Jennifer Elizabeth James v The Owners Strata Plan No. SP 11478 (No 4)

[2012] NSWSC 590

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Jennifer Elizabeth James v The Owners Strata Plan No. SP 11478 (No 4) [2012] NSWSC 590

Hearing dates:

7 and 8 May 2012

Decision date:

04 June 2012

Jurisdiction:

Equity Division

Before:

Ball J

Decision:

(1)The defendant be restrained from registering special by-laws 4 to 11 made by Mr Anderson on 19 December 2011.

(2)Within 7 days of the date of this judgment, the plaintiff withdraw caveat AG699803E.

Catchwords:

STRATA SCHEMES - whether by-laws validly made by strata managing agent appointed under s 162 of the Strata Schemes Management Act 1996 - limits on power of agent appointed under s 162 - whether agent can make by-laws concerning construction and exclusive use - whether special resolution of general meeting of owners corporation required before by-laws can be made - held agent has power to make relevant by-laws.
STRATA SCHEMES - whether agent appointed under s 162 acted improperly in exercising his powers - application of "fraud on power" and "fraud on minority" doctrines - whether agent has duty to afford procedural fairness to lot owners when making decisions - whether agent owes duty of care to lot owners when exercising powers conferred under s 162 - held agent did not act improperly.
STRATA SCHEMES - by-law authorising construction work under s 65A - whether by-law passed for purpose of "improving or enhancing the common property" - whether removal of external wall is alteration of individual lot - held by-law validly made.
STRATA SCHEMES - by-law conferring right of exclusive used under s 52 - whether agent appointed under s 162 can give consent on behalf of lot owners concerned by by-law - meaning of "owner or owners of lot concerned" - whether consent required before by-law passed - held by-laws invalidly made because no written consent of owners concerned.

Legislation Cited:

Building Code of Australia 2010
Casino Control Act 1992 (NSW)
Environmental Planning & Assessment Act 1979 (NSW)
Strata Schemes (Freehold Development) Act 1973 (NSW)
Strata Schemes Management Act 1996 (NSW)
Strata Titles Act 1973 (NSW)

Cases Cited:

British Equitable Assurance Co Ltd v Bailey [1906] AC 35
Caledonian Collieries Ltd v Spiers (1956-1957) 97 CLR 202
Chauhan v Jaynrees Services Pty Ltd [2008] NSWSC 969
Forbes v New South Wales Trotting Club Ltd (1979) 143 CLR 242
Gambotto v WCP Ltd (1994-95) 182 CLR 432
General Assembly of the Free Church of Scotland v Lord Overtoun [1904] AC 515
Heydon v NRMA Limited [2000] NSWCA 374; (2000) 51 NSWLR 1
Hinkley v Star City Pty Ltd [2010] NSWSC 1389
Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46
James v Owners Strata Plan No. SP 11478 [2011] NSWSC 1641
James v Owners Strata Plan No. SP 11478 (No 2) [2012] NSWSC 66
Peters American Delicacy Co Ltd v Heath (1939) 61 CLR 457
The Owners - Strata Plan 5709 v Andrews [2009] NSWCA 189
The Owners SP 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272
Thoo v The Owners Strata Plan No 50276 [2011] NSWSC 657
Young v Owners Strata Plan No 3529 [2001] NSWSC 1135; (2001) 54 NSWLR 60

Category:

Principal judgment

Parties:

Jennifer Elizabeth James (Plaintiff)
The Owners Strata Plan No. 11478 (Defendant)

Representation:

In Person (Plaintiff)
F C Corsaro SC (Defendant)
In Person (Plaintiff)
Jane Crittenden (Defendant)

File Number(s):

2011/407847

Judgment

1. These proceedings concern a strata unit building in Tamarama. The building consists of 6 units spread over 3 levels together with associated common property. At the rear of the building, which faces south, is a garden which is adjacent to the public path that runs along the cliff edge and from which there are spectacular views over the ocean. There are 2 units per level. The units run north-south so that each unit is bounded by the southern wall of the building. The first level is raised above the ground at the rear and access to units 1 and 2, which are on that level, is by an exterior staircase attached to the back (southern) wall of the building. That staircase also extends to the next level, where units 3 and 4 are located, although the principal means of access to those units and the only means of access to units 5 and 6, which are on the third level, is from the front of the building. The plaintiff, Ms James, owns unit 3 as joint tenant with Mr Barker.

1. On 23 December 2011, Ms James was successful in obtaining interlocutory injunctions restraining the defendant, the owners corporation of the building, from registering a number of by-laws which had been made by Mr Anderson of Advanced Community Management Pty Ltd (ACM) at an extraordinary general meeting of the owners corporation held on 19 December 2011 exercising powers conferred on Mr Anderson pursuant to his appointment under s 162 of the Strata Schemes Management Act 1996 (NSW) (the SSM Act). Ms James was also successful in obtaining interlocutory injunctions restraining the owners corporation from carrying out building works on the property involving the demolition of the existing rear stairs and the construction of balconies at the rear of the building to take advantage of the ocean views together with the construction of new stairs which would give access to units 1 and 2 only: see James v Owners Strata Plan No. SP 11478 [2011] NSWSC 1641. The injunctions obtained by Ms James were varied by orders I made on 16 February 2012: see James v Owners Strata Plan No. SP 11478 (No 2) [2012] NSWSC 66. Ms James has also lodged a caveat prohibiting the registration of the by-laws. The issue now before the court is whether Ms James is entitled on a final basis to injunctions in terms of the interlocutory injunctions she obtained (as varied) and whether the caveat that she has lodged should be removed.

Background facts

1. Prior to 2009, little work had been done on the building for many years and it was in a serious state of disrepair. There was also a long history of disputes between unitholders with the result that the executive committee had become dysfunctional. One dispute concerned a special by-law that had been passed which permitted unitholders to erect balconies at the rear of the building. Another dispute concerned special by-laws that had been passed and registered on 29 November 2001 and 2 February 2002 and amended on 27 November 2008 which gave the owners of Lots 5 and 6 exclusive use of the roof space above their respective lots. Those by-laws did not provide for the payment by the relevant unitholders of any fees in respect of the exclusive use that had been granted to them. The owner of Lot 5 was using the space above his unit as a storeroom and the owner of Lot 6 had without local council consent built stairs into the roof space and converted it into living space as well as installing a second bathroom.

1. As a consequence of these matters, on 24 February 2009, on Ms James' application, Strata Schemes Adjudicator C Paull, pursuant to s 162 of the SSM Act, appointed ACM to exercise all the powers of the owners corporation, the chairperson, secretary, treasurer and executive committee. Mr Anderson has been the employee of ACM responsible for carrying out those duties. The appointment of ACM and Mr Anderson has been extended on a number of occasions - most recently until 7 July 2012. Originally, the appointment was of ACM itself. More recently, it has been described as "Mr Anderson of ACM". However, it is not suggested by either party that anything turns on that distinction; and it is convenient in this judgment to refer to Mr Anderson as the person appointed under s 162.

1. At the same time Mr Anderson was appointed, Ms Paull revoked the special by-laws relating to the use of the roof space above units 5 and 6.

1. Following his appointment, Mr Anderson set about attending to the urgent remedial work that was required to be done on the building. Those works included the replacement of the stairs at the rear of the building. Originally, it was proposed to repair those stairs. However, Mr Anderson gave evidence that he chose to replace them when it became apparent that the costs of repairs would be approximately $80,000 more than the costs of replacement.

1. Shortly before Mr Anderson's appointment, Mr Dunkley, the owner of unit 6, had lodged a development application with the local council to construct six 3 metre balconies on the southern facade of the building. He signed that application as secretary of the owners corporation. On 5 August 2009, the council gave deferred commencement consent to the application in accordance with s 80(3) of the Environmental Planning & Assessment Act 1979 (NSW) (the EPA Act). That consent was not to operate until the council was satisfied that a fire safety upgrade report had been prepared by a suitably qualified consultant in relation to the work necessary to bring the building into conformity with the applicable code. Mr Dunkley arranged to obtain such a report from Dix Gardner Pty Ltd and appears to have dealt with the council in relation to the fire upgrade work. For example, on 28 December 2009, he sent an email to Mr Anderson, which was copied to other unitholders, saying that if the owners corporation did not proceed with the development approval that had been given, the council would issue a fire order requiring the construction of compliant rear stairs to all levels of the building. Mr Dunkley also said that, failing the acceptance of an alternate design, lots 4, 5 and 6 proposed to construct balconies in accordance with the development approval.

1. In April 2010, as the urgent remedial work neared completion, Mr Anderson sought to address the issue of the balconies. He proposed that the unitholders engage in a mediation. However, he was unsuccessful in obtaining the agreement of all unitholders to that proposal and he rightly took the view that there was no point in a mediation unless all unitholders agreed. Subsequently, he engaged Martin & Spork Pty Ltd, architects, to prepare a design for the erection of six balconies at the rear of the building. In October 2010, Mr Anderson also retained BCA Performance to review the proposed development application to be made in respect of the construction of the balconies and to make an assessment of any fire work that needed to be done in connection with that work.

1. Martin & Spork's design for the balconies was presented to the unitholders by Mr Spork at an extraordinary general meeting held on 25 November 2010. At that meeting, Mr Anderson asked the owners to express a preference on whether they wished to have rear stairs off the balconies or no rear stairs. The minutes of the meeting record the following:

Lot 1 - No stairs

Lot 2 - No stairs

Lot 3 - Stairs

Lot 4 - No stairs

Lot 5 - No stairs

Not 6 - No stairs

The minutes also record that:

Prior to closing the meeting, Mr Anderson asked if owners wish to attend mediation with Ms James. The majority view was no and the mediation was declined.

Ms James disputes the accuracy of these minutes. One thing is clear, however, and that is that Ms James objected and continues to object to the demolition of the rear stairs. It appears that at least one reason for her objection is that there would no longer be direct access to the rear garden from her unit.

1. Following the meeting, on 30 November 2010, Martin & Spork lodged a development application with the local council. That application provided for the demolition of the existing stairs at the rear of the building, the construction of a new staircase to serve level one of the building only and the construction of 6 balconies.

1. During the second half of 2010 the issue of the use of the roof space by the owners of units 5 and 6 also resurfaced. Ms James, for example, sent Mr Anderson an email dated 11 October 2010 in which she demanded that he take action in relation to that matter and threatened that if she did not hear from him "I will take legal action to address your failure to properly administrate".

1. In the meantime, the local council also started to take action in relation to the fire safety condition of the building. On 11 May 2010, it wrote to the owners corporation requiring an annual fire safety statement. It appears that, following receipt of that letter, Mr Anderson instructed Mr Zyg Ryter to provide advice on appropriate fire safety measures.

1. What happened next is unclear. However, on 16 December 2010, the local council gave notice under s 121H of the EPA Act of an intention to give a fire order.

1. Following receipt of that notice, Mr Anderson on behalf of the owners corporation engaged Martin & Spork to advise on compliance with the notice and to deal with the council in relation to it. Martin & Spork responded to the council's letter on 4 February 2011. They also engaged Exova Warringtonfire Aus Pty Ltd to provide a fire safety audit of the building. Exova delivered their report on 3 May 2011. The report recommended extensive work to be done to make the building fire compliant, including the installation of fire rated ceilings in each unit.

1. By two letters dated 20 May 2011, the council gave notice to the owners corporation that the council had made orders under s 121B of the EPA Act requiring the owners corporation to carry out fire safety upgrade works. One notice sets out details of the work required to make the building fire compliant. That work did not include the installation of fire rated ceilings between each unit. The other order related to the rear stairs. The second order was made apparently in ignorance of the fact that the rear stairs had been reconstructed and were the subject of a development application in respect of the balconies. It is not entirely clear from the evidence but it appears that the installation of fire rated ceilings was an alternative to stairs at the rear of the building which serviced all units.

1. On 15 June 2011, the council gave development approval for the construction of balconies at the rear of the building. The granting of that consent was subject to a number of conditions, including the following (condition 16):

Fire safety upgrading works being undertaken in accordance with the recommendations in Section 5 of the Fire Safety Audit Report dated 3 May 2011 prepared by James Dominguez of Exova Warringtonfire Aus Pty Ltd ...

The condition went on to list a number of modifications required by the council to the work recommended in Section 5 of the Exova report.

1. In late June 2011, the owners corporation, through Mr Anderson, engaged Martin & Spork to draw up a scope of works and to call for tenders from contractors to carry out the fire safety work that was required by condition 16 of the development approval. After receiving tenders, Mr Anderson proposed to award the contract to ABR Construction Services Pty Limited trading as Fire Safety Constructions.

1. On 17 June 2011, the council revoked the orders that it made on 20 May 2011 on the basis that the work the subject of the development approval would be completed within 12 months. That work, however, was delayed and, on 8 December 2011, following an approach to the council by Mr Anderson, the council gave notice of its intention to issue a further order under s 121B of the EPA Act. The proposed new order was in substantially the same terms as condition 16 of the development approval. It appears that the new notice was given for two reasons. First, the fees payable by the owners corporation in respect of the development approval would be lower if the work contemplated by the condition was the subject of an order under s 121B. Second, it had become apparent that the work contemplated by the development approval would not be completed within the proposed 12 month period.

1. On 15 September 2011, the council also gave notice under s 121H of the EPA Act of an intention to give an order requiring the demolition of the building work in the roof space. No order has yet issued. The position of council appears to be that, unless a development application is made seeking approval to that work, an order in the terms proposed will be issued.

1. In October 2011, Mr Anderson instructed Mr Keen of Keen Property Pty Limited to value various areas of common property on the basis that those areas would be made available exclusively to particular lot owners, including the roof space. Mr Anderson also instructed Ms Crittenden, the owners corporation's solicitor, to draft the by-laws in question.

1. As I have said, the proposed by-laws were considered at an extraordinary general meeting of the owners corporation held on 19 December 2011. Following discussion of the by-laws, Mr Anderson, in the exercise of his powers under s 162 of the SSM Act, passed a number of resolutions.

1. Resolution 2 resolved to accept the tender of Fire Safety Constructions to carry out the fire safely upgrade works and that Martin & Spork be retained to oversee that work. Resolutions 3 to 11 adopted new by-laws.

1. Resolution 3 was expressed to be passed pursuant to s 65A of the SSM Act. It provides for the adoption of a special by-law permitting the construction of six balconies on the southern side of the building in a manner set out in the by-law, and the construction of rear stairs to the southern side of the building to provide access to lots 1 and 2 only, in accordance with drawings prepared by Martin & Spork. The by-law provides that the owners corporation has the responsibility for the ongoing maintenance of the balconies and stairs.

1. The remaining resolutions were expressed to be passed pursuant to s 52 of the SSM Act.

1. Special by-law 4 gives the owner of each lot the right of exclusive use and enjoyment of the balcony to be constructed immediately adjacent to that owner's lot. The by-law provides that the owners corporation will be responsible for the maintenance of each balcony, although the by-law requires the owner to maintain the balcony in a clean and tidy condition.

1. Special by-laws 5 and 6 give the owners of lots 1 and 2 the exclusive use of the storage areas that will be created under the balconies immediately adjacent to their lots. In each case, the by-law provides that the lot owner must maintain the relevant area in a state of good and serviceable repair and must pay an annual fee of $1600 plus GST plus CPI increases for the use of that area. The amount of $1600 per annum is the annual value of the exclusive use of those areas as assessed by Mr Keen.

1. Special by-law 7 gives the owner of lot 6 a special privilege to install and maintain three air vents located on the eastern slope of the roof of the building above lot 6. That special privilege is expressed to be subject to various conditions, including a condition that the air vents will be maintained in a state of good and serviceable repair. It appears that the air vents were installed some time ago without permission and the purpose of the by-law is to regularise the existing state of affairs.

1. Special by-laws 8 and 9 give the owners of lot 5 and 6 respectively a right of exclusive use and enjoyment of the common property roof space immediately above their lots and give them special privileges to install what largely has already been installed in those roof spaces. The rights of exclusive use are subject to various conditions including a condition requiring the relevant owner to pay $3,080 plus GST per annum for the right to use that space in accordance with Mr Keen's valuation. In the case of lot 6, but not in the case of lot 5, that fee is expressed to be subject to "an annual CPI increase". It appears, however, that the absence of any reference to annual CPI increases in by-law 8 was a typographical error in the version of the resolutions signed by Mr Anderson and that the intention was that the fee provided for in that by-law would be subject to annual CPI increases. Under the by-laws, the owners corporation remains responsible for the proper maintenance of the common property, but the relevant owner is responsible for maintaining any works carried out to the common property.

1. Special by-laws 10 and 11 give the owners of lots 3 and 4 respectively a right of exclusive use of an area measuring approximately 1.2 square metres which are currently occupied by stairs which are adjacent to those two lots. It is proposed to remove those stairs in connection with the erection of the balconies. Again, the by-laws imposed a number of conditions, one of which is that the relevant owner pay an annual fee of $520 plus GST plus CPI increases for the right of exclusive use in accordance with Mr Keen's valuation. Under the terms of the by-laws, the obligation to maintain the area in a state of good and serviceable repair is placed on the owner.

1. At the time of passing the relevant resolutions, Mr Anderson also purported to execute on behalf of each owner a consent to the making of the by-laws conferring a right of exclusive use and enjoyment and special privilege in respect of each lot. Subsequently, the owners of lots 1, 4, 5 and 6 together with Mr Barker (the joint owner of lot 3), filed affidavits in these proceedings stating that they consented to the relevant by-laws.

1. As I have said, Ms James obtained interlocutory injunctions restraining the registration of the by-laws. She was unsuccessful in obtaining injunctions preventing the fire safety work from proceeding and that work is now substantially complete.

The issues

1. Ms James raises a number of objections to the by-laws. Her objections may be divided into 4 categories. First, Ms James submits that Mr Anderson did not have power to pass the by-laws under s 162 of the SSM Act. Second, she submits that Mr Anderson breached his duties in passing the by-laws. Third, she submits that special by-law 3 was not passed in accordance with the requirements of s 65A of the SSM Act. Fourth, she submits that special by-laws 4 to 11 were not passed in accordance with the requirements of s 52 of the SSM Act.

Did Mr Anderson have power to pass the by-laws?

1. Section 162 of the SSM Act relevantly provides:

(1) Order appointing strata managing agent to exercise functions of owners corporation

An Adjudicator may by order appoint a person as a strata managing agent:

(a) to exercise all the functions of an owners corporation, or

(b) to exercise specified functions of an owners corporation, or

(c) to exercise all the functions other than specified functions of an owners corporation.

(2) Order may confer other functions on strata managing agent

An Adjudicator may also order, when appointing a strata managing agent under this section, that the strata managing agent is to have and may exercise:

(a) all the functions of the chairperson, secretary, treasurer or executive committee of the owners corporation, or

(b) specified functions of the chairperson, secretary, treasurer or executive committee of the owners corporation, or

(c) all the functions of the chairperson, secretary, treasurer or executive committee of the owners corporation other than specified functions.

...

1. Ms James submitted that the powers conferred by an order made under s 162 were impliedly confined to "managerial" matters and not "constitutional issues". She also submitted, relying on s 138(3)(c) of the SSM Act, that the Adjudicator did not have power to confer a power on a strata scheme manager to amend, repeal or introduce an exclusive use by-law because the Adjudicator herself did not have that power. Section 138 gives an Adjudicator a broad power to settle disputes or rectify complaints in relation to the operation, administration or management of a strata scheme. However, that power is limited by s 138(3)(c) which provides:

(3) An Adjudicator may not make an order under subsection (1) for the settlement of a dispute or complaint:

(a) ...

(b) ...

(c) relating to the exercise, or the failure to exercise, a function conferred on an owners corporation by this Act or the by-laws if that function may be exercised only in accordance with a unanimous resolution or a special resolution (other than a special resolution under section 62(3), 65A or 65B).

Ms James appears to suggest that, because the Adjudicator did not have power to pass exclusive use by-laws, she could not by an appointment under s 162 confer that power on a strata scheme manager.

1. In my opinion, there is no merit in these submissions.

1. Section 162 is expressed in clear terms. It states that the Adjudicator may give the strata scheme manager power to exercise all the functions of the owners corporation or may place restrictions on the strata scheme manager's powers. Adjudicator Paull chose the former course in this case. One of the functions of an owners corporation is to make by-laws. Even assuming a sensible distinction could be drawn between managerial functions and constitutional functions, it is clear from the terms of appointment in this case that no restriction by reference to that distinction was placed on Mr Anderson.

1. Moreover, it is not correct to say that an Adjudicator cannot make the relevant by-laws. Although restrictions are placed on an Adjudicator's powers to make by-laws under s 138, an Adjudicator is given power under s 157 to order that an amendment to a by-law be revoked, or order that a repealed by-law be revived or order that an additional by-law be repealed if "the Adjudicator considers that, having regard to the interest of all owners of lots in a strata scheme in the use and enjoyment of their lots or the common property, an amendment or repeal of a by-law or addition of a new by-law should not have been made or effected by the owners corporation". In addition, an Adjudicator is given power under s 158(1) to make an order prescribing the making, amendment or repeal of a by-law if, among other things, the Adjudicator finds:

(a) on application made by an owner, that the owners corporation has unreasonably refused to make a by-law of the kind referred to in section 51, or

(b) on application made by an owner or owners corporation, that an owner of a lot, or the lessor of a leasehold strata scheme, has unreasonably refused to consent to the terms of a proposed by-law of that kind, or to the proposed amendment or repeal of such a by-law, or

(c) ...

The by-laws to which s 51 refers are by-laws conferring on the owner of a lot a right of exclusive use and enjoyment of the whole or any specified part of the common property or special privileges in respect of the whole or any specified part of common property.

1. It is clear from these provisions that an Adjudicator is given broad powers to amend, repeal or make by-laws, including by-laws granting exclusive use of common property or granting special privileges.

1. Section 162, like ss 138, 157 and 158, is contained in Part 4 of Chapter 5 of the SSM Act. It is clear from the provisions of that Part that the legislature intended to give Adjudicators wide powers to ensure that strata schemes are properly managed and to ensure that a mechanism is available to resolve the broad range of disputes that may arise between the owners of lots in a strata scheme. One area of possible dispute is the use of common property and the making of by-laws in relation to that use. Where those disputes are persistent and affect the proper administration of the strata scheme, one mechanism available to an Adjudicator is to appoint a manager under s 162. Adjudicator Paull chose to exercise that power in this case. It would be quite inconsistent with the purpose behind s 162 to seek to confine the power it confers in the way suggested by Ms James.

1. Ms James also submitted that, even if Mr Anderson did have the power under s 162 to make the relevant by-laws, that power could not be exercised until he called a general meeting of the owners corporation and put the resolution to a vote. This submission should also be rejected. As Hodgson JA (with whom Tobias JA and Young JA agreed) explained in The Owners - Strata Plan 5709 v Andrews [2009] NSWCA 189 at [69], if a function of the owners corporation is to be exercised by a strata managing agent pursuant to s 162, that function is not exercised by the owners corporation itself and any requirement of a general meeting has no application. In that case, it was held that the strata managing agent could initiate legal action without calling a general meeting despite the fact that s 80D of the SSM Act provides that an owners corporation or executive committee must not seek legal advice or commence court proceedings unless "a resolution is passed at a general meeting of the owners corporation approving...the taking of the action". In reaching that conclusion, Hodgson JA noted that the expression "resolution is passed" is "inapt to refer to a determination unilaterally made by a strata managing agent exercising the functions of the owners corporation": at [70].

1. Ms James submits that Andrews should be distinguished from the present case because it was concerned with a provision requiring an ordinary resolution, not a special resolution. She submits that the distinction is important because ordinary resolutions can be passed by the executive committee whereas special resolutions can only be passed by the owners corporation in general meeting: see s 21(2)(a). I do not accept that submission. In this case, Mr Anderson was given the powers of both the executive committee and the owners corporation. The fact that the owners corporation acts by passing resolutions and, in some cases, may only act by passing special resolutions, is irrelevant to the way in which a strata schemes manager exercises those powers. As Hodgson JA pointed out, where the strata managing agent is appointed to exercise all the functions of the owners corporation he or she acts in the place of the owners corporation and can disregard all meeting and voting requirements under the Act. There is no logical reason to distinguish between a provision requiring an ordinary resolution and one requiring a special resolution.

1. For these reasons, Mr Anderson did not need a special resolution passed at a general meeting of the owners corporation before making the by-laws under ss 52 and s 65A. He was entitled to pass those resolutions himself.

Did Mr Anderson act improperly in exercising the powers he did?

1. Ms James makes a broad range of complaints against Mr Anderson. It is not entirely easy to understand what all those complaints are. Ms James did not present evidence of the facts on which she relied in any coherent fashion. She sought to give evidence of those facts in a number of affidavits. However, I rejected much of the material contained in those affidavits on the basis, among others, that it was argumentative rather than evidence of what happened. Ms James also tendered a substantial number of documents, but those documents gave an incomplete and sometimes difficult to follow account of what happened. Ms James also cross-examined Mr Anderson for a substantial period of time but again it is difficult to determine from that cross-examination exactly why it is that Ms James says that Mr Anderson acted improperly. Ms James' final written submissions do not advance the position. They, too, contained a number of broad and unsubstantiated allegations.

1. Having said that, it appears that Ms James' complaints, or at least the principal ones are these:

• Mr Anderson preferred his own interests in obtaining fees and promoting various experts he retained over the interest of the lot owners;
• Mr Anderson improperly promoted the development of the building and did not pay any proper regard to the financial position of the lot owners;
• Mr Anderson did not act reasonably in making special by-laws which he knew were opposed by 50 percent of the lot owners, or alternatively he acted unreasonably in passing those by-laws without properly ascertaining the views of lot owners by putting each resolution to a vote;
• Mr Anderson failed to afford procedural fairness by not giving 21 days' notice of the proposed resolutions and by not circulating the valuations upon which he relied until 5 days before the meeting;
• Mr Anderson acted unreasonably or improperly in making by-laws giving exclusive possession of the roof space to the owners of lots 5 and 6 and exclusive use of the storage areas that would be created by the balconies to the owners of lots 1 and 2 and in accepting the valuation of Mr Keen of the roof space;
• Mr Anderson improperly used the power under s 52 of the SSM Act to pass the by-laws in relation to the roof space rather than making an application to an adjudicator for an order under s 140 (which gives an Adjudicator broad powers to order an owners corporation to consent to work proposed to be carried out by an owner or to approve work already carried out);
• Mr Anderson made misrepresentations to lot owners concerning the need to do fire work and improperly delayed the fire work in order to combine it with work on the balconies;
• Mr Anderson handled the fire work in a way which has exposed the owners corporation to costs which are far greater than it would otherwise have had to bear;
• Mr Anderson has pursued these proceedings, instructed Ms Crittenden and Mr Corsaro SC and has refused to mediate the dispute and in doing so has exposed the owners corporation to substantial costs;
• Mr Anderson was negligent in failing to make an insurance claim in respect of the non-compliant staircase.

1. Before dealing with these allegations, it is necessary to say something about the nature of Mr Anderson's legal obligations.

1. In Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46, the Court of Appeal rejected the submission that the Strata Titles Act 1973, the predecessor Act to the SSM Act, provided a code for the regulation of strata schemes so as to exclude the doctrine of fraud on the power. That doctrine was expressed in these terms by Lord Lindley in General Assembly of the Free Church of Scotland v Lord Overtoun [1904] AC 515 at 695 (quoted with approval by Handley JA, with whom Mason P and Beazley JA agreed, in Houghton v Immer at 53):

I take it to be clear that there is a condition implied in this as well as other instruments which create powers, namely, that the powers shall be used bona fide for the purposes for which they are conferred.

1. The doctrine applies to the exercise of powers conferred on shareholders in general meeting: see Peters American Delicacy Co Ltd v Heath (1939) 61 CLR 457. As Lord Lindley said in British Equitable Assurance Co Ltd v Bailey [1906] AC 35 at 42 (again quoted by Handley JA with approval in Houghton v Immer at 53):

Of course, the powers of altering by-laws, like other powers, must be exercised bona fide, and having regard to the purposes for which they are created, and to the rights of persons affected by them.

In Houghton v Immer, the Court of Appeal concluded that that principle applied equally to bodies corporate formed under the Strata Titles Act. A failure to exercise the power bona fide will entitle the person affected by the exercise to equitable relief.

1. Mr Corsaro, who appeared for the owners corporation, accepted that these principles extended to the exercise of power by a manager appointed under s 162 of the SSM Act.

1. In Gambotto v WCP Ltd (1994-95) 182 CLR 432, the High Court considered the application of the general doctrine of fraud on a power in a context where a majority sought to expropriate the shares of a minority. It rejected that in that context the test was appropriately formulated as one concerning what was "bona fide for the benefit of the company as a whole". Instead, Mason CJ, Brennan, Deane and Dawson JJ formulated the test in these terms (at 445):

In our view, such a power can be taken only if (i) it is exercisable for a proper purpose and (ii) its exercise will not operate oppressively in relation to minority shareholders. In other words, an expropriation may be justified where it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs - resulting in detriment to the interest of the existing shareholders generally - and expropriation is a reasonable means of eliminating or mitigating that detriment.

The mere fact that the expropriation might, for example, have saved the company administrative costs was not sufficient.

1. The principles stated in Gambotto apply to the compulsory destruction of rights as well as their expropriation: Heydon v NRMA Limited [2000] NSWCA 374; (2000) 51 NSWLR 1 at [577] per Ormiston AJA. They also apply to strata schemes and, in particular, to the expropriation of minority rights to a shared use of common property: Young v Owners Strata Plan No 3529 [2001] NSWSC 1135; (2001) 54 NSWLR 60 at [45] per Santow J; Thoo v The Owners Strata Plan No 50276 [2011] NSWSC at 182 per Slattery J. So, for example, in Young Santow J held that a special by-law which sought to limit the use of a swimming pool that formed part of the common property to owners of residential lots in the strata scheme was invalid because it deprived owners of lots that only gave the owner exclusive use of a car space from using the swimming pool.

1. Mr Corsaro submitted that the principles in Gambotto had no application to this case because there was no minority. There was no vote by which a majority sought to deprive a minority of a particular right. There was simply the exercise by an individual of rights conferred by the Adjudicator under s 162 of the SSM Act. I do not accept that submission. The question whether a minority has been deprived of particular rights is to be determined by reference to the consequences of the exercise of power, not the mechanism by which that power is exercised. If, for example, the consequences of a by-law made by a strata scheme manager in exercise of powers conferred under s 162 is to deprive a minority of rights that are an incidence of their ownership of a lot in a strata scheme, the exercise of the power to make that by-law must satisfy the requirements of Gambotto. It does not matter that that power is exercised by a strata scheme manager or by a majority voting in general meeting.

1. Underlying a number of submissions made by Ms James is the submission that Mr Anderson was under a duty to afford procedural fairness to the lot owners when exercising the powers conferred on him. I do not accept that submission. The duty to afford procedural fairness is an obligation that is generally imposed as a matter of public law on statutory or administrative bodies. In some cases, the duty has also been applied to private bodies which are sufficiently public in nature. So, for example, in Forbes v New South Wales Trotting Club Ltd (1979) 143 CLR 242 it was accepted that the New South Wales Trotting Club was under an obligation to afford procedural fairness before excluding someone from its race course in accordance with its rules. On the other hand, it has been held that a casino operator was not under an obligation to exercise procedural fairness in deciding whether to exclude a patron from the casino, even though a right of exclusion is given by s 79 of the Casino Control Act 1992: Hinkley v Star City Pty Ltd [2010] NSWSC 1389. That was because the casino operator was not exercising a "public power" but merely a common law right: at [169] per Ward J.

1. In the present case, Mr Anderson is not exercising a public power or something analogous to it. Although he is exercising a statutory power, that power is concerned with the administration of private property in which a number of individuals have an interest. His position is analogous to that of a receiver or an administrator of a company. When an owners corporation makes a decision that affects other owners, it is not exercising a "public power" and does not need to afford procedural fairness. In particular, the making of a by-law under ss 52 or 65A only affects the private rights, interests and expectations of other lot owners. The SSM Act sets out procedures to ensure that those rights, interests and expectations are not unfairly defeated. So long as the decision is made in accordance with those procedures, it is valid. The appointment of a strata scheme manager under s 162 does not convert what was otherwise a private power to make decisions for the management of the strata scheme into a "public power".

1. Ms James also submits that Mr Anderson owed individual lot owners a duty of care in exercising the powers conferred on him under s 162 of the SSM Act. There is no doubt that a person exercising a statutory power has a duty to do so with reasonable care. As the High Court stated in Caledonian Collieries Ltd v Spiers (1956-1957) 97 CLR 202 at 220, it is a "well-settled principle" that:

... when statutory powers are conferred they must be exercised with reasonable care, so that if those who exercise them could by reasonable precaution have prevented an injury which has been occasioned, and was likely to be occasioned, by their exercise, damages for negligence may be recovered; ...

However, it is difficult to see how Mr Anderson breached his duty of care by passing any of the resolutions he did. In any event, any breach of his duty of care sounds in damages. It does not provide a basis for granting the equitable relief sought by Ms James. Consequently, allegations that Mr Anderson breached his duty of care can be put to one side.

1. Ms James also relied on s 61(1) of the SSM Act which provides:

An owners corporation has, for the benefit of the owners:

(a) the management and control of the use of the common property of the strata scheme concerned, and

(b) the administration of the strata scheme concerned.

Ms James places particular significance on the words "for the benefit of the owners". However, in my view, whatever limitation on power that may be contained in those words, I do not think that it is any broader than the principle that the power must be exercised for the purposes for which it was conferred - in this case, the proper administration of the strata scheme.

1. In my opinion, there are a number of difficulties with Ms James' submissions on this aspect of the case. It is convenient to deal with each of the complaints made by Ms James in turn.

Mr Anderson preferred his own interests rather than those of the owners corporation

1. One difficulty with this allegation is that Ms James does not explain how it relates to the resolutions about which she complains. None of the resolutions purports to confer any benefits on Mr Anderson or ACM; and it is difficult to understand how Mr Anderson receives any benefits at all from any of those resolutions. That alone is fatal to this aspect of Ms James' case.

1. I should, however, add that in my opinion there is no factual basis for the claim. Indeed, on the material available to me, that allegation should not have been made. The evidence suggests that Mr Anderson diligently went about addressing the various problems the building faced in what were difficult circumstances. It was entirely appropriate for him to engage experts to assist him in that task. Mr Anderson engaged a number of experts in connection with the fire safety works. The precise reason each expert was engaged is not explained in the evidence. The owners corporation did not seek to give evidence of exactly what Mr Anderson did in relation to the fire safety work because it took the view that that evidence was irrelevant. As I have said, Ms James did not give a coherent account of what happened. However, she has not established that Mr Anderson engaged experts unnecessarily, let alone that he did so so that he could preserve his appointment and earn additional fees.

Promoting development without concern for the lot owners' financial position

1. This allegation seems to me to involve a mis-characterisation of what Mr Anderson did. Mr Anderson sought to address all of the issues that had brought about his appointment in the first place. Those issues included issues concerning whether the balconies should be built and, if so, in what form. They also included disputes concerning the use of the roof space by the owners of lots 5 and 6. The fact that a number of those issues concerned the development of the building rather than maintenance does not mean that it was beyond Mr Anderson's power to seek to address them. They clearly concerned the management of the building and, in particular, matters that had given rise to Mr Anderson's appointment in the first place. It was appropriate that Mr Anderson seek to address them.

1. The only resolution that was passed by Mr Anderson that involved the significant expenditure of money was the resolution to accept the tender of Fire Safety Constructions to carry out the fire safety upgrade works. I will say more about that resolution later. However, it cannot be an abuse of power for Mr Anderson to accept a tender to carry out work required by an order of the local council made under s 121B of the EPA Act. The resolutions concerning the balconies may in the future involve the expenditure of money. But that will require a further decision of the owners corporation; and again, it is difficult to see how a resolution that enables the owners corporation to carry out work in the future in relation to a matter that had been the subject of dispute for a considerable period of time could be regarded as an abuse of power by Mr Anderson.

Making special by-laws that were opposed by 50 per cent of lot owners or without putting matters to a vote

1. The first point to observe about this complaint is that it is factually incorrect. The evidence is that the owners of lots 1, 4 and 6 and Mr Barker, the joint owner of lot 3, were in favour of the resolutions passed by Mr Anderson. Mr Gibson, the owner of lot 5, sold his unit on 22 December 2011 to Mr Hannes. Mr Hannes says that he is in favour of the resolutions. Given Mr Gibson's previous support for the balconies and his desire for approval for the use of the roof space by him, in my view it can be inferred that he supported the resolutions. There is no evidence of the attitude of the owner of lot 2.

1. In addition, Mr Anderson was under no obligation to put any of the resolutions to a vote. The matters that were the subject of the resolutions were matters that affected the proper administration of the strata scheme. Indeed, as I have said, they were all matters that needed to be resolved in order for the scheme to function properly. Consequently, there can be no basis for the claim that they were not matters properly the subject of resolutions passed by Mr Anderson.

The failure to afford procedural fairness

1. As I have said, Mr Anderson owed no obligation to afford procedural fairness. But even if he did, he did not breach it. He sent unitholders a memorandum on 18 October 2011 indicating that he proposed to hold a general meeting to discuss by-laws dealing with the matters that ultimately became the subject of the by-laws passed on 19 December 2011. He gave notice of the actual meeting on 9 December 2011. In circumstances where the issues that were the subject of the resolutions had already been the subject of a great deal of debate over a lengthy period of time, that was, in my opinion, adequate notice. Mr Anderson gave each unitholder who attended that meeting, including Ms James, an opportunity to comment on the proposed resolutions, which Ms James did. He also circulated the valuations on which he relied 5 days before the meeting. There was no reason why he was required to circulate those valuations any earlier. In those circumstances, Ms James was not denied procedural fairness.

Making exclusive use by-laws and accepting the valuations of Mr Keen

1. As I have said, it was within Mr Anderson's power to make by-laws concerning the use of common property, particularly where those by-laws were made to resolve long-standing disputes between the unitholders. In making those by-laws, it was also within Mr Anderson's power to engage an expert to obtain advice on the value to be given to the exclusive use of the relevant common property. Mr Anderson was entitled to accept those valuations. Even if he was negligent in doing so, that does not establish that the making of the by-laws was an abuse of power.

1. To the extent that Ms James asserts that the exclusive use by-laws made by Mr Anderson infringe the principles stated in Gambotto, in my opinion, there can be no basis for that allegation. The effect of a number of the by-laws is to deprive owners generally of the use of common property by giving exclusive use of that property to individual unitholders. In my opinion, the principles stated in Gambotto do not apply in that situation. Those principles are concerned with cases where the rights of a minority are affected by resolutions which are generally passed by a majority. They are not concerned with cases where a majority, or a person exercising the powers of a majority, confer rights on a minority in accordance with the provisions of the SSM Act. However, even if that is wrong, there can be no question of the power being exercised oppressively or other than for a proper purpose in this case. The roof space is of use only to the owners of lots 5 and 6. They have been using that space for some time. As a result of the by-laws, they will be required to pay for the exclusive use of that space. Section 52 of the SSM Act, which is discussed below, expressly contemplates that a unitholder may be given exclusive use of common property. This is a clear case where that is appropriate. The same can be said of the by-laws which grant exclusive use of other areas of common property to particular unitholders.

1. In addition, in my opinion, Ms James has not established that the valuations on which Mr Anderson relied were flawed. Ms James' principal objection is to the valuation of the roof space. Mr Keen valued that space by taking the market value of a completed 2 level unit of comparable size to units 5 and 6 including the roof space occupied by them. He then deducted the market value of the existing lot (that is, of lot 5 or lot 6) to arrive at a developed value of the roof space above each lot of $257,000. Mr Keen then deducted 15 per cent to take account of the profits and risk of development and the development costs, which he estimated to be $150,000, to arrive at a figure of $68,450 as the undeveloped value of each roof space. He then deducted a further 20 per cent to take account of the fact that what was proposed was to grant a right of exclusive use rather than to sell that space to the owners of lots 5 and 6 to arrive at a lump sum value for the exclusive use of the roof space of $54,760. He then expressed the view that an appropriate gross return per annum on the space was 4.5 per cent, producing an annual fee of $3,080. The by-laws made by Mr Anderson adopt that figure and make provision for the payment of GST and CPI increases. The approach taken by Mr Keen does not appear to be inherently unreasonable. Ms James did not lead any evidence from an expert to suggest otherwise. In those circumstances, in my opinion, it was reasonable of Mr Anderson to accept that valuation. Certainly, there can be no suggestion that Mr Anderson acted in fraud on his power by doing so.

The failure to make an application to an adjudicator under s 140 of the SSM Act for approval to work in the roof space

1. There is no reason why Mr Anderson was required to make an application under s 140 when he was given power under s 162 to deal with the matter himself.

Complaints concerning the fire safety works

1. Ms James raises a number of complaints with how Mr Anderson dealt with the fire safety works. One difficulty with those complaints is that she does not explain how they relate to the resolutions in question. The only resolution Mr Anderson passed that had any connection to those works was the resolution accepting the tender of Fire Safety Constructions and appointing Martin & Spork to oversee that work. There can be no question that, as a result of the notice from council, those works had to be carried out. There is no suggestion that Mr Anderson should not have accepted Fire Safety Constructions' tender to carry out that work or engaged Martin & Spork to supervise that work.

1. The allegation that seems to lie behind the complaints Ms James has made about the fire safety works is the allegation that the initial report obtained from Mr Ryter suggested that only limited work needed to be done, and if that work had been done promptly that would have addressed the fire safety issue. Instead, according to Ms James, Mr Anderson insisted on combining the fire safety work with work on the balconies and requested the council to issue a fire safety order in terms of the condition imposed on the development consent for that work, with the result that it has been necessary for the owners corporation to undertake extensive and very expensive fire safety work. But that complaint is flawed for a number of reasons. There is no reason to suppose that the council would not ultimately have required the work referred to in the Exova report to be done. Ms James did not, for example, lead any evidence to suggest that the work referred to in the Exova report was unnecessary to comply with applicable standards or that the council would accept something less than that work. Whatever the history of the matter, faced with the Exova report it clearly did not involve an abuse of power for Mr Anderson to act on it. Similarly, it was not an abuse of power for Mr Anderson to form the view that that work ought to be undertaken to bring the building up to an appropriate level of fire safety irrespective of the attitude of the council. Nor can Mr Anderson be criticised for obtaining a comprehensive report on such a significant matter.

1. Moreover, it was not an abuse of power for Mr Anderson to seek to address the issue concerning the balconies. That was one of the issues that had caused the executive committee to become dysfunctional; and, until it was addressed, the likelihood is that the owners corporation would not be able to function normally. It was sensible in that context to seek to combine the fire safety work with any additional work that might be needed to be done for the balconies to avoid duplication. When work on the balconies did not proceed within the time scale originally proposed by Mr Anderson, he sought a fire order in terms of the work that needed to be done. As Mr Anderson explained, that was a means of reducing the fees otherwise payable by the owners corporation in respect of that work. Again, it was clearly not an abuse of power for Mr Anderson to do that.

Incurring legal costs and failing to mediate

1. There is no merit in this allegation. The owners corporation is defending proceedings brought by Ms James. Mr Anderson sought the unitholders' agreement to mediation. Not all unitholders would agree. In those circumstances, there was nothing more that Mr Anderson could have done. Certainly, there is no basis for suggesting that it was an abuse of Mr Anderson's power to seek to defend court proceedings brought by Ms James; and it is difficult to see how the failure to arrange a mediation concerning the matters that became the subject of by-laws made by Mr Anderson meant that those by-laws involved an abuse of power.

Failure to pursue an insurance claim

1. This complaint is not explained in the evidence. It was never put to Mr Anderson in cross-examination. At most, it would lead to a claim in damages against Mr Anderson or ACM. It is irrelevant to the validity of the resolutions passed by Mr Anderson.

Was special by-law 3 passed in accordance with s 65A of the SSM Act?

1. Section 65A relevantly provides:

(1) For the purpose of improving or enhancing the common property, an owners corporation or an owner of a lot may take any of the following action, but only if a special resolution has first been passed at a general meeting of the owners corporation that specifically authorises the taking of the particular action proposed:

(a) add to the common property,

(b) alter the common property,

(c) erect a new structure on the common property.

(2) A special resolution that authorises action to be taken under subsection (1) in relation to the common property by an owner of a lot may specify whether the ongoing maintenance of the common property once the action has been taken is the responsibility of the owners corporation or the owner.

(3) If a special resolution under this section does not specify who has the ongoing maintenance of the common property concerned, the owners corporation has the responsibility for the ongoing maintenance.

(4) A special resolution under this section that allows an owner of a lot to take action in relation to certain common property and provides that the ongoing maintenance of that common property after the action is taken is the responsibility of the owner has no effect unless:

(a) the owners corporation obtains the written consent of the owner to the making of a by-law to provide for the maintenance of the common property by the owner, and

(b) the owners corporation makes such a by-law.

(5) A by-law made for the purposes of this section:

(a) may require, for the maintenance of the common property, the payment of money by the owner concerned at specified times or as determined by the owners corporation, and

(b) ...

1. Ms James submits that special resolution 3 was not passed in accordance with s 65A for two reasons. First, she submits that it was not passed for the purpose of "improving or enhancing the common property" because exclusive use to the property is given to particular owners. Second, she submits that the effect of the by-law is not simply to alter or to add to common property. It also alters the property of Ms James' lot.

1. I do not accept either of those submissions.

1. The balconies will improve or enhance common property because they will be added to common property; and there can be little doubt that they represent an improvement because they will enable unitholders to enjoy the ocean views. The fact that unitholders are given exclusive use of particular balconies does not prevent the balconies from being common property, any more than exclusive use of other common property affects its character as common property.

1. As to Ms James' second submission, the dictionary in the SSM Act defines "common property" as so much of the parcel as from time to time is not comprised in any lot. It defines "lot", in relation to a freehold strata scheme, as having the same meaning as in the Strata Schemes (Freehold Development) Act 1973.

1. Section 5(1) of the Strata Schemes (Freehold Development) Act defines "lot" in the following terms:

...one or more cubic spaces forming part of the parcel to which a strata scheme relates, the base of each such cubic space being designated as one lot or part of one lot on the floor plan forming part of the strata plan...to which that strata scheme relates, being in each case cubic space the base of whose vertical boundaries is as delineated on a sheet of that floor plan and which has horizontal boundaries as ascertained under subsection (2)...

"Floor plan" is relevantly defined in part (a) of the definition in s 5(1) as a plan which "defines by lines...the base of each vertical boundary of every cubic space forming the whole of a proposed lot, or the whole of any part of a proposed lot, to which the plan relates".

1. In determining the vertical boundaries of a cubic space, s 5(2)(a)(i) provides that, unless the boundaries are described otherwise on the floor plan, they are "where the base of any wall corresponds substantially with any line referred to in paragraph (a) of that definition [of a floor plan] - the inner surface of that wall".

1. The result is that the boundary of Ms James lot is the inner surface of the wall of her unit as marked on the floor plan for the strata scheme. Consequently, the external wall itself is common property because it is not comprised in any lot.

1. What is meant by saying that the boundary is the inner surface of a wall is not entirely clear. In The Owners SP 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272, the Court of Appeal held that the boundary was fixed by reference to the boundary as it existed at the time of registration of the strata plan. So for example, if a lot had a wooden floor at the time of registration that wooden floor would form the boundary. Consequently, it would be part of common property and the owners corporation would be responsible for maintaining it. On the other hand, if the wooden floor was laid after registration on top of the existing floor, then it would be on the lot side of the boundary and responsibility for its maintenance would rest with the lot owner. Implicit in this analysis is that the boundary itself as it existed at the time of registration does not form part of a lot. As a result, the inner surface of a wall, for example, is itself common property. It seems to follow from this analysis that if the wall was painted at the time of registration of the strata plan the paintwork itself would be the boundary and responsibility for its maintenance would rest with the owners corporation - a result that Tobias JA accepted in Seiwa was "ridiculous": at [41]. On the other hand, if the wall was not painted, then any paintwork would be on the lot side of the boundary and responsibility for its maintenance would rest with the lot owner. Applying this analysis strictly leads to further difficulties where the original paintwork is painted over.

1. In the context of the allocation of responsibility for maintenance, these principles create problems which, as Tobias JA pointed out in Seiwa, can only be satisfactorily resolved absent legislative amendment by clearly defining the boundaries at the time of registration of a floor plan.

1. However, the issue in the present case is somewhat different. The question is whether the owners corporation is entitled to remove part of the existing exterior wall and replace it with glass doors opening onto a balcony. The wall itself is clearly common property. The only question is whether the interior paintwork on the wall is within individual lots and, if so, the consequences of that for the validity of the by-law.

1. The answer to the first question is unknown. It is unknown whether the original units were painted at the time of registration of the strata plan and, if they were, whether the existing paintwork is within the lot or forms part of the boundary.

1. However, in my opinion, whatever the answer to that question, the owners corporation is entitled pursuant to a resolution made under s 65A to alter or replace common property. That means that it is entitled to alter or replace the external walls provided that the boundary of any lot is not itself altered. If the consequence of making those alterations is to damage paintwork that belongs to lot owners, then the owners corporation may be liable for that damage under s 65(6) of the SSM Act. But the fact that that damage will occur does not mean that the common property itself cannot be altered.

Were special by-laws 4 to 11 passed in accordance with s 52 of the SSM Act?

1. Section 52 applies where a by-law confers a right of exclusive use and enjoyment of the whole or any specified part of the common property on one or more owners or special privileges in respect of a common property on one or more owners: see SSM Act s 51. It relevantly provides:

(1) An owners corporation may make, amend or repeal a by-law to which this Division applies, but only:

(a) with the written consent of the owner or owners of the lot or lots concerned ...

(b) in accordance with a special resolution.

(2) ...

(3) After 2 years from the making, or purported making, of a by-law to which this Division applies, it is conclusively presumed that all conditions and preliminary steps precedent to the making of the by-law were complied with and performed.

Section 54(1) relevantly provides:

A by-law to which this Division applies must:

(a) provide that the owners corporation is to continue to be responsible for the proper maintenance of, and keeping in a state of good and serviceable repair, the common property or the relevant part of it, or

(b) impose on the owner or owners concerned the responsibility for that maintenance and upkeep.

1. There is a question of what is meant by the expression "the owner or owners of the lot or lots concerned". In Young v Owners Strata Plan 3529 [2001] NSWSC 1135; (2001) 54 NSWLR 60, Santow J took the view that it was a reference to each lot owner affected by the grant of the right of exclusive possession. That included the lot owner who obtained the right of exclusive possession and each lot owner who could be said to have lost a right of possession as a consequence of the exclusive grant: see [42]. On the other hand, in Chauhan v Jaynrees Services Pty Ltd [2008] NSWSC 969 Young CJ in Eq, without specifically referring to the decision of Santow J, took the view that the "lots concerned" were "the lots in which special privileges relate to under the by-law": at [63].

1. I prefer the view of Young CJ in Eq. Under s 18 of the Strata Schemes (Freehold Development) Act 1973, on registration of the relevant strata plan, the common property of the plan vests in the owners corporation. Under s 62 of the SSM Act the owners corporation has an obligation to maintain and repair that property and under ss 51 and 52 of the SSM Act it is given power in certain circumstances to give individual lots owners special privileges or exclusive rights in relation to that property. Section 52 sets out the organ through which the owners corporation must act in those circumstances - that is, through a general meeting passing a special resolution. Moreover, the SSM Act gives individual lot owners extensive rights to challenge a decision of an owners corporation under s 52. Nonetheless, it is the owners corporation that owns the property and it is vested with the power to deal with it in accordance with s 52. Within that framework, the owners of the lots "concerned" with the proposed resolution are the owners on whom the rights and privileges are conferred. They are concerned because their individual rights are affected by the proposed resolution. That is not true of other lot owners. Those lot owners may be indirectly affected by a by-law made under s 52 but that is not sufficient to make them persons concerned in the by-law.

1. The conclusion of the previous paragraph is supported by s 54(1)(b) of the SSM Act. The reference to "the owner or owners concerned" in that section is clearly a reference to the owner or owners on whom the rights or special privileges are conferred. Section 52 gives the owners corporation power to make the relevant by-law and sets out how it is to be made. Section 54 sets out that such a by-law must set out who (the owners corporation or the owners concerned) is responsible for maintaining the common property the subject of the by-law. In the context, it must have been intended that the expression "the owner or owners concerned" would have the same meaning in both sections. In addition, it is difficult to see why, if the consent of all lot owners who have an indirect interest in the by-law is required, s 52 also requires a special resolution of the owners corporation. It would be an unusual case where each lot owner is not concerned in that sense. But if that is the case, it is difficult to see why the legislature would not simply have required the consent of all lot owners and have dispensed with the requirement of a special resolution.

1. Ms James raises a number of objections to the resolutions passed under s 52 of the SSM Act. First, she submits that Mr Anderson could not give consent on behalf of individual lot owners to the by-laws. Second, she submits that the "owners concerned" in the by-laws were all the lot owners, particularly in the case of the by-laws relating to the use of the roof space. Third, she submits that the consent had to be given before the relevant resolutions were passed. Fourth, she submits that the form of the resolutions required two consents - one to the repeal of pre-existing by-laws and one to the new by-laws.

1. I have already rejected Ms James' second submission. In my opinion, only the consent of the lot owner on whom the right of exclusive possession is conferred and the obligation to pay a fee is imposed is required. In addition, I do not accept Ms James' fourth submission. There is no reason why Mr Anderson could not by one resolution both repeal an old by-law and make a new one.

1. However, I accept Ms James' first and third submissions.

1. When a lot owner gives consent under s 52, the lot owner is not giving that consent as an organ of the owners corporation. Rather, the lot owner is giving that consent in a personal capacity. The requirement of consent is necessary because that owner's personal rights will be affected by the by-law. Under s 162 of the SSM Act, Mr Anderson is given the powers of the owners corporation, the executive committee and office bearers of the executive committee. He is not given any of the powers given to an individual lot owner under the Act. Consequently, his purported consent on behalf of individual lot owners is ineffective.

1. Section 52 of the SSM Act provides that the owners corporation may "make" a by-law under that section "but only" with the written consent of the owner or owners of the lot or lots concerned. The by-law is made by the owners corporation, but a pre-condition to making the by-law is the required consent. In my opinion, the owners corporation "makes" a by-law when it passes a valid resolution adopting the by-law in accordance with the relevant requirements of the SSM Act. That conclusion is supported by s 52(3) which provides for a conclusive presumption that "all conditions and preliminary steps precedent to the making of the by-law" were complied with after two years. Section 52(3) draws a distinction between the making of the by-law and the conditions and preliminary steps precedent to the making of the by-law. The use of the words "preliminary" and "precedent" indicate that those steps are steps to be taken before the making of the by-law. One such step must be the obtaining of written consent. Section 52(3) is saying (among other things) that that condition or preliminary step precedent is conclusively presumed to have taken place if no challenge is made to the by-law within two years.

1. In my opinion, there is also a practical reason for interpreting s 52 as requiring written consent before a resolution is passed. That reason is that lot owners may well want to know whether written consent is forthcoming before voting on the resolution. The powers conferred by s 52 cannot operate any differently because they are being exercised by Mr Anderson under s 162 rather than by the owners corporation.

1. The owners corporation submits that the by-law is not "made" until it is registered in accordance with s 48(1) of the SSM Act. That section provides:

An amendment or repeal of a by-law or, a new by-law, has no force or effect until:

(a) the owners corporation has lodged a notification in the form approved under the Real Property Act 1900, in the Registrar-General's office, and

(b) the Registrar-General has made an appropriate recording of the notification in the folio of the Register comprising the common property.

I do not accept that submission. Section 48 is not concerned with the making of a by-law. It is concerned with when a by-law that has already been made becomes effective.

1. It follows that each of resolutions 4 to 11 passed by Mr Anderson on 19 December 2011 was not validly passed. Those resolutions could only be validly passed with the prior written consent of each lot owner affected by the relevant by-law.

The caveat

1. The caveat lodged by Ms James seeks to prohibit the recording of any dealing. It is expressed too broadly in its current form. Having regard to the injunctions to which Ms James is entitled, the caveat serves no useful purpose. In my opinion, it should be withdrawn.

Costs

1. Ms James has been successful in obtaining a number of injunctions. However, she has not been successful in obtaining an injunction in respect of special resolution 3 and she failed in a number of submissions that she made in relation to the other resolutions. In those circumstances, my preliminary view is that each party should bear their own costs of the proceedings. However, if the parties cannot agree on costs, I will hear further submissions before making a final order in relation to costs.

Orders

1. The court makes the following orders:

(1)   The defendant be restrained from registering special by-laws 4 to 11 made by Mr Anderson on 19 December 2011.

(2)   Within 7 days of the date of this judgment, the plaintiff withdraw caveat AG699803E.

1. In addition, if the parties cannot reach agreement in relation to the question of costs within 7 days of the date of this judgment, the matter should be relisted by contacting my Associate to deal with that question.

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Amendments

05 June 2012 - typographical error

Amended paragraphs: 97

Decision last updated: 05 June 2012