Owners - Strata Plan No 51487 v Broadsand Pty Ltd - [2002] NSWSC 770

No judgment structure available for this case.

Reported Decision:
(2003) NSW ConvR 56-047

New South Wales

Supreme Court

CITATION: Owners - Strata Plan No 51487 v Broadsand Pty Ltd [2002] NSWSC 770

CURRENT JURISDICTION: Equity

FILE NUMBER(S): SC 3556/00

HEARING DATE(S): 21 February, 4 and 5 March 2002

JUDGMENT DATE: 29 August 2002

PARTIES :

Owners - Strata Plan No 51487 (P)
Broadsand Pty Limited (D)

JUDGMENT OF: Hamilton J

COUNSEL : R C McDougall QC and M D Young (P)
F C Corsaro SC and S Prince (D)

SOLICITORS: David Le Page (P)
Andreones Lawyers (D)

CATCHWORDS: CONTRACT [90] - General contractual principles - Illegal and void contracts - Contracts illegal by statute - General principles - Nature of statutory prohibition - Entry into contract prohibited - ESTOPPEL [35] - Estoppel in pais - Matters against which estoppel does not prevail - Statutory provisions - Statute representing social policy for protection of section of public - REAL PROPERTY [440] - Strata titles - Body corporate - Management and control - Managing agent must be licensed - Whether agreement appointed "managing agent".

LEGISLATION CITED: Property Stock and Business Agents Act 1941 ss 4(1), 20(3)
Strata Schemes Management Act 1996 ss 51, 52
Strata Titles Act 1973 ss 54(3), 66(1), 68(1), 78(1) and (1AA)

CASES CITED: Australian Broadcasting Commission v Australian Performing Right Association Limited (1973) 129 CLR 99
Barilla v James (1964) 81 WN (Pt 1) 457
Bristar Pty Ltd v The Proprietors "Ocean Breeze" Building Units Plan 1955 [1997] 1 QdR 117
Discount & Finance Ltd v Gehrig's NSW Wines Ltd (1940) 40 SR (NSW) 598
Georgiadis v Australian and Overseas Telecommunications Corporation (1994) 179 CLR 297
Gillett v Halwood Corporation Ltd (2000) NSW Titles Cases 80-055
Holman v Johnson (1775) 1 Cowp 341; 98 ER 1120
Humphries v The Proprietors "Surfers Palms North" Group Titles Plan 1955 (1994) 179 CLR 597
KJRR Pty Ltd v Commissioner of State Revenue [1999] 2 VR 174
Kok Hoong v Leong Cheong Kweng Mines Limited [1964] AC 993
McFarlane v Daniell (1938) 38 SR(NSW) 337
Pratten v Warringah Shire Council (1969) 90 WN (Pt 1) 134
Radaich v Smith (1959) 101 CLR 209
State Lotteries Office v Burgin NSWCA, 13 May 1993 Unreported Kirby P
TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130
The Wik Peoples v The State of Queensland (1996) 187 CLR 1
Thomas Brown and Sons Limited v Fazal Deen (1962) 108 CLR 391
Thomas v Regal West Pty Ltd (1991) NSW Titles Cases 80-010
Weiner v Harris [1910] 1 KB 224
Wilkinson v Feldworth Financial Services Pty Ltd (1998) 29 ACSR 642
Lewison on The Interpretation of Contracts (2nd ed, 1997) 6.09, 6.12, 6.13
Spencer Bower & Turner on Estoppel by Representation (3rd ed, 1977) at [83], [86], [141]

DECISION: Management contract void for illegality. By-law enacted during initial period conferring right of exclusive occupation on holder of unit invalid.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

THURSDAY, 29 AUGUST 2002

3556/00 THE OWNERS – STRATA PLAN NO 51487 v BROADSAND PTY LIMITED

JUDGMENT

1 HIS HONOUR: These proceedings concern a “Management and Letting Services Agreement” dated 11 January 1996 made between the plaintiff and Victoria Tower Management Pty Limited (“Victoria Tower”) (“the agreement”). The benefit of the agreement was assigned by Victoria Tower to an intermediate assignee which on 13 May 1998 by deed (“the deed of assignment”) assigned the agreement to the defendant pursuant to provisions contained in clause 11 of the agreement. The principal burden of the claim in these proceedings is that the agreement appointed Victoria Tower as a managing agent and was consequently beyond the power of the plaintiff or illegal as contravening s 78(1AA) or s 66(1)(d) of the Strata Titles Act 1973 (“the STA”) or s 20(3) of the Property Stock and Business Agents Act 1941 (formerly the Auctioneers and Agents Act 1941) (“the Agents Act”). The defendant, in addition to controverting those propositions, contends that the plaintiff is estopped from relying on them and also seeks to have declared invalid a resolution of the plaintiff repealing a special by-law as a result of which the defendant has been enjoying exclusive use of certain common property.

The Agreement

2 The agreement, which was undoubtedly for reward, contained the following recitals:

“B The Body Corporate is responsible for the control, management and maintenance of the Common Property in the Strata Scheme under the Act.

3 The agreement contained the following relevant operative provisions:

“2 APPOINTMENT & TERM

2.1 The Body Corporate appoints the Management Company to perform the duties and provide the services comprised in the Scheduled Works, the Non Scheduled Works, the Proprietors Services and the Letting Services for the Term.

2.2 The Management Company accepts the appointment.

3 DUTIES & POWERS OF MANAGEMENT COMPANY

……

3.3 Subject to the limitations contained in this Agreement, the Management Company may, either in its own right or as agent for the Body Corporate enter into agreements with other persons for the provision of services or materials for the proper performance of the Management Company's duties and powers.

(a) enforce the Special By-Laws or take any action in relation to Common Property by making applications or submissions to the Strata Titles or Commissioner or the Strata Titles Board or by instituting any proceedings in any court of competent jurisdiction;

(b) perform any power of a licensed managing agent;

(c) perform any duty or power of a technical or. specialist nature outside the scope of the Management Company's skill and expertise; or

4 The scheduled works are set out in Schedule 1 to the agreement as follows:

“1 Manage, supervise and arrange for the maintenance, cleaning, repair [sic] the Common Property so as to ensure that it is kept in good order and repair and to do all things necessary to protect the interests of the Body Corporate in respect to its property.

2 Report promptly to the Body Corporate on all things on Common Property that require repair, replacement or renewal with quotations and all matters creating a hazard or danger and to arrange for remedial action where practicable.

……

4 Establish and supervise a cleaning programme to regularly and properly clean and keep clean the paths, driveways, entrance lobbies, stairs, hallways, doors and windows (other than internal doors and windows of lots in the Strata Plan), facilities, car parking areas, amenities and other areas of the Common Property within, upon and around the apartment building forming part of the Strata Scheme.

……

6 Organise and supervise a maintenance programme and to ensure, subject to Body Corporate approval, the proper maintaining at all times of the apartment building forming part of the Strata Scheme, its appurtenances and surrounds and all piant [sic] and equipment used in connection with the building and the Common Property.

7 Arrange for the maintenance of plant and equipment being Common Property.

……

10 Advise the Body Corporate from time to time as to its recommendations for the management, maintenance and care of the apartment building forming part of the Strata Scheme.

……

15 Supervise control and regulate the parking of motor vehicles on Common Property.

……

17 Arrange for and supervise such licensed security guards as the Body Corporate may wish to employ and to act as coordinator of those security guards.

18 Arrange for and supervise such concierges as the Body Corporate may wish to employ and to act as coordinator of those concierges.

……

21 Comply with and carry out all reasonable and lawful directions by the Body Corporate to the Management Company in respect to the performance by the Management Company of its duties.

……

5 The agreement also provides for the provision by the management company, at the request of a unit holder, of letting services: see clause 5 and Schedule 3.

The Legislation

6 The STA was in force at the time the agreement was entered into. Later in 1996 it was repealed and replaced by the Strata Schemes Management Act 1996 (“the SSMA”). By s 78, so far as material, the STA provided:

and may, in like manner, revoke the appointment and delegation or revoke in part the delegation.

(1AA) A body corporate shall not appoint a person as managing agent unless the person is the holder of a strata managing agent's licence issued pursuant to the Auctioneers and Agents Act 1941.

or to levy contributions under section 68(1)(p).

(2) A power, authority, duty or function the exercise or performance of which has been delegated under subsection (1) may, while the delegation remains unrevoked, be exercised from time to time in accordance with the delegation.

(3) A delegation under subsection (1) may be made subject to such conditions or such limitations as to the exercise or performance of all or any of the powers, authorities, duties or functions, or as to time or circumstances, as may be specified in the instrument of delegation.

(4) Notwithstanding any delegation made under subsection (1), the body corporate may continue to exercise or perform all or any of the powers, authorities, duties or functions delegated.

…..

7 By s 54(3) the STA provided that the body corporate should have the control, management and administration of the common property and by s 68 it provided, so far as material:

“68(1) A body corporate shall, for the purposes of the strata scheme concerned, but subject to the provisions of any strata development contract affecting common property and to the operation of this Act in relation to the strata development contract:

(a) control, manage and administer the common property for the benefit of the proprietors;

(b) properly maintain and keep in a state of good and serviceable repair:

(i) the common property; and

(ii) any personal property vested in the body corporate ….”

8 The STA also contained the following provisions:

“66(1) Notwithstanding any other provision of this Act except subsection (3), a body corporate shall not, during the initial period:

(a) amend, add to or repeal the by-laws in such a manner that a right is conferred or an obligation is imposed on one or more, but not all, proprietors or in respect of one or more, but not all, lots;

……

(d) appoint a managing agent to hold office as such for a period extending beyond the holding of the first annual general meeting of the body corporate ….”

9 The Agents Act, before the enactment of the SSMA, in s 4 (1) defined “strata managing agent” as follows:

“ Strata managing agent means a person (whether or not such person carries on any other business) who, for reward (whether monetary or otherwise), exercises or performs any function of a body corporate within the meaning of the Strata Titles Act 1973 …., not being:

(i) is the proprietor of a lot to which the strata scheme for which the body corporate is constituted relates,

…..

(ii) is the secretary or treasurer of the council of the body corporate, and

“(3) A corporation shall not act as or carry on or advertise, notify or state that it acts as or carries on or is willing to act as or carry on the business of a real estate agent, a stock and station agent, a business agent, a strata managing agent, a community managing agent or an on-site residential property manager, as the case may be, unless the corporation has taken out a corporation licence and employs as the person in charge of its sole or principal place of business a person who holds a licence or licences of such one or more of the classes referred to in section 22 as may be appropriate.”

The Facts

10 Strata Plan 51487 was registered on 30 November 1995. The inaugural extraordinary general meeting was held on 4 December 1995. At that meeting the plaintiff appointed BCS Strata Management Pty Limited as “managing agent of the body corporate in accordance with section 78” of the STA and delegated to it all of “the powers, authorities, duties and functions of the body corporate” but limited that appointment to end on the date of the first annual general meeting. It also resolved that the plaintiff enter into and execute the agreement, but without there being any limitation in either the resolution or the agreement of the time during which the agreement was to operate. There is no doubt that at the time Victoria Security did not hold a strata managing agent’s licence under the Agents Act.

11 The minutes of the same meeting record the passing of a special resolution in the following terms:

“RESOLVED that the proprietors of Strata Plan 51487 under Section 58(2) of the Act to amend the by-laws contained in Schedule 1 of the Act in the following manner:

(a) RESOLVED that By-Laws 12-29 of Schedule 1 of the Strata Titles Act be repealed.

SPECIAL BY-LAW NO. 1 ”

“ SPECIAL BY-LAW NO. 28

Restrictions on Management & Letting Activities

The proprietor or occupier of every lot except Lot 252 must not on any lot or the common property, except with the written consent of the proprietor of Lot 252, conduct or participate in the conduct of:

(a) the business of a letting agent; or

(b) the business of a pooled rent agency; or

(c) the business of on site residential manager; or

(d) any other business activity that is either:-

(i) an activity identical or substantially identical with any of the services relating to the management, control and administration of the parcel referred to in Special By-Law No 28 and/or any Agreement; and/or

(ii) an activity identical or substantially identical with any of the services provided to proprietors and occupiers of lots referred to in Special By-Law No 25 and/or any Agreement; and/or

(iii) an activity identical or substantially identical with any of the services relating to the letting of lots referred to in Special By-Law No 25 and/or any Agreement.”

12 The deed of assignment was executed on 13 May 1998 pursuant to a resolution of an extraordinary general meeting of the plaintiff held on 6 May 1998. There was executed on the same day a tripartite deed among the plaintiff, the defendant and the Commonwealth Bank of Australia, whereby the plaintiff gave its consent to a mortgage over the benefit of the agreement to secure moneys borrowed by the defendant for the purchase of the agreement. There had been some resistance by the plaintiff to the assignment of the agreement by the original assignee to the defendant. Wendy Cull, the solicitor for the original assignee, at the extraordinary general meeting threatened litigation against the plaintiff, as recorded in the minutes, if the resolution were not passed.

13 Mr Dudek, a unit holder, gave evidence on behalf of the plaintiff. His affidavit annexed a circular letter to unit holders written on behalf the proposed assignor and dated 29 April 1998, which he stated he had received before the meeting. That letter contained assertions that it “appears that the chairman of the Owners Corporation, Mr J Daveney … is using our request for assignment of the business as an opportunity to mount an unprovoked attack on that Agreement.” Having sought advice “a long time ago” about another matter “Mr Daveney received advice from that solicitor raising the issue of the validity of the agreement itself.” Mr Dudek admitted that he had read those assertions in that letter but denied he had had any conversation with Mr Daveney concerning the subject matter before the meeting. He further denied that he was aware before late 1999 of the illegality argued for in these proceedings. The letter of 29 April 1998 was argumentative in tone. The letter of advice said to have been received by Mr Daveney was not in evidence and no evidence was led, by plaintiff or defendant, as to the content of the advice. There is no reason not to accept Mr Dudek’s denial of knowledge before 1999 and his evidence generally according to its tenor, and I do so.

14 The resolution for the repeal of by-law 28 was carried as a special resolution at the annual general meeting of the plaintiff on 21 March 2001 and subsequently registered.

The issues for determination

15 It appears to me that the issues requiring determination for the disposal of these proceedings are as follows:

(1) Was the agreement an agreement which fell within the terms of s 78(1AA) of the STA?

(2) Was it rendered void for illegality by reason of being entered into in breach of s 78(1AA) or s 66(1)?

(3) Was it rendered void for illegality by reason of its performance being in breach of s 20(3) of the Agents Act?

(4) If the agreement was rendered void in any of the above ways is the plaintiff estopped from asserting that the contract is void for illegality or has it waived its right to make that assertion?

The Law: s 78 of the STA and s 20 of the Agents Act

16 The Court of Appeal considered the incidence of s 78 of the STA and s 20 of the Agents Act in Gillett v Halwood Corporation Ltd (2000) NSW Titles Cases 80-055. It is important to note that in that case the resolution to enter into the agreement was a resolution not of the body corporate in general meeting but of the council of the body corporate.

17 In delivering the principal judgment Priestley JA said (at 60, 527 – 60,529):

“Appointment of ‘Managing Agent’ under s78(1)

Although the STA does not define ‘managing agent’, consideration of the various provisions in the STA in which the term ‘managing agent’ appears seems to me to support the view that a Pt IV Division 3 managing agent is a person or entity to whom a body corporate, pursuant to s78(1) has delegated any one or more of its powers, authorities, duties and functions.

Section 78(1) states what at first sight seems to be a two step procedure whereby a body corporate may (i) ‘appoint a managing agent’ and (ii) ‘delegate to him … any one or more of its powers, authorities, duties and functions’. ‘Managing agent’ is not a term which, simply by itself, carries a precise, recognised meaning. Undefined, it may apply to a wide variety of contractual relationships. For this reason, I doubt whether, if a body corporate, in general meeting and by instrument in writing, appointed a managing agent without any delegation of any power, authority, duty or function, the appointment would have any content. Definite content would require the delegation to the appointee, in like manner to the appointment of the managing agent, of at least one of the corporate body's powers, authorities, duties and functions. Thus, it seems to me that for the purposes of Pt IV Division 3 it is the delegation of some power, authority, duty or function which constitutes the delegate a managing agent. On this view ‘managing agent’ in s78 is a convenient name for someone who has been delegated one or more of the relevant powers, authorities, etc.

……

Relationship between s78(1) and by-law 2

The contrast between the key verbs in s 78(1) and by-law 2, ‘appoint ... delegate’ in the former and ‘employ’ in the latter, in my opinion points clearly to the intended different functions of the two powers; the former is directed to the appointment of an agent in the nature of an independent contractor, over whom the body corporate will not have the power of control that an employer has over an employee; the latter is directed to the creation of an employment relationship, in the course of which the council will have the power of an employer to control directly the way in which its employed agent or servant carries out the employment ‘in connection with the exercise and performance’ by the body corporate ‘of the powers (etc) ... of the body corporate’. In a s 78(1) case, the managing agent will exercise one or more delegated powers etc of the body corporate, for the body corporate. In a by-law 2 case the body corporate will itself be exercising powers etc by the direct controlled employment of an agent or servant.

The body corporate in a s 78(1) case still has ultimate control of its managing agent delegate, either through the revocation power, or by use of its own continuing powers etc as spelt out in s 78(4), but it does not have the immediate and direct control that an employer has over an employee.

When the provisions of the STA and the Agents Act are read together, they show in my opinion a legislative intention that when a person or entity had been delegated one or more of the powers, authorities, duties and functions of a body corporate and would not in the ordinary course be subject to the immediate control or supervision of the body corporate, then the body corporate was to have the protection following from the requirement that such an agent be licensed under the Agents Act. When the body corporate through its council had the more direct control which in the ordinary course it would have over agents and servants employed pursuant to by-law 2, then a lesser degree of protection was necessary and it is understandable that it was not thought necessary that such persons should be brought within the scope of the Agents Act.

“Estoppel

Three considerations appeared as possibly adverse to the estoppel claim of Management and Developments. These were (a) the length of time that had passed between the appellant's becoming aware of the matters subsequently raised in her proceedings and the commencement of those proceedings; (b) application of the legal proposition that an estoppel could not be raised against a statute; and (c), so the appellant contended, the fact that the estoppel now relied on had never been pleaded below.

……

18 Handley JA said (at 60,537):

“It follows in my opinion that the management agreement never came into force so as to bind the body corporate.

Fernbank did not, at any material time, hold a licence as a strata managing agent under the Auctioneers and Agents Act (the Agents' Act). Section 78 (1AA) of the Strata Titles Act provides that a body corporate shall not appoint a person as managing agent unless that person is the holder of a strata managing agent's licence issued under the Agents' Act. The Strata Titles Act does not contain any definition of a managing agent, but this is defined in s 3 1) [sic] of the Agents' Act as meaning a person who, for reward, exercises or performs any function of a body corporate under the Strata Titles Act and this definition is implicit in s 78(1) of the Strata Titles Act.

Section 20(2B) of the Agents' Act prohibits a person from acting as a strata managing agent or carrying on the business of such an agent unless he is the holder of the relevant licence. The meaning of ‘carry on business’ in this context is defined by s 3(3A)(a). Section 36 requires a strata managing agent to maintain a trust account with a bank into which all monies received for, or on behalf of, any person are to be paid until paid or disbursed at the direction of that person, and s 42 prohibits such an agent from bringing proceedings in any court to recover remuneration for services performed in that capacity unless he was the holder of the relevant licence when the services were performed.

The Law: Illegality and Estoppel in the Face of a Statute

19 A convenient starting point in respect of this aspect of the law of illegality of contracts is the well known passage from the advice of the Privy Council in Kok Hoong v Leong Cheong Kweng Mines Limited [1964] AC 993 where their Lordships, having referred at 1015 to the “principle … that a party cannot set up an estoppel in the face of a statute”, said at 1016 - 1017:

“It has been said that the question whether an estoppel is to be allowed or not depends on whether the enactment or rule of law relied upon is imposed in the public interest or ‘on grounds of general public policy’. … But a principle as widely stated as this might prove to be rather an elusive guide, since there is no statute, at least public general statute, for which this claim might not be made. In their Lordships’ opinion a more direct test to apply in any case such as the present, where the laws of moneylending or monetary security are involved, is to ask whether the law that confronts the estoppel can be seen to represent a social policy to which the Court must give effect in the interests of the public generally or some section of the public, despite any rules of evidence as between themselves that the parties may have created by their conduct or otherwise. …
General social policy does from time to time require the denial of legal validity to certain transactions by certain persons. This may be for their own protection, as in the case of the infant or other category of persons enjoying what is to some extent a protected status, or for the protection of others who may come to be engaged in dealings with them, as for instance the creditors of a bankrupt. In all such cases there is no room for the application of another general and familiar policy of the law that a man may, if he wishes, disclaim a statutory provision enacted for his benefit, for what is for a man’s benefit and what is for his protection are not synonymous terms. Nor is it open to the Court to give its sanction to departures from any law that reflect such a policy, even though the party concerned has himself behaved in such a way as would otherwise tie his hands.”

20 The decision in Kok Hoong was considered and applied by the Full Court of this Court in Barilla v James (1964) 81 WN (Pt 1) 457. In that case, the Full Court (by majority – Walsh and Wallace JJ, Asprey J dissenting) held that if the estoppel asserted were made out – and in the view of the majority it was not – then the policy of the Landlord and Tenant (Amendment) Act 1948 would not permit a party to be estopped from relying on rights under it. Walsh J concluded at 464, having referred to the Kok Hoong test:

“In my opinion these categories of exclusion, whether brought into being by means of the definition of ‘prescribed premises’ or by the introduction of section 5A, must be treated as fixed exclusively by the Act, irrespective of any divergence from them which the parties have sought to bring about, whether by express agreement or by conduct. Subject only to the exceptions which the Legislature has defined, effect must be given to the ‘general social policy’ of the Act.”

21 In Pratten v Warringah Shire Council (1969) 90 WN (Pt 1) 134 at 143 - 144 Street J approved the following statement of principle in Spencer Bower & Turner on Estoppel by Representation (see 3rd ed, 1977 at [141]) as follows:

“A contract ultra vires a statute (for example) cannot be validated by an application of an estoppel … .”

22 The conclusion that a disobedience of s 78(1AA) rendered a contract void for illegality was reached by Brownie J in Thomas v Regal West Pty Ltd (1991) NSW Titles Cases 80-010.

The Law: Principles Relevant to the Construction of the Agreement

23 One of the problems that arises in relation to the construction of the agreement is the potential conflict or tension between the apparently general terms of the scheduled works which the management company is by clause 2.2 appointed to perform and the limitation sought to be imposed by clause 3.4(d). The principles to be applied in the construction of an agreement were compendiously stated by Gibbs J in Australian Broadcasting Commission v Australian Performing Right Association Limited (1973) 129 CLR 99 at 109 – 110 as follows:

“It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, ‘even though the construction adopted is not the most obvious, or the most grammatically accurate’, to use the words from earlier authority cited in Locke v Dunlop (1888) 39 Ch D 387, at p 393, which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case (1880) 16 Ch D 681, at p 686. Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, at p 514, that the court should construe commercial contracts ‘fairly and broadly, without being too astute or subtle in finding defects’, should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, at p 437).”

24 There is also a well established legal doctrine that, where a relationship of a particular sort is established by the ambit of the rights conveyed or duties imposed by an agreement between parties, then a declaration in the the agreement that the relationship is not to have that legal characterisation will be ineffective: the characterisation of the transaction will be governed by the substance of the agreement and not by the parties’ declaration in such cases. A well known example which has been cited is the decision of the High Court of Radaich v Smith (1959) 101 CLR 209 relating to leases. If one party gives another exclusive occupation of premises for a term, this being of the very nature of a lease, then a stipulation that the arrangement is one of licence and not of lease will be ineffective. As Windeyer J said at 222, if “the rights that the instrument creates … be the rights of a tenant, it does not avail either party to say that a tenancy was not intended.” And see The Wik Peoples v The State of Queensland (1996) 187 CLR 1 per Toohey J at 110 – 111 and Gaudron J at 152; Lewis v Bell (1985) 1 NSWLR 731; KJRR Pty Ltd v Commissioner of State Revenue [1999] 2 VR 174. The principle had been earlier discussed in the English Court of Appeal in Weiner v Harris [1910] 1 KB 224 where Cozens-Hardy MR said at 290:

“It is quite plain that by the mere use of a well-known legal phrase you cannot constitute a transaction that which you attempt to describe by that phrase. Perhaps the commonest instance of all, which has come before the Courts in many phases, is this: Two parties enter into a transaction and say ‘It is hereby declared there is no partnership between us.’ The Court pays no regard to that. The Court looks at the transaction and says ‘Is this, in point of law, really a partnership? It is not in the least conclusive that the parties have used a term or language intended to indicate that the transaction is not that which in law it is.’ So here the mere fact that goods are said to be taken on sale or return is not in any way conclusive of the real nature of the contract. You must look at the thing as a whole and see whether that is the real meaning and effect of it.”

The Contentions

25 The plaintiff contends, so far as the question of whether the agreement falls within s 78(1) is concerned, that the case is substantially indistinguishable from Gillett supra. The defendant has carried out an analysis of the differences between the contract dealt with by the Court of Appeal in Gillett (a full copy of which has by agreement of the parties been furnished to the Court) and the agreement in this case. The defendant asserts that, whereas the contract in Gillett committed the management of the property to the agent, the agreement in this case rather requires the performance by the agent of specified services. It contends that this case can be distinguished because the agreement by item 21 of Schedule 1 reserves to the body corporate the right to give directions to the management company with respect to the performance of its duties during the currency of the agreement; this is an agreement under which the defendant is in effect an employee. It also relies heavily on clause 3.4(b). The defendant says that “managing agent” in that clause equates or includes “strata managing agent” in s 78 and that the effect of the clause is to read down the powers &c conferred by the agreement so as to exclude the conferral of any that would lead to contravention of s 78.

26 In Gillett, the matter was concluded by the characterisation of the contract as within s 78, because the appointment was made by the council, not the general meeting. Here, the appointment was by the general meeting, so the question arises, if the contract be within s 78, whether it is void for illegality. The plaintiff contends that it is: being a contract the entry into which is specifically forbidden by the statute, it is plainly illegal and void. The plaintiff also contends that, if the agreement is caught by s 78, the effect of 66(1)(d) is that it is either rendered totally void or cannot operate after the date of the first annual general meeting, which is long past. The defendant says that even if there were a contravention of statute “that part of the Scheduled Works which confers a delegation could be severed without altering the practical duties undertaken by the defendant.”

27 The defendant says that the statutory prohibition was for the benefit of the plaintiff only. If the agreement did contravene s 78, then the plaintiff was prevented by the doctrines of estoppel or waiver from complaining about any illegality. The plaintiff replies that the provisions were for the benefit of a wider class, so that there can be no estoppel in the face of the statute. The factual basis on which the estoppel (or waiver) is said to arise was conveniently summarised in the defendant’s contentions document as follows:

“27 In the alternative, the Plaintiff is estopped from denying the validity of the Agreement or has waived any objection to the validity of the Agreement.

28 As at 6 May 1998, the Plaintiff was aware of the matters upon which it now relies to advance its submission that the Agreement is void by reason of illegality. Nevertheless, by its conduct, the Plaintiff:

(1) Represented that they would not seek to rely upon the asserted illegality which representation was relied upon by the Defendant in entering into the Agreement and the Deed; and

(2) Waived its rights to rely upon such assertion.

29 The Plaintiff is estopped from relying upon the assertion that the Agreement is void for illegality by reason of its conduct.

30 Public policy considerations do not preclude the Defendant from relying upon estoppel or waiver in the present case.”

28 So far as special by-law 28 is concerned, the defendant says that it was duly enacted and, in the absence of the defendant’s written consent, its purported repeal was invalid. Alternatively, its repeal was an abuse of power. The plaintiff says that the by-law was never enacted: the relevant portion of the minutes of the meeting (which mirror those of the notice) simply do not contain words of resolution relating to the 28 special by-laws. Furthermore, it does not confer an exclusive right on the proprietor of one lot within the meaning of s 51 of the SSMA, so that the defendant’s consent to its repeal was not necessary. However, if these submissions be wrong, the by-law was enacted during the initial period and was caught by s 66(1)(a). The resolution enacting it was either void or could not operate past the date of the first annual general meeting, so that the by-law is not in force and its repeal was otiose.

Conclusions

29 Was the agreement entered into in breach of s 78(1AA) of the STA? Although its construction is not without difficulty, I have come to the conclusion that the agreement effected the appointment of Victoria Tower as a managing agent within the meaning of the subsection. The primary proposition of Mr McDougall, of Queen’s Counsel for the plaintiff, was that the agreement “constituted an appointment of the company … as managing agent and delegation to it of at least some of … the powers, authorities, duties and functions of the plaintiff.” By reason of the authority of Gillett, he said, this meant that there was an appointment within the subsection. In the end, I have accepted that the propositions in the quoted words are a correct statement of the effect of the agreement on its proper construction. Also, in my view, the agreement on its proper construction creates a relationship within which the agent is to perform the agreement on its part as a contractor acting independently, perhaps with some small and specific limitations, and not as an employee subject to the degree of supervision and direction inherent in the employment relationship. Bearing in mind the decision in Gillett, it follows from these conclusions that the appointment contravenes the subsection.

30 The basis of my conclusions is as follows. I am of the view that the appointment is effected by clause 2.1 of the agreement, which expressly uses the word “appoints” in relation to the performance of duties and the provision of services. The delegation is effected by clause 3.1, which imposes an obligation on the agent to perform, inter alia, the Scheduled Works. Schedule 1 is somewhat of a mishmash of generality and particularity, but opens in the most general terms with a first item which imposes a requirement to manage, supervise and arrange for the maintenance, cleaning and repair of the common property in terms which closely echo those specifying the duties of wide and general ambit imposed on the body corporate by s 68(1)(a) and (b) of the STA. It was submitted by the defendant that the duty imposed by the agreement was not to manage (as in the case of the Gillett contract), but only to provide services to the body corporate for the purposes of its management of the common property. However, although that may be the purport of the language of recital D, it is not the language by which clause 3.1 imposes the obligation to do the work specified in Schedule 1, including item 1. Subsequent items in the Schedule cast in particular terms may be thought to fall within the obligation in item 1, but the effect is not in my view to read down the generality of item 1. Equally, I do think the slightly strange requirement in item 2 to submit quotations in respect of part only of the subject matter of that item (and not repeated elsewhere in Schedule 1) is indicative that the agent generally cannot act without the prior approval of the body corporate or otherwise of employee status. (The juxtaposition of items 1 and 2 suggests strongly that “things” in item 2 refers to chattels). Equally, the power to give directions in item 21 does not in my view indicate employee status; indeed the fact that it is included in the agreement suggests the contrary: directions could be given to an employee (as opposed to a contractor) without special stipulation. And the agent may in its own right engage persons for the provision of services for the performance of its duties: clause 3.3. The Court of Appeal has already pointed out in Gillett that the fact that a body corporate can retake complete control by termination of the contract in appropriate cases or by itself performing acts which fall within the scope of the contract under statutory power does not mean that the relationship is not one in which the wide discretion inherent in the role of an independent contractor is destroyed. The precautionary reservation in the agreement of a right to act does not have any different effect. In coming to the above conclusions I have taken into account all the terms of the agreement.

31 Perhaps the defendant’s most significant argument is that based upon clause 3.4(b), which is to the effect that the agreement imposes no obligation and confers no right on the management company to “perform (sic) any power of a licensed managing agent”. It is said in the defendant’s written submissions that this provision “materially affects the relationship”. But the argument faces considerable difficulties. The meaning of the paragraph is far from clear. Is “managing agent” in the paragraph intended to be coterminous with “managing agent” in s 78(1)? What are the powers of a licensed managing agent intended to be referred to? Why are powers referred to and not, say, duties? And how are the parties to determine whether in doing some act the agent is or is not “performing” (itself a curious use of language) any such power, so that it may be known whether it is acting within or without the terms of the agreement? May the reference be to the agent’s functions in relation to letting units contained in Schedule 3? It seems to me that the paragraph is virtually devoid of any meaning that can be ascertained. In these circumstances, I am of the view that Mr McDougall’s submission is correct that it cannot have the operation contended for by Mr Corsaro, of Senior Counsel for the defendant. On the one hand, a contract should be construed so as to avoid invalidity if possible: Lewison op cit 6.09, 6.12. On the other it should be construed so as to make commercial sense (see the Australian Broadcasting Commission case, supra). It does not seem to me that the paragraph has sufficient clarity to preclude the result that the agreement, on its proper construction effected a delegation.

32 If the intended effect of clause 3.4(b) is to declare the agent appointed by the agreement not a managing agent or the agreement not an agreement within s 78(1), then it cannot be efficacious for that purpose if the substance be otherwise: see Radaich v Smith and the discussion in [24] above. On the one hand, Mr Corsaro has submitted that clause 3.4(b) “materially affects the relationship”, whereas the corresponding provision in Gillett was a “deeming” provision. On the other hand, he said in oral argument that there is no infringement of the statute “because we recognise that we are not strata managing agents.” In any event, no characterisation by the parties of the legal nature of the relationship can prevail over its substance.

33 Was the agreement void for illegality for contravention of s 78(1AA) or s66(1)(d)? It is therefore my view that the agreement falls within s 78(1) of the STA. Whilst the defendant argued vigorously that the agreement should not be so characterised, in the event of it being so characterised it argued but faintly that it did not contravene s 78(1AA). It relied heavily upon the defence of estoppel to which I shall in due course turn. I share the view expressed by Brownie J in the Regal case supra that an agreement entered into in defiance of the statutory proscription effected by s 78(1AA) is void for illegality. Accordingly, I hold that the agreement in this case is void for illegality because the entry into it was in contravention of s 78(1AA). In my view, for the same reason, the contract is proscribed by s 66(1)(a) and void for contravention of that provision. In my view there can be no question of severance. It is not easy to tell what would need to be severed to cure the illegality and the defendant put no proposal more precise than that quoted in [26] above. In any event, any exercise of severance to remove the delegation which I have found was made would alter the nature rather than the extent of the contract: see McFarlane v Daniell (1938) 38 SR(NSW) 337 per Jordan CJ at 345; Thomas Brown and Sons Limited v Fazal Deen (1962) 108 CLR 391 per curiam at 411; Humphries v The Proprietors “Surfers Palms North” Group Titles Plan 1955 (1994) 179 CLR 597; Bristar Pty Ltd v The Proprietors “Ocean Breeze” Building Units Plan 1955 [1997] 1 QdR 117.

34 Was the agreement void for illegality for contravention of s 20(3) of the Agents Act? The situation as to whether the agreement is void for illegality because its performance would contravene s 20(3) of the Agents Act is perhaps not so clear. However, in my view, the carrying out of many of the central functions which it provides shall be carried out by the agent would contravene that section if performed by a party which did not hold the requisite licence, as Victoria Tower did not at the inception of the contract and as the defendant apparently still does not. In my view the agreement is also void for contravention of s 20(3) of the Agents Act, although it is not necessary so to find for the decision of this case in view of the clear conclusions I have come to as set out in [33].

35 Is the plaintiff estopped from asserting that the agreement is void for illegality? So far as estoppel is concerned, I do not find that the case for an estoppel is here made out on the facts. As has been pointed out in recent decisions, the principle now to be regarded as underlying the various concepts of estoppel known to the law and to equity is unconscionability. Here the unconscionability relied on is agreeing to the assignment of the agreement to the defendant knowing of the illegality subsequently complained of, or at least of the facts from which that illegality arises. It should be borne in mind that the onus of establishing an estoppel lies upon the party asserting it. What must be established in the case of, for instance, an estoppel arising from a verbal representation is that the representation was clear and unambiguous: see Spencer Bower and Turner op cit [83]; Discount & Finance Ltd v Gehrig’s NSW Wines Ltd (1940) 40 SR (NSW) 598 per Jordan CJ at 603. Equally, in relation to representations made by conduct, “the same principles are applicable to equivocal acts or conduct”: Spencer Bower and Turner op cit [86]. Here, as is plain from the manner in which the defendant casts its case, the necessary unconscionability must be made out by establishing that the plaintiff knew of the illegality now relied on or, at least, of the facts and matters constituting it at the time of its participation in the assignment of the agreement. In my view, the plaintiff’s submissions that this is not established on the material available are correct. Mr Dudek did not know of the illegality when he voted. The letter of 29 April 1998 did not tell him with any clarity the content of the letter Mr Daveney received, nor does the evidence show any more of what Mr Daveney knew. There is no basis for finding a representation that the plaintiff would not rely on a defect of which it knew, or any basis on which it could be found there was a common assumption to that effect. I find that the estoppel alleged is not established, even if the doctrine of estoppel could operate in the circumstances. Equally, no factual basis is made out for a waiver: apart from anything else, there was no discovery on the plaintiff’s part of a state of affairs which put it to an election as to which of alternative courses it would follow.

36 In any event, it is my view that, by virtue of the proscription created by s 78(1AA), this case is in a class where an estoppel cannot be availed of in the face of the statute. This is not a case where the rule contravened is one prescribed solely for the benefit of the person who claims to have the contract struck down for the illegality. In my view, the purpose of the provision is to provide a protection for the public or a section of the public. That section of the public is the persons who become or may become at any time within the operation of the contract the holder of an interest in a lot in a strata scheme. That includes both prospective purchasers, prospective mortgagees and, indeed, the prospective holders of any interests. In light of the fact that such persons may be committed to a long term relationship with someone who was related to the original developer or promoter of the strata scheme and, in any event, without having had any opportunity to participate in the selection of the manager or the terms on which the manager is engaged some protection should be given to those people by the manager being a person required to hold a statutory licence and subject at the time of the grant of the licence and on an ongoing basis to the supervision of a public authority in relation to certain matters as to their knowledge, skill and integrity. In my view, therefore, estoppel will not run in the face of this statute. As was said long ago by Lord Mansfield CJ in Holman v Johnson (1775) 1 Cowp 341 at 343; 98 ER 1120 at 1121:

“The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so.”

37 Was special by-law 28 validly repealed? In my view, a resolution purporting to propound by-law 28 was passed. Despite the lack of words of enactment, in my view the resolution should be construed to effect the adoption of the 28 special by-laws as well as the repeal of by-laws 12 - 29. It seems to me that the new by-laws were encompassed and incorporated in the resolution effected by the word “RESOLVED”. Despite the lack of express words of enactment or adoption the intention is plain. I hold that the by-law does fall within s 66(1)(a). Although it does in terms confer a right on the proprietor of lot 252, it restricts the rights of all other proprietors in respect of the lot so as confer in substance an exclusive right of use on that proprietor. It is the substance which should be looked to rather than the form in determining whether a right is conferred within the meaning of s 66(1)(a): see Georgiadis v Australian and Overseas Telecommunications Corporation (1994) 179 CLR 297 per curiam at 305 - 306. If this were not so, the section could be easily circumvented by the use of negative language. However, I am of the view that the by-law was not validly enacted in the first instance. It is not in contest that it was during the initial period that the resolution adding it was passed. It contravenes s 66(1)(a). It was a contract the entry into which was proscribed by that provision. In my view it is wholly invalid. I do not accept the submission that the only remedy for contravention of s 66(1) is recovery proceedings against the original proprietor. I do not think there can be derived from the provision or extension of rights of compensation against the original proprietor by s 66(2) the removal or any limitation of a right to have the by-law declared invalid. If my conclusion that it is wholly invalid be not correct, the by-law could not operate beyond the initial period. It is not necessary to deal with the submission that its enactment was an abuse of power. As the by-law was not valid, it matters not whether or not the conditions for its repeal were met. It should not be restored to the registered by-laws.

38 An appointment will be made for short minutes to be brought in to give effect to my conclusions. Costs may be dealt with at that time.

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Last Modified: 09/02/2002

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Citations

Owners - Strata Plan No 51487 v Broadsand Pty Ltd [2002] NSWSC 770

Most Recent Citation

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Statutory Material Cited

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CITATION:	Owners - Strata Plan No 51487 v Broadsand Pty Ltd [2002] NSWSC 770
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 3556/00
HEARING DATE(S):	21 February, 4 and 5 March 2002
JUDGMENT DATE:	29 August 2002
PARTIES :	Owners - Strata Plan No 51487 (P) Broadsand Pty Limited (D)
JUDGMENT OF:	Hamilton J

COUNSEL :	R C McDougall QC and M D Young (P) F C Corsaro SC and S Prince (D)
SOLICITORS:	David Le Page (P) Andreones Lawyers (D)
CATCHWORDS:	CONTRACT [90] - General contractual principles - Illegal and void contracts - Contracts illegal by statute - General principles - Nature of statutory prohibition - Entry into contract prohibited - ESTOPPEL [35] - Estoppel in pais - Matters against which estoppel does not prevail - Statutory provisions - Statute representing social policy for protection of section of public - REAL PROPERTY [440] - Strata titles - Body corporate - Management and control - Managing agent must be licensed - Whether agreement appointed "managing agent".
LEGISLATION CITED:	Property Stock and Business Agents Act 1941 ss 4(1), 20(3) Strata Schemes Management Act 1996 ss 51, 52 Strata Titles Act 1973 ss 54(3), 66(1), 68(1), 78(1) and (1AA)
CASES CITED:	Australian Broadcasting Commission v Australian Performing Right Association Limited (1973) 129 CLR 99 Barilla v James (1964) 81 WN (Pt 1) 457 Bristar Pty Ltd v The Proprietors "Ocean Breeze" Building Units Plan 1955 [1997] 1 QdR 117 Discount & Finance Ltd v Gehrig's NSW Wines Ltd (1940) 40 SR (NSW) 598 Georgiadis v Australian and Overseas Telecommunications Corporation (1994) 179 CLR 297 Gillett v Halwood Corporation Ltd (2000) NSW Titles Cases 80-055 Holman v Johnson (1775) 1 Cowp 341; 98 ER 1120 Humphries v The Proprietors "Surfers Palms North" Group Titles Plan 1955 (1994) 179 CLR 597 KJRR Pty Ltd v Commissioner of State Revenue [1999] 2 VR 174 Kok Hoong v Leong Cheong Kweng Mines Limited [1964] AC 993 McFarlane v Daniell (1938) 38 SR(NSW) 337 Pratten v Warringah Shire Council (1969) 90 WN (Pt 1) 134 Radaich v Smith (1959) 101 CLR 209 State Lotteries Office v Burgin NSWCA, 13 May 1993 Unreported Kirby P TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 The Wik Peoples v The State of Queensland (1996) 187 CLR 1 Thomas Brown and Sons Limited v Fazal Deen (1962) 108 CLR 391 Thomas v Regal West Pty Ltd (1991) NSW Titles Cases 80-010 Weiner v Harris [1910] 1 KB 224 Wilkinson v Feldworth Financial Services Pty Ltd (1998) 29 ACSR 642 Lewison on The Interpretation of Contracts (2nd ed, 1997) 6.09, 6.12, 6.13 Spencer Bower & Turner on Estoppel by Representation (3rd ed, 1977) at [83], [86], [141]
DECISION:	Management contract void for illegality. By-law enacted during initial period conferring right of exclusive occupation on holder of unit invalid.