Victorian Civil and Administrative Tribunal|2011-02-22|Before: Mr P

Camilleri and ors v Oldroyd and ors (Owners Corporation) [2011] VCAT 279 (22 February 2011)

Owners Corporation Act 2006 - application to strike out - proper plaintiff rule, whether "interests of justice" exception to rule in Foss v Harbottle available to applicants

Joseph Camilleri, Sayyad Mohiddin, Lech Mackiewicz and Ling Hui Wang

The applications are dismissed.
The compulsory conference listed on 23 February is vacated
The question of costs is reserved.

These two applications have been in the Tribunal's list since some time in 2008 and each has undergone substantial change since the initial lodgement of claims. The two actions were consolidated following recommendations made on 3 May 2010.
There were originally five applicants but leave has been given for one of them to withdraw. The four remaining applicants are said to be lot owners in Owners Corporation PS 408909U. The owners corporation is the registered proprietor of a property situated at 570 Lygon Street, Melbourne. It comprises 141 apartments on nine floors used for student accommodation.
There are four separate respondents in the two actions. Melissa Oldroyd ("Oldroyd") is a lot owner and was a committee member. Guilian Ashton Lomax ("Lomax") is an architect and is married to Oldroyd. He was a member of a sub-committee but is not a lot owner. The Tribunal understands that Product Development Projects Pty Ltd ("PDP") is a company in which Oldroyd and Lomax are the shareholders and of which Lomax is the sole director.
Some time around August 2005 PRD Victoria Pty Ltd was appointed managing agent of the body corporate. Colliers PRD took over the management of College House when Colliers merged with PRD. It is not entirely clear to me, but I assume Colliers PRD (Victoria) Pty Ltd ("Colliers") is the proper respondent although the documents refer to Colliers International. If I am wrong nothing in particular turns on my assumption and it is capable of correction.
Owners Corporation PS 408909U is an interested party in the applications.
Pursuant to orders made by Senior Member Vassie on 3 May 2010, further amended points of claim were filed by the applicants representing a re-statement of their claims in both matters. For the purposes of the preliminary application brought before me I assume that those points of claim, amplified as they were by the provision of further and better particulars dated 30 July 2010, represent a proper and final distillation of the case now put by the applicants to the Tribunal. Although the Tribunal is not a court of pleadings, this matter has been subject to sufficient alteration and repleading along the way to permit me to make that assumption with some confidence.
Pursuant to the latest points of claim the applicants seek the following:

A declaration that Owners Corporation PS408909U is not liable to make payments in relation to items set out in schedule A to the points of claim.

Payment from Oldroyd and/or Guilian Ashton Lomax ("Lomax") and/or Product Developments Projects Pty Ltd ("PDP") of each of the amounts set out in schedule B to the points of claim.

An indemnity from Oldroyd and/or Lomax and/or PDP and or Colliers PRD (Victoria) Pty Ltd ("Colliers") in respect of each of the amounts set out in Schedule A

Interest, costs and any further order the Tribunal might determine.

The items in schedule A to the points of claim total $111,429.73 and are made up of accounts from Lomax, Bruce Henderson Architects, City of Melbourne, Napier & Blakeley, Saxby Lawyers and Small Business Commissioner. The Tribunal understands all of those amounts remain unpaid and it is contended they were incurred without proper authority.
The items in schedule B total $69,058.60 and consist of amounts paid (presumably from the funds of the owners corporation or the preceding body corporate) to a variety of parties. These include payments for various company and other searches and payments to Bruce Henderson Architects, Napier & Blakeley, Lomax, Saxby Lawyers, Australia Post and City of Melbourne and it is contended that these too were incurred without proper authority. With the exception of Lomax, none of these entities is a party to the proceedings.
The thrust of the applicants' claim is to be found in paragraph 7 of the points of claim. What is claimed is that between about July 2006 and August 2008, Oldroyd and/or Lomax and/or PDP and/or Colliers commissioned the provision of goods and services on behalf of the owners corporation from the various entities described in the two schedules without the authority of the owners corporation and further that the commission of those goods and services was not for the sole benefit of the owners corporation.
It is noteworthy that the applicants seek nothing for themselves. The remedies they seek are for the benefit of the owners corporation. The power of an owners corporation to bring legal proceedings is set out in section 18 of the Owners Corporation Act 2006 ("OC Act") and requires the passing of a special resolution.
Each of the respondents has sought rulings in relation to the standing of the applicants to bring their action. The individual submissions differ only in relation to their factual contexts - in the main, they are much the same. The applications (although not framed in the traditional way under section 75 VCAT Act) are tantamount to a strike-out application pursuant to that section. Section 75 provides:

75. Summary dismissal of unjustified proceedings

(1) At any time, the Tribunal may make an order summarily dismissing or striking out all, or any part, of a proceeding that, in its opinion-

(a) is frivolous, vexatious, misconceived or lacking in substance; or

In applications pursuant to section 75 a consideration of the factual issues in dispute is of little consequence and although I have read most of the material consisting of allegations, rebuttals and counter- allegations, I am not required to hear from them at this stage. There is much law on what is required in a strike-out application but the main thrust of all that law is that it is a very serious matter to dismiss a proceeding summarily and thus deprive an applicant of his or her opportunity to prosecute his or her claim. The upshot is that the Tribunal must not dismiss a matter unless it is satisfied that the claim is manifestly hopeless, unsustainable in fact or in law and is bound to fail. (See State Electricity Commission of Victoria v Rabel [1998] 1 VR 102)
I will deal first with the application made by Colliers. As best I understand the material before me, Colliers ceased to be manager on 9 October 2008 or thereabouts. I take that to be correct from the minutes of a committee meeting held in 3 September 2008 where it was resolved the company's engagement should cease on 9 October.
The allegations made against Colliers are as follows:

Between July 2006 and August 2008 it commissioned the provision of good and services on behalf of the owners corporation without authority and those goods and services were not for the sole benefit of the owners corporation.

Pursuant to section 122 of the Owners Corporation Act 2006 ("the OC Act") it was obliged, inter alia, to exercise due care and diligence in the performance of its functions as the manager of the owners corporation.

In breach of its obligations to the owners corporation and to the applicant, it failed to exercise due care and diligence in the performance of its functions as manager by:

Failing to obtain a quotation of the cost of likely cost of the goods and services;
Failing to obtain a written description off the work involved;
Not obtaining approval of the committee of management;
Not having in place a system to ensure that each of the goods and services had been approved by the committee of management
Not ensuring that the cost of the goods and services was reasonable.

In breach of its obligations pursuant to section 122 of the OC Act it failed to account for money held by it as manager by failing to obtain the approval of the committee of management before paying for the goods and services.

Colliers knew or ought to have known that the Schedule A goods and services had not been approved and would not have been approved by the committee of management.

Alternatively the owners corporation retained Colliers (among others) to advise on foyer improvement at the property and there were express terms that all purchases would need management committee approval and there were implied terms that the goods and services provided by Colliers would be provided with due care and skill, would be fit for the purpose for which they were required and would comply with the law and there was a breach of those terms including a breach of section 32J of the Fair Trading Act 1999 ("the FTA").

It engaged in conduct that was misleading and deceptive in breach of section 9 of the FTA.

It is worth remembering at this point that the remedy sought from Colliers as a result of the alleged breaches set out above is an indemnity in relation to the unpaid accounts set out in schedule A. A cursory glance at the list of invoices in schedule A shows that at lease two of the invoices were raised prior to the passing of the OC Act and some others after the termination of Colliers' involvement, factors which might be some importance at some later stage.
Before dealing with the submissions made by counsel for Colliers, it will be useful to understand the legislative scheme under which these entities operate.
The OC Act came into operation on 31 December 2007. Prior to that date, these entities, then known as bodies corporate, were governed by the operation of Part 5 of the Subdivision Act 1988 and the regulations made thereunder. Section 29 of that Act sets out provisions applying to bodies corporate but insofar as that Act concerned, it is silent about the duties and obligations of body corporate managers. Regulation 302 of the Subdivision (Body Corporate) Regulations 2001 provides for the appointment of a manager, regulation 303 deals with payment of a manager and regulation 304 deals the removal of a manager. Delegation to a manager by a body corporate is dealt within regulation 310(2), a manager's obligation to maintain signage, its power to convene meetings and other like procedural matters are dealt with throughout Part 5. There are standard rules to be found in Schedule 1 to the regulations but they deal only with matters relating to common property. Presumably then such duties as are owed by a manager to a body corporate (prior to the enactment of the OC Act) arise as a consequence of the contractual arrangement between them.
Division 1 of Part 11 of the OC Act (sections 162-169) deals with owners corporation disputes. Section 162 confers on this Tribunal jurisdiction to hear and determine an owners corporation dispute. That section provides:

VCAT may hear and determine a dispute or other matter arising under this Act or the regulations or the rules of an owners corporation that affects an owners corporation (an owners corporation dispute) including a dispute or matter relating to -

(b) an alleged breach by a lot owner or an occupier of a lot of an obligation imposed on that person by this Act or the regulations or the rules of the owners corporation; or

Prior to the enactment of the OC Act, the Magistrates Court of Victoria was the appropriate forum for dealing with disputes arising from bodies corporate (see s 38 of Subdivision Act as it was before 31 December 2007). Although the transitional provisions in Schedule 2 to the OC Act preserve matters such as body corporate rules, their delegations, committee and resolutions, they do not deal with or alter the dispute jurisdiction.
Senior Member Vassie explained in Wynden Pty Ltd & Ors v Owners Corporation PS 431248H & Anor [VCAT] 1683 (30 September 2010) -

The definition of "an owners corporation dispute" in section 162 is partly an inclusive one. It includes a dispute or matter relating to one of the activities set out in sub-paragraphs (a) (if it arises under the Act or the regulations or the rules), (b) and (c). If the dispute or matter which VCAT is asked to hear and determine is not one relating to one of those activities set out in sub-paragraphs (a), (b) and (c) it nevertheless will be an owners corporation dispute if, first, in some other way is arises under the Act or the regulations or the rules, and, secondly, in some other way it affects the owners corporation.

Section 165(1) (a) to (m) of the OC Act sets out the orders VCAT can make when determining an owners corporation dispute. The opening words of the section indicate "VCAT may make any order it considers fair" including all those enumerated. It is clear that none of the orders propounded in the section would encompass the remedy sought against Colliers, but a proper construction of the section leads one to the conclusion that if the breaches can be proved and the order for an indemnity would be fair in the circumstances, then the remedy might be available.
Turning to the issue of the role of managers, the then Attorney General made some comments in his second reading speech upon the introduction of the new legislation (Legislative Assembly 20 July 2006). Speaking about the review conducted by the government he stated-

Another issue that was frequently raised in submissions was the regulation of owners corporation managers.

Approximately 1000 people are employed full time in the management of owners corporations, a number that has risen sharply in recent years. Under the present legislative framework, managers must have professional indemnity insurance, must report to the annual general meeting and can be removed at a general meeting.

This bill will introduce much needed additional professional and performance standards through light-handed regulation rather than a full licensing system. The bill recognises that with 65,000 owners corporations, it is owners corporations themselves that will be best placed to ensure that managers provide the services they require.

In line with the Attorney's comments, Part 6 of the OC Act deals with managers. Their duties are set out in section 122 which provides -

(a) must act honestly and in good faith in the performance of the manager's functions; and

(b) must exercise due care and diligence in the performance of the manager's functions; and

(c) must not make improper use of the manager's position to gain, directly or indirectly, an advantage personally or for any other person.

(a) holds all money held on behalf of an owners corporation on trust for the owners corporation; and

(b) must account separately for the money held for each owners corporation by the manager.

Once again I quote from the decision of Senior Member Vassie in Wynden with whose views I respectfully agree.

.....section 122(1) does not identify any person or persons to whom are owed the duties which the section imposes. Certainly the manager must owe those duties to the owners corporation which appointed it. I see no reason why a manager does not owe the duties to each lot owner as well as to the owners corporation. Thus I see no reason why an individual lot owner cannot bring a proceeding against a manager based upon alleged breach of those duties,

In consequence of his reasoning Senior Member Vassie considered that the applicants in his proceeding had standing to pursue a cause of action for breach of the duties identified in section 122(1) and for orders for relief requiring the owners corporation to perform certain obligations. Senior Member Vassie went on to state however that it was more difficult for those applicants, as individual lot owners, to challenge and seek the setting aside of contracts into which the owners corporation had entered, or to seek orders requiring the owners corporation to enforce contracts, because of the rule in Foss v Harbottle [1843] EngR 478; (1843) 2 Hare 461.
And that brings me to the submissions made on behalf of Colliers. Leaving aside her submissions about the applicability of the Fair Trading Act 1999, that balance of counsel's submissions are as follows:
- The Tribunal has no jurisdiction in relation to matters arising under the Subdivision Act prior to the enactment of the OC Act because that jurisdiction was vested in the Magistrates' Court and in any event that legislation contained no equivalent to section 122 of the OC Act.
- The applicants have failed to produce any evidence of a special resolution pursuant to section 18 of the OC Act authorizing them to bring proceedings on behalf of the owners corporation.
- The Tribunal has no jurisdiction to confer standing upon the applicants pursuant to the equitable rule in Foss v Harbottle; and
- No Supreme Court declaration of standing has been sought: see Carre v Owners Corporation Strata Plan 53020 [2003] NSWSC 397.
The rule in Foss v Harbottle limited the situations where a member of a company could bring a representative action to vindicate the rights of members generally. Coincidentally, for the purposes of corporations, this rule was abolished by amendments to the Corporations Law which took effect on 13 March 2000. In place of the rule, the Corporation Law (ss 236-237) now provides a statutory action which might be brought with leave of the appropriate court.
But lest it should be thought that these amendments gave rise to an easy pathway for applicants seeking to bring representative or derivative actions the provisions of section 237 of the Corporations Act 2001 dispel that notion. It provides what is required in an application for leave as follows-

The Court must grant the application if it is satisfied that:

(a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and

(d) if the applicant is applying for leave to bring proceedings-there is a serious question to be tried; and

(i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or

(ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied

In responding to counsel's submissions generally, I can do no better than to turn again to Senior Member Vassie in Wynden particularly at paras 33, 34, 35 and 37 of his reasons. He stated:

33. The common law rule was that in the case of a wrong done to a company the proper person to sue for a remedy to that wrong was the company itself, not individual shareholder-members of the company: Foss v Harbottle [1843] EngR 478; (1843) 2 Hare 461. So, generally speaking, an individual member of a company had no standing to pursue a cause of action to enforce, or to challenge the validity of, a contract into which the company had entered with a third party.

34. The common law, however, recognised that there were certain circumstances in which the rule in Foss v Harbottle did not apply and in which an individual member had standing to commence and pursue a proceeding even though the cause of action being relied upon was apparently that of the company or the conduct being challenged was that of the company of which the majority of members had approved. Those circumstances were:

(a) Where the majority of members were endeavouring to appropriate property, benefits or other advantages which belonged to the company in a way which was excluding the minority from participation: a "fraud on the minority".

(b) Where the company was acting under the purported authority of an ordinary resolution of members, but the company's constitution required a special resolution.

(d) Where the company's constitution or a statute or a contract conferred upon an individual member the right to commence the proceeding or to pursue the company's cause of action.

(e) Where the interests of justice in a particular case demanded that the individual be permitted to bring it.

35. Circumstance (e) was controversial. The English courts did not recognise it. But Australian courts recognised it. In Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd [1969] 2 NSW LR 782 at 782 Street J. described it as "a useful door to be left open lest in some extremely unusual circumstances injustice would result from applying the rule". In Biala Pty Ltd v Mallina Holdings Ltd (No 2) (1993) 11 ACLC 1082 at 1102 Ipp J. stated that it should operate "where an unjust or unconscionable result may otherwise ensue" so that a minority shareholder could bring a claim on behalf of a company "where the justice of the case demands that such a claim be brought". Those formulations suggest that circumstance (e) would be found to exist only rarely. The only examples of its application which I am aware are of cases in which for technical reasons the plaintiff shareholder could not bring the case within the "fraud on the minority" exception. In Mesenberg v Card Industrial Recruiters Pty Ltd (No 1 & 2 ) (1996) 19 ACSR 483 the plaintiff was one of two equal shareholders, so there was no majority or minority. In the Biala case the majority who allegedly had acted fraudulently had disposed of their shares before the trial so that they were no longer in control of the company at the date of trial and so were no longer the relevant majority.

37.An owners corporation is no less a corporation than is a company registered under the Corporations Act. Each has a legal personality separate from that of its members. Each may sue or be sued. Each may enter into a contract in its own name and has the capacity to enforce the contract or to have the contract enforced against it. In principle the rule in Foss v Harbottle is just as applicable to the affairs of an owners corporation as it is used to be to the affairs of a company registered under the Corporations Act. The OC Act, however, does not effect any modification to the rule. The applicability of the rule means, it seems to me, that the applicants in this proceeding have no standing to make any claim of a kind mentioned in paragraph 32 above [setting aside contracts entered into by the owners corporation etc] unless they can arguably fit it within one of the five circumstances in which the common law recognised that the rule did not apply.

Persuasive support for the Senior Member's analysis in para 37 above is also to be found in Carre v Owners Corporation - Strata Plan 53020 & Ors [2003] NSWSC 397. That case concerned an air conditioning system in a strata title building consisting of three units which serviced one unit owner but also had components in the common property. That unit owner sought relief in the District Court against the person allegedly responsible for the defects in the system in circumstances where the owners corporation was not a party to the action. In granting the declaration sought, Barrett J, sitting in the Equity Division, held that the proper plaintiff rule in Foss v Harbottle applied to owners corporations governed by the Strata Scheme Management Act 1996. He further held that the Supreme Court, in its equitable jurisdiction, had power to grant relief to overcome the operation of the proper plaintiff rule where a serious injustice would arise if a derivative action were not permitted. He thus dealt with the fifth "interest of justice" exception to the rule.
Mr McCullagh, appearing for the applicants, submitted that it is a very serious matter to dismiss a proceeding summarily and thus deprive applicants of their ordinary right to ventilate their claims, call their evidence and argue their case at a full hearing and of course that it is correct. Although these applications have not proceeded in the way most applications made pursuant to section 75 of the VCAT do, the circumstances of this case are such that the applicants cannot be said to have been taken by surprise by the arguments.
In response to the submissions put about the proper plaintiff rule, the applicants' counsel submitted that the common law rule in Foss v Harbottle had "been emasculated by the OC Act" and particularly by ss 117 and 122. In his view the OC Act grants causes of actions to the applicant and must thereby grant them a remedy. In relation to the five exceptions to the rule in Foss v Harbottle he contended that the applicants' claims can be said to fit sub-paragraphs (b), (c) and, in particular, (e) thereof. I am not persuaded by his submission that the passing of the OC Act and the passing of sections 117 and 122 has had the effect contended by him. The amendments to the Corporation Law dealing with the rule occurred in 2000. The fact that such a statutory response similar to that in the Corporations Law was not included in the OC Act leads me to the conclusion that this was no mere oversight and that the rule does apply to owners corporations. I am of course assisted in that view by the decision of Barrett J referred to earlier.
Notwithstanding the reference to the rule as "a rule of substance of sturdy growth" (see Jordan CJ in Australian Coal and Shale Employees Federation v Smith [1937] NSWStRp 56; (1937) 38 SR (NSW) 48 at 59), on what is pleaded against Colliers, there can be no suggestion that the exceptions spelled out in (b) and (c) could bear on the substance of those matters. But what about the "interest of justice" exception? In the judgment of Sir James Wigram in Foss v Harbottle, particularly at pp 202-3 he dealt with the primary objection that the individual members of the corporation could not sue in the form they did and stated:

During the argument I intimated an opinion, to which, upon further consideration, I fully adhere, that the rule was much too broadly stated on the part of the defendants. I think there are cases in which a suit might properly be so framed. Corporations like this, of a private nature, are in truth little more than private partnerships; and in cases which may easily be suggested it would be too much to hold that a society of private persons associated together in undertakings, which, though certainly beneficial to the public, are nevertheless matters of private property, are to be deprived of their civil rights, inter se, because, in order to make their common objects more attainable, the Crown or the Legislature may have conferred upon them the benefit of a corporate character. If a case should arise of injury to a corporation by some of its members, for which no adequate remedy remained, except that of a suit by individual corporators in their private characters, and asking in such character the protection of those rights to which in their corporate character they were entitled, I cannot but think that the principle so forcibly laid down by Lord Cottenham in Wallworth v Holt (4 Myl & Cr 635;soo also 17 Ves.320 per Lord Eldon) and other cases would apply, and the claims of justice would be found superior to any difficulties arising out of technical rules respecting the mode in which corporations are required to sue.

But on the other hand, it must not be without reasons of a very urgent character that established rules of law and practice are to be departed from, rules which, though in a sense technical, are founded on general principles of justice and convenience.

The applicants face several difficulties. It is clear that the action brought by them could be brought (seemingly without impediment) by the owners corporation itself were it so authorized by special resolution (See s.18 OC Act). There is no suggestion that the actions of the four applicants are sanctioned by the owners corporation save for the unambiguous submission made at the bar table that it supports the applicants. There is nothing before me or in the documentation I have been referred to that suggests that there has been any attempt to convene a meeting for the purposes of putting a special resolution authorising legal action whether by way of ballot or otherwise. Similarly there is nothing that suggests there is any impediment to such a course or that such a course has been attempted and has failed. Section 74 of OC Act grants to a number of individuals the power to call a special general meeting, the existence of which the parties are doubtless aware. The owners corporation is not bereft of officers or a manager, the persons occupying those positions are not in any way disqualified from holding their positions. Furthermore there is no suggestion that for instance, a block of lots is controlled by one or more persons so as to make the passing of a special resolution impossible or that the bulk of lot owners are not within the jurisdiction thus making attendance at meetings difficult. Indeed the make-up of individual lot owners is not known to the Tribunal - are they individuals? are they companies? are they overseas investors?
On the other hand, according to some of the witness statements filed here, (and I must assume that the applicants will be able to attest to those facts in support of their points of claim) the calling of annual general and special general meetings has been fraught. I note that it is stated that at one meeting only 17 out of 141 lot owners attended and that an arranged special general meeting to vote on other matters was cancelled at short notice.
Mr McCullagh also advanced an argument relying on the decision of Mandie J in Body Corporate No 1/PS40911511E St James Apartments v Renaissance Assets Pty Ltd [2004] VSC 438 (9 November 2004). His submission in that regard was to the effect that the owners corporation was a trustee thus giving some standing to the individual lot owners in their capacity as beneficial owners. Although his Honour held that pursuant to the Subdivision Act and the Transfer of Land Act a body corporate is the registered proprietor of a fee simple in the common property and that the individual lot owners have vested in them the equitable or beneficial ownership, I did not find the decision particularly helpful in the instant case, dealing as it did, exclusively, with matters of common property.
I have considered whether it can be said that the "interests of justice" exception should be called into play in this case so as to bestow the requisite standing on the applicants. On the one hand Colliers owes a range of duties and obligations which are arguably of a fiduciary nature and although the OC Act does not say to whom those duties are owed, clearly they are owed to the owners corporation itself. It does not take too much of a leap to posit a view that those duties might not be confined to the owners corporation to the exclusion of its individual members. On one view one might view it as an untenable situation where the persons to whom fiduciary duties were owed were unable to seek a remedy for breach of those duties, particularly in light of their powers to apply to VCAT to resolve an owners corporation dispute. ( see s.163 OC Act)
On the other hand, the cases to which I have been referred and the texts and other cases I have consulted tend towards a narrow interpretation of the so-called exceptions to the rule. I say "so-called" because Lord Wedderburn in his article "Shareholders' rights and the rule in Foss v Harbottle [1957} Camb Law J 194,203 questions whether the exceptions are truly exceptions at all, stating that they appear to be situations in which there is no chance of confirmation by a majority of shareholders so that the rule does not apply in the first place. Be that as it may the exceptions to the rule are firmly entrenched, one way or another, in Australian law.
Gummow J (then in the Federal Court) dealt with the rule in Scarel v City Loan and Credit Corporation Pty Ltd; Yates v City Loan (1988) 79ALR 483 and pointed out that most of the cases dealing with Foss v Harbottle and the exceptions to it "involve going concerns where, by reason of special circumstances, the orderly exercise of the respective powers of the directors and shareholders did not produce a result whereby the company was taking action to enforce its rights, whether against directors, shareholders or third parties."
So we have a range of judicial pronouncements on the subject amplifying on Wigram V-C , for instance:
- In Nurcombe v Nurcombe [1985] 1 WLR 370,378 Browne-Wilkinson LJ (as he then was) thought that where a technicality would lead to a manifest injustice, someone else could be permitted to bring an action to enforce a company's claim;
- Jessell MR in Russell v Wakefield Waterworks Co (1875) 20 LR Eq 474,482 speaks of cases "....where the interests of justice require [my underlining] the rule to be dispensed with";
- Hawkesbury Development Co Ltd refers to the exception as a "useful door to be left open lest in some extremely unusual circumstances injustice would result from applying the rule";
- Biala Pty Ltd v Mallina Holdings Ltd (No 2) said the exception should operate where "an unjust or unconscionable result may otherwise ensue".
The fact that the OC Act requires an owners corporation to have the authority of a special resolution before commencing litigation (other than for outstanding fees) is to me an indication that there was intended to be some restriction on the ability to litigate owners corporation disputes in order to avoid vexatious or inconsequential proceedings which might not be to the benefit of lot owners as a whole. Clearly Parliament contemplated that the process of obtaining special resolutions might be fraught and difficult and had this difficulty in mind when it enacted the interim resolution protocol set out in s. 97 of the OC Act. It is not put that (to mirror the remarks of Gummow J) the orderly exercise of the respective powers of the owners corporation or the lot holders has failed and thus has produced a result that precludes the owners corporation from enforcing its rights against, in this case committee members, the manager and third parties.
There may be good reason why the owners corporation has not brought this action itself but the reasons it are not apparent to me. I might infer that the attendance at annual general meetings and special general meetings is abysmal, that the experience of obtaining even interim special resolutions has been poor; there might have been attempts by these applicants to convene a special general meeting which failed but again there is nothing before me to suggest this is the case or that the applicants in any way sought the approval of other lot owners.
It follows that in my opinion, the only person with the standing to bring the proceeding against Colliers as the case as presently pleaded is the owners corporation itself and in the particular circumstances of this case there is nothing so exceptional, or such an urgent character or that would potentially lead to an unjust outcome, that would bring this proceeding within the interests of justice exception. The applicants lack the requisite standing and their action is thus untenable. The applications must be dismissed.
Whilst the Tribunal's jurisdiction under the OC Act only commenced on 31 December 2007 and is only in relation to disputes arising under that Act (see s.162), owners corporation disputes may arise in other ways for which the Tribunal's jurisdiction may be invoked. But in light of my other findings it is not necessary for me to decide that point.
Counsel for Colliers also made submissions about the applicability of the Fair Trading Act. The applicants in their points of claim have pleaded breaches of the recently repealed s 32J of the Fair Trading Act (part of the Goods Act provisions) as well as sections 4, 9 and 195. Counsel also submitted that the VCAT jurisdiction was limited financially and without jurisdiction because of the size of the claim. That is a misunderstanding of the Tribunal's jurisdiction under the Fair Trading Act. Whilst "trader-trader disputes" and "small claims" are limited to $10,000, the jurisdiction relating to a "consumer and trader dispute" is unlimited. (See by way of explanation s.28AA of Schedule 1 to the VCT Act and s109(4) of the Fair Trading Act which explains certain limitations on how those cases will be dealt with in the Tribunal). But of course it is correct that there is a $40,000 limitation imposed in relation to implied conditions and warranties in certain contracts as set out in Part 2A of the Fair Trading Act, much of which part is now repealed.
But for reasons other than that, the applicant's claims under the Fair Trading Act are not tenable in law. The arrangement between the parties is neither a small claim nor a trader-trader dispute. The Tribunal's principal jurisdiction provided in Part 9 of that Act is to deal with "consumer and trader disputes"
Section 107(1) provides that a "consumer and trader dispute" is "a dispute or claim arising between a purchaser or possible purchaser of goods or services and a supplier or possible supplier of goods or services in relation to a supply or possible supply of goods or services".
The arrangement between the four applicants and Colliers cannot in any way be categorised in that fashion. The applicants are not purchasers of goods or services from the respondents and the respondents cannot be said to have supplied goods or services to the applicants personally. Whatever was supplied by Colliers was mediated solely through the contractual arrangements existing between it and the owners corporation.
The result is that insofar as the applicants have sought to rely on breaches of the Fair Trading Act, I am not satisfied that the Tribunal's jurisdiction can be invoked in the absence of a consumer and trader dispute and that part of the claim is also dismissed.
Turning to the claims against the other parties, the applicants seek from Oldroyd and/or the other respondents payment of the amounts owing as set out in Schedule B and an indemnity in relation to the amounts paid and set out in Schedule A. It is said Oldroyd was a member of the committee of management between August 2005 and July 2008, a member of a sub-committee as well as the chairperson of the owners corporation between February and July 2008.
The main allegations made against her are that she breached her duties as a committee member and -
- commissioned goods and services without authority;
- failed to act in good faith in the performance of her function as committee member and chairperson;
- failed to exercise due diligence in the performance of her functions;
- failed to act in good faith in commissioning the provisioning of some goods and services from Lomax (to whom she was married) and PDP (in which she was a shareholder);
The duties owed by committee members are set out in section 117 of the OC Act which provides:

A member of a committee or sub-committee of an owners corporation-

(a) must act honestly and in good faith in the performance of his or her functions; and

(b) must exercise due care and diligence in the performance of his or her functions; and

(c) must not make improper use of his or her position as a member to gain, directly or indirectly, an advantage for himself or herself or for any other person.

The duties owed by committee members are in like vein to those owed by a manager but of course their individual functions differ. Section 10 of the OC Act (prior to 10.2.2010) provided:

Subject to this section and the rules of the owners corporation, a committee has all the powers and functions that may be delegated by the owners corporation under section 11.

That sub-section has since been amended to provide that-

Subject to this section and the rules of the owners corporation, a committee has only the powers and functions that are delegated to it by the owners corporation under section 11.

Section 11 provides that any power or function of an owners corporation (other than a power or function that requires a unanimous resolution or a special resolution or the power of delegation) can be delegated to a range of personnel.
It is thus abundantly clear that committee members and for that matter, sub-committee members owe their duties to the corporation from whom they receive their delegated power.
At para 28 of Wynden, Senior Member Vassie stated:

As the section [s.117] is expressed in general terms I see no reason why a committee member does not owe the duties to each lot owner as well as to the owners corporation. Thus I see no reason why an individual lot owner cannot bring a proceeding against an owners corporation (of which the committee is a delegate) based on an alleged breach of those duties.

I agree with that analysis, but the case before me is different. First, the action is not against the owners corporation. True it is that when these applications were commenced, the owners corporation was a respondent but at some time along the way they became a mere "interested party". Second, the applicants in Wynden sought relief by way of revocation of appointments, a requirement for a general meeting and payment of compensation owed by the owners corporation to the applicants.
That is not the case here. The applicants seek relief from Oldroyd for the benefit of the owners corporation. As with the claims made against Colliers, the remedies sought from Oldroyd are entirely for the benefit of the owners corporation. The applicant seeks a declaration that the owners corporation is not liable to make certain payments and that Oldroyd should be ordered to repay certain funds and provide an indemnity for other amounts.
Again, the only person with standing to bring an action against Oldroyd for repayment of funds to the owners corporation is the corporation itself. And that brings into play once again the question of the proper plaintiff and whether any of the exceptions to the rule in Foss v Harbottle can be invoked so as to clothe the applicants with appropriate standing. The only exception that would be available for consideration given the factual scenario and the matters pleaded is the "interests of justice" exception and for the reasons I have already given, I am not persuaded the applicants can avail themselves of that exception. It follows that the action against Oldroyd would thus be untenable and should be dismissed.
For the same reasons set out in relation to Colliers, I am not persuaded that the applicants can seek relief under the Fair Trading Act and that part of the claim is dismissed. As I said earlier in these reasons, it is not necessary for me to decide the point about the proper forum prior to the commencement of the OC Act.
That brings me to the applications against Lomax and PDP. Clearly the action against PDP must fail on the proper plaintiff test. As against Lomax it is pleaded that he was a member of a sub-committee, that he failed to act in good faith, that he breached the Architects Regulations 2007 in relation to a conflict of interest, that he failed to provide goods and services to the owners corporation with proper care and skill, that he engaged in conduct that was misleading and/or deceptive or likely to mislead or deceive in breach of section 9 of the Fair Trading Act, that those goods or services provided were not fit for the purpose and a raft of other particulars.
The situation with Lomax is same as with the other respondents. The remedy sought against him is the same as that sought against his wife and is solely for the benefit of the owners corporation. Although the allegations of breach of duties and breach of legislation made against Lomax are spread over a vastly larger canvas, the relief sought is identical and therein lies the applicants' dilemma. The proper applicant is the owners corporation and once more, for the reasons already given, the exception to the rule in Foss v Harbottle is not available to the applicant. Their action is untenable and thus should be dismissed.
For the reasons set out above the applications are dismissed and the compulsory conference listed for 23 February 2011 is vacated. The question of costs is reserved.

Owners Corporation Act 2006

Fair Trading Act 1999

Strata Scheme Management Act 1996

Architects Regulations 2007

Subdivision (Body Corporate) Regulations 2001

Camilleri and ors v Oldroyd and ors

At a glance

Court

Decision date

Before

Source

Judgment (73 paragraphs)

Camilleri and ors v Oldroyd and ors (Owners Corporation) [2011] VCAT 279 (22 February 2011)

Parties

Legislation Cited (5)