Victorian Civil and Administrative Tribunal|2012-06-07

The applicant is authorised to prosecute this proceeding on behalf of Owners Corporation No 1, PS 411688Q and Owners Corporation No 2, PS 411688Q, on condition that she agrees that the other members of those owners corporations must not be asked to pay or contribute towards any costs of the proceeding unless at a general meeting the members of those owners corporations resolve to pay or contribute.

The respondent's application for an order dismissing the proceeding summarily is adjourned to a date after 1 July 2012 and time to be fixed by the principal registrar before me, with one hour being allowed for the hearing, during which the Tribunal will ask the applicant whether she agrees as aforesaid.

Each year the owners corporations and Network Pacific agreed upon a fixed fee for Network Pacific's standard management services. Mr Briffa deposed that there were written contracts of appointment drafted for each year, that the draft contracts specified the fixed fee, but the contracts were never signed. He exhibited to one of his affidavits what he said was a copy of the draft contract for the year that expired on 31 October 2009, and asserted that 'the contracts were accepted by the conduct of the owners corporations' in taking the benefit of the services that were described in the draft contracts and that Network Pacific rendered.
The exhibited draft contract was in a standard Owners Corporations Victoria form. The page headed '2. Fees and Services' specified the fixed fee and listed the services that the fixed fee covered. The next page headed '2.2 Additional Services paid by hourly rate or fixed fee' specified an hourly rate of $132.00, stated that it was chargeable in units of 6 minutes or part thereof, and listed the items that were in the category of 'additional services'.
Clause 4 of the draft contract was an authority of the owners corporations to Network Pacific to disburse funds for the purpose of the payment of (amongst other things) the annual fee and what was due for additional services. Clause 8 authorised Network Pacific to make such payments if its appointment was terminated.
Clause 7 of the draft contract set out various indemnities by the owners corporations of Network Pacific. I shall set them out when I come to deal with Network Pacific's argument that they afford a defence to the proceeding.
The withdrawal from owners corporation funds and payment by Network Pacific to itself related to what Network Pacific claimed was owing to it for performance of 'additional services'.
Although the contracts were not signed, Ms Wong does not dispute that Network Pacific was entitled to the fixed fee specified in each of them. Nor does she dispute that if Network Pacific performed additional services, as described in the draft contracts, it was entitled to payment for them at the rates set out. She does dispute, however, that Network Pacific performed 'additional services' and maintains that the services it did perform were those for which the fixed fee was its remuneration.

At or about the time that it made the withdrawal and payment to itself, Network Pacific rendered to the owners corporations an invoice for $51,156.60 and stated in the invoice that it was for additional services as per clause 2.2 of the contract. Accompanying the invoice were 48 numbered pages which listed each alleged service, the date on which the service was provided and the number of units for which a charge was made. On average there were almost 40 items per page. That arithmetic would suggest about 1,700 items in all. In her written submission Ms Di Camillo stated that there were 1,513 items.
Mr Briffa exhibited to his first affidavit a copy of the invoice, a copy of each of the 48 pages, and a copy of each document that was said to evidence the performance of a service. The exhibit, numbered 'SJB4', consisted of 4 lever-arch folders of documents.
Obviously, if the Tribunal is going to be asked to examine every item listed in the 48 pages, and to peruse every document in the 4 lever-arch folders, the hearing and determination of this proceeding is going to be laborious, time-consuming and expensive for all concerned.

In December 2010 the three owners corporations filed an application that commenced proceeding No OC 242/1020, claiming $48,760.34 which they alleged was the amount of the funds retained by Network Pacific without authority or entitlement. The then chairperson, Mark Sakareassen, signed the application. When it emerged that there had been no special resolution authorising the commencement of the proceeding, it was withdrawn.
At the end of May 2011 the committee of the three owners corporations conducted a ballot upon a motion to pass a special resolution: 'To take action against [Network Pacific] in relation to $48,000 taken from the account just prior to the handover of the files to the new manager'. Of the 197 members, 116 cast a vote. Of those, 115 voted 'Yes'. There was no evidence before me as to whether the remaining owner voted 'No' or cast an informal vote. The 115 votes out 197 were not enough for a special resolution.
In 2011 the OC Act was amended. On 24 August 2011 s 163(1A) and s 165(1)(ba) came into operation. Believing that those new provisions gave her the right to do so, Ms Wong commenced this proceeding on 5 February 2012 in her own name.

75. Summary dismissal of unjustified proceedings

(1) At any time, the Tribunal may make an order summarily dismissing or striking out all, or any part, of a proceeding that, in its opinion -

(a) is frivolous, vexatious, misconceived or lacking in substance; or

The principles governing the disposition of an application under s 75(1) for summary dismissal are well established. It is a very serious matter to dismiss a proceeding summarily, and the power to do so under s 75(1) should be exercised only where it is obvious that the case cannot possibly succeed or where it is obvious that the proceeding is an abuse of process for other reasons. Otherwise an applicant is entitled to have the case fully heard and adjudicated upon at a final hearing. Moreover, the application for an order for summary dismissal should be dealt with on the footing that the Tribunal should assume that all the facts alleged in the claim are able to be proved. In Forrester v AIMS Corporation [2004] VSC 506; (2004) 22 VAR 97 Kaye J confirmed that those principles, expressed by the Court of Appeal in State Electricity Commission of Victoria v Rabel [1998] 1 VR 102, apply to applications brought under s 75(1).
Section 163(1A) of the OC Act provides:

(1A) A lot owner may apply to VCAT on behalf of an owners corporation to resolve an owners corporation dispute.

This subsection clarifies that the rule in Foss v Harbottle [1843] EngR 478; (1843) 67 ER 189 does not apply to owners corporation disputes.

The dispute between the owners corporations and Network Pacific is an owners corporation dispute as defined in Part 11 of the OC Act. Network Pacific has not contended otherwise.

Section 165(1)(ba) of the OC Act provides that in determining an owners corporation dispute VCAT may make any order it considers fair, including -

(ba) an order authorising a lot owner to institute, prosecute, defend or discontinue specified proceedings on behalf of the owners corporation.

Section 18(1) of the OC Act provides that an owners corporation must not commence legal proceedings unless authorised by a special resolution to do so. That requirement of a special resolution must be regarded as having been qualified by s 163(1A), for a lot owner may make an application 'on behalf of an owners corporation' and s 163(1A) does not impose any requirement of a special resolution.
The rule in Foss v Harbottle [1843] EngR 478; (1847) 67 ER 189 was that when there is a claim that a wrong had been done to an incorporated company, or when the incorporated company wished to enforce a right that it had, the property plaintiff to bring the proceeding to pursue the claim or to enforce the right was the company itself. So no individual member of the company had any standing to bring such a proceeding in the individual member's own name, unless the proceeding came under certain limited exceptions to the rule. Part 2F.1A of the Corporations Act 2001 (Commonwealth) replaced the rule with provisions enabling a shareholder to bring a 'derivative action' in limited circumstances. But that statutory modification had no application to owners corporations.
The note beneath s 163(1A) forms part of the Act: Interpretation of Legislation Act 1984 s 36(3A). The note states that the sub-section 'clarifies' that the rule in Foss v Harbottle does not apply to owners corporations. It does not specifically state, nor does the sub-section specifically enact, that the rule does not apply. But the effect of s 163(1A), including the note beneath it, seems to be that the rule in Foss v Harbottle is not a bar to an individual lot owner commencing a proceeding in the lot owner's own name to claim redress for a wrong done to the owners corporation, or to enforce a right that the lot owner alleges that the owners corporation has, provided that the lot owner commences it 'on behalf of' the owners corporation.
Ms Di Camillo did not dispute that that was the effect of s 163(1A). She submitted, however, that a lot owner who commenced a proceeding on behalf of an owners corporation should not be permitted to pursue it without first having sought and obtained an order under s 165(1)(ba) authorising the lot owner to prosecute the proceeding, for otherwise s 18(1) would be rendered pointless; why would an owners corporation need to achieve a special resolution if one lot owner had an unfettered right to commence a proceeding on its behalf? I agree with the submission. A lot owner who purports to make an application on behalf of an owners corporation must obtain the authorising order under s 165(1)(ba) before being entitled to ask the Tribunal to hear and determine the application.
If Ms Wong's application under s 165(1)(ba) for an authorising order is refused, it seems to me that I would be obliged then to accede to Network Pacific's application and dismiss the proceeding summarily. For it would be an abuse of process for her to purport to pursue it in the absence of an authorising order.
While the OC Act does not identify any criteria for deciding whether an authorising order should be made, it seems obvious that if - regardless of any issue about the applicant's standing to bring the proceeding - the claim being made on behalf of the owners corporation was bound to fail there would be no point in making the authorising order, the application for one ought to be refused, and the gateway to the summary dismissal application would be open.
So I propose first to decide whether the claim being made in the proceeding is bound to fail, and then, if the answer is no, whether to make the authorising order that Ms Wong seeks.

Mr Briffa's two affidavits raised some of the matters which Network Pacific argue afford such a complete defence to the proceeding that it should be dismissed summarily. In her oral submissions Ms Di Camillo raised a further matter.
First, Network Pacific asserts that the application filed in the proceeding, and Ms Wong's affidavit, disclose no cause of action for her against it. That is correct. But the application discloses a cause of action that lies in one or more of the three owners corporations: a restitutionary claim for money had and received. The issue is whether Ms Wong ought to be permitted to pursue the cause of action on their behalf.
Secondly, Network Pacific relies upon the weight (literally, as well as figuratively: there are four folders full of it) of the evidence it has led compared to the slender evidence of Ms Wong. Mr Briffa has sworn that he has reviewed all the charges claimed and has satisfied himself that, with one small exception, they were justified. He swore that he had had two meetings with Ms Wong in February and March 2010, shortly after the change in management, during which he provided her with all the source documents justifying the 'additional services' charges and invited her to raise with him later any queries that she had; she did not raise any queries. Network Pacific also relies upon some aspects of Ms Wong's oral evidence, during which she appeared to be aggrieved by the timing of the demand for payment for additional services (which was not until Network Pacific's appointment had been terminated) as much as by the making of the demand at all.
That second argument really was based upon the erroneous stance that upon the hearing of a summary dismissal application the Tribunal can and should embark upon the exercise of deciding whether the defences would probably succeed and whether the proceeding would probably fail. The Tribunal cannot and should not do that. Unless there were material establishing clearly and beyond any possible argument that the allegation is wrong, I am obliged to assume at present that Ms Wong will be able to prove the allegation that the items charged for were not 'additional services' within the meaning of any management agreement. There is no such material. Ms Wong gave evidence that a firm of solicitors had given the owners corporations the opinion that 70% of the amount that Network Pacific had taken for itself was not justified. Moreover, the fact that Network Pacific refunded $3,234.00 to the owners corporations (I do not know why), and the fact that Mr Briffa concedes that there has been inadvertent duplication of an item (the 'small exception' to which I referred above), tell against the proposition that there is a complete answer to the claim for restitution.
The further matter which Ms Di Camillo raised in her oral submissions related to clause 7 of the draft contract, headed 'Indemnities'. To the extent that they are relevant to the submission, clause 7.1, 7.2 and 7.3 provided:

7.1 The Manager is liable to the Owners Corporation:-

7.2 The Owners Corporation hereby releases and indemnifies the Manager and holds the Manager harmless from and against all actions, omissions, claims, demands, losses, costs, damages and expenses (including without limitation reasonable legal costs on a solicitor and own client basis) ("the loss") in relation to or arising directly out of the performance or non performance by the Manager of any services or the exercise of its functions and powers pursuant to this Appointment or otherwise from any cause of action including negligence and including without limitation:-

7.2.5 resulting in death, bodily injury, damage to property or economic loss suffered by any person or persons whatsoever including members and occupiers of the property or part thereof;

except to the extent that such loss is caused by or contributed to by the Manager's dishonesty or fraud.

7.3 Clauses 7.1 and 7.2 apply to the extent permitted by law.

Obviously the clause is designed primarily to afford the manager an indemnity by the appointing owners corporation if, during the honest performance of the manager's duties, loss or damage is caused to a third person. Ms Di Camillo submitted, however, that it debarred these three owners corporations from making the claim for restitution that Ms Wong seeks to make on its behalf. She correctly pointed out that the application made no allegation of dishonesty or fraud against Network Pacific. The argument in favour of the application of the clause appeared to run as follows:

(a) the claim arises out of the manager's exercise of its powers, pursuant to the appointment, to disburse funds to pay itself;

(b) the claim is that economic loss has been suffered by the owners corporations ('any person or persons whatsoever');

(c) and the exceptional case of loss caused by or contributed to by dishonesty or fraud is not one that has been alleged.

The proposition that the indemnity clause affords a defence to the claim being made is arguable but is very far from being certain to succeed. There are several difficulties with it. First, it assumes that clause 7 was part of the agreement entered into. The draft contract not having been signed, that assumption is doubtful to say the least. Secondly, there is a logical difficulty about a contracting party agreeing to indemnify against a claim made by itself. Thirdly, whether as a matter of construction 'any persons or persons whatsoever' includes the appointing owners corporation itself is debatable. Fourthly, under s 168(2) of the OC Act the Tribunal has the power to order that Network Pacific is prohibited from seeking or enforcing an indemnity. I am not suggesting that those are the only reasons why clause 7 may not assist Network Pacific in this proceeding. I am saying that they are the ones that have occurred to me.
For those reasons, Network Pacific has not established that the proceeding is bound to fail even after authority has been given to Ms Wong to prosecute it. So I proceed to consider whether she should be given authority.

As stated above, the OC Act does not identify any criteria for deciding whether an order should be made authorising a lot owner to prosecute a proceeding on behalf of an owners corporation. Under Part 2F.1A of the Corporations Act one of the grounds upon which a shareholder may obtain leave to bring a 'derivative action' is when something done or proposed to be done is 'contrary to the interests of members as a whole'. At the very least, a lot owner applying for an authorising order under s 165(1)(ba) of the OC Act should need to satisfy the Tribunal that the proceeding in question, if successful, would benefit the owners corporation or its members and was not just the lot owner's personal frolic or the ventilation of a personal grievance.
In the present case it is clear that the proceeding, if successful, would benefit OC No 1 and OC No 2 and the respective members of them. In saying that, I am inferring that the bulk of the money payable if the proceeding were successful would be money to which the members of OC No 1 and OC No 2 would be entitled, because OC No 3 has only 4 members out of 197.
From Ms Di Camillo's submissions on behalf of Network Pacific I identified three reasons why, she submitted, an authorising order should not be made.
The first reason was that the committee of the owners corporations had sought to have the members pass a special resolution and had failed. The requirement in s 18(1) of the OC Act for a special resolution authorising the commencement for proceeding should not be circumvented lightly. It is a 'protective mechanism', she submitted, preventing one or some members 'passing off liability to all members ... for proceedings they have not subscribed or approved'. She correctly observed that this was not a case in which for some reason an owners corporation was unable to conduct a ballot of its members or the achievement of a special resolution was impossible.
One can readily envisage a case where most lot owners wished to commence a proceeding to obtain an outcome that would be adverse to the interests of one member who happened to have more than 25 per cent of the voting power, so that no special resolution in favour of commencing the proceeding could be achieved. In such a case the Tribunal might readily make an authorising order if it concluded that the dominant member was thwarting the likely achievement of a benefit for the members as a whole. This is not such a case. Ms Di Camillo rightly stopped short of submitting that an authorising order should be made only in such a case. Her argument was that in the present case there had been nothing impeding the committee from putting its motion to a ballot and nothing making the result a foregone conclusion. The fact was that insufficient members to pass a special resolution saw fit to vote in favour of the motion.
The second reason was that Ms Wong had not attempted to settle the dispute with Network Pacific before commencing the proceeding. A refusal or failure to engage in alternative dispute resolution, Ms Di Camillo submitted, was a fact that should weigh against making an order authorising the commencement of a proceeding that raised the dispute. She pointed to the evidence of Mr Briffa having invited Ms Wong to raise with him any queries she had about the source documents that he had provided to her when they met in February and March 2010, and of her not having taken up the invitation.
No doubt there will be cases in which the Tribunal refuses to make an authorising order because of the applicant's failure to attend a mediation or otherwise has not engaged in alternative dispute resolution, or might at least require the applicant to explain why alternative dispute resolution had not been resorted to. In my view this is not such a case. Mr Briffa's offer was not one of participation in alternative dispute resolution facilitated by a third person. It was an offer to provide further information in a subsequent meeting. If Ms Wong had sought a further meeting and it had occurred I suspect it would have been one during which Mr Briffa attempted to justify what Network Pacific had done rather than to effect a compromise. Moreover Ms Wong gave evidence that she had proposed to Network Pacific that an independent auditor be approved to examine the 'additional services' charges on the basis that Network Pacific paid half of the auditor's fee, and that Network Pacific had declined the proposal.
The third reason was that Ms Wong had not put forward evidence that might suggest that the owners corporations' case was a substantial one. This submission was logically an alternative to a submission, which I have not accepted, that the case was bound to fail. The alternative submission was that the case, if not hopeless, was flimsy and the evidence that Network Pacific had put forward against it was substantial. Me Di Camillo pointed out that, to the extent that Ms Wong had attempted to particularise her allegation that the 'additional services' charges were not justified, she had identified only three items out of 1,513, and that Network Pacific had conceded one of those three.
I am not in a position to assess how strong or weak the case may be. It is true that Network Pacific has assembled a mass of evidence purporting to justify every charge it has made for 'additional services' and has expressed itself to be ready and willing to refute the owners corporations' claims at a hearing if there has to be one. On the other hand there are two features of the dispute that suggest that there is merit in the claims, at least in part. One is the fact that Network Pacific did not render an invoice for the 'additional services', or seek payment for them, until its appointment as manager had been terminated. The other is that Network Pacific has voluntarily refunded $3,234.00 already.
What tilts the balance in favour of authorising Ms Wong's prosecution of this proceeding on behalf of OC No 1 and OC No 2 is the extent of support that she has from the committee and from the members. She has given evidence, and I accept, that the committee of the owners corporations supports her bringing of the proceeding. I do not have any evidence of opposition from any member. The evidence is only that one member who voted did not vote 'Yes' whereas another 115 did. The numbers were insufficient to constitute the 75 per cent necessary for the passing of a special resolution but did constitute nearly 60 per cent. Those numbers, and the support of the committee, show that this proceeding is certainly not Ms Wong's personal frolic. Ms Wong and Mr Steele gave evidence that many lot owners reside overseas although some of those overseas owners have student children who live in the apartments. Whether the non-voting members were all absentee owners I do not know.
Because of the factor referred to in the previous paragraph, because the proceeding if successful will clearly be for the benefit of the owners corporations and because there is some prospect that the proceeding will succeed at least in part - to what extent I am unable to say - I have concluded that Ms Wong should be permitted and authorised to prosecute this proceeding on behalf of OC No 1 and OC No 2. She is not entitled to ask for an authorising order so that she can prosecute it on behalf of OC No 3 because she is not a member of OC No 3.
Under s 130 of the VCAT Act I am empowered to make an order subject to any conditions that I think fit. I consider that there should be a condition imposed on the granting of an authorising order.
I am troubled about the costs that each party potentially will incur in prosecuting or defending the proceeding. If many or all of the documents in the 4 lever-arch folders need to be examined during the course of the hearing it will take many days to hear. Even if the Tribunal makes directions designed to achieve as speedy and economical a hearing as is practicable, the hearing will be lengthy and costs will be high.
Who bears the costs once an authorising order is made is an issue that the Tribunal has yet to decide. Ms Wong will remain as applicant but she will be pursuing the proceeding 'on behalf of' OC No 1 and OC No 2. The members of those owners corporations may face the prospect of being asked to pay a special levy to met either the costs of prosecuting the proceeding, or costs ordered in favour of Network Pacific, or both. I am not saying that they would be liable to pay such a levy. I am saying only that if they were asked to pay it their interests and Ms Wong's interests would potentially conflict. It is not appropriate that Ms Wong should pursue the proceeding 'on behalf of' OC No 1 and OC No 2 when there is that potential conflict. There should be a condition imposed, in the granting of the authorising order, that removes the potential conflict.
The condition is that Ms Wong agrees that the other members of OC No 1 and OC No 2 must not be asked to pay or contribute towards any costs of this proceeding unless at a general meeting the members of OC No 1 and OC No 2 resolve to pay or contribute.
At the hearing on 14 May 2012 Ms Wong seemed to be rather taken aback by the suggestion that she might end up being personally responsible for the costs of the proceeding. At one stage she said that she was not prepared to bear that responsibility and would not want to pursue the proceeding if she had to bear that responsibility. At another point she said that the committee was prepared to indemnify her against costs. I doubt that she has had the proper opportunity to consider the matter. I shall give her that opportunity.

On Ms Wong's application under s 165(1)(ba) I shall order that she is authorised to prosecute this proceeding on behalf of OC No 1 and OC No 2, on condition that she agrees that the other members of OC No 1 and OC No 2 must not be asked to pay or contribute towards any costs of the proceeding unless at a general meeting the members of OC No 1 and OC No 2 resolve to pay or contribute.
I shall adjourn Network Pacific's summary dismissal application to a date after 1 July 2012 and time to be fixed by the principal registrar before me.
If at the adjourned hearing Ms Wong states that she accepts the condition on which the authorising order has been made, I shall dismiss the application for summary dismissal.
If at the adjourned hearing Ms Wong states that she does not accept that condition, I shall revoke the authorising order and shall, upon Network Pacific's application, dismiss the proceeding summarily, for Ms Wong will have no standing to prosecute it.
For completeness I record that this proceeding is not one that Ms Wong would be entitled to bring in her own right as a lot owner to pursue an allegation that a manager is in breach of a duty under s 122 of the OC Act to act honestly and in good faith or with proper care. In previous decisions, including Wynden Pty Ltd and Others v Owners Corporation PS 431248H (Civil Claims) [2010] VCAT 1683, I have expressed the view that a cause of action for breach of statutory duty under s 122 lies in any member of the owners corporation as well as in the owners corporation itself. I maintain that view. This proceeding involves no allegation of breach of statutory duty. It involves a restitutionary claim for money had and received. That cause of action lies in the owners corporation only. The question I had to decide was whether Ms Wong as a lot owner should be authorised to pursue that cause of action on behalf of those two owners corporations of which she is a member.

Wong v Network Pacific Real Estate Pty Ltd (Owners Corporation) [2012] VCAT 791 (7 June 2012)

Wong v Network Pacific Real Estate Pty Ltd

At a glance

Court

Decision date

Source

Judgment (29 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (1)

Wong v Network Pacific Real Estate Pty Ltd (Owners Corporation) [2012] VCAT 791 (7 June 2012)