Rita Sahade v Owners Corporation SP62022 & Ors - [2013] NSWDC 95 - NSWDC 2013 case summary — Zoe

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Rita Sahade v Owners Corporation SP62022 & Ors

[2013] NSWDC 95

District Court of NSW|2013-04-12

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Source facts

Court

District Court of NSW

Decision date

2013-04-12

Source

Original judgment source is linked above.

Judgment (18 paragraphs)

[1]

Overview 1The plaintiff owns Lot 3 in a strata scheme of three lots at 84 - 86 Wolseley Road, Point Piper (the property). Lot 3 is a separate waterfront house with a jetty onto Sydney Harbour. Lots 1 and 2 are duplex apartments. They have no direct waterfront access. Lot 1, the upstairs apartment, includes a caretaker's unit. The owners of Lots 1 and 2 are sisters. Their family developed the property. The strata plan was registered on 5 April 2000. At that time, there was no valuation of the lots. Each of Lots 1 and 2 was allocated a unit entitlement of 30, and Lot 3 was allocated a unit entitlement of 40. 2The plaintiff brought proceedings in the Consumer Tenancy and Trader Tribunal (the Tribunal), seeking an order under s 183(1) of the Strata Schemes Management Act 1996 (the Act) varying the allocation of unit entitlements so as to increase her allocation. She claimed that the allocation was unreasonable and did not reflect the respective values of the Lots as at 5 April 2000. She asserted that the market values of the Lots as at 5 April 2000 were $2.1 M (Lot 1), $1.8 M (Lot 2) and $7.2 M (Lot 3). If the unit entitlements were reallocated to reflect those values, the plaintiff would gain control of many matters affecting the strata scheme 3Relying upon sales at 47 - 49 Wolseley Road, Point Piper as providing the best comparative evidence of the market value of Lots 1 and 2, the Tribunal found that the market values of the Lots as at 5 April 2000 were $3.8M (Lot 1), $3.2 M (Lot 2) and $7 M (Lot 3). Although those values were not reflected in the current unit entitlement allocation of 30/30/40, the Tribunal dismissed the application, noting that the grounds required to make the orders were not established. 4The plaintiff appealed. The defendant raised a point of contention.

[2]

[7]

Ground 1 (i): The Tribunal arrived at its own opinion. It should not have decided that there was a market increase of 0.25% per month between 5 April 2000 and 31 October 2000 and should not have adjusted the value of Lot 3 accordingly. 16On 30 October 2000, Lot 3 sold for $7.2 M. There was no dispute that $7.2 M represented the market value of Lot 3 as at 30 October 2000. Comparing sales of 16/78 Wolseley Road in March 2000 (for $1.15 M) and March 2001 (for $1.185 M), Mr Dobrow, the plaintiff's expert valuer, concluded that there was little variation in market value between April 2000 and October 2000 and that the price of $7.2 M reflected the market value of Lot 3 as at April 2000. Mr Hyam, the defendant's expert valuer, also referred to the sales of 16/78 Wolseley Road, but (comparing $1.185 M and $1.15 M) he opined that the October 2000 price of $7.2 M for Lot 3 should be reduced by 7%, to give a market value of $6.7 M as at 5 April 2000. 17At para [17] of its reasons, the Tribunal stated: 17. The Tribunal is satisfied that there would have been some increase in valuations from 5 April 2000 to 31 October 2000 despite the implementation of GST, but not to the extent as outlined by the respondent. There is sales activity during this period as set out by the expert reports. The Tribunal considers the most relevant example of market change is (16/78 Wolseley Road) with sales in March 2000 and March 2001 and an increase at 0.25% per month. This would lead to an assessment that the property would be valued in the vicinity of $7,000,000.00 at the time of registration. 18The Tribunal concluded that, as at April 2000, Lot 3 was valued "in the vicinity of" $7M. 19The determination of market value is not an exact science. Mr Hyam gave evidence of a "recognised margin of valuation error of 10%": page 327 of Exhibit EA1 to Ms Aliperti's affidavit. Whether Lot 3 was ascribed a value of $6.7 M, $7.07 M (the correct mathematical result of adjusting $7.2 M by 0.25% per month), or $7.2 M, it is incontrovertible that Lot 3 was indeed valued "in the vicinity of" $7 M as at April 2000. 20Assuming that it found both experts to be apparently reliable, the Tribunal was entitled to make a critical selection of the most helpful facts from the mass of information provided by the experts and to form a conclusion based on those facts: Commonwealth v Milledge (1953) 90 CLR 157 at [160] per Dixon CJ and Kitto J. The Tribunal was entitled to rely on sales of a property that both experts had identified as relevant for the purpose of determining market movement. The Tribunal's conclusion as to the value of Lot 3 involved a proper consideration and analysis of the expert evidence, and did not involve the substitution of its own expert opinion. This ground is not made out.

[8]

Ground 1 (ii). The Tribunal arrived at its own expert opinion. It should not have relied on sales at 47 - 49 Wolseley Road as providing the best comparative evidence of the market value of Lots 1 and 2. 21The Tribunal found that the sale of properties at 2 and 3/ 47 - 49 Wolseley Road provided the "best comparative evidence" of the value of Lots 1 and 2 as at April 2000. Unit 3/47 - 49 Wolseley Road sold on 10 May 2000 for $3.825 M. Unit 2/47 - 49 Wolseley Road sold on 21 November 2000 for $3.66 M. 22Each of the valuers compared Lots 1 and 2 to units 2 and 3 at 47 - 49 Wolseley Road. Relying largely on a comparison between the amenities attaching to the apartments, Mr Dobrow considered that the apartments at 47 - 49 Wolseley Road were far superior to Lots 1 and 2. Relying largely upon the relative positions on Wolseley Road (47 - 49 was a less desirable address as it was not a waterfront address and it was further from the headland), Mr Hyam considered that the apartments at 47 - 49 Wolseley Road were inferior to Lots 1 and 2. 23The Tribunal reviewed the facts relied upon by each of the experts. The Tribunal considered that Mr Dobrow had accorded inadequate weight to the location of Lots 1 and 2 and that Mr Hyam had made speculative mental adjustments when assessing the value of properties. The Tribunal determined that, when both location and quality of amenities were accorded proper weight, Lot 1 was of similar value to the units at 47 - 49 Wolseley Road. 24Whether a property the subject of a particular sale is comparable to the property the subject of proceedings is a question of fact: Anderson Stuart at [121]. The Tribunal was entitled to consider and compare the location and amenities of the apartments at 47 - 49 Wolseley Road with the location and amenities of Lots 1 and 2, and to conclude that Lot 1 was of similar value to the units at 47 - 49 Wolseley Road. 25It was agreed that the market value of Lot 2 was approximately 15% less than that of Lot 1. The Tribunal concluded that, as at April 2000, Lot 1 had a value of about $3.8M and Lot 2 had a value of about $3.2M. 26This ground is not made out.

[9]

Ground 2: In valuing Lots 1 and 2 The Tribunal failed to consider or disregarded the valuation report of Mr Sutherland. 27As a matter of principle, a failure to take into account a fact that is not in dispute or that is established, and which is material to the outcome, may constitute a failure to exercise the power or jurisdiction conferred on a tribunal, and hence may involve an error in point of law: Ballantyne v WorkCover Authority of NSW [2007] NSWCA 239 per Basten JA at [114], Beazley JA agreeing. 28On 12 May 2004, Lot 2 was transferred to the current owner for $3.04 M. On 19 July 2006, Lot 1 was transferred to the current owner for $3.5 M. The transfers were between mother and daughter. At para [19] of its reasons, the Tribunal stated: 19. In assessing the market value of lots 1 and 2 at the time of registration little weight can be allocated to the transactions in 2004 and 2006. Despite the evidence that in 2006 the purchaser paid stamp duty on the value of $3, 500, 000.00 pursuant to the transaction these sales were from one family member to another and clearly not at arms length and should be disregarded. 29In the proceedings before the Tribunal, the plaintiff required the defendant to produce a valuation report in relation to Lot 1 that had been prepared by a Mr Sutherland on 18 July 2006 "for stamp duty purposes". The report is at page 293 of Exhibit EA1 to the affidavit of Ms Aliberti. In the report, Mr Sutherland valued Lot 1 at $3.5 M. 30The defendant objected to the tender of the report. Counsel for the plaintiff (at page 167 of Exhibit EA1) stated that the report was not tendered as an expert report but: "as a business document in existence at the time and a document which goes, in effect, to some extent, to the credit of Mr Hyam". 31The Tribunal admitted the report into evidence on the basis that it would "be given the appropriate weight", noting that the author of the report would not be called, that no supporting material was available, and that the weight to be accorded to the document "may well be diminished": pages 167 - 168 of Exhibit EA1. 32Mr Sutherland's report was not tendered as an expert's report. In any event, as an expert report, the report is of little assistance. It nominates five comparable sales. One of the comparable sales is the 2004 sale of Lot 2. That was a sale between family members and it may not provide reliable evidence of market value. Of the remaining four comparable sales, one property is stated to have had "inferior aspect and location", the second is said to be "inferior", the third sold for $3.6M (with an "inferior aspect") and the fourth sold for $5.5 M (and was "superior"). The report contains no explanation of the relationship between the nominated comparable properties and Lot 1. The author was not available to elucidate the relationship. Further, the report did not directly address the value of Lot 1 as at the relevant time, April 2000. 33When the report was admitted into evidence, the Tribunal indicated that it would be afforded little weight and stated the reasons for that approach. It was open to the Tribunal to conclude that its exercise of jurisdiction would not be assisted by a consideration of the report beyond that revealed in the transcript. 34This ground is not made out.

[10]

Ground 3. The Tribunal failed to give reasons for disregarding the report of Mr Sutherland 35A failure to give reasons raises a question of law only if it constitutes a failure to accord procedural fairness. The plaintiff does not complain that the failure to give reasons for disregarding Mr Sutherland's report resulted in a denial of procedural fairness. Consequently, any failure to give reasons for disregarding of Mr Sutherland's report is not the proper subject of an appeal under s 200 of the Act or s 67 of the CTTT Act. 36The obligation to give reasons is that stated by the New South Wales Court of Appeal in Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247. At 273 D, Mahoney JA stated that it is sufficient if a judicial officer "apprizes the parties of the broad outline and constituent facts of the reasoning on which he has acted". In Resource Pacific Pty Limited v Wilkinson [2013] NSWCA 33 at [78] Macfarlan JA noted that the principle that a judicial tribunal is required "to expose the reasoning on a point critical to the contest between the parties" had been stated by the Court of Appeal on many occasions. A judicial tribunal is not obliged to give reasons in relation to the weight that is attached to every piece of evidence. 37The Tribunal is not a judicial tribunal. The procedures of the Tribunal are informal: s 28 of the CTTT Act. Its reasons may be brief: s 49 of the CTTT Act. 38When Mr Sutherland's report was admitted into evidence, the Tribunal indicated that it would give little weight to the report: p 167 Exhibit EA1. Having regard to the provisions of the CTTT Act, the Tribunal was required to do no more, particularly as the nature of the report itself suggests that it should attract little weight. It was authored for a particular purpose, it did not directly address the relevant issue (market value as at April 2000), and it contains no indication of the reasoning process that led to the stated valuation. 39On the other hand, the Tribunal had the benefit of lengthy and reasoned reports from two other valuers, each of whom gave evidence and was cross-examined at length. 40In any event, any deficiency in the reasons that were given did not result in a denial of procedural fairness and did not give rise to an error of law. 41This ground is not made out.

[11]

Ground 4. The Tribunal denied procedural fairness by failing to canvass with the parties the matters referred to in 1 and created a reasonable apprehension of bias by favouring its own pre-conceived views on valuation issues. 42The plaintiff contended that the Tribunal should have notified the parties of the valuations that it proposed to find and canvassed the proposed valuations with the parties prior to judgment, and that the procedure adopted by the Tribunal gave rise to a reasonable apprehension of bias. 43In some cases, having heard evidence and argument and having reserved its decision, a court or tribunal may decide that an issue that was not the subject of argument may be significant to the outcome. In such cases, the tribunal may need to canvass the new matter with the parties. 44However, no new matter arose in connection with the proceedings before the Tribunal. Throughout the proceedings, the issue of the values of Lots 1, 2 and 3 as at April 2000 was central. It was the subject of expert reports that were exchanged, extensive expert evidence and argument from both parties. Neither party was denied an opportunity to address the valuation issue. 45The Tribunal's reasons disclose that it carefully considered the valuation evidence and the arguments of both parties before determining the valuation issue. It did not completely accept or reject the case of either party. At para [23] the Tribunal stated: 23. The Tribunal had some difficulty with the evidence of both experts. Mr Dobrow, in evidence in chief and under cross-examination, failed to have the proper regard of the value of the location of the subject premises compared to some of the sales evidence he presented in his report. 24. The methodology outlined in Mr Hyam's report as to the "mental" adjustments he makes when assessing value of premises which he attempted to defend under cross-examination, could be regarded as speculative at best. 46When comparing the values of Lots 1 and 2 with the value of apartments at 47 - 49 Wolseley Road, the Tribunal found that Mr Dobrow had over - emphasised the importance of amenities and minimised the importance of location, whereas Mr Hyam's opinion was too speculative. Such an approach was entirely reasonable. 47There is no material that suggests that the Tribunal had a preconceived view in relation to the valuation issue. 48This ground is not made out.

[14]

Ground 7. Alternatively, the Tribunal should have reallocated the unit entitlements in accordance with its decision concerning the respective values of the Lots as at 5 April 2000. 59The plaintiff submitted that, in accordance with its decision concerning the values of the lots, the Tribunal was obliged to allocate unit entitlements of 50% to Lot 3 (which the Tribunal valued at $7 M), 27.14% to Lot 1 (which it valued at $3.8 M) and 22.86% to Lot 2 (which it valued at $3.2 M). 60This submission is founded on the erroneous assumption that a determination of the reasonableness of unit allocations must necessarily be governed by the respective values of lots at the time that the strata plan was registered. 61Section 183 of the Act empowers the Tribunal to make an order allocating unit entitlements among strata scheme lots, but (relevantly) the Tribunal may do so only if the Tribunal considers that the allocation of unit entitlements among the lots: "was unreasonable when the strata plan was registered": s 183(2)(a). Section 183(3) provides: 183(3) In making a determination under this section, the Tribunal is to have regard to the respective values of the lots and (if a strata development contract is in force in relation to the strata scheme) to such other matters as the Tribunal considers relevant. 62A "strata development contract" is a contract that is in force under Part 2 Division 2A of the Strata Schemes (Freehold Development) Act 1973 (the Freehold Development Act), relating to staged development: s 6 and the definition in the Dictionary to the Act refer to s 5 of the Freehold Development Act. No "strata development contract" is in force in relation to Lots 1, 2 and 3. 63In Owners Strata Plan No 37058 v Owners of Lots in Strata Plan 37058 [1999] NSW SSB 11 (23 February 1999), Board Member Cochrane noted the difficulty of construing s 119(2) of the Strata Titles Act 1973 (an equivalent provision) given the use of the brackets around the words "if a strata development contract is in force". He concluded that the capacity to have regard to "such other matters as (the Tribunal) considers relevant" was confined to the circumstance that a strata development contract was in force. 64However, as noted in [13] above, in Anderson Stuart, Santow J. reached a different conclusion concerning the construction of the provision. His Honour determined that, while the respective values of the lots must be taken into account as a fundamental element, the outcome of a reallocation application is not wholly determined by the respective values: at [87], [91] and [144]. Having first ascertained the respective values of the lots, the decision - maker must move to the second stage and decide whether (having regard to the respective values and any other matters that it considers relevant) the allocation of unit entitlements among the lots "was unreasonable when the strata plan was registered": at [144]. In Riana Pty Ltd v The Owners - Strata Plan No 22336 [2007] NSW SC 133, Rothman J applied this approach to a case that involved the current provision, s 183 of the Act. His Honour decided that, while the respective value of lots was a matter to which the Tribunal must have regard when determining whether the allocation of unit entitlements was unreasonable, it was not necessarily conclusive in relation to the ascertainment of unreasonableness: at [38] and [49]. 65If the Tribunal determines that the allocation of unit entitlements was unreasonable at the relevant time, then the power to vary unit entitlements is enlivened, but the exercise of the power may nevertheless be discretionary ("an order may be made"). 66This Court is bound adopt the staged approach that was endorsed in Anderson Stuart and Riana Pty Ltd. The determination of a reallocation application is a two - stage (or perhaps a three - stage) process.

[15]

Did the Tribunal Follow the Staged Process? 67The Tribunal noted its findings as to the value of Lots 1 and 2, at para [31], and then stated: 31. The respondent submits that the Tribunal may also consider further matters and raises the fact that varying the unit entitlements in accordance with the application would result in handing control of the strata scheme to the applicant. This seems a rather anomalous submission taking into account that currently the strata scheme is occupied by two families and control must be with one family or the other and this submission is not one which the Tribunal considers relevant to the application. The parties may consider whether the circumstances give rise to other remedies available pursuant to the Strata Schemes Management Act such as Section 162. Having referred to the value of Lot 3, at para [33] the Tribunal continued: 33. This is different to the current unit entitlement allocation of 30 units each to lots 1 and 2 and 40 units to lot 3. The Tribunal is not satisfied that it is appropriate to vary the unit entitlements in accordance with either of the expert submissions and further is not prepared to impose a variation of its own volition. 34. I am not satisfied that on balance it is appropriate to make the orders sought to vary the unit entitlements. 68There is no doubt that the Tribunal undertook the first stage of decision - making, i.e. the determination of the respective values of the lots at the date that the strata plan was registered. There is no doubt that the Tribunal knew that its core task was to determine whether it was satisfied that the allocation of unit entitlements was unreasonable when the strata plan was registered: see [4] of the Tribunal's decision. 69However, it is not apparent from the Tribunal's reasons that the Tribunal addressed and answered the fundamental question: Given the respective values of the lots when the strata plan was registered and such other matters as are relevant, has the plaintiff established that the allocation of unit entitlements among the lots was unreasonable when the strata plan was registered? No doubt, the Tribunal was worn down by protracted evidence and argument concerning respective values. Nevertheless, if the Tribunal considered that there were no relevant matters apart from the respective values, then it should have given reasons for finding that it was not satisfied that, at the date when the strata plan was registered, it was unreasonable to allocate unit entitlements that differed significantly from the respective values (i.e. in the proportions 40/30/30 rather than 50/25/25). Similarly, if the Tribunal considered that there were relevant matters apart from the respective values and that, having regard to those relevant matters, the plaintiff had not shown that the 40/30/30 allocation of unit entitlements was unreasonable as at the date when the plan was registered, then the Tribunal should have given reasons for that finding. 70At least, the failure in this regard amounts to a failure "to expose the reasoning on a point critical to the contest between the parties" and is an error of law.

[16]

The Defendant's Contention 71The Tribunal rightly dismissed any suggestion that, when considering "unreasonableness" under s 183(2)(a) of the Act, it could take into account the identity and relationship between the current owners: see para [31] of the Tribunal's decision. Section 183(2)(a) is concerned with unreasonableness at the time when the strata plan was registered, rather than with current circumstances such as current ownership. Conceivably, current circumstances may be relevant to the exercise of any discretion under s 183(1), but the Court does not need to decide that question. 72The defendant contended that the Tribunal's decision could have been supported on a different basis, i.e. that a relevant consideration when determining the distribution of unit entitlements is whether the distribution will result in one lot holder acquiring control over many matters affecting the strata body (the control issue). 73The quantum and relativity of unit entitlements confers both benefits and detriments. It results in lot owners having varying levels of obligation (to pay fees) and control. From time to time, different owners may hold different views about whether the relativity of unit allocation favours them or disadvantages them. Section 183(2)(a) is designed to ensure that the allocation of unit entitlements remains fixed from the outset, except where the original allocation is shown to have been unreasonable. The situation of lot owners would be commercially untenable if unit entitlements could be varied easily so as to reflect current conditions in the property market or other current circumstances. Consequently, the legislature has ensured that the task of an applicant who seeks a reallocation of unit entitlements is not an easy one. The applicant must prove that the original allocation "was unreasonable", not merely that the unit entitlements could have been allocated in a more reasonable fashion. The result is that the allocation of unit entitlements cannot readily be upset by changes in the personalities and politics that are associated with a strata scheme through its lifetime. 74Because the relativity of unit entitlement necessarily determines control over many issues affecting a strata plan, the control issue will often be a relevant consideration. Whether and to what extent the control issue is a relevant consideration will depend upon the objective circumstances of a particular strata plan, including the number and nature of the lots in the plan. 75In the present case there are only three lots. By virtue of the nature and configurations of the lots, the interests of the owners of the lot differs in important respects. Therefore, the control issue was a relevant consideration. When the strata plan was registered, the allocation did reflect the respective values of the lots to some extent. Lot 3, the most valuable lot, was allocated the greatest unit entitlement. However, the allocation ensured that none of the three lot owners could unilaterally exercise a high level of control over the other lots. Although the unit allocation prevented the owner of Lot 3 from exercising control over Lots 1 and 2, Lot 3 also derived a benefit in the form of lower strata levies. 76The failure to take into account the relevant consideration of the control issue was an error of law: Ballantyne v WorkCover Authority [2007] NSWCA 239.

Rita Sahade v Owners Corporation SP62022 & Ors

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Judgment (18 paragraphs)

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