Athens v The Owners - Strata Plan No. 47035

The Application

1. The parties advised the Tribunal that they were unable to reach agreement in respect of that part of the Application brought by the Applicant for a compulsory, strata managing agent pursuant to s 237 of the Act. Accordingly, that aspect of the Application proceeded to a hearing, based on each party's evidence and submissions, in the usual manner. The Tribunal's decision in respect of that part of the Application was reserved on 23 February 2021 at the completion of the hearing.
2. Section 237 of the SSMA states: "(1) The Tribunal may, on its own motion or on application, make an order appointing a person as a strata managing agent or requiring an owners corporation to appoint a person as a strata managing agent - (a) to exercise all the functions of an owners corporation, or (b) to exercise specified functions of an owners corporation; or (c) to exercise all the functions other than specified functions of an owners corporation. (2) The Tribunal may also, when making an order under this section, order that the strata managing agents to have and may exercise - (a) all the functions of the chairperson, secretary, treasurer or strata committee of the owners corporation, or (b) specified functions of the chairperson, secretary, treasurer or strata committee of the owners corporation, or (c) all the functions of the chairperson, secretary, treasurer or strata committee of the owners corporation other than specified functions. (3) The Tribunal may make an order only if satisfied that - : (a) the management of a strata scheme subject to an application for an order under this Act or an appeal to the Tribunal is not functioning or is not functioning satisfactorily; or (b) an owners corporation has failed to comply with the requirement imposed on the owners corporation by an order made under this Act, or (c) an owners corporation has failed to perform one or more of its duties, or (d) an owners corporation owes a judgment debt."
3. The Applicant's counsel advised the Tribunal that it based the application for appointment of a compulsory strata managing agent on the criteria specifically outlined in s 237(3)(a) or (c) of the SSMA, but not s 237(3)(b) or (d) of the SSMA.
4. The Applicant's counsel also indicated in closing submissions that notwithstanding the terms of paragraph 1(a) of the Orders Sought in Annexure A to the Application, that it pressed the Application pursuant to s 237(1)(a) or (b) of the SSMA, notwithstanding no formal application was made to amend the application to that effect.
5. The Respondent's counsel objected to this on the basis that the clear wording of the orders sought in paragraph 1(a) of Annexure A to the Application was for a compulsory strata managing agent "to oversee the last of the remedial works over the common property and our client's property (Lot 42)" and not generally.
6. The Respondent's counsel claimed that the appointment anticipated in the Application was for a compulsory strata managing agent to exercise specified functions of the OC and not to exercise all of the functions of the OC generally.
7. The Respondent's counsel indicated that the clear majority of evidence adduced by the Applicant related to remedial work required in connection with water penetration of Lot 42 and adjacent common property, and not in respect of any other dysfunction in the OC. For instance, there was no complaint about the financial management of the OC, the collection or handling of its levies, the calling or conducting of meetings and usual similar corporate governance processes.
8. Although in final submissions the Applicant's counsel did allude to issues prompted by the Tribunal's questioning including the resignation of executive committee members as a result of the inability of the OC to obtain liability insurance for those office holders, the strata building itself remained insured and generally competently managed by Mr George Hatzigeorgiou of Network Strata Pty Limited which is outlined in his witness statement dated 10 December 2020 (TEP17).
9. For reasons that will become apparent, the Tribunal need not decide whether the Applications goes forward on the basis of an appointment of a compulsory strata managing agent to exercise all the functions of an OC or simply to exercise specified functions of an OC.

The Law

1. In Hoare v The Owners - Strata Plan No. 73905 [2018] NSW CAT CD 45 at [199], the Tribunal said: "The appointment of a compulsory strata manager is a serious measure not to be taken lightly, because it removes the democratic process that has been established under the [SSMA] for the owners corporation to govern itself. In essence, it places the owners corporation into the hands of an administrator for a period of time".
2. In respect of s 237(3)(a) of the SSMA, the Appeal Panel of the Tribunal stated in Bischoff v Sahade [2015] NSW CAT AP 135 at [22]: "Circumstances in which the management structure may not be functioning or functioning satisfactorily include where the relevant level of management: (1) does not perform a required function, for example to properly maintain the common property; (2) exercises a power or makes a decision for an improper purpose, for example conferring a benefit upon a particular lot owner or group of lot owners in a manner not authorised by the SSMA; (3) fails to exercise a power or make a decision to prevent a contravention by lot owners and occupiers of their obligations under the SSMA, including the lot owner's and occupier's obligation to comply with the bylaws; and (4) raises levies and takes or defends legal action on behalf of the owners corporation in circumstances where such action is unnecessary or not in the interests of the owners corporation or the lot owners as a whole".

The Applicant's evidence

1. The Applicant's counsel tendered the following documents in support of the s 237 Application: 1. "A" - Statement of Agreed Facts and Issues 2. "B" - Chronology 3. "C" - Affidavit of Peta Athens sworn 30 October 2020 including exhibits 4. "D" - Affidavit of Peta Athens sworn 21 January 2021 5. "E" - Section 237 letter of Anthony Kioussis of RPG dated 26 November 2019 6. "F" - Section 237 letter from Anthony Kioussis dated 10 February 2021.
2. As a result of consent orders being reached in respect of the relief sought pursuant to s 232 of the SSMA by the Applicant, the hearing proceeded in respect of the 237 application of the Applicant largely by reference to the Statement of Agreed Facts and Issues (SAFI) and issues provided to the Tribunal at the commencement of the hearing.
3. While the material in this document is comprised of the detailed evidence of the parties, in particular the two affidavits of Peter Athens sworn 30 October 2020 and 21 January 2021, the Tribunal considers it generally sufficient (as the parties to the hearing) to refer to the paragraphs of the SAFI to outline the course of events which led to the Applicant's s 237 application.

Applicant's submissions

1. The Applicant's counsel made detailed reference to the SAFI which had been provided to the Tribunal immediately prior to the hearing.
2. The strata property at 44-50 Gardeners Road, Kingsford is a 12 storey building comprising 42 residential units and two shops. The building is comprised of reinforced concrete floor slabs and columns with infill masonry walls. The property features face brick facades and aluminium frame windows and balcony doors.
3. The roof is constructed from a series of flat reinforced concrete slabs, waterproofed with a liquid‑applied waterproofing system. Lot 42, the Applicant's lot, is a two bedroom standalone residence which has been built on the roof of the strata building. Its exposure to wind and weather has resulted in at least some of the problems encountered in recent years.
4. It is worth recounting a brief summary of the history of the issue of water penetration in Lot 42. The Applicant first sought rectification work to address water penetration to his unit in June 2013. In September 2013 the Applicant lodged an application for mediation seeking to resolve the water penetration issue and repair the damage which had occurred over the previous 2 years.
5. In 2014 the Respondent retained contractors and a loss assessor to inspect Lot 42 and the surrounding common property. The Applicant made an application before an adjudicator in SCS 14/24926 to arrange for a suitable independent contractor to inspect and report on water ingress to the Applicant's unit by 15 September 2014. Relevantly, the adjudicator otherwise dismissed the Applicant's first application for a compulsory strata managing agent to attend to this issue.
6. In November 2014 the Respondent engaged RHM Consultants to investigate water penetration issues. Thereafter followed a series of expert reports, extraordinary general meetings and expert recommendations as to the causes of the water penetration, as well as possible remedies.
7. In 2015 the Applicant retained Geoff Humby of Premier Waterproofing to provide his own expert report in respect of causes of the water penetration.
8. On 14 October 2016 a Joint Expert Report (JER) was produced by Geoff Humby for the Applicant and Bruce Hodsdon of RHM Consultants for the Respondent. As a result of this on 22 December 2016 the Applicant and Respondent entered into consent orders in SCS 15/51936 which set out the work to be attended to by the Respondent to rectify the water penetration issues to the Applicant's unit (Lot 42) as well as the various make good works in relation to the damage to the Applicant's unit and to personal items caused by the water penetration. However by 21 May 2017, the date the remedial works were to have been completed, no remedial works had been commenced.
9. Remedial works on Lot 42 commenced on 13 November 2017 but were not completed until March 2018. In December 2017 the Applicant ceased paying his levy.
10. On 22 December 2017 and on 7 November 2018, the Respondent paid Unicorn Building for its remedial work in the sum of $340,565.19 which included the design installation and replacement of sliding doors in Lot 42.
11. Also, the Respondent between 30 November 2016 and 31 May 2018 paid RHM Consultants the sum of $28,888.75 in respect of implementing the remedial works from the NCAT consent orders dated 22 December 2016.
12. Notwithstanding this, further issues arose with water penetration to Lot 42. Unicorn Building were recalled for further tests and disputes arose as to the appropriate method of testing the sliding doors.
13. Further correspondence arose after March 2019 resulting in a further application being made to the Tribunal in April 2020 by the Applicant. Further experts including Michael Ilievski from IBC and Dr Jacob of Jacob & Associates for the Applicant prepared reports, resulting in a joint expert report dated 20 January 2021.
14. Also, as the SAFI noted, the Respondent currently does not hold any insurance policy in respect to optional office bearer's liability. As a result of this, there is no executive committee for the Respondent at this time, although the insurance broker for the OC expects to place this insurance for this strata scheme shortly.
15. Mr Weaver for the Applicant submitted that this unfortunate history of delay, error and excessive costs displayed a lack of competence by the OC that resulted in a dysfunctionality which should be met by the appointment of a compulsory strata agent pursuant to s 237 of the SSMA.
16. Although these actions were mainly in the recent past, and some of them were historical, nevertheless the Applicant sought the appointment at least for the period in which the remedial works in respect of Lot 42 and its adjacent common property could be completed.

The Respondents' evidence

1. The Respondent's counsel tendered five documents, or groups of documents, in their opposition to the s 237 application. They were: 1. "1" - Statement of Mr George Hatzigeorgiou dated 10 December 2020. 2. "2" - Exhibit OC to the witness statement of Mr George Hatzigeorgiou dated 10 December 2020 (pages 1-554 and 554-794). 3. "3" - The statement of Mr Michael Illievski dated 11 December 2020. 4. "4" - Report of Bruce Hodsdon of RMH Consultants dated 11 December 2020. 5. "5" - Documents being the strata management agency agreement, Net Strata letter.
2. The Respondent's counsel submitted that notwithstanding the material and significant delays in reaching agreement on both the remedy and then the work to be done to resolve Lot 42's water penetration issues, that the OC throughout this period had retained experts, retained lawyers, sought expert advice, obtained necessary reports, communicated with the Applicant and had constructively gone about their business to ascertain the real cause of the water penetration in order to fulfil their duties pursuant to s 106 of the SSMA.

Consideration

1. The history of the issue of water penetration to both Lot 42 and SP 47035 dates back to 2011.
2. From the history outlined in the SAFI and extracted in paragraphs 24-35 above, it is clear that the OC has undertaken a range of actions, including: 1. raising levies, 2. calling meetings, 3. passing resolutions, 4. incurring costs, 5. retaining experts, 6. retaining contractors, and 7. undertaking building works, in an attempt to resolve this issue.
3. The fact that some of the advice which the OC received, or the quality of building work undertaken by the contractors, was sub‑optimal or misconceived through the history of this issue is not necessarily the fault of the OC.
4. Nor can it be said that the operations of the OC or of the strata committee are dysfunctional for these reasons.
5. From the parties' evidence and the SAFI, the predominant issue before the Tribunal is that of the water penetration into Lot 42. There is no suggestion (apart from the costs incurred in experts with this issue or contractors which did not resolve the problem), that there has been inappropriate financial conduct or a failure of corporate governance or unlawful conduct by the OC. Simply, Lot 42 had a water penetration issue which unfortunately took several years and 2‑3 generations of experts and then contractors, to resolve.
6. The very fact that a significant part of this application, the relief sought under s 232 of the SSMA, was reached by agreement also gravitates against the appointment of a compulsory strata managing agent pursuant to s 237 of the SSMA. Provided the expert opinions and contracting work now undertaken resolve this issue finally, there appears to be no basis upon which the Tribunal should appoint a compulsory strata managing agent pursuant to s 237 of the SSMA if all other aspects of the strata scheme's operations are satisfactory.
7. And there was no compelling evidence adduced by the Applicant that that work would not be project managed as competently by the existing strata manager, Netstrata, as it would be a compulsory strata managing agent, and at no greater cost.
8. The very fact that the parties have agreed a methodology and statement of works in orders 1-5 necessary to resolve this issue undermines to some degree the ongoing dispute between the parties which may have been sufficient to appoint a compulsory strata managing agent.
9. In Rosenthal v The Owners - Strata Plan 20211 [2010] NSWCATCD the Tribunal in similar circumstances refused the appointment of a compulsory strata managing agent pursuant to s 237 of the SSMA. That case also related to water penetration to the top floor of a strata tower. Similarly, that case had been before the Tribunal in 2017 in respect of similar issues: Rosenthal v The Owners - SP 20211 [2017] NSWCATCD 80.
10. Water penetration, which is a common defect that comes before the Tribunal in home building and strata scheme disputes, is not always readily repairable. It takes lengthy and often on-the-spot observations during precipitation to understand the true nature of the problem and the source of water penetration. It is often misdiagnosed or only partly diagnosed.
11. In the more recent decision of Rosenthal v The Owners - Strata Plan 20211 [2021] NSWCATCD (unreported, 15 February 2021) the Tribunal declined to appoint a compulsory strata managing agent notwithstanding lengthy ongoing delays in the rectification of water penetration to a top floor apartment; ongoing, delayed and inadequate rectification over several years; ongoing disputes between the owner and the OC throughout that period and a requirement to perform specific work.
12. The Tribunal concludes that the Respondent is functioning satisfactorily and that it has not failed to perform one or more of its duties - in breach of either s 237(3)(a) or (c) of the SSMA.
13. While the Tribunal acknowledges and shares the Applicant's frustration which has arisen over the length of time it has taken to satisfactorily address the water penetration issue and the false starts in respect of remediation work, the Tribunal is hopeful that orders 1-5 made by consent above will finally resolve this problem.
14. Notwithstanding the uneven history of the Respondent in managing this issue to a successful outcome for both Lot 42 and for the OC, the Tribunal is satisfied that the consent orders reached in respect of the Application pursuant to s 232 of the SSMA represents a turning point in the resolution of this problem both in its diagnosis, remedial methodology and construction work.
15. The Tribunal sees little purpose or utility in appointing a compulsory strata managing agent to oversee the building works where the current strata managing agent, Mr George Hatzigeorgiou of Netstrata, is likely to do an equivalent quality job and at a significantly reduced price to the Respondent and its unitholders.
16. For these reasons, the Tribunal dismisses that part of the Application by the Applicant relating to the appointment of a compulsory strata managing agent pursuant to s 237 of the SSMA.

Costs

1. The Tribunal discussed the issue of costs with the parties in oral submissions. Both parties acknowledged that as the Application did not relate to a monetary sum, Rule 38 of the Civil and Administrative Tribunal Regulations 2014 did not apply.
2. In its absence, it is incumbent upon a costs' claimant to prove 'special circumstances' pursuant to s. 60 of the Civil and Administrative Tribunal Act 2013 (NSW). Based on the discussion which the Tribunal had with the parties in oral submissions, and the reasons for decision outlined above, the Tribunal does not intend to make a costs order in respect of any part of the Application.
3. If any party seeks a costs order arising from the Application, the following directions are to apply: 1. The costs applicant must file and serve any costs application, including written submissions and any evidence in support, within 7 days of the date of these orders. 2. The respondent to the costs application must file and serve any written submissions and evidence in reply within 14 days of the date of these orders. 3. The costs applicant must file and serve any written submissions in reply within 21 days of the date of these orders. 4. Any submissions are to include submissions on the issue of whether an order should be made pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2013 (NSW) dispensing with a hearing of the costs application.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 August 2021