The Owners - Strata Plan No. 50276 v Thoo - [2015] NSWCATCD 23 - NSWCATCD 2014 case summary

NCAT Consumer and Commercial|2014-12-17

Appeal

This is an appeal against orders made by an Adjudicator on 17 September 2014 in SCS 14/27314 and SCS 14/32759.
In SCS 14/27314, the current respondent, Mr and Mrs Mullins, sought an order invalidating Special by-law 2. This by-law, which was registered on 28 July 2010, reflects a special resolution under s 62(3) of the SSMA that it is inappropriate that the Owners Corporation maintain common property windows in external walls of all lots within the strata plan. The by-law makes lot owners responsible for the maintenance, renewal, repair and replacement of these windows. The by-law stipulates that all replacement windows are to be constructed from "marine-grade, white, powder-coated aluminium, to match the existing windows in Lot 3".
In SCS 14/32759, the appellant, the Owners Corporation, sought an order requiring Mr and Mrs Mullins to comply with Special By-law 2, on the basis that the windows in their lot, lot 1, have fallen into a state of disrepair and need to be replaced.

Proceedings in the Tribunal

The appeal was filed on 13 October 2014. The appellant requested an order staying the Adjudicator's orders.
On 23 October 2014, the application for a stay was granted in chambers. The appeal was listed for directions on 7 November 2014, with the appellant to notify any application to extend the stay order seven days prior to the directions hearing. The appellant was directed to file and serve an indexed and paginated bundle of documents by 31 October 2014. The bundle was to include any evidence to be relied on and an outline of submissions in support of the appeal.
When the matter came before the Tribunal for directions on 7 November 2014, the appellant was represented by Ms Crittenden. The Tribunal noted that the appellant had not complied with the earlier direction to notify any application to extend the stay and the stay was accordingly lifted.
The appellant had also not complied with the order to file and serve evidence and submissions. The appellant was directed to do so by 21 November 2014. The respondent was directed to file and serve their evidence and submissions by 12 December 2014.
The appellant did not file and serve any evidence or submissions in accordance with that direction. It also failed to comply with another direction made on 7 November 2014; that is, to file and serve evidence to establish that it had sought legal representation in accordance with the SSMA.
However, in consequence of the lifting of the stay, Ms Crittenden wrote to the Divisional Registrar seeking a certified copy of the adjudicator's orders, so that the appellant could comply with them by registering pursuant to s 209 of the SSMA.
The respondent complied with the Tribunal's directions by filing a brief submission on 12 December 2014.
When the matter came before the Tribunal for hearing on 17 December 2014, Ms Crittenden again appeared for the appellant. She was accompanied by a member of the appellant's executive committee. An application for leave was granted, on the basis that the executive committee member was not in a position to advocate for the appellant.
Ms Crittenden made oral submissions in support of the appeal. As these submissions had not been filed and served as directed, the respondent could not meaningfully respond to them. The Tribunal made directions allowing the parties to file and serve written submissions. The appellant was to file and serve its submissions by 24 December 2014. The respondents were to file and serve any submissions and evidence in response to the appellant's submissions by 30 January 2015. The appellant was to file and serve any submissions in reply by 6 February 2015. A direction was also made in the following terms: Any material not filed in compliance with the above directions may not be relied on without leave of the Tribunal.
The Tribunal's decision on the appeal was reserved.

Evidence and submissions

In making a decision in relation to the appeal, I have considered the written submissions and other documents filed by the applicant on 30 December 2014. Although it was not filed as ordered, that is, by 24 December 2014, I am satisfied that there was no prejudice to the respondent occasioned by the delay. It is also possible that an attempt was made to file the submissions after the Registry closed on Christmas Eve.
I have also considered the submission and attached documents filed by the respondent on 12 December 2014 and 29 January 2015.
No submission in reply was filed by 6 February 2014. On 13 February 2015, which was after these reasons for decision were prepared but before they were published, the appellant's solicitor filed a submission in reply. No explanation was provided for the late filing of the submission and the Tribunal's leave to do so was not sought in accordance with the specific direction made on 17 December 2014. In these circumstances, the submission in reply has not been considered.
In addition to the written submissions, I have also considered the oral submissions made on 17 December 2014.

Jurisdiction

The Tribunal has jurisdiction to hear and determine the appeal pursuant to s 177 of the SSMA. The appeal was filed within the 21 day period specified in s 177(3)(b)(i). An appeal from orders of an adjudicator is an external appeal pursuant to s 79(1) of the NCAT Act.

Issues

An appeal from an Adjudicator's decision is by way of a hearing de novo. Error on the part of the adjudicator does not need to be demonstrated and the Tribunal is required to exercise its own jurisdiction in relation to the appeal. (See Owners SP 56911 v Stricke (Strata and Community Schemes) [2012] NSWCTTT 392 (3 October 2012))
Accordingly, the issues to be determined in the appeal are:

Did the Owners Corporation have the power to pass a special resolution under s 62(3) of the SSMA in relation to the external common property windows?
Did the Owners Corporation have the power to make Special By-law 2?
If not, should an order invalidating the by-law be made under s 159 of the SSMA?
If so, should the respondent be ordered to replace the external common property windows of lot 1?

Determination of the issues

I have considered each of the issues in turn.

Did the Owners Corporation have the power to pass a special resolution under s 62(3) of the SSMA in relation to the external common property windows?

S 62(1) of the SSMA places on the Owners Corporation the responsibility of properly maintaining the common property and keeping it in a state of good and serviceable repair. S 62(2) of the SSMA requires the Owners Corporation to renew or replace any fixtures or fittings comprised in the common property.
However, these obligations are subject to s 62(3) of the SSMA, which relevantly provides: (3) This clause does not apply to a particular item of property if the owners corporation determines by special resolution that: (a) it is inappropriate to maintain, renew, replace or repair the property, and (b) its decision will not affect the safety of any building, structure or common property in the strata scheme or detract from the appearance of any property in the strata scheme.
In this case, the Owners Corporation determined by special resolution that it was inappropriate to maintain, renew, replace or repair the common property external windows. They made this resolution in the form of Special by-law 2.
In The Owners - Strata Plan No. 50276 v Thoo [2013] NSWCA 270 [Thoo], the respondent argued that a special resolution was invalid because the Owners Corporation was not entitled to resolve that its decision would not affect the safety of the building as it did not form that opinion and had no proper basis for it. Tobias AJA rejected that submission and held [at paragraph 85]: Furthermore, in my view no proper contextual basis existed for requiring as a precondition to the Owners Corporation making its determination by the passing of a special resolution for the purposes of s 62(3)(a) and (b) that it should specifically form an opinion as to the matters referred to therein and, in particular, as to the reasons for determining that it was inappropriate to renew or replace the MEVS. In any event, the terms of the resolution itself were sufficient for that purpose once it was formally put to the vote and passed.
In this case, the resolution that it was inappropriate to maintain and repair the common property windows that is set out in paragraph 2 of Special By-law 2 was in the terms required by s 62(3). Taking into account the decision in Thoo, I am satisfied that the Owners Corporation's decision not to maintain and repair the windows was validly made under s 62(3) of the SSMA.

Did the Owners Corporation have the power to make Special By-law 2?

Although the Owners Corporation's decision not to maintain and repair and external common property windows was validly made under 62(3), it does not follow that the Owners Corporation had the power to make the remaining part of Special By-law 2. In relation to this, the remainder of Special by-law 2 goes beyond the Owners Corporation's s 63(2) resolution. It purports to pass on the obligation to maintain and repair common property to the lot owners.
Under the SSMA, the obligation to maintain and repair common property can be transferred to lot owners. Specifically, it may happen when an Owners Corporation makes a by-law which gives to a lot owner either a right of exclusive use and enjoyment of all or part of the common property, or special privileges in respect of the whole or part of the common property. If such a by-law is made, then it may impose on the relevant lot owner or owners the responsibility for the maintenance and upkeep of the common property concerned. Such a by-law may be made by special resolution under s 52 of the SSMA, but only with but only with the written consent of the owner or owners of the lot or lots concerned.
However, there is nothing in s 62 or elsewhere in the SSMA that permits a Owners Corporation to impose on a lot owner the obligation to maintain and repair common property that has been the subject of a resolution under s 62(3). The Court of Appeal's decision in Thoo is no authority for such a proposition. The fact that an Owners Corporation has determined that it is inappropriate to maintain and repair common property does not mean that it can impose that obligation on lot owners without giving relevant lot owners exclusive use of or special privileges over the common property concerned.
In this case, the external windows remain part of the common property. That is explicit in the wording of Special by-law 2. There is no evidence that the Owners Corporation has resolved to give the lot owners exclusive use of or special privileges over the common property windows through a by-law made under s 52 of the SSMA, with the written consent of the owners concerned. While for practical purposes the lots owners have "exclusive use" of the windows, in that they are the only people who are going to use the windows, they do not have "exclusive use" or "special privileges" in the sense contemplated by the SSMA, unless this has been determined by special resolution.
I have considered whether Special by-law 2 is impliedly an exclusive use or special privileges by-law of a kind contemplated by s 52 of the SSMA. However, in the absence of evidence of written consent by the lot owners as required by s 52(1)(a), I am not satisfied that a finding to this effect should be made.
I accordingly agree with the adjudicator, insofar as he found that Special by-law 2, to the extent that it places an obligation on lot owners to repair and maintain the common property, is in direct conflict with the obligations imposed on the Owners Corporation under s 62(1). The fact that a special resolution has been made under s 62(3) does not alter this fact. I am not satisfied that the Owners Corporation had the power to transfer the obligation of maintenance and repair of common property windows to lot owners unless it had also specially resolved to grant to the lot owners exclusive use of or special privileges over the windows in a by-law made in accordance with ss 52 and 54 of the SSMA.

Should an order invalidating the by-law be made under s 159 of the SSMA?

S 159 of the SSMA does not require that a by-law that an Owners Corporation had no power to make be declared invalid. I have considered whether to exercise the discretion to make such an order.

Factors against invalidating the Special by-law 2

There are a number of factors weighing against invalidating the by-law. These factors emerge from the appellant's written submission:
Firstly, the by-law sets out the Owners Corporation's valid s 62(3) resolution. However, the resolution is capable of operating independently of the by-law. This is not a strong factor against invalidating the by-law.
Secondly, all lot owners other than the respondents have installed windows the Owners Corporation considers to be compliant with the requirements of Special By-law 2. This is a reasonably strong factor against exercising the discretion to invalidate the by-law.
Thirdly, the ownership of a number of lots has changed since the lot owners concerned replaced their windows, which could make the adjudicator's proposal that the lot owners are reimbursed for the cost of the windows inappropriate and potentially unfair. However, I note that the adjudicator did not order that this occur. In these circumstances, the Owners Corporation has no obligation to reimburse window replacement costs. The adjudicator's comments in this regard are not a strong factor against the exercise of the discretion.

Factors in favour of invalidating the Special by-law 2

There are a number of factors in favour of exercising the discretion to invalidate Special By-law 2. These factors emerge from the respondent's submission and the affidavit of Mr Patrick Mullins filed on 12 December 2014, as well as from my findings in relation to the application of relevant provisions of the SSMA:
Firstly, I consider that is inappropriate for a by-law to remain in place, the substance of which (that is, that lot owners are responsible for the maintenance of common property over which they have not been given a right of exclusive use or a special privilege), is in conflict with the obligations concerning common property placed on the Owners Corporation by s 62(1) and 62(2) of the Act.
Secondly, the Owners Corporation is able to remedy the situation by making an exclusive use by-law in relation to the windows. If the respondent were to refuse to consent to such a by-law, that could give rise to an application under s 158 of the SSMA. Refusal by the respondent appears unlikely, given that the respondent's main problem with the existing by-law does not appear to be the requirement that they pay for window replacement.
Thirdly, making such a by-law would give the Owners Corporation an opportunity to clarify the material to be used in any replacement windows. At present, Special by-law 2 requires replacement windows to be constructed from "marine-grade, white, powder-coated aluminium, to match the existing windows in Lot 3". However, in his affidavit dated 11 December 2014, Mr Mullins claims that it is not possible for windows to be made in powder coated marine grade aluminium. In his affidavit, Mr Mullins sets out the basis for making such statement, namely his expertise in the building industry and in particular his expertise in windows.
In relation to the latter issue, the appellant has provided as an attachment to its submission, two documents to support an assertion that marine grade aluminium windows exist. The first is an email to Mr Mullins from its strata manager (the date of which is illegible) stating "It has been noted that Stegbar windows can supply and install the windows that the building currently has". This is not persuasive evidence to confirm that Mr Mullins is incorrect.
The second document is in the report dated 7 July 2014 from D Mitsopoulos & Associates Pty Ltd, which claims that there are products "identified" as marine grade. Two products are referred to. However, information concerning the product referred to as Dulux-Duratec X15 does not state that it is "marine grade aluminium". The product in an advertisement form Windowline does not contain specifications referring to "marine grade aluminium". Rather, it appears to be marketing term used by the installer to describe a particular job. This is also not persuasive evidence that Mr Mullins is incorrect.
Fourthly, the appellant could satisfactorily establish that the respondent's windows in fact require replacement. The report evidence relied on in this regard - that of D Mitsopoulos & Associates Pty Ltd - is not based on an inspection of the windows from within the lot and the respondent denies that the photographs attached to the report are of the windows of Lot 1. The evidence relied on by the appellant that the windows of the respondent's lot currently require replacement is therefore questionable.
Overall, I conclude that the discretionary factors weighing in favour of invalidating Special By-law 2 outweigh the factors against making such an order.

Conclusion

Although the appellant had the power to make a resolution under s 62(3), I have found that the Owners Corporation had no power to make Special By-law 2 because it transfers the responsibility of maintaining common property to lot owners without giving the lot owners exclusive use of or special privileges over the common property concerned. I conclude that the discretionary factors in in favour of making an order invalidating Special By-law 2 outweigh the discretionary factors against such an order. Invalidating the by-law does not invalidate the Owners Corporation's s 62(3) resolution. That resolution can stand alone. This means that I agree with the orders made by the adjudicator in SCS 14/27314 and SCS 14/32759. The above orders are made accordingly.

Civil and Administrative Tribunal of New South Wales

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: 06 May 2015

The Owners - Strata Plan No. 50276 v Thoo

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