Unreasonable and Unlawful Termination leads to $311,958 in Damages

Unreasonable and Unlawful Termination leads to $311,958 in Damages

An unlawful termination of a Caretaking and Letting Agreement in 2021 has resulted in a Body Corporate being ordered by the Queensland Civil and Administrative Tribunal (QCAT) to pay (at least) $311,958 to their ex-Caretaking Service Contractor.

On Wednesday, 16 October 2024, Member Lumb of the Queensland Civil and Administrative Tribunal found that the Body Corporate for Crown CTS 41282 (Body Corporate) had, in 2021, unlawfully terminated the caretaking and letting agreements between itself and Linali Pty Ltd as Trustee for the Chakra Family Trust (Linali).

Some key points from the decision are:

1. Short Cuts Do Not Work: two things make up this point:
   1. firstly, a remedial action notice must state that the body corporate may have a right to terminate and cannot simply “reserve all rights”; and
   2. secondly, you cannot ‘front load’ a right to terminate at an EGM to avoid the administrative hassle of calling multiple meetings.
2. Objective Reasonableness is Required: The passing of a resolution to terminate is absolutely subject to a requirement of reasonableness.
3. Not all Breaches are the Same: Despite a finding of fact that Linali had in fact failed to remedy three (3) breaches, those failures were insufficient (in the circumstances) to warrant termination.

Explicit Statement

When the Body Corporate gave its first remedial action notice (RAN) to Linali, it stated in that RAN that ‘the Body Corporate reserves its rights in all respects’.[1] Member Lumb held that such a statement was insufficient to comply with section 142 of the Accommodation Module and that the prescriptive requirement of section 142(4)(d) of the Accommodation Module was only capable of satisfaction where the recipient of the RAN (i.e. Linali) is put on express notice that a failure to comply may result in the engagement or authorisation (as the case may be), being terminated or brought to an end.[2]

Between that first RAN, and a second RAN being issued, the Body Corporate held a general meeting to consider a termination motion, acting on the first RAN, and permitting (if required) future termination for failure to comply with future RAN’s.

Member Lumb determined that a termination resolution is not valid where it is passed in the absence of a valid remedial action notice; i.e. as the first RAN was invalid, it could not be relied upon, and the second RAN had not yet been issued, let alone failed to be complied with.

It was held that a Body Corporate may only act reasonably to terminate a relevant engagement or authorisation where the motion authorising such termination is based on existing circumstances then justifying the basis for the termination.

If it wasn’t already, the message here ought to be abundantly clear – shortcuts don’t work. Bodies Corporate must achieve explicit compliance with the requirements of the legislation when giving a RAN.

Objective Reasonableness

In keeping with past decisions, including (particularly) that of District Court Judge, Barlow QC in Sherwood Forest Corporation Pty Ltd v Body Corporate for Centenary Mews [2021] QDC 166, Member Lumb confirmed that the decision of a Body Corporate to terminate, as constituted by the result of the vote on the motion to terminate must be objectively reasonable, taking into account all relevant factors, including any factors which were extant but which the parties may not have identified or appreciated at the time.

Further, Member Lumb considered that this approach was entirely in keeping and supported by, the first of the examples provided for in section 94(2) of the BCCMA; i.e. “passing a motion by resolution at a general meeting or a committee meeting”.

Not all Breaches are the Same

Interestingly, although three of the breaches alleged by the Body Corporate were made out, it was held that the RAN would have been invalidated by the inclusion of approximately 34 other individual alleged breaches (a.k.a. the shotgun approach) and indeed the Member said that “it would not have been objectively reasonable to pass the resolution having regard to the nature of the breaches in the context of terminating a long-term Caretaking Agreement.”

An objective decision is a decision that is not influenced by personal feelings or opinions, and so should be made by having regard only to factual circumstances. For context as to why those breaches were insufficient, it is appropriate to consider each of the breaches that were made out, which were:

• Breach 1 – Failure to aerate the Garden Beds.
• Breach 2 – Not cleaning the fire sprinkler pipework in the car park.
• Breach 3 – Not communicating with the Body Corporate via its nominated representative.

Breach 1 concerned the duty to aerate the garden beds with a garden fork or similar. Given its status as a duty in the agreements, it would likely be argued by many that the breach is sufficient to terminate, as “the Caretaker isn’t doing their job!”. The issue to be addressed, however, is if a job comprises 100 tasks, and the Caretaker has completed 99 of those tasks, is the 1 outstanding task enough to terminate an engagement?

Breach 2 was concerned with cleaning fire sprinkler pipework; the breach went to the appearance and visual aesthetics for owners, occupiers and their guests. But, again, was the problem significant enough to warrant the termination of a (potentially up to) 10 or 25-year contractual agreement?

As for Breach 3, there are countless instances where this sort of breach is reported by a Body Corporate, but it is generally considered to be a ‘minor issue’ (and usually the result of a personality clash between the appointed representative of each the Body Corporate and/or Caretaker).

Conclusion

To summarise:

1. The ‘shotgun approach’ to a RAN doesn’t work – a RAN must be specific, and not a grab bag of gripes and complaints you hope will stick.
2. The seriousness of the breach matters – is there one or more “serious” tasks being missed, or a plethora of “minor tasks” which when combined, are a major or serious issue?
3. Personality clashes will happen – not everyone is going to get along with absolutely everyone, so if a personality clash is present, think about who else might be suitable as a liaison to prevent disharmony.

If you’re looking to make sure that your Caretaker’s performance is up to scratch or you need to temper some of the more extreme Body Corporate expectations of you as a Caretaker, please contact us to discuss the specifics of your situation and how we may be able to help, before it reaches a $311,958 damage bill.
— Michael Young, Senior Associate QLD

[1] Linali Pty Ltd as trustee for the Chakra Family Trust v Body Corporate for Crown CTS 41282 [2024] QCAT 446 at [28]

[2] Linali Pty Ltd as trustee for the Chakra Family Trust v Body Corporate for Crown CTS 41282 [2024] QCAT 446 at [30]

© Bugden Allen Group Legal Pty Ltd. This is general information only and not legal advice. You should not rely on this information without seeking legal advice tailored to your specific circumstances.