Breecass Pty Ltd v The Owners - Strata Plan No 61419; The Owners - Strata Plan No 61419 v Breecass Pty Ltd

Should the Proceedings of Breecass Be Transferred to a Court?

1. Sch 4 cl 6 of the NCAT Act states: 6 Transfer of proceedings to courts or to other tribunals (1) If the parties in any proceedings for the exercise of a Division function so agree, or if the Tribunal of its own motion or on the application of a party so directs, the proceedings are: (a) to be transferred to a court (in accordance with the rules of that court) that has jurisdiction in the matter, and (b) to continue before that court as if the proceedings had been instituted there. (2) If the parties in any proceedings that have been instituted in a court so agree, or if the court of its own motion or on the application of a party so directs, the proceedings are, if the proceedings relate to a matter for which the Tribunal has jurisdiction to exercise a Division function: (a) to be transferred to the Tribunal in accordance with the procedural rules (if any), and (b) to continue before the Tribunal as if the proceedings had been instituted in the Tribunal.
2. The decision of whether or not to transfer one or both sets of proceedings also involves consideration of s 72 of the SSMA 2015, which states: 72 Strata managing agent and building manager agreements may be terminated or varied by Tribunal (1) The Tribunal may, on application by an owners corporation for a strata scheme, make any of the following orders in respect of an agreement for the appointment of a strata managing agent or building manager for the scheme: (a) an order terminating the agreement, (b) an order requiring the payment of compensation to a party to the agreement, (c) an order varying the term, or varying or declaring void any of the conditions, of the agreement, (d) an order that a party to the agreement take any action or not take any action under the agreement, (e) an order dismissing the application. (2) If the Tribunal makes an order terminating the agreement, the Tribunal may also order the strata managing agent or building manager to return to the owners corporation, within the period specified in the order, any documents or other records relating to the strata scheme that are in the possession of the agent or manager. (3) The Tribunal may make an order under this section on any of the following grounds: (a) that the strata managing agent or building manager has refused or failed to perform the agreement or has performed it unsatisfactorily, (b) that charges payable by the owners corporation under the agreement are unfair, (c) that the strata managing agent has contravened section 58 (2), (d) that the strata managing agent has failed to disclose commissions or training services (including estimated commissions or value of training services or variations and explanations for variations) in accordance with section 60 or has failed to make the disclosures in good faith, (e) that the strata managing agent or building manager has failed to disclose an interest under section 71, (f) that the agreement is, in the circumstances of the case, otherwise harsh, oppressive, unconscionable or unreasonable.
3. "Tribunal" is defined in s 4 of the SSMA 2015 as the Civil and Administrative Tribunal.
4. Section 72 of the SSMA 2015 had a predecessor provision under s 183A of the SSMA 1996, which was a type of proceedings under the SSMA 1996 which was heard directly by the Tribunal (rather than being dealt with by an Adjudicator) and did include a power to award "compensation" under s 183A (1) (b) of the SSMA 1996, but the provision referred to "caretaker agreements" rather than "building manager" agreements.
5. The Tribunal is satisfied that the proceedings by Breecass should be transferred to a court. In making a decision whether or not to transfer proceedings, there is a wide discretion to take into account any relevant matter: Sanderson Motors Pty Ltd v Kirby [2000] NSWSC 924 at [4].
6. As discussed above, there is no clear NSW authority that establishes the power of the Tribunal under s 232 of the SSMA 2015 to award damages, liquidated amounts, or compensation for unjust enrichment arising from a breach by an owners corporation of a service agreement with a building manager.
7. There is a real prospect that the Tribunal may find that no such power exists, in circumstances where (i) there was no power to make such an order under the SSMA 1996; and (ii) the legislature did not clearly provide for such a power under s 232 of the SSMA 2015, but provided in s 106 (5) of the SSMA 2015 that a Lot owner could sue an owners corporation for damages arising from breach of statutory duty of the owners corporation regarding the state of repair of common property. If the Tribunal does not transfer proceedings, Breecass may fail in its claim for lack of jurisdiction to make an award of damages where a court clearly has jurisdiction to make such an order.
8. Although the Appeal Panel in Shum held that the Tribunal has the power to award damages arising from a breach of statutory duty under s 106 of the SSMA 2015, there is a real prospect that the Tribunal may determine that the principles in Shum only apply to the award of damages under s 106 (5) of the SSMA 2015, and do not extend to a general power to award damages (or compensation for unjust enrichment) under s 232 of the SSMA 2015.
9. Even if the principles in Shum extend beyond s 106 of the SSMA 2015, there remains the issue of the date(s) of any cause of action of Breecass against the owners corporation. If the loss suffered by Breecass arose from a breach occurring before the introduction of the SSMA 2015 on 30 November 2016, the Tribunal would have no power to award damages for such a breach. The evidentiary materials that both parties filed and served contained statements of witnesses and documentary evidence indicating that the alleged breaches occurred over a period of time, and it is possible that alleged breaches occurred prior to 30 November 2016. The statutory declaration of Mr Ian Ponton, director of Breecass, dated 16 October 2018 refers to alleged non-payment or underpayment by the owners corporation dating back to late 2013. Even if the Tribunal found that there was power under s 232 of the SSMA 2015 to award damages (or compensation for unjust enrichment), Breecass would potentially not be entitled to damages for breaches occurring prior to 30 November 2016, where a court would be able to award such damages.
10. A reason for refusing to transfer the proceedings of Breecass to a court is that the claim by Breecass for damages (or compensation for unjust enrichment) is that it could be dealt with as part of the claim by the owners corporation under s 72 of the SSMA 2015.
11. However, the Tribunal is not satisfied that the claim by Breecass could be dealt with under s 72 of the SSMA 2015 for the following reasons: 1. The claim under s 72 of the SSMA 2015 can only be brought by an owners corporation, not by the building manager. Consequently, any consideration of the issues in dispute must fall within s 72 of the SSMA 2015. 2. Although the Tribunal has the power under s 72 (1) (b) of the SSMA 2015 to make "an order requiring the payment of compensation to a party to the agreement", the grounds that the Tribunal may make such an order are set out in s 72 (3) of the SSMA 2015. Such grounds refer to either the conduct of the building manager (e.g. s 72 (3) (a) of the SSMA 2015); or that charges payable by the owners corporation are unfair (s 72 (3) (b) of the SSMA 2015; or that the agreement is "otherwise harsh, oppressive, unconscionable or unfair" (s 72 (3) (f) of the SSMA 2015). Such grounds do not involve the owners corporation either breaching the service agreement by not paying monies owed under the service agreement; or the owners corporation being unjustly enriched because the building manager has performed services which fall outside the agreement and has not been renumerated for such services. Accordingly, whether or not the owners corporation succeeded or failed in its application to terminate the service agreement and receive compensation, the Tribunal does not appear to have the power to award damages, or compensation for unjust enrichment, to Breecass for the alleged breaches of the service agreement by the owners corporation, because the Tribunal is bound by s 72 (3) of the SSMA 2015. A court, applying well established principles regarding breach of contract and unjust enrichment, is not restricted in the manner the Tribunal is by reason of s 72 of the SSMA 2015.

Should the proceedings of the owners corporation under s 72 of the SSMA 2015 be transferred to a court, so that both proceedings travel together?

1. The owners corporation submitted that its proceedings seeking orders to (i) terminate the service agreement; and (ii) compensation of approximately $150,000 should remain in the Tribunal irrespective of the proceedings of Breecass being transferred.
2. An argument raised by the owners corporation was that the Tribunal had "exclusive jurisdiction" to make orders under s 72 of the SSMA 2015 and that for the Tribunal to transfer the proceedings of the owners corporation would "deprive the owners of a forum" (page 4 of the owner's corporation's written submissions). The owners corporation submits that s 72 of the SSMA 2015 gives the owners corporation an "unique and separate remedy which is exclusively theirs to seek".
3. In this regard, the owners corporation relied on the decisions of Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 944 ('Lawrence') and Lawrence v Gunner [2016] NSWCA 216.
4. Lawrence was a dispute between family members regarding the estate of the deceased Mr Gunner, who had owned a number of properties including a property at North Balgowlah NSW which Mr and Mrs Lawrence had resided in for a period of time both prior to and after the death of Mr Gunner. Mr and Mrs Lawrence commenced proceedings in the Supreme Court of NSW seeking equitable relief regarding their claimed interest in the various properties. During the course of the Supreme Court proceedings, the widow of Mr Gunner commenced proceedings in the Consumer Trader and Tenancy Tribunal (the predecessor of NCAT) asserting that there was a residential tenancy agreement in regards to the North Balgowlah property and sought termination of that residential tenancy agreement by the Tribunal under the Residential Tenancies Act 2010 (NSW). The parties agreed, by consent, to transfer the Tribunal proceedings to the Supreme Court to be heard with the equitable claims.
5. Stevenson J held that, as Section 81 (1) of the Residential Tenancies Act 2010 (NSW) ('the RTA') stated that a residential tenancy agreement "terminates only in the circumstances set out in this Act" and that Sections 81 (3) and (4) set out the circumstances in which a residential tenancy agreement terminated, including by an order of the Tribunal (s 81 (3) of the RTA) there was no power of a court to order termination of a residential tenancy agreement. Stevenson J also held that s 119 of the RTA (which precluded a court making orders for possession in proceedings brought by a landlord against a tenant or former tenant) did not prevent the Supreme Court from having jurisdiction to hear a dispute regarding termination of a purported residential tenancy agreement (Lawrence at [517]).
6. Regarding the issue of jurisdiction of a court and the appropriate orders to be made, Stevenson J held (at paras [523]-[524]): "In Aboriginal Housing Company Ltd v Kaye-Engel, Davies J at [21] (although cf [30]) expressed the tentative view that the effect of s 81 is that the CTTT did not (and NCAT does not) have power under s 23 of the CTTT Act (and its successor) to transfer proceedings to this (or any other) Court for the reason that the Court does not have "jurisdiction" for the purpose of that section. If that is what Davies J was meaning to convey, I would respectfully disagree. Although, by reason of s 81, only the Tribunal has power to terminate a residential tenancy agreement, I do not think it follows that a court, and this Court in particular, has no jurisdiction otherwise to adjudicate on a dispute concerning a residential tenancy agreement: see [517] above. My present inclination is that I should make a declaration as to Mrs Gunner's entitlement to have the residential tenancy agreement between her and Mr and Mrs Lawrence terminated and to have an order for possession, and remit the matter to NCAT for the making of an order under ss 81 and 83 of the Residential Tenancy Act 2010 in accordance with these reasons. This was the course adopted, albeit by consent, by Davies J in Aboriginal Housing Company Ltd v Kaye-Engel."
7. Stevenson J subsequently remitted that part of the proceedings involving the termination of the purported residential tenancy agreement back to the Tribunal to make orders in accordance with the factual findings made at the hearing in the Supreme Court: Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 1229.
8. An appeal was made to the NSW Court of Appeal from the decision of Stevenson J. The parties then reached an agreement after participating in alternative dispute resolution, and consent orders were made finalising the dispute other than in respect of the order to remit the residential tenancy dispute back to NCAT: Lawrence v Gunner [2016] NSWCA 216.
9. In Gunner v Lawrence; Lawrence v Gunner [2015] NSWCATACD 127 (the remitted proceedings), the Tribunal held that it was bound by the factual findings made by Stevenson J in the Supreme Court, and on the basis of those factual findings the Tribunal was satisfied that (i) there was a residential tenancy agreement; and (ii) it should be terminated in accordance with s 85 of the RTA. The Tribunal then exercised its discretion to suspend the date of possession for a period of time (4 weeks).
10. The Tribunal does not accept that only it has jurisdiction to hear a dispute brought by an owners corporation seeking to terminate an agreement with a building manager. No similar provisions to ss 81 and 119 of the RTA exist in the SSMA 2015. Importantly, s 72 of the SSMA does not exclude the common law rights of an owners corporation to terminate the service agreement with Breecass, by the issue of a further breach notice under the service agreement and (if the breach is not rectified and the dispute not resolve by alternative dispute resolution under the service agreement) then pass a resolution terminating the service agreement. Further, s 72 of the SSMA 2015 does not restrict the rights of the owners corporation to seek damages for breach of contract or compensation for unjust enrichment from a court, or any other cause of action which a court may consider such as any relevant cause of action under the Australian Consumer Law 2010 ('the ACL') or remedy under the ACL.
11. Transferring the proceedings of the owners corporation does not prevent a court from making findings (or, potentially, declarations) that address the criteria in s 72 (1) and (3) of the SSMA 2015, and if appropriate (presuming that Breecass fails in its case that it has not committed any breach giving rise to any right to terminate the service agreement) then remitting the matter back to the Tribunal to make orders under s 72 of the SSMA 2015 consistent with its factual findings. Further, if the owners corporation seeks to amend its pleadings, it may raise causes of action and remedies under the ACL which have, in substance, the same outcome as the type of orders which the Tribunal can make under s 72 of the SSMA 2015 in addition to common law and equitable claims. If such causes of action are successfully pursued by the owners corporation in a court, there may be no need for a court to remit the claim under s 72 of the SSMA to the Tribunal in any event. The Tribunal is not satisfied that owners corporation is materially deprived of any legal rights by reason of the transfer of its proceedings to a court.
12. The Tribunal accepts that it is arguably more convenient to the owners corporation to bring proceedings in the Tribunal and have the Tribunal determine under s 72 of the SSMA 2015 whether or not the service agreement with Breecass should be terminated, and what compensation to the parties should be awarded, if any. The Tribunal has less formality in its procedures than a court, but complex disputes involving large sums (such as this dispute) are still dealt with in the Tribunal with an appropriate level of formality and procedural directions. However, the convenience of the owners corporation is only one factor which the Tribunal must consider regarding the issue of transfer.
13. The difficulties created by having two sets of related proceedings in separate courts was discussed by McDougall J in RCR Resolve FM v Serco Australia [2014] NSWSC 1477 at [20] as follows: "It is manifestly undesirable that the same issue (of fact or law or both) between the same parties should be considered by different judges in different courts. It leads to the risk of inconsistent verdicts. It raises the potential for estoppels to complicate one or other sets of proceedings. And it has the consequences, in terms of costs and other complexities and waste of resources, to which I have referred already."
14. The transfer of both sets of proceedings is appropriate because the evidence and issues in dispute in both sets of proceedings clearly overlap. If the proceedings were separated, the potential exists for inconsistent factual findings in the respective proceedings. The potential also exists for there to be issue estoppels depending upon which set of proceedings is heard first. Further, significant costs will be incurred by the parties fighting separate proceedings in two different jurisdictions leading to two separate hearings, compared to one set of costs litigating the dispute in one jurisdiction.
15. The owners corporation also raises in argument that there had been consent orders in the Tribunal in on 6 April 2018 allowing the owners corporation to file a cross application under s 72 of the SSMA, and for this application to proceed together with the application by Breecass. However, such consent orders do not create any estoppel preventing the Tribunal from ordering the transfer of proceedings under sch 4 cl 6 of the NCAT Act, nor do they carry any significant weight in respect of the balancing of interests that the Tribunal must consider in an application to transfer proceedings.
16. The owners corporation also submits that the guiding principle under s 36 of the NCAT Act is the just, quick, cheap and efficient resolution of the real issues in dispute. Similar provisions are contained in s 56 of the Civil Procedure Act 2005 (NSW). The provisions of s 36 of the NCAT Act do not outweigh the undesirability of having two sets of proceedings involving overlapping issues of fact and law in two different jurisdictions.
17. Taking all of the arguments raised by the parties into consideration and balancing the various interests of the respective parties, the Tribunal is satisfied that it is appropriate to transfer the proceedings of the owners corporation to a court, to travel with the proceedings of Breecass Pty Ltd

To Which Court Should the Proceedings Be Transferred?

1. Considering the potential causes of action and remedies raised by the parties which include types of equitable relief and the limited equitable jurisdiction of the District Court under Pt 3 Div 8 of the District Court Act 1973 (NSW) the Tribunal is satisfied that both sets of proceedings should be transferred to the Supreme Court of NSW.
2. Further, there may be an issue as to whether the District Court would have jurisdiction in the matters by reason of whether or not the dispute would be considered a claim arising out of a "commercial transaction": see Commonwealth Bank of Australia v QBE Insurance (Australia) Ltd [2018] NSWSC 1440 and the authorities discussed therein regarding the jurisdiction of the District Court. The appropriate course of action is to transfer both matters to the Supreme Court, which has jurisdiction, rather than the District Court, where there may be a further jurisdictional issue.

The Issue of Costs

1. The owners corporation indicated that it sought to make a costs application in addition to a costs order that Breecass pay the costs of, and incidental to, the transfer of both sets of proceedings to a Court. As the Tribunal has an obligation under s 38 (5) (c) of the NCAT Act to give parties a reasonable opportunity to be heard and have their arguments considered, the Tribunal has made directions regarding the filing and serving of submissions on the issue of costs. Subject to the submissions of the parties, any costs application will be dealt with 'on the papers' in accordance with s 50 (2) of the NCAT Act.

Orders

1. The Tribunal makes the following orders: 1. The Tribunal orders that the proceedings: 1. be transferred to the Sydney Registry of the Supreme Court of NSW (in accordance with the rules of that court), and 2. continue before that court as if they had been instituted there . 1. Order 1 above applies to both matter SC 18/13154 and matter SC 18/23687. 2. Any costs issue within the jurisdiction of the Tribunal regarding the transfer of the proceedings arising from order 1 above is to be determined by the Tribunal in the following manner: 1. Any costs application by the owners corporation by reason of the transfer is to be made in writing, supported by written submissions not exceeding 7 pages, filed with the Tribunal and served on Breecass Pty Ltd on or before 14 days from the date on which the reasons of the Tribunal regarding order 1 above are published. Such submissions are to include whether or not there is consent to the issue of costs being determined on the papers. 2. Any submissions in response by Breecass Pty Ltd (not exceeding 7 pages) are to be filed with the Tribunal and served on the owners corporation on or before 14 days thereafter. 3. Any submissions by the owners corporation in reply to the submissions by Breecass Pty Ltd (not exceeding 4 pages) are to be filed with the Tribunal and served on Breecass Pty Ltd on or before 7 days after direction 2 (b) above. 4. Any application to extend or otherwise vary the timetable regarding submissions on costs is to be made in writing to the Tribunal with a copy sent to the other party. The Tribunal may extend the timetable if appropriate to do so. 5. Subject to the submissions of the parties, the Tribunal will determine the issue of costs on the papers in accordance with s 50(2) of the Civil and Administrative Tribunal Act 2013.

Postscript-Alternative Dispute Resolution

1. On both 26 and 27 February 2019, the Tribunal raised with the parties the issue of alternative dispute resolution, including whether it would be in the best interests of the parties to participate in mediation rather than expend further significant monies litigating the dispute. In this regard, it was open to both parties to withdraw their proceedings under s 55 (1) of the NCAT Act and agree to mediate. If mediation failed to resolve the dispute, either party would still have the right to re-litigate.
2. Counsel for Breecass Pty Ltd indicated that Breecass had been at all stages keen to mediate the dispute. Counsel for the owners corporation indicated that the position of the owners corporation remained that the parties were implacably opposed and mediation would be futile. The factual substance of those submissions cannot be determined in this application.
3. As Beazley JA stated in Old v McInnis and Hodgkinson [2011] NSWCA 410 at [6]: "Litigation is not a process for the faint hearted. It is a costly and time consuming process and usually productive of stress, all of which, of their nature, have adverse effects upon those involved in the process. In some, if not most, cases that come before the courts, it is a necessary evil."
4. The benefits of parties participating in mediation have been considered by the courts on a number of occasions in the context of the power under s 26 of the Civil Procedure Act 2005 (NSW) (and its predecessor under the Supreme Court Act 1970 (NSW)). In this context, Austin J stated in ASIC v Rich [2005] NSWSC 489 at [16]: "In my opinion, this combination of consumption of time, escalating costs and strain on the Court's resources provides an ample basis for the Court to exercise its power of mandatory mediation. The making of a mediation order may provide the opportunity for the parties to take stock of their positions away from the battleground of the courtroom. An independent mediator should be able to encourage the parties to look at the issues from a different perspective and in a different light, and mediation may provide the occasion for the parties to obtain advice from a broader range of sources than the specifically legal sources used in litigation."
5. Whatever the future of the litigation in this matter, the parties should strongly consider whether some of the costs they will continue to incur would be better spent on arranging mediation before a suitably skilled and experienced mediator in commercial disputes. It is particularly surprising that there is any resistance to mediation considering that clause 10 of the service agreement provides that alternative dispute resolution should be pursued as a first step.
6. The Tribunal gave the opportunity to the parties to participate in mediation before a Senior Member of the Tribunal, and that opportunity was not taken up. The initial task of the Tribunal at this hearing was to consider the application for transfer of proceedings, and it has done so. Whether or not one or both of the parties have unreasonably resisted mediation is not an issue that has been considered in the application to transfer proceedings to a court. The parties should carefully re-consider the benefits of mediation before the litigation progresses towards an inexorable costly finality.

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: 22 May 2019