Nicita v Owners of Strata Plan 64837 [2010] NSWSC 68 | Case summary

2009/00289520 -NICITA, Catherine v The Owners - Strata Plan No 64837 JUDGMENT 1 I heard these expedited proceedings on 9 February 2010. At the conclusion of the hearing relatively little was in contention, but it seems important to record the grounds for my decision, as there may be further applications. Strata Plan 64837 was registered on 6 February 2001 and relates to five home units at 57 Walton Crescent, Abbotsford: a four-level brick and concrete home unit building with car park under. The plaintiff owns Unit 1 which she purchased in May 2002. 2 The building stands on a sloping site and the lowest point is the street frontage. Unit 1 is a slightly elevated ground floor two-bedroom unit. There is a car park beneath. Lots 2 and 3 are on the first floor above Unit 1. The building is terraced up the slope so that front terraces of units 2 and 3 are above Unit 1. Then unit 4 stands on a higher level above units 2 and 3, and is further recessed; then unit 5 higher and still further recessed. 3 Unknown to the plaintiff, there were arrangements in hand when she bought Unit 1 for remedial work to be carried out to external walls and other common property to overcome problems of water penetration. The plaintiff experienced water penetration to Unit 1 in the first half of 2003 during a period of heavy rain. In bedrooms 1 and 2 the carpets became sodden, and the plaintiff replaced them with new carpet, for which she paid $2,366 in August 2003. 4 The Owners Corporation entered into a contract on 14 May 2003 with Seana Group Pty Limited to rectify defective building works; the original builder had gone into liquidation. Seana carried out this work in the second half of 2003. Later events show that the scope of works in this contract was inadequate to rectify the problems, and that Seana did not carry out the contracted works to a proper standard. 5 The plaintiff and her then husband occupied the unit as their home from the time of purchase until late November 2004. The plaintiff leased Unit 1 to a tenant, Mr Wiggins, on 4 December 2004 for $490 a week, and engaged managing agents to collect the rent and otherwise manage the property. Early in 2005 after a wet spell the tenant complained of a damp smell in the kitchen area, and the managing agent reported that water was coming in through the kitchen power point. 6 Further problems presented themselves during 2005; dampness and water leaks, mould and other signs of general dampness. There were reasonable concerns about the danger presented by water associated with the power points. There was much communication, and some attention by tradesmen retained by the Owners Corporation, but the problems were not rectified. Water damaged the kitchen cupboards. When the lease was to be renewed at the end of 2005 the tenant (not surprisingly) asked for a rent reduction. A new six-month lease was granted on 1 February 2006 at $450 per week. 7 The plaintiff made arrangements for a contractor to refit the kitchen but the contractor did not go ahead because there was still ingress of water and it was pointless to do the work. Damaged kitchen fittings were removed, and the kitchen became unusable. The tenant was not prepared to pay rent after 1 August 2006, and moved out soon after. Unit 1 has been vacant ever since. It could not reasonably be occupied or let because of general dampness and the state of the kitchen. For any practical purpose it was not then and has not since been habitable as a dwelling. Since then the plaintiff and, while the marriage continued, her husband made a great many endeavours and efforts to get useful attention by the Owners Corporation to the rectification of the defects in the external walls, which are common property, and elsewhere which brought about ingress of water. There has been much communication, but no practical outcome. The Owners Corporation and its agents have been well aware of the general nature of the problem since 2002, and has knowledge of developments since then, with expert reports describing them in detail. 8 There was further severe deterioration after an ingress of water with heavy rain in June 2007. The unit was flooded; water entered from balconies, external doors, sills and wall cavities and was found lying in the bedrooms and bathrooms. The kitchen had water entering on all sides. The bedroom carpets were saturated, the floorboards buckled, and the remaining built-in cupboards buckled as water got into their doors and sides from the carpet. Gyprock walls became very wet to touch and later generated black mould. Skirting boards were wet and swollen. The Owners Corporation strata managing agent brought in tradesmen who pumped out water, but there were no repairs and no rectification to the external wall. 9 The plaintiff's evidence sets out many communications and calls for action. They produced no useful response. The plaintiff experienced severe distress from the interaction of these problems with stress on her financial position, in which financing for purchasing and holding the unit depended on rental income which was no longer forthcoming, stresses in her marriage and difficulties in finding her own accommodation in the absence of rental income. The plaintiff sought to persuade a General Meeting of the Owners Corporation to take further and more purposeful action, and was outvoted. The Owners Corporation obtained a detailed report by Peter Sloggett and Associates dated 20 August 2008, setting out, altogether clearly, rectification works required, in terms which showed how severe was the need for such work. The Office of Fair Trading was involved, it would seem by the Owners Corporation, and made a rectification order against Seana, which was not complied with and later withdrawn. The plaintiff, acting altogether reasonably, engaged solicitors to seek to obtain compliance by the Owners Corporation with its obligations with respect to common property. The plaintiff sought to obtain mediation through the agency of the Office of Fair Trading, but the Owners Corporation was not prepared to participate. 10 Eventually the plaintiff commenced these proceedings on 3 July 2009. Before doing so however she went through a remarkably elaborate and, from a retrospective view, patient course of attempts to obtain compliance by the Owners Corporation with its statutory obligation. 11 The lack of useful response is explained, but not excused, largely by the Owners Corporation looking to its insurers to attend to its problems and responsibilities. The plaintiff was not in a position to bring litigation against the insurer, although her position was greatly affected by dealings with the insurer. 12 In these proceedings the plaintiff's claims are based on the duties of the Owners Corporation prescribed by s 62 of the Strata Schemes Management Act 1996, principally subs (1): (1) An owners corporation 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. 13 The source of ingress of water is the external walls and nearby planter boxes all of which of course are common property. It is well established, and was clearly stated in Seiwa Pty Limited v Owners Strata Plan 35042 [2006] NSWSC 1157 (Brereton J) that s 62 creates a duty owed to each lot-owner, breach of which gives rise to a private cause of action for damages for breach of statutory duty; see pars [6] and [7] and authorities there set out. A duty of that kind is also enforceable, in an appropriate case, by a mandatory injunction requiring compliance with s 62; Brereton J made such an injunction in that case. A mandatory injunction is not granted as of course, and an important consideration is whether award of damages under the common law would be an adequate remedy. The defendant did not oppose a mandatory injunction, but the Court's consideration is required before one is made. 14 The inadequacy of a damages award is very marked. All that a damages award could do would be to award to the plaintiff the large diminution in value of her unit caused by the Owners Corporation not having properly maintained the common property or kept it in a state of good and serviceable repair; that would do nothing to bring about rectification of the common property, leaving the unit in its deteriorated state. It would not be practically possible for the plaintiff to dispose of it, while liabilities for rates, levies and other outgoings would continue into a distant future. Where the damage to the unit is severe, as in this case where the unit has been uninhabitable for years, compelling actual compliance can produce a just outcome in a way which an award of damages could not. 15 The defendant does not dispute the existence or nature of the damage, its cause or the defendant's liability, and has supported the view that rectification should occur. Before the hearing the plaintiff obtained interlocutory judgment for damages to be assessed against the Owners Corporation. The Owners Corporation did not file a defence. Its cross-claim claimed indemnity against the plaintiff's claim, and alternatively damages under s 82 of the Trade Practices Act 1974. The insurer did not file a defence to the cross-claim. During the hearing the Owners Corporation and the insurer must have made some arrangement the details of which are not known to me, as they agreed that the cross-claim should be discontinued, and it was. The controversy between those parties is wider than the plaintiff's claim, as other units as well as Lot 1 are affected. Those parties have more to discuss, and wider remedies to consider, than those simply relating to protection of Unit 1. With the discontinuance, what they do has ceased to be my concern. 16 None of the plaintiff's evidence was challenged by cross-examination and the Owners Corporation did not lead any evidence itself. It did not contend that a mandatory injunction was not appropriate. In my judgment it plainly is appropriate and I intend to make one. My findings are based principally on the unchallenged expert evidence tendered by the plaintiff in the report of Mr D R McMillan, a civil and structural engineer of considerable experience, who made an invasive investigation into the ingress of water and recommended remedial work to prevent further moisture ingress (Exhibit B). I accept Mr McMillan's report and will act on it. 17 The plaintiff tendered a building report by Mr R C McAuley an independent building consultant, with significant qualifications and experience in the building industry, including trade qualifications in carpentry and joinery, formal qualifications as foreman and clerk of works, much experience as a builder and as a consultant in building work. His report Exhibit D, was unchallenged, and I accept it. He stated the rectification work necessary to overcome the effects of ingress of water on the interior of the unit; speaking in October 2009 he estimated the total reinstatement cost including GST at $97,830.20. 18 I also accept and act on the unchallenged expert valuation opinion of Mr Valuer Colin Rooke, who assessed the market rental value of the unit in each of the periods of 12 months ended December 2006 to December 2009. He also estimated the market sales value for Unit 1 in October 2009 on the assumption that it was in its original unaffected condition subject only to fair wear and tear ($810,000) and as if permanently unoccupiable and not fit for human occupation without rectification of the common property ($130,000). This differential supported my decision to grant an injunction. 19 I propose to award damages to the plaintiff for breaches by the Owners Corporation of its duty under s 62, up to the present time. In assessing damages I assume that the Owners Corporation will comply with the mandatory injunction which I propose to make, hence that the common property will be repaired within a reasonable time in the future, bringing to an end the plaintiff's continuing loss of rental income. In assessing rental income for the future I will assume that the rent of $675 per week which should have been available in the year 2009 should continue throughout the year 2010. I will assume and act on the basis that loss of rent will continue until the expiry of a reasonable time for carrying out the rectification work, followed by a further reasonable time for carrying out the repairs to the interior of the unit in accordance with Mr McAuley's evidence. When assessing damages I will treat a reasonable time for these works to be completed as running until 10 September 2010, that is a further seven months, after which the property should again be available to be let out. 20 I also will award $97,830.20 for damage to the interior of the unit, which Mr McAuley estimated as the cost of reinstatement, and also $2,366 actually incurred to replace carpet in August 2003. 21 I will also award as damages the legal costs and mediation fee incurred by the plaintiff in her attempt to bring the defendant to mediation and obtain resolution before commencing proceedings. I find that these were reasonable steps towards resolving the continuing loss caused by the breach of duty; in relation to a small home unit building with only five units, and in relation to the readily soluble controversy which existed in the present case, resort to mediation was in my judgment an altogether reasonable course, whether or not it produced a successful outcome; among such a small group of people agreed resolution was very much to be sought after and attempts to bring it about were reasonable conduct caused by the breach of duty. I have accepted the claims for damages made by the plaintiff and set out in her damages schedule, which I will incorporate in this judgment. Except for some points I have mentioned, the damages claim was not really disputed at the hearing and the evidence in support of it was overwhelming. DAMAGES SCHEDULE 1. Loss of Rent from 9 December 2005 onwards Rental value from 9/12/05 -8/12/06 (per valuation report) (a) Less reduced rents received $26,884.00 54 days -(9/12/05 -31/1/06) calculated $490 per week = $3,780 181 days (1/2/06 -1/8/06) calculated $450 per week = $11,636.00 $15,416.00 $11,468.00 $11,468.00

22 I will also award interest on damages. The interest will take some calculation and involve some approximations. For item 1(a), rental value from 9 December 2005 to 8 December 2006, I will award interest adopting the approximate mid-point of that period, 1 July 2006 as the start point. Similarly for the rental loss for the period 1 February 2006 to 1 August 2006 I will award interest from the mid point, 1 May 2006. In a similar way I will adopt 1 July in each year for the point from which to calculate interest on losses in the years 2007, 2008, 2009, and 8 January 2010 for the period of 10 weeks from 8 December 2009 to the date of judgment on 16 February 2010, but I will not award interest relating to rent thereafter. I will award interest on the cost of carpet replacement from 1 September 2003, and on the solicitors' expenses and on application fee from 28 April 2009, the last payment. The amounts of interest require some calculation and I ask counsel to check the calculations before my orders are entered. 23 If the mandatory injunction is not complied with, the Court has powers to award equitable compensation in respect of the diminution in value and other losses occasioned by what is in practical terms the destruction of Unit 1, permanently uninhabitable unless the repair work to the common property is carried out. There would be future breaches of s 62, with further liability for damages. The plaintiff does not have a legal right to carry out that work, as she does not own the common property. Assessment of damages would, I would think, involve further elements beyond mere comparison of values according to Mr Valuer Rooke's assessment; there may be difficulties associated with the continuance, into an indefinite future, of liability for rates, strata levies and other outgoings. I expect that difficulties of this kind will not arise, and that there will be compliance with the mandatory injunction. However the Court has further powers if the injunction is not obeyed. 24 I propose to allow seven months for compliance with the injunction. This is a longer time than the evidence would show is reasonably required to do the work, but experience with such injunctions has shown me that the Court should take a forbearing attitude to time for compliance, having regard to the severe consequences of failure, and should allow enough time and a little more for building work to be carried out. 25 With these reasons I publish a draft form of mandatory injunction and I ask counsel to give attention to settling the draft in detail 26 Orders: (1) Order that the defendant rectify the common property of Strata Plan 64837 by carrying out the remedial works recommended by Mr Douglas McMillan consulting engineer in Section 5 of his report Exhibit B in these proceedings so as to achieve compliance with Section 62 of the Strata Schemes Management Act 1996 and so as to ensure that Lot 1 and its occupants are protected from water and moisture entering Lot 1 by or through the common property of Strata Plan 64837. (2) Order that the mandatory injunction in Order 1 be complied with in the period up to 16 September 2010 and by or before that date. (3) Liberty to apply with respect to: (a) further defining the work to be done: (b) the time for compliance: (c) further or other remedies in the event of non-compliance. (4) Give judgment for the plaintiff against the defendant for $234,206.20 damages and $21,285.56 interest a total of $255,491.76. (5) Order that the defendant pay the plaintiff's costs of the proceedings. (6) Order pursuant to section 229 of the Strata Schemes Management Act 1996 that the damages interest and costs payable under these orders and also the defendant's costs of these proceedings be paid from contributions levied only in relation to lots other than Lot 1. **********

Nicita v Owners of Strata Plan 64837

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