The Court of Appeal in Body Corporate for Bay Village Community Titles Scheme 33127 v Breeze MR Pty Ltd  QCA 91 has recently considered how section 126 of the Body Corporate and Community Management Act 1997 (“Act”) applies when dealing with management rights disputes, particularly when there is a “financed contract” involved.
- The Body Corporate for Bay Village Community Titles Scheme 33127 (“Body Corporate”) took steps to terminate their management agreement (“Agreement”) with Breeze MR Pty Ltd (“Manager”) by issuing a remedial action notice to the manager for alleged breaches under the Agreement.
- The Agreement was financed by Westpac Banking Corporation (“Westpac”) who appointed a manager and receiver to the Agreement.
- Westpac subsequently settled all debts owed to it by the Manager and ended the appointment of the receiver and manager. As a result of this the Agreement was no longer a “financed contract”.
- The Body Corporate then sought to terminate the Agreement on the basis that the original remedial action notice was not complied with.
- The Manager applied to the Supreme Court for a declaration that the termination was invalid. The Supreme Court found in favour of the Manager, determining that the operation of section 126 of the Act prevented the Body Corporate from terminating the Agreement in reliance of the remedial action notice, as the remedial action notice pertained to actions of the Manager before the Westpac’s appointment of a receiver and manager.
- The Body Corporate appealed the Supreme Court’s decision.
The Court of Appeal allowed the appeal, finding in favour of the Body Corporate. The court held that the section 126 of the Act is in place to protect financers who have a security over the agreements for money lent to the management rights holders, and not the management rights holders themselves. In Particular, Justice Bond and Justice Wilson determined that section 126(b) of the Act is conditioned on a financer having taken a certain act (the appointment of the manager and receiver) and not on a “continuing state of affairs”.
Following this determination, the key take aways for bodies corporate and management rights holders are that:
- The protections contained in section 126 of the Act only apply for such time that there is a “financed contract” in place.
- Once a contract is no longer “financed”, the process outlined in the regulation module for the scheme for the termination of a management rights agreement will apply.
Although dealing with management rights disputes remains a complex issue, the outcome of this case has provided much needed clarity for navigating the termination of management rights when a “financed contract” is involved.