THE OWNERS CORPORATION OF STRATA PLAN 4521 v ZOUK & ANOR.

Court of Appeal (NSW)|2007-02-23|Before: Beazley JA, Ipp JA, Bryson JA, Malpass J

CITATION: THE OWNERS CORPORATION OF STRATA PLAN 4521 v ZOUK & ANOR. [2007] NSWCA 23 This decision has been amended. Please see the end of the judgment for a list of the amendments.

JUDGMENT OF: Beazley JA at 1; Ipp JA at 2; Bryson JA at 54

CATCHWORDS: APPEAL - power of Consumer, Trader and Tenancy Tribunal to make an order for costs under s 192 of the Strata Schemes Management Act 1996 (NSW) - whether Tribunal required, under s 192, to make a costs order at the time of dismissal of the appeal - whether Tribunal, in order to award costs, is required to state expressly that it is dismissing an appeal under s 181(5) of the Act because the appeal is "frivolous, vexatious, misconceived or lacking in substance" - whether s 192 restricts the matters to be considered by the Tribunal when determining whether costs should be awarded when an appeal is dismissed - whether the appeal before the Tribunal did in fact lack substance

LEGISLATION CITED: Crimes (Local Courts Appeal and Review) Act 2001 (NSW) Strata Schemes Management Act 1996 (NSW)

CASES CITED: Oshlack v Richmond River Council (1998) 193 CLR 72 Zouk v The Owners Corporation of Strata Plan 4521 & Anor [2005] NSWSC 845

THE OWNERS CORPORATION OF STRATA PLAN 4521 (Appellant) PARTIES: EMELIE ZOUK (First Respondent) CONSUMER TRADER & TENANCY TRIBUNAL (Second Respondent)

C.D. Freeman (Appellant) COUNSEL: G.B. Evans (First Respondent) Submitting appearance (Second Respondent)

Walker Taylor Edwards & Smith (Appellant) SOLICITORS: George Khoury & Co (First Respondent) I.V. Knight, Crown Solicitor (Second Respondent)

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT JUDICIAL OFFICER: Associate Justice Malpass

LOWER COURT MEDIUM NEUTRAL CITATION: Zouk v The Owners Corporation of Strata Plan 4521 & Anor [2005] NSWSC 845

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40763/05 SC 11672/05

BEAZLEY JA IPP JA BRYSON JA

23 February 2007 THE OWNERS CORPORATION OF STRATA PLAN 4521 v EMILIE ZOUK & 1 OR

Judgment 1 BEAZLEY JA: I agree with Ipp JA. 2 IPP JA: This appeal concerns the power of the Consumer Trader and Tenancy Tribunal to make an order for the payment of costs when dismissing an appeal from an order of an Adjudicator under the Strata Schemes Management Act 1996 (NSW) ("the Act"). 3 The first respondent, Ms Zouk, is the owner of a lot in a strata plan in Drummoyne. The appellant ("the Corporation") is the owners' corporation of the strata plan. 4 Ms Zouk found that water was entering her garage. A dispute arose between her and the Corporation as to the most appropriate way in which the Corporation should remedy this. Eventually, Ms Zouk made an application to an Adjudicator under s 138(1) of the Act for several orders, including an order requiring the Corporation "to make repairs to stop water egressing [sic] into applicant's garage". 5 The Adjudicator observed that Ms Zouk was seeking an order under s 138(1) of the Act which provides:

"(1) An Adjudicator may make an order to settle a dispute or complaint about: (a) an exercise of, or a failure to exercise, a function conferred or imposed by or under this Act or the by-laws in relation to a strata scheme, or (b) the operation, administration or management of a strata scheme under this Act." 6 Ms Zouk also relied on s 138(2) which provides:

"(2) For the purposes of subsection (1), an owners corporation or building management committee is taken to have failed to exercise a function if: (a) it decides not to exercise the function, or (b) application is made to it to exercise the function and it fails for 2 months after the making of the application to exercise the function in accordance with the application or to inform the applicant that it has decided not to exercise the function in accordance with the application. … " 7 It was common ground that the function which Ms Zouk contended the Corporation had failed to exercise was that set out in s 62(1) of the Act, namely: "An owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation". 8 In a hearing before the appeal to this Court (namely, in Ms Zouk's appeal to the Tribunal), the Corporation contended that neither the Adjudicator nor the Tribunal had jurisdiction (under s 138) to deal with the issue raised by Ms Zouk. The Tribunal rejected this contention and the jurisdiction issue is not raised in the present appeal. 9 The Adjudicator identified the question before him as being: "Whether the repairs proposed to be carried out are so insufficient to rectify the defect that they amounted to a failure [on] the part of the owner's corporation to perform their function under s 62(1)." 10 Before the Adjudicator, Ms Zouk did not produce any alternative scheme to that proposed by the Corporation. She did not tender any expert evidence. The Corporation, on the other hand, relied on testimony from engineers, Boyden and Partners. The Corporation produced a proposal for works (prepared by Boyden and Partners) that it contended would remedy the problem. This was the only evidence before the Adjudicator of any method of rectification of the garage. The Adjudicator dismissed Ms Zouk's application on the ground that she had failed to discharge the onus of proof borne by her. 11 Ms Zouk then appealed to the Tribunal (being entitled so to do by s 177 of the Act). In her written notice of appeal (lodged in accordance with s 178(1) of the Act), Ms Zouk requested a number of orders. One of these was: "That the work to be undertaken to the double garage … be based on the independent report … prepared by Dr Anthony S Hasham …"

Dr Hasham was an engineer retained by Ms Zouk. 12 It was common ground that the Tribunal treated Ms Zouk's application for an order that the work be performed in accordance with Dr Hasham's report as an amendment to the relief that she was claiming. Ms Zouk, with the leave of the Tribunal, adduced new evidence from Dr Hasham. Dr Hasham proposed an alternative method of remedying the water problem but gave no detail of "costings, details, specifications or otherwise" of the works he advised. 13 There were, in effect, two issues that the Tribunal was required to resolve. Firstly, whether an order should be made preventing the Corporation from implementing the Boyden and Partners proposal (Ms Zouk contended that the work proposed by Boyden and Partners was neither appropriate nor effective). Secondly, whether an order should be made directing the Council to implement Dr Hasham's proposal (as Ms Zouk sought). 14 On 22 July 2004, the Tribunal dismissed the appeal for the following reasons: "Dr Hasham's proposal rests on a view that there has been some deficiency in the subsoil area which is the particular cause of the garage slabs shifting and cracking. His initial report overlooked the fact that there has been some load transferred though [sic] the partition walls to the slab. He later conceded this may have had an impact on the slab kicking up. His comments in respect to the subsoil were made without any testing or other visual evidence of washout. Having regard to the evidence of Mr Bachman and in particular Mr Stefani, I consider that Dr Hasham's observation of the subsoil should not be accepted. Mr Stefani's evidence was that a visual inspection of the rear low lying portion of the property cannot support Dr Hasham's conclusion that inadequate surface drainage has caused the subgrade material to be washed away. He has not observed or tested the subterranean conditions of the slab and could not draw any conclusions about subsoil drainage performance. He could not see how Dr Hasham could draw such a conclusion. Mr Bachman's evidence was that there was no evidence on site of any washout below the slabs. For washout to occur significant water flow and pressure would be required. There had not been any reports of water coming up between the joints and whether other parts of the driveway had been replaced the sub base was dry with no evidence of material loss.

I disagree with the appellant's submission that the failure to test the substrate is not relevant. The likely cause of the damage is an important consideration in assessing the proposed methods of repair. I accept the appellant's submission that one advantage of Dr Hasham's proposal is that if the garage slab is cut it would provide an opportunity to investigate the subsoil however in the absence of evidence that the performance of the subgrade is linked directed to the cracking and lifting this benefit cannot be seen as reason for doing the repair work proposed by Dr Hasham over that proposed by the owners corporation.

I note Dr Hasham's high level academic qualification and publications however I do not consider that I should accept his evidence and his proposed for [sic] method of repair over that of Mr Bachman's. Mr Bachman gave his evidence in a very clear and direct manner. His reports set out clearly his identification of the features of the site and his opinions as to the cause of the damage. These were not particularly challenged by cross-examination. Mr Bachman's evidence is supported by Mr Stefani's and I do not consider that any difference in opinion should be resolved by preferring Dr Hasham's evidence.

I accept that the placing of a topping on the slab will have an impact on the appellant's use of the premises. I consider that it is likely to be minor given that the topping slab will be at most 100 mm higher and there will be a fall of 25 mm from front to the back. I consider the appellant's evidence about her intention to purchase a van as purely speculative and no weight is placed on it. Little turns on her intention anyway as consideration must be given to the likely reasonable use of the space as a garage and the likely range of vehicles which the appellant or any owner of the lot may own and the likely use of the space. Further, the use of a bund behind the grated drain as proposed by Dr Hasham would have a similar impact and restrict the types of vehicles that can make use of the garage.

The further basis on which I consider that it is appropriate to accept the owners corporations proposal is that Dr Hasham's suggestions are not supported by costings, details, specifications or otherwise. It is difficult then to compare his proposal in relation to costs and efficacy, to those relied upon by the respondent. Both Mr Bachman and Mr Pitcher had concerns over the likely costs of the proposals in relation to the amount of site preparation required to ensure the integrity of the dividing walls and the cost of dowelling the new slab into the remaining parts. The absence of [sic] detailed work schedule and supporting costs is in my view a further reason not to prefer Dr Hasham's method of repair over the respondent's." 15 From the above, one can extract six grounds on which the Tribunal relied for dismissing the appeal, namely: (a) Dr Hasham's observation of the subsoil should not be accepted. (b) The Tribunal disagreed with Ms Zouk's submission that the failure to test the "substrate" was not relevant. (c) The cutting of the garage slab, and the opportunity that would give to investigate the subsoil, was not a benefit sufficient to justify doing the repair work in the manner proposed by Dr Hasham. (d) Dr Hasham's high level academic qualifications and publications were not a good reason for resolving the dispute between Dr Hasham on the one hand, and Mr Bachman and Mr Stefani on the other. (e) The use of a bund between the grated drain, as proposed by Dr Hasham, would restrict the space in the garage and the type of vehicles that could make use of it. (f) Dr Hasham's suggestions were not supported by "costings, details, specifications or otherwise". This made his proposal "difficult" to compare with the Boydon and Partners' proposal. 16 Later, the Corporation, in a separate application, sought an order for costs against Ms Zouk. 17 The power of the Tribunal to make an order for the payment of costs is governed by s 192 of the Act. This section relevantly provides: "The Tribunal may not make any order for the payment of costs except as specifically authorised by this Act or in relation to an order dismissing an application or appeal because: (a) the application or appeal is frivolous, vexatious, misconceived or lacking in substance, or (b) a decision in favour of the applicant or appellant is not within the jurisdiction of the Tribunal." 18 Section 192 does not positively authorise the Tribunal to make an order for the payment of costs. Although the section is couched in negative terms, it impliedly empowers the Tribunal to make an order for the payment of costs in the circumstances stipulated. 19 On 7 April 2005, the Tribunal handed down its separate judgment on the costs issue (the "costs judgment"). By that judgment, it ordered Ms Zouk to pay the costs of the appeal. The reasons given by the Tribunal for this I were as follows: "In a matter such as this where the appellant was effectively challenging a method of repair chosen by the Owners Corporation presentation of evidence of an alternative method of repair is not sufficient, what must be shown is that the method chosen by the Owners Corporation was inadequate or unreasonable in all of the circumstances. The evidence of the applicant was not sufficient to establish [that] the method of repair proposed by her should be preferred over that proposed by the respondent. If that were the only issue the appeal could not be said to be lacking in substance. However, there is the further matter of the failure of the applicant to present evidence which covered the costings and methodology of the alternative repair. Evidence of such matters would be essential to the assessment of the method of repair given my view that at the most the appellant's proposal could be seen as an alternative method. This information would have been essential to arrive at a decision that the method of repair by the applicant was unreasonable in the circumstance. The failure to present any such evidence in my view is sufficient to show that the appeal was lacking in substance. Therefore the respondent is entitled to an order for costs." 20 Ms Zouk appealed against the costs judgment to the Supreme Court (under s 200 of the Act). Her appeal was heard by Malpass AsJ: see Zouk v Owners Corporation of Strata Plan 4521 & Anor [2005] NSWSC 845. As the Associate Judge observed, the effect of s 200 is to provide appellate relief as if the order of the Tribunal were a determination of the Local Court. On that basis, an appeal lies as of right on a question of law alone and, by leave of the Supreme Court, on a question of fact or mixed law and fact (ss 52 and 53 of the Crimes (Local Courts Appeal and Review) Act 2001 (NSW)). This Court was informed by both counsel that Ms Zouk had sought leave to appeal to the extent that that might be necessary and Malpass AsJ had granted leave. 21 Before Malpass AsJ Ms Zouk relied, in effect, on two arguments. 22 Firstly, she contended that the Tribunal was bound by the express reasons it gave in its substantive judgment of 22 July 2004. She pointed out that, in that judgment, the Tribunal had not stated expressly that the appeal was dismissed on the ground that it was "lacking in substance". She submitted that s 192 had the effect that if the Tribunal did not, in its reasons dismissing the appeal, expressly state that the appeal had been dismissed because it lacked substance, the Tribunal was not empowered (under s 192) to make a costs order on a later occasion on that ground. In the circumstances, she submitted, the Tribunal had no statutory power to make an order awarding costs. 23 Secondly, she submitted: "In any event, the [Tribunal] has misdirected itself as to what constitutes a lack of substance, or misconception as to either jurisdiction or availability of relief or basis for seeking relief in an application, and confused a shortfall in evidentiary proof with the absence of any real possibility of there being an issue between the parties calling forth the jurisdiction of the [Tribunal] and the determination of or resolution of an issue between the parties. At all times there was a legitimate issue as to the adequacy or reasonableness of a method of repair chosen by the First Defendant and an alternative method of repair asserted by the Plaintiff. Such legitimate issue renders invalid any basis for finding that the appeal to the [Tribunal] was either 'lacking in substance' or 'misconceived'." 24 Malpass AsJ upheld Ms Zouk's argument. He pointed out that the Tribunal, in its substantive judgment of 22 July 2004, had not dismissed Ms Zouk's appeal because it was "lacking in substance". His Honour said (at [42]): "It may have been open in the light of those reasons to make the further finding that the appeal was 'lacking in substance' and to dismiss it because of that finding. Whether or not that be so, the Tribunal did not make that finding and did not dismiss the appeal because of it."

His Honour further held (at [44]): "As the Tribunal had already dealt with the question of the dismissal of the appeal, it was not then open to it to make this purported further finding thereafter." 25 Accordingly, Malpass AsJ set aside the costs order made against Ms Zouk. The Corporation then appealed to this Court. The Corporation submitted that his Honour had erred in construing s 192. Ms Zouk filed a notice of contention that asserted that, even if the Tribunal had the power to order costs, it had misdirected itself "as to what constitutes an application or appeal as one 'lacking in substance'" and was accordingly in error in making an order for the payment of costs in the costs judgment. 26 At the outset, it is necessary to recognise that, at common law, the courts have no jurisdiction to award costs. The jurisdiction is statutory: Oshlack v Richmond River Council (1998) 193 CLR 72 at 95 per McHugh J. It follows that the question to be determined is one of statutory construction. 27 The first point to be addressed is whether (as Malpass AsJ held and Ms Zouk argued) that - after the Tribunal had dealt with the question of the dismissal of the appeal - it was not entitled to make an order for the payment of costs. Counsel for Ms Zouk submitted that a costs order under s 192 may only be made "at the time of the dismissal". 28 Section 192 does not require an order for the payment of costs to be made contemporaneously with the dismissal of the appeal. The power is to make an order for the payment of costs "in relation to" an order dismissing an appeal. Logically, such an order can only be made after an order has been made dismissing the appeal. 29 Section 192 does not provide expressly that a costs order may only be made "when" (that is, on Ms Zouk's argument, immediately after) the appeal is dismissed. Counsel for Ms Zouk submitted that s 192, itself, is an indication that the legislature's policy was to limit the Tribunal's power to order payment of costs. That may be accepted; s 192 circumscribes the Tribunal's power to order costs. But neither such a policy nor the words of s 192 supports a construction that limits the time at which the Tribunal is empowered to make costs orders. Moreover, there is no practical reason or policy that is derived from the general interests of justice to limit the Tribunal's power in this regard. 30 I would add that s 192 does not restrict the matters to be considered when determining whether a costs order should be made to findings that were made when the appeal was dismissed. It merely requires the appeal to be dismissed on one of the grounds stated in sub-paras (a) or (b) of the section. This suggests that a fresh argument can be put on the issue when an application is made for a costs order. 31 The inference referred to in the preceding paragraph is supported by the difference between the powers of the Tribunal to dismiss an application (made under the Act) and the Tribunal's powers to dismiss an appeal (under the Act). 32 By s 185(4), the Tribunal is expressly empowered to dismiss an application (without derogating from its general powers to dismiss an application on other grounds set out in s 185) if: "(a) the application is frivolous, vexatious, misconceived or lacking in substance, or

(b) a decision in favour of the applicant is not within the jurisdiction of the Tribunal, or

(d) the application is made by an owner of a lot in the strata scheme concerned and the applicant has not paid all contributions levied and payable in relation to the lot under this Act." 33 By s 181(3), the Tribunal may revoke an order appealed against and, by s 185(5), may dismiss an appeal. There is no provision in regard to these sections (or the Act as a whole) that requires the Tribunal to make specific findings (such as those set out in s 185(4)) when making an order, in an appeal, for revocation or dismissal. 34 Thus, if the Tribunal dismisses an application under s 185(4)(a) it is required to state that it is doing so because it finds that the application is "frivolous, vexatious, misconceived or lacking in substance". On the other hand, no such provision applies to an order revoking an order appealed against or an order dismissing an appeal. This is a further ground for inferring that the legislature intended that the Tribunal, when considering whether it should order the payment of costs under s 192 (following the dismissal of an appeal), could consider afresh whether a finding falling within the category of those set out in sub-paras (a) and (b) of s 192 should be made. 35 This reading is literally available but it is not the ordinary and natural reading of s.192. There is in my view, no such close tie because it may well be the case that deciding whether or not the application or appeal should be dismissed did not require the question whether the application or appeal was frivolous etc (as in (a)) or the question of jurisdiction (as in (b)) to be considered. In my reading, "because" and subparas (a) and (b) state the cases for which an order for payment of costs may be within the exception, and do not state characteristics which the order dismissing the application or appeal must have if an order for costs is to be made within the exception. I see no legislative purpose for limiting the exception to cases where the matters in (a) or (b) state the cases for which an order for payment of costs may be within the exception, and do not state characteristics which the order dismissing the application or appeal must have if an order for costs is to be made within the exception. I see no legislative purpose for limiting the exception to cases where the matters in (a) or (b) were considered and articulated when the dismissal order was made. My reading is assisted by the contrast between s.185(4)(a) which expressly empowers dismissal of applications on the ground that they are frivolous etc and s.185(5) which relates to appeals and does not expressly refer to that ground. The question whether an application, appeal or decision fell within subpara (a) or subpara (b) arises for consideration when the Tribunal is asked to make a costs order and it may well be that it is only when the reasons for the dismissal order are known that it could be known that there are reasons to consider the application of subpara (a) or subpara (b). 36 In my opinion, the Tribunal is empowered by s 192 - at least within a reasonable time after dismissing an appeal - to make an order for the payment of costs. Its powers are not limited to making such an order when dismissing the appeal. 37 Further, the Tribunal may make an order for costs under s 192 even though, in its judgment dismissing the appeal, it has not said expressly that the appeal is dismissed because of one of the grounds set out in sub-paras (a) or (b) of s 192. 38 In determining whether to make an order for the payment of costs, the Tribunal must consider (and make a finding) whether the appeal was frivolous, vexatious, misconceived or lacking in substance, or whether a decision in favour of the appellant was not within its jurisdiction. On general principle, that finding cannot be inconsistent with the reasons given by the Tribunal for the dismissal of the appeal. The law would not tolerate inconsistent findings by the same tribunal relating to the same subject matter in dispute. 39 I leave open the question whether the adducing of fresh evidence on the costs application would entitle the Tribunal to make findings inconsistent with its reasons dismissing an appeal. That is not this case and there is no reason to speculate on what - in those circumstances - might be the position. 40 Counsel for Ms Zouk sought to uphold the decision of Malpass AsJ on the ground that the Tribunal's finding that the appeal was lacking in substance was indeed inconsistent with the Tribunal's findings contained in its judgment dismissing the appeal. 41 I do not think that other decisions construing the phrase "lacking in substance" (or similar phrases) in other statutes (or generally) are of assistance in determining its meaning. The words must be construed in the context of the Act, not other legislation. 42 The wording of s 192(a) and (b) is the same as that of s 185(4)(a) and (b). The use of the phrase "lacking in substance" in s 185 (concerning applications) is significant and bears on the meaning of the same phrase in s 192. 43 Section 185 is closely connected to s 186 and cannot properly be understood without reference to that section. Section 186(1) provides that before making an order (except an order for a stay of proceedings), the Tribunal must investigate the application for the order. By s 186(2), in any such investigation the Tribunal is not bound by the rules of evidence, may inform itself on any matter in such manner as it thinks fit, and must act according to equity, good conscience and the substantial merits of the case without regard to technicalities or legal forms. By s 186(3), the Tribunal need not hold a hearing in order to decide an application unless there is an appearance by a person entitled or required to appear before it. By s 186(4), a hearing need not be formal. 44 Section 185 provides that, having conducted an investigation under s 186, the Tribunal may on various grounds dismiss an application. Amongst those grounds are the grounds set out in s 185(4)(a) and (b) which - as I have noted - are essentially in the same words as s 192(a) and (b). 45 The powers of the Tribunal to dismiss an application by way of an informal investigation are far-reaching. It is in this context that the phrase "lacking in substance" must be understood. It would be inappropriate, given the extraordinary powers triggered by a finding that an application is lacking in substance, to attribute to the phrase a meaning other than "not reasonably arguable". That is, a meaning not dissimilar to "frivolous, vexatious, misconceived", the words which precede the phrase. 46 I now turn to the question whether Ms Zouk's appeal was lacking in substance in that sense. 47 The Tribunal, in its costs judgment, accepted that Ms Zouk's arguments that Dr Hasham's proposal should be preferred to that of Boynton and Partners did not lack substance. The Tribunal, however, focused on Ms Zouk's failure "to present evidence which covered the costings and methodology of the alternative repair". It said: "This information would have been essential to arrive at a decision that the method of repair by the applicant was unreasonable in the circumstance. The failure to present any such evidence in my view is sufficient to show that the appeal was lacking in substance. Therefore the respondent is entitled to an order for costs." 48 Counsel for Ms Zouk submitted that this reasoning was impermissibly inconsistent with the Tribunal's reasoning in its judgment dismissing the appeal. He drew attention to the fact that the Tribunal had given six reasons for dismissing the appeal and the absence of "costings" was the last of these six. He submitted that, when five of the six points raised by Ms Zouk were reasonably arguable, the last point considered by the Tribunal should not be regarded as determinative of costs. In my opinion, there is force in this submission. 49 There are two other matters that are relevant to this issue. 50 Firstly, in its judgment dismissing the appeal, the Tribunal said that the absence of costings made it "difficult" (but not impossible) to compare Dr Hasham's proposal to those relied upon by the Corporation. In other words, the matter was arguable. 51 Secondly, I have drawn attention to the fact that there were two issues that the Tribunal had to resolve. The first was whether the Corporation should be prevented from implementing the Boyden and Partners' proposal. The second was whether the Council should implement Dr Hasham's proposal. The costings evidence had no bearing on the first issue, and this was an important question in the appeal. 52 In all the circumstances, I am of the opinion that, on the reasoning of the Tribunal as contained in its judgment dismissing the appeal, it was not open to the Tribunal to find that it dismissed the appeal on the ground that it was lacking in substance. Its finding to this effect in the costs judgment was inconsistent with its reasoning in the substantive judgment dismissing the appeal. 53 Accordingly, I would dismiss the appeal with costs.

12/12/2007 - errors in subparagraph numbers in paras [5[, [6], [15], [17] and [32] corrected - Paragraph(s) [5], [6], [15], [17], [32]

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Strata Schemes Management Act 1996(NSW)

Crimes (Local Courts Appeal and Review) Act 2001(NSW)

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Cited By (43)