Casuarina Rec Club Pty Limited v The Owners – Strata Plan No. 77971 [2011] NSWCA 159 (24 June 2011)

The New South Wales Court of Appeal delivered a judgment in the case of Casuarina Rec Club Pty Limtied v The Owners – Strata Plan No. 77971 [2011] NSWCA 159-BC201104561 which clarifies and enhances the power to make by- laws, particularly developer by-laws registered with the strata plan.

In Casuarina the strata scheme had a by-law registered with the strata plan authorising the owners corporation to enter into agreements to provide access to facilities for residents, including such things as gymnasium facilities. The owners corporatiion entered into an agreement with Casuarina Rec Club Pty Limited which ran a gymnasium, pool and tennis court complex approximately fifteen (15) minutes from the strata resort development, allowing owners, invitees and guests in the strata scheme to utilise the facilities of the club. The owners corporation paid a fee to Casuarina Rec Club Pty Limited for this use.

In the Supreme Court Justice Mcdougall held that the by-law was beyond the powers of the owners corporation.

The Court of Appeal overturned that decision and made a number of important statements about by-laws:

• A valid by-law must have a clear nexus between its subject matter and the use or occupation of the subject property. There is no precise rule to determine if the nexus exists for by-laws relating to amenities but the amenities must be capable of enhancing the occupier’s use or enjoyment of the premises. In this case they did.
• A by-law in the form of a model by-law cannot be beyond power, nor can a by-law dealing with the same subject matter as a model by-law.
• The power to make by-laws should be generously construed.
• A by-law must relate to the particular community to which it applies, beyond that, any limit must arise from the enabling statute.
• The power to make by-laws encompasses not only the owners corporation’s principal activity but also incidental and ancillary activities provided they do not expand the owners corporation’s activities.
• The power to make by-laws is to be liberally interpreted subject to the doctrine of fraud on the minority and with the proviso that an unreasonable by–law will be held to be invalid.
• Because buyers of a lot in a strata scheme have notice of an original by-law it is very rare that an original by-law will be held to be invalid.

The decision clearly states that the power to make by-laws should be interpreted generously. It also suggests that there is a wider scope for making developer by-laws than those passed at a general meeting with the clear implication that there are by-laws which will be valid when registered with the strata plan that would not be valid if passed by the owners corporation in general meeting. This means that developers and those advising developers should turn their minds to the by-laws which will be required to permit the smooth functioning of the scheme, prior to registration of the strata plan.

This case may also remove some of the shackles which were thought to exist as a result of the decision in Stolfa v Owners Strata Plan No. 4366 [2009] NSWSC 589. That case suggested that non-specific, generic by-laws controlling the doing of work which affected common property, such as the installation of air conditioners, were invalid without work specific resolutions under section 65A of the Strata Schemes Management Act 1996. Works within lots which impact on common property in minor ways, such as by the insertion of fasteners or the penetration of pipes and conduits may now be capable of authorisation pursuant to by-laws modeled on Schedule One By-law 5 of the Strata Schemes Management Act 1996.

Jean Whittlam v Sara Hannah & John Hannah [2011] Downing Centre Local Court 63913/11 (22 February 2011)

A recent decision of the Local Court in Jean Whittlam v Sara Hannah & John Hannah [2011] Downing Centre Local Court 63913/11 has received significant press attention suggesting the case represents a panacea for lot owners affected by offensive noise from short term tenants.

FACTS

Mrs Whittlam lived in a unit in Double Bay. Mr and Mrs Hannah owned the unit directly above Mrs Whittlam’s unit. They did not live in the unit but let it out as furnished rental property. There were numerous different tenants changing regularly. There was a consistent problem with the noise created by those tenants. Mrs Whittlam took proceedings against the owners of the unit for orders pursuant to section 268(4) of the Protection of the Environment Operations Act 1997. That Act permits the Local Court to make an order in favour of an occupier of premises affected by offensive noise against the person alleged to be making or contributing to that noise or the occupier of the premises from which the noise is emanating. The Court may make an order directing the offender to abate the offensive noise within a time specified in the order or an order directing the offender to prevent a recurrence of the offensive noise.

The Magistrate found in the circumstances of this case that the landlord was a person contributing to the noise of the occupier. She did so because they were able to control who they leased to and for how long and because they could terminate the lease if breaches occurred.

Having found that the application was properly brought against the owners and having found that offensive noise did exist, Her Honour considered the remedies which were sought by Mrs Whittlam. Those remedies were that the owners must:

• Install new floor coverings with an appropriate acoustic rating.
• Install hydraulic door closers on all doors in or to the lot.
• Install rubber feet on all of the legs of the furniture within the lot.
• Not cause or permit any musical instruments or electrically amplified sound equipment to be used in such a manner that emits noise that can be heard within a habitable room in Mrs Whittlam’s lot whether or not a door or window was open and during specified hours.

The Magistrate made the second and fourth orders.

It is worth noting that the claim was made by Mrs Whittlam that the short term tenancies were illegal, presumably as they breached an instrument issued pursuant to the Environmental Planning and Assessment Act 1979. Where that is the case powerful prohibitive orders preventing, for example, short term leasing in breach of the Act, can be obtained from the Land & Environment Court pursuant to section 123 of that Act. Appropriate by-laws may also render a breach of that Act a breach of the by-laws thereby permitting the matter to be dealt by the Consumer Trader and Tenancy Tribunal.

Whittlam’s case now extends the range of options that may be considered by aggrieved owners corporations or lot owners.

Vero Insurance Limited v Owners of Strata Plan No. 69352 & Ors [2011] NSWCA 138 (30 June 2011)

An owners corporation made a claim for defective building work on its common property in the sum of $85,137.50 against its home warranty insurer, Vero Insurance Limited. Vero had issued a policy in relation to each of the 201 lots in the scheme but had not issued a separate policy in the name of the owners corporation. Vero rejected the claim. It argued that the owners corporation was not entitled to make a claim as no policy issued to it and if it was entitled to make the claim the provisions of the policies required a $500.00 excess be paid and that should be paid by each of the lot owners thereby giving rise to an excess of $100,500.00 which exceeded the amount of the claim.

Vero’s argument was rejected by the Consumer, Trader and Tenancy Tribunal and the District Court on appeal. The matter then came before the Court of Appeal.

On appeal Vero noted that it was required to provide insurance in relation to each individual dwelling but it contended that the common property was not a dwelling for the purposes of home warranty insurance. It argued that each lot was a dwelling and each lot included the beneficial interest of the lot owner in the common property as a tenant in common. Vero also argued that the owners corporation was not the insured. If the argument was accepted it would mean that the lot owners would collectively have to make the claim and the $500.00 excess would apply in relation to each of the claimants.

The Court of Appeal held that Vero was required to insure the successors in title to the common property against the risks set out in s99(1) of the Home Building Act. The Court of Appeal relied upon s227(2) of the Strata Schemes Management Act which is in the following terms:

 “If the owners of the lots in a strata scheme are jointly entitled to take proceedings against any person or are liable to have proceedings taken against them jointly, the proceedings may be taken by or against the owners corporation.”

and concluded that the owners corporation may make an application in its own name in relation to the common property even where there is no policy document issued in its name.

The court found that it followed from that that there was only one excess applicable to the claim.

The court made observations about the maximum amount which an owners corporation and lot owners can claim. It observed that the total amount for 201 lots was $40,200,000.00 and also observed that Regulation 46 of the Home Building Regulations provided that the maximum amount of cover otherwise payable in respect of a dwelling is reduced by the amount calculated by dividing the amount of any claim paid by the insurer in relation to common property on the number of dwellings contained in the building. Accordingly, payments made in relation to common property by an insurer reduce on a pro rata basis the $200,000.00 maximum entitlement of each lot owner.

However, the court did not draw a conclusion in relation to whether or not the common property claim itself was limited to $200,000.00 or whether it was limited to, in this case, $40,200,000.00. The court said that question must await determination in a case in which it arises.

The Owners Corporation Strata Plan 70672 v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2011] NSWSC 973 (26 August 2011)

This case involved a dispute concerning The Cove in Harrington Street, Sydney. A strata management statement (“SMS”) had been registered with the strata plan. The strata scheme occupied one stratum lot the deposited plan. The second lot comprised two buildings and 76 car spaces and was owned by the Trustees of the Roman Catholic Church. The SMS apportioned the shared costs 95:5 strata sheme to church for all matters except insurance. The SMS was negotiated between Grocon, the developer and the church which provided land for the development. That negotiation covered almost two years.

The owners corporation wanted to change the ratio of the shared costs from 95:5 to 87:13. The church resisted any amendment.

The SMS contained three provisions relevant to the dispute. The first was a dispute resolution clause providing for a regime of notification, negotiation and, in the absence of resolution, expert determination binding the parties. The second provided that any amendment of the SMS required a unanimous resolution of the members. The third was a provision stating that the rights and obligations contained in the SMS represented a fair and equitable bargain between the parties and that the rights of the church may not be decreased nor its obligations increased without its express consent.

Six issues came before the court for determination.

1. It was argued by the owners corporation that they were not bound by the SMS because they were not a party to its creation. This was an argument which was easily rejected by the court pursuant to s28W of the Strata Schemes (Freehold Development) Act (“Development Act”) which statutorily binds the owners corporation irrespective of whether it may or may not have been involved in the creation of the SMS.

2. Somewhat more ingeniously the owners corporation argued that the SMS was registered in contravention of s28V(1)(i) of the Development Act because that section provides that a statement can only be registered if it was lodged with a certificate given by the secretary of the body corporate for each strata scheme (if any) for a part of the building concerned certifying that the statement is supported by a special resolution of the body corporate. Of course such an interpretation of that section would mean that it would be impossible to register an SMS upon registration of the plan because an owners corporation does not come into existence until after that registration. The Court had no difficulty in finding that the words, “if any”, meant that the section only had application if there was a strata scheme in existence and if it was none there was no requirement for the owners corporation to sign a certificate.

3. It was argued by the owners corpoaration that the SMS should be set aside under the Contracts Review Act 1980 (“CRA”) which permits contracts which are unjust to be set aside in certain circumstances. Those circumstances include whether a party was able to protect its interests and the relative bargaining positions of the parties. Essentially the owners corporation argued that as it was not created and no capacity to defend its interests in the negotiation of the SMS. The Court found that the SMS was not unjust and that the parties negotiating the SMS did so in a manner which protected the interests of the owners corporation. However, the Court found that the CRA does apply to strata management statements. Accordingly, where terms are found to be unjust remedies under the CRA will be available. These include making an order varying the strata management statement in whole or in part, declaring it void in whole or in part and refusing to enforce any provision.

4. It was argued that the SMS should be set aside for being procured in unconscionable circumstances. Again the claim of the owners corporation turned very much on the fact that it was not in existence when the SMS was created and had no pwer to bargain. The Court found that the circumstances of its creation were not unconscionable. The Court found that even if there is unequal bargaining power between parties that of itself will not operate to set aside a contract. There must be an unconscientious exploitation of the other person’s inability to look after his or her interests and this was not the case here. Again the interesting point is that in circumstances where a strata management statement is procured unconscionably the Court may operate to set it aside.

5. Can an expert appointed under the dispute resolution provisions amend the SMS? In this case the court held that the expert could not but did so because of the provisions of the clause which prohibited the amendment of the obligations and rights of the church without the church’s consent. The Court held that provision overrode the general ability of an expert to determine disputes and excluded it from the operation of the dispute resolution clause. However, the court referred to the decision of Justice Bergin in The Owners – Strata Plan 78102 v The Owners – Strata Plan 78101 & Ors [2010] NSWSC 1973 where Her Honour ultimately made orders compelling an expert determination on disputing parties to a strata management statement. In that case there was a unlimited dispute resolution clause. Where dispute resolution clauses permit a determination of such issues the SMS may be amended pursuant to that determination.

6. Can the SMS be amended under s28U(1)(b) of the Development Act? This section permits a strata management statement to be amended where an order to that effect is made a court under the Development or any other act. The Court held that that section alone does not give the Court power to amend the SMS. That section must operate in conjunction with a right to amend conferred by the Development Act or any other Act, for example, the CRA. Section 28U(1)(b) is not a source of power to amend the SMS but is the source of power to impliment an amendment.

The rights of members of a building management committee to compel amendment of an SMS without resolution are now made a clearer. An SMS may be amended:
• under the CRA where the terms can be demonstrated to be unjust within the meaning of that Act,
• where it was entered into unconscionably,
• pursuant to a determination under an appropriate dispute resolution clause contained in the SMS.