Jones v The Owners - Strata Plan No. 93087

Background

1. On 10 January 2022 in proceedings SC 21/46945 (the Earlier Proceedings), the Tribunal made an order under s 237 of the Strata Act appointing Bright & Duggan Pty Limited (Bright & Duggan) as compulsory strata manager of the scheme for a period of 18 months (the Original Order).
2. In these proceedings the Applicants initially sought an order extending the period of compulsory management for a further 24 months.
3. During the hearing the Applicants conceded that s 237(7) of the Strata Act precluded the Tribunal from extending the Original Order beyond the date which is two years from the date of that order.
4. However, I permitted the Applicants to amend their application to: 1. An application for a fresh order under s 237(1) for appointment of a compulsory manager for a period of 24 months; or 2. If that application was unsuccessful, an application for extension of the Original Order under s 237(7) for the maximum period (ie to 9 January 2024).
5. In my decision dated 31 July 2023 I made an order extending the existing appointment of Bright & Duggan to 30 November 2023, and otherwise dismissed the application.

Issues

1. The issues to be determined are: 1. Should an order be made dispensing with a hearing pursuant to s 50(1)(c) of the Civil and Administrative Tribunal Act 2013 (the NCAT Act)? 2. Should the Applicants pay the Other Respondents' costs in the substantive proceedings on the ordinary basis? 3. Should the Owners Corporation pay the Other Respondents' costs in the substantive proceedings on an indemnity or ordinary basis? 4. Should the Other Respondents pay either or both of the applicants' costs of responding to the Other Respondents' costs application?

Materials provided by the parties

1. In making this decision I have read and had regard to the Other Respondents' costs submissions filed on 15 August 2023, the Owners Corporation's costs submissions filed on 28 August 2023, the Applicants' costs submissions filed on 30 August 2023 and the Other Respondents' submissions in reply filed on 4 September 2023.

Dispensing with a hearing pursuant to s 50(1)(c) of the NCAT Act

1. Section 50 of the NCAT Act relevantly provides: 50 When hearings are required (1) A hearing is required for proceedings in the Tribunal except: … (c) if the Tribunal makes an order under this section dispensing with a hearing, or … (2) The Tribunal may make an order dispensing with a hearing if it is satisfied that the issues for determination can be adequately determined in the absence of the parties by considering any written submissions or any other documents or material lodged with or provided to the Tribunal. (3) The Tribunal may not make an order dispensing with a hearing unless the Tribunal has first: (a) afforded the parties an opportunity to make submissions about the proposed order, and (b) taken any such submissions into account. (4) The Tribunal may determine proceedings in which a hearing is not required based on the written submissions or any other documents or material that have been lodged with or provided to the Tribunal in accordance with the requirements of this Act, enabling legislation and the procedural rules.
2. All parties have consented to the matter being determined on the papers.
3. I am satisfied that the issue of costs can be adequately determined in the absence of the parties by considering the parties' written submissions. In my view the parties would be put to unnecessary expense if a hearing on costs was held.
4. I am therefore making an order dispensing with a hearing under s 50(1)(c) of the NCAT Act.

Legislative framework for costs

1. Section 60 of the NCAT Act is the starting point for considering costs applications in the Tribunal.
2. This section relevantly provides: 60 Costs (1) Each party to proceedings in the Tribunal is to pay the party's own costs. (2) The Tribunal may award costs in relation to proceedings before it only if it is satisfied that there are special circumstances warranting an award of costs. (3) In determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following: (a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings, (b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings, (c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law, (d) the nature and complexity of the proceedings, (e) whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance, (f) whether a party has refused or failed to comply with the duty imposed by section 36 (3), (g) any other matter that the Tribunal considers relevant. (4) If costs are to be awarded by the Tribunal, the Tribunal may - (a) determine by whom and to what extent costs are to be paid, and (b) order costs to be assessed on the basis set out in the legal costs legislation (as defined in section 3A of the Legal Profession Uniform Law Application Act 2014) or on any other basis.
3. Clause 38 of the Civil and Administrative Tribunal Rules (NSW) 2014 (the NCAT Rules) modifies the application of s 60 in certain proceedings before the Consumer and Commercial Division of the Tribunal. However, Rule 38A does not apply to these proceedings and therefore the general rule operates that parties bear their own costs unless there are "special circumstances".

Costs claim against the Applicants

1. The Other Respondents say the Applicants should pay their costs because there are special circumstances warranting an award of costs and because overall, the Other Respondents enjoyed a substantial win.
2. For the purposes of s 60(2) of the NCAT Act, "special circumstances" are circumstances that are out of the ordinary. They do not have to be extraordinary or exceptional: Megerditchian v Kurmond Homes Pty Ltd [2014] NSWCATAP 120 at [11], citing Cripps v G & M Mawson [2006] NSWCA 84 at [60].
3. In Alexander James Pty Ltd v Pozetu Pty Ltd (No. 2) [2016] NSWCATAP 75 at [14] the Appeal Panel stated: 14. An assessment whether circumstances are "special" involves the exercise of a value judgement carried out by way of comparison between what is not "special", and what is special. There are no scientific means by which the former can be ascertained. The evaluative process is necessarily one of impression informed by the particular provisions of section 60, which by sec 60(3)(f) incorporates also a consideration of section 36(3) of the Act.
4. Even if special circumstances are established, the Tribunal has a discretion as to whether to award costs. The discretion to award costs must be exercised judicially having regard to the underlying principle that parties to proceedings in the Tribunal are ordinarily to bear their own costs: Megerditchian v Kurmond Homes Pty Ltd [2014] NSWCATAP 120 at [11].
5. The Other Respondents say there are special circumstances because: 1. The Applicants ran the proceedings in a way that unnecessarily disadvantaged the Other Respondents; 2. The Applicants made a claim that had no tenable basis in law; 3. The proceedings were complex; and 4. The proceedings were misconceived or lacking in substance and the Applicants were on notice of this.
6. I will address each of these points below.

Conduct of proceedings disadvantaged the Other Respondents

1. The Other Respondents say they were disadvantaged by how the Applicants ran the proceedings because, in summary: 1. The Applicants filed, and sought to rely on, around 50 annexures comprising 920 pages; 2. Almost all of that evidence was from the Earlier Proceedings; 3. That evidence could not be relied upon in these proceedings; 4. Reading all of that evidence and dealing with why it should not be relied upon took substantial additional time.
2. I am not satisfied that these circumstances are out of the ordinary or, even if they were, that they would justify the Tribunal exercising its discretion to award the Other Respondents their costs. I agree that the majority of the documents filed by the Applicants were historical documents which were not relevant to the issues before the Tribunal (see my reasons for decision at [35]). However, it is not at all unusual for unrepresented parties to file superfluous or irrelevant materials in Tribunal proceedings. Moreover, in this instance whilst the superfluous materials filed by the Applicants were voluminous, it was readily apparent from a cursory review of those materials that they predated the Original Order and were therefore irrelevant to the current proceedings. This was succinctly explained at [47] - [55] of the Other Respondents' written submissions and little hearing time was spent dealing with those documents. In the circumstances, it is not clear why it required "substantial additional time" for the Other Respondents to read and respond to those materials.

Claim that has no tenable basis in law

1. It is correct that the Applicants' claim for an order for a two-year extension of the compulsory management order made in the Earlier Proceedings had no tenable basis in law because under s 237(7) of the Strata Act, appointments of compulsory managers cannot exceed two years.
2. However, the Applicants conceded this issue once it was explained to them at the hearing. In this regard it is not uncommon for unrepresented parties to cite incorrect legislative provisions when initiating proceedings in the Tribunal. Moreover, I permitted the Applicants to amend their claim to a claim for a new order under s 237(1) for appointment of a compulsory manager for a period of 24 months, or if that application was unsuccessful, an extension of the original Tribunal order under s 237(7) for the maximum two-year period (ie to 9 January 2024).
3. One of the reasons I allowed this amendment was that although the Applicants' case was misstated in their application, both parties had prepared their cases on the assumption that the claim was in fact a fresh application for appointment of a compulsory strata manager. Another reason was that although the claim for a two-year extension was untenable, it was always open to the Tribunal to extend the Original Order for the maximum period (ie up to an additional six months) and indeed the Tribunal ultimately decided partially in favour of the Applicants in this regard, by extending the Original Order for approximately four additional months.
4. Accordingly, although the Applicants' case as stated in their application was technically untenable, as a matter of substance, the case which the parties prepared for, and which ultimately was the case which the Tribunal considered, had a tenable legal basis. Moreover, the Applicants were partially successful in relation to that claim.
5. For these reasons I am not satisfied that the technical error in the application form justifies the Tribunal departing from the usual position which is that each party pay their own costs.

The complexity of the proceedings

1. The Other Respondents say the complexity of the proceedings is a special circumstance warranting an award of costs.
2. It is correct that one of the reasons I granted the Other Respondents leave to be legally represented was that the claim gave rise to issues of some complexity, including for example whether s 237 had any application in circumstances where the scheme was already under compulsory appointment.
3. In the Consumer and Commercial Division of the Tribunal parties are frequently granted leave to be legally represented in circumstances where the dispute involves issues of fact or law which are sufficiently complex as to justify legal representation. In such cases the involvement of lawyers can assist the Tribunal and the parties to cut through to the relevant issues. Not every such case however involves special circumstances for the purposes of s 60 of the NCAT Act.
4. In this case the matter was able to be heard easily within one hearing day. The legal and factual issues to be determined were reasonably narrow. Closing submissions were provided orally at the hearing without the need for an exchange of written submissions. Whilst the issues raised involved some complexity, they were not so complex as to be out of the ordinary. I am not satisfied that the matter was so legally or factually complex as to give rise to special circumstances sufficient to justify an award of costs.

Proceedings misconceived or lacking in substance (and the Applicants were on notice of this)

1. The Other Respondents say that the proceedings were misconceived and lacking in substance because a finding under s 237(3)(a) could not be made. This is because s 237(3)(a) is cast in the present tense and the Applicants' own argument was that the current management of the scheme by the compulsory strata manager was functioning well.
2. I agree that this aspect of the Applicants' case was not reasonably arguable and was lacking in substance. However, this does not mean that the application as a whole was misconceived or lacking in substance. The Applicants also relied upon s 237(3)(c) as the basis for their application. Section 237(3)(c) permits the Tribunal to make an order for compulsory management if it is satisfied that the owners corporation has failed to perform one or more of its duties. This was a reasonably arguable position and indeed whilst I was not satisfied that the circumstances warranted a fresh order for compulsory management, I did make a finding that the Owners Corporation continued to be in breach of one or more of its duties for the purposes of s 237(3)(c).
3. Moreover, although the Applicants were not entitled to the two-year extension of the Original Order which they applied for, an extension for a lesser period of up to six months was permissible, and indeed the Applicants were partially successful in this regard.
4. Thus, whilst there were some inherent problems with the Applicants' case, the claim overall was not doomed to fail and indeed the Applicants were partially successful in obtaining an extension of the Original Order (albeit not for the full period for which an extension was sought).
5. The Other Respondents also refer to the fact that the Applicants were put on notice about the problems with their case at the directions hearing on 8 June 2023. A notation in the Notice of Order issued by the Tribunal on that date states: The Tribunal spent some time explaining the applicants must prove one of the matters in s 237(3) before a s 237 SSMA order can be made. This is awkward in circumstances whereby the applicants say the scheme IS functioning well with the compulsory manager but WONT after the appointment expires. But this is what needs to be proved (or any of the other bases in s 237(3)).
6. I agree with the Other Respondents that by continuing to pursue this part of the claim when the Applicants were clearly on notice of the inherent flaws in the case was sufficiently out of the ordinary as to give rise to special circumstances for the purposes of s 60.
7. However, as explained, this was not the only case put forward by the Applicants. Indeed, the order actually sought in the application (ie a claim for an extension of the Original Order) was not addressed in the Tribunal's directions dated 8 June 2023. The Applicants ultimately successfully obtained an extension of the Original Order until 30 November 2023. In this regard, whilst the Other Respondents agreed at the final hearing to a short extension of the Original Order to allow an extraordinary general meeting to be held for the purposes of s 237(6) of the Strata Act, they were not willing to agree to a more substantial extension. Thus, the Applicants could not have obtained the result they ultimately achieved without pursuing the Tribunal proceedings.
8. Accordingly, I am not satisfied that these circumstances justify the Tribunal making an order for costs in favour of the Other Respondents.

Conclusion in relation to costs claim against the Applicants

1. For all of these reasons I am not satisfied that the circumstances justify the Tribunal departing from the underlying principle which is that parties to proceedings in the Tribunal are ordinarily to bear their own costs.
2. Accordingly, it is not strictly necessary to address the parties' submissions as to which party was the overall successful party. However, for completeness I will add that in my view this was a situation where neither party was the overall successful party. Although the Applicants were wholly unsuccessful in relation to their claim for a fresh appointment of a compulsory manager, they were substantially successful in their application for an extension of the Original Order. As explained, although the Other Respondents were willing to agree to a short extension to allow a general meeting to be held, they were not willing to agree to a longer extension, and thus the Applicants could not have achieved the outcome they did without pursuing the Tribunal proceedings. Thus this was a situation in which both parties enjoyed a degree of success and there was no overall successful party.

Cost claim against the Owners Corporation

1. The Other Respondents say the Owners Corporation should pay their costs on an indemnity basis because: 1. The Tribunal is permitted to make such an order under s 60(4)(a) of the NCAT Act; 2. Ordering indemnity costs is permitted under s 60(4)(b) of the NCAT Act; 3. The work done, and fees expended by the Other Respondents was effectively done on behalf of the Owners Corporation. The Owners Corporation should have done that job itself. All owners have benefited from that work and those costs, in that all of them will have a say in the management of the scheme. 4. The Owners Corporation failed to convene a general meeting in accordance with s 237(6) of the Strata Act. 5. The Other Respondents' costs in relation to the costs application are only $29,000 which is 1% of the annual budget of the Owners Corporation (not including special levies) and therefore a "pittance" for the Owners Corporation.
2. Alternatively, the Other Respondents say the Owners Corporation should pay the Other Respondents' costs on the ordinary basis (as agreed or assessed) because the work they did was in the best interests of all owners.
3. The principles applying to the costs application against the Owners Corporation are the same as those applying to the costs claim against the Applicants. That is, as Rule 38A of the NCAT Rules does not apply to these proceedings, the general rule operates that parties bear their own costs, unless there are "special circumstances".
4. Accordingly, although the Other Respondents are correct when they say that under s 60(4)(a) of the NCAT Act the Tribunal may determine by whom costs are to be paid, and that under s 60(4)(b) the Tribunal may order costs to be assessed on an indemnity basis, the threshold issue is whether there are special circumstances justifying an award of costs against the Owners Corporation.
5. I have already addressed the Other Respondents' submissions regarding special circumstances and have concluded that there are no special circumstances justifying an award of costs in favour of the Other Respondents. Although the Other Respondents do not specifically argue that the additional matters raised in relation to the Owners Corporation give rise to special circumstances for the purposes of s 60, for completeness, I will consider whether they do, and whether they justify an award of costs against the Owners Corporation.

The Owners Corporation failed to participate in the proceedings

1. I do not consider that there is anything controversial about the decision of the Owners Corporation not to participate in the proceedings. It was open to the Owners Corporation to take this approach and I agree with the submission of the Owners Corporation that it was quite appropriate that it did so. In this regard: 1. Throughout the entirety of the proceedings the Owners Corporation was under compulsory management by Bright & Duggan; 2. The proceedings dealt exclusively with the question of whether the term of Bright & Duggan's compulsory appointment ought to be extended or renewed and if so, for how long; and 3. Bright & Duggan would have been placed in an obvious position of conflict had it used its power as compulsory strata manager to take any position in the proceedings, whether in support of or opposition to the claim.
2. The Other Respondents suggest that the Owners Corporation's position in this regard is inconsistent and contradictory because on the one hand it has attempted to justify its decision not to get involved in the proceedings, and on the other hand it has in fact become involved in the proceedings by making costs submissions, and spending time and money preparing such submissions.
3. This submission does not assist the Other Respondents. The issues referred to above, which were obstacles to the Owners Corporation becoming involved in the substantive proceedings, are not present in the context of a costs application. There is no apparent conflict of interest for Bright & Duggan, as compulsory managing agent, to become involved in defending a claim for costs made against the Owners Corporation. The outcome of the costs claim has no relevance to Bright & Duggan's tenure as compulsory managing agent. It is quite appropriate in my view for Bright & Duggan, as compulsory managing agent, to take steps to defend the Owners Corporation against the costs application.
4. The Other Respondents also submit that the Owners Corporation was required to defend the substantive proceedings in the interests of protecting the owners' rights to self-govern, and that all owners have benefited from the Other Respondents' work in defending the substantive proceedings. They say the Strata Act is fundamentally about owners' rights to self-govern and that the Owners Corporation was required to defend these proceedings in the interests of "protecting the fundamental right to self-govern".
5. I do not agree. The Owners Corporation was under no obligation to actively defend the proceedings. There is no fundamental right to self-governance contained in the Strata Act which would compel a compulsory strata manager to oppose its appointment on behalf of the owners corporation. If this submission was taken to its extreme, it would mean that any compulsory strata manager ought immediately to appeal from any decision of the Tribunal appointing it under s 237 because the strata manager has a duty to protect the right to self-governance. This is clearly not the intention of the legislation and would make s 237 unworkable.
6. Whilst the Act establishes a process for an owners corporation to govern itself, the right to self-govern is not unfettered. The Act is in fact fundamentally about the management and administration of strata schemes and contemplates that in certain circumstances an owners corporation may not be capable of satisfactorily managing its own affairs. For this reason s 237 empowers the Tribunal to appoint a strata manager with authority to exercise some or all of the powers of the owners corporation. It is therefore axiomatic that in some circumstances it will be in the best interests of the owners that the owners' ability to self-govern be removed for a limited period, and that a compulsory manager be appointed. This was such a case because, contrary to the wishes of the Other Respondents, the Applicants were successful in achieving an extension of the Original Order until 30 November 2023.
7. For these reasons, I do not agree that the Other Respondents' actions in defending the claim were inherently in the interests of the Owners Corporation, nor that the Owners Corporation ought to have defended the proceedings.
8. Accordingly, I am not satisfied that the Owners Corporation's non-participation in the proceedings is a special circumstance which would justify an award of costs against the Owners Corporation.

The failure to call a meeting for the purposes of s 237(6)

1. The Other Respondents correctly submit that under s 237(6) of the Strata Act a compulsory manager is required to cause a general meeting to be held no later than 14 days before the end of its appointment.
2. They say that Bright & Duggan failed to do so, and that this justifies a costs order being made against the Owners Corporation.
3. In my view, any failure by Bright & Duggan to cause a general meeting to be held for the purposes of s 237(6) is not a relevant consideration for the purpose of determining whether special circumstances exist for the purposes of s 60 of the NCAT Act.
4. Whilst the list of circumstances set out at s 60(3) of the NCAT Act is not exhaustive, each of those circumstances goes towards a party's conduct in, or the nature of, the proceedings. Any alleged failure by Bright & Duggan to convene a general meeting within the time specified by s 237(6) is not conduct in the proceedings, nor is it conduct which had any impact on the nature of the proceedings. Such conduct is not in my view relevant to the issue of costs.
5. If the Other Respondents were concerned about a breach of s 237(6) it was open to them to seek relief (for example under s 232 of the Strata Act) to compel compliance with s 237(6). However, they elected not to do so. A costs order in these proceedings is not the appropriate remedy.
6. Moreover, whether or not Bright & Duggan was technically in breach of s 237(6) is of no significant consequence because, in any event, I extended the appointment of compulsory management until 30 November 2023 for reasons unrelated to s 237(6).
7. For these reasons I am not satisfied that the alleged failure to cause a general meeting to be held is a special circumstance justifying an award of costs against the Owners Corporation. It is therefore not necessary for me to consider the submissions of the Owners Corporation as to whether there was in fact a breach of s 237(6).

The quantum of costs compared to the Owners Corporation's annual budget

1. The Other Respondents submit that the Owners Corporation should be compelled to pay their costs because their costs are a "pittance" compared to the Owners Corporation's annual budget.
2. This is irrelevant to the question of costs. A party's financial position relative to the quantum of another party's costs is not a special circumstance justifying a costs order.

Conclusion in relation to costs claim against the Owners Corporation

1. For all of these reasons I am not satisfied that the above circumstances justify the Tribunal making an order for costs against the Owners Corporation and it is not necessary to consider the parties' respective submissions in relation to indemnity costs.

Costs claims against the Other Respondents

1. Both the Applicants and the Owners Corporation say that the Other Respondents should pay their costs of responding to the Other Respondents' costs application.

Owners Corporation's costs claim

1. The Owners Corporation says there are special circumstances justifying an award of costs in relation to the Other Respondents' costs claim because the costs claim made against the Owners Corporation: 1. Has no "meaningful substance or legal basis" and is misconceived; and 2. The Owners Corporation has been forced to incur costs in responding to the Other Respondents' costs application, particularly given the potential seriousness of costs being sought on an indemnity basis.
2. I do not agree that the circumstances justify an order that the Other Respondents pay the Owners Corporations costs of the costs claim for the following reasons.
3. Firstly, I do not agree that the costs claim against the Owners Corporation had no legal basis. Section 60(4)(a) permits the Tribunal to determine by whom costs are to be paid. The Owners Corporation, whilst it did not participate in the proceedings, was a party to the proceedings and had a clear interest in the outcome of the proceedings. A costs order against the Owners Corporation was not an untenable proposition.
4. Secondly, whilst the Other Respondents' costs claim against the Owners Corporation was weak, it was not so weak as to be entirely unarguable (and indeed the Owners Corporation devoted many pages of submissions to refuting the Other Respondents' submissions). I am not convinced that the costs claim was so lacking in substance as to justify a departure from the usual position which is that each party bear its own costs.

Applicants' costs claim

1. The sole ground explicitly provided by the Applicants for their claim that the Other Respondents should pay their costs of responding to the costs application is that the Other Respondents have unnecessarily prolonged the costs proceedings.
2. I am not satisfied that this is the case. In my reasons for decision I made directions for the parties to exchange costs submissions. The Other Respondents subsequently sought a one-day extension of the timetable. This request was granted because I was satisfied that the Other Respondents had provided a reasonable explanation for the request and because the Applicants did not identify any prejudice they might suffer as a result of the one-day extension.
3. The Other Respondents complied with the revised procedural timetable and in fact filed their costs submissions in reply one day early.
4. Thus the allegation that the Other Respondents have unnecessarily prolonged the costs proceedings is not substantiated.
5. I am unable to identify in the Applicants' lengthy costs submissions any other basis on which they assert that there are special circumstances justifying an award of costs against the Other Respondents in respect of the costs proceedings.

Conclusion in relation to costs claims made against the Other Respondents

1. For these reasons I am not persuaded that a costs order in favour of either the Applicants or the Owners Corporation is justified.

Orders

1. I make the following orders: 1. A hearing on the question of costs is dispensed with pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2013 (NSW). 2. The parties' respective costs applications are dismissed. 3. Each party is to pay its own costs of and incidental to the proceedings.

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: 29 September 2023