2 Elizabeth Bay Road Pty Ltd v The Owners - Strata Plan No 73943 - [2014] NSWCA 409 - NSWCA 2014 case summary — Zoe

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2 Elizabeth Bay Road Pty Ltd v The Owners - Strata Plan No 73943

[2014] NSWCA 409

Court of Appeal (NSW)|2014-10-08|Before: Basten JA, Barrett JA, Leeming JA

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2014-10-08

Before

Basten JA, Barrett JA, Leeming JA

Catchwords

CORPORATIONS - commencement of proceedings by owners corporation without authority - effect of ratification by general meeting

Source

Original judgment source is linked above.

Catchwords

CORPORATIONS - commencement of proceedings by owners corporation without authority - effect of ratification by general meeting

Judgment (6 paragraphs)

[1]

Background 70The factual and procedural background is both uncontroversial and concise. 71The respondent owners corporation sued the appellant (Developer) by proceedings commenced in the District Court of New South Wales for allegedly defective residential building work carried out between 2002 and 2005. It was alleged that there were a series of defects in the common property of its building in Elizabeth Bay in inner Sydney, caused by breaches of the warranties implied under s 18B of the Home Building Act 1989 (NSW) that (a) the work be done in a proper and workmanlike manner and in accordance with the plans and specifications, (b) the materials be good and suitable for the purpose for which they were used, and unless otherwise specified, that they be new, and (c) the work be done in accordance with any applicable laws. The Developer had retained a builder to undertake the building work the subject of the pleading. However, by the time the proceedings were commenced, the builder was being wound up. The owners corporation relied upon the deeming provision in s 18C of the Home Building Act to the effect that the work had been done by the Developer and that the owners corporation, as a successor in title, was entitled to the benefit of the statutory warranties. 72Section 18E of the Home Building Act formerly provided that proceedings for a breach of a statutory warranty must be commenced within 7 years after the completion of the work to which it relates. The appeal was argued on the basis that the amendment to that section, shortening the limitation period, effected by the Home Building Amendment Act 2011 (NSW), was inapplicable (this accords with the transitional provision contained in cl 109 of Schedule 4 of the Home Building Act). The occupation certificate was dated 22 November 2005. Proceedings were commenced in November 2012. The materials in the appeal book do not include the originating process, but an amended statement of claim was filed on 4 December 2012, and it is plain that the owners corporation and its executive committee were aware of, and had received advice concerning, the limitation period. (In fact, both parties' submissions state that a statement of claim was filed on 6 November 2012.) 73It was common ground that when proceedings were commenced, a resolution approving the litigation had not been passed at a general meeting. The owners corporation did not contend that any of the exceptions in s 80D applied. 74The need to comply with s 80D was drawn to the attention of the owners corporation's solicitors in December 2012. In January 2013 the executive committee formed the view that, since the annual general meeting was to be held on 7 March 2013, there was no need to convene an extraordinary general meeting. In March 2013, a resolution was passed at a general meeting of the owners corporation approving the legal proceedings. 75Nevertheless, the Developer subsequently sought that the proceedings be struck out or dismissed by reason of the delay in passing that resolution, which it said was contrary to s 80D. There were three overlapping bases on which the primary judge relied to dismiss the Developer's application. First, he rejected the submission that proceedings commenced in breach of the section were a nullity and could not subsequently be cured. Secondly, as an element in reaching that conclusion, he considered that the section as a matter of construction did not require approval before proceedings were commenced: his Honour considered that "the section on its plain wording accommodates fulfilment by subsequent resolution": at [34]. Thirdly, he also considered that if the position were regarded as an action instituted without authority, the subsequent resolution was valid ratification of the commencement of proceedings, which had effect from the time of commencement. In this respect, his Honour followed McEvoy v The Body Corporate for No 9 Port Douglas Road [2013] QCA 168. 76The Developer appeals (pursuant to leave granted on 22 May 2014) from the dismissal of its motion. There are essentially two issues: was s 80D breached, and, if so, what are the consequences.

[2]

Construction - was s 80D contravened? 77Section 80D is contained in Division 3 of Part 3 of the Act. Division 3 is headed "Restrictions on spending". Section 80D provides: "80D Legal action to be approved by general meeting (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." 78The regulation making power in s 80D(2) has been exercised, but it was common ground that no exemption applied (in contrast with The Owners - Strata Plan No 70798 v Bakkante Constructions Pty Ltd [2014] NSWCA 410 which was heard immediately following this appeal). In this appeal (again in contrast to Bakkante) the High Court's decision in Berowra Holdings Pty Ltd v Gordon [2006] HCA 32; 225 CLR 364 (Berowra Holdings) was at the forefront of submissions at first instance and on appeal. 79The starting point must be the language of s 80D. The Developer submitted that there was an implicit temporal order in the obligation to obtain the passage of a resolution at a general meeting, and the initiation of legal action. It was submitted that this was readily discerned from the verbs "seek" and "initiate" and the ordinary meaning of "unless a resolution is passed". The owners corporation submitted that the condition was not expressed to be "unless and until", and that "unless" stipulated a condition, as opposed to a time. It submitted: "The ordinary meaning of 'until' is 'except on condition that; except if it be or were, that': Macquarie Dictionary. It clearly does not impose a temporal restriction or alter the general law relating to ratification." 80The owners corporation also pointed to the temporally unlimited tense of "resolution is passed" in contrast to other provisions in the same Act such as s 45(2) and s 65A(1). Section 45(2) prohibits the issuing of certain notices unless a resolution "has first been passed by the owners corporation" while s 65A(1) authorised the taking of certain action "but only if a special resolution has first been passed at a general meeting of the owners corporation that specifically authorises" that action (emphasis added in both quotes). The owners corporation emphasised the absence in s 80D(1) of equivalently explicit language, and that ss 45(2) and 65A were introduced by the same amending Act as the differently worded s 80D. 81I respectfully disagree with the submissions on construction advanced by the owners corporation. Nothing material turns on the word "unless" considered in isolation; "unless" is merely the ordinary word used to introduce a negative condition. Invoking its Macquarie Dictionary definition is doubly unhelpful. The first reason for this is the familiar difficulty that dictionary definitions specify a range of meanings, rather than the particular meaning of the word in its context. More than a decade ago, McHugh J said that "it is more than 50 years since Learned Hand J assured us that 'it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary'": Muin v Refugee Review Tribunal [2002] HCA 30; 76 ALJR 966 at [104], citing Cabell v Markham 148 F 2d 737 at 739 (2nd Cir, 1945). The authorities in the High Court and in this Court endorsing the same are collected in Smalley v Motor Accident Authority of New South Wales [2013] NSWCA 318; 85 NSWLR 580 at [47] to which may now be added Thiess v Collector of Customs [2014] HCA 12; 250 CLR 664 at [23]. The owners corporation's approach collides with Learned Hand J's command. A dictionary definition of a basic conjunction such as "unless" is especially unlikely to assist analysis of its meaning in a particular statutory context. I favour the approach stated by Professor Aprill, "The Law of the Word: Dictionary Shopping in the Supreme Court" 30 Ariz St L J 275 at 334 (1998): "Their purpose of giving readers and speakers approximate meanings of words so that they begin to understand the meaning of the word in context makes dictionaries ill-suited for determining the meaning of a particular word in a particular statute. If ordinary speakers frequently misunderstand the function of dictionaries and treat them as if they in fact do prescribe meaning, such error does not require judges seeking ordinary meaning to do the same ...". 82The second reason is that whether or not there is a temporal order depends not on the use of the word, or the absence of words like "first" or "and until", but on the meaning of the sentence as a whole. It is axiomatic that (a) the words in a sentence are not building blocks whose meaning is unaffected by the rest of the sentence, (b) the sentence is the unit of communication by which language works, and (c) the significance of individual words is affected by other words and the syntax of the whole sentence. Lord Hoffmann stated as much in R v Brown [1996] AC 543 at 561, a passage endorsed in Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 at 397, when observing that the fallacy of treating words as individual building blocks construed in isolation is common among lawyers. 83In ordinary English, semantic considerations from the sentence as a whole will very often entail a temporal order. Consider "a child must not go to bed unless her teeth are cleaned" or "a student must not study medicine unless an English proficiency assessment is passed". Inserting "first" or "and until" in either of those sentences would be verbiage. The self-evident temporal relationship in both sentences comes from the meaning of all of their words, considered as a whole. 84Notwithstanding the absence of express temporal language such as appears in s 45(2) and s 65A(1), the ordinary meaning of the prohibitions upon "seeking" legal advice or services and (especially) "initiating" legal action necessarily carries with it a temporal element. Mostly this is a consequence of the facts that initiating litigation can only be done once - by filing originating process - and that "litigation is inescapably chancy", which Mason P described as "common knowledge" in Morgan v Johnson (1998) 44 NSWLR 578 at 582. In short, I agree with the Developer that the verbs "seek" and "initiate" in the context of this sentence carry with them a temporal order. 85I accept that, as the primary judge said, it is possible as a matter of ordinary English to approve something after the event. I also accept that, on occasion, what Professor Driedger referred to as the "first blush" grammatical and ordinary meaning may be displaced by a "'less' grammatical and 'less' ordinary meaning": Driedger, "Statutes: The Mischievous Literal Golden Rule" (1981) 59 Can Bar Rev 780 at 785-786, a passage also endorsed in Agfa-Gevaert at 401. However, there are two reasons why there is no occasion to do so here. 86The first is that the ordinary meaning is strengthened by the evident purpose of the provision, which applies only where payment for the legal advice or legal services "may be required", and is located in a Division which is headed "Restriction on spending". These provisions were directed to providing a measure of oversight before substantial liabilities are incurred by an owners corporation. It is one thing to obtain approval before legal advice has been sought or legal services have been provided or legal action initiated. In those circumstances, the general meeting has a real choice: to approve the work to be done by lawyers (and the incurring of expense), or else to disapprove that course. However, if legal advice or legal services have already been provided or (especially) if legal action has been commenced, then the choice for the general meeting is quite different. In those circumstances, the general meeting will be asked to approve a course where there is apt already to be a liability on the part of the owners corporation to pay, irrespective of the outcome of the resolution. In the case of initiating legal action, there may also be a contingent liability to pay a costs order in favour of the defendant. There is force in the Developer's submission: "If they are asked for their approval before the initiation of proceedings in compliance with the Act, then they will be focussed on the prospects of success. Now they are faced with quite separate concerns of costs liabilities to defendants and the prospects of recovering monies spent without their authority on lawyers and experts." 87Secondly, regard may be had to the power to make an exempting regulation given by s 80D(2). It is not legitimate to have regard to the terms of delegated legislation to construe the statute: Master Education Services Pty Ltd v Ketchell [2008] HCA 38; 236 CLR 101 at [19]; The Owners - Strata Plan No 61288 v Brookfield Australia Investments Ltd [2013] NSWCA 317; 85 NSWLR 479 at [102]-[103]. However, regard may be had to the nature of the legislative scheme, including the fact that it includes an express power to exempt by regulation. The fact that the Legislature made provision for any overreaching operation of the prohibition to be readily addressed through an exempting regulation tends to support a broader construction being given to the prohibition: see Zanardo & Rodriguez Sales & Services Pty Ltd v Tolevski [2013] NSWCA 449 at [26]. 88For those reasons, in accordance with the Developer's submissions, s 80D is contravened if legal action is initiated without there first being a resolution passed at a general meeting approving that course, unless an exception applies.

[3]

Conditional prohibitions on commencing legal proceedings 89The prohibitions in s 80D upon the seeking of legal advice or the provision of legal services are quite different in nature from the prohibition against initiating legal action. The former involves a bilateral relationship between an owners corporation and a lawyer. The latter involves not merely the owners corporation and its lawyer, but also a third party, the defendant. It also involves the invocation of the procedural law of a court or tribunal. It is not necessary in order to resolve this appeal to say anything of the legal consequences of the breach of s 80D on the seeking of legal advice or the provision of legal services; what follows is confined to the prohibition upon initiating legal action. 90A statutory prohibition in the form "A plaintiff must not commence legal proceedings unless [Condition] is first satisfied" may bear a variety of different legal meanings. It may, on its proper construction, be directed to the courts and tribunals whose jurisdiction might be invoked without the condition being satisfied. The statute may operate in those circumstances to deny jurisdiction to the court or tribunal. If that be the true construction of the statute, then the court or tribunal will have no choice but to dismiss the proceedings for want of jurisdiction. However, such a construction will only be accepted where the legislative will is clearly expressed: Gypsy Jokers Motorcycle Club Inc v Commissioner of Police [2008] HCA 4; 234 CLR 532 at [38]. It is inappropriate to construe a provision expressed as a prohibition upon a litigant as a limitation upon jurisdiction without clear words or necessary intendment or (to use the language in Australasian Memory Pty Ltd v Brien [2000] HCA 30; 200 CLR 270 at [17]) "[c]ogent reasons". 91Another possibility is that the statute may be construed as requiring the court or tribunal to deal with the proceedings commenced in contravention of it in a particular way. If so, then rather than the statute denying jurisdiction, the statute will impose an obligation upon the court or tribunal as to the way in which its jurisdiction is to be exercised. An example is s 7 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), which requires certain classes of appeals (including matters arising under the Family Law Act 1975 (Cth)) to be instituted in a federal court and requires a State court to transfer proceedings commenced in contravention of the prohibition to a federal court except in specified circumstances: see Eberstaller v Poulos [2014] NSWCA 211; 313 ALR 165. 92A third possibility is that the prohibition amounts to an incapacity on the part of the plaintiff to invoke the court's jurisdiction whilesoever the prohibition has not been complied with. That is of some force where the plaintiff is an artificial person, which has not been given all the powers of a natural person. Especially where as here the source of the owners corporation's power to sue is State rather than federal law, it is possible that the owners corporation's power may be taken to be qualified by the statutory prohibition. 93A fourth possibility is that the prohibition is construed as an "integer or element of the right" itself, to use the language in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 277. This consideration is of greater force where the right sought to be invoked is wholly a creature of statute (see further below). 94The only other possibility is that a plaintiff with the capacity and the right to do so has invoked the jurisdiction of a court or tribunal but has done so contrary to a statutory prohibition which does not deny jurisdiction to the court or tribunal or require the jurisdiction to be exercised in any particular way. In that event, it is plain that the court may be asked to exercise a discretionary power in the procedural rules of the court or tribunal to require the plaintiff to adhere to the statute. The outcome of that exercise of discretion will turn on the particular facts of the case. 95As will be seen immediately below, a number of principles of construction confirmed in Berowra Holdings point to s 80D being construed so as to fall within the last category - such that proceedings commenced in contravention of it fall subsequently to be determined in accordance with the discretionary exercise of the procedural rules of the court or tribunal. Much is concisely conveyed by Kirby J's reasoning in the same case at [87] (a passage applied by the primary judge): "the subject matter of s 151C(1) of the Act is the commencement of court proceedings. ... [T]he Act does not use language appropriate to the denial of jurisdiction in the courts concerned or the withdrawal of jurisdiction earlier exercised. It is self-evidently a serious matter to suggest that a proceeding in a court, although apparently valid, is conducted without lawful jurisdiction, and is void and without effect. To impose such drastic consequences, so potentially disruptive to court proceedings, disconcerting to parties and misleading to the public that relies on the validity of such proceedings, the clearest language in the legislative prescription would be required." 96Finally, these reasons are confined to the status of litigation commenced in contravention of the prohibition. To be clear, nothing in what follows bears upon the different question whether an owners corporation may be enjoined from initiating legal action in contravention of s 80D (the same distinction was drawn in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [100]).

[4]

Berowra Holdings 97The leading decision on the operation of provisions which impose a prohibition on commencing legal proceedings, while making no express provision for the consequence of contravention, is Berowra Holdings. The prohibition there was s 151C of the Workers Compensation Act 1987 (NSW), which provides that a worker "is not entitled to commence court proceedings" against an employer in respect of a work injury unless 6 months have elapsed since notice was given to the employer. 98The reasons of Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ disclose four considerations which apply to the present appeal. I summarise each, and indicate its operation in its application to the present appeal, below. 99First, it is unhelpful to analyse the consequences of non-compliance in terms of "nullity" or "invalidity". "Nullity" is unhelpful because of the distinction between courts of general jurisdiction and courts of limited jurisdiction. Because s 151C referred generally to "court proceedings", a construction which leads to a differential operation depending upon whether or not proceedings were commenced in a superior court should not be preferred: Berowra Holdings at [11]-[12]. Section 80D likewise refers generally to "initiate legal action". 100Similarly, "invalidity" is unhelpful in a context where a party invokes the procedural rules of a court. It is important to recognise that "the subject matter with which the statute deals is 'rights' in the context of actual or apprehended litigation, and to understand the function of the Rules of Court and procedural law in facilitating adjudication of disputed claims". Normally, in the adversarial system, the parties identify the points which are in issue for determination by a court, and those which are not. Further, those procedural rules include the ability to strike out or summarily to dismiss a proceeding. To that extent, the proceeding is "vulnerable", but that label serves to distinguish it from something which is invalid. In particular, it is ordinarily a matter for a defendant to choose, if he, she or it wishes, to do nothing or to seek an appropriate order - even if a procedural rule is expressed in mandatory form: Berowra Holdings at [13]-[16]. 101Secondly, a statutory prohibition may bar the remedy, or it may bar the right to invoke the court's jurisdiction. Ordinarily, limitation statutes are, in accordance with a "well-known interpretative approach", construed as barring only the remedy. Alternatively, it is possible for a statute to qualify the plaintiff's right to seek a remedy - so as to constitute a "statutory moratorium which rendered that right incapable of exercise in a court". In identifying which of those possibilities is the correct characterisation of the statute, it is helpful to ask whether the right said to have been impaired is sourced in common law or is a product of statute: Berowra Holdings at [20]-[23]. 102That in turn leads to the question: what is meant by a right being "sourced in common law"? Berowra Holdings holds that an injured worker's right to sue his or her employer is "sourced in common law" notwithstanding the extensive qualifications imposed by statute upon that right. The Developer submitted that the present litigation does not answer that description, and on that basis invited this Court to distinguish Berowra Holdings. However, as the owners corporation submitted, what is important is not so much the precise nature of the litigation confronting the Developer in this particular case, but the scope of the prohibition which the owners corporation contravened. Section 80D applies to all litigation commenced by the owners corporation, including actions in tort and contract which may be largely or wholly unaffected by statute, as well as the litigation on the warranties imposed by statute (but which are derived from ordinary implied terms) deemed to extend to the owners corporation. Accordingly, it is not necessary to express a view whether the particular breaches on which the owners corporation sues are "sourced in common law" such that the principle of unmistakably clear statutory language to impair them is engaged. It is sufficient to observe that s 80D should be construed so that it has a common operation to all litigation commenced by the owners corporation. 103Thirdly, it may be acknowledged that a construction of a prohibition which gives any legal effect to proceedings commenced in contravention of it undermines the legislative prohibition, especially if the prohibition evinces some wider policy directed to achieving a broader benefit to the wider public. However, that submission understates the role of the procedural law referred to above. Moreover, there are a wide variety of circumstances in which the prohibition may be contravened, which tells against a construction which indiscriminately mandates invalidity irrespective of the particular procedural history and context of the litigation. Such a construction is not readily borne by the words of s 151C or its purpose to facilitate non-litigated settlements: Berowra Holdings at [26]-[27]. The same is true of s 80D. 104Fourthly, there is little substantive difference between a construction which impairs the right to invoke a court's jurisdiction, and a construction to the effect that the court has no jurisdiction to adjudicate that right, and a "basic rule" that a legislature does not intend to cut down the jurisdiction of the courts "save to the extent that the legislation in question expressly so states or necessarily implies": Berowra Holdings at [29]-[31], citing Plaintiff S157/2002 v Commonwealth [2003] HCA 2; 211 CLR 476 at [72]. That is especially so where it may not be plain on the face of the originating process whether or not there has been compliance with the prohibition, that tells against a construction that the court's jurisdiction has been qualified: Berowra Holdings at [32]. That consideration is applicable to s 151C and (even more so) to s 80D. 105Those four considerations make it plain that there is no sound basis for construing s 80D as jurisdictional, in the sense either of taking away part of the court's jurisdiction, or impairing the owners corporations' capacity and right to invoke the court's jurisdiction. None of the considerations points in favour of the construction for which the Developer contends, whereby a contravention of s 80D mandates the dismissal of the proceedings. If so, it would indiscriminately qualify common law rights, as well as statutory rights, and do so irrespective of whether proceedings were commenced in a tribunal or a court, and, especially, it would do so irrespective of whether the breach is minor (and, potentially, even purely technical and unintentional) and wholly cured, or flagrant. I also agree with Basten JA's reasons, and with what Barrett JA has written at [43]-[52] on The Owners - Strata Plan 5709 v Andrews [2009] NSWCA 189 and Owners SP 46528 v Hall [2009] NSWSC 278.

[5]

Resolution of the appeal 106The key to the resolution of this appeal is that the prohibition in s 80D is directed to commencing proceedings in a court or tribunal where a body of procedural law applies, whose ordinary operation deals with non-compliances with mandatory requirements. In that context, non-compliance with a mandatory requirement is to be read as engaging familiar procedures relating to stays and summary dismissal within that body of procedural rules, rather than absolute notions of nullity, invalidity, incapacity or mandatory dismissal. Much clearer language than appears in s 80D would be required in order to sustain a construction whereby those procedural rules were displaced by a limitation on jurisdiction or capacity or a qualification on the right to sue. 107In the exercise of the court's or tribunal's discretion under those procedural rules, the matters that will loom large are (a) whether the breach has been cured, (b) if it has not been cured, will it be cured reasonably promptly, and (c) was the breach inadvertent (because, say, of an irregularity in the approval process) or deliberate. For example, if approval was purportedly given before proceedings had been commenced, but a defect was noticed shortly afterwards, and rectified immediately by a further approving resolution shortly after proceedings had been commenced, then it is difficult to see how a court could properly form the view that the proceedings ought to be stayed or dismissed for a transient non-compliance on which nothing turned. Conversely, it is difficult to see how a court could do other than stay or dismiss proceedings commenced by an owners corporation which was fully aware of the provision, made no effort to comply with it, and had no intention to seek approval at a general meeting. As ever, the extreme cases are straightforward; the intermediate cases may be highly contestable. 108In the present case, the contravention was promptly cured, and before the procedural rules of the court were invoked for its summary dismissal. Although aspects of the reasoning of the primary judge reflected his Honour's different construction, the conclusion reached should be upheld. The Developer did not submit to the contrary. 109In the alternative, the primary judge followed McEvoy v The Body Corporate for No 9 Port Douglas Road [2013] QCA 168 and held that the subsequent resolution amounted to ratification, with retrospective effect: at [35]. I respectfully agree with the primary judge that this issue does not arise. I incline to the view that, as the Developer's submissions point out, the proper construction of s 80D will determine the "ratification issue". In any event, the language used in s 312 of the Body Corporate and Community Management Act 1997 (Qld) is slightly different, the point was not finally determined by the Queensland Court of Appeal, and that court was not determining an appeal but was refusing leave to appeal: see at [40]. In those circumstances, it is not necessary to say anything about the question of whether doctrines of ratification of proceedings commenced by an unauthorised agent apply where the owners corporation, by statute, holds the common property "as agent" for the lot owners but commences proceedings contrary to s 80D in its own name. 110I propose that the appeal be dismissed, with costs.

Parties

Applicant/Plaintiff:

2 Elizabeth Bay Road Pty Ltd

Respondent/Defendant:

The Owners - Strata Plan No 73943

Legislation Cited (10)

Strata Schemes Management Act 1996(NSW)

Body Corporate and Community Management Act 1997(Qld)

Home Building Amendment Act 2011(NSW)

Strata Schemes Management Amendment Act 2004(NSW)

Corporations Act 2001(Cth)

Home Building Act 1989(NSW)

Interpretation Act 1987(NSW)

Jurisdiction of Courts (Cross-vesting) Act 1987(Cth)

Workers Compensation Act 1987(NSW)

Family Law Act 1975(Cth)

Cases Cited (26)

SP No 46528 v Hall [2009] NSWSC 278 Plaintiff S157/2002 v Commonwealth [2003] HCA 2; 211 CLR 476 Project Blue Sky Pty Ltd v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 R v Brown [1996] AC 543 at 561 Smalley v Motor Accident Authority of New South Wales [2013] NSWCA 318; 85 NSWLR 580 The Owners - Strata Plan 5709 v Andrews [2009] NSWCA 189 The Owners - Strata Plan No 61288 v Brookfield Australia Investments Ltd [2013] NSWCA 317; 85 NSWLR 479 The Owners - Strata Plan No 70798 v Bakkante Constructions Pty Ltd [2014] NSWCA 410 The Owners Strata Plan No 73943 v 2 Elizabeth Bay Road Pty Ltd [2013] NSWSC 1769 Thiess v Collector of Customs [2014] HCA 12; 250 CLR 664 Towers v African Tug Co Ltd [1904] 1 Ch 558 Zanardo & Rodgriguez Sales & Services Pty Ltd v Tolevski [2013] NSWCA 449 Texts Cited: EP Aprill, "The Law of the Word: Dictionary Shopping in the Supreme Court" (1998) 30 Ariz St L J 275 Sir William Blackstone, Commentaries on the Laws of England (1765-1769), Book 1, ch I8 EA Driedger, "Statutes: The Mischievous Literal Golden Rule" (1981) 59 Can Bar Rev 780 Category: Principal judgment Parties: 2 Elizabeth Bay Road Pty Ltd (Appellant) The Owners - Strata Plan No 73943 (Respondent) Representation: Counsel: B Walker SC with P Kulevski (Appellant) J C Kelly SC with V F Kerr and T Buterin (Respondent)

Solicitors: Clayton Utz (Appellant) Makinson d'Apice Lawyers (Respondent) File Number(s): 2013/372791 Decision under appeal Citation: [2013] NSWSC 1769 Date of Decision: 29 November 2013 Before: Hammerschlag J File Number(s): 2012/346116

[This headnote is not to be read as part of the judgment] In November 2012 the respondent owners corporation brought proceedings against the appellant Developer for defective building work carried out between 2002 and 2005 on the common property of its building in Elizabeth Bay. At the time proceedings were brought the responsible builder had been wound up. The owners corporation therefore relied on s 18C of the Home Building Act 1989 (NSW) to sue the Developer for breach of the warranties implied under s 18B. Despite s 80D of the Strata Schemes Management Act 1996 (NSW) requiring that a resolution be passed at a general meeting of the owners corporation approving the bringing of proceedings, a resolution was only passed at an annual general meeting in March 2013, after proceedings had been initiated. The Developer contended that the proceedings against it should be struck out or dismissed by reason of the delay in the passing of a later resolution. The primary judge held that the proceedings were not a nullity, that s 80D accommodated fulfilment by a later resolution and that, in the alternative, the action commencing proceedings could be regarded as an action instituted without authority, and therefore later ratified. On appeal it was argued by the Developer that s 80D required that a resolution at a general meeting be passed before the initiation of legal action. Failure to do so, it was argued, rendered the subsequent proceedings liable to be dismissed. The owners corporation submitted that the provision merely stipulated a condition, and that s 80D would not be breached if a general meeting was held after the initiation of proceedings, at which the proceedings were approved. The Court held, dismissing the appeal:

The s 80D constraint 41Section 80D is a "must not" provision. It does not indicate consequences of a criminal kind or consequences in terms of actionable wrong. 42As I have said, s 80D constrains both the owners corporation and the executive committee but its substantive effect is to curtail action by the executive committee alone: see [32] above. 43Valuable light is cast on the meaning of s 80D by the decision of this Court in The Owners - Strata Plan 5709 v Andrews [2009] NSWCA 189. In that case, a strata managing agent had been appointed by an adjudicator acting under s 162 of the SSM Act. Pursuant to s 162(1)(a), the agent was appointed "to exercise all the functions of an owners corporation". In exercise of authority thus conferred, the agent commenced certain legal proceedings. 44An issue in the case before this Court was whether s 80D precluded commencement of the legal proceedings in the absence of a resolution passed at a general meeting of the owners corporation. A similar issue arose in relation to action of the agent in levying owners under s 76(4) which is in the following terms: "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." 45It was argued that, having regard to the terms of both s 76(4) and s 80D(1), the particular function (levying of contribution in one case and initiation of legal action in the other) was incapable of being exercised unless a resolution in relevant terms had been passed at a meeting of the owners corporation. Hodgson JA (with the concurrence of Tobias and Young JJA) dealt with that argument as follows (at [69] - [70]): "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. 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." 46It was thus held that each of s 76(4) and s 80D was concerned not with the existence or availability of a function or the capacity to perform it but with the exercise of the function. If the function of initiating legal action (being a function of the owners corporation) had fallen to be exercised in the ordinary course by action of the executive committee, a resolution passed at a meeting of the owners corporation would have been required. That is the effect of s 80D. But because, in the particular case, the function of the owners corporation was to be exercised by an agent of the owners corporation pursuant to authority derived from s 162(1), a resolution passed at a meeting of the owners corporation was not required. 47It is thus clear that one species of agent of an owners corporation may, in the absence of any resolution under s 80D, cause its principal to initiate legal action of the kind with which that action is concerned. The passing of a resolution therefore cannot be regarded as essential to the existence of the corporate power. Legal action caught by s 80D can be initiated by an owners corporation in the absence of an authorising resolution passed at a general meeting, provided that the corporation acts otherwise than by decision of the executive committee. This is consistent with the status of s 80D as a "must not" provision rather than a "cannot" provision. In the absence of an authorising resolution, the section denies the authority of the executive committee to act for the owners corporation in initiating relevant legal action. It does not, in any circumstances, deny the capacity of the corporation to do so. When the matter is approached in the way indicated by the plurality in Project Blue Sky Pty Ltd v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [91]-[93], the fact that the relevant power can be exercised by a certain type of agent without compliance with the s 80D condition negates any legislative purpose of invalidating an act that fails to comply with the condition.

Ratification 54A transaction purportedly undertaken by a corporation that the corporation has no power to undertake cannot be ratified. This rule is most often associated with Ashbury Railway Carriage & Iron Co Ltd v Riche (1875) LR 7 HL 653. It was stated by Vaughan Williams LJ in Towers v African Tug Co Ltd [1904] 1 Ch 558 (at 566) in these terms: "[I]f an act is done by a company, which is ultra vires, no confirmation by shareholders - not even by every member of the company - can convert that which was ultra vires into something intra vires. It always must be ultra vires." 55The position is different where the corporation has the necessary power but the instrumentality by which it purportedly acted when exercising the power was not competent to exercise it. In a case of that kind, the action in question can be ratified by a competent instrumentality. 56An example is provided by the decision of the House of Lords in Alexander Ward & Co Ltd v Samyang Navigation Co Ltd [1975] 1 WLR 673. In that case, proceedings had ostensibly been brought by a company that had no directors. The constitution provided, in the usual way, that the business should be carried on by the directors and that they could exercise all powers of the company not reserved to the members in general meeting. The power to initiate proceedings rested with the directors. Some time after the commencement of the proceedings, the company went into liquidation. The liquidator, having become effectively the sole decision-maker, was granted leave to become a party and to continue the action. The original want of authority was thereby cured. The company was fully competent to take the steps that had purportedly been taken for it by persons without authority and, since an official with authority to act (the liquidator) later adopted the steps so taken, the taking of the steps in the company's name was ratified. Lord Morris of Borth-y-Gest (at 676) stated the relevant principle thus: "If something which at the time when it is done is done without authority but is done in the name of and in the purported capacity as an agent for a principal who later ratifies all that was done the ratification relates back: retrospectively it clothes what was done with authority." 57There will be no ratification unless the subsequent actor has the necessary authority. Thus, if, in the company context, the usual division of authority between the directors and the members in general meeting prevails, purported ratification by the members in general meeting of something exclusively within the province of the directors will not be effective: Massey v Wales [2003] NSWCA 212; 57 NSWLR 718. 58In the strata titles context, the reasoning in McEvoy v The Body Corporate for No 9 Port Douglas Road [2013] QCA 168 in relation to the Queensland legislation applies equally to the New South Wales legislation. 59Against that background, I return to s 80D of the SSM Act. If legal action is initiated by the executive committee in the name of the owners corporation without the resolution envisaged by s 80D having been passed at a general meeting, there is an act of a kind to which the power of the corporation extends but that act is performed without the authority of the corporation in whose name it purports to have been performed. The performance of the act is, however, capable of being ratified in accordance with the principles just discussed, that is, by a subsequent resolution passed at a general meeting of the owners corporation.

Raising non-compliance with s 80D 60The consequences, as they affect the progress and course of legal action commenced without prior compliance with s 80D, emerge from extensive case law examined by Campbell JA (with whom Giles and Macfarlan JJA agreed) in Doulaveras v Daher [2009] NSWCA 58; 253 ALR 627. The conclusion expressed by Campbell JA (at [150]) was as follows: "It is a clear abuse of the process of the court for someone to bring litigation, supposedly in the name of a particular person, when there is no authority from that particular person to bring the litigation. A court will deal with an abuse of process of that kind once it is established that a supposed plaintiff has not given authority for the litigation to be brought. The appropriate way of bringing that sort of abuse of process to the attention of the court, and establishing the facts underlying it, if there is any doubt about them, is usually by a notice of motion seeking to strike out the statement of claim or to stay the action. However, if in the course of litigation it becomes clear to the court that its process is being abused in this way, it will act of its own motion to bring the abuse to an end. It may be that the abuse comes to the attention of the court only in the course of a final hearing, either incidentally as evidence emerges, or as a result of the counsel appearing before the judge agreeing either expressly or by their conduct to litigate the question of whether the action is authorised, and the judge not intervening to require that issue to be decided before the rest of the case proceeds. What is in substance happening then, though, is the argument of a motion challenging the retainer, not the deciding of an issue that can properly be raised by a defence in an action." 61In the ordinary course, therefore, a defendant who alleges that the plaintiff's action was initiated without authority - so that the plaintiff's lawyers have no proper retainer - raises a matter that goes to the question whether the action should be allowed to proceed to trial, not one of substantive defence. The "victim", as it were, is not the defendant. It is the plaintiff whose name has been appropriated by those who have brought the unauthorised action. Where that plaintiff is a corporation and the persons who initiated the unauthorised action are officers, proceedings for breach of duty may lie against them at the suit of the corporation, if necessary by common law derivative action (a process that has been held to apply to an owners corporation constituted under the strata titles legislation: Carre v Owners Corporation - Strata Plan 53020 [2003] NSWSC 397; 58 NSWLR 302; Eastmark Holdings Pty Ltd v Kabraji [2013] NSWSC 1763; 97 ACSR 161). 62As Campbell JA points out, the course that the defendant should normally take in such circumstances is to raise the alleged want of authority by interlocutory application challenging the retainer of the plaintiff's solicitor.

The result in this case 63The course just outlined is, at least in substance, the course the defendant took in the present case. In its Technology and Construction List Response, it raised (in reply to the plaintiff's allegation that it was a body corporate constituted under the SSM Act "entitled to sue in and by its corporate name") the matter of failure to pass a resolution in terms of s 80D before the proceedings were commenced. Separately, however, the defendant filed a notice of motion seeking an order that the proceedings be struck out or dismissed on the ground that they had been commenced without authority. 64The defendant's notice of motion raising, effectively as a preliminary issue, the lack of authority for commencement of the proceedings by the plaintiff owners corporation came before the court in October 2013, that is, some seven months after the passing of the resolution at the annual general meeting of the owners corporation. 65On the view I take, that resolution was effective to ratify the original decision of the executive committee to initiate the proceedings and, for that reason, the correct course was that which Hammerschlag J took, that is, to dismiss the motion. 66It follows that, as Leeming JA proposes, the appeal should be dismissed with costs. 67LEEMING JA: The Strata Schemes Management Act 1996 (NSW) (Act) creates, confers functions upon and regulates a body corporate known as an "owners corporation" for every strata scheme. In particular, the common property of a strata scheme is owned by its owners corporation. If there is actionable damage to the common property, the owners corporation is a proper plaintiff. 68Speaking broadly, s 80D of the Act prohibits an owners corporation from initiating legal action without a resolution being passed at a general meeting of the owners corporation approving the taking of that action. This appeal is about whether s 80D was breached and, if so, what are the consequences of litigation being commenced contrary to s 80D. 69The Corporations Act 2001 (Cth) does not apply to owners corporations (they are an "excluded matter" for the purposes of s 5F: see s 11(2) of the Act). Accordingly, s 124 of the Corporations Act does not confer on an owners corporation the powers of a natural person. However, it is plain, not least from s 80D which is central to this appeal, that the Act contemplates that an owners corporation can commence legal proceedings. Accordingly, either implicitly, or read in conjunction with s 50(1)(c) of the Interpretation Act 1987 (NSW): see The Owners - Strata Plan No 43551 v Walter Construction Group Ltd [2004] NSWCA 429; 62 NSWLR 169 at [27], an owners corporation has power to do so. That the power is sourced in State statute is relevant to one of the submissions made on the appeal.