A Frustrating Situation or a Frustrated Contract?

A Frustrating Situation or a Frustrated Contract?

 

We live in a world where we enter into contracts on a daily basis – whether we realise it or not. When we do so, there are many contract terms that we take for granted as we assume they are obvious terms that go without saying. For example, when you order a coffee you expect it in a cup; when you buy shoes you expect a left and a right. Sometimes what goes without saying though can be less than obvious.

If you contract with a pool cleaner to clean your pool every month for a year, but you end up emptying your pool for winter, do you pay for those months?

If you lease a shop, but the roof starts leaking, do you keep paying the rent?

If a Body Corporate pays a building manager to maintain its grounds, but the grounds are flooded for a month, does the Body Corporate pay for that month?

Sometimes these questions are clearly addressed at the time the contract is entered into. For example, most commercial leases address what happens when the leased property is no longer useable. The rent abates pro rata depending on the degree of continued usage.

However, what happens when there is no clear answer in the contract?

A contract that can’t be performed due to an intervening event that has substantially affected what was agreed to is referred to as a “frustrated” contract. An intervening event is something beyond your control that interferes with completing the contract – an act of God, for example. However, a Body Corporate emptying its pool for winter is not an act of God and accordingly, there is not discount applied to the Caretaker’s remuneration.

A frustrated contract ends at the point in time that an intervening event occurs that prevents the contract from continuing. Where possible, the Courts will resolve the contract in a just and fair manner – but this can be as simple as letting the chips fall where they lie.

But what about this situation?

You are the resident building manager of a holiday high-rise. Your Body Corporate has resolved to replace all external windows and balcony sliding doors due to corrosion. The Body Corporate also decides to externally paint the building at the same time.

You (and your letting owners) accept that it would be dangerous not to make these renovations. Problem is, the building is going to be covered in scaffolding for 18 months. Units will be incapable of being let for periods of time, owners will be hit with substantially reduced income, cleaning of the common property will increase dramatically because of tradesmen coming and going, your caretaking workload doubles and you estimate that your income from running the onsite letting business will be down $100k-$250k for the 18 months.

This was a real case scenario I have come across on more than one occasion.

Surely you are entitled to compensation for the loss of your letting income? Surely the Body Corporate is going to increase your caretaking fee because of the additional work you have to do?

Simply put, there is no compensation payable for the loss of your letting income unless you can somehow link the loss to negligence on the part of the Body Corporate. The same applies to the unit owners in your letting pool. At best, this will be very difficult to prove and at worse, impossible to prove.

What about your caretaking remuneration? Are you entitled to an increase to cover the additional work? Unfortunately (and unfairly) in many cases, you will not be entitled to further remuneration. It all comes back to the wording in your caretaking agreement. Some agreements contemplate the building manager receiving an additional hourly rate payment for supervising work associated with payments out of the Body Corporate sinking fund. However, many agreements are silent on this point, which means that you may be caught by your general duties under your agreement to clean and maintain and you receive no more than your base remuneration.

Frustrating?

Article Written by Col Myers

 

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

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Tel:          +61 7 5552 6666

Fax:         +61 7 5528 0955

Office:      Level 2, 17 Welch Street, Southport Qld 4215

Postal:      PO Box 1876, Southport QLD 4215

 

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Part 2: Who Pays For The Costs To Defend A Defamation Claim Involving a Committee Member?

PART 2: WHO PAYS FOR THE COSTS TO DEFEND A DEFAMATION CLAIM INVOLVING A COMMITTEE MEMBER?

It makes sense to think that any claim made against you while performing your duties as a committee member should be defended at the cost of the body corporate (or their insurer).

But, think again.

Insurance

The insurance for a community titles scheme will generally contain a policy covering office bearer’s liability. This policy is designed to provide protection to committee members against losses arising from their conduct performed (or not performed, as the case may be) during the course of carrying out their committee duties.

However, this policy will generally contain an exclusion from protection for defamation. This means that if a defamation claim is made against a committee member, the insurer will generally not provide cover for any costs incurred defending that claim.

Body corporate

There are statutory restraints regarding how a body corporate may apply its funds.

The primary functions of a body corporate includes administering the common property, enforcing the community management statement and carrying out other functions as required by the body corporate legislation.

Body corporate funds may only be used to undertake these statutory purposes, and cannot be used for other purposes however worthwhile those other purposes may be.

Paying for costs incurred by a committee member defending (or initiating) a defamation claim are not usually considered costs that fall within the functions of a body corporate as interpreted by adjudicators.

The body corporate’s duty to act reasonably also applies to the way that the body corporate chooses to spend its money and the circumstances where it might be reasonable for a body corporate to pay the legal costs of a committee member arising from a defamation claim are limited.

In the event that a body corporate were to pay the costs of a committee member arising from a defamation claim, it is likely that an adjudicator would order a body corporate to recover those costs, should an adjudication application be made.

What should I do?

Before a body corporate makes any payment for costs incurred by a committee member in a defamation claim, it should obtain legal advice, otherwise the body corporate may be embroiled in a dispute in the Commissioner’s Office, despite any good intentions.

If you are a committee member and are not protected from liability for a defamation claim by the body corporate legislation (see our previous article here), it is unlikely that a body corporate will be allowed to pay for costs incurred by you to defend that claim.

However, if a committee member is required to defend a defamation claim, the circumstances surrounding the claim may make it appropriate for the body corporate to pay for any costs incurred, and legal advice should be obtained about the committee member’s position about the recoverability of costs.

Article Written by Brendan Pitman

 

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

 

Click to Download

GET IN TOUCH

Tel:          +61 7 5552 6666

Fax:         +61 7 5528 0955

Office:      Level 2, 17 Welch Street, Southport Qld 4215

Postal:      PO Box 1876, Southport QLD 4215

 

OFFICE HOURS

Open:        8:30am – 5:00pm Monday to Friday

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Part 1: When Are Committee Members Liable for Defamation Claims?

PART 1: WHEN ARE COMMITTEE MEMBERS LIABLE FOR DEFAMATION CLAIMS?

 

Sections 101A and 111A of the Body Corporate and Community Management Act (Qld) 1997 are the two most important sections about avoiding liability for claims made against committee members in Queensland.

Those sections have the following headings: “Protection of committee members from liability” and “Protection of body corporate and committee from liability for defamation”.

The ‘protection’ from claims given by those sections is however very limited and committee members must tread carefully to avoid exposure to potentially expensive legal action.

General ‘protection’

Section 101A gives committee members general protection from civil liability for claims made. Importantly, this section does not extend to protect a committee member from criminal liability.

If you are a committee member and a claim is made against you, the answers to the following questions determine whether you are protected:

  1. Did you act (or fail to act) in good faith?
  2. Did you act (or fail to act) without negligence?
  3. Were you performing your role as a committee member at the time of the act (or at the time of the failure to act)?

These questions are not simple and require an intimate understanding of the law, but if you answered ‘no’ to any of those questions, you may not be protected from a civil claim.

Even if you answered ‘yes’ to all of those questions, the general protection does not apply to claims regarding the publication of defamatory matter by a committee member.

So, if a claim is made against a committee member about the publication of defamatory matter, section 111A is the only section that may give protection to a committee member from that claim (in addition to any defences the member may have under defamation legislation or the general law, addressed further below).

Specific ‘protection’

Section 111A gives committee members protection from liability for defamation, but only in specific circumstances.

Those circumstances are where the committee publishes required material for a general meeting of the body corporate and that required material contains defamatory matter.

‘Required material’ is defined to include:

  1. a motion (including the substance of a motion) submitted other than by or for the committee for the general meeting;
  2. an explanatory note for such a motion that is prepared by the submitter of that motion.

Some important limitations to the protection that can be observed at this point include:

  1. the protection does not apply to committee meeting material;
  2. the protection does not apply to general meeting motions submitted by the committee;
  3. the protection does not apply to all material that may be published by a committee, such as an explanatory schedule prepared by the committee and published with the general meeting material.

A possible scenario is where a committee member submits a motion for a general meeting in their capacity as lot owner and that motion contains defamatory matter. That person may seek to rely on the protection from a defamation claim they enjoy in their capacity as committee member, however the legislation has closed that loophole by excluding that person from benefitting from the protection ordinarily given by section 111A.

Defamation Act

Section 24 of the Defamation Act provides that a defence under that Act (including under the general law) is additional to any defence or exclusion of liability available to a person under other law.

This means that, if defamatory matter is published outside of the limited protections offered by s111A of the body corporate legislation, the Defamation Act (Qld) 2005 and the general law may provide a committee member with a valid defence to a defamation claim.

What should I do?

There are less protections available to committee members from defamation under the Body Corporate and Community Management Act (Qld) 1997 than may be first thought.

Additionally, many people are surprised to learn how broad the concept of a defamatory statement is, and when a Court will consider material contains defamatory matter. Anything that lowers the standing of a person in the eyes of others, or might cause people to shun or avoid the person, will be considered defamatory. Accordingly, great care must be exercised before publishing material (whether verbal or in writing) which paints somebody in a negative light.

Whether you are a committee member or not, it is important that you seek legal advice before publishing any material that may contain defamatory matter as the risk of doing so may result in you facing a possible expensive defamation claim with limited protections under the legislation to defend the claim.

 

Article Written by Brendan Pitman

 

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

Click to Download

GET IN TOUCH

Tel:          +61 7 5552 6666

Fax:         +61 7 5528 0955

Office:      Level 2, 17 Welch Street, Southport Qld 4215

Postal:      PO Box 1876, Southport QLD 4215

 

OFFICE HOURS

Open:        8:30am – 5:00pm Monday to Friday

contact small myers hughes

Categories

Property Law Post

LAW . BUSINESS . RELATIONSHIPS

Property Law Sample Post

We live in a world where we enter into contracts on a daily basis – whether we realise it or not. When we do so, there are many contract terms that we take for granted as we assume they are obvious terms that go without saying. For example, when you order a coffee you expect it in a cup; when you buy shoes you expect a left and a right. Sometimes what goes without saying though can be less than obvious.

If you contract with a pool cleaner to clean your pool every month for a year, but you end up emptying your pool for winter, do you pay for those months?

If you lease a shop, but the roof starts leaking, do you keep paying the rent?


If a Body Corporate pays a building manager to maintain its grounds, but the grounds are flooded for a month, does the Body Corporate pay for that month?

Sometimes these questions are clearly addressed at the time the contract is entered into. For example, most commercial leases address what happens when the leased property is no longer useable. The rent abates pro rata depending on the degree of continued usage.


However, what happens when there is no clear answer in the contract?

A contract that can’t be performed due to an intervening event that has substantially affected what was agreed to is referred to as a “frustrated” contract. An intervening event is something beyond your control that interferes with completing the contract – an act of God, for example. However, a Body Corporate emptying its pool for winter is not an act of God and accordingly, there is not discount applied to the Caretaker’s remuneration.

A frustrated contract ends at the point in time that an intervening event occurs that prevents the contract from continuing. Where possible, the Courts will resolve the contract in a just and fair manner – but this can be as simple as letting the chips fall where they lie.


But what about this situation?


You are the resident building manager of a holiday high-rise. Your Body Corporate has resolved to replace all external windows and balcony sliding doors due to corrosion. The Body Corporate also decides to externally paint the building at the same time.

You (and your letting owners) accept that it would be dangerous not to make these renovations. Problem is, the building is going to be covered in scaffolding for 18 months. Units will be incapable of being let for periods of time, owners will be hit with substantially reduced income, cleaning of the common property will increase dramatically because of tradesmen coming and going, your caretaking workload doubles and you estimate that your income from running the onsite letting business will be down $100k-$250k for the 18 months. This was a real case scenario I have come across on more than one occasion.

Surely you are entitled to compensation for the loss of your letting income? Surely the Body Corporate is going to increase your caretaking fee because of the additional work you have to do?

Simply put, there is no compensation payable for the loss of your letting income unless you can somehow link the loss to negligence on the part of the Body Corporate. The same applies to the unit owners in your letting pool. At best, this will be very difficult to prove and at worse, impossible to prove.

What about your caretaking remuneration? Are you entitled to an increase to cover the additional work? Unfortunately (and unfairly) in many cases, you will not be entitled to further remuneration. It all comes back to the wording in your caretaking agreement. Some agreements contemplate the building manager receiving an additional hourly rate payment for supervising work associated with payments out of the Body Corporate sinking fund. However, many agreements are silent on this point, which means that you may be caught by your general duties under your agreement to clean and maintain and you receive no more than your base remuneration.


Frustrating?

Article Written by Col Myers of Small Myers Hughes Lawyers

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice. 

Click to Download

GET IN TOUCH

Tel:          +61 7 5552 6666

Fax:         +61 7 5528 0955

Office:      Level 2, 17 Welch Street

                   Southport Qld 4215

Postal:      PO Box 1876, Southport QLD 4215

 

OFFICE HOURS

Open:        8:30am – 5:00pm Monday to Friday

contact small myers hughes

Categories