CASTLE CONSTRUCTIONS PTY. LTD. v. THE OWNERS - STRATA PLAN 53342 AND 17 OTHERS [1999] NSWSC 1107

LOWER COURT JURISDICTION : Strata Schemes Board LOWER COURT FILE NUMBER(S) : SA/98/649 LOWER COURT JUDICIAL OFFICER : Mr. G. Cochrane

COUNSEL : R. R. Harper (Plaintiff) M. D. Young (Defendants) SOLICITORS : Kitamura & Associates (Plaintiff) David Le Page (Defendants) CATCHWORDS : Appointment of Strata Managing Agent - Same solicitor not to represent owners corporation and applicant lot owners DECISION : Orders made

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

CASTLE CONSTRUCTIONS PTY. LTD. v. THE OWNERS - STRATA PLAN 53342 and 17 OTHERS

1 Castle Constructions Pty. Limited ("Castle") seeks an order that the decisions and orders of 16 August 1999 of Mr. G. Cochrane sitting as the Strata Schemes Board be set aside and that the application of some 15 owners of strata lots that a strata managing agent be appointed pursuant to s.162 of the Strata Schemes Management Act 1996 to exercise all of the functions of the owners corporation, chairperson, secretary, treasurer and executive committee of Strata Scheme No. SP53342 be dismissed. 2 By s.200 of the Act an appeal lies to the Supreme Court against an order made by the Board under Chapter 5 in the same cases and in the same way as it would lie under Part 5 of the Justices Act 1902 if the order were a determination that a Justice or Justices made, at the time the order took effect, in the exercise of summary jurisdiction on an information or complaint. Section 104(1) of the Justices Act permits a defendant against whom an order has been made to appeal on any of the following grounds

(a) a ground that involves a question of law alone, (b) a ground that involves a question of mixed law and fact, but only with the leave of the Supreme Court, (c) the ground that the … order … cannot be supported having regard to the evidence. 3 Castle's statement of grounds raises a large number of complaints, some of which seem to involve alleged errors of fact. There is a complaint of a denial of natural justice in the way in which Mr. Alan John Donald was appointed as the Strata Managing Agent. 4 At the hearing before the Strata Board on 19 and 20 April 1999, the 2nd to 16th defendants (the 15 lot owners) sought to establish that the management of the strata scheme was not working satisfactorily primarily because of the dysfunctional relationship between Castle and its associates and the majority of other lot owners in the strata scheme. In its detailed and lengthy reasons the Board found that this complaint was established and made the appointment mentioned. 5 The builder, developer and original owner of the strata scheme in respect of premises at 134-145 Sailors Bay Road, Northbridge, being a five storey commercial and residential development with above basement parking was Castle, whose principal is Mr. V. Lahoud. Over half of the lots were sold. Castle retained the ownership of about fifteen lots which held about 40% of the unit entitlement. The Board found that with the help of a few other lot owners who supported Castle, it and Mr. Lahoud were able to retain control of the affairs of the owners corporation. 6 The Board made a series of rather strong adverse findings against Castle and Mr. Lahoud including a wrongful expropriation of some common property. Mr. Lahoud was not regarded as a witness of truth in important respects. Some of his explanations for what appeared to be dubious or wrongful conduct were not accepted. The Board did not regard Mr. Hunt, Castle's leading opponent as without fault and wholly reliable but it held that he was more reliable than Mr. Lahoud. It noted that Mr. Lahoud was anxious to control the affairs of the owners corporation. The Board's findings were that he acted accordingly and wrongfully. Castle and Mr. Lahoud were in a difficult position. There were complaints about defective work involving the common property and about Castle and Mr. Lahoud advancing their own interests rather than the interests of the owners corporation as a whole. 7 According to the documents issued by the Board on 16 August 1999 incorporating its orders and reasons the applicants were some 15 named persons (being lot owners) and the respondent was The Owners, Strata Plan No. 53342. At the start of the hearing on 19 April 1999, counsel (Mr. Harper) announced that he appeared for Castle. A study of the transcript reveals a contest between the 15 applicants and Castle with the applicant relying on the evidence of Mr. Hunt and documentary materials and Castle relying on the evidence of Mr. Lahoud and documentary materials. Various witness statements were tendered. The owners corporation appeared to take no part, and certainly no active part in the proceedings before the Board. 8 In this Court the appellant is Castle. The owners corporation has filed an appearance and it has sought to uphold the Orders made by the Board. The owners corporation is the 1st defendant, the fifteen lot owners being the 2nd to 16th defendants have filed an appearance stating "For so long as the First Defendant opposes the appeal [they] appear and submit to such orders as the Court may make, save as to costs." Both the 17th defendant (Mr. Donald) and the 18th defendant [the Board] have filed submitting appearances (save as to costs). The same solicitor entered appearances for the owners corporation and the 15 lot owners. The 17th and 18th defendants were separately represented. Mr. Donald, who exercises the powers of the owners corporation instructed Mr. Le Page, to enter the appearance (which was in effecting a disputing appearance) on its behalf. Mr. Le Page acted for the 2nd to 16th defendants before the Board and in this Court. 9 Castle has challenged the right of Mr. Le Page to act for both the owners corporation and the 15 lot owners. It has submitted that Mr. Le Page should not act for the owners corporation. There is the further question of a stay of execution of the Board's orders. I will deal with the latter point first. 10 Castle submitted that by virtue of s.200 of the Strata Schemes Management Act 1996 and s.107 of the Justices Act 1902 there was an automatic stay of execution pending the determination of the appeal. Alternatively, Castle contended that a stay of execution should be granted by this Court. The owners corporation submitted that there was no automatic stay and alternatively, if there were, it should be discharged. In support of its contentions Castle relied on an alleged denial of natural justice. 11 At the end of the hearing on 20 April 1999 Castle contended that if, contrary to its submissions, the Board concluded that a strata managing agent should be appointed, Mr. Donald should not be so appointed as Castle had substantial objections to him. Castle stated that it could not live with him and that it would wish to call evidence on that point. After some further discussion the Board member stated that if the Board though that a strata managing agent should be appointed the parties would be written to. In response the parties were "to nominate nominees for appointment". 12 By and under cover of letters of Castle's solicitors of 31 May 1999, 16 July 1999 and 21 July 1999 the solicitors made complaints about Mr. Donald's administration of the strata scheme. Objection was taken by the solicitor for the 15 lot owners on the basis that the evidence had closed. 13 By Amended Notice of Hearing of 27 July 1999 the Board advised that it would give its decision on 16 August 1999 and that at the time of the decision being delivered so much of that material which was admissible and/or relevant may be addressed. The Board directed that a copy of the material be sent to Mr. Donald and advised that the Board anticipated that Mr. Donald would attend before it on 30 July 1999. 14 On 16 August 1999 the Board member delivered his reasons orally. The Board member concluded that it was the "crossover of interests in which Castle is involved that is the primary cause of the problem". Castle had been the builder and developer as well as the holder of 40% of the unit entitlements. The repair of defective work in the common property areas was a major bone of contention. Castle also attempted to appropriate some of the common property. The Board found, in effect, that Castle had the owners corporation do its bidding. The Board member stated that he did not accept that the appointment of an agent with full powers was punitive, that he was providing the scheme with 12 months time out to settle down and that during that time Mr. Donald was to do all he could to ensure that the owners corporation was ready and able to resume its duties and functions at the expiration of the appointment. The Board member said: "The orders are: 1. Orders 3 to 5 inclusive made on 30 November are revoked. That revocation takes effect on 16 August. 2. Mr. Alan John Donald of Strata Partners, being a managing agent licensed, is hereby appointed for a period of 12 months commencing on 16 August. Mr. Donald is to have and may exercise all the functions of the Owners Corporation, chairperson, secretary, treasurer and executive committee and is to be remunerated in accordance with the management fee of $5,00 per annum. This fee covers three meetings. Additional meetings are $85 per hour plus disbursements as set out in the order. That is the end of that. Anything flowing from that?"

The formal orders in writing notified on 30 August 1999 were to the same effect but set out a little differently. 15 Counsel for Castle then said: "The note that we received about listing this for hearing also says that at the time of the decision being delivered so much of the material that had been received which is admissible or relevant may be addressed by the parties. We wish to make some submissions about the appropriateness of Donald continuing in the event, if the Board were disposed to make an order under section 162."

Counsel for Castle raised the further point that the application had not been referred to mediation and for that reason should be dismissed. This submission was rejected. 16 Counsel for Castle stated that it had no confidence in Mr. Donald and that that factor alone made it appropriate to appoint someone else. Castle submitted that Mr. Donald had a very unsatisfactory track record. In response to counsel's submission that Mr. Donald had not consented in writing, the Board member replied that Mr. Donald had given his consent on the previous Friday and pointed out that orders appointing a strata managing agent were usually made by an adjudicator without a hearing. He doubted if an adjudicator had power to hold an inquiry into the fitness of a nominee. He also pointed out that on the previous occasion (November 1998) Mr. Donald was the only eligible agent on the panel, within a reasonable distance from the property, to consent to act as the strata managing agent. 17 Counsel for Castle submitted that anyone but Mr. Donald would be preferable, even if the person was quite unknown. Castle applied to the Board to vary the order which it had just made to appoint someone else as the strata managing agent. Castle conceded that it did not have any particular nominee in mind. Castle contended that the problem arose because the 15 lot owners had not proposed a nominee. The Board member replied that there were many applications for the appointment of a strata managing agent where the applicants did not propose a nominee. 18 The 15 lot owners submitted that Mr. Donald had been doing a perfectly satisfactory job and that there was the advantage of familiarity and continuity with no need to change the books and financial records to another agent. 19 Castle then took the Board to the letters of Castle's solicitors of 31 May 1999 and 16 July 1999 and the complaints therein made against Mr. Donald. 20 The Board member was correct when he held that he would require some substantial material to appoint another strata managing agent when Mr. Donald had been acting for 8½ months. It was not a sufficient reason that Castle did not want him or that it made allegations. Castle and Mr. Lahoud obviously did not appreciate losing control of the owners corporation and part of Mr. Donald's task may well involve denying Castle's requests or urgings. 21 The Board held that it was not satisfied that it had jurisdiction to entertain Castle's request. However, even if it did, there was nothing in what had been put to vary the order. The request failed. 22 Castle's real complaint was that the Board said at the conclusion of the hearing on 20 April 1999 that if it thought that a strata managing agent should be appointed the parties would be written to and given the opportunity to nominate proposed appointees but that this did not happen. Instead, the Amended Notice of Hearing of 27 July 1999 was in the terms summarised earlier. Castle complained that the Board made its orders without hearing it and that it was then forced to apply for a variation. Castle contended that it was placed in a position of disadvantage. 23 An adjudicator and the Board are not bound by the rules of evidence and have wide investigative powers. They also proceed informally and often without oral evidence. Matters are often dealt with on the papers without a hearing. The system established is designed to deal with matters quickly and cheaply. 24 However, when an issue is raised and the Board states that it is going to take a particular course if it decides that a strata managing agent should be appointed it should follow that course. If it changes its mind, it should advise the parties and given them an adequate opportunity to deal with the issue having regard to the changes made. It was incorrect to make the orders first and then hear the parties on the particular issue. This is particularly so where there are doubts about the jurisdiction to vary orders so made upon the request of the party affected. 25 During argument I indicated that the question of the grant and refusal of a stay would be much influenced by there having been a breach of the rules of natural justice and of fairness. While the 15 lot owners did not concede that there had been such a breach, they acceded to the view that if the Court took this view and was therefore going to refuse a stay or discharge any stay which existed it would be better for the order appointing Mr. Donald to be set aside so that the matter of which strata managing agent should be appointed could be resolved quickly. 26 Given the Board's findings it could not reasonably be disputed that a strata managing agent should be appointed. The only question is who should be appointed. I do not preclude the appointment of Mr. Donald. There are substantial practical reasons to continue that appointment. Essentially, the rules of procedural fairness must be followed. In practical terms Castle will have to nominate other qualified strata managing agents who are willing and competent and establish substantial reasons why Mr. Donald is unsatisfactory. These are questions of fact for the Board member. He may well appoint Mr. Donald. Costs of this point are reserved. If Mr. Donald is re-appointed the exercise may prove to have been a barren one. 27 Apart from this point I would not have regarded a stay as appropriate. It is necessary in view of the Board's findings to have a strata managing agent running the affairs of the owners corporation and discharging the other functions. 28 I turn now to the representation point. Can Mr. Le Page represent the owners corporation as well as the 15 lot owners. Castle objects to the 15 lot owners not having a direct personal liability for costs and the owners corporation's liability for costs possibly resulting in lot owners other than the 15 lot owners sharing the costs burden. 29 SCR Part 66, Rule 2 provides: "2. Where a solicitor or a partner of the solicitor acts as solicitor for any party to any proceedings … that solicitor shall not, without the leave of the Court, act for any other party to the proceedings not in the same interest."

30 Castle contended correctly that the owners corporation was bound to act in the interests of the lot owners as a whole. In the present case there was a marked division of opinion as to such interests amongst the lot owners. Mr. Donald's task, inter alia, is to try to keep the various interests in balance and to act in the interests of the owners corporation as a whole. Under the Board's order Mr. Donald exercises all of the functions of the owners corporation and it is obliged to remunerate him as specified in the Board's orders. The owners corporation has a direct interest in the Board's orders and the appeal or application for leave to appeal. So do the 15 lot owners who do not want Castle and Mr. Lahoud controlling the affairs of the owners corporation having regard to their previous conduct. 31 Counsel for the owners corporation submitted that both the 15 lot owners and the owners corporation wished to uphold the orders made by the Board and that accordingly they were in the same interest. If any dispute arose as to costs then, at that stage, the owners corporation and the 15 lot owners could be separately represented. I was referred to s.229 of the Act which enables the court to make special orders as to costs and levies and s.230 which provides that an owners corporation cannot in respect of its costs and expenses in proceedings brought under Chapter 5 levy a contribution on another party who is successful in the proceedings. 32 In Nangus Pty. Ltd & Anor v. Charles Donovan Pty. Ltd [1969] VR 184 Young CJ said at 185: "The general rule undoubtedly is that counsel ought not to appear for two clients whose interests may conflic."

and at 186: "Every case must depend on its own circumstances but it is important to notice … that the court is concerned that it shall have the assistance of independent counsel for parties whose interests are not identical in the case before it …"

33 I was also referred to in the decision of Oceanic Life Ltd v. HIH Casualty & General Insurance Ltd [1999] NSWSC 292 (1 April 1999) where Austin J undertook an extensive review of the cases and an analysis of the relevant legal principles. That was a commercial case of some complexity and a very different one from the present. It concerned amongst other things, information which had been gathered previously while acting for another client. 34 The grounds of appeal in the present case, apart from raising what appear to be some questions of fact involve canvassing the question whether the 15 lot owners other than R.J. Hunt did not support the application and were not in conflict with Castle and the adverse findings against Castle and Mr. Lahoud. The 15 lot owners have their own interests to advance. They are not identical with those of the owners corporation which has to protect the interest of the lot owners as a whole. Its focus and approach will necessarily be different. While it is entitled to uphold the orders made by the Board it must do so from the perspective of the best interests of the lot owners as a whole. It is not sufficient to say that both the 15 owners and the owners corporation want the appeal dismissed. 35 In the circumstances of the present cases the interests of the 15 lot owners and those of the owners corporation are not identical. The same solicitor should not act for these parties. Mr. Le Page having previously acted for the 15 lot owners before the Board should not act for the owners corporation in this Court. This does not mean that the 2nd to 16th defendants need change their submitting appearance nor that the owners corporation should cease to uphold the Board's orders. I uphold the challenge to Mr. Le Page continuing to act as the solicitor for the owners corporation in this Court or before the Board. I reserve the question of costs. 36 I make the following orders:

1. The Order of 16 August 1999 naming Alan John Donald is quashed, such quashing to take effect seven (7) days from today.

2. The question of who should be the strata managing agent is referred back to the Board for consideration and appointment in accordance with these reasons.

3. All questions of costs reserved to the final hearing.

Subject to any later ruling of this Court there should be no stay of execution.

Last Modified: 11/17/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.