Sahade v The Owners - Strata Plan 62022

Judgment 1McCOLL JA: I have had the benefit of reading Basten JA and Sackville AJA's reasons in draft. I agree with their Honours' reasons. I agree with the orders Basten JA proposes. 2BASTEN JA: These proceedings concern the allocation of unit entitlements among the lots of a strata scheme involving property in Wolsley Road, Point Piper in the eastern suburbs of Sydney. 3When a strata plan with respect to particular land is registered the plan must include a schedule of unit entitlements: Strata Schemes (Freehold Development) Act 1973 (NSW) ("Freehold Development Act"), s 8(1)(c). The schedule must show the unit entitlement of each lot and the aggregate unit entitlement of all lots. Special provisions apply to a strata plan that includes a "development lot", (being a lot in a strata plan that is the subject of staged development pursuant to Pt 2, Div 2A of the Freehold Development Act). With respect to such schemes the schedule must apportion unit entitlements on the basis of land value (as provided by the Valuation of Land Act 1916 (NSW)) and on the basis of market value: s 8(4A). The only requirement with respect to other schemes was in s 8(4): 8 Registration of strata plans ... (4) The schedule of unit entitlement for a strata scheme that does not include a development lot must show as whole numbers the aggregate unit entitlement of all lots and the proposed unit entitlement of each lot 4The property the subject of the present proceedings involved three lots; it did not include a "development lot". Section 8(4A) did not apply. The strata plan was registered on 5 April 2000. The unit entitlements allocated in the plan were: Lot 1 - 30; Lot 2 - 30 and Lot 3 - 40. 5The applicant is the owner of Lot 3. In 2012 she commenced proceedings in the Consumer, Trader and Tenancy Tribunal (since incorporated into the New South Wales Civil and Administrative Tribunal) seeking an order varying the allocation of unit entitlements. The application is not before the Court, but appears to have sought a variation so that the unit entitlements would reflect, with a degree of precision, the market values of the respective lots, as at the date of registration of the plan. The applicant contended that the value of her lot was significantly greater than the combined values of the other two lots and that, accordingly, her unit entitlements should exceed 50% of the total. 6The Tribunal had power to make such an order pursuant to s 183 of the Strata Schemes Management Act 1996 (NSW) ("Management Act"). In making a determination with respect to such an application, the Tribunal was required to have regard to "the respective values of the lots": s 183(3). 7On 4 September 2012 the Tribunal handed down its decision, in which it determined the values of the respective lots at the date of registration of the strata plan. The market values of Lots 1 and 2 were assessed at $3.8 million and "approximately" $3.2 million respectively: Sahade v OC SP 62022, Bischoff (Strata and Community Schemes) [2012] NSWCTTT 350 at [30]. The Tribunal further valued Lot 3 at approximately $7 million, being the combined approximate value of the other two lots. Recognising that the existing unit entitlements did not reflect the proportionate market values at the time of registration, the Tribunal nevertheless declined to vary the unit entitlements as allocated in the plan.

Appeal to District Court 8From that decision, the applicant appealed to the District Court. The Court identified the appeal as being limited to the erroneous determination by the Tribunal of a question with respect to a matter of law, in part by reference to the Consumer Trader and Tenancy Tribunal Act 2001 (NSW) ("the CTTT Act"), s 67(1): Rita Sahade v Owners Corporation SP62022 [2013] NSWDC 95 at [7]-[10] (Murrell SC DCJ) ("Sahade"). In fact that provision did not apply. A right of appeal to the District Court was provided by s 200 of the Management Act, which appeared in Pt 5, Div 3 of Ch 5. Section 201 stated that "[e]xcept as provided by this Part, an appeal does not lie from an order made by the Tribunal." Accordingly, s 67 of the CTTT Act was not the source of the District Court's jurisdiction. 9Sections 200 and 201 have since been repealed, by the Civil and Administrative Legislation (Repeal and Amendment) Act 2013 (Sch 4.41 [18]) but only with effect from 1 January 2014: accordingly, they were in effect at the time of the appeal brought from the decision of the Tribunal in August 2012, heard by the District Court in April 2013 and decided in June 2013. (The actual notice of appeal was not, as it should have been, in the record placed before this Court.) Section 200 of the Management Act relevantly provided: 200 Appeal to District Court (1) An appeal lies to the District Court against an order made by the Tribunal under this Chapter. (2) An appeal lies in the same cases and in the same way as it would lie under Part 5 of the Crimes (Local Courts Appeal and Review) Act 2001 if the order were a determination that the Local Court made, at the time the order took effect, in the exercise of summary jurisdiction on a court attendance notice. 10Section 200(1) was engaged because s 183, under which the order of the Tribunal was sought, was also in Ch 5 of the Management Act. The Act referred to in s 200(2) is now known as the Crimes (Appeal and Review) Act 2001 (NSW) ("Appeal and Review Act"). The incorporation of provisions from other legislation in this way is a recipe for confusion. Part 5 of the Appeal and Review Act provides for appeals from a Local Court to the Supreme Court. It provides separately for appeals by defendants and prosecutors. Where an appeal is brought by an applicant before the Tribunal, it should, presumably, be inferred that Pt 5, Div 2, dealing with appeals by prosecutors, is the relevant source of jurisdiction. An appeal by a prosecutor may be brought from "an order by the Local Court dismissing a matter the subject of any summary proceedings ... but only on a ground that involves a question of law alone": s 56(1)(c). (There is a similar constraint with respect to appeals as of right by a defendant, but a defendant, unlike a prosecutor, may, by leave, appeal on a ground that involves a question of fact or a question of mixed law and fact: s 53(1).) Although the judge referred to both ss 52 and 56 of the Appeal and Review Act, it appears to have been accepted that the appeal was limited to a ground involving a question of law alone. 11The powers of the District Court were, on this approach, those set out in s 59(2) of the Appeal and Review Act: 59 Determination of appeals ... (2) The Supreme Court may determine an appeal against an order referred to in section 56(1) ... (c) ...: (a) by setting aside the order and making such other order as it thinks just, or (b) by dismissing the appeal. 12In her first judgment, Sahade, Murrell DCJ noted that the powers of the Court identified in s 67(3) of the CTTT Act were expressed differently from those identified in s 59(2) of the Appeal and Review Act. In the judgment of 10 October 2013, presumably because s 67(3) was the subject of submissions, no reference was made to s 59(2). Nor was it suggested in this Court that the powers conferred by s 67(3) were different in extent from those conferred by s 59(2). For reasons which will be explained below, there was no error of law involved in remitting the matter to the Tribunal for determination. Accordingly, any misapprehension as to the statutory source of jurisdiction was immaterial. 13There were a number of grounds of appeal, only one of which was successful, namely a failure on the part of the Tribunal to give reasons for its refusal to reallocate the unit entitlements in the light of its findings as to market value: Sahade at [70]-[71]. 14In terms to which it will be necessary to return, Murrell DCJ also found that the question of control over the affairs of the owners' corporation "will often be a relevant consideration": at [75]. Given (a) that there were only three lots, (b) the nature and configuration of the lots and (c) the interests of the respective owners, she concluded that "the control issue was a relevant consideration": at [76]. On 10 October 2013, The Court ordered that the matter be remitted to the Tribunal for rehearing "consistent with my findings." (Curiously, no order was made setting aside the decision of the Tribunal, but that appears to have been an oversight: neither party raised it as an issue in this Court.) The judge declined to make an order as to the costs of the appeal.

Other relevant features of scheme 24As noted in respect of various provisions relied on by the applicant, the importance of the respective values of the lots was not in doubt; the fact that such significance was consistently reflected in the various subsections did not, however, demonstrate that it was either the sole consideration or even the sole mandatory consideration to which the Tribunal should have regard. A powerful factor weighing against the applicant's construction (and conceded to be such) was the fact that s 183 could readily have been drafted to require the Tribunal to reallocate unit entitlements according to the respective values of the lots, had that been intended. If minor departures were to be ignored, that too could readily have been allowed. The conferral of a power with no express obligation and the setting of a test of "unreasonable" allocation, should be sufficient to reject the proposition that 'respective values' was to be the only criterion. 25However, to determine whether other factors may (or must) be taken into account by the Tribunal, it is appropriate to consider further the statutory context within which power is conferred on the Tribunal; it is also appropriate to consider procedural factors in relation to an application for an order. 26In considering the concept of unreasonableness, the applicant emphasised that one is dealing with one aspect of the bundle of rights constituting a form of realty: see, generally, K & S Gray, Elements of Land Law (OUP, 5th ed, 2009) 1.5.13. Property should be "definable, identifiable by third parties, capable in its nature of assumption by third parties, and [having] some degree of permanence or stability": National Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1247-1248 (Lord Wilberforce). Although unit entitlements are indeed variable (under s 183) they are, nevertheless, an essential element of the form of property created by the strata titles legislation and in that sense are permanent. They are inherently assignable and pass with (and can only pass with) the interest in land to which they attach. While alienable as part of the land, their purpose is to apportion, within a particular strata scheme, decision-making power, which will usually be exercised by the owners corporation. That being so, the applicant submitted, the proper basis for apportionment is by reference to the respective values of the alienable lots, as reflected in market value. 27There is an element of circularity in this reasoning. Although the market value of a unit will no doubt be fixed primarily by reference to the physical features of a development at the time of registration, it may also be affected by the allocation of unit entitlements, the degree of control thus given to the unit holder with respect to the strata scheme and the proportionate responsibility for fees and charges. Further, to the extent that the unit entitlements constitute a right attaching to property, that fact might provide a significant reason not to interfere with such rights, at least when units have been sold and purchased on the basis of a known allocation. Finally, although the submissions assumed that references to 'value' were to market value, there is a reason, noted below, for considering that the appropriate value might be land value. 28Reference to the possible unreasonableness of the allocation invites attention to the provisions with respect to the creation and registration of strata plans, to be found in the Freehold Development Act and the Strata Schemes (Freehold Development) Regulation 1997 (NSW), which was in force at the date of registration. The only relevant provision in the Freehold Development Act in 2000 was s 8(4), referred to at [3] above, which did not assist the applicant and upon which she did not seek to rely. The Regulation (cl 7) did no more than provide the mechanism for identifying unit entitlements in a schedule. 29For completeness it may be noted that s 28QAA of the Freehold Development Act is in the following terms: 28QAA Revised schedule of unit entitlements (1) If, at the conclusion of a development scheme, a body corporate considers that the schedule of unit entitlement in force for the strata scheme concerned does not apportion the unit entitlements so as to reflect the market value of the lots in the strata scheme, the body corporate may lodge a revised schedule of unit entitlement for the strata scheme with the Registrar-General. (2) The revised schedule of unit entitlement must be lodged within the period of 2 years after the conclusion of the development scheme. 30On one view this provision supports the argument that primacy, if not exclusivity, should be accorded to an apportionment reflecting market value. However, there are two reasons to doubt that the section has such significance in the present case. First, the section was inserted after the strata plan was registered and was not invoked by the body corporate. It is at least doubtful whether such a provision could affect the construction of the statutory scheme as in force prior to the amendment, which commenced on 1 June 2001. No submissions were addressed to that question. Secondly, s 28QAA was inserted at the same time as s 183(2)(a1): Strata Schemes Legislation Amendment Act 2001 (NSW), Sch 1 [27] and Sch 3. Thus, the use of the standard of unreasonableness in the latter provision, despite the explicit terms of s 28QAA, highlights, without indicating the resolution of, the question already identified. 31It should be noted in reference to the concept of value that s 8(4A) of the Freehold Development Act, although not applicable to the present case, envisages a schedule of unit entitlements apportioned both by reference to land value and market value. The parties appear to have assumed that, in s 183, the references to "value" refer to market value. The basis for that assumption may have been the approach adopted by Santow J in Anderson Stuart v Treleaven [2000] NSWSC 283; 49 NSWLR 88. Although the distinction between that which used to be referred to as "unimproved capital value" and market value was not expressly addressed, Santow J held that, in accordance with Spencer v The Commonwealth [1907] HCA 82; 5 CLR 418 "value" is to be assessed by reference to the price which would be paid by a willing but not anxious purchaser to a willing but not anxious vendor: Anderson Stuart at [73], [99] and [109]. 32The principles in Spencer deal with the appropriate compensation payable by a public authority for a compulsory acquisition of privately held land; they do not dictate how land is to be valued in all statutory contexts. Where an Act, such as the Valuation of Land Act provides separately for an assessment of the "improved value of strata" (s 7A) and the "land value of strata" (s 7B), a valuation must be undertaken in accordance with the requirements of those provisions. Nor is it self-evident on which basis the land value was to be calculated for the purposes of s 183(3). 33The next step in considering possible factors which might be taken into account on an application under s 183 is to examine the scheme of the legislation within which unit entitlements are allocated. First, the schedule of unit entitlements is registered on the title to the common property identified in a registered strata plan: Freehold Development Act s 46(1)(c). The Registrar-General has power to make amendments to the form of the schedule in certain circumstances (although not so as to reapportion entitlements: ss 43, 46 and 47). A transfer of title to a lot effects a transfer of the benefits of the unit entitlements attaching to that lot upon registration of the transfer. 34There are various consequences flowing from a unit entitlement. One, though not directly relevant in the present case, is that the allocation of unit entitlements will determine when the "initial period" ends, with consequences for the control exercised by the "original owner": Freehold Development Act, s 5(1), initial period and, eg, s 28(4). 35The proportionate allocation of unit entitlements forms the basis for liability to rates (Freehold Development Act, s 92(2)(c)); payments with respect to the maintenance and upkeep of common property (Management Act, s 54(2)); levies for administration and sinking funds (Management Act, s 78(2)); liability for statutory charges (Management Act, s 241(2)) and sharing in the assets and liabilities of the body corporate on termination of a strata scheme (Freehold Development Act, s 51A(8)). 36In addition to financial consequences, unit entitlements control the power of management through an owners' corporation. Thus they are counted for determining a quorum (Management Act, Sch 2, cl 12); with respect to elections and motions generally, where a poll is required (Sch 2, cll 17 and 18), and provide the basis for determining whether a requisition for a general meeting is effective (Sch 2, cll 33 and 37). 37Where the Tribunal orders a reallocation of unit entitlements, the Registrar-General is required to amend the schedule of unit entitlements recorded in the folio of the Register comprising the common property: Freehold Development Act, s 46Fs 51(1)(c); Management Act, s 209(3). 38The question which then arises is whether, either in determining the unreasonableness of the original allocation, or in deciding whether to make an order varying that allocation, or in both circumstances, the Tribunal may take account of (respectively) the significance of the consequences of the original allocation and the effect of a reallocation.

Issues in Tribunal and District Court 39Although the summons identified the grounds on which relief was sought in seven paragraphs, the substantive issue turned upon the ruling of the District Court that the question of "control" was a relevant consideration in determining whether to reallocate the unit entitlements. The question turned in part on what was meant by "relevant consideration" and upon the language of s 183 of the Strata Schemes Management Act, read in context. 40In accordance with the language used by Mason J in Peko-Wallsend at 39, in administrative law a "relevant consideration" is a matter which the decision-maker is bound to take into account, in the sense that a failure to have proper regard to the consideration will constitute a contravention of the legal preconditions to the exercise of the power and hence an error of law. However, sometimes the phrase "relevant consideration" is used not as a term of art but as a loose description of that which is permissible. Precisely how the phrase should have been used in the present circumstances will be resolved by reference to the terms of the statute. 41The issue of what constituted a relevant consideration arose because of the following statement in the reasons of the Tribunal at [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." 42A challenge to that conclusion was raised by the respondents in the District Court by way of notice of contention. Precisely how such a notice could operate in response to an appeal on a ground involving a question of law was not addressed in the District Court. However, read in context, the statement by the judge that the question of control was a "relevant consideration" must have been intended to mean that it was not a consideration which the Tribunal could lawfully ignore, as it had apparently done. In considering the respondent's contention, the judge said in Sahade at [71]: "The 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." 43Subject to identifying any implication lurking in the last sentence, that passage is unexceptionable. The reasoning in the subsequent paragraphs of the judgment appears to involve the following elements: (a) the apportionment of unit entitlements within a three unit strata plan may confer voting control on one or more than one lot holder; (b) the allocation of unit entitlements sufficient to confer control of the scheme is an integral part of the property enjoyed by the unit holder; (c) the legislative scheme demonstrates that the initial allocation of unit entitlements is not to change by reference to circumstances arising after registration except in narrowly defined circumstances (which do not arise here); (d) the question for the Tribunal is not whether the initial allocation was reasonable, nor whether some alternative allocation might have been more reasonable, but whether the original allocation was demonstrated by the applicant to be "unreasonable", and (e) the effect of changing the allocation of entitlements on the control of the owners' corporation cannot properly be ignored. 44It is necessary to consider the status of this reasoning in the District Court. First, the finding that the question of control was a consideration that had to be taken into account did not form part of the order of the Court. Secondly, having noted that the matter rejected by the Tribunal as irrelevant was properly so rejected, the issue of control may have been seen to be obiter, even in respect of the notice of contention. Thirdly, however, and despite the structure of the judgment, it appears that this finding may have had significance both with respect to the finding of error on the part of the Tribunal and with respect to the order of remittal. 45The failure to give reasons, which the District Court held constituted the error of law by the Tribunal, was identified by reference to the fact that, having made findings as to the values of the respective lots when the strata plan was registered, the Tribunal needed to consider whether there were other relevant matters to be taken into account. If there were no matters which might reasonably be considered relevant, the failure to address them might not have been fatal to the decision. Thus it was relevant to consider whether there were matters which needed to be addressed, of which the "control" issue was identified as one. Further, in deciding whether the Court could determine the matter, or whether it should be remitted to the Tribunal, the judge noted that one of the factors relevant and indeed "something quite central, or potentially central, to the outcome of the proceedings" was the "control" issue: Judgment, 10 October 2013, p 3. In these circumstances, the Court concluded (correctly) that it was appropriate (indeed necessary) to remit the matter to the Tribunal: see Kirk v Industrial Court of New South Wales [2010] HCA 1; 239 CLR 531 at [110]-[111]; cf Edwards v Santos Ltd [2011] HCA 8; 242 CLR 421 at [4]-[5]; Wang v Farkas (No 3) [2014] NSWCA 111 at [6]-[8]; SAS Trustee Corporation v Woollard [2014] NSWCA 75 at [107]. 46The applicant's submission in this Court was that the reference in s 183(3) to "the respective values of the lots" as the only specific criterion meant that the sub-section could not be read as requiring the Tribunal to consider the question of control. That may be so, but, as the respondent submitted, the Strata Schemes Management Act and Strata Schemes Management Regulation 2010 confer significant powers of control on an owners' corporation, which in turn controls management of the strata scheme. Control of such management powers will fall within the hands of a lot holder with a unit entitlement in excess of 50%. Of course, it is also true that control may fall within the hands of two lot holders whose combined unit entitlement exceeds 50%. Where control falls is not the point: the point is that, within the statutory scheme, much power lies within the hands of lot holders controlling a majority of unit entitlements. 47On one view, it cannot be irrelevant that a change in the allocation of unit entitlements will affect the balance of power as between unit holders. Accordingly, there is no reason to conclude that such a factor is outside the proper contemplation of the Tribunal in determining an application under s 183. On another view, whether that factor has weight in any particular circumstances is a matter for the Tribunal, acting reasonably and taking into account the statutory scheme revealed by the Act and the Regulation. The Tribunal properly rejected an irrelevant consideration (the identity of the current owners); its failure to give reasons for declining to make the reallocation sought by the applicant deprived the District Court of any basis for knowing whether it had rejected the proposed change in the balance of power (as an abstract notion divorced from the identity of the current owners) as irrelevant.

[2014] NSWCA 75

[2014] NSWCA 111

[2011] HCA 8

[1907] HCA 82