Australia City Properties Management Pty Ltd v The Owners – Strata Plan No 65111

1. [1]

   BATHURST CJ: This is an appeal and cross-appeal from a decision of a judge of the Equity Division of the Court concerning the termination of an Agreement between the appellant, Australia City Properties Management Pty Ltd (ACPM or the Caretaker) and Guihua Lu of the one part, and the respondent/cross-appellant, the Owners of Strata Plan No 65111 (the Owners Corporation or OC) of the other part, whereby ACPM agreed to provide caretaking services for the OC at premises at 569 George Street, Sydney (the Premises).

2. [2]

   The Agreement (the Caretaker Agreement or the Agreement) was entered into on 30 March 2001 for an initial term of ten years with three options to renew, each of five years’ duration. The Agreement was varied by a Deed of Variation entered into on 23 March 2010 (the 2010 Deed) which, amongst other provisions, granted ACPM two further options of five years, thus extending the total term (including options) to 30 March 2036. A further Deed of Variation was entered into on 29 April 2015 (the 2015 Deed), which granted a further option expiring on 30 March 2041.

3. [3]

   The primary judge held that having regard to the statutory regime which existed on 23 March 2010, the effect of the 2010 Deed was to limit the total term of the Caretaker Agreement (including options) to a period expiring on 23 March 2020. However, his Honour stated that the effect of the 2015 Deed was to extend the total period to 29 April 2025. Each of ACPM and the OC has appealed against this conclusion. ACPM contended that both the 2010 Deed and the 2015 Deed should be given their full effect, whilst the OC contended that the effect of the statutory regime was to limit the Caretaker Agreement to a period of ten years expiring on 23 March 2020. This is the subject of Issue 21 referred to below. As will be seen, the term of the Agreement is important in determining the extent of any relief to which ACPM may be entitled.

4. [4]

   On 17 August 2019, the OC served ACPM with a Notice of Termination of the Caretaker Agreement. Of relevance are the following paragraphs in that letter:

5. [5]

   On 22 August 2019, the owners and residents in the building were notified by the Strata Committee that it had installed a temporary building caretaker and manager in Lot 179. It stated that the new building manager would initially be contracted on a month by month basis and at the next Annual General Meeting or Extraordinary General Meeting all owners of the building would be entitled to vote on the permanent appointment of a new caretaker and the caretaker contract.

6. [6]

   On the same day, the OC wrote to ACPM nominating itself pursuant to cl 10.2 of the Caretaker Agreement (see [28] below) as the purchaser of Lots 162 and 179. It did not nominate itself as the purchaser of the Caretaker Agreement.

7. [7]

   Following termination, the OC sought to take possession of Lot 179, one of the lots described in the Caretaker Agreement as the Caretaker Lot. On 19 August 2019, ACPM commenced these proceedings and obtained an ex parte injunction requiring the OC to deliver up possession of Lot 179 by 21 August 2019. However, on that date another judge of the Equity Division ordered ACPM to vacate and deliver up possession of Lot 179 to the OC by 22 August 2019. The primary judge concluded that ACPM was in fact entitled to possession of Lot 179 and ordered the OC to deliver up possession to it, and awarded damages to ACPM to compensate it for being out of possession between the period from 22 August 2019 to the date of judgment. The OC has cross-appealed against this decision. It is encompassed within the matters raised in issues concerning repudiation, ratification and the consequence of termination (see [224]ff below).

8. [8]

   In support of its entitlement to terminate the Caretaker Agreement, the OC at the hearing relied on a number of matters which were said to constitute either gross misconduct or gross negligence, and which amounted either to conduct that enlivened the contractual right of termination under cl 9.3 of the Caretaker Agreement or constituted repudiatory conduct giving rise to a right of termination at general law. The primary judge found that two of these matters involved either gross negligence or gross misconduct by ACPM. The first of these was the use by ACPM of electricity for the purpose of Lot 179 at the expense of the OC (the Electricity breach). The second was a failure to promptly report defects in the Emergency Warning and Intercommunication System (EWIS) (the Fire Safety breach). ACPM has appealed against these findings. These are the subjects of issues 1 to 5 and 6 to 10 respectively.

9. [9]

   However, the primary judge rejected the contention made by the OC that the conduct of ACPM in offering its directors for election as office bearers of the Executive Committee (the Strata Committee) in contravention of cl 18.2 of the Caretaker Agreement constituted gross negligence, gross misconduct or repudiatory conduct (the cl 18.2 issue). The OC has cross-appealed against this finding. This is the subject of Issues 10 to 14.

10. [10]

    ACPM disputed the entitlement of the OC to terminate the Caretaker Agreement. Broadly speaking it was on two grounds. First, the OC did not have a basis for doing so. Second, the OC purported to terminate without the authority of a General Meeting of the OC. ACPM contended that there was no power to do so and the termination thus constituted a wrongful repudiation of the Agreement which it accepted by terminating the Agreement. It contended that the subsequent ratification at a General Meeting was ineffective as ACPM had already terminated for breach and acquired vested rights so as to preclude ratification.

11. [11]

    In that context there was also a dispute as to the rights of the parties consequent upon the purported termination. Broadly speaking, ACPM contended that the effect of the operation of cl 10 of the Caretaker Agreement was to require the OC to nominate a purchaser of what was described in the Caretaker Agreement as the Caretaker Lot (Lot 179) and the Caretaker management rights under the Caretaker Agreement. The OC denied that there was any obligation upon it to purchase the rights of ACPM under the Caretaker Agreement. However, the OC contended that irrespective of whether cl 10 operated, if termination took place for wrongful repudiation outside the regime of cl 10 then ACPM was obliged to sell Lot 179 to it. These matters are the subject of Issues 15 to 20.

12. [12]

    The primary judge made the following orders. It should be noted that ACPM was the plaintiff and the OC the defendant:

13. [13]

    The parties helpfully have agreed on a series of issues which encompass the matters raised in the notice of appeal, notice of cross-appeal and notice of contention filed by the OC. It is convenient to deal with the matters by reference to these issues rather than by reference to the grounds of appeal and cross-appeal. Prior to doing so, it is convenient to set out the relevant provisions of the Caretaker Agreement, the Deeds of Variation and the statutory context in which the issues the subject of the appeal have arisen.

The Caretaker Agreement

1. [14]

   As I indicated, the Caretaker Agreement was entered into on 30 March 2001. Clause 1 of the Agreement provided that the Caretaker was engaged to perform the duties referred to in Sch 2 of the Agreement in a conscientious and workmanlike manner so as to permit the building to be enjoyed to a standard appropriate to a residential development.

2. [15]

   Schedule 2 set out the obligations of ACPM in detail. Clause 1 of Sch 2 set out what were described as general duties. They included where the Caretaker is a corporation, ensuring that the principal person performing the duties of Caretaker resides in a lot in the building and permitting its substitute from time to time to reside in that unit (cl 1(d) of Sch 2). ACPM acquired Lot 162 in the Strata Plan for this purpose. The right to this unit on termination has not arisen on the appeal.

3. [16]

   Clauses 1(f), 1(h), 1(n) and 1(s) of Sch 2 are of relevance in the appeal. They were in the following terms:

4. [17]

   Clause 2 and cl 3 of Sch 2 set out the Caretaker’s cleaning duties and security duties. Of some relevance is cl 2(i) which was in the following terms:

5. [18]

   Clause 4 of Sch 2 referred to what were described as the Caretaker’s leasing duties. It is unnecessary to set out these duties, but it should be noted that cl 4 expressly provided that the activities the subject of the leasing duties were to be undertaken by the Caretaker at the reasonable direction of the OC.

6. [19]

   Clause 2 of the Caretaker Agreement provided that the Caretaker was to be paid the sum specified in Item 2 of Sch 1 for the provision of the services. Item 2 of Sch 1 set out two separate items of remuneration, one described as stage 1 being $185,000 per annum, the other as stage 2 being $175,000. The basis of the division is not clear, but it is apparent from subsequent Deeds of Variation that ACPM was being paid the total of the two amounts.

7. [20]

   Clause 3.1 provided for variation of the remuneration in accordance with variations in the Consumer Price Index, whilst cll 3.2 and 3.3 provided for what was essentially a market review at the commencement of the sixth year of the term and at the expiration of each five year period thereafter. Clause 3.4 provided that the remuneration did not include any payment for the provision of the leasing, managing and selling agency services.

8. [21]

   Clauses 4 to 7 dealt with the leasing and sales agency.

9. [22]

   Clause 4 conferred the right on the Caretaker to provide leasing and sales agency services for unitholders. It was in the following terms:

10. [23]

    Clause 5 provided that services may be conducted from the Caretaker’s Lots in accordance with the by-law, the terms of which were set out in Sch 3. The Caretaker’s Lots were identified in Item 3 of Sch 1 in the following terms:

11. [24]

    Schedule 3 was a by-law (by-law 30) which empowered the OC to enter into an agreement with the Caretaker whose duties may include a letting, property management and sales service.

12. [25]

    Clause 5.1 of the Caretaker Agreement contained a prohibition on the transfer or sale of the Caretaker’s Lots without the consent of the OC.

13. [26]

    Clause 6 prohibited the OC from permitting the use of the common property or any other lots for the provision of those services, except in accordance with the terms of the Agreement.

14. [27]

    Clause 8 provided for three option terms, each of five years’ duration.

15. [28]

    Clauses 9 and 10 dealt with termination. As they are critical to a number of matters in the proceedings it is necessary to set them out in full:

16. [29]

    Clause 11 dealt with expenses. It was in the following terms:

17. [30]

    Clause 18 provided as follows:

18. [31]

    Clause 21 dealt with assignment. It was in the following terms:

The 2010 Variation

1. [32]

   There were in fact two Deeds of Variation entered into on 23 March 2010. The first could be described as clarifying that the substantive parties to the Agreement were the OC and ACPM, not Guihua Lu who was referred to in the Caretaker Agreement as a party. That deed also made it clear that the Caretaker Lots were Lots 162 and 179. It also acknowledged that the remuneration payable to the Caretaker at that time was $609,250 per annum plus GST.

2. [33]

   The second Deed of Variation, which I have described as the 2010 Deed, granted two additional options bringing the total term out to 30 March 2036. It also varied the market review provisions in cl 3.3 by providing that on any review the remuneration should not be less than that received by the Caretaker in the previous year (the ratchet clause). It should be noted that the 2010 Deed provided that the OC and the Caretaker ratified and confirmed the terms of the Caretaker Agreement as varied by the 2010 Deed.

The 2015 Deed

1. [34]

   As I indicated, the 2015 Deed provided for an additional option term. It also ratified and confirmed the terms of the Caretaker Agreement as varied by the 2015 Deed.

The statutory context

1. [35]

   The strata scheme at the time of entering into the Caretaker Agreement was governed by the provisions of the Strata Schemes Management Act 1996 (NSW) (the 1996 Act). Part 4A of Ch 2 of the 1996 Act was introduced by the provisions of the Strata Schemes Management Amendment Act 2002 (NSW) (the 2002 Amending Act) which took effect on 10 February 2003 (the 2002 Amendments). The 1996 Act, among other matters, sought to regulate caretaker agreements. Section 40A of the 1996 Act defined a caretaker in the following terms:

2. [36]

   Section 40B of the 1996 Act dealt with the appointment of a caretaker. Of relevance are ss 40B(1) and (2), which were in the following terms:

3. [37]

   Section 183A is also relevant. It provided as follows:

4. [38]

   Clause 12 of the transitional provisions contained in Pt 4 of Sch 4 to the 1996 Act provided that s 40B(2) did not apply to caretaker agreements entered into before the 2002 Amendments came into force. Clause 12 of Pt 4 of Sch 4 was in the following terms:

5. [39]

   In the Second Reading Speech in respect of the Bill which became the 2002 Amending Act (Strata Schemes Management Amendment Bill 2002 (NSW)), the following remarks were made (New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 30 October 2002 at 6180):

6. [40]

   Subsequent to the entry into the 2015 Deed the Strata Schemes Management Act 2015 (NSW) (the 2015 Act) came into force. The 2015 Act repealed the 1996 Act as from 30 November 2016 and substituted the definition of building manager for that of caretaker. The relevant provisions were in the following terms:

7. [41]

   Savings and transitional provisions were contained in Sch 3 of the 2015 Act. Of relevance are cll 3 and 15:

The electricity breach

1. [42]

   The matters raised by the parties in respect of the electricity breach comprised Issues 1 to 5 of the agreed issues. They are as follows:

2. [43]

   It is convenient to deal with Issues 1 to 4 together and then deal with Issue 5 after the other alleged breaches have been dealt with.

The primary judgment

1. [44]

   The primary judge stated that ACPM had never paid for any electricity supplied to Lot 179 and that there was no separate meter in respect of that supply. He concluded that the cost of such electricity over an 18 year period “may be presumed to be substantial” having regard to the fulltime nature of the Caretaker’s obligations and the electrical appliances used in Lot 179 which included computer equipment and an air conditioning unit.

2. [45]

   The primary judge referred to the evidence of Mr Robin Wang (Mr Wang), a director of ACPM who was responsible for the management of the obligations of ACPM under the Caretaker Agreement since 2005. Mr Wang’s evidence was to the effect that he knew ACPM was not paying for electricity used in Lot 179. The primary judge noted that Mr Wang was not prepared to concede that he knew the OC was paying for it, although his evidence subsequently indicated that he knew of that fact.

3. [46]

   The primary judge also referred to an exchange of emails between Mr Wang and a Ms Amy Wang of November 2016. Mr Wang emailed Ms Wang on 2 November 2016 requesting an increase in payment for some additional security services. The email was in the following terms:

4. [47]

   Ms Wang, who at the time was a member of the Strata Committee of the OC, responded to Mr Wang on 3 November making the following inquiry:

5. [48]

   Mr Wang replied in the following terms:

6. [49]

   It was accepted that “My Amy” was intended to be read “My company”.

7. [50]

   The primary judge stated that he regarded the evidence of Mr Wang on this topic as ”unimpressive”. He reached the following conclusions:

8. [51]

   The primary judge also concluded that the Agreement did not entitle the Caretaker to a free supply of electricity to Lot 179. He referred to cl 4 of the Caretaker Agreement which I have set out at [22] above. He noted that the clause provided that the Caretaker was to bear all costs incurred in providing leasing and agency services which were to be predominantly carried out in Lot 179 (PJ [164]).

9. [52]

   He also referred to cl 11 of the Agreement (see [29] above), stating that the reference to “products” in that clause was wide enough to cover utilities and, at the very least, the clause did not entitle ACPM to a free supply of electricity (PJ [165]). He also rejected the proposition that cl 2(i) of Sch 2 of the Agreement entitled ACPM to charge the OC for electricity (PJ [166]).

10. [53]

    The primary judge also referred to the decision of this Court in Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corporation SP 71632 [2010] NSWCA 226 (Waldorf) in which Hodgson JA (with whom Beazley JA and Macfarlan JA agreed) found an implied term that there was an obligation on the Building Manager under the Building Management Agreement not to benefit itself by incurring substantial debts payable by the Owners Corporation through the use of electricity provided to the common property, at least without disclosure and consent (Waldorf at [53]). The primary judge stated a similar term was to be implied in the Caretaker Agreement. In these circumstances he reached the following conclusion:

11. [54]

    The primary judge concluded that it followed that the OC had the right to terminate the Caretaker Agreement under cl 9.3. He stated it was not necessary to decide whether the conduct amounted to a repudiation of the Agreement, although noted that in Waldorf it was held that it did (PJ [172]).

The submissions

1. [55]

   Issue one was whether the primary judge was wrong to find that there was an implied term of the Caretaker Agreement that ACPM not benefit itself by incurring substantial debts payable by the OC through the use of electricity provided to the common property, at least without disclosing this and obtaining consent and/or taking reasonable steps to indemnify the OC. In its written submissions, ACPM submitted the conditions necessary to ground the implication of a term were not satisfied:

   1. (1)

      the term was not reasonable and equitable, because it required that ACPM either pay for or not use electricity supplied to Lot 179 to power an air-conditioning unit which provided air-conditioning to the common property entrance lobby, foyer and lift lobby areas of the ground floor in circumstances where the provision of such air-conditioning was for the benefit of the OC and lot owners and did not form part of the services required to be provided by ACPM under the Caretaker Agreement;

   2. (2)

      it was not necessary to give business efficacy to the contract. The Caretaker Agreement was said to effective without the term. ACPM argued that, having regard to the purposes for which electricity was to be used at Lot 179 (each of which conferred a benefit on the OC and the lot owners), it would be reasonable for the OC to bear the burden of paying for the electricity supplied to Lot 179;

   3. (3)

      it was not so obvious that it goes without saying, given that the contemplated services to be powered by electricity at Lot 179 were all beneficial to the OC and the lot owners (and the air-conditioning was only or primarily beneficial to the OC and lot owners and was not beneficial to ACPM in any material way); and

   4. (4)

      it was not capable of clear expression because it did not draw any distinction between the electricity supplied to Lot 179 to power the air-conditioning provided to the common property (a service benefitting the OC but not required to be provided by ACPM under the Caretaker Agreement), electricity supplied to Lot 179 for the purpose of powering the equipment used in the provision of the caretaker services, and electricity supplied to Lot 179 for the purpose of powering equipment used in any leasing and sales agency business.

2. [56]

   ACPM also pointed to the vagueness of the concept of “incurring substantial debts” and submitted there was no basis for assuming that ACPM at the time of the entry into the Caretaker Agreement had any knowledge about who would be liable to pay for the electricity supply.

3. [57]

   ACPM referred to the following contextual matters:

   1. (1)

      The building was configured with electricity supplied to Lot 179 from the house supply without any separate meter.

   2. (2)

      The design drawings issued showed an air conditioning room within Lot 179.

   3. (3)

      The air conditioning duct layout drawings showed that the air conditioning room would house an air-conditioning unit which would supply air conditioning to the common property on the ground floor including the entrance lobby, foyer and the lift lobby.

   4. (4)

      Lot 179 also housed the reception desk and additional electrical equipment for the purposes of caretaker services, including a CCTV monitor and an access control panel housing electronics associated with the operation of the lifts, front door and loading dock areas.

4. [58]

   ACPM submitted that cl 1(h) of Schedule 2 indicated that electricity necessary to maintain the building would be supplied at the expense of the OC.

5. [59]

   ACPM submitted that cl 4 of the Caretaker Agreement did not indicate that ACPM was to bear all the expenses incurred in providing the leasing and sales agency services but rather, simply meant that the OC was not required to reimburse ACPM for expenses incurred by ACPM in providing the agency services. It submitted that electricity was not an expense contemplated to be incurred by ACPM because electricity was supplied to Lot 179 by the house supply.

6. [60]

   ACPM submitted that cl 11 of the Caretaker Agreement did not require ACPM to provide electricity at its own expense because electricity did not fall within the natural meaning of “products, materials and equipment” and an extension of that phrase would have uncommercial results: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [51]. It submitted that this would lead to a situation where ACPM had to supply its own electricity, for example, when vacuuming the common areas.

7. [61]

   In oral submissions, senior counsel for ACPM submitted that, having regard to the configuration of Lot 179 at the time the Caretaker Agreement was made (in particular, having the air conditioning unit within the lot which serviced common property, and other electric equipment within the lot used for management of the site), “one wouldn’t find it obvious at all that an implied term of the sort found by the trial judge ought to be or is part of the agreement”. Senior counsel for ACPM submitted that it was more apparent that the OC would be paying to power the air conditioning unit for the common areas.

8. [62]

   Senior counsel for ACPM also pointed to the fact that there was never a separate electricity meter for Lot 179, and that the developer of the block, Meriton Apartments Pty Ltd, was the sole member of the OC at the time the agreement was made.

9. [63]

   In written submissions, the OC submitted that each of the conditions for the implication of a term were satisfied:

   1. (1)

      it was so obvious that it goes without saying that the costs of electricity supplied to a privately owned lot, from which ACPM operated a business for its own profit, which included (but was not limited to) the caretaking services for which it was being paid a significant remuneration, were to be paid by ACPM;

   2. (2)

      if the parties to the Caretaker Agreement had considered this issue before entering into the Caretaker Agreement, they would have agreed to the implied term;

   3. (3)

      it was not uncertain, vague or ambiguous. Rather, it was the very obligation that this Court held in Waldorf was implied into a different caretaker agreement; and

   4. (4)

      as in Waldorf, the implied term was reasonable, equitable, necessary to give business efficacy to the contract, so obvious as to go without saying, and expressed clearly.

10. [64]

    The OC further submitted that the implied term was consonant with the express terms of the Caretaker Agreement; in particular, cll 4 and 11:

    1. (1)

       The OC submitted that cl 4 demonstrated that ACPM was obliged to cover the expenses it incurred in running its private sales and leasing agency business, which it submitted plainly included electricity; and

    2. (2)

       The OC submitted that the primary judge was correct to state that cl 11 was wide enough to cover electricity. The OC submitted that the clause demonstrated that the intention was for ACPM to pay for expenses relating to the letting and caretaking business.

11. [65]

    In oral submissions, senior counsel for the OC referred to the implied term pleaded in the OC’s defence and cross-claim, namely, that it was an implied term that the Caretaker would not use its position to benefit itself beyond its entitlement pursuant to the Caretaker Agreement.

12. [66]

    Senior counsel for the OC submitted that it was always intended that ACPM would own Lot 179 privately, and that it was key to the arrangement that ACPM would operate the letting and sales agency business from that lot, not just the caretaking services. Senior counsel for the OC submitted that there was nothing in the contract, which was “in quite explicit terms on the division of responsibilities and expenses”, that gave ACPM an entitlement to electricity at the expense of the OC. He submitted that there was no sensible differentiation between the cost of electricity and the cost of strata fees, insurance and other utilities for which ACPM was paying.

13. [67]

    Senior counsel for the OC submitted that it was “perfectly clear, having regard to the terms of the contract” that if either party had considered the question of who would be paying for the Lot 179 electricity, the answer would obviously have been ACPM (particularly due to the leasing and sales business), and that such an arrangement was also reasonable and equitable.

14. [68]

    In relation to the argument that the consumption of electricity on Lot 179 was mutually beneficial, senior counsel for the OC submitted that ACPM was already being “substantially remunerated” for the service (and making a profit). Senior counsel submitted that the “mutual benefit” argument was weakened by the leasing and sales business.

15. [69]

    Senior counsel for the OC contended that the presence of the air conditioning unit in Lot 179 “ultimately goes nowhere”, and that it did not follow from this that ACPM was entitled to consume electricity throughout the lot for its own purposes. He submitted that ACPM was tolerating the presence of the air conditioner, and that there was no obligation on ACPM to leave the air conditioning equipment in the lot.

16. [70]

    If there was such an implied term, Issue two was whether the trial judge was wrong to find that it was breached by ACPM.

17. [71]

    The primary judge found that the electricity supplied to Lot 179 must have been “substantial” having regard to the evidence of electrical appliances used in Lot 179 “which included computer equipment and an air-conditioning unit” (PJ [151], [167]; see [44] above).

18. [72]

    In oral submissions, senior counsel for ACPM submitted that apart from the air conditioner, there was not much left that would consume a great deal of electricity.

19. [73]

    In written submissions, the OC submitted that the unchallenged evidence demonstrated that ACPM had been using electricity for its business in Lot 179 for almost 20 years. Electricity was used for many things within Lot 179 including lighting, kitchen appliances and a wide array of electronic equipment including computers, monitors and communications systems. The lot was used on a fulltime basis, including on weekends. The OC submitted that the trial judge was correct to conclude that this would be a “substantial” amount of electricity, which would cost a “substantial” amount of money.

20. [74]

    In oral submissions, senior counsel for the OC submitted that there was no sound basis to overturn the finding by the primary judge that the amount of electricity consumed was “substantial”.

21. [75]

    In oral submissions in reply, senior counsel for ACPM submitted that the OC had conceded that ACPM using electricity in Lot 179 for the air conditioning would not be a breach of the implied term. He also submitted that this concession removed the basis for the primary judge’s finding that the amount of electricity consumed was “substantial”, as this conclusion was based on the inclusion of the electricity used for the air conditioner in Lot 179.

22. [76]

    Senior counsel for ACPM in reply also contended that the evidence of other electrical appliances in the lot did not provide a proper foundation for an inference that “substantial” electricity debts were incurred, and that in any event, those electrical appliances were for the mutual benefit of ACPM and the OC.

23. [77]

    Issue three was whether the primary judge was wrong to have regard to the statement that had been made by Mr Wang in November 2016 regarding payment for electricity, and whether the primary judge was wrong to find that Mr Wang had made a dishonest and false statement about who was paying for electricity. The false statement comprised an email from Mr Wang to a member of the Strata Committee asserting that ACPM in fact paid for electricity to Lot 179 (see [48] above).

24. [78]

    The primary judge found that ACPM’s breach of the implied term was compounded in November 2016 by Mr Wang’s false statement that ACPM was paying “all associated utility costs” on Lot 179. ACPM submitted that the claim pleaded by the OC relied upon alleged breach of the Caretaker Agreement by using electricity without the consent of the OC, and did not include any claim that ACPM engaged in gross misconduct by making a false statement that it was paying electricity costs for Lot 179. Nor did the primary judge make a finding, it was submitted, that the false statement was a basis for a finding of gross misconduct or gross negligence, independently of the implied term.

25. [79]

    Senior counsel for ACPM also submitted that if the implied term was not to be implied into the Agreement, and there was therefore no breach, no compounding of breach would arise from Mr Wang’s conduct.

26. [80]

    Senior counsel for ACPM also stated in oral submissions that there was never any pleaded reliance on a false statement as a basis for termination.

27. [81]

    The OC submitted that Mr Wang’s conduct was directly relevant to the OC’s pleading that ACPM’s improper use of electricity constituted gross misconduct and/or gross negligence.

28. [82]

    ACPM submitted that, in any event, the primary judge’s characterisation of Mr Wang’s false statement as “deliberate deception” as opposed to a mistake based on an incorrect assumption was unjustified, having regard to the terms of the email and the “ample basis” for an understanding by Mr Wang that ACPM was not required to pay for electricity. It was submitted that the finding against Mr Wang was based on the erroneous assumption by the primary judge that there was no basis for Mr Wang’s understanding, when in fact the basis for this included the fact that the air conditioning unit in Lot 179 provided air conditioning to the common property owned by the OC.

29. [83]

    The OC submitted that no ground of appeal expressly challenged the finding of the primary judge on that issue. It was submitted that, in any event, ACPM had not identified any incontrovertible facts or uncontested testimony demonstrating that the primary judge’s conclusions were erroneous. It was submitted that the primary judge’s assessment of Mr Wang’s evidence was soundly based.

30. [84]

    In oral submissions, senior counsel for ACPM accepted that if the primary judge’s finding of deliberate deception was not overturned, it would be capable of compounding any breach of the implied term. However, he argued that contrary to the primary judge’s reasoning, there was an apparent basis for Mr Wang to have the understanding he claimed (namely, the air conditioning unit in Lot 179).

31. [85]

    Issue four was whether, if ACPM breached the implied term, the primary judge was wrong to find that this conduct amounted to gross misconduct in performing its responsibilities within the meaning of cl 9.3(iv) of the Caretaker Agreement.

32. [86]

    ACPM submitted (and the OC agreed) that for “gross negligence” and “gross misconduct”, conduct that is repugnant to the continuation of the relationship is required. It submitted that termination under cl 9.3(iv) is available only where there is serious and flagrant improper conduct or negligence by ACPM in the performance of its responsibilities under the Caretaker Agreement which a reasonable person would regard as justifying the OC no longer being bound to continue with the long-term Agreement without first issuing a default notice under cl 9.3(i).

33. [87]

    In oral submissions, senior counsel for the OC submitted that if there was an implied term, it was breached, and that “if his Honour’s finding as to the substantial character of that breach is upheld, that alone would justify a finding of gross misconduct”. He submitted that Mr Wang’s deception of the Strata Committee exacerbated this “in a significant way”.

Consideration

1. [88]

   Before dealing with the implied term it is necessary to consider if the Caretaker Agreement conferred a right on ACPM to charge the OC for electricity consumed at Lot 179.

2. [89]

   Clause 4 of the Agreement makes it clear in my opinion that there is no obligation on the OC to reimburse ACPM for expenses incurred in providing the leasing and sales agency services referred to in that clause (see [22] above). This would in my opinion include the cost of utilities including electricity.

3. [90]

   Expenses are dealt with in cl 11. That clause refers to both leasing and caretaking responsibilities (see [29] above). Caretaking responsibilities include matters which would inevitably involve the use of electricity such as cleaning the common property (Sch 2 cl 1(a)) and vacuuming the lifts and entry areas (Sch 2 cl 2(a) and (b)). It should be noted that Sch 2 cl 2(j) provides that all equipment, other than consumables, required to perform cleaning duties are to be purchased by the Caretaker at the Caretaker’s expense.

4. [91]

   The principles surrounding the construction of commercial contracts are well established. The contract is to be construed by what a reasonable person would understand it to mean. This requires consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or object to be served by the contract: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd at [46]-[52]; Victoria v Tatts Group Ltd [2016] HCA 5; 90 ALJR 392 at [51]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [18] and [78].

5. [92]

   Viewed in context, I do not think the expression “products” in cl 11 encompasses electricity. It is difficult to describe electricity as a product, and its inclusion as an expense in cl 11 would lead to unusual results including the calculation and levying as a separate charge on the Caretaker for electricity consumed in vacuuming the lift area and the common property or other associated activities on the common property requiring the use of electricity. Such a result in my opinion was not what the clause was intending to encompass.

6. [93]

   That does not mean that the OC is required to pay for electricity associated with the use of Lot 179. There are a number of matters which compel the conclusion that it is not required to do so. First, there is nothing in the Caretaker Agreement which requires it. Second, it must be borne in mind that Lot 179 is a separate lot in the strata scheme, owned by ACPM. In the normal course it would be expected that the owner of the lot would pay for electricity consumed at the lot for the purpose of lighting, kitchen appliances, computer equipment or other appliances. Third, in respect of an activity carried out for the Caretaker’s own commercial benefit, namely, the provision of leasing and sales agency services, cl 4 makes it clear that the OC is not liable for expenses incurred in connection with the carrying out of those activities.

7. [94]

   It follows in my opinion that ACPM had no right of reimbursement for electricity expenses incurred with respect to Lot 179. Its liability to pay for such electricity, however, would not extend to electricity consumed by the air conditioning unit, which was used to provide air conditioning to the lift lobby and common areas. This was properly conceded by the OC. Similarly, it would not extend to electricity consumed by the access control panel housing electronics associated with the operation of the lifts, front door and loading dock areas (see [57](4) above).

8. [95]

   The next question is whether the use of electricity by ACPM at Lot 179 at the expense of the OC constituted a breach of the Caretaker Agreement. The OC relied on the decision of this Court in Waldorf in support of the contention that there was a breach. That case involved the conversion of electricity owned by the Owners Corporation respondent by the Building Manager for a period of four or five years. The Building Manager used the relevant premises (a lot in the Strata Plan) as a restaurant, an office area and a laundry where it carried out a considerable portion of laundry work for Owners Corporations other than the respondent. Hodgson JA, with whom the other members of the Court agreed, reached the following conclusion:

9. [96]

   ACPM disputed the existence of a similar implied term in the present case. In its written submissions ACPM set out a number of reasons why the term contended for should not be implied. The submissions (see [55]-[57] above) focused principally on the difficulty of implying a term particularly when the electricity supplied to Lot 179 was used in connection with the air conditioning unit which supplied air conditioning to the common property, and for other activities for the benefit of the OC.

10. [97]

    That, with respect, does not correctly identify the term to be implied. The term shortly stated is that the Caretaker would not use its position to obtain an unauthorised benefit from the OC. It may sometimes be difficult to determine whether an unauthorised benefit was received or its extent but that does not mean the term should not be implied. The term in my opinion complies with all of the requirements for the implication referred to in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283. Prohibition against taking an unauthorised benefit is reasonable and equitable. It is necessary to give business efficacy to an agreement such as the Caretaker Agreement having regard to the trust reposed in the Caretaker in the carrying out of its functions. Such an obligation in my opinion is so obvious it goes without saying. It is capable of clear expression and does not contradict any express terms in the contract.

11. [98]

    It follows in my opinion that the conduct of ACPM in using electricity at Lot 179 without reimbursing the OC amounted to misconduct within the meaning of that term in cl 9 of the Caretaker Agreement. The question remains however whether it constituted gross misconduct.

12. [99]

    Although what constitutes gross misconduct is a question of fact considered in the context of the contractual obligations of the Caretaker, the approach of the courts to the right of an employer at common law to summarily terminate a contract of employment is of assistance. The principles and authorities were helpfully summarised by Macfarlan JA in Willis Australia Group Services Pty Ltd v Mitchell-Innes [2015] NSWCA 381 at [88]-[92]:

13. [100]

    To this may be added the following remarks by Smithers and Evatt JJ in North v Television Corporation Ltd (1976) 11 ALR 599 at 608-609:

14. [101]

    I have set out the findings of the primary judge concerning the evidence of Mr Wang at [50] above and his ultimate conclusion on the electricity issue at [53] above.

15. [102]

    ACPM challenged the findings made against Mr Wang. It said that the findings were based on the erroneous assumption that there was no basis for Mr Wang’s understanding that ACPM was not required to pay for all electricity consumed on Lot 179 including that relating to the air conditioning unit. It submitted that having regard to the terms of Mr Wang’s email, the primary judge’s findings against Mr Wang were unjustified.

16. [103]

    Irrespective of whether or not Mr Wang was entitled to assume ACPM was not required to pay for electricity, in responding to Ms Wang’s inquiry the emails clearly represented that ACPM was paying for it. The request for an increase in the hourly rate for additional security services was made in the context of increased utility costs expressly including electricity. Mr Wang’s email of 3 November in that context clearly refers to electricity. Mr Wang did not at any time suggest in his evidence that he believed that ACPM was paying for it. The representation was plainly untrue.

17. [104]

    Further, the finding the primary judge made concerning Mr Wang’s understanding which I have set out at [50] above was at least in part based on his assessment of the credibility of Mr Wang. It was not contrary to any incontrovertible facts or uncontested testimony, nor were the findings glaringly improbable. In these circumstances it is not open to this Court to set them aside: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [28]-[29]; Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 at [55]; Robinson Helicopter Company Inc v McDermott [2016] HCA 22; 331 ALR 550 at [43].

18. [105]

    It is correct, as ACPM pointed out, that the gross misconduct which is alleged is the misuse of electricity, not deception of the OC. However, the breach must be considered in the context of that deception. Although it is true that ACPM was not required to pay for the electricity consumed in respect of the air conditioning and other amenities to which I have referred at [94] above, the amount of electricity consumed over a period of more than 18 years would be substantial even if confined to only the leasing and sales agency activity. Further, the electricity was consumed in circumstances where the primary judge did not accept that Mr Wang had an understanding that ACPM was not required to pay for the electricity consumed. Finally, the unauthorised use continued over approximately the last three years of the Caretaker Agreement in circumstances where Mr Wang had misled the OC as to who was in fact paying for it.

19. [106]

    It seems to me that the conduct in these circumstances demonstrated such a flagrant disregard by ACPM for the essential conditions under which the Caretaker was engaged such as to constitute gross misconduct.

20. [107]

    Having regard to the authorities to which I have referred above, the primary judge was correct in concluding that the misuse of electricity constituted gross misconduct to enliven the right of termination under cl 9.3(iv) of the Caretaker Agreement.

The fire safety breach

1. [108]

   The fire safety issues concern the alleged failure by ACPM to promptly and formally report perceived defects in the Premises’ fire alarm system, referred to as the Emergency Warning and Intercommunication System (EWIS).

2. [109]

   This aspect of the appeal and cross-appeal involve the following agreed issues:

3. [110]

   As with the electricity issues, it is convenient to deal with Issues 6 to 9 together and then to deal separately with Issue 10.

The primary judgment

1. [111]

   The primary judge described the essence of the complaint as “that despite becoming aware in the course of the annual fire safety inspections in May 2017 and July 2018 of faults in the EWIS, the Caretaker failed to take any action or inform the Owners Corporation of the existence of the problems”.

2. [112]

   The primary judge recorded that on about 29 May 2017, Mr Ching-Yu Hsueh (Mr Hsueh, who was the primary ACPM employee tasked with carrying out caretaking services at the Premises) accompanied personnel of Integrated Fire Solutions Pty Ltd (IFS) who carried out annual testing of the fire safety system including the EWIS. He observed instances of malfunction. The primary judge noted that Mr Hsueh gave evidence that he was told that the system was “not responding as it is supposed to do” and that “the alarm isn’t going off and the PA isn’t working”. The primary judge noted that Mr Hsueh gave evidence that shortly thereafter Mr Papadimitriou, a director of IFS, said to him, “It seems to be doing what it is supposed to do. Let’s get the test done and we will need to look into maintenance of the EWIS system”.

3. [113]

   The primary judge noted that in cross-examination, Mr Hsueh agreed that after witnessing the faults in May 2017 he had concerns that the EWIS was not operating reliably and that it was an important matter to look into. He referred to the evidence of Mr Hsueh that he spoke to the Strata Committee about the faults.

4. [114]

   The primary judge also noted that a Mr Tsiprin-Reznik, a director of ACPM, was present for some of the 2017 testing and recalled one of the IFS personnel saying that the system was “not responding”. He noted that Mr Tsiprin-Reznik’s evidence in cross-examination was that he did not do anything about it because IFS had “cleared the fault”.

5. [115]

   The primary judge noted that on 23 June 2017, Mr Hsueh sent an email to members of the Strata Committee referring to the fire safety inspection. He noted that no reference was made to any faults with the EWIS and that it was not mentioned in any subsequent Caretaker reports to the Strata Committee.

6. [116]

   The primary judge referred to the evidence of Mr Hsueh that between May 2017 and November 2018 he had conversations with Mr Papadimitriou, who told him that IFS was unable to find a fault in the EWIS, that it did not seem to be playing up regularly and that IFS needed to continue to monitor it to determine the cause of the fault.

7. [117]

   The primary judge noted that IFS had signed the Fire Safety Statement required by Council for the year 2017.

8. [118]

   His Honour noted that the problems were again experienced during annual testing carried out by IFS in July 2018. He also noted that Mr Hsueh agreed that he was aware of an incident when the alarm did not go off when activated and also agreed that this was a fundamental fault that could be absolutely catastrophic.

9. [119]

   The primary judge noted that Mr Hsueh agreed that what was said by Mr Papadimitriou about continuing to monitor the system was not satisfactory and that the issue should have been brought to the attention of the Strata Committee. He noted that Mr Hsueh gave evidence that he brought the matter to the attention of the Strata Committee orally and that he was guided by IFS to sign the 2018 Fire Safety Statement.

10. [120]

    The primary judge also referred to the evidence of Mr Tsiprin-Reznik to the effect that he considered the system was not reliable and that there was a significant risk that in a real emergency the system would not function properly. He noted that Mr Tsiprin-Reznik agreed that it was deeply concerning but that he had received assurances from IFS that everything was okay. He noted that Mr Tsiprin-Reznik gave evidence he verbally informed the Strata Committee that the system “had started to play up” and in November 2018 had sent an email including to members of the Strata Committee that the system had to be replaced.

11. [121]

    The primary judge stated that the complaint needed to be considered in light of the regulatory environment, which included annual fire safety inspections and certification by a qualified person. He also stated that it needed to be considered by reference to cl 1(f) and cl 1(n) of Sch 2 of the Caretaker Agreement (see [16] above).

12. [122]

    In that context the primary judge reached the following conclusions:

13. [123]

    Although he considered the issue was “finely balanced”, the primary judge concluded the conduct was sufficiently serious to amount to gross misconduct or gross negligence. Whilst he agreed that “in a broad sense the relevant employees of the Caretaker are able to place reliance upon what they are told by IFS as a professionally qualified expert in fire safety”, he said it was clear that Mr Hsueh regarded what he was told as unsatisfactory and that he accepted it should have been regarded as a serious issue.

14. [124]

    The primary judge referred to the obligation under cl 1(f) of Sch 2 to report promptly on all matters creating a hazard or a danger. He said that given the potentially grave consequences that might flow from a faulty EWIS in the event of a fire, it was the sort of thing that the Strata Committee would want to know about. He said it would be difficult for the OC to have any confidence in a Caretaker that failed to report matters of this nature. He concluded that the seriousness and scale of this misconduct or negligence, which occurred over a considerable period of time, warranted the conclusion that it was gross misconduct or gross negligence.

The submissions

1. [125]

   Issues six and eight raise overlapping issues. In written submissions ACPM submitted that cl 1(f) of Sch 2 of the Agreement did not require a report of matters the Caretaker believed required repair or created a hazard or danger, but which did not in fact require repair or create such a hazard or danger.

2. [126]

   ACPM referred to the fact that IFS issued fire safety certificates certifying that the EWIS has been found to be properly implemented and capable of performing to the specified standards. The submissions noted that after Mr Hsueh requested IFS check the system, IFS stated it was unable to find a fault.

3. [127]

   The submissions also pointed to the fact that in 2019 the OC appointed a new fire safety contractor who determined the EWIS had no faults, as a consequence of which the contract for its replacement was cancelled. It submitted that in these circumstances there was no breach of cl 1(f).

4. [128]

   At the hearing, senior counsel for ACPM referred to the fact that in March 2019 quotes were arranged by ACPM for the replacement of the EWIS. He referred in particular to a quotation dated 13 March 2019 for $77,456 to replace the system and another submitted by IFS on 20 March 2019 for a slightly lesser amount which was accepted by ACPM.

5. [129]

   Senior counsel for ACPM referred to the fact that subsequently on 11 September 2019 another fire safety consultant retained by the OC stated that the EWIS was in “good working order with no faults”. He noted that on 17 September 2019 the Senior Strata Manager for the OC emailed Mr Papadimitriou at IFS, stating that no faults were found in the equipment and the OC would not be paying for a replacement. Mr Papadimitriou’s response, rejecting the findings and stating that for the past two years the system had been “temperamental and inoperable at times”, apparently was not acted upon.

6. [130]

   Senior counsel for ACPM also submitted that the relevant clause said to have been breached required that there be something which constitutes a hazard or danger and that the OC had the onus of proving such a matter. He stated that in considering the issue, the primary judge ignored the evidence that the EWIS was in fact in good working order, and that there was no basis for finding that there were clearly problems with it.

7. [131]

   In written submissions, the OC submitted that cl 1(f) of Sch 2 of the Caretaker Agreement applies to “hazards” or “dangers”, which includes a perceived situation of risk. It submitted that ACPM’s construction of the provision makes nonsense of the Caretaker’s duties to the extent that it would mean a Caretaker who honestly perceives that there is a serious hazard or danger is not obliged to report it until it is objectively verified. It submitted that the point of the provision was that the OC could trust the Caretaker to make a judgment about what should or should not be done to protect residents from dangers and hazards.

8. [132]

   Further, it was submitted that the approach of ACPM was unworkable as it would be impossible for the Caretaker to know when it should report the problem. It submitted that the certification by IFS was contrary to the evidence of Mr Hsueh and Mr Tsiprin-Reznik and the opinion of Mr Papadimitriou of IFS.

9. [133]

   Further, it was submitted that the circumstances of the further assessment of the EWIS to which I have referred at [127] above were not explored at the trial. It is correct that the only material in evidence following the assessment was the rejection of its findings by Mr Papadimitriou, and a demand by IFS for payment for the contracted replacement. However, there was no evidence from any representative of the OC, the Strata Manager or the new interim Caretaker to suggest further steps were taken. In these circumstances it should be inferred there were none.

10. [134]

    At the hearing, senior counsel for the OC referred to the affidavit evidence of Mr Hsueh of an inspection carried out in May and June 2017 to which I have referred at [112] above, and to his evidence that at the July 2018 safety inspection he was told that the EWIS panel was “acting funny again” and that the contractor was having trouble deactivating the faults on the EWIS panel constantly. He also referred to the evidence of Mr Tsiprin-Reznik, to which I have referred at [120] above, and to his evidence that he observed during the July 2018 inspection that the evacuation signal worked on some occasions and not others.

11. [135]

    Senior counsel for the OC referred to the evidence of Mr Hsueh in cross-examination that he did not say anything in his report to the Strata Committee about the EWIS malfunctioning but that he should have. He referred to Mr Hsueh’s agreement that the inability to activate the alarm was a fundamental failure. He also referred to Mr Hsueh’s agreement that the statements made to him by Mr Papadimitriou from time to time that IFS were unable to find a fault and that the system did not seem to be playing up regularly was a “pretty unsatisfactory response”.

12. [136]

    He submitted in these circumstances that the evidence showed that Mr Hsueh and Mr Tsiprin-Reznik had witnessed events which they well understood showed the system to be unreliable. He also submitted that Mr Hsueh was not comforted by what IFS was telling him, but rather that the IFS responses were objectively unsatisfactory and Mr Hsueh understood this to be the case.

13. [137]

    It should be noted that in its notice of contention, the OC also contended the failure to report constituted breaches of cl 1(a), (k), (l), (n) and (ad) of Sch 2 to the Caretaker Agreement. In written submissions this was said to be on the basis that the conduct had the result that the building and equipment within it were not properly maintained. However, in the context of where it was ultimately not found necessary to replace the equipment, this contention cannot be made out.

14. [138]

    The next issue related to the timing of the report. ACPM contended that the primary judge was in error in concluding Mr Hsueh first orally reported the apparent fault after the 2018 fire safety report rather than in 2017 (see [122] above).

15. [139]

    In both its written submissions and orally ACPM relied upon the following evidence of Mr Hsueh in support of its contention that an oral report was provided to the OC in 2017:

16. [140]

    The submission noted that Mr Hsueh was accepted as an “honest and impressive witness” and that there was in those circumstances no factual basis for concluding it was likely that Mr Hsueh would have been content to wait until July 2018 to see if anything came from the monitoring of the system. It was also submitted that cl 1(f) of Sch 2 of the Agreement did not mandate a written report.

17. [141]

    Senior counsel for ACPM referred to that portion of the cross-examination of Mr Hsueh to which I have referred at [139] above. He submitted that Mr Hsueh did not accept he failed to report in 2017. He accepted, however, that Mr Hsueh did not report the fault formally, but reiterated that cl 1(f) did not require formal reporting. He accepted that in an email of 23 June 2017 Mr Hsueh informed the Strata Committee of matters that needed to be rectified as a result of the fire safety inspection and that the email contained no reference to the EWIS.

18. [142]

    The OC submitted that if Mr Hsueh had given an oral report to the Strata Committee in 2017, “one would expect to see some documents referring to it”. Its submissions referred in that context to the email of 23 June 2017 relating to the fire safety inspection which made no mention of the problem with the EWIS. The submission also referred to the absence of any reference to an oral report in the minutes of the Strata Committee.

19. [143]

    The OC in its written submissions also referred to the finding of the primary judge that Mr Tsiprin-Reznik told the Strata Committee that the EWIS had “started to play up” after the July 2018 testing (PJ [212]) which it submitted made it unlikely that the Strata Committee had been informed the previous year.

20. [144]

    The OC submitted that the conclusion of the primary judge was consistent with his finding that Mr Hsueh was relying on Mr Papadimitriou. It submitted that, in any event, a formal report was required.

21. [145]

    At the hearing, senior counsel for the OC submitted that the first written notification to the Strata Committee was Mr Tsiprin-Reznik’s email of 8 November 2018, which stated, “our fire control panel is starting to play up and [two] contractors have said it will need to be replaced”. He emphasised that none of the earlier caretaker management reports over the period referred to the failure. He referred in particular to the report for June and July 2017 which dealt specifically with the fire safety inspection and contained no reference to the failure of the EWIS.

22. [146]

    So far as the verbal report was concerned, senior counsel for the OC referred to the complete absence of any reference to such a report in the minutes of the Strata Committee and the fact that Mr Hsueh did not give any evidence of what was said in that report. Further, he submitted there was no reference to the verbal report in Mr Hsueh’s affidavit. He also submitted the lack of response to the verbal report showed that it was ineffective.

23. [147]

    The next issue was whether the conduct which occurred constituted gross misconduct or gross negligence. ACPM submitted that even if the failure to report constituted a breach of cl 1(f) of Sch 2, it did not fall within cl 9.3(iv) of the Caretaker Agreement as being gross misconduct or gross negligence.

24. [148]

    ACPM referred to the apparent acceptance by the primary judge of the evidence of Mr Hsueh that he did not have enough knowledge about what had happened during the testing of the EWIS and that he was reliant on the direction of IFS (PJ [205]).

25. [149]

    In that context, ACPM referred to the evidence of Mr Hsueh to the effect that he was relying on the fire safety contractor’s direction as to what should be done, and that if the contractor had deemed it was urgent he (Mr Hsueh) would have treated it as urgent.

26. [150]

    ACPM also referred to the fact that by the time the Agreement was terminated in August 2019 there was a contract to replace the EWIS in place.

27. [151]

    It was submitted in that context that a failure to report the Caretaker’s suspicions could not be characterised as gross negligence. It was submitted that gross negligence referred to “serious and flagrant improper conduct or negligence which a reasonable person would regard as justifying the OC no longer being bound to continue with the long-term Agreement”.

28. [152]

    At the hearing, senior counsel for ACPM emphasised that by the time there was an exercise of the right of termination the conduct had been rectified and that there was only a limited failure (if any) to report the matter.

29. [153]

    The OC noted that gross negligence has been described as “negligence to an extreme degree”, and gross misconduct in an employment context as “conduct that is so seriously in breach of the contract that by standards of fairness and justice the employer should not be bound to continue the employment”.

30. [154]

    The OC submitted that the evidence of Mr Hsueh was clear that he had perceived serious problems with the EWIS, and that Mr Tsiprin-Reznik had also concluded the system was not reliable, something which was deeply concerning.

31. [155]

    The OC submitted that if Mr Hsueh and Mr Tsiprin-Reznik did not understand what was going on, they should not have been involved in fire safety issues at all. It submitted that the fact that IFS was prepared to sign the fire safety certificates whilst maintaining there was a problem exacerbated the position. It submitted that the OC had not waived the breach.

32. [156]

    Senior counsel for the OC submitted that the seriousness of the breach “speaks for itself”. He submitted that Mr Hsueh and Mr Tsiprin-Reznik understood “that for a long period of time the residents were living in a building where you could not count on the emergency system to operate reliably”.

Consideration

1. [157]

   I agree with the submissions of the OC that it is not correct to say that the obligation in cl 1(f) is only enlivened when, as a matter of objective fact, the issue in respect of which reporting is required is in fact a hazard or a danger. One of the reasons for the obligation to report is to enable matters perceived by the Caretaker to be a hazard or a danger to be investigated and ameliorated to the extent necessary.

2. [158]

   Further, irrespective of the conclusion reached by the incoming Strata Committee not to replace the system, the fact remains that for a period in excess of a year the EWIS was operating in a manner which could fairly be described as unsatisfactory. The remarks of Mr Papadimitriou to which I have referred at [129] above are telling on this issue. A fire warning system which for two years had been “temperamental and inoperable at times” does present a hazard or a danger.

3. [159]

   Whether or not a report is required to be in writing in order to comply with cl 1(f), it must in my view be sufficient to alert the OC to the particular hazard or danger. Irrespective of the time Mr Hsueh raised the issue with the Strata Committee, in the absence of any evidence of the content of the report and the vagueness of its timing it was not a report which could be said to meet the requirements of cl 1(f). It is not necessary in reaching that conclusion to decide whether the report was made in 2017 or 2018.

4. [160]

   Nor is it relevant in considering whether there was a breach that a new fire safety consultant engaged by the OC apparently determined that the EWIS worked satisfactorily and that ultimately it was not replaced. As I indicated, the need for such a warning was to ensure that such an investigation took place and any failures identified be rectified.

5. [161]

   It follows that the failure to warn the OC until November 2018, when Mr Tsiprin-Reznik informed the Strata Committee by email of 8 November that the fire control panel was playing up and needed to be replaced, constituted a breach of cl 1(f) of the Caretaker Agreement.

6. [162]

   The question remains whether it was gross misconduct or gross negligence. In dealing with the electricity issues I have set out the approach of the courts in employment cases to circumstances where misconduct is of sufficient seriousness to justify summary dismissal. For conduct to constitute gross negligence in the context of the termination provisions, it seems to me that it would have to amount to an act or omission which was inimical to the contractual relationship as demonstrating an inability to exercise the judgment necessary to carry out important functions conferred on the employee or, as in this case, the Caretaker: see Gooley v Westpac Banking Corporation (1995) 129 ALR 628 at 636-637, 645. Generally speaking, it would amount to more than ill-advised conduct or an omission to act as a result of an error of judgment: see Rankin v Marine Power International Pty Ltd [2001] VSC 150; 107 IR 117 at [264].

7. [163]

   Although, as the primary judge stated, the matter is finely balanced, I do not think the failure to give a proper warning of potential faults in the EWIS constituted gross misconduct or gross negligence within the meaning of cl 9.3(iv) of the Caretaker Agreement. It is true as the OC pointed out that the failure of the EWIS could have catastrophic consequences and was a matter which required urgent reporting. If ACPM simply had ignored the problem, it would in my opinion constitute gross misconduct or gross negligence. However, it did not. The judge accepted that at least after July 2018 an oral report was made to the Strata Committee. It is evident from the email sent by Mr Tsiprin-Reznik on 8 November 2018 that two contractors had examined the system and found it needed replacement. The evidence of Mr Tsiprin-Reznik showed that he followed up on that report at the April 2019 Strata Committee meeting.

8. [164]

   Further, the evidence of Mr Hsueh showed that throughout the period from July 2017 to at least July 2018 representatives of IFS stated they were unable to detect a fault and would need to continue to monitor the system. The fact that IFS was unable to detect a fault was apparently consistent with the conclusion reached by the contractor on whom the OC relied in deciding not to replace the system. The primary judge found that Mr Hsueh relied on Mr Papadimitriou of IFS. Although it was an error of judgment in doing so, in my opinion it did not amount to gross misconduct or gross negligence.

9. [165]

   In these circumstances, unlike the electricity issue, the fire safety issue did not give rise to a right of termination under cl 9.3(iv).

The cl 18.2 issue

1. [166]

   This matter was the subject of Issues 11 to 14. The issues are as follows:

2. [167]

   As with the issues with which I have already dealt, I will deal with the question of repudiation (Issue 12) separately.

The primary judgment

1. [168]

   The primary judge stated there was no doubt that ACPM had breached cl 18.2. He identified that the difference between the parties as to the extent of the breaches related to the meaning of “office bearer” in cl 18.2. He noted the OC submitted that the expression referred to persons who offered themselves for election to the Strata Committee, whilst ACPM submitted it referred only to persons who offered themselves as chairperson, treasurer or secretary of that Committee.

2. [169]

   The primary judge concluded that viewed in its contractual and statutory context, reasonable businesspersons in the position of the parties would understand the words to mean a member of the Strata Committee rather than only a chairperson, secretary or treasurer. He stated that whilst it was natural to think of those persons as office bearers, they are not in fact elected to those positions. He stated it was also natural to think of members of the Strata Committee as office holders or office bearers. He stated that this was supported by cl 1(al) of Sch 2, which required the Caretaker to be available to attend and report to the Strata Committee meetings. He stated that the evident purpose of cl 18.2 was to restrict the involvement of the Caretaker on the Strata Committee.

3. [170]

   In these circumstances, the primary judge concluded that the conduct of Mr Wang in offering himself for election to the Strata Committee every year from 2005 to 2018 and the conduct of Mr Tsiprin-Reznik in offering himself for election in 2017 and 2018 contravened cl 18.2.

4. [171]

   The primary judge, however, rejected the proposition that what occurred amounted to gross misconduct. He reached the following conclusion:

5. [172]

   The primary judge also rejected the proposition that the 2015 Deed was entered into as a result of the contravention of cl 18.2. He stated that the precise role of the Strata Committee in bringing forward the proposal to enter into the 2015 Deed did not emerge on the evidence, save that it was clear that the Strata Committee noted that the Caretaker would be submitting a variation to the Agreement at the Annual General Meeting to be held on 29 April 2015. The primary judge stated that in those circumstances, he could not be satisfied that entry into the 2015 Deed was relevantly caused by any breach of cl 18.2 of the Caretaker Agreement.

The submissions

1. [173]

   Issue 11 was whether the trial judge was wrong to find that ACPM's breaches of cl 18.2 of the Caretaker Agreement did not constitute gross misconduct and/or gross negligence for the purposes of cl 9.3(iv) of the Caretaker Agreement.

2. [174]

   The OC submitted that the commercial rationale and importance of cl 18.2 includes the fact that the Strata Committee, representing the OC, oversees the work of the Caretaker. It pointed out that ACPM regularly sought authorisation from the Strata Committee for further payments to be made to it including for building management and security services. The OC submitted that the capacity of the Strata Committee to oversee the activities of ACPM “is significantly impaired, if not rendered impossible, where individuals who have an interest in ACPM or are acting otherwise on its behalf, form part of the [Strata] Committee”.

3. [175]

   The OC submitted that the matters referred to in [128] of the primary judgment, particularly the statement that the OC had “tolerated” the breaches, did not lead to the conclusion that the breaches did not constitute gross misconduct.

4. [176]

   The OC pointed to the following circumstances in support of this contention:

   1. (1)

      ACPM had no case at trial that the OC had waived the breaches;

   2. (2)

      There was no evidence from anyone at trial on behalf of the OC that they “tolerated” any breach, or that they knowingly consented to it;

   3. (3)

      The very fact of the breach of cl 18.2 meant that ACPM had undermined the ability of the Strata Committee to act in the best interests of the OC. It submitted it could be inferred that this was part of the reason for a lack of complaints about the breach. In particular, the OC submitted that the appointments to the Strata Committee of Mr Wang, Mr Di Bitetto and Ms Liu impeded the Committee from objectively assessing the legitimacy of ACPM’s conduct. Mr Di Bitetto and Ms Liu were employees of ACPM. However, the primary judge’s finding that their election to the Strata Committee was not in breach of cl 18.2 has not been challenged on the appeal.

5. [177]

   The OC also submitted that “a repudiatory breach of contract, or gross negligence and/or gross misconduct, does not lack character as such because it is not the subject of contemporaneous complaint”. That is correct, but in considering whether the conduct was repudiatory it is necessary to have regard to the right of termination for breach contained in cll 9.3(i) and 9.3(ii).

6. [178]

   At the hearing, senior counsel for the OC further submitted that the Strata Committee of an Owners Corporation has very powerful responsibilities because of its decision-making authority on behalf of the OC. He stated that, particularly in a domestic context, “having an arrangement where the Caretaker is operating properly, the Owners Corporation is having its interests properly looked after by the [Strata] Committee and the [Strata] Committee is properly supervising the behaviour of the Caretaker, is of critical importance”. He submitted that the Caretaker Agreement pointed to the fact that the parties intended that the OC and Caretaker “are to be quite distinct and independent of one another, and that the relationship is one of reporting and supervision and direction.” He stated that this was “apt to be corrupted if the Caretaker itself sits on the [Strata] Committee which is responsible for doing the supervision”.

7. [179]

   During the course of his submissions, senior counsel for the OC made reference to the minutes of various meetings of the Strata Committee attended by Mr Wang. He pointed out that they disclosed Mr Wang abstaining from voting in respect of matters affecting the interest of ACPM on some occasions but not on others. Senior counsel for the OC accepted that two persons who abstained from a motion proposed by ACPM that serviced apartments be permitted were representatives of ACPM. He noted that in the minutes of a meeting of 8 December 2008 there was no record of Mr Wang abstaining on a motion not to obtain legal advice in relation to a potential conflict of interest by the Caretaker which may occur at an Annual General Meeting.

8. [180]

   It should be noted that on 1 March 2010, Mr Wang tabled a proposal for variation to the Caretaker Agreement to be voted on at the next Annual General Meeting.

9. [181]

   Further, the minutes note that on 15 January 2016 the Strata Committee resolved to engage an independent lawyer to review matters arising out of contracts the OC had with any company, and that in relation to the ACPM contract, Mr Wang agreed to abstain on any vote to review such contracts.

10. [182]

    What is clear is that although Mr Wang may not have abstained on all occasions where matters affecting the Caretaker’s interest came before the Committee, it cannot be said that the other members of the Strata Committee would not have been aware that Mr Wang was involved with ACPM. It would be surprising if the members of the Strata Committee or at least the Strata Manager had not familiarised themselves with the requirements of the Caretaker Agreement and particularly cl 18.2. The OC did not lead any evidence to the contrary. It is in that sense the primary judge suggested the position was “tolerated”. Whilst there is no suggestion of waiver, it is relevant in determining whether the conduct was gross misconduct or repudiatory conduct.

11. [183]

    In relation to the primary judge’s finding that the breaches were not sufficiently serious because they were “tolerated”, senior counsel for the OC questioned what was meant by “toleration” since the breaches were not affirmed. He stated that the OC could not “tolerate” a breach of cl 18.2 in circumstances where the members of the OC who participated in the elections did not know that Mr Wang was a director of ACPM. There is nothing to suggest that they did not know. He submitted that a breach could only be tolerated with knowledge of the contractual prohibition. As I pointed out above it is difficult to conclude that none of the members of the Strata Committee or the Strata Manager were aware of the provisions of cl 18.2.

12. [184]

    Senior counsel for the OC submitted that cl 18.2 was a “clear prohibition”, and that the onus on ACPM to comply with the clause was “not a difficult one”. He posited that, even if (contrary to his submissions) the breach was tolerated, it would be “quite artificial” for the OC to be taken to know as an entity that Mr Wang was a director because he signed a particular deed in his capacity as a director, and for the members of the OC to then be taken to have tolerated a breach of cl 18.2. He pointed to the fact that there were hundreds of members of the OC.

13. [185]

    Lastly on the issue of toleration, senior counsel for the OC submitted that “policing” these issues was an important responsibility of the Strata Committee, and that in circumstances where the Strata Committee itself had been “corrupted” because of breach of cl 18.2, “its ability to bring these things to the attention of members to perhaps ask them whether they want to knowingly tolerate is itself impaired”. Again, it must be noted there is no evidence of this occurring.

14. [186]

    ACPM submitted that the OC must be taken to have known that Mr Wang and Mr Tsiprin-Reznik had offered themselves for election to the Strata Committee (and knowing from at least March 2010 when the Deeds of Variation were executed that Mr Wang was a director of ACPM), and that the OC tolerated Mr Wang’s continual involvement as a member of the Committee and did not take any action in response.

15. [187]

    In oral submissions, senior counsel for ACPM stated that there was no challenge to the primary judge’s factual findings at PJ [128] (see [171] above) in the cross-appeal and notice of contention.

16. [188]

    Senior counsel for ACPM stated that the legal significance of toleration concerned the characterisation of the breaches as gross misconduct. He submitted that there was “ample evidence for a finding that the Owners Corporation knew that Mr Wang was a director”, and that his offering himself for election was not done in any secretive way.

17. [189]

    Senior counsel for ACPM argued that the OC as an entity must be taken to be aware of the content of Caretaker Agreement which it executed and to which it was a party, regardless of whether membership of the Strata Committee changed from time to time. He stated that further, there “can be no doubt” that the OC must have known when the Deeds of Variation were executed that Mr Wang was a director of ACPM (as these deeds were all executed by Mr Wang as director of ACPM, and by the OC).

18. [190]

    Senior counsel for ACPM pointed to the evidence of Mr Wang in his affidavit that at each Annual General Meeting of the OC between 2005 and 2018 he presented himself to the owners and Strata Committee members as a valuable Strata Committee member as both a lot owner and a representative of ACPM.

19. [191]

    Senior counsel for ACPM submitted that the legal significance of Mr Wang nominating himself for election, having disclosed that he was a representative of ACPM, was that “any breach of cl 18.2 cannot be regarded as so repugnant to the relationship as to justify termination of the contract, because the owners at these meetings, with knowledge that he was a representative of ACPM nominating himself for election, nonetheless didn’t object to it and moreover, voted for him”. He submitted that such knowledge did not require particular knowledge of cl 18.2, nor some sort of legal explanation. He stated that the nomination was not regarded by the members as conduct serious enough to complain about, and that they were content to appoint Mr Wang as a member of the Strata Committee.

20. [192]

    Senior counsel for ACPM pointed to evidence that the Strata Committee must have known that Mr Wang was the managing director of ACPM but nonetheless did not take any action. He stated that it would have been “a simple matter” for the Strata Committee to have notified ACPM that it regarded the nominations as a breach or take other action, but that the Committee instead tolerated Mr Wang nominating himself for election over many years. He submitted that this was a proper basis for concluding that Mr Wang’s conduct was not gross misconduct or gross negligence.

21. [193]

    Senior counsel for ACPM also submitted that the fact that the 17 August 2019 Notice of Termination did not mention a breach of cl 18.2 was evidence that that breach was not regarded as a matter of substantial concern.

22. [194]

    In relation to disclosures by Mr Wang at the Annual General Meetings that he was a representative of ACPM, senior counsel for the OC stated that this did not disclose that Mr Wang was a director of ACPM. He submitted that, more fundamentally, if the members of the general meeting did not know about cl 18.2, their natural assumption in these circumstances would be that there was nothing wrong with Mr Wang standing for election to the Strata Committee.

23. [195]

    In response to ACPM’s argument in relation to attribution of knowledge of certain persons to the OC as a corporate entity, senior counsel for the OC stated that it was necessary to consider the context, which here was “a question of breach about who may stand for election at general meetings”, and that it was “the knowledge of the general meeting… that is relevant”. He stated that it was a “self-serving suggestion” to say that the Strata Committee representatives were happy for ACPM to continue breaching the Agreement, as Mr Wang and other ACPM employees were on the Strata Committee.

24. [196]

    It was contended by ACPM that any breaches of cl 18.2 of the Caretaker Agreement were inconsequential or immaterial because nominating for election to the Strata Committee did not cause Mr Wang or Mr Tsiprin-Reznik to be elected.

25. [197]

    In written submissions (on the cross-appeal), ACPM submitted that “the mere offering oneself for election to the [Strata] Committee does not result in a person being elected”, and that voting by the lot owners at the Annual General Meetings was the “common sense cause” of Mr Wang’s and Mr Tsiprin-Reznik’s election. It submitted that therefore, “the breaches of clause 18.2 were not the effective cause of anything and can properly be characterised as breaches of the Caretaker Agreement with little consequence.” It submitted that the relevant event “was the decision of the general meeting to elect Mr Wang and Mr Tsiprin-Reznik”, and that this was an act of the OC itself or at least of the general meeting of the OC, not an act of ACPM.

26. [198]

    In written submissions in reply, the OC submitted that this argument was “flawed” for the following reasons:

    1. (1)

       The breach of cl 18.2 (offering ACPM’s directors for election) was a necessary cause of them being elected to the Strata Committee. It is not necessary to show that nomination alone was the sole or dominant cause of the loss; it is enough that its default was a cause of the loss;

    2. (2)

       The breaches of cl 18.2 were not of “little consequence” as without the nominations, election to the Strata Committee would have been impossible; and

    3. (3)

       ACPM’s argument would render the contractual prohibition pointless and uncommercial. The very purpose of cl 18.2 was to ensure that ACPM’s shareholders and directors were precluded from sitting on the Committee, particularly in circumstances where members of the OC were unaware of the fact that such nomination was prohibited. This issue would be compounded if representatives of ACPM were already members of the Committee, as this would impair the ability of the Committee to provide objective advice to the general meeting of the OC on this question.

27. [199]

    Senior counsel for the OC stated that ACPM’s submission on this point was “a somewhat perverse causation argument”, and that “[p]utting yourself up for election is obviously a cause of you becoming a member but, in any event, becoming a member isn’t the breach. The breach is putting yourself up for election”.

28. [200]

    This issue concerned whether the primary judge was wrong to find that entry into the April 2015 Deed of Variation, which provided a sixth option extending the term of the Caretaker Agreement (if exercised) between 2036 and 2041 was not caused by ACPM's breach of cl 18.2 of the Caretaker Agreement.

29. [201]

    The OC contended that the 2015 Deed was only entered into as a result of a breach by ACPM of cl 18.2, as a result of which Mr Wang was a member of the Strata Committee. It submitted that if the OC had any liability to ACPM arising from the 2015 Deed, that liability would be offset by a claim by the OC for like amount for ACPM’s breach of cl 18.2.

30. [202]

    The OC submitted that the primary judge’s finding (that the evidence did not establish the Strata Committee’s precise role in putting forward the 2015 Deed for approval at the OC general meeting) overlooked ACPM’s admission that the motion to approve that Deed was put forward by the Strata Committee.

31. [203]

    The OC further submitted that the primary judge should have found that the Strata Committee would not have proposed the motion if Mr Wang was not a member. It stated that the request for the extension came from ACPM, and that the 2015 Deed only benefitted ACPM.

32. [204]

    In oral submissions, senior counsel for the OC stated that at the time the resolution was proposed, Mr Wang and Mr Di Bitetto were members of the Strata Committee. He pointed to ACPM’s admission that the Strata Committee put forward the resolution. He submitted that the variation made in the 2015 Deed was entirely in ACPM’s favour, and that the Court could infer that that was a result of Mr Wang being on the Strata Committee.

33. [205]

    Senior counsel for the OC submitted that if the Court accepted his argument that the entry into the 2015 Deed of Variation was caused by the breach of cl 18.2, the consequence would be that any liability of the OC from the extension would be offset by damages on the cross-claim.

34. [206]

    In written submissions, ACPM argued that the OC’s contention on this point should be rejected. It submitted that ACPM, as a lot owner, was entitled to require inclusion of a motion to vary the Caretaker Agreement in the agenda for the April 2015 Annual General Meeting (pursuant to cl 36 of Sch 2 of the 1996 Act). It submitted that the Strata Committee was therefore required to include the motion on the agenda for the Annual General Meeting because it had been requisitioned to do so by ACPM. As such, it stated that the OC’s contention that the resolution would not have been proposed but for ACPM’s breach of cl 18.2 was not supported by the evidence.

35. [207]

    ACPM also argued that there were “further causation difficulties” with the OC’s contention. It stated that there was no factual foundation for the contention that approval of the 2015 Deed would not have been included on the agenda absent Mr Wang’s presence on the Strata Committee. It also submitted that the “common sense cause” of the 2015 Deed being entered into was the votes at the Annual General Meeting, rather than the inclusion of the approval of the 2015 Deed on the Annual General Meeting agenda.

36. [208]

    Senior counsel for ACPM submitted that the Notice of Business set out in the Notice of Annual General Meeting sent to the lot owners in relation to the April 2015 Annual General Meeting provided evidence that the motion in relation to the 2015 Deed was put on the agenda at the request of ACPM, as was its entitlement as a lot owner. He stated that putting the matter on the agenda had “nothing to do with a decision made by the [Strata] Committee”. He also pointed to the fact that the unchallenged evidence of Mr Wang was that persons associated with ACPM did not vote on the motion.

37. [209]

    The Notice of Annual General Meeting prepared by the Strata Manager, Strata Title Management Pty Ltd, stated that the motion to vary the Caretaker Agreement was proposed by ACPM, ACPM asking for approval “to reward their ongoing sound management of the scheme”. The minutes of the meeting of the Strata Committee which took place a day following the notice of the Annual General Meeting simply noted that ACPM was submitting a variation to the Agreement.

38. [210]

    It should also be noted that the resolution was passed by majority, 2,070 votes in favour compared to 186 against with 142 abstentions.

39. [211]

    Further, senior counsel for ACPM argued that there were other causation issues as Mr Wang was only one of five members on the Committee and “didn’t control the Strata Committee”. He stated that “the mere fact that he [Mr Wang] was on the Committee doesn’t support a conclusion that it was his membership of the Committee that caused this matter to be on the agenda”.

40. [212]

    In written submissions in reply, the OC argued that ACPM’s contention that it was ACPM, and not the Strata Committee, that proposed the approval of the 2015 Deed at the April 2015 Annual General Meeting was “inconsistent with its admission at trial that the motion to execute the 2015 Deed was proposed by the [Strata] Committee”. It stated that the position in the 1996 Act that a lot owner may require the inclusion of a motion at a general meeting is very different from the Strata Committee proposing the resolution. It should be noted that the finding of the primary judge on this issue was that the Strata Committee noted that ACPM would be submitting a variation of the Caretaker Agreement at the Annual General Meeting. That finding is consistent with the documentation to which I have referred.

Consideration

1. [213]

   Issues 11 and 13 are related. On the one hand, the OC contends that the primary judge erred in concluding that ACPM did not engage in gross misconduct in nominating its directors for election to the Strata Committee (Issue 11). On the other hand, ACPM contends that the breach was inconsequential because nomination for election to the Strata Committee did not cause Mr Wang or Mr Tsiprin-Reznik to be elected (Issue 13). It is convenient to deal with both these issues first.

2. [214]

   Clause 18.2 prohibited any shareholder or director of ACPM from offering himself (or herself) for election to the Strata Committee. It is a necessary pre-condition to such election that a person nominate himself or herself for election. If ACPM’s contention was correct it would follow that any breach would be inconsequential.

3. [215]

   Further, the clause must be read in the context of the Caretaker Agreement as a whole, and in particular cl 18.1. It is evident that the purpose of this clause was to ensure that instruction to and supervision of the Caretaker’s activities be conducted by persons independent of ACPM. That purpose is undermined if persons associated with ACPM are able to sit on the Strata Committee.

4. [216]

   In those circumstances I do not think the breach could be described as inconsequential.

5. [217]

   So far as Issue 11 was concerned, although there was no waiver of breaches of cl 18.2 there can be little doubt that both the Strata Committee members and the representative of the Strata Manager who attended Annual General Meetings at which Mr Wang was nominated were aware of his position with ACPM. Although Mr Wang only said at Annual General Meetings that he was a representative of ACPM and did not state he was a director, the fact of such disclosure is relevant to the issue of whether what occurred constituted gross misconduct.

6. [218]

   Further, although it is true Mr Wang did not abstain from voting on some matters affecting the interests of ACPM, the only allegations of misuse of power were the misuse of his position as a member of the Strata Committee in propounding the 2015 Deed and misuse of proxies, each of which were rejected by the primary judge (PJ [129], [135]-[139]). His findings in respect of the misuse of proxies was not challenged and I have concluded that there was no misuse of position in respect of the entry into the 2015 Deed (see [209]-[210] above and [222] below). Thus there was no finding that Mr Wang or Mr Tsiprin-Reznik used their position on the Strata Committee to obtain an improper advantage for themselves or ACPM.

7. [219]

   Ultimately, the fact is that Mr Wang sat on the Strata Committee after publicly announcing that he was a representative of ACPM in circumstances where no objection was taken by any member of the Strata Committee or the Strata Manager. I am not prepared to infer in the absence of evidence that all members of the Strata Committee or the Strata Manager were ignorant of the fact that Mr Wang was a director of ACPM or ignorant of the terms of cl 18.2. It was in these circumstances the primary judge concluded that the presence of Mr Wang and Mr Tsiprin-Reznik on the Strata Committee was tolerated. He was not in error in doing so.

8. [220]

   In these circumstances, the fact that Mr Wang and Mr Tsiprin-Reznik offered themselves for election to the Strata Committee was not in my view gross misconduct entitling the OC to exercise the right of termination contained in cl 9.3(iv) of the Caretaker Agreement.

9. [221]

   There remains the question raised by Issue 14 that the primary judge erred in rejecting the contention that the 2015 Deed was entered into as a result of ACPM’s contravention of cl 18.2. It was contended that the primary judge erred in that he overlooked the fact that a motion to approve the Deed was put forward by the Strata Committee.

10. [222]

    It is true that ACPM admitted in its defence to cross-claim that the motion to execute the 2015 Deed of Variation was proposed by the Strata Committee. It was, to the extent that it was put forward in a Notice of Annual General Meeting. However, the admission seems to me to go no further than admitting that the Strata Committee caused a motion to be brought forward for consideration at the Annual General Meeting. It does not amount to an admission that the Strata Committee resolved to support the resolution. That would be inconsistent with the documentary evidence to which I have referred at [209] above.

11. [223]

    It follows the primary judge did not err in reaching his conclusion on this issue.

Repudiation, ratification and the consequences of termination

1. [224]

   These matters concern Issues 5, 10 and 12 which I have set out respectively at [42], [109] and [166] above. The additional issues are Issues 15 to 18 and 20 which are in the following terms:

The grounds of appeal

1. [225]

   Although the issues provide a useful mechanism to consider the matters raised, to understand the full extent of those issues it is necessary to have regard to the relevant grounds of appeal, notice of contention and grounds of cross-appeal.

2. [226]

   Grounds of appeal 3, 4 and 5 are relevant to this issue. They are in the following terms:

3. [227]

   Ground 4 of the Notice of Contention is also relevant. It is in the following terms:

4. [228]

   Grounds 2, 3 and 4 of the grounds of cross-appeal are also relevant. They are in the following terms:

The primary judgment

1. [229]

   The primary judge, having concluded that the conduct of ACPM in respect to the electricity issue and the fire safety issue constituted gross negligence or gross misconduct, found it unnecessary to determine whether the conduct also amounted to a repudiation of the Agreement (PJ [172], [217]).

2. [230]

   In dealing with the validity of the purported termination by the OC, the primary judge pointed to the fact that the letter of 17 August 2019 purporting to terminate the Agreement was served the day after the Strata Committee resolved to terminate the Agreement. He stated that the Agreement was a “building manager agreement” for the purposes of the 2015 Act (see the relevant provisions of the Act and the transitional provisions at [40]-[41] above), and referred to s 68(3) of the 2015 Act which provided that “[t]he appointment of a building manager may be terminated in accordance with the building manager agreement, if authorised by a general meeting of the owners corporation”. As will be seen, I have concluded that the Caretaker Agreement was not a building manager agreement within the meaning of that expression in the 2015 Act.

3. [231]

   The primary judge stated that it followed that the Agreement could only be terminated if authorised by a resolution of a general meeting of the OC. He noted that such resolution was not passed until 31 January 2020.

4. [232]

   The primary judge noted the OC’s submission that it could ratify the termination by a resolution at a general meeting and thereby satisfy the requirements of s 68(3) of the 2015 Act. He noted that whilst ACPM accepted that there could be ratification, it submitted that prior to the purported ratification it (ACPM) had terminated the Agreement on the ground of the OC’s repudiation and had thus acquired a vested right to loss of bargain damages.

5. [233]

   The primary judge rejected this argument by ACPM. He concluded that to have that right, the Caretaker would need to have validly terminated the Agreement as the innocent party for breach or repudiation by the OC. He stated that the OC had the right to terminate on 17 August and purported to exercise that right.

6. [234]

   The primary judge also referred to the conduct of the OC associated with the purported termination, including demanding and taking possession of Lot 179, nominating itself as the purchaser of Lots 179 and 162 pursuant to cl 10.2 of the Caretaker Agreement and appointing an interim Caretaker. He stated that the conduct must be considered in light of cl 10. He stated that cl 10 presupposes that termination has occurred, yet provides that in the 90 day period thereafter the parties must continue to perform their obligations.

7. [235]

   The primary judge described cl 10 as “providing for an orderly cessation … of the relationship between the parties that had been established by the Agreement”.

8. [236]

   In that context, the primary judge concluded that the retaking of possession of Lot 179 by the OC did not amount to a repudiation. He agreed that the OC did not have the right to take possession of Lot 179 and that its action in doing so constituted a breach of cl 10. However, he stated that the breach was not repudiatory as it was not conduct which would convey to a reasonable person that the OC was renouncing either the Agreement as a whole or a fundamental obligation under it (PJ [236]). He also concluded that the actions of the OC in nominating itself as purchaser and appointing an interim caretaker did not amount to repudiatory conduct. In these circumstances the primary judge concluded that ACPM did not validly terminate the Agreement when it purportedly accepted repudiation by the OC. He concluded that there was no reason not to apply the general rule that the ratification by the general meeting of the OC related back to 17 August 2019.

9. [237]

   He concluded that in those circumstances the termination was valid and the provisions of cl 10 came into operation. He stated that a declaration to that effect should be made.

10. [238]

    In dealing with cl 10, the primary judge concluded that the Caretaker is obliged under that clause to sell the Caretaker Lots, or cause the owners of the lots to sell the lots, to a person nominated by the OC. He stated that the parties are bound to follow the process laid down by cl 10 (PJ [241]-[242]).

11. [239]

    He concluded that even if the Agreement was validly terminated pursuant to cl 9.3, ACPM remained entitled to possession of Lot 179 until completion of the cl 10 process, which he stated did not inevitably conclude with the OC having ownership of the Caretaker Lots. He stated that declarations should be made to that effect and that ACPM should be compensated for loss arising as a result of the OC taking possession.

The submissions

1. [240]

   ACPM in its written submissions in support of ground 3 of the grounds of appeal submitted that even if the cl 9.3 Notice of Termination was justified, the OC nevertheless repudiated the Agreement.

2. [241]

   It submitted that the regime in cl 10 gave the OC the right to nominate a new Caretaker who would have the right to purchase both the Caretaker Lots and ACPM’s interest in the Caretaker Agreement for fair market value, by which mechanism ACPM would be replaced by a new Caretaker who would continue to perform the obligations under the Caretaker Agreement. It noted that in the event that a new Caretaker did not acquire the lots or the interest under the Agreement, ACPM could affirm the Caretaker Agreement and retain the lots or sell its interests to a third party.

3. [242]

   It was submitted in those circumstances that the consequence of the OC exercising its rights under cl 9.3 was not the termination of the Caretaker Agreement in the sense of discharging the parties from future performance, but rather the enlivening of the cl 10 procedure. It submitted that the OC’s taking of possession of Lot 179, nominating itself to purchase the Caretaker Lots, appointing a new Caretaker and circulating a newsletter stating that the Caretaker Agreement had been terminated amounted to a repudiation of the Caretaker Agreement by the OC, which ACPM accepted on 26 August 2019.

4. [243]

   Senior counsel for ACPM submitted that cl 10.3 applied regardless of the seriousness of the breach, even if it showed that the Caretaker was incapable of fulfilling its obligations. He accepted that was an unusual result but pointed out that that was what the clause said.

5. [244]

   He also submitted that the OC could not terminate for wrongful repudiation outside the regime in cll 9 and 10. He submitted that cl 9 of the Agreement exhaustively stated the circumstances in which the OC may terminate. He submitted that if this was incorrect there was no process for the sale of the lot or the management rights. He also submitted that the Notice of Termination sought to invoke the provisions of cl 10.

6. [245]

   ACPM submitted that the primary judge overlooked ACPM’s right to be paid fair market value for its interests under the Caretaker Agreement and that the conduct of the OC was wholly inconsistent with that right. It submitted that the conduct of the OC thus constituted a repudiation of the Caretaker Agreement, having the effect of destroying the entitlement of ACPM to recover fair value for the Caretaker management rights.

7. [246]

   Senior counsel for ACPM submitted that no reliance was placed at the trial on the power to appoint an attorney pursuant to cl 10.5 to justify the actions of the OC in taking possession of Lot 179. He pointed out that the Strata Committee on 16 August 2019 appointed another company interim Caretaker.

8. [247]

   Senior counsel for ACPM submitted that his argument in respect of ground 3 of the grounds of appeal was essentially that cl 10 gave the OC the right to nominate a new Caretaker who would then have the right to purchase both ACPM’s interest in the Caretaker Agreement and the Caretaker Lots for fair market value, with ACPM having the right to affirm the Agreement if the right to purchase was not exercised within 90 days. He submitted that the consequence of exercising the contractual right to terminate was not to discharge the parties from further performance but rather to enliven the cl 10 regime. He submitted that cl 10 was, in effect, a process which enabled the parties to continue to perform the Agreement. He submitted that cl 10 expressly contemplated a scenario under which ACPM would be at liberty to affirm the Caretaker Agreement. He submitted that the conduct of the OC resulted in loss, being the value of the Caretaker management rights under the Agreement.

9. [248]

   In his submissions in reply, senior counsel for ACPM emphasised that the finding of the primary judge to the effect that ACPM was entitled to possession of Lot 179 was unchallenged, and that the Notice of Termination of 17 August, the notice to the lot owners of 22 August and the letter to ACPM of 22 August indicated that the OC had no intention to seek a purchaser of the Caretaker management rights. In relation to the power to appoint an attorney under cl 10.5, he noted that the Notice of Termination of 17 August purported to appoint the OC as attorney for the Caretaker Lots, not for the performance of ACPM’s obligations under the Caretaker Agreement.

10. [249]

    He also pointed to the fact that the notice by the Strata Committee to the lot owners of 22 August 2019 referred to tenders for a replacement Caretaker contract, which indicated that there was no intention to seek a purchaser for the Caretaker management rights. He submitted it was clear that there was no intention to follow the cl 10 process.

11. [250]

    ACPM in its written submissions described ground 4 as an alternative to ground 3. It submitted that it had terminated the Agreement prior to ratification and acquired a vested right to damages, the result being that the ratification was ineffective.

12. [251]

    It was submitted that the primary judge was in error in concluding that the conduct by the OC immediately after termination took place after the cl 10 regime had been enlivened. It was submitted that no subsequent ratification of the termination could retrospectively deprive ACPM of its accrued right to damages. It relied in that context on the decision of this Court in NM Superannuation Pty Ltd v Hughes (1992) 27 NSWLR 26.

13. [252]

    Senior counsel for ACPM submitted that his real argument under ground 4 was that by the time of the purported ratification, ACPM had terminated the Agreement and had vested in it an entitlement to loss of bargain damages. He submitted that even if there remained an entitlement to terminate for gross misconduct, it could only be done by the cl 10 process which entitled ACPM to sell the lots and the Caretaker management rights at fair value or continue with the Agreement.

14. [253]

    Senior counsel for ACPM accepted that the argument concerning the Strata Committee’s lack of authority to terminate depended on the Caretaker Agreement being a “building manager agreement” with the meaning of s 66 and cl 15 of the transitional provisions in the 2015 Act. As will be seen when it comes to deal with the issue of damages, in my opinion it was not, but it is convenient to deal with this ground on the contrary assumption.

15. [254]

    No substantive written submissions were made in relation to ground 5, it being submitted that any outstanding issues relating to the process provided for by cl 10 should be remitted to the primary judge.

16. [255]

    In its submissions in reply, ACPM asserted that the matters raised in respect of ground 3 were raised at the hearing, pointing to its closing written submissions.

17. [256]

    In response to the OC’s contention that ACPM’s interpretation was commercially untenable, ACPM pointed out that the OC had acknowledged it was common practice in 2001 for Caretakers to pay significant sums of money to obtain Caretaker rights and that in these circumstances the construction it contended for was not uncommercial. It also pointed to the need for the new Caretaker to have the use of Lot 179 which was provided for by cl 10.2.

18. [257]

    ACPM submitted that the OC’s contention that if the Agreement is terminated under cl 9.3(iv) the Caretaker rights are forfeited is contrary to the clear words of cl 10. It stated that the Caretaker rights retained under cl 10.2 were the same rights the OC suggested were forfeited.

19. [258]

    In relation to ground 4, ACPM submitted that it was incorrect to say that even if the Notice of Termination was ineffective only nominal damages could be recovered because the OC would have validly terminated in any event.

20. [259]

    ACPM submitted that there was insufficient evidence to support this proposition and there was no evidence that at the time of termination any members of the OC had concerns about the matters said to constitute gross misconduct or gross negligence (namely, the electricity breach and the fire safety breach). It submitted that the resolution of 31 January 2020 had to be considered in light of the fact that by that time, ACPM had terminated the Agreement and was suing the OC for damages.

21. [260]

    In relation to ground 3 of the cross-appeal (Issue 20) ACPM submitted that there was not an implied term in the Agreement to the effect that on termination for any reason (including repudiatory conduct) ACPM was obliged to sell Lot 179 on reasonable terms. It submitted that such a term was too uncertain and incomplete to be legally enforceable, nor was it necessary to give business efficacy to the Agreement. It submitted it was not so obvious it goes without saying and was contrary to the express terms of cl 10.

22. [261]

    ACPM pointed out that the Agreement contained express provisions dealing with termination by the Caretaker and termination by the OC. It pointed out that any repudiatory breach by the Caretaker would enliven cl 10 and thus the implied term would not be necessary to give business efficacy to the Agreement.

23. [262]

    Senior counsel for ACPM submitted that whilst there might be sound reasons that the parties would want to enter into a commercial agreement in respect of Lot 179 on termination, the parties had expressly dealt with the matter.

24. [263]

    It was also submitted that there was nothing in the text or context of the Caretaker Agreement which would indicate it would not be possible to provide Caretaker services outside Lot 179.

25. [264]

    Senior counsel for ACPM accepted there were some logistical difficulties that would need to be overcome if Lot 179 was not used for the purpose of the provision of Caretaker services, but he submitted that none were insurmountable. He submitted there was nothing to suggest that the building had not been maintained notwithstanding ACPM’s continued occupancy of Lot 179.

26. [265]

    In its written submissions on these grounds, the OC submitted that the matters raised by ground 3 of the grounds of appeal were not raised at the trial and in any event were commercially untenable.

27. [266]

    It was submitted that the construction contended for was “inherently unlikely” and that it “would be bizarre” if the only options available to the OC were to have the Caretaker continue in its post or to embrace a new Caretaker nominated by the outgoing Caretaker.

28. [267]

    In that context, the OC submitted that the Caretaker management rights constituted the Caretaker’s interest in the Agreement which, after termination for gross misconduct or gross negligence, ceased to exist. It submitted, however, that cl 10.3 may have some work to do if the Agreement was terminated pursuant to cl 9.3(v) for default by the Caretaker under the Deed of Sale of the Caretaker management rights.

29. [268]

    Senior counsel for the OC submitted that there was no allegation at the trial that the OC repudiated the Agreement for the failure to nominate a purchaser of the management rights. He referred in that context first, to the manner that ACPM pleaded its case (see [28] and [29] of the further amended statement of claim), pleading repudiation by virtue of the fact that ACPM had not engaged in gross misconduct or gross negligence and that the termination was without the authority of a resolution of the general meeting. That submission overlooks the fact that the unauthorised occupation of Lot 179, including the installation of a temporary caretaker, was also alleged to amount to repudiatory conduct (Further Amended Statement of Claim [20]-[28]). He also submitted that ACPM in its submissions only relied on its contention that there was no gross misconduct or gross negligence in asserting the termination was repudiatory. He submitted it was not alleged that for there to be a valid invocation of rights to terminate it was necessary to nominate a purchaser of the Caretaker Agreement.

30. [269]

    He also contended that ACPM did not submit in the Court below that “termination” in cl 9.3 did not really mean termination, but that the Agreement should continue for its entire term regardless of the breach.

31. [270]

    In dealing with the substance of the submission, senior counsel for the OC stated it was “nonsensical” in the context of a Caretaker arrangement which involved the OC placing its trust in the skill and integrity of the Caretaker. He also submitted that cl 10 could not operate in the context of termination for winding-up under cl 9.3(iii) or failure to hold a requisite business licence under cl 9.3(vii). He submitted that the only provision in respect of which cl 10 could have sensible operation was termination at the request of the Developer under cl 9.3(v). Senior counsel for the OC submitted that it could not have been intended that the Caretaker would continue to perform its obligations where it was guilty of gross misconduct or gross negligence. He also submitted there was a right to terminate for wrongful repudiation outside the cl 10 regime and that notwithstanding the reference to cl 10 in the Notice of Termination, that was what in fact occurred. He also submitted that after termination of the Caretaker Agreement there were no Caretaker management rights to be sold. He submitted in these circumstances that cl 10 could have no work to do in that particular context. He submitted that the alternative construction would put the OC in an entirely uncommercial position.

32. [271]

    Senior counsel for the OC also submitted that the machinery under cl 10 did not oblige the OC to issue a notice nominating a purchaser of the Caretaker Lots and Caretaker management rights. He submitted that if there was a deficiency with the notice, all that would mean was that ACPM would have a right to affirm the Agreement which it had not done. He submitted that the OC had alternative rights as to the manner in which it could terminate the Agreement and the issue would depend on whether the OC issued a notice to engage the cl 10 procedure.

33. [272]

    He also submitted that cl 10.2 and cl 10.3 needed to be read with cl 10.5, which appointed the OC as the Caretaker’s attorney for the doing of any act or executing any document necessary for or conducive to the discharge of the Caretaker’s responsibilities under cl 10. He submitted that the demand for possession in the Notice of Termination must be read in the context of cl 10.5. He submitted that the OC did not repudiate the Agreement, first, because it was not required to nominate a purchaser of the management rights under the Agreement and second, because it had the right to take possession by virtue of cl 10.3 in conjunction with cl 10.5.

34. [273]

    So far as the efficacy of the ratification of the Strata Committee’s termination of the Agreement was concerned, the OC submitted that ACPM’s argument on this ground proceeded on the premise that the OC had a vested right to terminate for the gross misconduct and/or gross negligence of ACPM. It was submitted that in those circumstances, it followed that even were ACPM to validly terminate for breach by the OC, it would not have any accrued rights to damages, provided it could be shown there was a real and not negligible possibility that the OC would have elected to terminate by lawful means.

35. [274]

    Senior counsel for the OC pointed out that ACPM’s case on this issue depended on accepting contrary to ACPM’s primary submission (see [338]-[339] below) that the Caretaker Agreement was not a building manager agreement within the meaning of the 2015 Act.

36. [275]

    He pointed out that s 68(3) of the 2015 Act did not specify when the authorisation had to occur. He submitted that if prior ratification was necessary the resolution of the Strata Committee would simply be no act at all. He submitted that if ratification was necessary it was effective, and the fact that in the meantime ACPM was contending it had an accrued right to damages did not affect the position. He submitted that NM Superannuation Pty Ltd v Hughes on which ACPM relied was only dealing with a situation where an estate had vested and did not apply when the only matter which had occurred was the accrual of a right to damages of the nature of that alleged by ACPM. In that context he referred to the decision of the English Court of Appeal in Owners of the Ship Borvigilant v Owners of the Ship Romina G [2003] EWCA Civ 935, submitting that ratification will only be ineffective where there is unfair prejudice.

37. [276]

    In relation to ground 5 of the grounds of appeal, the OC agreed that any outstanding issues concerning cl 10 should be dealt with by the primary judge.

38. [277]

    In relation to ground 3 of the cross-appeal, the OC submitted that it was an implied term that if the Caretaker Agreement was terminated for any reason, ACPM would sell Lot 179 to the nominee of the OC on reasonable terms.

39. [278]

    It was submitted that the termination provisions of the Caretaker Agreement do not constitute an exhaustive code. The OC submitted it was common ground that Lot 179 was intended for use by the Caretaker.

40. [279]

    It was also submitted that it would be absurd if Lot 179 was to be transferred if cl 9.3 was engaged, but not if ACPM was otherwise in repudiatory breach of the Agreement.

41. [280]

    In its submissions in reply, the OC clarified its position, stating that the implied term was not to sell on reasonable terms but rather for the agreed valuation process in cl 10.2 to apply. It also submitted that an agreement to sell on reasonable terms was not so vague as to be unenforceable. It submitted that the valuation of Lot 179 was not difficult, pointing out that ACPM’s claim for damages was based on a valuation of that lot. Referring to Hall v Busst (1960) 104 CLR 206; [1960] HCA 84, it submitted that generally a contract for the sale of land at “fair value” would not be uncertain.

42. [281]

    The OC submitted that the implied term was consistent with the express terms, in effect being an additional right. It also submitted that repudiatory conduct did not necessarily involve gross misconduct or gross negligence. It emphasised that it was apparent from the Caretaker Agreement that caretaker services were to be provided from the Caretaker Lot, submitting that it was common ground that Lot 179 was essential for the provision of these services.

43. [282]

    In dealing with the implied term, senior counsel for the OC stated that Lot 179 was always going to be necessary for the operation of the building. He stated that it comprised the reception area and submitted that the structure of the building could not be changed easily. He submitted that it was so obvious it goes without saying that on termination, Lot 179 would pass to the new Caretaker.

44. [283]

    Senior counsel for the OC also pointed out that ACPM in its pleadings had claimed that Lot 179 was essential for the management of the Premises under the Caretaker Agreement.

Did ACPM’s conduct constitute a repudiation of the Agreement?

1. [284]

   Having regard to my conclusion on the electricity issue, the OC was entitled to exercise its power under cl 9 to terminate the Agreement. However, the OC also submitted it was entitled to terminate for ACPM’s wrongful repudiation of the Caretaker Agreement. The primary judge found it unnecessary to decide this issue.

2. [285]

   This issue raises the question of whether the conduct of ACPM in not paying for the electricity it consumed and seeking to conceal that fact from the OC amounted to repudiatory conduct which, irrespective of the specific termination provision, gave the OC the right to terminate at general law.

3. [286]

   A contracting party repudiates (or renunciates) a contract when he or she evinces an intention no longer to be bound by that contract or to fulfil it only in a manner substantially inconsistent with that party’s obligations. The test is whether the conduct of one party is such as to convey to a reasonable person in the position of the other party renunciation either of the contract as a whole or a fundamental obligation under it: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 647; [1989] HCA 23; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [44].

4. [287]

   I have set out the nature of the breach at [105] above in dealing with the question of whether it constituted gross misconduct. It is important to bear in mind the finding of the primary judge that it was almost certain that Mr Wang knew the OC was paying for the electricity and that he did not understand that the Caretaker had an entitlement to that benefit (PJ [162]). The primary judge’s finding that Mr Wang was falsely hiding the position is also of relevance. In these circumstances, the conduct complained of was essentially taking a benefit which was not only unauthorised but known by ACPM to be unauthorised. Where the true position was deliberately concealed from the OC, it seems to me that the conduct amounted to repudiation or renunciation of the contract. The conduct amounted to a persistent refusal to perform a fundamental obligation under the contract, namely, not to take an unauthorised benefit.

The consequences of the wrongful repudiation

1. [288]

   Two matters arise under this heading. First, was the OC entitled to terminate for wrongful repudiation without using the mechanism in cll 9 and 10? Second, if so, was there an implied term to the effect contended for by the OC, namely, that ACPM was required to sell Lot 179 to the OC on terms similar to those in cl 10.3 of the Caretaker Agreement?

2. [289]

   In considering this issue, it is first necessary to note the width of cl 9.3. Clauses 9.3(i) and 9.3(ii) would apply, in my view, to any breach of the Caretaker Agreement, whether it be a breach of an essential term or condition (see Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR 632 at 641-642) or warranties or other non-essential terms. There is no reason to limit cl 9.3(i) to non-essential terms. To adopt what was said by this Court in Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187 at [118], the clause is quite specific. If there is a breach capable of remedy it applies. Further, the clause in my view would apply to any breach capable of remedy in the sense of putting the matter right for the future: see L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; Batson v de Carvalho (1948) 48 SR (NSW) 417 at 427.

3. [290]

   However, cll 9.3(i) and 9.3(ii) do not apply to gross misconduct and gross negligence. In an agreement of the nature of the Caretaker Agreement, it is difficult to see what conduct which would be classified as repudiatory would fall outside the category of gross misconduct. As was pointed out by Gillard J in Rankin v Marine Power International at [250], in a passage cited with approval by Macfarlan JA in Willis Australia Group Services Pty Ltd v Mitchell-Innes (see [99] above), gross misconduct involves repudiation of essential obligations under the contract or conduct which is repugnant to the relationship. Even in the case of anticipatory breach, a refusal to perform the contract or to perform fundamental obligations under it in the future would constitute gross misconduct.

4. [291]

   It follows that cll 9.3(i), 9.3(ii) and 9.3(iv) cover not only all breaches but also repudiatory conduct. What cl 9.3 seeks to do is to provide an orderly mechanism for dealing with the parties’ rights in the event of termination by the OC for breach. It also recognises the fact that the Caretaker Agreement may have some value. Although no evidence was led of the background leading up to the entry into the Caretaker Agreement, that can be seen from the fact that the Caretaker Agreement was assignable (cl 21) and from the fact that cl 4 in conjunction with bylaw 32 gives the Caretaker the exclusive right to carry out real estate agency and rent collection services at the Premises. This is a right which on its face has value.

5. [292]

   The OC described this construction as commercially untenable in the circumstances of a Caretaker Agreement where the OC had placed trust in the skill and integrity of the Caretaker. It is true that when language is open to two constructions, a construction which would avoid consequences which are unreasonable, capricious or unjust would be preferred, but where there is no ambiguity the Court must give effect to the language notwithstanding the consequences: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36. In the present case the language is clear.

6. [293]

   Further, once it is accepted that Lot 179 was integral to the Caretaker’s operations and the right under the Caretaker Agreement to carry out the real estate agency business, it cannot be said that the result is arbitrary or capricious. So far as the commerciality is concerned, it must be remembered that the OC first, had the right to nominate a person to take over the Caretaker Agreement and acquire the Caretaker Lots (cl 10.2), second, was entitled to enter the Caretaker Lots for the purpose of repairs (cl 10.4) and third, most importantly, was entitled to be appointed as attorney to do any act conducive to the discharge of the Caretaker’s responsibilities under cl 10 (cl 10.5).

7. [294]

   The OC also contended that cl 10 would be impossible to operate in the circumstances provided for in cl 9.3(iii) and cl 9.3(vii). I do not agree. So far as cl 9.3(iii) is concerned, a liquidator, scheme administrator or a receiver could carry on the Caretaker operation and, in the event the OC did not nominate a purchaser, sell the lot and assign the management rights as provided by cl 10.2. Similarly, if the Caretaker ceased to hold a licence required to carry on the business as per cl 9.3(vii), it could sell to the OC’s nominee as provided by cl 10.2 or assign the rights under the Agreement if the OC failed to nominate a purchaser. Any difficulties in carrying on the Caretaker business in the interim period could be dealt with by the OC as attorney pursuant to cl 10.5.

8. [295]

   It follows in my view that the Caretaker Agreement does not permit termination by the OC for wrongful repudiation outside the cl 10 regime. A contrary conclusion would lead to the unusual situation of effectively giving the OC the option of using the mechanism in cl 9 and cl 10 and giving the ACPM the opportunity to obtain the value of the Caretaker Agreement, or terminating it outside that regime which, on the OC’s case, would terminate any rights that ACPM had under that Agreement. The difficulty is highlighted by the contention by the OC that upon termination at law (that is, outside the cl 9 regime) ACPM is obliged to sell the Caretaker Lot on the terms of sale contained in cl 10.2. It is not clear whether the proposed implied term is said to impose an obligation on the OC to purchase the Lot 179 or what occurs if it decides not to do so. In the context of the regime in the Caretaker Agreement, such an implied term is not so obvious that it goes without saying, nor is it necessary to give business efficacy to the Agreement. Further, it is by no means clear that effectively giving the OC an option as to the means of termination is just and equitable between the parties. In my view such a term is not to be implied.

9. [296]

   It is unnecessary to consider the position if the Caretaker Agreement is terminated by the Caretaker. Clause 9.2 deals with termination by the Caretaker by notice, whilst cl 9.4 deals with termination by effluxion of time. If termination occurs as a result of the operation of one of those clauses, it would follow that the Caretaker Agreement was at an end and there was nothing left to assign. In the case of termination by the Caretaker for breach or wrongful repudiation by the OC the Agreement would also be at an end, the Caretaker’s rights under it being substituted by a right to damages for loss of bargain: Moschi v Lep Air Services Ltd [1973] AC 331 at 350; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 48; [1985] HCA 14; Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560; [2019] HCA 32 at [12], [83] [197]. In each case there would be no subsisting right under the Caretaker Agreement such as those preserved by cl 10.2.

10. [297]

    The more difficult question is whether on termination by the Caretaker, any term should be implied in respect of the disposal of the Caretaker Lots, in particular Lot 179. Aligned to this is the question of whether cl 5.1 of the Caretaker Agreement prohibiting sale of the Caretaker Lot without the consent of the OC survives termination. No submissions were directed to these issues and it is unnecessary to decide them.

The events following the Notice of Termination

1. [298]

   As I indicated above, following the Notice of Termination of 17 August the OC wrote to ACPM on 22 August 2019 nominating itself as purchaser of the Caretaker Lots, which it said would be made available to the incoming building Caretaker, whilst on 26 August 2019, ACPM sent a notice to the OC purporting to terminate the Caretaker Agreement. That notice was not before the Court.

2. [299]

   By its pleading ACPM contended first, that the OC was not entitled to terminate the Agreement because ACPM had not been guilty of gross misconduct or gross negligence. It contended that the termination was not authorised by a general meeting of the OC. In addition, it pleaded that the appointment of the new Caretaker as an interim Caretaker constituted repudiatory conduct. It also pleaded that the following events which occurred after termination constituted repudiatory conduct:

3. [300]

   Finally, it pleaded that the nomination by the OC of itself as purchaser of the Caretaker Lots constituted repudiatory conduct.

4. [301]

   Senior counsel for the OC contended at the hearing that it was not specifically pleaded by ACPM that a failure to nominate a purchaser for the Caretaker management rights constituted repudiatory conduct, nor was it expressly pleaded that in purporting to exercise the power under cll 9 and 10, the OC repudiated the Agreement by not following the provisions in cl 10.2 which, as I have determined, preserved ACPM’s interest in the Caretaker Agreement.

5. [302]

   In its written submissions at first instance, ACPM contended that the delivery of the Notice of Termination purporting to terminate the Caretaker Agreement with immediate effect and the OC’s conduct consequent upon such termination constituted repudiatory conduct. In these circumstances, ACPM in my opinion was entitled to raise ground 3 of the grounds of appeal.

6. [303]

   Leaving aside the question whether the Strata Committee had the authority to exercise the power under cl 9 to terminate the Caretaker Agreement, it is clear that the precondition for the exercise of that power had been made out. Further, assuming the Strata Committee did not have power to issue the Notice of Termination, ACPM was not entitled to terminate the Caretaker Agreement. This is for two reasons. First, if the Notice was issued without authority it would simply have no effect at law unless ratified by the general meeting. Second, even if the issue of the Notice constituted a repudiation of the Agreement, ACPM, being in breach of a fundamental obligation and being unwilling to perform its obligations in accordance with the terms of the Agreement, was not entitled to exercise any right of termination consequent upon the OC’s breach: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 433; [1978] HCA 12; Foran v Wight (1989) 168 CLR 385 per Mason CJ at 408; Brennan J at 424, 426; Dawson J at 451-452; [1989] HCA 51.

7. [304]

   It was not disputed that to the extent that ratification was required, the resolution of the general meeting was sufficient to ratify the termination by the Strata Committee if it did not interfere with any rights acquired by ACPM consequent upon its purported termination of the Agreement. As in my view ACPM was not entitled to terminate, it did not acquire any such accrued rights.

8. [305]

   There remains what might be described as the narrower point, namely, assuming the validity of the termination, whether the conduct of the OC in entering into possession of Lot 179 and asserting that ACPM had no further rights under the Caretaker Agreement amounted to a repudiation of what remained of its obligations under that Agreement.

9. [306]

   As I indicated at [236] above, the primary judge concluded that the conduct of the OC following termination did not amount to repudiatory conduct. Although his Honour did not deal with the position taken by the OC that the Caretaker had no rights under the Caretaker Agreement contrary to the correct interpretation of cl 10.2, in my view the primary judge was correct in his conclusion.

10. [307]

    As is apparent from both the Notice of Termination and the letter from the OC to ACPM of 22 August 2019, the OC was purporting to exercise its powers under cl 10. Although it proceeded on the mistaken assumption that the Caretaker Agreement was at an end for all purposes, it was not established that the OC would not be willing to comply with the terms of cl 10 once the correct interpretation of that clause was established: see DTR Nominees Pty Ltd v Mona Homes Pty Ltd at 431-432.

11. [308]

    Ultimately, the question whether the OC’s conduct in proceeding on an interpretation of cl 10 which in my opinion was incorrect is not of real significance. As the OC pointed out, cl 10 did not impose on it an obligation to nominate a purchaser of the rights under the Caretaker Agreement. However, its failure to do so meant at the expiration of 90 days the Caretaker had the right to sell the Caretaker Lots and assign the management rights. Whilst it remains able to sell the Caretaker Lots, the conduct of the OC has meant that it has lost the value of the management rights and the opportunity to assign them. ACPM is entitled to damages for this loss.

12. [309]

    It should be noted that the OC did not have the right to take possession of Lot 179 by virtue of the fact it was constituted ACPM’s attorney under cl 10.5. The appointment as attorney was limited to doing acts or executing documents necessary for or conducive to the discharge of the Caretaker’s responsibilities under cl 10. That would not in my view entitle the OC to take possession of the lot to the exclusion of ACPM. The OC’s rights in respect of the Caretaker Lots on termination are contained in cl 10.4, generally speaking being entry onto the lots for the purpose of repairing and restoring the lots.

13. [310]

    It follows from what I have written that the primary judge was correct in his conclusion that ACPM was entitled to possession of Lot 179 and in awarding damages for the time it was out of possession.

14. [311]

    An important element in the calculation of any damages to which ACPM may be entitled for the failure by the OC to comply with the provisions of cl 10 is the term of the Caretaker Agreement, the final issue raised in the appeal.

The Duration of the Agreement

1. [312]

   Although I have concluded that the OC did validly exercise its power under cl 9.3 to terminate the Caretaker Agreement, I have concluded that ACPM is entitled to damages for the failure by the OC to comply with its obligations under cl 10.2. In these circumstances the issues under this head are relevant. They are as follows:

2. [313]

   I have already rejected the contention in par 21(d) of the issues the subject of ground 5(d) of the cross-appeal (see [221]-[223] above). The other issues depend upon the provisions of the 1996 Act as amended by the 2002 Amending Act and the 2015 Act, including in each case the transitional provisions.

3. [314]

   The critical question in the present case is whether the 2010 Deed and the 2015 Deed were “caretaker agreements" which fell within s 40B of the 1996 Act such that the 10 year limitation in s 40B applied, or whether the transitional provisions in cl 12 of Pt 4 of Sch 4 of the 1996 Act operated to extend the 10 year period such that the Deeds could be given their full effect.

4. [315]

   The primary judge held the 2010 Deed was a new agreement such that the 10 year limitation period applied, but that it had ultimately expired on 23 March 2020.

5. [316]

   However, in dealing with the 2015 Deed, the primary judge concluded that its effect was to extend the period in which the Caretaker Agreement operated up to 29 April 2025.

The primary judgment

1. [317]

   In dealing with the 2010 Deed, the primary judge accepted that the parties did not intend to rescind the then existing Caretaker Agreement and replace it with a new one. He stated that the crucial question was whether the Caretaker Agreement as varied was “such an agreement” under cl 12(2)(b) of the transitional provisions (PJ [48]).

2. [318]

   The primary judge stated that for an agreement to fall within cl 12(2)(b) it must be an agreement which fell within cl 12(1), namely, an agreement which was in force immediately before the commencement of the 2002 Amendments. He accepted it might be said that an agreement as varied was in force at that time when the unamended agreement remained in force. He stated, however, that that conclusion depended on the nature and extent of the variations and the relevant statutory provisions (PJ [49]).

3. [319]

   The primary judge stated that the subject matter in s 40B(2) and cl 12(2)(b) was the duration of the caretaker agreement. He stated that viewing the statutory provisions as a whole, it was difficult to discern a legislative intention that when an agreement is varied to increase its duration it should nonetheless be protected from the provisions of s 40B(2). In these circumstances the primary judge reached the following conclusion:

4. [320]

   In dealing with the 2015 Deed, the primary judge noted the submission of the OC that the 2015 Deed was not an instrument that appointed the Caretaker for a period of time but rather purported to give the Caretaker a new right, namely, the extended option period from 2036 to 2041.

5. [321]

   The primary judge accepted that the 2015 Deed was more limited in scope than the 2010 Deed. Nonetheless, he concluded that it was an instrument executed under the authority of a resolution passed at a general meeting, pursuant to which the Caretaker was appointed for a different duration. He stated that in those circumstances, it should be regarded as a caretaker agreement to which s 40B(2) applied, thus extending the term to no later than 29 April 2025 (PJ [57]).

6. [322]

   The primary judge noted that s 40B(2) was repealed on 30 November 2016. He noted the submission by ACPM that cl 15 of the transitional provisions in Sch 3 of the 2015 Act did not apply as ACPM was entitled to exclusive possession of a lot in the Strata Scheme. He accepted the submission that if the 2010 Deed and 2015 Deed were valid they took effect as an instrument of appointment under s 40B(1) of the 1996 Act, and that it followed by virtue of the savings provisions that on the commencement of the 2015 Act, the appointment was taken to have been done by reference to s 67 of the 2015 Act (PJ [66]).

The submissions

1. [323]

   In its written submissions, ACPM contended that the primary judge erred in concluding that the 2010 Deed was a caretaker agreement within the meaning of s 40B of the 1996 Act. It submitted that the 2010 Deed did not vary cl 1 of the Caretaker Agreement by which the Caretaker was stated to be engaged, but only provided for additional options on the same terms and conditions as those contained in the original Agreement. It submitted that the same process of reasoning applied to the 2015 Deed.

2. [324]

   In its submissions in reply, ACPM pointed out that there was no term in the 2010 Deed which could be characterised as effecting an appointment or reappointment of the Caretaker. It contended the OC’s submission that the 2002 Amendment Act effectively gave a Caretaker a choice between relying on accrued rights or seeking to amend or augment those rights was contrary to the clear words of cl 12(2)(b), which provides that s 40B(2) does not apply to such an agreement. It was submitted the Caretaker Agreement never failed to meet the description of an “agreement that was in force immediately before the commencement of Part 4A” of Ch 2 the 1996 Act.

3. [325]

   At the hearing, senior counsel for ACPM submitted that the 2010 Deed did not appoint the Caretaker as it started from the premise that the Caretaker had already been appointed. He pointed to the recital in the 2010 Deed that the Caretaker was the Caretaker “under the Agreement”, which was defined as the Caretaker Agreement.

4. [326]

   The OC submitted that on its proper construction, cl 12(2)(b) of the transitional provisions related to existing agreements as they stood at the time of commencement of the amendments to the legislation. It submitted that the legislature had identified a significant vice in the long-term agreements negotiated between potential caretakers and developers, submitting that a construction that an agreement could stand outside the regime regardless of how it was varied or extended was perverse. It submitted that the construction for which it contended was supported by the provisions of cl 12(2)(c), which provided that an application under s 183A of the 1996 Act could not be made in respect of a pre-existing agreement on the grounds that the period for which it was in force was harsh, oppressive, unconscionable or unreasonable. It pointed to the fact that the provision was expressly directed to the period for which the agreement was already in force.

5. [327]

   The OC pointed to what it described as significant amendments to the Caretaker Agreement contained in the 2010 Deed. First, it submitted that the 2010 Deed significantly increased the remuneration payable and contained a ratchet provision. It also pointed out that it extended the term of the Agreement by 10 years.

6. [328]

   It submitted in those circumstances that the legislature presented the Caretaker with a choice of either accepting rights under the pre-existing Agreement which would remain in force for the entirety of its term, or seeking to augment those rights which would lead to the Agreement being subject to the new regime. It also submitted that by contrast to the 2010 Deed, the 2015 Deed simply purported to add a sixth option. It submitted that was not a fresh appointment nor the appointment of ACPM as Caretaker for the next 10 years. Rather, it purported to give a new right, namely, an option to be caretaker between 2036 and 2041.

7. [329]

   At the hearing, senior counsel for the OC referred to the Second Reading Speech, the relevant portion of which I have set out at [39] above, which he submitted supported the conclusion of the primary judge in respect of the 2010 Deed. He submitted that the 2015 Deed could not be described as a new agreement, as in effect it said, “I am appointing you for the years 2036 to 2041”, something which could not be done under the legislation. In written submissions, the OC contended that the 2015 Deed was unlike the 2010 Deed which it submitted involved “a fundamental change in the relationship”.

Consideration

1. [330]

   The determination of these issues depends on the construction of s 40B(2) of the 1996 Act and cl 12(2) of the transitional provisions. These provisions, like any other statutory provisions, are to be considered having regard to their text, context and purpose and the mischief they are intended to remedy. The principle was stated by the plurality in SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34 at [14] in the following terms:

2. [331]

   In the present case, the object of the provision emerges clearly from the extract of the Second Reading Speech which I have set out at [39] above. It was plainly to limit the extent that lot owners in a strata scheme could be bound by a long-term contract entered into between the developer and Caretaker providing lucrative returns to the Caretaker, the sale of which conferred a significant financial benefit on the developer.

3. [332]

   The purpose of the exception in the transitional provisions was to protect caretakers who had already entered into such agreements, and not retrospectively deprive them of rights which they had acquired sometimes for substantial payment. That is also made clear by the exclusion of such contracts from the provisions of s 183A of the 1996 Act, which conferred on the Tribunal the power to make an order terminating or varying a caretaker agreement on the grounds that its duration was harsh, oppressive, unconscionable or unreasonable.

4. [333]

   It is important to note that the exception only relates to caretaker agreements which were in force at the time the 2002 Amendments commenced operation. The Agreement as varied by the 2010 Deed was not an Agreement in force immediately before the introduction of the 2002 Amendments. The construction contended for by ACPM is not only contrary to the words of the section but also to the purpose of the transitional provision which is to provide a limited exception to legislation designed to prevent the unfortunate consequences of long-term caretaker agreements.

5. [334]

   To the extent that ACPM submitted the 2010 Deed was simply a variation of the contract, that does not mean a new and different contract did not come into existence on the execution of the 2010 Deed. That was explained by the plurality in Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35 at [22]-[24]:

6. [335]

   In the present case, although there was not a discharge of the obligations under the original contract (see Concut Pty Ltd v Worrell [2000] HCA 64; 75 ALJR 312), the Caretaker Agreement after the 2010 Deed was not in the same terms as the contract in force at the time the 2002 Amendments were passed. This was at least because of the ratchet clause and, as the primary judge pointed out, the provision of the additional option terms.

7. [336]

   The OC also submitted that the 2010 Deed increased the fee paid to ACPM. It is not clear that that is correct. The original fee totalled $360,000 (see [19] above). It was subject to annual variations by reference to variations in the Consumer Price Index and a market review in the sixth year. The 2010 Deed simply acknowledged the remuneration payable (see [32] above). It is by no means clear in these circumstances that the Deed provided for an increase in remuneration. Nonetheless, that does not affect my conclusion.

8. [337]

   The 2015 Deed presents a greater difficulty. ACPM’s position on whether it was a building manager agreement was ambivalent. For the purpose of contending that the Strata Committee had no authority to terminate the Caretaker Agreement absent the approval of a general meeting, it contended it was a building manager agreement, whilst for the purpose of determining the effect of the 2015 Deed it asserted it was not.

9. [338]

   In my view, the Caretaker Agreement does not fall within the provisions of cl 15 of the transitional provisions in the 2015 Act, as ACPM was entitled to exclusive possession of the Caretaker Lots. It remains to be considered whether the general savings provision in cl 3 or the provisions of s 30 of the Interpretation Act 1987 (NSW) preserves the rights and obligations of the parties under the 2015 Deed and the effect of s 40B(2) of the 1996 Act on them.

10. [339]

    The primary judge concluded that the general savings provision in cl 3(1) applied such that the appointment of the Caretaker under the Caretaker Agreement was taken to have been done under s 67(2) of the 2015 Act, and the Caretaker Agreement was thus a building manager agreement for the purpose of the 2015 Act.

11. [340]

    I have some difficulty with this approach. The savings provisions in cl 3 do not apply to the extent they are inconsistent with any other provision of the Schedule. Clause 15 deals with agreements entered into before the commencement of the 2015 Act and excludes from circumstances in which such an earlier agreement is taken to be a building manager agreement an agreement that provides the Caretaker is entitled to exclusive possession of a lot. The application of the general savings provision in cl 3 in the manner suggested by the primary judge thus is inconsistent with cl 15.

12. [341]

    However, the savings provision in s 30 of the Interpretation Act provides that the repeal of an Act does not affect the prior operation of the Act or any privilege, right, obligation or liability acquired under it. Thus, to the extent the 1996 Act as amended operated to limit the effect of the 2010 and 2015 Deeds, the limitation remained in force. The operation of the Interpretation Act in that fashion is not in my opinion inconsistent with the savings and transitional provisions in the 2015 Act: see Attorney-General for the State of Queensland v Australian Industrial Relations Commission (2002) 213 CLR 485; [2002] HCA 42 at [6]-[8].

13. [342]

    Thus, the question of the effect of the 2015 Deed is to be determined having regard to the 1996 legislation.

14. [343]

    The 2015 Deed needs to be considered in the context of the 2010 Deed which, as I indicated, had the effect of causing the Caretaker Agreement to expire 10 years from its date, namely 23 March 2020.

15. [344]

    The 2015 Deed contains an agreement to vary the Caretaker Agreement by adding an additional option term. Importantly, the OC warranted that it had in a general meeting, in compliance in all respects with the requirements of the 1996 Act, resolved to vary the Agreement in accordance with the Deed. Further, each of the OC and ACPM ratified and confirmed the conditions of the Caretaker Agreement as varied and agreed to be bound by the terms and conditions as varied (emphasis added).

16. [345]

    The 2015 Deed also contained a severance provision that any part of that Deed adjudged unenforceable should be severed. The effect of the severance clause was that if a part was unenforceable, the remainder would subsist and remain in full force and effect.

17. [346]

    Although as I indicated the 2010 Deed would expire on 23 March 2020, it was evident from the execution of the 2015 Deed that it was the intention of the parties in executing the Deed, and in the case of the OC passing the resolution to execute it, that the parties intended the Caretaker Agreement would extend beyond 23 March 2020, assuming the options contained in the Caretaker Agreement were exercised. Whilst the options to the extent they had the effect of extending the Deed beyond 2025 would be unenforceable, they would be severed from the Agreement.

18. [347]

    The OC sought to contrast the 2015 Deed with the 2010 Deed, suggesting that the 2015 Deed only granted an extension which by virtue of s 40B(2) would be ineffective, in contrast to the 2010 Deed which senior counsel described as making a fundamental change in the relationship. Leaving aside the question of whether a ratchet clause could be described as a fundamental change, it does not seem to me that the question of whether an amended Agreement falls within the definition of a caretaker agreement should depend upon the characterisation of the variation. Rather, the question depends on the intention of the parties objectively determined in entering into the amended Agreement.

19. [348]

    In the present case, the intention of the parties was to confirm the original Agreement and to grant a further option. The 2015 Deed was entered into following a resolution of the general meeting. By confirming the Deed as varied the parties evinced an intention to extend the term of the Agreement if the options were entered into to the extent permitted by the legislation. The 2015 Deed, like the 2010 Deed and the original Caretaker Agreement, was a “caretaker agreement” within the meaning of s 40B of the 1996 Act. The primary judge was correct in concluding that it had the effect, assuming the necessary option was exercised, of extending the term of the Agreement up to 29 April 2025.

20. [349]

    It should finally be noted that this does not conflict with the purpose of the Act to protect Owners Corporations against lengthy caretaker agreements. In the present case the extension was agreed to by the OC in a general meeting. As the Minister said in the Second Reading Speech, if after 10 years the parties wish to extend for a further 10 years they could do so. There is no reason that decision cannot be made before the expiry of the 10 year period.

Damages

1. [350]

   The primary judge concluded that if ACPM was entitled to damages for the loss of the benefit of the Caretaker Agreement up to 29 April 2025, the damages should be assessed in an amount of $975,000 after making a discount of 20 per cent to take into account the possibility of the OC making a successful application under s 72 of the 2015 Act to vary the term of the Agreement, to declare void any of the conditions or to terminate the Agreement. In its cross-appeal the OC did not challenge the method of calculation of damages adopted by the primary judge, but rather challenged the extent of the discount, saying that there was an 80 per cent prospect of the Caretaker Agreement being terminated or alternatively a prospect above 20 per cent.

2. [351]

   In support of this submission, senior counsel for the OC pointed to, first, the cumulative effect of the two breaches found by the primary judge to constitute serious misconduct and the breach of cl 18.2, irrespective of whether that breach was gross misconduct. He also pointed to what he described as the “self-serving” ratchet clause. However, no evidence was adduced to show that clause had in fact operated to the detriment of the OC.

3. [352]

   Senior counsel for the OC also pointed to what was alleged in the Court below to be overcharging, in particular a payment of $593,000 for an Assistant Building Manager, $1.9 million for security services and $210,000 for additional cleaning services. He accepted that the primary judge found that this was not overcharging, but submitted that at the very least it would have been open to the OC to submit to the Tribunal that the OC, as well as paying ACPM handsomely under the Caretaker Agreement, was paying an Assistant Building Manager substantial sums to do things that were already covered by the Agreement. However, that must be considered in the context of his Honour’s findings in relation to that matter to the following effect:

4. [353]

   Further, although the payments made to the Caretaker under the Caretaker Agreement were substantial, there was no evidence led to suggest the payments were exorbitant or out of line with the remuneration commonly paid to Caretakers for services of the nature of those provided under the Caretaker Agreement. In addition, the assessment of damages was calculated on the basis that there would have been no increase in income throughout the period and was arrived at after the application of a discount rate of 17.5 per cent.

5. [354]

   In these circumstances and absent the identification of any specific error by the primary judge, it does not seem to me that the conclusion that only a 20 per cent discount should be applied was erroneous.

6. [355]

   In those circumstances ACPM should be awarded damages in the sum of $975,000.

Summary of conclusions

1. [356]

   It is convenient at this point to summarise the conclusions I have reached on the issues raised in the appeal.

   1. (1)

      The primary judge was correct in concluding that the conduct of ACPM in its unauthorised consumption of electricity at the expense of the OC was gross misconduct.

   2. (2)

      The failure to report to the Strata Committee on the hazard created by the failure in the EWIS system was not gross misconduct or gross negligence.

   3. (3)

      The contravention of cl 18.2 of the Caretaker Agreement was not gross misconduct.

   4. (4)

      The OC was entitled to terminate the Caretaker Agreement under cl 9.3(iv) of that Agreement.

   5. (5)

      Although the conduct of ACPM in respect of the electricity issue amounted to a repudiation of its obligations under the Caretaker Agreement, the OC was not entitled to terminate outside the procedure laid down in cll 9 and 10 of the Caretaker Agreement. Allied to that conclusion, it was not an implied term that if termination by the OC took place outside the machinery provisions in cll 9 and 10 ACPM was obliged sell Lot 179 to the OC.

   6. (6)

      ACPM was not entitled to terminate the Caretaker Agreement for wrongful repudiation by the OC.

   7. (7)

      The OC, by taking steps to deprive ACPM of the residual rights it had in respect of the Caretaker Agreement by virtue of cl 10.2, breached the Agreement and ACPM is entitled to damages in respect of the loss it has sustained as a result.

   8. (8)

      The primary judge was correct in awarding compensation of $24,600 pursuant to the undertaking as to damages as a result of ACPM being restrained from occupying Lot 179.

   9. (9)

      The primary judge was correct in concluding that ACPM was entitled to damages of $7,840 and interest of $456.13 for lost profits between 17 August and 25 August 2019.

   10. (10)

       Having regard to the 2015 Deed of Variation, the effective expiry date of the Caretaker Agreement was 29 April 2025.

   11. (11)

       The primary judge did not err in concluding that if damages were to be awarded to ACPM for loss of its rights under cl 10.2 of the Caretaker Agreement, a discount of 20 per cent should be applied to take account of the possibility that the NSW Civil and Administrative Tribunal might terminate or vary the Agreement pursuant to s 72 of the 2015 Act.

   12. (12)

       ACPM should be awarded damages in the sum of $975,000.

An issue not decided

1. [357]

   There remains a question of whether in the events which have happened, ACPM is required to sell Lot 179 to the OC. That question should be remitted to the primary judge for consideration.

Costs

1. [358]

   As ACPM had significant success in the appeal the OC should be ordered to pay its costs.

Orders

1. [359]

   I would make the following orders:

   1. (1)

      Appeal allowed.

   2. (2)

      Cross-appeal dismissed.

   3. (3)

      Set aside Order (8) of the orders of the primary judge made on 28 October 2020 and lieu thereof make the following order:

   4. (4)

      Remit to the primary judge the question of whether, in the events which have happened, the appellant is required to sell Lot 179 in the strata scheme to the respondent.

   5. (5)

      Order that the respondent pay the appellant’s costs of the appeal and cross-appeal and have a certificate under the Suitors’ Fund Act 1951 (NSW) if eligible.

2. [360]

   PAYNE JA: I agree with Bathurst CJ.

3. [361]

   McCALLUM JA: I have had the benefit of reading the Chief Justice’s judgment in draft. Subject to one matter, which does not affect the outcome of the appeal, I agree with his Honour. The issue on which I have reached a different conclusion is whether the fire safety breach amounted to gross misconduct or gross negligence. As this issue is not dispositive, it is not necessary to say more than that, in my respectful opinion, the primary judge was right to find that the failure to report that the fire control panel was playing up and needed to be replaced amounted to gross misconduct or gross negligence, primarily for the reasons his Honour stated and particularly having regard to the potentially catastrophic consequences of a failure to act on such information.