Gokani-Robins Pty Ltd v The Owners - Strata Plan No 77109 - [2022] NSWCATCD 164 - NSWCATCD 2022 case summary — Zoe

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Gokani-Robins Pty Ltd v The Owners - Strata Plan No 77109

[2022] NSWCATCD 164

NCAT Consumer and Commercial|2022-04-12

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At a glance

Source facts

Court

NCAT Consumer and Commercial

Decision date

2022-04-12

Source

Original judgment source is linked above.

Judgment (24 paragraphs)

[1]

The application

The applicants have been the owners of lots 21, 22, 23, 24, 25, 48, 49, 93, 94, 95 and 96 ("Lots") in Strata Plan 77109 ("the Strata Plan") since 2006.
The respondent is the owners of the Strata Plan.
The Strata Plan consists of 113 commercial lots.
In related proceedings before the Small Claims Division of the Local Court and pursuant to Special By-Law 16 of the Consolidated By-Laws AN1321W ("SBL 16"), the respondent is seeking costs from the applicant arising from the activation of fire alarms and works required to repair fire safety equipment, being common property of the Strata Plan.
In the same Local Court proceedings, the respondent is also claiming from the applicant, pursuant to Special By-Law 17 of the Consolidated By-Laws AN1321W ("SBL 17"), costs arising from the enforcement of SBL16, including legal costs in excess of $10,000.00.
The applicants have lost their voting rights (although the parties dispute whether this is due to the operation of SBL17 or the operation of the Strata Scheme Management Act 2015 (NSW) ('SSMA').
By application to the Tribunal dated 24 December 2021 the applicants seek the following orders: 1. That SBL 17 be declared invalid as it is unlawful; 2. That the voting rights of the applicants be reinstated until determination of the Local Court proceedings; and 3. Such other orders the Tribunal deems necessary or appropriate.
The applicants also contend that: 1. To the extent that SBL 17 seeks to circumvent the jurisdictional limits of the Local Court and is inconsistent with the law, it is invalid; and 2. The interpretation being applied to SBL 17 by the respondent is harsh, unconscionable or oppressive. 3. The respondent did not have the power to make SBL 17.
In their submissions dated 5 April 2022 and at the hearing the applicants sought leave to amend their application to include the following order: 1. That the amounts added an/or otherwise charged by the respondent to the ledger balances of the applicant is Strata Plan 77109 in reliance upon SBL 17 be removed from said ledger balances.

[5]

Special By-Law 17

SBL 17 states relevantly: 1 If an owner or occupier fails to comply with any obligation under the SSMA, Strata Schemes (Freehold Development) Act 1973] or the By-Laws, the owners corporation may recover the costs of enforcement of the By-Law and rectification of the Owner's or Occupier's failure to comply (including but not limited to … the costs of any strata manager, building manager, other expert or legal costs and the costs of conducting legal proceedings) from the owners as a debt due (and include reference of that debt on levy notices and any other levy reports or information) and the Owner must pay for and indemnify the owners corporation against such costs. 2 The Owner's corporation may do anything on an Owner's Lot or the Common Property that an Owner should have done under the SSMA, SSFD or the By-Laws but which an Owner has not done or, in the reasonable opinion of the owners corporation, has not done properly. To exercise its rights under this By-Law, the owners corporation must give the Owner a written notice specifying when it will enter an Owner's Lot to do the work (except in the event of an emergency). An Owner must: 2.1 Give the owners corporation (or persons authorized by it) access to their Lot according to the notice and at the Owner's cost. 2.2 Pay the owners corporation for its costs for doing the work as a debt due and payable. 3 The Owner acknowledges that: 3.1 Any monies for which the Owner is liable under this By-Law is due and payable on written demand or at the direction of the owners corporation; 3.2 The owners corporation may recover any money owed to it under this By-Law as a debt under s80 of the SSMA and which if unpaid at the end of 1 month from the date of which is due, will bear until paid, simple interest at an annual rate of 10 per cent (or if the [Strata Schemes Management Regulation 2010] provides for another rate, that other rate) and the interest and the costs of any recovery action will form a part of that debt. 3.3 The provisions of Schedule 2, clause 10(8) of the SSMA will apply to any failure to pay monies under this By-Law so that the voting rights of the Owner are diminished in accordance with that part. 4 Notwithstanding that the Owner may allow an Occupier or other person authorised by them to occupy their lot, the Owner will remain responsible to the owners corporation and, where appropriate, to an Authority for complying with the obligations of the Owner or Occupier under this By-Law. … Definitions and Interpretation … 6.7 SSMA means the Strata Schemes Management Act 1996. …

[8]

Submissions

The applicants submit: 1. The owners did not have the power to make SBL 17 because it is inconsistent with legislation; 2. Specifically, SBL 17 is inconsistent with the Civil Procedure Act 2005 (NSW) ('CPA') because: 1. Section 98(1)(b) of the CPA provides that courts have the full power to determine by whom and to what extent costs are to be paid; 2. Section 98(2) provides that a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court; 3. SBL 17(1) allows the respondent to recover the costs of legal proceedings as a debt due, with no requirement that a court must have awarded such costs; and 1. SBL is also inconsistent with the Local Court Act 2007 (NSW) ('LCA') and the Local Court Rules 2009 (NSW) ('LCR') because: 1. The Small Claims Division has no power to award costs except as provided by the LCR; 2. Subrule 2.9(2) provides that the Court may make orders for the payment of costs only if, relevantly, judgment is given after a trial of proceedings; 3. The maximum amount of costs that could be awarded in such circumstances is the amount of costs that would be allowable on entry of default judgment for an unliquidated claim in the proceedings (2.9 (3)(b)); 4. With reference to the Legal Profession Uniform Law Application Regulation 2015 (NSW), the maximum amount of costs that could be awarded by the Local Court in the related proceedings is $1259.20; and 5. SBL 17 allows the respondent to recover the costs of legal proceedings without limit.
The respondent submits: 1. SBL 17 is not exclusively directed at legal costs; 2. It does not operate inconsistently with the legislation cited by the applicants; 3. SBL 17 is compensatory in nature: it allows the owners corporation to recover the cost of remedying a breach by a lot owner; 4. At general law a wronged party can recover their legal costs in enforcing compliance from a wrongdoer (subject to assessment by the Court); 5. It is not unusual that agreements allow for the recovery of legal costs independently of court orders and 'independently of assessment under the Legal Profession Act'; 6. Compensation provisions have been considered and upheld as valid when challenged under section 150 of the SSMA; 7. SBL17 does not interfere with the ability of a Court to exercise its powers under legislation including the CPA or LCA; 8. In the event that the Tribunal finds that clauses within SBL 17 are invalid, those clauses should be severed.

[9]

Is SBL 17 inconsistent with an Act or law?

SBL 17 establishes a mechanism for cost recovery for the owners corporation from lot owners, including and explicitly the costs of conducting legal proceedings.
Therefore, SBL 17 provides for the management and administration of the lots of the strata scheme, pursuant to section 136(1) of the SSMA.
The fact that SBL 17 is not exclusively directed at legal costs is irrelevant.
Section 98(2) of the CPA allows a party to proceedings to recover costs from any other party only pursuant to an order of the court. On its terms SBL 17 allows the recovery of the legal costs of court proceedings without an order of a court. Accordingly, that part of SBL17 is inconsistent with the CPA.
Specifically, while SBL 17 does not stop a court from exercising its powers under legislation, it appropriates the exclusive role of the court to determine the costs in legal proceedings because it: 1. makes any monies for which the owner is liable under the by-law, including the costs of conducting legal proceedings, due and payable on written demand or at the direction of the owners corporation - clause 17(3.1); 2. empowers the owners corporation to recover any money owed to it under the by-law as a debt, include reference to that debt on levy notices, which if unpaid, accrues interest - clause 17(1), (3.2); 3. makes the lot owner pay for and indemnify the owners corporation against such costs - clause 17(1); 4. without the precondition of an order of a court.
The LCR caps the maximum amount of costs that may be awarded to a party (2.9 (3)(b)). SBL 17 does not place a limit on the costs of legal proceedings which the owners corporation may recover from the lot owner. Therefore, SBL 17 is inconsistent with the LCR.
As the respondent submits, at general law a wronged party can recover their legal costs in enforcing compliance from a wrongdoer, but this is subject to assessment by the court.
SBL 17, however, makes legal costs payable on written demand of the owners corporation, without assessment or order of the court. SBL 17 is therefore inconsistent with the CPA.
The respondent refers to two decisions of the Tribunal where compensation provisions have been considered and upheld as valid when challenged under section 150 of the SSMA. However, neither decision assists in determining the present application: 1. In Liu like the present application, the relevant by-laws indemnified the owners corporation for costs incurred in enforcing the by-laws, including legal fees. However, unlike the present application, the costs of legal proceedings in a court was not in issue, and therefore potential conflict with legislation including the CPA or LCA was not considered. 2. In Yoolee a by-law allowed the owners corporation to recover its reasonable costs in dealing with an owner or occupier's proposed development consent. Again, the costs of legal proceedings in a court was not in issue.

[10]

Can SBL 17 be declared invalid because it is inconsistent with legislation and/or because the respondent did not have power to make it?

As a mechanism for cost recovery from lot owners, SBL 17 provides for the management and administration of the lots of the strata scheme, pursuant to section 136(1) of the SSMA. Therefore, the owners corporation did have power to make the by-law (section 150(1) SSMA).
Inconsistency with legislation does not render a by-law beyond power: The Owners - Strata Plan No 63731 v B & G Trading Pty Ltd [2020] NSWCATAP 202 at [69]; White v Betalli [2006] NSWSC 537 at [53].
Section 136(2) does not affect the validity of a by-law, but only limits the operation of a by-law.
The Tribunal therefore has no power to declare SBL 17 invalid on the basis that it is inconsistent with the CPA and LCR.
To the extent that SBL 17 is inconsistent with the CPA and LCR, as per the findings above, SBL 17 has no force or effect.
It was not raised in the application or applicants' submissions that the applicants were in effect seeking an injunctive order pursuant to section 241 of the SSMA that the owners corporation refrain from enforcing that part of SBL 17 that is inconsistent with the CPA and LCR.
It is not appropriate for the Tribunal to make a determination about an issue when that issue was not clearly raised, and the parties have not had the opportunity to provide submissions about the issue.
However, the Tribunal observes that consideration of an order under section 241 would require consideration of discretionary principles as to whether an injunctive order should be made.
Generally, it is not appropriate to make an injunctive order that a party comply with the law: Australian Competition and Consumer Commission v Z-Tek Computer Pty Ltd 148 ALR 339.
As per the findings above, SBL 17 is already unenforceable to the extent that it is inconsistent with the CPA ad LCR.
Therefore, even if the issue of an injunction had been raised, there would have been a real question as to whether the Tribunal should exercise its discretion in favour of the applicants.

[15]

Consideration and determination

Section 120 SSMA states relevantly: (2) Work required to be carried out under term or condition of by-law If a person who is the owner, mortgagee or covenant chargee in possession, tenant or occupier of a lot in the strata scheme fails to carry out work that is required to be carried out by the person under a term or condition of a by-law of the scheme, the owners corporation may carry out the work and recover the cost of carrying out the work from that person, the owner of the lot (if the person is not the owner) or any person who, after the work is carried out, becomes the owner of that lot. (5) Recovery of costs as a debt The costs incurred by an owners corporation in carrying out any work referred to in this section may be recovered by the owners corporation as a debt.
Despite obvious similarities between section 120 and clause 17(2), there are significant differences.
For the following reasons the Tribunal finds that clause 17(2) is unjust, harsh, unconscionable and oppressive because the broad discretion it confers on the owners corporation means clause 17(2) would 'inevitably operate arbitrarily in some cases': 1. Whereas section 120(2) refers to work required to be carried out on an owner's lot under a by-law (Tribunal's emphasis), clause 17(2) refers to 'anything' that 'should' have been done under a by-law. 2. The word 'should' in its ordinary meaning denotes that a particular action is recommended or advisable but not mandatory or required. 3. While section 120(2) limits the owners corporation's discretion to work that is required or mandatory under a by-law, clause 17(2) significantly broadens that discretion to include 'anything' that is not just required but is merely recommended or advisable. 4. What 'should' have been done under a by-law is, by inference, determined by what the owners corporation in its discretion considers advisable and is not limited to what is actually required by the SSMA or the by-laws. 5. The authorisation for the owners corporation to do 'anything' on an owner's lot that the owner should have done under the SSMA or by-laws is extremely permissive and not limited by any requirement of reasonableness (apart from when an owner has not done 'anything' properly); 6. The broad discretion conferred on the owners corporation is not balanced by an opportunity for the lot owner to engage in the process or seek review.

[20]

When should the order take effect?

An order under section 150 will operate on and from the date on which the order is recorded or from an earlier date specified in the order: section 150(3) SSMA.
If the order in these proceedings was to take effect on the date the order is made, the applicants would have no relief from the unjust consequences of SBL 17 since the enforcement costs already incurred would still be payable to the respondent.
Therefore, the Tribunal determines that the order should operate from an earlier date when the respondent first incurred enforcement costs in relation to SBL 16 and which they subsequently sought to recover from the applicants as a debt due pursuant to SBL 17.
On the best evidence before the Tribunal, I find that the respondent first incurred enforcement costs for SBL 16 on 14 July 2020.
On that date the respondent's lawyer issued a letter of demand to the applicants, as noted in the respondent's Statement of Claim filed in the Local Court on 31 August 2020 (see Exhibit C, page 36).
Also on 14 July 2020, the respondent's lawyer issued tax invoice number 123557 to the respondent for the legal costs of the letter of demand (see page 693 (top notation), Exhibit G).
Schedule A to the respondent's Statement of Claim evidences that the respondent subsequently sought to recover the legal costs pursuant to that invoice as a debt from the applicant (page 42, Exhibit C).
Invoice 123557 was the first enforcement cost that the respondent sought to recover from the applicants pursuant to SBL 17.
The applicants submit that SBL 17 should be declared invalid ab initio.
SBL 17 has been on foot since an Extraordinary General Meeting on 29 November 2013 (see Exhibit F, paragraph 9).
There is no evidence before the Tribunal that the applicants have incurred costs pursuant to SBL 17, or that the applicants have otherwise incurred the unjust consequences of SBL 17 prior to 14 July 2020.
In the absence of such evidence, it is not appropriate for the Tribunal to invalidate the by-law for the almost 7 years of its operation prior to the applicants first incurring the costs.
The Tribunal has therefore determined that the order invalidating SBL 17 should operate on and from 14 July 2020.

[21]

Can the Tribunal reinstate the voting rights of the applicants?

As noted above, clause 17(3) states: 3.3 The provisions of Schedule 2, clause 10(8) of the SSMA will apply to any failure to pay monies under this By-Law so that the voting rights of the Owner are diminished in accordance with that part.
Schedule 2, clause 10(8) of the SSMA 1996 states: 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. (Tribunal's emphasis)
This is the equivalent of Schedule 2, clause 9(4) of the SSMA 2015: Voting rights cannot be exercised if contributions not paid - A member of the strata committee is not entitled to vote on any motion put or proposed to be put to the strata committee if the member was, or was nominated as a member by a member who was, an unfinancial owner of a lot in the strata scheme at the date notice of the meeting was given and the amounts owed by the unfinancial owner were not paid before the meeting.
Section 5 of the SSMA 2015 defines 'unfinancial owner' as follows: an owner of a lot in a strata scheme who has not paid all contributions levied on the owner that are due and payable, and any other amounts recoverable from the owner, in relation to the lot. (Tribunal's emphasis)
The Tribunal does not have specific power to reinstate the voting rights of a lot owner.
As noted above, the applicants have not raised the issue of an injunctive order pursuant to section 241 of the SSMA, for example, that the applicants be allowed to exercise their voting rights. Therefore, it would not be appropriate for the Tribunal to consider and determine this issue.
Further, even if the applicants had sought an order under s 241 of the SSMA there would be strong discretionary reasons not to make such an order: 1. The applicants' voting rights is a separate issue to the applicants being imposed with the financial burden of payment of monies under an invalid by-law; 2. Lot owners of the strata scheme voted at general meetings based on SBL 17 being valid and operational. To retrospectively 'reinstate' the applicants' voting rights in respect of past meetings opens a 'Pandora's Box' as to whether resolutions passed or not passed at those meetings would have been passed or not passed had the applicants voted; 3. That scenario would create significant uncertainty, potentially throwing into doubt the election of strata committee members (and subsequent decisions of duly elected strata committee members) and contracts entered into by the owners corporation. Such matters were not raised and argued at the hearing.
However, with the Tribunal's declaration that SBL 17 is invalid, the amounts claimed by the owners corporation pursuant to SBL 17 are no longer recoverable.
Therefore, assuming the applicants have paid all contributions levied on them and any other amounts recoverable from them (excepting amounts recoverable due to SBL 17), the applicants will be free to exercise their voting rights.

Gokani-Robins Pty Ltd v The Owners - Strata Plan No 77109

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Judgment (24 paragraphs)

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