Fayle & Minell Cleggett, v The Owners Corporation Strata Plan No 35541

Background

1. The applicants are the registered proprietors of lot 1 in SP 35541. Lot 1 is part of a six storey building in Scott Street Newcastle. The building comprises 13 lots in total. Lot 1 is situated on the ground floor. The strata plan was registered on 16 November 1989.
2. Lot 1 has its own air conditioning system. The other lots are serviced by an air conditioning system located on common property on the roof of the building.
3. Special By-Law 8 commenced on 3 June 1994. A copy of the By-Law is set out in Schedule 1 to this decision.
4. Pursuant to the By-Law Lot 1 was not required to contribute to the cost of installation maintenance repair or replacement of the air conditioning works referred to in the By-Law.
5. On 14 May 2013 Special By-Law 8 was repealed by a special resolution of the Owners Corporation.
6. The applicant was precluded from voting at the meeting on 14 May 2013 because it had not paid a series of instalments of a special administrative fund budget levy raised to fund legal proceedings in the District Court between the applicant and the respondent. The applicant sought an order under sec 149 of the Act. The applicant was unsuccessful before the Adjudicator and appealed. On appeal the applicant was successful, and by order dated 23 July 2013 the special administrative fund budget levy was varied such that no contributions were payable by Lot 1. Whilst the order of the Tribunal was not expressed to be retrospective, the order varied amounts which were payable in the past.

Issues

1. The following issues arise: 1. Does the applicant have standing to bring the application under section 157 of the Strata Schemes Management Act, 1996? ("the Act"). 2. Did the Adjudicator fall into error? 3. Does section 52 of the Act apply, and if so, has section 52 (1) been complied with? 4. Should the motion revoking the By-Law be itself revoked? If not, should the alternate orders sought by the applicant be made?

Does the applicant have standing to bring the application under sec 157?

1. After the hearing, and the decision being reserved, the Tribunal raised with the parties two issues which appeared to arise. The first is an issue in relation to the standing of the applicant to seek the orders under section 157 of the Act. The second is the issue in relation to section 52 of the Act. The Tribunal sought submissions from both parties in relation to each issue.
2. Section 157 of the Act states: (1) An Adjudicator may make one of the following orders if the Adjudicator considers that, having regard to the interest of all owners of lots in a strata scheme in the use and enjoyment of their lots or the common property, an amendment or repeal of a by-law or addition of a new by-law should not have been made or effected by the owners corporation: (a) an order that the amendment be revoked, (b) an order that the repealed by-law be revived, (c) an order that the additional by-law be repealed. (2) An order under this section, when recorded under section 209, has effect as if its terms were a by-law (but subject to any relevant order made by a superior court). (3) When making an order under this section in relation to a by-law referred to in section 51, an Adjudicator may direct the payment by the owners corporation of compensation to the owner of the lot, or owners of the lots, referred to in the by-law. (4) A payment ordered to be made in accordance with subsection (3) is recoverable by the owner or owners as a debt. (5) An application for an order under this section may be made only by a person entitled to vote on the motion to amend or repeal the by-law, or make the additional by-law that is the subject of the application or the lessor of a leasehold strata scheme.
3. Clause 10 of Schedule 2 to the Act relevantly provides: (8) Voting rights may not be exercised if contributions not paid A vote at a general meeting (other than a vote on a motion requiring a unanimous resolution) by an owner of a lot or a person with a priority vote in respect of the lot does not count unless payment has been made before the meeting of all contributions levied on the owner, and any other amounts recoverable from the owner, in relation to the lot that are owing at the date of the notice for the meeting.
4. The respondent's submissions may be summarised as follows: as the applicant had not paid the special levy before the meeting, the applicant was not entitled to vote at the meeting. The order of the Tribunal which altered the contributions took effect on the date the order was made. It was not expressed to be retrospective, and did not operate retrospectively. The Act provides for a refund of contributions paid, in the event that an order setting aside or altering a levy is made. In order to be entitled to vote, the applicant needed to have paid the levy. Otherwise the legislative scheme would become unworkable. In these circumstances, there is no justifiable basis for giving the order retrospective effect in the manner contended for by the applicant or at all.
5. The applicant submits that the order made by the Tribunal on 23 July 2013 operated retrospectively from 16 September 2012, and accordingly the applicant was entitled to vote at the meeting. The applicant says that as the applicant was not eventually required to pay the contribution, and as that was the only basis on which they were precluded from voting, "it is submitted that the requirements of s 157 (5) of the Act have been met and that the application made by the applicants in these proceedings is capable of being made".

Decision on Section 157

1. The Tribunal is not satisfied that the applicant has standing to bring the proceedings under section 157 of the Act. The Tribunal accepts the respondent's submissions that the order made by Member Ringrose was not expressed to have retrospective effect, and accordingly took effect on its date, in accordance with section 210 of the Act. At the date of the notice of meeting, the levies were unpaid. The applicant was accordingly not entitled to vote at the meeting. The Tribunal agrees with the respondent's submission that the entitlement to vote must be determined at the date of the meeting. Otherwise the legislative scheme becomes almost unworkable, as the respondent submits. There was a way in which the applicants could have preserved their entitlement to vote, and accordingly their right to bring proceedings under sec 157 of the Act, but they did not choose to pay the levy and seek reimbursement.
2. It follows that the Tribunal has no power to consider the application under section 157. However, the applicant also seeks an order under s 169 of the Act, and for this reason, the Tribunal will consider the submissions made by the parties in respect of each of the identified issues.

Did the Adjudicator fall into error?

1. The first error which the Adjudicator made was to fail to identify and deal with the issue of standing under section 157 of the Act.
2. The applicant identifies a number of other errors which it says the Adjudicator made as follows: 1. The Adjudicator found that the air conditioning system was in existence at the date of registration of the plan when there was no evidence before him to support that finding. 2. The Adjudicator found that purchasers of lots in the scheme were entitled to expect that the Owners Corporation would maintain the air conditioning system, when there was no evidence before the Adjudicator of the expectation of purchasers, and furthermore, where that expectation might be in line with the terms of By-Law 8. 3. The Adjudicator found that By-Law 8 was contrary to the principles in Italian Forum Limited v Owners - Strata Plan 60919 when that decision expresses no such principle. 4. The Adjudicator found that it was entirely likely that By-Law 8 was seen as inconsistent with the Act, when there was no evidence of the reasons behind the repeal of the By-Law, and no inconsistency between the By-Law and the Act. 5. The Adjudicator found that the effect of By-Law 8 would be inconsistent with section 78. The applicant submits that this finding is erroneous. 6. The Adjudicator found "it" that it is the uncontested submission of the respondent that the air conditioning forms part of common property". The applicant submits that no weight should be given to the lack of contest because a copy of the respondent's submission was not served on the applicant. In addition the applicant asserts that the evidence suggests that the air conditioning was installed on common property after By-Law 8 was made. 7. The Adjudicator went on to find that there was no necessity to authorise the continuation of the air conditioning. The applicant submits that this is incorrect and refers to sec 65A of the Act.
3. The respondent submits that the Adjudicator did not fall into error. In respect of each alleged error: 1. The respondent submits that the air conditioner was in place at the time of registration of the plan, and so the Adjudicator did not fall into error when he came to that conclusion. 2. In respect of the alleged error in assuming the intentions of buyers, the respondent says that the assumption was not unreasonable, and in any event, of no apparent consequence to the Adjudicator's decision. 3. The respondent says that the Adjudicator did not misapply the principles in Italian Forum Limited v Owners - Strata Plan 60919. The respondent submits that a by-law which imposes a differential levy is invalid. 4. The respondent submits that the air conditioning system has been part of the common property since the strata scheme was registered. 5. The respondent concludes that the Adjudicator was right to have found that the replacement of the air conditioning system was not work that required authorisation under section 65A of the Act.
4. In response, the applicant submits that there is no dispute that an air conditioner was in place at the date of registration of the plan, but the applicant says that it was replaced with a new system in about 1995. The installation of the new system constituted work for which approval under s 65A was required. The By-Law specifically authorised the installation of that air conditioning and should be revived to provide the necessary authority for the system to remain. It is not contrary to section 78 (2).
5. In respect of each of the errors, the Tribunal finds as follows: (1) The Adjudicator found that the air conditioning system was in existence at the date of registration of the plan when there was no evidence before him to support that finding.
6. The Tribunal accepts that the Adjudicator fell into error in coming to this conclusion without evidence before him. The parties agree that there was an air conditioning unit in place at the date of registration of the plan. However the by-law authorised the installation, maintenance and replacement where necessary of the "several works" as defined in the by-law. This apparently took place in about 1995. Accordingly, the Adjudicator's error was that he failed to take this into account in his decision. (2) The Adjudicator found that purchasers of lots in the scheme were entitled to expect that the Owners Corporation would maintain the air conditioning system, when there was no evidence before the Adjudicator of the expectation of purchasers, and furthermore, where that expectation might be in line with the terms of By-Law 8.
7. The Tribunal accepts that the Adjudicator fell into error in making this finding. There was no evidence before him, even as to when or if any lots in the strata plan may have changed hands, let alone what the expectations of any such purchaser may have been. In addition, the Adjudicator does not appear to have considered the effect of the by-law itself on any such expectations. (3) The Adjudicator found that By-Law 8 was contrary to the principles in Italian Forum Limited v Owners - Strata Plan 60919 when that decision expresses no such principle.
8. The Tribunal accepts that Italian Forum Limited v Owners - Strata Plan 60919 makes no finding which would support the conclusion reached by the Adjudicator. At para 52, His Honour White J says the following "His Honour also considered that by-law 11 was invalid because it was not in conformity with s 78(2) of the Strata Schemes Management Act. Again, with respect, it is not clear to me why that was said to be so. But assuming that to be so, there is no reason the first defendant could not make a by-law that conformed with s 78." In doing so, the Adjudicator fell into error. (4) The Adjudicator found that it was entirely likely that By-Law 8 was seen as inconsistent with the Act, when there was no evidence of the reasons behind the repeal of the By-Law, and no inconsistency between the By-Law and the Act.
9. The Tribunal agrees that the Adjudicator fell into error in speculating as to the reasons behind the repeal of the By-Law. There was no evidence before him in relation to those reasons. Furthermore, the Adjudicator's conclusion that the by-law was inconsistent with the Act is also an error. (5) The Adjudicator found that the effect of By-Law 8 would be inconsistent with section 78. The applicant submits that this finding is erroneous.
10. Whether this was an error on behalf of the Adjudicator hinges on whether the work carried out to the air conditioning system in about 1995 was work which required a special resolution under section 65A. The Adjudicator had insufficient evidence before him on which to base this conclusion. If the work was simply work being carried out to repair the existing air conditioning system, his conclusion may well have been correct. If it was work which amounted to replacement of the system by some but not all lot owners, as appears to have been the case, with the benefit of the further evidence supplied to the Tribunal in these proceedings, then it was appropriately the subject of an exclusive use by-law, and differential payment of levies would not be in breach of the Act, being specifically authorised under s 54(2). (6) The Adjudicator found that" it is the uncontested submission of the respondent that the air conditioning forms part of common property". The applicant submits that no weight should be given to the lack of contest because a copy of the respondent's submission was not served on the applicant. In addition the applicant asserts that the evidence suggests that the air conditioning was installed on common property after By-Law 8 was made.
11. The Tribunal is not satisfied that the Adjudicator fell into error in making this conclusion, which was conceded by both parties during the appeal. (7) The Adjudicator went on to find that there was no necessity to authorise the continuation of the air conditioning. The applicant submits that this is incorrect and refers to section 65A of the Act.
12. This is the issue dealt with at para (5) above. The Tribunal is satisfied that the Adjudicator fell into error in coming to this conclusion.

Does section 52 of the Act apply, and if so, has sec 52 (1) been complied with?

1. Both parties agree that section 52 of the Act applies to the By-Law the subject of this application. The applicants submit that sec 52 (1) has not been complied with, as there is no evidence of the written consent of the owners of lots concerned. In particular, the applicants say that Lot 1 is a lot concerned in the repeal of the By-Law, and the owners of lot 1 have not provided written consent, and do not consent to the repeal of the By-Law.
2. The respondent says that Lot 1 is not a lot concerned for the purpose of Section 52 (1), because the by-law provided for the exclusive use of the common property by Lots 2 to 8 and 10 to 14. The only effect on Lot 1 of the repeal of the By-Law is a change in the levies payable. As such, Lot 1 cannot be said to be a Lot concerned. The respondent cites as authority for this proposition the decisions of the Supreme Court of NSW in Chauhan v Jaynrees Services Pty Ltd [2008] NSWSC 969 and in James v Owners Strata Plan No SP 11478 [2012] NSWSC 590.
3. The Tribunal is bound by the decisions of the Supreme Court referred to above. Both of the decisions conclude that the lot or lots concerned are the lots benefited by the by-law. Lot 1 was not so benefited. However, there is no evidence that any of the lot owners had provided the written consent required by the section at the time of the meeting. They have since done so, but those consents are not consents for the purpose of s 52 (1).

Should the motion revoking the By-Law be itself revoked? If not, should the alternate orders sought by the applicant be made?

1. The motion revoking the by-law can be itself revoked only on application under s 157. Having found that the applicant had no standing to bring the application, no such order can be made.
2. The alternate order sought is an order under s 169 of the Act. That section deals with the Tribunal's ancillary order making power. The Tribunal accepts the respondent's submission that where there is no power for the original application to be brought there can be power to make an ancillary order.
3. Accordingly, whilst the Tribunal is satisfied that the reasons for the Adjudicator's decision were incorrect, the decision to dismiss the application is affirmed. K Ross General Member Civil and Administrative Tribunal of New South Wales 15 January 2015

Special By-Law 8 That the proprietors for the time being of each Lot 2 - 8, 10 - 14 inclusive, shall have the right to the exclusive use and enjoyment of so much of the common property as is necessary to install, maintain and where necessary replace the several works specified in the By-Law located on the roof level of the building. In this By-Law the expression "the several works" shall mean: 1. The installation and maintenance of an air conditioning system including compressors, condensors, evaporator, water cooling tower, air ducting, water conduits, associated electrical wiring and any platform on which equipment is mounted. The terms and conditions are: 1. All cost of installation and all cost of future maintenance, repair and replacement of the several works and any common property to which the installation is attached shall be maintained by the Body Corporate, but costs met by Lots 2 - 8 , 10 - 14 inclusive. 2. Any water cooling tower and the water circulating system associated therewith will be maintained so as to meet any relevant health laws and regulations as amended from time to time and in accordance with the requirements of the Standards Association of Australia.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 25 March 2015