Seeto v The Owners Strata Plan No 49458

NCAT Appeal Panel|2019-02-28|Before: Bailey AM

REASONS FOR DECISION

This internal appeal is from the decision of the Tribunal dated 23 October 2018 in SC 17/48402 granting an application by the Owners Corporation for Strata Plan 49458 (the Respondent) for a reallocation of unit entitlements pursuant to section 236 of the Strata Schemes Management Act 2015.
The reallocation application was opposed by 2 of the 38 unit holders, Lawrence & Anastasia Seeto and Pamela Edmonds, (the Appellants).
For the reasons which follow the Appeal Panel has concluded that the Appeal should be allowed and the proceedings be remitted for a further hearing by the Tribunal and that further evidence be permitted for the further hearing.
The substance of the Tribunal's decision under appeal was an order that the allocation of unit entitlements for Strata Plan No 49458 be made in accordance with the schedule to the report of Walter Dobrow, of Dobrow Valuations Pty Ltd dated 1 November 2017 with consequential orders to give effect to the order for reallocation.
The primary grounds of appeal involved challenges to the Tribunal's reliance upon the evidence of Mr Dobrow. The ground upon which the Appeal is allowed concerned the exercise of the discretion of the Tribunal.
The Notice of Appeal identified, as grounds for the appeal, several errors of law. There was no ground of appeal on any other basis. The Respondent, in its Reply to Appeal contended that some of the grounds of appeal did not involve an error of law and that leave to appeal ought to have been sought.
At the hearing of the Appeal the Appellants filed an Amended Notice of Appeal including several alternative bases for the grounds, and sought leave to appeal which was opposed by the Respondent.
The Appeal Panel, having regard to its conclusion to allow the Appeal, considers that leave to appeal ought to be permitted.

Grounds of Appeal

The Grounds of Appeal, as amended were: 1. An error of law, or that there has been a substantial miscarriage of justice, in the Tribunal relying upon the evidence of Mr Dobrow, in that Mr Dobrow: 1. Gave an opinion on the "reasonableness' of the original allocation which is not a matter for an opinion by a valuer, 2. Reached conclusions in his preliminary report and notwithstanding amending his reasoning doing did not change those conclusions in his later reports, 3. Did not amend his conclusions in the initial report, which were unreliable because (i) he had not conducted internal inspections prior to the initial report had (ii) did not refer to comparative sales. 4. Did not disclose a proper process of reasoning when reaching conclusions as to the respective values of the lots. 5. Included conclusions which were not supported by his reasoning, because 1. market movement adjustments were inconsistent, 2. the ascribed value adjustments were either not explained or included demonstrable errors. 1. Gave evidence that the reasons included in his reports were not the totality of his reasoning. 1. An error of law, or that there has been a substantial miscarriage of justice, in that he Tribunal should have rejected Mr Dobrow's reports. 2. An error of law, or that there has been a substantial miscarriage of justice, in that the Tribunal 1. Did not have regard to the matters in 1. a to f. 2. Found that the preliminary report was not relied on by the Respondent other than for limited purposes. 3. Discounted, or failed to consider, the analysis in the four aide memoires put to Mr Dobrow in cross-examination. 4. Found that Mr Dobrow provided extensive reasoning in support of his conclusions. 5. Found that there was no evidence that Mr Dobrow changed his reasons to support his conclusions. 6. Found that Mr Dobrow's reasoning in the 3 reports was consistent. 7. Found that Mr Dobrow maintained his position as to the process and methodology. 1. An error of law, or that there has been a substantial miscarriage of justice, in that the Tribunal did not apply the staged test identified in Sahade v The Owners Strata Plan 62022 [2014] NSWCA ("Sahade") and instead proceeded on the basis that it should make the order if satisfied that the original allocation of entitlements was unreasonable. 2. An error of law, or that there has been a substantial miscarriage of justice, in that the Tribunal was satisfied as to the "unreasonableness" of the original allocation of entitlements in that the Tribunal: 1. Misunderstood its task of proceeding on the basis that if satisfied that the orders would result in the cost of bearing levies being distributed equitably then the orders should be made, rather than proceeding on the basis that the Tribunal was positively satisfied as to the unreasonableness of the original allocation. 2. Wrongly relied on the evidence of Mr Dobrow, (Ground 1). 3. Failed to account for the state of mind of the lot owners when the original allocation was made, which was disclosed, and wrongly concluded there was no evidence on that issue. 1. An error of law, in that the Tribunal failed to exercise its discretion whether it should, or should not, make the orders by reason of its failure to properly apply Sahade . 2. An error of law, or that there has been a substantial miscarriage of justice, in that in exercising its discretion the Tribunal: 1. Failed to take into account any matter other than Mr Dobrow's evidence by failing to consider: 1. The time lapse between the registration of the strata plan and the application for reallocation in November 2017. 2. The extent to which the lots had been bought and sold on the basis of the original allocation. 3. The circumstances in which the application was brought, after the decision to undertake substantial building works. 4. Whether the financial impact of the reallocation would be unfair in that the Respondent had already resolved to commit to the building works. 1. Failed to consider whether there was reasonably reliable evidence of the respective values of each of the lots in May 1995. 2. Wrongly proceeded on the basis that the purpose of the reallocation application was for "the cost of bearing levies to be distributed equitably burdening some particular lots owners in proportion to the value of their lots in relation to the valuation of all lots" when such reasoning was based on an incorrect assumption.

The Conduct of Internal Appeals

Internal appeals may be made as of right on a question of law, and otherwise with the leave of the Appeal Panel: s 80(2) Civil and Administrative Tribunal Act 2013 (NCAT Act).
In Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 the Appeal Panel set out at [13] a non-exclusive list of questions of law: 1. Whether there has been a failure to provide proper reasons; 2. Whether the Tribunal identified the wrong issue or asked the wrong question; 3. Whether a wrong principle of law had been applied; 4. Whether there was a failure to afford procedural fairness; 5. Whether the Tribunal failed to take into account relevant (i.e., mandatory) considerations; 6. Whether the Tribunal took into account an irrelevant consideration; 7. Whether there was no evidence to support a finding of fact; and 8. Whether the decision is so unreasonable that no reasonable decision-maker would make it.
The circumstances in which the Appeal Panel may grant leave to appeal from decisions made in the Consumer and Commercial Division are limited to those set out in cl 12(1) of Schedule 4 of the NCAT Act. In such cases, the Appeal Panel must be satisfied that the appellant may have suffered a substantial miscarriage of justice on the basis that: 1. the decision of the Tribunal under appeal was not fair and equitable; or 2. the decision of the Tribunal under appeal was against the weight of evidence; 3. or significant new evidence has arisen (being evidence that was not reasonably available at the time the proceedings under appeal were being dealt with).
In Collins v Urban [2014] NSWCATAP 17, the Appeal Panel stated at [76] that a substantial miscarriage of justice for the purposes of cl 12(1) of Schedule 4 may have been suffered where: … there was a "significant possibility" or a "chance which was fairly open" that a different and more favourable result would have been achieved for the appellant had the relevant circumstance in para (a) or (b) not occurred or if the fresh evidence under para (c) had been before the Tribunal at first instance.
Even if an appellant from a decision of the Consumer and Commercial Division has satisfied the requirements of cl 12(1) of Schedule 4, the Appeal Panel must still consider whether it should exercise its discretion to grant leave to appeal under s 80(2)(b).
In Collins v Urban, the Appeal Panel stated at [84] that ordinarily it is appropriate to grant leave to appeal only in matters that involve: (a) issues of principle; (b) questions of public importance or matters of administration or policy which might have general application; or (c) an injustice which is reasonably clear, in the sense of going beyond merely what is arguable, or an error that is plain and readily apparent which is central to the Tribunal's decision and not merely peripheral, so that it would be unjust to allow the finding to stand; (d) a factual error that was unreasonably arrived at and clearly mistaken; or (e) the Tribunal having gone about the fact finding process in such an unorthodox manner or in such a way that it was likely to produce an unfair result so that it would be in the interests of justice for it to be reviewed.

Consideration

The Appeal Panel recognises that the Tribunal understood the legal principles involved in an application for reallocation pursuant to section 236 of the Strata Schemes Management Act 2015, and the exercise of its discretion whether or not to order a reallocation of unit entitlements.
The Tribunal set out its consideration as to the discretion at [31] to [45] in the following terms: 31. Notwithstanding the Opposing Owners arguments and contentions the Tribunal is satisfied as to the unreasonableness of the allocation of unit entitlements as at 17 March 1995 and will make the orders as sought by the Applicant 32. The Tribunal is satisfied that the valuation evidence of Mr Dobrow comprises his three reports, the preliminary report of Dobrow Valuations dated 30 June 2016 (Exhibit R4 tab14) and in compliance with section 236(4) of the SSMA ("Preliminary Report"), the report of Dobrow Valuations dated 1 November 2017 (Exhibit A5) ("First Report") and the report of Dobrow Valuations dated 24 May 2018 (Exhibit A6) ("Second Report"). 33. Despite the cross examination of Mr Dobrow on his reports, the Tribunal finds that the First and Second Reports establish: (1) The First Report provides a certificate specifying the valuation of the lots as at 17 May 1995 in compliance with section 234(4) of the SSMA; (2) Mr Dobrow inspected the majority of the lots in the Scheme and considered the size, configuration, layout, outlook and access of each lot and considered values of sales for lots within the Scheme and in nearby schemes at the relevant time in arriving at his determination as to value of the lots. (3) Mr Dobrow used the direct comparison valuation method, including using a rate per square metre and made adjustments for location, position in the building, the lot size, views and market movement. (4) Mr Dobrow is an expert valuer with more than 30 years' experience and is qualified to give the reports he has. (5) The First and Second Reports were the only expert evidence before the Tribunal. 34. The Tribunal is also satisfied that the Preliminary Report was not relied upon by the applicant except to the extent that was a valuation that informed the applicant of the likely unreasonableness of the initial allocation. Further the Opposing Owners 4 aide memoirs prepared by the Opposing Owners were not tendered into evidence and do not form part of the evidence before the Tribunal. The aide memoirs were shown to Mr Dobrow during his cross examination and he rejected them as being incorrect as they failed to identify all of the relative factors he took into consideration in drawing his conclusions. 35 The Opposing Owners argument about the degree of unreasonableness falls short of satisfying the Tribunal. The Opposing Owners submissions relying on the table of entitlements included in their submissions does not show the actual difference between the existing entitlements and the proposed unit entitlements. The Tribunal is satisfied that Mr Dobrow's First Report (Exhibit A5 at pages 98-99) shows the actual difference in the allocation. The reallocation for 9 lots will result in those lots having a variance of over 20%. The present case can be distinguished from Sahade and Brett. Those cases related to 3 lot strata schemes and the individual lots have a higher relative proportion of unit entitlements than in a larger scheme such as is the subject of this application. SP86208 can also be distinguished from the present as in that case the valuation did not indicate the proposed change would be significant enough to warrant a reallocation of unit entitlements or did it refer to what the proposed change was that the Tribunal was considering in the circumstances. In the present case the evidence is that there is a variance of the unit entitlement of such significance that the existing unit entitlement cannot be reasonable and as such the Opposing Owners submission that degree of unreasonableness does not warrant reallocation cannot be maintained. 36. The fact that the existing allocation of unit entitlement has been in place for 23 years and as such no order reallocating should be made does not result in the Tribunal not needing the make an order. The Tribunal (and its predecessors, the NSW Strata Schemes Board and the CTTT) has reallocated unit entitlements for schemes where there has been a lengthy time between initial allocation and reallocation (see Green and Rogan v The Owners Strata Plan No 8718 [1999] NSWSSB 5 (2 February 1999)-25 years; Schrader v Owners Corporation (Strata & Community Schemes) [2003] NSWCTTT 772 (20 November 2003)-approximately 26 years; Owners Corporation SP179 v Owners Corporation SP179 & Joseph Fridrich & Sons Pty Ltd (Strata & Community Schemes) [2005] NSWCTTT 579 (20 August 2008)-44 years; Gray v Owners Strata Plan 12862 9Strata & Community Schemes) [2007] NSWCTTT 730 (31 December 2007)-29 years; Owners Corporation SP54813 v Owners Corporation SP54813 (unrep) [NCAT File SC17/30773]-20 years; and, Robinson and Cutsforth v Andonovski and Ors (unrep) [NCAT File No. SC 18/17059]-20 years. 37. The Opposing Owners citation of the decision of Younger can be distinguished from the present case as there is no lengthy delay in bring these proceedings from the time the applicant first commissioned the Preliminary Report in 2016, these proceedings were commenced in 2017 and the respondents evidence is that a number of lot owners have changed during the time since the existing allocation of unit entitlement. The Tribunal accepts that lot owners change with the passing of time and the membership of Owners Corporation changes with that. It was not until 2016 that the applicant became aware what it regarded as an incorrect allocation of unit entitlements and acted to reallocate the entitlements. 38. The Appellants' sub the purpose of the application is to reallocate the unit entitlements correctly and fairly in accordance with the requirements of section 236. By doing so, the cost of bearing levies will be distributed equitably burdening some particular lot owners in proportion to the value of their lots in relation to the valuation of all the lots. 39. Despite the Opposing Owners submission about the state of mind of the shareholders of the company at the time of voting to covert the company title to a strata title, there is no evidence to support such a submission. The Tribunal cannot know the basis upon which the existing allocation was made in the absence of such evidence. 40. The Opposing Owners rely on Rolleston to support their submission about the unreliability of the Valuation Evidence. In that case, the Court rejected a valuation report in support of an insurance claim for failing to meet the criteria in section 79 of the Evidence Act 1995. The Opposing Owners draw an analogy between the valuer in Rolleston and Mr Dobrow's methodology as they both rely on the direct comparison method. The distinction is that Mr Dobrow provides extensive reasoning in support of the conclusions he reaches in the First and Second Reports. The Tribunal is sufficiently satisfied that Mr Dobrow has justified his determination as to value by his reasoning in the First and Second Reports. 41. The Opposing Owners contend that the market value and the ascribed unit entitlements in the Preliminary Report expose the flaws in Mr Dobrow's process as being provisional and inadequate and that he sought to bolster his and supplement his reasoning while clinging to his preliminary reasoning and that he backfilled his evidence to support his opinion in the Preliminary Report. Such an assertion cannot be maintained on the evidence before the Tribunal. 42. Mr Dobrow evidence is that he inspected the scheme externally in conjunction with the strata plan and considered internal and external comparable sales evidence around the date of registration of the strata plan. His reasoning process was the same in the Preliminary, First and Second Reports; however, it was only detailed in the First and Second Reports. 43 The Tribunal accepts Mr Dobrow's evidence that he adopted the same process in the First and Second Reports as he did in the Preliminary Report without "backfilling" his reasoning. 44. The Tribunal is satisfied that Mr Dobrow used the evidence that was available to him in coming to the conclusions he did. He maintained his position as to the process and methodology in arriving at his conclusions under cross examination. 45. The Tribunal is satisfied that the requirements of section' 236 of the SSMA have been met by the applicant and in the circumstances and on the valuation evidence adduced the Tribunal will exercise its discretion to make the orders sought.
The Appellants' submissions concerning the misapplication of Sahade state: 5. Secondly, the Senior Member erred in law by not applying the staged test laid down by the Court of Appeal in Sahade v The Owners - Strata Plan 62022 [2014] NSWCA 208 (Grounds 4-6 and 7c.). The parties' submissions, which were recited in the Reasons at [25]-[30], correctly stated the test, but in the actual reasoning (Reasons at [31]-[45]) the Senior Member proceeded as if there was a presumption that units must be reallocated merely because the Tribunal has found the initial unit allocation to be unreasonable, which was an approach squarely rejected in Sahade and subsequent decisions of this Tribunal. Further, this caused the Senior Member to err in law by failing to take into account address at all in the Reasons at [31]-[45] a number of important matters, including [1] the lapse of time been 17 May 1995 and the bringing of the Reallocation Application in November 2017 [2] extent to which lots had been bought and sold in the meantime [3] the basis on which the original allocation was adopted by all of the then- current unitholders on conversion to strata title from company title, and the fact the reallocation application was brought after a decision to commit to expensive building works had been made but before it had been paid for (Grounds 7a. and 7b.).
The Appeal Panel accepts that the Tribunal, whilst recognising what is required in the exercise of the discretion, did not, in the stated reasoning, follow the Sahade analysis and appears to have conflated that analysis. This is most evident in the statement in [31], which does not disclose the sequenced or staged analysis required to be satisfied as to "unreasonableness" of the original allocation.
The Appeal Panel considers that the Appellants' are correct in their analysis of the Tribunal's reasoning and the requirements set by Sahade, and that the Appeal should be allowed on the basis of this finding.
The Tribunal also considers that it is appropriate for the proceedings to be remitted pursuant to section 81 (1) of the Civil and Administrative Tribunal Act 2013 to the Tribunal and that the Tribunal may proceed on the basis of such further evidence as the Tribunal determines may be relied upon.

ORDERS 1. Appeal allowed. 2. The proceedings be remitted to the Tribunal for further hearing. 3. The Tribunal may proceed with the further hearing on the basis of the evidence filed to date and such further evidence as determined by the Tribunal may be relied upon.

I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal. Registrar I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 09 July 2019

At a glance

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Judgment (6 paragraphs)

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Cases Cited (3)

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