Sattel v Proprietors Be Bee's Tropical Apartments

IN THE SUPREME COURT

OF QUEENSLAND

CAIRNS	No. 10 of 1996
Before the Hon. Justice Jones
[Sattel & Ors -v- The Proprietors Be Bee’s Tropical Apartments & Ors] [2000] QSC 071
BETWEEN:	GARY SATTEL, LINDSAY ROY NICHOLSON AND CARINGAL SPRINGS PTY LTD.

Plaintiffs

AND:	THE PROPRIETORS BE BEE’S TROPICAL APARTMENTS BUILDING UNITS PLAN NUMBER 71593

First Defendant

AND:	MARK ROBERT NETHERWOOD, JOANNE MAREE SEARLE, SHANE PETER ROYLE, MARK ROBERT NETHERWOOD (AS TRUSTEE) and SHANE PETER ROYLE (AS TRUSTEE)

Second Defendant

JONES J

Judgment delivered 23rd Day of March, 2000

1. It is declared that with the exception of clauses 9.2 and 9.5 that the caretaking agreement dated 22 August, 1994 as varied referred to in the pleadings and subsisting as between the plaintiffs

and the first defendants is valid and enforceable.

2. It is further declared that the said agreement has been terminated as from 4 July, 1997 by the

plaintiff’s acceptance of the first defendant’s repudiation of the said agreement.

3. It is further ordered that the action be remitted to the District Court at Cairns for the

assessment of damages.

4. It is further ordered that the first defendant pay the plaintiff’s costs of and incidental to this

action to be taxed.

5. No order as to costs with respect to the second defendants is made.

Catchwords:	BUILDING CONTROL AND TOWN PLANNING - BY-LAWS - Building unit plan for small tourist resort - Validity of caretaking agreement challenged - Severance of provisions - Ultra vires - Purported termination of agreement - Caretaking agreement valid and enforceable.
Counsel:	Mr C. Carrigan for the Plaintiffs Mr D. Savage for the Defendant
Solicitors:	Frederick Owen & Associates for the Plaintiff Freehill Hollingdale & Page for the Defendants
Hearing date:	20th July 1999

IN THE SUPREME COURT

OF QUEENSLAND

CAIRNS	Writ No. 10 of 1996
BETWEEN:	GARY SATTEL, LINDSAY ROY NICHOLSON AND CARINGAL SPRINGS PTY LTD.

Plaintiffs

AND:	THE PROPRIETORS BE BEE’S TROPICAL APARTMENTS BUILDING UNITS PLAN NUMBER 71593

First Defendant

AND:	MARK ROBERT NETHERWOOD, JOANNE MAREE SEARLE, SHANE PETER ROYLE, MARK ROBERT NETHERWOOD (AS TRUSTEE) and SHANE PETER ROYLE (AS TRUSTEE)

Second Defendants

REASONS FOR JUDGMENT
BEFORE THE HONOURABLE JUSTICE JONES
DELIVERED THE 23RD DAY OF MARCH , 2000

At the relevant time Be Bee’s Tropical Apartments was a small tourist
resort located in suburban Cairns. The Building Unit Plan consisted of ten lots
altogether. Lot 1 was designed to be owned and used by the manager/caretaker,
the other nine lots to be used as holiday apartments for short term rentals
usually less than one week.
The proprietor of Lot 1 had the exclusive right to certain common areas
noted on the plan. These included a large area beside Lot 1 which was used for
a restaurant/dining area and two smaller areas, one used for a communal laundry and the other a passageway which was used initially as a storage area
for visitors. Lot 1 was equipped with a commercial kitchen for the purpose of
that business.
As at 8 May 1995 the second defendants (“the vendors”) held an interest
in –
(i) Lot 1 of Building Unit Plan No. 71593 (“the BUP”);
(ii) A caretaking agreement dated 22 August 1994 between themselves
and the body corporate of the said Plan (“the body corporate”).
On 8 May 1995 the plaintiffs agreed in partnership to purchase from the
vendors their interest in the said property.
This case turns on the question whether the caretaking agreement is valid
and enforceable against the body corporate. The body corporate contends that
the caretaking agreement is not enforceable against it for the reason that when
made its terms were ultra vires the body corporate with respect to five particular
provisions. Further, the terms could not be severed without changing the nature
of the agreement.
The BUP was registered in 1994 and the first meeting of the Body
Corporate held on 7 March, 1994.
On 22 August 1994 the caretaking agreement was entered into between
the Body Corporate and the vendors providing for –
(i) the better management, caretaking, administration and control of
the Body Corporate’s property; and
(ii) the better exercise and performance of some of the body corporate’s
powers and duties pursuant to the Act.
The Act referred to is the Building Units and Group Titles Act 1980 which will
hereinafter be referred to simply as “the Act”.
The original caretaking agreement also included terms which permitted
the resident caretaker to carry on the business of letting the lots comprised in
the Plan. However this provision was deleted following the decision of
Humphries & anor v The Proprietors of “Surfers Palms North” Group
Titles Plan 1955 [1]. This alteration was made prior to the plaintiffs entering into
the agreement here. On completion of the sale the plaintiffs also received an
assignment of the letting rights agreement which the vendors had with the
various owners of the lots other than Lot 1.
The by-laws which give power to the body corporate to enter into an
agreement with the proprietor of Lot 1 for caretaking and management service
is by-law 33, the relevant terms of which were agreed by special resolution on
16 May 1995. [2]
On 26 May, 1995 the plaintiffs completed the sale by paying the
following amounts:-

For Lot 1 $105,000
For Management business $ 30,000
For Plant and equipment $ 40,000
Total $175,000

After completion of the sale the plaintiffs’ partnership then conducted the
business of caretaking the premises on behalf of the body corporate and they
carried on the business as letting agents to the proprietors of the various lots.
The partnership members held the appropriate real estate agent licences for this purpose. On 26 July 1995 at the Annual General Meeting of the body corporate,
Messrs. Sattel and Nicholson were appointed to the body corporate committee.
After taking possession of Lot 1 the plaintiffs re-configured a part of their
lot which had previously been used as a reception area. This had the effect of
moving the reception area to an outside passageway which was part of the
common area under the control of the body corporate.
Also the partnership business had the obligation pursuant to the
caretaking agreement of answering the PABX telephone system. By this
system incoming calls to the occupiers of the various lots would be answered at
the office and redirected to the relevant lot. The occupants of the lots could
make outgoing calls directly by dialling 0. The provision of the answering
service was not the subject of an express provision in the By-law pursuant to
which the caretaking agreement was entered into. But it was a service which
provided a source of income to the partnership. [3]
Issues
The validity of the caretaking agreement is challenged in five respects,
particularised in paragraph 18 of the amended defence. Since these allege that
the making of the agreement was ultra vires the power of the body corporate I
will set out the relevant provisions of the by-law by which the body corporate
was authorised to enter into the agreement.
The terms of the by-law include [4] :-
“33(a)The proprietor of Lot 1 in the Plan will be at liberty to carry on or cause to be carried on all or any of the following activities from that lot, subject to the terms of these by-laws, from any area over which the proprietor of Lot 1 has been granted rights of exclusive use (for profit or otherwise):
(i) the hiring of television sets etc

...
(v) cleaning and the provision of services to the occupants of the lots contained in the plan;
...
(viii) the business of sales and/or letting agency for the sale and/or letting of the lots comprised in the plan;
...
(ix) the business of providing service to partners in respect of the lots contained in the Plan;
(x) the management and caretaking of the building and the common property;
(xi) the business of the operation of a licensed restaurant;
(xii) any other related service or activity,
the body corporate will enter into such agreement in writing with the proprietor of Lot 1 as may be reasonable and/or necessary to give effect to the rights of the proprietor of Lot 1 to carry on all or any of the activities referred to in this by-law.
...

(e) The proprietor or occupants for the time being of Lot 1 would be entitled to the exclusive use and enjoyment for himself and his licensees of the outdoor dining area hachured in black on Annexure “A” hereto.
...
(f) the proprietor occupier for the time being of Lot 1 will be entitled to the exclusive use and enjoyment for himself and his licensees of the area adjacent to Lots 2 and 3 and the area adjacent to Lots 7 and 8 and hachured in black in Annexure “B” hereto. Each proprietor or occupier to whom the exclusive use of this area is given may use such space for:-

(a) receiving the proprietors, occupiers or tenants of the lots and the licensee
...
on the proviso that he or his licensees will keep such area in a clean and tidy condition and not litter the same or use the same to create a nuisance or eyesore.

...

(g)

other than the proprietor of lot 1, the owner or occupant of any other lot contained in the plan will not make use of that lot or cause that lot to be used for any of the purposes or activities referred to in by-law 33(a), 33(b) and/or 33(f).”

I shall deal then with the five allegations raised by the first defendants in
turn:-

(a)

By the First Schedule to the agreement (service (i)) the plaintiffs are required to provide services to clean and maintain Lot 1 in Building Units Plan 71593 at the expense of the first defendants
The particular service detailed in the First Schedule relates to a list of daily and
weekly cleaning tasks to be performed in this reception area [5]. The first
defendant argues that at the time the initial caretaking agreement was entered
into and even when that agreement was assigned to the plaintiffs the reception
area was located within the bounds of Lot 1. The requirement for the body
corporate to pay for the services so performed offended the provisions of ss.37
and 51 of the Act [6]. In simple terms the scheme of the Act is that the body
corporate has the duty to maintain the common areas and the lot proprietor has
the duty to maintain his or her lot. The body corporate may however enter into
agreement with the lot proprietor for the provision of services to the lot. No
such agreement was reached here.

The first defendant identified the “reception area” as that part of Lot 1
which was used as an office by the vendors and where guests would come to
the register.
Mr. Owen gave evidence on behalf of the plaintiffs that shortly after the plaintiffs went into occupation of Lot 1 the area where guests were received was moved to a common area outside the bounds of Lot 1. The office remained
inside Lot 1 [7].
The plaintiffs’ response was that the “reception area” referred to in
schedule 1 of the caretaking agreement relates to the common area described in
by-law 33(f) above and as such it is in accord with the statutory provisions
binding on the body corporate.
Quite apart from the factual situation, it seems to me that in determining
the validity of the caretaking agreement regard must be had to the terminology
used in it compared with that in the by-law. The manner in which the vendors
chose to use Lot 1 does not influence the correct construction of the documents.
There is no delineation on the BUP described as “reception area” nor is the
term anywhere defined. But there is a close correlation between the description
of the common areas to which the proprietor of Lot 1 was given exclusive use
and the areas in which the First Schedule services were to be provided.
Following the physical alterations made to Lot 1 by the plaintiffs the factual
situation basically complied with what was intended by the two documents.
In my view the reception area referred to in the Schedule is the same as
that referred to in by-law 33(f) and therefore it is part of the common area
exclusive use of which is given to the plaintiffs. As a consequence there is no
infringement of any of the provisions of the Act.

(b)

By clause 11(3) of the agreement the plaintiffs are required to provide services to clean and maintain areas of common property of which the plaintiffs have exclusive use at the expense of the defendant

The by-laws by paras 33(e) and (f) referred to above grants to the proprietor of
Lot 1 exclusive use over certain use on the proviso in each instance that “he and his licensees shall keep such area in a clean and tidy condition and not litter the
same or use the same as to create a nuisance or an eyesore”. In neither instance
however is any reference made as to whether the expense of performing such
obligations shall be borne by the body corporate or the proprietor of Lot 1.

Section 30(7A) of the Act states that a by-law of this kind should provide
who is to be responsible to carry out the body corporate’s duties with respect to
the common property and at whose expense. If the by-law does not do this (and
that is the case here) then sub-sec (7AA) provides that “the proprietor or
proprietors shall be responsible at his, her or their own expense”.
So the first defendant contends that part of the services detailed in the
First Schedule were in fact the obligations of the plaintiffs and ought not to
have been paid for by the body corporate. The first defendant further contends
that as the cost to the body corporate for the performance of those services
expressed as a lump sum the particular services performed in respect of the
exclusive use area cannot simply be deleted without making a material change
to the contractual arrangement. As a consequence on the application of the
principle annunciated in Humphries case (supra) the caretaking agreement is
void. [8]
The plaintiff contends that clause 11.3 of the caretaking agreement
imposes on the plaintiffs the obligations consistent with that proviso in the by-
law and that it is done as part of the plaintiffs’ responsibility consistently with
sub-section (7AA) of s.30. It is clear from clause 11 of the caretaking
agreement that the responsibility and the expense of running the restaurant lies
with the plaintiffs. Clause 11.1 provides –
“11.1 The resident caretaker may carry on in the building the business of a restaurant together with all associated services commonly rendered in connection with such a business (“a restaurant business”).
And then clause 11.3 provides –
“11.3 The resident caretaker shall at all times make sure that the restaurant and outdoor dining area are maintained in a clean and tidy condition clear of rubbish and vermin and shall ensure that such areas are regularly and thoroughly cleared.”
These clauses should be read with clause 4 of the caretaking agreement
which deals with the remuneration of the resident caretaker. Clause 4.1 makes
it clear that the remuneration set out in the Third Schedule was for “providing
these services to the body corporate”. Clause 4.3 makes it clear that the
remuneration “shall be in addition to any income derived by the resident
caretaker as a consequence of the operation of the resident caretaker’s
business”.
The relevant “services” listed in the First Schedule essentially detail a
cleaning regime to be carried out physically by the caretaker. It has the
character of an instruction one would give to an employee or contractor. It
relates to the services which the body corporate itself determines are necessary
to meet its obligation under s.37(1)(c) of the Act.
Whether invalidity is shown turns on the construction of by-law 33 and
the terms of the caretaking agreement within the statutory framework referred
to above. It is clear that the plaintiffs have the responsibility pursuant to
s.30(7AA) of the Act to perform at their expense the duties of the body
corporate in respect of the common areas over which they have exclusive use.
That fact is particularly acknowledged by the plaintiffs and the body corporate
quite expressly in relation to the restaurant business referred to in clause 11. In relation to the other businesses carried on by the plaintiffs the responsibility is
not expressed in the agreement but nonetheless that responsibility does exist.
The agreement in its general terms in clause 4 acknowledges that the resident
caretaker is to provide service to the body corporate. There is nothing in the
terms of clause 11(3) of the agreement which, on its face, requires the
performance by the body corporate of the services which are the responsibility
of the proprietor of Lot 1. Mr. Owen gave evidence that no remuneration had
ever been sought from or paid by the body corporate in respect of the exclusive
use areas. [9] No attempt was made on behalf of the defendants to identify any of
the areas where it was alleged the body corporate incurred expense which was
the responsibility of the proprietors of Lot 1.
Consequently I am not satisfied that clause 11(3) gives rise to any
invalidity in the caretaking agreement.

(c)

by the first schedule to the Agreement (service (x)) the Plaintiffs are required to provide day and night PABX answering services

The requirement to provide day and night PABX answering is one of the daily
duties of the resident caretaker listed in the First Schedule, see s.A(xi) [10].

The defendant contends that this service is not authorised by any relevant
power in the by-law and could not be given pursuant to s.37(2)(a) of the Act.
This subsection allows the provision of a service by the body corporate to a
proprietor of a lot only if there is an agreement with the lot holder. The first
defendant argues that this is a service provided to the individual lot holders and
there are not any agreements with those lot holders.
The plaintiffs argue that this activity is a related service to the businesses
conducted by the plaintiffs as envisaged by paragraph (xii) of by-law 33, see
para 15 above.
The view I take of this contest is that the provision of the PABX service
is part of the business activities of the plaintiffs. In this way the agreement is
authorised by by-law 33(a)(xii) which I construe as meaning an activity which
is related only to the activities referred to in paragraph (a). The PABX
answering service would be of particular importance to the letting business (sub
para (viii)), to the business of providing service to the partners [sic] in respect
of the lots contained in the plan (ix), and to the business of the restaurant (xi).
This part of the agreement therefore seems to have a broader purpose than
service to a particular lot of the kind envisaged in s.37(2)(a) of the Act. Further
to that, the phone answering is an activity which provides some income for the
plaintiffs as I have already found in para. 13 hereof.
Once this is seen as the basis for the power set out in by-law 33 then the
body corporate has the authority to enter into an agreement which provides this
telephone service. I therefore reject the suggestion that this provision in the
caretaker agreement gives rise to invalidity.
Even if I had come to the opposite view on this point, I should add that I
would have held the provision of this service as severable in accordance with
the principles discussed in paragraphs 42 and 43 hereof.

36	(d)	by clause 9.2 of the Agreement the Plaintiffs are purportedly granted special privileges in respect of the common property of building units plan 71593;
(e)	by clause 9.5 of the Agreement the Plaintiffs are purportedly granted special privileges in respect of both the common property and each lot in the building units plan 71593.

These grounds of alleged invalidity can be considered together.

Clause 9.2 of the caretaking agreement provides that the body corporate
will “not interfere with, hinder or compete with the caretaker” in the running of
the caretaker’s business, will not “grant to any other person” a right to use the
common property nor enter into an agreement for another person to provide the
services required to be performed by the resident caretaker. Clause 9.5 extends
that commitment by the body corporate to “take all practical steps to bring
about the termination” of any such activities or service undertaken by such
other person or persons.
These provisions would fit the description of “special privileges” as that
term is used in s.30(7) of the Act.
It is common ground that at the time the caretaking agreement was agreed
between the body corporate and the plaintiffs by the assignment from the
vendors, there was no by-law authorising the body corporate to these special
privileges. Such a power had been present in earlier versions of the by-law but
had been removed from the by-law which was operative at the relevant time.
The plaintiffs cannot avoid the consequence that these particular provisions are
ultra vires the body corporate.
The question then to be determined is whether these two provisions can
be severed. Mr. Queen, giving evidence on behalf of the plaintiffs, regarded
these privileges as of no moment. The letting of the lots other than Lot 1 was to
tourists on short stay, typically let for a period less than one week. The
likelihood of business competition in a resort of only nine units, to quote Mr. Owen, was “irrelevant” and “immaterial” [11]. Naturally, the privilege expressed
in clause 9.5 was similarly regarded.
Clauses 9.2 and 9.5 appear to me to have little relevance to the situation
that existed at these premises. In larger resorts such a clause may have some
importance and for that reason has probably become a standard provision in
agreements of this kind.
The test for severance from an agreement of terms found to be invalid is
discussed by members of the High Court in Humphries case. At p.618
McHugh J cited the general test laid down by Jordan CJ in McFarlane v
Daniell [12] in the following terms:-
“When valid promises supported by legal consideration are associated with, but separate in form from, invalid promises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature ... If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable.”
McHugh J noted that these terms did not enunciate an exclusive test. At
p.620 he noted that “the mere fact that a lump sum payment is provided in
consideration of the performance of range of duties...is not of itself a bar to
severance.” Later in his judgment, His Honour referred to a passage from an
opinion of the Privy Council in Carney v Herbert [13] as follows:-
“Subject to a caveat that it is undesirable, if not impossible, to lay down any principles which will cover all problems in this field, their Lordships venture to suggest that, as a general rule, where parties enter into a lawful contract of, for example, sale and purchase, and there is an ancillary provision which is illegal but exists for the exclusive benefit of the plaintiff, the court may and probably will, if the justice of the case so requires, and there is no public policy objection, permit the plaintiff if he so wishes to enforce the contract without the illegal provision.”
That passage applies particularly to the situation here. Clauses 9.2 and
9.5 are clearly for the exclusive benefit of the plaintiff. But the plaintiffs see no
worth in either clause and none was expressly identified by the defendants. The
severing of these clauses would make no perceptible change to the general
nature of the agreement.
In conclusion, with clauses 9.2 and 9.5 deleted I have come to the view
that the caretaking agreement is enforceable.
Termination
The purported termination of the agreement by the first defendant
followed a course of conduct which commenced with the receipt by the
plaintiffs of a letter from the solicitors indicating that certain lot holders took
the view that there had been breaches of the letting agreements and that the
caretaking agreement was invalid. An extraordinary meeting was requisitioned
by the lot holders and this was held on 9 February 1996. It was their resolve
that, on the basis that the agreement was void, that the remuneration to the
plaintiffs would not be paid and they would not be required to perform any
services pursuant to the agreement. The partnership continued to be involved
with the letting pool until October 1996.
A further extraordinary general meeting was held on 3 April, 1997
whereat it was resolved that the caretaking agreement be terminated by the
body corporate pursuant to s.50(9) of the Act. This subsection implies a term
into any agreement for the appointment of a body corporate manager that after
the expiration of three years from the date of the first annual general meeting
the body corporate may within 30 days terminate the body corporate manager’s
appointment. In this instance the first annual general meeting of the body corporate was held on 7 March, 1994 and so it was submitted that the body
corporate was entitled to terminate 30 days after the third anniversary of that
meeting. The caretaking agreement was for a term of five years.
The plaintiffs contend that the first defendant by its resolution on 9
February 1996 wrongly repudiated the agreement and that they accepted that
repudiation and that is the basis of their claim for damages which I have
indicated will be assessed in District Court proceedings in which the parties are
already joined. Counsel, on behalf of the body corporate, submitted
(presumably seeking a finding from me) that in any event the body corporate
was entitled to terminate the agreement without penalty and without giving
reasons 30 days after the third anniversary of the original meeting on 7 March,
1994. That is not a matter which was raised on the pleadings nor in the
statement of issues which was presented to me by consent at the
commencement of the trial. The factual question of whether this agreement
was indeed one which came within the purview of s.50 was not canvassed in
the evidence. In those circumstances it would not be appropriate for me to
make a determination on that issue first raised in addresses. I do however note
the consideration by the Court of Appeal of a similar argument in Humphries v
The Proprietors “Surfers Palms North” GPT 1955 [14]
The circumstances leading to the body corporate resolution of 3 April,
1997 do not need to be considered in detail. It is clear enough that there was an
intention on the part of the body corporate that it was not willing to perform the
terms of the agreement. The associated actions of the lot holders, in respect of
the letting agreements, the appointment of an auditor and the general level of disputation between the plaintiffs and the influential lot holders who were also
the body corporate committee members, lead to this conclusion.
I have come to the view that the contract was validly terminated by the
plaintiffs’ acceptance of the body corporate’s conduct repudiating the
agreement by their solicitors’ letter to the body corporate dated 4 July, 1997.
I answer the questions raised in the statement of issues in the following
way:-
Question 1:
The caretaking agreement dated 22 August, 1994 as varied with the
exception of clauses 9.2 and 9.5 is valid and enforceable and I so declare.
Question 2:
The caretaking agreement has been validly terminated by the plaintiffs on
4 July, 1997.
It is not necessary for me to answer therefore questions 3 and 4.
My orders therefore are:-

1. It is declared that with the exception of clauses 9.2 and 9.5 that the
caretaking agreement dated 22 August, 1994 as varied referred to in
the pleadings and subsisting as between the plaintiffs and the first
defendants is valid and enforceable.
2.       It is further declared that the said agreement has been terminated as
from 4 July, 1997 by the plaintiff’s acceptance of the first
defendants’ repudiation of the said agreement.
3.       It is further ordered that the action be remitted to the District Court
at Cairns for the assessment of damages.
4.       It is further ordered that the first defendant pay the plaintiff’s costs
of and incidental to this action to be taxed.
5.       I make no order as to costs with respect to the second defendants.

[2] Document 31 of Ex. 1. The acceptance of this document by all parties – Transcript p.354.
[3] Transcript 30/5
[4] See document 31 ex.1
[5] Caretaking Agreement First Schedule A(ii) and B(i) – Ex.1 document 27
[6] S.37(1) requires that a body corporate shall “properly maintain etc the common property”. By

sub sec (2) it “permits the body corporate to enter into an agreement with the proprietor of a lot
for the provision of services to that lot or to the proprietor thereof”. S.51(2) requires the
proprietor of a lot “to maintain his or her lot ...and keep the same in a state of good repair”.

[7] Transcript 29/10-30
[8] See particularly per Brennan and Toohey JJ at p.606
[9] Transcript pp 24-7
[10] This is found at p.14 doc. 27 Ex.1
[11] Transcript 22/50
[12] (1938) 38 SR (NSW) 337
[13] (1985) AC 301/310
[14] CCH Unit and Group Titles Law and Practice (1993) 30-122

For Lot 1	$105,000
For Management business	$ 30,000
For Plant and equipment	$ 40,000
Total	$175,000

...
(v)	cleaning and the provision of services to the occupants of the lots contained in the plan;
...
(viii)	the business of sales and/or letting agency for the sale and/or letting of the lots comprised in the plan;
...
(ix)	the business of providing service to partners in respect of the lots contained in the Plan;
(x)	the management and caretaking of the building and the common property;
(xi)	the business of the operation of a licensed restaurant;
(xii)	any other related service or activity,

[2000] QSC 71

23/03/2000