What Is “Misconduct” Under A Caretaking Agreement

23 November 15

Most Caretaking Agreements allow the Body Corporate to terminate the Agreement if:

(a) the Manager is convicted of an indictable offence involving fraud and dishonesty; and
(b) the Manager is convicted of an offence involving an assault; and
(c) the Manager engages in misconduct, or is grossly negligent, in carrying out or failing to carry out the functions required under the contract; and
(d) the Manager fails to carry out contractual duties, and persists in the failure for 14 days or more after the Body Corporate, by written notice, requires the Manager to carry out the duties,
(e) the Manager carries on a business involving the supply of services to the Body Corporate, or occupiers of lots, without holding a licence or other authority requirement by law, or
(f) the Manager transfers, or accepts the transfer or, an interest in the contract without the Body Corporate’s approval.

In a 2009 NSW Supreme Court case, the Body Corporate terminated a Caretaking Agreement pursuant to sub-clauses (c) and (d) above. The Body Corporate did not rely on any instance of “gross negligence” but primarily relied on its contention that there was “misconduct” on the part of the Manager which was caught by sub-clause (c).

I see no reason why the same principles would not apply to a Queensland Caretaking Agreement.

The Court had to determine the meaning of “misconduct” in this context. Counsel for the Manager submitted that “misconduct” pursuant to sub-clause (c) refers to conduct that is in some sense reprehensible or illegal, such as stealing. It was pointed out on behalf of the Body Corporate, however, that illegal conduct such as stealing is likely to fall within sub-clause (a), while another form of illegal conduct is covered by sub-clause (b).

The Judge accepted that “misconduct” in sub-clause (c) must be given a wider meaning.

To this end, the Judge looked at two cases dealing with misconduct – one by a solicitor and the other by a medical practitioner. In both these cases, the question of misconduct was judged according to whether the individual’s conduct failed, to a substantial degree, to measure up to the standard of professional conduct adopted or approved by practitioners of good repute and competency. The Judge stated that he could see no difficulty in applying such a standard to a Property Manager or a Building Manager.

Accordingly, the Court decided that, in this case, it needed to ascertain if there was misconduct by the Manager in carrying out, or failing to carry out, the functions required by the Manager under the contract. The Court said that the standard of behaviour on the part of a Manager of good repute and competency in or about these particular functions will be shaped very likely by the nature of the functions. The Judge further said that the question whether “misconduct” occurred should be approached by reference not only to an isolated incidence or event but also to the general and continuing pattern or behaviour.

The Court was satisfied that there were three separate respects in which the Manager engaged in misconduct of the kind contemplated by sub-clause (c):

(a) in refusing to deal with an outside letting agent who managed a number of rented units in the building; and
(b) in refusing to act reasonably and constructively in the manner of conferral and communication with the Body Corporate’s appointee; and
(c) in not carrying out its cleaning duties properly.

In each situation, it was determined that the Manager failed, in relation to the functions required under the contract, to live up to the standards of professional conduct adopted or approved by Property Managers or Building Managers of good repute.

The Judge concluded that and when the three matters are taken together, there is seen to be a pattern of failure to live up to those standards, with the result that, apart from the separate grant of termination under sub-clause (d) the Body Corporate was justified in relying on sub clause (c) to terminate the contract.

What did we learn from the case?

This case serves as a reminder to Building Managers in both NSW and Queensland to ensure that they fully carry out their duties under the Caretaking Agreement and to keep proper lines of communication open at all times with the Body Corporate or its designated representative. Failure to do so can constitute “misconduct” under the Caretaking Agreement. Likewise, becoming unreasonably obstructive in allowing outside agents access to the complex (as distinct from the individual lot) can likewise constitute “misconduct”.


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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