The Owners of Strata Plan 75633 v Axiom Property Consulting Pty Limited

Judgment 1HIS HONOUR: Nature of proceedings The claim before the Court is by an owners corporation against its former compulsory strata manager (Axiom) for: (i) Damages suffered in consequence of Axiom's wrongful retention of the owners corporation's books and records and/or its failure to properly maintain those books and records during its tenure as strata manager; and (ii) Return of moneys held by Axiom on trust for the owners corporation. 2The owners corporation asserts a right to damages for detinue and/or conversion in relation to Axiom's failure to return the books and records when properly requested to do so. It seeks damages for Axiom's failure to properly maintain those books and records during its tenure as a compulsory strata manager. It submits that this constituted a breach of its strata management agency agreement with the owners corporation and a breach of its common law duty to the owners corporation. The owners corporation also seeks an order that Axiom be compelled to render a proper account and return the balance of the administrative and sinking funds which it continues to hold on trust for the owners corporation. 3When the matter came before the Court, there was no appearance on behalf of Axiom. This was not altogether surprising since the Australian Securities and Investment Commission (ASIC) has commenced deregistration action against it. The deregistration proceedings by ASIC have been deferred to allow this claim to proceed. 4It is clear from a letter from Axiom to the solicitors for the plaintiff, dated 17 October 2011, that Axiom was well aware of this hearing date but has decided not to appear or be represented at the hearing. In the circumstances, I determined that the dictates of justice required that the matter proceed. It did so on an ex parte basis. Factual background 5The following sections of the Strata Schemes Management Act 1996 (hereafter referred to as "the Act") are relevant and for convenience are set out as follows: "8(1) On the registration of a strata plan for a strata scheme, there is established an owners corporation for the strata scheme in accordance with Part 2. (2) An owners corporation for a strata scheme has the principal responsibility for the management of the scheme." "9 The owners corporation may be assisted in the carrying out of its management functions under this Act by any one or more of the following: (a) the executive committee of the owners corporation established in accordance with Part 3, (b) a strata managing agent appointed in accordance with Part 4, (c) a caretaker appointed in accordance with Part 4A." "28(1) An owners corporation may, by the instrument appointing a strata managing agent or some other instrument, delegate to the strata managing agent: (a) all of its functions, or (b) any one or more of its functions specified in the instrument, or (c) all of its functions except those specified in the instrument, but only if authorised to do so by a resolution at a general meeting and subject to subsection (3). (2) An owners corporation may, if authorised to do so by a resolution at a general meeting, revoke a delegation under this section. (3) An owners corporation cannot delegate to a strata managing agent its power to make: (a) a delegation under this section, or (b) a decision on a matter that is required to be decided by the owners corporation, or (c) a determination relating to the levying or payment of contributions. (4) A function delegated under this section may, while the delegation remains unrevoked, be exercised from time to time in accordance with the delegation. (5) A delegation under this section may be made subject to such conditions or such limitations as to the exercise of all or any of the functions, or as to time or circumstances, as may be specified in the instrument of delegation. (6) Despite any delegation made under this section, the owners corporation may continue to exercise all or any of the functions delegated. (7) Any act or thing done or suffered by a strata managing agent while acting in the exercise of a delegation under this section: (a) has the same effect as if it had been done or suffered by the owners corporation, and (b) is taken to have been done or suffered by the owners corporation." "100(1) It is the duty of an owners corporation to keep records and documents in accordance with this Division. (2) The information required to be kept may be recorded or stored by mechanical, electronic or other means." "103 An owners corporation must keep the accounting records prescribed by the regulations." 104 An owners corporation must cause the following to be retained for 5 years or such other period as may be prescribed by the regulations: (a) the records, notices, orders, minutes of meetings and accounting records required to be kept under this Division, (b) its financial statements, (c) copies of correspondence received and sent by the owners corporation, (d) notices of meetings of the owners corporation and its executive committee, (e) proxies delivered to the owners corporation, (f) voting papers relating to motions for resolutions by the owners corporation and to the election of office holders and the executive committee, (g) records served on the owners corporation by the strata managing agent relating to the exercise of functions by the agent, (h) such other documents as may be prescribed by the regulations." "105(1) If the executive committee of an owners corporation gives a notice to a person who has possession or control of property (including records) of the owners corporation requiring the person to deliver the property to the executive committee, the person must, within 7 days after receiving the notice, deliver that property to a member of the executive committee specified in the notice. (2) If the executive committee of an owners corporation gives a notice to a person who has possession or control of property (including records) of the owners corporation advising of the decision of the owners corporation to terminate the person's appointment as strata managing agent, the person must, within 7 days after receiving the notice, deliver that property to a member of the executive committee specified in the notice. (3) This section does not take away or affect any just claim or lien which a strata managing agent may have against or on any records or other property of an owners corporation. (4) This section does not affect the operation of the Property Stock and Business Agents Act 2002." 162(1) An Adjudicator may by order appoint a person as a strata managing agent: (a) to exercise all the functions of an owners corporation, or (b) to exercise specified functions of an owners corporation, or (c) to exercise all the functions other than specified functions of an owners corporation. (2) An Adjudicator may also order, when appointing a strata managing agent under this section, that the strata managing agent is to have and may exercise: (a) all the functions of the chairperson, secretary, treasurer or executive committee of the owners corporation, or (b) specified functions of the chairperson, secretary, treasurer or executive committee of the owners corporation, or (c) all the functions of the chairperson, secretary, treasurer or executive committee of the owners corporation other than specified functions. (3) An Adjudicator may make an order under this section, without an application having been made for the order, but only if satisfied that the management structure of a strata scheme the subject of an application under this Chapter is not functioning or is not functioning satisfactorily. (3A) An Adjudicator may make an order under this section, on application, but only if satisfied that: (a) the management structure of a strata scheme the subject of an application under this Chapter is not functioning or is not functioning satisfactorily, or (b) an owners corporation has failed to comply with a requirement imposed on the owners corporation by an order made under this Act, or (c) an owners corporation has failed to perform one or more of its duties, or (d) an owners corporation owes a judgment debt. (4) A person appointed as a strata managing agent under this section must: (a) hold a strata managing agent's licence issued under the Property Stock and Business Agents Act 2002 (b) have given consent in writing to the appointment, which consent, in the case of a strata managing agent that is a corporation, may be given by the chief executive officer of the corporation. (5) A strata managing agent may be appointed under this section on such terms and conditions (including terms and conditions relating to remuneration by the owners corporation and the duration of appointment) as may be specified in the order making the appointment. (6) An order made in the circumstances referred to in subsection (3) may be revoked or varied by an Adjudicator on the application of a person entitled to make an application for an order under this section and, unless sooner revoked, ceases to have effect at the expiration of such period after its making (not exceeding 12 months) as is specified in the order. (7) An application for an order under this section may be made only by: (a) a person who obtained an order under this Act that imposed a duty on the owners corporation or on its executive committee, chairperson, secretary or treasurer and that has not been complied with, or (b) a person having an estate or interest in a lot in the strata scheme concerned or, in the case of a leasehold strata scheme, in a lease of a lot in the scheme, or (c) the authority having the benefit of a positive covenant that imposes a duty on the owners corporation, or (d) a judgment creditor to whom the owners corporation owes a judgment debt." 6The property which is the subject of strata plan 75633 is a unit block at 88-98 Marsden Street, Parramatta which contains 105 units (hereafter referred to as "the property"). Buzrio Pty Limited was the developer of the property and commenced selling units in about 2003. The initial sales were "off the plan". The property was converted into strata title on 27 December 2005. On 10 January 2006 the owners corporation appointed True Strata as the strata manager. On 14 February 2007 True Strata gave notice that it would no longer be practising as a strata manager and tendered its resignation. 7On 23 February 2007 Mr Chan, who was the owner of some units in the property and was the secretary of the owners corporation, purported to accept the resignation of True Strata and to appoint Axiom as a strata manager. Ms Jenner Chan (apparently no relation to Mr Chan) was a director of Axiom and the licensee in charge of its strata management activities. 8On 23 March 2007 Mr Chan lodged an application with the Consumer Trader and Tenancy Tribunal (CTTT) for the appointment of a compulsory strata manager of the property. On 23 May 2007 the CTTT made orders appointing Axiom as the compulsory strata manager of the property for a period of twelve months (the first Tribunal decision.) That order was subsequently amended at the request of Axiom so that the period of compulsory strata management was increased from 12 months to 2 years. 9Upon being appointed compulsory strata manager, Axiom entered into a strata management agency agreement dated 19 March 2007 with the owners corporation which contained the following provisions: 2.1 The owners corporation delegates to the Agent the following functions: (a) All of the functions of the Chairman, Secretary and Treasurer; and (b) All other functions necessary to enable the Agreed Services Basic/Comprehensive Management and the Additional Services to be supplied. (c) The power to affix the common seal to s109 certificates and other documents as directed by the owners corporation. 3.1 The owners corporation requests and the Agent must supply the Agreed Services Basic/Comprehensive Management specified in the schedule of services with the frequency specified in that schedule. 7.3 Following the expiration of the Initial Term, either party may terminate this Agreement by giving to the other not less than three months written notice of their intention to terminate the Agreement. 10Under the schedule attached to the agreement the "Management Basis" was classified as "Comprehensive". The schedule then set out the services to be carried out by an agent under the "Basic and Comprehensive Management" classification. 11On 12 June 2007 Buzrio Pty Limited and the other lot owners were advised for the first time that Axiom had been appointed compulsory strata manager of the property. This advice came from Axiom. On 29 June 2007 Axiom sent each of the lot owners a copy of the orders made by the Tribunal on 23 May 2007. 12Thereafter disputes arose between Buzrio, which still owned units in the property, and Axiom in relation to unpaid levies. On 23 January 2009 Axiom obtained judgment against Buzrio for unpaid levies. 13On or shortly after its appointment, Axiom by virtue of the CTTT order came into possession of the books and records of the Owners Corporation in accordance with its statutory requirements under the Act (the books and records). Whether or not all of the necessary books and records had been maintained up to that time is not known. 14On 28 November 2008 Buzrio commenced Supreme Court proceedings against Axiom, the CTTT, Mr Chan and the owners corporation seeking to have the compulsory management order declared invalid or quashed. In those proceedings Axiom retained lawyers to represent itself and separate lawyers to represent the owners corporation. Mr Chan was not represented and the CTTT entered a submitting appearance. 15On 14 May and 15 June 2009 while the first judicial review proceedings were on foot, the CTTT made two further orders under s162 of the Act on the application of Mr Chan. These orders extended the appointment of Axiom as compulsory strata manager of the owners corporation. A further strata management agency agreement was entered into between Axiom and the owners corporation on 19 March 2009. 16By judgment dated 21 August 2009 ( Buzrio Pty Limited v CTTT & Ors [2009] NSWSC 836) Rothman J made the following orders: (i) A declaration that the original compulsory management order made by the Tribunal on 23 May 2007 (as extended) was vitiated by a denial of procedural fairness. (ii) Quashed the further orders made by the Tribunal on 14 May 2009 and 15 June 2009. 17On 25 August 2009 the CTTT made an interim order under s162 of the Act re-appointing Axiom as the compulsory strata manager. This order was made on the application of Mr Chan. When making this application to the CTTT, Mr Chan was somewhat selective about the information which he provided, although he did advise the CTTT of the orders of the Supreme Court made 21 August 2009. A further strata management agency agreement dated 24 August 2009 was apparently entered between Axiom and the owners corporation. That agreement was in similar terms to those made on 19 March 2007 and 19 March 2009. 18Buzrio then made another application to this Court seeking that the further interim order by the CTTT of 25 August 2009 be quashed. Those proceedings were heard by Davies J on 7 September 2009 and his Honour handed down his decision on 9 September 2009 ( Buzrio Pty Limited v Consumer Trader and Tenancy Tribunal & Ors [2009] NSWSC 937). His Honour quashed the interim order of the CTTT of 25 August 2009. 19The effect of the orders of Rothman J in the first judicial review proceedings and by Davies J in the second judicial review proceedings was to bring Axiom's appointment to an end: (a) At law on 23 May 2009; (b) In fact on 9 September 2009. 20An Extraordinary General Meeting (EGM) of the owners took place on 11 September 2009 and an Executive Committee was elected. On 25 September 2009 the owners corporation appointed Sydney Strata Pty Limited (Sydney Strata) as the new strata managing agent of the owners corporation. 21On 23 September 2009 the owners corporation served a notice upon Axiom under s105 of the Act requiring it to deliver up all of the books and records that it had maintained in its capacity as the former strata manager of the strata plan. Axiom failed to comply with the s105 notice. 22On 16 September 2009 Mr Chan made an application to the CTTT for the invalidation of the EGM convened on 11 September 2009. The application was for an interim and permanent order. On 18 September 2009 the CTTT refused Mr Chan's application for an interim order. 23As a result of Axiom's failure to comply with the s105 notice, the owners corporation sought an order and an urgent interim order from the CTTT for the production of the books and records. On 22 October 2009 the CTTT made such an order on an interim basis requiring the return by Axiom of the books and records within seven days. Axiom failed to comply with that order. 24On 28 October 2009 Axiom applied to the CTTT to have its order of 22 October revoked. The Tribunal refused Axiom's application for revocation on 5 November 2009. 25On 2 November 2009 the owners corporation wrote to Axiom advising that if it continued in its failure to provide the books and records, the owners corporation would lodge an application for enforcement of the order of the CTTT. Axiom did not reply to that correspondence. 26On 12 November 2009 Axiom again sought to have the Tribunal's order for the return of the books and records revoked and in the meantime sought a stay of that order. The Tribunal refused Axiom's application for a stay on 17 November 2009. On 13 January 2010 the Tribunal refused Axiom's application for revocation and made final orders requiring Axiom to return the books and records to the owners corporation. 27On 21 January 2010 Axiom returned some of the books and records to Sydney Strata. On the same date Sydney Strata wrote to Axiom pointing out that certain documents were missing and demanding that it return them. This demand was repeated on 9 February 2010. Axiom failed to respond to or comply with either of those demands. As a result, those documents had to be reconstructed by Sydney Strata for the owners corporation. 28In correspondence Ms Jenner Chan on behalf of Axiom asserted that it had returned all of the missing documents which it held on 21 January 2010 and in the case of others, had never maintained them. Axiom continues to hold at least $62,645.26 in its trust account comprising the balance of the owners corporation administration and sinking funds. Submissions and decision 29The owners corporation seek damages for the wrongful retention of the books and records by Axiom. The damages came under three separate headings: (i) Legal costs in respect of the applications to the CTTT to recover the plaintiff's books and records before the commencement of these proceedings. (ii) Sydney Strata's expenses incurred in consequence of Axiom's unlawful retention of the plaintiff's books and records. (iii) The costs of Sydney Strata reconstructing the missing books and records - $5,610. 30The owners corporation submitted that Axiom's failure to return any of the books and records between 23 September 2009 and 21 January 2010 was conduct comprising the tort of detinue. The owners corporation claimed a right to possession of the books and records and that Axiom wrongfully and unequivocally refused to comply with the demands for their return ( Brambles Australia Ltd v Tatale Pty Ltd [2004] NSWCA 232). 31In relation to the first requirement for a claim in detinue, the owners corporation relied upon the two decisions of the Supreme Court. In relation to the second requirement, the owners corporation relied upon the demands which it made on 23 September, 2 November and 20 November 2009. None of those demands were responded to until 21 January 2010. 32The owners corporation submitted that although some of the books and records were returned on 21 January 2010, it still suffered consequential loss by reason of their wrongful retention by Axiom during the preceding period ( Gaba Formwork Contractors v Turner Corporation (1993) 32 NSWLR 175, 177 - 9). 33The owners corporation submitted that the Court should award exemplary damages in relation to the conduct of Axiom. This claim was based on what the owners corporation characterised as Axiom's overbearing disregard of the owners corporation's rights which caused hardship. The owners corporation relied upon Egan v State Transport Authority (1982) 31 SASR 482, 532. 34The owners corporation relied upon the same facts to establish its claim in conversion. 35The owners corporation submitted that Axiom was liable for its failure to maintain some of the books and records. It submitted that as compulsory strata manager of the owners corporation, Axiom was required to create, keep and maintain such documents as the owners corporation was obliged to maintain under Divisions 1, 2 and 3 of Part 5 of Chapter 3 of the Act. Its failure to do so, it submitted, constituted a breach of contract and breach of duty in respect of which the owners corporation had suffered loss. 36The owners corporation based that claim on the specific requirements of the Act to: (a) Maintain a strata roll, (b) Maintain minutes of meetings and accounting records comprising receipts, a passbook, deposit book or statement of deposits and withdrawals, a cash record and a levy register (sections 101, 102 and 103 of the Act). (c) Maintain financial statements (section 106 of the Act). 37The owners corporation relied upon the provisions of the Strata Agency Management Agreements which Axiom entered into with the owners corporation. In particular, the owners corporation relied upon the obligation under those agreements for Axiom to provide the "Agreed Services Basic/Comprehensive" as specified in the schedule of Services attached to those agreements. Those services included the maintenance of books and records and in particular, financial records. 38The owners corporation submitted that it was an implied term of the agency agreements that Axiom would exercise reasonable care, skill and diligence in ensuring that the books and records were maintained and kept updated. That term was implied either by operation of law ( Astley v Aust Trust Limited (1999) 170 CLR 1, [46] - [ 47] (Gleeson CJ, McHugh Gummow and Hayne JJ) or in order to "give business efficacy to the contract" ( BP Refinery (Western Port) v Shire of Hastings (1977) 180 CLR 266, 283). By virtue of its position as compulsory agent, the owners corporation submitted that Axiom also owed this duty concurrently in tort ( Astley v Aust Trust Ltd at [46] - [47]). 39The owners corporation submitted that for the reasons set forth above, Axiom failed to discharge its duty and in so doing failed to provide a standard of care ordinarily provided by a strata manager to an owners corporation. The owners corporation has incurred loss in consequence of that breach comprising the expense it incurred in having to reconstruct documents that ought to have been maintained and by Sydney Strata being required to incur additional expense which would have been avoided had such documents been available. 40So far as the owners corporation has been able to ascertain from bank statements which it has seen, Axiom is currently holding $62,645.26 being the balance of the administrative and sinking funds held on trust for it. The owners corporation required that these monies be repaid forthwith. It submitted that no basis in law had been established as to why those monies should not be repaid forthwith to it. Because of the unsatisfactory state of the financial records, the owners corporation did not know whether it was entitled to other monies received by Axiom on its behalf, and consequently sought an order for account. 41I am of the opinion that the owners corporation is entitled to legal costs incurred by it in respect of applications to the CTTT to recover its books and records before the commencement of these proceedings. Although a precise figure was set out in the schedule of damages provided to the Court, counsel for the owners corporation advised that these costs were being assessed. Since the owners corporation is not able to claim those costs otherwise, I consider that they should be entitled to claim in these proceedings such costs when assessed. 42I accept the submissions of the owners corporation that it should be entitled to reimbursement by way of damages from Axiom for the additional costs incurred by Sydney Strata in performing work which was only rendered necessary by the failure of Axiom to produce the books and records in a timely manner and by its failure to maintain the books and records. The manner in which that figure has been calculated is set out in a spreadsheet attached to the affidavit of Stephen Webb, dated 12 February 2010. The work therein set out appears reasonable. Allowing for GST, the cost of that work is $17,449.58 and the owners corporation is entitled to it. 43The costs incurred by Sydney Strata in reconstructing the books and records is a clear consequence of the actions of Axiom and the owners corporation is entitled to that amount by way of damages, i.e. $5,610. 44The owners corporation's entitlement to those damages exists because it has made out its claim in detinue and conversion against Axiom. It has also, in my opinion, successfully made out its claim for damages based on breach of contract and negligence. 45The owners corporation's claim for exemplary damages is not allowed. Although there is a strong argument available that the conduct of Axiom has been knowingly wanton, insolent and highhanded so as to attract an award of exemplary damages, this was not a claim included in either the Statement of Claim or the Amended Statement Claim. Rule 6.12 (5) of the Uniform Civil Procedure Rules 2005 provides: "(5) Exemplary damages and aggravated compensatory damages must be specifically claimed." 46I can see no reason why, as a result of the orders of Rothman J and Davies J, that the amount of $62,645.26 should not be paid forthwith to the owners corporation plus interest calculated pursuant to s100 of the Civil Procedure Act 2005, such interest to be calculated from 24 May 2009. 47Axiom advised the owners corporation that the only money which it holds on its behalf is the amount of $62,645.26. I can well understand the scepticism of the owners corporation with respect to that information. This is particularly so when it is unclear how that figure was calculated. Moreover, it is not clear how Axiom has disbursed some of the funds of the body corporate in the past. For example, the use by Axiom of owners corporation funds to pay legal fees associated with the various applications to the CTTT and the proceedings before this Court may well be problematic. 48In any event, it is clear that throughout Axiom's tenure as compulsory strata manager, its relationship with the owners corporation was one of agency. In its capacity as agent of the owners corporation, Axiom ought be required to render accounts to the Court and the owners corporation as to how monies received by it on behalf of the owners corporation have been disbursed ( Asset Risk Management v Hyndes (1999) NSWCA 201, [8].) Conclusion 49I make the following orders and declarations: (1) A declaration that Axiom by its conduct has unlawfully detained the books and records since 24 May 2009. (2) A declaration that during the period of Axiom's appointment as compulsory strata manager of the owners corporation, up to and including 21 January 2010, Axiom has held the administrative and sinking funds as a constructive trustee of the owners corporation. (3) I order that Axiom pay to the owners corporation the following damages for its wrongful detention and failure to properly maintain the books and records: (i) Legal costs, not otherwise recovered, incurred by the owners corporation in respect of applications in the CTTT to recover its books and records before the commencement of these proceedings as agreed or assessed. (ii) Costs incurred by Sydney Strata of $17,449.58. (iii) Costs incurred by Sydney Strata in reconstructing the books and records $5,610. (4) I order that Axiom pay to the owners corporation the amount of $62,645.26 plus interest calculated pursuant to s100 of the Civil Procedure Act 2005 from 24 May 2009. (5) I order that account be taken of all monies received and expenses incurred by Axiom on behalf of the owners corporation in respect of Strata Plan 75633. (6) I order that Axiom pay to the owners corporation such monies as may be found to be owing to the owners corporation after the taking of the account. (7) I order that Axiom pay the costs of the owners corporation of these proceedings as agreed or assessed.