Quayside Trustee Limited v Atrium Management Limited HC Tauranga Civ-2010-470-455

[2011] NZHC 439

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2010-470-455

BETWEEN  QUAYSIDE TRUSTEE LIMITED Plaintiff

ANDATRIUM MANAGEMENT LIMITED First Defendant

ANDPORTUMNA INVESTMENTS LIMITED Second Defendant

Hearing:         4 April 2011

Counsel:         Mr P McPherson for Fkirst Defendant

Mr R A Smith for Plaintiff

Judgment:      2 May 2011 at 4:00 PM

JUDGMENT OF ASSOCIATE JUDGE DOOGUE

This judgment was delivered by me on

02.05.11 at 4 pm, pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Counsel:

Hesketh Henry, Private Bag 92093, Auckland - by email: [email protected]

Anthony Harper Lawyers, Auckland – by email: [email protected]

QUAYSIDE TRUSTEE LIMITED V ATRIUM MANAGEMENT LIMITED & ANOR HC TAU CIV-2010-470-

455 2 May 2011

Background

[1]       The  first  defendant,  Atrium  Management  Ltd  (“Atrium”)  has  filed  an application for summary judgment in these proceedings.  The proceedings arose out of an agreement which the plaintiff, Quayside Trustee Ltd (“Quayside”), and the defendants entered into dated 18 October 2006.   The agreement provided that the defendants were to purchase the manager‘s unit, Unit 104, in an apartment development at Whakatane which had been carried out by the plaintiff.   The consideration  for the purchase of the unit  was  $525,000  (GST  inclusive).   The plaintiff, as part of its claim is seeking an order for specific performance of that contract.

[2]      Atrium asserts that it is not required to perform the contracts further either on the ground that it gave a justified notice cancelling the contract or, alternatively, it is discharged from performing the contract by frustration.

[3]      In addition to the agreement for purchase of the unit, the parties entered into another agreement more or less contemporaneously.   Pursuant to the second agreement, the defendants contracted to purchase the management rights in respect of the Quayside development for the sum of $200,000 (plus GST).  By clause 5 of the agreement, it was provided that the purchase of the manager‘s unit and the management  rights  were  “completely  interdependent”  so  that  neither  would  be capable of completion independently of the other and default in respect of settlement of one would also be a default in respect of the settlement of the other.

[4]      There was annexed to the agreement a draft management agreement setting out the terms of an agreement which it was proposed the body corporate of the development and Atrium would enter into.  The agreement for the purchase of the unit provided as follows:

3.Upon payment in full of the purchase price for the management rights, Quayside shall hand to the Manager the Manager‘s original executed copy of the Management Agreement.

[5]      The key provisions of the draft management agreement for the purposes of the present application are to be found in part 12 of the draft which is headed

“Holiday Letting Service”.  In that part, it was provided that the body corporate was to grant the building manager the exclusive right to exercise “on the Property” the holiday letting service.   The building manager was to exercise the holiday letting service only with the agreement of the Proprietors or occupiers of the Units who required those services.  It was further acknowledged by the building manager that proprietors and occupiers were free to use a letting service of any other person

“outside and off the Property”.  The body corporate was required to take reasonable steps  to  ensure  that  there  was  no  interference  with  the  exclusive  right  and  the exercise by the building manager to provide this service.   The building manager acknowledged that the body corporate would not be entitled to interfere with a proprietor‘s right to choose a letting service outside and off the property.  The body corporate was required to take “proper and necessary steps”  in the event that any person other than the building manager attempted to use any part of the property for the purpose of providing a holiday or other letting service or exercising the Holiday Letting Service in competition with the building manager.

[6]      The statement of claim narrates that in a letter dated 16 September 2009, the solicitors acting for the defendants gave notice that they were cancelling the agreements on the grounds that the management rights were ultra vires the body corporate, and for that reason, this entitled Atrium to cancel both the agreement to purchase Unit 104 and the agreement to purchase the management rights.

The Russell Management and Humphries cases

[7]      Prior  to the date that the agreements were cancelled, Lang J issued a decision in an unrelated case, Russell Management Ltd v Body Corporate No. 341 073.[1] It is not necessary to consider that case in detail but the essence of it was that the Judge concluded that there were limitations on the rights of a body corporate to contract out the property management rights for complexes of properties which were governed by the Unit Titles Act 1971.

[1] Russell Management Ltd v Body Corporate No. 341 073 HC Auckland CIV-2008-404-5960, 27

November 2008 [Russell Management].

[8]      Quayside recognised that the Russell Management decision posed a difficulty for it.  The statement of claim alleges that in a letter that its solicitor wrote on 29

September 2009, Quayside acknowledged that the management rights were ultra vires to a limited extent only but that any problem provisions could be legitimately severed with the consequence that the management agreement and the agreement for sale and purchase of Unit 104 would survive. Quayside further pleaded in the statement of claim that it was seeking a declaration to the effect that the agreements were valid after severance along the lines that Quayside proposed.

[9]      Lang J went on to observe that in the case before him,  the exclusive letting provisions  “formed  a  vitally important  part  of  the  agreement  from  RML‘s  [the plaintiff‘s] perspective”.[2]   He also noted that RML was to receive a management fee for managing the premises (which were separate from the letting operations) and that those benefits would have been of value to the body corporate.

[2] Ibid, at [66].

[10]     Lang  J  considered  the  possibility  of  severing  the  ultra  vires  provisions relating to the conferral of an exclusive right to operate a letting service in respect of the units which RML had contracted to purchase from the body corporate.   In his discussion of whether such a remedy was available, Lang J referred to the authority

of Humphries v Proprietors “Surfers Palms North” Group Titles Plan 1955.[3]   In the

latter case, the body corporate had purported to amend the statutory rules so as to provide it with the power to enter into a management agreement with a third party. That agreement gave the third party the right to let out units in the body corporate‘s resort complex.  As Lang J noted:[4]

The agreement differed to the management agreement in the present case, however, because the third party was only to provide the letting service to those proprietors who wished to make use of it.   It was not an exclusive arrangement as is the case here.

[3] Humphries v Proprietors “Surfers Palms North” Group Titles Plan 1955 (1994) 121 ALR 1 (HCA).

[4] Russell Management, above n 1, at [63].

[11]     The Judge went on to note that notwithstanding that difference, the High Court  of  Australia  had  held  that  the  power  to  provide  such  a  service  was  not incidental to the body corporate‘s statutory duties or powers.   He also referred to passages from the judgment where the High Court of Australia considered whether

the offending provisions of the agreement could be severed from the rest of it.

[12]     In his judgment in Humphries, McHugh J said:[5]

[5] Humphries, above n 3, at 18.

On the evidence, the conduct of the letting service was not a large part of the Manager‘s duties.  Accordingly, it seems unlikely that the parties considered the duty of letting to be a dominant element of the agreement.  It was not the

“heart and soul” of the agreement.

That being so, it was possible for the Court to sever the provision in question.

[13]      In  the  circumstances  of  the  case  before  him,  Lang  J  concluded  it  was possible for RML to argue in support of its claim that the contract remained enforceable.  He concluded that it was at least arguable that the overall agreement between  the  plaintiff  and  the  body  corporate  could  survive  notwithstanding  the

severing of the provisions relating to the letting arrangements.[6]

[6] Russell Management, above n 1, at [67].

[14]     Given that such was “arguable”, the Judge concluded that the defendant did not have a complete defence to the plaintiff‘s claim, so that the defendant‘s application for summary judgment was unsuccessful.

Present case

[15]     In this case the defendants say that it is clear that the plaintiff is unable to perform the agreement for the obligation in clause 3 of the agreement which reads:

Upon payment in full of the purchase price for the management  rights, Quayside shall hand to the Manager the Manager‘s original executed copy of the Management Agreement.

[16]     Quayside accepts that it is unable to provide an agreement in that form which gives Atrium the exclusive right to operate a letting service on the property.   The defendants‘ position is that clause 12 of the management agreement is ultra vires on the basis that the power to provide a letting service is not incidental to the body corporate‘s statutory duties or powers.

[17]     As I understand it, the position for the plaintiff is that it does not accept that clause 12 is necessarily ultra vires and that even if it is, the plaintiff can overcome that difficulty by obtaining from the Court an order severing from the agreement the

offending provisions.

[18]     I further understand that it is suggested for the plaintiff that validation of the contract under the Illegal Contracts Act 1970 would be possible.  As to the last point, I respectfully agree with the view expressed by Lang J in Russell Management that the Court cannot validate a contract which the party had no power to enter into by invoking that legislation.

[19]     The overall position of the defendants is that the plaintiff has no answer to the ultra vires point; that, in any case, the contract has been frustrated and that, as well, the defendants gave a valid notice of cancellation on 16 September 2009.

Principles in a Defendant’s Application for Summary Judgment

[20]     In Jones v Attorney-General[7] the Privy Council stated that an application for summary judgment would be inappropriate where disputed issues of material fact needed to be ascertained by the Court which could not be confidently concluded from affidavits.  The Privy Council approved the statement of principles contained in Westpac Banking Corp v M M Kembla New Zealand Ltd:[8]

Application for summary judgment will be inappropriate where there are disputed  issues  of  material  fact  or  where  material  facts  need  to  be ascertained  by  the  Court  and  cannot  confidently  be  concluded  from affidavits.  It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence.   Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues.   Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.

[7] Jones v Attorney-General[2003] UKPC 48, [2004] 1 NZLR 433.

[8] Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [62].

[21]     The Privy Council also affirmed that:[9]

[9] Jones, above n 7, at [5].

It cannot be doubted that, properly used, R 136(2) [which permits the Court to enter summary judgment] can save both time and cost by permitting claims with no hope of success to be summarily dismissed at an early stage.

The ultra vires issue

[22]    The plaintiff proposed to procure a change to the body corporate rules empowering the body corporate to enter into a management contract which, amongst other things, granted to the defendant the exclusive right to carry on a holiday letting service at the complex.

[23]     The effect of the authorities summarised by Lang J in Russell Management is that it was not part of the core functions of a body corporate to establish a letting service that is obligatory for owners and occupiers to use.  A change or addition to the rules of a body corporate must comply with the requirements of s 37(5) and s

37(6) of the Unit Titles Act 1972.  As Lang J said in his judgment, difficulties will arise in the following circumstances:[10]

The focus in the cases has been upon the extent to which the amendment purports to confer new powers, or to impose new duties, on the body corporate.  In such circumstances the amendment will fall foul of the proviso [in s 37(5)] if it creates a new power or duty that cannot properly be said to be “incidental to the performance of the duties or powers imposed on [the body corporate] by the Act”.

[10] Ibid, at [33].

[24]     In his judgment, the Judge referred to the Court of Appeal decision in Velich v Body Corporate No. 164980,[11] which he said proceeded on the basis that the body corporate may only amend its rules so as to create a new power or duty where the new power or duty is incidental to existing powers and duties.[12]    Where the pre- existing rules are the default rules under the Second and Third Schedules, the body corporate cannot create new powers or duties that are wider than those of the default rules.  If the new rule “appreciably expands” the existing powers and duties of the body corporate, it is likely to be ultra vires because it will not be incidental to the body corporate‘s existing powers and duties.

[11] Velich v Body Corporate No. 164980 (2005) 5 NZ ConvC 194,138 (CA).

[12] Russell Management, above n 1, at [35].

[25]     There are some distinguishing features between the factual circumstances in

Russell Management and the present case.  In the current case, there is no obligation

on owners or occupiers to use the defendant‘s letting service.   The effect of the

agreement is that only the defendant would be able to operate such a letting service from the premises.   There is no compulsion for owners or occupiers to use the holiday letting service.  There are other differences as well.

[26]     Mr R A Smith for the plaintiff submitted that the judgment concerning this issue was inappropriate at summary judgment level.  In any event, he submitted that if the provision was ultra vires, it could be severed from the contract.   It is that element of the case I shall deal with next.

Severance

[27]     The starting point is the draft management agreement provided, as I have noted above,  that the body corporate was to  grant to the building manager the exclusive right to “exercise  on the Property the Holiday Letting Service”.    The

“Property” was defined in clause 1.1 which read: “‗Property‘ means collectively the

Building, the Units and the Common Property.”

[28]     The plaintiff says that if it gets to that point, it would ask the Court to sever the term “the Units” from the above definition.   That would mean that the body corporate would be granting to the building manager the exclusive rights to exercise the letting service “on the Property” which would not include the individual units.

[29]     For the defendants it was submitted that it was quite wrong to assume that the Court would agree to the severance of the property letting arrangement.   Mr McPherson pointed out to me that the agreement for the purchase of the management unit 104 and the agreement conferring the rights to the letting of the units were mutually  interdependent.    He  also  said  that  given  that  the  defendant  had  paid

$200,000 for the privileges contained in that agreement, the proposed severance would deprive Atrium of a substantial part of the benefit of the contract for which it had paid the $200,000.   All it would be left with was the right to manage the property and receive the annual fee for doing so together with limited rights to carry on a letting agency in circumstances where there was no compulsion on the owners to use that service.  He also said that subsequent to Atrium giving notice cancelling the contract, the plaintiff had attempted to sell the property management rights afresh

and had come to a conditional agreement with a party who was prepared to pay, in effect, the sum of only $5,000 for it.  This figure, the defendant contends, gave an indication of what the correct value of the property management agreement would be in the absence of an exclusive right to operate the letting service.

[30]     Mr McPherson submitted to me that it was beyond argument that the plaintiff would fail in its attempt to have the ultra vires tainted provision for exclusive letting rights severed from the agreement and therefore would not be able to enforce the agreement given that performance could only occur of a contract which was missing one  of  the  substantial  benefits  that  the  defendant  had  contracted  to  acquire. Therefore the defendants had a complete defence to the plaintiff‘s claim and that was the foundation for them bringing their own application for summary judgment.

[31]     The defendant contends that in these circumstances it has the right to cancel. I shall come back to the question of whether the Court should give judgment to the defendant upholding its position further on in the judement.

[32]     Before I leave this part of the judgment I should also consider submissions advanced by the defendant that it was not open to the plaintiff to seek severance of provisions from the draft management contract which was annexed to the parties‘ agreement of 18 October 2006.  It was said that there could not be a severance from the definition of “Property” in the management agreement of the words “the Units”. I do not accept that any difficulty of this kind arises.  The contract and its annexures including the schedule contain in combination a description of what the vendor was required to do.  It is true that the agreement of 18 October 2006 required the plaintiff to enter into a management agreement with the body corporate containing identical terms to those set out in the annexure to the October agreement.  But the fact that there was to be a second contract entered into between other parties does not prevent the plaintiff‘s and the defendants‘ documents from having contractual force for the reason that they included a description of what must be included in the agreement between the third parties.   If the terms in the schedule were part of the parties‘ contracts  as  I believe  them  to  be,  they are  an  appropriate  subject  for  potential severance.

Frustration

[33]     The defendants also claim that they were discharged from the agreement for sale and purchase of the apartment and the agreement to acquire the management rights by operation of the doctrine of frustration.

[34]     Mr  McPherson  submitted  that  the  doctrine  of  frustration  operates  to discharge the contract where the parties have contracted on the basis that some fundamental thing or state of things will continue to exist, and an event in relation to this underlying basis of the contract renders performance impossible or only possible in a very different way from that contemplated, but without default of either party.[13]

He submitted that the agreement of 18 October 2006 was frustrated because an

unforeseen contingency (the decision in Russell Management causing the management agreement, and in turn the agreement of 18 October, to be illegal) has rendered performance of the agreement of 18 October impossible in its present form.

[13] Laws of New Zealand Contract (online ed) at [366].

[35]     The test for whether a contract has been frustrated is stated by the learned authors of Burrows, Finn and Todd in Law of Contract in New Zealand, where it is stated that:[14]

A contract will only be held to be frustrated if the event would … render the obligation “a thing radically different from that which was undertaken by the contract”.   … [I]t is not hardship or inconvenience or material loss itself which calls the principle of frustration into play.   There must be, as well, such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.

[14] John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (3rd ed, LexisNexis NZ, Wellington, 2007) at [20.2.1].

[36]     The  grounds  of  the  defendant‘s  submission  is  that,  first,  it  obtained  the exclusive right to carry on a holiday letting service at the development under the management agreement.   There would be substituted for that right, if the plaintiff prevails, a lesser right, namely, an exclusive entitlement to carry on the adjuncts to holiday letting service (in the form of erecting signs etc.) in the common areas of the

development.  This, it is said is a radically different obligation[15] on the plaintiff from

the obligation to confer on the defendants the exclusive right to carry on a holiday

letting service from the development.  That latter obligation cannot now be fulfilled. The defendants say the contract is accordingly discharged for frustration.

[15] Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 (HL).

[37]     My conclusion is similar to that which I stated in the section dealing with severance.  That is, the defendants have strong arguments to support their position. Atrium does not have an unanswerable case that the contract has been frustrated. That comparison of the first arrangement and the second arrangement which will be necessary  if  the  Court  is  to  determine  whether  the  latter  is  radically  different involves a judgment that should be undertaken at trial.  Just to take one issue, Mr Ronalde‘s evidence which has been put forward on behalf of the plaintiff cannot be dismissed out of hand. His evidence essentially involves a comparison of the benefits to Atrium under the first contract as compared with what Atrium would obtain under the second.   In my view, the case is not therefore suitable for defendant‘s summary judgment.   The defendant has not, in other words, satisfied me that the plaintiff cannot succeed on its cause of action.

Contractual Remedies Act 1979

[38]      Atrium submits that it is clear that Quayside cannot perform clause 3 and that fact is established by Quayside‘s own concessions and the position it has adopted in response to the ultra vires issues.  That being the case, Atrium says that the issues for determination then become:

Is clause 3 an essential term, breach of which entitles Atrium to cancel the contract pursuant to s 7(4)(a) of the Contractual Remedies Act 1979 (“the Act”)?

Alternatively,  would  the  breach  of  clause  3  result  in  a significant reduction in benefit or increase in burden to Atrium so as to justify cancellation under s 7(4)(b) of the Act?

[39]     Both aspects of the argument concern the same section of the Act which I

now set out:

(4)       Where subsection (3)(a) or subsection (3)(b) or subsection (3)(c) of this section applies, a party may exercise the right to cancel if, and only if,—

(a)       the parties have expressly or impliedly agreed that the truth of the representation or, as the case may require, the performance of the term is essential to him; or

(b)       the effect of the misrepresentation or breach is, or, in the case of an anticipated breach, will be,—

(i)        substantially to reduce the benefit of the contract to the cancelling party; or

(ii)      substantially to increase the burden of the cancelling party under the contract; or

(iii)      in  relation  to  the  cancelling  party,  to  make  the benefit or burden of the contract substantially different from that represented or contracted for.

Term that is essential to the cancelling party

[40]     Because the plaintiff is unable to procure the execution of the management

agreement corresponding to that which was annexed to the parties‘ contract of 18

October 2006, the defendants say that the plaintiff is unable to perform an essential term of its agreement and this entitles Atrium to cancel the contract pursuant to s

7(4)(a) or, alternatively, the breach of clause 3 would result in a significant reduction in benefit or increase in burden to Atrium so as to justify cancellation under s

7(4)(b).

[41]     Mr McPherson referred me to the test for essentiality of terms stated in the

Australian authority of Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd:[16]

The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor[.]

[16] Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 NSWSR 632 (SC) at 641–642.

[42]      Mr R A Smith for the plaintiff said that the test is an objective and it refers to decision of the Supreme Court given in Mana Property Trustee Ltd v James Developments  Ltd,[17]   where  Blanchard  J  for  the  Court  said  that,  in  determining

[17] Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 90, [2010] 3 NZLR 805 at [15].

whether a term is essential, the Court must give an objective appraisal of whether a

party “would not have entered into the contract” if it were not for that term.  I intend

to consider the issue as Blanchard J has indicated.

[43]     In Mana Property, Blanchard J also made it clear though that the question of whether a particular term of a contract should be regarded as essential either because the parties had expressly so agreed or must be taken to have impliedly so agreed[18] is the issue that the Court must determine.  The judgment also made it clear that it is a question of the intention of the parties as to the essentiality of the particular term and that is to be gathered from the language of the contract read in the context of the whole of the contract and the surrounding circumstances when the contract was made.[19]

[18] Ibid, at [24].

[19] Ibid.

[44]     Atrium says it would not have entered into the agreement unless it had the exclusivity of entitlement to operate the letting service from the complex.   It also says that an objective appraisal of the terms of the 18 October 2006 agreement supports the view that provision of a management agreement in the original form (rather than as severed) was essential.   It would simply not have agreed to pay

$200,000 for the much-reduced benefits that would be forthcoming in the management agreement as varied.

[45]     I  understand  that  the  defendants  do  not  assert  that  this  provision  was expressly made to be an essential term of the contract.  Rather, the defendants say that it is implicit in the circumstances that the exclusivity provisions in the management agreement were essential to Atrium to prevent another operator starting business in the development.

[46]     The plaintiff's notice of opposition includes the following:

(iii)      The  main ground to support the purported cancellation by the first defendant  of  its  contractual  obligations  to  the  plaintiff  is  that portions of the draft management agreement were ultra vires, resulting in the agreement being void, and could not be severed as the ultra vires terms were essential terms relating to the exclusive use of the Quayside development.  The plaintiff says that the ultra vires   terms   can   be   severed,  they  are   not   essential   and  the

management  agreement  survives  in  a  form  which  is  adequate consideration.

[47]     Mr Felton in his affidavit on behalf of the defendant gave evidence of an extensive history on the part of the company in acquiring and disposing of management rights in relation to other developments similar to the Quayside development.  In those other cases, the rights contained an exclusive entitlement to arrange the letting of properties in the complex.   He also said that it was always possible that without such a term, a real estate agent or someone similar could start up business from a retail unit on the ground floor where there were shop premises. Having set out that view and other matters, he went on to say (in his affidavit in reply):

This is precisely the reason why the agreed exclusivity provisions in the management agreement were so essential to Atrium, and it would never have entered any agreement with Quayside without that assurance.

[48]     The plaintiff did  not  refute the evidence  given  for the defendant  in  this regard.   The plaintiff asserts that notwithstanding the severance of the provision giving exclusive rights to let properties, the defendant would still have a viable business.  In an affidavit which he gave on behalf of the plaintiff, a witness who has considerable experience in the property management business deposed that there would be real and appreciable advantages to the defendant if it had the exclusive right to common areas in the building for the purposes of carrying on its proposed holiday letting business.  The witness, Mr Ronalde, deposed that it is unlikely that any other person would commence a letting service at the property and that, in effect, the complex would only support one such business.  In general terms, Mr Ronalde was not encouraging in his view of the level of activity that the letting business would attract, in any event, given its size and location in the town of Whakatane.  He accepted that in favour of the complex was the fact that it was the only one of its kind in Whakatane and therefore has a near competition-free environment in which to operate.  Against that, it is a start-up development and, further, it would no doubt be suffering from the tourism downturn that he said was presently being experienced in centres such as Gisborne which has some similarities to Whakatane.

[49]     This is not a case where an issue of law can be isolated out and determined without extensive reference to factual material.  There is a factual conflict between

the affidavit of Mr Felton for the defendants and the affidavit of Mr Ronalde for the plaintiff, with a disagreement on whether the exclusivity provision is an essential term of the contract.  Accordingly, summary judgment ought not to be granted to the defendant on the essentiality ground.

Reduction of benefit

[50]     I mentioned earlier that the defendant also claimed that a breach of clause 3 would result in a significant reduction in benefit justifying cancellation.   In this regard, Mr McPherson submitted that such a reduction in benefit is indicated by the evidence of the negligible value that prospective purchasers had indicated when presenting offers for the varied version of the management agreement which lacked the exclusivity provisions of the agreement that the defendant had originally contracted for, but which the plaintiff was now unable to provide.

[51]     This aspect of the case would again require resolution of the factual conflict between  the  evidence  of  Mr  Felton  and  that  of  Mr  Ronalde,  with  the  latter contending that even stripped of the exclusivity provision, the management rights would be of some value to the defendant.  As I understand it, that evidence as well raises the issue of what the extent of any benefit to the defendant would have been even with the exclusivity arrangement included.

Summary

[52]     For the defendant to succeed on this part of the application for summary judgment, the propositions it needs to establish can be summarised as follows:

a)       a grant of an exclusive letting agency would be ultra vires the body corporate;

b)severance of that provision should not be granted consistently with the principles in cases such as Humphries because it cannot be said that the  parties  did  not  regard  the  exclusive  letting  arrangement  as  a

“dominant element” of the contract;

c)       the  defendant  is  able  to  establish  on  reasonable  grounds  that  the presence of such a term in the contract was implicitly essential to it; and

d)       the defendant was entitled to cancel the contract as it did; or

e)        that the alternative argument that the contract had been frustrated as a result of the Russell Management decision would prevail.

[53]     I have difficulty accepting that a dispute of this kind can be satisfactorily determined on an application for summary judgment.   The summary judgment procedure is said to be suitable for the resolution of relatively straightforward cases including those where an issue of law can be isolated out and determined without extensive reference to factual material.

[54]     Applicants for a defendant‘s summary judgment have to meet a formidable challenge. They have to establish on the balance of probabilities that the plaintiff has no cause of action.   In the context of the present case, that translates into a requirement that the defendants show that there is not any arguable basis for the plaintiff disputing the ultra vires point and succeeding with a fair contention that severability of the letting agreement provisions would not be permitted.   For the reasons I have given, I do not consider that the defendants have discharged that onus.

Result

[55]     The application for summary judgment is dismissed.   The parties should confer on the matter of costs.  I would expect that they will be able to resolve that issue.  If not, they should file brief memoranda as follows:

a)        Respondent within 14 days of the date of this judgment;

b)        Applicants 14 days thereafter.

J.P. Doogue

Associate Judge