Eastmark Holdings v The Owners Corporation Strata Plan No 74602

Judgment (ex tempore - revised 25 February 2014) 1HIS HONOUR: There is a strata title development at North Sydney known as Beau Monde. It comprises four stratum lots: residential apartments (with associated car parking spaces), commercial premises, retail premises and a public car park. 2The defendant (the Owners Corporation) is the proprietor of Lot 1, which comprises the residential apartments. The first plaintiff is the proprietor of Lot 2 (the commercial premises). The second plaintiff (which is a wholly owned subsidiary of the first plaintiff) is the proprietor of Lots 3 and 4 (respectively, the retail premises and the public car park). 3The complex is managed, pursuant to a strata management scheme (SMS), by a building management committee. Costs are met from levies on the proprietors. Each proprietor is entitled to appoint a representative to the committee (the committee). Each proprietor has one vote for each lot that it holds. Thus, the owners' corporation and the first plaintiff have one vote each. The second plaintiff has two votes. 4There have been proposals to redevelop the complex. Those proposals have led to substantial dispute. That dispute is the subject of other litigation in this court. 5I am concerned today with the plaintiff's application for summary judgment to recover in excess of $1.9 million which they say is owing by the Owners Corporation pursuant to what is in effect a levy struck by the committee. They say that the levy was struck in accordance with the power to do so set out in the SMS. 6In substance, the plaintiffs rely on cl 45 of the SMS. That clause reads as follows: 45 Paying contributions when there is a dispute 45.1 What are your obligations? You are not excused from paying your administration fund contributions, sinking fund contributions or other amounts you owe the committee under this management statement because you have a dispute or a disagreement with the committee (eg a dispute about the amount of payment). 45.2 Continuing payments If you have a dispute or disagreement with the committee about the amount of administrative fund or sinking fund contributions you must pay, you must continue to pay your contributions at the rate determined according to this management statement. After the dispute is resolved, you and the committee must pay each other any necessary adjustments. 45.3 Your rights are not affected Your rights against the committee are not affected in you continue to pay administrative fund and sinking fund contributions according to clause 45.2 ("Continuing payments"). 7The word "dispute" is defined, in cl 60, to mean: (a) the construction of this management statement; or (b) the rights and obligations of the committee, a member, an owner or an occupier under this management statement; or (c) amount which the committee determines for administrative fund or sinking fund contributions; or (d) the committee passing or failing to pass a resolution or unanimous resolution; or (e) the operation, maintenance, repair or replacement of a shared facility 8The SMS contains provision (cl 56) for resolution of disputes. There is no need to set it out. It provides for a cascading set of procedures. The cascade ends in the pond of binding expert determinations. 9The Owners Corporation says that it has a number of arguable defences, such that summary judgment ought not be given. Some of those defences seek to attack the way in which the levies were struck: for example, it is said that relevant documents were not provided to the committee before the (purported) resolution. 10Another suggested defence is based on particular costs comprised within the levy. The Owners Corporation says that the committee does not have power to raise levies for those purposes. 11Another defence is based on want of good faith. It is said that there are both express contractual and implied obligations of good faith which apply, among other things, to the raising of the levies. As I understand it, it would be suggested that in some way the plaintiffs have misused their voting power in striking the levies, to their advantage and the detriment of the Owners' Corporation. 12The principles on which the discretion to order summary judgment is exercised are well known. They have been stated clearly in a number of relatively recent decisions of the High Court of Australia. For example, in Batistatos v Roads and Traffic Authority of New South Wales (2006) 266 CLR 256 the majority (Gleeson CJ, Gummow, Hayne and Crennan JJ) stated at [46], citing with evident approval Gaudron, McHugh, Gummow and Hayne JJ in Agar v Hyde (2000) 201 CLR 552 at [57], that a party should not ordinarily be denied the opportunity of putting its case before the court, and after taking advantage of appropriate interlocutory processes. Their Honours stressed that what was required was "a high degree of certainty about the ultimate outcome of the proceedings if it were allowed to go to trial in the ordinary way". 13The plaintiffs submit that the criteria for summary judgment are met. They say that the particular factual disputes that the Owners Corporation suggests are available are in fact without any substance. But the overriding submission for the plaintiffs is that, regardless, cl 45 applies to render the Owners' Corporation liable to pay whilst whatever disputes there may be are worked out in accordance with cl 56. 14The plaintiffs rely on observations made by Bryson J in GE Capital Australia v Davis [2002] NSWSC 1146. His Honour there observed at [97], of a clause which purported to deny to a guarantor the right to raise any deduction by way of set off or cross claim against liability under the guarantee, that in stated circumstances it is open to parties to agree that a particular sum of money will change hands without the opportunity of first obtaining judicial disposition of any other claim between them. 15Mr Dubler of Senior Counsel, who appeared with Mr Breakspear of Counsel for the plaintiffs, appeared to accept the proposition that there might be a limiting case of blatant misuse of majority voting rights (or what might be called fraud on the exercise of a power) where cl 45 would not operate. He stated (see the transcript of the hearing on 7 February 2014, at 8.35) that if there were such a limiting case: "It would have to be only in the more narrow field of something like a total disconnect between the resolution and the obligation to pay and any bona fide proximate relationship to the function of the committee". 16I think that this concession (if that is the appropriate word to describe it; I do not mean to accept it, without analysis, as a concession in the strict sense) was appropriate. I do not mean to say that the point conceded is correct. But it seems to me to be at least arguable that cl 45 could not operate to render an amount payable by one of the proprietors (or that proprietor insolvent if unable to pay) where the underlying levy was passed for an entirely improper purpose. 17In this context, I repeat that the plaintiffs between them control 75 per cent of the votes on the committee, and that one is a wholly owned subsidiary of the other. 18If it be correct to suggest (as I think is arguable) that there is some limit on the reach of cl 45, then it must be a case for hearing to decide on which side of that limit a particular resolution falls. 19Further, to my mind, there are some indicia in the SMS itself that cl 45 may not have been intended to have absolute and universal application to all levies. For example, the clause itself is bifurcated into two subclauses. The first denies any excuse from paying contributions because of a "dispute" (which is said to include a dispute about the amount of a payment). The second subclause says that if there is a dispute about the amount of a contribution then contributions must be paid until the dispute is resolved, with subsequent adjustment if necessary. 20The former subclause could be seen to negate any excuse (not confined to disputes about the amount of a payment) for not paying on the basis of any dispute. The latter could be seen to impose only an obligation to pay, regardless of the resolution of the dispute, where the dispute is confined to one about the amount of a payment. 21I am not to be taken as saying that this is the proper construction of the clause. And I acknowledge the force of the submission put by Mr Dubler, that the clear intent of the clause was to ensure that the committee had the necessary funds to enable it to carry out its functions, regardless of any dispute as to any individual obligation to contribute to those funds. 22It may be noted that in each of the subclauses, the focus is on "contributions". That could be seen to direct attention to the mechanism set out elsewhere in the SMS for determining the amount of those contributions. It is not immediately apparent that the clause is intended to cure defects in the process of striking levies, as opposed to defects in quantification. 23Finally, for present purposes, it may be observed that if "dispute" encompasses every conceivable issue in relation to any levy, one consequence is that a real and forceful dispute as to improper purpose would be sent off, ultimately, for resolution by binding expert determination. It may be doubtful whether the parties had that intention. 24Of course, if the result of the application of cl 45 were as Mr Dubler submitted, compliance could well lead to insolvency, which in turn could render nugatory any attempt by the putative victim of the allegedly improper purpose to protest, or to defend its position. 25I conclude that the requisite high degree of certainty of outcome is lacking. 26I order that the plaintiffs' amended notice of motion filed on 10 January 2014 be dismissed. 27I order the plaintiffs to pay the defendant's costs of the notice of motion. 28I order that the outstanding notice of motion filed for the defendant be adjourned to the motions list on 28 February 2014. 29I give liberty to apply in chambers in the event that the parties can avail themselves of the offer of a date next week.