Owners Corporation PS 447493 v Burbank Australia Pty Ltd (Domestic Building) [2013] VCAT 1911

The commencement of the proceeding by the first applicant has been authorised and ratified by special resolution which came into effect on 31 August 2013.

1. The respondent's application under s75 of the Victorian Civil and Administrative Tribunal Act 1998 is dismissed.
2. This proceeding is referred to a directions hearing before Deputy President Aird on 5 December 2013 at 9.30am at 55 King Street, Melbourne - allow 1 hour.
3. Costs reserved with liberty to apply. Any application for costs will be heard at the directions hearing on 5 December 2013.

1. The respondent was the builder of the Waterford Towers development, construction of which commenced in or about 2000-2001. On 8 November 2003, the first respondent Owners Corporation came into existence when Plan of Subdivision 447493 was registered . The last of the occupancy permits was issued on or about 19 May 2003. These proceedings, seeking rectification of alleged defective works and rectification of consequential damage, were commenced in November 2012. The application form is signed by Wayne Sievers, the Chairman of the Owners Corporation. The contact person on the application form is Mr Shane Bowden, the Owners Corporation Manager. At that time the Owners Corporation was not legally represented.
2. A number of individual apartment owners were joined as applicants by order of the Tribunal dated 6 August 2013.
3. The respondent builder has applied for orders that the applicants' respective claims be summarily dismissed or struck out pursuant to s75 of the Victorian Civil and Administrative Tribunal Act 1998 ('the VCAT Act') on the following grounds:

(i) there is no valid special resolution of the Owners Corporation authorising the commencement of the proceeding;

(ii) the Owners Corporation claim is statute barred as it was not commenced within the 6 year limitation period set out in s8 of the Limitations of Actions Act1958;

(ii) even if a special resolution was passed in August 2012, it had not been passed at the time the individual lot owners were joined to the proceeding, and accordingly, at that time the proceeding was a nullity;

(ii) at the time the individual lot owners were joined to the proceeding on 6 August 2013, the 10 year limitation period set out in s134 of the Building Act 1993 had expired, and the individual lot owners' claims were therefore statute barred,

(iii) the Domestic Building Contracts Act 1995 ('the DBCA') does not apply to developers.

The respondent also seeks its costs of this proceeding.

1. The respondent relies on an affidavit by its solicitor, Daniel Oldham filed in support of its application. Surprisingly, no affidavit material was filed on behalf of the applicants despite there being matters of evidence that were raised during submissions by Mr Moss of Counsel, who appeared on behalf of the Owners Corporation. These included copy correspondence dated 17 September 2013 from the solicitors for the Owners Corporation to the solicitors for the respondent enclosing copies of:
   • The Postal Ballot Form sent to members of the Owners Corporation dated 15 July 2013 (for a special resolution ratifying and approving the commencing of the proceeding on 11 November 2012) ,
   • Returns received voting 'Yes' to the special resolution,
   • Returns received voting 'No' to the special resolution
   • Correspondence dated 6 August 2013 sent to all members advising of the result of the ballot.
2. Statements of Facts and Legal Contentions had been filed by the parties in accordance with previous orders of the Tribunal, and Mr Andrew of Counsel, who appeared on behalf of the respondent, handed up a detailed chronology.

1. The Tribunal's power to strike out all or a part of a proceeding is found in s75 of the VCAT Act which relevantly provides:

(1) At any time, the Tribunal may make an order summarily dismissing or striking out all, or any part, of a proceeding that, in its opinion -

(a) is frivolous, vexatious, misconceived or lacking in substance; or

(2) If the Tribunal makes an order under sub-section (1), it may order the applicant to pay any other party an amount to compensate that party for any costs, expenses, loss, inconvenience and embarrassment resulting from the proceeding.

(5) For the purposes of this Act, the question whether or not an application is frivolous, vexatious, misconceived or lacking in substance or is otherwise an abuse of process is a question of law.

1. Although counsel for neither party made any particular submissions about s75, it is well established that caution must be exercised in determining whether a proceeding should be struck out pursuant to the provisions of s75. Versus (Aus) Pty Ltd v A.N.H. Nominees Pty Ltd & Ors[1] Riegler SM said:

62 In Destin Constructions Pty Ltd v McLennon,[2] I made the following observations regarding the application of s.75 of the Act:

[7] Section 75 empowers the Tribunal to strike out a claim found in a pleading: Yim v State of Victoria [2000] VCAT 821. The test to be applied in determining an application under s 75 is one that should be exercised with great care and should never be exercised unless it is clear that there is no question to be tried: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 at [99].

1. In Norman v Australian Red Cross Society,[3] the Tribunal accepted that the principles discussed in the Court of Appeal's decision in State Electricity Commission v Rabel [4] applied when considering an application under s.75 of the Act. Those principles are summarised in Pizer's Annotated VCAT Act [5] to include:
   • The application is for the summary termination of the proceeding; it is not the full hearing of the proceeding.
   • The Tribunal's procedure on the application is in its discretion. The application may be determined on the pleadings or by way of submissions, or by allowing the parties to put forward affidavit material or oral evidence.
   • If a party indicates to the Tribunal that the whole of their case is contained in the material put before the Tribunal, the Tribunal is entitled to determine the matter by asking whether, on all the material placed before it, there is a question of real substance to go to a full hearing.
   • The Tribunal should exercise caution before summarily terminating a proceeding.
   • For a dismissal or strike out to succeed, the proceeding must be obviously hopeless, obviously unsustainable in fact or in law, can on no reasonable view justify relief, or be bound to fail.
   • A complaint cannot be struck out as lacking in substance merely because it does not in itself contain the evidence supporting the claims made.
2. I will consider each of the respondent's grounds in turn.

1. Having regard to the Tribunal's obligations under ss97 and 98 of the VCAT Act[6], it is appropriate, in my view, to consider the validity of the proceedings as a preliminary question to provide some certainty to the parties before they incur significant costs in relation to this proceeding.
2. The respondent contends the proceeding is invalid as it was commenced without a special resolution having been passed by the Owners Corporation as required by s18(1) of the Owners Corporation Act 2006 ('the OC Act').
3. The respondent relies on a decision of the New South Wales Supreme Court, The Owners - Strata Plan No 70798 v Bakkante Constructions Pty Ltd[7] where Pembroke J held that a proceeding which was commenced and continued without the authority of the owners corporation was invalid and unauthorised. However, the situation in Bakkante was quite different to this case.
4. First, the terms of s80D of the Strata Schemes Management Act 1996(NSW) ('the SSM Act') are much wider than those of s18(1). Section 18(1) provides:
   1. Subject to subsection (2), an owners corporation must not bring legal proceedings unless it is authorised by special resolution to do so.

The exception in s18(2) does not apply to this proceeding.

1. Section 80D of the SSM Act relevantly provides:

(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.

1. In Bakkante legal advice was sought, and legal proceedings commenced and continued with significant changes to the claim being made during the course of the proceeding, not only without the requisite authorising resolution, but where a resolution was passed at an annual general meeting, less than two weeks after the proceeding was commenced _to defer the appointment of a Lawyer to act for the owners corporation to make a building defect claim and to appoint appropriate experts to substantiate the claim..._This resolution was ignored by the executive committee who continued with the proceeding.
2. Although one of the questions initially set down for a preliminary hearing in Bakkante was whether any non compliance [with s80D] had been cured by reason of the resolution of the owners corporation on 19/12/11 this was apparently not pressed by the owners corporation, and accordingly was not considered by his Honour.
3. The Owners Corporation concedes that a special resolution authorising the bringing of this proceeding had not been passed when the proceedings were commenced in November 2012. However, it contends that this constituted an irregularity in the proceeding, but did not render the proceeding a nullity. The Owners Corporation relies on the Tribunal's decision in Owners Corporation No 1579 v Guirina[8] where at [58] Lulham DP said, after concluding that a special resolution was required authorising the commencement of the proceeding:

Nevertheless, the proceeding was commenced. A filing fee was paid, a proceeding number issued and a file created. There may have been an irregularity in the proceeding, but the proceeding itself was not a nullity. The proceeding has been in existence since it was issued on 21 February 2012 and it will remain in existence until a final order is made.

1. This decision was upheld on appeal in Giurina v Owners Corporation No 157[9] where Lansdowne AsJ said at [48]

...if the Tribunal had jurisdiction over the subject matter of the dispute, then by analogy with Berowra Holdings, if there was an error in invoking the jurisdiction it was procedural only; and resulted in an irregularity only which could be cured.

In Giurina the error in invoking the Tribunal's jurisdiction [the Owners Corporation commencing the proceeding without a special resolution authorising it to do so] was remedied by the Tribunal joining as applicants to the proceeding, persons who had standing to bring the application.

1. In this instance, an attempt was made by the Owners Corporation to cure the procedural error by seeking to pass a special resolution. An interim special resolution was passed by the Owners Corporation on 16 April 2013 authorising the Owners Corporation to bring and continue the legal proceedings brought on 11 November 2012 against the respondent. It is conceded that there were defects in the Notice of Interim Special Resolution forwarded to members pursuant to s97 of the OC Act.
2. Consequently, on 15 July 2013 the Owners Corporation sent a further Notice of Postal Ballot to each of its members. Relevantly, the Notice provided:

Following the recently conducted Postal Ballot where an interim "Special Resolution" was passed to bring legal proceedings against Burbank Australia Pty Ltd, we have received legal advice and are conducting another ballot to ratify and affirm this "Special Resolution".

A special resolution requires 75% of lot owners or their proxies or representing 75% of lot entitlements of all the lots. If a special resolution is voted by at least 50% of all the lot entitlements in favour and no more than 25% against, it is an interim special resolution.

An interim special resolution requires a notice to be sent to all lot owners and can only be acted on after 29 days. If the secretary receives a petition by more than 25% of lot owners against an interim special resolution within 29 days of the meeting or ballot, then the interim special resolution fails.

1. On 2 August 2013, the Owners Corporation passed the further interim special resolution which, it contends, took effect on 31 August 2013. It contends that although the notice to lot owners advising them of the interim special resolution dated 6 August 2013 did not include the notice required by s97(4) of the OC Act, this was a procedural defect and it is sufficient that such notice was included in the Notice of Postal Ballot. Alternatively, it seeks an order from the Tribunal under s126(2) of the VCAT Act waiving compliance with the procedural requirement set out in s97(4).

Did the failure to include the notice required under s97(4) render the special resolution invalid?

1. In circumstances where:
   • (i) the OC Act is silent as to the effect of a failure by an Owners Corporation to comply strictly with the provisions of s97(4),
   • (ii) noting the requisite notice was included, in substance, in the Notice of Postal Ballot, and

I am satisfied the Special Resolution authorising and ratifying the commencement of this proceeding on 11 November 2012 is valid, and came into effect on 31 August 2013.

1. If there remains any doubt as to the validity of the proceeding, I am persuaded that this is an appropriate case in which to exercise the Tribunal's discretion under s126 of the VCAT Act and waive strict compliance with s97(4) of the OC Act.
2. Section 126 of the VCAT Act provides:

(1) The Tribunal, on application by any person or on its own initiative, may extend any time limit fixed by or under an enabling enactment for the commencement of a proceeding.

(2) If the rules permit, the Tribunal, on application by a party or on its own initiative, may-

(a) extend or abridge any time limit fixed by or under this Act, the regulations, the rules or a relevant enactment for the doing of any act in a proceeding; or

(b) waive compliance with any procedural requirement, other than a time limit that the Tribunal does not have power to extend or abridge.

(3) The Tribunal may extend time or waive compliance under this section even if the time or period for compliance had expired before an application for extension or waiver was made.

(4) The Tribunal may not extend or abridge time or waive compliance if to do so would cause any prejudice or detriment to a party or potential party that cannot be remedied by an appropriate order for costs or damages.

relevant enactment means an enactment specified in the rules to be a relevant enactment for the purposes of this section.

1. Under the Victorian Civil and Administrative Tribunal Rules 2008 ('the VCAT Rules') the Tribunal is authorised to exercise any of the powers under s126(2) in any proceeding, and a relevant enactment for the purposes of s126(2) includes all the enactments mentioned in Schedule 1 [to the VCAT Act] of which the OC Act is one.
2. Mr Moss referred me to the Tribunal's decision in Leonora Group (Wonthaggi) Pty Ltd & Anor v Bass[10] where Senior Member Byard said at [8]

...s 126(2)(b) of [the VCAT Act] also empower[s] the Tribunal to disregard failures to comply with statutory or procedural requirements when it considers it in the interest of justice to do so. The purposes of these and other provisions is to enable matters to be determined, rather than avoided, and determined on their real and substantial merits, not on the basis of technical points or slip-ups. That would be an appropriate attitude for the Tribunal to bring to its work in any event, but lest there be doubt, it is enjoined on the Tribunal by ss 97 and 98 VCAT Act. Section 97 reads:-

97. The Tribunal must act fairly and according to the substantial merits of the case in all proceedings.

Section 98 provides that the Tribunal is bound by the rules of natural justice, except to the extent that legislation authorises departures from the rules of natural justice. Section 98 contains various other provisions including:-

must conduct each proceeding with as little formality and technicality, and determine each proceeding with as much as speed as the requirements of this Act and the enabling enactment and a proper consideration of the matters before it permit.

I must bear in mind these instructions, including those in relation to substantial merits and technicality, in dealing with this and other cases.

In any event, s 126(2)(b) VCAT enables the Tribunal, on its own initiative, to waive compliance with any procedural requirement. It is not limited to statutory procedural requirements or procedural requirements that are enacted. It is a very wide power. I do not believe that it is limited to procedural requirements arising after the proceeding before the Tribunal is commenced. Section 126 as a whole deals with extensions and abridgements of time, including extension of time to commence proceedings, as well as waiver of compliance... I think procedural requirements in s 126(2)(b) should be read as including the procedural requirements in the PE Act in relation to a permit application and to an objection, as well as to a notice of refusal or a notice of decision to grant a permit. It would be an unfortunate and very restrictive limitation on the Tribunal's ability to act fairly and according to the substantial merits of the case in all proceedings, in accordance with s 97 VCAT Act, if I am mistaken in this view.

1. Noting that the exercise of the power in s126(2) is entirely within the discretion of the Tribunal, and in circumstances where:
   • (i) the OC Act is silent as to the effect of a failure by an Owners Corporation to comply strictly with s97(4), and
   • (ii) where the Owners Corporation included the notice required by s97(4) in the Notice of Postal Ballot, and
   • (iii) the substance of the applicants' claims has apparently been known to the respondent for some time, noting it is alleged the respondent has carried out rectification works at various times since 2005, thus ameliorating any prejudice or detriment the respondent would suffer if compliance were waived, and
   • (iv) being mindful of the Tribunal's obligations under ss97 and 98 of the VCAT Act;

I am satisfied that, if necessary, it is appropriate to exercise the Tribunal's discretion under s126(2) of the VCAT Act and waive strict compliance with the requirements of s97(4) of the OC Act. Accordingly, the special resolution authorising and ratifying the commencement of the proceedings on 11 November 2012, came into effect on 31 August 2013.

1. As in Giurina this proceeding has been in existence since it was commenced in November 2012, and will remain in existence until a final order is made. Even if I was satisfied that the procedural irregularity had not been rectified, the appropriate order would have been to stay the proceeding pending the obtaining of a special resolution by the Owners Corporation authorising the commencement of the proceeding, not the dismissal of the proceeding.

1. The respondent contends the Owners Corporation's claim is statute barred because it was not commenced within 6 years of the defects becoming apparent. Section 5(1)(a) of the Limitation of Actions Act 1958 ('the LAA') provides:
   • (1). The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued-
     • (a) Subject to subsections (1AAA), (1AA) and (1A), actions founded on simple contract (including contract implied in law) or actions founded on tort including actions for damages for breach of a statutory duty;"
2. Section 134 of the Building Act provides:

Despite anything to the contrary in the Limitations of Actions Act or in any other Act or Law, a building action cannot be brought more than ten years after the date of issue of the occupancy permit in respect of the building work...(emphasis added).

1. There is a continuing controversy as to the interpretation of s134. In Birek Industries Pty Ltd v McKenzie Group Consulting Pty Ltd[11] Judge Shelton held that the 'long stop' or 'an absolute cap' approach was the proper interpretation of s134 of the Building Act 1993. He noted in this judgement that this was contrary to the approach which had previously been adopted by the Tribunal in two decisions.[12] The Tribunal has since made two further decisions preferring the replacement provision.[13]
2. In my view, pending the Court of Appeal's judgement on the appeal in Birek, the replacement provision is preferred.

DOES THE DBCA APPLY TO DEVELOPERS/OWNER-DEVELOPERS?

1. The respondent submits that the claims made by the Owners Corporation insofar as they arise under the DBCA are not sustainable. It relies on the comments by Warren CJ in Kane Constructions Pty Ltd v Cole Sopov & Ors[14] where she said ...it seems to me that the Act [the DBCA] was not intended to apply to developers, and to Glenrich Builders Pty Ltd v 1-5 Grantham Street Pty Ltd & 415 Brunswick Road Pty Ltd.[15]
2. Again, I am not persuaded this issue has been finally determined. The Chief Justice's comments in Kane Constructions whilst interesting, are no more than an observation. In Body Corporate Plan No. PS509946A v VM Romano Construction Group Pty Ltd & Anor[16] I noted that, whilst interesting and informative, the County Court decision in Glenrich is not binding on the Tribunal. Again, I am not persuaded that, insofar as the Owners Corporation's claims arise under the DBCA, they are not open and arguable.

SHOULD THE CLAIMS BY THE INDIVIDUAL LOT OWNERS BE STRUCK OUT

1. The respondent contends that the claims by the individual lot owners should be dismissed, first because there was no valid proceeding on foot when they were joined as applicants on 6 August 2013, and secondly as they were not joined to the proceeding until after the expiration of the 10 year limitation period.

Was there a valid proceeding before the Tribunal when they were joined?

1. In circumstances where I have found that the proceeding was in existence at the time the individual lot owners were joined to the proceeding, and that the procedural error in invoking the Tribunal's jurisdiction without a special resolution could be cured by the passing of a special resolution retrospectively authorising the commencement of the proceeding, I am satisfied that their claim is open and arguable.
2. The application filed by the Owners Corporation was accompanied by a document headed Points of Claim - VCAT Domestic Building List, in which the Owners Corporation claims that the alleged defective building works have allowed significant water ingress and significant damage to ceilings, walls and soffits.
3. A copy of a preliminary Building Inspection Report by David Gairns of BSS Group, Architects and Building Consultants, accompanied the application. This report is dated 30 October 2012 and is addressed to the attention of Mr Wayne Sievers, Chair, Owners Corp. In this preliminary report, Mr Gairns reports on the defective works which he opines have caused damage to common property, and to some individual apartments; and makes recommendations as to further testing, and possible repairs.
4. Following joinder by the Tribunal of 21 individual lot owners as co-applicants on 6 August 2013, the applicants filed Amended Points of Claim dated 15 August 2013. The Amended Points of Claim do not differentiate between the claims made by the Owners Corporation and the individual lot owners.
5. Section 134 of the Building Act 1993 provides:

Despite anything to the contrary in the Limitations of Actions Act or in any other Act or Law, a building action cannot be brought more than ten years after the date of issue of the occupancy permit in respect of the building work...(emphasis added).

1. The building action was clearly brought (commenced) by the Owners Corporation within 10 years of the final occupancy permit being issued. I have already determined that it is arguable that the bringing of the proceedings has been ratified by the Special Resolution which, I have found for the reasons set out above, arguably came into effect on 21 August 2013.
2. Building action is defined in s129 of the Building Act as meaning an action (including a counter-claim) for damages for loss or damage arising out of or concerning defective building work. Separate proceedings were not commenced by the individual lot owners. Rather, they were joined as co-applicants to this proceeding by order of the Tribunal dated 6 August 2013. The nature of the claim has not changed. The claims by both the Owners Corporation and the individual lot owners are closely intertwined arising from alleged defective works in both common and private property, and consequential damages to both common and private property caused by those defective works. This is not a case where the individual lot owners' claims are independent to and distinct from the claims by the Owners Corporation.
3. In those circumstances, I am satisfied that the individual lot owners' claims are open and arguable.

1. Accordingly, the respondent's application under s75 must be dismissed. The proceeding will be listed for a directions hearing at which time any application for costs will be heard, and directions made for its further conduct.

[1] [2012] VCAT 1442

[2] [2010] VCAT 1582.

[3] (1998) 14 VAR 243.

[4] [1998] 1 VR 102.

[5] Pizer's Annotated VCAT Act (4th Ed) 2012 published by JNL Nominees Pty Ltd at 274-275.

[6] To act fairly and according to the substantial merits of the case in all proceedings (s97) and to conduct each proceeding with as little formality and technicality ...as the requirements of this Act and the enabling enactment and a proper consideration of the matters before it permit (s98(1))

[7] [2013] NSWSC 848

[8] [2012] VCAT 643

[9] [2012] VSC 466

[10] [2003] VCAT 233

[11] [2011] VCC 294,

[12] Thurston v Campbell [2007] VCAT 340, Hardiman v Gory [2008] VCAT 267

[13] Jacobi & Ors v Motalli & Anor [2012] VCAT 659, Martinov v Extension Builders Australia Pty Ltd [2013] VCAT 409

[14] [2005] VSC 237

[15] 2008] VCC 1170

[16] [2009] VCAT 1662