Seiwa – The Facts
Seiwa Pty Ltd (“Seiwa”) owned a residential unit in strata plan 35042 which was occupied by Mr Shojiro Azuma, the sole director and shareholder of Seiwa. Seiwa’s complaint had two aspects. The first related to the rusting of steel work that formed the framework of the enclosed balcony which comprised part of the lot. The steelwork formed part of the common property. Evidence showed that the steel uprights had rusted through just above the level of the sill. The rust damage was extreme and deprived the uprights of structural integrity. The owners corporation’s consultant advised that this posed a danger to the public and to the occupants and entrants to Seiwa’s unit. This problem was drawn to the owners corporation attention on 3 March 2003. It was not remedied until August 2005, a few weeks before the Court proceedings were commenced.
The second aspect of Seiwa’s complaint was water penetration from the patio into the living room area of the unit resulting from a defect in the waterproof membrane sitting on top of the concrete floor of the patio underneath the tiles. The Court found that the tiles and the membrane were part of the common property. The owner’s corporation was given notice of this problem by at least by 3 March 2003. On 6 November 2006, the date of the judgment, the defect remained unremedied.
Nature of Liability
An action for breach of statutory duty exists in Australia as an action separate and distinct from an action in negligence.
There are six elements to be established in an action for breach of statutory duty:
- There is a provision in an act or regulation which imposes a requirement relating to the protection of a particular class of person;
- The plaintiff comes within the protected class;
- There is an obligation imposed by the provisions on a particular class of persons;
- The defendant comes within that class;
- The person on whom the obligation is imposed has breached it; and
- The plaintiff has been injured as a result of that breach.[1]
His Honour Justice Brereton found in Seiwa that Section 62(1) of the Act imposes on an owners corporation a duty to maintain, and keep in a state of good and serviceable repair, the common property. That duty is not one to use reasonable care to maintain and keep in good repair the common property, nor one to use best endeavours to do so, nor one to take reasonable steps to do so, but a strict duty to maintain and keep in repair. [2]
His Honour went on to state that the duty to maintain involves an obligation to keep the thing in proper order by acts of maintenance before it falls out of condition, in a state which enables it to serve the purpose for which it exists. Thus the body corporate is obliged not only to attend to cases where there is a malfunction but also to take preventative measures to ensure that there is no malfunction. The duty extends to require remediation of defects in the original construction of the common property and it extends to oblige the owners corporation to do things which would not be for the benefit of the proprietors as a whole or even the majority of them.[3] His Honour concluded by saying that it follows that as soon as something in the common property is not longer operating effectively or at all, or has fallen into disrepair, there has been a breach of the section 62 duty.[4]
The strict nature of the owners corporation’s liability, as expressed by his Honour in Seiwa, was endorsed by her Honour Justice Ward in Trevallyn-Jones[5] and his Honour Associate Justice Bryson in Nicita[6].
His Honour Justice Brereton found that the strict nature of the owners corporation’s duty makes it irrelevant whether or not the owners corporation took all reasonable steps to rectify the defective common property if, at any time, it failed to meet the strict requirements of the section 62 duty.
His Honour also found that contributory negligence on the part of the plaintiff was no defence to the action although her Honour Justice Ward, in Trevallyn-Jones, expressed a view that claims of this nature may be subject to apportionment as between plaintiff and defendant pursuant to the Civil Liability Act 2002. Her Honour did not express a concluded opinion on this point.
The Western Australian Court of Appeal looked at the duty in the case of Drexel London[7]. The case involved the collapse of a common property balcony adjoining a lot. People were on the balcony at the time of the collapse. Seventeen injured parties sued a variety of defendants for damages for personal injuries including the strata company (owners corporation) for breach of section 35(1)(c) of the Strata Titles Act 1955 (WA) which is the equivalent to section 62 of the Act. The Court of Appeal found that the balcony had been built out of a type of oregon which was insufficient to provide adequate support and the balcony lacked structural integrity. It ultimately collapsed under the weight of the people on the balcony. The Court of Appeal found that a breach of section 35(1)(c) can form the basis of an action for damages, confirming Seiwa, but the Court of Appeal drew some significant distinctions.
The plaintiff claimed that section 35(1)(c) gave rise to a strict duty where neither actual or constructive knowledge of the defect nor lack of care needed to be shown to establish a breach. The Court of Appeal did not support that proposition. It found that the term “maintain” did not mean the strata company was to guarantee a continuous outcome or standard. What it meant was the process that involves acts of maintenance with the object of continuing the statutory standard.
In relation to the obligation to repair the Court of Appeal referred to the Macquarie Dictionary definition of the expression in the context “to keep in repair” meaning the condition resulting from the repair and found that “repair” means to restore to a good or sound condition after it becomes damaged. This implies that the property has existing decay or damage that is or should be known to the strata company.
The Court of Appeal thereby drew two important distinctions which qualify the absolute nature of the duty and put it at odds with the decision in Seiwa. The duty to maintain does not guarantee a continuous outcome whereby a defect automatically constitutes a breach. The duty to repair is one to restore damage or decay that is or should be known to the strata company.
The Court of Appeal approved the decision of their Honours Justices Gummow and Kirby in Northern Sandblasting.[8]That case involved an action by a tenant, whose child was electrocuted, against the landlord for failing to comply with obligations imposed on him under section 106(1)(a) of the Property Law Act 1974 (Qld) and section 7(a) of the Residential Tenancies Act 1975 (Qld) relating to the maintenance of rented premises. Their Honours concluded that the provisions did not impose an obligation in relation to defects of which the landlord was not aware and could not reasonably be expected to have been aware. The Court of Appeal said that the reasoning of their Honours in rejecting a construction which would impose absolute liability on the landlord is equally applicable to section 35(1)(c) of the Strata Act. The Court found that the strata company did not know and could not have reasonably known of the structural defect in the balcony. Even compliance with normal maintenance obligations would not have disclosed the structural defect which would have required inspection by a highly specialised tradesman and there was no fact which would have alerted the strata company to the need for such an inspection.
Drexel London is clear authority for the proposition that latent defects of which an owners corporation is not aware or ought not reasonably to be aware will fall outside the strict liability. However, whether the Court of Appeal’s definition of the nature of the obligation is accepted by New South Wales courts in the context of the Act is yet to be seen.
The final point to remember is that a breach of statutory duty is not limited to the duty imposed on an owners corporation under section 62. In Janlz[9] the lot owner successfully sued the owners corporation for a breach of the duty to insure the building under section 83 of the Act as well as a breach of section 62.
Claimants
What is the extent of the class of persons who receive the benefit of the section 62 and can recover damages for its breach?
His Honour Justice Brereton found that the duty under section 62 is owed to each lot owner[10]. The plaintiff in those proceedings was the lot owner and his Honour gave no consideration as to whether the class of claimants may be wider than just the owner. The same was true in Trevallyn-Jones and Nicita.
In Drexel London the plaintiffs were invitees to the strata scheme. The Court of Appeal considered whether they were in the class of applicants to whom the statutory duty was owed. The Court of Appeal took the view that the persons to whom the duty in section 35(1)(c) was owed would not differ according to the nature and context of the claim. The Court of Appeal also found that the legislation did not have as its sole purpose ensuring the safety of all persons lawfully present on the common property. That was only one of a number of purposes. Some of the purposes of the section were clearly not applicable to visitors to the common property, for example, the allocation of responsibility for maintaining and repairing strata property as between proprietors and the strata company. The Court of Appeal found that to be a strong indication that the legislature intended to confine the duties to the persons nominated in section 83(1) and 122(1) of the Strata Act. The equivalent sections of the Act are respectively section 138(5), which sets out those who can make an application for an adjudicator’s orders and section 226(1) which preserves the rights and remedies of specified stakeholders. The Court of Appeal said that this was further reinforced by the fact that the statutory duty and tortious duty were the same, meaning that strangers could sue on the same basis as an owner but in negligence. The Court of Appeal accordingly found that the class of persons who were protected by the obligation comprised the proprietors, the mortgagees, any person having an estate or interest in a lot, any administrator (an appointee under the Western Australia Legislation) or an occupier of a lot, including a resident.
The persons to whom section 138 of the Act apply are “interested persons” defined in the dictionary to the Act as an owner of a lot in, a person having an estate or interest in a lot in, or an occupier of a lot in, the strata scheme. The persons referred to in section 226 of the Act are an owner, mortgagee or chargee or of a lot or covenant chargee. Unlike the Western Australian legislation the persons referred to in the two sections of the Act are not identical. Section 138 does not refer to mortgagees, chargees or covenant chargees and section 226 does not refer to persons having an estate or interest in a lot or occupiers. Do these persons come within the ambit of the duty in New South Wales? The Act is sufficiently different to suggest that a New South Wales court may come to a different conclusion to the Court of Appeal in Drexel London but it is safe to conclude that owners are within the class of claimants.
[1]Australian Torts Reporter 1984 CCH Australia Limited at paragraph [4-640]
[2]Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157 at paragraph [3]
[5]Trevallyn-Jones v Owners Strata Plan 50358 [2009] NSWSC 694 at paragraph [156]
[6]Nicita v Owners Strata Plan 64837 [2010] NSWSC 68 at paragraph [13]
[7]Drexel London (a firm) –v- Gove (Blackman) [2009] WASCA 181
[8]Northern Sandblasting Pty Ltd v Harris [1997] HCA39; (1997) 188 CLR 313
[9]Janlz (No.1) Pty Ltd v Owners – Strata Plan No. 11011 (2005) District Court of NSW 499/2005, unreported
[10]Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157 at paragraph [6]
Damages
Since Seiwa the number of claims for breach of the owners corporation statutory duty under section 62 has increased. However, experience indicates that owners corporations do not fully understand the scope of the damages which can be claimed by a plaintiff for breach of the statutory duty. While owners corporations seem to understand that the offending common property must be repaired, many take the position that the repair of lot property is the obligation of the lot owner. They fail to grasp the point that it is the owners corporation’s breach of its statutory duty which has caused the damage to the lot property. A plaintiff may recover for injury which it has suffered as a result of the owners corporation’s breach of that duty.
Below is a list of damages which have been awarded by the courts in the three New South Wales cases:
Loss of rent Seiwa, Trevallyn-Jones, Nicita
Cleaning expenses Trevallyn-Jones
Damage to furniture by repairmen Trevallyn-Jones
Replacement of carpet Nicita
Restoration of cabinetry Nicita
Legal costs Nicita
In Seiwa his Honour Justice Brereton sought guidance as to the scope of damages for breach of statutory duty from the damages which are allowed for the tort of nuisance. Ordinarily, the proper basis for assessing damages for nuisance is the diminution in value of the plaintiff’s land occasioned by the breach. His Honour went on to say that reasonably foreseeable consequential losses are also recoverable including, for example, loss of custom in the case of interruption to a business conducted from the premises, costs of relocation and the costs of restoring the plaintiff’s property to its previous condition.
Both Seiwa and Nicita have confirmed that diminution in value of the lot resulting from the defective common property is a loss for which the owners corporation must reimburse the lot owner but in both cases the Court made orders in the nature of a mandatory injunction to compel the owners corporation to rectify the defective common property. In Seiwa his Honour Justice Brereton indicated that if the common property was not rectified he would award damages for diminution in value of the lot in the sum of $250,000.00. In Nicita his Honour Associate Justice Bryson indicated that if rectification was not undertaken within the time frame set by the Court damages for diminution in value would be ordered to be paid. The evidence before the court in Nicita was that the diminution in value was $680,000.00.
In Drexel London the court was asked to award damages for personal injury to the people who fell when the balcony collapsed. Even though the Court of Appeal found that there was no breach of a statutory obligation it did not consider that damages for personal injury were outside those which could be awarded by a court. In fact, most breaches of statutory duty cases outside the Act involve claims for personal injury resulting from breaches of statutory safety obligations.
In Seiwa the damages ordered to be paid were $150,000.00. In Trevallyn-Jones $54,997.80 and Nicita $234,206.20. In both Trevallyn-Jones and Nicita the court additionally awarded interest on those damages. In Janlz the plaintiff was awarded over $600,000.00.
In Seiwa the plaintiff made a claim for its costs of performing rectification work to the common property. His Honour Justice Brereton disallowed that part of the plaintiff’s claim. As stated above, his Honour found that breach of statutory duty was closely analogous to the tort of nuisance in respect of which the performance of works on the land from which a nuisance emanates so as to remove the cause of the nuisance is an act of abatement to remedy the nuisance and the costs of abatement are not recoverable unless they are the reasonable costs of mitigation and, even then, probably not allowable if they involve going onto the land of the other party.
However, the plaintiff in Seiwa did not bring a claim for the cost of the common property restoration work in restitution. If the plaintiff had done so the plaintiff may well have succeeded. Restitution is a remedy whereby a defendant is ordered to pay for a benefit received from the plaintiff where the defendant would otherwise be unjustly enriched. The party deriving the benefit must reimburse the party who performed the work the reasonable cost of doing the work. In Seiwa His Honour Justice Brereton found that it was a statutory obligation of the owners corporation to perform the repair of the defective common property. Accordingly, insofar as the plaintiff did that repair work, the owners corporation derived a benefit by not having to undertake its statutory obligation. As a result it should reimburse the owner the reasonable cost of doing that work in a claim for restitution.
Dealing with a Seiwa claim
Seiwa claims need to be taken seriously by owners corporations. An initial assessment of the validity of the claim is the starting point. On many occasions I have had agents, seemingly without any legal advice, proffer reasons why my client’s claim is not likely to succeed, reasons such as, “The owners corporation is not obliged to pay for lot property”, “Your client didn’t tell us there was a problem”, “Your client contributed to the problem”, “We fixed it as soon as possible” and “You can’t claim loss of rent because the unit was empty”. Continued stone walling and inappropriate responses only serve to increase the lot owner’s legal expenses for which the court clearly indicated in Nicita it is prepared to reimburse the lot owner.
An assessment of the defective common property needs to be made immediately and if it is the case that there is defective common property, repairs should be undertaken immediately in order to minimize damages. ANY delay in getting quotes, tendering, holding meetings, raising special levies, negotiating the contract for the works or extension of time claims does not stop or prevent the accrual of damages to a lot owner. The clock is perpetually ticking especially where loss of rent is being claimed.
The owners corporation also needs to give consideration to its insurance policies. I am told by agents on a regular basis that my client’s claim, in so far as it concerns rent and lot property, is not covered by the owners corporation’s insurance policy. By this the agents mean the building and contents policy. Seiwa claims will usually fall within the scope of the compulsory public liability policy under section 87(1)(b) of the Act. I have seen a number of Seiwa claims rejected by insurers because the claim was made on the building policy. The insurers did not alert the owners corporation to the fact that the claim fell within the scope of the public liability policy. A perusal of the latest CHU liability policy indicates that it will cover most Seiwa claims, so make sure that your claim is made properly.