[The following are reasons for a decision which I handed down on 14 December 2016. At the time, I gave oral reasons for that decision.]

1. This proceeding concerns an apartment building. The balconies on the building are deteriorating, requiring extensive and expensive works. The members of the owners corporation for the building are unable to agree on how the cost of those works should be shared between the lot owners. Some of the lot owners have applied to the Tribunal for a ruling on the correct method for calculating how those costs should be shared.

1. Down by the river, in Church Street Richmond, there is a large apartment building. The building contains 64 residential lots and two commercial lots, which are on the apron at the foot of the building and are used to conduct restaurant/bar businesses.
2. Each of the 64 residential lots has a balcony. Some of the balconies are large, some are smaller. The two commercial lots, of course, don't have balconies.
3. Each balcony consists of a reinforced concrete slab, extending proud of the building, into which slab are affixed steel stanchions supporting balustrades made of steel and glass. The surface of each balcony is sealed with two layers of liquid acrylic membrane and is covered with tiles.

1. From about 2006, lot owners and occupiers began to complain to the owners corporation about problems developing in balconies. Those problems included:
   1. cracking of the balcony slabs, thought to be associated with water ingress, particularly noticeable on the soffit (underside) of balconies, the stanchions and balustrades and
   2. corrosion appearing on the balustrades.
2. By 2014, the owners corporation's committee had concluded that the problems with the balconies were sufficiently serious that action needed to be taken. On 30 May 2014 the lot owners by special resolutions resolved to:

1. engage engineers to investigate and report on the problems with the balconies, 2. levy to fund remedial works and

1. engage contractors to do the remedial work.
2. On 7 July 2014, the owners corporation raised a levy for $54,532.50 to pay for the engagement of an engineering firm, Infracorr Consulting Pty Ltd ("Infracorr"), to investigate what was happening with the balconies. The levy was raised on lot liability.
3. The owners corporation then engaged Infracorr to investigate and report on the condition of the balconies and to provide options for remedial works, with estimates of the cost of those works.
4. On 28 October 2015, there was a subsequent levy, for $55,400, for further investigation of the balcony problems and preparation of tender documents. Again, the levy was raised on a lot liability basis.

1. Infracorr reported to the owners corporation on 12 December 2014. In summary, Infracorr's report said that:

1. Cracking was a common defect in all of the balcony slab soffits. 2. The cracking was caused by "post tensioning effects and differential movement between concrete elements".

1. Efflorescence and defective paint at crack locations were caused by the failure of the waterproof membrane systems.

1. Many of the steel balustrades were severely deteriorated and exhibited rust staining and section loss. 2. Cracking of tiling around the footing of balustrade posts challenged the integrity of the structure of the building. 3. Corrosion of balustrade posts caused continued cracking and spalling [1] of the concrete in the slabs. 4. The balconies on the balustrades of all of the lots should be repaired at the same time, because even the balconies which were not yet showing defects, would soon do so.
2. Infracorr also commented that it saw significant immediate safety concerns, because of the risk that a section of balcony may become loose and fall.
3. In addition, Infracorr advised the owners corporation that it estimated the cost of rectifying the defects in the balconies at $2.2 million.

1. Once the owners corporation received Infracorr's report, its duty of disclosure required that it disclose the report to its insurer. Understandably, the insurer was concerned. The minutes of the 21 May 2015 meeting of the owners corporation's committee reflect that concern, recording that the insurer required confirmation of progress in getting quotes for rectification work and that the insurer expected timeframes for rectification, "before they can even consider offering renewal terms". The minutes recorded the insurer's advice that:

From our perspective these issues are serious and unless the intention from the OC is to completely rectify the issues in full we would not be able to continue insuring the risk. Before we can consider the renewal of the policy we would need clear guidance of timeframes for when the works can be expected to be completed.

1. Thereafter, the insurance position became even more serious. The minutes of the committee meeting held on 9 September 2015 recorded that the insurer had agreed to renew the owners corporation's insurance for a further six months only, subject to conditions, including that:

Over the next six months the Owners Corporation must arrange works for all balconies and show Longitude [the insurer] that they are proactive in working towards full rectification.... Without arranging these repairs and providing a strict timeline Longitude will likely decline to offer renewal terms. (Original emphasis)

1. The minutes of the meeting of the owners corporation's committee on 2 December 2015 noted the insurer as saying that it had received approval to offer a further six months renewal term, conditional on works continuing to progress. The minutes also noted that "progress reports will be requested by the insurer before renewal again in six months time" and that "the premium will increase but not by huge amount".
2. The owners corporation has attempted to find a less exigent insurer, but without any success.

1. It must have been obvious to the owners corporation's committee that the works would have to be done and that there would need to be a levy to raise the necessary monies from lot owners. That then raised the question of the basis on which the levy should be struck; should it be struck on the basis of lot liability or on what is known as the "benefit principle". (Under the benefit principle, those who benefit more pay more.)
2. One can see that, in the present case, arguments could be put for or against either of the two bases. Thus, while the benefit principle has its attractions, its application can also mean real, practical difficulties in assessing relative benefit. On the other hand lot liability, while simpler to apply, can lead to unfairness.
3. On 6 April 2016 the committee decided that a levy of $2 million for the rectification works should be struck on a lot liability basis. On 15 April 2016 levy notices were sent out and a great deal of the levy monies were received by the owners corporation.
4. Not all lot owners accepted that lot liability was the correct basis for striking the levy, arguing that the levy should instead be struck on the basis of the benefit principle. The committee then turned to the owners corporation's solicitors for advice and on 20 May 2016 the solicitors provided a memorandum of advice clearly stating that the levy should be struck on a lot liability basis.
5. As well as advising on the basis for striking the levy, the solicitors also advised the owners corporation that the 15 April 2016 levy was invalid, because it was for an amount which was greater than twice the total amount of the current annual fees for the owners corporation. Such levies can only be raised upon the passing of a special resolution of the owners corporation.[2]
6. Accordingly, on 8 June 2016 the owners corporation held a ballot for a special resolution to levy $1.801 million on a lot liability basis. The result of the ballot was announced on 1 July 2016; the special resolution was not passed.
7. The owners corporation thus found itself placed between the rock of its insurer's demands for action and the hard place constituted by its inability to raise a levy for the funds necessary to satisfy the insurer's demands.
8. In order to cut this Gordian knot, on 12 July 2016 the committee agreed to make the present application to the Tribunal and a number of committee members agreed to act as applicants in the proceeding, which was filed on 8 September 2016.

1. At the annual general meeting of the owners corporation on 11 October 2016 there was a changing of the guard in the committee. The outgoing committee was largely replaced by lot owners who believed that any levy should be struck on the basis of the benefit principle.
2. The new committee has signed a contract for the carrying out of the remedial work on the balconies and balustrades.

1. In the present proceeding the applicants seek orders as follows:

1. Pursuant to section 163(1A) of the Owners Corporations Act 2006, leave to bring the proceeding on behalf of the owners corporation. 2. A declaration that the levying of special fees for the remedial work be based on a lot liability; and

1. Costs.
2. At the hearing, counsel appeared on behalf of the applicants and counsel also appeared on behalf of A&E Konstantopoulos Nominees Pty Ltd ("Konstantopoulos Nominees"), the owner of the two commercial lots located on the apron at the foot of the building. In addition, three current committee members, Stephen Plunkett, Michael Heath and Rohan Wills, appeared on their own behalves. The only evidence given was given on behalf of the applicants, by a former committee member, Peter Tredinnick, by a former and present committee member, Timothy Ford and by the owners corporation manager, Brigitte Cheston.

1. The Tribunal has power to make "a declaration concerning any matter in a proceeding", by reason of section 124 of the Victorian Civil and Administrative Tribunal Act 1998.

1. While the main matter for decision in this proceeding was the question of whether the levy for remediation works should be struck on the benefit principle or on lot liability, Konstantopoulos Nominees raised a preliminary point. It argued that, by virtue of section 12 of the Owners Corporations Act 2006, no liability for the remediation works could be attached to Konstantopoulos Nominees' lots. Section 12 of the Act [3] says that an owners corporation may provide services to "lot owners or occupiers of lots or the public" and goes on to say that the owners corporation "may require a lot owner or occupier to whom the service has been provided to pay for the cost of providing the service".
2. Konstantopoulos Nominees argued that, as no remediation works would be done to its balcony-less lots, no service would be provided to it and that therefore, there was no "cost of providing the service" for which it could be required to pay.
3. I do not accept that argument. The service of balcony remediation is not a service to which section 12 applies. Section 12 applies to services which the owners corporation may provide, not to services which the owners corporation must provide. In the present case, in carrying out the remedial works, the owners corporation will be providing a service which it must provide.
4. That is because the remediation works constitute repairing and maintaining "a service in or in relation to a lot that is for the benefit of more than one lot and the common property".[4] That is a service which section 47(1) requires that the owners corporation must provide.

1. Section 24 of the Owners Corporations Act 2006 says how an owners corporation must levy fees in cases like the present.[5] The section says that an owners corporation may levy special fees and charges designed to cover extraordinary items of expenditure. The section says that the fees "must be based on lot liability", but goes on to say that fees for "repairs, maintenance or other works that are undertaken wholly or substantially for the benefit of some or one, but not all, of the lots affected by the owners corporation must be levied on the basis that the lot owner of the lot that benefits more pays more."
2. The subsection says that it applies when works are undertaken wholly or substantially for the benefit of some, but not all, lots. In the case at hand it is clear that the remediation works will be substantially for the benefit of some, but not all lot owners. The lots on the building apron have no balconies, so work on balconies will be substantially for the benefit of those lots which have balconies. True, those without balconies will derive some benefit (from living in a properly-repaired building), but that benefit would not be "substantial". Thus, the works will be "substantially for the benefit of some ..., but not all, of the lots".
3. The subsection then goes on to say how the cost of those works must be levied, namely on the basis that those who benefit more pay more. The meaning of "benefit" is broad. It does not mean only the direct benefit of having works done on one's lot. While it does cover the benefit of having works done directly on one's lot, it also includes indirect benefit conferred by those works. To make the point another way, the subsection does not say, "Only those lot owners on whose lots work is done must pay".
4. In the present case some lots, namely those with larger balconies, may get more benefit from the remedial works than some of the other lots. While that may be so, there can be no doubt that the works will confer benefit on all lots, even lots without balconies. Thus, by the works, a danger to occupants and visitors will be removed; insurance cover is easier to obtain; the risk of compensation claims by people injured by falling concrete and balustrades is removed; and the appearance of the building is enhanced.
5. The effect of the subsection is to require that all who benefit, directly or indirectly, from the works must contribute to the cost. It is logical that it should be so, because if it were not so, some lot owners would gain a benefit without contributing to the cost of providing it.
6. Accordingly, I am of the clear view that the owners corporation in the present case is required by section 24(2A) of the Owners Corporations Act 2006 to raise any levy for remediation works on a benefit basis. I will make a declaration to that effect.
7. In their written submission, the applicants referred me to an earlier decision of mine, Benron Nominees Pty Ltd v Owners Corporation SP37179U.[6] Benron is to be distinguished from the present case; in Benron all lots were the subject of window works and, accordingly, sub-section 24(2A) did not apply.

1. While I will make the declaration sought by the applicants, there is no need for the representative order sought by the applicants and I will therefore dismiss that part of the application.

1. The applicants applied for an order for their costs of the proceeding. The applicants provided a written submission on the question of costs, but the respondents were not in a position to respond to that submission. I will reserve liberty to the parties to apply on the question of costs, should they so desire.
2. On 12 July 2016, before the applicants issued this proceeding, the committee of the owners corporation resolved that:

"The proceeding is being brought in the interest of the owners corporation to meet its obligations under the Owners Corporations Act, therefore the owners corporation will bear all costs of the proceeding".

1. I was informed that the new committee has resolved to withdraw that indemnity.
2. It may be of assistance to the parties if I comment that it was apparent that the applicants brought this proceeding for the benefit of the owners corporation, not themselves. In doing so they acted on the advice of the owners corporation's solicitors. Section 5 of the Owners Corporations Act 2006 requires that an owners corporation must act in good faith. In my view, it would be most unfortunate if the owners corporation were to refuse to honour the indemnity given on 12 July 2016 and on which the applicants relied.

[1] Spalling of concrete occurs when concrete has become broken up, flaked or pitted.

[2] Section 24(4) Owners Corporations Act 2006

[3] Section 12 Provision of services to members and occupiers

(1) An owners corporation, by special resolution, may decide -

(a) to provide a service to lot owners or occupiers of lots of the public; or

(b) to enter into agreements for the provision of services to lot owners or occupiers of lots.

(2) An owners corporation may require a lot owner or occupier to whom a service has been provided to pay for the cost of providing the service to the lot owner or occupier.

[4] Section 47(1) Owners Corporation must repair and maintain services

(1) An owners Corporation must repair and maintain a service in or relating to a lot that is for the benefit of more than one lot and the common property.

[5] Section 24 Extraordinary fees

(1) An owners corporation may levy special fees and charges designed to cover extraordinary items of expenditure.

(2) Subject to subsection (2A), the fees must be based on lot liability.

(2A) Fees for extraordinary items of expenditure relating to repairs, maintenance or other works that are undertaken wholly or substantially for the benefit of some or one, but not all, of the lots affected by the owners corporation must be levied on the basis that the lot owner of the lot that benefits more pays more.

(3) The owners corporation may determine the times for payment of the special fees and charges.

(4) A special resolution is required when exercising a power under subsection (1) if the amount involved is more than twice the total amount of the current annual fees set under section 23.

(5) Subsection (4) does not apply if the fees are levied to pay for or recoup the cost of repairs or maintenance carried out to any part of the property for which the owners corporation is responsible where immediate expenditure is or was necessary to ensure safety or to prevent significant loss or damage to persons or property.

[6] [2014] VCAT 1651