The Owners Strata Plan No 57164 v Yau

Background to the Previous Proceedings

1. By 2010 issues had arisen between the Owners Corporation and the Yaus concerning a grease arrestor and a kitchen exhaust system located on the common property. The Yaus, who wanted to operate a restaurant in their lot, wanted access to the grease arrestor and the kitchen exhaust system and were also asserting that the Owners Corporation was under a duty to maintain such equipment (see s 62 of the Act).
2. At an extraordinary general meeting of the Owners Corporation held on 16 December 2010 special resolutions were passed in the following terms: SPECIALLY RESOLVED pursuant to Section 62(3) of the Strata Schemes Management Act 1996, that it is inappropriate to maintain, renew, replace or repair that part of the common property comprising any grease arrestor or ancillary equipment that is located in any part of the common property. SPECIALLY RESOLVED pursuant to Section 62(3) of the Strata Schemes Management Act 1996 that it is inappropriate to maintain, renew, replace or repair that part of the common property comprising any kitchen exhaust system that is located in any part of the common property.

The Previous Proceedings - June 2011 to 12 August 2013

1. On 3 June 2011 the Yaus commenced proceedings in this Court against the Owners Corporation. The relief sought in the Statement of Claim included declarations that the special resolutions referred to above constituted a fraud on the minority and were void; orders requiring the Owners Corporation to maintain and repair the grease arrestor and kitchen exhaust system in accordance with s 62 of the Act; injunctions requiring the Owners Corporation to cause the Yau's lot to be connected to the grease arrestor and the kitchen exhaust system; and equitable compensation.
2. It appears that the Owners Corporation retained Peter Murphy and Associates, solicitors, in relation to the proceedings, although the defence that was filed on 24 August 2011 was filed by Curwoods Lawyers for the Owners Corporation. In any event, it is clear that Peter Murphy and Associates subsequently became the solicitors with the conduct of the proceedings for the Owners Corporation.
3. The minutes of various meetings of the Executive Committee of the Owners Corporation ("the EC") indicate that the Yau proceedings were regularly discussed at meetings of the EC.
4. By June 2012 Mr Philip Clay SC and Ms Anne Hemmings had been retained as counsel for the Owners Corporation in the proceedings. On 17 October 2012 they provided a joint advice on prospects.
5. On 16 November 2012 the Yaus filed an Amended Statement of Claim. The amended pleading included, amongst other things, a claim for damages for breach by the Owners Corporation of its duties under s 62 of the Act. On 12 December 2012 a Defence to the Amended Statement of Claim was filed on behalf of the Owners Corporation by Peter Murphy and Associates.
6. An Annual General Meeting of the Owners Corporation was held on 18 March 2013. The minutes of the meeting show that a resolution to the following effect was passed: That all Budget line items, estimates and Levy contributions to the Administrative and Sinking Funds per 2012-13 be determined as the Budget for 2013-14 The budget thereby adopted for 2013-14 identified no items of expenditure specifically related to the Yau proceedings, save for the sinking fund item "Maint Bldg - Legal" of $70,000. This item concerned the Owners Corporation's own costs of the proceedings. No items of expenditure were included in the budget for the payment of any damages or costs to the Yaus.
7. The minutes of the Annual General Meeting also indicate that it was resolved that no matter or type of matter was decided to be one to be determined only by the Owners Corporation in general meeting (cf s 21(2)(b) of the Act). Further, it was resolved not to remove the limitation imposed by s 80A(1) of the Act upon expenditure by the EC on certain items.
8. Finally, it appears from the minutes that the Yau proceedings were not discussed at the Annual General Meeting.
9. The proceedings were, however, discussed at a meeting of the EC held on 27 May 2013. The minutes of that meeting record the following: Lot 330 Statement of Claim: Supreme Court of NSW 2011/183457 - Yau & Yau vs The Owners Strata Plan 57164, noted and discussed at length. … Peter Murphy & Associates are to continue to attend the matter in the interest of the Owners Corporation. Legal counsel (Mr Philip Clay SC) has been engaged. … An offer of Mediation has been made by the Applicants and this has been accepted by the Owners Corporation. Mediation will take place on 14 June 2013 with Mr M Rolfe QC mediating. A Burns, S Thomas & S Jain were delegated as attendees to attend the Mediation on 14 June 2013. J McDonald is to attend. A Burns is to be the point of contact with Peter Murphy & Associates for the Owners Corporation. J McDonald is to be the alternate point of contact in the absence of A Burns. Only the point of contacts may provide instruction, communicate or seek advice from Peter Murphy & Associates or counsel. RESOLVED that an Extraordinary General Meeting be convened on a date to be determined and at the discretion of the Secretary and the Strata Manager for the purpose of determining the matter further arising from mediation including an appropriate settlement offer to the Owners if, on the advice of counsel is that, in all the circumstances, that it is reasonable to consider any offer made.
10. On 7 June 2013 Mr Clay and Ms Hemmings provided a joint advice for the purposes of the mediation. It was noted (in paragraph 111) that any agreement reached at the mediation would have to be subject to a resolution of a general meeting of the Owners Corporation.
11. The mediation did not result in any settlement. On 15 July 2013 the Yaus served an Offer of Compromise which was expressed to be open for acceptance until 26 July 2013. The proceedings had, by this time, been set down for hearing to commence on 12 August 2013. It appears that it was estimated that the hearing may take five days.
12. The EC met on 30 July 2013. The minutes record that the mediation did not achieve a settlement, and that the Yaus had made an Offer of Compromise. The minutes noted the hearing date of 12 August 2013, and reiterated that: A Burns is to be the point of contact with Peter Murphy & Associates for the Owners Corporation. J McDonald is to be the alternate point of contact in the absence of A Burns. Only the point of contacts may provide instruction, communicate or seek advice from Peter Murphy & Associates or counsel.
13. The EC met again on 6 August 2013. The minutes record that an advice from Peter Murphy & Associates was tabled, reviewed and discussed at length. The advice evidently concerned the making of a settlement offer. The minutes record the following: The Offer of Settlement is to be put to Lot 330 detailing costs, works, terms of use and damages - the Offer of Settlement if accepted is to be presented to owners at an Extraordinary General Meeting for determination. The minutes once again included the statement concerning Mr Burns and Mr McDonald being the point of contact and alternate point of contact respectively with Peter Murphy and Associates or counsel.
14. On 7 August 2013 Peter Murphy and Associates sent a settlement offer to the solicitors for the Yaus, Accentro Legal. The offer provided, amongst other things, for the payment to the Yaus of damages of $260,000 and costs of $100,000. The offer, as conveyed, made no mention of any requirement for the offer, if accepted, to be submitted to an Extraordinary General Meeting for determination. However, later on 7 August 2013, Mr Murphy sent an email to Mr Wong of Accentro Legal which was in the following terms: I refer to the Letter of Offer of Settlement emailed to you earlier today. It goes without saying, that should your clients accept that offer (or any other offer), it is a necessary formality for it to be referred to the Owners Corporation in General Meeting for a final decision. Having said that we are hopeful that a settlement, satisfactory to the Parties can be reached as soon as possible.
15. Shortly thereafter Mr Wong responded to Mr Murphy's email. This response (which I infer attached Mr Murphy's email) was copied to Mr Darren Jenkins of counsel, who had been retained to appear for the Yaus in the proceedings.
16. Later on 7 August 2013 Accentro Legal sent a detailed response to the settlement offer. The offer was not accepted. Numerous queries were raised about various aspects of the offer. For example, the reasonableness of the period for completion of certain works was questioned. On the next morning Mr Murphy sought advice from Mr McDonald concerning the earliest time that an Extraordinary General Meeting could be held to ratify any settlement agreement. Mr McDonald informed Mr Murphy that realistically about three weeks would be required from an in principle settlement.
17. During the evening of 8 August 2013 Mr Jenkins submitted a settlement offer to Mr Clay.
18. On the morning of 9 August 2013 Mr Murphy sent an email to Mr McDonald in which he stated that he had heard the previous evening that the Yaus had rejected the Owners Corporation's offer and that they wanted $285,000 in damages and their costs paid on an agreed or assessed basis. Mr Murphy stated that he and counsel were still seeking to negotiate a settlement.
19. In the afternoon of 9 August 2013 Mr Clay sent an email to Mr Murphy. Mr Clay recommended that, subject to certain amendments, the settlement offer made by the Yaus be accepted. Later on 9 August 2013 Mr Murphy forwarded Mr Clay's email (which attached the settlement offer) to Mr Burns and Mr McDonald. Mr Murphy noted that counsel recommended that the offer "be accepted by Executive Committee on behalf of Owners".
20. At about 5pm on 9 August 2013 Mr Wong sent an email to Mr Murphy attaching an amended settlement offer said to be made pursuant to the principles in Calderbank v Calderbank [1975] 3 AII ER 333. The offer was stated to be open for acceptance until 9:30am on 12 August 2013. Mr Murphy promptly forwarded the offer to Mr Burns and Mr McDonald. It is apparent that the amended offer incorporated some of the changes recommended by Mr Clay. Two further paragraphs had also been added, including one that referred to s 73 of the Civil Procedure Act 2005 (NSW). The offer took the form of Court orders that would be made by consent and in full and final resolution of the proceedings.
21. Mr Burns deposed that after receiving the offer he had a conversation with Mr Murphy and Mr Clay in which words to the following effect were said: Mr Clay: My advice is that you should accept the [Yaus'] offer. In the worst case, damages could be in the order of $800,000. Mr Burns: The offer requires the EC to accept on behalf of the Owners Corporation. The EC do not want to make a decision for the Owners. We have already resolved that any settlement offer must go to the general meeting for ratification. Mr Clay: The role of the EC is [to] act on the owners' behalf. Mr Burns: Even if the EC was to make a decision there is a procedural issue. The Strata Act requires we give 72 hours' notice of an EC meeting to all owners. Mr Clay: Those issues should not prevent the EC conferring and making a decision.
22. The settlement offer was the subject of discussion amongst members of the EC on the evening of 9 August 2013. These discussions are referred to in an email sent by Mr Burns to other members of the EC on 10 August 2013. The email included the following: Counsel's advice is that we should accept the offer. Counsel indicated damages could be in the order of $800,000 in the worst case. This offer also requires the executive committee accept on behalf of the owners corporation. In other words, it would not go before a general meeting for ratification. There is a procedural issue in that we are required to give owners 72 hours' notice of an executive committee meeting per Schedule 3, Part 2, Section 6 of the Strata Schemes Management Act 1996 (NSW). Counsel indicated this issue should not prevent us conferring and making a decision. The email then went on to record that at least six of the nine EC members were not in favour of accepting the offer.

The Previous Proceedings - 12 to 14 August 2013

1. The hearing of the proceedings commenced on 12 August 2013 before Bergin CJ in Eq. During the course of the day Mr Clay came to the view that the hearing was not going well for the Owners Corporation. He gave certain advice to Mr Murphy and Mr Burns at the conclusion of the days' proceedings. The advice was confirmed in an email sent by Mr Clay to Mr Murphy in the early evening. The email includes the following: I have given advice already that the Owners' Corporation should have settled the matter generally in accordance with the last offer from the Yaus (that was an offer which was amended following suggestions by me). That advice was not accepted by the Owners Corporation. My advice is reinforced by the comments made by her Honour today. In fact I encourage the executive committee to reconsider their position. A settlement will avoid the significant risk a damages order in the region of $500,000 more than the proposed settlement. In addition to the extra costs incurred for the rest of the week. You have advised me already that the EC has not changed its position. That is regrettable. All I can do is advise. It is a matter for the Owners' Corporation as represented by the Executive Committee whether or not they accept that advice, and the consequences thereof. I suggest you circulate this to all members of the Executive. Mr Murphy forwarded Mr Clay's email to Mr Burns and Mr McDonald shortly thereafter. Mr Murphy requested that the email be forwarded to all EC members. Mr Burns did so at about 7:30pm that night. It is apparent from emails passing amongst members of the EC that at least some members of the committee opposed settling the proceedings, at least without referring the matter to a meeting of the Owners Corporation.
2. On 13 August 2013 at the conclusion of the second day of the hearing, Mr Jenkins had a conversation with Mr Clay to the following effect: Mr Clay: Would you client be prepared to accept an offer on the basis that it was to be voted on in a general meeting of the Owners Corporation? Mr Jenkins: I will take some instructions and I will email you later on with a reply. Shortly prior to 5pm on that day Mr Jenkins sent an email to Mr Clay which was in the following terms: I've taken instructions from Mr & Mrs Yau and they are not prepared to settle the proceedings on a conditional basis.
3. At 5:25pm on 13 August 2013 Mr Burns sent an email to the other members of the EC and to Mr Clay and Mr Murphy. The email is in the following terms: Philip Clay has asked to meet with the Executive Committee tonight. Can you please advise if you are available at 6:30pm either via phone or to meet in the meeting room at 289 Sussex St.
4. At 6pm on 13 August 2013 Mr Clay sent an email to the members of the EC and to Mr Murphy. The email included the following: In my opinion, the OC will lose this case. Comprehensively. After tomorrow there will be an extra $50k of costs (including the other side) if the matter runs, with the likelihood that the damages will significantly exceed the present offer (assuming the offer is still available). It has been said to me that a number of the members of the OC are not prepared to make a decision on behalf of the OC. There is no alternative but for the EC to make a decision. It has the power of the OC. It is said that some owners will not be happy. Those owners may or may not be happy, but they are not likely to be fully informed about the litigation. … It is difficult for the members of an EC and it is a significant responsibility. The EC accepts the advice of its engineering and other experts without criticism from owners. Is legal advice any different? Should the members of an EC be criticised in such circumstances? Unfortunately, when litigation is underway, a body usually needs to make decisions through its representatives, in this case an executive committee. I accept entirely that it is not easy. But nevertheless it is the obligation of an EC to make a decision.
5. Between about 7pm and 9:30pm on 13 August 2013 a meeting took place involving most but not all of the members of the EC. Mr Clay, Ms Hemmings and Mr Murphy also attended. Five members of the EC were present in person. Two others were present via a conference telephone, one of whom later attended the meeting in person. Two of the nine members did not attend at all.
6. The minutes of the meeting, which appear to have been based upon a record made by Mr Murphy and which incorporate some amendments suggested by Mr Clay, include the following: Mr Clay SC outlined the reasons for his opinion that the matter should be resolved and that it would be unreasonable for the Executive Committee to commit the Owners Corporation to additional costs and significant risk by continuing to defend the proceedings. Mr Clay SC strongly recommended that the Executive Committee accept his recommendation, as the Committee was the representative of the Owners Corporation and instruct him to settle on best terms possible, generally in accordance with the Yaus' latest offer - although that offer itself had now expired (Tabled). Mr Clay SC also indicated that if the matter settled he would provide a memorandum confirming his advice and attend the subsequent EGM if requested to do so. Mr Clay SC advised that, after short consideration, it was his view that if there was any procedural irregularity in the calling of the Executive Committee meeting, then it was not such that it would invalidate the decision of the Executive Committee. The minutes go on to record that six of the seven members of the EC present at the meeting voted in favour of "the settlement offer" based on the advice of Senior Counsel.
7. At the conclusion of the meeting, Mr Burns spoke to Mr Clay and told him that: The EC has voted to accept your advice. Please settle the matter on the best terms possible in accordance with the Yaus' latest offer.
8. At 9:31pm on 13 August 2013 Mr Clay sent an email to Mr Jenkins which was in the following terms: I have just left a meeting of the OC. I have instructions to put an offer in terms of your last offer. There is a slight question about the EC not giving 72 hours notice of the meeting but I do not think that would invalidate the decision? Do you agree? Please let me have your clients' agreement ASAP.
9. Mr Jenkins then had a telephone conversation with Mrs Yau. It appears that in the course of that conversation he read to Mrs Yau the terms of Mr Clay's email. The conversation ended with Mrs Yau saying that she wanted to think about the matter and would speak further with Mr Jenkins about it in the morning.
10. At 9:50pm on 13 August 2013 Mr Jenkins sent an email to Mr Clay which was in the following terms: I have communicated the content of your email to my clients this evening. They will revert to me in the morning and I will let you know the response as soon as I do. In respect of authority to settle, I am proceeding on the basis that any offer communicated by you to me is cloaked in counsel's ostensible authority to settle the proceedings. Unless and until you tell me that you do not have authority to settle the matter, I will continue to proceed on that basis.
11. Prior to the commencement of the hearing on 14 August 2013 Mr Jenkins and Mr Clay had a conversation in which Mr Jenkins said words to the following effect: My clients are willing to settle the matter on similar terms of their previous offer with some alterations. I will leave that with you. Mr Jenkins then provided Mr Clay with a revised version of the settlement offer that had previously been the subject of discussion. Amongst the changes made was the inclusion of a new paragraph that provided for the payment of liquidated damages in the event that the Owners Corporation did not complete certain works by 15 October 2013.
12. At about 10am on 14 August 2013 the proceedings resumed before Bergin CJ in Eq. Mr Jenkins informed the Court that he was ready to proceed. Mr Clay sought an opportunity to obtain some instructions, and requested that the matter stand down. Mr Jenkins was content with that course and her Honour then adjourned the Court. Mr Jenkins observed that Mr Clay then left the courtroom and spoke to Mr Burns.
13. Mr Jenkins deposed that a short time later Mr Clay returned and a conversation took place to the following effect: Mr Clay: My client is prepared to settle the matter on those terms with just some working out of the orders. I have some nervous members of the executive committee who don't really want to make a decision because of what others might say, but I think it will be alright. Mr Jenkins: Well, I will leave that as a matter for you.
14. Mr Jenkins further deposed that he and Mr Clay then had a discussion about the settlement offer, during which various handwritten alterations were made to the document by Mr Jenkins. At the conclusion of that process, arrangements were made for Bergin CJ in Eq to return to the Bench.
15. Upon the resumption of the matter, the amended document, now styled "Short Minutes of Order", was handed up to Bergin CJ in Eq. Her Honour queried the necessity for paragraph 15 (which noted the Court's power under section 73 of the Civil Procedure Act), and counsel indicated that the paragraph was not necessary. Bergin CJ in Eq then struck through the paragraph, renumbered the following paragraph, and said: By consent I note the matters in paragraphs 1, 13, and 14 of the short minutes of order initialled by me and dated today. I make the orders in paragraphs 2 to 12 inclusive and 15 of those short minutes of order. That finalises the matter. I congratulate the parties and the legal representatives assisting the parties on settling their differences. I now adjourn.
16. The Short Minutes of Order relevantly provide as follows: By consent and in full and final resolution of the proceedings, the Court: 1. Notes that the Defendant undertakes to the Plaintiffs to pass special resolutions at a General Meeting of the Owners Corporation revoking Special Resolutions 4 & 5 (as passed at the general meeting of the Owners Corporation on 16 December 2010) pursuant to cl 23, Schedule 2 of the Strata Scheme Management Act 1996. 2. Orders that the Defendant maintain, renew, repair or replace the common property kitchen exhaust system pursuant to s 62(1) and/or section 62(2) of the Strata Scheme Management Act 1996. 3. Orders that the Defendant maintain, renew, repair or replace the common property grease waste system pursuant to s 62(1) and/or section 62(2) of the Strata Scheme Management Act 1996. 4. Orders that, generally in accordance with the report of Collin Derome of GWA Consultants dated September 2012, and in compliance with all applicable Building Codes and Standards, the Defendant, whether by itself or its agents, is to as soon as reasonably practicable and no later than 15 October 2013 [carry out certain kitchen exhaust system works]… 5. Orders that, generally in accordance with the report of David Page of Harris Page & Associates dated 16 September 2012 and in compliance with all applicable Building Codes and Standards, the Defendant, whether by itself or its agents, is to as soon as reasonably practicable and no later than 15 October 2013 [carry out certain grease waste system works]… 6. Orders that the Defendant do all things reasonably necessary to allow Lot 330 to be connected to the grease waste system and kitchen exhaust system. 7. Orders that the plaintiffs do all things reasonably necessary required for the Defendant to comply with its obligations to maintain, renew, replace or repair the common property grease waste system or kitchen exhaust system (referred to in [2] & [3] above) and in respect of the kitchen exhaust system works and the grease waste system works. 8. Orders that the Defendant pay damages to the Plaintiffs in the amount of $285 000 within 28 days. 9. Orders that the Defendant pay damages to the Plaintiffs in the amount of $600 per day for each and every day the Defendant fails to complete the works in either paragraphs 4-(d) or 5-(h) by 15 October 2013… 10. Orders pursuant to section 229 of the Strata Schemes Management Act 1996 that the damages payable by the Defendant to the Plaintiffs be paid from contributions levied on all lots of the strata scheme other than Lot 330 in proportion to each lot's unit entitlement. 11. Orders that the Defendant pay the Plaintiffs' costs of the proceedings on the ordinary basis as agreed or assessed, within 28 days of agreement or assessment. 12. Orders pursuant to section 229 of the Strata Schemes Management Act 1996 that the costs payable by the Defendant to the Plaintiffs be paid from contributions levied on all lots of the strata scheme other than Lot 330 in proportion to each lot's unit entitlement. 13. Notes the Defendant agrees that the Plaintiffs shall not be liable for, or subject to a levy for, any contribution to the Owners Corporation in payment of, or recompense for, the costs of the proceedings incurred by the Defendant. 14. Notes the parties agree that in carrying out the works described in orders 4(a)-(d) & 5(a)-(h) above, the Defendant is acting in accordance with its obligations to maintain, renew, repair or replace the common property as per Orders 2 and 3 above. 15. Orders that these orders be sent to all lot owners in the strata scheme.
17. Later on 14 August 2013 Mr Clay sent a copy of the orders made by the Court to, amongst others, the members of the EC.
18. During the afternoon of 14 August 2013 Mr Burns commenced taking steps to organise the undertaking of the works that were required to be undertaken pursuant to the orders of the Court.
19. Also on the afternoon of 14 August 2013 Mr McDonald sent an email to lot owners attaching the minutes of the EC meetings held on 30 July 2013 and 6 August 2013. The email drew attention to a note added to the minutes of the 6 August 2013 meeting to the effect that the proceedings had been settled at Court on 14 August 2013 on the advice of counsel, and that full details of the settlement would be provided to lot owners in due course.
20. A memorandum prepared by Mr Clay on 14 August 2013 provides further detail as to the events of the evening of 13 August 2013 and the morning of 14 August 2013. The memorandum contains the following: By the end of the second days hearing therefore I presented the EC with two alternatives: (a) Settle the matter and cap the OC's liability to damages at $285,000 and accept the making of the orders in relation to the grease arrestor system and the kitchen exhaust system, which orders in my view were overwhelmingly likely to be made. There is also the inevitable liability for the costs of the proceedings. Or (b) Continue the proceedings, incurring a liability for an additional $50,000 or so in costs and potentially some $500,000 or more in additional damages. I recommended most strongly that the OC resolve the matter on the basis put forward at the meeting. In accepting the resolution in my opinion the OC accepted orders which were overwhelmingly likely to be made and appropriately compromised the damages claim. The amount of the damages reflects a compromise but has the very great advantage of limiting the potential exposure of the OC. In my view, it would have been unreasonable for the EC in exercising the power of the OC not to settle the matter generally on those terms. I was subsequently instructed by the EC on behalf of the OC to make an offer in terms of the last offer made by the Yaus. At that point, there was no offer from the Yaus to which a counter offer or an acceptance could be made. Late in the evening (at about 9:30pm), I conveyed to the Owners' [sic - the Yaus'] advocate the offer. A counteroffer was made just prior to 10am today. Further discussion with the advocate for the Yaus took place and ultimately the final position of the Yaus was established. It was in terms of the document I had circulated earlier today, and I recommended its acceptance. The difference from the document considered last night was the date for completion of the works being brought forward to 15 October 2013 and an amount of liquidated damages in the event that there is a failure by the OC so to do. In the course of this morning advice was taken from the three principal experts associated with grease arrestor system and the exhaust system. Each of them indicated the capacity for the work to be carried out by 15 October 2013. In the event I was instructed to accept the Yaus' counteroffer and the matter was subsequently resolved. Her Honour made the necessary orders and congratulated the parties on achieving the resolution.

After 14 August 2013

1. On 19 August 2013 notice of an EC meeting to be held on 26 August 2013 was sent to lot owners. The settlement of the proceedings was referred to in the notice as a matter to be considered at the meeting.
2. The minutes of the EC meeting held on 26 August 2013 indicate that the settlement of the proceedings was discussed at length. The minutes include the following: In the course of the Hearing, Mr Clay SC observed and recommended (and based on comments made by Her Honour Bergin CJ in Eq) that on 13 August 2013 the Owners Corporation should offer to settle the matter. The Executive Committee, in the best interests of the Owners Corporation, did then on the advice from counsel agree to settle the matter in that Mr Clay SC outlined the reasons for his opinion that the matter should be resolved and that it would be unreasonable for the Executive Committee to commit the Owners Corporation to additional costs and significant risk by continuing to defend the proceedings. A Memorandum of Advice from Mr Clay SC was tabled and noted. A copy of the Court Orders dated 14 August 2013 (Orders), as settled, were tabled for review; a copy of the Orders are to be sent to all owners (per point 15). … An Extraordinary General Meeting is to be convened as soon as practicable to attend to matters surrounding the settlement of the Orders, works required and the raising of appropriate funds. Advice is to be obtained from Makinson d'Apice Lawyers on the substantive matters in the Orders as well as matters surrounding implementation of works in the Orders, ongoing maintenance provisions as well as additions and alterations to the common property.
3. The minutes record that a resolution was passed in the following terms: RESOLVED that the Minutes of the previous Executive Committee Meeting held on 6 August 2013 be confirmed as a true and accurate record of the proceedings of that meeting and the notes and Minutes of a Meeting held on 13 August 2013 on the advice from Senior Counsel form part of the Minutes of this Meeting as Annexure A.
4. On 27 August 2013 Mr Burns sent an email to Mr Clay and Mr Murphy enquiring whether the recent decision of the Court of Appeal in Owners Strata Plan 50276 v Thoo [2013] NSWCA 270 may enable the Owners Corporation to vary the Court orders in relation to damages. That decision, which was given on 22 August 2013, had been brought to the attention of Mr Burns and Mr McDonald by a lot owner. On 30 August 2013 Mr Murphy sent an email to Mr McDonald in relation to the consequences of the decision. Mr Murphy stated that he was seeking the opinion of counsel on the position concerning the settlement of the proceedings. He noted that the Court of Appeal had now found that a breach of s 62 of the Strata Schemes Management Act by an owners corporation does not give rise to an action for damages for breach of statutory duty. Mr Murphy further stated that the effect of the decision was very worrying as the Yaus appeared to have obtained a windfall unjustly.
5. Later on 30 August 2013 Mr McDonald sent an email to Mr Murphy asking him to cease to act in the Yau matter and "set aside any further advice" in it. The email also included the following: The Executive Committee of the Owners Corporation has settled on the orders as they stand [and] is now attending to the practicalities as how the decision can be best managed going forward.
6. On 2 September 2013 Mr McDonald sent an email to lot owners attaching the minutes of the EC meeting of 26 August 2013, the advice of Mr Clay, and a copy of the orders made by the Court.
7. It appears that on 30 August 2013 Mr McDonald obtained some advice from Ms Hoskinson-Green of Makinson d'Apice Solicitors in relation to the settlement of the proceedings. Ms Hoskinson-Green had evidently been speaking to Mr Terrence Lynch of Senior Counsel in relation to the matter. She conveyed that Mr Lynch did not see any basis to avoid the agreement evidenced by the Court orders. In response to a question from Mr McDonald concerning s 73 of the Civil Procedure Act, Ms Hoskinson-Green stated in effect that the section relates to disputes about the terms of a settlement and that there was no such dispute in this case. Ms Hoskinson-Green's advice was forwarded by Mr McDonald to Mr Burns. He in turn sent it to at least one other member of the EC.
8. On 17 September 2013 Makinson d'Apice Lawyers sent a cheque for $285,000 to Accentro Legal in payment of the damages required to be paid in accordance with order 8 made on 14 August 2014.
9. The settlement of the proceedings was further discussed at the EC meeting held on 26 September 2013. It appears that the payment of the damages was noted and that there was discussion concerning the progress of the works required to be undertaken in accordance with the orders of the Court.
10. On 27 September 2013 Makinson d'Apice Lawyers sent a letter to Accentro Legal. The letter concerned the subject of special resolutions to be passed at an Extraordinary General Meeting so as to empower the parties to comply with the orders of the Court. On 4 October 2013 Mr Lin of Accentro Lawyers sent an email in response to the letter. He generally took issue with what had been proposed.
11. Also on 4 October 2013 a lot owner, Ms Curnik, made an application to the Consumer, Trader and Tenancy Tribunal ("the CTTT") seeking an order under s 153 of the Strata Schemes Management Act to the effect that the EC meeting held on 13 August 2013 was invalid and that any resolutions made at that meeting were null and void. Ms Curnik's complaints included that the EC meeting had been called without notice, and that its resolution to instruct counsel to settle the proceedings had the effect of breaching limitations placed on the Owners Corporation budget at the Annual General Meeting held on 18 March 2013.
12. The works required to be undertaken by the Owners Corporation pursuant to the orders of the Court were substantially completed by late October 2013. From about that time, the Yaus commenced to undertake the works they were required to undertake in accordance with those orders. There is evidence that the Yaus spent in excess of $57,000 in the carrying out of those works. More than $23,000 of that amount had been spent by the end of 2013.
13. On 3 December 2013 the strata managing agent, under instruction of the EC, lodged a submission with the CTTT concerning Ms Curnik's application. The submission included the following: The applicant, like all owners in the Scheme, was aware that the OC had retained a firm of Solicitors to act in the matter (Peter Murphy & Associates) and that the OC had also retained Senior Counsel to act in the matter (Mr Philip Clay). The applicant, unlike other owners, had intimate knowledge of the matter concerning Lot 330 and was called as a witness in the proceedings and had indeed provided Affidavit evidence to the Court for the defendant… The applicant, like all other owners, would have been aware that as the matter was at Court then a settlement may have to have been made at very short notice. …. The Meeting of 13 August 2013 was not a meeting convened under the terms of Schedule 3 Part 2 s 6 of the Act ("s 6") that is accepted. The OC is of the view that it was a meeting that could have never have satisfied the provision of a Notice to all owners in accordance with s 6 being discussed as urgent and required determination to mitigate potential damages and loss to the OC. To wait one week to convene a meeting whilst a Hearing was on foot was not practicable in the circumstance. In effect the Executive Committee made a decision based on what could arguably have been seen as an emergency. In the view of Mr Clay, and the OC, the Executive Committee simply had no choice in the matter but to meet with its legal counsel at very short notice. The Minutes of that meeting clearly state that Mr Clay SC had advised that if there was any procedural irregularity in the calling together of the Executive Committee meeting then it was not such that it would invalidate the decision of the Executive Committee. … The Applicant was aware of the decision of the settlement of the matter when a Notice of Meeting dated 19 August 2013 was sent to the majority of owners on 19 August 2013 (including the Applicant) by email and by mail to all owners also. … At the Meeting of 26 August 2013, the Minutes of that Meeting clearly state at item 1 that the notes and Minutes of the Meeting of 13 August 2013 form part of the Minutes of 26 August 2013. In effect the decisions made on 13 August 2013 were ratified as part of the decisions made at the Meeting of 26 August 2013 as Annexure A in those Minutes.
14. On 23 December 2013 the strata managing agent sent a letter to Mr and Mrs Yau in which it was stated that the Yaus had connected their lot to the kitchen exhaust system and grease waste pipes without obtaining the consent of the Owners Corporation. The letter further stated that the failure to obtain the consent of the Owners Corporation constituted breaches of orders 4(e), 5(i) and 7 made by the Court on 14 August 2013. It was stated that it was important that the Owners Corporation not only protect the common property, but ensure that the orders made by the Court are carried out.
15. On 10 January 2014 the CTTT dismissed Ms Curnik's application.
16. On about 24 January 2014 notice was given to lot owners of an Extraordinary General Meeting to take place on 18 February 2014. The notice included reference to the obtaining of legal advice on various matters, including on "all available options to the Owners Corporation" in relation to the proceedings with the Yaus. The notice also referred to the raising of a special levy (for $821,151.00) to cover the works, damages and costs associated with the proceedings.
17. Resolutions for the obtaining of such legal advice, and the raising of the special levy, were passed at the Extraordinary General Meeting held on 18 February 2014.
18. In the meantime, Ms Curnik had lodged an appeal with the New South Wales Civil and Administrative Tribunal ("NCAT") in respect of her unsuccessful application to the CTTT.
19. On 3 June 2014 the Owners Corporation paid the Yaus $2,472.61 by way of interest on the damages sum of $285,000.
20. The Annual General Meeting of the Owners Corporation took place on 17 June 2014. The following resolution was passed: RESOLVED that the Owners Corporation disagrees with the decision of the Executive Committee made on 13 August 2013 to settle in the case of Yau & Yau vs The Owners SP 57164 and disagrees with the terms of the "Consent Orders" proposed by the Yaus and agreed to by the Executive Committee.
21. On 30 July 2014 the strata managing agent wrote to Mr and Mrs Yau. The letter advised that the Owners Corporation believed it had grounds to impugn the settlement of the proceedings, and that if a resolution could not be achieved by 29 August 2014, the Owners Corporation would commence proceedings to set aside the Consent Orders.
22. On 31 July 2014, a Deed of Settlement was entered into between Ms Curnik and the Owners Corporation, and Ms Curnik's appeal was resolved by NCAT making consent orders on 26 August 2014. Amongst those orders (made pursuant to s 181(3) of the Act) was an order that the resolution made by the EC on 13 August 2013 in respect of the settlement of the Supreme Court proceedings was of no force or effect.
23. These proceedings were commenced by the Owners Corporation on 17 December 2014.
24. In November 2015 the Yaus, utilising a garnishee process, obtained payment of their assessed costs of the previous proceedings in the sum of $262,372.21.

Determination

1. Before dealing with the particular arguments advanced on the question of authority, it is necessary to note certain matters which do not appear to be controversial. These are: 1. that Peter Murphy & Associates, Mr Clay and Ms Hemmings were each validly retained by the Owners Corporation to act or appear for it in the Yau proceeding; 2. that the task of providing instructions to the retained lawyers was in fact carried out by the EC of the Owners Corporation and not by the Owners Corporation in general meeting; 3. that the Owners Corporation in general meeting did not seek to place any restrictions or limitations upon the EC in respect of the instructions it may give to the lawyers, including in relation to any compromise of the proceedings; 4. that the Owners Corporation had the power to enter into a settlement agreement with the Yaus on the terms of the agreement that was made on 14 August 2013 (even if the EC did not have this power); and 5. that such agreement was made between Mr Clay for the Owners Corporation and Mr Jenkins for the Yaus.
2. The Owners Corporation, for whom Mr Kelly SC and Mr Kerr of counsel appeared, submitted that the EC did not have authority to instruct Mr Clay to enter into this settlement agreement on behalf of the Owners Corporation.
3. The first reason advanced in support of that submission is that the meeting of the EC held on the evening of 13 August 2013 (which was the source of the instruction to Mr Clay to settle the matter on the best terms possible in accordance with the Yaus' latest offer) was not convened in accordance with clause 6 of Schedule 3 to the Act. Clause 6 relevantly provides: (1) An executive committee of a large strata scheme must give notice of its intention to hold a meeting at least 72 hours before the time fixed for the meeting: (a) by giving written notice (which may be done by electronic means) to each owner and executive committee member, and (b) if the owners corporation is required by the by-laws to maintain a notice board, by displaying the notice on the notice board. … (3) The notice must specify when and where the meeting is to be held and contain a detailed agenda for the meeting. (4) A notice may be given to a person by electronic means only if the person has given the owners corporation an e-mail address for the service of notices under this Act and the notice is sent to that address.
4. Strata Plan 57164 is a "large strata scheme" within the meaning of the Act (see clause 5 of Part 2 of the Dictionary).
5. The EC did not give notice as required by clause 6. No notice was given to lot owners, other than to those who were members of the EC. The notice to the members of the EC was given by way of Mr Burns' email sent at 5:25pm on 25 August 2013. (It is not clear whether the email addresses had been given as addresses for service as contemplated by clause 6(4).)
6. The Owners Corporation contends that by reason of the failure to comply with the notice requirements the meeting of the EC was invalid, and the resolution or decision of the EC to instruct Mr Clay to settle the Yau proceeding was similarly invalid or of no force or effect.
7. The second reason advanced in support of the submission that the EC did not have authority to instruct Mr Clay to enter into the settlement agreement made on 14 August 2013 is that certain parts of the agreement either involved matters that were reserved for the Owners Corporation in general meeting, or involved expenditure which the EC was precluded by s 80A of the Act from spending.
8. The parts of the agreement said to involve matters reserved for the Owners Corporation in general meeting were: 1. paragraph 1 of the consent orders, which required the Owners Corporation to pass special resolutions revoking special resolutions that had been passed pursuant to s 62(3) of the Act; and 2. paragraphs 4 and 5 of the consent orders, which required the Owners Corporation to either repair common property contrary to the s 62(3) resolutions, or effect alterations to the common property which can only be done pursuant to a special resolution passed pursuant to s 65A(1) of the Act.
9. The parts of the agreement said to involve expenditure which the EC was precluded by s 80A of the Act from spending were paragraphs 8, 9 and 11 of the consent orders, which required the spending of money for which the Owners Corporation's annual budget did not allow.

Notice of the EC Meeting of 13 August 2013

1. I will deal first with the failure by the EC to comply with the notice requirements of clause 6 of Schedule 3 to the Act.
2. The Act does not in express terms specify the consequences of such a failure. In particular, it is not expressly stated whether an EC meeting convened contrary to the requirements of clause 6 is invalid, or that decisions made at such a meeting are invalid or of no force or effect. It is necessary to undertake a task of statutory construction in order to ascertain the consequences of the failure to adhere to the notice requirements.
3. In Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1988) 194 CLR 355 McHugh, Gummow, Kirby and Hayne JJ stated at [91]: An act done in breach of a condition regulating the exercise of a statutory power is not necessarily invalid and of no effect. Whether it is depends upon whether there can be discerned a legislative purpose to invalidate any act that fails to comply with the condition. The existence of the purpose is ascertained by reference to the language of the statute, its subject matter and objects, and the consequences for the parties of holding void every act done in breach of the condition. Unfortunately, a finding of purpose or no purpose in this context often reflects a contestable judgment. The cases show various factors that have proved decisive in various contexts, but they do no more than provide guidance in analogous circumstances. There is no decisive rule that can be applied; there is not even a ranking of relevant factors or categories to give guidance on the issue.
4. After referring to the distinction that had traditionally been drawn between directory and mandatory requirements, their Honours continued at [93]: A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid. This has been the preferred approach of courts in this country in recent years, particularly in New South Wales. In determining the question of purpose, regard must be had to "the language of the relevant provision and the scope and object of the whole statute".
5. Clause 6 of Schedule 3 employs the imperative "must" in relation to the notice requirements of clauses 6(1) and 6(3). "Must" is frequently used in the Act. As observed by Barrett JA in 2 Elizabeth Bay Road Pty Limited v The Owners - Strata Plan No 73943 [2014] NSWCA 409; (2014) 88 NSWLR 488, the Act frequently uses other words in relation to the performance of the functions of an owners corporation, such as "may", "must not" and "cannot" (at [17], [34] and [36]). Barrett JA (at [35]) identified three types of "must not" provisions, including a type where there is no explicit indication that disobedience constitutes either an offence or an actionable wrong. His Honour (at [37]) observed that the "cannot" provisions indicated a lack of power or ability to act.
6. 2 Elizabeth Bay Road Pty Limited v The Owners - Strata Plan No 73943 (supra) was concerned with s 80D of the Act which relevantly provides that an owners corporation or executive committee of an owners corporation must not initiate legal action for which any payment may be required unless a resolution is passed at a general meeting of the owners corporation approving of the taking of the action. Barrett JA (at [41]) identified the section as a "must not" provision that does not indicate consequences of a criminal kind or consequences in terms of actionable wrong. After considering the decision of the Court of Appeal in The Owners - Strata Plan 5709 v Andrews [2009] NSWCA 189, Barrett JA found at [51]-[52] as follows: 51 In my opinion, s 80D does not, in any circumstances or as against any class of defendant, deny or curtail the capacity of an owners corporation to commence legal proceedings or cause proceedings to be "invalid". The contrary analysis pays insufficient attention to the scheme of the legislation as a whole and the context in which s 80D appears. In particular, it does not recognise the co-existence of "must not" and "cannot" provisions in relation to functions and powers of an owners corporation, with the latter denying corporate capacity and the former, in general, regulating the exercise of power. Nor is there recognition that, as referred to in The Owners - Strata Plan 5709 v Andrews (above), the power of the owners corporation to initiate legal action of the s 80D description exists (and is exercisable by a strata managing agent) despite the absence of a resolution passed at a meeting of the corporation. 52 The true effect of s 80D, in my opinion, is that, in the absence of a relevant resolution passed at a meeting of the owners corporation, an executive committee is not authorised to initiate legal proceedings for the owners corporation but that the initiation of particular proceedings by the committee, although performed without authority, is an act that was, of its nature, within the powers of the corporation itself. Leeming JA (with whom Basten JA agreed, giving supplementary reasons) expressly agreed with those conclusions (at [105]).
7. Similar reasoning is in my view applicable to the "must" provisions of clause 6 of Schedule 3. This reasoning supports the conclusion that the provisions regulate the exercise of powers by the EC and that compliance with them is not a necessary condition for the existence of power on the part of the EC.
8. Moreover, I do not discern a legislative purpose to invalidate any act of the EC that is carried out without the EC complying with the notice provisions of clause 6 of Schedule 3. The Act does not employ language that says so. The notion of an invalid executive committee meeting is recognised in Schedule 3 (see, for example, clause 9(4)), and so too is the notion of a decision of an executive committee having no force or effect (see, for example, clause 11(2)). But these notions are not incorporated into clause 6.
9. Further, s 153 of the Act confers a power upon an adjudicator to make an order invalidating any resolution of persons present at a meeting of an owners corporation if the provisions of the Act have not been complied with in relation to the meeting. That provision suggests that such non-compliance does not itself result in invalid resolutions or decisions. A remedy is instead provided, which may be given in appropriate circumstances. (As noted earlier, s 153 was invoked in this case. An order was eventually obtained in relation to the decision of the EC to settle the Yau proceeding, but not until after the settlement agreement, as embodied in the orders of the Court, had been substantially performed.)
10. Finally, a failure to comply with the notice requirements of clause 6 of Schedule 3 may take any number of forms. Some failures may be significant, others may be trifling. It is difficult to see why the objects or purpose of the Act would be promoted by holding that every resolution or decision of an executive committee made at a meeting convened contrary to the notice requirements was invalid and of no effect.
11. For these reasons it is my opinion that the failure of the EC to comply with the requirements of clause 6 of Schedule 3 in relation to its meeting on 13 August 2013 did not render the meeting invalid, or cause the resolution or decision of the EC to instruct Mr Clay to settle the Yau proceeding to be invalid or of no effect. That challenge to the authority of the EC to so instruct Mr Clay fails.

Auhtority of the EC to give instructions to make this settlement agreement

1. I turn now to deal with the argument that the EC did not have authority to instruct Mr Clay to enter into the settlement agreement made on 14 August 2013 due to its subject matter.
2. As noted earlier, it did not appear to be controversial that the Owners Corporation had the power to enter into a settlement agreement with the Yaus on the terms of the agreement made on 14 August 2013. I would in any case proceed on that basis. An owners corporation may be sued, and an owners corporation possesses a power to do all things necessary for or incidental to its functions (see ss 50(1)(c) and 50(1)(e) of the Interpretation Act 1987 (NSW)). That power would include a power to compromise proceedings brought against an owners corporation.
3. The relief sought against the Owners Corporation by the Yaus included: 1. declarations that the two special resolutions passed on 16 December 2010 pursuant to s 62(3) of the Act in relation to the grease arrestor and the kitchen exhaust system were invalid and constituted a fraud on the minority; 2. orders that the Owners Corporation renew or replace the grease arrestor and kitchen exhaust system as necessary to ensure that they functioned for the purpose of the operation of the Yaus' lot as a restaurant; 3. orders to compel the Owners Corporation to connect the Yaus' lot to the grease arrestor and kitchen exhaust system; 4. orders that the Owners Corporation maintain and keep in good repair the grease arrestor and kitchen exhaust system to ensure they functioned for the purpose of the operation of the Yaus' lot as a restaurant; 5. damages or equitable compensation; and 6. costs. The subject matter of the settlement agreement made on 14 August 2013 (including those parts of the agreement embodied in paragraphs 1, 4, 5, 8, 9 and 11 of the consent orders) falls within the ambit of the proceedings the Owners Corporation was facing.
4. However, the relevant question is whether the subject matter of those parts of the agreement have the consequence that the EC did not have authority to instruct Mr Clay to enter into the agreement.
5. Section 21 of the Act provides: (1) A decision of an executive committee is taken to be the decision of the owners corporation, subject to subsection (4). (2) However, the following decisions may not be made by the executive committee: (a) a decision that is required by or under any Act to be made by the owners corporation by unanimous resolution or special resolution or in general meeting, (b) a decision on any matter or type of matter that the owners corporation has determined in general meeting is to be decided only by the owners corporation in general meeting. (3) An owners corporation may in general meeting continue to exercise all or any of the functions conferred on it by this Act or the by-laws even though an executive committee holds office. (4) Despite any other provision of this Act, in the event of a disagreement between the owners corporation and the executive committee, the decision of the owners corporation prevails.
6. As explained by Barrett JA in 2 Elizabeth Bay Road Pty Limited v The Owners - Strata Plan 73943 (supra) at [25] and [29]: 25. Taken together, the provisions of s 21 are to the effect that the owners corporation, acting directly through a meeting, may decide any matter relevant to its functions and that, except in relation to matters identified in s 21(2) as being within the exclusive province of a meeting of the owners corporation, the decision-making power of the corporation so acting co-exists with a corresponding decision-making power of the executive committee, a body by which the owners corporation "may be assisted". The section recognises the possibility that decisions of the two decision-making bodies may conflict. It deals with that possibility by providing that, if on a particular matter, there is "disagreement between" them, it is the decision made by the owners corporation in general meeting, as distinct from the executive committee, that is operative. … 29. The role of the executive committee is to "assist" the owners corporation in carrying out its management functions: s 9. Section 21(2) makes it clear, however, that certain kinds of decisions within the competence of an owners corporation may not be made by the executive committee: see [25] above. Recognition of the executive committee's "assisting" role and of its ability, as "assistant" of the owners corporation, to make decisions that the statute causes to be "taken as" decisions of the owners corporation justifies resort to principles of agency as regards the functions of the executive committee. The owners corporation, as a corporation, exercises functions in a direct way by determinations of its members in general meeting. The executive committee, as an unincorporated body of persons playing an "assisting" role, has statutory authority to make any decision that the owners corporation can make (subject the s 21(2) exceptions) and decisions so made are binding on the corporation.
7. It follows that except for decisions of the type that fall within s 21(2), and subject to any disagreement between the Owners Corporation in general meeting and the EC (as envisaged by s 21(4)), the EC possesses a decision-making power that corresponds to that of the Owners Corporation.
8. On 13 August 2013 the EC decided to accept Mr Clay's advice and instruct him to settle the Yau proceeding on the best terms possible, generally in accordance with the Yaus' latest offer, which had been made at about 5pm on 9 August 2013. In my opinion, the EC had the power to make that decision. The decision was not a decision that fell within s 21(2) of the Act. Neither was it conduct that involved the EC spending money contrary to s 80A of the Act.
9. In my view, the decision ought be characterised as a decision to authorise Mr Clay to settle the proceedings along certain lines. It is true that the offer made by the Yaus contained a term to the effect that the Owners Corporation undertook to pass resolutions to revoke the special resolutions (the validity of which were in issue) passed pursuant to s 62(3) of the Act on 16 December 2010. Any resolutions revoking those resolutions would themselves have to be special resolutions (see clause 23 of Schedule 2). Accordingly, a decision to revoke a s 62(3) special resolution is a decision required under the Act to be made by the owners corporation by special resolution in general meeting. Such a decision is one that falls within s 21(2)(a) of the Act.
10. However, the giving of an undertaking to pass a special resolution is not the same as the passing of such special resolution, which remains a matter for the owners in general meeting. A fortiori, a decision to authorise an agent to enter into an agreement which includes an undertaking to pass a special resolution is distinct from the passing of such special resolution. I therefore do not think that a decision to authorise an agent to enter into an agreement which includes an undertaking to pass a special resolution that would revoke a s 62(3) special resolution should be regarded as a decision that falls within s 21(2)(a) of the Act.
11. It is also true that the offer made by the Yaus contained terms that would require the Owners Corporation to carry out repairs to, or alterations to, parts of the common property of the strata scheme, namely, the grease arrestor and kitchen exhaust system. Those parts of the common property were the subject of the s 62(3) special resolutions the validity of which was in issue in the Yau proceedings. The Owners Corporation was thus not obliged by s 62 of the Act to keep in good repair those parts of the common property. The Owners Corporation contended that the effect of the s 62(3) special resolutions, whilst in force, was to preclude the Owners Corporation from carrying out any repair or maintenance work, such that revocation of the special resolutions would be necessary to enable such work to be carried out. Even if that is so, I do not think that a decision to authorise an agent to enter into an agreement which includes an obligation to carry out such work is a decision that falls within s 21(2)(a) of the Act. Again, the decision is distinct from a decision to revoke a s 62(3) special resolution, which is a decision required under the Act to be made by the owners corporation by special resolution in general meeting.
12. Insofar as alterations to the common property are concerned, s 65A(1) of the Act requires that any such work only be carried out if a special resolution authorising the work has first been passed by the Owners Corporation in general meeting. A decision under s 65A(1) of the Act to authorise alterations to common property is a decision that is required by the Act to be made by the owners corporation by special resolution in general meeting. It is thus a decision that falls within s 21(2)(a) of the Act. However, I do not think that a decision to authorise an agent to enter into an agreement which includes an obligation to carry out alterations to the common property should be regarded as a decision that falls within s 21(2)(a) of the Act. Such a decision is distinct from a decision under s 65A(1) of the Act to authorise alterations to the common property.
13. Section 80A of the Act provides: (1) If a specific amount has been determined as referred to in section 75 (5) for expenditure on any item or matter, the executive committee of the owners corporation concerned must not, in the period until the annual general meeting next occurring after the determination was made, spend on the item or matter an amount greater than that determined amount for expenditure on the item or matter plus 10 per cent. (2) The owners corporation of a large strata scheme may by resolution at a general meeting remove the limitation imposed by subsection (1) generally or in relation to any particular item or matter.
14. The offer made by the Yaus contained terms that would require the Owners Corporation to pay damages of $285,000, and costs. Specific amounts for expenditure on damages or costs had not been determined as referred to in s 75(5) of the Act at the Annual General Meeting of the Owners Corporation held on 18 March 2013. It follows in my view that s 80A(1) was not engaged in relation to expenditure on such items. In any event, it seems to me that the conduct of the EC in authorising Mr Clay to settle the proceedings on terms that included obligations on the part of the Owners Corporation to pay damages and costs does not amount to the spending of money by the EC. I therefore do not think that such conduct involved the EC spending money contrary to s 80A of the Act.
15. For these reasons I do not accept that, due to the subject matter of the settlement agreement, the EC did not have authority to instruct Mr Clay to enter into it. That challenge to the authority of the EC to so instruct Mr Clay also fails.
16. In my opinion the EC possessed the power and the authority to instruct Mr Clay to settle the Yau proceeding on the best terms possible, generally in accordance with the Yaus' latest offer. The EC, in so acting, was exercising the power of the Owners Corporation to compromise the proceedings that had been brought against it. The EC had been carrying out the task of providing instructions to the lawyers retained by the Owners Corporation, and the Owners Corporation in general meeting did not place any restrictions or limitations upon the EC in respect of the instructions it may give to the lawyers, including in relation to any compromise of the proceedings (see s 21(2)(b) of the Act). Neither the failure of the EC to comply with clause 6 of Schedule 3, nor the subject matter of the compromise in respect of which the EC provided instructions, removed or curtailed the power and authority of the EC to instruct Mr Clay to settle the proceedings.
17. It follows that I do not agree that the decision of the EC to instruct Mr Clay to settle the proceedings was invalid or of no effect at the time that decision was made. The consent order made by NCAT on 26 August 2014 is to the contrary, but in my view that order does not operate to retrospectively remove the power and authority the EC had to give its instruction to Mr Clay. Neither does the resolution passed at the Annual General Meeting on 17 June 2014 to the effect that the Owners Corporation disagreed with the decision of the EC to settle the proceedings (see s 21(4) of the Act).
18. The instruction of the EC was carried into effect by Mr Clay. It was not suggested that the agreement he made on 14 August 2013 with Mr Jenkins did not accord with the instructions given by the EC. In these circumstances, it seems to me that Mr Clay had express actual authority to make the settlement agreement on behalf of the Owners Corporation. Accordingly, the settlement agreement became binding upon the Owners Corporation.

Implied or Ostensible Authority of Mr Clay

1. It is thus not necessary to deal with the argument advanced by the Yaus that the validity of the settlement agreement can be supported on the basis that Mr Clay had an implied or an ostensible authority to make it. However, I will briefly state the following.
2. Mr Clay (as well as Ms Hemmings and Peter Murphy & Associates) had been retained by the Owners Corporation in the Yau proceeding, and would ordinarily possess an implied and an ostensible authority to bind the Owners Corporation to a compromise of the proceedings: Donellan v Watson (1990) 21 NSWLR 335 at 342 (Handley JA). There was no suggestion that the Owners Corporation had placed any limits or restrictions upon the authority of their lawyers to compromise the proceedings, or that the Yaus were on notice of any such limit or restriction.
3. Nevertheless, the Yaus were aware on 13 August 2013 and 14 August 2013 (including through the knowledge of their counsel, Mr Jenkins) that Mr Clay was acting on instructions from the EC or members of the EC in relation to the settlement of the proceedings. In those circumstances, and notwithstanding Mr Jenkins' statement to Mr Clay that he was proceeding on the basis that offers communicated by Mr Clay were "cloaked in counsel's ostensible authority", it is debatable whether the Yaus were in fact placing reliance upon an implied or ostensible authority held by Mr Clay by virtue of his retainer (cf Harvey v Phillips (supra) at 241, where the legal representatives of the defendant were aware that the legal representatives of the plaintiff were endeavouring to obtain instructions from the plaintiff to accept an offer that had been made). That is, it is questionable whether the Yaus entered into the settlement agreement in reliance upon any representation made by the Owners Corporation, in retaining Mr Clay, that he had an implied or ostensible authority to bind it to a compromise.
4. I note in this regard that Mrs Yau gave evidence in cross-examination to the effect that she understood the EC had authority to make decisions about the running of the case. She also gave evidence that Mr Burns made the decision and gave the instructions to Mr Clay on 14 August 2013 to settle the proceedings. It seems that Mrs Yau's understanding was at least partly based on the minutes of the EC meetings (which she would have received as a lot owner) that noted that Mr Burns was the point of contact with the solicitors, and he could provide instructions to them and to counsel.

Ratification of Settlement Agreement

1. In case my conclusion that Mr Clay had authority to make the settlement agreement on behalf of the Owners Corporation is wrong, I turn now to consider the question whether the Owners Corporation subsequently ratified the settlement agreement.
2. Mr Greenwood SC, who appeared with Mr Griscti of counsel for the Yaus, submitted that the conduct of the Owners Corporation from 14 August 2013 until January 2014 amounted to a ratification of the settlement agreement. It was contended that such ratification, even if not express, could at least be implied from the Owners Corporation's conduct in relation to the agreement and the orders of the Court which embodied it, and the Owners Corporation's acquiescence in the existence of the agreement (Taylor v Smith (1926) 38 CLR 48 at 54; Learn & Play (Rhodes No 1) Pty Limited v Lombe [2011] NSWSC 1506 at [21]).
3. The conduct and acquiescence in that period relied upon in support of the submission includes the following: 1. that lot owners were given notice of the EC meeting to be held on 26 August 2013, and that this notice referred to the settlement of the Yau proceeding as a matter to be considered at the meeting; 2. that at the EC meeting on 26 August 2013 no objection was taken by any lot owner to the decision taken by the EC at its meeting on 13 August 2013; 3. that the EC, at its meeting on 26 August 2013, confirmed the minutes of its meeting on 13 August 2013; 4. that the minutes of the EC meeting of 26 August 2013, the advice of Mr Clay, and a copy of the orders made by the Court, were sent to lot owners on 2 September 2013; 5. that on 17 September 2013 solicitors for the Owners Corporation sent a cheque for $285,000 to the solicitors for the Yaus in payment of the damages as required by order 8 of the consent orders; 6. that minutes of the EC meetings of 26 August 2013 and 26 September 2013, which refer to works and matters to be attended to under the orders of the Court, were sent to lot owners; 7. that works were carried out by the Owners Corporation as required by orders 4 and 5 of the consent orders; 8. that the proceedings instituted by Ms Curnick against the Owners Corporation were defended; and 9. that no steps were taken by the Owners Corporation to disown or disavow the agreement, or challenge the consent orders.
4. It was submitted that the above occurred in full knowledge of the material circumstances in which the settlement agreement was entered into. Finally, it was submitted that the first indication of any desire to review the position in relation to the settlement was contained in the notice of the Extraordinary General Meeting to be held on 18 February 2014. That notice referred to the obtaining of legal advice on "all available options to the Owners Corporation" in relation to the proceedings.
5. I was referred to the decision of the Court of Appeal in Leybourne v Permanent Custodians Pty Limited [2010] NSWCA 78 as to the applicable principles concerning ratification of the making of contracts by unauthorised agents. The Court of Appeal there said (at [131]-[134]): 131 A principal can ratify the making of a contract entered into by a purported agent when the agent did not in truth have authority to make the contract on behalf of the principal. The ratification has retrospective effect, and the agent is treated as having had the requisite authority: Union Bank of Australia Ltd v McClintock (1922) 1 AC 240 at 248; [2006] NSWSC 1028 at [81]; Jones v Peters (1948) VLR 331 at 335. 132 Whether the conduct of the principal amounts to ratification is a question of fact, but there should be "clear adoptive acts" (Eastern Construction Co Ltd v National Trust Co Ltd (1914) AC 197 at 213 per Lord Atkinson); the conduct must be unequivocal (for example, Petersen v Moloney [1951] HCA 57; (1951) 84 CLR 91 at 101). It is well expressed in Dal Pont, Law of Agency, 2nd ed at 5.28 - "The positive acts of the alleged principal may, aside from any express words, constitute sufficient evidence of ratification. This may be so where the fair inference to be drawn from a person's conduct, on an objective basis, is that the person consents to a transaction to which he or she might properly have objected. Put another way, ratification 'is implied from or involved in acts when you cannot logically analyse the act without imputing such approval to the party whether his mind in fact approved or disapproved or wholly disregarded the question'." (citations omitted) 133 Acceptance of the benefit of the unauthorised act of the agent with knowledge that the benefit flows from that act will ordinarily suffice (Australian Blue Metal Ltd v Hughes (1961) 79 WN (NSW) 498 at 515; Brockway v Pando [2000] WASCA 192 at [120]). Suing on a transaction brought about by an agent acting beyond authority will also ordinarily mean ratification of the unauthorised transaction: the reason is obvious, see Dal Pont, op cit, at para 5.29 and cases cited. 134 There must be full knowledge of all the material circumstances in which the act was done, unless the principal intends to ratify and take the risk whatever the circumstances (for example, Bremner v Sinclair NSWCA, 3 November 1998; (2001) ANZ Conv R 29 at [32] per Campbell J. The extent of knowledge necessary depends on the particular facts. It should be enough knowledge to decide whether or not to adopt the unauthorised act (Bremner v Sinclair at [32]).
6. Mr Kelly submitted that there was no ratification in the present case because the acts relied upon were further acts of the EC or acts of others directed by the EC, and not acts of the Owners Corporation itself. He submitted that, in any event, the EC, acting on legal advice concerning its powers and the binding nature of the consent orders, did not have full knowledge of the material circumstances, and its actions could not be regarded as unequivocal adoptive acts. Mr Kelly further submitted that ratification could only occur through acts of the Owners Corporation in general meeting. In that regard, reliance was placed upon 2 Elizabeth Bay Road Pty Limited v The Owners - Strata Plan 73943 (supra) at [57]-[59] where Barrett JA said: 57 There will be no ratification unless the subsequent actor has the necessary authority. Thus, if, in the company context, the usual division of authority between the directors and the members in general meeting prevails, purported ratification by the members in general meeting of something exclusively within the province of the directors will not be effective: Massey v Wales [2003] NSWCA 212; 57 NSWLR 718. 58 In the strata titles context, the reasoning in McEvoy v The Body Corporate for No 9 Port Douglas Road [2013] QCA 168 in relation to the Queensland legislation applies equally to the New South Wales legislation. 59 Against that background, I return to s 80D of the SSM Act. If legal action is initiated by the executive committee in the name of the owners corporation without the resolution envisaged by s 80D having been passed at a general meeting, there is an act of a kind to which the power of the corporation extends but that act is performed without the authority of the corporation in whose name it purports to have been performed. The performance of the act is, however, capable of being ratified in accordance with the principles just discussed, that is, by a subsequent resolution passed at a general meeting of the owners corporation.
7. I do not read what his Honour said as leading to the conclusion that only the Owners Corporation in general meeting could act to ratify the making of the settlement agreement. Barrett JA was speaking in the context of s 80D of the Act which in terms requires a resolution passed at a general meeting of the owners corporation approving the relevant action. The making of an agreement to compromise litigation against an owners corporation is not required by the Act to be the subject of such a resolution. It is not "something exclusively within the province" of the general meeting. It therefore seems to me that such an act, if done without authority, can be ratified by the owners corporation in ways other than by the passing of a resolution in general meeting.
8. Further, I do not think it is correct to regard acts of the EC (or acts of others directed by the EC) as separate from acts of the Owners Corporation itself. The conduct of an owners corporation as a whole, including acts carried out by its executive committee or its strata managing agent, need to be considered in assessing whether ratification has occurred. In this context, the conduct of an owners corporation also includes failures on its part to take action.
9. Had I been required to determine this question, I would have come to the conclusion that the conduct of the Owners Corporation in the period from 14 August 2013 to January 2014 did amount to a ratification of the making of the settlement agreement.
10. An email was sent to lot owners on the afternoon of 14 August 2013 which referred to the Yau proceeding having settled at Court that day on the advice of counsel. It was stated that full details of the settlement would be provided in due course. Lot owners were then given notice of the EC meeting to be held on 26 August 2013 at which the settlement was to be considered. The settlement was considered at that meeting, as recorded in the minutes of the meeting. Those minutes were sent to lot owners on 2 September 2013 together with Mr Clay's advice and a copy of the orders made by the Court. The lot owners had clearly been informed by that time of the details of the settlement (and the Court orders which embody it) as well as the circumstances in which the settlement was reached.
11. Moreover, the minutes of the EC meeting of 26 August 2013 referred in detail to the works and other matters (including the payment of damages to the Yaus) to be attended to pursuant to the orders of the Court. The minutes of the EC meeting held on 26 September 2013 referred to the damages having been paid and again to the works to be done in accordance with the orders. The lot owners were thus aware that action was being taken on behalf of the Owners Corporation to comply with its obligations under the settlement agreement and the orders of the Court.
12. In those circumstances, no steps were taken by the Owners Corporation to do anything to disavow the settlement, or even question its validity. No meeting was held. Nothing was done to attempt to halt or suspend the performance of the agreement. No attempt was made to stay the operation of the orders of the Court or to challenge them in any way.
13. Throughout the period the Owners Corporation acted consistently with having become bound by the agreement and the orders of the Court. This is exemplified by the letter to Mr and Mrs Yau sent on 23 December 2013 by the strata managing agent of the Owners Corporation. The letter complained that the Yaus were breaching the orders and stated that it was important that the Owners Corporation ensure that the orders made by the Court are carried out.
14. In my opinion, the conduct of the Owners Corporation, in taking steps to perform the agreement and in failing to disavow it or question its validity, was unequivocal. Having knowledge of the material facts and circumstances in which the settlement agreement was made on its behalf by Mr Clay, the Owners Corporation clearly adopted this agreement as binding upon it.
15. Accordingly, even if Mr Clay lacked authority to make the settlement agreement on behalf of the Owners Corporation, the subsequent ratification of the agreement he made has the consequence that Mr Clay is treated as having had the requisite authority.
16. It follows from the above that the asserted grounds for the setting aside of the consent orders have not been made out. The settlement agreement is binding upon the Owners Corporation.

Estoppel

1. It is not necessary, in light of that conclusion, to deal with the submission made by the Yaus in the alternative that the Owners Corporation is estopped from asserting that it is not bound by the settlement agreement. I would observe, however, that once the Yaus became aware in late January 2014 that the Owners Corporation was seeking legal advice about its position it would not have been reasonable for the Yaus to continue to rely on any representation by the Owners Corporation to the effect that it intended to be bound by the agreement. Mrs Yau appreciated that the Owners Corporation was then considering the possibility of challenging the consent orders. Of course, by that time, the Yaus had spent more than $24,000 in effecting works in accordance with those orders.

Source of Power to Set Aside Orders

1. The above reasons are sufficient to dispose of the Owners Corporation's application to set aside the orders of the Court made on 14 August 2013. That is so whether the relevant source of power to set aside the orders is s 73 of the Civil Procedure Act or UCPR r 36.15.
2. As noted at the outset, the Owners Corporation primarily relied upon s 73 of the Civil Procedure Act as the source of the Court's power to set aside the orders. However, it is my opinion that s 73 has no application in the present circumstances. Section 73 confers a power on the court "in any proceedings" to determine certain questions in dispute between the parties to the proceedings, including whether the proceedings have been settled. In my view, the power conferred by s 73 is one which may be exercised in the proceedings in which the questions in dispute arise, not, as here, in separate proceedings for that purpose. That view is consistent with the observations recently made by Basten JA in Gorczynski v Bendigo and Adelaide Bank Limited [2016] NSWCA 170 at [6] (see also Dimarti v Dimarti [2015] NSWSC 97 at [3]-[6] (Lindsay J)).
3. It seems to me that UCPR r 36.15 is the relevant head of power. It relevantly provides: (1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith.
4. The orders of the Court made on 14 August 2013 (and entered on the following day) have not been shown to have been made irregularly, illegally or against good faith within the meaning of the rule. If the Owners Corporation had succeeded in showing that the underlying settlement agreement was not binding upon it, the making of the orders could then be regarded as irregular (see Romeo v Papalia (supra) at [87]). A question would have then arisen as to whether sufficient cause was shown to warrant the exercise of the power to set aside the orders.
5. Had that question arisen, I would not have exercised the power. In brief, I would have taken that course due to the conduct of the Owners Corporation which I have found would have amounted to a ratification of the settlement agreement, together with its failure to make any application to set the orders aside until December 2014. At least until late January 2014 the orders of the Court were not challenged or questioned in any way, and were indeed largely carried into effect, including by the Yaus spending money to undertake certain works. The orders of the Court were made by consent in the course of a contested final hearing, and were stated to be in full and final resolution of the proceedings. In view of the delay in seeking to challenge those orders, I would not consider it just to set them aside now and leave the parties to resume their litigation.

Conclusion

1. The Amended Statement of Claim will be dismissed with costs.

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: 02 August 2016