Carre v Owners Corporation - SP 53020

• 31 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1533/03 - LESLEY ANNE CARRE v OWNERS CORPORATION - STRATA PLAN 53020 & 2 ORS JUDGMENT

The District Court litigation 1 In these proceedings, the registered proprietor of a lot in a strata plan claims a declaration that she is entitled to commence or continue certain District Court proceedings in the name of the relevant owners corporation constituted under s.11(1) of the Strata Schemes Management Act 1996. 2 The plaintiff, Ms Carre, and the second and third defendants, Mr Johnson and Ms Johnson (father and daughter), constitute the whole of the membership of the first defendant, Owners Corporation - Strata Plan 53020. The three individuals, together with two companies (Lipman Pty Limited and Positive Air Services Pty Limited), are also parties to proceedings in the District Court in which Ms Carre sues the other four. To avoid what might be confusing references to various defendants, it is desirable that I refer to all parties by their names, with Lipman Pty Limited abbreviated to "Lipman", and Positive Air Services Pty Limited to "Positive Air"; and with Owners Corporation - Strata Plan 53020 referred to simply as "the owners corporation". Mr Johnson and Ms Johnson will sometimes be referred as "the Johnsons". 3 Ms Carre, Mr Johnson and Ms Johnson are the respective registered proprietors of lots 3, 1 and 2 in Strata Plan 53020 which relates to a residential flat building on the waterfront at Cremorne Point. Thre are no other lots in the strata plan. The building consists of only three residential flats. According to the schedule of unit entitlements endorsed on the strata plan, the entitlement of each of lots 1 and 2 is 25 and the entitlement of lot 3 is 50. Under current ownership, therefore, the entitlements of the Johnsons together equal the entitlement of Ms Carre. 4 In July 2001, Ms Carre commenced proceedings in the District Court seeking damages in respect of alleged defects in the air conditioning system serving lot 3. She sued Mr Johnson as first defendant, Ms Johnson as second defendant, Lipman as third defendant and Positive Air as fourth defendant. The causes of action asserted against the Johnsons were referable to the fact that they developed the property by construction of the present building and strata subdivision and were the vendors of lot 3 to Ms Carre. Ms Carre alleged a duty of care in negligence on the part of the Johnsons as developers towards Ms Carre as a successor to the owner of the premises. In their capacity as vendors, the Johnsons were subjected to claims in contract, for negligent misstatement and under the Fair Trading Act. The claims against Lipman arose from its having constructed the building and were claims in negligence. The claims against Positive Air were connected with design and installation work it did on the air conditioning system in the course of the construction of the building and work subsequently done at the request of Ms Carre once she had become the owner of lot 3. These were claims in negligence and, as to the subsequent work, also claims in contract. I should mention here that Ms Carre's purchase of lot 3 from the Johnsons was by contract dated 13 December 1996 and that completion took place on 3 February 1997, the strata plan having been registered in September 1996. 5 Several heads of damage were asserted by Ms Carre in her original statement of claim in the District Court proceedings. She claimed for the cost of rectification works, the payments she made for remedial works and inconvenience, discomfort, vexation and distress. The role of the owners corporation is raised 6 On 26 November 2001, that is, four months after commencement of Ms Carre's District Court proceedings, the Johnsons filed an amended defence in which they pleaded for the first time that parts of the total air conditioning system serving Ms Carre's unit formed part of the "common property", as defined by the Strata Schemes (Freehold Development) Act 1996, in relation to the strata scheme. The implications of that added element of the Johnsons' defence were spelled out in a letter of 14 December 2001 from the Johnsons' solicitors to Ms Carre's solicitors: "In summary, [the Johnsons] plead in paragraphs 42 to 45 of their Amended Defence that components of the subject air conditioning system became part of the common property ('System Common Property') on registration of the strata plan and, at the time of registration, vested in the Owners Corporation in accordance with the Development Act. Hence the person or entity with standing to take action in respect of the System Common Property is the Owners Corporation, not your client."

This is a reflection of the operation of s.18 of the Strata Schemes (Freehold Development) Act by which common property vests in the relevant owners corporation upon registration of a strata plan. 7 Further correspondence between the solicitors established which parts of the overall air conditioning system are said by the Johnsons to constitute part of the common property. These are, for the most part, fans, vents, grilles and ducting in and above the ceiling of Ms Carre's unit, as well as certain pipes. Other components of the system (that is, items not identified by the Johnsons' solicitors as the subject of their clients' assertion as to common property) include compressors and other items of machinery. Both groups of components together make up the air conditioning system. Neither group, it seems, can operate in any meaningful way without the other. Furthermore, I understand it to be common ground that the air conditioning system in question - that is, the totality made up of the two groups of components - provides air conditioning exclusively to lot 3, there being a separate system (or separate systems) providing air conditioning to lot 1 and lot 2. 8 On 24 January 2002, Lipman filed a defence in the District Court in which it is said that Ms Carre lacked standing to commence proceedings against Lipman because the system comprises common property; also that, for that reason, Ms Carre suffered no damage. In subsequent correspondence, Lipman's solicitors said that claims for rectification of common property can only be pursued by the owners corporation and that any loss attributable to defective common property must be regarded as loss suffered by the owners corporation as distinct from Ms Carre. The plaintiff's attempts to involve the owners corporation 9 From December 2001, Ms Carre made attempts to have convened a general meeting of the owners corporation. Such a meeting took place on 17 January 2003, having been requisitioned by Ms Carre for the purpose of considering and, if thought fit, passing the following resolution: "That the Owners Corporation of Strata Plan 53020 consent to be joined as a co-plaintiff in District Court proceedings No 7626 of 2001, and that such consent be evidenced in writing." 10 Ms Carre and Ms Johnson were present at the meeting, the latter in her own right and as proxy for Mr Johnson. In attendance were Ms Carre's husband and Mr Sachs of the strata manager. Mr Sachs acted as chairman. Ms Carre's husband spoke briefly to the motion which was then put to a vote. Ms Carre voted in favour. Ms Johnson, both for herself and for Mr Johnson, voted against. Mr Sachs declared the motion not carried - or, as the minutes subsequently put it: "The motion was put and NOT RESOLVED to be a co-plaintiff. (Two votes against one in favour)." 11 On 30 January 2003, Ms Carre filed in the District Court proceedings a notice of motion by which she sought

(a) an order that the owners corporation be joined as a defendant pursuant to Part 7 rule 8 of the District Court Rules 1973; and

(b) leave to file an amended statement of claim in the form attached to the notice of motion. 12 The form of amended statement of claim added the owners corporation as fifth defendant and referred to and denied the allegations of the Johnsons and Lipman that part of the air conditioning system servicing unit 3 constitutes part of the common property. It then went on to allege that the Johnsons (or either of them) owed to the proprietors of lots in the strata plan (including, presumably, themselves) and to the owners corporation a duty of care with respect to the construction of the building as a whole, which duty was breached. The claims against the Johnsons as vendors of lot 3 remained in their original form. In relation to Lipman, there was added an allegation that it owed to the proprietors of lots in the strata plan and to the owners corporation a duty of care in relation to the carrying out of the work involved in the construction of the building, plus breach of that duty. A claim similar in concept against Positive Air was added in relation to the design and installation of the air conditioning system and the carrying out of subsequent remedial work. Ms Carre, as plaintiff, then claimed orders that damages be paid by the respective defendants to the proprietors of the lots "and/or" the owners corporation. 13 The amended statement of claim also expanded the heads of claim, adding claims in respect of loss of opportunity of negotiating a purchase price commensurate with the true market value of the property in its defective state, diminution in the market value and the cost of relocation while rectification works were carried out. 14 Ms Carre's notice of motion came on for hearing before the District Court on 14 February 2003 and was dismissed. No transcript of the District Court proceedings has been tendered; nor has any copy of reasons for judgment. The following account is given in an affidavit of Ms Given, Ms Carre's solicitor: "On 14 February 2003, I attended at the hearing of the plaintiff's Joinder Motion with Gregory Sirtes of counsel, who appeared on behalf of the plaintiff before his Honour Acting Justice Bowden of the District Court of New South Wales. At the hearing of the Joinder Motion referred to in paragraph 14 above, the Joinder Motion was opposed by the Johnsons and Lipman and the Court dismissed the Joinder Motion with costs, on the basis that no cause of action was pleaded against the Owners Corporation and such joinder could not be effected under Part 7 Rule 8 of the District Court Rules 1973." 15 Part 7 rule 8 of the District Court Rules is in virtually the same form as Part 8 rule 8 of the Supreme Court Rules. It reads as follows: "(1) Where a person who is not a party to an action: (a) ought to have been joined as a party, or (b) is a person whose joinder as a party is necessary to ensure that all matters in dispute in the action may be effectually and completely determined and adjudicated upon, the Court, on application by him or by any party or of its own motion, may, on terms, order that he be added as a party and make orders for the further conduct of the action. (2) A person shall not be added as a plaintiff unless he has consented in writing to be so added. " 16 In light of the approach taken in the form of amended statement of claim, it is, in one sense, understandable that the motion to join the owners corporation as a defendant should have been unsuccessful. No claim for relief against the owners corporation was included in the proposed amended statement of claim, its role in the proceedings being confined to that of what might best be described as a non-plaintiff recipient of damages sued for by Ms Carre. The owners corporation was, in truth and in substance, put forward by Ms Carre as effectively co-plaintiff so that the objection raised by the Johnsons and Lipton might be overcome. But joinder as a plaintiff would have required, under Part 7 rule 8(2), its active consent - which consent, of course, Ms Carre had failed to secure at the general meeting of the owners corporation held on 17 January 2003. 17 It should be noted at this point that the approach taken in the amended statement of claim was that traditionally regarded as appropriate when a derivative claim is advanced by a shareholder suing in reliance upon some claim vested in his or her company. Speaking of one such situation (where a minority shareholder sues in circumstances where the majority are attempting to appropriate property or advantages which belong to the company or to shareholders as a body), McPherson JA (with whom Williams JA and Wilson J agreed) said in Metyor Inc v Queensland Electronic Switching Pty Ltd (2002) 42 ACSR 398: "Proceedings of that kind for fraud on the minority were required to be brought in representative form on behalf of all members and were contingent on the company being joined as a co-defendant, so that any judgment for relief or recovery that might be given would both bind and operate in favour of the company found to have been wronged: see Spokes v Grosvenor Hotel Co Ltd [1897] 1 QB 124; at 128-9. Otherwise the practical effect of the judgment would be to transfer property of the company to individual members and, to that extent, result in an unauthorised dividend or distribution of corporate assets to shareholders." Relief sought by the plaintiff in this court 18 Having failed to persuade the District Court to allow her action to be reformulated in that way, Ms Carre's next move was to institute the present proceedings. The substantive sought by her statement of claim filed in this court on 4 March 2003 is: "A declaration that the plaintiff is entitled to commence or continue proceedings in the name of the Owners Corporation of Strata Plan 53020 in proceedings number 7626 of 2001 in the District Court of New South Wales (Construction List), against the first to fourth defendants." 19 Implicit in Ms Carre's claim are two assumptions: first, that the "proper plaintiff rule", or rule in Foss v Harbottle (1843) 2 Hare 461, applies to the species of corporation created by the Strata Schemes Management Act; and, second, that this court may grant relief that overcomes the effect of that rule in her District Court proceedings by allowing her to pursue the claims that she considers that corporation to have against the parties who are the defendants in those proceedings. I interpolate here, that, in view of s.11(2) of the Strata Schemes Management Act, it is clear that the statutory derivative action created by Part 2F.1A of the Corporations Act 2001 (Cth) is not available in this case. Does the rule in Foss v Harbottle apply to an owners corporation? 20 The first of the assumptions to which I have referred as implicit in Ms Carre's claim is, in my view, well-founded. Foss v Harbottle itself concerned a company incorporated by statute, two members of which filed a bill against the directors and others charging them with a variety of fraudulent and illegal acts by which the company's property was wasted. The members sought orders that the defendants make good to the company the losses complained of. A demurrer was upheld, the court answering adversely to the plaintiffs the question: "… whether the facts alleged in this case justify a departure form the rule which, prima facie, would require that the corporation should sue in its own name and in its corporate character, or in the name of someone whom the law has appointed to be its representative". 21 This "proper plaintiff rule" was said by the English Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 to be based on "… the elementary principle that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is the proper plaintiff because C is the party injured, and, therefore, the person in whom the cause of action is vested." 22 In Peninsular and Oriental Steam Navigation Co v Johnson (1938) 60 CLR 189, Dixon J said (at p 223): "The company itself is, prima facie, the proper plaintiff in an action to enforce rights vested, not in the shareholders, but in the company. An action cannot be maintained by a shareholder for the purpose of securing the enforcement of rights against others, vested not in himself but in the company, unless, speaking broadly, the failure of the company itself to pursue its alleged rights is attributable to an attempt on the part of the directors to further some interest at the expense of the company's or to some other mala-fide, fraudulent or ultra-vires conduct on their part or on the part of members of the company in a position to exercise control (See per James L.J. in Gray v. Lewis (1873) 8 Ch App 1035 , at p. 1050 and in MacDougall v. Gardiner [1875] 1 ChD 13 , at p. 21, and per Lord Davey in Burland v. Earle [FN80]). 23 The capacity of a corporation, as a person distinct from its members, to sue and be sued in its corporate name is one of the central incidents of corporate status. That capacity must be taken to be possessed by an owners corporation created by s.11(1) of the Strata Schemes Management Act, given the explicit statement that it is "a body corporate". At the same time, however, the occasions on which and circumstances in which the capacity may be exercised will be circumscribed by the provisions of the Act: Humphries v The Proprietors "Surfers Palms North" Group Titles Plan 1955 (1994) 179 CLR 597. 24 The application of the proper plaintiff rule in relation to the kind of body corporate created by analogous Queensland strata titles legislation was confirmed by Macrossan CJ and McPherson JA in Dynevor Pty Ltd v The Proprietors Centrepoint Building Units Plan No 4327 (Unreported, QCA, 12 May 1995). Their Honours there said: "In the area of company law the existence of an action to recover dispositions of corporate property that are ultra vires or otherwise improper, or to restrain an illegitimate exercise of corporate power that seeks to do so, is well established. It is available as one of the exceptions to the rule in Foss v Harbottle (1843) 2 Hare 461, that, apart from those exceptions, the corporation is the only competent plaintiff for redress in proceedings of that kind. See Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd (1969) 92 WN (NSW) 199, 213. The exceptions permitting such actions to be brought are closely controlled. A suit to recover corporate property is considered as derivative, in the sense that, although instituted in the name of the plaintiff, it is regarded as brought for the benefit of the corporation, in whose favour any restitutionary relief to be granted must in the end be made. At the same time, a plaintiff employing this form of action must make out a title to do so as a member of the corporation whose claims or interests it is sought to protect.

The defendant is the corporate creature of a statute, and the rule has been held to apply to statutory corporations capable of suing in their own names: Hodgson v National Local and Government Officers Association [1972] 1 WLR 130, 139. The principle underlying it is appropriate to the case of a corporation of this kind. For a wrong done to a corporation like the defendant, the body corporate is prima facie the only proper plaintiff in an action claiming to redress that wrong, unless the person claiming to sue in the corporate interest comes within one or more of the recognised exceptions to the rule. No such question arose in Humphries because it was the defendant body corporate itself that relied on ultra vires in answer to the claim of the plaintiffs to enforce the agreement which was held by the High Court to be beyond power." 25 These observations apply with equal force to an owners corporation brought into existence and governed by the Strata Schemes Management Act. It follows that the claims Ms Carre considers the owners corporation for strata plan 53020 to have against the Johnsons, Lipman and Positive Air may be pursued in the District Court only by that owners corporation, unless Ms Carre is recognised as having attained a position from which she can act for it or in its place. Without the active assent of the owners corporation, Ms Carre can be put into such a position only by court order. She asserts an entitlement to such an order on the basis of an exception to the proper plaintiff rule. Jurisdiction of this court to grant appropriate relief 26 That leads to a consideration of the second assumption implicit in Ms Carre's initiation of the present proceedings, namely, that this court is able to grant relief that will have the effect she desires in relation to the District Court proceedings. It is, to my mind, clear that the claim Ms Carre makes in this court is one to which the court's comprehensive equitable jurisdiction extends. She seeks to rely on an exception to the proper plaintiff rule. In doing so, she says that, in the particular circumstances, the rule operates to produce an injustice so that, in granting an order of the kind she claims, the court will, in the words of Lord Davey in Burland v Earle [1902] AC 83 at 93, "give a remedy for a wrong which would otherwise escape redress". Correction and avoidance of such injustices are the province of equity. The role of courts of equity in the present context was referred to by Browne-Wilkinson LJ in Nurcombe v Nurcombe [1984] BCLC 557 at 565: "Since the wrong complained of is a wrong to the company, not to the shareholder, in the ordinary way the only competent plaintiff in an action to redress the wrong would be the company itself. But, where such a technicality would lead to manifest injustice, the courts of equity permitted a person interested to bring an action to enforce the company's claim. The case is analogous to that in which equity permits a beneficiary under a trust to sue as plaintiff to enforce a legal right vested in trustees (which right the trustees will not themselves enforce), the trustees being joined as defendants. Since the bringing of such an action requires the exercise of the equitable jurisdiction of the court on the grounds that the interests of justice require it, the court will not allow such an action to be used in an inequitable manner so as to produce an injustice." 27 It is thus clear that, in these proceedings, Ms Carre seeks to invoke general equitable jurisdiction. The District Court's limited and specific equitable jurisdiction is created by express statutory prescription the boundaries of which are not always easy to identify: see Commonwealth Bank of Australia v Hadfield (2001) 53 NSWLR 614. It is not necessary to decide whether the present claim falls within that jurisdiction. It is not clear whether the issue of equitable jurisdiction and the power of the District Court to make, on equitable grounds, the orders unsuccessfully sought by Ms Carre was debated when her notice of motion was before the District Court on 14 February 2003. The limited evidence available suggests that it was not and that the matter was approached solely by reference to the District Court Rules. It is, I think, safe to assume that the District Court did not consider itself to have any relevant jurisdiction in relation to the subject matter of the notice of motion over and above that arising from Part 7 rule 8, so that any assertion that the claim could have been (or should now be) pursued there rather than here cannot confidently be made. It is therefore appropriate that I proceed to the merits of the claim. 28 At this point, I pause to examine more closely the scheme of the strata titles legislation. I have already mentioned s.11(1) of the Strata Schemes Management Act which causes the owners of the lots from time to time in a strata scheme to constitute a body corporate and s.18(1) of the Strata Schemes (Freehold Development) Act which causes common property in a strata plan to vest in the body corporate upon the registration of the plan. I have not, however, referred to the way in which an owners corporation holds common property. In a case such as the present, where different persons are the proprietors of lots, the estate or interest in common property vested in the owners corporation is held by it "as agent … for those proprietors as tenants in common in shares proportional to the unit entitlements of their respective lots": s.20(b). Each such proprietor accordingly has what s.24(2) calls a "beneficial interest" in the estate or interest of the owners corporation in the common property. The statute seems clearly enough to proceed on the footing that each proprietor of a lot is to be regarded as the equitable owner of an undivided interest as one of several tenants in common in the estate or interest of which the owners corporation is the legal owner. Section 21 renders common property incapable of being dealt with except in accordance with the Act. Section 24(2) makes a lot proprietor's beneficial interest in the estate or interest in common property held by the owners corporation incapable of being "severed from, or dealt with except in conjunction with, the lot". The owners corporation has a limited power to deal with common property in certain ways pursuant to a "special resolution" passed at a general meeting of the owners corporation, but only in the circumstances expressly provided: see ss.25, 26 and 27. Under s.62 of the Strata Schemes Management Act, an owners corporation is obliged to maintain common property, to keep it in repair and to renew or replace "any fixtures or fittings comprised in the common property". 29 It is clear from this statutory scheme that an owners corporation is in no sense the beneficial owner of common property. Its ownership is always in a representative capacity identified by the Act as that of "agent", with the lot proprietors, as the owners in equity of undivided interests as tenants in common, each identified as having a "beneficial interest". The restrictions upon alienation and other dealings and the provisions with respect to repair, renewal and replacement proceed on the assumption that common property exists for the benefit of the lot proprietors as a general body. While the legislation makes provision for a particular lot proprietor to be granted special rights in relation to common property, there is no suggestion in the present case that Ms Carre has been granted any such rights in respect to so much of the common property as is said to form part of the air conditioning system serving her lot. As was observed in Houghton v Immer (No 55) Pty Ltd (1997) 44 NSWLR 46 by Handley JA (with whom Mason P and Beazley JA concurred), a provision that vests common property in an owners corporation as "agent" for lot proprietors makes the proprietors equitable tenants in common. 30 It is also relevant to look at the way in which an owners corporation is structured. Its members are the "owners" from time to time of the lots in the strata scheme. This, as already noticed, is the effect of s.11(1) of the Strata Schemes Management Act. Having regard to the definition of "owner", the persons who are the members, in the case of a freehold scheme such as this, are the registered proprietors of the lots unless, in the case of a particular lot, some other person is recorded in the strata roll pursuant to s.98. Under clause 18 of Schedule 2, voting at general meetings of an owners corporation is on the basis that, in general, each person voting has one vote for each lot in respect of which the person is entitled to vote; but if a poll is demanded or the legislation requires a special resolution, the voting power of a person entitled to vote in respect of a particular lot is the unit entitlement of that lot. The "justice" exception to the rule in Foss v Harbottle 31 I proceed now to the question whether the present case is one in which a departure from the proper plaintiff rule should be allowed. Mr Sirtes of counsel, who appeared for Ms Carre, did not seek to bring the present case within any of the four uncontroversial exceptions to the proper plaintiff rule, being (as described at p.732 of Meagher Gummow & Lehane's "Equity Doctrines & Remedies" (4th edition, 2002, by Meagher, Heydon and Leeming): "(a) actions where the plaintiff alleges that the company is acting, or is about to act, ultra vires; (b) actions where the act in question would only be valid if passed by more than a simple majority vote of shareholders, and it has not been so passed; (c) where the plaintiff complains that his personal rights have been infringed; (d) where the directors are exercising their powers as a fraud on the minority." 32 Mr Sirtes' contention is, rather, that the case is within a fifth exception described by the same authors as: "(e) in any other case where justice requires it." 33 Mr Butler of counsel for the Johnsons conceded the existence of this fifth - or "justice" - exception but submitted that it must be regarded as narrow; indeed, too narrow to cover the present case. 34 It is, in my opinion, too late to argue the non-existence of the "justice" exception. The proper plaintiff rule has never applied rigidly. In Foss v Harbottle itself, Sir James Wigram V-C contemplated that: "[i]f 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 … 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."

In Russell v Wakefield Waterworks Co (1875) LR 5 Eq 474, Sir George Jessel MR referred to the proper plaintiff rule and said: "But that is not a universal rule; that is, it is a rule subject to exceptions, and the exceptions depend very much on the necessity of the case; that is, the necessity for the Court doing justice." 35 In a real sense, therefore, there is only one exception to the proper plaintiff rule, being a comprehensive "justice" exception. This has always has always been recognised and the four specifically defined classes of exception traditionally referred to are but particular examples of it. It is nevertheless necessary to consider the cases from which an exception beyond the established four may be seen to have been recognised. 36 In Biala Pty Ltd v Mallina Holdings Ltd (1993) 13 WAR 11, Ipp J received the then state of Australian judicial statements on the question of the existence of a fifth "justice" exception. I quote as follows from his Honour's judgment at p.69 and following: "In this State Malcolm CJ has indicated views contrary to the existence of the fifth exception. In Eromanga Hydrocarbons NL v Australis Mining NL (1988) 13 ACLR 804; 14 ACLR 486; the learned Chief Justice said at 910: 'In my opinion, in the present circumstances, I am not persuaded that the fifth exception ought to be recognised as having been established.' Again, however, the mode of expression employed by the learned Chief Justice (and in particular the reference to not "being persuaded" in "the present circumstances") does not, with respect, suggest a firm and final view. In Scarel Pty Ltd v City Loan and Credit Corporation Pty Ltd (No 2 ) (1988) 12 ACLR 730; 6 ACLC 219 Gummow J reviewed many of the authorities on this issue without coming to a firm conclusion. One of the cases which he mentioned was Campbell v Kitchen & Sons Ltd and Brisbane Soap Company Ltd (1910) 12 CLR 515 He discussed it in the following terms: 'In that case, half of the shares of company B were owned by company A or its nominees. Company A brought an action against company B and recovered judgment in its favour. The directors of company B were equally divided in opinion on the question of whether an appeal should be brought to the High Court. The other half of the shares in company B were held by Cor his nominees. In the High Court, leave was given to C to appeal on behalf of himself and all other members of the company B, Griffith CJ saying (at p 514): "Under these circumstances there must be some remedy, and I think we ought to apply the analogy of the practice of the Court of Chancery, which is now adopted by the Supreme Court of Judicature, and give leave to some person who is substantially interested to come in and institute the appeal." Counsel had cited Foss v Harbottle and such decisions as Burland v Earle [1902] AC 83 The case does not appear to fall clearly within any of the four recognised exceptions to the rule in Foss v Harbottle.' In Hawkesbury Development Company Ltd v Landmark Finance Pay Ltd [1969] 2 NSWR 782 Street J discussed the issue at 789 and said: 'It is, perhaps, a useful door to be left open lest in some extremely unusual circumstances injustice would result from applying the rule. No exhaustive or even descriptive statement of such circumstances has been propounded.... It is the absence of definition or example of such exception that, no doubt, underlies such observations as are to be found to the effect that there is in truth no admissible ground for further exception. It would, however, be regrettable if the difficulty of foreseeing a possible need for allowing any further exception were to be elevated to an anticipatory refusal to recognise any future case as being justly treated as an exception. For the purposes of the present judgment I am prepared to accept the existence of a further exception to the rule in Foss and Harbottle where justice so requires.' I note that the learned authors of Equity, Doctrine and Remedies 3rd ed Meagher, Gummow and Lehane at paras 21-30 accept that apart from the four recognised exceptions to the rule in Foss v Harbottle there is a further exception "in any other case where justice requires it". 37 Ipp J continued: "In coming to a conclusion on this particularly difficult question I have been particularly persuaded by the sentiments expressed by Sir Robert Megarry V-C in Estmanco (Kilner House) Ltd v Greater London Council [1982] 1 WLR 2 at 11-12 where he said: 'Plainly there must be some limit to the power of the majority to pass resolutions which they believe to be in the best interests of the company and yet remain immune from interference by the courts. It may be in the best interests of the company to deprive the minority of some of their rights or some of their property, yet I do not think that this gives the majority an unrestricted right to do this, however unjust it may be, and however much it may harm shareholders whose rights as a class differ from those of the majority. If a case falls within one of the exceptions from Foss v Harbottle I cannot see why the right of the minority to sue under that exception should be taken away from them merely because the majority of the company reasonably believe it to be in the best interests of the company that this should be done. This is particularly so if the exception from the rule falls under the rubric of "fraud on a minority.' Although Sir Robert Megarry made express reference to 'fraud on a minority', his views equally justify the existence of a fifth exception so as to protect minority shareholders in those rare cases where they are unable to bring themselves within the recognised exceptions and where a serious injustice would arise if they were precluded from pursuing a derivative action. I take into account further that as Gummow J said in Scarel Pty Ltd v City Loan and Credit Corporation Pty Ltd (No 2) at 223: '(T)he rule in Foss v Harbottle and its exceptions have generally been considered part of the powers and procedures of modern courts of equity...' Equity is concerned with substance and not form, and it seems to me to be contrary to principle to require wronged minority shareholders to bring themselves within the boundaries of the well recognised exceptions and to deny jurisdiction to a court of equity even where an unjust or unconscionable result may otherwise ensue." 38 His Honour upheld the plaintiffs' argument "that the court may allow a derivative action by shareholders in circumstances whenever the justice of the case so requires". He then went on to consider the particular case the facts of which were not analogous with those before me. In Mesenberg v Cord Industrial Recruiters Pty Ltd (1996) 39 NSWLR 128, Young J referred to Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd (1969) 92 WN (NSW) 199 and Scarel Pty Ltd v City Loan & Credit Corp Pty Ltd (1988) 17 FCR 344 (mentioned by Ipp J) and expressed the opinion that the law of Western Australia expressed in Biala "appears to be the same as the law of New South Wales as tentatively accepted by Street J in the Hawkesbury Development case". In Cadwallader v Bajco Pty Ltd ((2001) 189 ALR 270), Austin J said: "… although the matter is still open to some doubt at appellate level, Mesenberg's case is authority for the proposition that the fifth exception is part of the law of New South Wales, and I am happy to adopt his Honour's analysis of the cases …"

Austin J held that the fifth exception was applicable to the case before him, a conclusion that was apparently not challenged upon the subsequent appeal and cross-appeal: see Cadwallader v Bajco Pty Ltd [2002] NSWCA 328. 39 Reference must also be made to the decision of the High Court in Campbell v Kitchen & Sons Ltd and Brisbane Soap Co Ltd (1910) 12 CLR 513. The judgment of Griffith CJ (in which O'Connor, Isaacs and Higgins JJ concurred) may be quoted in full: "This is a case in which judgment was given in the Supreme Court of Queensland in an action between parties involving an amount over £300. This Court has jurisdiction to entertain an appeal from that judgment, but, owing to the curious circumstances of the case, it cannot be instituted because those who would be respondents have an equal voice in the company which would be appellants. Under these circumstances there must be some remedy, and I think we ought to apply the analogy of the practice of the Court of Chancery, which is now adopted by the Supreme Court of Judicature, and give leave to some person who is substantially interested to come in and institute the appeal. I therefore think that leave should be given to the applicant to appeal from the judgment on behalf of himself and all other members of the defendant company. Of course the defendant company must be made a respondent. If the judgment is to be regarded as being interlocutory, the leave we now give will cover that also." 40 One of the important themes running through the cases in this area is the reluctance of the courts to interfere in a situation that is capable of being resolved by an appropriate resolution of the members of a company. Where an individual shareholder seeks to assert a claim of the company in relation to some supposed cause of action and the company declines to proceed, the court will be reluctant to assist or to play any role at all unless and until it is seen that the matter cannot be resolved by a resolution of shareholders. The rationale was explained thus by Lawrence Collins J in Konamaneni v Rolls Royce (India) Ltd [2002] 1 WLR 1269 at 1277-1278: "Where what has been done amounts to a fraud and the wrongdoers are themselves in control of the company, the rule is relaxed in favour of the aggrieved minority who are allowed to bring a minority shareholders' action on behalf of themselves and all others. The reason for this is that if they were denied that right, their grievance would never reach the court because the wrongdoers themselves, being in control, would not allow the company to sue: Edwards v Halliwell [1950] 2 All ER 1064, 1067; the Prudential Assurance Co Ltd case [1982] Ch 204, 211. As Browne-Wilkinson LJ said in Nurcombe v Nurcombe [1985] 1 WLR 370, 378: 'Since the wrong complained of is a wrong to the company, not to the shareholder, in the ordinary way the only competent plaintiff in an action to redress the wrong would be the company itself. But, where such a technicality would lead to manifest injustice, the courts of equity permitted a person interested to bring an action to enforce the company's claim.'" Particular circumstances of this case 41 Many of the cases about the rule in Foss v Harbottle concentrate on wrongs done (or possibly done) by directors. Others (of which Johnson v Gore Wood & Co [2002] 2 AC 1 is an example) are concerned with distinctions between wrongs suffered by the company which reflect in diminution in share value and wrongs suffered by shareholders, whether directly or less directly because of impacts on the value of shares held by them. Particular features of the present circumstances make much of the thinking in those cases of limited relevance. In the first place, although the owners corporation is made up of persons who are regarded as its members, the present case does not involve any decision of a body or organ analogous to a board of directors. In relation to the relevant matters, the members alone are the decision-makers for the corporation. Second, the subject matter in issue in the District Court proceedings, being the air conditioning unit serving lot 3, is, regardless of the technicalities of ownership of the various components that make up the whole, intended to be enjoyed solely by whichever member of the corporation is for the time being the proprietor of lot 3. The unit as a whole and any parts of it included in the common property are irrelevant to the enjoyment by other lot proprietors of the rights they have as participants in the strata scheme. 42 If the air conditioning unit is faulty and inoperative, the corporation suffers no direct inconvenience although, to the extent that repairs may be needed in relation to any system components vested in it as common property, the corporation may incur a liability to effect repair, renewal or replacement under s.62 of the Strata Schemes Management Act - I say "may" because of the possibility that the particular components that are common property might, in a physical sense and when separately examined in their own right, be found to be perfectly sound even though they do not interact with the other components owned by the lot proprietor in such a way as to function as a fully operating air conditioning system. Importantly, any diminution in value suffered by reason of the system's being inoperative is diminution in the value of lot 3, not diminution in value of the common property. 43 The absence of acts of persons analogous with the directors of a company means that fiduciary duties are unlikely to be at work in a case such as the present. Members of the body corporate, being proprietors of lots, are not, in any obvious sense, charged with a duty to be attentive to the interests of a body of persons whose welfare is placed in their hands except as the statutes expressly require. Such members are, in a sense, co-venturers but, unlike partners and joint venturers (cf United Dominions Corporation Ltd v Brien Pty Ltd (1985) 157 CLR 1), they have not chosen to come together in order to pursue some common interest. The only bond between them is ownership of parts of a building. None chooses to become a member of the corporation because of its nature, its activities or the attributes of the other members. Membership is merely a statutory and compulsory by-product of a decision to acquire particular real property. 44 In these special circumstances (and where the owners corporation occupies, in relation to the relevant property, the purely representative position for which the strata titles legislation makes provision), analogies drawn from company law cases are limited and must be approached with care. Rather than attempting to fit the circumstances within (or to scrutinise them against) company law precedents, the court should deal with their own special reality. 45 Ms Carre says that she was put to expense and loss and suffered inconvenience, discomfort and diminution in the value of her property while the air conditioning unit in question was inoperative. She alleges that responsibility for its defective condition, in the form of legal liability, should be laid at the feet of the Johnsons, Lipman and Positive or some one or more of them. Her attempt to sheet home that perceived liability through proceedings in the District Court suffered a setback when the first the Johnsons and then Lipman said that she is not technically the owner of some parts of the system and that her proceedings must fail unless the owners corporation becomes a party to the action and asserts its own claims in parallel with hers. She attempted to achieve that result by repleading her case and making the owners corporation a defendant so that she might assert the parallel claims on its behalf. That attempt failed. The full reasons are not known, but it should, I think, be inferred that the District Court was unwilling to accommodate or grant the form of equitable relief entailed in allowing proceedings to be reformulated in the way traditionally employed to recognise an exception to the proper plaintiff rule. Ms Carre then sought directly a decision, by resolution of its members, that the owners corporation should become a co-plaintiff. That decision was not forthcoming because the Johnsons, being persons the owners corporation would sue, decide that the owners corporation should not be allowed to initiate claims against them. They were in a position where they could decide conclusively whether or not someone else would sue them. Not surprisingly, their decision was against that person's making them the subject of an attack through litigation. 46 The case is not, it seems to me, likely to be one in which the owners corporation is shown to have suffered other than nominal or modest loss through any negligence or other legal wrong that attended the development and construction of the building and the air conditioning system servicing lot 3 or the design and installation of that air conditioning system. And to the extent that the owners corporation may be shown to have suffered loss, that loss will have been incurred by it in the representative capacity that is the only capacity it has in relation to common property. The real loss attributable to any such wrong done in relation to common property will, in the circumstances of the integrated nature and functions of the air conditioning system, accrue to Ms Carre as the proprietor of lot 3. 47 In these circumstances, there is to my mind, some analogy to be drawn with the case where a trustee holds trust property for the benefit of a cestui que trust but will not take action to protect that property. According to s.24(2) of the Strata Schemes (Freehold Development) Act, Ms Carre has a beneficial interest in the common property vested in the owners corporation, including such of it as consists of components of the air conditioning system servicing lot 3. Each of Mr Johnson and Ms Johnson also has a beneficial interest in the common property although in circumstances where, as I have said, those components are useful only to Ms Carre as the proprietor of lot 3. Ms Carre therefore has a special interest in the assertion by the owners corporation of rights of action it may have in relation to defects in the common property. The owners corporation, by the votes of the Johnsons (two of the persons against whom the rights of action on the part of the owners corporation are seen as lying), has declined to become party to the proceedings in which the rights of action will be asserted in company with the parallel right vested in Ms Carre alone. The owners corporation, which occupies a representative position qua the common property held by it as "agent", has refused to act. The following passage in the judgment of Sir W M James in Sharpe v San Paulo Railway Co (1873) LR 8 Ch App 597 at 609-610 therefore becomes relevant: "Is it to be permitted that every one of the persons who has an interest in a thing assigned to a trustee ... should file a distinct bill in a distinct branch of this Court against the debtors to the estate? I had lately occasion to consider that question, and I came to the conclusion, very clearly, that a person interested in an estate or a trust fund could not sue a debtor to that trust fund, or sue for that trust fund, merely on the allegation that the trustee would not sue; but that if there was any difficulty of that kind, if the trustee would not take the proper steps to enforce the claim, the remedy of the cestui que trust was to file his bill against the trustee for the execution of the trust, or for the realization of the trust fund, and then to obtain the proper order for using the trustee's name, or for obtaining a receiver to use the trustee's name, who would, on behalf of the whole estate, institute the proper action, or the proper suit in this Court. That view I still adhere to, and I say it would be monstrous to hold that wherever there is a fund payable to trustees for the purpose of distribution amongst a great number of persons, every one of those persons could file a separate bill in equity, merely on the allegation that the trustee would not sue." 48 In Ramage v Waclaw (1988) 12 NSWLR 84, Powell J surveyed the cases in which courts of equity have recognised special circumstances allowing a beneficiary to sue in his own name in equity or in the trustee's name at law when the trustee fails to institute proceedings. One such case is where "the relation between the executors and the surviving partners is such as to present a substantial impediment to the prosecution by the executors of the rights of the parties interested in the estate against the surviving partners": Travis v Milne; Milne v Milne (1851) 9 Hare 141. In the present case, it is the relation between the Johnsons and the owners corporation, represented by their majority voting power, that has presented a substantial impediment to the prosecution by the owners corporation of the rights of the lot proprietors interested in the common property against the Johnsons and others.

Relief warranted unless discretionary considerations otherwise indicate 49 My conclusion on the special and unusual facts of this case is that, subject to anything to the contrary arising from the considerations of a discretionary kind referred to by Mr Butler in opposing the grant of the relief sought by Ms Carre (which I shall consider presently), this court should, in the exercise of its general equitable jurisdiction, recognise and give effect to an equity of Ms Carre to sue in the District Court in the name of the owners corporation to the extent that it is necessary for the owners corporation to be joined as a plaintiff to permit the claims that Ms Carre wishes to prosecute in relation to the air conditioning unit serving lot 3 alone to be fully and effectively constituted through presence of the owners corporation as a party and assertion of such like claims as it may have in relation to that air conditioning system. Such orders will, in my judgment, be justified on the basis of the fifth "justice" exception to the rule in Foss v Harbottle and by reference to the principles I have just mentioned relevant to actions by a beneficiary in the name of his or her trustee, assuming always that none of the discretionary disqualifying factors asserted on behalf of the Johnsons is found to operate. It is to those factors that I now turn. Submissions on discretionary considerations 50 Mr Butler's first submission is that Ms Carre's present application is an abuse of process because it does no more than to seek to re-open a decision already made by the District Court. For reasons I have given, the District Court, on the evidence before me, was apparently not invited to exercise the equitable jurisdiction that is involved in a claim to pursue a derivative action; nor is it clear that it possesses that jurisdiction. In those circumstances, the principle that might cause a subsequent application which is effectively a re-run of an earlier unsuccessful one to be regarded as an abuse of process cannot be applicable here, even if such a principle exists: see Nominal Defendant v Manning (2000) 50 NSWLR 139. 51 As part of the abuse of process submission, it was said on behalf of the Johnsons: "[I]f the plaintiff's contention is that the District Court does not have jurisdiction to hear a derivative action then the declaration sought in the summons is nonsensical: the Supreme Court cannot make a declaration that the plaintiff be allowed to commence proceedings in the District Court, if the District Court does not have jurisdiction." 52 The plaintiff's contention is not, as I understand it, that the District Court does not have jurisdiction to hear a derivative action. It is, rather, that the District Court's limited equitable jurisdiction does not permit it to recognise and give effect to the exceptions to the proper plaintiff rule. That does not mean that that rule must be left to apply immutably and inflexibly in District Court actions; merely that, if advantage is to be taken of an exception and grounds can be shown, the equitable jurisdiction of this court must be invoked in an auxiliary fashion. 53 An alternative version of the abuse of process submission was based on the existence within the strata titles legislation of dispute resolution mechanisms which ultimately devolve upon the Consumer, Trader and Tenancy Tribunal. I must confess that I cannot see how this is so. Mr Butler did not take me through the relevant provisions of the legislation. These provisions are in Chapter 5 of the Strata Schemes Management Act. The most the provisions could achieve, it seems to me, is to impose some regime upon lot owners and a body corporate in relation to matters relevant to functions in relation to the strata scheme or the operation, administration or management of the scheme. No submission has been made which identifies how any such regime would or could achieve the results Ms Carre seeks in relation to the District Court proceedings. 54 It was also submitted on behalf of the Johnsons that the dismissal of Ms Carre's notice of motion in the District Court gave rise to some form of issue estoppel or res judicata. This seems to me to overlook the reality that the application was merely procedural and, as I have said, there is no reason why one interlocutory application, if unsuccessful, should not be followed by another - although successive applications obviously entail increased risk of an adverse exercise of judicial discretion. 55 Mr Butler next says that the relief Ms Carre seeks from this court should be refused because the claims she wishes to have the owners corporation pursue are statute barred. Mr Sirtes makes several points in response. He says that any such argument might be met by an assertion that any defect was a latent defect not discovered until late 1997. Also, the claims against the builder (Lipman) is a claim in tort (presumably on the basis of Bryan v Maloney (1995) 182 CLR 609) so that the cause of action does not arise until damage has been suffered: Christopoulos v Angelos (1996) 41 NSWLR 700. Determining the start of a limitation period is, in any event, a fact driven exercise and, as Mr Sirtes submitted, this court is not really in a position to make relevant findings of fact in the present proceedings. Any argument that the claims by the owners corporation were time barred would most appropriately be pursued in the District Court. 56 The matters advanced on behalf of the Johnsons provide no basis on which the court's discretion should be exercised against the grant of relief to the effect Ms Carre seeks.

Form of relief 57 It remains to consider the form of relief. If the proceedings in question were proceedings in this court, the appropriate course would be as described in Metyor Inc v Queensland Electronic Switching Pty Ltd (above): Ms Carre would be required to join the owners corporation as a defendant so that it would be bound by and have the benefit of any judgment obtained through efforts made by Ms Carre on its behalf. The same approach was referred to by Griffith CJ in Campbell's case (above): "Of course, the defendant company must be made a respondent". 58 Here, however, it has already been determined by the District Court that, having regard to the District Court Rules, the owners corporation may not be made a defendant in connection with moves by Ms Carre to advance claims on its behalf. Furthermore, joinder of the owners corporation as a plaintiff without its written consent would be contrary to the District Court Rules. This court will not make orders that cannot be implemented consistently with the District Court Rules. The relief it grants to vindicate Ms Carre's equity to set the owners corporation in motion must therefore be framed in a way that causes the owners corporation to become a plaintiff, rather than a defendant; moreover this must be done in a way that conforms with the requirement of the District Court Rules as to written consent. 59 If the owners corporation becomes a plaintiff in the District Court proceedings, it will be exposed to the possibility of an adverse costs order. Measures to counter that are necessary. The likelihood is that, if Ms Carre is successful in the District Court, it will be she rather than the owners corporation that reaps the whole (or substantially the whole) of the resultant benefit and reward. As the price of having the owners corporation added as a co-plaintiff, she should indemnify the owners corporation against all costs and expenses of and incidental to its participation as plaintiff including, but not limited to, costs ordered to be paid in the District Court proceedings by the owners corporation. The possibility that the owners corporation might, in the fullness of time, derive some separate benefit from the District Court proceedings warranting some contribution by it to costs thus cast upon Ms Carre may be accommodated by liberty to apply in these proceedings. Orders 60 The orders I consider appropriate are as follows:

Order that the first defendant execute and deliver to the plaintiff a consent in writing to be added as a plaintiff in District Court proceedings 7626 of 2001, such consent being pursuant to Part 7 rule 8(2) of the District Court Rules.

Order that the plaintiff be at liberty (a) to apply to the District Court for an order that the first defendant be added as a plaintiff in District Court proceedings 7626 of 2001; (b) to tender in support of that application the consent in writing executed and delivered in accordance with order 1; and (c) to prosecute on behalf of the first defendant as a plaintiff in District Court proceedings 7626 of 2001 claims by the first defendant substantially as set out in the form of amended ordinary statement of claim which is the annexure "A" to the plaintiff's notice of motion filed in the District Court proceedings on 30 January 2003.

Order that the second and third defendants consent to the making by the District Court of any order for joinder applied for by the plaintiff in exercise of the liberty granted by order 2(a).

Order that, if the plaintiff exercises the liberty granted by order 2, the plaintiff shall, except to the extent (if any) that the court hereafter otherwise orders, indemnify and hold harmless the first defendant from and against (and promptly pay and discharge for the first defendant) all such costs and expenses at shall be incurred by the first defendant (or to which it shall be subjected) by reason of its being a party to District Court proceedings 7626 of 2001 including but not limited to any and all costs ordered by the District Court to be paid by the first defendant.

Grant to the plaintiff liberty to apply to the Duty Judge in the Equity Division on fourteen days notice for any order of the kind referred to in order 4. 61 The first defendant (owners corporation) did not file a defence in these proceedings. The second and third defendants (the Johnsons) did file a defence and were represented by Mr Butler in opposing the grant of the relief sought. The orders I have enunciated, although not in the form sought in the plaintiff's statement of claim filed on 4 March 2003, achieve for her in substance the position sought. The plaintiff is therefore entitled to costs against the second and third defendants. The statement of claim seeks costs on the indemnity basis but, having regard to the novelty of the application and the issues involved, I am not at all persuaded that the resistance of the second and third defendants was so devoid of merit that such an order is warranted. The order will be that the second and third defendants pay the plaintiff's costs on the party and party basis.

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