McElwaine v The Owners - Strata Plan 75975

[2017] NSWCA 239

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

McElwaine v The Owners - Strata Plan 75975 [2017] NSWCA 239

Hearing dates:

25 July 2017

Decision date:

20 September 2017

Before:

Basten JA at [1];
White JA at [5];
Sackville AJA at [73]

Decision:

1. Appeal allowed.

 

2. Set aside the order made on 10 November 2016 that the plaintiff’s proceedings be dismissed with costs.

 

3. Order that the question ordered for separate determination on 13 May 2015, namely:

 

“Whether the legal effect of Chapter 5 of the Strata Schemes Management Act is that the plaintiff has no remedy against the defendant in common law nuisance in respect of the claim pleaded in the proposed Further Amended Statement of Claim?”,

 

be answered, no.

 

4. Remit the proceedings to the Equity Division for determination of the appellant’s claim.

 

5. Order that the respondent pay the appellant’s costs of the determination of the separate question and of the appeal.

6. Grant the respondent a certificate pursuant to the Suitors’ Fund Act 1951 (NSW) in respect of the costs of the appeal if qualified.

Catchwords:

REAL PROPERTY — Strata title — General matters — whether Ch 5 of the Strata Schemes Management Act 1996 (NSW) has the effect of excluding a claim for common law damages — construction of s 226 of the Strata Schemes Management Act 1996 (NSW) — whether appellant has a right or remedy arising “apart from this Act” — whether appellant’s right to sue at common law is preserved by s 226

Legislation Cited:

Real Property Act 1900 (NSW), s 3
Strata Schemes (Freehold Development) Act 1973, ss 6, 21
Strata Schemes Management Act 1996 (NSW), ss 61, 62, 138, 226
Strata Schemes Management Act 2015 (NSW), Sch 3, Pt 2, cl 7
Supreme Court Act 1970 (NSW), s 103

Cases Cited:

Balog v Independent Commission Against Corruption (1990) 169 CLR 625; [1990] HCA 28
Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364; [2006] HCA 32
Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36
Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184
Doughty v Martino Developments Pty Ltd (2010) 27 VR 499; [2010] VSCA 121
Gumana v Northern Territory (2007) 158 FCR 349; [2007] FCAFC 23
Harrison v Melhem (2008) 72 NSWLR 380; [2008] NSWCA 67
Malika Holdings Pty Ltd v Stretton (2001) 204 CLR 290; [2001] HCA 14
McElwaine v The Owners – Strata Plan No. 75975 [2016] NSWSC 1589
Momcilovic v The Queen (2011) 245 CLR 1; [2011] HCA 34
National Employers Mutual General Insurance Association Ltd v Manufacturers Mutual Insurance Ltd (1989) 17 NSWLR 223 at 235, 240
Owners – Strata Plan 21702 v Krimbogiannis [2014] NSWCA 411
Owners – Strata Plan No 43551 v Walter Construction Group Ltd (2004) 62 NSWLR 169; [2004] NSWCA 429
Potter v Minahan (1908) 7 CLR 277; [1908] HCA 63
Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252; [2010] HCA 23
The Owners Strata Plan 50276 v Thoo [2013] NSWCA 270; (2013) 17 BPR 33,789
Tiufino v Warland (2000) 50 NSWLR 104; [2000] NSWCA 110

Category:

Principal judgment

Parties:

Paul Gerard McElwaine (Appellant)
The Owners, Strata Plan 75975 (Respondent)

Representation:

Counsel:
R J de Meyrick (Appellant)
A J McInerney SC with T O Prince (Respondent)

  Solicitors:
Kerin Benson Lawyers (Appellant)
Sparke Helmore Lawyers (Respondent)

File Number(s):

2016/365130;2017/161867

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity Division

Citation:

[2016] NSWSC 1589

Date of Decision:

10 November 2016

Before:

Young AJ

File Number(s):

2013/188816

Judgment

1. BASTEN JA: I agree with the orders proposed by White JA, for the reasons he gives. In particular I agree with the statement at [67] below that the case does not require consideration of the strength of the presumption against statutory interference with common law rights. It is worth saying why that is so.

2. The clear statement principle, often sourced in Potter v Minahan,[1] is not to be read as a presumption that legislation does not abrogate or alter common law rights, absent irresistible clarity. Such a presumption would be a bizarre fiction. In fact, O’Connor J did not use language so loosely; rather, in a lengthy extract from Maxwell on Statutes, he included the statement that it would be “in the last degree improbable that the legislature would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness.” It is doubtful that, given the surrounding expressions, “infringe rights” should be given a broad and unconfined reading.

   1. (1908) 7 CLR 277 at 304 (O’Connor J); [1908] HCA 63.

3. If one construes that phrase as including any laws which infringe the existing rights of individuals, whatever may have been true in 1908 has little traction today. As McHugh J noted in Malika Holdings Pty Ltd v Stretton [2] “nearly every session of Parliament produces laws which infringe the existing rights of individuals.” That statement was cautiously expressed, even in 2001. With respect to claims for damages in tort, it is hardly necessary to identify the extent to which statutory modifications have, over the years, varied the common law in all the separate jurisdictions of Australia and New Zealand.

   2. (2001) 204 CLR 290; [2001] HCA 14 at [28]-[29].

4. It is also important to bear in mind that “common law rights” do not exist in the abstract. The rights in question relate to protection of property. More particularly, they relate to the protection of a kind of property which is a statutory creation. It would not have been in any degree improbable if Parliament had set out to establish a separate scheme for regulating losses suffered by lot owners as a result of the conduct of the owners corporation of strata lots. However, it did not do so; all that matters for the present case is that s 226 of the Strata Schemes Management Act 1996 (NSW) was inconsistent with any suggestion that the scheme for dispute resolution provided by Ch 5 was an exclusive code governing disputes between lot holders and the owners corporation.

5. WHITE JA:   This is an appeal from orders of the Equity Division made on 10 November 2016 (Young AJ) that the plaintiff’s proceedings be dismissed with costs (McElwaine v The Owners – Strata Plan No. 75975 [2016] NSWSC 1589). The plaintiff was the registered proprietor of a lot in a strata plan for an apartment building in Newcastle East. The defendant is the owners corporation in whom the common property is vested. The appellant sued the owners corporation claiming damages in nuisance. He alleged that the owners corporation had failed to repair waterproofing defects in the common property to prevent water penetration to his unit. The parties agreed on the determination of a separate question in the nature of a demurrer, namely:

“Whether the legal effect of Chapter 5 of the Strata Schemes Management Act is that the plaintiff has no remedy against the defendant in common law nuisance in respect of the claim pleaded in the proposed Further Amended Statement of Claim.”

6. The primary judge reframed the question and determined that:

“… the SSM Act operates so that the plaintiff has no remedy against the defendant in common law nuisance in relation to the claim pleaded in the proposed further amended statement of claim.”

Accordingly, his Honour dismissed the proceedings.

7. An objection to the competency of the appeal was not pressed. Because the final order dismissing the proceedings was made consequentially upon the determination of a separate question, leave to appeal is not required by s 103 of the Supreme Court Act 1970 (NSW) (National Employers Mutual General Insurance Association Ltd v Manufacturers Mutual Insurance Ltd (1989) 17 NSWLR 223 at 235, 240; Tiufino v Warland (2000) 50 NSWLR 104; [2000] NSWCA 110; Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184 at [90]-[94]). There was no dispute that the value of the matter in issue in the appeal was more than $100,000.

8. Since the primary judge’s decision the Strata Schemes Management Act 2015 (NSW) has commenced. It commenced on 30 November 2016. It repealed the Strata Schemes Management Act 1996 (NSW) (“the SSM Act”). As both parties accepted, the correctness of the judgment on the appeal depends upon the proper construction of the SSM Act and the Strata Schemes (Freehold Development) Act 1973 (“the SSFD Act”): Strata Schemes Management Act 2015 (NSW), Sch 3, Pt 2, cl 7. The SSFD Act was repealed by the Strata Schemes Development Act 2015 (NSW) which also commenced on 30 November 2016.

9. Because the SSM Act and the SSFD Act apply to the determination of this appeal I will use the present tense when referring to provisions of those Acts.

10. The respondent submitted before the primary judge and on appeal that the only positive duty the owners corporation had in relation to the repair of water-proofing defects on the common property was a statutory duty pursuant to s 62(1) of the SSM Act. Sections 61 and 62 provide:

“61   What are the key management areas for a strata scheme?

(1)     An owners corporation has, for the benefit of the owners:

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

(b)     the administration of the strata scheme concerned.

(2)     The owners corporation has responsibility for the following:

(a)     maintaining and repairing the common property of the strata scheme as provided by Part 2,

…

(c) taking out insurance for the strata scheme as provided by Part 4,

…

62   What are the duties of an owners corporation to maintain and repair property?

(1)     An owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation.

(2)     An owners corporation must renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the owners corporation.

(3)     This clause does not apply to a particular item of property if the owners corporation determines by special resolution that:

(a)     it is inappropriate to maintain, renew, replace or repair the property, and

(b)     its decision will not affect the safety of any building, structure or common property in the strata scheme or detract from the appearance of any property in the strata scheme.

Note. The decision of an owners corporation under subsection (3) may be reviewed by an Adjudicator (see section 138).”

11. In The Owners Strata Plan 50276 v Thoo [2013] NSWCA 270; (2013) 17 BPR 33,789 (“Thoo”) this Court held that a lot owner did not have an action for damages for breach of the statutory duty imposed by s 62 (at [222]). The reason for that conclusion is that Ch 5 of the SSM Act provides the exclusive remedies for breach of the statutory duty imposed by s 62.

12. Section 226 of the SSM Act (which is in Ch 7) provides:

“226 Other rights and remedies not affected by this Act

(1)    Nothing in this Act derogates from any rights or remedies that an owner, mortgagee or chargee of a lot or an owners corporation or covenant chargee may have in relation to any lot or the common property apart from this Act.

(2) In any proceedings to enforce a right or remedy referred to in subsection (1), the court in which the proceedings are taken must order the plaintiff to pay the defendant’s costs if the court is of the opinion that, having regard to the subject-matter of the proceedings, the taking of the proceedings was not justified because this Act or Part 4 of the Community Land Management Act 1989 makes adequate provision for the enforcement of those rights or remedies.

(3)    The defendant’s costs are to be as determined by the court.”

13. The respondent submitted that s 226(1) did not apply because the appellant did not have a right or remedy in relation to his lot or the common property that arose “apart from this Act”. Rather, in the respondent’s submission, the appellant’s claim depended upon his showing a breach of the statutory duty created by s 62, even though it had been framed as a breach of a common law duty.

14. The primary judge accepted these submissions. The primary judge observed (at [9]) that pursuant to s 21 of the SSFD Act the owners corporation could not deal with common property, except in accordance with that Act or the SSM Act. Section 21 of the SSFD Act provides:

“21   Common property to be dealt with only under this Act and the Strata Schemes Management Act 1996

Common property shall not be capable of being dealt with except in accordance with the provisions of this Act and the Strata Schemes Management Act 1996.”

15. The primary judge cited the following passage from Thoo (at [142]):

“… The purpose of s 21 is clearly to preclude any form of action by the owners corporation in relation to the common property that is not contemplated and expressly permitted by the strata titles legislation.”

16. The primary judge observed that this Court has decided that any obligation under s 62 was not one a breach of which would sound in damages (at [13]-[16]) and that the remedies for breach of statutory duty were confined to those contained in Ch 5 of the SSM Act.

17. Section 138(1) of the SSM Act (which is in Ch 5) provides:

“138   General power of Adjudicator to make orders to settle disputes or rectify complaints

(1)    An Adjudicator may make an order to settle a dispute or complaint about:

(a)     an exercise of, or a failure to exercise, a function conferred or imposed by or under this Act or the by-laws in relation to a strata scheme, or

(b)     the operation, administration or management of a strata scheme under this Act.”

18. Section 123 of the SSM Act provides that a person can apply for an order under Ch 5 if he or she is eligible to make an application in accordance with the provision under which the order may be made. An order under s 138 can only be applied for by an “interested person” (s 138(5) of the SSM Act). That expression is relevantly defined in the SSM Act as follows:

“interested person, in relation to a freehold strata scheme, means any of the following:

(a)     the owners corporation for the strata scheme,

(b)     the chairperson, secretary or treasurer of the owners corporation (or of the executive committee of the owners corporation) of the strata scheme,

(c)     a strata managing agent for the strata scheme,

(d)     an owner of a lot in, a person having an estate or interest in a lot in, or an occupier of a lot in, the strata scheme.”

19. Provision is made for mediation (ss 125-133). An adjudicator does not have power to make an order for the settlement of a dispute or complaint that includes the payment by one person to another of damages (s 138(3)(d)).

20. Division 2 of Part 4 of Ch 5 contains specific provisions in relation to orders concerning alterations and repairs to common property and other property. Division 3 of Part 4 of Ch 5 concerns orders relating to insurance. Division 4 of Part 4 of Ch 5 enables an adjudicator to make orders including an order varying contributions levied on lot owners.

21. An appeal from an adjudicator’s order lies to the Civil and Administrative Tribunal (s 177). The Tribunal also has jurisdiction if a matter is referred to it by an adjudicator under s 164 and in certain other matters under Division 2 of Part 5 of Ch 5 that are not presently relevant. The powers conferred on the Tribunal under Ch 5 do not extend to the making of an order for the payment of damages.

22. The primary judge considered that s 75 of the SSM Act pointed to a legislative intention that disputes, whether or not they involved a common law right, should be dealt with in the adjudication system in Ch 5 and that damages were not an available remedy (at [22]). Section 75 requires an owners corporation to provide estimates before an annual general meeting of how much money would be needed to be credited to its administrative fund for actual and expected expenditure to maintain the common property and any personal property vested in the owners corporation in good condition on a day to day basis; to provide for insurance premiums; and to meet other recurrent expenses. It also requires an owners corporation to provide estimates as to how much money would need to be credited to its sinking fund for painting or repainting common property; to acquire personal property; to renew or replace personal property; renew or replace fixtures and fittings that are part of the common property; to replace or repair the common property; and to meet other expenses of a capital nature. The primary judge considered that if common law claims for damages by lot owners would have to be met by an owners corporation, then that would completely throw out of balance the scheme for ensuring that there is always a fund available to meet the cost of keeping the building in good repairs. In his Honour’s view this told against a lot owner having a common law cause of action for a matter that would come within Ch 5 of the SSM Act.

23. The primary judge accepted that the appellant’s claim was not one for breach of statutory duty, but rather a claim in nuisance arising at common law. His Honour quoted s 226(1) of the SSM Act and noted the submission of counsel for the appellant that that provision was a clear indication that the appellant’s common law rights to sue in nuisance were not affected because he was not suing for breach of statutory duty. The primary judge observed that s 226(2) tended towards the view that it is possible for a person to commence proceedings for alleged breach of statutory duty or a common law tort of nuisance or negligence and that the only consequence would be that if the matter were covered adequately by the SSM Act the court was prohibited from giving the plaintiff any costs. However, his Honour concluded (at [31]) that:

“… it seems to me that in the light of decisions of the Court or Appeal such as Ridis [Ridis v Strata Plan 10308 (2005) 63 NSWLR 449; [2005] NSWCA 246] and Thoo, that one would need to read it [viz. 226(2)] down so that the legislature recognised that there was a possibility that there might be a right of an owner which was not mandated to be dealt with under the dispute proceedings in Ch 5 but which could have been brought under Ch 5 in which case as a failsafe provision deprivation of costs was provided as a disincentive. It seems to me that that is more in accordance with the decisions of the Court of Appeal on the structure of the SSM Act generally than a more expansive view of s 226(2).”

24. The primary judge did not further address s 226(1).

25. The primary judge concluded:

“[32] Although Tobias AJA in Thoo’s case was speaking in terms of an action to enforce a statutory duty, it seems to me that the interpretation of the scheme of the SSM Act taken by the Court of Appeal leads one to the view that the same applies to a common law duty. The SSM Act intends that disputes, whether or not they are also involving a common law right, are to be dealt with in the adjudication system under the Act and not independently.

[33] The thought went through my mind that it is perhaps odd that if a person who was not entitled to bring a complaint under Ch 5 had a claim in nuisance that that claim would be validly considered by a court and, if made out, damages would be awarded which would affect the levies made under the SSM Act. However, after some consideration it seemed to me that this is not a helpful thought because a third parties rights [sic] would be the subject of insurance mandated under the Act and that, in any event, it is extremely difficult to think of such a situation ever occurring. Although there is no direct authority on the point, it seems to me that the reasoning of the Court of Appeal in analogous cases involving claims against the body corporate for breach of statutory duty that the legislature intended that claims by unit holders whether for statutory duty or common law duty were to be dealt with under the Act and that the common law claims are not available. Accordingly, the question posed for my decision should be answered yes. However, it seems to me that the question should be reframed so that the order of the Court is that the SSM Act operates so that the plaintiff has no remedy against the defendant in common law nuisance in relation to the claim pleaded in the proposed further amended statement of claim.”

26. It is critical to the respondent’s case that it make good its contention that it owed the appellant only a statutory duty under the SSM Act in relation to its management and repair of the common property. It is only if that premise is made good that the respondent can rely on the holding in Thoo that Ch 5 of the SSM Act provides exclusive remedies for breach of an owners corporation’s statutory duty as an answer to the appellant’s claim in nuisance, and can argue that s 226 is not engaged on the ground that the appellant cannot rely upon a duty arising apart from the SSM Act. For the reasons which follow I do not accept that premise. Rather, an owners corporation, as legal owner of the common property, may owe a general law duty of care or a general law duty not to create or to abate a nuisance, and not merely a statutory duty that can be enforced only through the mechanisms provided in Ch 5 of the SSM Act. Contrary to the view of the primary judge, decisions of this Court do not support the view that such a general law duty is excluded. To the contrary, the decision in Ridis and in Owners – Strata Plan 21702 v Krimbogiannis [2014] NSWCA 411 proceed on the assumption that such general law duties can exist in addition to the statutory duty of repair. Thoo does not decide to the contrary. Neither the SSFD Act nor the SSM Act negate the rights of a lot owner or occupier of a lot to enforce an owners corporation’s duty in respect of the management or repair of the common property that is owed to an owner or occupier of a lot in that capacity. The appellant’s right to sue at common law is preserved by s 226. Accordingly, in my view the appeal should be allowed.

The Pleading

27. The appellant’s statement of claim went through a number of formulations. Ultimately, the appellant repleaded his cause of action as one in nuisance. The pleading in question, called a “Substituted Statement of Claim” (which was not filed but was the pleading considered by the primary judge for the purposes of the separate question) described the lot entitlement of the appellant’s unit and the relevant parts of the common property, including the façade and external walls, windows and glass doors on certain sides of the unit, the dividing wall between two units, the ceiling and floor and tiled balconies.

28. The appellant then alleged that pursuant to s 61 of the SSM Act the respondent at all times had for the benefit of each of the owners, including the appellant, the management and control of the use of the common property of the strata scheme. He pleaded that pursuant to s 62 of the SSM Act the respondent was under a continuing obligation properly to maintain the common property and to keep it in a state of good and serviceable repair.

29. He then alleged that the building was constructed as a concrete frame structure, with concrete columns and floor slabs, supporting a façade comprised structural Hebel panel walls and large expanses of aluminium framed glazing, including fixed glass panels, sliding doors and windows and associated water-proofing systems that allowed water and moisture to penetrate through the common property into owners’ lots, including that of the appellant due to 12 identified water-proofing defects.

30. He alleged that in 2007 heavy rain fell in Newcastle causing water to penetrate into the appellant’s unit and also through the common property into other units.

31. He alleged that on various subsequent occasions prior to March 2013 there was further water penetration through the common property.

32. He then alleged that on 2 and 3 March 2013 heavy rain fell within Newcastle causing water and moisture to penetrate into the appellant’s unit, rendering it unfit for habitation.

33. The appellant alleged that at all material times from about the second half of 2007 or early 2008 at the latest, the respondent knew about the water-proofing defects, knew that those defects allowed water and moisture to penetrate through the common property into the appellant’s unit, and knew or ought to have known that water and moisture would continue to do so unless and until the common property was repaired. He alleged that the respondent failed to repair the common property to prevent further water and moisture penetration and thereby allowed a state of affairs to continue that since early March 2013 caused and continued to cause substantial and unwarranted interference with his use and enjoyment of his unit.

34. As the respondent submitted, the gravamen of the appellant’s claim is that the respondent failed to repair the alleged water-proofing defects in the common property and thereby allowed a state of affairs to continue, such that as a result of water and moisture penetration there was a substantial interference with the appellant’s use and enjoyment of his lot. The appellant’s claim is that the respondent owed a positive duty to repair the common property. The respondent submits, partly in reliance on Thoo, that no such positive duty can arise except under statute.

The Strata Schemes (Freehold Development) Act: Section 21

35. Section 6(1) and (2) of the SSFD Act provides:

“6   Construction of Act

(1) This Act shall be read and construed with the Real Property Act 1900 as if it formed part thereof.

(2)     The Real Property Act 1900 applies to lots and common property in the same way as it applies to other land except in so far as any provision of that Act is inconsistent with this Act or is incapable of applying to lots or common property.”

36. Section 18(1) of the SSFD Act provides that upon registration of a strata plan any common property in that plan vests in the body corporate for the estate or interest evidenced by the folio of the register comprising the land the subject of the plan but freed and discharged from any mortgage charge, covenant charge, lease, writ or caveat affecting that land immediately before registration of the plan. The “body corporate” means an owners corporation constituted under s 11 of the SSM Act. Section 20 of the SSFD Act provides that the estate or interest of the owners corporation in common property that is vested in it is held by it as agent for the proprietors of the lots and if there is more than one proprietor, as tenants in common in shares proportional to the unit entitlements of their respective lots. Section 24(2) provides that the beneficial interest of a proprietor of a lot in the estate or interest in the common property held by the owners corporation as agent for that proprietor cannot be severed from or dealt with, except in conjunction with the lot.

37. The interest of a lot owner in the common property is an equitable interest as a tenant in common with other lot owners. The relationship between the owners corporation as legal owner of the common property and the lot owners as beneficial tenants in common is that of trustee and beneficiary or analogous thereto (Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36 at [10] per French CJ).

38. Section 21 has been quoted above at [14]. It is contained in Div 2 of Pt 2 of the SSFD Act.

39. Division 2 in which s 21 is located is headed “Common Property”. Division 2 provides for the vesting of common property in the owners corporation on registration of the strata plan (s 18), the acquisition of additional common property (s 19), the relationship between the owners corporation and lot owners in respect of the common property vested in the owners corporation (ss 20 and 24), the transfer or lease of common property by an owners corporation pursuant to a special resolution (s 25), the creation or variation of easements, restrictions and positive covenants of the common property (s 26), and the dedication of common property as a public road or public reserve (27(2) and (3)).

40. This is the immediate context in which s 21 of the SSFD Act is to be construed. It is also to be read and construed as if it formed part of the Real Property Act 1900 (NSW). Section 21 is set out at [14] above.

41. Neither the SSFD Act nor the Real Property Act contain a definition of “deal” or “dealt with”. The definition of “Dealing” in the Real Property Act as meaning an instrument which is registrable or capable of being made registrable under the provisions of that Act or in respect of which any recording in the Register is required or permitted to be made (Real Property Act, s 3) is not directly applicable to the interpretation of the words “dealt with” in s 21. Nonetheless, when s 21 is construed in the context of Div 2 of Pt 2 of the SSFD Act, and as if it formed part of the Real Property Act, it can be seen that the words “dealt with” refer to dealings in a conveyancing sense, that is, as referring to matters such as the creation, disposition, variation, surrender or extinguishment of interests in or rights over common property.

42. This was not the construction given to s 21 in Thoo. Dr Thoo was the proprietor of a lot in a strata scheme that included shops. He obtained development approval for the subdivision of the lot into separate retail tenancies. He wished to lease the shops for the commercial cooking and selling of food. To comply with the conditions of development approval he wished to have the existing exhaust ventilation system in the common property that serviced all of the shops in the strata scheme upgraded. This would have required the installation of an additional system. The owners corporation refused to give Dr Thoo the guaranteed exhaust capacity he wanted. He contended that the owners corporation was obliged by s 62(2) of the SSM Act to renew and replace fixtures or fittings comprised in the common property. He sought a mandatory injunction and damages for breach of s 62(2). As an alternative to his case based upon s 62(2), Dr Thoo contended that he had and continued to have the right in common with other lot owners to use and enjoy the common property that included the existing mechanical ventilation system in accordance with the by-laws (at [132]). Tobias AJA said that the owners corporation’s status as trustee of the common property for the lot owners did not impose upon it any duty to act in any positive way, except in so far as that duty was imposed by statute. Any statutory duty aside, the only duties imposed on the owners corporation as trustee of the common property were negative duties applicable to fiduciaries (at [137]). Barrett JA also said that the relationship between the owners corporation as trustee of the common property on behalf of the lot owners creates by implication the proscriptive duties of fiduciaries, but creates no basis for imposing prescriptive duties independent of those created by statute (at [21]).

43. Preston CJ of the Land and Environment Court agreed with the reasons of Barrett JA and Tobias AJA.

44. These observations were addressed to the issue of what duties were owed by the owners corporation as trustee of the common property to lot owners as equitable tenants in common of the common property. Thoo holds that the owners corporation as trustee of the common property does not owe any positive duty, other than a duty imposed by statute, to lot owners as beneficial owners of the common property. It says nothing as to whether the owners corporation as legal owner of the common property owes duties independently of statutory duties to lot owners in their capacity not as beneficial owners of common property, but as legal owners of their lots, in the same way as an owners corporation as legal owner of the common property will owe duties to third parties.

45. In Thoo Tobias AJA added the following (at [141] and [142]):

“[141]The negative quality of such general law duties as arise from the trustee status of the owners corporation with respect to common property is emphasized by s 21 of the [SSFD Act]:

Common property shall not be capable of being dealt with except in accordance with the provisions of this Act and the Strata Schemes Management Act 1996.

[142]The expression ‘deal with’, used in relation to property, is wide. It would clearly include any action required to be taken by the owners corporation pursuant to ss 62(1) and (2), subject to the passing of a special resolution pursuant to s 62(3). In that respect any equitable right of a lot owner to require the owners corporation to replace the MEVS, as Dr Thoo seeks, would be trumped by a valid special resolution passed pursuant to s 62(3). The purpose of s 21 is clearly to preclude any form of action by the owners corporation in relation to the common property that is not contemplated and expressly permitted by the strata titles legislation.”

46. Again, his Honour was addressing the rights arising from the exercise of the powers of the owners corporation and lot owners with respect to the common property. His Honour was not addressing the duties owed by the owners corporation as the legal owner of the common property to persons owning other property, whether as lot owners or outside the strata scheme.

47. The reasoning in Thoo at [142] was not a necessary part of the reasoning for the decision in Thoo. With respect, I do not agree that the expression “dealt with” where used in s 21 of the SSFD Act includes actions required to be taken by the owners corporation to maintain the common property or to keep it in a state of good and serviceable repair, or to replace fixtures or fittings in the common property. In the context in which the words “dealt with” are used in s 21, they do not extend to such conduct. I do not agree with the last sentence of [142] of Thoo that the purpose of s 21 of the SSFD Act is to preclude the owners corporation from taking any action in relation to the common property that is not contemplated and expressly permitted by the strata titles legislation.

48. Under s 62(3) of the SSM Act an owners corporation is not required properly to maintain and keep in a state of good and serviceable repair the common property if the owners corporation determines by special resolution that it is inappropriate to do so and that the decision not to do so will not affect the safety of the building structure or common property. As a matter of internal management between the owners corporation and the lot owners, the owners corporation would not have the power to carry out maintenance or keep the common property in a state of good and serviceable repair if a special resolution is passed in terms of s 62(3). But that does not mean that as against third parties, or as against lot owners in their capacity as such, the owners corporation may not owe a duty of care or a duty not to create or to abate a nuisance.

Previous Decisions of this Court do not Support the Respondent’s Contention

49. The primary judge appears to have thought that the decision of this Court in Ridis supported his conclusion that the SSM Act precluded the possibility of the appellant’s having a common law claim in nuisance. That is not so. To the contrary, the reasoning in Ridis was that the owners corporation’s statutory duties may have informed, but did not negate, its general law duty to Mr Ridis.

50. In Ridis the appellant was an occupier of one of eight units in an apartment block. He was injured when he put out his hand to prevent the front door from closing and locking on him and the glass pane in the door shattered (at [14] per Tobias JA). The door was part of the common property. The respondent was the owners corporation which had the management and control of the door. The glass in the door was ordinary annealed glass as distinct from safety glass (at [17]). Each of the judgments in Ridis proceeded on the basis that the owners corporation owed a duty of care to the appellant, breach of which could sound in damages. McColl JA observed (at [126]) that:

“[126] The duty to take reasonable care requires the occupier to protect entrants from risks of injury which can be foreseen and avoided. The measure of the discharge of the duty is what a reasonable person would, in the circumstances, do by way of response to the foreseeable risk: Hackshaw v Shaw (at 663). Determining whether the duty has been breached turns upon the application of the Shirt calculus (Wyong Shire Council v Shirt (1980) 146 CLR 40) to ‘the probability of the risk occurring, the magnitude of the consequences — which may vary from small to extremely grave — and the cost or inconvenience of eliminating the risk …’: Western Suburbs Hospital v Currie (1987) 9 NSWLR 511 at 521, per McHugh JA (as his Honour then was); applied Phillis v Daly (at 67), per Samuels JA; see also (at 71), per Mahoney JA; (at 76–77), per McHugh JA.”

51. The issue in Ridis was whether the owners corporation had failed to take such care as was reasonable in the circumstances because it had breached its duty under s 62(2) of the SSM Act to renew or replace fixtures or fittings comprised in the common property (at [2] per Hodgson JA; at [42] per Tobias JA; and at [124] per McColl JA).

52. Tobias JA concluded that the owners corporation had breached its common law duty of care (at [81]). His Honour considered that the obligations imposed upon it by ss 62(1) and 62(2) of the SSM Act informed the standard of care reasonably required of it and to discharge that standard it was required to inspect the common property from time to time, including its fixtures and fittings for the purpose of replacing any item where it was appropriate to replace the item where the item presented a reasonably foreseeable safety risk (at [50] and [55]).

53. Tobias JA was in dissent. Hodgson JA agreed that s 62 of the SSM Act affected the general obligation of an occupier of property to inspect and remove dangers or defects of which the occupier is aware or ought to be aware (at [2]). His Honour was of the view that to comply with its obligation under s 62(2) an owners corporation acting reasonably should have a system in place for monitoring the maintenance and state of repair of the common property, having particular regard to safety issues associated with its maintenance and repair (at [5]). This would have required the owners corporation to take precautions, had it been actually aware that the glass in the door could shatter. Section 62 aside, it was not established that the owners corporation should have been aware of that risk (at [7] and [8]). His Honour was not satisfied that inspections of the kind that he considered should reasonably have been arranged with a view to the owners corporation fulfilling its s 62 obligation would, on the balance of probabilities, have brought home the risk to the owners corporation (at [11]).

54. McColl JA reached the same conclusion as Hodgson JA. Her Honour said:

“[90]It is open to the appellant to rely upon what he contends is the respondent's breach of s 62 as evidence of negligence on its part, rather than as conferring a cause of action: see O'Connor v SP Bray Ltd (1937) 56 CLR 464 at 477, per Dixon J. However a breach of s 62, if established, is not conclusive as to whether the respondent acted negligently. The common law duty to act reasonably in all the circumstances is paramount. Whether a failure to act in accordance with a statutory obligation constitutes a breach of that duty is a question of fact to be judged in the circumstances of the case: Sibley v Kais (1967) 118 CLR 424 at 427; see also Abela v Giew (1965) 65 SR (NSW) 485 at 489; 82 WN (NSW) 435 at 438; Tucker v McCann [1948] VLR 222 at 225, per Herring CJ.”

55. Thus, all members of the Court considered that the owners corporation owed a duty of care to the appellant who was an occupier of one of the units, breach of which could sound in damages. As an occupier of a lot Mr Ridis was an “interested person” who would have had standing to apply under s 138 of the SSM Act for an order from an adjudicator requiring the owners corporation to replace the glass doors with annealed glass. No member of the Court considered that the existence of this right meant that Mr Ridis could not sue for damages at common law for the alleged breach of the owners corporation’s duty of care.

55. In Ridis McColl JA said (at [115]):

“… A ‘breach’ of s 62 does not sound in damages nor constitute anoffence under the Strata Schemes Management Act. Rather, it is apparent, inmy view, that the legislature intended the system of adjudication establishedunder Ch 5 to be the vehicle through which the owners corporation's discharge of its s 62 functions could be regulated.”

57. This paragraph was later approved and applied in Thoo. But whether a breach of s 62 gives rise to a claim for damages for breach of statutory duty is a different question from whether the owners corporation owes a general law duty arising from its legal ownership and its management and control of common property, either to third persons or to “interested persons” who are eligible to apply for orders under Ch 5 of the SSM Act. Ridis is inconsistent with the primary judge’s conclusion in this case that the SSM Act intends that disputes, whether or not they also involve a common law right, are to be dealt with in the adjudication system under the Act and not independently (at [32]).

58. Mr McInerney SC who appeared with Mr Prince for the respondent, accepted, as he was bound to do if the respondent is correct, that Ridis is not consistent with the respondent’s position. He pointed out that the particular argument advanced in the present case was not raised in Ridis, but said that had the point been raised the Court should have found that Mr Ridis had no cause of action in negligence because, being an occupier, he fell within the definition of an “interested person” who could invoke a statutory remedy for breach of a statutory duty imposed by s 62, and was confined to that remedy.

59. In Thoo the plaintiff claimed a mandatory injunction that the owners corporation repair or replace the mechanical exhaust ventilation system so as to make available to him the exhaust capacity he needed to comply with the conditions of the development consent for his lots to be used for cooking food for retail sale. The primary judge in Thoo found that Dr Thoo was entitled to that order and directed an inquiry as to damages. The primary judge found that Dr Thoo was entitled to damages for breach of s 62(2) on the basis that the owners corporation had breached its obligation under s 62(2) and that breach gave rise to a private cause of action pursuant to which damages could be awarded to a lot owner (at [30] and [35]-[36]). Dr Thoo did not bring a claim in negligence or nuisance or any other general law duty, save for the duty said to be owed to him as equitable tenant in common of the common property by the owners corporation as trustee. He did not claim that the owners corporation had breached any general law duty owed to him as lot owner.

60. The Court of Appeal found that the owners corporation was not in breach of s 62 ([130]-[131]). As noted above, in Thoo the Court of Appeal adopted the observation of McColl JA in Ridis at [87] quoted above in concluding that a breach of s 62 did not sound in damages. Apart from an observation concerning s 226 of the SSM Act, the Court did not address the question whether the SSM Act excluded a general law right of action. Tobias AJA addressed s 226. His Honour said:

“[219]In Proprietors of Strata Plan No 30234 v Margiz Pty Ltd, Brownie J referred to s 105 of the Strata Titles Act 1973 and to the decision of Kearney J in MacLeod v Proprietors of Strata Plan No 6544 [1980] 2 NSWLR 691 at 694, where his Honour held that s 146 (now s 226) had been carefully and deliberately drafted so as not to exclude the concurrent jurisdiction of the court, (that is, the jurisdiction of the court which was concurrent with the jurisdiction of the Commissioner to resolve disputes under the Strata Titles Act 1973). However, the concurrent jurisdiction to which his Honour was referring, and which was applied by Needham J in Proprietors of Strata Plan No 6522 v Furney [1976] 1 NSWLR 412, was the jurisdiction of the court to make a declaration in the latter case or a mandatory injunction in the former case. Neither case dealt with the issue of whether a breach of s 68(1)(b) or (c) (now s 62(1) and (2)) gave rise to a private right of action for damages. Nevertheless, as I have noted in [199] above, Brownie J in Margiz did hold that there was such a right of action.

[220]In my view there is a distinction to be made between, on the one hand, the preservation of the concurrent jurisdiction of the court pursuant to the old s 146 and the current s 226, and, on the other, the question as to whether a breach of a duty imposed by the legislation on an owners corporation gives rise to a private cause of action for damages for breach of statutory duty. In Lubrano Young J also referred to s 105 of the Strata Titles Act 1973 as well as to s 146, holding that the plaintiff owner did have an action for a breach of statutory duty, basing his decision upon the reasoning of Brownie J in Margiz.

[221] However, as I have indicated, ultimately I prefer the reasoning of McColl JA in Ridis where her Honour, after a careful analysis of the provisions of the [SSM Act], made it clear that in her view a breach of s 62 did not sound in damages. In this respect her Honour took into account many of the same matters that were considered by Brownie J in Margiz and by Young J in Lubrano, but came to a different view which I respectfully consider to be correct.”

61. This reasoning is entirely consistent with s 226’s preserving a lot owner’s right to recover damages at common law for breach by an owners corporation of a general law duty.

62. In The Owners – Strata Plan 21702 v Krimbogiannis [2014] NSWCA 411 Basten JA, with whom Macfarlan and Meagher JJA agreed, noted that Ridis turned upon this Court’s assessment of the extent of the general law duty of care of an owners corporation read in the context of the statutory obligation imposed by s 62(1) (at [18]-[19]). Although the issue was not raised, no doubt was thrown upon the existence of such a general law duty.

63. In Owners – Strata Plan No 43551 v Walter Construction Group Ltd (2004) 62 NSWLR 169; [2004] NSWCA 429 the question was whether an owners corporation had standing to sue a builder in tort in respect of alleged defects to the common property. The owners corporation did not assert a right to sue on behalf of the lot owners. Spigelman CJ, with whom Ipp and McColl JJA agreed, held that as legal owner of the common property the owners corporation could sue in its own right (at [49]), this being an ordinary incident of ownership (at [50]).

64. Another ordinary incident of legal ownership of real property is the liability that a legal owner may have in negligence if a person is injured as a result of the owner’s failure to take reasonable care in the management of the real property to protect a person against foreseeable and avoidable risk of harm and the legal owner’s duty not to create or continue a nuisance. For the reasons I have given s 21 of the SSFD Act does not negate such general law duties. Nor, properly understood, does Thoo deny the existence of positive general law duties owed by an owners corporation to lot owners, in their capacity as such and not in their capacity as equitable tenants in common of the common property.

SSM Act Does not Exclude General Law Duties Owed to Lot Owners

65. The question is whether there is anything in the SSM Act that negates such duties and the correlative common law rights of a lot owner.

66. The appellant submitted that it is a fundamental tenet of statutory interpretation that legislation is presumed not to abrogate or alter common law rights unless the intention to do so is expressed with irresistible clarity (citing Potter v Minahan (1908) 7 CLR 277 at 304 per O’Connor J; [1908] HCA 63). He submitted that where there are two alternative constructions, the construction that is consonant with the common law is to be preferred (citing Balog v Independent Commission Against Corruption (1990) 169 CLR 625 at 635-6; [1990] HCA 28). He might also have referred to Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364; [2006] HCA 32 at [23] per Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ, Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252 at 259 [15]; [2010] HCA 23 per French CJ, Gummow, Hayne, Crennan and Kiefel JJ, and Momcilovic v The Queen (2011) 245 CLR 1 at 46 [43]; [2011] HCA 34 per French CJ. The respondent submitted that whilst it is correct to say that legislation is presumed not to abrogate or diminish fundamental common law rights unless the intention to do so is expressed with irresistible clarity, a common law right to sue for damages for breach of a general law duty is not such a fundamental right (citing Gumana v Northern Territory (2007) 158 FCR 349; [2007] FCAFC 23 at [96]-[98]; Harrison v Melhem (2008) 72 NSWLR 380; [2008] NSWCA 67 at [3]-[11] per Spigelman CJ (Beazley JA (as her Honour then was) agreeing, [209]-[221] per Basten JA; Doughty v Martino Developments Pty Ltd (2010) 27 VR 499; [2010] VSCA 121 at [17] per Nettle JA (Mandie JA and Emerton AJA agreeing).

67. No discussion of the strength of the presumption against interference with common law rights is called for in this case. That is because there is nothing in the SSM Act that indicates a legislative intention to affect a lot owner’s common law right to sue the owners corporation for negligence or nuisance in relation to its control and management of the common property. The respondent’s argument to the contrary assumed that the only positive duties owed by an owners corporation to a lot owner were statutory duties arising from the owners corporation’s statutory functions. But that is not so. It is an ordinary incident of the owners corporation being the legal owner of the common property that it owes duties to others arising from its legal ownership, control and management of the common property.

68. Sections 61 and 62 which form part of Ch 3 of the SSM Act are set out at [10] above. Other provisions of Pt 2 of Ch 3 set out additional powers of an owners corporation to carry out work, including work required to be carried out by a lot owner or occupier of a lot under a term of a by law and to carry out work at its expense in a lot. None of the provisions in Pt 2 of Ch 3 relating to the powers of an owners corporation suggests any legislative intention to affect common law rights or duties, except in so far as the content of such common law rights or duties might be informed by the existence of statutory powers.

69. Part 3 of Ch 3 is concerned with the finances of a strata scheme. As noted above at [22] s 75 requires an owners corporation to make estimates of required levies for the administrative and sinking funds. The primary judge considered that this indicated that a lot owner’s right to sue for damages at common law was excluded because common law claims by unit holders would have to be met by the owners corporation, which would throw the fund out of balance. But his Honour noted (at [33]) that the same issue would arise in relation to a claim of a third party who was not an “interested party”. His Honour dismissed that thought because such claims would be the subject of insurance that the owners corporation was required to take out (at [33]). In this respect, his Honour was right. The reasoning applies equally to a common law claim of a lot owner.

70. Had Parliament intended to abolish common law rights and remedies and to replace them with the statutory remedies available from an adjudicator and the Tribunal, it could be expected to have given an adjudicator and the Tribunal the power to order the payment of damages. The fact that an adjudicator and the Tribunal cannot make an order for the payment of damages indicates that Parliament did not intend the scheme under the SSM Act to exclude a lot owner’s common law right to sue the owner’s corporation for negligence or nuisance in respect of its management or control of the common property. The respondent’s contention to the contrary depends upon the correctness of its contention that the only positive duty of the owners corporation to a lot owner was a statutory duty for which the remedies in Ch 5 of the SSM Act were the exclusive remedies. For the reasons I have given I do not accept that submission.

71. Section 226 makes the position clear. The primary judge did not address the terms of s 226(1), except to note the appellant’s submission that it was a clear indication that the appellant’s common law rights to sue in nuisance were not affected by the SSM Act or the decisions of the Court of Appeal in Ridis and Thoo. But unless there is something in the SSFD Act or the SSM Act that excludes a lot owner’s right to sue the owners corporation in nuisance, s 226(1) expressly preserves that right. As the primary judge observed, s 226(2) indicates that an owner, mortgagee or chargee of a lot can have concurrent rights at common law and for an alleged breach of statutory duty but if his or her statutory remedies under Ch 5 were sufficient, he or she can be ordered to pay costs. That is correct. Contrary to the primary judge’s view, neither Ridis nor Thoo decided to the contrary.

Conclusion and Orders

72. For these reasons I propose the following orders:

1. Appeal allowed.

2. Set aside the order made on 10 November 2016 that the plaintiff’s proceedings be dismissed with costs.

3. Order that the question ordered for separate determination on 13 May 2015, namely:

“Whether the legal effect of Chapter 5 of the Strata Schemes Management Act is that the plaintiff has no remedy against the defendant in common law nuisance in respect of the claim pleaded in the proposed Further Amended Statement of Claim?”,

be answered, no.

4. Remit the proceedings to the Equity Division for determination of the appellant’s claim.

5. Order that the respondent pay the appellant’s costs of the determination of the separate question and of the appeal.

6. Grant the respondent a certificate pursuant to the Suitors’ Fund Act 1951 (NSW) in respect of the costs of the appeal if qualified.

73. SACKVILLE AJA: I agree with White JA.

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Endnotes

Decision last updated: 20 September 2017