Hannan v The Owners - Strata Plan No. 20680 - [2022] NSWCATCD 15 - NSWCATCD 2021 case summary

NCAT Consumer and Commercial|2021-05-03

Background

These proceedings concern a 22 lot strata scheme at Cremorne. Mr Hannan & Ms McQuade are the owners of lot 14 in the scheme, whilst Ms Van Dyck is the owner of lot 22. The building was constructed in the 1980's. The Owners - Strata Plan 20680 ("the Owners Corporation") does not dispute that there are areas of the common property that require repair and acknowledges that it has a strict obligation pursuant to s 106 of the Strata Schemes Management Act 2015 ("the Act") to repair and maintain the common property. The applicants allege that the Owners Corporation is in breach of that obligation.
The Owners Corporation has engaged an engineer, Mr Clark of Clark Engineering Consultants who has called for tenders to undertake certain repairs. The applicants dispute the proposed scope of work and argue that the proposed building contract is inadequate to protect the Owners Corporation's interests.
The applicants also allege that the Owners Corporation is in breach of certain other obligations and has breached an undertaking given to the Tribunal. They seek the compulsory appointment of a strata managing agent and other orders.
The Owners Corporation opposes the orders sought.
On 1 April 2021 in interim proceedings SC 21/12953 the Tribunal made the following orders ("the interim orders"): "1. The respondent is restrained from considering motions 3, 4 and 5 at the general meeting scheduled to take place on 8 April 2021. 2. The respondent is restrained from signing the contract with Brookvale Industrial Maintenance Pty Ltd referred to in motion 4 proposed to be put to the general meeting on 8 April 2021. 3. The above orders cease to have effect at 5pm on 12 April 2021 when the application for interim orders is listed for hearing."
The interim orders were extended on 12 April 2021, 3 May 2021 and 7 June until further order of the Tribunal.

Orders sought

Ms Van Dyck seeks the following orders: Pursuant to section 237 (1) (a) of the Strata Schemes Management Act 2015 (SSMA 2015) that Strata Central Pty Limited (Strata Central) is appointed as the strata managing agent for the Owners - Strata Plan 20680 (owners corporation) to exercise all of the functions of the owners corporation for a period of 24 months; Pursuant to sections 106 and 232 that the owners corporation carry out works to repair and maintain the common property in accordance with the scope of works identified in the report of Stephen Hamilton dated 22 December 2020 Pursuant to sections 232 (1), 241 and 106 (5) for the owners corporation to carry out work to rectify consequential damage to Lot 22 arising from its failure to repair and maintain the common property in accordance with the scope identified in the report of Stephen Hamilton dated 22 December 2020 Costs
Ms McQuade and Mr Hannan seek: 1 An order under section 237 of the SSMA 2015 that: (a) Strata Central is appointed the strata managing agent for the Owners - Strata Plan 20680; and (b) Strata Central is to exercise all the functions of the Owners Corporation for a period of 24 months from the date of these orders, on the terms and conditions set out in the agency agreement forming part of the bundle marked MM1, relied upon by the applicants in these proceedings; and (c) Strata Central has and may exercise all of the functions of the chairperson, secretary, treasurer and strata committee of the Owners Corporation for a period of 24 months from the date of these orders. OR IN THE ALTERNATIVE 2 An order under section 237 of the SSMA 2015 that: (a) Strata Central is appointed the strata managing agent for the Owners - Strata Plan 20680 for the limited purpose set out in these orders; and (b) Strata Central is to (i) exercise only the Owners Corporation's function of repairing and maintaining the common property, and (ii) engage and instruct all contractors, experts, advisors and third parties that Strata Central deems necessary to ensure the Owners Corporation meets its duty under s 106 of the SSMA, and (iii) exercise any ancillary functions and carry out any other duties of the Owners Corporation and strata committee connected to the exercise of the function referred to in (b) (i) above for a period of 24 months from the date of these orders, and (c) Strata Central's appointment be on the terms and conditions set out in the agency agreement submitted by Strata Central forming part of the bundle marked MM1, relied upon by the applicants in these proceedings. OR IN THE FURTHER ALTERNATIVE 3 An order under s 232 SSMA that: (a)within 28 days of the date of these orders the Owners Corporation engages a suitably qualified and experienced engineer, other than Clark Engineering Consultants (New Engineer) to prepare a scope of works and specification for all repair and maintenance work required on the common property (New Scope of Works); (b)within 14 days of receiving the New Scope of Works, the Owners Corporation instructs the New Engineer to put the new Scope of Works to ender and obtain detailed quotations from at least 3 suitable qualified and experienced contractors ("Tendering Contractors"; (c)within 28 days of receiving the New Scope of Works, the Owners Corporation convenes a general meeting for the purpose of appointing one of the Tendering Contractors and that the Owners Corporation does so appoint a Tendering Contractor to commence work on the common property as soon as reasonably practicable under the supervision and instruction of the New Engineer. 4. The applicants seek an order that the respondent pays their costs of and incidental to these proceedings.
Section 237 (3) of the Act sets out the circumstances in which an order appointing a strata managing agent may be made: "The Tribunal may make an order only if satisfied that- (a) the management of a strata scheme the subject of an application for an order under this Act or an appeal to the Tribunal is not functioning or is not functioning satisfactorily, or (b) an owners corporation has failed to comply with a requirement imposed on the owners corporation by an order made under this Act, or (c) an owners corporation has failed to perform one or more of its duties, or (d) an owners corporation owes a judgment debt."
The applicants allege that the Owners Corporation is neglecting its legal duties (including not attending to its s 106 duty for many years), is acting in contravention of the Act and is otherwise not functioning satisfactorily.

Evidence and submissions

The hearing took place on 3 May 2021 and 7 June 2021. Because of the Covid-19 pandemic, the first day of the hearing was conducted by phone, whilst the second proceeded by virtual meeting room.
The Tribunal has before it: 1. The 5 volume Court Book (which was provided after the first day of the hearing) 2. 12 March 2021 - respondent's submissions (Court Book pp 1803- 1823) 3. 31 May 2021 - applicants' submissions 4. 15 June 2021 - applicants' submissions 5. 16 June 2021 - affidavit of Frank Death 6. 18 June 2021 - applicants' supplementary submissions 7. 14 July 2021 - respondent's submissions 8. The evidence adduced at the hearing. There is a transcript of the hearing on 3 May 2021, but no transcript of the second day. 9. 23 July 2021 - applicants' submissions in reply 10. 19 November 2021 - application to reopen the hearing from the applicants, with submissions in support 11. 15 December 2021 - respondent's further submissions 12. 22 December 2021 - applicants' further submissions in reply.

Expert Evidence

The Tribunal has before it evidence from:

Mr Clark of Clark Engineering Consultants, who has been engaged by the Owners Corporation and has provided consultancy services to the Owners Corporation.
Mr Stephenson of Diagnostech Remedial Building Consultants, who was engaged by Ms McQuade to comment on Mr Clark's scope of work, and who reported in December 2019. A motion to replace Mr Clark with Mr Stephenson was defeated.
Mr Hamilton, who on instructions from Ms Van Dyck provided reports dated 22 December 2020 and 8 April 2021. He was also engaged by Ms McQuade and Mr Hannan and produced a report dated 23 March 2021.

Mr Clark and Mr Hamilton gave concurrent evidence to the Tribunal. I note that in considering their evidence I place more weight on the evidence of Mr Hamilton as he does not have any financial interest in the outcome of these proceedings. Whilst Mr Clark has adopted the Tribunal's code of conduct, his independence is affected by the fact that he is the consultant who produced the specification and tender documents. Under his agreement with the Owners Corporation, he is entitled to a fee representing 7.5% of the value of the rectification works. Mr Hamilton has no pecuniary interest in the outcome of the proceedings.

Findings

I make the following findings, based on the evidence: 1. On 2 July 2019 Mr Clark of Clark Engineering Consultants submitted a proposal for consideration by the Owners Corporation, in respect of his understanding that "the owners require a full inspection of the roof terrace and a report detailing any defects located during the inspection." The proposal set out a scope of work, and a fee proposal as follows: Item 1 - Inspection and report - $1650.00 incl GST Item 2 Preparation of specifications, scope of work and tender documentation $3960.00 incl GST Item 3 - Tendering and recommendations - $1320.00 incl GST Item 4 - preparation of contract and letting of contract $1320.00 incl GST Item 5 - superintendence- 7.5% (see note 1 below) Notes: 1. Our fee will be 7.5% of the total Contract Sum. 2. Meetings with owners or others, design or redesign of any part of the works required as a result of any matter or circumstance discovered during the Works or any other amendments will be charged at our standard rates. 1. On 23 July 2019 the strata committee resolved to seek a further fee proposal from Clark Engineering for assessment and report on the water ingress issues in the rest of the building. There is no record that the further fee proposal was received from Mr Clark. 2. On 5 August 2019 the then strata manager sent the following email to Mr Clark: "Sorry for the delay in getting the signed proposal back to you as the inspection had already been arranged we assumed the secretary had already engaged you. We attach a signed acknowledgement as per your proposal dated 2 July 2019 on behalf of the strata committee to undertake stage 1 being the inspection and report". 1. On 16 August 2019 Mr Clark produced a report which was provided to the strata committee. 2. On 27 August 2019 the strata committee considered this report and resolved to request Mr Clark to amend it to include the additional matters requested at the meeting dated 23 July 2019. 3. Mr Clark provided an amended report dated 19 September 2019. 4. On 26 September 2019 Mr Clark produced a scope of work and tender documentation. 5. Invoices were rendered by Mr Clark and paid as follows:

2 September 2019 $3,200.63
25 September 2019 $2646.71
1 October 2019 $3960.00 1. These invoices included work which had not been authorised by a resolution of the strata committee or the Owners Corporation 2. On 4 October 2019 the then strata manager instructed Mr Clark to do no further work. Mr Clark acknowledged receipt of this instruction. 3. On 29 October 2019 Mr Clark produced a revised scope of work and tender documentation. 4. At a general meeting on 19 November 2019 the Owners Corporation deferred a motion to approve Mr Clark's scope of works "to allow time for further information to be provided by the engineer". 5. Sometime between 26 September 2019 and 10 December 2019 Mr Clark sent a scope of work to at least three builders. 6. On 10 and 11 December 2019 three builders submitted tenders to Mr Clark. 7. On 17 December 2019 Mr Clark provided a tender report to the Owners Corporation. He recommended the acceptance of Brookvale Industrial's tender for a price of $1,425,864.00. 8. Ms McQuade engaged Diagnostech Remedial Building Consultants to report on Mr Clark's proposed scope. On 10 December 2019 Mr Stephenson provided advice that the proposed tender documents were based on a form of contract which he did not consider to be appropriate and included provisional allowances for many items, making the ultimate price of the works variable. 9. On 29 January 2020 the strata committee met and resolved to "issue an invitation to Mr Clark to address the strata committee and explain his tender documentation". A motion to accept a fee proposal from Diagnostech to "properly" investigate the remedial works required and prepare "a technically accurate prescriptive specification for all works required by the Owners Corporation" was defeated. The committee resolved to pay Mr Clark's outstanding accounts. 10. On 28 February 2020 Ms McQuade requested that a general meeting be convened on 18 March 2020. 11. In March 2020 Covid-19 restrictions were imposed throughout NSW. 12. On 30 April 2020 Ms McQuade circulated a letter to all lot owners. In that letter she urged them to carefully consider their vote at the upcoming meeting. She urged them not to go any further with Clark Engineering and instead, to engage Diagnostech. 13. On 26 May 2020 a general meeting was held. The meeting resolved to sever the relationship with Mr Clark and to engage Diagnostech to carry out investigations and prepare a detailed scope of work. Initially votes were incorrectly counted such that it appeared that this motion had been lost. 14. On 19 June 2020 Mr Clark wrote two letters to the Owners Corporation. He referred to the letter circulated by Ms McQuade, stated that he had been advised that it "is probably libellous and actionable" and asserted that he had a contract with the owners which he expected to have honoured. The second letter alleged that he had a contract with the Owners Corporation for superintendence of the contract and stated that he expected to be paid in accordance with the contract. 15. On 24 August 2020 Dr McDonald, the owner of lot 4, lodged applications with the Tribunal seeking interim and substantive orders in respect of the repairs required to the common property affecting his lot (SC 20/37246 and SC 20/37247) ("Dr McDonald's proceedings"). 16. In September 2020 the Owners Corporation sought advice from Bannermans Lawyers in relation to Mr Clark's claims. The brief was drafted by Frank Death and Peter Jowett and sent to the strata manager for completion. Copies of the strata manager's emails dated 5 August 2019 and 4 October 2019 were not included in the brief. 17. On 14 September 2020 several letters from lot owners, communicating dissatisfaction with what they said was disharmony within the strata committee, were sent by Ms McQuade to the committee. On 15 September 2020 Mr Peter Jowett wrote to the committee in relation to Ms McQuade's letter. He stated any committee member who could not agree with a decision of the committee and support it publicly should resign. 18. On or about 17 September 2020 the committee became aware of Dr McDonald's proceedings. 19. On 18 September 2020 Mr Death requested the strata manager to convene a strata committee meeting, with a resolution to authorise Mr Death to represent the Owners Corporation in Dr MacDonald's proceedings. The strata manager strongly recommended that the Owners Corporation be represented by a lawyer, noting that the scheme had legal defence insurance. 20. On 21 September 2020 the strata manager wrote to the strata committee. She noted that two remedial builders accompanied by Mr Clark had attended lots 19 and 4 to quote to remediate water penetration and mould issues. She stated: "I have been unable to establish who instructed Mr Clark, but obviously know it was not More Than Strata" And "I note that had the resolution to appoint Diagnostech been honoured and actioned at the time it was made it is quite likely tenders would be inn hand for consideration today. All current delays could have been avoided. Instead it would seem that certain members of the committee are determined that the work be completed only under the supervision of Mr Clark. For this reason it is highly inappropriate that committee members represent the OC at NCAT when there stands a resolution to the contrary." I again repeat my professional advice that it would be prudent, sensible and in the best interest of all owners that a lawyer be appointed." 1. On 23 September Mr Hannan and Ms McQuade filed application SC 20/40116. 2. On 25 September 2020 Mr Death appeared before the Tribunal, representing the Owners Corporation in respect of Dr McDonald's proceedings. The following order was made by consent: "By consent, the respondent Owners Corporation undertakes to arrange for the completion of the following works to common property of unit 4 by 18 December 2020: Engage a fully licensed, qualified, insured and experienced remedial builder together with a qualified engineer with remedial experience with appropriate professional indemnity insurance to rectify, remediate and replace the works requires to ensure the water penetration and all causes of the mould, mildew, dampness and all associated damage caused by that water penetration is rectified." 1. On 29 September 2020 Bannermans Lawyers provided advice to the Owners Corporation that it was bound by a contract with Mr Clark, at least in respect of the roof terrace works, on the basis that the original fee proposal for the roof terrace works had been accepted by the Owners Corporation. At the time of providing that advice Bannermans had not been provided with either of the emails referred to at paragraphs 15 (3) and (10) above. 2. By letter dated 30 September 2020 lawyers for the owner of lot 19 put the Owners Corporation on notice that it required that the Owners Corporation engage a remedial builder to carry out repairs to lot 19, as the Owners Corporation had undertaken to do in Dr McDonald's proceedings. The letter also put the Owners Corporation on notice of a claim pursuant to s 106 (5) of the Act for losses allegedly incurred as a consequence of the Owners Corporation's breach of its statutory duty. 3. On 3 October 2020 Ms Van Dyck lodged her application, seeking the compulsory appointment of a strata managing agent (SC 20/42134). 4. On 22 October 2020 a committee meeting was convened. The agenda of the meeting was not endorsed by either the secretary or the strata manager. The minutes record that several of the motions purported to retrospectively authorise actions already taken. The committee resolved to consider a quotation from BIM for the: "Remediation of units 4 & 19 with a view to accepting the quotation for works to proceed as soon as possible and not until the matter of an engineer has been approved at an EGM". 1. By letter dated 5 November 2020 the lawyers for Ms Van Dyck (unit 22) demanded that the Owners Corporation advise when it proposed to carry out the repairs to her balcony and associated lot property, provide details of the experts it intended to engage to carry out the work, arrange for rectification works to be carried out to the common property and any consequential damage, and pay Ms Van Dyck's legal costs. 2. On 7 December 2020 the Owners Corporation considered Bannerman's advice and resolved to proceed with Mr Clark and not to proceed with Diagnostech. 3. On 26 December 2020 the strata committee resolved: "to engage BiM to undertake works to lots 4 and 19 in accordance with the scope of works prepared by Paul Clark" 1. On 22 January 2021 the Owners Corporation signed a contract with BiM to undertake works in lot 4. 2. On 22 March 2021 Ms Van Dyck, Mr Hannan and Ms McQuade lodged an interim application (SC21/12953). 3. On 23 March 2021 Mr Clark certified a progress claim in respect of the works in lot 4 and 19. This included works which were a variation to the original scope, and for which there was no written variation. 4. On 1 April 2021 the Tribunal made the interim orders. 5. On 7 April 2021 the strata committee decided to defer the general meeting which had been organised to take place on 8 April 2021 at which the motions which were the subject of the interim orders, and other motions were to have been considered. 6. At a general meeting on 17 May 2021 the Owners Corporation approved the appointment of Chambers Russell Lawyers to represent the Owners Corporation in these proceedings. By that date the Owners Corporation had paid invoices to Chambers Russell Lawyers totalling approximately $45,000. At the meeting, the following exchange took place: Natalie (strata manager): And I think its fair at this point. It looks to me that Chambers Russell have billed $45000 odd to date. Peter Jowett: Natalie, I would be much happier if you did not disclose items like that to the meeting as a whole. There are parties- Natalie: Its financial information for the owners corporation: Its not secret Peter. Peter Jowett: No its up to the owners corporation to make that decision as to what will be disclosed, Natalie, its not up to you Natalie Its actually not. Financial information is available to all owners so there's Peter Jowett No, financial information paid to our solicitors could well be covered by the secrecy provisions under the litigation that is occurring here. Natalie I absolutely Peter Jowett I am not happy with you disclosing that information. Natalie Well, noted, but I stand firmly that every owner has the right to access financial information. They may not have the invoice, with details in it, that may be considered privileged. But the amount paid - every owner has the right to know that. Peter Jowett There are good reasons, Natalie, why we exclude you from these discussions.

Submissions

The applicants submit that the following matters support a finding that the Owners Corporation is not functioning satisfactorily: 1. The ongoing failure to properly repair and maintain the common property. 2. The irregularities in the appointment of Mr Clark, including in having him complete work without the authority of a resolution of the strata committee or the Owners Corporation, instructing him to do work without a signed agreement, and paying his accounts without a resolution of the strata committee. 3. Preparing a brief to Bannermans for advice without including all relevant documents. 4. Disharmony between committee members, and what the applicants allege to be inappropriate and inaccurate statements by Mr Jowett and Mr Death. 5. Mr Death's representing the Owners Corporation in Dr McDonald's proceedings without the authority of a resolution of the strata committee or the Owners Corporation. 6. Refusal to obtain legal advice or representation in Dr McDonald's proceedings in circumstances where the strata manager's strong recommendation was that the Owners Corporation be represented. 7. Mr Death giving an undertaking to NCAT on behalf of the Owners Corporation without authority, in circumstances where the undertaking could not be complied with. 8. Breaching the undertaking given to NCAT. 9. Resolving, at the general meeting on 7 December 2020, to oppose these proceedings, without first obtaining legal advice. 10. Being prepared, in March 2021, to enter into a contract to complete rectification works, knowing that:

the scope of works was contentious,
the proposed contract had no provisions to facilitate the superintendent functions proposed to be carried out by Mr Clark,
the scope of work had been prepared after an inspection carried out in 2019 and related to the whole building, when some works (relating to lots 4 and 19) had since been the subject of a separate contract, and had been completed,
The quantum of the fixed price portion of the contract ($1,195,905.73) varying from the amount originally tendered ($1,425.864 less $415,912 for provisional sums), being an increase of 20% despite two lots having been attended to, with no explanation for the difference,
The quotations forming the basis for the contract not including provisional sums, making no allowance for the latent expenses for which provisional sums provide and not including any scale of charges for labour or materials 1. Delegating to Mr Clark the function of approving variations to the building works in respect of lot 4 and 19 without authority, in breach of s 10 (2) of the Act. 2. Cancelling a general meeting of the Owners Corporation without authority, and thereby enabling the Owners Corporation to incur thousands of dollars in legal fees without authority. 3. Failing to raise capital for the proposed building works. 4. Disharmony between members of the strata committee, and between members of the strata committee and the strata managing agent. 5. Continuing to engage Mr Clark in the face of expert evidence that the contract is flawed and that the scope of work will be inadequate to discharge the Owners Corporation's obligations. 6. Making payments to Mr Clark for work which had not been properly authorised, and without the authority of a resolution of the strata committee or the Owners Corporation. 7. Engaging and paying Chambers Russell Lawyers in breach of s 103 of the Act.

The respondent in reply submits that: 1. Whilst it concedes that there are areas of the common property which require repair, and that it has a strict obligation to repair and maintain the common property, it says that it has taken appropriate action by: 1. Engaging Clark Engineering Consultants to inspect the common property, prepare a scope, put the scope to tender and to provide advice and recommendations about the tenderers, 2. Engaging Brookvale Industrial Maintenance to commence the required work to units 4 and 19, 3. Taking steps to engage BIM to carry out the balance of the work. 1. The delay in attending to the repairs has been caused in part by Covid difficulties and in part because of the injunction obtained in these proceedings. 2. It is for the Owners Corporation to determine the appropriate scope of work, and not any individual owner. 3. The counting of invalid votes at the meeting on 26 May 2020 occurred because of a software glitch in the strata manager's office, and thus is not evidence that the strata scheme is not functioning satisfactorily. 4. The brief to Bannerman's Lawyers was prepared by Ms McQuade, and she cannot rely upon any omission of her own to argue that the scheme is not functioning satisfactorily. 5. The email from Mr Jowett to Ms McQuade cannot be read in isolation and is not evidence that the scheme is not functioning satisfactorily. 6. Neither giving an undertaking without legal advice nor acting in NCAT without legal representation is evidence that the scheme is not functioning satisfactorily, taking into account that Dr McDonald was not represented in the proceedings, and that s 45 (1) of the Civil and Administrative Tribunal Act 2013 ("the NCAT Act") has as its starting point that a party should be self- represented. 7. The evidence does not support a finding that Mr Clark's authorisation of a payment claim amounts to a delegation by the committee of its decision-making responsibility. 8. The decision to defer the general meeting on 8 April 2021 was made in order to await the Tribunal's determination of Dr McDonald's claim and was made on legal advice. 9. The offer made on 1 June 2021 was made in accordance with the Tribunal's guiding principle and is not evidence that the scheme is not functioning satisfactorily. 10. There has been no "failure" to raise the levies to pay for the building work, but rather a decision to do so in conjunction with the proposed work. This is not evidence that the scheme is not functioning satisfactorily. 11. There is no disharmony between the strata committee and its strata manager but rather evidence of the strata committee acting properly in determining whether to accept the agent's advice and holding the agent to account. 12. The applicants have not identified the decisions of the strata committee which they allege to be invalid. 13. The strata committee had approved the payments made to Mr Clark.

Application to reopen the evidence

On 22 November 2021 the Tribunal received a miscellaneous application lodged by the applicants Ms McQuade and Mr Hannan, seeking leave to adduce further evidence and make further submissions in this matter ("the new material"). The Tribunal called for submissions. The respondent filed submissions opposing the reopening of the case but providing submissions and evidence in response to the new material ("the new response material'). The applicant filed submissions in reply.

Should the case be reopened?

The applicants allege that the new material is further evidence that the Owners Corporation is not functioning satisfactorily, and submits that it is in the interest of the Tribunal's guiding principle that it be considered. The respondent says that the new material should not be considered, as it deals with what is said to be a relatively minor matter, and a different issue to that canvassed in the substantive proceedings. The respondent submits that reopening the case would cause additional delay, which would not be consistent with the Tribunal's guiding principle.
I have determined to consider the new material, the new response material and the submissions in reply. Doing so will not cause any further delay. If the material is not considered, it may lead to the filing of a further application, which would cause delay. I am therefore satisfied that it is consistent with the Tribunal's guiding principle that I consider the material.

Findings

In respect of the new material, I make the following findings:

Works on lots 20 and 21 1. Mr Peter Jowett is the secretary of the Owners Corporation. He is not a lot owner, but holds a proxy from the owner of lot 20. 2. On 31 August 2021, in his role as secretary, Mr Jowett sent an email to all lot owners enclosing a notice from BIM that remedial works would be commencing to units 20 and 21 on 13 September 2021. Neither the email nor the attached notice disclosed the nature of the work, nor whether the works were being carried out by the owner of the lot or the Owners Corporation. 3. Following an enquiry to the strata managing agent, Ms McQuade was advised by her on 1 September 2021 that the work was replacement of sunroom windows, being paid for by the lot owners in accordance with an existing by-law. 4. By email on 1 September 2021 Ms McQuade sought further information in respect of the work from the secretary (copied to all owners) and from the strata managing agent. 5. On 2 September two lot owners sent emails to all lot owners questioning Ms McQuade's right to seek the information. 6. On 6 September 2021 Mr Death sent an email to Ms McQuade and copied to all owners, stating that correct and transparent procedures had been followed, that the owners of lots 20 and 21 were required to maintain the enclosed balconies, and that the works and cost of the works were the responsibility of the owners of those lots. The email also stated that the non-approved garden bed on unit 20 balcony would be removed by BiM at the cost of unit 20. 7. The non-approved garden bed is on the northern side of the building. The sunroom windows are on the southern side of the building. 8. Works commenced on the northern balcony on 13 September 2021 and continued through October 2021. 9. On 11 November 2021 the applicants' solicitor carried out an on line inspection of the records of the Owners Corporation which disclosed a series of emails between Mr Jowett and the strata manager in respect of a proposed by-law said to be required for the balcony garden works. The works were proceeding in the absence of that proposed by-law. 10. A copy of an email dated 28 August 2021 from Mr Jowett to More Than Strata stated that the bylaw would not be required. A copy of that email was not included in the records of the Owners Corporation made available to the applicants' solicitor. 11. On 17 November 2021 the owner of lot 20 sent an email to some but not all owners, notifying the commencement of work on the windows. 12. The Owners Corporation now submits that Special By-law 5 covers the proposed balcony works such that a further by-law is not required. The Owners Corporation accepts that Special By-Law 5 requires approval from the strata committee and acknowledges that such approval was not given, but says: "However, the strata committee is in the process of retrospectively doing so"

Managing agent's agreement 1. At a strata committee meeting on 28 June 2021 it was resolved to extend the strata manager's agency agreement for a period of 3 months. 2. At a strata committee meeting on 6 December 2021 the strata committee resolved to extend the appointment "until January 2022". The Owners Corporation submits that it was permitted to do so under s 50(4) of the Act.

Discussion and decision

I am satisfied that there is evidence that the Owners Corporation is not functioning satisfactorily and is not complying with its obligations under the Act. In particular: 1. Clark Engineering Consultants provided a proposal for engagement in respect of the roof terrace works. Despite the strata committee resolving to ask him to provide an amended proposal for all of the work, no proposal was received, and yet Mr Clark was instructed by the strata committee to provide the updated report. I am satisfied that in allowing Mr Clark to proceed to provide his services without an agreement in writing is evidence that the management of the Owners Corporation is not functioning satisfactorily. 2. The irregularities and uncertainty surrounding the appointment of Mr Clark lead to him claiming to have a contract and threatening to hold the Owners Corporation to payment for services which in turn meant that the Owners Corporation was put to the additional expense and delay in obtaining legal advice about that claim. This is evidence that the management of the Owners Corporation is not functioning satisfactorily. 3. The Owners Corporation resolved not to continue with Mr Clark but because of the issues around his appointment, it was placed in a position where that decision may have resulted in a claim for damages by him. Allowing the Owners Corporation to be placed in that position is evidence that the management of the Owners Corporation is not functioning satisfactorily. 4. Despite the Owners Corporation having advice from the experts engaged by the applicants that the form of contract proposed by Mr Clark is not appropriate, it has not adequately addressed those concerns. The proposed contract contains no provisions in respect of the supervisory role of the engineer, adopts a scope of work which was based on an inspection almost 2 years before, did not reflect work which had been done since the date of the tender document and left investigative work to be carried out by the contractor after the contract had been signed, making it highly likely that the cost of the work would increase. The offer made in these proceedings to adopt some alterations to the contract did not address all of the issues raised. It would have been imprudent for the Owners Corporation to enter into the contract, even as amended. This is evidence that the management of the Owners Corporation is not functioning satisfactorily. 5. Despite the respondent's submissions to the contrary, I am satisfied that there has been disharmony between members of the strata committee and two separate strata managing agents, and an unwillingness by members of the strata committee to accept advice offered by the strata managing agent. This includes but is not limited to: 1. The refusal by Mr Death and Mr Jowett to accept the advice given by the strata manager that the scheme be represented by a lawyer in Dr McDonald's proceedings. Whilst it is true that NCAT encourages parties to be self represented, there were a number of complexities in the background to the proceedings which made the strata manager's advice eminently reasonable. Instead, Mr Death represented the Owners Corporation, and gave an undertaking to settle the proceedings, without any resolution of the strata committee authorising him to do so, without the knowledge of the strata managing agent, and in circumstances where it was unlikely that the undertaking could be honoured. 2. The subsequent insistence by Mr Death "on behalf of the majority of the Strata Committee members" that the strata manager publish an agenda for a committee meeting including a motion to "censure" the strata manager for giving allegedly incorrect advice to the committee and refusing to carry out a written instruction from the committee. 3. The insistence on publishing the agenda, and subsequently passing the motions, despite the strata manager's advice that the motions were factually incorrect and possibly defamatory. 4. The challenge made by Mr Jowett to the strata manager's advice at the general meeting on 17 May 2021, (see paragraph 15 (43) above). The advice of the strata managing agent was correct, and Mr Jowett's challenge to it and statement that "this is why we don't include you in these discussions" was evidence of a willingness and practice of keeping information from the strata manager. 1. This disharmony and reluctance to accept advice is evidence that the management of the Owners Corporation is not functioning satisfactorily. 2. The Owners Corporation breached s 103 of the Act when it engaged Chambers Russell Lawyers to act in these proceedings and incurred and paid $45000 in legal fees before obtaining a resolution of the Owners Corporation. 3. There is no evidence that the Owners Corporation provided a copy of the Chambers Russell costs disclosure to all owners within 14 days as required by s 105 of the Act. In addition, by the time the Owners Corporation resolved on 17 May 2021 to enter into the cost agreement, the fee disclosure had been exceeded. There is no evidence that the strata committee sought an updated fee disclosure from Chambers Russell, or if it did, that it provided that fee disclosure to all owners as required by s105. In fact, Mr Jowett at the meeting claimed that the exceeding of the costs disclosure was "the nature of the business". 4. There is evidence that actions have been taken without the authority of a resolution of the strata committee. This was highlighted by the attendance of Mr Death to represent the Owners Corporation in Dr McDonald's proceedings, without the knowledge of the strata managing agent and without a resolution of the strata committee authorising him to do so. In addition, without the authority of a resolution of the strata committee or the Owners Corporation, Mr Death gave an undertaking to complete works to Dr McDonald's unit by 18 December 2020, in circumstances where the Owners Corporation had resolved to sever its connection with Mr Clark, and to engage Diagnostech, a decision which the strata committee had not acted upon and about which it was awaiting legal advice. In due course the undertaking was not honoured. 5. The minutes of the strata committee meeting held on 22 October 2020 resolved to approve the minutes of the previous committee meeting held on 28 April 2020. Apparently no committee meeting had been held in the intervening almost 6 months. The meeting went on to purport to retrospectively approve actions taken "as previously agreed by the majority of the Strata committee members" in respect of the Dr McDonald's proceedings, retrospectively appointing Mr Death as spokesman and representative of the Owners Corporation. The motion did not authorise Mr Death, even retrospectively, to settle the proceedings or give the undertaking which had been given to NCAT. 6. I accept the submission of the Owners Corporation that it is up to the Owners Corporation and not any individual lot owner to determine the scope of works to be adopted in order to discharge the s 106 obligation. However, one of the complaints which Ms McQuade has raised is that the scope of works which the proposed contract adopts is uncertain, with conflicts between the tender document and the quotations. She gave as an example the issue of rectification of showers. A close analysis of the documents discloses that the quotation of BiM, which forms part of the contract, allows a provisional allowance for "Internal shower cubicles" $108,900 incl GST" with a Note: "Waterproof 9 Showers" "Provisional sum". 1. Mr Clark's report dated 29 October 2019 (which is referenced in the proposed contract) identified high moisture readings adjacent to the bathrooms of unit 3, 4, 7, 10, 12, 14 (ensuite, main bathroom "not accessible"), 15, and 21. Slightly elevated readings were found in unit 1, 5, 6, and 19 (ensuite). Mr Clark says that the lower readings may be because of infrequent use but notes that once waterproofing fails "the failure will continue and extend to other areas". However, the bathrooms with lower readings are not to be included in the scope of repairs. There are 8 bathrooms identified as having high readings, but 9 included in the quotation. Work to unit 8 had been completed. It is therefore impossible to determine from the contract documents which bathrooms are included in BIM's scope. 2. A contract for repairs to units 4 and 19 was entered into in December 2020, and work was carried out pursuant to that contract. There was a subsequent dispute about the work between Dr McDonald and the Owners Corporation, which dispute has apparently since been resolved. The evidence before the Tribunal was not clear enough to enable me to make any findings about that dispute. However, in his affidavit dated 16 June 2021 Mr Death gives evidence that there were three variations to the contract price, all of which were paid. There is no evidence that any of these variations were the subject of signed variations or were discussed at properly convened meetings of the strata committee or the Owners Corporation before the work was carried out and the charges incurred. The respondent submits that this process is not unusual in any building project. I do not accept that submission. The process adopted is not in accordance with the contract, which as stated above does not anticipate the involvement of a superintendent. I accept the submission of the applicants that the process has had the effect of delegating the Owners' Corporation's responsibilities to Mr Clark, in breach of both the contract and s 10 of the Act. It would be concerning if the same process was adopted in respect of the proposed contract, so that issues such as which bathrooms are to be waterproofed, or whether doors require replacement after removal was determined by Mr Clark without the approval of the strata committee or the Owners Corporation. 3. The way in which the repairs by the owners of lots 20 and 21 were handled is further evidence that the management of the Owners Corporation is not functioning satisfactorily. Had the procedures in Special By-Law 5 been properly followed, the work would have been considered at a strata committee meeting before it was carried out. This would have provided an opportunity for transparency, and there would have been no need for Ms McQuade to seek information from the secretary and the strata managing agent. Retrospective approval of actions already taken deprives lot owners of information to which they are entitled, and deprives the Owners Corporation of the benefit of any input from members of the Owners Corporation before the action is undertaken. 4. The strata committee allowed the term of the managing agent's agreement to expire and then purported to extend it under s 50(4) of the Act. I am not satisfied that s 50(4) allows an extension to a term which has expired.
For completeness, I do not consider the following to be evidence that the Owners Corporation is not functioning satisfactorily: 1. The counting of votes incorrectly at the 26 May 2020 meeting, as this was the result of an error by the managing agent which was explained by them 2. The alleged failure to raise the capital for the works, as the Owners Corporation is entitled to do so when it resolves to enter into a contract for the works 3. Any delay arising from the Covid-19 pandemic or these proceedings, except that it was necessary that the proceedings be brought to address the shortcomings in the appointment of Mr Clark and the proposed contract, and thus the delay could have been avoided.

Exercise of discretion

Having found that there is evidence that the management of the Owners Corporation was not functioned satisfactorily at the date of the hearing and has not satisfactorily functioned in the time between the hearing and the giving of this reserved decision, I have a discretion as to whether to make an order under s 237, and what order to make. I accept that the making of an order is draconian and should not be adopted unless there are strong grounds that such an appointment is necessary in all the circumstances. I am satisfied that it is. I have found numerous examples of the Owners Corporation not functioning satisfactorily. These failings include a failure to properly maintain the common property in breach of s 106, but they are not confined to the Owners Corporation's s 106 obligations. There has been a history of decisions being made without the authority of a resolution of the strata committee or the Owners Corporation, and then meetings being convened to purportedly give retrospective approval. This practice continued after the hearing, and in circumstances where the Owners Corporation had the benefit of legal advice. I am satisfied that the evidence as a whole supports the compulsory appointment of a strata managing agent to exercise all of the functions of the Owners Corporation.

The scope of work

Ms Van Dyck seeks an order that the Owners Corporation adopt Mr Hamilton's scope of work for work on the common property affecting her lot. The Owners Corporation opposes that position and argues that it is up to the Owners Corporation and not any individual owner to determine the scope.
I accept the Owners Corporation's submission. However, where there is independent expert evidence that the work which the Owners Corporation proposes to carry out will not address the s 106 obligations, then it is appropriate for me to consider the evidence which has been provided.

The law

The Owners Corporation has an obligation to maintain the common property: Duty of owners corporation to maintain and repair property 106 DUTY OF OWNERS CORPORATION TO MAINTAIN AND REPAIR PROPERTY (1) An owners corporation for a strata scheme must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation. (2) An owners corporation must renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the owners corporation. (3) This section does not apply to a particular item of property if the owners corporation determines by special resolution that-- (a) it is inappropriate to maintain, renew, replace or repair the property, and (b) its decision will not affect the safety of any building, structure or common property in the strata scheme or detract from the appearance of any property in the strata scheme. (4) If an owners corporation has taken action against an owner or other person in respect of damage to the common property, it may defer compliance with subsection (1) or (2) in relation to the damage to the property until the completion of the action if the failure to comply will not affect the safety of any building, structure or common property in the strata scheme. (5) An owner of a lot in a strata scheme may recover from the owners corporation, as damages for breach of statutory duty, any reasonably foreseeable loss suffered by the owner as a result of a contravention of this section by the owners corporation. (6) An owner may not bring an action under this section for breach of a statutory duty more than 2 years after the owner first becomes aware of the loss. (7) This section is subject to the provisions of any common property memorandum adopted by the by-laws for the strata scheme under this Division, any common property rights by-law or any by-law made under section 108. (8) This section does not affect any duty or right of the owners corporation under any other law.
One of the issues which must be determined is the extent to which replacement of fixtures is required. Ms Van Dyck, guided by the expert opinion of Mr Hamilton, submits that the Owners Corporation has an obligation to replace the balustrades on the balcony and the balcony doors. The Owners Corporation says that the balcony doors in unit 19 were able to be reused, and the upgrade or replacement of the balustrades is not required.
In Loneragan v The Owners - Strata Plan No 16519 [2020] NSWCATAP 177 the Appeal panel considered the decision of Parker J in Glenquarry Park Investments Pty Ltd v Hegyesi [2019] NSWSC 425. These cases provide a useful analysis of the interrelationship between repair and replacement of an item of common property: "40 After a detailed consideration of the authorities dealing with the relationship between ss 62 and 65A of the 1996 Act, Parker J at [74] stated that it was implicit from the analysis of Tobias AJA in Thoo that the obligation in s 62(2) to renew or replace common property is limited by a concept of reasonable necessity. His Honour stated at [129] that the obligation is only engaged where the item can no longer be kept in a state of good and serviceable repair. He went on to say that the provision is only directed to circumstances where the item "is no longer operating effectively or at all, or has fallen into disrepair". 41 Parker J at [71] found "force in the contention" that once part of the common property was in need of repair and maintenance work, or replacement work, within s 62, "practicality requires allowing a degree of judgment and latitude to an owners' corporation in determining how far to go with repair and replacement work in a maintenance context": [71] Often, the replacement of an old and obsolete item may be cheaper and more effective in the long run than continuing to try to patch it up. There is also a textual basis for allowing a degree of latitude to an owners' corporation in deciding what and when should be replaced. Maintenance is not necessarily confined to responding to a breakdown; the term usually also includes preventative maintenance, that is, replacing something which has reached the end of its service life before it fails. [73] On the other hand, the purpose of s 65A was clearly to protect minority owners in a building from having the costs of enhancement imposed on them by the majority. The minority may prefer to continue to eke out the existing facilities even if in the longer run, that may prove more expensive or inefficient. They may have less money to spend, or their priorities may be different. The legislative purpose behind s 65A could arguably be subverted if unnecessary costs could be imposed on the minority at the discretion of the majority just because some, much less extensive, repair or maintenance is required. [74] In my view, it is implicit in what Tobias AJA said in Thoo that the obligation in s 62(2) to renew or replace items of common property is limited by a concept of reasonable necessity. His Honour stated at [129] that the provision is only engaged where the item can no longer be kept in a state of good and serviceable repair. He went on to say that the provision is only directed to circumstances where the item "is no longer operating effectively or at all, or has fallen into disrepair". (Citations omitted) 43 We do not agree that Glenquarry is authority for the proposition that where the obligation imposed by s 106(1) is engaged to "properly maintain and keep in a state of good and serviceable repair the common property" if the subject property is capable of being repaired, replacement must necessarily be considered to be an enhancement. Whether replacement will amount to an enhancement within the meaning of s 108(1) will depend on the facts of the particular case. As Parker J acknowledged at [71] "practicality requires allowing a degree of judgment and latitude to an owners corporation in determining how far to go with repair and replacement work". In deciding whether to replace or repair, a range of matters will be relevant to inform a decision made by an owners corporation, such as the costs of repairs versus the cost of replacement and the estimated life of the repaired item versus the life of the replaced item.

Analysis

Mr Clark says that there is no need to replace the balustrades, or the balcony doors, and that doing so would be for aesthetic purposes only. Mr Hamilton says that the existing balustrades were constructed over 40 years ago and are of a height which does not conform to standards under the National Construction Code. Waterproofing and retiling works will further reduce the effective height of the existing balustrades. The balcony doors are at the end of their useful life, and replacement of them would be preferred.
The duty to repair and maintain the common property may require replacement of the doors and the balustrades, in lot 22 but also in other lots. Whether it does will require a consideration by the appointed strata manager, acting in the shoes of the Owners Corporation, of a range of matters "such as the costs of repairs versus the cost of replacement and the estimated life of the repaired item versus the life of the replaced item". The fact that the balconies do not comply with current standards is also a relevant but not defining consideration. I do not have evidence of these matters before me. In addition, it is now more than 2 1/2 years since the inspections relied upon by Mr Clark. There may well have been further deterioration in the common property.
I stated above that Mr Hamilton has a degree of independence which Mr Clark does not have. In respect of the cavity flashing works and the detailing of the waterproofing membrane between the reinforced concrete columns and the infill walls, I prefer the evidence of Mr Hamilton. His scope in respect of these matters should be incorporated in the repairs to be carried out. However I decline to order the replacement of the doors and the balustrades. A decision about these matters should be made taking into account all of the issues referred to above.

Consequential damages to lot 22

Ms Van Dyck also seeks orders for the repair of consequential damage which has been or will be caused to her lot as a consequence of the Owners Corporation's failure to repair, and/or the carrying out of the repairs. The Owners Corporation is responsible to rectify any consequential loss. However it is premature for the Tribunal to make the order sought where details of the damage (if any) are not before me.

Costs

This is a matter where s 60 applies. The usual position is that each party pays their own costs unless there are special circumstances. If either party presses for a cost order, submissions should be filed and served by 21 February 2022. Any submissions in reply should be filed and served by 7 March 2022.

Orders 1 Strata Central Pty Ltd ("Strata Central") is appointed the strata managing agent for the Owners - Strata Plan 20680. 2 Strata Central is to exercise all the functions of the Owners Corporation for a period of 24 months from the date of these orders, on the terms and conditions set out in the agency agreement forming part of the bundle marked MM1, relied upon by the applicants in these proceedings. 3 Strata Central has and may exercise all of the functions of the chairperson, secretary, treasurer and strata committee of the Owners Corporation for a period of 24 months from the date of these orders.

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: 15 March 2022

Hannan v The Owners - Strata Plan No. 20680

At a glance

Court

Decision date

Source

Judgment (20 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (2)