Mashane Pty Ltd v Owners Corporation RN 328577
[2013] VSC 417
•14 August 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S CI 2013 01420
| MASHANE PTY LTD ACN 005 842 124 | Applicant |
| V | |
| OWNERS CORPORATION RN 328577 | Respondent |
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JUDGE: | MACAULAY J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1 August 2013 | |
DATE OF JUDGMENT: | 14 August 2013 | |
CASE MAY BE CITED AS: | Mashane Pty Ltd v Owners Corporation RN 328577 | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 417 | |
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OWNERS CORPORATIONS – Appeal from Victorian Civil and Administrative Tribunal on question of law – Whether process for levying fees for works with differential benefits to lot owners acceptable – Whether maintenance fund can be used for works not strictly in accordance with maintenance plan – Leave to appeal allowed – Appeal dismissed – Owners Corporations Act 2006 ss 23, 24, 28, 41, 43, 44 and 49.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | P Cawthorn SC with H Van Den Heuvel | Eugenia Mitrakis & Co. |
| For the Respondent | B McCullagh | Oldham Naidoo Lawyers |
HIS HONOUR:
Introduction
Mashane Pty Ltd owns one of 39 apartments in an apartment building in Melbourne. The owners corporation for the apartment building (the respondent) resolved to use funds derived from contributions from the 39 apartment owners (each being lot owners in the owners corporation) to pay for the cost of works done to balustrades on balconies associated with apartments in the building. Mashane was one of five owners of apartments that did not have a balcony. It objected to contributing to the cost of the works.
A member of the Victorian Civil and Administrative Tribunal (‘VCAT’) dismissed Mashane’s application to set aside the resolutions and to require the owners corporation to levy the whole cost of the balustrade works only from the 34 lot owners who had balconies.
Mashane seeks leave to appeal pursuant to s 148 of the VictorianCivil and Administrative Tribunal Act 1998. Such an appeal may be brought on a question of law only if leave is first obtained. An applicant for leave must identify a question of law and demonstrate there is a real or significant argument to be put that the VCAT decision was erroneous.[1]
[1]Secretary to Department of Premier & Cabinet v Hulls [1999] 3 VR 331.
By orders made by an Associate Judge of this Court the application for leave and, if leave is granted, the appeal were heard together.
Facts
The relevant background facts were conveniently set out by the Member as follows:
The applicant owns a unit in a high-rise apartment building on the corner of Kingsway and Albert Road, South Melbourne. Thirty-four of the thirty-nine units in the building have balconies, but the applicant's penthouse unit does not.
In late 2006 the respondent, which is the owners corporation for the building, learnt that a section of balustrading on a balcony on one of the units had become dislodged. The owners corporation asked consultants, Buildcheck, to investigate and report. Buildcheck delivered a report dated 28 February 2007. The report said that there were two things wrong with the balustrading on the balconies in the building. First, the balustrading was in poor condition and parts of it were at risk of being dislodged when pressure was applied to them. Secondly, the balustrading did not comply with the current building regulations: the balustrades were composed of horizontal bars, which could be climbed by a child or which might encourage the reckless to sit on the top of the balustrading.
The owners corporation spent a great deal of time and energy in finding a solution to the problems identified by the Buildcheck report. It is obvious that many, many hours of committee meetings were devoted to the problem, spread over a number of years.
Throughout this period, Eugenia Mitrakis, a director and the principal of the applicant, was a member of the committee of the owners corporation. Ms Mitrakis argued that the owners of the five units without balconies should not be required to contribute to the works. She resigned from the committee on 4 September 2009.
Finally, the owners corporation held a special general meeting on 29 April 2010. At the meeting, the owners corporation passed a number of special resolutions to implement and fund a scheme of works to tackle the problems that have been identified by the Buildcheck report.
The works were expensive. The quote which was accepted at the meeting was for $242,000. The meeting resolved to fund these works partly by a special levy of $65,000, but the bulk of the cost was to be met by payments from the owners corporation's maintenance fund. This funding scheme was put in place by two resolutions. The first raised the special levy of $65,000 and provided that it be raised on a lot liability basis. The second resolution provided for the balance of the cost of the works to be paid from monies in the owners corporation's maintenance fund.
On 8 July 2010 the applicant issued the present proceeding, disputing that it ought to contribute to the works.
On 13 September 2011 the owners corporation held its annual general meeting. At the meeting the owners corporation went back to the question of funding the works which were subject of the resolutions I have described above. The members of the owners corporation agreed to change the funding scheme in this regard: the special levy of $65,000, which was previously levied against all lot owners, was now to be levied, as to 50%, from all lot owners on a lot liability basis and, as to the other 50%, from the owners of lots with balconies. As before, however, the bulk of the cost of the works was to be paid from the owners corporation's maintenance fund.
The works have been done. [2]
[2]Mashane Pty Ltd v Owners Corporation RN 328577 [2013] VCAT 118 (Member R Buchanan) (‘tribunal reasons’).
It is useful to explain at this point that the maintenance fund was derived from contributions made annually over a period of time by all lot owners according to their respective lot liabilities. ‘Lot liability’ in relation to any lot is a number specified in the plan of subdivision for the apartment building expressing that proportion of the administrative and general expenses of the owners corporation which the lot owner is obliged to pay.[3]
[3]See definition of ‘lot liability’, s 3 Owners Corporation Act 2006 (Vic) .
By the two resolutions to pay the $242,000 balustrade costs, $177,000 came from the maintenance fund to which all 39 owners contributed according to lot liability; and of the remaining $65,000, $32,500 also came from all 39 owners according to lot liability but the final $32,500 came only from the 34 balcony owners according to their respective lot liabilities.
Both resolutions were ‘special’ resolutions as distinct from ‘ordinary’ resolution: a special resolution requires the voting of 75% of lot entitlements to pass the resolution,[4] whereas an ordinary resolution only requires simple majority voting based on one vote per lot.[5]
[4]Ibid, s 96.
[5]Ibid, s 92(2).
Tribunal’s decision
Mashane’s application before VCAT was based upon a number of grounds relating to the Owners Corporation Act 2006 (Vic) (‘the Act’). It is not necessary to set them all out, only those that are relevant to the grounds of appeal raised in this court. Amongst other things,[6] Mashane claimed:
(a)It ought not to contribute to the cost of the works because it derived little or no benefit from the works and those who benefited most from the works should pay, as was required by ss 28(2) and (3) and s 49(2) of the Act; and
(b)Payment for the works should not be made from the maintenance fund because:
(i)the payment would be made from funds to which Mashane had contributed, yet it would derive no benefit from the works.
(ii)the maintenance plan scheduled the balustrade works for 2027/2028.
[6] Mashane’s other arguments before the tribunal included that the works were not works to common property, the resolutions to raise funds were in breach of the owners corporation’s duty to act honestly and in good faith under s 5 of the Act, and that the owners corporation breached its duty to exercise due care and diligence because it did not obtain a planning permit. No appeal has been pursued or pressed based upon the tribunal’s findings on those matters.
It followed that the issues raised for decision at the tribunal relevant to this appeal were:
(a)Did the principle of ’those who benefit more, pay more‘ (‘the benefit principle’), said to be enshrined in ss 28(3) and 49(2) of the Act, operate so as to make the owners corporation resolutions unlawful?
(b)Insofar as the money used to pay for the works were derived from the maintenance fund, was the use of that fund unlawful because some of the owners derived no benefit from the works?
(c)Was it beyond power for the owners corporation to use the maintenance fund as the source of payment for the works when the maintenance plan only provided for balustrade works in 2027/2028?
The tribunal made findings in relation to those questions. First, in relation to the operation of the benefit principle, the tribunal held:
The Act does not prevent the maintenance fund from being used for works which confer a differential benefit. The scheme contained in ss 28(3) and 49(2) does impose the principle of “who benefits more pays more”, but only in relation to collecting funds, not in relation to how existing funds are spent.[7]
[7]Tribunal reasons [39].
Additionally, the member concluded that the combined effect of the two resolutions (one to raise a levy of $65,000 and the other to apply monies from the maintenance fund) did in fact reflect a differential apportionment of the costs of the works.[8] In his view the non-balcony owners did receive benefits from the balcony works[9] and, being a question of judgment, the owners corporation’s apportionment inherent in the combined resolutions was within the range of what was reasonable.[10]
[8]Ibid [40].
[9]Ibid [50].
[10]Ibid [52].
Those findings also answered the second issue, namely whether the use of the maintenance fund was unlawful because some owners derived no benefit.
In answer to the third question (ie whether it was beyond power to use the maintenance fund if the works being undertaken were not in accordance with the maintenance plan) the member said:
The owners corporation had a maintenance plan and a maintenance fund. The maintenance plan provided for balcony balustrade works, but for them to be done in 2028/2029. An owners corporation may pay for things not covered by a maintenance plan if payment is approved by special resolution. The owners corporation did pass such a resolution.[11]
[11]Ibid [37].
Grounds of Appeal
Mashane filed an amended notice of appeal which raised six questions of law and set out eight grounds of appeal. It abandoned one question of law, and associated ground, relating to a question whether a planning permit had been obtained. But, by leave, it added an additional question and ground to ensure that an appeal against the finding on the third of the issues identified above was properly raised.
In substance the grounds of appeal raised the following questions said to be questions of law:
(1)Does the benefit principle in ss 28(3) and 49(2) of the Act operate at the point of paying funds held by the owners corporation, rather than only at the point of collecting them?
(2)Can a maintenance fund be used to pay for works or repairs if the works benefit some owners but not all, or if the works are not strictly in accordance with the maintenance plan, so long as payment is approved by special resolution of the owners corporation?
(3)Was it wrong to find that the benefit principle was in fact applied by treating the two resolutions as constituting a single funding regime?
(4)Was there any evidentiary basis upon which to find that Mashane derived some benefit from the balustrade works and that the apportionment reflected in the funding scheme was reasonable?
I will take each point of appeal one by one. Before doing so it is convenient to set out the relevant statutory framework and provisions.
The Act
The Act states that one of its main purposes is to provide for the management, powers and functions of owners corporations.[12] The Act is divided into parts. Relevantly, Part 2 is headed ’Functions and powers of Owners Corporation‘ and Part 3 is headed ’Financial Management‘. Its functions include to manage and administer the common property and to repair and maintain the common property.[13] In carrying out its functions and powers it must act honestly and in good faith and must exercise due care and diligence.[14]
[12]The Act, s 1.
[13]Ibid, s 4.
[14]Ibid, s 5.
Part 3 (Financial Management) is organised into six divisions:
(1)Financial powers;
(2)Accounts and audit;
(3)Maintenance plan;
(4)Maintenance fund;
(5)Asset management; and
(6)Insurance.
The provisions relevant to the issues all appear in divs 1, 3, 4 and 5 of Part 3.
Summary of relevant provisions and issues for construction
The text of the relevant provisions are set out in the schedule to these reasons and need to be read in conjunction with the summary that follows. In summary, the Act appears to establish the following ‘rules’:[15]
[15]See the Schedule to this Judgment for extracts of the relevant sections of the Act.
1.an owners corporation may set annual fees;[16]
[16]The Act, s 23(1).
2.if it has a maintenance fund (for a maintenance plan) the owners corporation must include in the annual fees a component of fees for the purposes of the maintenance plan;[17]
[17]Ibid, s 23(2).
3.annual fees designated for the maintenance fund must be paid into that fund;[18]
[18]Ibid, s 42(a).
4.annual fees so set must be based on lot liability;[19]
[19]Ibid, s 23(3).
5.in addition to annual fees an owners corporation may levy special fees to cover extraordinary items of expenditure: if the amount is more than twice the annual fee, a special resolution is required;[20]
[20]Ibid, ss 24(1), (4).
6.special fees must also be based on lot liability;[21]
[21]Ibid, s 24(2).
7.lot owners are liable to pay the fees, charges and contributions owing to the owners corporation in respect of their lot;[22]
[22]Ibid, s 28(1).
8.but a lot owner cannot be liable to contribute more than their lot liability unless the amount is for repairs, maintenance or other works undertaken by the owners corporation and those works wholly or substantially benefit some but not all of the lots;[23]
[23]Ibid, ss 28(2), (3).
9.if a lot owner refuses to carry out repairs, maintenance or other works on their lot as properly required by the owners corporation, the corporation can do the work and recover the cost as a debt from the lot owner;[24]
[24]Ibid, ss 48, 49(1).
10.an owners corporation may recover from the lot owner, as a debt, the cost of the repairs, maintenance or other works it undertakes on either common property or a lot when the works wholly or substantially benefit only some of the lot owners, but in those circumstances the amount payable …is to be calculated on the basis that the lot owner of the lot that benefits more pays more;[25]
[25]Ibid, ss 49(2),(3).
11.where an owners corporation prepares and approves a maintenance plan it may set conditions for payment of money out of the fund;[26]
12.the maintenance fund must be used to implement the maintenance plan;[27]
13.money can be paid out of the maintenance plan:
·by ordinary resolution, at any time in accordance with the approved maintenance plan;[28] or
·also…if the owners corporation by special resolution approves the payment;[29]
14.an owners corporation may by special resolution levy fees for upgrading, renovation or improvement of the common property where the works cost more than twice the annual fees or require a planning or building permit, and they are not works provided for in a maintenance plan.[30]
[26]Ibid, ss 36, 38.
[27]Ibid, s 41.
[28]Ibid, s 43.
[29]Ibid, s 44.
[30]Ibid, s 53.
Two fundamental questions arise on this appeal. The first is whether the ‘benefit principle’, anticipated in s 28(3) (rule 7) but more specifically evident in s 49(2) (rule 10), operates to deny power to the owners corporation to pay money out of the maintenance fund when the object of the payment is for repairs or maintenance to common property or lots that benefits only some of the lot owners.
The second question is whether the owners corporation can use the maintenance fund at all unless the works are strictly in accordance with the maintenance plan.
Each of these questions concerns a matter of statutory construction. In my view, each question exposes apparent tensions or conflicts in the statute that need to be resolved. The first tension concerns what I will call the ‘fee levying principle’; the second concerns what I will call ‘the maintenance fund payout principle’.
Fee levying principle
Three sections authorise the levying of fees: s 23 for annual fees (rule 1); s 24 for special fees (rule 5); and s 53 for upgrading works (rule 14). Both annual fees and special fees must be levied on lot liability (rules 4 & 6) but the Act does not specify the basis on which upgrading fees are to be levied. Annual fees are set to cover recurrent costs of maintenance and repairs and fees necessary to sustain the maintenance fund[31] and special fees may be levied for extraordinary maintenance and repair costs.
[31]Ibid, ss23(1)(b), (2).
But two separate provisions dealing expressly with ‘repairs, maintenance and other works’ (rules 8 & 10) collectively point to a legislative intention that, when levying fees for those purposes, the owners corporation should apply the benefit principle: ie who benefits more pays more. In that case, the levy would not be based on the lot liability principle because, for the benefit principle to work, those who benefit more would need to pay more than their lot liability and those who benefit less would pay less than their lot liability (if anything).
So, is the mandatory requirement for levying annual fees (which will include maintenance and repair costs) and special fees (which may include maintenance and repair costs) on a lot liability basis to be read as if subject to the benefit principle where repairs and maintenance are concerned? Neither of the two provisions requiring levying on a lot liability basis are expressed to be subject to any other provision. Read in isolation they appear to be unqualified.
But the problem is: what work do ss 28(3) and 49(2) perform if not to require the owners corporation, when levying fees for repairs, maintenance and other works to common property that benefit only some lot owners, to apply the principle they each express?
It is unlikely, in my view, that those sections could only be said to apply to upgrading fees in s 53 (which is silent as to the basis for levying fees), if they could apply to such fees at all. Section 53 is specifically concerned with ‘upgrading, renovation or improving’ common property – a genus of works somewhat different to ‘repairs’ and ‘maintenance’ although they may perhaps be embraced by the expression ‘other works’.
In my opinion the better view is that the benefit principle in the two provisions I have identified is intended to modify or qualify the apparently absolute requirement in ss 23(3) and 24(2) in limited circumstances. Each of those provisions expresses a rule in relation to the levying of annual fees and special fees generally. And each of those fees may be levied for a wide variety of purposes - eg for general administration costs, insurance, other recurrent obligations, legal costs, uninsured obligations, etc - but also for maintenance and repairs.
Because ss 28(3) and 49(2) would otherwise have little or no work to do, a reading of the whole Act evinces a legislative intention that a different basis of levying applies to the specific category of fees for repairs and maintenance. That is, where annual fees or special fees are levied for repairs, maintenance or other works undertaken by the owners corporation on common property or lots, which works are wholly or substantially for the benefit of some but not all lot owners, the levy for that component of the fees is to be on the basis of ‘who benefits more pays more’.
That would mean that when an owners corporation is levying annual fees, and calculating the amount to be raised for deposit into the maintenance fund, an assessment will be made as to whether any component of the budgeted future maintenance work will involve a differential benefit (ie ‘wholly or substantially’) to some lot owners. If so, some proportion of the annual fee designated for the maintenance fund may be identified as the contribution for the cost of that item so the contribution of lot owners to that element of the maintenance plan fee may be calculated other than on lot liability, as appropriate.
Both parties appealed to the decision of Senior Member Vassie in McCarthy v Dandenong Region Body Corporate Services (Aust) Pty Ltd[32] as containing the most authoritative exposition of the meaning of ss 23, 24, 28 and 49 of the OC Act, and the operation of the ‘benefit principle’. I agree with the Senior Member that:
The effect of Section 28(2) and (3) upon liability to pay for contributions or other amounts is that there is a general rule and an exception. The general rule is that lot owners bear them in proportion to their lot liability. The exception operates in the case where the requirement to pay a contribution or other amount has resulted from repairs, maintenance or other works which were wholly or substantially for the benefit of some or one, but not all, of the lots. In that case, those lot owners who have benefited more can be required to pay an amount that exceeds their lot liability, and it follows that those who have benefited less would be entitled to pay an amount that was less than their lot liability.[33]
[32][2009] VCAT 1898, especially [28] – [31].
[33][2009] VCAT 1898 [28].
However, with respect, I am unable to agree with the Senior Member’s distinction between fees and charges, levied prospectively, and contributions and other amounts, recovered retrospectively, as constituting the criteria for the application of the benefit principle.[34] As I have shown, the benefit principle will have potential application whenever the owners corporation is considering levying a fee, charge, contribution or other amount for the cost of repairs, maintenance or other works that have been or will be wholly or substantially for the benefit of some or one but not all lots.
[34][2009] VCAT 1898 [29]-[30].
The maintenance fund payout principle
The maintenance fund must be used ‘in the implementation of the maintenance plan’ (rule 12; s 41). But, unlike s 43 which permits money to be paid out only ‘in accordance with the approved maintenance plan’, s 44 permits money to be paid out, without any express limitation of purpose, so long as it is by special resolution (rule 13).
What limits, if any, are imposed on the owners corporation in lawfully resolving to pay out money under s 44?
In my view the Act provides at least three relevant controls on the owners corporation’s power under s 44. First, as with all its functions and powers, the owners corporation must act honestly and in good faith.[35] Secondly, at establishment of the fund it may set conditions on the use to which the maintenance fund may be put, in which case it would be bound to observe those conditions (rule 11). Thirdly, a special resolution must authorise the payment.
[35]The Act, s 5.
On one view the requirement (rule 12) that the fund ‘must’ be used ‘in the implementation of’ the plan, means that the fund cannot be used for a purpose unless that purpose is in the implementation of the plan. Another is that, if works are required to implement the plan, the cost must be drawn from the fund and not be the subject of a different levy. The first alternative seems to be at odds with the unrestricted purpose for which money can be used in s 44 when read in context with the restricted purpose in s 43 which only requires an ordinary resolution. The tension may be resolved by reading the words ‘in the implementation of the plan’ in s 41 as embracing a more general range of actions than those limited by the expression ‘in accordance with the…plan’ in s 43. If so, the power to payout from the fund in s 44 might be thought also to be confined to costs in the implementation of the plan even if not strictly in accordance with the plan. But in my view such a construction is not to be preferred. It involves too subtle a distinction to have likely been intended.
The better view is that s 41 either applies a general principle to which s 44 is an exception; or s 41 is to be understood in the second of the two ways suggested above.[36] But in either case, as long as the owners corporation acts honestly and in good faith, abides any conditions it has set, and passes a special resolution, it may lawfully use the maintenance fund. For it to act in good faith would, in most circumstances, require there to be some genuine connection between the cost being funded and the maintenance and repairs to the common property as foreshadowed in the maintenance plan.
[36]That is, if works are required to implement the plan, the cost must be drawn from the fund and not be the subject of a different levy.
Having reached those conclusions on the construction of the Act I turn to the specific questions of law raised by Mashane.
Does the benefit principle in ss 28(3) and 49(2) of the Act operate at the point of paying funds held by the owners corporation, rather than only at the point of collecting them?
Mashane challenged the tribunal member’s finding that ss 28(3) and 49(2) imposed the principle of ’who benefits pays more‘ only in relation to collecting funds, not how already-held funds are to be spent. It is true that is what the member said. In my opinion he was correct. What the member was saying, correctly in my view, is that to the extent the benefit principle applies in the Act it applies at the point of levying and collecting monies from lot owners rather than at the point of payment. This it seems to me to must be so. Neither s 28(3) nor s 49(2) operate at the point of payment out by the owners corporation from the maintenance fund or indeed any other funds already held by the corporation. Both are expressly applicable to the collection of monies.
Once the monies are paid into the fund they sit there awaiting disbursement. By definition the money sitting in the fund represents money contributed by lot owners in the accordance with the basis upon it was originally levied. Ultimately payments are then made out of the maintenance fund. Payments may be made out under either s 43, 44 or 45 of the Act. There is no provision in any of those sections to the effect that an adjustment is to be made at the point of payment out of the fund to reflect the benefit principle.
Indeed it is difficult to see how any such adjustment could be made at that time other than either calling for additional contributions from lot owners who are to benefit from the expenditure or to reimburse from the fund some component of the fund to those lot owners who will not be benefiting from the expenditure. The applicant, faintly I suspect, suggested that the latter mechanism might be required to reflect the benefit principle at the point of payment out from the fund. I reject that argument. There is no support whatsoever from the statute that such a mechanism is to be applied.
In any event, once the fee levying principle is properly understood, as I have explained above, there is no need to strain to find a mechanism to achieve a benefit adjustment at the point of payment when it is clear that the benefit consideration is applied at the point of levying fees, charges, contributions and other amounts.
Can a maintenance fund be used to pay for works of repair if the works benefit some owners but not all, or if the works are not strictly in accordance with the maintenance plan, so long as payment is approved by special resolution of the owners corporation?
It follows from the analysis above, under the heading ‘The maintenance fund payout principle’, that I answer this question in the affirmative. My answer deals with the question of law that is raised for decision in this appeal and is sufficient to reject Mashane’s challenge on that question.
It may fairly be said that it was a little unclear what the tribunal member decided on this question as a matter of fact. It is true that the member did not explicitly decide that the balcony balustrade works were works either in accordance with or for the implementation of the maintenance plan.
I was taken to the maintenance plan in the evidence.[37] The plan consisted of a document called ’Sinking fund summary‘ prepared in April 2007 setting out, in columns, years between 2006 and 2032, details of projected works with provisional costings against some of those years, projected annual contributions from the owners corporation and a net reserve, presumably reflecting the balance after particular capital items were paid for as set out in the details column. Balustrading works were designated at 2027/28 in the sum of $72,551.
[37]Exhibit LMM-7 to the affidavit of Lisa Marie McNicholas sworn 1 July 2013, page 542.39.
It seems to me that if a maintenance plan foreshadows that maintenance will be required on a particular item of common property in the future, but circumstances dictate that the repairs or maintenance must be brought forward and performed at an earlier point in time, the connection between the works and the maintenance plan may be such that the expenditure fairly represents the application of the fund in the implementation of the plan.
But even if that is not so, then so long as the use of the funds is not in breach of the owners corporation’s duty of good faith, I have determined there is no other limitation on the owners corporation being able to resolve by special resolution to use the fund. There was no suggestion that the tribunal erred in failing to find want of good faith; no such ground of appeal was advanced. In any event, there was a plainly legitimate connection between the use for which monies were paid into the fund (ie repairs and maintenance to common property including balustrades) and the use to which the monies were to be spent (ie repair and maintenance to the balustrades) to leave it open to the owners corporation by special resolution to approve payment out of the maintenance fund for the particular purpose.
For that reason I reject the applicant’s argument that the tribunal erred in finding that the owners corporation was lawfully permitted, by special resolution, to use the maintenance fund to pay for the repairs of the balustrades even if those repairs were not expressly covered by the maintenance plan.
Was it wrong to find that the benefit principle was in fact applied by treating the two resolutions as constituting a single funding regime?
After dismissing Mashane’s argument that the maintenance fund could not be used for works which conferred a differential benefit, the tribunal continued:
I wish to comment on the applicant's argument which drives this claim, namely, that any monies to be spent on the works should have been raised from the unit owners in proportions which reflected the differential benefit which the works would confer. While the owners corporation passed two resolutions, one for the apportioned levy of $65,000 and the other for the un-apportioned payment from the maintenance fund, it seems clear enough to me that they constituted a single scheme of apportionment. The applicant sought to deal with each resolution separately. There is no reason why the two resolutions should be treated separately, in isolation from each other.[38]
[38]Tribunal reasons [40].
In substance, Mashane argued that the tribunal member erred in holding that the application of the benefit principle could be discerned from combining the two resolutions together rather than viewing them separately. But in my view that was an entirely reasonable and practical approach to adopt. By viewing the ultimate, total payment as the combination of the two sources (which plainly they were) it could be seen that the total payment of $242,000 reflected a somewhat heavier weighting against the balcony owners than as against the non-balcony owners.
On my calculations, if one was to assume (which is not the case) that each lot owner had exactly the same lot liability, the overall break up would show that the 34 balcony owners contributed $6,328 each whereas the five non-balcony owners contributed $5,371 each. That represents about an 18 percent increase for the balcony owners. Further still, it was pointed out in argument on appeal that a balcony owner had a greater lot liability than did a lot owner without a balcony. Possibly that difference reflects that fact that a unit with a balcony has a greater area than one without. So be it: it nevertheless means that balcony owners contributed a greater amount on a lot liability basis to the balustrade works than an owner without a balcony.
Provided that obligations of honesty and good faith are observed, and appropriate resolutions are obtained, I see nothing inherently wrong with an owners corporation using a mixture of sources of funding to meet particular repair and maintenance expenditure. And if the application of the benefit principle is thought to be required, generally speaking it would seem to make good sense to take into account all funding sources and their respective bases of collection in determining whether the benefit principle has been appropriately applied.
The tribunal did not err on this ground.
Was there any evidentiary basis upon which to find that Mashane derived some benefit from the balustrade works and that the apportionment reflected in the funding scheme was reasonable?
Mashane’s ground of appeal in relation to the relative benefit to no-balcony owners, and the reasonableness of the apportionment, is very narrow. To constitute a question of law, the challenge must be to the existence of any evidence upon which the tribunal might reasonably have made the findings it made.
Mashane criticized as mere ‘speculation’ the tribunal member’s finding that non-balcony owners would derive some benefit from the balustrade works despite not having balconies or balustrades on their own units. The tribunal considered that the benefits would include lowering the chance that personal injury claims would arise against the owners corporation (for which all lot owners shared liability); knowledge that the apartment building was safer for occupants and visitors; and the improvement in the appearance of the building.
I reject the contention that there was no evidence upon which these findings could be made, whether directly or by inference. There was evidence before the tribunal of the reason why the balustrade works were required (engineering reports, etc): that is, to reduce the risk of parts dislodging and falling, and of persons climbing onto the top rail of the balustrade. Additionally, photographs of the exterior of the building were tendered showing before and after views of the balustrades. This evidence was an ample basis for the member to make his findings. If more was required, there was also a degree of evidence given directly by witnesses.
Having found that there was some proper basis for finding that non-balcony owners derived some benefit from the balustrade works, the tribunal observed that the assessment of relative apportionment of benefit and contribution was ‘of necessity, a matter of judgment, not science’ and found that the apportionment was ‘within a range of what would be reasonable’. [39]
[39]Tribunal reasons [52]
The reasonableness of the apportionment was inherently a question of fact and did not, in my view, give rise to an appealable question of law. So there was no error on any question of law involved in those findings.
Conclusion
It follows from the foregoing that I reject each of the grounds of appeal raised for decision on questions of law.
I would allow the application for leave to appeal but dismiss the appeal. In doing so, I add that not all the grounds raised would justify leave being granted. In my view the reasonableness of the apportionment (grounds 4 and 7), whether it was open to find all lot owners received ‘equal benefit’ (ground 6) and whether the metal sheets blocked views (ground 8), did not qualify as questions of law or, to the extent they did, questions of law that were important to the appeal’s success or failure.[40]
[40]Secretary to Department of Premier & Cabinet v Hulls [1999] 3 VR 331 [9].
Schedule: Relevant provisions of the Owners Corporation Act 2006
PART 3—FINANCIAL MANAGEMENT
Division 1—Financial powers
23 Owners corporation may levy fees
(1)An owners corporation may set annual fees to cover—
(a)general administration; and
(b)maintenance and repairs; and
(c)insurance; and
(d)other recurrent obligations of the owners corporation.
(2)If the owners corporation has an approved maintenance plan, the annual fees must include fees that are—
(a)designated for the purpose of the maintenance plan; and
(b)sufficient to allow the maintenance plan to be implemented.
(3)The fees set must be based on lot liability.
(4)The owners corporation may determine the times for payment of fees.
24 Extraordinary fees
(1)An owners corporation may levy special fees and charges designed to cover extraordinary items of expenditure.
(2)The fees set must be based on lot liability.
(3)The owners corporation may determine the times for payment of the special fees and charges.
(4)A special resolution is required when exercising a power under subsection (1) if the amount involved is more than twice the total amount of the current annual fees set under section 23.
(5)Subsection (4) does not apply if the fees are levied to pay for or recoup the cost of repairs or maintenance carried out to any part of the property for which the owners corporation is responsible where immediate expenditure is or was necessary to ensure safety or to prevent significant loss or damage to persons or property.
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28 Liability of lot owners
(1)The owners for the time being and any purchaser in possession of, and any person entitled to receive the rents and profits from, a lot are liable to pay any outstanding fees, charge, contribution or amount owing to the owners corporation in respect of that lot.
(2)A lot owner is not liable to pay or contribute to the funds of the owners corporation a proportion of any amount required to discharge a liability of the owners corporation exceeding the lot owner's lot liability.
(3)Subsection (2) does not apply to an amount payable to an owners corporation for repairs, maintenance or other works that are undertaken by the owners corporation on common property or a lot and which are wholly or substantially for the benefit of some or one, but not all, of the lots affected by the owners corporation.
Division 3—Maintenance plan
36 Maintenance plan
(1)A prescribed owners corporation must prepare a maintenance plan for the property for which it is responsible.
(2)An owners corporation (other than a prescribed owners corporation) may prepare a maintenance plan for the property for which it is responsible.
38 When does a maintenance plan have effect?
(1)A maintenance plan does not have effect unless it is approved by the owners corporation.
(2)In approving a maintenance plan, an owners corporation may set conditions for the payment of money out of the maintenance fund.
Division 4—Maintenance fund
40 Establishment of maintenance fund
An owners corporation that has an approved maintenance plan must establish a maintenance fund in the name of the owners corporation.
41 What is the maintenance fund for?
The maintenance fund of an owners corporation must be used for the implementation of the maintenance plan of the owners corporation.
42 Payments into maintenance fund
If an owners corporation has established a maintenance fund, the following must be paid into that fund—
(a)any part of the annual fees that is designated as being for the purpose of the maintenance plan;
(b)any amounts received under an insurance policy in respect of the damage or destruction of property covered by the maintenance plan;
(c)any interest earned on the investment of the money in the fund;
(d)any amounts of a prescribed kind;
(e)any amounts of a kind determined by the owners corporation.
43 Payments from maintenance fund
Subject to any conditions specified in the regulations and an ordinary resolution of the owners corporation, money may be paid out of the maintenance fund at any time in accordance with the approved maintenance plan.
44 Extraordinary payments from maintenance fund
Money may also be paid out of the maintenance fund if the owners corporation by special resolution approves the payment.
Division 5—Asset management
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48 Lots not properly maintained
(1)If a lot owner has refused or failed to carry out repairs, maintenance or other works to the lot owner's lot that are required because—
(a)the outward appearance or outward state of repair of the lot is adversely affected; or
(b)the use and enjoyment of the lots or common property by other lot owners is adversely affected—
the owners corporation may serve a notice on the lot owner requiring the lot owner to carry out the necessary repairs, maintenance or other works.
(2)If a lot owner has been served with a notice under subsection (1), the lot owner must carry out the repairs, maintenance or other works required by the notice within 28 days of the service of the notice.
(3)If a lot owner has been served with a notice under subsection (1) and has not complied with the notice within the required time, the owners corporation may carry out the necessary repairs, maintenance or other works to the lot.
49 Cost of repairs, maintenance or other work
(1)An owners corporation may recover as a debt from a lot owner the cost of repairs, maintenance or other works carried out under section 48(3).
(2)An owners corporation may recover as a debt the cost of repairs, maintenance or other works undertaken wholly or substantially for the benefit of some only of the lots from the lot owners, but the amount payable by those lot owners is to be calculated on the basis that the lot owner of the lot that benefits more pays more.
(3)The works referred to in subsection (2) may be to the common property or a lot.
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53 Upgrading of common property
(1)An owners corporation may by special resolution approve the carrying out of upgrading works for the common property and the levying of fees on lot owners for that purpose.
(2)In this section upgrading works means building works for the upgrading, renovation or improvement of the common property where—
(a)the total cost of the works is estimated to be more than twice the total amount of the current annual fees; or
(b)the works require a planning permit or a building permit before they can be carried out—
but does not include works that are provided for in an approved maintenance plan or works referred to in section 4(b).
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