Lin v The Owners - Strata Plan No 50276

[2004] NSWSC 88

Reported Decision: (2005) NSW ConvR 56-105

Supreme Court

CITATION:	Lin & Anor v The Owners - Strata Plan No. 50276 [2004] NSWSC 88
HEARING DATE(S):	30/04/03, 01/05/03, 07/10/03, 08/10/03, 09/10/03, 10/10/03, 16/02/04, 17/02/04, 18/02/04, 19/02/04, 20/02/04
JUDGMENT DATE:	12 March 2004
JUDGMENT OF:	Gzell J
DECISION:	Mandatory injunction granted requiring the defendant to connect the plaintiffs' shops to its exhaust ventilation system stayed to enable the defendant to up-grade the system and an inquiry as to damages by a Master.
CATCHWORDS:	REAL PROPERTY - Strata and related titles and occupancy - Whether an owners corporation was required to up-grade an exhaust ventilation system to service the needs of a lot owner - Whether an owners corporation could refuse a lot owner access to common property under its power of management and control on the basis that the exhaust ventilation system was overloaded - Whether the exercise of that power was a fraud on the minority, a breach of statutory duty or a breach of by-laws - Whether damages were available in negligence - Whether a representation of availability of access to the exhaust ventilation system constituted estoppel by promissory representation or estoppel by convention
LEGISLATION CITED:	Strata Schemes (Freehold Development) Act 1973 Strata Schemes Management Act 1996 Supreme Court Act 1970
CASES CITED:	Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 Young v Owners - Strata Plan No 3529 (2001) 54 NSWLR 60 Luke v Luke (1936) 36 SR (NSW) 310 Moisley v Mahony [1950] VLR 318 Bull v Bull [1955] 1 QB 234 Goodtitle v Tombs (1770) 3 Wils KB 118 (95 ER 965) Platt v Ciriello [1998] 2 Qd R 417 Proprietors of Strata Plan No 6522 v Furney [1976] 1 NSWLR 412 Burns v National Coal Board 1957 SC 239 Strata Plan No 30234 v Margiz Pty Ltd (1993) 32 NSWLR 294 Proprietors of Strata Plan 159 v Blake (1986) CCH Strata Titles Cases 30-068 Redlands Bricks Ltd v Morris [1970] AC 652 Gambotto v WCP Ltd (1994-1995) 182 CLR 432 Heydon v NRMA Ltd (2000) 51 NSWLR 1 Vatcher v Paull [1915] AC372 at 378 Nocton v Ashburton [1914] AC 932 Lubrano v Proprietors of Strata Plan No 4038 (1993) 6 BPR 97457 Avenhouse v Hornsby Shire Council (1998) 44 NSWLR 1 Perre v Apand Pty Ltd (1999) 198 CLR 180 The Commonwealth v Verwayen (1990) 170 CLR 394
PARTIES :	Jack Lin - First Plaintiff Shirley Lin - Second Plaintiff The Owners - Strata Plan No. 50276 - Defendant
FILE NUMBER(S):	SC 2008/03
COUNSEL:	Mr M D Young - Plaintiffs Mr V F Kerr - Defendant
SOLICITORS:	Rutland's Law Firm, Solicitors & Notary - Plaintiffs Dexter Healey, Solicitors - Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

FRIDAY 12 MARCH 2004

2008/03 JACK LIN & ANOR v THE OWNERS - STRATA PLAN NO 50276

JUDGMENT

1 The plaintiffs acquired three contiguous lots in Strata Plan 50276 in the Food Court area of the Hunter Connection in Sydney. The defendant is the owners corporation. Two of the lots were subdivided into two lots. Applications to connect improvements in shops fitted out in the lots to the exhaust ventilation system and the drains and waste lines were rejected by the defendant.

2 The plaintiffs sought injunctive relief and an enquiry as to damages. They argued they had a right in common with other lot owners to the use and enjoyment of the exhaust ventilation system and the drains and waste lines as common property and their exclusion from the common property should be remedied by the relief claimed.

3 “Common property” was defined in the Strata Schemes (Freehold Development) Act 1973, s 5 to mean so much of a parcel as was not comprised in a lot. A “lot” was defined in the same provision to mean one or more cubic spaces that formed part of the parcel to which a strata scheme related, the base of each such cubic space being designated as a lot or part of lot on the floor plan forming part of the strata plan. The horizontal boundary of a lot was defined in s 5(2)(a)(ii), where any floor or ceiling joined a vertical boundary of the cubic space, as the upper surface of the floor and the under surface of the ceiling.

4 Portion of the exhaust ventilation system was contained in the space above the ceilings of the plaintiffs’ lots. In one shop, an exhaust hood in the ceiling was connected by ducting to the system. Connection to the drains and waste lines was through the floor of the lots to the space above the ceilings of the lots on the floor below. The exhaust ventilation system and the drains and waste lines therefore constituted common property of the strata plan.

5 The Strata Schemes (Freehold Development) Act 1973, s 18(1) provided that upon registration of a strata plan, any common property in the plan vested in the body corporate. A note to the Strata Schemes Management Act 1996, s 8 said that the owners corporation established on registration of a strata plan for a strata scheme under that provision was the same as a body corporate for a strata scheme previously established under the Strata Schemes (Freehold Development) Act 1973.

6 The Strata Schemes (FreeholdDevelopment) Act 1973, s20 (b) provided that the estate or interest of a body corporate in common property vested in it was held by the body corporate as agent for the proprietors of lots as tenants in common in shares proportional to the unit entitlements of their respective lots.

7 The notion of an agency in this context is odd. If common property is vested in the owners corporation for the benefit of the lot owners, one would expect the relationship to be that of trustee and beneficiary rather than that of agent and principal. That something more than the relationship of principal and agent was intended by the legislation was clear from the terms of the Strata Schemes (FreeholdDevelopment) Act 1973, s 24(2) which spoke of the beneficial interest of a proprietor of a lot in the estate or interest in the common property held by the body corporate as agent for that proprietor.

8 It is not surprising, then, that the nature of the interest of a lot owner in the common property has been described as an equitable interest as a tenant in common with other lot owners (Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 at 56) and as a proprietary right (Young v Owners – Strata Plan No 3529 (2001) 54 NSWLR 60 at 64).

9 There is, in relation to co-ownership, a unity of possession. An equitable tenant in common with another is entitled, concurrently with the other, to possession of the property and neither is entitled to turn the other out (Luke v Luke (1936) 36 SR (NSW) 310 at 313-314, Moisley v Mahony [1950] VLR 318 at 320, Bull v Bull [1955] 1 QB 234 at 238). An ousted co-owner could sue for ejectment and mesne profits (Goodtitle v Tombs (1770) 3 Wils KB 118 (95 ER 965)).

10 In Houghton, a body corporate subdivided a lot and common property on the roof of a building to create two penthouse lots and authorised the transfer to some of the lot owners of the interests in the common property in the penthouse lots for $1. It was held that the resolution authorising the appropriation of the former common property for the exclusive benefit of some lot owners was a fraud on the minority and voidable in equity.

11 It was submitted on behalf of the plaintiffs that in light of the obligations of the defendant under the legislation and under its by-laws, this was as strong a case for relief as was Houghton.

12 The Strata Schemes Management Act 1996, s 62(1) required an owners corporation to properly maintain and keep in a state of good and serviceable repair the common property. Section 62(2) required an owners corporation to renew or replace any fixtures or fittings comprised in the common property. These obligations were excluded under s 62(3) if an owners corporation determined by special resolution that it was inappropriate to maintain, renew, replace or repair a particular item of property and its decision would not affect the safety of building, structure or common property nor detract from any appearance of any property in the strata scheme. No such special resolution was passed by the defendant.

13 The Strata Schemes Management Act 1996, s 51 and s 52 enabled a body corporate to grant exclusive use and enjoyment of common property to its lot owners. The provisions applied to a by-law conferring on a specified owner or owners of lots a right of exclusive use and enjoyment of, or special privileges with respect to, the whole or a specified part of the common property. Such a by-law could only be made, amended or repealed with the written consent of the lot owners concerned and in accordance with a special resolution.

14 In Young it was held that concerned lot owners included those who were adversely affected by the by-law. Again, no such by-law was made by special resolution of the defendant and the consent of the plaintiffs was not sought to their exclusion from the use and enjoyment of the exhaust ventilation system. It was submitted on behalf of the plaintiffs that the defendant had created exclusive rights of use and enjoyment of the exhaust ventilation system in favour of those lot owners already connected to it without following the procedure laid down in the Strata Schemes Management Act 1996, s 51 and s 52.

15 The Strata Schemes Management Act 1996, s 44(1) provided that the by-laws for a strata scheme bound the owners corporation and lot owners to the same extent as if the by-laws had been signed and sealed by the owners corporation and each lot owner and contained mutual covenants to observe and perform all provisions of the by-laws. Section 42(2) made the by-laws set forth in Schedule 1, by-laws of the strata scheme.

16 As well as the obligation under the Strata Schemes Management Act 1996, s 62, by-law 21.1(e) provided that the defendant should have the power and authority to repair and maintain and renew and replace as might be necessary from time to time any equipment, machinery or installation used or capable of use by it and situated upon or adjacent to the common property.

17 By-law 29.1(o) defined the term “services” to mean all services or systems of whatsoever kind in the Shopping Arcade known as the Hunter Connection. By-law 22.1 required the defendant to ensure the Shopping Arcade was open and all services were available and operational during specified hours.

18 By-law 22.2(a) required the defendant to operate the Food Court area with sound management and business practice with due diligence and efficiency and by-law 22.2(b) required the defendant to cause the Food Court area to be adequately staffed and the fittings and equipment in it continuously cleansed, replaced and renewed maintaining at all times adequate seating, tables, equipment and staff for at least, at any one time, 250 patrons of the Food Court.

19 By-law 26.1(b) required the defendant to keep in a state of good and serviceable repair and properly maintained, the fixtures and fittings used in connection with the common property.

20 These obligations upon the defendant are to be viewed in the context of by-law 30.1 which restricted the use of lots in the Food Court area to the provision of food (take away and eat in) and services (specifically excluding fashion but including a supermarket).

21 The defendant submitted that the general rights of lot owners stemming from their equitable interests in the common property were circumscribed by the defendant’s powers of management and control of the use of the common property and by its by-laws and the defendant was entitled to refuse the plaintiffs access to the exhaust ventilation system as it was overloaded.

22 The Strata Schemes Management Act 1996, s 61 was amended during the course of the trial. Nothing, in my view, turns upon the amendment. In its amended form, s 61(1)(a) provided that an owners corporation had, for the benefit of the owners, the management and control of the use of the common property. Section 61(2)(a) provided that the owners corporation had responsibility for maintaining and repairing the common property.

23 There was a tension in the legislation between the rights of lot owners as the equitable owners of the common property and the rights of control, management and administration of that property by the owners corporation as the legal owner.

24 The legislation restricted the rights of lot owners with respect to common property. The Strata Schemes Management Act 1996, s 51 and s 52 were an example. Section 117(1)(b) was another. It provided that a lot owner could not use or enjoy the common property in such a manner or for such a purpose as to interfere unreasonably with the use or enjoyment of the common property by any other occupier of a lot or any other person entitled to the use and enjoyment of the common property. Section 117(1)(c) similarly proscribed the use or enjoyment of common property so as to interfere unreasonably with the use or enjoyment of any other lot by the occupier or any other person entitled to the use or enjoyment of that lot.

25 There were also restrictions upon the owners corporation’s powers of management and control of the use of common property. It was implicit in the special power in the Strata Schemes Management Act 1996, s 51 and s 52 that the general power of management and control did not extend so far as granting exclusive use and enjoyment or special privileges over common property.

26 In Young, a lot in a strata plan conferred the right to car parking spaces and an interest in the common property including the right to use a swimming pool, but conferred no residential rights. The owners corporation proposed to make a by-law limiting the use of the common property to those who owned residential lots. It was held that the Strata Schemes Management Act 1996, s 52 applied to the proposed by-law and it could not be made without the consent of those deprived of the use of the common property.

27 Implicit in that decision is the proposition that an owners corporation’s power of management and control of the use of common property does not extend to overriding the proprietary right that a lot owner has in that common property. That proposition is also implicit in the court’s conclusion that the doctrine of fraud on the minority was capable of application in relation to the contemplated expropriation of minority rights to a shared use of a relevant part of the common property

28 Similar provisions were considered in Platt v Ciriello [1998] 2 Qd R 417. The dispute was between the only lot owners in a strata plan. The appellants objected to the respondents using the common property for display stands, signs, tables and chairs, rubbish bins and pallets and the use of a sign seeking to restrict the use of a parking space or spaces for the use of customers of the respondents’ business. The body corporate, controlled by the appellants, resolved to write to the respondents advising them that they were in breach of the legislation and should cease the activities forthwith.

29 The appellants sought to justify the resolution as the decision of the body corporate exercising power, management and control of the use of the common property under the equivalent of the Strata Schemes Management Act 1996, s 61(1)(a). They submitted that that power prevailed over the equivalent of s 117(1)(b).

30 McPherson JA at 428 said that the power of the body corporate to manage and control the use of the common property had to be read as being subject to the right he implied in the equivalent of the Strata Schemes Management Act 1996, s 117(1)(b) of a proprietor to use and enjoy common property without unreasonably interfering with the entitlement of others to do the same.

31 Ambrose J agreed with McPherson JA. He pointed out that any use of common property excluded others from the same use at the same time and the exclusive use referred to in the equivalent of the Strata Schemes Management Act 1996, s 51 and s 52 was the sort of use a lot owner made of his lot.

32 Pincus JA at 420 took the view that if the equivalent of the Strata Schemes Management Act 1996, s 51 and s 52 were not exercised, the ordinary right of the lot owner not to be excluded from any part of the common property subsisted. His honour rejected the notion that the right to use and enjoy common property so as not to interfere unreasonably with the use and enjoyment by others was implied in the equivalent of s 117(1)(b). It was a prohibition that said nothing about the legality of uses that did not constitute a nuisance.

33 With respect to the majority, I prefer the approach taken by Pincus JA. In light of the interest in common property vested in lot owners under the equivalent of the Strata Schemes (Freehold Development) Act 1973, s 20(b), there was no reason to imply a right to the use and enjoyment of common property under the equivalent of the Strata Schemes Management Act 1996, s 117(1)(b). Its function was to prevent uses that caused unreasonable interference to others.

34 It is also implicit in Pincus JA’s decision in Platt that the power of management and control in the equivalent of the Strata Schemes Management Act 1996, s 61(1)(a) cannot exclude the use and enjoyment of common property conferred on lot owners under the equivalent of the Strata Schemes (Freehold Development) Act 1973, s 20(b).

35 The defendant sought to justify the exclusion of the plaintiffs from the use and enjoyment of the common property in a number of ways.

36 The defendant relied upon by-law 5(1) in the Strata Schemes Management Act 1996, Schedule 1. It provided that an owner or occupier of a lot could not mark, paint, drive nails or screws or the like into, or otherwise damage or deface, any structure that formed part of the common property without the approval in writing of the owners corporation.

37 It was submitted that the connection of exhaust hoods in the shops of the plaintiffs to the exhaust ventilation system would bring this by-law into operation. It was submitted that no approval had been given under it by the owners corporation.

38 The injunctive relief claimed in the amended summons sought to restrain the defendant from preventing the connection of the plaintiffs’ lots to the exhaust ventilation system. The submission that by-law 5(1) was enlivened was based, pedantically, on relief claimed in that form.

39 This matter was set down for hearing by the Expedition List Judge as a matter of urgency. There was no statement of claim and defence defining the issues. If I were minded to grant injunctive relief, I would do so in the form of a mandatory injunction requiring the defendant to cause the plaintiffs’ lots to be connected to the exhaust ventilation system. I would, if necessary, of my own motion order that the amended summons stand amended accordingly. In those circumstances by-law 5(1) would have no operation.

40 In similar vein was the defendant’s submission that by-law 19.1 was invoked. It provided that a proprietor or occupier of a lot should not affect any alteration or addition to the internal walls or structural features of the lot without obtaining necessary local authority approval as well as the prior approval in writing of the defendant. The reliance upon by-law 20.1 was also misconceived. It provided that a proprietor or occupier of a lot should not, without the authority of the defendant, operate, adjust or interfere with the operation of any equipment or services installed in or upon the common property.

41 The defendant also relied upon by-law 21.1(a) which conferred power on it to provide for the management and administration of the lots and common property and by-law 21.1(h) which conferred the power and authority to permit proprietors, lessees and occupiers of lots to use any part of the common property for any purpose approved by it. For the reasons already given, I am of the view that these powers of management and control, as with those powers in the Strata Schemes Management Act 1996, did not entitle the defendant to exclude the plaintiffs from the use and enjoyment of the exhaust ventilation system as common property.

42 The defendants next submitted that the view of Pincus JA in Platt was to be preferred to that of the majority and, on that basis, the defendant was entitled to exercise the power conferred by the Strata Schemes Management Act 1996, s 61(1)(a) and refuse the plaintiffs access to the exhaust ventilation system. I reject that submission. As I have indicated, it is implicit in his Honour’s decision that the power to manage and control the use of common property does not extend to excluding a lot owner from the use and enjoyment of common property.

43 Finally, on this issue, the defendant submitted that the use of the exhaust ventilation system proposed by the plaintiffs was in breach of the Strata Schemes Management Act 1996, s 117(1)(b) and s 117(1)(c) because it would unreasonably interfere with the use and enjoyment of the common property and other lots by occupiers of those other lots.

44 The defendant argued that the exhaust ventilation system was overloaded and to allow the plaintiffs to connect to it would adversely affect the system and the use and enjoyment by other lot owners of the system and their lots.

45 A great deal of time at the hearing was devoted to tracing the history of alterations to the exhaust ventilation system, the use made of it by other lot owners and proposals for up-grading the system. There were contradictions in this evidence and a disparity of view between the experts called on both sides as to its capacity.

46 The resolution of those conflicts is immaterial to this issue. If, as the defendant contends, the exhaust ventilation system was incapable of servicing the plaintiffs’ lots, the defendant was in breach of its duties to maintain and replace the system and cannot be heard to plead its own default in answer to the plaintiffs’ claim that they were wrongly excluded from enjoyment of their proprietary right.

47 The proposals to up-grade the exhaust ventilation system involved further ducting and, in one case, further fans. The defendant argued that these proposals constituted additions to the exhaust ventilation system and the obligation to renew or replace fixtures or fittings in the Strata Schemes Management Act 1996, s 62(2) related back to the requirement in s 62(1) to maintain properly and keep in a state of good and serviceable repair. It was submitted that the obligation to renew or replace was limited to parts that were no longer in a state of good and serviceable repair.

48 I reject that submission. When the equivalent of the Strata Schemes Management Act 1996, s 62(1) stood alone in the legislation, Needham J in Proprietors ofStrata Plan No 6522 v Furney [1976] 1 NSWLR 412 at 416 held that repair extended to the addition of things like draft resisters on doors and waterproofing flashings that had not been included in the original building. His Honour cited Burns v National Coal Board 1957 SC 239 at 246 where Lord Patrick said:

“It is true that the primary meaning of the word ‘repair’ is to restore to sound condition that which has previously been sound, but the word is also properly used in the sense to make good. Moreover, the word is commonly used to describe the operation of making an article good or sound, irrespective of whether the article has been good or sound before.”

49 The equivalent of the Strata Schemes Management Act 1996, s 62(2) was inserted into the legislation after Furney.

50 In Proprietors - Strata Plan No 30234 v Margiz Pty Ltd (1993) 32 NSWLR 294 at 297 McLelland CJ in Eq contrasted the duty to renew or replace with the duty to repair. His Honour concluded that the latter duty did not extend to replacement of a discrete system forming part of the common property, such as an air conditioning system, by a new or different system. Such a replacement as that, his Honour concluded, would be governed by the duty to renew or replace.

51 I respectfully agree with his Honour’s view. It was also the view of Yeldham J in Proprietors of Strata Plan 159 v Blake (1986) CCH Strata Titles Cases 30-068. An air-conditioner that serviced the ground floor of a shopping arcade, ceased to function. It was costly to repair or replace. The body corporate resolved not to do so. It argued that its power of management and control of the common property gave it a discretion whether or not to comply with the duties cast upon it by the forerunners of the Strata Schemes Management Act 1996, s 62(1) and s 62(2). It was held that those duties were mandatory and could not be overridden under the power of management and control in the forerunner of s 61(1).

52 The plaintiffs, in common with other lot owners, have a right to use and enjoy the exhaust ventilation system. The only way in which that can be done in all but one of the shops in the lots owned by the plaintiffs is to install a hood in or below the ceiling of the lots and to install ducting in the common property connected to the existing ducting of the system. That is the way in which the defendant has provided access to the exhaust ventilation system to other lot owners. To suggest that the defendant is under no duty to provide such access because it involves additions to the common property is specious.

53 The cost of such a connection might be charged by an owners corporation to the lot owner concerned, but to deny access is not only in breach of the Strata Schemes Management Act 1996, s 62(2) under which the duty to renew or replace extends to the addition of new parts, but it also infringes the proprietary right of a lot owner to have possession of the common property.

54 In my opinion, the defendant had a duty to add new ducting, fans and risers to the exhaust ventilation system in the Hunter Connection to increase its capacity to service all lot owners in the Food Court area who might seek reasonable access to the system. And the defendant had a duty to have installed additional ducting in the common property to link new hoods in those lots to the exhaust ventilation system.

55 With respect to either type of addition, an owners corporation could exercise its power of management and control. For example, it might require that it approve the contractor who should carry out the work and it might dictate when the work should be carried out. It might require the lot owner concerned to bear the cost of connection of a hood to the system. It might require a lot owner seeking an excessively large hood to seek the approval of the local authority for a smaller one. It might require all lot owners seeking access to the exhaust ventilation system to lodge plans and specifications for its approval. But it could not, as in this case, refuse access altogether to the common property.

56 In my view, the plaintiffs have made out a case of wrongful interference with their proprietary right to the use and enjoyment of the exhaust ventilation system as common property. A mandatory injunction of the enforcing kind requiring the defendant to connect exhaust hoods in their shops to the exhaust ventilation system is an appropriate remedy.

57 The defendant submitted that I should not grant injunctive relief because the plaintiff did not follow the adjudication procedure in the Strata Schemes Management Act 1996, Ch 5. A like submission was rejected in Houghton at 52. It was pointed out that the forerunner of s 226(1) was a complete answer to the submission. It provided that nothing in the Act derogated from any rights or remedies that any lot owner might have in relation to any lot or common property apart from the Act.

58 I will grant a mandatory injunction. I will hear the parties on its specific terms. I would have thought that the hoods could be identified with respect to development application or construction certificate plans. I will also hear the parties on who should bear the cost of connection of the hoods. I would have thought that the plaintiffs should do so but the defendant’s practice in this regard is not clear to me and there is evidence that it bore the cost of rectifying unauthorised connections to the exhaust ventilation system by some lot owners.

59 The question remains whether I should stay execution of the mandatory injunction.

60 There is conflict in the testimony of the experts as to whether the exhaust ventilation system could accommodate a further 3,070 litres per second of exhaust capacity, estimated to be the amount needed to service the hoods in the plaintiffs’ shops. Mr Briggs, the expert called for the defence, said the system was originally designed to cater for 9,145 litres per second and, taking account of hoods that were not being used which might be closed off, the exhaust requirement stood at 16,635 litres per second.

61 Mr Hopkins, who was called by the plaintiffs, referred to a 13,960 litre per second requirement including that for the plaintiffs as against a performance at 12,572 litres per second after work had been done on the exhaust ventilation system in June 2002. That figure, it was argued, was based upon a report of June 2001 that did not take account of improvements to the system after that date.

62 There was a difference between the experts as to whether the use of woks for cooking required a higher exhaust capacity under Australian Standard 1668.2 for mechanical ventilation for acceptable indoor-air quality. The recommended exhaust flow rate for a hood against a wall for general cooking was 0.4. That for a barbeque was 0.6. Mr Briggs adopted the higher rate for wok cooking while Mr Hopkins adopted the lower.

63 The other major difference between the experts was the extent of unused capacity. Mr Briggs applied the 0.6 factor to the entire area under the hoods where wok cooking was involved. Mr Hopkins apportioned the areas under each hood to their actual use and applied lower rates to those areas he observed being used for other functions such as frying and boiling for which lower capture velocities were recommended under the standard.

64 There was also a difference between the experts as to the extent of the non-utilisation of the exhaust ventilation system by lot owners and the extent to which unused hoods could be closed off and the system rebalanced.

65 In considering whether a stay should be granted, it does not seem to me to be necessary to resolve this conflict. If Mr Hopkins’ view is correct, the exhaust ventilation system is at marginal capacity to deal with the requirements of lot owners and any change in the current use of cooking equipment might cause an overloading of the system.

66 Mr Hopkins’ firm proposed an up-grade of the exhaust ventilation system by 6,000 litres per second in early September 2002. There was a subsequent proposal by his firm to increase the capacity of the system by 10,000 litres per second. The defendant appointed a project manager to advise it on the system and to put a contract for its up-grade out to tender. That project has stalled because the original tender document did not include removal of ceilings.

67 Notwithstanding the current lack of progress, I am of the view that it is inappropriate to impose a mandatory injunction upon the defendant with the exhaust ventilation system in its current state. I will grant a stay of execution of the order for a reasonable period to enable the proposed up-grade of the system to be carried out. I will hear the parties on the terms of the stay.

68 The plaintiffs are also entitled to damages for their losses from the time of refusal of access to the exhaust ventilation system to the time their shops are connected to it. They are so entitled at common law for the wrongful interference with their proprietary rights. As Lord Upjohn explained in Redland Bricks Ltd v Morris [1970] AC 652 at 664 equity comes to the aid of the common law by granting an injunction to restrain the continuance or recurrence of the wrongful act. The plaintiffs do not need the aid of the Supreme Court Act 1970, s 68.

69 The defendant maintains that it did not exclude the plaintiffs from the exhaust ventilation system until 7 April 2003. It was submitted that this was the first time that the executive committee considered the fit out plans for the shops in the plaintiffs’ lots. At that meeting they approved connection to the drains and waste lines but rejected connection to the exhaust ventilation system on the basis that its capacity had already been exceeded and a project manager had been commissioned to prepare a full report and plans for an up-grade.

70 By early October 2002, development applications for the fit out of the plaintiffs’ shops F7/F8, F9, F10, F11 and F12A had been granted by the City of Sydney Council. Each of the fit out plans contained a hood for connection to the exhaust ventilation system.

71 On 25 October 2002, the strata manager gave notice of an executive committee meeting to be held on 31 October 2002 to consider a motion that the owners corporation approve connection to the exhaust ventilation system by tenants in shops F9 and F10 subject to the provision of a certificate by a qualified tradesperson confirming exhaust flow requirements had been met.

72 On 29 October 2002, the plaintiffs informed the strata manager that the shops identified in the notice were in error and the shops intended to be connected were F7/F8 and F11. The strata manager prepared a letter of 29 October 2002 identifying the substituted shops.

73 On 31 October 2002, the plaintiffs were present in person and other members of the executive were present by proxy. The minutes of that meeting recorded that it was resolved, as amended in terms of the letter of 29 October 2002, that the tenants in shops F7/F8 and F11 be permitted to connect to the exhaust ventilation system subject to the presentation to the centre manager of a certificate from a qualified person that all statutory and other requirements had been met. The minutes recorded that the motion was carried by five votes to four.

74 The defendant submitted that the resolution was ineffective. It submitted that a resolution could not be passed by a combination of persons present and proxy votes: the two methods of voting were said to be mutually exclusive. It was submitted that there was no evidence that the notice of meeting or the letter of the 29 October 2002 were displayed on a notice board; the proxy forms were for an owners corporation meeting and not for an executive committee meeting; the letter of 29 October 2002 was not provided more than 72 hours prior to the meeting; three members of the executive said they did not receive that letter; there was no quorum present in person; and the representative of the strata manager who chaired the meeting was not authorised to do so.

75 It is unnecessary to resolve these issues because it was no part of the plaintiffs’ case to prove that approval had been given to connect to the exhaust ventilation system: the gravamen of their case was the refusal of the defendant to allow them access to it.

76 A meeting of the executive committee was held on 4 December 2002. It was attended by eight of the nine members of that committee. The minutes of the executive committee of 31 October were not confirmed. One of the committee members, Peggy Cheng, advised the meeting that she did not receive the letter of 29 October 2002 and her vote in favour of the connection of shops F9 and F10 was not a vote in favour of the connection of shops F7/F8 and F11. Mrs Cheng gave evidence in the proceedings. She did not explain why the substitution of another two shops for those specified in the notice made a difference. In any event, the vote was six against and two for affirming the earlier minutes.

77 In my judgment, the defendant through its executive committee on 4 December 2002 refused the plaintiffs access to the exhaust ventilation system. I will refer to a Master an inquiry into and determination of the damages sustained by the plaintiffs as a result of this refusal from that date to the date their shops are connected to the exhaust ventilation system under the mandatory injunction. I will hear the parties on the appropriate terms of this order.

78 On 22 October 2002, the plaintiffs wrote to the strata manager seeking connection to the drains and waste lines and, for that purpose, access for their plumber to the shops below. A similar request was made to the strata manager on 23 October 2002 by the solicitors for the plaintiffs. As already indicated, it was not until 7 April 2003 that the defendant approved connection to the drains and waste lines. The Master’s inquiry will extend to any additional damages sustained by the plaintiffs for the failure of the defendant to provide for connection to the drains and waste lines between 23 October 2002 and 7 April 2003.

79 It is unnecessary for me to decide the alternative bases upon which relief was claimed. In case I be wrong in my view, however, I indicate my opinion with respect to the other bases of claim to injunction and/or damages.

80 The plaintiffs claimed that their exclusion from the use and enjoyment of the exhaust ventilation system and the drains and waste lines constituted a fraud on the minority.

81 If the exclusion of the plaintiffs was invalid, this head of claim does not arise. The formal validity of the exercise of a power is a prerequisite for equitable relief against its wrongful exercise.

82 In Houghton, the Court of Appeal concluded that the doctrine of fraud on a power was of general application and it and the principles with respect to expropriation of shares developed by the High Court in Gambotto v WCP Ltd (1994-1995) 182 CLR 432, applied to the exercise of powers at general meetings by bodies corporate established under the forerunner of the Strata Schemes Management Act 1996, s 11(1).

83 The defendant submitted that there was neither an expropriation of property nor a resolution of the defendant amounting to an exercise of power to expropriate property of the plaintiffs.

84 In Young at 74-75, Santow J concluded that expropriation in this context encompassed extinction of rights just as much as an acquisition of those rights. His Honour remarked that: “To work a compulsory extinction is just as much a deprivation or expropriation as a compulsory transfer”. In arriving at this view his Honour referred to the observation of Ormiston AJA in Heydon v NRMA Ltd (2000) 51 NSWLR 1 at 206 that the word “expropriation” was ordinarily wide enough to comprehend not merely compulsory acquisition but also compulsory destruction of rights. With respect, I agree with both their Honours.

85 If the refusal of the executive committee of the defendant to allow the hoods in the plaintiffs’ shops to be connected to the exhaust ventilation system was a proper exercise of power, it destroyed the equitable rights the plaintiffs had in the common property and that destruction was a fraud on the power just as much as if the executive committee had passed a resolution transferring the plaintiffs’ equitable interest in the common property to those lot owners already connected to the exhaust ventilation system.

86 Fraud on a power does not require conduct amounting to fraud in the common law sense or conduct that is dishonest or immoral. In this context, a fraudulent exercise of power is constituted if it is exercised for a purpose or with an intention beyond the scope of the power (Vatcher v Paull [1915] AC 372 at 378). A great deal of the time of hearing was devoted to an analysis of the individual motives of the members of the executive and their intentions in voting to refuse access to the plaintiffs to the exhaust ventilation system. That evidence was irrelevant to this issue.

87 While Handley JA in Houghton at 53 spoke in terms of the principles enunciated in Gambotto applying to the powers of lot owners exercisable in general meetings, I do not understand his Honour to confine those principles to an owners corporation acting only in general meeting. The other organ of an owners corporation, its executive committee, exercises significant powers. Its exercise of power is no less that of the owners corporation than is an exercise of power in general meeting.

88 It follows, in my view, that if the defendant was empowered to exclude the plaintiffs from the use and enjoyment of the common property the exercise of that power was a fraud on minority.

89 Equitable fraud was compensable by an award of equitable compensation (Nocton v Ashburton [1914] AC 932 at 952). Thus, if I be wrong in my view that the defendant’s action was unjustified, there is an alternative basis for a Master to inquire into and determine damages by way of compensation for the loss caused to the plaintiffs by the fraudulent exercise of power.

90 The plaintiffs claimed they were entitled to damages for breach of statutory duty. I have concluded that if the exhaust ventilation system was incapable of servicing the plaintiffs’ shops, the defendant was in breach of its statutory duty. It has been held that that duty is owed to each lot owner and its breach empowers the court to award damages to a lot owner (Lubrano v Proprietors of Strata Plan No 4038 (1993) 6 BPR 97457 at 13,310-13,311).

91 If it had been necessary for me to resolve the conflict between the experts as to the capacity of the exhaust ventilation system, I would have found that it was overloaded. Mr Hopkins’ opinion based upon an assumption that his observed cooking practices in the Food Court would not change, his adoption of lower capture velocities and his assumption that unused hoods could be closed off and the system rebalanced, created an unquantified marginal sufficiency within the system that took little account of the fact that his firm had quoted to increase its capacity by 6,000 litres per second and had subsequently advised that a 10,000 litre per second up-grade was possible.

92 A similar analysis applies to the plaintiffs’ claim to damages for breach of covenant with respect to the by-laws that were also breached if the exhaust ventilation system was inadequate.

93 The plaintiffs also claimed an entitlement to damages in negligence claiming that the relationship between them as lot owners and the defendant was so close as to give rise to a duty of care of the type described in Avenhouse v Hornsby Shire Council (1998) 44 NSWLR 1 at 5. It was submitted that an award of damages should be made notwithstanding that such damages were limited to purely economic loss.

94 That brings into question whether the plaintiffs were in a class of vulnerable person unable to protect themselves from harm, whether implying the duty would not impair the legitimate pursuit by the defendant of its own commercial interests and whether the damage flowed from the occurrence of activities within the defendant’s control (Perre v Apand Pty Ltd (1999) 198 CLR 180).

95 Those are issues of significance as is the question of the ambit of damages for purely economic loss deserving of better than an observation obiter dictum. Furthermore, the all-embracing nature of the statutory duty and the duties prescribed by the by-laws, leaves little space for further damage arising from a breach of any duty of care of the Avenhouse kind.

96 Finally, the plaintiffs sought to justify an award of damages under the doctrines of estoppel for promissory representation and by convention.

97 Dickson Lam was the centre manager of the defendant. His job description, amongst other things, indicated that his position was hands on and stand alone. His duties were to maintain the Hunter Connection Shopping Centre at a high standard of cleanliness and presentation and its equipment in good order and repair within agreed budgets. He was to check and supervise all shop fit outs and renovations and he was to maintain close relations with all occupants of the centre.

98 On 15 July 2002 he met with the plaintiffs. Each of them could speak Chinese. They said that they informed Mr Lam that persons interested in taking their shops under lease asked for exhaust. The male plaintiff said: “What is exhaust? what is it in Chinese”? Mr Lam had previously shown the plaintiffs the exhaust hood in lot 34. He explained that the hood was an exhaust to get rid of smoke from cooking. The plaintiffs said that they needed every shop to have an exhaust and Mr Lam responded: “Altogether I can only give you 3 mai”. He explained that 1 mai was one square metre of hood space.

99 Mr Lam denied he made this statement. He said he advised the plaintiffs that they should not count on there being any increased exhaust capacity available in the near future and that they should look for tenants who did not need to use the exhaust ventilation system. He said that if the plaintiffs got the consent of two lot owners to give up their connections and, taking into account the existing hood, he would make a rough guess that the maximum they could get would be a three square metre hood.

100 I prefer the evidence of the plaintiffs to that of Mr Lam. It is highly unlikely that they, enquiring what the term “exhaust” meant, would understand the expression “3 mai”. It is much more likely that that was the term used by Mr Lam. Yet his version of the conversation is to the contrary.

101 It was submitted that his version was the more likely because it was consistent with reports he had written about a lack of exhaust capacity. Mr Lam also said in August 2002 and in September 2002 that three or four shops from the subdivision of lots 34 and 35 would add a further three to four exhaust hoods to the system.

102 The male plaintiff said he told three prospective tenants that they could each have one mai. That evidence was corroborated by the tenants. David Lin said he had been told by the male plaintiff that he could not have more than one mai. Yung Yu Liu said that the male plaintiff told him he had got three mai.

103 Furthermore, in a conversation with Paul Young, the managing director of Aspect Air Conditioning Pty Ltd in August 2002, Mr Lam, on a floor plan of the Food Court area, bracketed shops F7/F8, F9, F10 and F11 and wrote above the bracket “new shops may need three m2 hood”.

104 It was submitted that Mr Lam did not have authority to make this representation. He played a co-ordinating role between the plaintiffs and their tenants and the architects and engineers who prepared fit out plans and exhaust ventilation system reports. If he lacked actual authority, I am of the view that he had ostensible authority to deal with the plaintiffs with respect to their exhaust ventilation system needs and the representation was made in that context.

105 It was submitted that the plaintiffs did not rely upon any representation by Mr Lam. The purchase of the lots and their subdivision had been determined by the plaintiffs well before 15 July 2002, but the type of tenant was dependent upon whether or not exhaust hood connection to the exhaust ventilation system would be approved. That the plaintiffs relied upon the representation is made out in their evidence and corroborated by their tenants. Having been told they would receive three mai of hood size, the plaintiffs told three of their prospective tenants that they could have one mai each.

106 If it were necessary for me to do so, I would have concluded that the plaintiffs had made out a basis for damages for their losses sustained as a result of the representation made to them by Mr Lam on 15 July 2002. The defendant, by its executive committee, was not entitled to depart from the minutes of the executive committee meeting of 31 October 2002 for to do so, in light of the representation, would be unconscientious (TheCommonwealth v Verwayen (1990) 170 CLR 394 at 444).

107 The plaintiffs mounted the further argument that estoppel by convention arose from a number of circumstances including the 15 July 2002 representation, the application of the defendant’s seal to leases of the shops and the evidence of Herbert Huang, deceased, in his conversation with the female plaintiff in October 2002 that shop F7/F8 could be opened and shop F11 could be opened one week later.

108 Mr Huang was the longest serving member of the executive committee. He held proxies from a number of lot owners and was the person to whom Mr Lam reported along with another executive member and from time to time Mr Lam took instructions from him.

109 The affixation of the defendant’s seal to development applications with respect to the shops could not, in my view, have grounded a mutual assumption. The defendant had determined that the seal should be affixed to development applications in order that they might be considered by the City of Sydney council prior to the approval of the executive committee being sought.

110 Had it been necessary for me to determine this issue, I would not have been satisfied that the evidence established an assumption that the executive committee would approve the connection of the subdivided shops to the exhaust ventilation system such that it formed a conventional basis of the relationship between the plaintiffs and the defendant.

111 I direct the parties to bring in short minutes of orders reflecting these reasons. I will hear the parties on costs.

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Last Modified: 03/15/2004