Perpetual Corporate Trust Ltd v Owners Corporation SP6534; El Khouri v Owners Corporation SP6534

Supreme Court of NSW|2024-02-16|Before: Elkaim AJ

Solicitors: 2018/93444 Bartier Perry (Plaintiffs) Carroll & O'Dea Lawyers (Defendant) 2022/98817 King & Wood Mallesons (Australia) (Plaintiff) Carroll & O'Dea Lawyers (Defendant) File Number(s): 2018/93444 2022/98817

JUDGMENT

This judgment relates to two sets of proceedings which have been heard together with evidence in the one constituting evidence in the other.
Both cases concern a penthouse apartment in xxx Street in the Sydney suburb of Point Piper. It is Lot 11 in the block. There are ten other lots. Lot 11 is situated on the fifth and sixth floors. The apartment has spectacular views of Sydney Harbour, particularly observed from balconies on each of the two floors and from a rooftop area.
The registered owner of the apartment is Mr Said El Khouri. Mr El Khouri died in 2019 so his involvement in the proceedings has been assumed by the executors of his estate, his sons, Messrs Philippe and Karam Elkhouri.

General propositions

A strata scheme operates through the application of its by-laws. The residents in a strata scheme (in this case the apartment block) must comply with the by-laws.
A building which is a strata scheme is made up of lots (usually the residences) and common property (for example, entrance foyers and stairwells). A lot is defined as "one or more cubic spaces shown as a lot on a floor plan relating to the scheme, but does not include any common infrastructure, unless the common infrastructure is described on the plan, in the way prescribed by the regulations, as a part of the lot." (s 4, Strata Schemes Development Act 2015 (NSW)).
In the Strata Schemes Development Act 2015 common property is also defined in s 4 as "any part of a parcel that is not comprised in a lot (including any common infrastructure that is not part of a lot)" and a by-law is defined as "the by-laws in force for the scheme".
Finally, an exclusive use by-law is a by-law which gives the owner of a particular lot exclusive use of a certain area of common property.
Almost the entire controversy in this case emanates from the construction of a by-law, called By-law 30.

History of the block and By-law 30

The property was originally a hotel, built around 1932. The penthouse floors did not exist at this time. Notwithstanding the property's proximity to Sydney Harbour and its prestige location, the only balconies on the property were small appendages to the fire stairs.
The building became an apartment block in 1962, presumably held by the owners through company title. At about the same time three floors were added consisting of a penthouse on Levels 5 and 6 and a rooftop area on Level 7. There were then 11 lots in the building. Except for the penthouse each level (including the ground level) has two lots.
The balconies and the rooftop have been accepted to be common property.
A strata plan was registered on 15 February 1973. A number of diagrams form part of the plan. The diagrams came to cause an unexpected issue during the proceedings when a suggestion was made that the notes on the plans for these two floors could be interpreted as suggesting that the balconies were not common property. Ultimately, the Executors and Perpetual applied to amend their pleadings to seek declarations to this effect. I refused the applications for reasons given in a separate decision (Perpetual Corporate Trust Ltd v Owners Corporation SP6534; El Khouri v Owners Corporation SP6534, Supreme Court (NSW) Elkaim AJ, 14 February 2024).
The balconies on levels 5 and 6 are only accessible through Lot 11. Level 6 is mostly made up of a master bedroom, an ensuite, and a very large balcony. The rooftop area is also only accessible via Lot 11.
On 5 April 1973, the "Council of the Proprietors" of the building had a meeting. They passed a resolution which included, inter alia, giving the registered proprietor of Lot 11 "the exclusive use and enjoyment" of: "Balconies on northern aspect of Fifth Floor. The balcony on the southern aspect of the Fifth Floor and the roof area on the Sixth Floor."
The resolution was never converted into a by-law. However, on 7 May 2002 an extraordinary general meeting of the Owners Corporation resolved that By-law 20 be registered. This by-law was intended to give effect to the resolution that had been passed on 5 April 1973.
Pursuant to By-law 20 the Owners Corporation was responsible for the maintenance of common property but there was to be an uplift of 10% to the ordinary strata levies otherwise payable by Lot 11. By-law 20 was registered pursuant to the Strata Schemes Management Act 1996 (NSW).
By-law 20 was also referred to as special By-law 2. On 10 November 2005, for reasons not disclosed in the minutes, it was resolved at an annual general meeting that special By-law 2 be rescinded.
Mr El Khouri purchased Lot 11 on 3 August 2007. The rescission of special By-law 2 on 10 November 2005 indicates that when Mr El Khouri became an owner, Lot 11 did not have exclusive use rights to the balconies and rooftop. A later attempt to restore special By-law 2, on 4 December 2013, failed.
Mr El Khouri's title to the property is subject to a mortgage in favour of Perpetual Corporate Trust Ltd (Perpetual). The loan, in the sum of $5,000,000 was taken out in December 2015. Pursuant to the mortgage, Perpetual took possession of Lot 11 in December 2019. Notwithstanding his death, the title to Lot 11 remains in the name of Mr El Khouri.
As at 6 February 2024 the amount owing under the loan was $11,162,981.59 which includes arrears of $6,152,646.59.
There have been problems with water ingress for many years. For this and other reasons (including exclusive use arguments), Mr El Khouri and the Owners Corporation have not been averse to utilise NCAT or this court to ventilate their respective complaints.
Without going into detail, I note the following: 1. on 23 June 2014, the Owners Corporation commenced proceedings in the NCAT requesting a declaration that glass enclosures be demolished; 2. on 18 August 2014 Mr El Khouri responded with his own NCAT proceedings trying to reinstate By-law 20. He also wanted the Owners Corporation to be ordered to perform waterproofing work on the common property; 3. on 4 November 2014, an adjudicator (Mr M Cohen) decided that the glass enclosures could remain and that, in respect of exclusive use, "such a right in rem already has been ceded to the owner of Lot 11 … " The adjudicator continued that the Owners Corporation was estopped from denying exclusive use rights to the owner of Lot 11; 4. on 5 December 2014 a separate adjudicator, Mr K Ross, ordered that Special By-law 8 be made giving exclusive use rights to Lot 11. He also ordered that the Owners Corporation should have the opportunity "to carry out the necessary repairs to the common property;" and 5. the Owners Corporation appealed from the decisions of Mr Cohen and Mr Ross. The appeals were heard by Mr J Ringrose in September 2015. Mr Ringrose gave his decision on 4 December 2015. The appeals substantially failed.
On 18 December 2015, the by-law that had been decided by Mr Ross was registered. This by-law, By-law 8, gave exclusive use of the balconies and the roof area to the owner of Lot 11. Pursuant to the by-law it was noted that: "In consideration of the passing of the above resolution, the Owner of Lot 11 agrees to pay 10% annually of what would otherwise have been the regular levy contribution payable by the Owner of Lot 11."
On 31 December 2015, the Owners Corporation filed a summons in this court challenging the decision of Mr Ross.
On 6 February 2017, the Owners Corporation and Mr El Khouri settled the Supreme Court proceedings through a settlement deed which envisaged the Owners Corporation passing a new by-law which was annexed as a schedule to the deed. This by-law came to be By-law 30.
As a result of the settlement the Owners Corporation filed a notice of discontinuance of the Supreme Court proceedings. Then on 23 May 2017 By-law 30 was registered, the date being significant because its provisions contained a sunset period of 12 months, therefore set to expire on 23 May 2018.

By-law 30

By-law 30 was adopted by a resolution of the Owners Corporation on 8 March 2017. The vote was unanimous and included the consent of Mr El Khouri. The Owners Corporation said this consent was inconsistent with the challenge to By-law 30. While logically a sound submission, it loses much of its weight because s 143 of the Strata Schemes Management Act 2015 (NSW) required Mr El Khouri's consent, as the by-law concerned common property rights. And then, in turn, because s 149(1)(c) of the Act applies to common property rights it must follow that s 149 specifically contemplates the Tribunal adjusting a by-law that had been the subject of consent.
I will return in detail to the provisions of By-law 30. But for the moment, it states in summary that: 1. the owner of Lot 11 has the exclusive use of the balconies and the rooftop; 2. the grant of exclusive use was conditional: 1. the owner of Lot 11 was to be responsible for the maintenance of the balconies and roof area; 2. the maintenance included the carrying out of certain work (mainly concerning waterproofing) that was stipulated by a consultant designated by the Owners Corporation; 3. the work was to be performed to the satisfaction of the design consultant; and 4. if the work was not performed to the stipulated standard and not completed by a Sunset Date (23 May 2018) then the exclusive use rights granted by By-law 30 would dissolve. 1. there were various other conditions concerning the work to be done and its costs, the payment of GST, the taking out of insurance and the payment of damages.
The principal areas of dispute in this litigation concern the construction of By-law 30, whether the stipulated work had been performed in accordance with the by-law and whether the other conditions were met.
The Executors emphasised evidence to the effect that the work stipulated by By-law 30 had been completed and certified as such. Perpetual adopted this stance but concentrated its opening submissions on the unjustness, under the Strata Schemes Management Act 2015, of By-law 30, in order to ameliorate its apparent harsh consequences. The attack on By-law 30 by Perpetual was only to cl 30.3, which states: "Sunset The Granted Rights cease on the day after the Sunset Date, unless the owner of Lot 11 has fully complied before that time with the Critical Obligations. For this purpose time is of the essence."
Importantly, the submissions made by Perpetual suggesting unfairness or unjustness (under ss 139, 149 and 150 of the Strata Schemes Management Act 2015) did not ascribe these characteristics to any part of By-law 30 other than the forfeiture provision contained in cl 30.3. Accordingly, if the sunset clause was declared to be unfair or unjust, any remedies, such as claims for damages, in the balance of the by-law would still be available to the Owners Corporation.
The Owners Corporation rejected the suggestion that the required work had been completed in accordance with the by-law, but also stressed that the by-law was not only about the waterproofing work. There were other elements to the critical obligations under By-law 30. These included the taking out of appropriate insurance, the payment of GST and the payment of additional amounts owing under the by-law. The Owners Corporation pointed out that even if the required work had been done, none of the other obligations had been complied with, thus triggering the loss of the exclusive use rights after the Sunset Date (23 May 2018). By way of example, I was referred to a cheque that had been tendered in satisfaction of some of the due payments, but the cheque had not been met.
In broad compass, to achieve their respective aspirations in the litigation: 1. the Executors seek confirmation from the court (by declarations) that By-law 30 has been complied with and that there be specific performance of the Owners Corporation's obligations under the by-law; 2. alternatively, the Executors seek a declaration that it would be unconscionable, or harsh or oppressive for the Owners Corporation to be able to rely upon the forfeiture clause; 3. finally, the Executors seek damages in excess of $6 million arising from a failed sale of the property to a Mr Huang in 2017. The amount of the damages is derived from the interest that has accumulated under the mortgage; 4. the Owners Corporation wants monies allegedly owed to it as strata levies or pursuant to By-law 30. The case against Perpetual is restricted to the unpaid levies. The damages under the by-law are sought from the Executors; 5. Perpetual joins with the Executors in submitting that By-law 30 has been complied with and also in seeking a declaration, if necessary, that the forfeiture clause cannot be relied upon by the Owners Corporation; 6. Perpetual accepts an obligation to pay the Owners Corporation an amount of levies ($107,449.40) but disputes the amount claimed by the Owners Corporation ($249,951.92 plus interest). A declaration is sought that the levies are unreasonable; and 7. both the Executors and Perpetual seek an order returning the matter to NCAT to enable the tribunal to give effect to the declarations concerning the forfeiture clause in the by-law and the levies.

A view

The parties asked me to view Lot 11. I did so, using Exhibit B as a guide. The parties pointed out to me the various areas of common property shown in the exhibit, including the balconies. The property is extensive, containing an assortment of odd-shaped rooms and bathrooms no doubt designed to maximise the use of the space available. It is not however for me to point out the oddities of the apartment, but rather to concentrate on the attributes relevant to the litigation. To that end I made the following observations: 1. the apartment is dominated by extensive views of the harbour; 2. the balconies are large and obviously designed to maximise appreciation of the views; 3. the exclusive use of the balconies is clearly a major factor in the difference in value between the lot with and without exclusive use; 4. some of the common areas, for example the small area in the centre of the sixth floor, are inaccessible other than through the apartment; 5. the elevator to Lot 11 opens into the apartment. Access to the balconies could only be achieved by traversing the internal rooms of the apartment; 6. the roof area is relatively small and covered with fake grass. Other than a platform to observe the views, it has little other attraction or utility; and 7. access to the roof area is via a set of wooden stairs, currently accessible only through Lot 11.
By the end of the case, no submissions were made as to what conclusions I should take from the view. The parties, I think, generally relied on the view as providing a background to the assorted expert opinions and arguments concerning the practicalities and logistics of work that had been, or was proposed, on Lot 11.

Some of the evidence

The evidence tendered by the parties was extensive, ultimately filling more than 12 large binders. There is a good deal of repetition and detailed expert evidence, much of which was never referred to. Many of the deponents of the affidavit evidence were not required for cross-examination. Of those that were required, I make the following comments.
The first witness to give oral evidence was Mr Karam Elkhouri. As mentioned above, he is one of the Executors. His cross-examination by the Owners Corporation seemed to have the objective of catching the witness out on errors in his affidavits, some minor, but others of significance. Mr Karam Elkhouri was alive to this intent and gave his evidence in a manner that suggested he suspected every question was designed to trick him and he answered as if considering the possible ramifications of each answer.
I do not suggest he was dishonest but perhaps he was not as forthcoming as he might have been as he endeavoured to restrict his answers, so as to limit the possible damage that might flow from anything he said.
The cross-examination revealed a distinct 'caginess' about the waterproofing work that had been done by Mr El Khouri. Mr Karam Elkhouri said that a Mr Paul Ratcliffe had attended during water testing taking place on 1 May 2018 and used a screwdriver to cause damage to the membrane. The suggestion even seemed to be one of deliberate sabotage. A video was later shown (during the evidence of Mr Martyn) purporting to be of Mr Ratcliffe carrying out water testing but also with an object protruding from his back pocket, the suggestion being that this might have been the offending screwdriver. A close examination of the object does not reveal a screwdriver, but rather a ruler. Suffice to say a screwdriver could have been in a different pocket or perhaps in the backpack seen near Mr Ratcliffe.
I note Mr El Khouri, according to his affidavit, had a background in the building industry and had been a project manager and developer for many years. Mr Karam Elkhouri was also a project manager, who has worked for an assortment of building companies but has also apparently taken time off to travel overseas from time to time.
Mr Karam Elkhouri denied that the executors had deliberately not signed a strata interest notice in order to avoid being liable for building levies. Under s 22 of the Strata Schemes Management Act 2015 a strata interest notice is required to exercise a right to vote. The Owners Corporation has required the Executors to give the notice pursuant to s 22(4) but the Executors have ignored the demand.
I have little doubt the Executors have deliberately endeavoured to avoid any liability to the Owners Corporation. This is consistent with my impression of Mr Karam Elkhouri and also with the failure of the Executors to effect the transfer of ownership of Lot 11 to the beneficiary identified in Mr El Khouri's will. It is now over four years since the grant of probate. Mr Karam Elkhouri was reluctant to name the beneficiary. Although I allowed his position to stand because of the lack of relevance, this was another example of Mr Karam Elkhouri keeping information 'close to his chest.'
The next witness to be cross-examined was Mr Dean Asher who is the manager of mortgagee in possession files within La Trobe Financial Services Pty Ltd (La Trobe). According to Mr Asher this company is involved in "originating and managing residential home loans". He said that La Trobe sometimes uses Perpetual "to act as its custodian including by holding the legal title to the mortgages managed by La Trobe". When the loan was made to Mr El Khouri for $5 million in 2015 the original documents indicate that La Trobe was inserted as the mortgagee.
Mr Ian Martyn was called to give evidence by the Owners Corporation. He is a director of Core Project Consulting Pty Limited (Core), the design consultant appointed by the Owners Corporation. His affidavit was affirmed on 27 March 2018, as such it makes no reference to a visit he made to Lot 11 on 1 May 2018. This visit was for the purpose of carrying out water testing. He said he attended with a Mr Paul Ratcliffe who was a building consultant. It is to be recalled that it was suggested by Mr Karam Elkhouri that Mr Ratcliffe had inserted a screwdriver into an area which might have caused damage to previously performed waterproofing.
The video mentioned above was shown to Mr Martyn, supposedly taken on 1 May 2018, and showing a person conducting a waterproofing test. Mr Martyn could not say if this person was Mr Ratcliffe, but he did not reject the possibility. He did not recall seeing any person inserting a screwdriver or like instrument as alleged by Mr Karam Elkhouri. However, he did agree that the video depicted an implement protruding from the back pocket of the person in the video. I have already observed that this implement looks more like a ruler than a screwdriver.
It is not entirely clear why the issue concerning Mr Ratcliffe was raised. There could certainly not be any suggestion of deliberate sabotage. The putting forward of Mr Ratcliffe and his screwdriver as interfering with the waterproofing was perhaps an attempt to deflect criticism of the standard of work done by Mr El Khouri. I think the fairest approach for me is to simply ignore the evidence concerning Mr Ratcliffe.
In his affidavit Mr Martyn stated that he had not become aware of By-law 30 when the specifications were prepared. He only found out about the by-law on 14 February 2018. He first saw a copy the following day. This prompted him, on 16 February 2018, to inform the Owners Corporation's solicitor, Mr Selwyn Black, that "Core was not prepared to issue any certificate that may require Core to perform services outside the scope of its fee proposal."
Mr Martyn was followed by another employee of Core, Mr Ian Pomeroy. He described his occupation as a remedial site engineer. Mr Pomeroy emphasised that Core's involvement was to supervise the technical application of the specifications that were being performed by Mr El Khouri. Mr Pomeroy became concerned following warnings from Mr Black about the need to comply with the by-law. He was concerned that By-law 30 extended to matters outside the performance of the work needed for compliance with the specifications that had been provided by Core.
Mr Pomeroy issued a certificate on 28 February 2018 to the effect that certain works at Unit 11 had been completed. The certificate states that this work was: "Waterproofing and balustrade works to southern balcony on Level 5; Waterproofing, guttering and balustrade works to Eastern balcony on Level 6; Waterproofing, guttering and balustrade works to rooftop on level 7."
Mr Pomeroy was asked about the seeming inconsistency between this certificate and the failed water proofing test that took place on 23 March 2018. He posed four possibilities: 1. the certificate had been wrongly issued; in other words the work had not been properly completed. There is support for this in the affidavit of Mr Russell-Cooper of 27 March 2018, where he states that Mr Pomeroy told him, on 27 March 2018, that: "I conducted flood testing on the level 5 balcony of Lot 11 on Friday. There is evidence of water penetration into Lot 9 and this is the result of the failure of the work carried out by the owner of Lot 11. I will send you a report this week." 1. a material that had been inserted as part of the waterproofing works, called Sika-swell, had swollen creating a gap through which water could travel; 2. something had occurred after 28 February 2018 to cause the failing of the test; and 3. the significant age of the building had rendered it susceptible to continuing problems. In his affidavit, at [38] he stated: "put simply, in an old building with waterproofing defects, things can go wrong after the contractor has finished work …"
The issuing of the certificate is a very significant part of the case. The Executors and Perpetual rely upon the certificate as proof that the critical obligations relating to waterproofing work in By-law 30 had been satisfactorily completed. If that was so, and subject to other elements of the critical obligations having been performed or properly dispensed with, then the exclusive use rights that had been given to Lot 11 should not have been extinguished after the sunset date.
The problem that arises from this argument, to which I will return below, is that if the certificate effectively certified defective work, then it's completion could not be used to the benefit of the Executors because the defective work had been performed by Mr El Khouri and possibly the Executors themselves. Unfortunately, neither Mr Pomeroy nor Mr Russell-Cooper were asked any questions about the conversation mentioned above in [53(1)].
In turn, if the Executors could not rely on the certificate, the next question to arise is whether or not Perpetual could rely upon it. Perpetual, as far as the work was concerned, was an innocent party concerned only to exercise its rights under the mortgage. The third question that would then arise is whether an assessment of the existence of the exclusive use rights could differ as between the Executors and Perpetual. As will be seen below, these questions did not ultimately arise.
Returning to the oral evidence, the next witness was Mr Bernard Curran who is the owner of Lot 8. He purchased the lot in 1999. He has only lived there for a short period. It has otherwise been rented. He became a member of the strata committee in 2015 and was secretary for some time.
Mr Curran said that he was aware of the certificate that had been issued by Core on 28 February 2018 and he said he would have "referenced" the certificate in the decision that he made to reject the assertion that the critical works had been completed before the Sunset Date. He said that the wording of the certificate did not accord with By-law 30, in particular, because it did not contemplate a period for the resolution of defects. Mr Curran accepted that the certificate was not mentioned in any of his affidavits but rejected the proposition that it had been ignored.
Simply put, Mr Curran said that the completion of the works had been rejected because they had not in fact been "fully completed."
Mr Curran said he did not know if the owners Corporation had paid GST or if any GST had ever been levied upon it.
Mr Curran agreed that when he purchased his lot he had had no interest in ever accessing the balconies on Levels 5 and 6.
Mr Curran confirmed that no work had been done on the extension of a once proposed staircase from Level 6 to the rooftop. He did accept that a motion had been passed to carry out the work.
The next witness was another owner, Mr William James. He purchased Lot 10 in 2006. Mr James has a background as a building costs manager which led to him being asked to oversee some of the work. He had been on the strata committee "on and off" since 2014. When Mr James had purchased the property, he had been told there were issues about exclusive use rights regarding Lot 11. He had always thought the balconies were common property. Nevertheless, he never contemplated that owners would have access to the balconies or the rooftop area.
Mr James said he took the photograph which is at p 10,458 (Exhibit A) because he was concerned about electrical wiring lying in open water. He was not able to say who had installed the wiring. No relevant issue arises from the photograph.
Mr James described the history relating to the extension of the staircase. Originally it was to be a steel staircase fabricated away from the premises and then assembled within it. Renfay Projects Pty Ltd (Renfay) was asked to do the work and provided a quote. However, it was decided that Council permission was needed. This work has since been abandoned. Mr James said that the priority for the Owners Corporation was to do work to make Lots 9 and 10 habitable.
Mr Russell-Cooper provided a number of affidavits. He was the strata manager for the building. He said that Partridge Remedial Pty Ltd (Partridge) had been engaged to supervise works to be performed by third-party contractors. They were asked to provide separate specifications for work concerning By-law 30 and other work. The original specifications did not make the distinction so that Partridge was asked to redraw the specifications, which they did, and label them Contract 1 (By-law 30 work) and Contract 2 (other work).
Mr Russell-Cooper was taken to a number of invoices from Partridge which did not separate costs applicable to the above two contracts. He agreed that the amounts in the invoice could not be divided so as to ascertain what figures were attributable to the respective contracts.
Mr Russell-Cooper said he did not think that GST had ever been paid by the Owners Corporation.

Experts

Mr Matthew Crosby, a "construction defects expert" was retained by the executors to prepare a report on "repair costs for water damage." His instructions assume the balconies and rooftop are common property.
In his report dated 22 August 2023, Mr Crosby commences with a commentary on a conflict of interest between an expert report prepared by Partridge and Renfay. Mr Crosby points out that Mr Adam Hely prepared a report for Partridge who are the project managers but who also work in partnership with Renfay which was awarded the contract to do remedial works on behalf of the Owners Corporation. He says that some of the items in the tender by Renfay "have been quoted ten times higher than competitors and Partridge still awarded the contract to Renfay."
Mr Crosby goes on to criticise the manner in which Contract 1 has been invoiced and varied and he concludes that "the Renfay pricing is 443% higher than required to complete the required works." In addition, Mr Crosby says that Contract 2 works have been inappropriately added to the costs attributable to Contract 1.
The effect of Mr Crosby's report is that if the executors are required to pay any money for remedial works, the amount should be significantly lower than that claimed.
Mr Jacob Hamwood was retained by the Owners Corporation. He is a senior project manager for Partridge. In his report dated 10 October 2023 he provides answers to questions that have been posed to him by the retaining solicitors. Unfortunately, Mr Hamwood does not annex the questions to his report.
In his next report, dated 12 October 2023, Mr Hamwood again answers questions, this time concerning Mr Crosby's report. He rejected the suggestion of a conflict of interest and overcharging.
Mr Adam Hely is also a senior project manager for Partridge. In his report, of 12 October 2023, he is also asked to comment on Mr Crosby's opinion. As with Mr Hamwood, Mr Hely styles his report as answers to questions posed by the retaining solicitors. Once again, the questions are not included in the report.
There is a second report of Mr Hely, also dated 12 October 2023. In this report he answers questions about a report that had been prepared by a Mr Ross Brown.
There is yet another report commissioned by Carroll & O'Dea. It is from Mr David Madden who has qualifications in quantity surveying. He has provided a more usual style of report, dated 20 June 2023. His estimate of remedial works based on the 2016 specification (from Core) is $360,881.52.
Mr Ross Brown was retained by the Executors. His report is dated 25 August 2023. Mr Brown is a "specialist hydraulic services engineer." In his overview he says that he was instructed to examine the defects present in Lots 9, 10 and 11 as at 8 March 2017 and "the precise scope of works for the works that Mr El Khouri was required to carry out pursuant to By-law 30 and as directed by Core."
In addition, Mr Brown was asked to comment upon the adequacy of the scope of works provided by Core and whether the work done by Mr El Khouri "departed from and/or did not comply with the scope of works."
According to Mr Brown the scope of works provided by Core were inadequate. They were ad hoc and did not provide "adequate guidance for the rectification of the identified defects." Consequently, the works fell below Australian Standards.
As to the work done by Mr El Khouri, Mr Brown concluded: "In my view, it is likely that the works undertaken by Mr Elkhouri practically complied with the requirements of the Core specification and subsequent ad hoc instructions. The practical compliance of the works undertaken by Mr Elkhouri is consistent with the issuance of the certificate of practical completion by Core, dated 28 February 2018."
As to Core, Mr Brown said: "The critical omission in the Core specifications and instructions that was not addressed by these subsequent instructions from Core was, in my view, the absence of detailed, clear and concise instruction/drawings as to the requirement for complete waterproofing in, about and at the end terminations of the waterproofing to either end of the sliding door installations."
Mr Brown's criticism of Core must be seen against the background that Core was originally a defendant in the case brought by Mr El Khouri, but those proceedings have been resolved.
Mr Hamwood, Mr Hely, Mr Brown, and Mr Crosby gave oral evidence concurrently. A large amount of the questions were about the reasonableness of various costs. I did not find the answers particularly helpful in deciding the necessary quantum. I did however take the following from their evidence: 1. Mr Hamwood and Mr Hely are closely associated with Partridge. Their evidence, as they appropriately conceded, was based on their historical involvement in the works at the building rather than on an independent assessment. Initially objection had been taken to the admissibility of their reports because of their lack of independence. However, the parties considered the decision of Dodds-Streeton J in Ananda Marga Pracaraka Samgha Pty Ltd v Tomar (No 4) [2012] FCA 385, in which his Honour decided that independence was not a precondition to the admissibility of an expert opinion. At [35] his Honour stated: "In my opinion, relevant authority establishes that while (as reflected by the Federal Court Practice Note and like curial protocols) objectivity and independence are sought of expert witnesses, such qualities are not preconditions of competence, even in the case of expert witnesses. The sanction for failure to fulfil the obligations imposed by relevant authority and curial protocols is not the exclusion of the expert's evidence, but rather, the significant risk that it will fail to persuade." Put another way, his Honour was stating that the lack of independence did not go to admissibility but rather to the weight of the evidence; 1. an example of lesser weight being attributed to an answer can be found in Mr Hamwood's dealing with a particular invoice. The invoice at p 2276 (Exhibit A) purports to provide a breakup of a claimed amount. However, when the figures were subjected to mathematical calculation, the result is different to the claim by $424. Mr Hamwood, I thought with some desperation, tried to explain the shortfall by stating that there must have been, despite its absence from the description, a builder's levy of 20%; 2. Mr Hamwood pointed out a number of instances where he said that there was no waterproofing where there should have been. An example was there was no cavity flashing under certain doors in Lot 11; 3. Mr Brown countered some of the criticism by stating that whatever had been done by Mr El Khouri had been done in accordance with the Core specifications; 4. Mr Hamwood responded that whatever the specifications might have said it was necessary to comply with the relevant Australian Standards, which had not occurred; and 5. part of the claim is for the replacement of the floor in Lot 9, a portion of the cost being attributable to damage caused by water leaks from Lot 11. It was pointed out however that reports prepared in 2017 indicated that the floor required replacement in any event. Consequently, no amount could be attributed to the asserted defective work that had been carried out by Mr El Khouri.
Mr Leigh Cruden has many years' experience in the insurance industry. Since 2011 he has worked in construction risk insurance. He was asked to provide a report to the Executors about a critical obligation under By-law 30 which required, under cl 30.7.13.2, that Mr El Khouri, before starting work as stipulated otherwise in cl 30.7, to obtain "insurance from a reputable insurer for an amount of no less than $15,000,000" covering any liability for losses arising from any "fault or neglect in the works or the conduct of the works" under cl 30.7.
The envisaged insurance was never obtained. Mr Cruden's report, and his conclusion is as follows: "Therefore in my expert opinion based on consideration of the above and noting that I have been provided confirmation in writing that the value of the works is not greater than $500,000, it is my view that insurance coverage was in place in accordance with the standard industry requirements under the existing policy number LNG-STR-225133 covering SP 6534, along with the inclusion of statutory warranties of works completed by licensed tradesman in residential construction."
Put simply Mr Cruden's view is that the existing insurance covered the risk contemplated by cl 30.7.13.1 and therefore a new and separate insurance was not necessary.
The only concession made by Mr Cruden under cross-examination was that insurance had not been taken out by Mr El Khouri, a fact which is not in dispute.
Mr Scheffers, a registered certifier, was retained by Perpetual to prepare a report concerning a proposal for an existing internal stairway that runs to Level 5 to be extended to Level 6. In his description of the building Mr Scheffers says: "… I observed that the lift is general access to each level, except only occupants of Unit 11 are able to operate the lift to access and open at Level 5. An external stairway is also provided to connect each level of the building with the stairway providing access to Worsley Road. … The enclosed portion of Unit 11 occupies the majority of Level 5, approximately 50% of Level 6 and has an internal stair. The remainder of Level 6 comprises open balcony areas accessed via Unit 11 and a lift motor room access from the main common internal stairway. An open balcony is also at Level 7 that is accessed via the Level 6 balcony areas. … The proposal is for the existing common internal stairway connecting Ground Floor to Level 5 to be extended to Level 6 to enable occupants to use the stairway for access and egress to the Level 6 eastern balcony."
Ultimately Mr Scheffers rejects the proposal. He thought the Hamwood drawings were incomplete, and the proposed stairway would "reduce the current level of fire and life safety to occupants of the building."
In a second report, dated 13 October 2023, Mr Scheffers responds to a report from Mr Howse. Mr Scheffers maintains his assertion that the proposed stairway would be unsafe. He says there would be trip hazards and that achieving compliance with "the prescriptive provisions of the building code" would be difficult and require "significant alteration to the existing fabric." He goes on to say that substantial demolition would be necessary. In conclusion he says: "I consider that access for maintenance and other works that may be required for the Level 6 balconies / roofspace is necessary. The option for such access through Lot 11, in lieu of extending the existing internal stairway to Level 6, can adequately be addressed by the method outlined by (Mr Howse)."
Mr Howse was retained by the Owners Corporation and asked to comment on the extension of the stairway from Level 5 to Level 6. He thought it could be done "but there would be several significant fire safety related constraints … ."
Mr Howse was not cross-examined because he was unavailable to give oral evidence. In a separate decision I allowed his report into evidence notwithstanding his unavailability.
Mr Howse stated that a preferable option to the extension of the internal stairway was the construction of an external stairway, although this option would require council permission.
There is a joint report of Mr Scheffers and Mr Howse in which they are in complete agreement. I think the effect of their agreement is that an external staircase is the only viable option but it would face difficulties in the Council approval process which might result in a requirement to carry out extensive works throughout the whole building.
Practically, the Owners Corporation seems to have abandoned the desire to extend the external staircase.

Resolving issues under By-law 30

The scheme of the by-law is that the owner of Lot 11 is granted exclusive use rights under cl 30.5: "Subject to this by-law 30 (including without limitation paragraph 30.3), the owner of Lot 11 is granted rights in relation to the common property, by reference to the survey plan annexed and marked as Annexure "A" (the "Plan")."
The Plan then delineates the common property areas, including the two large balconies and the roof terrace. Clause 30.5.1 specifically describes these areas.
Clauses 30.5.2 and 30.6 then shift the obligation for maintenance and repair of the common property areas to the owner of Lot 11.
The above grant of exclusive use rights in cl 30.5 is conditional upon the owner performing certain tasks. The performance is limited by cl 30.3: "The Granted Rights cease on the day after the Sunset Date, unless the owner of Lot 11 has fully complied before that time with the Critical Obligations. For this purpose time is of the essence."
As already mentioned, the Sunset Date was 23 May 2018.
The "Critical Obligations" are defined in cl 30.1.1: "Critical Obligations" means the obligations of the owner of Lot 11 under: 30.1.1.1 paragraph 30.7, but the failure to meet the times set out in sub-paragraph 30.7.6 will not in itself be failure to meet a Critical Obligation provided that: (a) all the obligations in paragraph 30.7 are completed before the Sunset Date; and (b) before the Sunset Date the owner of Lot 11 has paid to the Owners Corporation the actual losses and the amounts on account of alternate accommodation, referred to in paragraph 30.7.12, in cleared funds; 30.1.1.2 paragraph 30.8 to pay GST where falling due; 30.1.1.3 paragraph 30.10 to pay interest (if any); 30.1.1.4 each other provision of this by-law requiring payment by the owner of Lot 11 up to the Sunset Date."
The "Designated Consultant," whose involvement is central to the works to be performed, is Core.
Clause 30.7.1 states: "As a condition of the grant of the Granted Rights, the owner of Lot 11 must at their expense perform work and obtain certification of that work in accordance with the requirements below, and comply with the remaining requirements of this paragraph 30.7."
A preliminary point to be resolved arises from cl 30.7.3, which states: "The owner of Lot 11 must at their own cost perform all repairs of the following kinds, in and adjacent to the staged areas marked on the diagrams that are annexed and marked as "Annexure B", as directed in writing by, and to the satisfaction of, the Owners Corporation and the Designated Consultant". (There then follows a description of the work to be done in three stages, the stages being marked on the diagrams attached to the by-law).
The controversy arising from cl 30.7.3 is the meaning of the word "adjacent." According to the Owners Corporation adjacent includes the areas below the balconies, thus specifically referable to Lots 9 and 10.
The Executors and Perpetual say that adjacent means "next to" and therefore refers to the areas alongside the sections marked as Stage 1, 2 and 3.
The difference between the submissions is important. If the Owners Corporation is correct there can be no doubt that the work required by the Critical Obligations had not been performed because it had not encompassed Lots 9 and 10. Conversely, subject to other considerations, if adjacent means 'next to' then arguably the work had been done.
The Australian Concise Oxford Dictionary, online edition, accessed 20 February 2024 says adjacent means "lying near or adjoining." The Macquarie Dictionary online edition, accessed 20 February 2024 defines adjacent as "having a common border; contiguous; adjoining." The Collins English Dictionary online edition, accessed 20 February 2024 states: "If one thing is adjacent to another, the two things are next to each other." Finally, the Cambridge Dictionary online edition, accessed 20 February 2024 has this definition: "very near, next to, or touching."
In my view a plain reading of the word adjacent does not include Lots 9 and 10 which are below Lot 11. 'Next to' is very different to 'on top of'. This view is consistent with: 1. the relevant drawings have areas that are next to the Stage 1, 2 and 3 areas; and 2. the qualification in cl 30.7.8 states: "For the avoidance of doubt, this paragraph 30.7 does not require the owner of Lot 11 to repaint any of lots 9 or 10, or to repair damage to the contents of those lots subsisting as at the Lodgement Date."
It follows then that the work to be done as part of the Critical Obligations is work confined to the waterproofing, balustrades and guttering of levels 5 and 6 and the roof area.
Returning to cl 30.7 generally, the work under the clause "must be fully completed to the satisfaction of the Designated Consultant". Some of the works were to be completed within four months, the remainder within six months of the lodgement date (23 May 2017). These time limits could be extended up to the Sunset Date.
Mr El Khouri did not complete the works within the four or six month periods but claimed, now through the Executors, that the works were completed before the Sunset Date.
The works were to be "completed to the Australian Standards and in compliance with all statutory requirements and in a first-class manner…" (cl 30.7.8). Certification to this effect was required by cl 30.7.1 (already set out above).
It is also important to point out another requirement for certification, which appears in cl 30.7.10, which states: "The works required under this paragraph 30.7 for the purposes of paragraph 30.3 only (and without a effecting any other rights in relation to defective works) deemed to have been completed to the satisfaction of the Owners Corporation, if they are certified as satisfactorily completed by the Designated Consultant."
The first asserted act of certification was a letter from Mr Martyn written on 13 February 2018 to Mr El Khouri: "The works on Level 6 and Level 5 have been completed subject to the requirements of Core Project Consulting. It is our opinion the works have been conducted in accordance with the details provided by Core Project Consulting, including any alteration is to suit site conditions."
This letter is clearly not a certification compliant with By-law 30. As already noted, Mr Martyn was not aware of the by-law until the day after the letter was written.
The Owners Corporation, through its solicitor Mr Black, pointed out some deficiencies in the letter prompting an email from Mr Martyn on 19 February 2018. In this email he wrote: "Having reviewed our files and terms of engagement, we will be unable to provide a certificate of compliance for the remedial works as previously outlined and requested. It is clear that the Unit 11 Owners contractor and related sub- trades have not executed the works in accordance with the specifications compiled by Core Project Consulting. … Further, the requirement outlined in previous correspondence to provide a certificate expressly certifying compliance with all the requirements of By-law 30 is outside of our scope of engagement. As previously advised by Ian Pomeroy, of this office, CPC is only engaged to provide a Practical Completion Certificate for the works in relation to the specification developed by CPC should those works be completed to a condition and state that would permit issuing of a Practical Completion Certificate. At this stage, we are not in a position to issue such a certificate."
As mentioned above, on 28 February 2018, Mr Pomeroy wrote to the Owners Corporation attaching a "Certificate of Practical Completion". The certificate describes the works to Lot 11 as: "Waterproofing and balustrade works to southern balcony on Level 5; Waterproofing, guttering and balustrade works to eastern balcony on Level 6; Waterproofing, guttering and balustrade works to rooftop on Level 7."
The certificate says that the date of practical completion is 28 February 2018 and that the "Defect Liability Period" is six months. Consistently it goes on to say that the "Defects Liability End Date" is 28 August 2018.
The Owners Corporation submitted that the certificate was not sufficient because: 1. it did not certify that there had been final completion of the works; 2. it did not certify that the works had been completed as required by cl 30.7.8, in particular that all statutory requirements had been met and the work had been done "in a first class manner"; and 3. the certificate only related to work on Lot 11. This is the 'adjacent' point that I have already dealt with.
The Executors conceded that "the works which were certified by Core were not entirely defect-free, at least not to a degree that would have resulted in the issuing of a final certificate of completion."
However, the Executors and Perpetual submitted that the certificate of practical completion was sufficient to meet the requirements of cl 30.7.1. They submitted that no more was required of Mr El Khouri other than obtaining the certificate, even if in fact the work had not been done or was defective.
Further, even if defects were present, the insertion of a six-month defects period was consistent with normal building practice and did not affect the validity of the certificate. In addition, it was submitted that the obligation under cl 30.7.10 was to a standard of "satisfactorily completed." Support was then drawn from cl 30.7.7 because under this clause damages arise (under cl 30.7.12) unless the work has been "fully completed."
I have come to the view that the certificate of practical completion issued on 28 February 2018 was not sufficient to satisfy By-law 30's requirements for certification of the work constituting the relevant critical obligation. While I accept that the arguments put on behalf of the Executors and Perpetual have force, I have decided to the contrary because: 1. " … in a first-class manner" as stipulated in cl 30.7.8 requires something more than practical completion. These words denote "of the highest quality" (Law Insider Dictionary, online ed, accessed 20 February 2024), "the first or highest group in a classification" (the Merriam-Webster Dictionary, online ed, accessed 20 February 2024) and "of the highest grade; of the best quality; belonging to the most important group" (Oxford Dictionary, online ed, accessed 20 February 2024); and 2. the primary time limits set by cl 30.7.7 expire after six months, thereby providing for a six-month defect period up to the Sunset Date.
When married with the concession by the Executors that the works were not defect free and would not have entitled Lot 11 to a certificate of final completion, the inevitable result is that the critical obligation in respect of work to be done had not been met before the Sunset Date.
It is necessary to now return to the deeming provision in cl 30.7.10, which is set out above.
Mr Pomeroy visited the premises on 23 March 2018. He conducted a waterproofing test. He stated in his affidavit, at [48]: "Based on what I saw on 23 March 2018, it is apparent to me that there are deficiencies in the waterproofing works to the level 5 balcony (based on the location of the leaks, most likely relating to the terminations) and for that reason, I cannot be satisfied that the work is at a stage where I can issue an updated certificate of practical completion for the Lot 11 works relating to level 5."
I think the level of completion that needed to be satisfied was final completion. However, if I am wrong, Mr Pomeroy has made it clear that as at 23 March 2018 there had not been satisfactory or practical or final completion of the works. The deeming provision therefore is not applicable.
Another reason that the deeming provision is of little consequence is that, as will be seen below, I am of the view that it is not only in respect of the works that there has been a failure to comply with the critical obligations. Therefore, even if the deeming provision had taken effect, the other failures would have triggered the sunset clause.
The next critical obligation asserted to have not been met concerns the claim for GST. The claim arises from cl 30.8 of By-law 30. The by-law states: "As a condition of the grant of the Granted Rights, the owner of Lot 11 must pay to the Owners Corporation, within 28 days of being given a tax invoice by the Owners Corporation, any GST payable by the Owners Corporation of a supply made by it under this by-law."
On 26 June 2019, the Australian Taxation Office made the following ruling (available on its website): "Subject: CGT and goods and services tax implications in relation to granting of rights to common property. Question 1 Is the granting of exclusive rights of usage of areas of the common property for the purpose of courtyards for residential purposes for a monetary value subject to goods and services tax (GST)? Answer 1 Yes."
Perpetual's opposition to the payment of GST does not arise from any challenge to the above ATO ruling; rather it was submitted that the Owners Corporation had not itself paid the GST and secondly that the amount of $75,000 was no more than an estimate, incapable of creating an obligation to pay a certain amount. The submission was put in this way: "The obligation to pay an amount in an invoice can only arise under 30.8 if it is the amount that's actually payable, not just simply an estimate, and it must be something that is genuinely going to be paid."
The tax invoice, 27 March 2018, said to be compliant with cl 30.8 states: "This Invoice is for the supply constituted by the rights granted by the passing of the By-law, or (if the Critical obligations of fulfilled) by the Sunset Date, to be granted to you under By-law 30 point five, the consideration for that supply payable by you consisting of: … The remaining amount now payable by you under this invoice for GST is GST on the value of the supply by us otherwise referred to above or made under the By-law is $75,000 and being 1/10th of our estimate of the GST- exclusive value of the above supplied by us but we fully reserve the right to recover additional amounts for GST or defaults if it is subsequently determined (or claimed by the ATO) that the value is higher."
I think four points emerge from the tax invoice: 1. as submitted by the Executors and Perpetual, the $75,000 is based on an estimate; 2. the estimate is subject to any determination, or claim, by the ATO that the GST should be a different amount; 3. the invoice provides for an increase in the amount recoverable (if the GST is assessed at more than $75,000) but makes no provision for a refund if the GST is assessed at a lower figure; 4. an obligation to pay GST arises in the tax year of the supply (A New Tax System (Goods and Services Tax) Act 1999, Div 27-5 actually requires payment quarterly). The Owners Corporation did not pay any amount to the ATO and the ATO did not levy any amount within the appropriate year. In fact, nothing has been done by the ATO or the Owners Corporation in respect of GST to date; and 5. the tax invoice predates the Sunset Date but pays no regard to the possibility of the "granted rights" being lost due to a failure to perform one or more of the critical obligations. In other words, cl 30.8 does not contemplate the supply disappearing nor does it make provision for a refund upon this occurrence. To take a simple example if an item is purchased for an amount including GST, then if returned to the vendor, subject to other conditions of sale, a refund of the purchase price will include the GST that had been paid.
The fifth point that I have listed in the previous paragraph was not canvassed in opposition to the GST claim. For this reason, I will treat the point, which I think is otherwise significant, as only reinforcing the decision I have made that the GST claim must fail.
It fails because cl 30.8 involves a mandatory direction to pay a set amount in respect of a supply. Absent a specific amount of GST, and specifically one endorsed by the ATO, if only at a later date, I do not see the tax invoice as giving rise to the obligation to fulfil cl 30.8. Put another way, basing the obligation to pay a certain amount upon an uncertain estimate frustrates the obligation under the clause.
I therefore do not include the failure to pay GST as a failure to comply with a critical obligation.
The next critical obligation is based on cl 30.7.13: "The owners of Lot 11 must: … 30.7.13.2 obtain, and before starting work provide evidence of, insurance from a reputable insurer for an amount of no less than $15,000,000, covering that liability, and naming the Owners Corporation as an interested party."
There is no dispute that the insurance cover required was not taken out. The response from the Executors was that there was no need to have taken out the insurance because the owners' pre-existing strata insurance policy covered the same risk. The argument was largely based on the evidence of Mr Cruden, who I have referred to above.
I do not think that Mr Cruden's opinion helps the Executors. This is because even if the existing insurance did cover the same risk, that fact without more, did not extinguish the obligation to take out insurance. Clause 30.7.13 does not have any qualification, for example words to this effect; "unless insurance covering the same risk already exists, the owner of Lot 11 is obliged to take out the stated insurance."
I also do not accept that the existing insurance covered the same risk, because: 1. when the pre-existing policy is examined, it can be seen that the limit of indemnity, in section 1 of the policy, is less than the $15 million required by By-law 30; and 2. Mr Cruden properly assumed, because it was the information he received from Mr Karam Elkhouri, that the works had a value of less than $500,000. That may have been the case, but there is also evidence that the value could have been higher, for example the $750,000 posed as the source of the GST payment.
Accordingly, I am satisfied that the critical obligation to take out an insurance policy in accordance with cl 30.7.13.2 had not been performed as required.
The final critical obligation concerns the amounts payable under cl 30.7.12: "If the works under this paragraph 30.7 and not completed with the times set out in the sub-paragraph 30.7.6 (with any extension), then the owner of Lot 11 must pay damages to the Owners Corporation as follows: 30.7.12.1 on account of any alternative accommodation occupied by the owner of Lot 9 after the end of the allowed time, $1200 per week; and 30.7.12.2 actual losses, for losses to the Owners Corporation of any other kind.
On about 27 March 2018 Mr El Khouri, through his company, sent the Owners Corporation's solicitor's (Carol & O'Dea) a cheque for $29,683 purporting to be payment of an amount owing under cl 30.7.12. The cheque was not met.
The purported payment by the cheque of itself raises an admission that Mr El Khouri believed he was liable for damages under the above clause. This is presumably why counsel for the Executors initially conceded that the amount of the cheque was owing to the Owners Corporation. The concession was later withdrawn on the basis that the critical obligations had been complied with and therefore there had been no obligation to pay the amount of the cheque in the first place. I note that the amount of the cheque, as being the proper amount payable under cl 30.7.12, was never placed in dispute.
It was however submitted that cl 30.7.12 could not be complied with because the time limits said to have been included in cl 30.7.6 did not exist. This fact is correct. The Owners Corporation said the reference to time limits were obviously those contained within cl 30.7.7. The Executors disputed this assertion saying that cl 30.7.7 was only one possibility because there were time limits in other clauses.
I agree with the Owners Corporation that the reference to cl 30.7.6 in cl 30.7.12 is an error and that the applicable time limits are those in cl 30.7.7. I note Perpetual agreed.
The time limits prescribed by cl 30.7.12 were not met. The work was not completed within six months, giving rise to the critical obligation to pay the damages. The 'bouncing' of the cheque with no subsequent replacement payment is positive proof that the damages were not paid. Accordingly, this is another failure to comply with the critical obligations.

Declarations under s 139 or s 149 of the Strata Schemes Management Act 2015 (NSW)

The stage now reached is that I have concluded that three of the critical obligations had not been carried out by Mr El Khouri before the Sunset Date. Giving effect to cl 30.3, the Granted Rights (the exclusive use rights) ceased on 23 May 2018.
To counter this result the Executors and Perpetual sought declarations under ss 139 and 149 to remove clause 30.3 so that By-law 30 continued to operate in a way that the Granted Rights remained in the hands of Lot 11.
It is vital to note at the outset, that the declarations sought did not extend beyond cl 30.3. Thus, there was no suggestion that any declaration could relieve the owner of Lot 11 from any other obligation under the by-law, including obligations to perform work and, where appropriate, payments of money by way of damages or otherwise.
Section 139 was not the focus, in particular by Perpetual, of the relief described above. Although s 139 can be used to attack a by-law which is "harsh, unconscionable or oppressive", it is arguable that the section only applies to the whole of a by-law, so that it could not be used to amend a by-law.
I do not think it necessary to decide this point because I agree with the Executors and Perpetual that the result they wish to achieve is both available, and should be attained, under s 149.
Section 149 states: Order with respect to common property rights by-laws (1) The Tribunal may make an order prescribing a change to a by-law if the Tribunal finds - (a) on application made by an owner of a lot in a strata scheme, that the owners corporation has unreasonably refused to make a common property rights by-law, or (b) on application made by an owner or owners corporation, that an owner of a lot, or the lessor of a leasehold strata scheme, has unreasonably refused to consent to the terms of a proposed common property rights by-law, or to the proposed amendment or repeal of a common property rights by-law, or (c) on application made by any interested person, that the conditions of a common property rights by-law relating to the maintenance or upkeep of any common property are unjust. (2) In considering whether to make an order, the Tribunal must have regard to - (a) the interests of all owners in the use and enjoyment of their lots and common property, and (b) the rights and reasonable expectations of any owner deriving or anticipating a benefit under a common property rights by-law. (3) The Tribunal must not determine an application by an owner on the ground that the owners corporation has unreasonably refused to make a common property rights by-law by an order prescribing the making of a by-law in terms to which the applicant or, in the case of a leasehold strata scheme, the lessor of the scheme is not prepared to consent. (4) The Tribunal may determine that an owner has unreasonably refused consent even though the owner already has the exclusive use or privileges that are the subject of the proposed by-law. (5) An order under this section, when recorded under section 246, has effect as if its terms were a by-law (but subject to any relevant order made by a superior court). (6) An order under this section operates on and from the date on which it is so recorded or from an earlier date specified in the order.
There was no dispute that By-law 30 is a common property by-law. It is also apparent from s 149 that the Tribunal can "change" the by-law, therefore permitting a deletion or an amendment from a by-law.
It is also apparent that the powers under s 149 can only be exercised by the Tribunal. It is for this reason that I was asked to make declarations and then remit the matter back to the Tribunal.
The Executors and Perpetual rely on s 149(1)(c) saying they are interested persons, about which there can be no doubt, that By-law 30 relates to the "maintenance or upkeep of any common property" and that the by-law is unjust.
The Owners Corporation said that s 149 relief was not available because Mr El Khouri had consented to the making of By-law 30. I have dealt with this point above but also add here this reference to Cooper v The Owners - Strata Plan No 58068 [2020] NSWCA 250, a case involving the application of s 139, but nevertheless instructive in the present case. As to consent Fagan J said at [94]: "In its prohibition of by-laws that are oppressive, s 139(1) does not require that there be identified some group within an owners corporation that oppresses, by means of the by-law, the lot owners affected. The inherent qualities of the by-law and the way it impacts upon lot owners make it oppressive if, as in the case of by-law 14.1, it forbids a common incident of property ownership without providing benefit to others. Accordingly, it is immaterial whether the by-law in question may have been adopted or maintained by a large majority or even unanimously. If a by-law that contains an oppressive prohibition were adopted unanimously, that would suggest that no lot holder at the time of the vote wished to undertake the prohibited use. That would not detract from the quality of oppression, which does not depend upon whether any current lot holder desires to act contrary to the by-law. By-laws bind incoming purchasers. The oppressive character of a by-law, inherent from the time of its adoption, unanimous or not, may come to be felt by a person who acquires a lot at a later date."
Next, the Owners Corporation disputed that the by-law was unjust, but also that it related to the "maintenance or upkeep of any common property." It submitted that the particular by-law under attack must be concerned with maintenance or upkeep of common property. This was not the case with cl 30.3 which did not extend beyond a trigger clause signalling the cessation of the exclusive use rights.
I disagree with the Owners Corporation about the limitation on the by-law. Section 149 is aimed at the common property by-law which is precisely the nature of By-law 30. The section also envisages a change to a by-law implying that a part of the by-law may be unjust and susceptible to change. I think that the nature of the Owners Corporation's submission is overly restrictive and would defeat the purpose of s 149, namely, to allow the excision of unjust parts of a by-law, if not the whole by-law.
I also disagree that cl 30.3 is not unjust.
The starting point is to look at the balance of the interests of Lot 11 and the remainder of the owners in the building. As affirmed by Mr James, the remaining owners did not have any expectation of the use of the balconies or the rooftop area for personal purposes. They did not buy their lots with any expectation of such a use. On the other hand exclusive use by the owner of Lot 11 is an almost accepted and intrinsic characteristic of the ownership of the lot. The balconies and the rooftop area can only be accessed through Lot 11. The elevator to Lot 11 opens into the residence. It is unthinkable that other owners would access the balconies or rooftop area by wandering through the unit.
The difference in value between Lot 11 with and without exclusive use rights is marked. In September 2022, the following valuations were made: 1. with exclusive rights: $10 million; 2. without exclusive rights: $7,750,000; and 3. without exclusive right but with access to all owners: $6,500,000.
The third valuation is not relevant. The relevance relates to the difference between the first two valuations showing an uplift of $2,250,000 as the benefit of having exclusive rights.
The next feature in the balancing act is that all of the obligations of increased payment, maintenance and upkeep under By-law 30 will remain upon Lot 11 notwithstanding that the exclusive use rights have ceased. This means that the loss of the rights under cl 30.3 has a very onerous effect in that the equilibrium that existed under By-law 30 (exclusive rights on the one hand, upkeep, and maintenance obligations on the other) is extinguished, leaving the extra obligations on the owner but without the benefits.
The Owners Corporation submitted that the $2,250,000 difference described above should be seen as a loss to all of the owners in the building as well as the owner of Lot 11. Further it was pointed out that Mr El Khouri had purchased Lot 11 at a time when the lot did not have exclusive rights attached to it. Therefore to give him the exclusive rights, notwithstanding his failure to perform the critical obligations would be an unjustified windfall.
But, as I have pointed out, the obligations imposed on Lot 11 will remain and the absence of exclusive rights will makes no practical difference to the enjoyment by the balance of the owners of their respective units. The owner of Lot 11 is not getting 'something for nothing'. The owner is accepting a significant amount of obligations, no different to those he would have had but for the sunset clause.
I therefore intend to make the declaration requested by Perpetual and the Executors and to remit the matter to the Tribunal to make orders derived from these reasons.
As I have made very clear, my conclusion does not affect the liabilities incurred by Lot 11 under By-law 30. Consequently, I will proceed to assess the quantum of monies that arises.

Relief against forfeiture

To the extent that I understand the claim by the Executors for relief against forfeiture, it is limited to the forfeiture of the exclusive use rights lost as a result of cl 30.3.
I have some difficulty in understanding how this remedy could apply in this case. However, the matter does not need further discussion because the effect of the declaration that I will make concerning cl 30.3 will achieve the same purpose.

Quantum: the claim by the Owners Corporation

The Owners Corporation asked for the following discrete amounts: 1. $779,250.72 for building related costs; 2. $75,000 for GST; 3. $354,541.53 for associated claims by lot owners; and 4. legal costs (to be determined by a referee or costs assessor).
The $779,250.72 is made up of: 1. work done by Core: $15,048.00; 2. work done by Renfay: $269,155.70; 3. work done by Partridge: $88,894.16; and 4. future work: $406,152.86
There doesn't seem to have been any dispute about the amount for work done by Core. I will allow it.
The final figure for future work immediately falls away because of my finding in respect of By-law 30. This is because without the forfeiture clause the existing use rights continued, together with the attendant obligations, which included responsibility for future maintenance. This leaves the total of the claim for work at $373,097.86. Although the whole of this amount has already been paid, the Owners Corporation (and Perpetual) did not accept that the amounts had been reasonably incurred.
I should add here that the work done costs have actually been discounted by the Owners Corporation, as explained by its counsel, Mr Byrne, when explaining a schedule that he relied upon: "We take the point that the by-law excluded rectification of pre-existing issues that were unrelated, and so we've taken out the ceiling repair, the electrical repair, and several other items on the following page. I think the other one was the timber flooring was substantial, and you'll recall that there was evidence that there was some mould before the by-law work started, so that's at item B4. So then on p 5, there is some line items for HBCF, so Home Building Compensation Fund insurance and preliminaries. Those figures, the amounts for those figures, depend on what the physical construction costs are, and your Honour will note in the quantum column, we've identified a reduced amount that we press based on the physical construction costs on the other items that we do press. So we've reduced it proportionally so that we're only claiming the on costs on the physical works we press. So the intention with this was to make it simple to your Honour so you don't need to get into too much of the weeds of the defects. We then do the same exercise from p 6 in relation to the variations, and so just on p 6, you'll see we don't press variation one, which is the first line, and then the second line, which is variation 3A, in the liability column, we identify what Mr El Khouri was required to do, what the observation inconsistent with that was, and identify the evidence, and then in the quantum column, we give you the variation claim, and then to the extent that Mr Crosby has engaged with it, we've given you his view. I think there's a couple of items where he confirms the price that was reasonable."
The Executors relied upon the evidence of Mr Crosby to substantially decrease the amount claimed for work done. Although sometimes a little difficult to understand, the schedule comparing Renfay's costs with those assessed by Mr Crosby, reveal an assertion by Mr Crosby, that the reasonable costs should be limited to $34,055.44.
The Executors said that caution needed to be exercised before accepting Renfay's costs because they had been approved by Mr Hamwood and Mr Hely who both had an interest in the assessment, both of them being employees of Partridge. This interest should, it was submitted, infect their value as experts. I was referred to the following observations by McDougal J in Investmentsource v Knox Street Apartments [2007] NSWSC 1128 at [50]: " … (2) There is a real difference between the role of an expert retained to advise a client and the role of an expert engaged to give evidence. The former owes his or her primary obligation to the client; the latter owes his or her primary obligation to the Court. It cannot be assumed that those obligations are identical, or that in any given case performance of them would lead to the same outcome in terms of opinion. (3) For the reasons given by Einstein J in Cassegrain and Campbell J in United Rural Enterprises , there is a real risk that an expert who has not prepared a report under the discipline of the applicable schedule will form an opinion from which, thereafter, he or she would find it difficult to retreat, even if circumstances arise that might raise this as a possibility. … "
The Owners Corporation submitted that, in addition to Mr Crosby not dealing with a number of matters, the most persuasive factor was that the work done by Partridge and Renfay had actually been invoiced and paid for.
The Owners Corporation relied upon Payce Communities Pty Ltd v Canterbury-Bankstown Council [2021] NSWSC 331, where Stevenson J said, from [191]-[195]: "Actual costs as best evidence of reasonable costs Thus, the first integer adopted by Mr Daubney in his calculation of Payce's claim for variations was the actual cost of the variations. In Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd & Anor, Giles JA (with whom Sheller JA agreed) said: "This does not mean that a theoretical reasonable cost is to be preferred over the actual cost where the actual cost is known and can be taken as the reasonable cost ... [I]f the rectification work has been carried out and the actual cost is known, that provides sound evidence of the reasonable cost…If the rectification work has been carried out and the actual cost is known, that provides sound evidence of the reasonable cost and should ordinarily provide the basis for damages." In the same case, Meagher JA said that actual costs were the "impeccable" measure of reasonable costs for the purpose of determining the reasonable measure of costs to rectify defects. I did not detect in Mr DeBuse's submissions any suggestion that the actual costs incurred, in performing the works Payce contends to be variations, were unreasonable. I propose to proceed upon the basis that the actual costs incurred were reasonable. Nor did I detect in Mr DeBuse's submissions any suggestion that the costs were not incurred."
Thus, on the one hand I have the strength of the costs having been actually incurred, suggesting they are reasonable, but on the other hand the assertions of unreasonableness by Mr Crosby overlaid with a suggested preference for Mr Crosby because of his independence.
During concurrent evidence Mr Hamwood and Mr Hely were both asked to clarify whether or not their assessment of the reasonableness of the work done by Renfay had been objectively decided or based on the fact that the costs were simply a repetition of the historical fact that the amounts had been charged.
It is possible that Mr Hamwood and Mr Hely did not understand precisely what was being asked, but I had a distinct impression that their answers were evasive as seen in the transcript from pp 359 to 362, but finally ending with this question and answer (by Mr Hely): "Q. Just one more question on that. But you do accept, don't you, that part of your mindset here today is to defend the appropriateness or correctness of what you've done previously? Do you agree with that? A. Based on the information that's - excuse me, based on the information that's there, yes. Because we act independently to provide the best service to the client."
I think there is considerable weight in the assertion that the expert evidence of Mr Hely and Mr Hamwood must be viewed with a degree of scepticism because of their lack of independence. On the other hand I think there are real issues with elements of Mr Crosby's report. For example, he criticises one of the variations claimed by Renfay as not including a credit for work which was not done. However, when the variation is examined it is evident that there is a credit which seems to have been missed by Mr Crosby. I am referring to Variation 3. Also in this variation Mr Crosby, during his oral evidence, accepted that the cost for the new hob was reasonable.
Another example is the difference between the cost of waterproofing the southern balcony. The Owners Corporation claims $46,024.92. Mr Crosby says that only $21,418.90 was appropriate. However, Mr Crosby's evidence is based upon a patch repair as opposed to a total repair. Mr Brown, in his oral evidence, agreed that "most builders would not warrant patch repair of membranes."
It is an impossible task to sift through the details of every claim to ascertain what is reasonable and what is affected by the perception, perhaps reality, of a lack of independence on the part of the Owners Corporation experts. I think the only fair way to approach this issue is to reduce the amounts claimed for the Renfay work by a percentage, which I assess at 25%.
I have chosen 25% because I think considerable weight needs to be given to the actual costs incurred (as referred to by Stevenson J in Payce Communities) but there also needs to be a lesser recognition of the absence of independence of the two partridge witnesses (Mr Hamwood and Mr Hely).
Accordingly, I will reduce the amount claimed to $201,866.77.
Turning now to the Partridge costs, Perpetual's opposition was based on the Partridge invoices not distinguishing between works related to By-law 30 (referred to as Contract 1) and other works not so attributable (referred to as Contract 2).
This argument is valid and has been accepted by the Owners Corporation. The Owners Corporation's approach taken to Partridge's costs is to claim 33%, being the same percentage that had been applied to Renfay's costs as being said to be attributable to Contract 1. Two points arise: 1. my use of a percentage reduction to Renfay's costs is validated by the same approach having been taken by the Owners Corporation to Partridge's costs; namely a broad assessment-based deduction where a specific calculation cannot be made. It was also, to some extent, endorsed by Perpetual which seemed to agree with a 'splitting the difference' approach; and 2. the reduction of 25% that I applied to Renfay's costs should logically also be applied to Partridge's costs because they suffer from the same disadvantage, namely their reasonableness being based upon the opinions of Mr Hamwood and Mr Hely. The claim for $88,894.16 is therefore reduced to $66,670.62.
The total for the claim done for work done by Core, Renfay and Partridge is $283,585.39.
The next claim is for $75,000 for GST. I have already decided, above, that the GST claim, as a critical obligation, must fail.
The next claim to be considered is the $354,541.53 allegedly owed to the lot owners. This figure is made up of the following amounts: 1. Accommodation in respect of Lot 9: $1,489.00 2. Storage in respect of Lot 9: $26,623.96 3. Loss of rent in respect of Lot 10: $306,428.57 4. Damages in respect of Lot 10 $20,000.00
The claim arises from cl 30.7.12 of By-law 30, which I will repeat. It states: "If the works under this paragraph 30.7 are not completed within the times set out in sub-paragraph 30.7.6 (with any extension), then the owner of Lot 11 must pay damages to the Owners Corporation as follows: 30.7.12.1 on account of any alternative accommodation occupied by the owner of Lot 9 after the end of the allowed time, $1200 per week; and 30.7.12.2 actual losses, for losses to the Owners Corporation of any other kind."
The works needed to be completed within six months (cl 30.7.7). The relevant date is 23 November 2017. They were not completed by this date. Ms Langham, the owner of Lot 9, resided in the serviced apartment from 30 November 2017 until 8 December 2017 at a total cost of $1,489. This is less than the $1200 per week envisaged by cl 30.7.12.1. The period relating to the storage costs is not clear. The amount suggests it must have extended well beyond the accommodation period.
It was submitted that the amounts referable to Ms Langham, and Lot 9, should not be allowed because Ms Langham had vacated the unit for different reasons, in particular the removal of asbestos and the presence of mould. It was asserted that this point had been conceded by the Owners Corporation in an email from Mr Selwyn Black (the Owners Corporation's solicitor) to Mr James on 13 August 2019: "We have corresponded with you about this before and are aware that there are various points for consideration here. For example, on the one hand it is suggested that Lot 11 or its failures are not the only cause of water leakage but as against that, if the complaint was only as to the water leakage arising from non - Lot 11 sources, it may well not have been necessary to vacate the units. Accordingly, at the very least some pro-rating of a portion might arise."
Plainly, the concession is qualified by the suggestion of a pro rata split. I intend to take that precise approach in relation to the storage costs. I think it reasonable to allow half the amount claimed, namely $13,311.98. Because of the short period of the accommodation and its coincidence with 23 November 2017, I do not propose to reduce the accommodation costs.
The total amount in respect of Lot 9 is therefore $14,800.98.
The loss of rent claimed in respect of Lot 10 ($306,428.57) arises from a settlement deed made with Mr William James, the owner of Lot 10, on 27 August 2020. Two of the recitals to the deed are important: "F. There is an uncertainty as to recoverability of certain amounts against the Estate of the late Mr El Khouri / lot 11 on the basis that there is an uncertainty as to the liability by the Owners Corporation to the Lot 10 Owner for the period over which there was an exclusive use by-law in place until May 2018 (being by-laws which placed certain responsibilities on lot 11 and thereby relieved the Owners Corporation for those responsibilities), and for a subsequent period until the Owners Corporation had a reasonable opportunity (including access) to get the works remedied. This issue is squarely raised as a result of the Court pleadings. G. Accordingly, there is a possibility, at least for the exclusive use period and such a subsequent reasonable period, that the Owners Corporation is entitled to a refund of monies paid to the Lot 10 Owner."
It is evident from these recitals that the deed itself raises a doubt as to whether the damages claimed are the responsibility of Lot 11.
Clause 3.1 of the deed states: "In consideration for the releases in this Deed, the Owners Corporation agrees to pay the Lot 10 Owner the amount of $1,100 per week from 1 May 2019 until the Lot 10 End Date, subject to the conditions precedent below, as compensation for rent paid or loss of rent."
The first point to be made about cl 3.1 is that it stipulates a payment from 1 May 2019 whereas the rent actually claimed is backdated to 21 December 2017.
The next point concerns whether or not the deed reflected a reasonable settlement of the issues it addressed, at least to the extent that the amount of settlement was to be recovered in third-party litigation. The requirement that the settlement must be reasonable is evident from Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; [1998] HCA 38, at [6]: "The plaintiff must show that the sum accepted in settlement was reasonable. The test of reasonableness is, as Hayne J says, an objective one. Evidence of the advice which the insured received to induce it to accept the settlement is not proof in itself of the reasonableness of the settlement advised. The factors which lead to the giving of the advice are factors relevant to the reasonableness of the settlement but the only relevance of advice given by the insured's legal advisers to settle is that it tends to negative the hypothesis that the insured acted unreasonably in accepting the settlement."
The application of the reasonable test was described by Peden J in CIMIC Group Limited v AIG Group Limited [2022] NSWSC 999, from [419]-[420]: "There was no dispute as to the principles of determining reasonableness, which are helpfully summarised in Delta at [36] (Fraser JA): To establish a liability, a settlement "must not only be reasonable but also bona fide." [Vero Insurance Ltd v Baycorp Advantage Ltd [2004] NSWCA 390, [68]]. The question of reasonableness is to be determined, "based on a reasonable assessment of the risk faced by [the insurer] if the [third party] claims were to proceed to trial and judgment" [CGU Insurance Limited v AMP Financial Planning Pty Ltd (2007) 235 CLR 1, [24]]. The settlement "must reflect the plaintiff's true prospects of success if the proceedings had been conducted with care and skill … ." [BNP Paribas, above, [17]] The insured is "required to have regard to the proper interests of the insurer and [can] not claim indemnity under the policy in respect of amounts payable under a settlement which [does] not reflect, by its terms, a reasonable evaluation of the prospects of a successful defence to a third party's claim." [The Distillers Company Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1973-1974) 130 CLR 1, 32]. Monies paid for an ulterior purpose, that is a purpose "extraneous to the risks insured against", will mean that there is not such a bona fide settlement of a liability [Distillers Bio-Chemicals, above, pp 32-33]. In the Distillers Bio-Chemicals case, Gibbs J gave examples of extraneous reasons which might motivate an insured to settle: monies paid to avoid adverse publicity or to relieve a parent company of its part in liability for a dangerous product [Distillers Bio-Chemicals, above, p 32]. It is not that such matters make the settlement unreasonable generally: they may provide sensible commercial reasons to settle. But in terms of the rule currently under discussion, these extraneous motives mean that the settlement is not reasonable because it is not a bona fide or accurate measure of liability in the action. In addition, the following principles are relevant: (1) The reasonableness of a settlement amount is an objective question: Unity Insurance at 608-609 (Brennan CJ) 618 (McHugh J), 627 (Gummow J) and 656 (Hayne J). (2) Whether the settlement was reasonable is to be determined having regard to the material that was available to the parties at the time of settlement, not by reference to material later obtained that may demonstrate a different result: Unity Insurance at 653 (Hayne J); White Industries Qld Pty Ltd v Hennessey Glass and Aluminium Systems Pty Ltd [1999] 1 Qd R 210 at 218 (Pincus J). The settlement sum must reflect the true prospects of success if the proceeding had been conducted with due care and skill: Protec Pacific v Steuler Services [2014] VSCA 338 at [747] (Tate, Santamaria and Kyrou JJA) (Protec Pacific). (3) There is to be a reasonable assessment of the risk faced if the claims were to proceed to trial and judgment: CGU Insurance Limited v AMP Financial Planning Pty Ltd (2007) 235 CLR 1 at [24] (Gleeson CJ and Crennan J). (4) It is relevant whether the insured made sufficient inquiries and had sufficient information available to it to warrant the compromise that was reached: Unity Insurance at 653 (Hayne J). (5) It is relevant whether the negotiations were conducted with proper care and skill: BNP Paribas v Pacific Carriers Limited [2005] NSWCA 72 at [17] (Handley JA). (6) The fact that proceedings were lengthy, complex and would be costly if not settled cannot alone establish reasonableness: Protec Pacific at [817] (Tate, Santamaria and Kyrou JJA). (7) There is a range within which a settlement amount will be reasonable because of the inherent uncertainty of outcomes: Unity Insurance at 653 (Hayne J)."
The Owners Corporation, accepting the requirement to establish reasonableness, said that the settlement was objectively reasonable because: 1. Mr Curran, the owner of Lot 8, gave evidence that his unit was rented out during a similar period for between $1120 and $1220 per week. Mr Curran also said that he thought Lot 10 had a better fit-out than Lot 8 and also had better views, being one level higher. 2. The deed provided for a lower weekly rental than that included for Lot 9 in By-law 30 at cl 30.7.12.1.
These two assertions of reasonableness fall somewhat short of covering the factors listed by Peden J in CIMIC. Obviously not every factor will be relevant in every case. However, the two indicators of reasonableness relied upon by the Owners Corporation, while perhaps relevant, do not cover the extent of research and enquiry which would render a settlement to be objectively judged as reasonable.
More importantly, it is clear from the recitals quoted above that the background to the settlement deed included a concern as to the validity of the claim against the owner of Lot 11. Notwithstanding this concern, the deed does not include any discount to reflect the uncertainty.
I am therefore not satisfied that the settlement in respect of the lost rent has been proved to be reasonable.
I will therefore not allow the claim for the whole of the $306,428.57.
If I am wrong about the reasonableness of the settlement, there are other problems with the claimed payments. The payments are listed in a general ledger transaction list commencing at p 9954 of Folder 9 in Exhibit A. 1. the ledger indicates that the payments started on 21 December 2017. How could these payments be related to the deed which was not executed until 27 August 2020? This is not a question of backdating because the ledger indicates the actual payments being made from 21 December 2017; 2. there is an example of backdating in the ledger, with the payment of $71,500 on 8 September 2020 which is consistent with the deed being signed in August 2020 but providing for the start date of the payments going back to 1 May 2019. The last payment before August 2020 had been on 15 May 2019. Unlike the payments before 15 May 2019, the payment on 8 September 2020 is consistent with the deed; and 3. there is also no explanation for the claim for rent extending back to 21 December 2017 as opposed to the start date of 1 May 2019 under cl 3.1. If the payments claimed are based on the deed then they should go no further back than 1 May 2019. This would be a calculation of the $1,100 per week from 1 May 2019 until 21 November 2022, namely 186 weeks. At $1,100 per week the claim should be $204,600.00
The next question to arise is whether I should make an assessment of what is reasonable in lieu of the claim for $306,428.57. Put another way, does the whole claim fail because I have found it has not been proven to be objectively reasonable or can I make my own finding as to what is objectively reasonable and allow a claim for whatever monetary conclusion I have reached.
In both Unity Insurance and CIMIC the respective settlement was found to be reasonable. An example of a settlement being found not to be reasonable is BNP Paribas v Pacific Carriers Ltd [2005] NSWCA 72. Giles JA said at [194]: " … What is the consequence if it be held that the settlement was not reasonable? Does PCL recover no damages referable to the settlement of the London arbitration? Does it recover damages upon the court's assessment of a result in the London arbitration? Or does it recover damages upon the court's assessment of what a reasonable settlement would have been? … "
His Honour then continued, at [260]: " … As earlier discussed, a settlement of the London arbitration was a foreseeable and reasonably contemplated event. There was a settlement. A finding that the settlement was unreasonable leaves the recoverable loss to be arrived at by regard to the principles of causation and remoteness discussed in Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd."
Applying principles of causation and remoteness raises the following points: 1. the claim cannot extend beyond the $204,600 dating back to 1 May 2019. If the settlement is not reasonable then an amount more than the settlement could also not be reasonable; 2. the claim makes no allowance for the uncertainty actually stipulated, as I have described above, in the recitals; 3. the claim does not seem to cater for Lot 10 being vacant for other reasons which could range from different defects in the premises to simply periods of vacancy and maintenance in between tenancies; and 4. even if Lot 10 was vacant due to water ingress that ingress may not have emanated from Lot 11 and even if so, may not have been caused by defective waterproofing.
At [263], in BNP Paribas, Giles JA referred to the assessment being made "in a fairly broad manner" where, as here, the calculation is to be made on "incomplete evidence".
I have decided on the following approach. Starting with the $204,600, I think it should be discounted by 50% to allow for the factors I have set out above, in particular the probability that Lot 10 would have been vacant for other reasons besides water ingress specifically emanating from defective works at Lot 11.
The result is an allowance of $102,300.00.
I will turn now to the $20,000 claimed as damages in respect of Lot 10. It is important to distinguish between the reasonableness of the deed and the reasonableness of its individual provisions. Invariably there will be no practical difference. However, as in this case, where the deed includes more than one provision for payment, it may be that one payment is reasonable, but another is not.
The $20,000 amount is in cl 3.5 of the settlement deed. I think this sum falls into a different category to the rental loss. This is because the $20,000 relates to actual work performed by Mr James. The work has been completed by Mr James giving it a reasonableness missing from the vague nature of the rental claim described as "compensation for rent paid or loss of rent."
Although I have found that there has not been a reasonable explanation for the settlement, I think I can sever this portion because of the work having been performed. In other words, the fact that Mr James was obliged to do the work, and has done it, provides an explanation for the deed requiring the payment of the $20,000.
I will allow the $20,000 in damages. This means the total in respect of Lot 10 is $122,300.00
The claims under this section seem to have omitted the $29,683.00 which had been tendered by Mr El Khouri, but the cheque had not been met. This payment clearly arises from cl 30.7.12 and was conceded subject to general findings about compliance with the critical obligations. As I have found that the critical obligations were not complied with, the concession means the amount of the cheque becomes payable to the Owners Corporation. I will therefore add it to the figures otherwise assessed, bringing the total to $166,783.98.
The final monetary claims being made by the Owners Corporation stem from its cross-claims against both the Executors and Perpetual. The claims are for strata levies raised at an Extraordinary General Meeting on 8 November 2021 and at an Annual General Meeting on 27 April 2023. The total claimed is $249,951.92. There is also an outstanding amount of $1,291.02 in unpaid quarterly levies but this claim seems to have been abandoned.
There is no dispute that any liability for levies will be a joint and several liability shared by the Executors and Perpetual. There is also a claim for interest. There is no challenge to any technical aspect in relation to the passing of the resolutions.
The 2021 levy includes an amount of $200,000 for legal fees. The 2023 levy raises $375,000 for legal fees. Lot 11's unit entitlement is equivalent to 21.11%. Accordingly, Lot 11's contribution to the legal fees is $121,382.50.
Section 86(2A) of the Strata Schemes Management Act 2015 permits an Owners Corporation to recover "as a debt in a court of competent jurisdiction, a contribution not paid at the end of 1 month after it becomes due and payable, together with any interest payable on that unpaid contribution and the reasonable expenses of the Owners Corporation incurred in recovering those amounts."
Perpetual conceded an amount of $107,449.90. Although difficult to identify the Executors' submissions on levies I assume they adopt the same arguments as Perpetual.
Perpetual submitted that the levies could be adjusted by the NCAT pursuant to s 87 of the Strata Schemes Management Act 2015, which states: (1) The Tribunal may, on application, make either or both of the following orders if the Tribunal considers that any amount levied or proposed to be levied by way of contributions is inadequate or excessive or that the manner of payment of contributions is unreasonable - (a) an order for payment of contributions of a different amount, (b) an order for payment of contributions in a different manner. (2) An application for an order may be made by the lessor of a leasehold strata scheme, an owners corporation, an owner or a mortgagee in possession.
Application of this section by me would require appropriate declarations followed by a transfer of the matter back to the NCAT for the making of the appropriate orders.
Perpetual submitted that the levies were excessive or unreasonable because: 1. the levies included a component of fees to enable the Owners Corporation to pursue legal action. As the legal action is against the Executors and Perpetual it is somewhat unreasonable for Lot 11 to effectively fund legal proceedings against itself; and 2. the November 2021 levy included an amount of $100,000 to install a stairway to the rooftop area. Not only has this work never been done, at this stage it is unlikely to be done. As I have already mentioned any plan submitted to Council to approve a stairway is likely to result in very extensive and expensive requirements, possibly extending through the whole building.
The parties had not been able to locate any authorities on s 87 except for a Tribunal case in 2013 (Cleggatt v OC SP 35541 [2013] NSWTTT 359). In Cleggatt there were ongoing legal proceedings in the District Court. The Owners Corporation passed a levy payable by all of the lot owners to fund proceedings against one of the lot owners. The Member, Mr Ringrose, of the Consumer, Trader and Tenancy Tribunal (CTTT) summed up the argument in this way at [31]: "The appellant contends that the manner of payment of contributions in the present instance is unreasonable in that it requires a party to proceedings commenced in the District Court to contribute on a solicitor/client basis to the cost of defending those proceedings against that party."
The Member concluded, at [34]: "There is no doubt that both parties to the District Court proceedings believe that they have good prospects of success and this is demonstrated by the fact that the matter is likely to proceed to a full hearing without any prospects, at this stage, of settlement. In such circumstances I am satisfied that there is a real potential injustice to the applicants if the levy is not varied particularly where it would be "quite unjust" if the applicant/appellants, even if successful in the District Court proceedings were obliged to assist in part in the payment of the defendant's solicitor's costs albeit on a solicitor/client basis."
The Owners Corporation said Cleggatt should be distinguished as it was a decision of a now extinguished Tribunal and because in the present case the Owners Corporation had the benefit of a by-law giving it an indemnity for legal costs. Therefore, the Owners Corporation was in a much stronger position than in Cleggatt where there was only a resolution.
The fact that the CTTT no longer exists is meaningless. In relation to the existence of the by-law I do not see that it makes a material difference. If the levy is unreasonable then that is a fact which stands on its own and is susceptible to change under s 87.
I think the levy is unreasonable and unjust. It requires the owner of Lot 11 to fund litigation against themselves. As in this case the litigation is complex and prolonged. It has been defended by Lot 11. It is an extraordinary result that Lot 11 could be funding the opposing party to the proceedings, namely the Owners Corporation.
The result of this conclusion is that Lot 11's contribution to the claim for $249,951.92 should be reduced by $121,382.50, leaving $128,569.42 owing in respect of the two unpaid levies.
I think the position is different in respect of the stairway. The fact that the stairway will not proceed may amount to a credit to the lot owners or to the allocation, subject to resolution, of the funds being directed elsewhere. Whatever the case, the owner of Lot 11 will be entitled to take part in any meeting to consider a resolution which could include the return of collected funds to the lot owners that had paid or a credit to those that had not paid.
I do not see it is unreasonable for the Owners Corporation to have raised a levy for the stairway at a time when the extension of the stairway was a real possibility.
In summary, the amounts owing to the Owners Corporation by the Executors are as follows: 1. $283,585.39 for works done by Core, Renfay and Partridge and paid for by the Owners Corporation; 2. $166,783.98 for damages payable to the Owners Corporation including amounts arising from the deed with Mr James;
The amount owing to the Owners Corporation jointly and severally against the Executors and Perpetual and arising from the cross-claims brought by the Owners Corporation, is $128,569.42.
The above amounts do not include interest which I will ask the parties to calculate and agree upon. I will also need to make an order that the Owners Corporation be entitled to expenses to recover the levies, to be assessed by a referee or a costs assessor.

Quantum: the claim by the Executors

The Executors claim against the Owners Corporation is for $6,505,070.83. The figure is said to represent the "incurred interest and other costs in relation to the home loan secured against the Property, which loan would have been discharged had the Sale Contract completed." (Paragraph 57(iii) of the revised seventh amended statement of claim). Other than informing me that sub paragraph (iii) was the only claim relied upon, no submissions were made in support of the damages claim. This perhaps reflects the enthusiasm with which the claim was put.
The sale contract refers to the proposed sale of Lot 11 to a Mr Houang in September 2017. The purchase price was $10.2 million. That fact however is not relevant to the damages claim. Rather the claim arises in this way: 1. Mr El Khouri borrowed $5 million from La Trobe in 2015; 2. the balance of the loan on 21 September 2017 was $4,995,899.15; 3. the sale to Mr Houang did not proceed because it was conditional upon the Critical Obligations under By-law 30 being completed and the Owners Corporation providing a certificate to that effect to the purchaser. This was to be done by 30 March 2018; 4. the Owners Corporation did not issue the certificate; 5. consequently, the sale did not proceed; and 6. the amount outstanding on the loan, as at 6 February 2024, was $11,162,981.59. Although the mathematics might be a little askew the amount claimed is said to be the interest and costs associated with the loan between September 2017 and the present.
The Owners Corporation has rejected the claim for these reasons: 1. the Owners Corporation was not required to provide a completion certificate because the critical obligations had not been complied with by Mr El Khouri; and 2. the property could have been sold at any time between 2017 and the present, thus terminating the accrual of interest. This amounted to a failure to mitigate the loss, notwithstanding that any prospective purchaser might have viewed the purchase with caution having regard to the ongoing litigation and issues with the Owners Corporation.
I have concluded that the critical obligations were not met. Therefore the Executors' claim for damages must fail.
In respect of the failure to mitigate, I would add another point. The affidavit of Mr Karam Elkhouri of 7 February 2024 annexes the La Trobe loan activity statement. It does not give any reason for the somewhat haphazard, or absent, repayments under the loan. I do not know what is the financial health of Mr El Khouri's estate, nor do I know anything about the disposition of Lot 11 under the will. Mr Karam Elkhouri did not wish to disclose any details. That is fair enough. But there should at least have been some evidence of why repayments were not made because, logically, every repayment reduces the amount of interest that is accruing.
In conclusion, the claim for damages brought by the Executors against the Owners Corporation is dismissed.

Orders and declarations

In both proceedings, it is declared that: 1. Clause 30.3 of By-law 30 is unjust. 2. The levies raised on 8 November 2021 and 27 April 2023 are unreasonable.
In proceedings 2018/93444 (Executors v Owners Corporation) it is ordered that: 1. Upon the plaintiff paying the amount set out in order (2) below ($450,369.37) and the Executors issuing a strata interest notice pursuant to s 22 of the Strata Schemes Management Act 2015, the Owners Corporation is to provide the plaintiffs with a certificate pursuant to clause 30.4 of By-law 30. 2. The plaintiff is to pay the defendant $450,369.37 pursuant to s 145 of the Strata Schemes Management Act 2015. 3. The plaintiff is to pay the defendant $128,569.42 in respect of special levies. 4. The proceedings are remitted to the NSW Civil and Administrative Tribunal for orders arising out of the declaration made as to cl 30.3 of By-law 30 and, if necessary, in respect of the levies found to be unreasonable. 5. It is noted that the amount payable for special levies is a liability shared jointly and severally with the Executors. 6. Orders are to be made in respect of costs, interest, and the cost of recovering unpaid levies.
In proceedings 2022/98817 (Perpetual v Owners Corporation) it is ordered that: 1. The plaintiff is to pay the defendant $128,569.42 in respect of special levies. 2. The proceedings are remitted to the NSW Civil and Administrative Tribunal for orders arising out of the declaration made as to cl 30.3 of By-law 30 and, if necessary, in respect of the levies found to be unreasonable. 3. It is noted that the amount payable for special levies is a liability shared jointly and severally with the Executors. 4. Orders are to be made in respect of costs, interest, and the cost of recovering unpaid levies.

Amendments 22 April 2024 - category changed from Procedural Ruling to Principal Judgment DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 April 2024

Strata Schemes Management Act 1996(NSW)

At a glance

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Catchwords

Judgment (15 paragraphs)

Legislation Cited (4)

Cases Cited (11)

Cited By (3)