October 2010

 

VOTING BY ATTORNIES AT MEETINGS

The rights of an attorney to vote at a meeting are not unrestricted and the power of attorney document must conform with the proxy provisions of the Act.

The Supreme Court has upheld the right of an attorney, appointed pursuant to a power of attorney, to vote at general meetings of an owners corporation. However, the Court said that the attorney could only cast a valid vote if the attorney was appointed as a proxy by a proxy appointment form that complied with the strata laws, and that the attorney could not rely on the power of attorney document itself to vote.

Quest Rose Hill Pty Limited v White [2010] NSWSC 939 concerned a strata title apartment building that operates as a serviced apartment scheme in Rosehill, Sydney. The serviced apartment scheme was set up by the developer pursuant to an arrangement under which it leased all of the units and the common property in the building to Quest Rose Hill Pty Ltd (“Quest”).
The leases over the units gave Quest certain powers which it could use to influence the votes cast at meetings of the owners corporation and executive committee. The leases placed all of the lot owners under an obligation to vote in accordance with the reasonable directions given by Quest at any meetings of the owners corporation and the executive committee, and appointed Quest as the owners’ irrevocable attorney to attend and vote at any such meetings, even to the exclusion of the owners if present, but required Quest to exercise these powers in good faith. These voting powers were backed up by a deed which each owner signed upon buying into the serviced apartment scheme.
A dispute erupted between Quest and the owners about the extent to which Quest could use its voting powers to control the affairs of the owners corporation and the executive committee. Quest wanted to use its voting powers quite extensively to influence the decisions made by the owners corporation and the executive committee and this was met with considerable resistance by some owners who wanted to be able to vote for themselves.
The owners argued that Quest’s voting powers were illegal for various reasons including because they contravened the strata laws which give every owner a right to vote at meetings.
The Court held that Quest’s voting powers, whilst legal, were not unlimited. The Court said the owners would only need to vote in accordance with Quest’s voting directions if those directions were reasonable. The voting directions given by Quest had to be for the purpose of allowing Quest to better conduct its business from the building or to ensure that the owners complied with their obligations under the leases (and not for other matters).
Quest could only vote as the attorney of the owners to ensure the reasonable voting directions it gave owners were followed and then only if the owners failed or refused to vote in accordance with those directions or the owners did not attend a meeting to vote in accordance with them. The owners were under an obligation to take reasonable steps to ensure that the strata laws relating to proxies were complied with to allow Quest to vote on their behalf, as their proxy, at meetings of the owners corporation, where Quest was able to exercise those voting powers.
Finally, the owners were entitled to attend and vote at any meeting of the owners corporation and, if elected as a member of the executive committee, to vote at executive committee meetings, although the votes cast by owners would need to comply with any reasonable voting directions given by Quest.
For these reasons, the Court held that Quest’s voting powers were not as wide as first thought and, consequently, those powers were not illegal.
One of the most interesting points to come out of the case is the discussion by the Court about Quest’s ability to vote as the attorney of the owners pursuant the powers of attorney contained in the leases over the units. The Court said that a power of attorney will count as a proxy under the strata laws, and the holder of a power of attorney will be able to vote at general meetings, provided the holder is appointed as a proxy by a proxy appointment form that complies with the strata laws. Because the powers of attorney contained in the leases did not comply with the prescribed form for the appointment of a proxy under the strata laws, the Court held that the powers of attorney, by themselves, did not give Quest a right to vote at meetings. However the owners fell under an obligation to do whatever was reasonably necessary to appoint Quest as their valid proxy under the strata laws by completing a proxy appointment form and providing it to the owners corporation.
What this means is that attorneys who wish to vote at general meetings of an owners corporation, but who have not been appointed as a proxy by a proxy appointment form that complies with the strata laws, cannot vote unless the power of attorney document complies with the requirements for proxy appointment forms under the strata laws. It would be rare for a power of attorney to meet all of the requirements for a proxy appointment form under the strata laws and therefore, in general, an attorney cannot vote at a meeting unless and until he or she is appointed as a proxy pursuant to a compliant proxy appointment form.

ALTERATIONS AND ADDITIONS TO COMMON PROPERTY MUST BE APPROVED BY SPECIAL RESOLUTION

The NSW Court of Appeal has upheld the decision of the Supreme Court in Stolfa’s case. The Court of Appeal has clarified the important distinction between repairs and improvements to common property, and confirmed that authorisation to alter, add to or erect new structures on common property does not need to be absolutely precise.

The Facts of the Case

Stolfa’s case concerned a three lot residential strata scheme in Rose Bay, Sydney. The owners fell into dispute over building works to the lots and common property and the case centred around a dispute concerning works done to a void area on common property and the enclosure of a verandah.
The Void Works
The void had extensive damp, cracked walls and water leakage. It required repair. Work was done to the void to carry out the necessary repairs but that work also improved and enhanced the void. For example, a concrete slab replaced timber flooring. The Stolfas complained that the work to the void was never properly authorised because the owners corporation did not pass a special resolution pursuant to section 65A of the Strata Schemes Management Act 1996 (“Strata Act”) which it must do to authorise work that will improve or enhance the common property.
The Court of Appeal held that if all of the work to the void satisfied the description in section 62 of the Strata Act as repair and maintenance, the work did not need to be approved by a special resolution under section 65A. The Court said the Strata Act should not be interpreted so as to require the owners corporation to act, to fulfil its duty to repair common property, but then place a voting barrier in its path, by requiring it to pass a special resolution to comply with its duty to repair under the Strata Act.
The Verandah Enclosure
The Stolfas also complained that the enclosure of the verandah of lot 3 was never approved by the owners corporation. The Court accepted that the enclosure of the verandah improved and enhanced the common property and therefore, to be authorised, required a special resolution under section 65A of the Strata Act. However, the Court held that the verandah enclosure was authorised by the owners corporation by two special resolutions passed at separate meetings held about 6 months apart. The first resolution gave approval for “lot 3 to enclose the attached verandah at a future time” and the second resolution approved “amended plans for lot 3” which depicted the verandah enclosure.
An area of controversy, which the Court did not conclusively resolve, was the degree of precision required to fulfil the requirements of section 65A. Section 65A calls for a special resolution that “specifically authorises the taking of the particular action proposed” that will improve or enhance the common property. The Court said it would be a question of degree as to whether any given special resolution is adequate in its specificity of authorisation and in its particularity as to the action proposed. The Court noted that there was an obvious policy requiring direct and specific attention to the proposed action but that, at the same time, an overly pedantic attention to detail could frustrate an otherwise clear authorisation.
Ultimately, the Court said that common sense and reasonableness had their part to play in the operation of a piece of legislation which was intended to regulate how people go about dealing with the common property in their units in everyday life.
Other Issues
The Court also accepted that it could be possible for an owners corporation to authorise repairs to the common property without ever passing a specific resolution authorising the work if all of the owners knew about the work, did not object to it, agreed to raise a levy to fund the work, permitted a contract to be signed by the owners corporation for the work and let the owners corporation pay for the work.
The Court also held that a resolution of an owners corporation approving the lodgement of building plans with a local council could operate to approve the plans themselves and authorise an owner to build to those plans. In Stolfa’s case a special resolution was passed in the following terms: “Resolved that the amended plans as tabled…are approved and are witnessed by all persons present approving their lodgement with Woollahra Municipal Council by signing all amended plan pages.” The Court said that this was not just a resolution approving lodgement of the plans with the Council but that the plans themselves were approved as a separate and distinct part of the resolution. The Court held that, considering the conduct of the affairs of this owners corporation in the period leading up to the resolution being passed, the resolution was an approval to act on the plans once the Council had approved them.
Important Points
The Stolfa case raises a number of important issues for owners corporations and strata managers. The most significant ones are as follows:
·                     If there is work done to the common property, and all of the work maintains and repairs the common property, the work can be authorised by an ordinary resolution and does not require a special resolution even if it improves or enhances the common property.
 
·                     Alterations or additions (not repairs) that will improve or enhance the common property must be specifically authorised by a special resolution passed under section 65A of the Strata Act, but the resolution does not have to address each and every minor detail of the work, as long as there is clear authorisation for the work.
 
·                     Any resolution approving plans for lodgement with a local council needs to be carefully worded to ensure that an approval to build to the plans is not given, if that is not intended.

AGENTS MUST ENSURE CONTRACTS ARE PROPERLY SIGNED

The Supreme Court has delivered a message to managing agents to take care and ensure that documents executed on behalf of an owners corporation are done so properly and in accordance with the law.
 
Strata Managers must sign Contracts correctly in order for them to be binding
Strata managers often sign contracts on behalf of owners corporations. The strata laws allow this to occur. But what happens when a strata manager does not sign a contract correctly? Is the contract legally binding on the owners corporation? If the contract is not legally binding, but the owners corporation thinks that it is, what happens then? These important questions were recently considered by the NSW Court of Appeal in Waldorf Apartment Hotel, The Entrance Pty Limited v Owners Corp SP 71623 [2010] NSWCA 226.
The Waldorf Case
In the Waldorf case, an owners corporation and Waldorf entered into a 10 year building management agreement during the initial period for the strata scheme. The owners corporation was not allowed to appoint a building manager in the initial period for a term that extended beyond its first annual general meeting: see section 113(1)(c) of the Strata Schemes Management Act 1996 (“Strata Act”). Presumably for this reason, immediately after the first annual general meeting, the owners corporation held an extraordinary general meeting and passed a resolution approving the affixing of its common seal onto the building management agreement by the strata manager. However the seal was never affixed to the agreement.
Later, the owners corporation and Waldorf signed a deed which purported to confirm the building management agreement. The deed was signed by the strata manager. However, the strata manager did not write into the deed the date on which she affixed the common seal of the owners corporation to the deed as required by section 238(3) of the Strata Act.
Was the Building Management Agreement Binding?
The Court of Appeal held that the executive committee never authorised the deed and upheld the Supreme Court’s finding that the deed was not effective, and was not legally binding on the owners corporation, because it had not been correctly signed by the strata manager, as the requirements of section 238 of the Strata Act had not been met. So the Court concluded that because the deed was never approved and the strata manager did not insert the date on which she affixed the common seal onto the deed, as required by section 238 of the Act, the deed was not legally binding. The Court of Appeal also held that because the building management agreement was entered into during the initial period for a term extending beyond the first annual general meeting, it was void and did not bind the owners corporation. However, the dispute did not end there.
Could a Binding Agreement be Created by the Owners Corporation’s Conduct?
The owners corporation had assumed that the building management agreement was legal and binding and had fulfilled its obligations under the agreement for over five years. Waldorf did likewise. Consequently, the Court of Appeal held that a contract between the owners corporation and Waldorf came into existence, based on the parties’ conduct, and that the terms of that contract were identical to those found in the building management agreement, including its duration. Therefore, the owners corporation was bound by a contract which was identical to the building management agreement.
However, Waldorf had used electricity provided to the common property for several years, at the cost of the owners corporation, without disclosing this or obtaining the owners corporation’s consent or reimbursing the owners corporation for the increase in its electricity bills that were attributable to Waldorf’s electricity consumption. The Court of Appeal upheld the Supreme Court’s finding that Waldorf’s conduct was such a significant breach of the contract that arose between the parties that the owners corporation was entitled to terminate the contract. So, in the end, the owners corporation was able to get out of the contract.
Lessons to be Learnt
The Waldorf case delivers an important message for strata managers. Any strata manager who signs a contract on behalf of an owners corporation needs to make sure that the contract is signed correctly, and in accordance with section 238(3) of the Strata Act, for example, by ensuring that the date on which the common seal of the owners corporation is affixed to the contract is written into the contract, otherwise the contract may not be legally binding on the owners corporation and the other party to it.
The case also sends an important message to owners corporations. If an owners corporation has a written agreement which is not binding but, nonetheless, it thinks that the agreement is binding and fulfils all of its obligations under the agreement for several years, a new and valid contract may come into existence, on all of the same terms and conditions as the invalid agreement, because of the owners corporation’s conduct. Therefore, any owners corporation looking to get out of a written agreement on the basis that the agreement is not binding (because, for example, it was never authorised or not properly signed) needs to carefully consider whether a valid contract will have subsequently come into existence because of its conduct.

SUPREME COURT INDICATES IT WILL AMMEND STRATA MANAGEMENT STATEMENT IN SOME CIRCUMSTANCES

In a decision handed down 1 September 2010 (The Owners – Strata Plan No. 78102 v The Owners – Strata Plan No. 78101 & Ors [2010] NSW SC 973) Her Honour Chief Justice in Equity Bergin had to consider a case where two owners corporations who were at odds over the dispute resolution process for effecting change to the shared facility provisions of the strata management statement binding them.
 
 
The plaintiff owners corporation embarked upon the dispute resolution process and obtained the formal appointment of an expert for determining the appropriate proportions for contributions to shared facilities. At that point the defendant owners corporation wrote to the nominating authority and the expert indicating that it would not give effect to any decision of the expert and accordingly the appointment of the expert would be fruitless. The expert’s determination became derailed at that point when the expert refused to make a determination without the defendant’s express consent, which was withheld, and the nominating authority refused to nominate another expert. The plaintiff sought orders from the court appointing an expert and compelling the defendant owners corporation to do all things necessary to implement that expert’s determination.
 
Her Honour did not make any orders of the nature sought, adjourning the matter in order to allow the parties to come to agreement but Her Honour made it clear that if agreement could not be reached the Court would make orders that the parties confer for the purpose of agreeing on an expert to be appointed to determine the dispute regarding the proportion of the shared costs. Her Honour indicated that the express provisions to the SMS required the BMC, in circumstances where the expert found that amendment was necessary, to pass the necessary unanimous resolution, cause the chairperson to sign the minutes recording the unanimous resolution and register the amended SMS at the Department to record the change. Her Honour indicated that if required to do so the Court would make such orders.
 
However, Her Honour left unanswered two key legal questions. Firstly whether a member of a BMC can invoke the provisions of s28U(1)(b) of the Strata Schemes (Freehold Development) Act to seek an order from the Supreme Court for the amendment of a SMS or whether that section can only be used where the amendment is made under another provision of that Act or some other statute. She did state that, “the fact that the SMS is a registered document available for inspection seems to me to support the proposition that the Court has a broad power to amend an SMS in circumstances that justify such an amendment.”
 
The second issue was the extent to which a term can be implied into a SMS. Again Her Honour found that it was not required for Her to make a finding however Her judgment did lean towards the Court of Appeal decision in Idya Pty Ltd v Anastasiou (2008) NSWCA 108 to the effect that an SMS could be treated as a commercial contract and that the relevant principles of implied terms relating to commercial contracts also applies to an SMS.
 
As a final side issue the plaintiff sought damages from the lot owners in the defendant owners corporation. One lot owner defended that damages claim. Her Honour found that in the circumstances where there was no evidence to indicate that the lot owner in question had voted in favour of any potentially offensive motion no case for damages was made out and found against the plaintiff and in favour of that defendant. No decision has been made in relation to the other lot owners.
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