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McClymont & Anor v The Owners Strata Plan No 12139 [2009] FMCA 1079 (13 November 2009)

Last Updated: 13 November 2009

FEDERAL MAGISTRATES COURT OF AUSTRALIA

McCLYMONT & ANOR v THE OWNERS STRATA PLAN NO 12139

BANKRUPTCY – Bankruptcy notice claiming debt owed to strata owners corporation – application to set aside – authorisation of solicitor to request issue of bankruptcy notice – validity of resolution of executive committee – whether defects in notice of meeting – disclosure to unit owners of solicitor’s fees agreement and disclosure – effect of non-compliance – validity of bankruptcy notice upheld – application dismissed.

Bankruptcy Act 1966 (Cth), s.41(6A)(b)
Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth)
Strata Schemes Management Act 1996 (NSW), ss.22, 22(f), Ch.3, 80, 80D, 80D(2), Ch.5, 153, Ch.7, 230A, 235(2), Sch.3 cll.6, 6(2)(a), 6(3), 11(2), 14
Strata Schemes Management Regulation 2005 (NSW), regs.15, 15(1), 15(1)(a)

Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1
Australian Broadcasting Corporation v Redmore Pty Ltd [1989] HCA 15; (1989) 166 CLR 454
Browne v Dunn (1894) 6 R 67
Australian Workers’ Union v Bowen [1946] HCA 24; (1946) 72 CLR 575
Coshott v The Owners of Strata Plan No. 48892 [2006] NSWSC 308
Dalsiz Pty Ltd v The Owners SP 47301 (Strata and Community Schemes) [2008] NSWCTTT 930
de Robillard v Carver [2007] FCAFC 73; (2007) 159 FCR 38
Deputy Commissioner of Taxation v Boxshall [1988] FCA 355; (1988) 19 FCR 435
Master Education Services Pty Limited v Ketchell (2008) 236 CLR 101, [2008] HCA 38
McClymont v The Owners-Strata Plan No. 12139 [2009] NSWSC 276
Owners of Strata Plan 36131 v Dimitriou [2009] NSWCA 27
Owners SP 46528 v Hall [2009] NSWSC 278
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355
Russo v Aiello [2003] HCA 53; (2003) 215 CLR 643
Secretary, Department of Family and Community Services v Haagar [2001] FCA 1284; (2001) 115 FCR 25
Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574; (2000) 98 FCR 447
Yang v Mead [2009] FCA 1202

Lang, A D (2006), Horsley’s Meetings, Procedure, Law and Practice, 5th edition, LexisNexis Butterworths, Australia


Magner, E (2006), Joske’s Law and Procedure at Meetings in Australia, 10th Edition, Lawbook Co, Australia


First Applicant:
GRAHAM JAMES MCCLYMONT

Second Applicant:
SELMA MARIA MCCLYMONT

Respondent:
THE OWNERS - STRATA PLAN NO 12139

File Number:
SYG 2154 of 2009

Judgment of:
Smith FM

Hearing date:
28 October 2009

Delivered at:
Sydney

Delivered on:
13 November 2009

REPRESENTATION

Counsel for the Applicants:
First applicant in person

Counsel for the Respondent:
Mr D Radman

Solicitors for the Respondent:
Grace Lawyers Pty Ltd

ORDERS

(1) The application is dismissed.
(2) The applicants must pay the costs of the respondent as agreed or taxed pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
(3) Orders 1 and 2 shall not take effect until 20 November 2009.
(4) Pursuant to s.41(6A)(b) of the Bankruptcy Act 1966 (Cth) the time for compliance with Bankruptcy Notice NN2635 of 2009 is extended until 5pm on 20 November 2009.
FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 2154 of 2009

GRAHAM JAMES MCCLYMONT

First Applicant


SELMA MARIA MCCLYMONT

Second Applicant


And


THE OWNERS - STRATA PLAN NO 12139

Respondent


REASONS FOR JUDGMENT

  1. Mr and Mrs McClymont applied on 4 September 2009 to set aside a bankruptcy notice served on them by the Owners, demanding payment of a debt of $25,857.73 under two judgments of the Local Court of NSW. The notice required their compliance within 21 days after 14 August 2009, but that time has been extended by orders under s.41(6A)(b) of the Bankruptcy Act 1966 (Cth). Their case has been presented to the Court by Mr McClymont, in person.
  2. The judgment debt was obtained in contested proceedings brought by the Owners for unpaid strata contributions levied between 2003 and 2006, plus interest and legal expenses. The Local Court’s judgments were upheld on appeal by McCallum J (see McClymont v The Owners-Strata Plan No. 12139 [2009] NSWSC 276). It is unnecessary for me to detail the background which is set out in her Honour’s judgment, since Mr McClymont does not invite the Court to go behind the judgment debt, and does not dispute the indebtedness claimed in the bankruptcy notice.
  3. Nor does he dispute that the Owners have a right to seek to recover that debt, including by invoking processes under the Bankruptcy Act which are available to all creditors. His challenge to the validity of the bankruptcy notice rests upon contentions that there were procedural defects under the Strata Schemes Management Act 1996 (NSW) affecting the purported authorisation of the Owners’ solicitor to procure the issue of the bankruptcy notice.
  4. Mr McClymont did not submit that, if there were no defects in the procedures leading to the instructing of the solicitor, it would not have been permissible under the Bankruptcy Act for the owners corporation to authorise a solicitor to apply for the issue of the bankruptcy notice. Nor does he take any point in relation to the form in which the solicitor signed the application for the bankruptcy notice, in which he confirmed “that he or she is the creditor’s authorised agent”. It is therefore unnecessary for me to describe this part of the bankruptcy notice, although I note that it appears to be in a form which has previously been upheld (see Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574; (2000) 98 FCR 447 at [2]- [11], de Robillard v Carver [2007] FCAFC 73; (2007) 159 FCR 38 at [100]- [116], and Yang v Mead [2009] FCA 1202 at [16]- [17]).
  5. The Owners contend that their solicitor was instructed in accordance with the provisions of the Strata Schemes Management Act, in so far as they imposed mandatory preconditions to the employment of a solicitor to take legal action. They do not submit that the solicitor’s certificate of his authority in the bankruptcy notice was conclusive in this respect. Nor do they dispute that, if the solicitor acted without valid authorisation, the notice was invalidly issued and should be set aside by the Court. I have not heard any argument on these points, and shall assume the correctness of these concessions. I note that they appear to have support in authority (compare Australian Workers’ Union v Bowen [1946] HCA 24; (1946) 72 CLR 575 at 583, 584, and 590).

Legislative background

  1. Although the general right of the Owners to seek recovery of the monies covered by the judgment debt, and to do so by way of service of a bankruptcy notice, was not in issue, I was referred to recent authorities which have explored difficult issues under the Strata Schemes Management Act concerning the recovery of legal costs and expenses associated with the recovery of unpaid strata contributions. They provide some of the background to the issues now raised by Mr McClymont.
  2. Section 80 of the Strata Schemes Management Act has always provided:
  3. In Coshott v The Owners of Strata Plan No. 48892 [2006] NSWSC 308, Cooper AJ held that s.80 conferred a right on the Owners to sue in new proceedings for legal expenses relating to the enforcement of an earlier judgment for unpaid contributions, including the Owner’s legal costs beyond those covered by costs orders made in the earlier proceedings, and also including its costs of related bankruptcy proceedings in the Federal Court.
  4. However, the correctness of this interpretation of s.80, both in relation to the scope of the recoverable expenses and whether they may be sued for in separate proceedings, was decided authoritatively by majority of the Court of Appeal in Owners of Strata Plan 36131 v Dimitriou [2009] NSWCA 27. McCallum J summarised the effect of that judgment in McClymont (supra) at [25] and following:

(A similar understanding of Dimitriou was provided by Kirby J in Owners SP 46528 v Hall [2009] NSWSC 278 at [76]).

  1. Contrary to the submission to me by the solicitor for the present Owners, I consider that it is clear from the judgment of Handley AJA at [127] and [137]-[143] that he agreed with Hodgson JA, in holding that any legal expenses incurred by an owners corporation beyond those covered by a costs order are recoverable as debts under s.80 only in the same proceedings in which the relevant unpaid contributions are sued for. To the extent that Coshott (supra) might suggest that additional legal expenses of the owners corporation in relation to bankruptcy proceedings are separately recoverable as debts arising under s.80, I consider that it is no longer good authority.
  2. In my opinion, the right of an owners corporation to pursue recovery of unpaid strata contributions through bankruptcy proceedings does not arise directly under s.80, but under the provisions of the Bankruptcy Act available to the owners corporation as a creditor for debts recovered or recoverable under s.80. I have difficulty seeing how the expenses of such proceedings could be anticipated and recovered in the action in which judgment for the contributions was obtained. The consequence of Dimitriou in relation to the owners corporation’s expenses of seeking recovery through bankruptcy proceedings of debts arising under s.80, therefore appears to be that the owners corporation is confined to recovering such legal expenses as are ordered under a costs order of a bankruptcy court, or are otherwise payable under the Bankruptcy Act by the debtor or from the debtor’s bankrupt estate. However, this is not a matter which I need to decide in the present matter in the course of my present judgment.
  3. The present dispute does not concern the scope and application of s.80, but the effect of two provisions inserted into the Strata Schemes Management Act by amendments made in 2004. They did not confine the scope of recoverable debts of an owners corporation, whether arising under s.80 or otherwise at law, but prescribe procedures intended to apply to the incurring by the owners corporation of all legal expenses generally.
  4. Section 80D was inserted in a new Division 3 of Part 3 of Chapter 3. They are entitled, in descending order: ‘Key management areas’, ‘Finances of strata scheme’, ‘Restrictions on spending’. Section 80D provides:
  5. The exceptions under s.80D(2) to the requirement of approval at a general meeting of all the strata lot owners are in Strata Schemes Management Regulation 2005 (NSW), reg.15, which provides:
  6. Also inserted in the 2004 amendments, but in the ‘General’ Chapter 7 of the Act, was a new Part 1A, containing one section:
If a disclosure under Division 3 of Part 3.2 of the Legal Profession Act 2004 is made to an owners corporation in respect of the costs of legal services to be provided to the owners corporation, the owners corporation must give a copy of the disclosure to each owner and executive committee member within 7 days of the disclosure being made.
  1. In Owners SP 46528 v Hall [2009] NSWSC 278, Kirby J upheld the dismissal by the Local Court of a claim for unpaid strata levies and legal expenses, on the ground that the owners corporation had no authority to commence the action, because s.80D had not been complied with (see [17] and [66]). In that case, the taking of the action had not been approved by resolution at a general meeting of all unit owners, and, in his Honour’s opinion, the exemption under s.80D(2) and reg.15(1) did not apply because the executive committee which had purported to authorise the action before the statement of claim was issued, had no material before it which was “capable ... of providing a basis for a reasonable estimate” of the likely costs of the action against Mr Hall (see [36]).
  2. In Hall’s Case, it appears that neither the members of the executive committee, nor the unit holders generally, had received a solicitor’s costs disclosure and estimate (see [29], [31], [36]). However, it was not argued that such a breach of s.230A would itself support a conclusion that the action was commenced without authority, and was for that reason incompetent. The absence of a costs estimate was treated only as evidentiary in relation to the exemption available to executive committees under s.80D(2), and his Honour’s judgment might suggest that compliance with s.230A was not itself a condition of the valid authorisation of the employment of a solicitor by an executive committee of the owners corporation. When adverting at [36] to the terms of reg.12C(2), which was in the terms of current reg.15(2), he said:
  3. Kirby J’s judgment at [38]-[66] contains an extensive consideration of High Court jurisprudence which guides the interpretation of legislative requirements in relation to corporate management, so as to determine whether a failure to comply is intended to invalidate, or render legally ineffective or unauthorised, actions purportedly taken by the corporation or its agents. In particular, he discussed Australian Broadcasting Corporation v Redmore Pty Ltd [1989] HCA 15; (1989) 166 CLR 454, Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355, and Master Education Services Pty Limited v Ketchell (2008) 236 CLR 101, [2008] HCA 38. The test is “whether it was a purpose of the legislation that an act done in breach of the provision should be invalid. In determining the question of purpose, regard must be had not only to the language of the relevant provision but also to the scope and object of the whole statute” (see Ketchell’s Case (supra) at [26]).
  4. Applying this test in relation to the bar raised by s.80D on owners corporations seeking legal services, Kirby J concluded on balance that the restriction on spending was intended for the benefit of owners, and that it had the effect that the owners corporation “lacked the capacity to bring its action against Mr Hall” as a unit owner (see [65]-[66]).
  5. As I shall explain, Mr McClymont’s submissions in the present case seek to extend the reasoning in Hall’s Case, to a case where there was no breach of s.80D and reg.15 by reason of the executive committee and its members lacking a reasonable estimate of legal costs, but where there was a breach of s.230A by reason of all other unit holders not being given a copy of the solicitor’s fee disclosure within seven days of the disclosure being made, or at all. I shall address this contention further, after making findings as to the relevant facts, and after addressing Mr McClymont’s other contentions.

The employment of the solicitor to take bankruptcy proceedings

  1. The evidence shows an extended series of meeting agenda items at general meetings of the present owners corporation and at meetings of its executive committee, which have purported to authorise the recovery of unpaid strata contributions from Mr and Mrs McClymont. It is clear that at each stage of the extensive litigation, it was thought appropriate that resolutions should be obtained authorising expenditure on the solicitor for the next or current stage of recovery. This is reflected, for example in three resolutions adopted at general meetings after the initial commencement of Local Court proceedings:
    1. An extraordinary general meeting on 9 July 2007, resolved “that the Owners continue to engage the services of Grace Lawyers Pty Ltd in the recovery of unpaid levies plus interest and costs due and payable by Lot 5 and continue acting on behalf of the Owners – Strata Plan 12139 in relation to Downing Centre Local Court proceedings 1366 of 2007 and 122303 of 2006 and all matters incidental thereto and to pay all of their costs in acting for the Owners as disclosed in the costs agreement and costs disclosure between Grace Lawyers Pty Ltd and the Owners – Strata Plan 12139 dated 21st May 2007”. The contents of the cited solicitor’s costs agreement and costs disclosure are not in evidence.
    2. An annual general meeting of the owners corporation on 28 November 2007 passed a resolution in the same opening terms as the previous one, with the extension “including but not limited to the enforcement of any judgment obtained in those proceedings or filing or defending any appeal of those proceedings (and all matters incidental thereto) and to pay all of their reasonable costs in acting on behalf of the Owners – Strata Plan 12139 in this regard)”. This resolution made no reference to there being any new costs disclosure and estimate given to unit holders prior to this meeting.
    3. The annual general meeting of the owners corporation on 10 November 2008 passed a resolution in the same terms as the previous meeting. There is no evidence that unit holders were given any new costs disclosure or estimate.
  2. Mr McClymont’s appeal from the Local Court judgments was argued before McCallum J on 15 September 2008, and her Honour gave judgment on 17 April 2009. The effect of the judgment was explained in a letter to the Owners from their solicitor dated 8 May 2009. The letter referred to a costs order in the appeal proceedings and recommended that it should not be pursued at that time, but it recommended that the Local Court judgments should be enforced through bankruptcy proceedings. The solicitor said: “we confirm that we have instructions to enforce both Local Court judgments by commencing bankruptcy proceedings against the McClymonts”. He suggested that the previous resolutions of the owners corporation were sufficient to engage his services in this respect, but said:
  3. The solicitor proposed a form of resolution “should the executive committee be minded to hold such a meeting”, and enclosed a costs agreement and costs disclosure “in acting on behalf of the Owners Corporation in the enforcement of the Local Court and Supreme Court Judgments”. He advised: “if you agree to its terms kindly table these documents at the executive committee meeting for approval and execution”.
  4. The enclosed ‘standard costs agreement’ described the proposed engagement as:
  5. The enclosed ‘standard costs disclosure’ set out hourly and other rates of charges, and included an estimate of $7,000.00 for “preparation of matter generally up to and including 1 day hearing”.
  6. I note that Mr McClymont does not contend that this was an unreasonable estimate of the costs of commencing and completing bankruptcy proceedings on behalf of the owners corporation, including an application for the issue of a bankruptcy notice, when given in May 2009. He conceded that it was permissible under s.80D(2) and reg.15(1)(a) for the executive committee to authorise the engagement of the solicitor to commence bankruptcy proceedings based on the Local Court judgments, taking into account the solicitor’s estimate and the number of total unit holders. He also did not dispute that the engagement of the solicitor subsequently occurred through the agency of the managing agent, in accordance with the costs agreement and its purported approval by the executive committee. However, he argued that the proceedings of the executive committee were invalid, when purporting to provide authorisation to the solicitor to procure the issue of a bankruptcy notice.
  7. The solicitor’s letter of 8 May 2009 and its enclosures were addressed and sent to the scheme’s managing agent, and was considered by its employee, Mr Cummins. He then prepared and signed a notice and agenda for a meeting of the executive committee of the owners corporation to be held on 19 May 2009. It is necessary to set out the whole of that notice, which was on the letterhead of Mr Cummins’ company Strata Partners Pty Ltd, and showed its full address and contact details:
  8. The solicitor’s letter suggests that the calling of such a meeting had previously been discussed between the relevant officers of the owners corporation, the managing agent and the solicitor. The fact that oral discussions occurred at around this time between Mr Cummins and Mr Morgan, who was the owners corporation secretary, and chairman of the executive committee tended, though unclearly, to be confirmed in the course of their oral evidence. Their evidence, considered in the light of the surrounding circumstances, causes me to find that Mr Morgan gave, in effect, a direction to Mr Cummins for the calling of a meeting to pass a resolution to authorise expenditure on employing the solicitor to pursue recovery through bankruptcy proceedings (compare Mr Cummins at transcript 28.10.09 p.13 line 35, also Mr Morgan at p.4 line 21). I find that Mr Cummins performed a secretarial or administrative role only, when preparing and signing the meeting notice, and I accept his evidence that he did not regard himself as exercising a delegated discretion as to the calling of the meeting and the instructing of the solicitor after the meeting (see transcript p.15 line 36).
  9. The evidence shows that the executive committee meeting occurred on 19 May 2009, that it adopted the resolution in exactly the same terms proposed in the meeting notice, and that the minutes showing this were confirmed at its subsequent meeting on 14 September 2009. No issue arises as to how the meeting was conducted, nor as to the subsequent implementation of the executive committee’s resolution, leading to the solicitor applying for a bankruptcy notice. The details of how this occurred do not need to be investigated in this judgment.
  10. In the course of submissions, I queried the date when the solicitor’s costs disclosure was “made” to the owners corporation, from which the seven days requirement for disclosure to “each owner and executive committee member” under s.230A should be calculated. This issue had not been focused upon in the evidence, and there was no cross-examination of Mr Cummins nor of Mr Morgan directed at it.
  11. As I have noted, the solicitor’s letter dated 8 May 2009 was addressed to the Secretary of the owners corporation ‘C/-’ the managing agent at the agent’s address, and Mr Cummins’ affidavit states that he received the enclosed costs agreement and disclosure on the same date. This might appear inconsistent with a date stamp of 12 May 2009 on the copy which was tendered at the hearing, but in the absence of questioning on the issue, I prefer to accept Mr Cummins’ sworn evidence that he received it on 8 May 2009. If his receiving it amounted to receipt by the owners corporation, and assuming in favour of the Owners that the disclosure was only ‘made’ on the date that it was received (cf Secretary, Department of Family and Community Services v Haagar [2001] FCA 1284; (2001) 115 FCR 25), then the seven day period elapsed on 15 May 2009.
  12. However, the official address of the owners corporation was the address of the home units on the Pacific Highway at Killara, since this was its address for service ‘of other documents’ under s.235(2) of the Strata Schemes Management Act in accordance with the Register of Title for the common property. It was also the address of the secretary of the owners corporation, Mr Morgan, and he gave evidence that he received “on or about” 14 May 2009 the solicitor’s letter, the solicitor’s costs agreement and the costs disclosure, together with a notice appointing an executive committee meeting on 19 May 2009 to consider the resolution suggested by the solicitor, and a form of alternate appointment. These documents are in evidence, and were received by Mr Morgan as a stapled bundle. He also gave evidence that he received another copy of the notice of the meeting, without any attachments, to affix to the notice board in the home units, and that he did this on the same day. Although Mr Morgan’s evidence in his affidavit made no mention of receiving the costs agreement and disclosure, this was clarified in his oral evidence, and I accept that he received it at the same time that he received the meeting notices. That this probably occurred no earlier than 13 May 2009 is confirmed by a contemporaneous posting record kept by Mr Cummins. This shows that he posted to ‘executive committee’ on 13 May 2009, 6 copies of the meeting notice with the stapled bundle of other documents, and also a single copy of the meeting notice without the documents referred to in the agenda.
  13. No submissions were made to me on the factual and legal issues concerning the date of the ‘making’ of the costs disclosure to the owners corporation for the purposes of the seven day requirement of s.230A. However, noting the short time scale provided in the section, and in the light of the purposes of the section and the placing of the obligation of disclosure specifically on ‘the owners corporation’, it seems appropriate that the time for disclosure should be calculated from the date that the relevant document is actually received by the secretary at the official address of the owners corporation, rather than by its managing agent. I therefore find that the solicitor’s costs agreement and disclosure was relevantly ‘made’ to the owners corporation on 13 or 14 May 2009, when they were received by Mr Morgan. I find that probably they were also ‘given’ to all the other members of the executive committee on or around the same time, since copies had been posted to them at the same time. Disclosure to members of the executive committee therefore occurred within seven days of its ‘making’ to the owners corporation. No breach of s.230A is established in relation to disclosure to these persons, and I find confidently that it is probable that they all had received the costs documents and considered their contents before or at their committee meeting which was held on 19 May 2009.
  14. The evidence as to whether the costs agreement and disclosure were ever shown to the other unit owners before or after that meeting is less clear. The solicitor for the Owners disputed that Mr McClymont had established that it was not given to them.
  15. Mr Morgan’s evidence is clear that he did not attach copies of the solicitor’s costs agreement and disclosure documents to the notice board with the agenda notice. Although the notice referred to these documents, and gave notice that the meeting would consider whether to ‘approve’ them, I do not consider that the publication of the meeting agenda in itself was enough to satisfy the s.230A requirement of disclosure to all unit owners.
  16. Mr McClymont’s affidavit evidence, which I admitted over objections, was that he and his wife, who are unit owners, had ‘not sighted’ and were not ‘circularised’ with the costs disclosure. I took his evidence to mean that they were not ‘given’ copies of these documents at any relevant time in any manner, and I accept that evidence. Mr McClymont was not cross-examined to the contrary. He also gave somewhat inconclusive evidence that his searches in the records of the owners corporation discovered no evidence of the disclosure of any relevant costs agreements to unit owners.
  17. No evidence was led by the Owners to show or suggest that at any time any action was taken in an attempt to ‘give’ the 8 May 2009 costs disclosure documents to unit owners who were not members of the executive committee, notwithstanding that compliance with s.230A was an apparent issue in the present proceedings. The Owners’ solicitor did not advise that this should happen in his letter of 8 May 2009, but advised only that the documents should be tabled at the meeting. Mr Cummins careful record of his copying and posting of the documents shows only that he gave them to the executive committee members. Taking into account all the evidence presented in the proceeding, and applying the axiomatic principle that “all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted” (see Russo v Aiello [2003] HCA 53; (2003) 215 CLR 643 at 647), I find on the balance of probabilities that no person on behalf of the owners corporation ‘gave’ a copy of the solicitor’s costs agreement and disclosure to those of the unit owners who were not members of the executive committee, including Mr and Mrs McClymont, neither within seven days after disclosure was ‘made’ to the owners corporation, nor at a later time prior to the engagement of the solicitor under that agreement and before his application for the bankruptcy notice on or about 23 June 2009.
  18. I make this finding notwithstanding that Mr McClymont did not put his own evidence to Mr Morgan and Mr Cummins in cross-examination, nor his contention that no disclosure was made to unit owners generally. I doubt that this was required under the ‘rule’ in Browne v Dunn (1894) 6 R 67 (discussed in Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1), since the issue was obviously raised in the proceedings. Moreover, a refusal to draw an inference for that reason may not be appropriate in relation to a self-represented litigant who is not legally qualified.
  19. Mr McClymont also disputes that he received earlier costs disclosures made to the owners corporation by its solicitor prior to the earlier resolutions of its general meetings and its executive committee meetings leading to the solicitor’s engagement at earlier stages of the litigation, and contends that s.230A was not observed in relation to any such disclosures. There is certainly no evidence that he was given earlier costs disclosures, and the dating and contents of any such disclosures, if they existed, is unclear. No admissions are made by the Owners as to what they contained, nor whether and when they were disclosed to unit owners.
  20. The contents and disclosure of such documents becomes an issue if I find that the engagement of the solicitor to procure the bankruptcy notice was not validly authorised by the 19 May 2009 meeting of the executive committee, but might have been authorised by earlier resolutions. This is an area of fact which was poorly explored in evidence and submissions, and I prefer not to make a finding about earlier costs disclosures. It is unnecessary for me to do so for two reasons. First, because I have concluded that the approval of the engagement of the solicitor by the executive committee on 19 May 2009 was not legally ineffective notwithstanding the partial non-compliance with s.230A which I have found. Secondly, because in my opinion it is not open to the Owners now to support the authorisation of the solicitor to commence bankruptcy proceedings by reliance upon earlier resolutions. This is because, in my opinion, the actions of Mr Morgan and the executive committee in relation to the meeting on 19 May 2009 were intended by them to provide a necessary step in the engagement of the solicitor to take the pursuit of Mr and Mrs McClymont into bankruptcy. Their actions reveal their opinion that this step should not occur without further authorisation, and their intention not to accept the solicitor’s advice that this was not necessary. In my opinion, if their actions in May 2009 were legally flawed, then the subsequent engagement of the solicitor pursuant to their resolution was unauthorised.

Mr McClymont’s contentions

  1. Mr McClymont summarised his grounds for setting aside the bankruptcy notice in his written submissions:
  2. In addition, in oral submissions, Mr McClymont argued that the terms of the resolution adopted by the executive committee on 19 May 2009 did not extend to the instructing of the solicitor to commence bankruptcy proceedings by procuring the issue of a bankruptcy notice.
  3. Mr McClymont’s submissions therefore present three contentions that the solicitor lacked authority validly given under s.80D(2) of the Strata Schemes Management Act and reg.15(1)(a), with the first contention containing three alternative arguments:
    1. The convening of the executive committee meeting on 19 May 2009 was irregular and invalidated the resolutions passed at the meeting, because:
      1. the agent, Mr Cummins, had no authority to convene the meeting, either in his capacity as managing agent, or as a delegate of the secretary’s power, or at ‘common law’; or
      2. the meeting notice was invalid, because it did not expressly identify the capacity in which Mr Cummins signed it; or
      3. the meeting was invalidly called, because the solicitors’ costs agreement and disclosure identified in the proposed resolution were not included with the copy attached to the notice board.
    2. The resolution passed by the executive committee did not in its terms authorise the engagement of the solicitor to apply for a bankruptcy notice.
    3. The resolution passed by the executive committee was legally ineffective, because the costs agreement and disclosure were not disclosed to all unit owners in accordance with s.230A of the Strata Schemes Management Act.
  4. In relation to the first issue, I shall assume – with some reservations – that any one of the argued irregularities, if they occurred, would lead to the resolution passed at the meeting being legally ineffective or invalid, and to the invalidity of the solicitor’s application for the bankruptcy notice. However, I do not consider that any of the arguments has substance.
  5. Mr McClymont referred me to s.22 of the Strata Schemes Management Act, which lists the functions of a secretary of an owners corporation, and includes the function under (f) “to convene meetings of the executive committee ...”. He also referred me to Sch.3 of that Act, which contains provisions concerning the constitution of an executive committee and its meetings. Clause 6 provides:
  6. Mr McClymont’s argument that Mr Cummins was invalidly exercising a power to convene meetings only given to the secretary of the owners corporation fails, in my opinion, upon my above finding of fact that the calling of the meeting was a decision of Mr Morgan, and that Mr Cummins was exercising only a ministerial or administrative function upon the instructions of Mr Morgan, when he prepared and forwarded the meeting notice to Mr Morgan and to the other members of the executive committee. It is therefore unnecessary for me to consider whether Mr Cummins would have had an independent power to convene the meeting arising from the terms of his engagement or under the legislation.
  7. I do not accept that the list of ‘functions’ of the secretary of an owner’s corporation in s.22(f) of the Strata Schemes Management Act excludes normal implications that a secretary can employ agents, including the unit scheme’s managing agent, to act on his or her behalf when performing these functions, at least so far as it might include signing a meeting notice if this was a requirement of the legislation (cf. the principle referred to in Deputy Commissioner of Taxation v Boxshall [1988] FCA 355; (1988) 19 FCR 435, cited in the Franciscan Missionaries Case (supra) at [6]).
  8. Mr Cummins clearly had contractual authority to provide secretarial and administrative services to Mr Morgan for the preparation of a meeting notice. His services were provided in accordance with a Strata Management Agency Agreement executed on 10 November 2008. This included the giving of ‘agreed services’ and ‘additional services’, which included in Sch.A1 “maintaining records relating to the scheme”, “issuing and serving notices to comply with a by-law”, “undertaking steps necessary to recover any money owing in relation to levies”, and “arranging and undertaking administrative duties in relation to annual general meetings and other general meetings”. Under Sch.A2, the agent was given the function of “arranging and undertaking administrative duties in relation to other meetings”, including “prepare and distribute notices of executive committee meetings”.
  9. Nor do I accept that there was any requirement that the meeting notice should expressly identify, on its face, the capacity in which Mr Cummins signed the notice of meeting. Clearly, the use of the strata manager’s letterhead identified him as a person signing on behalf of the managing agent and in the performance of a function of the strata scheme’s managing agent. Mr McClymont does not take issue that Mr Cummins had that capacity.
  10. Mr McClymont referred me to a statement in Joske’s Law and Procedure at Meetings in Australia, 10th Edition at [3.05], which states that “the manner in which the notice is given and the period of notice are also dictated by the constitution of the association”. A similar statement is given in Horsley’s Meetings, Procedure, Law and Practice, 5th edition, to which I was also referred. He gave particular reliance upon the statements in the latter text:
  11. However, these texts and the authorities they cite, do not assist Mr McClymont in the present case. He was unable to refer me to any provision in the legislation or by-laws governing the giving of notice of a meeting of this executive committee which required the notice to be “under the hand of an officer or officers as specified”. In the absence of an express requirement of this formality, I would not draw any implication from the provisions of Sch.3 cl.6, that Mr Morgan was required personally to sign every notice of meeting, nor, that he or his agent must expressly describe the capacity in which the meeting notice was signed. Indeed, I am doubtful whether any signature was required as a precondition to a valid meeting notice.
  12. Nor can I find in Sch.3 cl.6 any requirement that documents referred to in a meeting notice, including in the body of a proposed resolution, should be affixed to the notice board with the meeting notice. The language of cl.6(2)(a) and (3) seems to require only that the notice itself should be ‘displayed’ on the notice board and contain a ‘detailed agenda’. I can find nothing in the terms of s.230A which suggests that the disclosure required under that provision must include the displaying of a costs agreement and fees disclosure on the notice board, either with or without a relevant meeting notice.
  13. For all the above reasons, I do not accept any of the arguments of Mr McClymont in support of his challenges to the validity of the convening of the executive committee meeting on 19 May 2009.
  14. I also do not accept his second contention, that the engagement of the solicitor to apply for a bankruptcy notice was not authorised by the resolution passed at the executive committee meeting on 19 May 2009. Mr McClymont’s argument essentially is based upon the absence of express reference to bankruptcy proceedings as the solicitor’s work which was authorised. However, the resolution included ‘enforcement of’ the Local Court judgments, and approved a costs agreement which expressly included the work of “issuing bankruptcy notices”. In my opinion, taking into account the stage reached in the litigation with Mr and Mrs McClymont, the content of the solicitor’s fees agreement identified in the resolution, and the other surrounding circumstances, the resolution’s reference to “services ... in the recovery of” the two identified Local Court judgments should be read as encompassing the work of applying for a bankruptcy notice on behalf of the owners corporation.
  15. Turning to Mr McClymont’s third contention, the effect of the owners corporation’s partial non-compliance with s.230A is not clear. On my above findings, the costs agreement and costs disclosure were duly disclosed to the members of the executive committee before or at their meeting, and they had the capacity to be satisfied that they had a “reasonably estimated cost of ... having the legal services provided or taking the legal action”, for the purposes of reg.15(1). The reasoning of Kirby J in Hall’s Case (supra) is, therefore, inapplicable to the present case.
  16. However, Mr McClymont argued that the failure to disclose the documents to all unit owners, himself included, prior to the meeting might have had a material effect on the outcome of the meeting. He suggests that, if its contents had been known, he might have lobbied successfully for the owners corporation not to have pursued him and his wife into bankruptcy. He points to the rights of an unit owner who is not a member of the committee, under Sch.3 to the Strata Schemes Management Act to have notice of the meeting with “a detailed agenda for the meeting” (cl.6(3)), to attend the meeting without addressing it (cl.14), and to endeavour before the meeting to collect a ‘blocking’ opposition notice from one-third of the aggregate unit entitlements (cl.11(2)).
  17. Whether any of these possibilities would have been at all likely in the present case, if the unit owners had been given the solicitor’s costs documents as well as the meeting notice on the notice board, is something which is entirely speculative on the present evidence. However, Mr McClymont can point to these avenues being available in the procedural code contained in the Schedules to the Strata Schemes Management Act as an aid to understanding the legislative scheme, when attempting to discern the legislature’s intentions in relation to a non-observance of s.230A.
  18. The legislative intentions are difficult to discern from the terms and location of s.230A in the Act. The section indicates no consequence for a non-compliance with its direction requiring disclosure. The Act is silent whether it intends a failure of disclosure to carry any consequence, in particular, by leading to the legal ineffectiveness of a valid authorisation of legal expenses under s.80D. Accepting the correctness of Kirby J’s conclusion that compliance with s.80D is mandatory before any legal action can be commenced, the language of that provision and the consequence identified by Kirby J might appear to provide the only intended legal restraint upon the commencement of a legal proceeding. If so, s.230A is a disclosure provision carrying no direct sanction in relation to the valid commencement of legal proceedings covered by a costs disclosure.
  19. As was pointed out by the Owners’ solicitor, a unit owner who did not receive a disclosure required by s.230A is not left without any remedy under the Act. Rather, he or she has access to the dispute adjudication processes available under Ch.5, in which an adjudicator, and a Tribunal on appeal, can address any injustice arising from the non-disclosure. Orders can be made to compel disclosure (cf. Dalsiz Pty Ltd v The Owners SP 47301 (Strata and Community Schemes) [2008] NSWCTTT 930 at p.6), and the significance of any non-compliance upon a resolution taken by the executive committee can be addressed when considering whether to invalidate the resolution under s.153. These remedies are able to be given in a much more sophisticated manner, than the blunt instrument of a principle of invalidity ab initio.
  20. Mr McClymont invoked a passage in the Minister’s second reading speech, as indicating his intentions in relation to the 2004 amending legislation which inserted both ss.80D and 230A:
  21. This passage does suggest an intention that disclosure should precede the taking of a resolution at a general meeting of all unit owners to incur legal expenses. However, it is ambiguous as to the consequences of this not occurring. More significantly, the Minister overlooked that the amending legislation did allow for legal expenses to be incurred by decision of the executive committee, in relation to an exempt class of relatively inexpensive legal services. I find it difficult to distil from this speech, a clear intention that disclosure must occur in all cases before such a decision is taken by an executive committee, even if this intent were confined to legal action against a unit owner as distinct from other debtors – as did Kirby J in Hall’s Case in relation to the s.80D formalities.
  22. Weighing up the above matters, together with the considerations identified by Kirby J under the general principles in relation to the directory/mandatory classification of procedural restrains on corporate management, and also benefiting from his Honour’s discussion of their application to a related – but different – section of the Strata Schemes Management Act, I have concluded that the Act did not intend that the executive committee’s resolution should be treated as invalid in the present circumstances, and as legally ineffective to authorise the solicitor to seek recovery from Mr and Mrs McClymont by way of the issue of a bankruptcy notice. In my opinion, in view of the alternative, more flexible, remedies given to them by the Act in relation to a departure from s.230A, and in view of the separate and clearer formal requirement imposed on the owners corporation by s.80D concerning the incurring of legal expenses, the Act should not be construed to have this effect in the present circumstances.
  23. I therefore do not accept the third contention argued by Mr McClymont. Since I reject all his challenges to the bankruptcy notice, I must dismiss his application.
  24. As was raised at the hearing, it is appropriate for me to consider whether to allow Mr McClymont a short time to consider this judgment before being required to comply with the bankruptcy notice. I shall therefore invite further submissions on whether I should give my orders a delayed date of effect and extend time for compliance until that date. If Mr McClymont then wished to extend that time during an appeal, he would need to make an urgent interim application to the Federal Court.
  25. I note that, when writing this judgment I had no regard to a document headed ‘applicants’ chronology’ which was filed by Mr McClymont without leave to do so, after I had reserved my judgment. It should have been clear to him from my previous oral and written directions, that his opportunities to present evidence and submissions to the Court were concluded at the hearing.

I certify that the preceding sixty-five (65) paragraphs are a true copy of the reasons for judgment of Smith FM


Associate: Lilian Khaw


Date: 13 November 2009

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