The Owners - Strata Plan No 74232 v Tezel - [2023] NSWCA 35 - NSWCA 2022 case summary

Catchwords

[2019] HCA 35 Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449[2005] NSWCA 246 Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252[2010] HCA 23 Scarcella v Lettice (2000) 51 NSWLR 302[2017] NSWCA 206 SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362[2013] NSWCA 26 The Owners - Strata Plan No 80412 v Vickery [2021] NSWCATAP 98 Vickery v The Owners Strata Plan No. 80412 (2020) 103 NSWLR 352[2020] NSWCA 284 Western Australia v Wardley Australia Ltd (1991) 30 FCR 245[1991] FCA 314 White v Betalli (2007) 71 NSWLR 381

Judgment (6 paragraphs)

[1]

Background to the application for leave to appeal

The Tribunal made the factual findings to which I have referred in [4] above. Those findings are not the subject of challenge.
In determining that the respondent's claim for loss of rent was out of time, the Tribunal construed the limitation period in s 106(6) of the SSM Act as attaching to the loss referred to in s 106(5), rather than attaching to the contravention of the duty in s 106(1): at [25]-[26]. It followed that time started to run "when the lot owner first becomes aware of the loss (ie the effect) rather than the more stringent alternative of the breach (ie the cause)": at [27]. On the ordinary meaning of the words "first becomes aware of the loss", the Tribunal stated that "if it be asked when the applicant first became aware of the rent loss, the answer is 2016, when she ceased to reside in her lot, and not 6 November 2018 which is, in fact, doing no more than working backwards from when the proceedings were commenced": at [29].

The parties' submissions on the construction of s 106(6) of the SSM Act

Section 106 of the SSM Act provides as follows: Duty of owners corporation to maintain and repair property (1) An owners corporation for a strata scheme must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation. (2) An owners corporation must renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the owners corporation. (3) This section does not apply to a particular item of property if the owners corporation determines by special resolution that - (a) it is inappropriate to maintain, renew, replace or repair the property, and (b) its decision will not affect the safety of any building, structure or common property in the strata scheme or detract from the appearance of any property in the strata scheme. (4) If an owners corporation has taken action against an owner or other person in respect of damage to the common property, it may defer compliance with subsection (1) or (2) in relation to the damage to the property until the completion of the action if the failure to comply will not affect the safety of any building, structure or common property in the strata scheme. (5) An owner of a lot in a strata scheme may recover from the owners corporation, as damages for breach of statutory duty, any reasonably foreseeable loss suffered by the owner as a result of a contravention of this section by the owners corporation. (6) An owner may not bring an action under this section for breach of a statutory duty more than 2 years after the owner first becomes aware of the loss. (7) This section is subject to the provisions of any common property memorandum adopted by the by-laws for the strata scheme under this Division, any common property rights by-law or any by-law made under section 108. (8) This section does not affect any duty or right of the owners corporation under any other law.
The applicant submitted that s 106(6) of the SSM Act imposes an "unusual" limitation period, in the sense that it is not directed to a cause of action but to the suffering of loss. Consistently with its terms, and noting the terms of s 106(5), the applicant submitted that the phrase "first becomes aware of the loss" should be construed to mean the time at which the owner was first aware of the kind or type of loss that is subject of the complaint, here loss of rent.
The applicant submitted that, contrary to the effect of the Appeal Panel's construction, the loss (and first awareness thereof) did not recur on a rolling basis until the breach of s 106 of the SSM Act was remedied. In the present case, the respondent was first aware that she was losing rent arising from the owners corporation's breach in 2016, and time started running from that point. The alternative construction for which the respondent contended was artificial, and required the Tribunal to find that the respondent "first" became aware of the loss from 6 November 2018, notwithstanding her awareness of the very same loss from 2016 when the unit could not be rented out due to the state of disrepair.
The applicant pointed to the burden of the respondent's construction on unaffected lot owners, if lot owners who were affected by an ongoing issue, such as water ingress, could bring proceedings regardless of when they first became aware of the loss. Senior Counsel for the applicant noted in this context that the respondent's unit was one of 18 in the building, with each owner being a member of the owners corporation. In his submission, Parliament did not intend for lot owners to be able to "sit on their hands", particularly in circumstances where timing may impact upon an owners corporation's ability to recover from a third party, such as a developer or builder.
The respondent accepted that the unit was rendered uninhabitable from 2016, by reason of the owners corporation's breach of s 106(1). However, she submitted that the state of the unit was repeatedly worsened (or, at least, maintained) by the ongoing ingress of water. She submitted that "the loss" for which she claimed, being loss of rent incurred from 6 November 2018, was not reasonably foreseeable any earlier than that date, which was two years prior to the date on which she brought her claim. It was certainly not "reasonably foreseeable" in 2016 because at that time she did not know whether the owners corporation would comply with its duty earlier than the two-year period, and she had a legitimate expectation that it might.
In essence, the respondent's construction of "the loss" to which s 106(6) referred was the loss that is claimed in the Tribunal and not any earlier loss of which she may have been aware. The respondent relied in this respect on the difference between "any reasonably foreseeable loss" and the references in other provisions, including s 106(4), to "damage" to property. The respondent submitted that the drafting of s 106(6) was intended to alleviate fine distinctions which may arise from considering, in the context of a more conventional limitation provision, a time limit commencing from the date on which a cause of action first accrued.
The respondent also submitted that her construction of s 106(6) operated coherently with s 106(4). By way of example, Senior Counsel for the respondent submitted that an owners corporation could be in breach of ss 106(1) and/or 106(2) for a period of six months, and then have a change of control which caused the owners corporation to "take action against" the "owner or other person in respect of [the] damage to the common property". In his submission, the affected lot owner should not be deprived of reclaiming "the loss" suffered during the period prior to the owners corporation's change of control.

Consideration of the construction of s 106(6) of the SSM Act

The applicant's construction of s 106(6) of the SSM Act is the correct one. On that construction, the respondent first became aware of the loss in 2016. The action she commenced in the Tribunal on 6 November 2020 was out of time.
It is well settled that the proper construction of s 106(6) of the SSM Act involves considering its terms in context and having regard to its purpose and the mischief it is intended to remedy: see, for example, SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34 at [14]; R v A2 (2019) 269 CLR 507; [2019] HCA 35 at [32]-[37].
In White v Betalli (2007) 71 NSWLR 381; [2007] NSWCA 243 at [204], Campbell JA described legislation governing strata titles as creating "a statutory framework within which a type of local community can be created and administered". His Honour further described that community as one "where co-ownership, and the physical proximity of spaces that the owners are entitled to occupy, create the opportunity for both cooperation and conflict". The objects in s 3 of the SSM Act recognise those diametrically opposed possibilities, expressing the dual aim of providing "for the management of strata schemes" and "for the resolution of disputes arising from strata schemes".
Pursuant to s 8(1) of the SSM Act, the owners of lots from time to time in a strata scheme constitute a body corporate under the name "The Owners - Strata Plan No X", with X being the registered number of the strata plan to which the particular strata scheme relates. The owners corporation of a strata scheme has principal responsibility for the management of the scheme: SSM Act, s 9(1).
Section 9(2)(a) of the SSM Act confers on the owners corporation, "for the benefit of the owners of lots in the strata scheme", "the management and control of the use of the common property of the strata scheme". Section 4(1) of the SSM Act defines "common property", where used in relation to a strata scheme, as having the same meaning as it has in the Strata Schemes Development Act 2015 (NSW) ("SSD Act"). Section 4(1) of the SSD Act defines "common property" in relation to a strata scheme to mean "any part of a parcel that is not comprised in a lot (including any common infrastructure that is not part of a lot)". A "lot" is, in turn, defined to mean "one or more cubic spaces shown as a lot on a floor plan relating to the scheme", excluding common infrastructure (unless it is described in the plan as part of the lot).
Consistently with the conferral of management and control of the use of common property on the owners corporation, s 9(3)(c) of the SSM Act vests in the owners corporation responsibility for "maintaining and repairing the common property of the strata scheme", and cross-refers to Part 6 of the SSM Act. Section 106 of the SSM Act is the first provision in Division 1 of Part 6. Consistently with the responsibility that is conferred by s 9(3)(c), s 106(1) imposes an overriding and continuing duty on an owners corporation with respect to the maintenance and repair of common property. Section 106(2) imposes a duty in relation to the renewal and replacement of fixtures and fittings comprised in the common property. Although I will refer below only to the duty in s 106(1), the proper construction of s 106(6) is also relevant to the duty in s 106(2).
The legislative predecessor to s 106(1) was s 62(1) of the Strata Schemes Management Act 1996 (NSW) ("1996 Act"). Cases addressing s 62(1) described the duty which it imposes on an owners corporation as strict or absolute: Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449; [2005] NSWCA 246 at [5] (Hodgson JA); Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157 at [21] (Brereton J) ("Seiwa"). However, compliance with the duty is subject to two express qualifications in s 106: 1. By s 106(3), an owners corporation may pass a special resolution carving out particular items of property from the scope of the duty, provided the special resolution addresses the matters in subsections (3)(a) and (3)(b). 2. By s 106(4), an owners corporation may "defer compliance", provided it "has taken action against an owner or other person in respect of damage to the common property", that action is not complete, and "the failure to comply" will not have adverse safety implications on a building, structure or common property of the strata scheme.
Section 106(5) confers on a lot owner a right to recover, from an owners corporation, "any reasonably foreseeable loss suffered by the owner as a result of" a contravention of the section. By contrast with s 106(4), which refers to an "action … in respect of damage to the common property" (where "damage", read in context, refers to physical damage), the right of action conferred by s 106(5) is formulated more broadly, by reference to "any reasonably foreseeable loss" suffered as a result of a contravention of s 106(1).
The description of the loss for which s 106(5) makes provision as "damages for breach of statutory duty" reflects the purpose of its enactment. In Owners Strata Plan 50276 v Thoo [2013] NSWCA 270, this Court concluded, contrary to a series of earlier decisions, that s 62(1) of the 1996 Act did not give rise to an action for breach of statutory duty sounding in damages. In Vickery v The Owners Strata Plan No. 80412 (2020) 103 NSWLR 352; [2020] NSWCA 284, each of Basten JA (at [11]), Leeming JA (at [96]) and White JA (at [161]) described the purpose of s 106(5) as reversing the effect of Thoo, with the majority concluding that the provision created a statutory cause of action that the Tribunal could determine.
In its terms, and having regard to the context of its enactment, s 106(5) is protective of the interests of a lot owner, providing an avenue of redress for any reasonably foreseeable loss the lot owner suffers as a result of the owners corporation failing to comply with the duty in s 106(1). The respondent is correct that the use of "loss" in s 106(5) (and, for that matter, the use of "damages" in describing the loss) may be contrasted with the use of "damage" in other provisions, and signals a broader entitlement to recovery than for physical damage alone. However, the right of recovery is circumscribed, relevantly, by the requirement that the action must be brought within the period prescribed in s 106(6).
In its terms, s 106(6) precludes the bringing of an action "for breach of a statutory duty", being the action to which s 106(5) refers, by reference to a period ("more than 2 years") that runs from the point when ("after") "the [lot] owner first becomes aware of the loss". The formulation of the subsection by reference to the date of first awareness of the loss, as opposed to the date on which the relevant cause of action accrues (as appears in other limitation provisions, for example, s 14(1)(b) of the Limitation Act 1969 (NSW)), is to the benefit of the lot owner suffering the loss. Although an owners corporation will contravene s 106(1) "as soon as something in the common property is no longer operating effectively or at all, or has fallen into disrepair" (see Seiwa at [5] (Brereton J)), a lot owner may not immediately become aware that the contravention has caused loss. As the Tribunal stated at [27], this may be significant in the case of a latent cause, being one which a lot owner may not be expected to be able to discern.
At the same time as it is protective of the interests of individual lot owners, s 106(6) imposes a relatively short limitation period, of two years. That period reflects the broader interests of lot owners constituting the owners corporation, as the body that will have to make good any reasonably foreseeable loss a lot owner is found to have suffered as a result of its contravention of s 106(1). Senior Counsel for the respondent submitted that the purpose of the two-year period was to ensure that in cases such as the present, only two years of lost rent could be recovered, rather than six. However, the better explanation for the purpose of the relatively short period, having regard to the broader legislative context, was provided by Senior Counsel for the applicant. He submitted that the two-year period was directed at ensuring that a lot owner cannot delay taking proceedings in circumstances where the people having to make good the loss are also lot owners, and the passage of time may affect their ability, through the owners corporation, to recover that loss from other persons.
The time limit in s 106(6) of the SSM Act commences to run from the point that the owner "first becomes aware of the loss". Accepting, as both parties did, that s 106(6) is directed to actions brought under s 106(5), "the loss" to which s 106(6) refers is the loss suffered as a result of the owners corporation's contravention of s 106(1). Consistently with the approach to statutory construction that strives to give every word of legislative provisions work to do (see, for example, Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252; [2010] HCA 23 at [39], [41]-[42], [76] and [79]) the question posed by s 106(6) is, put simply: when did the lot owner first become aware of the loss that s 106(5) entitles a lot owner to recover (subject to establishing the elements of the cause of action) - here, loss of rent?
The respondent's construction of "the loss" in s 106(6) was "the reasonably foreseeable loss that the owner is seeking to recover, that is, the loss referred to in s 106(5)" (emphasis added). As is apparent from the emphasised words, that construction conflates the loss that is the subject of the particular proceedings and the loss for which s 106(5) makes provision, and is circular in its effect. The requirement in s 106(5) that the loss be reasonably foreseeable is a form of remoteness limitation on what damages may be recovered. It is not part of the limitation period requirement in s 106(6). That provision refers to when the owner first became aware of the loss, not to when the owner first became aware the loss was reasonably foreseeable. The respondent's construction is thus not supported by the text.
Moreover, the respondent's construction gives rise to significant practical difficulties in the context of a continuing contravention. Those difficulties may be seen from [20] of the respondent's written submissions: "At any point prior to 6 November 2018, [the respondent] was aware that she had lost rental income in the past; it does not follow that she knew she would lose rent from 6 November 2018 onwards. It is not implausible that the Owners Corporation may have performed its statutory obligation to repair the property prior to 6 November 2018. Similarly, it is conceivable that [the respondent] may have found a tenant willing to rent the property despite the damage, or that the whole building would become uninhabitable. As a matter of substance, as well as the express terms of the statute, [the respondent] first became aware of the loss she sought to recover less than two years before commencing proceedings."
This passage highlights the level of uncertainty that the respondent's construction produces as to when the limitation period commences. On that construction, the respondent is effectively driven to establishing non-awareness of the loss of rent (that is the subject of the proceedings) as a reasonably foreseeable loss before 6 November 2018, by reference to a series of hypothetical scenarios which did not eventuate. In oral submissions, Senior Counsel for the respondent then accepted that it would be open to the owners corporation to establish that the loss was reasonably foreseeable before 6 November 2018, albeit "only a small number of months before". That the inquiry may yield more than one answer tells against its construction.
Both parties accepted that a breach of s 106(1) may be of a continuing nature. However, as Senior Counsel for the applicant submitted, it does not follow from acceptance of that possibility (which was the case here) that "the loss" occurs on a rolling basis so as to reset the point of first awareness. Senior Counsel for the applicant drew an analogy in this respect with cases such as Hawkins v Clayton (1986) 5 NSWLR 109 and Scarcella v Lettice (2000) 51 NSWLR 302; [2000] NSWCA 289, which Austin J considered in Clutha Ltd v Millar [2002] NSWSC 362 ("Clutha"). Those cases, which concerned the limitation period for negligence in s 14(1)(b) of the Limitation Act 1969 (NSW) (which runs from when the cause of action first accrues), considered whether a fresh cause of action in negligence arose from a further loss suffered during the limitation period (so as to overcome the difficulty that the cause of action was otherwise time-barred). On the reasoning in those decisions, a fresh cause of action would only arise if a fresh breach caused loss going beyond the loss resulting from the barred cause of action: see Clutha at [29]-[36].
Noting the necessity to be careful about reasoning by analogy from differently formulated limitation provisions, the point that Senior Counsel for the applicant sought to make for the purposes of s 106(6) was that where the loss remained the same (here, lost rent), knowledge of that loss did not reset for each day that the breach continued. This was the upshot of the "non-binding observation" in the reasons of the Appeal Panel (constituted by Armstrong J, Hennessey ADCJ and T Simon) in The Owners - Strata Plan No 80412 v Vickery [2021] NSWCATAP 98 at [63], following the remittal of the matter from the Court of Appeal, to which Senior Counsel for the applicant drew attention. After considering whether a continuing breach of the s 106(1) duty gave rise to separate causes of action each day, the Appeal Panel concluded that "a lot owner is not entitled to bring proceedings under s 106(5) on each day the statutory duty is breached and the owner incurs loss": at [63].
The differences of language on which the respondent relied, between the use of "loss" in s 106(5) and (6) and other provisions of the SSM Act which refer to actions for "damage to … property" (s 106(4) and s 132(1)) or "damage to a lot or any of its contents" (s 122(6)) and the approach in other limitation provisions (such as s 14(1)(b) of the Limitation Act), do not call for a contrary conclusion. Differences in language may have significance and should be given effect as a general proposition, but the differences do not assist the construction of s 106(6) for which the respondent contends. I accept the applicant's submissions in that regard.
Additionally, the respondent sought to emphasise s 106(4), submitting that the construction the Court adopted has to produce a coherent outcome with that subsection. Again, I do not consider that s 106(4) assists the respondent. As I have noted above, s 106(4) operates as a qualification on the owners corporation's obligation to comply with the duty in s 106(1). The owners corporation may "defer compliance" if it has taken action against a lot owner or another person in relation to the damage and that action is incomplete, and provided a failure to comply with the duty does not have safety consequences for a building, structure or common property in the strata scheme. The fact that an owners corporation defers compliance on that basis under s 106(4) would not relevantly impact upon a lot owner's entitlement to bring an action under s 106(5) of the SSM Act, noting that the lot owner has two years in which to do so.
The construction of s 106(6) that I have adopted is consistent with its terms, read in the context of s 106 and in the broader context of the legislation of which it forms part. Applying that construction to the present case, the loss that the respondent suffered as a result of the owners corporation's breach of s 106(1) was lost rent. The time at which she first became aware of that loss was in 2016. The two-year period started to run from that point.
Although it sits in different legislation and is thus not directly relevant to the construction of s 106 of the SSM Act, I note that cl 8 of Schedule 4 of the CAT Act may provide an avenue of recourse for a lot owner where an owners corporation does not comply with an order from the Tribunal that it carry out rectification works by a specified date. In general terms, the clause makes provision for renewal applications to the Consumer and Commercial Division of the Tribunal in the event of non-compliance with orders, and confers a discretion on the Tribunal to grant leave for such an application and, where leave is granted, to make any other order appropriate under the CAT Act or enabling legislation as it could have made when the matter was originally determined (or to refuse to make such an order). As the clause was raised in the context of proposed Ground 1 of the cross-appeal and not on the appeal, I do no more than note the potential for its application.

The Owners - Strata Plan No 74232 v Tezel

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