Sik v The Owners - Strata Plan No 58961

The decision under appeal

1. By a decision dated 28 October 2018 the Tribunal upheld the appellants' application in respect of sub-paragraph (f) of the definition of "prohibited use".
2. The Member's reasons for so finding were set out as follows: 21. The Applicant contends that By-Law 10 prohibits use of Lot 51 for the purpose of use for a swimming pool. 22. I agree. As it is framed, By-Law 10 defines "commercial use" and "prohibited use" separately. It allows a commercial use, subject to the condition in C.(3) which would be reasonable as it requires compliance with the relevant land use within different types of zoning: use without consent, use with consent, and uses which are prohibited - all set out in the section 140 Planning Certificate issued by NSW Councils under the provisions of the Environmental Planning and Assessment Act 1979. 23. The By-law goes further and purports to prohibit a use which might be permitted by the Council under the zoning laws. For that reason, the prohibited use in B.(f) is invalid by reasons of SSMA ss139 and 150.
3. As will be seen below, it is uncertain whether the Member decided that sub-paragraph (f) should be declared invalid because of the operation of one or both of sub-sections (1) and (2) of s 139 of SSMA. His reasons suggest he relied upon both sub-sections because he referred to s 139 as a whole but the terms of the order state that sub-paragraph (f) was invalid because the respondent did not have the power to make the by-law. When read in conjunction with s 150 of the SSMA the order suggests that the Member was relying upon s 139 (2) only.
4. Sections 139 and 150 of the SSMA relevantly provide: 139 Restrictions on by-laws (1) By-law cannot be unjust A by-law must not be harsh, unconscionable or oppressive. Note. Any such by-law may be invalidated by the Tribunal (see section 150). (2) By-law cannot prevent dealing relating to lot No by-law is capable of operating to prohibit or restrict the devolution of a lot or a transfer, lease, mortgage or other dealing relating to a lot. 150 Order invalidating by-law (1) The Tribunal may, on the application of a person entitled to vote on the motion to make a by-law or the lessor of a leasehold strata scheme, make an order declaring a by-law to be invalid if the Tribunal considers that an owners corporation did not have the power to make the by-law or that the by-law is harsh, unconscionable or oppressive.
5. The Member did not make orders in respect of the balance of special by-law 10, stating: 24. I do not determine the balance of Special By-Law 10 as the application was made specifically in relation to the swimming pool use. I see no reason to determine the other matters in the By-Law which were not in dispute.
6. Although the appellants did not explicitly make any claim for compensation in their original application, it is apparent that the appellants pressed such a claim in written submissionsand the Member addressed it. The respondent does not submit that a claim for compensation was not squarely before the Member in the proceedings at first instance.
7. The Member dismissed the claim for compensation, stating: 26. Whether or not the Respondent is liable for damages is to be determined by a consideration of whether or not Special By-Law 10 was the cause of the Council's refusal to approve the JUMP Review Application. The material facts show that they were not related as the By-Law was passed after the Council refused the Review Application for use of the Lot. The claim for damages fails.
8. On 8 November 2018 the appellants filed their Notice of Appeal.

The Notice of Appeal

1. The Notice of Appeal identified the "orders challenged" on appeal as: Order 1, needs to encompass the remainder of the improper and illegal By-Law No. 10 that currently has effect over the Lot owners property, namely to include sub-clauses (a) (b) (c) (d) and (e) pursuant to the provisions of the Strata Schemes Management Act 2015 s 150.
2. The appellants' grounds of appeal were as follows: For the very same reasons, the balance of the remaining sub-clauses of By-Law 10 must also be declared invalid on the basis that such By-Law defeats the property owners legal rights of enjoyment to his land, pursuant to Strata Schemes Management Act 2015 Section 139(2) which states: "By-law cannot prevent dealing relating to lot. No by-law is capable of operating to prohibit or restrict the devolution of a lot or a transfer, lease, mortgage or other dealing relating to a lot." All the "Prohibited uses" in Special By-Law No.10 prohibit the Lot Owner from dealing with his/her lot or lots. That is why all prohibited uses of the Special By-Law No 10 must be declared invalid pursuant to SSM Act 2015 s.139(2). The member is wrong in fact as to the termination by the proposed Lessee Jump Swim Schools (JUMP) of the contract between the Lot Owner and JUMP. Refer Annexure Q, The applicant seeks the Tribunal's indulgence to admit new evidence, which the respondent wrote, but failed to produce, which shows they emailed the Applicants nominated Real Estate Agent informing them of the new By-Law No 10. Subsequently JUMP replied to the applicants Real Estate Agent advising they were very disappointed with such outcome regarding the imposition of the By-Law and effectively terminated the lease contract with the Applicant. The member erred at Para 26. It is not whether or not Special By-Law 10 was the cause of the Council's refusal to approve JUMP Review application, but rather, whether or not Special By Law 10 caused JUMP to terminate the proposed lease with the applicant. The Lessee's (JUMP) application with the Council would have still continued had it not been for the By-Law. If, on appeal, the Tribunal finds the Special By-Law ended or terminated the applicant's proposed Lease with JUMP then of course damages should flow as set out in the original application.

Scope and nature of Internal Appeals

1. Internal appeals may be made as of right on a question of law, and otherwise with leave of the Appeal Panel: s 80(2) of the NCAT Act.
2. 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 that 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; or 3. significant new evidence has arisen (being evidence that was not reasonably available at the time the proceedings under appeal were being dealt with).
3. 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.
4. 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).
5. 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.

The Grounds of Appeal

1. Although the appellants' Notice of Appeal and, specifically, the Grounds of Appeal, as set out above, are not entirely clear, we note that the appellants were not legally represented and, in accordance with the principles outlined in Cominos v De Rico [2016] NSWCATAP 5 at [13], we have reviewed the appellants' stated Grounds of Appeal, the material provided and the decision of the Tribunal at first instance and consider that a fair summary of the appellants' Grounds of Appeal is as follows: 1. The Tribunal erred in failing to declare invalid the entirety of Special By-Law 10, or alternatively the whole of the definition of "prohibited use" in Clause B in Special By-Law 10, on the same basis as the Tribunal set aside sub-paragraph (f) of the definition of "prohibited use" in Clause B of Special By-Law 10; 2. The Tribunal erred in failing to address the appellants' application that the whole of Special By-Law 10, and in particular sub-paragraphs (a) to (e) of the definition of "prohibited use" in Clause B of Special By-Law 10, be declared invalid; 3. The Member erred in failing to award damages to the appellants in respect of the loss of the potential lease with JUMP or more generally in respect of losses sustained by reason of the passage of the by-law.
2. We note for completeness that at the hearing of the appeal, Mr Ross, the appellants' accountant, who appeared by leave for the appellants, withdrew an argument that, by reference to Section 9 of the Strata Schemes Management Act 2015 (NSW) (the SSMA), the powers of an owners corporation of a strata scheme were limited to the management and control of the use of the common property of the strata scheme and did not extend to the making of by-laws governing the use of lots. Mr Ross, correctly in our view, did not press this submission in light of the provisions of s 136 of the SSMA which provides: 136 Matters by-laws can provide for (1) By-laws may be made in relation to the management, administration, control, use or enjoyment of the lots or the common property and lots of a strata scheme. (2) A by-law has no force or effect to the extent that it is inconsistent with this or any other Act or law.

Consideration

1. We turn to address the Grounds of Appeal which we have identified at [21] above.

Ground 1

1. The appellants submitted that the Member found sub-paragraph (f) invalid by reference to s 139(2) and that, logically, the same considerations applied to all sub-paragraphs of the definition of "prohibited use" and, accordingly, the Member should have declared invalid the entirety of that definition.
2. Although there was no challenge by the respondent to the Member's decision in respect of sub-paragraph (f), we consider that, to the extent that the Member relied upon s 139(2) in declaring that sub-paragraph invalid, he was clearly in error.
3. The Member referred to the decision of Member Ringrose in Estens v Owners Corporation SP 11825 [2017] NSWCATCD 63. In that decision Member Ringrose held that a by-law which apparently restricted "short term lettings" (the precise terms of the relevant by-law are not disclosed in the decision) was invalid as contrary to s 139(2). It is not necessary on this appeal to consider whether that decision was correct (in which respect we note paragraph [70] of the Appeal Panel decision in Profitability Consulting v Thorpe [2019] NSWCATAP 20 and the cases there cited). Whether or not a by-law restricting "short term lettings" operates to prohibit or restrict "the devolution of a lot or a transfer, lease, mortgage or other dealing relating to a lot" it is clear that a by-law which only restricts the use to which a lot may be put is not a by-law which has that effect.
4. The appellants' argument proceeded on the basis that a by-law restricting the use to which a lot may be put was a by-law restricting "dealing" with the lot.
5. Whatever may be the scope of "dealing" in this provision it cannot extend to restricting the use of the lot. Otherwise, it would be directly contradictory of the terms of s 136(1), which permits by-laws to be made "in relation to the…use…of the lots…of a strata scheme".
6. We incline to the view that "dealing" in s 139(2) is intended to refer to the transfer of an interest in the lot, that is, to something falling within the same genus or class as "devolution…transfer, lease [and] mortgage" but it is unnecessary for us to express a conclusion about this in light of the existence of s 136 (1).
7. As we have noted, the respondent did not challenge the Member's orders declaring invalid sub-paragraph (f) of the definition, so that order will stand regardless of the outcome of the appeal. However the appellants' argument founded upon s 139(2) in respect of the balance of the definition must fail.

Ground 2

1. The appellants also challenged the by-law on the ground that it was unconscionable and oppressive contrary to s 139(1).
2. If the Member held sub-paragraph (f) invalid on the basis that it was harsh, unconscionable or oppressive, that conclusion does not necessarily translate to the other sub-paragraphs of the definition.
3. To determine whether the other sub-paragraphs of the definition were invalid as contrary to s 139(1), it would have been necessary for the Member to address each sub-paragraph separately. The Member did not do so.
4. The appellants in their application sought orders that sub-paragraphs (a) and (c) to (f) of the definition of "prohibited use" in Special By-Law 10 be invalidated on the basis that they were unconscionable and oppressive. The appellants did not seek orders that sub-paragraph (b) of the definition be declared invalid. The Member did not determine the application in respect of sub-paragraphs (a) or (c) to (e) of the definition.
5. Mr Newmarch, the strata manager who appeared for the respondent, submitted on behalf of the respondent that the discussion before the Member at the hearing was entirely focussed on sub-paragraph (f). However, Mr Newmarch acknowledged that the other sub-paragraphs were addressed in written submissions which the appellants had provided to the Member.
6. Mr Newmarch also submitted that there are elements of sub-paragraphs (a) to (e) which merely reflect the operation of the planning legislation. However the question whether that is correct, and, if so, its significance to the question whether the by-law is unconscionable or oppressive, were not the subject of any consideration on the part of the Member.
7. In CG Constructions Pty Ltd v Hanson Constructions Materials Pty Ltd [2017] NSWCATAP 130 the Appeal Panel stated: 34. In Dranichnikov v Minister for Immigration and Multicultural Affairs [2003] HCA 26; (2003) 77 ALJR 1088, Gummow and Callinan JJ (Hayne J agreeing) said at [24] that a failure to respond "to a substantial, clearly articulated argument relying upon established facts was at least" a failure to accord an applicant natural justice. A failure of that kind has also been described as a constructive failure to exercise jurisdiction. Such a failure will constitute an error of law.
8. In our view the failure of the Member to address the appellants' case concerning the validity of sub-paragraphs (a) and (c) to (e) of the definition of "prohibited use" in special By-Law 10 was an error of law in that sense. It was not to the point that the appellants had been specifically affected only by sub-paragraph (f) of the definition. The continued existence of the remaining sub-paragraphs of the definition of "prohibited use" has an impact upon the appellants' utilisation of their lots. The appellants applied to have each of sub-paragraphs (a) and (c) to (f) declared invalid. They were entitled to have the whole of their application determined.
9. At the hearing of the appeal Mr Newmarch ultimately indicated that the respondent would not oppose the proceedings being remitted to the Consumer and Commercial Division to determine (on the basis of additional evidence) whether the balance of the by-law or any sub-paragraph of the definition of "prohibited use" contravenes s 139(1).
10. Accordingly, the appeal will be allowed to that extent, and the proceedings will be remitted to the Consumer and Commercial Division for consideration, on the existing evidence and such further evidence as the parties may adduce, whether any of sub-paragraphs (a) and (c) - (e) of the definition of "prohibited use", in Clause B of Special By-Law 10, passed by special resolution of the respondent on 12 September 2017, is invalid by reason of s 139(1) of the SSMA.

Ground 3

1. The appellants' third ground of appeal challenges the Member's failure to award damages in respect of the passage of sub-paragraph (f) which was found to be invalid. The appellants submitted that the decision not to award damages was not fair and equitable, and also sought to rely upon fresh evidence.
2. Mr Ross submitted that the Member should have found that JUMP's termination of the arrangement with the appellants was caused by the passage of the by-law. To establish that case Mr Ross sought to tender two emails which, he submitted, demonstrated that the respondent's strata manager had forwarded a copy of the by-law to JUMP on 30 October 2017 and that JUMP had in consequence terminated its arrangements with the appellants on 3 November 2017.
3. Although the appellants made no claim for compensation in their original application, the Member addressed the appellants' claim in that regard and the respondent does not submit that the claim for compensation was not squarely before the Member at the hearing at first instance.
4. To succeed in recovering damages, the appellants must establish the elements of a cause of action known to the law. Mr Ross did not clearly articulate any basis upon which the respondent might be liable to the appellants for compensation in respect of the passage of an invalid by-law. It is now clear that there is no cause of action by which a person who suffers harm or loss as the inevitable consequence of the unlawful, intentional and positive acts of another is entitled to recover damages from that other: Northern Territory v Mengel (1995) 185 CLR 307.
5. Mr Ross referred both to breach of statutory duty and to negligence. Mr Ross acknowledged that no argument founded upon negligence had been put to the Member. Nor was Mr Ross able to identify in what respect he alleged the respondent had been negligent, other than to submit that the owners corporation were in breach of their duty to comply with the Act. To this extent the allegation of negligence appears to add nothing to the allegation of breach of statutory duty.
6. If the appellants have a cause of action against the respondent in respect of the loss sustained by reason of the loss of the opportunity or chance to lease lot 51 to JUMP, such cause of action could only be founded upon breach of statutory duty. Mr Ross was not able to identify with any clarity the statutory duty which the appellants asserted the respondent had breached. He articulated the appellants' complaint as that the respondent had passed an invalid by-law for an unauthorised purpose and the relevant duty that had been breached as the "duty to comply with the Act".
7. As to an unauthorised purpose, this submission was founded upon the incorrect premise that no by-law could be passed concerning the use of a lot.
8. As to the alleged relevant duty, we fail to see how such a generalised duty is capable of giving rise to a cause of action for breach of statutory duty. It is a long way from the circumstances in which the inference of an intention to confer a private action for damages arises as referred to by Kitto J in Sovar v Henry Lane Pty Ltd (1967) 116 CLR 397 at 414-5.
9. There is, moreover, in our view, strongly persuasive, if not binding, authority that no action for breach of statutory duty lies in respect of the actions of an owners corporation under the SSMA.
10. In The Owners Strata Plan 50276 v Thoo [2013] NSWCA 270 the Court of Appeal determined that a breach of s 62 of the Strata Schemes Management Act 1996 (NSW) (the SSMA 1996) by an owners corporation did not give rise to an action for damages for breach of statutory duty.
11. It must be recognised that the SSMA 1996 has been replaced by the SSMA and that there are differences between the two statutes which might bear upon this question. The specific conclusion of the Court of Appeal in Thoo, that no action for damages for breach of statutory duty lay against an owners corporation in respect of the failure to repair and maintain common property, has been reversed by s 106(5) of the SSMA. Moreover, the limitation on the powers of adjudicators under s 138(3)(d) of the SSMA 1996, referred to in Thoo at [211] as a factor supporting the conclusion that no action lay for breach of statutory duty, is no longer part of the scheme of dispute resolution in respect of strata schemes under the SSMA.
12. Nevertheless, the reasoning of Tobias JA (with whom Barrett JA and Preston CJ of LEC agreed) at [198]-[222] otherwise remains applicable to the SSMA. In particular, it remains the case that the SSMA: Provides a comprehensive regime by which a lot owner who is dissatisfied with the performance by an owners corporation of its role … can seek redress from a specialist tribunal. If the complaint is justified, then the owners corporation can be ordered to carry out such work as is necessary to fulfil its role. (See Thoo at [212].) See also John Maait Properties v The Owners - Strata Plan No 50396 [2019] NSWCATAP 20 at [87].
13. Importantly, so far as by-laws are concerned, a specific regime is established for challenging their validity: Division 5 of Part 7 of the SSMA.
14. It is also of significance, in our view, that the legislature, in enacting the SSMA in 2015, explicitly included provision for an action for breach of statutory duty in respect of one part of an owners corporation's duties and did not make provision for such an action in respect of any other of an owners corporation's obligations or duties. The explicit inclusion of s 106(5) in the SSMA reinforces the conclusion that no such cause of action was intended to be available in respect of other duties of an owners corporation.
15. In any event, Mr Ross acknowledged that the appellants required leave to appeal in respect of the rejection of the claim to damages as they are unable to point to any error of law in the Member's reasons for rejecting the claims. .
16. In this respect, the appellants seek to rely upon fresh evidence. We are not persuaded that the evidence in question was "not reasonably available at the time the proceedings under appeal were being dealt with".
17. The fresh evidence upon which Mr Ross sought to rely was an email dated 25 October 2017 from Mr James Hurry of JUMP Swim Schools to Mr Newmarch seeking "feedback from the Owners Corporation" concerning the application to Council, and an email in response from Mr Newmarch to Mr Hurry dated 30 October 2017 in which Mr Newmarch informed Mr Hurry that the Owners Corporation had passed Special By-Law 10 on 12 September 2017 "to preclude the use of any of the commercial lots as a swimming pool or leisure/recreational facility" and attached a copy of the by-law.
18. The appellants did not put forward any evidence of investigations or enquiries they had undertaken prior to the initial hearing to obtain correspondence or other documents concerning JUMP's reasons for terminating the arrangement and abandoning the proposed lease. Moreover, there was, in the material before the Member, an email from JUMP's solicitor dated 3 November 2017 which stated: "We are instructed that your client's agent forwarded us notification of Strata passing an amendment to their by-laws which specifically exclude our proposed use. This was an outcome which was completely separate to the development application issue being experienced and are completely outside the control of the Lessee."
19. That email was addressed to "LG Parker & Co", which we infer was a solicitor, agent or other representative of the appellants, and was also copied to one of the appellants.
20. In light of that document, Mr Ross accepted that, if the appellants or their representatives had read the documentation to which they had access before the hearing at first instance, they would have been on notice that the by-law had been communicated to JUMP by 3 November 2017.
21. In view of what we have already said about the availability of a claim for breach of statutory duty, we are also not persuaded that, even with the so-called fresh evidence, it could be said that because of the Member's rejection of the claim for compensation the appellants had suffered a substantial miscarriage of justice.
22. Accordingly leave to appeal against the rejection of the appellants' claim for compensation is refused.
23. Our orders will be: 1. Appeal allowed in part. 2. The proceedings be remitted to the Consumer and Commercial Division of the Tribunal for determination according to law, by reference to the evidence before the Tribunal at the previous hearing and such further evidence as the parties may seek to adduce in accordance with directions of the Tribunal, the question: Whether any of sub-paragraphs (a) and (c) to (e) of the definition of "prohibited use" in Clause B of Special By-Law 10, registered as a by-law of Strata Plan 58961 on 20 February 2018, is invalid as harsh, unconscionable or oppressive contrary to sub-section 139(1) of the Strata Schemes Management Act 2015 (NSW). 1. Leave to appeal on a ground other than a question of law is refused. 2. The appeal is otherwise dismissed.

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: 20 March 2019