Corporate Property Maintenance NSW Pty Limited v The Owners - Strata Plan No 81647

Leave to appeal 8To the extent that the appeal was brought pursuant to s.67 of the CTTT Act, it is necessary for the plaintiff to demonstrate that there has been an error of law. 9However, s.200 of the Strata Schemes Management Act 1996 (NSW) ("the SSMA") provides that an appeal lies to this court against an order made by the Tribunal under Chapter 6 of the SSMA. The appeal lies in the same cases and in the same way as it would under Part 5 of the Crimes (Local Courts Appeal and Review) Act 2001 (NSW) if the order were a determination that the Local Court made, at the time the order took effect, in the exercise of summary jurisdiction on a court attendance notice. 10Section 52 of the Crimes (Local Courts Appeal and Review) Act 2001 (NSW) provides relevantly that a party may appeal on a ground that involves a question of law alone; s.53 provides that an appeal may lie on a ground that involves a question of fact or a question of mixed law and fact, but only with the leave of the court. 11The defendant consented to the question of leave being dealt with concurrently with the appeal.

Grounds of appeal 12Section 183A of the SSMA governs the jurisdiction of the Tribunal with respect to Caretaker Agreements. The section provides as follows:- 183A Orders relating to Caretaker Agreements (1) The Tribunal may make an order with respect to a Caretaker Agreement: (a) terminating the agreement, or (b) requiring the payment of compensation by a party to the agreement, or (c) varying the term or varying or declaring void any of the conditions of the agreement, or (d) confirming the term or any of the conditions of the agreement, or (e) dismissing the application. (2) An order under this section may be made only on an application made by the owners corporation for the strata scheme concerned on one or more of the following grounds: (a) that the caretaker has refused or failed to perform the agreement or has performed it unsatisfactorily, (b) that charges payable by the owners corporation under the agreement for the services of the caretaker are unfair, (c) that the agreement is, in the circumstances of the case, otherwise harsh, oppressive, unconscionable or unreasonable. (3) Any amount ordered to be paid under this section may be recovered as a debt. 13The way the matter proceeded before the Tribunal was this: the applicant filed an application on 4 March 2013. In answer to the question "what are your reasons for requesting the orders [sought]?" the application said this: "the agenda for the FAGM (first annual general meeting) contained one Caretaker Agreement for consideration. Despite all the individual (new) owners present at the meeting fiercely objecting to the agreement, the developer exercised its majority votes to approve the uncommercialy 10 year agreement (sic). The owners corporation believe that the monies payable is unfair." 14The applicant then tendered a document headed "Notice of Dispute" in which it set out the orders sought and the reasons justifying those orders. 15The Notice of Dispute annexed a large number of documents including minutes of the AGM, a copy of the Caretaker Agreement, a list of the unit entitlements and various pieces of correspondence. It did not include any affidavit evidence or indeed any direct evidence from any person, although it did lucidly set out the basis upon which it said the agreement was unfair, harsh, oppressive, unconscionable and unreasonable. 16The caretaker read an affidavit of George Younes sworn 29 May 2013. Mr Younes is the director of the caretaker company. In his affidavit he addressed the assertions of the applicant in some detail. With respect to the value of the agreement in particular, he pointed out that 75 of the lots are "dual key" lots which were designed so that each of the two floors within each lot contain a separate kitchen and bathroom and thus are capable of being separated from each other. He explained that this meant each of the "dual key" lots could be leased as two units rather than one. He said that, to the best of his knowledge, all of the 75 "dual key" lots were currently rented as two units. The effect of that is that in practical terms, there were really 193 lots within the development rather than 118. Secondly, he pointed out that during contract hours there was at least one employee on site fulfilling caretaker duties and two employees on site for four days each week. He also addressed the allegations regarding the entering into of the agreement. He addressed the caretaking services provided by the company in some detail and provided a lengthy table of the frequency of tasks and the average time taken to complete them. 17The respondent also tendered an expert witness report prepared by Mr Frank Boross, a strategic business development manager, and managing director of National Facilities Management Pty Limited. He is responsible for all tendering and pricing of cleaning, caretaking and facility management services within those organisations and has been in the cleaning/caretaking business for 28 years and the two companies of which he is the manager or managing director employ over 200 staff including cleaners, caretakers, building and facility managers. His expert opinion, having regard to the size of the property and the work specified in the Caretaker Agreement compared to the quotations provided by the applicant, was that the respondent's cleaning specification is fair and appropriate for the strata scheme and that the analysis of the other three quotations were that they have quoted less than a fair and accurate cost to maintain the property to an acceptable standard considering the scope of works, layout, lot size and complexity of the building. 18The applicant did not adduce any expert evidence. 19In his reasons for decision, the Tribunal Member set out the background to the application and correctly identified the applicability of s.183A of the SSMA. 20In paragraphs 13 to 17 inclusive of his reasons for decision, the Tribunal Member identified the criteria contained within s.183A upon which the applicant said that the Caretaker Agreement ought to be terminated. 21The learned Member then identified the applicant's case as follows: (a)The Caretaker Agreement is unfair. The unfairness is characterised by the amount of fees payable to the caretaker compared to alternative quotes subsequently obtained by the applicant. The Caretaker Agreement provided for an initial annual fee of $157,612.00 plus GST which was adjustable following CPI increases. At the time of the hearing before the Tribunal, the annual fee for the Caretaker Agreement was $165,245.00 plus GST. The applicant tendered three quotations from alternative service providers. (b)The Caretaker Agreement is harsh. The applicant cited the fact that, apart from cleaning duties, the Caretaker Agreement did not stipulate caretaker duties and also provided that any work performed in addition to cleaning was chargeable even when - said the applicant - additional work was reasonably expected to be within the duties of a caretaker. (c)The Caretaker Agreement is oppressive. [In order to follow this argument it is necessary to understand that the caretaker is also the owner of Lot 86 in the Strata Plan. Lot 86 includes a two bedroom unit, the reception area in the foyer, multiple office and storage areas and garages. Notwithstanding that it is in fact six times the area of a typical lot, the unit entitlement is the same as for a standard two bedroom unit. The unit entitlement of lot 86 is the subject of a separate dispute, but it is fair to say that it has been a long running source of grievance with the other lot owners who feel that they are subsidising the costs of the owner of lot 86]. To demonstrate that the Caretaker Agreement is oppressive the applicant pointed to the fact of the sale of lot 86 by the developer to the caretaker. (d)The Caretaker Agreement is unconscionable and unreasonable. The applicant argued that the agreement is of substantial value, it is for a period of 10 years and its adoption at the first annual general meeting was achieved only by the developer exercising his majority vote and notwithstanding the unanimous opposition of the minority lot owners. 22In paragraphs 18 and 19 the learned Member referred to the affidavit of Mr Younes in these terms, "18. The Affidavit of George Younes, sworn 29 May 2013, has been read. Mr Younes testifies that the respondent is the caretaker for the Strata Plan and he detailed the circumstances leading to his company's appointment to the role of caretaker. 19. Mr Younes explains in that affidavit that he was present in the building on 24 August 2010 as he directed people to the meeting place for the first annual general meeting of the Owners Corporation. He states that he was not present during the meeting, but shortly after the meeting had concluded, he received a phone call recalling him to the commercial space where the meeting had been held and there executed the Caretaker Agreement. He denies all of the allegations in the applicant's written submission." 23The Tribunal Member did not make any other comment about Mr Younes' affidavit and he did not mention the expert report of Mr Boross at all. 24The Tribunal Member then said at paragraph 20: "20. The application can be determined as follows." 25He referred to s.80B of the SSMA and said that it required that an Owners Corporation of a "large strata scheme" must obtain at least two quotations in relation to proposed expenditure in respect of any one item or matter if the proposed expenditure exceeds the amount prescribed in the Regulation. He cited clause 14 of the Regulation which prescribes an amount of $25,000.00 in relation to any one item or matter other than seeking legal advice, the provision of legal services or the commencement of legal action. 26He also noted that the dictionary defined a "large strata scheme" as a strata scheme comprising more than 100 lots. 27At paragraph 24 he said: "24. The Tribunal is satisfied that Strata Plan number 81647 is a large strata scheme, comprised of more than 100 lots, and so in relation to the expenditure on a contract, priced at $165,245.00 for the first year, relating to one item or matter, the Owners Corporation had to obtain two quotations." 28The learned Member then said that as only one quotation had been obtained and put to the first annual general meeting and voted upon, the resolution was a nullity and was void. As a result, any contract entered into as a result of that '"illegitimate resolution" has to be treated "as being tainted and have no force". 29The learned Member also said that if [emphasis added] the Tribunal was required to make a finding pursuant to s.183A(2) SSMA, then the Tribunal was of the view that "the contract was not only unconscionable (due to the circumstances preceding its execution) but its continued existence is unreasonable." 30For those reasons, the Tribunal terminated the Caretaker Agreement. The Tribunal Member dismissed the application for compensation on the basis that it was not quantified and there was no evidence to demonstrate what compensation, if any, should be paid. 31Section 80B of the SSMA was not raised by either party, nor argued by them at the final hearing or at any time prior to the decision. 32The plaintiff advanced five grounds of appeal which can be summarized thus: (i)the decision was ultra vires, primarily because the Tribunal purported to give declaratory relief when it had no jurisdiction to do so, and secondly because either no, or no adequate, findings were made such that s.183A was enlivened; (ii)there was no, or insufficient, evidence upon which to make a positive finding that two (or more) quotations had not been obtained; (iii)by deciding the matter based upon s.80B SSMA without that issue having been raised or addressed by the parties, there had been a denial of procedural fairness; (iv)that the Tribunal erred in law in its interpretation of s.80B SSMA in that it incorrectly determined that it regulates agreements as distinct from the mere authorization of expenditure, and that it prescribes the invalidation of agreements or resolutions entered in contravention of the section; (v)the Tribunal erred in the exercise of its discretion to make an order under s.183A(1) SSMA.

Ultra Vires 33The only jurisdiction conferred on the Tribunal with respect to Caretaker Agreements is found in s.183A SSMA. 34The ratio decidendi of the decision, however, refers to and relies upon the provisions of s.80B SSMA. At paragraph [25], the Tribunal said: "As only one quotation was obtained and put to the first annual general meeting, and voted on, the resolution is a nullity and is void. Any contract entered into as a result of that illegitimate resolution has to be treated as being tainted and have no force." 35The Tribunal then considered s.183A in the alternative. It is plain that that Tribunal Member considered that he did not have to make a finding under that section because in paragraph [26] he said: "If the Tribunal is required to make any finding pursuant to s.183A(2).....". This comment tends to reinforce the view that the ratio of the case was based solely upon s.80B. 36The only power of the Tribunal was that conferred by s.183A and accordingly, a decision that purported to be based upon another section of the Act is ultra vires. The defendant pointed out that the Tribunal's use of the word 'void' was in respect of the resolution of the annual general meeting and that the decision did not purport to make a declaration that the Caretaker Agreement was 'void'. Whilst this is an accurate record of the Tribunal's decision, the direct consequence of the finding was that the Caretaker Agreement was therefore tainted and had 'no force'. The effect of this conclusion lead directly to the termination of the agreement as if there were no other result available. 37The question as to whether, in any event, a finding with respect to s.80B could support a declaration that a contract with a third party was null and void ab initio is considered later in these reasons. 38In my view, the Tribunal purported to determine the matter pursuant to s.80B of the SSMA and in doing so, made an error of law.

Insufficient evidence 39There are two bases upon which it might be said that the Tribunal's decision was flawed by an insufficiency or absence of evidence. 40The first is with respect to its findings involving s.80B. The Tribunal Member's decision in this regard must be predicated upon a finding that as a matter of fact, the Owners Corporation had not obtained two quotations. The reasons for decision do not identify the evidence upon which this conclusion was reached. The evidence that the developer or Owners Corporation had only obtained one quotation was no higher than an unsubstantiated assertion in the unsigned Notice of Dispute that accompanied the defendant's application to the Tribunal. It was repeated in submissions before the Member but is not to be found in any direct evidence. The strata records were not tendered, the strata agent was not called and none of the executive committee gave evidence. 41The second is with respect to the decision based on s.183A. The establishment of one or more of the jurisdictional facts set out in s.183A (2) is a precondition of the exercise of the power contained in ss.(1). 42The Tribunal did not review the evidence in any detail and did not make detailed findings of fact. The only finding was contained in paragraph 26 of the reasons for decision: "If the Tribunal is required to make any finding pursuant to s.183A(2) of the Act, then the Tribunal is of the view that the contract between the applicant and the respondent is not only unconscionable due to the circumstances preceding its execution, but its continued existence is unreasonable. By virtue of s.183A(1)(a) of the Act, the Tribunal will terminate the agreement immediately." 43The termination of the agreement was in the nature of an alternative finding, since, as I have said, the ratio of the case was the finding that the Caretaker Agreement was null and void. 44To the extent that the Tribunal made an alternative finding and terminated the agreement, it is apparent that it did so in reliance on s.183A for its jurisdiction. The only finding of fact that could satisfy ss.(2) and thus enliven the power in ss.(1) are located in the words "due to the circumstances preceding its execution." This phrase affords some insight into the reasoning process of the Tribunal, but its paucity is troubling because it does not explain the link in reasoning between the action of the developer or the Owners Corporation (or both) and the finding that the agreement with the third party caretaker was unconscionable or unreasonable. The uncontradicted evidence of the plaintiff caretaker was that he had introduced the owners to the location of the meeting but had had no further role in it; that the developer had no interest in his company; that his (and his company's) dealings with the developer were on normal commercial terms and at arms length. 45It is an error of law to make a finding of fact when there is no evidence, or where the evidence is insufficient to support the finding of fact: Kostas v HIA Insurance Services Pty Ltd (2010) 270 ALR 228. 46There was a demonstrable insufficiency in the evidence to justify a finding to the requisite standard of proof that there had been a breach of s.80B by the developer or Owners Corporation and this amounts to an error of law. 47The same insufficiency of evidence infects the alternative decision based upon s.183A but is compounded by a failure by the Tribunal to make any analysis of the consequent finding of unconscionability. 48In my view, the appeal should succeed on this ground.

Procedural fairness 49A review of the initiating application by the Tribunal, the Notice of Dispute and accompanying documents filed by the Owners Corporation, the written submissions filed and relied on by each party, the transcript and the reasons for decision demonstrate that s.80B of the SSMA was not raised nor subject of submissions by either party before or during the hearing. The defendant itself did not submit that the failure to obtain more than one quote was sufficient to invalidate the entire agreement. The highest the defendant put its case was to say that by only tabling one quote at the annual general meeting, rendered it "unconscionable and unreasonable". 50The Tribunal is obliged to act in accordance with the principles of procedural fairness: s.28(2) and s.35 of the Consumer, Trader and Tenancy Tribunal Act (now repealed). The Civil and Administrative Tribunal Act 2013 (the "CAT Act") replaced the Consumer, Trader and Tenancy Tribunal Act on 1 January 2014 and the provisions of s.28 and 35 are largely reproduced in s.38 of the CAT Act, although interestingly the words 'procedural fairness' have been replaced by 'natural justice'. In any event, there is clear authority that the principles of procedural fairness apply to the Tribunal: Williams v NSW Land and Housing [2012] NSWSC 1022 at paragraph 43 and following. 51The requirements of procedural fairness in proceedings before the Tribunal have been considered on a number of occasions. In Italiano v Carbone [2005] NSWCA 177, Einstein J reviewed the legislation and the authorities in some detail. His Honour concluded that whilst the Tribunal had a statutory entitlement to act with as little formality as the circumstances of the case permitted according to equity, good conscious and the substantial merits of the case without regard to technicalities or legal forms, there were nevertheless some aspects of procedure which were required to be observed, preferably formally. Those aspects included a clear identification of the parties and the nature of the case made against them. His Honour cited Gleeson CJ in Re Minister for Immigration and Multicultural and Indigenous Affairs: ex parte Lam [2003] 214 CLR 1 at paragraph 37: "[Fairness] is essentially practical. Whether one talks in terms of procedural fairness or natural justice, the concern of the law is to avoid practical injustice." 52The content of the requirements of natural justice is not fixed but fluctuates. In Wakim v Mathiew Pty Limited trading as Dove Migration Services [2002] NSWSC 405 O'Keefe J said, at paragraph 21: "the overarching requirement is that a fairness ....... for a court that normally involves a duty to: (1) Act judicially; (2) Deal with the matter for decision without bias; (3) Give each party the opportunity of adequately presenting its case; (4) Observe the procedural and other rules provided for in the relevant statute; (5) Come to its decision with that sense of responsibility that is the necessary accompaniment of the duty to do justice." 53A denial of procedural fairness constitutes an error of law: Clements v Independent Indigenous Advisory Committee [2003] FCAFC 143 at paragraphs [3] to [8]. 54The defendant argued that although there was no evidence or submission made specifically nominating s.80B, the failure to obtain and table at least two quotes at the first annual general meeting was a running theme throughout the CTTT proceedings and had, for example, been raised in the initial application to the Tribunal when the plaintiff said in answer to the question "What are your reasons for requesting the order/s?" the answer included this: "The Agenda for the FAGM contained one caretaker agreement for consideration." 55There is no doubt that the parties mentioned the matter of the single quotation during the hearing and in the documents tendered to the Tribunal but it was in the context of whether or not the agreement was unconscionable or unfair, not in the context that the resolution was illegal and that the Caretaker Agreement was therefore tainted and of no force. By way of example, Mr Cheng (in submissions to the Tribunal) said: "And there was only one agreement and the value was very high so everyone objected. But then the developer still exercised his majority vote to pass through the, the agreement, so it was agreed. So we felt that this is unfair, it's harsh, it's oppressive, it's uncommercial , it's unconscionable and it's unreasonable". 56S.80B SSMA was not raised by either party and not the subject of any submission. The Tribunal did not afford the parties the opportunity to adequately address a matter that was integral to the Tribunal's decision. The failure to do so constitutes a denial of procedural fairness and is an error of law. On this ground alone, the appeal should succeed.

Misinterpretation of s.80B of the SSMA 57S. 80B is in these terms: "An Owners Corporation of a large strata scheme must obtain at least two quotations in relation to proposed expenditure in respect of any one item or matter if the proposed expenditure will exceed an amount prescribed by the regulations for the purpose of this section." 58S.80B is found in Part 3 of Chapter 3 ("Key Management Areas"). Part 3 has three Divisions. Division 1 is headed "Administrative and Sinking funds and account of owners corporation" and deals with the establishment of the administrative and sinking funds. Division 2 is headed "Levy of Contributions" and provides for the preparation of estimates for administrative and sinking funds, the manner of raising contributions and recovering unpaid contributions. Division 3 is headed "Restrictions on Spending" and prescribes a limit on spending by the executive committee and the circumstances in which certain expenditure can be approved. The use of the word "expenditure" in Part 3 is in the context of the proper anticipation and estimation of the costs of repair and replacement of common property, provision for insurance premiums and recurrent expenses. It does not use the words "agreement" or "contract" and does not, on a plain reading, appear to relate to long term contracts for services. In other words, a distinction ought to be drawn between the word "expenditure'" and the word "agreement", the latter not having a place in the interpretation of s.80B. This approach is consistent with that taken by the High Court in Australian Broadcasting Corporation v Redmore Pty Ltd (1989) 84 ALR 199. In that case, the Court was considering a provision which expressly required ministerial approval before the ABC entered into a contract involving an amount greater than $500,000.00. The Court considered that such a provision was directory in that it related to the exercise of, rather than the existence of, a power. It related to the regulation of the internal administration of the ABC rather than affecting the validity of contracts entered into with third parties. 59In a similar manner, s.80B is directory in that it relates to the manner in which the Owners Corporation can spend money; it does not create the right for it to do so. The right to spend money is found in other, specific, provisions. 60S.80B does not address the consequences of a breach. In those circumstances, it seems likely that the general curative powers contained in Chapter 5 would apply to it. This view is consistent with the dicta of the Court of Appeal in Owners Strata Plan 50276 v Thoo [2013] NSWCA270 at paragraphs [216] and [221-222]: "the legislature intended the system of adjudication established under Chapter 5 to be the vehicle through which the Owners Corporation discharge of its s.62 functions should be regulated." 61Consistently with this interpretation, it is significant and determinative that the section is prescriptive, not proscriptive: the obligation is that the Owners Corporation "must obtain at least two quotes" not that it "must not incur expenditure unless." 62Further, no penalty nor consequence is stipulated in the event of a breach. The Court of Appeal considered whether or not a Caretaker Agreement entered into during the 'initial period' was invalid for breaching s.113(1)(b) of the SSMA in Bondlake Pty Ltd v The Owners - Strata Plan No 60285 [2005] NSWCA 35. At [28] - [29] Giles JA was persuaded that the Caretaker Agreement was not void. His Honour was guided (inter alia) by the logic that there was no reason to infer that the legislation intended an innocent third party the extreme consequence of the invalidity of his contract ab initio and the unenforceability of its terms. His Honour said at [34] "It would not be expected that someone such as a tradesman engaged to perform work on the strata building should have to enquire into these matters under pain of inability to recover payment for services provided." 63This approach is also consistent with the general principle that a court should not construe a legislative provision to extinguish a general law right without there being an express intention to do so: X7 v Australian Crime Commission [2013] HCA 29 at [86]. 64It follows that even though the Tribunal ought not to have considered the matter in terms of a breach of s.80B, it erred in law in its interpretation of the section and the appeal should succeed on this ground.

Exercise of discretion 65The decision to grant relief under s.183A is discretionary. 66The Tribunal did not provide any reasons for its conclusion that the agreement was unconscionable or unreasonable, other than implying that the fact that it had been entered by the Owners Corporation and plaintiff in breach of a requirement that alternative quotations be obtained. In other words, in the exercise of what might fairly be described as the most powerful remedy available to it - the termination of an agreement - the Tribunal did not identify the factors that it found to be persuasive. 67The other grounds contained within s.183A(2) were not the subject of comment by the Tribunal. Whilst the Owners Corporation had not made a complaint about the caretaker's performance of the agreement (s.183A(2)(a)), it had advanced a case that the charges payable under the agreement were unfair (s.183A(2)(b)). In support of this contention, it had tendered various alternative quotations for the work. The Tribunal made no assessment of this evidence and it is not possible to ascertain whether it informed the Tribunal's reasoning. 68The defendant argued that the non-compliance with s.80B was a relevant fact and one which the Tribunal was entitled to take into consideration in the exercise of the discretion. 69Doubtless this is so where there was evidence capable of supporting a finding that there had been a breach of s.80B, but not otherwise. 70In House v R (1936) 55 CLR 499, the High Court held that in order to demonstrate an error in the exercise of a discretion, a party must show that the judge acted upon a wrong principle, allowed extraneous or irrelevant matters to guide or affect the decision or make a mistake in the facts. 71It follows from the findings and observations that I have made in the course of these reasons that in my view, the Tribunal acted upon a wrong principle, namely that it could determine the matter by reference to s.80B and that as a result of the breach of that section, the Caretaker Agreement was of no effect. Moreover, it allowed consideration of those matters to guide its decision. On one reading of the relevant paragraphs of the Tribunal's decision, it would appear that the Tribunal did not consider the question of whether it had a discretion nor whether it ought to have been exercised in a particular way. Rather, the Tribunal proceeded on the basis that, having established that the Caretaker Agreement resulted from an "illegitimate" resolution, there was no alternative other than to formally terminate the agreement. 72In my view, the Tribunal was in error, either because it considered that it did not have any discretion with respect to the order it made, or because it proffered inadequate reasons for its conclusion that it was appropriate for the order to be made.

Conclusion 73In light of my findings that the Tribunal made an error or errors of law, it is unnecessary to consider the question of whether leave to appeal ought to be granted. However, in order to remove any doubt about it, in my view it is an appropriate case for the grant of leave. 74The appeal is upheld. 75In my view, given the paucity of findings by the Tribunal on the evidence, it is appropriate to remit the matter to the Tribunal for determination according to law. 76I will take submissions from the parties on the question of costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 March 2014