Brenchley v Clissold

The stay application

1. At the hearing of the stay application, the appellants informed the Appeal Panel that their application was made only in respect of Orders 2 and 3; they had abandoned their application in respect of Orders 1 and 4. In addition, they advised that in support of the appeal, they no longer relied on the decision made by the NSW Supreme Court on 25 March 2019, ordering the builder to pay to the Owners Corporation about $4M in respect of defective building work.Nor do they rely on the subsequent proceedings commenced by Mr Brenchley to wind up the builder and recover the judgment debt.
2. The appellants contend that if, as required by Orders 2 and 3 (the Audit Orders), an audit is undertaken of the accounts of the strata scheme for the period October 2016 to date, and they are successful in the appeal, they would have been put to the unnecessary expense of funding that audit. While the appellants accept that irrespective of the outcome of the appeal, it will be necessary to audit the accounts for the period from July 2019, they assert that a "further audit" is not required for the balance of the period the subject of the Audit Order, that is, October 2016 to July 2019.
3. In addition, the appellants contend that irrespective of the outcome of the appeal, the audit should not be commenced before the appeal is determined. They assert that the auditor would be assisted by any findings of fact and/or conclusions reached by the Appeal Panel relating to a key issue in dispute: whether payments / loans they made to the Owners Corporation, since October 2016, can be off set against levies payable.
4. The appellants assert that if the audit is delayed until the determination of the appeal, no party will be prejudiced. Rather further expense and inconvenience, will be avoided, a pragmatic approach consistent with that taken by the Appeal Panel in Owners - Strata Plan No 74698 v Jacinta Investments Pty Ltd [2020] NSWCATAP 157 (Jacinta) at [24], [25].
5. Mr Clissold disagrees. He asserts that if the audit is delayed he will suffer significant prejudice. He is accruing interest on levies exceeding $100,000, which he claims he is not liable to pay. He states that since 2018 he has been attempting to have his liability for levies clarified, and it would not be in the interests of justice to be further delay. . In addition, he asserts that unless and until an audit is conducted, STM will be unable to properly discharge its financial management obligations under the SSMA, which include determining whether any levies are outstanding, and if so, the amount.
6. In addition, Mr Clissold contends that unless the financial position of the scheme is clarified, STM will be unable to properly respond to the action foreshadowed by the appellants in the NSW Supreme Court (the Termination Proceedings). The appellants advise that they seek: 1. the termination of the Owners Corporation pursuant to Strata Schemes Development Act 2015 (SSMA) s 135 and 136; and 2. the appointment of a liquidator to the Owners Corporation to wind up the Owners Corporation.
7. STM also opposes the appellants' stay application. In written submissions which largely address the appellants' original application seeking the stay of the operation of Orders 1 and 4, STM detailed its understanding of the duties of a strata manager appointed under s 237 of the SSMA. They include setting budgets, paying outgoings, and ensuring that all lot owners contributed to those costs. In addition to those day-to-day financial management obligations, in this case they will be required to take steps to optimise the recovery of the $4M judgment debt and to investigate further sources of income, including additional warranty claims to rectify defective building work.

Power to grant a stay of the decision under appeal

1. The power to stay the operation of a decision under appeal is conferred by s 43 of the NCAT Act, which relevantly provides: 43 Effect of pending general applications and appeals … (2) A pending … appeal does not affect the operation of the decision to which the … appeal relates, or prevents the taking of action to implement the decision, unless the Tribunal makes an order staying or otherwise affecting the operation of the decision. (3) The Tribunal may make such orders (whether with or without conditions) staying or otherwise affecting the operation of a decision to which a pending … appeal relates as it considers appropriate to secure the effectiveness of the determination of the … appeal.
2. The NCAT Act does not specify the factors to be considered in determining whether the power to stay the operation of a decision under appeal should be exercised. In Bentran Pty Ltd v Sabbarton [2014] NSWCATAP 37 (Bentran), after examining the authorities, Wright J at [9], summarised the principles applicable to deciding whether a stay of a decision under appeal should be granted (citations omitted): (1) Generally, a successful party is entitled to the benefit of the decision or orders that the party has obtained at first instance, but a stay may be granted where the appellant has demonstrated an appropriate case to warrant the exercise of discretion in its favour - s 43(2) and (3) of the Act. (2) In practical effect the onus is on an applicant for a stay to make out a case that it is appropriate for the court to make such an order. (3) The mere lodgement of the notice of appeal is insufficient, of itself, to demonstrate that it is an appropriate case to warrant the granting of a stay. (4) An order staying the operation of a decision or orders will generally be appropriate where such an order is reasonably necessary to secure the effectiveness of the appeal - s 43(3) of the Act. This is similar to, if not the same as, the considerations applied by the Courts that where there is a risk that an appeal will prove abortive if the appellant succeeds and a stay is not granted, or where unless a stay is granted an appeal will be rendered nugatory, the discretion should generally be exercised in favour of granting a stay. (5) The Tribunal may also take into account the strength or otherwise of the case of the party seeking the stay. This consideration may be particularly relevant when it is plain that an appeal, which does not require leave, has been lodged without any real prospects of success and simply in the hope of gaining a respite against immediate execution of the decision. (6) The Tribunal's power to grant a stay includes a power to make such an order subject to such conditions as the Tribunal specifies. (7) In exercising the discretion the Tribunal will also weigh the balance of convenience and the competing rights of the parties and may impose appropriate conditions so as to achieve a result that is fair to all parties. (8) Finally, the overriding principle in an application for a stay is to ask what the interests of justice require.

Should a stay be granted?

1. The appellants bear the onus of demonstrating that this is an appropriate case to warrant the exercise of the discretion to stay the operation of the Audit Orders. As explained in Bentran in exercising that discretion, the starting point is that Mr Clissold as the successful party in the proceedings below, is entitled to the benefit of the Audit Orders.
2. The Notice of Appeal lists numerous grounds of appeal. In my view, many appear to be a thinly veiled challenge to findings of fact and the merit of the ultimate decision made by the Tribunal to exercise the power to appoint a compulsory strata manager. Nonetheless, for current purposes I will assume but not decide that the appeal is arguable.
3. While not a pre-condition to its exercise, a relevant consideration to the exercise of the power conferred by s 43 of the NCAT Act, is whether a stay is reasonably necessary to secure the effectiveness of the appeal.
4. The appellants do not suggest that unless the Audit Orders are stayed, the appeal will lack utility. However, they correctly point out that if they are ultimately successful in the appeal and the audit has been completed before the appeal is determined, they (and Mr Clissold) will have been put to the unnecessary expense of funding the audit, or at least that part of the audit covering the period to July 2019, which they assert does not require "further audit". While neither party provided an estimate of the cost of the audit, as identified by the Tribunal, the paucity of reliable financial information together with the temporal scope of the audit, a period of just under three years, it can reasonably be assumed that the cost will be considerable.
5. The risk of expenses being unnecessarily incurred must be balanced against any prejudice that might be suffered if the audit is delayed. Unless and until the audit is completed, STM is likely to be hamstrung in its efforts to discharge its financial management obligations under the SSMA. The foreshadowed Termination Proceedings is likely to add to the scope and complexity of the task STM is required to undertake. As STM and Mr Clissold point out, before the determination of the appeal, STM may be required to make decisions about its involvement in those proceedings, decisions which invariably will have financial implications.
6. The argument that the auditor may be assisted by the Appeal Panel's decision is a powerful one. Nonetheless, in circumstances where STM is unlikely to be able to effectively discharge its financial management obligations until the scheme's financial position is clarified, I have decided that the balance of considerations weigh against exercising the discretion to stay the operation of the Audit Orders. In reaching that decision, I have taken into account the likelihood that the appeal will not be determined before March 2021 (the hearing is listed for late January 2021). It follows that if ta stay is granted, STM's ability to undertake its role as strata manager will be significantly restricted for at least six months, or half of the period of its appointment.
7. I conclude that the balance of convenience favours refusing the application to stay the operation of the Audit orders.

Orders 1. The application to stay the operation of the Audit Orders is refused.

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: 11 December 2020