On 23 May 2011 the decision in Emvalle Pty Ltd as Trustee for the Alkaz Discretionary Trust trading as Aqua Vista Apartments v Body Corporate for Aqua Vista Apartments CTS 37051 (OCL096-10) was handed down from QCAT.  The application concerned a remuneration and terms review under Section 130 of the Body Corporate and Community Management Act 1997.

 

Tribunal Member Barlow SC, dismissed the proceedings on the basis that QCAT had no jurisdiction.  He reached this conclusion on the basis that review rights under Section 130 are only available to caretakers who were assigned or granted their Caretaking Engagement during the original owner control period.

 

Background

 

In the case of Aqua Vista the Caretaking Agreement was entered into on 23 July 2007 between the Body Corporate and QLD Rights Operations Pty Ltd.  The Caretaking Agreement was for a term of ten years commencing on 19 July 2007 and ending on 18 July 2017.

 

The original owner control period for the Scheme ended not later than 20 September 2007.  Accordingly the Caretaking Agreement had been granted inside the original owner control period.
 

The original owner control period is the period during which the Body Corporate is constituted solely by the original owner (i.e. the developer), the original owner owns or has an interest in the majority of lots in the Scheme, or the original owner controls the voting of the Body Corporate (for example under Powers of Attorney granted within “off the plan” sales contracts).

 

Assignment of Caretaking Agreement

 

The Caretaking Agreement was assigned on 23 April 2008 from QLD Rights Operations Pty Ltd to Blue Chip Holiday Accommodation Pty Ltd.  On 31 August 2009 Blue Chip Holiday Accommodation Pty Ltd assigned the Management Rights to the Applicant, Emvalle Pty Ltd as trustee.  The assignment to Emvalle took place after the original owner control period.

 

On 19 April 2010 the solicitors for Emvalle wrote to the Body Corporate seeking a review of the terms of the Caretaking Agreement and confirming that Emvalle proposed to appoint an independent person to provide “Review Advice” on both the remuneration and terms of the Caretaking Agreement.

 

On 29 April 2010 the Body Corporate responded asserting that because the original owner control period had ended before the Caretaking Agreement had been assigned to Emvalle, they had no right to a review under Section 130.  The Body Corporate offered to discuss the scope of works under the Caretaking Agreement, but without reference to any remuneration review.

 

Emvalle’s lawyers sent a further letter on 5 May 2010 asserting that Emvalle was entitled to the statutory review, despite the assignments of the management rights which had occurred after the end of the original control period, and reserving Emvalle’s rights to the statutory review. By letter dated 11 May 2010 the Body Corporate again disagreed with that position. Two days later Emvalle’s lawyers confirmed that Emvalle would proceed with the review process.

 

The Review Advice was obtained by Emvalle  and delivered to the Body Corporate on 15 July 2010.  Four days later on 19 July 2010 Emvalle commenced the QCAT proceedings under section 133 of the Act.

 

Issues Raised in Proceeding at QCAT

 

The Body Corporate’s main argument was that despite the Deed of Assignment to Emvalle being phrased as an ‘assignment’ of the rights and obligations under the Caretaking Agreement it was, in effect, a ‘novation’.

 

Novation is a solution to a particular Contract Law problem, being that while a party to a contract (A) can assign to another person (C) the benefit of A’s contract with a third party (B), A cannot assign the burdens of his contract with B, to C.  In the context of a Caretaking Engagement,  A (the Caretaker) can assign the remuneration payable under the Caretaking Agreement to C (the new Caretaker) but A cannot assign the obligation to perform the duties for B (the Body Corporate) to C. 

 

The only way the entirety of A’s interest in the contract (benefits and burdens) can be passed on to C, is where:

 

< A, B and C enter into a contract in which B (the Body Corporate) releases A (the Caretaker) from its obligations; and

< B (Body Corporate) and C (the new Caretaker) agree that C will take over A’s obligations and rights. 

 

At law this process is known as ‘novation’ and the Tribunal found that this is what occurred in the case of Aqua Vista.

 

Basis of Decision

 

This conclusion has some important impacts.  Novation is not the same as assignment.  Novation effectively means that the Caretaking Agreement is entered into anew with, in the case of Aqua Vista, Emvalle. 

 

The first qualifying criteria for a review under Section 130 is that the Body Corporate “enters into a service contract with a person…. within the original owner control period….”.  As the Deed of Assignment had taken effect after the end of the original owner control period the rights under Section 130 could not be enlivened by Emvalle. 

 

This reasoning followed an earlier decision of the CCT being Silva Care Australia Pty Ltd v  Body Corporate for Indigo Blue Beachside Residences [2009] CCT KC003-07.  While an appeal had been lodged in relation to that decision it was ultimately abandoned by the unsuccessful caretaker applicant.  

 

Further issues

 

In Aqua Vista, if the novation problem was not enough, then there was a second problem that Emvalle had to contend with.  Particularly the Review Advice had been obtained and delivered outside the two month timeframe stipulated in section 132 (1) of the Act.

 

Emvalle contended that it had not actually requested the review until its lawyer’s letter of 19 April 2010.  The Body Corporate asserted that the earlier letter of 19 April 2010 had contained the review request.  The Tribunal determined that the earlier letter was the effective one, and the Review Advice was delivered out of time.  As Emvalle had not complied with the mandatory time limit the Tribunal did not have jurisdiction to hear the application.

 

The Body Corporate made a third argument, in the event that the first (novation) and second (later delivery of Review Advice) failed. That argument was that the review process couldn’t be completed within the period required under the Act because the Review Advice had been delivered too late in the Review Period.

 

The Review Period ended, in the case of Aqua Vista, on the date which was three years after the start of the Caretaking Agreement; being 18 July 2010. The Review Advice had been delivered three days before on 15 July 2010 (though the Tribunal construed the end of the review period to be 22 July 2010 based on the date of the Caretaking Agreement as opposed to the date it commenced).

 

Because the Body Corporate had to make a decision at a General Meeting in relation to the Review Advice the Body Corporate argued that insufficient time had been allowed for it to undertake that process, given the date the Review Advice was received.  Because the review process could not be finished within the Review Period, there could be no dispute arising from a ‘review carried out’ under the relevant Division of the Act.   

 

While it was true that the Body Corporate could not finish its part of the review process inside the Review Period, Emvalle could and did. The Tribunal, in effect, decided that where this occurs the Tribunal will still have jurisdiction to hear a dispute about the review process. In short, the delay, whether deliberate or not, of the ‘responding’ party will not deprive QCAT of jurisdiction where the ‘active’ party complies with their obligations.

 

Even though the Applicant won on this point the other two issues (novation and the timing of delivery of the review advice) were fatal to the application.

 

Questions

 

Some interesting questions arise from this decision.  The first is that if novation of a Caretaking Engagement occurs on a transfer of management rights, then wouldn’t the Body Corporate have to go through the same process for a transfer as it would for granting a new Caretaking Engagement?  The Tribunal Member answered this question by pointing to the normal “transfer” provisions which provided statutory authority for the transfer of management rights, without regard to, and presumably irrespective of whether, the transfer was by way of novation or assignment.

 

A second question arises which was not considered by the Tribunal, probably because section 130 only concerns Caretaking Engagements. When management rights are transferred, the Letting Authorisation is usually transferred at the same time as the Caretaking Engagement and usually by the same Deed of Assignment.  On transfer of a Letting Authorization there is (arguably) no burden to pass to the buyer of the management rights. If there is no burden passing, then ‘novation’ is not required; ‘assignment’ (of the benefit of the Letting Authorization and notice of that fact to the Body Corporate) is enough.  

 

If management rights documents are treated differently on a transfer, that is the Caretaking Engagement is novated and the Letting Authorization assigned, will this have implications for the transfer process?

 

Key points

 

There are a few ‘take home’ messages from the Aqua Vista and Indigo Blue decisions.  They are:

 

< In most cases a transfer of management rights and particularly a Caretaking Engagement will be regarded as a novation rather than an assignment.

 

< To access the review rights under section 130 a Caretaker needs to have entered into the Caretaking Engagement within the original owner control period either directly with the Body Corporate or by way of novation under a Deed of Assignment.

 

< If a Caretaker initiates a review then the two month time limit to deliver the Review Advice from the expert must be strictly adhered to.

 

< While it is preferable, and indeed all efforts should be made to ensure that the review process is completed within the Review Period (in most cases three years after the Caretaking Engagement commenced), as long as the Review Advice is delivered in a timely way and before the end of the Review Period the Caretaker will still be able to apply to QCAT if a dispute about the review arises.

 

 

Article by Michael Kleinschmidt - Senior Associate.

 

 

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PLEASE NOTE:  This article is not legal advice and our comments are of a general nature only.  This document is not to be relied on as substitution for proper detailed legal advice. 

 

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