been reimbursed by the Owners Corporation, were amounts that, in fact, WAHTE had not paid. Bearing in mind the information that the Owners Corporation had, by the date of the hearing, such a claim, if justified, could, and should, have been made.

327. Finally, from July 2005 to 2008, the amounts the subject of WAHTE’s written claim did not change. In fact, for the period from December 2003 to June 2005, the amounts were slightly lower. All of the written claims were paid on behalf of the Owners Corporation, it never having been suggested to Mr Rubinstein, by or on behalf of the Owners Corporation prior to 2008, that the billing of fixed amounts did not meet the Owners Corporation’s requirements or the requirements of the BMA.

328. It can be seen, therefore, that I do not accept the submissions made on behalf of the Owners Corporation that there was no basis for it to determine whether what had been claimed was the reasonable and proper sum because there was no evidence about what time was spent in order to discharge its responsibilities in terms of the BMA. I shall identify the methods adopted by WAHTE, in the case, to establish that, in fact, the Owners Corporation had lost nothing by making the reimbursements that it made.

329. One piece of evidence relied upon by WAHTE was Ex. D1, which was said to be a summary of each of the tasks that it undertook, in accordance with the BMA; what it cost WAHTE to perform those tasks; and, then, what had actually been charged for the completion of the tasks.

330. It was accepted by counsel for WAHTE that to undertake the task of calculation involved “quite a bit of reconstruction after the fact”, and that the costs “depend on estimates of the amount of time that was spent on each task”. It was submitted by counsel for WAHTE that it was “the only sensible way to do it”, albeit that the “exercise is subject to lots of room for argument”: T340.06-T340.21.

331. Counsel for the Owners Corporation described it as “evidence of estimates and it is based on documentation put together in 2007 and 2008”: T383.22-T383.33.

332. With all of its acknowledged weaknesses, which, it seems to me, go to the weight of the evidence relied upon (since it was tendered without objection), what Ex. D1 does establish is that the estimated total claim per month, determined, as it were after the fact, but on the basis of what were said to be estimated times and costs, and some actual costs, in carrying out WAHTE’s duties and in order for it to discharge its responsibilities, was calculated to be about $19,293, whilst the amount of the written claim each month that had been submitted by WAHTE to be, based upon the budget, and, in fact, the amount that was reimbursed by the Owners Corporation, was $18,215. (Neither amount takes into account the amount of $35,000 (CPI indexed) which was a separate fixed annual component sum to be paid.)

333. This calculation was said to be one way of demonstrating that it would be unjust to require WAHTE to refund the whole of the money that had been paid to it by the Owners Corporation by way of reimbursement and of demonstrating that nothing had been lost by the Owners Corporation in reimbursing WAHTE the amounts that it had done. I respectfully agree.

334. An alternative method, of establishing that it would be unjust to refund the whole of the amount reimbursed, and of demonstrating that nothing had been lost by the Owners Corporation in reimbursing WAHTE the amounts that it had, was for the Court to adopt the evidence of the estimate of value ($1,581,650), which Mr Ballesty, the single expert, estimated, for this period. His expertise had not been questioned and he had not been cross-examined.

335. If that estimate of the value of the work was accepted as reasonable and proper for the works anticipated under Clause 6.1(a) to (h) of the BMA, it is clear that the value of that work was for greater than that which the Owners Corporation had reimbursed to WAHTE, with the result that no refund to it should be allowed. Again, I respectfully agree.

336. Alternatively, the Court could consider the challenge by the Owners Corporation made to Ex. D2, to the allowance of $185,000, attributable to the 10 hours per night outsourcing of onsite security, in order to comply with Clause 6.1(f) of the BMA, remembering, however, that the other allowances were not challenged.

337. One difficulty with accepting the Owners Corporation’s challenge to the allowance is that it is inconsistent with what the single expert was required to do. He had not been engaged to determine “actual costs”. His task was to assess the fair and reasonable reimbursement of the costs of the works anticipated under Clause 6.1(a) to (h) of the BMA.

338. In this regard, at T229.23-T225.32, in discussing the appointment of the single expert, Dr Peden, prior to the appointment, had said:

“Your Honour, from our perspective, for our claim which is to have the refund of the money, we say that the expert evidence is not required, but we understand from our perspective of the defendants’ case, that that evidence would go to just allowance, and that what the expert would be looking at is not what ought to have been in the invoices because that is an impossible task, we can’t work out what was done, instead it would be working out what would have been done if it had been done by [WAHTE] or somebody else in complying with the building management agreement and so from that perspective it is a just allowance point. If there is going to be expert evidence on that point we are happy for it to be a joint expert.”

339. Mr Izzo, at T341.42-T341.48, submitted that:

“The approach that was taken, which we agree is a sensible approach, is to say to Mr Ballesty, ‘Look, don’t worry about what was actually done, we’re not going to tell you what was actually done, it’s too hard for you to have to adjudicate on that as well. you just look at the clause, look at the building, go up to the building,’ which he did, ‘look at the plans and tell us what a contractor would be entitled to charge as a fair and reasonable reimbursable cost’.”

340. Of course, in Ex. D2, the following passage appears:

“3.3 The Joint Letter of Instruction to Expert to Prepare the Report dated 29 July 2014 (‘the Joint Letter’) from the Instructing Parties provides the background of the Proceedings as follows:

‘The Proceedings, so far as they are relevant to the preparation of the expert report, are concerned the cost of carrying out the services set out in paragraphs 6.1 (a) to (h) of the Building Managers Agreement Waldorf by the Sea dated 13 December (“Building Managers Agreement”) in relation to that part of the mixed residential and commercial strata building situated at 18 Coral Street, The Entrance NSW.’

…

3.5   The instructions included in the Joint Letter states:

‘Respond to paragraph numbered (a) following by answering the question or expressing your expert opinion or conclusion as requested in that paragraph.

a)   For the period 13 December 2003 to 23 October 2008, assess the quantum of the ‘reasonable and proper fees and expenses’ that the First Defendant could be expected to have incurred in carrying out the Manager’s duties within meaning of clause 6.2(a) of the Building Management Agreement dated 13 December 2003.”

341. There is also merit in the Defendants’ submissions that:

“Even if Mr Ballesty’s allowance of $185,000 for outsourcing onsite security were open to challenge, and were entirely disregarded, on Mr Ballesty’s assessment the reimbursable costs still comfortably exceed what [WAHTE] charged. That is because:

a.   $185,000 represents 55% of the total $335,200 cost of the likely approaches to the performance of clause 6.1 works identified by Mr Ballesty at 6.27;

b.   disregarding the $185,000 therefore requires a 55% reduction to the pro rata de-escalated annual values of that $335,200 in para 6.28, giving a total of $623,641 (instead of $1,385,867);

c.   to the $623,641 must be added $195,783, which is the de-escalated cost of supervisory works (para 6.30) which the OC does not challenge (OCS [81]);

d.   that gives a total of $819,424, which exceeds the $750,000 the OC is claiming back in these proceedings (T231.38);

e.   since Mr Ballesty’s figures exclude GST (Ballasty [sic] paras 6.25, 6.29), while the OC’s $750,000 claim includes it, the gulf between the two sets of figures is greater still.

The foregoing analysis is unduly generous to the [Owners Corporation], as one would never disregard the $185,000 entirely. That sum is intended by Mr Ballesty to represent 10 hours of the 18 hour ‘reception/security caretaker service’ required under clause 6.1(f). There is no doubt Waldorf provided that service: Mr Bartels says reception was open for 12 hours (Bartels 22.08.12, [at 53]); and the resident caretaker was available outside these hours (Falzon [at 22]).

Moreover, the [Owners Corporation’s] acceptance that [WAHTE] performed the clause 6.1 services entails an acceptance that Waldorf provided the clause 6.1(f) duties.”

342. The final way that might be considered to establish that it would be inequitable, or unjust, to repay the whole of the amount reimbursed by the Owners Corporation to WAHTE, and of demonstrating that nothing had been lost by the Owners Corporation in reimbursing WAHTE the amounts that it had, was for the Court to use the amount paid to Sage, of $119,000 per annum, as a guide.

343. However, the court would need to bear in mind that Sage did not provide a front desk, or concierge, service, which is significant, since, as Mr Ballesty’s $185,000 allowance recognises, reception services are easily the most costly of all the Clause 6.1(f) services. Also, Sage did not provide a caretaker on site who was available 24 hours per day. Under the Sage contract, a caretaker could be called out to the building, at an additional cost after hours; and Sage did less cleaning work than WAHTE had to do.

344. WAHTE submitted it followed, in taking any of these courses, that the first claim made by the Owners Corporation should be dismissed, in its entirety. For all of these reasons, I respectfully agree that the refund claim by the Owners Corporation should be dismissed.

345. Turning then to the second claim, in relation to Lot 104, I am satisfied that this claim, by the Owners Corporation fails also. It is to be noted, first, that the term “necessary common property” is a term that the Owners Corporation used as “part of the pleading”. It is the way that it characterised part of Lot 104, as it was shown as part of the common property on the plans: T369.46-T369.48. The specific areas were relevantly, identified on Ex. P2 by Dr Peden, at T298-T299.

346. But, as was put by counsel for the Defendants, at T368.39-T368.43, “…any particular space in the strata plan has to be part of the common property. It works the other way around. Whatever happens to be part of the common property, the Owners Corporation has to manage for the benefit of the owners, but there is no notion of something being inherently part of the common property. It is just a matter of definition, it’s whatever is not in a lot.”

347. Yet, no person, called on behalf of the Owners Corporation, gave evidence of “necessity”. At best, what was submitted was that the identified parts of Lot 104 would all be “of benefit” to the Owners Corporation because the management and cleaning could be done more efficiently: T302.09-T302.30.

348. Of course, the fact that cannot be forgotten is that WAG was the registered proprietor of Lot 104 from March 2004 to October 2007 and that Rinbac has been the registered proprietor of Lot 104 since November 2007, with the result that it has not been able to be utilised by the Owners Corporation for over a decade. Furthermore, the BMA was terminated in 2009. It can hardly be successfully asserted, in those circumstances, that Lot 104 is “necessary”.

349. Furthermore, there is no evidence that the Owners Corporation, or Mr Bartels on its behalf, made any claim to Lot 104 before the commencement of these proceedings. Mr Bartels cannot recall ever having made such a claim (T40.13-T40.18). Having waited almost 10 years to make the claim also does not suggest any necessity.

350. The significant delay in the Owners Corporation making a claim, also has resulted in some prejudice suffered by WAHTE. It is to be remembered that WAHTE’s willingness to provide a rental guarantee under the TUOA seems to have required ownership of the areas which comprise Lot 104. This was recognised by Coral. Having acquired that Lot through an associated entity, there was evidence from Mr Rubinstein that WAHTE had paid out significant sums of money to owners of tourist units pursuant to the guarantee ($768,731.85). The likelihood is that the TUOA would not have been entered into, had the purchase of Lot 104 not proceeded.

351. In any event, I am far from satisfied that there was any fiduciary duty owed by Coral to the non-existent Owners Corporation in the terms alleged by the Owners Corporation or at all. It is to be remembered that at the time of the sale, the Owners Corporation was not in existence and that, as at December 2003, Coral was the owner of all the Lots in the Strata Plan.

352. Nor was there any satisfactory evidence of any knowledge on the part of the controlling minds of WAG, or of Rinbac, to establish accessorial liability on the part of each. The facts that are said to have given rise to such knowledge are far from clear. In particular, there is no evidence that either knew anything about the terms that Coral had been able to obtain from other parties; the benefit, if any, which Coral would obtain from the arrangements it had entered into with WAHTE; or that either knew, or had any basis for knowing, that Coral stood in a fiduciary position vis-à-vis the Owners Corporation (which was then not in existence).

353. Even if I am wrong in reaching each of these conclusions, I am satisfied that s 42 of the Real Property Act provides a complete defence to the claim by the Owners Corporation for the reasons I have earlier identified as part of the submissions made on behalf of the Defendants. The effect of s 42 is that the Owners Corporation cannot, successfully, seek a proprietary remedy against WAG or Rinbac, including the transfer of Lot 104 from Rinbac to the Owners Corporation based upon accessorial liability: Super 1000 v Pacific General Securities, per White J, at [218]-[222]; Sze Tu v Lowe [2014] NSWCA 462, per Gleeson JA, at [258]-[260]. Also see, Break Fast Investments Pty Ltd v Giannopoulos (also known as Giannopoulos) (No 5) [2011] NSWSC 1508, per Black J, at [102].

354. Turning then to the third claim, in relation to Lot 105, I am satisfied that this claim, by the Owners Corporation fails also. There is simply no evidence that Mr Rubinstein or Dr Wolf knew anything about the value which the Owners Corporation asserts Lot 105 had at the time of the sale to it.

355. The matters raised in the Statement of Claim (at [46]), to the effect that the value consisted of the benefit that the owner of Lot 105 would derive from a change to the height limit in the applicable zoning; or the ability to receive commercial licence fees for the use of Lot 105 for telecommunications and advertising purposes, are no more than speculation, there being no evidence at all about any such benefits.

356. Also, even if a fiduciary duty was owed by the members of the Executive Committee to the Owners Corporation, a matter not really disputed by counsel for the Defendants (T359.35-T359.39), I do not see why either Mr Rubinstein or Dr Wolf had an obligation to disclose to it that Lot 105 was for sale. Merely being on the Executive Committee, did not mean that each was, or both were, not entitled to pursue his, or their, own personal interests in circumstances where the sale of Lot 105 was advertised publicly.

357. Nor was there any evidence that the Owners Corporation had ever considered purchasing Lot 105, that it had ever sought out an opportunity of a similar kind, or that it then had the financial capacity to do so.

358. There is also significant delay in the Owners Corporation having pursued the relief sought in relation to Lot 105. In this regard, WAG purchased Lot 105 in March 2006 but no claim was made until about 7 years later.

359. Even if I am wrong in reaching each of these conclusions, I am satisfied that s 42 of the Real Property Act provides a complete defence to the claim by the Owners Corporation for the reasons I have earlier identified.

360. It follows that the Owners Corporation is not entitled to any of the relief it seeks, and, in the circumstances, I order that the whole of the Statement of Claim is dismissed with costs.

361. I have considered whether the costs of the Owners Corporation thrown away by the late amendment to plead s 42 of the Real Property Act should be borne by the Defendants. Had the Owners Corporation not sought to continue to propound the second and third claims, it might have been appropriate to make such an order. It did not do so, but rather persisted with both those claims, even after I indicated that leave would be granted to file the second amended Defence. There was sufficient opportunity to reconsider its position, but it did not do so. Accordingly, I do not propose to make any order of the type foreshadowed at the time of the application to amend was dealt with.

362. I direct that the Exhibits be dealt with in accordance with the Uniform Civil Procedure Rules (rule 31.16A and rule 33.10), and Practice Note No SC Gen 18 (Para 26).

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Decision last updated: 12 November 2015