Published: 21 August 2009.

Contributed by Frank Higginson of Hynes Lawyers

When it comes to situations of conflict in management rights situations, one of the major causes is the difference of interpretation over the nature of the caretaking duties.

They can arise for any number of reasons. Two of the most common issues are:

• The duties are general in nature – meaning that there may be an obligation to ‘mow the lawns as required.’ If there is no time frame specified for that mowing (e.g. weekly, fortnightly etc), then the body corporate and the resident manager may have different views about what ‘as required’ means.
• After a sale or assignment, one party mistakenly assumes that the obligations under the agreement will be performed to the same standard as previously undertaken. Ultimately, a management rights agreement governs what must be done. The standard to which it is performed is to be determined and does not mean how it was performed in the past must continue.

At the core of each dispute is normally a different set of expectations by each party as to what the agreement requires and a breakdown in communication.

For whatever reason, we are observing escalating levels of frustration from both body corporates and resident managers when it comes to disputes of this nature. Fortunately, there are some things that can be considered before a dispute degenerates into a battle of words, or worse.

To pro-actively manage the resolution of a dispute of this nature we strongly recommend that both parties consider the following:

• step back and look at the matter objectively;
• acknowledge that the agreement may not meet the needs of both parties when it comes to expectations, and agree to negotiate in good faith changes that allow everyone to move forward (which means genuine negotiation – not demands and threats);
• if needs be, engage a third party to completely review and draft detailed duty schedules that set out the caretaking duties – with the consequent change in remuneration that those duties entail (whether up or down): or
• consider inviting a third party experienced in body corporate and management rights to mediate and resolve a course of action that would be acceptable to both parties.

These approaches should ensure a far more productive outcome than litigation. That being said, ultimately, the Commercial and Consumer Tribunal (CCT) has the power to declare what the proper interpretation of an agreement is with respect to duties. The proper interpretation of what an agreement requires is determined by what a reasonable person, with an understanding of its commercial purpose, would understand its terms to require.

Some committees (and their advisers) seem to take the mistaken view that if the performance of a duty is in doubt, issue a breach notice. This is not the correct way to solve problems of this nature. Conduct of this nature will often come back to haunt committees when the validity of the breach notice is ultimately decided by the CCT.

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