The Owners Strata Plan No. 60919 v Consumer Trader and Tenancy Tribunal & Ors

The Owners Strata Plan No. 60919 v Consumer Trader and Tenancy Tribunal & Ors - [2009] NSWSC 1158 - NSWSC 2009 case summary — Zoe

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JUDGMENT 1 The summons filed in this matter on 30 January 2009 seeks relief in respect of orders made by an Adjudicator purportedly under s157 or s159 of the Strata Schemes Management Act (the Act) on 9 January 2007. The first defendant, Consumer Trader and Tenancy Tribunal (the Tribunal) filed a submitting appearance and took no part in the hearing. The second and third defendants (Mr and Mrs Di Francesco) appeared by counsel, Mr P W Gray SC and Ms P Koroknay to oppose the relief sought by the Plaintiff. They also brought a cross claim. Mr D Bernie appeared for the Plaintiff. 2 The facts relevant to the summons which are not in dispute may be summarised: The Plaintiff is a body corporate constituted under s11 of the Act upon the registration of Strata Plan 60919 in respect of premises occupied for business and commercial purposes located at 23 Norton Street, Leichhardt. Mr and Mrs Di Francesco are and were at all relevant times the proprietors of lot 8 in the Strata Plan 60919. They conduct a restaurant in the lot. On 19 December 2003 at the Annual General Meeting, of the Plaintiff there was passed a special by-law (by-law 18) in the following terms: "Promotional levies The Owners Corporation may determine that lot owners pay amounts in addition to contributions for the general promotion of Italian Forum Complex, as a retail and commercial centre. The amount to be decided by the Owners Corporation from time to time and paid in accordance with the schedule of Marketing Levies which is enclosed under Annexure "B" to be paid in accordance with the levy quarters." Promotional levies were thereafter charged against lot 8 in Strata plan 60919. On 20 October 2006 Mr and Mrs Di Francesco filed an application with the Tribunal requesting an order by an Adjudicator under s 157 of the Act that by-law 18 be repealed. On 9 January 2007 Adjudicator, Mr C Murphy, (the Adjudicator) delivered his decision upon the application. I will need to make further reference to the decision and the reasons for it. On 31 January 2007, the Plaintiff appealed to the Tribunal against the orders made by the adjudicator seeking that they be set aside and that the application to him be dismissed. The appeal was not pursued. On 30 September 2008 Mr and Mrs Di Francesco applied to the Tribunal to enforce the Adjudicator's decision. That application has apparently been overtaken by these proceedings. 3 A number of provisions of the Act are relevant: 43 What can by-laws provide for?

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(4) Division 2 of Part 3 of Chapter 3 (section 78 (2) excepted) applies to and in respect of contributions levied under this section in the same way as it applies to contributions levied under that Division. 4 The orders made by the Adjudicator were: "1. Special By-law 18 of the by-laws in force for Strata Scheme No. 60919 is repealed ab initio. 2. Under Section 157(3) of the Strata Schemes Management Act 1996 the Owners Corporation is to pay to lot owners including lot 8 any moneys paid to it under special By-law 18." 5 He provided reasons for his decision which were stated to be on an application seeking: "…… orders under s157 of the Strata Schemes Management Act 1996 (the Act) to repeal special By-law 18 of the Owners Corporation registered on strata plan No 60919." 6 In the course of his reasons at paragraphs 4 and 5 the Adjudicator said: "The effect of the by-law is to impose a commercial arrangement on certain lot owners in the scheme. Only some and not all lots are subject to the effect of this by-law. The monies required to be paid under this by-law are differential and not in accordance with unit entitlements under the scheme. The by-law does not meet the requirements of Division 2 of the Act in relation the levy of contributions. In particular the by-law is in contradiction to s78(2) of the Act which requires that any levy is payable in shares proportional to the unit entitlement of their respective lots. For these reasons the applicants argue that the by-law is invalid and an order should be made under s 157 of the Act to repeal the by-law with the effect that it is void ab initio." 7 After reference to the submissions made to him, the Adjudicator continued: "The applicants are seeking an order under s 157 of the Act for registered By-law 18 to be repealed. The applicants are the owners of lot 8 in Strata Plan 60919 which is a scheme comprised of commercial lots. Section 157(1)(c) of the Act provides the power for an Adjudicator to make an order that the by-law is repealed. In addition s159 of the Act allows an Adjudicator to make an order declaring a by-law to be invalid if the Adjudicator considers that the owners corporation did not have the power to make such a by-law. Registered By-law 18 (relevant part reproduced above) which is the subject of the application was passed at a meeting of the Owners Corporation held on 19 December 2003. It provides a mechanism for the Owners Corporation to raise money from lot holders to pay for the promotion of the strata scheme. The effect of this by-law is to raise a contribution from lot holders in the strata scheme. There is a specific and limited manner under which a contribution may be raised under s78 of the Act. In particular it must be levied in shares proportional to the unit entitlement of lot holders under s78(2) and paid to the administrative or sinking fund under s 78(1). I am satisfied under s159 of the Act that the Owners Corporation does not have the power to create By-law 18 as it levies a contribution on lot holders in a manner inconsistent with the requirements under s78 of the Act and is inconsistent with the provisions of Divisions 3 and 4 of Part 5 of the Act. In particular the contribution is not in accordance with unit entitlement and is not levied upon all lot holders as required by s78 of the Act. Section 43(4) of the Act provides that a by-law has no effect to the extent that it is inconsistent with the Act. Having regard to the interest of all lot owners in the strata scheme in the use and enjoyment of their lots or the common property, I am satisfied that By-law 18 should not have been made or effected by the Owners corporation. This by-law seeks to raise a levy on owners for a purpose which is not directly related to the management of the strata scheme. The applicants argue that s47 of the Act allows for by-laws to be passed for the 'control, management, administration use or enjoyment of the lot or the lots and common property for the strata scheme' only and that this section should be read in the context of the key management areas set out in s3 of the Act. The applicants argue that the purpose of By-law 18 falls outside this scope under the Act. I accept the applicants' submission in this regard and find that the purpose of the by-law is a commercial one rather than one made for the management, administration or use of the strata scheme and is not in the interests of lot holders in the strata scheme. If lot holders or tenants are interested in promoting the location as a commercial enterprise then they may do so, but not within the scope of the Act as it is not a purpose, in my view, that falls within the scope of the Act as it is not a purpose, in my view, that falls within the control or administration in the use or enjoyment of the common property by lot holders. For these reason I am satisfied that By-law 18 should be repealed ab initio and the Owners Corporation are to repay to lot owners any moneys paid to it." 8 The Adjudication creates some confusion as to the power being exercised. The language of order 1 itself, by its use of the word 'repealed", suggests s157. However, as the adjudicator himself recognised, for more than one reason the Plaintiff did not have the power to make the by-law. Its subject matter was not encompassed by s43 or s47, nor did the manner of levying the contribution comply with s78. 9 In that situation, as it appears to me, the Adjudicator did not have jurisdiction under s157, which seems to apply to by-laws validly made. It follows that he had no authority to "repeal" the by-law ab initio and he had no authority to make the order he purported to make under s157(3) for the payment of compensation to the lot owners. Incidentally, s157(3) is confined in any event to a by-law referred to in s51 and special by-law 18 did not purport to be a by law within that section 10 The Adjudicator would, however, in my opinion, by virtue of s165 even though the application was made to him under s157, have had power to make an order under s159 declaring special by-law 18 invalid on the basis that the Plaintiff did not have the power to make it. He could by virtue of ss(3) have ordered that the invalidity operate from 19 December 2003 when the by-law was made. He did not, however, have power under s159 to order compensation to be paid to lot owners. 11 As it seems to me plain that the Adjudicator purported to make orders under s157, for the reasons given above, I am of the opinion that errors of law, on the face of the Tribunals record which includes the reasons of the Adjudicator, have been exposed. 12 The orders sought by the Plaintiff in its summons included: "1. An order in the nature of prohibition that the first defendant actin as an Adjudicator under the Strata Schemes Management Act 1996 did not have the jurisdiction to retrospectively repeal a by-law under section 159 of the Strata Schemes Management Act 1996 as purported by order number 2 of it is decision dated 9 January 2007. 2. An order in the nature of prohibition that the first defendant acting as an Adjudicator under Strata Schemes Management Act 1996 did not have the jurisdiction under section 157 of the Strata Schemes Management Act 1996 to order repayment as purported by order number 2 of its decision dated 9 January 2007. 3. A declaration that the first defendant acting as an Adjudicator under the Strata Schemes Management Act 1996 did not have power or jurisdiction to retrospectively repeal a By-law under section 159 of the Strata schemes management Act 1996 as purported by order number 2 of its decision dated 9 January 2007. 4. A declaration that the first defendant acting as an Adjudicator under the Strata Schemes Management Act 1996 did not have the power or jurisdiction under section 157 of the Strata Schemes Management Act 1996 to order repayment as purported by order number 2 of its decision dated 9 January 2007. 5. In the alternative, a declaration that on the true construction of the Recovery of Imposts Act in 1963 NSW no monies are repayable by the plaintiff to lot holders under the purported order number 2 of the decision dated 9 January 2007 of the first defendant. 6. In the alternative, a declaration that on the true construction of the Recovery of Imposts Act 1963 NSW no monies are repayable by the plaintiff to lot holders by order number 2 of its decision dated 9 January 2007 of the first defendant for a period exceeding 12 months before the making of that order. 7. In the alternative, a declaration that the plaintiff by crediting to the present registered proprietors amounts paid pursuant to special By-law 18 would be sufficient compliance with the order number 2 made by the first defendant on 9 January 2007." 13 There was argument as to whether this Court can, or should, give the Plaintiff relief upon the summons. In relation to a submission based upon s 65 of the Consumer Trader and Tenancy Tribunal Act, it seems to me that the decision of an Adjudicator is not a decision of the Tribunal for reasons advanced by counsel for Mr and Mrs Di Francesco. An Adjudicator appointed under the Act is not necessarily a member of the Tribunal and the procedures of the Tribunal are quire different from the procedures of an Adjudicator deciding matters on the papers without hearing the parties. Section 65 accordingly does not, in my opinion, apply. 14 Of more force is, I think, that the Plaintiff should have pursued its appeal as of right to the Tribunal given by s177 of the Act. In this case, the Plaintiff did, in fact, appeal to the Tribunal but abandoned it before hearing. In the circumstances, however, as a matter of discretion it seems to me appropriate to deal with the matter, as the Court has all the parties before it and is in a position to resolve all issues between them (see the Observations of Bryson J in Regis Towers Real Estate Pty Ltd v Fung and Ors (2001) NSW Con R 55-960, at paragraph 29 and following).

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16 It is necessary that I now turn to the Cross Claim by Mr and Mrs Di Francesco. The relief they claim is: "1. A declaration that by-law 11 is void and/or of no effect. 2. A declaration that special by-law 18 is void and/or of no effect. 3. An order that the cross-defendant pay to the cross claimants the sum of $19,806.06, by way of reimbursement of all promotional levies paid to the cross-defendant by the cross-claimants pursuant to by-law 11 and/or special by-law 18. 4. An order under s229 (2) of the SSMA that such payments under order 3 be paid from contributions levied on lot owners other than the cross-claimants. 5. (1) An order that the cross-defendant repay to the cross-claimants interest in the sum of $590.66 paid by the cross-claimants in respect of interest charged for promotional levies which were not paid on the dates on which the levies were purportedly due during the period 1 January 2004 to 3 May 2006. (2) An order pursuant to s100 of the civil procedure Act 2005, that the cross-defendant pay to the cross-claimants interest in the sum of $7,973.64 on the amounts paid by the cross-claimant to the cross-defendant and allocated by the cross-defendant to promotional levies during the period 1 January 2004 to 3 May 2006 at the rates provided by Schedule 5 of the Uniform Civil Procedure Rules 2005. (3) An order under s229 (2) of the SSMA that such payments under orders 5(1) and 5(2) be paid from contributions levied on lot owners other than the cross-claimants. 6. An order that any amounts charged to the lot account of the cross-claimants but not yet paid, in respect of promotional levies purportedly raised by the cross-defendant pursuant to by-law 11 and/or special by-law 18 be either reversed or removed from the lot account of the cross-claimants. 7. An order that any interest charged to the lot account of the cross-claimants in respect of unpaid promotional levies be either reversed or removed from the lot account of the cross-claimants. 8. Such further or other order as the Court thinks fit. 9. Costs. 10. An order under s229(2) of the SSMA that costs payable under order 9 be paid from contributions levied on lot owners other than the cross-claimants. 11. An order that notification be given by the plaintiff to the Registrar General of the orders made by the court declaring that by-law 11 and special by-law 18 are void. 17 Declaratory relief is available to Mr and Mrs Di Francesco by s75 of the Supreme Court Act. See also Forster v Jododex Aust Pty Ltd (1972) 127 CLR 421. 18 For reasons already given, special by-law 18 was, in my opinion, ultra vires and Mr and Mrs Di Francesco should be held entitled to declaratory relief to that effect. Although it was submitted that they should first exhaust their rights under the Act, I do not think it would be appropriate to require them to do so. As I have indicated the relevant parties are before the court and it has jurisdiction to deal with all issues between them. Once it is decided that special by-law 18 is invalid it follows that it was invalid ab initio. It was purportedly made beyond power and has always been void and of no force and effect, both under the general law and by virtue of s43(4) of the Act 19 By-law 11 was part of the original by-laws of the Plaintiff. It is in the following terms: Part 11 - Promotional Levies 11.1 Power to determine The Owners Corporation may determine that Owners pay amounts in addition to contributions for the following purposes: (a) to pay promotional levies of $60,000 per annum to the registered proprietor of the cultural Centre for the administration and promotion of cultural events at Italian Forum. (b) to generally promote the Italian Forum Complex, as a retail and commercial centre." 20 It seems to me that by-law 11 is infected by the same vice as special by-law 18 in that it does not fall within the by-law making power contemplated by section 43 or section 47 of the Act. Moreover, like special by-law 18, by-law 11 appears to contemplate that owners will not be obliged to pay levies proportionately to their unit entitlements as required by s78(2) of the Act and may be obliged to pay amounts in addition to "contributions" levied under the Act. The Act neither includes "promotional" levies in the amounts which may be levied against owners, nor makes any other provision for their payment. 21 In my opinion, by-law 11 is rendered void and of no force or effect by s43(4) of the Act, notwithstanding that it was registered by the Registrar General in accordance with s 41(2). See also the decision of Waddell CJ in Eq in Bapson Pty Ltd v Pinyeti Pty Ltd and Ors (1990) NSW Title Cases 60,054 and s8 (4D) of the Strata Scheme (Freehold Development) Act. As with special by-law 18, Mr and Mrs Di Francesco are entitled to a declaration as to the invalidity of by-law 11. 22 According to the affidavit of Mrs Di Francesco sworn 21 July 2009, she and her husband paid to the Plaintiff $20,396 in respect of the period September 2003 to October 2005, as promotional levies purportedly made by the Plaintiff under by-law 11 and special by-law 18 and interest. She seeks restitution of that sum. 23 Counsel for Mr and Mrs Di Francesco submitted that the amount claimed is recoverable on the basis that the Plaintiff was unjustly enriched. Reliance was placed upon what was said in the joint judgment of Mason CJ, Deane J, Toohey J, Gaudron J and McHugh J in David Securities Pty Ltd v Commonwealth Bank [1991-2] 175 CLR 353 at 379: "As La Forest J. stated in Air Canada v. British Columbia ((78) (1989) 59 DLR (4th), at p 192), the two species of mistake (i.e., fact and law) should be "considered as factors which can make an enrichment at the plaintiff's expense 'unjust' or 'unjustified'".

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If because of this Act money paid by way of tax or purported tax ceases to be or is not recoverable, the right to recover the money is extinguished. 27 The Imposts Act defines "tax" and "taxation legislation" as follows: "tax" includes a fee, charge or other impost. "taxation legislation" means: (a) an Act imposing or relating to a tax, or (b) a provision of such an Act, or (c) a regulation under such an Act, or (d) a provision of such a regulation. 28 In support of his submission, Mr Bernie referred to Baulkham Hills Shire Council v Wrights Roads Pty Ltd [2007] NSWCA 152. That was a case whereby the Plaintiff on 21 February 2006 brought proceedings in the District court to recover from the Council monetary contributions paid two and a half years previously under s94 of the Environmental Planning and Assessment Act. The practice under which the payment was made was subsequently held to be invalid by the Land and Environment Court and on appeal by the Court of Appeal. 29 In the District Court, Johnstone DCJ dismissed a Notice of Motion seeking an order that the proceedings be dismissed as having been commenced out of time by force of sections 2 and 5 of the Imposts Act. His Honour held that the s94 contribution was not a tax within s2 of the Imposts Act. 30 The judgment in the Court of Appeal was given by Spigelman CJ, with whom McColl JA and Gzell J agreed. After referring to the provisions of s94, his Honour noted that it expressly provided that any payment pursuant to it "is made for a public purpose and is characterised as a "contribution". 31 The Chief Justice after summarising the competing arguments continued: "Section 2(1) of the Imposts Act extends to any amount "paid under the authority or purported authority of any Act". Each of the words, "tax", "fee", "charge" and "impost", are confined in their possible scope by this definite criterion. The words, whilst wide, are not of extraordinary scope. There is no warrant to give them a meaning of the character for which the Respondent contends. The directly relevant inquiry is whether a payment was made under the authority of an Act. It was not, nor in my opinion could it have been, suggested that payment of the s 94 Contribution was not "under the purported authority" of the EPA Act.

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[21] In my opinion, a s 94 Contribution is an "impost" and, accordingly, a "tax"' within s 1A of the Imposts Act. The Respondent's claim for recovery of those funds is time barred by s 2 and s 5 of that Act." 32 Mr Bernie contended that in light of what was said by Spigelman CJ in Baulkham Hills v Wright the word "tax" in s2 of the Imposts Act is to be interpreted sufficiently broadly to encompass payments made by Mr and Mrs Di Francesco under by-law 11 or special by-law 18 to the Plaintiff and that recovery was prevented except by proceedings commenced within 12 months of payment. 33 On the other hand, counsel for Mr and Mrs Di Francesco submitted that the purpose of the Imposts Act was that it was to apply only to public authorities. He referred to the Second Reading Speech in the Legislative Council of NSW on 3 April 1963 of the Attorney General (the Hon R R Downing) which included these passages: "The measure under consideration virtually reproduces Victorian legislation enacted in 1961 whereby action for recovery of any statutory tax, fee, charge or other impost must be initiated within twelve months of the date of payment. There are sound reasons of policy which made the bill not only desirable, but even necessary. Hon. Members will recall that only recently action was initiated in Victoria to challenge the hire-purchase tax of that State; close to home an unsuccessful challenge was made to the liquor laws of this state. ……………………….. It is simply a statute of limitation of a very ordinary and familiar kind, which substitutes in the case of certain public authorities, a shorter period than that which is generally applicable to causes of action of the kind dealt with. ……………………….. The State should not have to refund taxation that has been paid over the years." 34 In my opinion, the submissions on behalf of Mr and Mrs Di Francesco should be preferred. There is no element of public purpose in the amounts paid by them under by-law 11 or special by-law 18. Moreover, in my view, payments made pursuant to by-laws of an owners corporation constituted under the Act are not to be equated with payments made under "the authority or purported authority of any act". The by-laws derive their force from the contractual relationship the members of the owners corporation have between themselves and with the corporation, not from any act of Parliament, even though Parliament has chosen to provide for the creation of the by-laws and to impose limitations upon them. The Imposts Act, in my view, has simply no application. 35 In my opinion, Mr and Mrs Di Francesco are entitled to the restitution they seek and the order providing for it should ensure under section 229(2) of the Act that the amount payable is levied upon lot owners other than their own lot. Restitution should include provision for interest under s100 of the Civil Procedure Act and for repayment of interest charged to and paid by Mr and Mrs Di Francesco upon the levies I have found to be invalid. 36 As to costs, although the Plaintiff has had a measure of limited success, Mr and Mrs Di Francesco have been entirely successful upon their cross claim, albeit one which involved a small sum of money, which for the most part occupied the Court's time. I think the Plaintiff should be ordered to pay three quarters of the costs of Mr and Mrs Di Francesco. However, as the question of costs was not argued, I will give the parties liberty to apply within 7 days if they are so advised. 37 As there may, in any event, be unforseen difficulties in implementing the orders I propose to make, I will also give the parties liberty to apply generally. 38 I make these order:

I quash the orders of the Adjudicator made on 9 January 2007.
Otherwise the summons is dismissed.
Upon the Cross Claim: (a) I declare special by-law 18 invalid and order that such declaration operate from 19 December 2003. (b) I declare by-law 11 invalid and order that such declaration operate from the date of registration of Strata Plan No.60919. (c) I enter a verdict for Mr and Mrs Di Francesco against the Plaintiff in the sum of $20,396. (d) I order pursuant to s100 of the Civil Procedure Act that interest in the sum of $7,973 be paid by the Plaintiff upon the verdict entered pursuant to (c) above.

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