Noonan v Owners Corporation No 2 PS 409115E and Anor

Noonan v Owners Corporation No 2 PS 409115E and Anor - [2011] VCAT 1934 - VCAT 2011 case summary — Zoe

[11]

A block of apartments at 348 St Kilda Road Melbourne consists of lots on a plan of subdivision which are affected by an owners corporation, the first respondent Owners Corporation No [2011] VCAT 1934; 2 PS 409115E.
The second respondent Renaissance Assets Pty Ltd ("RA") was responsible for the redevelopment of 348 St Kilda Road which resulted in the block of apartments there now. RA is a lot owner and thus a member of the owners corporation.
The applicant John Noonan is also a lot owner and thus a member of the owners corporation. He purchased from RA in 2001 the lot which contains apartment T109.
The owners corporation has a committee. In June 2010 the committee, by a ballot, passed a resolution which has given rise to two of the three disputes reflected in this proceeding. In his Amended Points of Claim Mr Noonan has alleged that, at the time that the ballot was conducted and the resolution was passed, there were five members of the committee, four of whom were directors of RA, or of companies related to RA, and held proxies from RA to represent it on the committee. Those four members, he has alleged, all voted in favour of the resolution; the fifth member voted against.
The three disputes reflected in this proceeding are as follows.
The Common Property Lease. In late December 1998, about six weeks after the plan of subdivision was registered, the owners corporation granted to RA a written lease of most of the common property described in the plan of subdivision, at a very nominal rental. By a deed of variation the term of the lease was extended to 30 June 2010 and RA was granted two successive options to renew the lease for terms of five years each. RA notified the owners corporation in writing that it exercised the first option to renew. Mr Noonan complains that there was no resolution of members of the owners corporation, or of members of the committee, accepting the exercise of the option. In this proceeding he is asking for a declaration that "the exercise of the option ... is void".
The Building Management Agreement. By a written agreement dated 30 June 2010 the owners corporation engaged RA as a building manager to perform various services set out in the agreement. The resolution referred to in paragraph 4 above had purported to authorise the owners corporation to enter into this Building Management Agreement with RA. Mr Noonan complains that the resolution was not a special resolution as defined by the Owners Corporations Act 2006 ("the OC Act"), that the OC Act operated so as to require a special resolution in the circumstances, and so the owners corporation was not properly authorised to enter into the agreement. In this proceeding he is asking for a declaration that the Building Management Agreement "is void".
Breach of Duty. Members of a committee of an owners corporation have a duty to act in good faith in the performance of their functions: OC Act section 117. Mr Noonan alleges that when the four committee members who constituted the majority voted in favour of authorising the owners corporation to enter into the Building Management Agreement they had a conflict of duty and interest, their duty being to the owners corporation and its members (to act in good faith) and their interest being as directors of RA or of companies related to RA. They improperly used their position as committee members to gain an advantage for RA. They did not disclose their conflict to the other members of the owners corporation. Thereby they breached the duty. Because they were agents and proxies of RA, their breach was RA's breach also, Mr Noonan alleges. In this proceeding he is asking for an order that RA pay "equitable compensation for breach of ... fiduciary duties and obligations", and for an order that RA "provide a taking of accounts".

[24]

Those sections have a retrospective operation, for they are provisions dealing with matters of practice and procedure, not with matters of substantive right. They provide for how a cause of action that lies in an owners corporation may be pursued in a VCAT proceeding: a lot owner may commence it, and pursue it, on the owners corporation's behalf.
Section 163(1A) having commenced operation, it is now not a knock-out blow to Mr Noonan's case to say that, by attempting to impugn the validity of contracts between the owners corporation and RA, he is impermissibly pursuing a cause of action that only the owners corporation itself can pursue. By virtue of that sub-section, he must be regarded as having been entitled to apply to VCAT on behalf of the owners corporation to seek orders declaring the contracts invalid or void.
Having applied to VCAT and commenced a proceeding, a lot owner's liability to prosecute it is not unchecked, however. The effect of section 165(1)(ba) appears to be that a lot owner who has commenced a proceeding on behalf of an owners corporation is required to seek VCAT's leave to prosecute it. Presumably this provision is designed to prevent a busybody lot owner, or a lot owner who has a private grievance but cloaks it in the guise of concern for the owners corporation's welfare, from pursuing proceedings that have no likely benefit for the owners corporation.
The determination of this summary dismissal application is not the occasion for one to say anything more about those two new provisions or about how this Tribunal might apply them. How they are reconcilable with section 18(1), which provides (subject to exceptions) that an owners corporation must not bring legal proceedings unless it is authorised by special resolution to do so, is going to be an interesting question.
Because Mr Noonan must now be regarding as having been entitled to commence a proceeding to pursue a cause of action that lies in the owners corporation, and because he is entitled to seek an order authorising him to prosecute the proceeding on behalf of the owners corporation, I reject the submission that the proceeding should be dismissed because he lacks the standing to bring it.

[31]

RA has submitted that none of the three disputes reflected in this proceeding is "an owners corporation dispute", so the Tribunal has no jurisdiction to hear and determine the proceeding and it should be summarily dismissed for that reason. I reject the submission, for the following reasons.
The Common Property Lease. Paragraph 12 of the Amended Points of Claim alleges that the "acceptance" of RA's exercise of its option to renew the Common Property Lease in June 2010 "occurred in the absence of any resolution of the committee or any resolution, special or general" of the owners corporation.
Many provisions in the OC Act specify when a resolution, or when a special resolution, is required and what has to be done to achieve a proper resolution. By raising the issue of whether a resolution of the committee or of the members of the owners corporation was required, Mr Noonan has raised a "matter arising under" the OC Act, in my opinion. The dispute as to whether there is a validly renewed lease of common property is plainly, I think, a matter that "affects" the owners corporation. So, even though this dispute is not one that fits any of the categories in sub-paragraphs (a), (b) and (c) of section 162, it is nevertheless an owners corporation dispute.
As I shall be stating below, I consider that the idea that "acceptance" of the exercise of the option, by resolution or otherwise, was necessary is a misconception. But for the moment that is beside the point. The dispute, as expressed in the Amended Points of Claim, is an owners corporation dispute and so VCAT has jurisdiction to hear and determine it.
The Building Management Agreement. The Amended Points of Claim allege that, because the committee's resolution authorising the owners corporation to enter into the Building Management Agreement was not a special resolution of its members, the owners corporation was not properly empowered to enter into that agreement. Mr Noonan relies upon section 12 of the OC Act, headed "Provision of services to members and occupiers", which stipulates that a special resolution is required for the purpose of that section. I shall be referring to that section, and to the competing submissions about it, below.
The issue of the applicability of section 12 is a "matter arising under" the OC Act. The dispute as to whether there is a valid agreement "affects" the owners corporation because if there is no valid agreement the owners corporation might not be able to compel performance of the services which RA was supposed to be providing under it. The dispute is an owners corporation dispute and the Tribunal has jurisdiction to hear and determine it.
Breach of Duty. The allegation that there was a breach of the duty which section 117 of the Act imposes upon committee members, and hence a breach by RA (a lot owner) of that duty, fits the category of section 162(b). Again, whether the allegation is based upon a misconception is beside the point. The dispute is an owners corporation dispute and the Tribunal has jurisdiction to hear and determine it.

[39]

There is no generally applicable definition of "service" or "services" in the OC Act. In section 47 there is a definition of "service" that is applicable to that section only. Section 47(3) provides that, in that section, "service" includes a service for which an easement or right is implied under section 12(2) of the Subdivision Act 1988.
Provisions of the OC Act appear to contemplate four types of "services", undefined though that expression is. The first two are "services" which the owners corporation must perform. The third and fourth are services which the owners corporation may perform in certain circumstances.
First, section 46 provides that an owners corporation must repair and maintain the common property, and the chattels, fixtures, fittings and "services" "related to the common property or its enjoyment." Performance of that obligation is one of the functions of an owners corporation, described in section 4(b)(i) and (ii).
Secondly, section 47(1) provides that an owners corporation must repair and maintain a "service" in or relating to a lot "that is for the benefit of more than one lot and the common property". (The limited, and unhelpful, definition of "service" in section 47(3) is applicable here.) Performance of that obligation is the function described in section 4(b)(iii).
The object that links the first two types of "service" or "services" seems to be the preservation of the common property and the enhancement of the lot owners' use of it. To meet the cost of the performance of those services, amongst other things, the owners corporation may set annual fees, based upon lot liability (section 23), and the lot owners are required to pay the fees (section 28(1)).
Thirdly, section 47(2) provides that an owners corporation may, at the request and expense of a lot owner, repair and maintain a "service" in or relating to a lot if it is impracticable for the lot owner to repair and maintain the service. (Again the limited definition in section 47(3) is applicable.) The section does not require the owners corporation to reach in any particular way a decision to undertake the repair and maintenance of the "service".
Fourthly, there is the "service" or "services" referred to in section 12(1): to lot owners, or to occupiers of lots, or to the public. The owners corporation may decide to provide such a service, and may require a lot owner or occupier to pay for the cost of providing the service. Or it may decide to enter into agreements for the provision of services to lot owners or occupiers. But if it does decide to provide such a service or to enter into such an agreement, it must do so by special resolution (of its members: section 96).
Unlike the first two types of "service" or "services", the third and fourth types have no necessary connection with the common property or its use, and the incidence of payment for them is in accordance with a user-pays principle rather than in accordance with lot liability.
Mr Noonan's case that a special resolution of the members of the owners corporation was required before it could validly enter into the Building Management Agreement depends upon him establishing that the things that RA had the right to perform under that agreement were "services", or included "services", of the fourth type described above.
For RA to establish that his case in that regard is untenable, unsustainable and hopeless, it must be clear that the "services" are of one or more of the first, second and third types, and are not of the fourth type.
In my opinion, it is well and truly arguable that the "services" described in Schedule 2 and Schedule 3 of the Building Management Agreement, or some of them, are of the fourth type that meets the description of "services" in section 12(1). Things like the butler and valet service, or the child care service (for example) arguably are not "related to the common property or its enjoyment" (section 46: the first type), or the benefit of the common property (section 47(1): the second type), or about something which it may be impracticable for a lot owner to maintain (section 47(2): the third type).
Mr Whitten submitted that section 12 applied only to the provision of services that were beyond the scope of an owners corporation's ordinary functions as outlined in section 4. He cited Sulomar and Others v Owners Corporation 1 (Planning No. PS1 11693Q) (Civil Claims) [2010 VCAT 600 in support of that proposition. The services in question in that case were ones which, it seems to me, had a relationship to the quality of the common property and to lot owners' enjoyment of it, and so were, as the presiding Member held, not beyond the scope of the owners corporation's ordinary functions and not within the scope of section 12.
Whether the outcome in this case turns out to be the same as the outcome in Sulomar case will depend upon an examination of the terms of the Building Management Agreement and upon evidence given as to what things are done, and how they are done, under that agreement. In my view, Mr Noonan is entitled to take this aspect of his case to a hearing at which such an examination can be made and such evidence received. This aspect of his case is not clearly untenable, unsustainable, hopeless or doomed to fail. Far from it.
For those reasons, RA's primary application - for an order under s75 of the Victorian Civil and Administrative Tribunal Act 1998 dismissing the whole of the proceeding - must fail.

[51]

Mr Noonan alleges that the four proxy-holders' conduct which led to the passing of the resolution amounted to a breach of the duty to act in good faith, and that the breach constituted a breach by RA of that duty. In the Amended Points of Claim he asks for an order that RA "pay equitable compensation". He also asks for an order that RA "provide a taking of accounts".
As an alternative to the order for a taking of accounts, Mr Noonan asks in the Amended Points of Claim for an order for the appointment of an administrator for the owners corporation under section 74 of the OC Act.
Mr McCullagh submitted that the persons to whom the duty imposed by section 117 is owed, and who may complain of and seek a remedy for a breach of that duty, include Mr Noonan as a lot owner. Mr Whitten did not argue to the contrary. For reasons I gave in the Wynden case, I consider that the submission is correct.
Nevertheless, I consider that the claim that RA was in breach of that duty is untenable. Only a member of a committee, or of a sub-committee, has the duty and is capable of being in breach of the duty. RA was not a member of the committee at the time of the alleged breach. Its proxy-holders were. That does not mean that it was itself.
I consider that it is not legally possible for a lot owner which is a corporation to be a member of a committee of an owners corporation. It may be represented on a committee only by proxy-holders who are natural persons. Those natural persons are members of the committee once they are elected. The corporation whom they represent is not. Several features of Part 5 of the OC Act, which deals with committees, point to the conclusion that only natural persons are capable of being committee members and that RA itself was not a committee member.
First, committee members must make decisions. They do so by attending meetings, voting at meetings or voting by ballot. A corporation itself is not capable of doing any of those things. Only a natural person can physically attend a meeting, express a vote or mark a ballot paper.
Secondly, as Mr Whitten pointed out in RA's supplementary written submission, the wording of section 117 itself contains personal possessive adjectives "his or her", and personal pronouns "himself or herself", not "it" or "itself". The section does not leave any room for its application to a person other than a natural person.
Thirdly, while a lot owner may nominate for election (section 103(4)) and RA is a lot owner, it did not do so in this case because the persons who became members of the committee (as is not in dispute) were its proxy-holders, not RA itself.
Admittedly there is one curious provision in Part 5 that might point the other way. Section 103(7) provides that if a lot owner is in arrears for any fees, and the lot owner or a proxy for a lot owner is a member of the committee, "the lot owner is suspended as a member of the committee until the amount is paid". It does not provide for a proxy-holder to be suspended. Arguably it implies that when there is a proxy member of the committee both the lot owner and the proxy-holder are members. I doubt that it does. I think that all it means is that the unfinancial lot owner is not capable of having a proxy on the committee.
My conclusion that the claim that RA breached the duty imposed by section 117 is untenable opens the way for an order to be made under section 75 Victorian Civil and Administrative Tribunal Act 1998.
As an alternative to the summary dismissal of the entire proceeding (which I have already decided cannot occur) RA has sought an order striking out paragraphs 22-25 of the Amended Points of Claim and paragraphs D and E of the claim for relief in the Amended Points of Claim.
Paragraph 22 alleges that at the time the committee resolved to approve the Building Management Agreement the four members named in the paragraph were office bearers of RA or of a company related to it. Paragraph 23 alleges that RA was "represented" in the committee by those four. Paragraph 24 makes allegations against "the majority", namely, those four committee members. The allegations include that they failed to advise lot owners of "their conflict of interest" and that they knew that RA could gain an advantage if they voted as they did.
Those paragraphs form the basis for further allegations that the conduct created a breach of duty and that RA was in breach of that duty. That second allegation is untenable. But the paragraphs fulfil another purpose. They allege facts which would be relevant to the contention that an administrator for the owners corporation ought to be appointed. The argument that the committee, being dominated by members who held proxies for one substantial lot owner, was improperly making decisions that favoured that lot owner, is one that could legitimately be made in favour of the contention. I am not suggesting that it would be decisive or even important. But Mr Noonan is entitled to make it.
For those reasons I shall not strike out paragraphs 22, 23 or 24 of the Amended Points of Claim.
Paragraph 25 is in a different position. It makes allegations against RA: that it, "by its agents and proxies and officers", failed "as a member of the committee" to act in good faith and to exercise due care and diligence, and made improper use "as a member of the committee" to gain an advantage for itself. As a matter of law, the allegation is untenable. Similar allegations made against the individual committee members may have had a point for the purpose of the contention that an administrator should be appointed. But the particular allegations made in paragraph 25 have no such point. They support only the untenable claim that RA had and breached a duty, as a committee member, to Mr. Noonan. Within the terms of section 75(1) of the VCAT Act, that claim is misconceived and lacking in substance. Paragraph 25 of the Amended Points of Claim will be struck out.
Paragraph D of the claim for relief seeks an order that RA "pay equitable compensation for breach of its/their fiduciary duties and obligations". Since the only such duties alleged are those of a committee member, the claim for relief is hopeless because the claim on which it is based is untenable. Paragraph D will be struck out.
Paragraph E of the claim for relief seeks an order that RA "provide a taking of accounts". The only thing that could explain such a claim for relief is the allegation of breach by RA of a fiduciary duty, that such a breach invites equitable remedies and that an order for the taking of accounts is one such remedy. Mr McCullagh did not offer any other explanation. So this claim for relief is, like paragraph D, linked to the untenable claim. It will be struck out.
I accept Mr Whitten's submission, contained in RA's supplementary written submission, that there is another reason why a claim for a monetary remedy for breach of duty as a committee member is bound to fail. It is because a committee member has an immunity from liability. Section 118 of the OC Act provides:

[57]

The grievance expressed in the Amended Points of Claim about the renewal of the Common Property Lease in June 2010 is that, once RA notified the owners corporation of its exercise of the option to renew, "[t]he acceptance of the exercise of the option occurred in the absence of any resolution of the committee or any resolution, special or general, of [the owners corporation]" (paragraph 12). Paragraph A of the claim for relief claims "[a] declaration that the acceptance of the exercise of the option ... is void".
While the proper characterisation of an option to renew a lease is not completely clear, the most authoritative statement about it in Victoria is that the option "constitutes an offer to grant a further term which the lessor is contractually precluded from withdrawing so long as the option remains exercisable": B S Stillwell & Co Pty Ltd v Budget Rent-a-Car System Pty Ltd [1990] VicRp 52; [1990] VR 589 at 594, per O'Bryan J with whom the other members of the Court apparently agreed. Once the lessee exercises the option, while being entitled to do so, an agreement for a new lease is thereby created: Sudbrook Trading Estate Ltd v Eggleton [1982] 3 A11 ER 1 at 5. The option is the offer. The exercise of the option is the acceptance of the offer.
Because the agreement is created, and the lessor is obliged to grant a new lease for the further term, as soon as the option is exercised, there is no occasion for the lessor to "accept", or not accept, the exercise of the option.
Matters are different if the lessor wants to claim that the option was not exercisable because (for example) there was some default on the part of the lessee which meant, under the terms of the lease, that the option could not be exercised, or because (for another example) the purported exercise of the option was outside the time limit allowed under the terms of the lease for the exercise. Nevertheless, in those circumstances the lessor is not deciding, and cannot decide, whether to "accept" the exercise. Instead, the lessor may decide to challenge the lessee's right to a new lease by alleging that it was not open to the lessee to exercise it.
There is no allegation in the Amended Points of Claim that RA did not have the right to exercise the option to renew by giving notice of exercise when it did. Rather, the allegation is that the committee of the owners corporation "accepted" the exercise but did so in an improper manner, in the absence of a resolution. The allegation reflects the misconception that an acceptance by the owners corporation was needed before the Common Property Lease was validly renewed.
It follows that I consider that, within the terms of section 75(1) of the VCAT Act, the claim about the renewal of the Common Property Lease is misconceived and lacks substance.
It is not appropriate, however, for me to strike out parts of the Amended Points of Claim that relate to that claim, because RA has made no application for an order to that effect and has made no submission to me that I should do so. Unlike the position that RA took in relation to the Breach of Duty dispute, the application expressed no fall-back position asking that particular paragraphs be struck out in the event that I declined (as I do) to dismiss the entire proceeding. So, insofar as the Amended Points of Claim raise the Common Property Lease issue, I shall leave them alone.

[58]

Changes of respondent. At the beginning of these reasons I described the owners corporation as the first respondent to the proceeding and RA as the second respondent. The description is correct as far as it goes, but the history of the proceeding tells a more complicated story. To avoid any possible confusion in future I think I should summarise the story.
When Mr Noonan filed his initiating application in this proceeding he named only one respondent, "The Knight Alliance", which he alleged was the manager of the owners corporation. By a Tribunal order dated 18 August 2010 made at a directions hearing the owners corporation was joined as a second respondent. By a second Tribunal order dated 16 November 2010 the name of the first respondent was corrected to Dymond Cowan Pty Ltd trading as The Knight Alliance. By a third Tribunal order dated 13 April 2011, made by consent, the claim against Dymond Cowan Pty Ltd was dismissed, RA was joined as a "third respondent", and Mr Noonan was directed to file and serve Amended Points of Claim, which he did. They named the owners corporation as the first respondent and RA as the second respondent.
Should the owners corporation be a respondent? In paragraphs 21 to 28 above I have described how, as a result of amendments to the OC Act which commenced operation on 24 August 2011, Mr Noonan is entitled to pursue a proceeding "on behalf of" the owners corporation even though he is attacking the validity of contracts made between the owners corporation and RA. He is not entitled to pursue such a proceeding in any other capacity, in my view. I raise for the parties' consideration whether in the circumstances it is appropriate for the owners corporation to remain in the proceeding as a respondent. It does not seem right that an applicant who is making a claim "on behalf of" an owners corporation should express that claim as one against the owners corporation. It may be more appropriate for the owners corporation to be joined as an interested party under section 60 of the VCAT Act as well as under section 75.
Other VCAT Act sections. RA's summary dismissal application was expressed to have been made under section 78 and section 80 of the VCAT Act as well as under section 75.
Mr Whitten mentioned section 78 only in passing. It does not assist RA. It applies only if the Tribunal concludes that Mr Noonan is "conducting the proceeding" in a way that unnecessarily disadvantages RA. As the examples of unnecessarily disadvantageous conduct set out in section 78(1)(a) to (g) demonstrate, the section is concerned with the behaviour of a party in the course of a proceeding, not with the nature or weakness of a claim expressed in a document in the proceeding. Making an untenable claim is not engaging in disadvantageous conduct for the purposes of section 78.
As to the calling in aid of section 80, I do not understand it and there was no submission in support of it. The section deals only with the Tribunal's power to give directions in a proceeding.

At a glance

Court

Decision date

Source

Judgment (59 paragraphs)

Noonan v Owners Corporation No 2 PS 409115E and Anor (Owners Corporation) [2011] VCAT 1934 (7 October 2011)

Parties