62 I disagree with the defendant's characterisation of its solicitor's letter of 29 January 2008 as merely indicating that the defendant would be willing to consider the plaintiff's request in 12 months. The BMC had requested, or directed, that these two parties reach a compromised proposal in 6 weeks. It is clear that the defendant was not prepared to negotiate on a "compromised proposal" at that time and it effectively stonewalled the plaintiff and failed to move the process forward that the BMC had put in place in its initial meeting.
63 Clause 18 of the SMS requires each Member to resolve a "dispute about" the SMS before they take action under the clause. Although the defendant submitted that before the plaintiff can establish that a "dispute" has arisen it must call a meeting of the BMC and put a proposal to a vote, I am not satisfied that a dispute can only arise in this way. Clearly the BMC had an obligation to determine the calculation of the shared facility percentages at its initial meeting.
64 The BMC was required to determine whether the percentages or proportions, in Schedule 3 of the SMS were to remain as stated or to be determined otherwise. The process of embarking upon the determination of those percentages was adjourned on the condition that the plaintiff and the defendant reach a compromised proposal within a specific timeframe. Although other events such as the commissioning of the Keen Property Report have occurred since the imposition of that timeframe, the "process" that the BMC embarked upon has not yet been finalised. The BMC has yet to comply with the stipulation in Schedule 3 of the SMS that it determine the shared facility percentages.
65 The Minutes of the Extraordinary General Meeting of the BMC on 5 February 2009 referred to the "dispute" the subject of the Notice of the Dispute. It does not appear that there was any debate at this BMC meeting that a "dispute" had not arisen. Rather both the plaintiff and the defendant asked that there be recorded in the minutes the fact that both had offered to negotiate but that the negotiations had broken down. The Minutes of the Annual General Meeting of the BMC on 19 August 2009 also referred to the "dispute" describing it as a "dispute about the proportions in which the respective Owners Corporations are to contribute to Shared Costs". It would appear that neither the plaintiff nor the defendant took issue with the description of the dispute in those Minutes. The expression used in the Minutes picks up the language of clause 6.4 that provides in part that disputes "regarding proportions" must be determined in accordance with clause 18. I am satisfied that there is no relevant difference between the expression "about the proportions" used in the Minutes and the expression "regarding proportions" in clause 6.4 of the SMS. It is clear that the BMC understood that there was a "dispute regarding proportions".
66 Clause 18.1 defines disputes in connection with the SMS to include disputes relating to any matter arising out of or in connection with the SMS. The dispute that has arisen in the present case relates to the "matter" of the determination of the proportion of Shared Costs in Schedule 3 of the SMS, clearly a matter arising out of the SMS or in connection with the SMS. The dispute arose by reason of the process that was put in place by the BMC and the failure of the plaintiff and the defendant to reach that "compromised proposal". There is a dispute about what percentages should be included in the SMS. Both expert valuers were in agreement that the percentages contained in the SMS as registered are unreasonable. The dispute is whether the proportions proposed in one or other of those reports or some other percentage should be determined as the Shared Costs. I am satisfied that the plaintiff's application is not premature or hypothetical.
67 I am satisfied that a dispute has arisen in connection with the SMS.
Has there been a breach of the SMS?
68 All the parties to this litigation are obliged to comply with their obligations in the SMS: cl 2.2(a). However it is important to identify what those obligations are to determine whether the defendant has failed to comply with those obligations in breach of the provisions of the SMS.
69 The regime under clause 18 requires the parties to try to resolve their dispute "in good faith" before taking action under clause 18. The clear intention of the parties from this provision of the SMS is that they will cooperate with each other in trying to resolve their dispute. If they are unable to resolve their dispute as was the case here, the parties agreed to a regime for a third-party, the Expert, to determine their dispute. In particular in the present case the parties agreed that the Expert would determine the adjustments to the proportions, if any: cl 6.4 and cl 18. The parties also agreed that each would have an entitlement to put submissions to the Expert about the dispute: cl 18.3(g). The parties agreed that if submissions were to be made to the Expert an obligation was imposed on the party making the submissions to cooperate with the Expert and to promptly provide the Expert with information as requested: cl 18.4(b).
70 There is no express obligation imposed on a party who does not make submissions to the Expert to cooperate with the Expert or provide information requested by the Expert. The regime that the parties agreed to in clause 18 clearly envisaged that there might be disagreement between them. They anticipated that they would not be able to agree on jointly appointing an Expert. That is why the provision for the President of the Law Society to appoint the Expert was included.
71 If a party chose not to take part in the process of making submissions then the Expert was entitled to proceed to determine the dispute in the absence of submissions from that party. Once the Expert was appointed, determination should have been made in accordance with clause 18 of the SMS. It was not necessary for the Expert to require agreement from the defendant to his appointment. Indeed the regime in clause 18 recognises that a party may not agree to the appointment of a particular Expert. Unfortunately the Expert required the defendant to indicate its consent to his appointment and to the terms and conditions of his appointment and the defendant declined to do so. I do not think that this was an essential step in the process, however one can understand why the Expert wished both parties to indicate their consent if for no other reason than to ensure that his costs would be paid, notwithstanding clause 18.6 (a) of the SMS.
72 The defendant went a little further than simply declining to agree to the Expert's appointment and terms and conditions. It did not suggest that any particular term or condition was unacceptable, rather it claimed that any process upon which the Expert might embark would be "fruitless" because there was insufficient support within the defendant to pass a special resolution to support an amendment to the SMS in line with the Expert's determination. It also suggested that the Expert's appointment would be fruitless. This statement seems to me to be misconceived. The President of the Law Society had already appointed the Expert. The Expert's appointment did not depend upon the defendant's agreement, notwithstanding that the Expert himself required the defendant to so agree.
73 The defendant's letter to the Expert also demonstrates that the defendant had formed the view that it would not support a special resolution to implement any adjustment to the apportionment of the Shared Costs that the Expert might determine. This seems to me to be rather extraordinary having regard to the fact that the defendant could not know whether the implementation of the determination would be in the best interests of the lot owners or not. It does show a lack of willingness to take part in a process that was agreed between the parties for the resolution of disputes. The defendant could have advised the Expert that there was no obligation on it to make submissions under clause 18 and that it was a matter for the Expert to proceed with the determination of the dispute.