ATRIUM MANAGEMENT LIMITED V QUAYSIDE TRUSTEE LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) COA CA316/2011

ATRIUM MANAGEMENT LIMITED V QUAYSIDE TRUSTEE LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) COA CA316/2011 [21 February 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA316/2011[2012] NZCA 26BETWEEN ATRIUM MANAGEMENT LIMITEDAppellantAND QUAYSIDE TRUSTEE LIMITED (INRECEIVERSHIP AND INLIQUIDATION)RespondentHearing: 16 November 2011Court: Arnold, Harrison and Fogarty JJCounsel: P J McPherson for the AppellantR A Smith for the RespondentJudgment: 21 February 2012 at 10.15 amJUDGMENT OF THE COURTA The appeal is allowed.B Summary judgment is entered for the appellant against the respondent for the sum of $72,500 together with interest payable under the Judicature Act 1908.C The respondent must pay the appellant costs in this Court for a standard appeal on a Band A basis and usual disbursements.D If the parties are unable to agree, the High Court is to determine costs in that Court.REASONS OF THE COURT(Given by Harrison J)Introduction[1] Quayside Trustee Ltd developed a residential apartment and retail complex in Whakatane. Atrium Management Ltd agreed to purchase from Quayside a unit in the complex, to be occupied by its representative as manager (the manager's unitagreement). Separately but almost contemporaneously Atrium agreed to buy from Quayside the management rights for the development (the October agreement). Both contracts were described as completely interdependent so that they stood or fell together.[2] Atrium notified its cancellation of both contracts on the ground that Quaysidewould be unable to perform the October agreement. Quayside rejected Atrium'snotice and issued proceedings against Atrium in the High Court, initially claiming declaratory relief and an order for specific performance but later amending its claim to damages only. Atrium responded by counterclaiming and applying for summary judgment. In the interim Quayside had cancelled both contracts, treating Atrium'snotice as repudiation of its obligations.[3] Associate Judge Doogue dismissed Atrium's application for summary judgment.1 He was not satisfied that Quayside's cause of action was unarguable.Atrium appeals against that judgment.Background[4] In 2006 Quayside was seeking a party to purchase the management rights and to run its new Whakatane complex. The rights would be operated through a management agreement to be entered into subsequently between the manager and the body corporate for the development. Atrium was in the business of operating management rights and had previously managed similar developments. While Atrium agreed to buy the management rights from Quayside, the body corporate for the development, not Quayside, was the only entity which could lawfully grant those rights.1 Quayside Trustee Ltd v Atrium Management Ltd HC Tauranga CIV-2010-470-455, 2 May 2011.[5] On 18 October 2006 Quayside and Atrium entered into the two contractswhich are at the heart of this litigation. One was the manager's unit agreement forsale and purchase of unit 104, the manager's unit, for a price of $525,000 (includingGST). Its particular terms will not fall for further consideration.[6] The other contract was the October agreement whereby Atrium purchased the management rights to the apartments for $200,000 (plus GST) ―... for the term andon the conditions set out in the draft management agreement contained in thestandard agreement documentation for Quayside Apartments. Clause 3, to whichwe shall return, provided:Upon payment in full of the purchase price for the management rights,Quayside shall hand to [Atrium] [Atrium's] original executed copy of theManagement Agreement.[7] The ―standard agreement documentation referred to in the Octoberagreement comprised various documents relating to the apartments. The proposed management agreement was annexed as an unexecuted draft in the schedule. The October agreement required Quayside to procure the body corporate to execute a management agreement in that draft form (the draft management agreement).[8] Clause 12 of the draft management agreement is central to this dispute. It provided that the body corporate would grant Atrium the exclusive right to operate an on-site holiday service in these terms:12.1 The Body Corporate grants to the Building Manager, the exclusive right to exercise on the Property the Holiday Letting Service. The Building Manager shall exercise the Holiday Letting Service only with agreement of the Proprietors or Occupiers of the Unit who require those services.12.2 The Building Manager acknowledges that Proprietors and Occupiers are free to use a letting service of any other person outside and off the property.12.3 The Body Corporate must take all reasonable steps to ensure that there is no interference with the exclusive right and the exercise by the Building Manager of the Holiday Letting Service. The Building Manageracknowledges that the Body Corporate cannot interfere with a Proprietor'sright to choose a letting service outside and off the property....12.7 The Body Corporate shall not, without the prior written consent of the Building Manager:(a) authorise any person to, nor permit any person nor any of its staff to, nor itself exercise the Holiday Letting Service on the Property, or any other lettering service of the same or similar nature as the Holiday Letting Service;(b) licence, lease or grant restrictive or exclusive use of any part of the Property (other than to the Building Manager) for the purpose of allowing any person to exercise the Holiday Letting Service or carry on any letting service of the same or similar nature as the Holiday Letting Service.12.8 If any person other than the Building Manager attempts to use any part of the property for the purpose of providing a holiday or other letting service or exercising the Holiday Letting Service in competition with the Building Manager, then the Body Corporate must take all proper and necessary steps, including the expenditure of money to bring about the immediate termination of that competing letting service.12.9 The Body Corporate must not pass any resolution varying or rescinding (or purporting to vary or rescind) Rule 2.43 of the Rules.[9] By September 2009 three years had passed since the contracts were entered into without Quayside procuring an executed management agreement or settlementof the manager's unit agreement. On 16 September 2009 Atrium's solicitors gave Quayside notice of cancellation of both contracts. Atrium relied on the High Court'sdecision in Russell Management Ltd v Body Corporate No. 341073 which had been delivered in November 2008.2 Lang J held in Russell Management that it was ultra vires for a body corporate to grant a manager exclusive rights to operate an on-site holiday letting service over an entire development because this was in breach of ss 37(5) and 37(6) of the Unit Titles Act 1972. Atrium had learned of the decision in August 2009.[10] In Atrium's view, based on Russell Management, the body corporate would be acting ultra vires and in breach of the Unit Titles Act if it granted Atrium the management rights agreed under the October agreement, particularly those providedby cl 12 of the draft management agreement. Atrium's cancellation notice relied on Quayside's anticipatory breach. That was because the latter could not and wouldnever be able to perform its obligation under cl 3 of the October agreement to2 Russell Management Ltd v Body Corporate No. 341073 (2008) 10 NZCPR 136 (HC).lawfully procure the body corporate to execute and deliver up a management agreement on the same terms and conditions as set out in the draft. As the body corporate was powerless to prevent any person from operating a letting service in competition from a private unit within the complex, Atrium could not now secure theexclusive right for which it had bargained. As a result, in Atrium's view, the agreedpurchase price for the management rights of $200,000 would now be worthless.[11] By a letter from its solicitor dated 29 September 2009, Quayside advised thatit treated Atrium's notice of cancellation as amounting to repudiation of itsobligations, and gave notice of its expectation that Atrium would settle themanager's unit agreement when called on to do so. On 7 December 2009 Quaysidegave Atrium notice calling for settlement of both contracts. Atrium refused to comply.Pleadings[12] Quayside's original statement of claim was filed on 25 May 2010. Quayside recited that Atrium had paid an initial deposit of $10,000 and a subsequent deposit of $62,000 towards the aggregate purchase price of $725,000 payable under bothcontracts; and that its solicitor's letter dated 29 September 2009 acknowledged thatthe management rights being sold were ―ultra vires to a limited extent only and couldbe legitimately severed. Quayside alleged that both the contracts survived.[13] Atrium's alleged breach was briefly pleaded as a failure to settle bothcontracts contrary to Quayside's settlement notice.[14] Quayside sought a range of relief, in particular:(a) A declaration that the draft management agreement was to be read or severed by treating particular references in cl 12 in a particular way (principally cls 12.7 and 12.8) and for severance of cl 12.9 because it was ultra vires and unenforceable;(b) A declaration that the management rights contained in the management agreement were valid and enforceable;(c) Orders for specific performance of both contracts.[15] On 30 July 2010 Quayside filed an amended statement of claim, repeating many of its original recitals but expanding on its allegation of breach by Atrium to include wrongful repudiation of both contracts and failures to settle. Quayside also amended its prayer for relief, abandoning its previous claims for declarations and specific performance. Instead it claimed damages of $750,000 less the value of themanager's unit and the management rights.[16] On 23 August 2010 Atrium filed a statement of defence, pleading an affirmative defence of estoppel and counterclaiming for repayment of its deposits totalling $72,500 and a declaration that its notice of cancellation was valid.[17] On 15 November 2010 Atrium applied for summary judgment against Quayside, presumably on its counter claim, and for an order dismissing Quayside'sstatement of claim on the ground that its claim had no prospect of success. Theapplication is rather sparse. One of Atrium's directors, Brian Felton, swore a lengthyaffidavit in support. Its contents are largely assertions about Atrium's subjectiveintentions in signing the contracts and are accordingly inadmissible and we have not taken them into account, except where Mr Felton refers to undisputed facts.However, as we shall discuss, Atrium's reliance on Mr Felton's inadmissibleevidence contributed materially to the Associate Judge falling into error.High Court[18] Associate Judge Doogue dismissed Atrium's application for summaryjudgment because he was satisfied that at trial:(1) It would be open to Quayside to seek severance of parts of the draft management agreement;3(2) Similarly, Quayside could arguably establish that the October agreement was not frustrated by operation of law;4(3) There was a material factual dispute about whether the admittedly ultra vires provisions of the draft management agreement were essential which would require resolution at trial.5[19] The Associate Judge concluded as follows:[52] For the defendant to succeed on this part of the application for summary judgment, the propositions it needs to establish can be summarised as follows:a) a grant of an exclusive letting agency would be ultra vires the body corporate;b) severance of that provision should not be granted consistently with the principles in cases such as Humphries because it cannot be said that the parties did not regard the exclusive letting arrangement as a―dominant element" of the contract;c) the defendant is able to establish on reasonable grounds that the presence of such a term in the contract was implicitly essential to it; andd) the defendant was entitled to cancel the contract as it did; ore) that the alternative argument that the contract had been frustrated as a result of the Russell Management decision would prevail.[53] I have difficulty accepting that a dispute of this kind can be satisfactorily determined on an application for summary judgment. The summary judgment procedure is said to be suitable for the resolution of relatively straightforward cases including those where an issue of law can be isolated out and determined without extensive reference to factual material.[54] Applicants for a defendant's summary judgment have to meet aformidable challenge. They have to establish on the balance of probabilities that the plaintiff has no cause of action. In the context of the present case, that translates into a requirement that the defendants show that there is not any arguable basis for the plaintiff disputing the ultra vires point and3 At [32].4 At [37].5 At [48]–[51].succeeding with a fair contention that severability of the letting agreement provisions would not be permitted. For the reasons I have given, I do not consider that the defendants have discharged that onus.Appeal[20] In support of Atrium's appeal, Mr McPherson relies principally on the two arguments which he advanced in the High Court – namely that, as Quayside admits, relevant provisions in the draft management agreement were ultra vires and couldnot be performed without variation and, given Quayside's prospective inability todeliver up a management contract in its agreed draft form as required by cl 3 of the October agreement, which was an obligation essential to Atrium, it had proper grounds to cancel.[21] In the alternative, Mr McPherson submits that the agreements were frustrated by an unforeseen contingency – the decision in Russell Management delivered in November 2008 after the contracts were entered into. He submits that the decision rendered performance of the contracts impossible in their present form.Decision(a) Frustration[22] We shall deal briefly with Atrium's frustration argument which the Associate Judge dismissed on the ground that further evidence would be necessary at trial. We are satisfied that it is untenable for a different reason. The decision in Russell Management was not an unforeseen contingency. While we accept that a change in the law which renders the performance of a contract impossible may amount to frustration,6 the decision in Russell Management did not change the law. Rather, that decision involved the interpretation of the Unit Titles Act in accordance with settled principles. In terms of that Act, parts of cl 12 of the draft management agreement6 See John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (3rd ed,LexisNexis, Wellington, 2007) at 20.2.1.were ultra vires the powers of the body corporate from the outset even if the parties did not appreciate that. Accordingly, we need not consider this argument further.(b) Essentiality[23] The principal issue is whether it is unarguable that Atrium was justified incancelling the contracts on the ground of Quayside's anticipatory breach. Clause 3of the October agreement is the starting point for our analysis. While it is set out already (at [6] above), it bares repetition here:Upon payment in full of the purchase price for the management rights,Quayside shall hand to [Atrium] [Atrium's] original executed copy of theManagement Agreement.[24] Mr McPherson's argument that Atrium was justified in cancelling thecontracts proceeds in two stages, both relying on s 7 of the Contractual Remedies Act 1979. First, s 7(3) materially provides that:Subject to this Act, but without prejudice to ss (2) of this section, a party to a contract may cancel if it –(c) it is clear that a [term] in the contract will be broken by another party to that contract.[25] This provision codifies the common law entitlement to cancel on the ground of anticipatory breach. Associate Judge Doogue recorded Quayside's acceptancethat it was unable to perform its obligation under cl 3 of the October agreement by providing a management contract in a form giving Atrium the exclusive right to operate a letting service on the property.7 Mr Smith accepts that certain portions of cl 12 of the draft agreement were ultra vires but says they were not essential and could be severed. Thus he does not dispute Mr McPherson's proposition that s 7(3) applies for the reason that Quayside would never be able to settle on the agreed terms.[26] Second, s 7(4) of the Act materially provides:7 At [15] and [16].Where ... subsection (3)(c) of this section applies, a party may exercise a right to cancel, if, and only if –(a) The parties have expressly or impliedly agreed that the truth of the representation or, as the case may require, the performance of the[term] is essential to him; or(b) The effect of the misrepresentation or breach is, or, in the case of an anticipated breach, will be,—(i) Substantially to reduce the benefit of the contract to the cancelling party; or(ii) Substantially to increase the burden of the cancelling party under the contract; or(iii) In relation to the cancelling party, to make the benefit or burden of the contract substantially different from that represented or contracted for.[27] Atrium's case is that the first of these two statutory alternatives applies – thatis, Quayside's performance of its obligation under cl 3 of the October agreement toprovide the management contract in the agreed form was essential to Atrium.[28] In Mana Property Trustee Ltd v James Development Ltd8 the Supreme Court settled the test for determining the essentiality of a contractual term as follows:[24] Subsection (4)(a) contemplates that the parties either have expressly agreed that a particular term in their contract is to be regarded as essential (to the cancelling party or to both of them) or must be taken to have impliedly so agreed. In both cases it is a matter of interpretation of the contract. The use of words such as ―performance being essential or ―strict performance being required would plainly fall within the former category, but no specialform of words is necessary provided that it can be seen that the parties have indeed agreed that adherence to the provision in question is being treated by them as essential. The latter category, of implied agreement on the essentiality of a term which appears in the contract, may sometimes be more difficult to establish. But, again, it will be a question of interpretation, that is, ascertaining the intention of the parties as to the essentiality of the particular term from its language read in the context of the whole of the contract and the surrounding circumstances when the contract was made. Of particular importance will be what must then have been in the contemplation of the parties concerning the likely effect of a breach of the term. ... It will also include a consideration of the type of contract and whether it is one, like a mercantile contract, which normally requires strict performance. The court must ask itself whether, without expressly stating that the term is essential –that is, using a form of words equivalent to the expressions of which we have given instances – the parties can be seen, in context, to have intended that8 Mana Property Trustee Ltd v James Development Ltd [2010] NZSC 90, [2010] 3 NZLR 805.that should be the position. Obviously there will be some cases where what is express shades into what must be taken to be implied.[25] In the end, the preferable approach is to ask whether, unless the term in question was agreed at the time of contracting to be essential, the cancelling party would more probably than not have declined to enter into the contract. That question must be answered by an objective contextual appraisal which disregards what a party may unilaterally have said about its intention in that regard.(Citations and footnotes omitted.)[29] We add, because of its importance to our approach, that when considering theessentiality test the Court's enquiry must be into ―the general nature of the contractconsidered as a whole, or [into] some particular term or terms.9 As a result, extrinsic evidence of the parties' subjective intentions is inadmissible; the enquiry islimited to an interpretation of the contract as a whole within the context of course of the factual matrix or surrounding circumstances.[30] One other introductory point requires emphasis. Mr McPherson submits that the test of essentiality is subjective. However, it is plain from the authorities just cited that, consistently with settled contractual principles, the test is to be applied objectively by reference to the contract as a whole. While Mr McPherson'sphraseology may not be accurate, we are satisfied that he was meaning to make the correct point that the emphasis of s 7(4)(a) is upon essentiality to the cancelling party rather than to both parties.10[31] In accordance with these principles, a contextual appraisal is required.Clause 1 is the operative provision of the October agreement. It records Quayside'sagreement to sell two things to Atrium: one was the manager's unit for $525,000; the other was the right to manage the apartments ―on the conditions set out in the draft Management Agreement for $200,000 plus GST – this latter sum was the agreed value of the rights to be granted under the draft management agreement. The interdependence of both contracts provided by cl 5 is reinforced by cl 2, confirming that a deposit of $10,000 was payable on signing the agreement with a further9 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 (SCNSW) at641, approved in Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 at 337.10 See Mana at [23].deposit of $62,500 payable within 20 days. In total the deposits equal 10% of the aggregate of $725,000 of the aggregate consideration payable by Atrium. Then, according to cl 3, on Atrium's payment of the full amount of the purchase priceQuayside agreed to hand over to Atrium an original copy of the management agreement duly executed by the body corporate.[32] The central feature of our analysis is that Atrium was agreeing to buy two primary rights for $200,000: first, the right to payment of an annual management fee for the performance of its management functions; and, second, the right to operate exclusively a holiday letting service from the apartments. Clause 12 was carefully drafted to grant and preserve that exclusivity, including a prohibition on the body corporate passing a resolution which might affect its powers in that respect. All the other provisions in the draft management agreement related to the existence and regulation of routine duties mutually owed by the two parties.[33] Atrium's right to exercise the exclusive holiday letting service was defined incl 1.1 of the draft agreement to include: rights to and the provision of services by Atrium including advertising and promotion; offering units for letting of serviced apartments or holiday accommodation; negotiating with individuals to occupy or use units for reward; entering into agreements with travel agents, tourist agencies and others; terminating such agreements; and collecting fees.[34] We are satisfied that the agreed consideration of $200,000 was substantially attributable to this exclusive right to exercise the holiday letting service; if others were permitted to do so, as cl 12 impliedly acknowledged, the value of the right would be diminished or destroyed. The detailed terms and conditions of the draft management agreement, particularly cl 12, were designed to preserve and convey that value. In particular, the body corporate was obliged to take all reasonable steps to ensure there was no interference with the exclusive right and was prohibited from authorising any other person from exercising it. Clause 3 of the October agreementreflected the parties' accord that Quayside would pass over on settlement anagreement executed by the body corporate on those agreed terms and no others.[35] In this respect cl 21.4 of the October agreement relevantly entitled Atrium to cancel and to repayment of its deposit if Quayside did not comply with the terms of asettlement notice. On Quayside's admission, Quayside would not have been able to comply. The existence of this remedy points further to the essentiality of Quayside'sperformance of cl 3.[36] Mr Smith did not attempt to engage with this reasoning. Instead, he limited his argument to a submission that further evidence would be necessary to determine whether the ultra vires provisions of cl 12 were the sole inducement for Atrium to enter into the contract. However, that is not the test: as we have emphasised, the issue is to be determined by the orthodox process of contractual interpretation. The question is not whether the ultra vires provisions were the sole inducement to Atrium but whether the parties have, on an objective assessment, impliedly agreed that this obligation which Quayside admits it is now unable to perform was essential to Atrium.[37] Quayside relies on an affidavit from Mr Ronalde, seeking to demonstrate that the exclusivity provision was not essential by claiming they are typically of little value. However, nothing in this evidence relates to the intentions of the two parties when the contracts were signed; and thus there is no evidence relevant to the contractual context at that critical time which might require further assessment at trial. The agreements must be construed according to their plain language and factual context.[38] Thus we are satisfied that Associate Judge Doogue erred by dismissing Atrium's essentiality argument on the general ground that further evidence would be required at trial. The Associate Judge referred specifically to the evidential differences between Messrs Felton and Ronalde for Quayside. While we repeat again that the test of essentiality is confined to a consideration of the contract within its factual setting, it must be said that the Associate Judge was apparently led downthis diversionary path by Atrium's reliance on Mr Felton's inadmissible evidence.[39] We are satisfied, based on an evaluation of cl 3 of the October agreement inits contractual context, that performance of Quayside's obligation to hand over anexecuted management agreement in the agreed form was essential to Atrium and that it probably would not have entered into the contracts on the agreed terms and conditions without it. It follows further that, because of their interdependency,Atrium was justified in cancelling both contracts on the ground of Quayside'santicipatory breach because of its admitted inability to perform on settlement its obligation to satisfy an essential term of the October agreement.(c) Severance[40] Mr Smith's primary line of argument is that at trial a court would have, on Quayside's application, severed off the offending ultra vires provisions of cl 12, thereby allowing substantial compliance with its terms. He proposes nine specific changes to cl 12. He says that the Court would likely order them, with the effect that cl 12 would then be intra vires. Mr McPherson points out in answer that even adoption of these detailed changes would not enable the body corporate to grant Atrium the exclusive right to operate a holiday letting service.[41] Mr Smith relies on Humphries v The Proprietors 'Surfers Palms North'Group Titles Plan 1955.11 That case has similarities with this. The High Court of Australia was satisfied in Humphries that a body corporate acted ultra vires in entering into a contract to procure the performance of services which allowed a building manager to conduct a letting agency on a property. The High Courtunanimously dismissed the manager's argument that the ultra vires term of the relevant management agreement was severable from the remainder of the instrument which was otherwise enforceable.[42] Mr Smith relies on McHugh J's separate judgment in Humphries, addressingin detail the manager's severance argument. But on analysis it does not assist Quayside's case. McHugh J, approving earlier Australian authority, was satisfiedthat where both valid and invalid promises are supported by legal consideration the test of severability is whether those promises are in substance so interconnected as to11 Humphries v The Proprietors 'Surfers Palms North' Group Titles Plan 1955 (1994) 179 CLR597.form an indivisible whole which cannot be dismantled without altering the contract'snature. On the other hand, if elimination of the invalid promises changes not the kind of the contract, but only its extent, the valid promises are severable. In terms reflecting that the concept of severability is in a sense the other side of the coin of the test of essentiality, McHugh J noted that where the Court concludes that the invalid promise is such a material provision within the whole bargain that it cannot infer an intention not to enter into a contract without it, then the invalid promise should be treated as inseverable. Applying that test to the facts, McHugh J was unable to conclude that the body corporate would have agreed to pay the manager an annual remuneration of $60,000 without its promise to provide the letting service.[43] We are in no doubt that the same conclusion must be reached here. Our analysis of the essentiality argument already provides the answer. We haveconcluded that Atrium's right to exclusivity was fundamental to cl 12. Severance of the offending parts of that clause would not preserve that essence. It would emasculate and render cl 12 insensible, eliminating Atrium's right to exclusivity.Mr Smith is really submitting that the High Court could rewrite or modify cl 12 on terms which he suggested would mitigate the ultra vires objection. He did not cite authority for this novel proposition. And we are satisfied that no such power exists except in special cases such as on a claim for rectification.[44] Mr Smith's submission is flawed for another reason. His severance argumentis back to front. Whether cl 12 is essential is logically a prior question to whether it is severable from the contract. If the answer is in the affirmative, as it is here, the contract is terminated and no question of severance can arise.[45] Alternatively, Mr Smith relies upon cl 32 of the draft management agreement which provides as follows:If any provision of this agreement or the application thereof to any person or circumstance is or becomes invalid or unenforceable, the remaining provisions shall not be affected by that event and each provision shall be valid and enforceable to the fullest extent permitted by law.[46] However, cl 32 is of no assistance, for two reasons: first, the clause is a provision in the draft management agreement which is irrelevant to the obligationunder cl 3 of the October agreement which Quayside admits it was unable to perform; second, the clause simply provides that, if a provision such as cl 12 becomes invalid or unenforceable, the other provisions should not be affected. That agreement does not relate to the substantive question of whether a particular term is either essential or severable.[47] We record that we have taken into account Lang J's observations in Russell Management, which Mr Smith emphasises, that:12[65] In the present case the provisions of the management agreement that relate to the exclusive letting service are few in number and are easily identifiable. The agreement contains numerous other obligations and duties that are entirely unrelated to the letting service. Moreover, the management fee that is payable to the Building Manager under the agreement does not include a component that relates to the provision of the letting service.[66] I have no doubt that the exclusive letting provisions formed a vitallyimportant part of the agreement from RML's perspective. The management agreement also, however, provided that RML was to receive the management fee of $30,000 per annum. It also provided benefits that must have been of value to the body corporate. In particular, it provided the body corporate with the services of a building manager who was obliged to look after and administer the common property. That must have been a reasonably significant aspect of the agreement from its perspective.[67] I therefore consider that it is at least arguable that the offending provisions did not form the dominant element of the management agreement, and that they are therefore potentially severable from the remaining provisions of the agreement.[68] That being the case, I am not satisfied that the body corporate has a complete defence to the plaintiffs' claim. Although it may not be worth theirwhile to do so given my conclusions on the issue of vires, the plaintiffs remain entitled to pursue their claim to the extent that the management agreement may remain intact. For this reason it would not be appropriate to enter summary judgment against the plaintiffs at this stage.[48] We accept that Lang J's observations might possibly be read as applying tothe essentiality argument. However, they are distinguishable because they related particularly to the contractual terms under consideration in Russell Management and, critically, were addressing a severance argument. The Judge was not apparently called upon to consider the threshold question of whether the ultra vires provisions were essential.12 Russell Management Ltd v Body Corporate No. 341073 (2008) 10 NZCPR 136 (HC).Result[49] In the circumstances Atrium has satisfied us that Quayside's statement ofclaim could not possibly succeed at trial.13 Atrium's notice of cancellation of thecontracts given on 16 September 2009 was unarguably justifiable.[50] Atrium's appeal is allowed. Summary judgment is entered for Atrium againstQuayside in the sum of $72,500 together with interest payable at Judicature Act 1908 rates.[51] Quayside must pay Atrium costs for a standard appeal on a band A basis together with usual costs and disbursements. Costs in the High Court are to be fixed by that Court if the parties are unable to agree.Solicitors:Hesketh Henry, Auckland for AppellantAnthony Harper, Auckland for Respondent13 Westpac Banking Corporation v M M Kembla NZ Ltd [2001] 2 NZLR 298 (CA).