Drakoulis v Owners Corporation 1 Plan No PS505364V (Owners Corporations) [2017] VCAT 1134

The first respondent, Owners Corporation 1 Plan No PS505364V, must pay to the applicant the sum of $23.08, all other claims being dismissed.

1. On 18 July 2017, I ordered that the first respondent must pay the applicant the sum of $23.08, all other claims being dismissed. I gave oral reasons for my decision.
2. On or about 18 July 2017, following the hearing and decision, the applicant requested written 'evidence' for the decision. On 20 July 2017 the applicant made a request for written reasons. On 24 July 2017, the first and second respondents made a request for my findings. I now set out below my written reasons including findings for my decision.
3. The applicant, Ms Drakoulis, is the owner of lot 1 on a four lot plan of subdivision. Her lot, together with the other 3 lots, is registered under a Plan of Subdivision, Owners Corporation, 1 Plan No PS505364V (OC 1).
4. Lot 1 is commercial premises, let out by Ms Drakoulis as a restaurant. The other three lots are private residences and are located, one behind the other to the rear of the restaurant. A driveway runs up the right hand side of the property from Barkly Street and provides access to all four lots. There is an additional section of the driveway, about quarter distance along, that turns at a right angle, to the left, off the main driveway and runs behind the restaurant.
5. OC 1 includes common property, being the first part of the above driveway running from Barkly Street along the right hand side, terminating at a steel gate, and otherwise turning left to run behind the restaurant to the other side boundary. Total lot liability for OC 1 is 100 units as follows. Lot 1, 20; lot 2A, 30; lot 3, 25; lot 4, 25.
6. OC 2 common property comprises the second part of the driveway beyond the steel gate continuing up the right hand side and includes two turning/parking bays. Total lot liability for OC 2 is 30 units as follows. Lot 2A, 10; lot 3, 10; lot 4, 10. Ms Drakouilis' lot 1 has no liability or entitlement in the common property of OC2.
7. Ms Drakoulis' claims arise out of resolutions of OC 1 and OC 2, including the Annual General Meeting held on 3 June 2015 (AGM). Ms Drakoulis submitted that the resolutions operate in a way that is unfairly prejudicial to her, in breach of the requirements of s167(d) of the Owners Corporations Act 2006 (OC Act).
8. Her specific claims concern the apportionment of costs between OC 1 and OC 2. She said that the AGM, which approved budgets for the year ending 31 March 2016 for OC 1 and OC 2, did not make the appropriate apportionment of costs between the two owners corporations. She also claims that certain repair costs have not been correctly apportioned.
9. Ms Black, representing OC 1 and OC 2, said that the respective budgets were discussed and approved at the AGM and correctly reflected the views of voting members at that time as to the appropriate apportionment between OC 1 and OC 2.
10. The issues in dispute in this proceeding concern whether Ms Drakoulis has been unfairly discriminated against, in breach of s167(d) the OC Act, by resolutions of OC 1 that the cost of items below should be attributed solely to OC 1.[1] The issues are more precisely stated as:

1. whether a public liability insurance (Insurance Policy) premium of $500 should be apportioned with OC 2; 2. whether budgeted disbursements of $160 should be apportioned with OC 2

1. whether the MBCM manager's fee for OC 1 of $1,000 should be further apportioned with OC 2;

1. whether 'Schedule 2.2 Fees' of $150 should be apportioned with OC 2; 2. whether 'Set up fees' of $100 should be apportioned with OC 2. 3. whether charges for repairs under invoice, John Annetta, of $493.23 should be further apportioned with OC 2; 4. whether charges for repairs under invoice, Rosehill Plumbing, of $340 should be apportioned with OC 2.

1. In respect of the Insurance Policy premium of $500, Ms Drakoulis was charged $100 per annum by OC 1 based on her lot liability of 20/100, levied as a result of the resolution passed at the AGM. No part of the premium was apportioned with OC 2. She says the resolution unfairly discriminates against her in breach of the OC Act.
2. Ms Drakoulis said the total Policy premium of $500 per annum, attributed to OC 1, also coves risk for OC 2. She said that the Policy coverage is over the common property of both owners corporations, with the larger portion for OC 2 because 'most of the driveway and risk' is in OC 2'. She said that it is unfair to charge the total premium to OC 1 when only a 'small sliver' of the driveway is in OC 1.
3. Ms Drakoulis did not propose a method or an amount for apportioning the cost of the $500 premium levied under the Policy. She said that she had received legal advice that instead of one public liability policy there should be two policies, one for each owners corporation, with the separate premiums charged to each of the owners corporations.
4. Ms Black did not dispute that the Policy covered both owners corporations. On receiving some advice, which was not clearly identified in her evidence, she said the view formed at the AGM was that the premium of $500 per annum must be allocated solely to OC 1 because OC 1 is described on the plan of subdivision, under the heading 'limitations on Owners Corporation', as being unlimited. She said the premium could not be charged to OC 2, because OC 2 is described on the plan of subdivision, under the heading 'limitations on Owners Corporation', as being limited.
5. Ms Black said that the owners corporations made enquires of its insurer about the prospect of obtaining two separate policies, one covering OC 1, and the other covering OC 2. She advised that the insurer said that it would refuse to issue separate cover because of the potential for there being a dispute about demarcation between OC 1 and OC 2 over coverage and over common property boundaries. She said further that the insurer advised that cost of two policies, if in fact two were to be issued, would be more than the present cost of $500 for OC 1, plus an additional cost for OC 2. Ms Black said that the charge of $500 allocated to OC 1 was formally approved at the AGM. Ms Drakoulis did not attend the AGM.
6. Ms Black, and Ms Moloney the representative of the manager, MBCM, both acknowledged that they were not sure of the meanings of an 'unlimited' and a 'limited' owners corporation.
7. Ms Drakoulis rejected Ms Black's submission concerning the alleged effect of an unlimited corporation and submitted that nowhere was it stated or required that public liability insurance premiums should not be charged to OC 2.

Whether it is correct to fully charge the premium to OC 1 because it is 'unlimited', with no allocation to OC 2

1. It is important to first note that, in making a finding about the reasoning behind the AGM for not allocating a portion of the Insurance Policy premium to OC 2, does not involve a finding on whether there has been unfair discrimination against Ms Drakoulis. Also, it does not involve a finding that there should be any apportionment. Those questions demand other considerations and they are separately addressed below.
2. The issue of what is meant by the expressions 'unlimited' and 'limited to common property'[2] is a question of law. S27(3) of the Subdivision Act 1988 (Subdivision Act) simply states that a plan of subdivision must state whether an owners corporation is limited or unlimited. The present plan states this for OC 1 and for OC 2. S27D states a lot owner must not be effected by more than one limited owners corporation. That is the present case. S27F states that the plan of subdivision must state lot liability for both owners corporations. That is also the case here.
3. Section 8 of the OC Act states that where an owners corporation is referred to as a limited owners corporation, certain sections of the OC Act, such as s49, do not apply.[3]
4. Both the Subdivision Act and the OC Act do not take the matter much further. In the circumstances, giving a plain reading to the description of liability on the plan of subdivision is appropriate. A focus on what the plan actually states is important.
5. The plan of subdivision for OC 1 states the land affected by the Owners Corporation is 'Common Property 1, Lots 1, 2A, 3, 4'. 'Limitations on Owners Corporation' is described as 'Unlimited'.
6. The plan of subdivision for OC 2 states the land affected by the Owners Corporation is 'Common Property 2, Lots 2A, 3, 4'. The 'Limitations on Owners Corporation' is described as 'Limited to Common Property'.
7. Tendered in evidence was a copy of a plan drawing forming part of the plan of subdivision. It denotes 'common property 1', which is that part of the driveway included in OC 1 referred to in paragraph 5 above. It also denotes 'common property 2', which is that part of the driveway included in OC 2 referred to in paragraph 6 above.
8. A plain reading of the plan of subdivision is that OC 2's operation, being expressly stated as 'Limited to Common Property', must mean that it is limited to common property 2, being that part the driveway beyond the steel gate, giving access to lots 2A, 3 and 4. Whereas, OC 1's operation is unlimited in respect of the denoted affected land, being common property 1 and Lots 1, 2A, 3 and 4.
9. In effect, a limited owners corporation serves a purpose that is ancillary to the main unlimited owners corporation. In the present case, the common property driveway of OC 2 could be regarded as ancillary to the main OC 1 which comprises the bulk of the property to be governed under the overall plan of subdivision.
10. The respective lot liabilities for the property governed by OC 1 and governed by OC 2 are clearly stated on the plan of subdivision. To the extent that there are costs attributable solely to OC 1 or solely to OC 2, for usual cost allocation, such costs must be shared amongst the lots owners, for each respective owners corporation, according to the respective lot liability.
11. However, the Insurance Policy premium in the present case is for public risk insurance covering both owners corporations. The AGM resolved to fully charge the Insurance Policy premium to OC 1, on the basis that it could not charge anything to OC 2 because of the view that OC 2 is a limited owners corporation. This reasoning is misconceived. Nothing from the above analysis of the legislation or from a plain reading of the plan of subdivision supports the view that costs allocation under the OC Act and under the plan of subdivision cannot be allocated simply because an owners corporation is described as being limited. To the extent that a non-allocation of cost to OC 2 was based solely on this rationale, it is incorrect.
12. As stated above, it does not follow from my finding on this point that Ms Drakoulis has been unfairly discriminated against. This question is now considered.

Apportionment based on relative risk of OC 1 and OC 2

1. What is not expressly addressed under the plan of subdivision is the method for allocation of costs for an activity which may be attributed, as in the present case, to more than a single owners corporation. The issue put by Ms Drakoulis is that some, unquantified, part of the premium should be allocated to OC 2 and that a failure to do so is unfairly discriminatory towards her under the OC Act.
2. As discussed, the AGM decided to fully allocate the cost to OC 1 simply on the reasoning that it felt it could not allocate the cost to the 'limited' OC 2. However, whether Ms Drakoulis has been unfairly discriminated against depends on there being a sufficient evidentiary basis for identification of risk covered under the Insurance Policy to enable an appropriate allocation of that risk between OC 1 and OC 2.
3. In respect of risk, Ms Drakoulis submitted that it would be appropriate to apportion a larger part of the cost of the insurance premium to OC 2 because 'most of the driveway and risk' is in OC 2's common property with only 'a small sliver' of the driveway in OC 1. I do not accept this submission. The Insurance Policy, subject to its terms, is for coverage of whatever public liability risks arise in respect of OC 1 and OC 2. OC 1 is defined as unlimited in respect of the land affected, being Common Property 1, Lots 1, 2A, 3 and 4. However, OC 2 is defined as limited to the common property of OC 2 only.
4. In my opinion, based on inferences that can be drawn from the language of the plan of subdivision, the far greater risk, measured by the description of what comprises OC 1 and OC 2, lies with OC 1. Further, Ms Drakoulis submission does not take account of the significant non-driveway component of the risk cover of OC 1. Nor does the submission refer to the driveway part of OC 1 up to the steel gate being able to be accessed by the public at large, particularly in circumstances where a restaurant is being operated by Ms Drakoulis's tenant. However, these matters do not of themselves enable the determination of an appropriate percentage allocation of risk in an insurance sense.
5. Subject to the matters discussed from paragraph 64 below, there was no actuarial insurance based evidence before me concerning an insurer's view of risk to enable me make an assessment of how a single insurance policy premium could be apportioned.

Apportionment based on the ratio of respective OC lot liabilities

1. A possible assessment of the risk and apportionment of the Insurance Policy premium could be based on the ratio that total lot liability of OC 1 (of 100) bears to total lot liability of OC 2 (30). Whilst this approach was not directly raised by Ms Drakoulis, such an apportionment method has some logic. But in respect of the present proceeding, such a course was not adopted at the AGM. Further, there was insufficient evidence from the parties for me to infer that the above ratio is in some way reflective of the risk distribution between OC 1 and OC 2 for the purpose of public liability insurance.
2. Whilst not necessary for the purposes of the present decision, but looking to the future conduct of the two owners corporations annual general meetings, consideration could be given to apportioning future public liability insurance premiums based on the ratio of that respective owners corporations lot liabilities bear to each other. Such a calculation would be similar to the calculation contained in paragraph 65 below (which was the appropriate methodology, given my different findings for that part of the claim). It is important to observe, that such an approach is one option. It would need to be discussed and evaluated by members attending the annual general meetings and making a determination as to whether it represents appropriate risk apportionment.

Apportionment based on premium cost for separate liability insurance

1. Ms Drakoulis submitted that separate insurances should be obtained for OC 1 and OC 2. In respect of availability of separate policies of insurance, Ms Black said that the insurer was not prepared to issue separate policies. She said the insurance company made it clear that separate policies of insurance are not available. They stated that the premium for separate policies of insurance, if issued, would be more expensive for OC 1, plus there being an additional premium for a policy in respect of OC 2.
2. Ms Black said that the insurer explained that segregated policies are not available because of their lack of preparedness to put a defining liability line between two owners corporations on the same plan of subdivision. In short, there was no money to be saved but increased cost.
3. In these circumstances, and without evidence from Ms Drakoulis that the cost of separate OC 1 public liability insurance would be cheaper, I am unable to conclude that Ms Drakoulis has been prejudiced in terms of what she has had to pay as her share of the premium decided by the AGM.

Conclusion on apportionment of insurance premium

1. Section 167(d) of the OC Act provides that the Tribunal must consider whether a resolution is oppressive to, unfairly prejudicial to or unfairly discriminates against, a lot owner. I do not consider that the resolution of the AGM for allocation of the cost of the insurance premium to OC 1 operates in a manner that offends against s167(d).
2. There is insufficient evidence to enable me to determine an appropriate proportion of the premium for allocation to OC 1 on anything other than an arbitrary basis. Importantly, the reported position of the insurer was that the premium in respect of a separate policy for OC 1 would be more expensive than the single policy and premium agreed at the AGM. The effect of this is that Ms Drakoulis has been unable to establish that the resolution operates in a way that is oppressive or unfairly prejudicial towards her.
3. In owners corporation matters, there must be a well founded basis to justify overturning decisions of an owners corporation, provided they are made lawfully in compliance with the OC Act. Where an owners corporation decides in accordance with the OC Act at its annual general meeting to approve a budget, it is not for the Tribunal to look behind the decisions of members attending the meeting who have been engaged in discussion and are better informed and better placed to make decisions. Of course, where there is unfairness to a member of the type that is found to be in contravention of the OC Act, the Tribunal is bound to intervene. However, for the reasons just stated, these circumstances have not been established in the present case.
4. The basis for apportionment of the insurance premium has not been made out and is dismissed.

John Annetta invoice apportionment of $493.23

1. Ms Drakoulis claims that the repairs, in invoice of John Annetta dated 12 February 2014, should either be charged to OC 2 or to the lot owner of lot 2A, on the assertion that lot 2A received the benefit of the repairs.
2. Part of the charges were for a downpipe from an outside toilet, which is now used as a storage shed, exclusively by lot 1, without the permission of OC 1. It is agreed that the toilet is located on OC 1 common property. The toilet is attached to the rear wall of Ms Drakoulis' lot. The remaining charges were for works to a grate and storm water drain, both located on OC 1 common property.
3. There was insufficient evidence supporting that the flooding water emanated from lot 2A. Less plausible was the assertion that the benefit was partly for OC 2. The land in question was clearly OC 1.
4. Further, the evidence, including photos, supported that the flooding water emanated from a broken rain head and downpipe associated with lot 1. However, OC 1 paid for the invoiced repairs without seeking contribution from lot 1. In my opinion, payment of these repairs in full by OC 1 was a generous response by OC 1, a sharing of costs not borne out by the evidence before me.
5. The claim is dismissed.

Rosehill Plumbing invoice apportionment of $340

1. Ms Drakoulis claimed that repairs, in invoice of Rosehill Plumbing dated 18 August 2015, were for the benefit of lot 2A and OC 2. She said that the costs should be should be charged accordingly and not be levied against OC 1. In in cross examination, Ms Drakoulis admitted that most of the cost was for OC 1 with part for OC 2, 'maybe'.

1. The repairs undertaken by Rosehill were done under the option 1 set out in the quote. These repairs were demonstrably undertaken on OC 1 common property and related to an old broken and blocked earthenware pipe. Ms Drakoulis gave no probative evidence in support of her assertion that the works were also for the benefit of OC 2.
2. There was insufficient evidence to support the allegation and claim that the incorrect apportionment was made. The claim is dismissed.

1. Ms Drakoulis claims that the management fees for OC 1 in the sum of $1,000 should be apportioned with OC 2. She says that, whilst she does not dispute the management fees for OC 2 of $300, she asserts that management administration charge for OC 2, compared to the $1,000 for OC 1, indicates that OC 1 is being overcharged.
2. Both these charges were separately agreed at the AGM. Ms Drakoulis did not attend the AGM.
3. I accept the evidence of Ms Moloney, an independent professional owners corporation manager, that the appropriate split has been made and is reflective of the level of work for each owners corporation.
4. There is insufficient evidence before me from Ms Drakoulis to find that somehow the deliberations of the AGM were flawed or that the evidence of Ms Moloney is incorrect and should not be accepted. The claim is dismissed.

1. Ms Moloney explained that these budgeted costs were allocated to OC 1 because that is where they fell. They were approved at the AGM to be so allocated and there is no reason to make some allocation to OC 2, which is simply part of a driveway. Ms Drakoulis did not give evidence to contrary this evidence. The claim is dismissed.

1. Ms Moloney explained that the Set Up fee was a one off fee paid upon appointment of the new manager, MBCM. She said that, notwithstanding her letter dated 23 September 2015, which referred to appointment for OC 1 on a 'secretarial basis' and on a 'full service basis' for OC 2, the appointment of MBCM was required only because of the request of OC 1 and that the bulk of services related to OC 1.
2. I accept the evidence of Mrs Black that the owners of Lots 2A, 3 and 4 were reluctant to employ an owners corporation manager and that they did not see it as necessary. However they agreed to appoint a manager because of the continuing difficulties they say they had with Ms Drakoulis of Lot 1. Ms Black said that the difficulties with Ms Drakoulis were made harder by her not talking directly other members and by not attending owners corporation meetings or annual general meetings. The appointment of a manager she said was solely to try and manage these difficulties. I accept the evidence of Ms Black in this regard.
3. I find that Ms Drakoulis gave insufficient evidence to establish a proper basis for allocation of the Set Up fee in part to OC 2.

1. Ms Moloney explained that the Schedule fees are charged at an hourly rate. The fee was charged because the AGM was conducted after hours on 3 June 2015. It was agreed that that the fee should be levied against OC 1 because it was OC 1 that had the need for a manager, not OC 2.
2. As discussed above, an allocation of costs does not depend on an owners corporation being described as an 'unlimited' or 'limited' owners corporation. If a cost can be shown to be attributed to a particular owners corporation, it should be allocated accordingly.
3. It was acknowledged that there were two annual general meetings conducted, one for OC 1 and one for OC 2. On that basis the fee should be apportioned.
4. As the Schedule 2.2 fee in question is purely a charge of an administrative nature and is a charge that Schedule 2.2 contemplates, it is reasonable to apportion such a fee according to the proportion that the respective total lot liabilities for each of OC 1 and OC 2 bear to each other. This is especially so where the bulk of the business conducted at the two annual general meetings was attributable to OC 1.
5. The appropriate apportionment is:
   1. Lot 1 (20/130) x 150 = $23.08
   2. Other lots (110/130) x $150 = $126.92
6. Order the owners corporation to reimburse Ms Drakoulis in respect of lot 1 the sum of $23.08.

1. For these reasons, save as to an order for $23.08 as found above, the application of Ms Drakoulis is otherwise dismissed.

[1] Cost items (a) to (e) are contained in Owners Corporation 1 Budget, for year ending 31 March 2016.

[2] 'Limited to Common Property' is the precise expression stated on the plan of subdivision for OC 2.

[3] S 49 enables an owners corporation to recover as a debt monies owing by a lot owner, calculated on the basis of who benefits more, pays more.