The Owners - Strata Plan 5709 v Andrews [2009] NSWCA 189 (10 July 2009)

NEW SOUTH WALES COURT OF APPEAL

CITATION:
The Owners - Strata Plan 5709 v Andrews [2009] NSWCA 189

FILE NUMBER(S):
40319/08

HEARING DATE(S):
3 June 2009

JUDGMENT DATE:
10 July 2009

PARTIES:
THE OWNERS STRATA PLAN No.5709 (appellant)
Anthony ANDREWS (first respondent)
Michele ANDREWS (second respondent)

JUDGMENT OF:
Hodgson JA Tobias JA Young JA

LOWER COURT JURISDICTION:
District Court

LOWER COURT FILE NUMBER(S):
DC 3831/06

LOWER COURT JUDICIAL OFFICER:
O'Toole DCJ

LOWER COURT DATE OF DECISION:
17 June 2008, 17 July 2008

COUNSEL:
B A COLES QC/ P M BARHAM (appellant)
R BEECH-JONES SC/ BELLAMY/ ADAIR (respondents)

SOLICITORS:
Grace Lawyers (appellant)
Diamond Conway (respondents)

CATCHWORDS:
STRATA SCHEMES – Orders appointing strata managing agents to exercise all the functions of an owners corporation – Meetings at which resolutions raising levies purportedly passed – Whether strata managing agent exercised the function of the owners corporation at such meetings – Whether there were limitations on the appointment of the strata managing agents – Whether certain functions of the owners corporation still had to be exercised at properly constituted meetings.

LEGISLATION CITED:
Strata Schemes Management Act 1996 ss 3, 27, 28, 31, 32, 62, 66, 69, 75, 76, 78, 79, 80, 80D, 149, 153, 162, Schedule 2.

CATEGORY:
Principal judgment

CASES CITED:
Re Compaction Systems Pty Limited [1976] 2 NSWLR 477
Royal Mutual Benefit Building Society v Sharman [1963] 1 WLR 581
Smith v The Body Corporate of Strata Plan No 22669 (1997) NSW Titles Cases 80-046

TEXTS CITED:

DECISION:
(1) Appeal allowed.
(2) The judgment and orders of the District Court of New South Wales made on 3 July and 17 July 2008 in proceedings 3831 of 2006 are set aside.
(3) Judgment be entered in favour of the appellant in the sum of $255,685.62, to take effect as at 3 June 2009.
(4) Order that the respondent in addition pay interest on unpaid levies up to and including 3 June 2009, pursuant to section 79 of the Strata Schemes Management Act 1996, in the sum of $77,664.11, this order also to take effect as at 3 June 2009.
(5) Order that the respondents pay the costs of the proceedings in the District Court of New South Wales.
(6) Order that the respondents pay the costs of the appeal, and that they have a certificate under the Suitors’ Fund Act 1951 if otherwise eligible.

JUDGMENT:

1 HODGSON JA: Strata Plan 5709 consists of two townhouses, two carport garages and common property situated in Cremorne. The respondents Mr and Mrs Andrews are registered proprietors as joint tenants of Lot 2 in that Strata Plan, and are entitled to forty per cent of strata scheme units. Mr and Mrs Metford are registered proprietors of Lot 1 in the Strata Plan, and are entitled to sixty per cent of the strata scheme units. The appellant (OSP) is the owners corporation for this strata scheme, which, pursuant to s 8 of the Strata Schemes Management Act 1996 (the Act), has the principal responsibility for the management of the scheme.

2 OSP brought proceedings in the District Court against Mr and Mrs Andrews claiming unpaid levies, interest and costs pursuant to s 80 of the Act. Mr and Mrs Andrews defended the proceedings, and put on a cross-claim against OSP claiming an indemnity in relation to the requirement to pay unpaid levy contributions.

3 On 3 July 2008, pursuant to reasons given on 17 June 2008, O’Toole DCJ made orders giving a verdict for Mr and Mrs Andrews on OSP’s claim, dismissing the cross-claim, ordering OSP to pay Mr and Mrs Andrews’ costs of the proceedings, and making an order pursuant to s 229 of the Act that the costs payable by OSP be paid from contributions only against Lot 1 in Strata Plan 5709.

4 On 17 July 2008, the primary judge made a further order that any costs of OSP incurred in the proceedings were not payable in any part by Mr and Mrs Andrews.

6 The Act provides for management of strata schemes, and also for the resolution of disputes arising in connection with the management of strata schemes (s 3).

7 Part 4 of Chapter 2 of the Act deals with strata managing agents, who may be appointed by the owners corporation (s 27). Functions of the owners corporation may be delegated to a strata managing agent, pursuant to s 28, subs (1) and (3) of which provide:

28 What functions of an owners corporation can a strata managing agent exercise?

(1) An owners corporation may, by the instrument appointing a strata managing agent or some other instrument, delegate to the strata managing agent:

but only if authorised to do so by a resolution at a general meeting and subject to subsection (3).

(3) An owners corporation cannot delegate to a strata managing agent its power to make:

(b) a decision on a matter that is required to be decided by the owners corporation, or

8 The Dictionary to the Act contains the following definition of “function”:

9 Further provisions concerning the exercise of functions by strata managing agents are ss 31 and 32 of the Act:

(1) A strata managing agent who exercises a function of an owners corporation must, immediately after its exercise, make a written record specifying the function and the manner in which it was exercised.

(2) The strata managing agent must serve a copy of the written record on the owners corporation.

32 Exercise of functions of strata managing agent appointed by an Adjudicator

(a) the function cannot, while the strata managing agent holds office, be exercised by any other person, and

(b) anything done or suffered by the strata managing agent in the exercise of the function has the same effect as it would have if the function were exercised by the person who, but for paragraph (a), could have exercised it.

62 What are the duties of an owners corporation to maintain and repair property?

(1) An owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation.

(2) An owners corporation must renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the owners corporation.

(3) This clause does not apply to a particular item of property if the owners corporation determines by special resolution that:

(b) its decision will not affect the safety of any building, structure or common property in the strata scheme or detract from the appearance of any property in the strata scheme.

11 Part 3 of Chapter 3 of the Act deals with the finances of strata schemes. The owners corporation is required to establish an administrative fund (s 66), generally for recurrent expenses, and also a sinking fund (s 69), generally for substantial repairs and improvements.

12 The levy of contributions is dealt with in Division 2 of Part 3 of Chapter 3. Relevant sections are ss 75, 76, 78, 79 and 80:

75 Estimates to be prepared of contributions to administrative and sinking funds

(1) An owners corporation must, not later than 14 days after the constitution of the owners corporation and at each annual general meeting after that, estimate how much money it will need to credit to its administrative fund for actual and expected expenditure:

(a) to maintain in good condition on a day-to-day basis the common property and any personal property vested in the owners corporation, and

Note. Recurrent expenses would include such regular expenses as insurance, water charges, electricity charges, carpet cleaning, lawnmowing services and the like and minor expenses relating to maintenance of the common property.

(2) An owners corporation must, at each annual general meeting, estimate how much money it will need to credit to its sinking fund for actual and expected expenditure:

(a) for painting or repainting any part of the common property which is a building or other structure, and

(d) to renew or replace fixtures and fittings that are part of the common property, and

Note. Expenses of a capital nature would include expenses in relation to major repairs or improvements to the common property or personal property of the owners corporation, such as painting of a building or replacement of roofing, guttering or fences and the like.

(3) When estimating amounts needed to be credited to the administrative fund or the sinking fund the owners corporation must have before it, and take into account, a statement of the existing financial situation of the strata scheme and an estimate of receipts and payments.

(4) In estimating amounts to be credited to the sinking fund, an owners corporation that is required to prepare a plan under section 75A is to take into account anticipated major expenditure identified in the plan for the 10-year period to which the plan relates.

(5) An owners corporation of a large strata scheme must include in the estimates prepared under this section at an annual general meeting specific amounts in relation to each item or matter on which the owners corporation intends to expend money, or on which the owners corporation is aware money will be likely to be expended, in the period until the next annual general meeting.

76 Owners corporation to set levy for contributions to administrative and sinking funds

(1) The owners corporation must determine the amounts to be levied as a contribution to the administrative fund and the sinking fund to raise the amounts estimated as needing to be credited to those funds.

(2) That determination must be made at the same meeting at which those estimated amounts are determined.

(3) The owners corporation must levy on each person liable for it such a contribution.

(4) If the owners corporation is subsequently faced with other expenses it cannot at once meet from either fund, it must levy on each owner a contribution to the administrative fund, determined at a general meeting of the owners corporation, in order to meet the expenses.

(5) A contribution is, if an owners corporation so determines, payable by such regular periodic instalments as are specified in the determination setting the amount of the contribution.

(1) An owners corporation levies a contribution required to be paid to the administrative fund or sinking fund by an owner of a lot by serving on the owner a written notice of the contribution payable.

(2) Contributions levied by an owners corporation must be levied in respect of each lot and are payable (subject to this section and section 77) by the owners in shares proportional to the unit entitlements of their respective lots.

(3) If, at the time a person becomes owner of a lot, another person is liable in respect of the lot to pay a contribution, the owner is jointly and severally liable with the other person for the payment of the contribution and interest on the contribution.

(4) A mortgagee or covenant chargee in possession of a lot (whether in person or not) is jointly and severally liable with the owner of the lot:

(a) for any regular periodic contributions to the administrative fund or sinking fund together with any interest on those contributions, and

(b) for any other contribution together with interest on that contribution if the mortgagee or covenant chargee has been given written notice of the levy of the contribution.

(5) Subsection (4) does not affect the liability of an owner of a lot for any contribution levied under this section.

(6) Regular periodic contributions to the administrative fund and sinking fund of an owners corporation are taken to have been duly levied on an owner of a lot even though notice levying the contributions was not served on the owner.

(1) Any contribution levied by an owners corporation becomes due and payable to the owners corporation in accordance with the decision of the owners corporation to make the levy.

(2) A contribution, if not paid at the end of one month after it becomes due and payable, bears until paid simple interest at an annual rate of 10 per cent or, if the regulations provide for another rate, that other rate.

(3) However, an owners corporation may by special resolution determine (either generally or in a particular case) that a contribution is to bear no interest.

(4) An owners corporation may, by special resolution, determine (either generally or in a particular case) that a person may pay 10 per cent less of a contribution levied if the person pays the contribution before the date on which it becomes due and payable.

80 How does an owners corporation recover unpaid contributions and interest?

(1) An owners corporation may recover as a debt a contribution not paid at the end of one month after it becomes due and payable, together with any interest payable and the expenses of the owners corporation incurred in recovering those amounts.

(2) Interest paid or recovered forms part of the fund to which the relevant contribution belongs.

13 Division 3 of Part 3 of Chapter 3 imposes limitations on spending. The section relevant to this case is s 80D:

(1) An owners corporation or executive committee of an owners corporation must not seek legal advice or the provision of any other legal services, or initiate legal action, for which any payment may be required unless a resolution is passed at a general meeting of the owners corporation approving the seeking of the advice or services or the taking of that action.

(2) The regulations may make provision for or with respect to exempting any type of legal service or legal action from the operation of this section.

14 Chapter 5 of the Act provides for resolution of disputes concerning the operation and management of strata schemes. It provides for applications to resolve disputes, mediation of disputes, and resolution of disputes by orders made by Adjudicators appointed under the Act and by the Consumer, Trader and Tenancy Tribunal (CTTT). Among orders that Adjudicators can make are those set out in s 149, s 153 and s 162:

149 Order for variation of contributions levied or manner of payment of contributions

(1) An Adjudicator may make either or both of the following orders if the Adjudicator considers that any amount levied or proposed to be levied by way of contributions is inadequate or excessive or that the manner of payment of contributions is unreasonable:

(2) If an Adjudicator considers that the consent of an owner referred to in section 77 has been unreasonably refused, the Adjudicator may make an order for payment of a different amount of one or more contributions levied or proposed to be levied by the owners corporation.

(3) If a contribution which is the subject of an order under this section has been wholly or partly paid:

(a) an order to pay more has effect as if the owners corporation had decided to levy a contribution equal to the difference, and

(b) an order to pay less imposes a duty on the owners corporation to refund the difference.

(4) An application for an order under this section may be made only by the lessor of a leasehold strata scheme, an owners corporation, an owner or by a mortgagee in possession (whether in person or not).

(1) An Adjudicator may make an order invalidating any resolution of, or election held by, the persons present at a meeting of an owners corporation if the Adjudicator considers that the provisions of this Act have not been complied with in relation to the meeting.

(2) An Adjudicator may refuse to make an order under this section but only if the Adjudicator considers:

(a) that the failure to comply with the provisions of this Act did not adversely affect any person, and

(b) that compliance with the provisions of this Act would not have resulted in a failure to pass the resolution or have affected the result of the election.

(3) An application for an order under this section may be made only by an owner or first mortgagee of a lot.

(1) Order appointing strata managing agent to exercise functions of owners corporation

An Adjudicator may also order, when appointing a strata managing agent under this section, that the strata managing agent is to have and may exercise:

(a) all the functions of the chairperson, secretary, treasurer or executive committee of the owners corporation, or

(b) specified functions of the chairperson, secretary, treasurer or executive committee of the owners corporation, or

(c) all the functions of the chairperson, secretary, treasurer or executive committee of the owners corporation other than specified functions.

An Adjudicator may make an order under this section, without an application having been made for the order, but only if satisfied that the management structure of a strata scheme the subject of an application under this Chapter is not functioning or is not functioning satisfactorily.

An Adjudicator may make an order under this section, on application, but only if satisfied that:

(a) the management structure of a strata scheme the subject of an application under this Chapter is not functioning or is not functioning satisfactorily, or

(b) an owners corporation has failed to comply with a requirement imposed on the owners corporation by an order made under this Act, or

(b) have given consent in writing to the appointment, which consent, in the case of a strata managing agent that is a corporation, may be given by the chief executive officer of the corporation.

A strata managing agent may be appointed under this section on such terms and conditions (including terms and conditions relating to remuneration by the owners corporation and the duration of appointment) as may be specified in the order making the appointment.

An order made in the circumstances referred to in subsection (3) may be revoked or varied by an Adjudicator on the application of a person entitled to make an application for an order under this section and, unless sooner revoked, ceases to have effect at the expiration of such period after its making (not exceeding 12 months) as is specified in the order.

(a) a person who obtained an order under this Act that imposed a duty on the owners corporation or on its executive committee, chairperson, secretary or treasurer and that has not been complied with, or

(b) a person having an estate or interest in a lot in the strata scheme concerned or, in the case of a leasehold strata scheme, in a lease of a lot in the scheme, or

15 Schedule 2 of the Act deals with meetings and procedures of the owners corporation. Clause 32 requires that notice of a general meeting of an owners corporation must, at least seven days before the meeting be served on each owner.

16 Prior to 22 May 2003, there was a long history of disputes between Mr and Mrs Andrews and Mr and Mrs Metford. On that day, an adjudicator made the following order, among others:

1. I appoint John Patman, trading as John Patman Strata Management licence number 895053) as strata manager of Strata Scheme SP 5709 with all the powers of the owners corporation executive committee, chairperson, secretary and treasurer of the owners corporation for a period of 12 calendar months commencing 23 June 2003.

17 On 25 August 2003, a meeting was held, attended by Mr Patman, the strata managing agent appointed by the order of 22 May 2003, by Mr and Mrs Metford and by Mr and Mrs Andrews. The following minutes were prepared by Mr Patman and later given to the unit holders:

18 On 27 August 2003, a further meeting was held attended by the same persons. The following minutes were prepared by Mr Patman, and later given to the unit holders:

ii) reseal common area and carport floors with new membrane and re-surface the whole area $20,000

iii) investigate water penetration and tree root damage and removal of trees $10,000

19 Mr and Mrs Andrews did not pay the special levies that were the subject of resolutions at those meetings; and on 5 November 2003 Mr Patman sent a letter to them in the following terms:

20 In 2005, further applications were made under Chapter 5 of the Act by both of the sets of unit holders. On 5 October 2005 an Adjudicator made the following orders:

1. I appoint Bright and Duggan Pty Ltd (Licence No: 119232) as strata manager of strata scheme SP 5709 with all the powers of the owners corporation, executive committee, chairperson, secretary and treasurer of the owners corporation for a period of 12 calendar months commencing on 1 October 2005.

3. Bright and Duggan Pty Ltd is to provide the services set out in the draft agreement for appointment of a strata manager annexed to the reasons for these orders and marked “A” in accordance with the schedule of fees and charges set out in that draft agreement.

21 In his reasons for that decision, the Adjudicator noted that Bright and Duggan Pty Limited (Bright and Duggan) “has consented in writing to appointment”. The draft agreement referred to in order 3 included a Schedule of Services and a Schedule of Charges. It was in a standard form under the letterhead of the Institute of Strata Title Management Limited; and in addition to providing for functions and charges, it contained the following clauses:

The Owners corporation appoints the Strata Manager under Section 26 of the Act to be its Strata Managing Agent, as defined in the Agents Act.

2.1 The functions of the Owners Corporation, its Executive Committee and its chairperson, secretary and treasurer are delegated to the Strata Manager.

(b) to make a decision that is required to be decided by the Owners Corporation;

22 Bright and Duggan employed Bart Jaworski as its manager of strata schemes, and he acted for Bright and Duggan in connection with this strata scheme.

23 On 29 March 2006, a meeting was held at the office of Bright and Duggan. Mr Jaworski prepared the following minutes of the meeting:

MOTION 1: Minutes	Resolved to adopt the minutes of the extraordinary general meeting held 6 June 2005.
MOTION 2: Waterproofing works	Resolved that Consolidated Quality Projects Pty Ltd be appointed to carry out stage 1 works in accordance with the tender document at a price of $110,473 including GST. The managing agent provided samples of tiles to the Owners to choose. The works are scheduled to commence immediately pending Council's approval for works on Council's property, expected to be granted within 14 days. Mr and Mrs Metford preferred a light off-grey colour. Owners were asked to provide the strata manager with their preferred tiles specifications within 14 days of the meeting. Mr Andrews did not give an opinion as to the tiles, as he stated that his property is not leaking. It was noted that the Consumer, Trader & Tenancy Tribunal released Mr Andrew's previous tenants from the lease due to water penetration, and that the real estate agent, Ms Ghilardi, had advised the strata manager by email on 18 January 2006 that lot 2 had water penetration. Ms Ghilardi requested adjournment of the meeting citing the need for a second opinion regarding the works. As the building condition report provided by Komplete Properties Pty Ltd and dated 7 December 2005 was emailed to both owners on 12 December 2005 seeking comment it was determined not to adjourn the meeting and delay further at this stage. It was noted that Mr and Mrs Metford had communicated with the strata manager regarding common property repairs, while Ms Ghilardi advised by facsimile dated 31 January 2006 that Mr Andrews is "happy to take necessary repairs".
MOTION 3: Other works	The managing agent stressed that if the owners worked together to improve the property it could bring great financial benefits, especially if cosmetic works are carried out in accordance with stage 2 of the Komplete Properties report. It was noted that the handrails need upgrading as these do not meet the current Building Code of Australia standards. Though Mr and Mrs Metford supported further improvements Mr Andrews did not.
MOTION 4: Discounts	Motion withdrawn.
MOTION 5: Special Levy	The strata manager asked Mr Andrews to pay his outstanding special levy raised in respect of the waterproofing works, so that it would not be necessary to raise further funds. Mr Andrews declined. The strata manager informed the owners that a solicitor will be instructed to issue a statement of claim as soon as possible to recover the outstanding special levy. Resolved as amended that a special contribution of $120,000 be raised to pay for the waterproofing works, due and payable in one instalment on 1 May 2006.

24 On 2 June 2006, there was a meeting attended by Mr Jaworski alone. Mr Jaworski prepared the following minutes of that meeting:

Attendance:	Bart Jaworski (Bright & Duggan Pty Ltd).
MOTION 1: Minutes	Resolved that the minutes of the extraordinary general meeting held 29 June 2006 be approved.
MOTION 2: Grace Lawyers	The Owners – Strata Plan No 5709 resolved to ratify the engagement of Grace Lawyers Pty Ltd as contained in the costs disclosure dated 21 April 2006 and approved in the minute of delegated authority dated 21 April 2006.
MOTION 3: Lot 2 District Court Proceedings	The Owners – Strata Plan No 5709 resolved to commence action in the District Court of NSW against the owner of lot 2 for the recovery of levy contributions (and any interest or other costs) due and payable under the Strata Schemes Management Act 1996.
MOTION 4: Grace Lawyers	The Owners – Strata Plan No 5709 resolved pursuant to section 80D of the Strata Schemes Management Act 1996 to engage Grace Lawyers Pty Ltd as contained in the costs disclosure dated 2 June 2006 to carry out the recovery of levy contributions as contained in Motion 3.
MOTION 5: Barrister	The Owners – Strata Plan No 5709 resolved pursuant to section 80D of the Strata Schemes Management Act 1996 to engage a Barrister to assist in the recovery of levy contributions as contained in Motion 3 and disclosed in the cost disclosure in the Grace Lawyers cost dated 2 June 2006.

26 On 21 August 2006, there was a meeting attended by Mr Jaworski alone. He prepared the following minutes of that meeting:

Attendance:	Bart Jaworski (Bright & Duggan)
MOTION 1: Minutes	*Resolved* that the minutes of the extraordinary general meeting held 2 June 2006 be approved.
MOTION 2: Financials	*Resolved* that the audited statement of financial position and statement of financial performance for the year ended 30 June 2006 be adopted.
MOTION 3: Auditor	*Resolved* that the accounts and financial statements be audited to Australian Auditor Standards for the financial year ending 30 June 2007, for presentation to the next annual general meeting.
MOTION 4: Budget and contributions	a) *Resolved* that the contributions to the administrative and sinking funds be determined per annum including GST on a continuing basis at: Administrative fund $34,540 Sinking fund $10,000 b) *And* that both contributions be paid in equal quarterly instalments, effective from 1 October 2006.
MOTION 5: Executive committee	*Resolved* that, as the strata managing agent has been appointed by the Consumer, Trader and Tenancy Tribunal to exercise all the functions of the owners corporation, the chairperson, the secretary, treasurer and executive committee, an executive committee not be elected at this time.
MOTION 6: Insurance	*Resolved* to confirm the insurances.
MOTION 7: Insurance renewal	*Resolved* that the strata manager seek an alternative quotation and accept the least expensive insurance policy.
MOTION 8: Revaluation	*Resolved* that a revaluation be carried out for insurance purposes, and that the strata manager alter the sum insured on the building and common property in accordance with any building valuation that the owners corporation may from time to time receive.
MOTION 9: Change of address for service of notices	*Resolved* that the strata manager be authorised and instructed to arrange change the owners corporation's address for service of notices to Bright & Duggan Pty Ltd's address.

27 On 24 August 2006, there was a meeting attended by Mr Jaworski alone. He prepared the following minutes of that meeting:

Attendance:	Bart Jaworski (Bright & Duggan Pty Ltd)
MOTION 1: Minutes	*Resolved* that the minutes of the annual general meeting held 21 August 2006 be approved.
MOTION 2: Carports repairs	*Resolved* that the carports be repaired and that Fluid Building Service Pty Ltd be appointed to carry out the works in accordance with the quote number 5709/01 dated 15 August 2006 at $61,194 including GST.
MOTION 3: Special levy	*Resolved* that a special contribution of $115,000 be raised in accordance with section 76(4) and (5), for the carports repairs. Due and payable on 15 September 2006.

28 Further applications were then made by both sets of unit holders under Chapter 5 of the Act. The Adjudicator gave reasons for decision on 23 February 2007. In those reasons, the Adjudicator identified the applications as follows:

1. That contributions purported to be levied by the Owners Corporation be reduced to such amount as the Adjudicator considers reasonable once the form (sic) Strata Managing Agent has provided full details of:

iii. Details of the insurance and licenses of any builders retained by the Strata Managing Agent

2. An order that any claim for contribution to date be declared null and void by reason of breach of Section 31 and Section 235 of the Strata Schemes (NSW) (sic) 1996 ('the Act') and/or Clause 2.2(c) of the terms of agreement of the Strata Managing Agent made on 22 June 2006.

3. An order under Section 800 of the Act that the Strata Managing Agent repay to the Owners Corporation any amounts paid to Grace Lawyers Pty Limited in respect of their costs disclosure and retainer dated 21 April 2006 and estimated to total $1,859.00.

29 The Adjudicator’s orders dismissed Mr Andrew’s application, and appointed Bright and Duggan to act as strata manager for the period 1 March 2007 to 28 February 2008, to exercise all the functions of the owners corporation.

30 A further meeting attended by Mr Jaworski alone was held on 27 July 2007, as an annual general meeting of OSP. Among the motions at that meeting recorded in minutes prepared by Mr Jaworski was the following:

MOTION 12:
Special levy

Resolved that a special contribution of $200,000 be raised in accordance with section 76(4) and (5), for the legal costs to recover the outstanding levies owed by the proprietor of Lot 2 and concrete cancer repairs. Due and payable on 15^th August 2007. The amount of $200,000 was calculated as follows:

Special levy raised 200000

Less GST 20000

180000

Discounts available to Owners
(assuming Lot 2 does not pay) 12000

168000

40% not paid by Lot 2
(assumption on passed experience) 80000

88000

provision for further legal fees 37000

first estimate of cost to repair
concrete cancer 13340

Creditors outstanding * 20000 70340

Working capital 17660

* Whether Lot 2 pays the levy or not the Insurance, Water, management fees and the day to day running cost of the strata plan still have to be paid. As long as Lot 2 does not pay levies high special levies will have to be raised to cover the outgoings. The Body Corporate can not live on 60% of its levies paid promptly by the owners of Lot 1.

31 The statement of claim in these proceedings was amended on 4 February 2008, and the defence and the cross-claim were amended on 21 February 2008. The case was heard by the primary judge on various days between 20 February 2008 to 4 March 2008.

32 As regards the meetings held in August 2003, the primary judge held that Mr Patman did not act as the owners corporation of Strata Plan 5709 at those meetings; that if Mr Patman had all the powers of the owners corporation under the Adjudicator’s orders, he delegated those powers to Mr and Mrs Metford and Mr and Mrs Andrews in contravention of s 32 of the Act; and that otherwise Mr and Mrs Andrews’ votes against the motions would have defeated them. In addition, she was not satisfied that OSP had notified Mr and Mrs Andrews of their contribution.

33 As regards later events, the primary judge concluded that Bright and Duggan’s consent to their appointment was on terms set out in the draft agreement annexed to the orders of the Adjudicator, and thus did not extend to delegation by the owners corporation of its power to make decisions on matters required by the Act to be decided by the owners corporation or relating to the levying or payment of contributions. On that basis, the primary judge held that the instructions to lawyers to commence the proceedings contravened s 80D of the Act.

34 As regards the meeting of 29 March 2006, the primary judge held that, if Bright and Duggan had all the powers of the owners corporation, Mr Jaworski delegated those powers to Mr and Mrs Metford and to Mr Andrews in contravention of s 32 of the Act; and that otherwise the Andrews’ voting against the motion for a special contribution would have defeated that motion. Also, she was not satisfied that OSP had notified Mr and Mrs Andrews of their contribution.

35 As regards the meeting on 2 June 2006, the primary judge was not satisfied that Mr Jaworski made the resolution set out in the minutes; or that Mr Jaworski complied with s 75 of the Act in determining at that meeting whatever special contribution Mr and Mrs Andrews may have been liable to pay; or that OSP duly notified Mr and Mrs Andrews of whatever contribution was payable.

36 As regards the meeting on 21 August 2006, the primary judge was not satisfied that Mr Jaworski complied with s 75 of the Act by determining at that meeting whatever special contribution Mr and Mrs Andrews may have been liable to pay; or that OSP duly notified Mr and Mrs Andrews of whatever contribution was payable.

37 As regards the meeting on 24 August 2006, the primary judge held that the resolution that a special contribution of $115,000 be raised was ineffective because it significantly exceeded the relevant quotations and thus exceeded the maximum amount permitted by ss 75 and 76 of the Act; and she was not satisfied that OSP had duly notified Mr and Mrs Andrews of whatever contribution was payable.

38 As regards the meeting on 27 July 2007, the primary judge held that the resolution that a special contribution of $200,000 be raised was ineffective, because the amount significantly exceeded what was required and thus exceeded the maximum amount permitted by ss 75 and 76 of the Act; and she was not satisfied that OSP duly notified Mr and Mrs Andrews of whatever contribution was payable.

1. The primary judge erred in dismissing the proceedings (paragraph [217] of the judgment delivered on 17 June 2008 ("the judgment").

a. The strata managers Bright & Duggan Pty Ltd and John Patman Strata Management ("the strata managers") had been duly appointed pursuant to section 162 of the Strata Schemes Management Act, 1996 ("the SSMA") with the full powers of the Owners Corporation (paragraphs [174], [175], [177-180] of the judgment);

b. The strata managers, having been duly appointed pursuant to section 162 of the Strata Schemes Management Act, had not (and could not) delegate their full authority or full powers of the Owners Corporation to the lot owners of the strata scheme (paragraphs [174], [175] and [191] of the judgment);

c. No meetings or notices of meetings were required as a precondition to the making of determinations by the strata managers (paragraphs [188], [189], [190], [194], [198], [201], [209] and [213] of the judgment);

d. Each of the determinations made by the strata managers was a valid exercise of authority by the respective strata managers;

e. The managing agent's authority to instruct the plaintiff's solicitors was not circumscribed by section 80D of the SSMA or the regulations thereunder (paragraph [183] of the judgment);

f. If a meeting/s of lot owners were necessary for any purpose then in consequence of the operation of clause 10(8) of schedule 2 of the SSMA, the respondents were disentitled from casting any effective vote at any such meeting.

3. The primary judge erred in coming to her decision on the basis of matters not pleaded by the respondents in their defences:

b. That Mr Jaworski delegated his authority in relation to the meeting of 29 March 2006 (paragraph [191] of the judgment);

c. That section 80D of the SSMA and the regulations thereunder circumscribed authority to instruct the plaintiff's solicitors (paragraph [183] of the judgment);

d. That the alleged failure of the strata managers to comply with sections 75 and/or 76 of the SSMA invalidated determinations (paragraphs [172], [173], [197], [199], [203], [207] and [215] of the judgment).

4. Further or in the alternative to paragraphs 3(c) and 3(d) above, the primary judge should have found that the strata managers complied with Section 80D of the SSMA and sections 75 and/or 76 of the SSMA.

5. The primary judge erred in failing to find that upon the proper construction of Section 80 of the SSMA, the Owners Corporation was entitled to recover the whole of its costs and/or expenses pursuant to Section 80 of the SSMA in the amount of $61,624.61.

6. Inasmuch as the primary judge found that any decisions purportedly made by or on behalf of the Owners Corporation were for any reason invalid or ineffective, the primary judge should have found that any and each such decision was duly and validly ratified by the Owners Corporation by subsequent determinations or by fresh determination (paragraphs [176], [183], [193], [195], [197], [198], [199], [210], [203], [206], [207], [209], [210], [211], [213], [214] and [215] of the judgment).

7. The primary judge erred in failing to find that the respondents' liability for ordinary levies fell due upon the passing of each such resolution for ordinary levies.

8. The primary judge erred in failing to find that the respondents had been notified of their contributions to pay ordinary and special levies, in the absence of any issue in consequence of the respondent's evidence that notification of such ordinary and special levies had been received (Transcript of 21 February 2008 at page 28/29) and (paragraphs [176], [192], [197], [200], [204], [208], [212] and [216] of the judgment).

a. In failing to hold that the determination of the issues of the terms of the appointment of the respective strata managers, the validity of their appointments generally, the requirement for notices of meetings, the requirement for notices of contributions and the validity of the determinations of the compulsorily appointed strata managers prior to 23 February 2007 ("the Chapter 5 issues") were all matters within Chapter 5 of the SSMA and were therefore within the exclusive jurisdiction of the Consumer Trader & Tenancy Tribunal ("the CTTT");

b. In failing to hold that as a result of findings made by the CTTT previously in relation to the Chapter 5 issues, the respondents were estopped from re-litigating the Chapter 5 issues or were otherwise embarking upon an abuse of process in seeking to do so (paragraphs [166-170] of the judgment);

c. In so far as her Honour had any discretion to deal with any matters within Chapter 5 of the SSMA, any discretion purportedly exercised in that regard was erroneous;

d. In failing to come to the same conclusion as the CTTT in relation to the Chapter 5 issues.

10. The primary judge omitted to give any or any sufficient reasons for any of her factual findings or legal conclusions (paragraphs [166] to [218] of the judgment)

1. Her Honour should have held that the plaintiff failed to issue proper and effective notices of meeting of the Owner's Corporation to the defendant in respect of meetings purportedly held on 24 August 2006 and 27 July 2007, and that such meetings were invalid and the decisions that were purportedly made at them were nullities.

2. Her Honour should have held that the plaintiff failed to issue proper and effective contribution notices to the defendant with respect to the levies arising in 2003, 2006 and 2007.

3. Her Honour should have held in the case of the levies purportedly resolved upon at the 24 August 2006 meeting and the 27 July 2007 meeting of the plaintiff, the levies were excessive and struck without lawful justification.

4. Her Honour should have held that Bright & Duggan Pty Ltd was invalidly appointed as Strata Manager.

5. Her Honour should have held that, with respect to the 2003 meetings, no valid resolutions were passed due to unlawful delegation.

6. Her Honour should have held that no valid resolution to instigate and prosecute the subject legal proceedings has been passed.

41 At the hearing of the appeal, the respondents did not seek to uphold the decision of the primary judge that OSP had not notified Mr and Mrs Andrews of their contribution, as required by s 78(1) of the Act.

42 In my opinion this concession was correct. Mr and Mrs Andrews were given minutes of the meetings of 25 August 2003 and 27 August 2003, and were sent the letter of 5 November 2003; and subsequently they received the notices set out at pp 469-482 of the Blue Book.

43 Also, the respondents did not seek to uphold the decision of the primary judge, concerning the meetings of 24 August 2006 and 27 July 2007, to the extent that it turned on the view that the resolutions were ineffective because the levies substantially exceeded the amounts needed.

44 In my view, this concession is also correct. It is true that s 75 of the Act requires the owners corporation to estimate “how much money it will need to credit to” both its administrative fund and its sinking fund “for actual and expected expenditure”; but s 76 requires determination of a different amount, namely the amount to be levied “to raise the amount estimated as needing to be credited” to the funds (s 76(1)) or “in order to meet the expenses” (s 76(4)). If an owners corporation determines that the levy will not in fact be paid by some of the unit holders (for example, because of bankruptcy), the amount of the levy necessary to raise the required amounts and/or to meet the expenses will be that much greater. By reason of s 78(2) of the Act, the contributions have to be payable in shares proportionate to unit entitlements.

46 In the Further Amended Grounds of Defence, Mr and Mrs Andrews admitted that Mr Patman “convened the relevant meetings and prepared to pass special resolutions to raise special levies” (par [2]). It is likely that the word “prepared” was a typographical error for “purported” (cf par [3]). There was no suggestion in defence that Mr Patman had not purported to pass special resolutions to raise the levies.

47 OSP did not call Mr Patman to give any evidence. Mr Andrews gave affidavit evidence concerning the meeting of 25 August 2003 as follows:

4.1 At the Annual General Meeting the Second Defendant and I attended the meeting and said to the words to the following effect in respect of proposed motion 5:-

"I cannot support this motion at this time. John you say that $20,000.00 needs to be raised as a special levy for urgent maintenance works but you have not specified what works are required. Do you have any quotes?”

"How can you know what costs are likely to be incurred if you don't have quotes and don't know the extent of the works to be undertaken. What works do you have in mind?"

"How can you talk in such general terms. Besides weren't you appointed to provide a report rather than to take affirmative action to raise funds?'

4.2 A vote was taken and the Second Defendant and I voted against and Mrs and Mrs Metford voted in favour. Mr Patman then said words to the effect:-

"I declare the vote carried on the basis that the Metfords have a 60% entitlement to the Andrews’ 40%.”

48 The only oral evidence relevant to the question was given by Mr Andrews in cross-examination. At Black 103-4 he was asked the following questions, initially referring to the meeting of 25 August 2003:

Q. And it’s your recollection, isn’t it, that it was Mr Patman who made – in fact made resolutions at that meeting?

Q. Although Mr Patman asked your opinion about those works, he made a determination himself, didn’t he, that he was going to go ahead with it?

Q. And he did the same thing, didn’t he, at a meeting on 27 August, didn’t he?

Q. Yes, and the same thing happened at that meeting, didn’t it? He was interested in your opinion, and he was interested in the opinion of the Metfords as to these proposed works?

49 Written submissions prepared by counsel for Mr and Mrs Andrews (dated 21 February 2008, the same day as the cross-examination of Mr Andrews) contained the following:

33. Section 32 of the Act provides that a strata managing agent appointed by an adjudicator pursuant to s.162 cannot delegate functions conferred by the adjudicator.

34. Accordingly, it was not open to Mr Patman to delegate the responsibility for determining levies to the owners or to any other person.

35. Due to a typographical error in the orders made by the CTTT and set out in BJ3, Mr Patman has taken the view that his appointment was confined to an appointment to exercise the powers of the executive committee.

36. The error arises due to a missing comma between "owners corporation" and "executive committee" in the third line of order one. Mr Patman has taken the view that those words are to be read conjunctively, as opposed to disjunctively and he did not consider that the words meant "the Owners Corporation and the Executive Committee". That this was not intended by the CTTT as can be seen at page 012 in BJ3.

37. The misapprehension is made clear when one considers the minutes of the meetings that took place in 2003.

38. The minutes of the meeting held on 25 August 2003 form annexure J to the affidavit of Mr Jaworski sworn on 17 May 2007 (page 29).

39. Mr Patman has recorded votes being exercised by both lot owners (Mr & Mrs Metford and Mr & Mrs Andrews) in respect of each resolution considered that day. The explanation that votes have been recorded for the lot owners is found in the announcement of the Chairman (Mr Patman) that his appointment was as "Chairman, Secretary and Treasurer and also to have the role of Executive Committee of Strata Plan 5709".

40. The consequence of Mr Patman's misapprehension is that he failed to exercise the functions of the Owners Corporation, rather, considering himself as having the function of the executive committee and office holders, delegated such powers to the owners to exercise. Such delegation was invalid being contrary to s.32 of the Act. The consequence is that the decisions made on 25 August 2003 were invalid because they were made by an invalidly appointed delegate (i.e. the owners).

41. The same problem arises with respect to the extraordinary general meeting which was held on 27 August 2003. In this case, the announcement of Mr Andrews at the beginning of the meeting that Mr Patman had been appointed as “strata manager... with all the powers of the owners Corporation executive committee, chairperson, secretary and treasurer of the owners Corporation” was not disputed.

42. Again, in the case of the meeting on 27 August 2003 votes are recorded as having been entered by the owners of the lots. The consequence is that another invalid delegation has been exercised by reason of the typographical error in the orders of the CTTT.

50 In her judgment, the primary judge said this concerning the evidence of Mr Andrews:

45. The Andrews called Anthony Andrews. Mr Andrews' demeanour in the witness' box conveyed the impression that he is unsophisticated. He grappled uncomfortably with complex propositions and agreed reluctantly to courteous, insistent cross-examination. Mr Andrews' delivery of his oral evidence contrasted with the specialised terminology and formal syntax in the orderly affidavit which Diamond Conway had drawn for him. Mr Andrews frankly admitted that he could not remember his exchanges with Mr Patman and with Mr Jaworski verbatim but the preponderance of evidence tends to support the version of their conversations, reconstructed in Mr Andrews' affidavit.

51 The primary judge said that the evidence supported the hypothesis in pars 35, 36, 39, 40 and 41 of counsel’s submissions; but she said she did not need to adopt his thesis.

52 Mr Coles QC for OSP submitted that the minutes of the meetings and the oral evidence of Mr Andrews showed that Mr Patman had exercised the function of OSP; and he submitted that unduly legalistic standards should not be applied in this area, referring to Smith v The Body Corporate of Strata Plan No 22669 (1997) NSW Titles Cases 80-046.

53 Mr Beech-Jones SC for Mr and Mrs Andrews submitted that the primary judge was not shown to be in error. He submitted that the minutes of 25 August 2003 indicated that Mr Patman regarded himself as having been appointed Chairman, Secretary and Treasurer and have the role of the Executive Committee, not as having all the functions of OSP. The reference to motions, and the recording of votes, suggested that these were not determinations by him. He submitted that the same applied to the meeting of 27 August 2003; and although there was reference in those minutes to “all the powers of the owners corporation”, Mr Patman was recorded as saying “it was necessary to call the meeting to arrange for funds to be available for urgent repairs to be carried out”.

54 In my opinion, although the point at issue here was not pleaded, it was sufficiently raised at the hearing. However, having regard to the way it was raised, in my opinion OSP’s failure to call Mr Patman could not be considered as weighing significantly against its case. The question to be determined is one of inference from contemporaneous documents and the evidence of Mr Andrews. Apart from the views expressed about Mr Andrews in par [45] of the judgment of the primary judge, and her underlining of the passage quoted at the end of the previous paragraph, the primary judge gave no reasons for her conclusion that Mr Patman did not act as the owners corporation of Strata Plan 5709 at those meetings. In my opinion, reasons directed to this question were required; and the lack of reasons here is both an error of law, and sufficient justification for this Court to reach its own view on the question.

55 The matters referred to by Mr Beech-Jones are factors suggesting that Mr Patman did not exercise the functions of OSP in determining the levies at the August 2003 meetings. However, in my opinion, it is fanciful to suggest that the absence of the comma after “owners corporation” in order 1 made on 22 May 2003 meant that Mr Patman was under a misconception and did not understand that he had been appointed under s 162 of the Act to exercise all the functions of the owners corporation. The statement in the minutes of 25 August 2003 that “it was therefore not necessary for a quorum of owners to be present” clearly confirms that Mr Patman did understand that he had been so appointed, and that a validly constituted meeting was not necessary for what was proposed to be done.

56 Furthermore, at the 25 August meeting, Motion 5 was purportedly passed as a special resolution. Although s.76(4) did not require such a resolution, Mr Patman apparently did and such a resolution could only be passed at a meeting of the owners corporation, not its executive committee. Further, such a resolution would be known to Mr Patman as requiring a 75% majority of unit entitlements. Mr and Mr Metford only had 60%. It follows that their vote for and that of Mr and Mrs Andrews against, would not have been sufficient to pass the resolution as a special resolution if Mr Patman had delegated the voting to them is alleged. He must, therefore, have exercised the vote himself which, of course, constituted 100% of the votes.

57 As to the meeting of 27 August, the resolution on Motion 2 was expressed in terms of Mr Patman exercising the delegated functions of the owners corporation. This also confirms that he understood that he was acting as the owners corporation and that he was under no misconception that he was doing anything other than acting in that capacity when that resolution was passed.

58 The affidavit evidence of Mr Andrews could be taken as suggesting that Mr Patman regarded the vote of unit holders as deciding the question; but in the light of the primary judge’s acceptance of Mr Andrews’ admission that he could not remember the exchanges verbatim, there is in my opinion more force in Mr Andrews’ general impression as to what happened as conveyed in his oral evidence.

59 In my opinion there is merit in the view expressed in Smith that in this area overly legalistic standards should not be imposed; and in my opinion it is also appropriate to have regard to the presumption of regularity, although I would not suggest that in these circumstances it operates very strongly. However, that presumption would tend against a finding that Mr Patman intended to delegate his function, contrary to s 32 of the Act, as found by the primary judge.

60 Having regard to all these considerations, in my opinion Mr Patman understood that the functions of OSP to be exercised at the meetings had been vested in him, and what happened at the meetings was an exercise by him of those functions, on the basis of consultation with the unit holders and their indication by their votes of the views that they held.

61 Mr Coles submitted that the relevant orders appointed Bright and Duggan to exercise all the functions of OSP. Order 3 only referred to the services and fees set out in the draft agreement; and clauses 1 and 2 of the draft agreement, applying as they did to private appointments under s 28 of the Act and reflecting the limitations on such appointments in s 28(3), simply had no application.

62 Mr Beech-Jones submitted that the draft agreement showed that Bright and Duggan did not consent to an appointment to exercise all functions; and that accordingly s 162(4) of the Act had the effect that the order could extend no further than what had been consented to.

64 As regards consent, in my opinion s 162(4) could not have the effect contended for by Mr Beech-Jones. It is conceivable that if an order referred to a consent that was a consent to exercise only some functions, this could support an interpretation of the order as limited under s 162(1)(b) or s 162(1)(c); but Mr Beech-Jones disavowed any such submission. In my opinion, if consent does not on its true construction amount to a consent to the appointment actually made by the order, the consent would be ineffective and the order would accordingly be ineffective. In the present case, the Adjudicator found that Bright and Duggan had given consent to the order made; and there is no basis for going behind that, particularly where it was not pleaded in the Defence that there was no consent.

65 Mr Beech-Jones submitted that for raising special levies under s 76(4) and for initiating legal action under s 80D, the Act specifically required a general meeting. It was not to the point that unit owners could not effectively vote, because all the functions of OSP were being exercised by the Strata Managing Agent. Mr Beech-Jones referred to cl 32 of Schedule 2 of the Act, and submitted that seven days notice was required even if the owners had no entitlement to vote; and he submitted that accordingly all meetings held by Mr Jaworski were invalid, because this notice had not been given.

66 Mr Beech-Jones referred to Re Compaction Systems Pty Limited [1976] 2 NSWLR 477, in which Bowen CJ in Eq held (at 484-5) that the right of shareholders in a company to receive notices of meetings applied to shareholders not entitled to vote. Bowen CJ in Eq noted that the right to advance arguments and to influence the course of discussion could be significant. Mr Beech-Jones referred also to a decision to similar effect in Royal Mutual Benefit Building Society v Sharman [1963] 1 WLR 581. He submitted that the case of Smith, referred to earlier, was distinguishable because the legislation then applying did not require the holding of meetings, as do ss 76(4) and 80D.

67 Mr Beech-Jones accepted that, in the case of an appointment under s 162(1)(a), the determination referred to in s 76(4) would have to be the determination of the strata managing agent, and the resolution referred to in s 80D would be that of the strata managing agent. However, he submitted, that did not detract from the necessity of having a properly constituted general meeting of which proper notice was given.

68 In my opinion, these submissions should be rejected. It is to be remembered that this was a case in which orders had been made under s 162 appointing a strata managing agent to exercise all the functions of an owners corporation, which was not subject to any limitations of the kind referred to in s 28(3) of the Act.

69 Section 76(4) sets out one function of an owners corporation; and if that function is to be exercised by a strata managing agent pursuant to s 162(1)(a), it is not exercised by the owners corporation itself. What s 76(4) requires to be determined at a general meeting is the contribution “it”, that is the owners corporation, must levy; and if the levying function is exercised by the strata managing agent, so it is not the owners corporation itself that is levying the contribution, in my opinion the requirement of a general meeting has no application.

70 Section 80D deals with other functions of an owners corporation, including initiating legal action; and again, if that function is exercised by a strata managing agent appointed pursuant to s 162(1)(a), it is not exercised by the owners corporation itself; and again, in my opinion, s 80D has no application. This view is confirmed by the language of s 80D. The language “resolution is passed” is inapt to refer to a determination unilaterally made by a strata managing agent exercising the functions of the owners corporation.

Supreme Court of New South Wales - Court of Appeal

The Owners - Strata Plan 5709 v Andrews [2009] NSWCA 189 (10 July 2009)