McClymont v The Owners - Strata Plan No 12139

REASONS FOR JUDGMENT BUCHANAN J: 1 Mr and Mrs McClymont, who are the appellants in the proceedings in this Court, were served with a bankruptcy notice, issued on 23 June 2009, on behalf of the owners corporation of Strata Plan No 12139 ("the owners corporation") which is a block of home units at 567-569 Pacific Highway, Killara, New South Wales in which the appellants owned Unit 5. 2 The bankruptcy notice was founded upon two judgments of the Local Court of New South Wales. The Local Court judgments were given on 23 October 2007. They were for the amounts of $10,366.78 and $11,884.43 respectively. To those amounts interest was added in the amount of $3,606.52. The total amount claimed under the bankruptcy notice was therefore the sum of $25,857.73. 3 The Local Court judgments were challenged by the appellants in the New South Wales Supreme Court but were upheld (McClymont v The Owners - Strata Plan No 12139 (2009) 74 NSWLR 404). After service of the bankruptcy notice the appellants applied to the Federal Magistrates Court of Australia ("the FMCA") to set aside the bankruptcy notice. That application was unsuccessful and an appeal has now been brought to this Court. 4 The litigation between the owners corporation and the appellants began in 2004 when the owners corporation commenced proceedings against the appellants in North Sydney Local Court to recover unpaid contributions, interest and expenses which the owners corporation claimed the appellants owed to it. There followed a series of proceedings in the North Sydney Local Court, the Downing Centre Local Court and in the Supreme Court of New South Wales before the proceedings in the FMCA with which the present appeal is concerned. During the course of those events there have been periodic annual general meetings of the owners corporation, as required by the Strata Schemes Management Act 1996 (NSW) ("the Strata Act") and a series of meetings of the executive committee of the owners corporation. The subject of the dispute between the owners corporation and the appellants has been a matter of frequent reference in the minutes of those meetings. 5 In the proceedings before the FMCA, the appellants did not invite that court to go behind the judgment debt confirmed by the Supreme Court and did not dispute the indebtedness claimed in the bankruptcy notice. Their challenge was based upon the proposition that the owners corporation had not authorised the commencement of bankruptcy proceedings against them. The appellants argued before the FMCA that s 80D of the Strata Act required authorisation of the solicitors acting for the owners corporation to commence bankruptcy proceedings to be approved by a general meeting of the owners corporation and that this requirement could not be delegated to any other person or committee including the strata managing agent engaged by the owners corporation or the executive committee. 6 Section 80D of the Strata Act provides: 80D Legal action to be approved by general meeting (1) An owners corporation or executive committee of an owners corporation must not seek legal advice or the provision of any other legal services, or initiate legal action, for which any payment may be required unless a resolution is passed at a general meeting of the owners corporation approving the seeking of the advice or services or the taking of that action. (2) The regulations may make provision for or with respect to exempting any type of legal service or legal action from the operation of this section. 7 As contemplated by s 80D(2) regulations have been made granting exemptions in certain circumstances. Regulation 15 of the Strata Schemes Management Regulations 2005 (NSW) provides: 15 Exemptions from need for approval for certain legal action (1) The seeking of legal advice, the provision of legal services or the taking of legal action is exempt from the operation of section 80D of the Act if the reasonably estimated cost of seeking the legal advice, having the legal services provided or taking the legal action would not exceed: (a) an amount equal to the sum of $750 for each lot in the strata scheme concerned (excluding parking and utility lots), or (b) $10,000; whichever is the lesser. (2) In a case where the cost, or estimated cost, of seeking legal advice, having legal services provided or taking legal action has been: (a) disclosed by the legal practitioner concerned in accordance with the Legal Profession Act 1987, or (b) set out in a proposed costs agreement under that Act, the reasonably estimated cost of seeking the legal advice, having the legal services provided or taking the legal action is taken, for the purpose of this clause, to be the cost or estimated cost so disclosed or set out. (There being 12 units in the block the sum prescribed by reg 15(1) is $9,000.) 8 There was evidence before the FMCA that, on 19 May 2009, the executive committee of the owners corporation considered and approved a costs disclosure and costs agreement ("the costs disclosure") provided by the solicitors to the owners corporation estimating that its costs for enforcing the Local Court judgments, including issuing bankruptcy notices and commencing bankruptcy proceedings, and including also the costs of a hearing of up to one day, would be $7,000 inclusive of GST. That estimate engaged the operation of reg 15. Under reg 15(2) the estimate given was the amount to be tested against the limit of $9,000 imposed by reg 15 for an exemption from s 80D to be effective. It was not argued before the FMCA that the estimate of costs was unreliable for the purpose of reg 15. 9 Under s 21 of the Strata Act a decision of an executive committee is taken to be the decision of the owners corporation except in specified circumstances. One decision which may not be made by an executive committee is one which is required to be made by the owners corporation in general meeting. Having regard to the operation of s 80D and reg 15 to which I have already referred, and to the facts of the present case, s 21 of the Strata Act represented no bar to the power of the executive committee to accept the estimate of fees provided by the solicitors to the owners corporation and to authorise bankruptcy proceedings to be taken against the appellants. 10 The FMCA found that the executive committee, at its meeting on 19 May 2009, authorised the solicitors acting for the owners corporation to commence bankruptcy proceedings against the appellants. At the same time, the FMCA rejected an argument by the owners corporation that resolutions passed at earlier meetings provided adequate authority to commence such proceedings. At the hearing of the appeal Mr Radman, solicitor for the owners corporation, sought to rely again on his submissions before the FMCA to the effect that resolutions at the earlier meetings had provided sufficient authority to commence bankruptcy proceedings against the appellants, independently of the resolution passed at the executive committee meeting on 19 May 2009. No notice of contention had been served as required by O 52 r 22(3) of the Federal Court Rules, seeking to support the judgment of the FMCA upon grounds rejected by the FMCA. I ruled during the hearing that I would not permit the owners corporation to rely, in the appeal, upon such arguments. 11 On the present appeal the appellants advanced a number of grounds for contending that the solicitors for the owners corporation were not authorised by the executive committee on 19 May 2009 to serve the bankruptcy notice on the appellants or otherwise act for the owners corporation in connection with bankruptcy proceedings. In my view, they were all misconceived and must be rejected. 12 The central thrust of the appellants' submissions was that the meeting of the executive committee held on 19 May 2009 was not convened in accordance with the requirements of the Strata Act and that any resolution passed at the meeting was accordingly invalid. Schedule 3 of the Strata Act deals with the constitution of executive committees and requirements for meetings of executive committees. The strata scheme in the present case is not a "large strata scheme" (as defined in the Act's Dictionary). The owners corporation maintains a notice board which I infer is required by the by-laws of the strata scheme (Schedule 1 cl 18). So far as relevant in the present case, a notice of an executive committee meeting must be given by posting it on the notice board (Schedule 3 cl 6(1)(b)). On the evidence in the present case which was accepted by the FMCA, notice of the meeting was posted on the notice board and also delivered to members of the executive committee individually. A number of attachments were also delivered to members of the executive committee but they were not placed on the notice board. The notice of meeting stated the time and place for the meeting and a detailed agenda for the meeting. It complied therefore with the requirements of Schedule 3 of the Strata Act (Schedule 3 cl 6(3)). The attachments consisted of a letter from the solicitors for the owners corporation dated 8 May 2009 with which was enclosed the costs disclosure subsequently considered and approved by the executive committee. The letter of 8 May 2009 made specific recommendations concerning the use of bankruptcy proceedings to assist in the recovery of outstanding amounts from the appellants. The costs disclosure referred specifically to the issue of the enforcement of the Local Court and Supreme Court judgments, including the commencement of bankruptcy proceedings. 13 The notice of the executive committee meeting to be held on 19 May 2009 was signed by the strata managing agent engaged by the owners corporation, Mr Cummins. The secretary of the owners corporation was, at the relevant time, Mr Morgan. Both Mr Morgan and Mr Cummins gave evidence that Mr Morgan requested Mr Cummins to arrange for notice of the meeting to be given. 14 The appellants challenged the method by which the meeting of the executive committee was convened on 19 May 2009. They contend that notice was not properly given. The central misconception in this argument is the proposition that certain functions were reserved exclusively to the secretary of the owners corporation, Mr Morgan, and could not be delegated to, or performed by, any other person. That premise is denied by a combination of the relevant provisions of the Strata Act and the evidence in the present case. 15 Section 22 of the Strata Act states the functions of the secretary of an owners corporation. They include the function of convening meetings of the executive committee (s 22(f)). The requirement to give notice of its meetings is imposed, in the first instance, on the executive committee itself (Schedule 3, cl 6) but, under s 22(b) of the Strata Act, the function of giving notices on behalf of the owners corporation and of the executive committee is another of the functions of the secretary. However, the power to convene a meeting of the executive committee, and to give notice of the meeting, is not assigned exclusively to the secretary. For example, under Schedule 3 cl 7 of the Strata Act a meeting of the executive committee may (and must) be convened by any member of the executive committee requested to do so in the absence of the secretary. In such a circumstance, the member of the executive committee concerned may give notice of the meeting "on behalf of" the executive committee. Schedule 3 cl 7 provides: 7 Executive committee meetings may be required to be convened (1) The secretary of an owners corporation, or, in the secretary's absence, any member of the executive committee must convene a meeting of the executive committee if requested to do so by not less than one-third of the members of the executive committee, within the period of time, if any, specified in the request. (2) If a member of the executive committee other than the secretary is requested to convene a meeting of the executive committee under this clause, the member may give, on behalf of the executive committee, the notice required to be given under clause 6. 16 There are other provisions of the Strata Act which must also be taken into account and which deny any proposition that only the secretary of an owners corporation may give notice of meetings of the executive committee. Under s 28 of the Strata Act an owners corporation may, by instrument, delegate functions to a strata managing agent. Sections 28(4) and (5) provide: 28 What functions of an owners corporation can a strata managing agent exercise? …. (4) A function delegated under this section may, while the delegation remains unrevoked, be exercised from time to time in accordance with the delegation. (5) A delegation under this section may be made subject to such conditions or such limitations as to the exercise of all or any of the functions, or as to time or circumstances, as may be specified in the instrument of delegation. 17 Separately, s 29 of the Strata Act provides that the instrument of appointment of a strata managing agent may provide that the agent has, and may exercise, all the functions, or some specified functions, of certain officers of the owners corporation including the secretary. Exercise of a function under this power has the same effect as it would have had if exercised by the officer in question. The most recent instrument of appointment of the strata managing agent in the present case was dated 10 November 2008. It provided expressly (in Schedule A2 to the instrument) for the duties and functions which might be performed by the strata managing agent with respect to arranging and undertaking administrative duties concerning meetings other than general meetings. One such duty and function was identified as: "prepare and distribute notices of executive committee meetings". In my view the instrument of appointment gave the strata managing agent sufficient authority to execute and distribute, on behalf of the executive committee, a notice of the meeting of 19 May 2009. On his evidence before the FMCA, Mr Cummins prepared and signed the notice of meeting at the request of Mr Morgan and then provided it and the attachments to Mr Morgan so that the notice of meeting might be posted on the notice board and the notice of meeting and attachments distributed to members of the executive committee as well. In my view, those co-operative arrangements between Mr Cummins and Mr Morgan do not detract in any way from, and should not be allowed to obscure, the fact that each of them had authority to give notice of the meeting on behalf of the executive committee. The steps they took together certainly do not have the consequence that no valid notice was given. 18 In its judgment, the FMCA drew attention to Mr Cummins's evidence that he did not regard himself as exercising a delegated discretion. The FMCA also referred to the fact that Mr Morgan "gave, in effect, a direction to Mr Cummins for the calling of a meeting". These findings are not inconsistent with the statutory scheme. It was the executive committee which was charged under Schedule 3 cl 6 with giving notice of its intention to hold a meeting on 19 May 2009. It was a function of the secretary, Mr Morgan, to give such notice on behalf of the executive committee. The strata managing agent was also authorised to carry out that function. Mr Morgan's directive to Mr Cummins to issue the notice and Mr Cummins's compliance with that directive did not offend any provision of the Strata Act, exceed any authority possessed by Mr Cummins or constitute a failure by Mr Morgan to exercise a function reposed in him. 19 The appellants next asserted that the notice of meeting wrongly referred to s 80 of the Strata Act (which deals with recovery of debts) and not, as it should have done, to s 80D. It was submitted that the notice of meeting was fatally flawed because it referred to the wrong section of the Strata Act. This is an argument which was not put to the FMCA. I am satisfied that it should not be accepted for a number of reasons. First, there is no doubt that the substance of the matters to be considered by the meeting was sufficiently set out in the notice of meeting. The notice of meeting complied, in that respect, with Schedule 3 cl 6(3) of the Strata Act. It identified, as a subject for consideration and approval, the costs disclosure provided by the solicitors to the owners corporation. Secondly, and in any event, on the appeal the owners corporation denied that an error was contained in the notice of meeting. This submission should be accepted. Section 80 of the Strata Act permits an owners corporation to recover as a debt a contribution which has not been paid together with interest and expenses. A reference to s 80 in the notice of meeting was not inappropriate in that context. By contrast, for the reasons given earlier, s 80D had no operation in the present case. A reference to it (as the appellants suggest should have occurred) would therefore have been unnecessary and inappropriate. 20 The next point relied upon by the appellants was the fact that the notice of meeting that was displayed on the owners corporation notice board was not accompanied by any attachments. I am satisfied that the notice of the meeting was a document separate from the attachments to it. Schedule 3 cl 6(3) requires that "the notice must specify when and where the meeting is to be held and contain a detailed agenda for the meeting" but does not require that documents to be considered at the meeting also be posted on the notice board. This argument must be rejected. 21 The final matter foreshadowed by the original notice of appeal was that the executive committee had not complied with s 230A of the Strata Act . Section 230A of the Strata Act provides: 230A Disclosure of matters relating to legal costs If a disclosure under Division 3 of Part 3.2 of the Legal Profession Act 2004 is made to an owners corporation in respect of the costs of legal services to be provided to the owners corporation, the owners corporation must give a copy of the disclosure to each owner and executive committee member within 7 days of the disclosure being made. 22 The FMCA accepted evidence that the costs disclosure (which was enclosed with the letter of 8 May 2009) was provided to each member of the executive committee but was not provided to other owners. There was, therefore, a failure to comply with all the requirements of s 230A. The requirements under s 230A are general ones and are not connected with the requirement to give notice of an intention to hold a meeting or of matters to be discussed at a meeting. 23 As the FMCA pointed out, the Strata Act provides no specific sanction for non-observance of s 230A. The FMCA took the view that a failure to provide a copy of the costs disclosure to owners other than executive committee members would not invalidate a decision of the executive committee made by reference to the disclosure. I agree. Section 230A is not directed to the question of the conduct of meetings. It is directed to the broader question of providing timely information about potential legal costs, whether or not in the context of any particular meeting to consider such costs. As the FMCA pointed out, there were other avenues under the Strata Act under which a complaint about this matter might have been pursued. 24 Under s 156 of the Strata Act there is provision for an adjudicator appointed under the Strata Act to order an owners corporation to supply information which has been wrongfully withheld, or a document which the owners corporation has wrongfully failed to make available for inspection. By contrast, although s 153 of the Strata Act also permits an adjudicator to make an order invalidating the resolution of a meeting it does so only if the provisions of the Strata Act have not been complied with in relation to the meeting. The power of an adjudicator to invalidate a resolution would not appear to extend to reliance upon a failure to comply with s 230A, which does not impose requirements in relation to a meeting. A limitation on an adjudicator's powers in no way limits the authority of this Court but, in any event, as a matter of substance rather than form, the notice of meeting posted on the notice board clearly disclosed that the costs disclosure had been received and that a matter for attention at the meeting would be the question of whether it should be approved. That information was provided explicitly in connection with the topic of the recovery of unpaid levy contributions and other amounts relating to Lot 5. There does not appear to be, if this is what the appellants suggest, anything underhand or sinister in the fact that the costs disclosure was not, at the same time, provided to other owners or any reason to suppose that the meeting miscarried. 25 The appellants then referred to a number of supplementary grounds upon which I gave them leave to rely in an earlier interlocutory judgment (McClymont v The Owners - Strata Plan No 12139 [2010] FCA 358 at [9]). 26 The first such matter concerned the course of proceedings before the FMCA. The appellants complained that they had been denied natural justice. In an affidavit sworn by Mr Cummins for the purpose of the proceedings in the FMCA he identified, as the material sent to members of the executive committee, the notice of meeting with the costs disclosure identified as the only attachment. In re-examination of the owners corporation's first witness (Mr Morgan) evidence was given that the solicitor's letter of 8 May 2009 was also circulated to members of the executive committee as part of the attachments to the notice of the meeting to be held on 19 May 2009. The full bundle, consisting of the notice of meeting and all attachments (the letter of 8 May 2009 and the costs disclosure) was marked Exhibit 1 before the FMCA. The documents were tendered without objection by the appellants. Copies were provided to them by the FMCA. No further complaint was made to the FMCA about this issue. On the present appeal the appellants did not point out (but the owners corporation did) that the next witness (Mr Cummins) also identified Exhibit 1 as the complete bundle of documents circulated to members of the executive committee. Mr Cummins, in this respect, corrected the evidence which he had earlier given by affidavit. 27 It is unfortunate that the true position was not identified initially in the owners corporation's affidavit evidence before the FMCA. However when, in due course, the correct position was revealed, no complaint was made by the appellants. Although they complained at the hearing of the present appeal of being taken by surprise and of being denied natural justice, the appellants were not able to articulate what prejudice they had suffered as a result of the conduct of the proceedings before the FMCA. It appeared that they may have wished to debate the accuracy of assertions contained within the letter of 8 May 2009 but the proceedings before the FMCA did not provide a forum in which that might occur, any more than did the proceedings in this Court. What was relevant to a consideration of the appellant's arguments in the FMCA was whether the members of the executive committee authorised the solicitors for the owners corporation to commence bankruptcy proceedings against them. Having regard to the contents of the letter of 8 May 2009 it is clear that the members of that committee intended so to do. The appellants' complaint about the late revelation of the fact that this letter was before the members of the executive committee, in addition to the costs disclosure, raises no question of denial of natural justice or identifies any reason to think that the appellants were denied an opportunity to put all relevant arguments to the FMCA. 28 A further additional argument on the appeal was that the FMCA "erred in law by giving weight to and relying upon a non judicial body decision". This contention is without any merit. It refers to the fact that the FMCA (at [59]) identified a decision of the New South Wales Consumer and Trader and Tenancy Tribunal to that effect that orders might be made to compel disclosure of matters required to be disclosed by s 230A of the Strata Act. That is a matter which is clear from the provisions of the Strata Act itself. 29 The only remaining issue (which did not involve repetition of arguments dealt with already) concerned a suggestion that the FMCA did not give adequate reasons for its judgment because it did not consider a challenge made by the appellants to the proposition that meetings held earlier than 19 May 2009 provided adequate foundation for the issue of the bankruptcy notice to them. This submission appears to me to overlook the fact that (at [40]) the FMCA decided this issue in the appellants' favour. In my view, the criticism has no substance. 30 In the circumstances every challenge to the judgment of the FMCA fails. 31 The appeal must be dismissed. There is no reason why the ordinary rule as to costs should not apply. The appellants must therefore pay the respondent's costs of the appeal as taxed if not agreed. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan.