Kazar v Italian & Continental Bakery Pty Limited & Anor [2008] ACTSC 9 (8 February 2008)

Last Updated: 21 February 2008

HENRY KAZAR v ITALIAN & CONTINENTAL BAKERY PTY LIMITED & ANOR [2008] ACTSC 9 (8 February 2008)

APPEAL - appeal dismissed - standing to make application under Unit Titles Act 2001 (ACT) - interested party under that Act - owners corporation in respect of unit title - appointment of administrator - members of an owners corporation indemnifying administrator - whether an administrator is a creditor of the owners corporation because of s 142(4) of Unit Titles Act 2001 (ACT).

Unit Titles Act 2001 (ACT), s38, s 40, s 46, s 59, s 60, s 61, s 66, s 67, s 140, s 141, s 142, s 143, s 144, s 145

Land (Planning & Environment) Act 1991 (ACT)

Corporations Act 2001 (Cth)

Legislation Act 2001 (ACT), s 155

Delbridge & Ors (eds), The Macquarie Dictionary, (3^rd Ed), The Macquarie Library Pty Ltd, Sydney, 1998

John S James (ed), Stroud's Judicial Dictionary, (5^th Ed), Sweet & Maxwell Ltd, London, 1986

ON APPEAL FROM THE ACT MAGISTRATES COURT

No. SCA 17 of 2007

Judge: Gray J

Supreme Court of the ACT

Date: 8 February 2008

IN THE SUPREME COURT OF THE )

) No. SCA 17 of 2007

AUSTRALIAN CAPITAL TERRITORY )

ON APPEAL FROM THE ACT MAGISTRATES COURT

BETWEEN: HENRY KAZAR

Appellant

AND: ITALIAN & CONTINENTAL BAKERY PTY LIMITED

ACN 052 446 821

First Respondent

AND: EHRENSPERGER NOMINEES PTY LIMITED

ACN 098 877 911

Second Respondent

ORDER

Judge: Gray J

Date: 8 February 2008

Place: Canberra

THE COURT ORDERS THAT:

1. The appeal be dismissed with costs.

1. Henry Kazar appeals against the dismissal of a notice of motion which made application for an order of the Magistrates Court about the exercise of an administrator's function in respect of an owners corporation constituted under the Unit Titles Act 2001 (ACT) (the Act).

The Unit Titles Act 2001

2. The Act regulates unit title ownership of Crown leasehold land in the Australian Capital Territory. The Act allows a number of people each to own individual units within a building or distinct self-contained units of land within a larger parcel of land. Access is permitted to communal parts of buildings, facilities and land managed by a corporate body representing all the owners.

3. As far as development of the land the subject of the unit title is concerned, such development may be approved under the Land (Planning & Environment) Act 1991 (ACT). The scheme of the unit title and its development is incorporated into documents known as the units plan. An owners corporation manages the collective affairs of the unit title development. Whilst it is not a corporation under the Corporations Act 2001 (Cth), it does exist independently of its constituent unit owners. The unit owners are its members and act through general meetings of the unit owners and through an executive committee constituted under the Act.

4. There are provisions in the Act requiring unanimous or unopposed resolutions at meetings. The Act provides for a deadlock procedure which is under the supervision of the Magistrates Court. That procedure is to resolve impasses, if they occur. In the event of financial or organisational difficulties, there is provision for the appointment of an administrator.

Background

5. Italian & Continental Bakery Pty Ltd (the first respondent) and Ehrensperger Nominees Pty Ltd (the second respondent) are the only owners of units in Units Plan No. 1609, a plan registered under the Act. As a consequence, they are the members of the owners corporation, a body corporate established as "the Owners-Units Plan No. 1609" (see s 38, s 40 of the Act).

6. Disagreement between the respondents over the development of the premises under the units plan resulted in a deadlock order being made under s 124 of the Act by the Magistrates Court. That order was made on 8 July 2003. On an application by the first respondent, and ultimately by consent, Henry Kazar of Sims Partners, a well-known accounting firm, was appointed as administrator of the owners corporation on 9 March 2004.

7. The appointment of the administrator was made under s 142(1) of the Act:

(1) On an application by an interested party, the Magistrates Court may, by order, appoint the person named in the application to be administrator of the owners corporation on the terms about remuneration and anything else it considers appropriate.

Note For the making of appointments (including acting appointments), see the Legislation Act, pt 19.3.

Section 142(4) of the Act also provides:

(4) The remuneration of an administrator of an owners corporation and the expenses incurred in the exercise of the administrator's functions under this Act are taken to be expenditure incurred by the corporation.

8. The order appointing Henry Kazar as administrator was for a period of six months and required that the members of the owners corporation "must indemnify the Administrator for all of the costs and remuneration properly incurred by the Administrator during the course of his administration on a several basis at the rate set out ...".

9. There is a procedure in the Act for the establishment of funds for administrative and special purposes (ss 59(1) and (2)) as well as a sinking fund for capital purposes (s 61). A special purpose fund may only be used for the particular purpose determined upon and that purpose may only be changed by special resolution of the owners corporation (s 59(3)). Section 60 deals with the determination and payment of contribution to the general funds of the owners corporation and s 66 provides for recovery of amounts owing to the owners corporation as a debt from the unit owner.

10. On 27 September 2004, Henry Kazar, as the administrator, was reappointed with effect from 9 September 2004 (the expiry of the earlier term). That appointment was to expire on 30 June 2005. An order was made that the members of the owners corporation "continue to indemnify the Administrator for all of the costs and remuneration properly incurred by the Administrator during the course of his administration on a several basis".

11. Section 144 of the Act provides:

Functions of administrator

(1) The administrator of an owners corporation has all the functions of the corporation to the exclusion of the corporation and its executive committee.

(2) However, an order of the Magistrates Court under subsection (3) is required for an administrator to do anything that is required by this Act to be authorised by an unopposed or unanimous resolution.

(3) On application by an interested party, the Magistrates Court may make any order it considers appropriate about the exercise of the administrator's functions (including, for example, an order mentioned in subsection (2)).

12. Section 140 of the Act provides:

Who may apply for an administration order?

Any of the following people (an interested party) may apply to the Magistrates Court for an order under division 9.2 (an administration order) in relation to the administration of an owners corporation:

(a) the corporation;

(b) a creditor of the corporation;

(c) a unit owner, or anyone else with an interest in a unit, or the common property, that is recorded in the corporate register;

(d) the chief executive, on behalf of the Territory.

13. On 9 December 2004, in reliance upon these provisions, the owners corporation, it would seem by reason of the administrator exercising the powers and functions of that corporation, made application to the Magistrates Court for orders under s 144(3) of the Act. Two sets of orders were made. One was very detailed and dealt with various aspects of the development under the units plan. The other authorised the administrator to establish a special purpose fund for the payment of the administrator's fees and expenses as well as permitting the administrator to determine and apportion the amounts required by way of contribution from the unit owners arising from the development and from the administration generally.

14. These orders were the subject of an appeal by the first respondent to this court. On 14 March 2005, the Chief Justice determined that, as from that date, the appointment of the administrator should be terminated. Leave was given to the administrator to submit any accounts for payment by the body corporate that the administrator would have been entitled to submit otherwise. It does not appear that any accounts were submitted in reliance upon this order.

The notice of motion

15. On 2 March 2006, almost a year after the termination of the administrator's appointment, the notice of motion under appeal in these proceedings was filed in the name of the owners corporation as applicant. The notice of motion was taken out by the solicitors for Henry Kazar. The notice of motion sought that Henry Kazar be joined as a second applicant in the proceedings.

16. The notice of motion further sought orders that Henry Kazar, in his capacity as administrator of the owners corporation, had validly exercised his discretion to determine which of his costs were attributable to the development application or not and in respect of the costs, outgoings and expenses not referable to the development application, that he had validly exercised his discretion to apportion those costs between the first and second respondents. Alternatively, the notice of motion sought an order that the first and second respondents pay the administration costs in such proportions as the court determines. Other orders were sought in the notice of motion detailing the share of the costs sought from the first and second respondents and seeking that the owners corporation declare a charge pursuant to s 67 of the Act to secure the payment of these amounts.

17. At a directions hearing on 17 November 2006, Henry Kazar was substituted as the applicant instead of "The Owner [sic] - Units Plan 1609"

18. The right of Henry Kazar to make the application was challenged by the first and second respondents. In the result, the magistrate found that the appellant had no standing to make this application.

The procedural irregularities

19. The application that was made was not authorised by the owners corporation. In that regard, it was quite misconceived. It should have been dismissed at that point. A further irregularity occurred when Henry Kazar was substituted as the applicant. That meant that the owners corporation, which had been the applicant in the proceedings, was no longer a party to the proceedings. Although it may be said that all members of the owners corporation were parties, their past history of disagreement shows that, at least procedurally, the owners corporation should have remained as a party. As will be later seen, the owners corporation has an integral part to play in any application to be made to the Magistrates Court. In my view, apart from the standing issue, the proceedings were so demonstrably defective as to merit dismissal.

20. However, in deference to the submissions put to me in this appeal, I will deal with the matter as if the appellant had properly sought to bring the proceedings by proper service upon the owners corporation and its members.

The appellant's contention

21. As noted earlier, s 140 of the Act requires that the application for an administration order be made by an interested party. An administration order is an order under Division 9.2 of the Act. The appellant claims to be an interested party by reason of being a creditor of the owners corporation. In that regard he relies upon s 140(b) of the Act (see [12] above) which provides that an interested party may apply to the Magistrates Court for an administration order as "a creditor of the corporation". In the alternative, the appellant contends that the categories of persons who are set out as interested parties in s 140 are not exclusive and that the ordinary expression of an interested party would include any person, like the appellant, who, it was further submitted, could be said to have an interest in bringing an application.

The definition of "interested party"

22. Part 9 of the Act is headed "Administrators". Division 9.1 contains s 140 which sets out who may apply for an administration order. The other section in that division is s 141 and that sets out the procedure for making applications for such an order. Three sections in Division 9.2 deal with the types of administration order that may be made by the Magistrates Court. Section 142 deals with an order for the appointment of an administrator, s 143 deals with an order removing or replacing an administrator and s 144, as noted earlier, provides for orders about the functions of an administrator.

23. It is important to observe that each of the applications for an administration order is predicated upon "On an application by an interested party". There does not appear to be any intention manifested by the legislation that the categories that are set out in s 140 as to who might comprise an interested party should be other than those ascertained at the time of the appointment of the administrator under s 142. This view would seem to be confirmed by the procedural requirements in s 141 of the Act. That section provides:

Magistrates Court appearances and service of applications

(1) An interested party has a right to appear on an application by another interested party for an administration order.

(2) The applicant must serve a copy of the application on every other interested party, except the creditors (or the other creditors) of the owners corporation and the chief executive.

Note The applicant may serve the application on an interested person at the person's address for correspondence shown on the corporate register. Other forms of service are also permitted. See s 80.

(3) The owners corporation must serve all its creditors with a copy of the application--

(a) if the owners corporation is the applicant--after making the application; or

(b) in any other case--on being served with a copy of the application.

(4) An interested party may be represented by a lawyer or someone else.

(5) The registrar of the Magistrates Court must give a copy of an application to the chief executive, unless the chief executive is the applicant.

24. Given that these procedural requirements would seem to apply for each application authorised to be made under ss 142, 143 and 144 of the Act, I do not see how it can be construed that the definition of "interested party" should include any additional undetermined general category of persons who claim to have an "interest".

25. The appellant sought to rely upon the Legislation Act 2001 (ACT). Section 155(1) of that Act provides:

A definition in an Act or statutory instrument applies except so far as the contrary intention appears.

26. The dictionary to the Unit Titles Act defines "interested party" as "for an administration order--see section 140 (Who may apply for an administration order?)". Defining the matter in that way would seem to deny any scope for suggesting that the categories set out in s 140 were other than inclusive.

27. Only one example was put forward on the appellant's behalf as evincing a contrary intention to the categories set out in s 140 as being exhaustive. It was said that unless "interested party" was not given a broader meaning, it would preclude an administrator from bringing an application under s 144(3) of the Act which I have referred to earlier. That was said to be a contrary intention because it was "plainly desirable, indeed necessary, for an administrator to bring an application under [s 144(3)] to obtain an order for the purposes of s 144(2)". Section 144(2), it will be recalled, provides for the Magistrates Court to make orders for administrators to do anything that is required to be authorised by an unopposed or unanimous resolution of the owners corporation.

28. The submission disregards s 144(1) of the Act which gives the administrator "all the functions of the corporation to the exclusion of the corporation and its executive committee". Section 46 of the Act provides for the owners corporation to have the functions, including those that are incidental and ancillary, given to it under the Act.

29. It is unnecessary for an administrator to be an interested party to enable an application to be made under s 144(3) as the owners corporation is given a function of applying as an interested party. Indeed, this was the procedure adopted by the administrator in the application to the Magistrates Court on 9 December 2004 to which I have earlier referred. To the contrary of the appellant's contention, it is quite clear that it is not necessary to the effective operation of the provision in s 144(3) of the Act for an administrator to be included as an interested party. Much less could any case be made out for an ex-administrator, as Mr Kazar was at the time of the notice of motion, to do so.

30. I am satisfied that the provision in s 140 of the Act as to who may apply for an administrative order is exhaustive of the categories of applicants who may apply for such orders.

The appellant as a creditor

31. The principle issue advanced by the appellant both before the magistrate and on this appeal, was that he was a creditor of the owners corporation by reason of s 140(b) of the Act and was therefore an interested party entitled to bring the application. The magistrate took the view that the appellant had never been a creditor of the owners corporation. Mistakenly, it seems, he took the view that the appellant had been, as a result of the earlier court orders, indemnified by the owners corporation when the indemnity was, in fact, that ordered in respect of the unit owners, not the corporation itself. Despite that mistake, the point I think the magistrate was making was that there was nothing before him to indicate that there had ever been a debt due by the owners corporation to the appellant that would make the appellant its creditor. Indeed, the very issues that the appellant sought to be resolved by the notice of motion were questions of apportionment and liability between the unit owners for his administration expenses. In other words, the debt that he claimed to be in issue was the debt between himself and the first and second respondents, not the owners corporation.

32. The appellant submitted that, by reference to s 142(4) of the Act, the remuneration and expenses of an administrator, which "are taken to be expenditure incurred by the corporation", makes him a creditor of the owner corporation. That provision of itself does not establish a creditor/debtor relationship. Its purpose, it seems to me, is to make available the recovery processes provided by the Act in determining payment and contribution to the funds (s 60) and recovery from unit owners (s 66). Section 142(2) of the Act ensures that the members of the owners corporation to be ultimately responsible for the costs and expenses incurred by an administrator. In the present case, by reason of the earlier Magistrates Court orders, the members of the owners corporation, at the outset, undertook to indemnify the administrator for all of the costs and remuneration properly incurred by the administrator during the course of the administration. In so doing, they became the persons primarily responsible for those costs and the remuneration of the administrator.

33. I take the expression "indemnify" in those orders as having the first meaning given by The Macquarie Dictionary (3^rd Ed) 1998 of "to compensate for damage or loss sustained, expense incurred". What I take to be the ordinary meaning of that word does not necessarily require a pre-existing or primary liability in some other person. Whilst s 142(4) of the Act clearly does not preclude the appellant from being a creditor of the owners corporation, it is the Magistrates Court order in this case which constitutes the debt that the members of the owners corporation owe to the administrator for the costs of the administration and it takes the place of any creditor/debtor relationship that might have otherwise been said to arise between the administrator and the owners corporation.

34. That conclusion makes it unnecessary to consider, in the circumstances of this case, whether the "creditor of the corporation" referred to in s 140(b) of the Act, is restricted to those creditors existing at the time of the application for appointment of an administrator. Stroud's Judicial Dictionary, (5^th Ed) 1986 comments:

(2) The word "creditor" is one which is capable of a certain flexibility of meaning according to the context in which it is used. It is not a word of fixed and rigid meaning defined by authority. No doubt the limits of meaning to be given to it when used in particular statutes have received judicial definition and thus afford an illustration that the word is one of varying context (Gibb v Lombank Scotland Ltd., 1962 SLT 288, OH).

35. It is difficult to see, having regard to the provisions for appointment of an administrator only by the specified categories of persons, why a person other than a successor in title to those identified at the time of the administrator's appointment should be a person interested in the administration. It does not seem to me to have been the intention of the legislature or within the general purpose of the provisions to permit creditors of the owners corporation who become creditors because of the actions of the appointed administrator to have the right to challenge the administrator's exercise of his functions or have the administrator removed or replaced. There seems to be a good case for confining the category of "creditor of the corporation" only to those creditors who are identified by the owners corporation at the time of the application for appointment of an administrator. However, because of my earlier conclusion, that is not a question I need determine in these proceedings.

Other matters

36. Even if all that I have referred to were not so, I would not interfere with the magistrate's finding that the appellant was not a creditor of the corporation. Indeed, other than the reference to s 142(4) of the Act, there appears to be no material at all put to the magistrate to support what I take to be the claim that there was a debt owed by the owners corporation to the appellant. I have noted earlier that s 141(3) of the Act requires the owners corporation, when it is served with an application, to serve all its creditors with a copy of the application. That puts the owners corporation in the position of making the primary determination of who is a creditor. By replacing the owners corporation as a party to the application, there is no mechanism to ascertain the attitude of the owners corporation to the status of the appellant. I would regard the acknowledgement or otherwise of the owners corporation as to its creditors an important factor to be taken into account. These matters could have also justified the magistrate's decision to dismiss the application.

37. The appellant complained also of the magistrate taking the view that, even if the administrator had retained his functions as administrator of the owners corporation, that s 144(3) of the Act did not entitle the magistrate, in his words, "to provide under the guise of the supervisory jurisdiction of the Court and found within that subsection to make the orders in the terms sought". Insofar as this is a comment on the appropriateness of the application made by the appellant and the exercise of the magistrate's undoubted discretion in the matter, I entirely agree. I would take the view that the magistrate's attitude to the effect of the subsection as enabling applications by "disgruntled interested parties" as an instance of hyperbole which underlines the inappropriateness of the application in the present case.

38. I take a similar view in respect of the appellant's complaint concerning the magistrate commenting that there would be no utilitarian purpose in making the declarations sought. The magistrate rightly observes that, in the present matter, the appropriate forum for the action in debt is the Supreme Court and that court would not be bound by any decision that he made. The appellant submitted that the magistrate's decision would have the status of a final judicial decision if it were not the subject of appeal. However, that submission does not address the limited and peripheral issues that the appellant seeks to raise and which generally would not necessarily create an estoppel to a principal action in debt. I consider that the magistrate's comment to be generally well-founded and again relevant to the exercise of a discretion to dismiss the proceedings apart from any question of standing.

Conclusion

39. The appeal is dismissed with costs.

I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Gray.

Associate:

Date: 8 February 2008

Counsel for the Appellant: Mr R J Arthur

Solicitor for the Appellant: Bradley Allen

Counsel for the first respondent: Mr W L Sharwood

Solicitor for the first respondent: Higgins Solicitors

Counsel for the second respondent: Mr S R Hausfeld

Solicitor for the second respondent: Snedden Hall & Gallop

Date of hearing: 8 June 2007

Date of judgment: 8 February 2008