Beck & Anor v Owners Corporation Strata Plan No. 64622

Civil Procedure Act 2005 (NSW) LEGISLATION CITED : Home Building Act 1989 (NSW) Strata Schemes Management Act 1996 (NSW)

General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 125 Owners Strata Plan 30695 v Strata Corp. [2005] NSWSC 405 CASES CITED : Seiwa Pty Ltd v Owners Corporation Strata Plan 35042 [2006] NSWSC 1157 Stolfa v Owners Strata Plan 4366 [2009] NSWSC 589 Westpoint Management Limited v Chocolate Factory Apartments Limited [2007] NSWCA 253

PARTIES : Plaintiffs: Adam Beck; Beverley Beck Defendant: Owners Corporation Strata Plan No. 61422

COUNSEL : Plaintiff/Respondent-G.A.Sirtes SC Defendant/Applicant- F.Hicks

SOLICITORS : Plaintiff/Respondent- Thurlow Fisher Lawyers Defendant/Applicant-DibbsBarker Lawyers

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2459/09 ADAM BECK & BEVERLEY BECK v OWNERS CORPORATION STRATA PLAN NO. 64622

JUDGMENT 1 HIS HONOUR: There is before me a Notice of Motion filed by the defendant on 5 June 2009. Some of the orders set out in the Notice of Motion are no longer pressed. Other than seeking an order for costs, the only other orders now sought by the defendant are in the following terms:

"2. [In the alternative], the proceedings be stayed until the claims and disputes are dealt with pursuant to chapter 5 of the Strata Schemes Management Act 1996 (NSW).

3. Further and in the alternative, the proceedings be stayed until the Supreme Court of New South Wales proceedings number 55015 of 2006 have been determined." 2 The defendant's application is opposed. 3 Each of the plaintiffs is, and has been since early 2008, the registered proprietor of a unit in "The Altair", a high rise apartment block situated in a prominent location at 3 Kings Cross Road, Darlinghurst. The defendant is the owners corporation of that apartment block. 4 On 13 March 2006 the defendant commenced proceedings in this Court, being proceedings No. 55015/06, against the builders of the apartment block, namely Australand Constructions Pty Limited and Australand Corporation (NSW) Pty Limited. In those proceedings, the defendant made claims against the builders in respect of defects alleged to be their responsibility pursuant to section 18B of the Home Building Act 1989 (NSW), including claims in relation to defects in the balustrades on the balconies. The defects in question are common to a large number of the balustrades in the building, and I am informed from the bar table that there are approximately 185 balconies in the building, many of them having one or more defective balustrades. 5 The proceedings against the builders has not yet been finally determined. However, there has been a finding on liability against the builders and in favour of the defendant in these proceedings, including a finding that the balustrades are defective. I have been informed that the quantum of the defendant's damages recoverable from the builders inter alia in respect of the balustrades is currently in the process of being determined, but there is no evidence before me as to when such determination is likely to be made. 6 In or about December 2006, when it had become obvious that the balustrades were defective and constituted a serious hazard to occupants, conspicuous red signs were affixed to the balustrades, containing a warning against leaning on them. 7 The balustrades are still in their original condition and the warning signs remain in place. 8 The present proceedings were commenced by Summons filed on 21 April 2009 in which the plaintiffs sought the following substantive orders: "1. A declaration that by its conduct the Defendant has failed to maintain and keep in a state of good and serviceable repair the common property in Strata Plan 64622 by neglecting to repair the balustrade on Units 1802 and 1902 so that the balustrade is structurally safe and in a state of good and serviceable repair.

2. Order that the Defendant maintain and keep in a state of good and serviceable repair the balustrade on Units 1802 and 1902 in order to ensure that the balustrade, including the glass panelling, is structurally safe and in a state of good and serviceable repair.

4. In the alternative to order 2, damages representing the cost of repairing the balustrades." 9 It is these proceedings, commenced by the plaintiffs' Summons, that the defendant now seeks to stay. 10 Mr F. Hicks of Counsel, who appeared for the defendant, based his application principally on the grounds that the plaintiffs ought not to have commenced these proceedings, but should have utilised the machinery provided for the resolution of disputes by Chapter 5 of the Strata Schemes Management Act 1996 (NSW) ("the Act"). Mr Hicks submitted that those provisions were intended to provide a specialist mechanism for the resolution of issues relating to the operation of strata schemes. 11 In his detailed and very helpful submissions, he took me through the provisions of Chapter 5 of the Act and drew my attention in particular to section 138(1)(a) which provides as follows: "138 General power of Adjudicator to make orders to settle disputes or rectify complaints (1) An Adjudicator may make an order to settle a dispute or complaint about: (a) an exercise of, or a failure to exercise, a function conferred or imposed by or under this Act or the by-laws in relation to a strata scheme…" 12 He submitted that there is, if not a "dispute", then certainly a "complaint" about the failure of the defendant to exercise a function confirmed or imposed on it by or under the Act. Section 62(1) of the Act provides as follows: "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." 13 There is no dispute between the parties that the function of properly maintaining the balustrades in question and keeping them in a state of good and serviceable repair is a function imposed on the defendant by or under the Act. It is also common ground that there is a "complaint" by the plaintiffs about the defendant's failure to exercise that function, although it is not as clear whether or not there is also a "dispute". However, the plaintiffs also seek orders for damages. 14 Mr Hicks properly conceded that under the provisions of section 138(3)(d) of the Act, an Adjudicator may not make an order for a settlement of a dispute or complaint that includes the payment by a person to another person of damages. He did, however, also draw my attention to section 188(1) of the Act which provides as follows: "188 Ancillary orders

(1) An order made by the Tribunal may include such ancillary or consequential provisions as the Tribunal thinks fit."

15 He submitted that "the ancillary or consequential provisions" referred to in section 188(1) include making an order for the payment of damages. 16 In support of his principal submission, Mr Hicks referred me specifically to a decision of Justice McDougall in Owners Strata Plan 30695 v Strata Corp. [2005] NSWSC 405, in which his Honour stayed proceedings in this Court in circumstances where he considered that the plaintiff ought to have availed itself of the machinery provided under the Act. His Honour said: "[20] There is, however, another, and in my view more cogent reason why interlocutory relief should be withheld. As I have already indicated, the Strata Schemes Management Act provides its own dispute resolution procedure in Ch 5. That procedure sets up a structure of determination by what are called adjudicators, and determination (either on appeal from adjudicators or, in some circumstances, at first instance) by what is called the Tribunal. In the ordinary way, where a specialist tribunal is set up to determine disputes of a particular nature, a Court of general jurisdiction, such as this Court, might withhold relief on discretionary grounds (even though the dispute is, as this one is, within power) where a party has not availed itself of the services offered by the specialist tribunal. That point was made by Street J in Harry M Miller Attractions Pty Ltd v Actors and Announcers Equity Association of Australia [1970] 1 NSWLR 614 at 615. His Honour said that it was a well settled approach that injunctive relief would not ordinarily be granted where it could be seen that there was another tribunal particularly suited to deal with the matter in issue and having the requisite power and authority to do so. That approach was followed under the antecedent legislation (Strata Titles Act 1973) in MacLeod & Anor v The Proprietors - Strata Plan No 6544 [1980] 2 NSWLR 691 and again in North Wind Pty Ltd v The Proprietors - Strata Plan No 3143 [1981] 2 NSWLR 809. [21] In the present case, s 138 of the Strata Schemes Management Act gives to the adjudicator general power (as it is called) to make an order to settle a dispute or complaint about, among other things, the operation, administration or management of a strata scheme under the Act. It seems to me that this present dispute falls precisely within that description. It is, accordingly, a dispute that could (and in my view should) be dealt with under Chapter 5 of the Strata Schemes Management Act.

[22] Further, the Strata Schemes Management Act encourages mediation and resolution of disputes by alternative means. Thus, by s 125, an application under the Act should not be accepted unless mediation has been attempted unsuccessfully or the subject matter of the application is not appropriate for mediation.

[23] In my view, for the reasons that I have given both in these reasons and in argument, the present dispute is one that is classically the kind of dispute that should be referred to mediation. It therefore seems to me that, both because of the availability of mediation and because of the availability of a specialist tribunal to deal with the dispute, this Court should, in any event, notwithstanding what I have said about the serious question to be tried, decline to grant injunctive relief." 17 In support of his submission that the Court should exercise its discretion in favour of the defendant, Mr Hicks also drew my attention to an affidavit of Beth McIntyre, the solicitor for the defendant, sworn 31 August 2009. In that affidavit, Ms McIntyre has deposed that the defendant has now engaged its building consultant to call for competitive tenders for the rectification of defects and that it has been directed to inform the tenderers that the rectification of all the defective balustrades is to be the first priority in each of their programs for the rectification works. She has also deposed that on the basis of the current timetable, the defendant will convene an extraordinary general meeting on 1 October 2009 in order to decide on the appointment of the tenderer and to make arrangements for the execution of the contract. These facts were said to support the granting of a stay, as it now appears that the balustrades will be repaired in the very near future. 18 Mr Hicks did not submit that the commencement or prosecution of these proceedings constituted an abuse of the Court's process. Nor did he submit that its continuation prejudiced the defendant in any way in relation to the prosecution of the proceedings against the builders. He did, however, submit that in the exercise of its discretion, the court should take into account the apparent unfairness of permitting the owners of these two units in the apartment block to obtain what might amount to an advantage or priority over the owners of the other units simply because they have brought these proceedings, while the owners of the other units were content to permit the defendant to pursue the proceedings against the builders for the benefit of all owners as a whole. 19 Despite the inherent attractiveness of these submissions, particularly of the last-mentioned submissions, in the end I have formed the view that the stay sought by the defendant ought not be granted. In reaching that conclusion, I was ultimately persuaded by Mr G. A. Sirtes SC, who appeared for the plaintiffs, that in all of the circumstances, it would not be appropriate for me to stay these proceedings inter alia for the following reasons. 20 First, Mr Sirtes noted that unlike in some other pieces of legislation, there is no express provision in the Act that requires an owner of a unit to first exhaust his or her rights under the procedures provided by the Act before commencing proceedings in this Court. While those procedures are available to an owner, there is no express obligation or requirement to take advantage of them. 21 Secondly, he submitted that contrary to the submissions made by Mr Hicks, the provisions of Chapter 5 of the Act do not confer on the Tribunal any power to award damages. 22 As I have already noted, by reason of section 138(3)(d), an Adjudicator has no such power. Insofar as any matter is referred by an Adjudicator to the Tribunal, pursuant to section 164(1) of the Act, Mr Sirtes points out that as is provided by section 184(1), the Tribunal has the same powers as does an Adjudicator. In other words, the restrictions imposed on the powers of an Adjudicator by section 138(3)(d) carry over to limit the powers of the Tribunal where the Tribunal is exercising the functions of an Adjudicator. 23 Further, he submitted that where the Tribunal is exercising its appellate jurisdiction from a decision of an Adjudicator pursuant to section 177(1) of the Act, and where section 188(1) applies, the words "ancillary or consequential provisions" need be construed narrowly, particularly in light of the express provision of section 138(3)(b), and also keeping in mind that an order for damages is a form of substantive relief which could not be categorised as being merely of an ancillary or consequential nature. 24 In support of his submission, Mr Sirtes drew to my attention the decision of Brereton J in Seiwa Pty Ltd v Owners Corporation Strata Plan 35042 [2006] NSWSC 1157 at [24] where his Honour expressly stated that the Tribunal has no power to award damages. 25 It might be said that as the evidence presently stands, the plaintiffs' claim for damages is somewhat ephemeral. That evidence is limited to an unquantified assertion by the second plaintiff to the effect that she is suffering financial loss by not being able to move into her unit as a consequence of the hazard constituted by the defective balustrades. 26 The only other claim presently being made is that both plaintiffs are suffering a loss of amenity for which an award of damages could be awarded as a solatium: Westpoint Management Limited v Chocolate Factory Apartments Limited [2007] NSWCA 253, per Giles JA at [46]. 27 Nevertheless, Mr Sirtes submitted that at this stage, it is not appropriate for me to consider the strength of the plaintiffs' claim for damages and that, so long as the claims satisfy the tests set out in cases such as General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 125, that is all that is required for the moment. 28 Although the apparent strength or weakness of the plaintiffs' claim for damages is a matter that I am entitled to take into account in the exercise of my discretion in whether or not I grant a stay, I accept Mr Sirtes' submission and find that the test in General Steel is met. 29 Thirdly, Mr Sirtes submitted that as a matter of discretion, it would not be appropriate to require the plaintiffs to exhaust their remedies under Chapter 5 of the Act as there is no "dispute" between the parties. He submits that it is clear, for the purposes of section 138(1), that the defendant has failed to exercise a function conferred on it by the Act in not attending to the repair of the balustrades. He drew my attention to the decisions of Justice Brereton in Seiwa and in Stolfa v Owners Strata Plan 4366 [2009] NSWSC 589, where his Honour made clear his view that an owners corporation is under an absolute duty to maintain the common property and to keep it in a state of good and serviceable repair, and where he also held that this duty also requires an owners corporation to do things even if it is not for the benefit of the proprietors as a whole or even a majority of them, and benefits one lot more than the others. 30 In answer to that submission, Mr Hicks raised a point that may, at some point of time, require further judicial consideration. He noted that in the present case, there were numerous balustrades requiring rectification at what I understand to be a very substantial cost. Further, it was considered by the defendant (presumably on legal advice) that third parties, namely the builders, were liable for the cost of their rectification (as has in fact been found to be the case). 31 The foregoing is not an uncommon occurrence in this State. It would not be unusual to find that at an early stage in its corporate life, an owners corporation has insufficient funds of its own to attend to costly rectifications. In view of the limitations imposed on an owners corporation in relation to mortgaging or otherwise encumbering common property, I expect that it would be difficult for an owners corporation to obtain funds by way of a loan. The only other avenue for raising such funds would be to strike a levy (which might be substantial) to raise the necessary funds. The obligations imposed by any such levy might cause significant hardship to its members, many of whom may default and cause a consequential disruption to the owners corporation and to its members generally. 32 It may well be arguable (although I do not express any view as to the merits of such argument) that in such circumstances, adopting a course of the kind presently adopted by the defendant may constitute sufficient compliance with the obligations imposed on an owners corporation by section 62 of the Act. 33 Were that issue to be raised in the proceedings presently before me, being an issue of law, it would in my opinion be desirable to have that issue determined by this Court rather than by an Adjudicator or the Tribunal, or by the District Court to which an appeal lies from the orders of a Tribunal, but only on limited grounds. 34 In other words, although perhaps not exactly for the reasons Mr Sirtes puts forward, I am of the opinion that this is yet another reason why these proceedings ought not be stayed. 35 Finally, it was submitted that in the exercise of my discretion, I ought not in any event stay these proceedings. It seems to me that there are a number of factors which would support that submission:

(a) The decision of McDougall J in Strata Corp . seems to be distinguishable on the facts from the proceedings before me. In that case there was clearly a dispute, and no question arose as to whether the machinery provided under Chapter 5 of the Act was adequate to deal with that dispute. In particular, there was no claim for damages and no reason was advanced as to why the dispute could not be dealt with by the statutory machinery in question;

(b) These proceedings are relatively well advanced in terms of the evidence. By contrast, requiring the plaintiffs to proceed by means of the machinery provided by Chapter 5 of the Act would require them to undergo what is a relatively technical and cumbersome process, which may take considerable time to be finally determined, and which may ultimately be found to be incapable of being determined in its totality in the absence of the power to make an order for damages;

(c) The provisions of section 56 of the Civil Procedure Act would suggest that the interests of justice would be best served by permitting the matter to go to a hearing in this Court;

(d) If it were minded to do so, this Court can stay any order that it may make on the final hearing of these proceedings, including any order for damages against the defendant. In that way, the Court may then be in a much better position to protect the other members of the owners corporation from being unduly disadvantaged by an individual owner obtaining a privileged position by pursuing its strict legal rights, while others refrain from pursuing those rights in an act of comity with the other members of the owners corporation. 36 Mr Hicks did submit, however, that if the plaintiffs were required to proceed by means of the machinery provided by Chapter 5 of the Act, there would then be an opportunity for the parties to attend a mediation before a trained mediator, who might be able to assist the parties to reach a resolution of their dispute. While that is undoubtedly true, the same benefit can be achieved were I to order a mediation under the provisions of the Civil Procedure Act. I enquired of both of Mr Hicks and Mr Sirtes about their respective clients' attitude to a Court ordered mediation. They both responded to the effect that they had no instructions to oppose any such order being made. 37 In my opinion, particularly having regard to the fact that the defendant is now taking active steps to attend to the rectification of the balustrades in question (perhaps as a result of these proceedings, but perhaps not) there should be a great deal of incentive for the parties to resolve their differences, or at least to agree to hold them in abeyance long enough to enable the defendant to have the balustrades rectified. 38 Given that the plaintiffs intend to reside in a building where the owners of all of the other units would have to contribute to any damages found to have been suffered by the plaintiffs, and who might thereafter make their own respective claims for damages, I would expect that there is a lot to be said for the parties trying very hard to resolve their differences in relation to any claim for damages. 39 So far as costs are concerned, in my opinion the plaintiffs have successfully resisted the relief sought by the defendant in its Notice of Motion. I do not consider that there is any reason why costs should not follow the event or why the costs payable to the plaintiffs should be contributed to by them in their capacities as owners of lots. 40 Accordingly, I make the following orders:

(1) Order that the defendant's motion to be dismissed with costs.

(2) Pursuant to section 229(2) of the Act, order that the costs payable by the defendant to the plaintiffs pursuant to order 1 be paid from contributions levied only in relation to lots other than the lots comprising units 1802 and 1902.

(3) Pursuant to section 26 of the Civil Procedure Act 2005 (NSW) , I refer these proceedings for mediation.

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