Legislation cited: Unit Titles Management Act ss 73, 75, 78, 106, 112, 129

Legislation Act 2001

Cases cited: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337

Harrington v Lowe (1996) 190 CLR 311

Insurance Company of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60

Lewski v Commissioner of Taxation [2017] FCAFC 145

Owners of the SS Kalibia v Wilson [1910] HCA 77; (1910) 11 CLR 689

United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; (2009) 74 NSWLR 618

Whitlock v Brew [1968] HCA 71; (1968) 118 CLR 445

List of

Texts/Papers cited: Macquarie Dictionary

Kerin, C, Kerin Benson Lawyers: Guide to ACT Strata Law (2007, Kerin Benson Lawyers Proprietary Limited)

1. The Tribunal declares pursuant to section 129(1)(e)(ii) of the Unit Titles Management Act 2011, that Motion 2 of the General Meeting of 13 June 2018 is void for irregularity.
2. Reasons are to be published.

1. The respondent is the owners corporation for mixed-use premises of 10 commercial units and 69 residential units. The applicant is the owner of one of the commercial units.
2. By way of this application, the applicant seeks, inter alia, to have a resolution, or parts of a resolution, passed at a general meeting of the respondent held on 13 June 2018 (the 2018 Resolution) declared void for irregularity pursuant to section 129(1)(e)(ii) of the Unit Titles (Management) Act 2011 (UTM Act). Whether the motion is so void is the preliminary issue considered in these reasons.
3. The respondent says that the motion is valid. Alternatively, the respondent says that if the 2018 Resolution is void by reason of requiring an unopposed resolution, it should nonetheless be given effect following a merits review under section 129(1)(g) of the UTM Act on the basis that the applicant's opposition to it was unreasonable (merits review). This part of the application, along with some other matters raised by the applicant, were not ventilated at the preliminary hearing.

1. The preliminary hearing was conducted on 8 October 2018. The applicant was represented by Ms Proctor, a solicitor, and the respondent by Mr Kerin, who is also a solicitor. Both relied on written and oral submissions. The respondent also filed evidence from three witnesses, each of whom set out relevant background facts to the matters. Only the statement on one of those witnesses, Mr Green, the Chairman of the Executive Committee, was admitted into evidence as relevant to the preliminary issue.

1. The units plan is a mixed used facility, meaning that some units are for residential use and others are for commercial or retail use.
2. The circumstances that have given rise to the dispute may be summarised (briefly, and as uncontentiously as possible) as follows.
3. The electricity supply for the commercial units' air-conditioning services is run through a common electricity cable that services the common property generally. There is no metering for individual usage. The current rules of the corporation provide that unmetered power transmitted through the common cable is paid for by all owners in accordance with their unit entitlements. As residential owners own 83.27% of unit entitlements and commercial units own 16.73%, the current arrangements result in the residential owners paying for their own individually metered electricity and 83% of the energy consumed by the commercial units' air-conditioning.
4. Additionally, the current supply arrangements appear to be insufficient for commercial purposes, particularly given the need for commercial air-conditioning units, kitchen facilities, extraction fans and the like.
5. All parties agree that this is a problem, but the applicant does not agree with the arrangements currently being implemented by the executive committee (the EC) to remedy the issue.
6. The EC's solution is to install new physical electrical infrastructure for each commercial unit, including a number of new individual air-conditioning units and switchboards. Air-conditioning units in the commercial units will be disconnected from the common power and run on a separate electrical supply cable and each unit will be separately metered so that each unit owner is charged on a consumption basis.
7. Given that costs of the new equipment will vary from unit to unit, the EC determined that each commercial unit holder would bear the costs for their unit.
8. The EC sought to deal with payment issue through the 2018 budget.
9. At a 13 June 2018 general meeting, a motion entitled: "Budget (Ordinary resolution)" was put to members of the respondent corporation. This motion contained the complex's budget for the 2018/19 year. It was passed 13 votes in favour, 1 against and became the 2018 Resolution.
10. It is not necessary to set out the entirety of the 2018 Resolution, which deals with the administrative fund budget for the 2018/19 year. The relevant portion (with the actual figures omitted) is found in part b, which is as follows:
    1. That the Owners Corporation determine the general fund contribution for the administrative fund required from the owners in accordance with both the unopposed resolution passed by the owners of units plan no 3908 on 4 April 2016 and the following:
       1. That the General Schedule budget of ... to be contributed to by all lots (1-79) in accordance with the unit entitlements.
       2. That the Residential Services Schedule budget of ... to be contributed to by lots 1 to 69 (all residential units) in accordance with unit entitlements.
       3. That the Commercial retail Schedule budget of ..... to be contributed to by lots 70-79 (commercial units only) in accordance with unit entitlements'
       4. That the commercial Air Conditioning Maintenance/repair budget of ... (ex GST) be accepted for the twelve month period ... to be contributed by lots 70-79 (commercial units only) in accordance with the specific consumption amount applicable to that unit, based on advice from ESBS Consulting Engineers.[1]
11. In its submissions, which I accept, the respondent summarised the outcome the 2018 Resolution as follows:
    1. each of the residential and commercial unit owners would only pay for the electricity consumed by them and no unit owner would be required to pay for the electricity consumed by another unit owner;
       1. the cost of the Proposed Electrical Infrastructure work would be borne by the owners of the commercial units and based on an independent calculation of the actual costs to each commercial unit holder. Some are most costly due to the magnitude of necessary remedial works which differ from each other. These works such as new switchboards would be the private property of each commercial unit holder.[2]
12. The applicant argues that parts b) 3 and 4 of the 2018 Resolution are void for irregularity by reason of requiring an unopposed resolution pursuant to section 78(2)(b) of the UTM Act. This section is set out in full below, but in summary section 78 requires that general fund contributions be paid by each unit in proportion to their unit, unless an alternative arrangement is agreed by unopposed resolution.
13. The respondent does not suggest that the 2018 Resolution was passed unopposed. Rather, the respondent contends that a resolution passed at the 2016 AGM (the 2016 Resolution) provides the framework for apportioning costs between unit holders that meets the requirements of section 78(2)(b).
14. The 2016 Resolution, which was passed unopposed, provides that:

That pursuant to section 78(2)(b) of the Unit Titles (Management) Act 2011, consumption charges, including all utility charges, incurred by the Owners Corporation be levied to individual unit owners in accordance with the following methodology:

1. All establishment, supply and general charges to be levied on all unit owners in accordance with their unit entitlements;
2. Where specific consumption charges can be calculated and attributed to one or more individual unit holders (including by metering), that those owners be levied with those charges; and

1. All consumption charges other than those attributed to and charged to specific unit owners be levied to all remaining unit owners in accordance with their unit entitlement.[3]

1. The oral evidence of Mr Green, given at the preliminary hearing, was that that 2016 Resolution was enacted to allow the apportionment of water consumption costs. As established, there was no individual metering of water usage in the complex, and residential owners accordingly bore the brunt of the consumption charges. The EC dealt with this issue by installing individual sub meters for each unit. The 2016 Resolution that authorised the apportionment of the water charges from that time on.
2. The respondent's solicitor argued that the premising words of the 2016 Resolution refer to 'consumption charges'. The 2016 resolution then divides these 'consumption charges' into three sub-categories. He agreed that the commercial air-conditioning maintenance and repair budget might not be directly categorised as a consumption, but suggested that it was still covered by the 2016 Resolution as it was "in the nature of an establishment charge" of the kind dealt with in paragraph c.[4]
3. The applicant's representative argued that one significant factual difference between the present circumstances and those of 2016 is that the cost of the installation of individual water meters was met by the owners corporation. This, she submitted, is reflected in the wording of paragraph 'a' of the 2016 Resolution, which states that establishment charges must be paid by all unit owners in accordance with their entitlement, as is the usual position with levies.
4. I consider the interpretation of the 2016 Resolution further below.

1. Section 73 of the UTM Act provides for the establishment of a fund for the general administration of the corporation (an administrative fund).
2. Section 75 of the UTM Act provides that at each annual general meeting of an owners corporation, the corporation must, by ordinary resolution, approve a budget for the administrative fund and any special fund (the general fund budget).
3. Section 78 then sets out the requirements for contributions to the general fund budget. It provides:

(1) An owners corporation for a units plan may, from time to time, determine a contribution (a general fund contribution) required from its members for the corporation's general fund.

_(2) The general fund contribution payable for each unit is - _

(a) the proportional share for the unit of the total general fund contribution; or

(b) a proportion of the total general fund contribution worked out in accordance with a method set out in an unopposed resolution.

(3) A resolution under subsection (2) (b) may provide that only stated unit owners, or unit owners in a stated class, are required to pay a particular contribution, or a contribution of a particular kind.

_(4) A resolution under subsection (2) (b) may only be - _

1. It is apparent from section 78(2)(b) and (3) that the differing contributions between residential and commercial owners is only permissible where authorised in accordance with an unopposed resolution.
2. The 2018 Resolution purports to authorise differing contributions between the residential and commercial owners. It was not passed unopposed. On any view, it is therefore valid only if in some manner authorised by the 2016 Resolution.
3. So what does the 2016 Resolution authorise?
4. The 2016 Resolution is rather confusingly worded. Broadly, it appears to provide that:
   • (a) establishment, supply and general charges are to be levied on all owners in accordance with their unit entitlements;
   • (b) specific, identifiable consumption charges are levied on individual owners; and
   • (c) consumption charges that cannot be identified as incurred by a specific owner are to be charged to the owners by unit entitlement.
5. Unfortunately, there is no definition of either 'establishment, supply and general charges' or 'consumption'. Clearly they are intended to cover different things, but it is not immediately obvious what the difference is, or even what it is intended to be. This is a question of interpretation.
6. Owners corporations' rules are arguably a form of delegated legislation - that is, a 'third tier' of government.[5] Indeed, section 112(1) of the UTM Act provides that the Legislation Act 2001 (Legislation Act) applies to the rules of an owners corporation as if the rules were an Act. However, the 2016 Resolution does not meet the definition of a 'rule' in section 106 of the UTM Act, and it is therefore not necessary to apply the interpretation rules under the Legislation Act. It is, in any case, unlikely to be helpful to apply an overtly legalistic framework to a provisions that were written by lay persons, without regard to the drafting conventions.
7. The more useful approach to interpretation in this case, in my view, is to apply principles drawn from contract: that is, what would a reasonably informed, ordinary person take the clauses in the 2016 Resolution to mean?
8. The resolution as a whole deals with consumption. The ordinary meaning of 'consume' is to 'use up' something or 'expend' it 'through use'.[6] It is a clause that deals with usable or consumable things.
9. Viewed through this prism, I agree with the common view of the parties that the clear meaning and intention of clause (b) is to apply a user-paid approach to consumable, or usable, things where the consumption of those things can be quantified. Accordingly, the charging of separately metred water or electricity to individual owners is consistent clause (b).
10. The reference to 'establishment, supply and general charges' is harder to understand in the context of a clause about 'consumption'. Taking a plain English meaning of the term, 'establishment' means the "act or establishing" or the "fact of being established", which is turn means "to settle or install"[7]. Viewed through the prism of the referencing words to the clause, the most practical interpretation of the clause is that 'establishment' charges are the costs associated with establishing the supply of consumables.
11. I do not need to consider the meaning of 'supply' or 'general' charges at this time. I am satisfied that the commercial air-conditioning/maintenance repair budget is directed to establishing the new electricity infrastructure. This cost is an establishment cost.
12. The 2016 Resolution clearly provides that establishment costs are shared proportionally between unit owners in accordance with their unit entitlements. There is nothing in the clause that permits or authorises a different approach.
13. Accordingly, I am satisfied that the 2016 Resolution does not authorise part b) 4 of the 2018 Resolution. Sub-clauses b) 4 is therefore invalid.
14. Before considering the other clauses, it is useful to ask: What are the consequences for the remainder of the 2018 Resolution of subclause b) 4 being invalid? If it just the clause that is void, or the entire resolution?
15. The answer depends on the application of the doctrine of 'severance'. In broad terms, severance is a process by which the void or invalid portion of a statute or other document may be separated from the valid portion, leaving the remaining portions in effect. Is this a case, the question is whether it is possible to strike out clause b) 4, but leave the remainder of the 2018 Resolution in operation.
16. The tests for severance can be complex.
17. In the context of commercial contract, whether an invalid provision can be severed "depends on the intention of the parties to be gathered from the instrument as a whole": Whitlock v Brew [1968] HCA 71; (1968) 118 CLR 445, 461, citing Life Insurance Company of Australia Ltd v Phillips (1925) 36 CLR 60, 72.[8] As with any other aspect of contract interpretation, the 'intention of the parties' is determined objectively, having regard to the framework of facts within which the contract came into existence, and to the parties' presumed intention.[9]
18. The approach taken to delegated legislation focuses more on whether the provisions can, practically, stand alone:

[n]o severance could be effected unless an inference that the provisions are not to be interdependent can be positively drawn from the nature of the provisions, from the manner in which they are expressed or from the fact that they independently affect the persons or things within power in the same way and with the same results as if the full intended operation of the legislation had been valid:" Bank of New South Wales v Commonwealth [1948] HCA 7; (1948) 76 CLR 1 at 370 per Dixon J; cited in Lewski at [122].[10]

1. On either test, it seems to me to be inappropriate to sever the clause in issue in this case.
2. A key consideration, for either test, is that the void clause was a part of the corporation's annual budget. That budget was put to members as a single package of revenue raising and expenditure. It is impossible to determine whether owners would have voted for the 2018 Resolution without subclause b) 4. Moreover, to allow parties to contest a budget by picking out issues, line by line, has the potential to make a budget impractical and if not unworkable.
3. Accordingly, I reluctantly declare the entirety of the 2018 Resolution void for irregularity.

1. Having declared the 2018 motion invalid, the issue arises as to whether the Tribunal can review the motion and give effect to it under section 129(1)(f) of the UTM Act.
2. I note, without deciding, that there are some practical difficulties with such a motion being considered by the Tribunal as this time. Section 129(1)(f) is intended to allow meritorious applications to be given effect, despite not being approved. It is not intended to remedy procedural defects. Setting aside the other problems that arise in relation to the 2018 Resolution, this Tribunal notes that, at the very least, if a motion that requires an unopposed or unanimous resolution if to put to a vote at a general meeting, the text of the motion and the fact it is an unopposed resolution, must be notified to members 21 days in advance of the general meeting.[11]
3. The most practical option for the EC may be to put a motion back before the owners, and this time seek unopposed approval. I acknowledge that it is unlikely the resolution will be unopposed, and it is nearly inevitable that the matter will be back before this Tribunal, in a slightly different form, for the purposes of a merit review.

1. It is apparent from the circumstances of this case that there is significant potential for disagreement and conflict of interest between the owners of residential and commercial units in a mixed-use facility. No doubt such developments are attractive and vibrant places to live. However, the reality is that the interests of those who are running and business and those who are maintaining a home may not always be harmonious, particularly when it comes to the costs of services, such as utilities and rubbish removal, as well as lifestyle issues such as noise abatement and car parking. The current rules in relation to budget arrangements, in particular, appear to be unhelpful and inflexible and a legislative remedy may be necessary. Models in other jurisdictions, with longer histories of mixed-use developments, may present helpful models for reform.

[1] Minutes of the General Meeting of the owners corporation held 13 June 2018

[2] Respondent's submissions dated 14 September 2018 at [28]

[3] Minutes of the General Meeting of the owners corporation held 4 April 2016

[4] Respondent's submissions dated 14 September 2018 at [53]

[5] See Kerin, C, Kerin Benson Lawyers: Guide to ACT Strata Law (2007, Kerin Benson Lawyers Proprietary Limited) chapter 3.0

[6] Macquarie Dictionary, definitions of 'consumption' and 'consuming'

[7] Macquarie Dictionary, definitions of 'establishment', 'establishing', 'established'.

[8] See also United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; (2009) 74 NSWLR 618 at [90]; cited at Lewski v Commissioner of Taxation [2017] FCAFC 145 at [122]

[9] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 352

[10] The common law position as regards subordinate legislation is substantially the same: Harrington v Lowe (1996) 190 CLR 311, 329 n 50, citing Owners of the SS Kalibia v Wilson [1910] HCA 77; (1910) 11 CLR 689 at [71] in Lewski v Commissioner of Taxation [2017] FCAFC 145 at [122]

[11] Schedule 3, section 3.7, clause (1)(d)