The application under section 75 came before me for hearing on 26 October 2009. Mr Rice of Counsel represented the Applicant and Mr Jones of Counsel represented the Respondents.
Mr Rice submitted that a counterclaim is a separate proceeding from the claim and cited a number of authorities, including the well known judgement of Dixon J (as he then was) in McDonnell and East Ltd v. McGregor[1936] HCA 28; (1936) 56 CLR 50 at pp. 60 and 61. He submitted that, since the counterclaim in each case was a separate proceeding, the section applied and so a special resolution was required.
He said there were 1200 unit holders in Owners Corporations 1, 3 and 4. He submitted that the purpose of the section was to protect unit holders from the consequences of involvement in costly legal proceedings unless those proceedings are authorised by special resolution. He said that for this reason, the section ought to be given a wide interpretation.
That is his main argument but before dealing with it I should refer first to two other points that he made.
Mr Rice pointed out that the dispute resolution procedure set out in the legislation and required by Part 10 of the Owners Corporation Act 2006 had not been followed prior to issuing the counterclaim. That process involves service upon the defaulting unit holder of a notice pursuant to s.155(2) of the Act specifying the alleged breach and requiring that person (in this case the Applicant) to rectify the breach within 28 days after the date of the notice. If the breach is not rectified then a final notice can be given under s.156.
By s.157, a final notice must give the person (in this case the Applicant) a further 28 days after the date of the notice to rectify the breach. If it is not rectified within that time, the Owners Corporation may apply to the Tribunal for an order requiring the rectification of the breach.
By s.164 the Tribunal may make an order dismissing or striking out an application by an Owners Corporation if the dispute resolution process has not been followed. The word "may" is generally permissive and Mr Rice did not disagree with Mr Jones's submission that I have a discretion whether to dismiss or strike out the counterclaim on that ground or not.
It was the Applicant that brought this proceeding and the counterclaim is inextricably linked to it. It is quite obvious in the circumstances that for the Respondents to pursue the dispute resolution procedure would have been futile and a complete waste of time and money. I will not make any order dismissing or striking out the counterclaim on this account.
The other point related to the standing of two of the Respondents to bring the counterclaim. Mr Rice informed me from the bar table (there is no evidence of this before me but it would be readily provable one way or the other) that the common property for Owners Corporations 3 and 4 is vested in Owners Corporation 1. As a consequence of that, he says, Owners Corporations 3 and 4 have no interest in the common property and no standing to bring the counterclaim. No notice had been given of this submission or of the facts asserted in support of it and Mr Jones objected to the matter being raised in these circumstances on the ground of procedural fairness. He said that, if it were indeed the case that Owners Corporations 3 and 4 had no interest in the common property then the counterclaim could be amended so that in each case, the allegations would be made on behalf of Owners Corporation 1, which he also represents.
I think that is a valid complaint and one that would normally be readily cured by a short adjournment. However in this case it is by no means clear on the material before me that the breaches of the rules that are asserted are not breaches of rules of Owners Corporations 3 and 4 and so I am not prepared to make a final determination in an application such as this and on this material that the counterclaims brought on behalf of Owners Corporation 3 and 4 are manifestly untenable on that account.
I proceed now to deal with the main argument.
[2]
The subject of the proceeding brought by the Applicant against the Respondents is a very large strata development carried out by the Applicant on land at 475-511 Swanston Street and 8-32 Franklin Street Melbourne.
The subdivision contains both residential and commercial units and a great deal of common property. The Applicant sold the apartments in the residential towers "off the plan" from 2002. According to the application no contracts of sale were settled until on and after 6 December 2006. The Applicant asserts that, in the meantime, there was an inaugural annual general meeting of each Respondent held on 28 November 2006 at a time when it (the Applicant) was the only member of that Owners Corporation. It purported to pass a "unanimous" resolution that application be made by the Respondent in each case to the Registrar of Titles with the consent of the City of Melbourne to amend the Plan of Subdivision in accordance with a draft plan.
According to the application, subsequent annual general meetings of Owners Corporations 1, 3 and 4 were held on 17 June 2008 and further resolutions were passed.
The Melbourne City Council has required certain things to be attended to by the Respondents before the amendments to the Plan of Subdivision will be certified. The Applicant has requested the Respondents to attend to these matters but they have refused.
The Respondents contend that, after selling the units off the plan, the Applicant is now attempting to change the plan to divest the Respondents and consequently, the Unit Holders, of some of the common property. It is also asserted on behalf of the Respondents that the applicant has leased and dealt with parts of the common property for its own benefit and incorporated other parts into other units. All of these acts are, it is asserted, contrary to the Plan of Subdivision as registered and the purpose of this present application is to secure the amendment of the plan to reflect what the Applicant has apparently already done.
The power of the Tribunal to hear and determine matters under the Owners _Corporation Ac_t 2006 is conferred by s.162 which is as follows:
[3]
"VCAT may hear and determine a dispute or other matter arising under this Act or the regulations or the rules of an owners corporation that affects an owners corporation (an owners corporation dispute) including a dispute or matter relating to -
[4]
(b) an alleged breach by a lot owner or an occupier of a lot an obligation imposed on that person by this Act or the regulations or the rules of the owners corporation; or
[5]
(c) the exercise of a function by the manager in respect of the owners corporation."
[6]
Mr Jones's primary submission was that, by issuing the counterclaim in each case, the relevant owners corporation did not "bring legal proceedings" pursuant to s.18 of the Owners Corporation Act 2006. He submitted that the term "legal proceedings" is not defined in the Act. Although acknowledging the statements found in the authorities relied upon by Mr Rice to the effect that a counterclaim is generally treated as a separate proceeding, he said that the question is not as simple as that. He referred me to paragraph I 10.01.35 of Williams "Civil Procedure Victoria" where the learned authors point out that a counterclaim has features which indicate that it is not altogether independent from the proceeding in which it is made, in that:
(a) the defendant cannot raise a counterclaim for the first time after the proceeding has come to an end by judgement;
(b) the legislation in relation to the limitation of actions provides that a claim by way of counterclaim is deemed to be a separate proceeding but it also provides that the proceeding is deemed to have commenced on the same date as the proceeding in which the counterclaim is pleaded;
(c) where both the counterclaim and the claim succeed, the amounts are generally set off.
Mr Jones pointed out the counterclaim in the present case is not a distinct proceeding brought by the Respondents against the Applicant. What has occurred is that the Applicant has sued the Respondents and they have brought their counterclaim in response to that.
He argued that the first 15 paragraphs of the counterclaim all related to breaches of the rules and an attempt by the relevant owners corporation to enforce those rules. No special resolution is required for the application to the Tribunal to enforce the rules of an owners corporation (s.18(2)).
By paragraph 16 of the Counterclaim, the Respondents seek an order for damages against the Applicant for breach of the rules. These damages are said to be the loss of use of the common property that the Applicant has taken and also the cost of reinstating it to common property. It is at least arguable that to seek damages for breach of a rule is to enforce the rule within the meaning of the section.
By paragraph 17 the Respondents seek orders that the Applicant complies with the rules and for certain consequential orders relating to the restoration of the common property, the vacation of the common property by the Applicant and the removal of any structures or goods from the common property. It is at least arguable that to seek such orders is to enforce the rules within the meaning of the section.
Paragraphs 18-25 relate to an assertion that, by passing the resolutions referred to, the Applicant breached a fiduciary duty owed by it to the owners corporation in each case in that, although it had sold the units or at least a great many of them, the Applicant was the only unit holder because no settlements had taken place. It used its position as legal (although not equitable) owner of all of the units to divest the Respondents of part of the common property to the detriment of the Respondents and the purchasers of the units in order to secure a profit or advantage to itself. This part of the counterclaim concludes with a claim for damages against the Applicant for breach of the fiduciary duty.
[7]
As to the argument that the counterclaim is not a separate proceeding, despite Mr Jones's submission and the matters raised in Williams, I think it is beyond argument that the issue of a counterclaim is the bringing of a separate proceeding distinct from the original claim. It does have the added features referred to in Williams but that does not render it part of the same proceeding.
Paragraphs 1-17 of the counterclaim, at least arguably, seek enforcement of the rules of the Respondents and so it is arguable that no special resolution is required by reason of s.18(2).
Paragraphs 18-25 raise an issue that is integral to the exercise of the Tribunal's discretion in the principal proceeding and it seems odd to allow the Applicant to object to the matters raised in those paragraphs since those same matters could be raised by way of defence. However, the bringing of this claim by way of counterclaim required a special resolution which has not been obtained and so those paragraphs will be struck out of the counterclaim.
Since the matters articulated in those paragraphs may be incorporated in the Points of Defence I will give leave for amended points of defence and counterclaim to be filed and served. In drafting the amended counterclaim the Respondents will have an opportunity of ascertaining whether indeed Owners Corporations 3 and 4 have standing to bring the counterclaim.