Owners - Strata Plan 11011 v Integrated Project Services Pty Ltd - [2015] NSWSC 553

Supreme Court

New South Wales

Medium Neutral Citation: Owners – Strata Plan 11011 v Integrated Project Services Pty Ltd [2015] NSWSC 553
Hearing dates: Monday, 27 April 2015
Decision date: 28 April 2015
Jurisdiction: Equity Division
Before: White J
Decision:
Refer to para [55] of judgment.

Catchwords:
LEGAL PRACTITIONERS – obtaining instructions from owners’ corporation – director of lot owners with minority interest in plaintiff owners’ corporation appointed as representative to provide instructions in relation to litigation – other lot owners with majority interest purported to instruct lawyers to settle the dispute at an invalidly held meeting contrary to representative’s instructions –representative’s authority has not been revoked – whether plaintiff’s solicitors and barrister were required to follow representative’s or majority lot owners’ instructions – whether representative’s instructions were improperly given – held that the plaintiff’s solicitors and barrister were obliged to follow instructions properly given by the representative, and that there was nothing improper in the representative taking a position contrary to that taken by lot owners with a majority interest
STRATA SCHEMES – conferral of authority on individual to conduct litigation by owners’ corporation – plaintiff owners’ corporation purported to “delegate the authority” to provide instructions to solicitors in relation to litigation to an individual –whether that delegation contravened s 13(3) of the Strata Schemes Management Act 1996 (NSW) – whether the individual was employed to assist the owners’ corporation within s 13(1) of the act – held that the conferral of authority was not a delegation of the owners’ corporation’s functions under s 13(3), and held that the concept of employment in s 13(1) of the act extends beyond appointing individuals as employees, so that the individual here was authorised under s 13(1) by the owners’ corporation’s resolution to instruct the owners’ corporation’s lawyers and to give the usual undertaking as to damages on behalf of the owners’ corporation, but not to terminate the lawyers’ retainer
Legislation Cited: Strata Schemes Management Act 1996 (NSW)
Category: Procedural and other rulings
Parties: Owners – Strata Plan 11011 (Plaintiff)
Integrated Project Services Pty Ltd (1st Defendant)
L & C’s Treasure Pty Limited (2nd Defendant)
Representation:
Counsel:
Ms J Wright (Plaintiff)
Mr J Ziade (Representative for the Plaintiff)
Mr D Currie (Defendant)
Solicitors:
Grace Lawyers (Plaintiff)
T K Legal (Defendant)

File Number(s): 2015/51343

Judgment

HIS HONOUR: On the commencement of the hearing of these proceedings today, counsel for the plaintiff said, in substance, that she and her instructing solicitor were in a difficult position.
The plaintiff is an owners’ corporation. It commenced proceedings on 18 February 2015, complaining that excavation work on a development of an adjoining property was putting the structure and integrity of its building at risk.
On that day, McDougall J, sitting as duty judge, on the plaintiff's ex parte application, granted an injunction until the following day, restraining the defendants from conducting or permitting to be conducted any excavation or further excavation works on the adjoining property.
In making that order, his Honour referred to engineering evidence that was adduced at the hearing on that day which raised serious concerns about the safety of individuals if the work continued. His Honour said that, taking into account the evidence of structural damage that had occurred since the excavation works had commenced, and the apparent worsening of that structural damage, and bearing in mind that the excavation was only in a relatively early phase, he was satisfied that short-term restraint was appropriate.
The injunction granted on 18 February was extended the following day and was further extended by consent and without admissions on 26 February 2015 until 4 March 2015.
The summons, as well as seeking the injunction until further order against the defendants conducting or permitting works to be conducted on the adjoining property, seeks final relief, including a declaration that the plaintiff's land had a right of support from the second defendant's land, an order that the defendant's reinstate the support for the plaintiff's land in a proper and workmanlike manner and to the satisfaction of the plaintiff's engineer, and an order that the defendants repair damage to the plaintiff's land in a proper and workmanlike manner and to the satisfaction of the plaintiff's engineer. The plaintiff also seeks damages.
On 4 March 2015, Registrar Walton stood the proceedings over to 9 March and the injunctions were continued. The proceedings were stood over further to 16 March. On 16 March the Registrar listed the "proceedings" for hearing on 7 April 2015. On 2 April 2015, by consent of the parties, I adjourned the hearing to today, 27 April. The adjournment was sought to allow the defendants time to respond to an affidavit of the plaintiff's expert of 31 March. By consent, but on the plaintiff’s continuing the usual undertaking as to damages, the interlocutory injunction has been continued up to 5pm today.
The difficulty that the lawyers for the plaintiff said they faced is identifying who is or are the person or persons who are authorised to give them instructions, and their obligations to act on the instructions of particular lot owners.
A Mr Ziade, who is the managing director of the companies that own three of the lots, having 48 per cent unit entitlement, has been giving instructions on behalf of the owners’ corporation. But it appears that, at least over the weekend, the other lot owners have taken a view that the proceedings should be effectively resolved by the plaintiff’s agreeing to the carrying out of work that the defendant's structural engineer has proposed as being the appropriate method of providing support for the plaintiff's land.
Mr Ziade, whose company is the owner of one of the most affected lots, is not content with the position taken by the other lot owners. His company owns a lot which is the subject of a long-term tenancy and which is, it seems, the lot which is likely to be most directly affected by a lack of support. The affidavits that will be read at the hearing, which I have considered prior to today, refer to damage that those premises have suffered and although there is, apparently, a dispute as to the extent of that damage, Mr Ziade says that his companies are those who may be most severely affected if the proposed method of support proves to be inadequate.
Mr Ziade has purportedly challenged the retainer of the plaintiff's solicitors, Grace Lawyers, but he has also given instructions to that firm and to counsel appearing for the plaintiff, which instructions, I am told, the lawyers consider they should not act on. This, essentially, I think, is because the majority of the lot owners do not agree with them.
Mr Ziade said that he was not aware that the proceedings were fixed for final hearing today, or indeed, as I understood his evidence, he said that he was not aware until the morning of Friday of last week that the matter was fixed for any form of substantive hearing today (Monday).
It seems that the plaintiff's solicitors were under the belief that the hearing today was for the purposes of deciding whether or not the interlocutory injunction should be continued. It was not until Friday, after they had been in communication with my Associate as to the order that had been made for the matter to be listed for hearing, that they communicated with Mr Ziade their understanding, one they had only recently acquired, that the proceeding was fixed for final hearing today.
On the challenge to the retainer of Grace Lawyers, evidence was given in relation to the authority that was conferred by the owners’ corporation on Grace Lawyers and on Mr Ziade. Minutes of a meeting of the owners’ corporation held on 5 February 2015 recorded a resolution pursuant to s 80D of the Strata Schemes Management Act 1996 (NSW) that the owners’ corporation engage Grace Lawyers Pty Limited to act on behalf of the owners’ corporation and to commence legal proceedings against the defendants (and one other named company) seeking preliminary and final injunctive relief, and damages, in relation to the development of the neighbouring property and all matters incidental thereto. A further resolution passed was in the following terms:

“After a lengthy discussion it was Resolved to delegate the authority to its Strata Agent, The Property Centre Rockdale, and Jack Ziade to liaise with, provide instructions to and to settle the legal proceedings against [the defendants ...]."

Mr Ziade gave evidence that at a further meeting held on 2 April 2015 his authority was confirmed, and it was confirmed in substance that he be the person authorised to provide instructions, rather than the strata managing agent. The strata managing agent has taken a position that he will not give instructions to Grace Lawyers in relation to the proceedings.
I think the authority given to Mr Ziade on 5 February and confirmed on 2 April 2015 was validly conferred. Section 13(3) of the Strata Schemes Management Act provides that an owners’ corporation may not delegate any of its functions to a person unless the delegation is specifically authorised by the Act. I do not think the authority conferred on Mr Ziade was a delegation of the owners’ corporation's functions. Section 8 provides that an owners’ corporation has principal responsibility for the management of the strata scheme. In the circumstances of this case those responsibilities include dealing with the consequences of the adjoining development, including conducting this litigation.
Section 13(1) provides that an owners’ corporation may employ such persons as it thinks fit to assist it in the exercise of any of its functions. In my view, that provision uses the word "employ", not only in the sense that the owners’ corporation engage someone as an employee, but in the sense of making use of a person's services. I see no reason why the resolution of 5 February 2015 would not be effective to authorise Mr Ziade to provide assistance to the owners’ corporation in the exercise of its functions.
The conferral on Mr Ziade of authority to provide instructions to the lawyers and to settle the legal proceedings can, I think, fall within the concept of providing assistance to the owners’ corporation in the exercise of its functions. Prima facie therefore, at least, Grace Lawyers would be obliged to act on Mr Ziade's instructions, provided they were lawfully given, in relation to the conduct of the proceedings and in relation to its settlement.
I was told that some form of meeting of lot owners, but not one attended by Mr Ziade, was held over the weekend. Counsel for the plaintiff does not suggest that this was a valid meeting of the owners’ corporation and no case is put that the authority which previously had been conferred on Mr Ziade has been validly revoked. Mr Ziade accepts that he has received email correspondence from each of the other lot owners over the weekend and that the position taken by Mr Ziade today is contrary to the wishes of each of the other lot owners. Although the emails have not been tendered, enough has been adduced about their contents in the evidence of Mr Ziade to indicate that the other lot owners agree, in substance, with the solution proposed by the defendant's structural engineer for the provision of support, and wish to see these proceedings brought to a conclusion.
Mr Ziade today is seeking an adjournment. He is not himself in a position to conduct the proceedings. He is not a lawyer. In any event, he does not himself have any authority on behalf of the owners’ corporation to conduct proceedings on their behalf, except by way of giving instructions to Grace Lawyers and to settle the proceedings. He indicated that he has proposed a structure for settlement but which has not been accepted by others, including, I assume, the defendants.
I do not think that Mr Ziade's authority extends to terminating Grace Lawyers' retainer. That retainer was confirmed at the meeting on 2 April 2015.
But I do consider that, at least prima facie, the plaintiff's lawyers are bound to act on his instructions if they are properly and lawfully given.
Counsel for the plaintiff has submitted that the lawyers are justified in not acting on Mr Ziade's instructions because his instructions are contrary to the wishes of the majority of lot owners as conveyed over the weekend. I do not consider that that is a sufficient basis on which to assume that Mr Ziade is acting in abuse of the authority conferred on him by the instructions that he has given and his seeking to convey his position to the Court. It does not necessarily follow that the interests of lot owners, having 52 per cent of the unit entitlement, necessarily coincide with the interests of the lot owners as a whole or with the interests of the owners’ corporation considered as an independent legal entity.
It is clear that Mr Ziade's concern is as to the adequacy of the proposed solution to the present problem and, as he would put it, the need for there to be agreement as to the steps that will be taken if the proposed solution proves inadequate. On the face of it there is nothing improper or contrary to the interests of the lot owners as a whole in that position.
Mr Ziade seeks an adjournment of four to five weeks. That puts the defendants in an invidious position because, on the defendants' evidence, the second defendant is suffering a loss of more than $29,000 per day whilst the existing interlocutory injunction remains on foot. The bulk of those costs are said to be delay costs payable to the builder who, for some reason, has not been joined as a defendant to the proceedings. But it seems to be common ground that the events that led to the grant of the injunction on 18 February were due to the builder’s not following the plans or instructions of the structural engineer at that time.
Nonetheless, it is clear that the defendants are suffering substantial losses. Mr Ziade says that those losses will be minimised because the builder could proceed with works which are not within the scope of the injunction, but there is no evidence about that.
The defendants have an obvious and pressing interest in having the proceeding dealt with on a final basis today. The owners’ corporation also has such an interest because it is potentially exposed by its undertaking as to damages. Mr Ziade seeks the adjournment on the basis that the existing interlocutory injunction be continued. In response to my question as to whether he or his companies would themselves proffer the undertaking as to damages, he said that that is a matter upon which he would need to obtain legal advice. That is not an unreasonable position. His position has to be judged against the fact that it was only on Friday that he became aware that these proceedings were fixed for final hearing today.
The question then is whether Mr Ziade's authority extends to extending the undertaking as to damages on behalf of the owners’ corporation or giving instructions to Grace Lawyers to proffer that undertaking as to damages on behalf of the owners’ corporation. Counsel for the owners’ corporation has indicated that in her view, she and, I assume Grace Lawyers, could not properly offer that undertaking as they know that proffering the undertaking would be contrary to the wishes of the majority of lot owners.
The owners’ corporation has statutory legal personality. Its affairs are to be managed in accordance with provisions of the Strata Schemes Management Act. Except in general meeting, the individual lot owners, even if they constitute a majority, do not have power to conduct the owners’ corporation's business. The individual lot owners, although a majority, do not, except in general meeting, have power, it seems to me, to revoke the authority that was given to Mr Ziade at the meeting on 5 February. That authority extended to the provision of instructions for the conduct of the legal proceedings, including the seeking of preliminary injunctive relief. I think that necessarily implied authority to give instructions on behalf of the owners’ corporation of an undertaking as to damages and the continuation of that undertaking from time to time until the claim for final injunctive relief was heard and determined.
The views expressed by the individual lot owners over the weekend cannot be a revocation of that authority. Accordingly, it seems to me that the position taken by Grace Lawyers and counsel for the plaintiff at the hearing today is not in accordance with the authority which the owners’ corporation conferred on Mr Ziade and which has not been revoked. It seems to me that unless there was something improper in the instructions that he has given, such that it would not be consistent with the lawyers’ duty to the Court in relation to the conduct of the proceeding to do so, they ought to have complied with his instruction. The fact that they were aware that his position is apparently not currently supported by the other lot owners is not of itself, in my view, a sufficient reason not to act on the authority of the owners’ corporation conferred on him by resolution in general meeting.
The question then is, how is the matter to proceed? It is already late in the day. But the matter could proceed as a final hearing tomorrow. But that would, in the circumstances, be unsatisfactory given that the owners’ corporation has given Mr Ziade the authority to give instructions for the proceedings, but that he was not aware, until quite recently, that that matter was fixed for final hearing and that relations between him and the plaintiff's solicitors and counsel appear to have completely broken down. I do not think it is realistic that the lawyers be asked to conduct a case which they consider they could not ethically present, although, in my view, I think they are mistaken in that position. Nor would it be satisfactory for Mr Ziade to be required to conduct the case, with leave, for the owners’ corporation, but without legal assistance.
The only alternative, it seems to me, is to grant the request of Mr Ziade for an adjournment.
The matter has been fixed before me today for final hearing for good reason. It is obviously a matter of some urgency. I do not accept that an adjournment for a period of four to five weeks is necessarily justified. But on the other hand I do not know how soon the Court could accommodate a new hearing date.
There is evidence that the strata managing agent has convened a new extraordinary general meeting of the owners’ corporation to be held on 11 May 2015 at the site. That is some two weeks away.
The Strata Schemes Management Act lays down procedures which are required to be followed for the convening of a valid extraordinary general meeting that includes the provision of at least seven days’ notice of the meeting. Mr Ziade says that he would require a further three weeks to instruct his own lawyers. If the owners’ corporation revokes his authority on that day, he has raised the spectre of their possibly being a challenge to the validity of any such resolution based upon the financial standing of individual lot owners. I do not think the matter can wait that long if there is an available alternative date earlier.
Mr Ziade needs to take stock of his legal position immediately. But for these reasons I think the hearing of these proceedings should be adjourned.
I am conscious, as I have said, of the losses about which the defendants complain. To some degree it does appear to me that the defendants are the authors of their own misfortune. Or at least, the defendants, through their builder are the authors of their present misfortune.

In any event, I think they are protected by the undertaking as to damages, and I think the most significant issue is for the Court to be satisfied that the integrity of the plaintiff's building would not be compromised by the method of providing structural support that is proposed, and that the safety of occupants of the building, or passers-by, would not be adversely affected.
In that respect, the plaintiffs had served a report of a Mr Joannides, who is an engineer and a director of Partridge Remedial Pty Limited, in which he expressed the opinion that a method which he describes as "ground injection" to provide stability would not be acceptable.
I was told by counsel for the plaintiff that Mr Joannides may no longer be of that opinion. If that is so, no further report has been served. On the basis of the reports that have been identified as evidence that will be read on the application, there is a conflict between the opinions of the structural engineer engaged by the defendants, Mr Khalil, on the one hand, and Mr Joannides on the other.
In this unsatisfactory state of affairs I propose to accede to the application made by Mr Ziade for the adjournment of the proceedings. I will do so on the basis that, with his authority, the owners’ corporation continues its undertaking as to damages. This means that if that undertaking as to damages is called on, and if the owners’ corporation could establish that Mr Ziade was not acting bona fide in the best interests of the owners’ corporation in causing it to continue its undertaking as to damages, they - that is to say the owners’ corporation - could have recourse to him. But for the reasons I have given, I consider that his authority extends to the continuation of that undertaking.
I will refer the proceedings then to the Chief Judge with a view to her Honour fixing an early new date for final hearing.

[The plaintiff’s counsel sought leave to adduce additional evidence. That leave was granted.]

I am asked not to make the orders that I have foreshadowed making in view of the evidence which has been adduced after I gave oral reasons to explain the orders I propose to make. Having regard to the time (and I will try to obtain a transcript of the evidence if that is possible overnight) I think I should not make any orders until I have considered that material overnight.
I will stand the matter down to 10 o'clock tomorrow, at which time I will decide whether I do not make the orders which were sought, but go on with the hearing. Alternatively, I will adjourn the proceedings in the way indicated and extend the interlocutory injunction for the reasons I have given.
I will have the opportunity, I hope, between now and 10 o'clock in the morning to speak to the Chief Judge to find out what times are available. Counsel should have their diaries.

**********

28 April 2015

On resumption:

HIS HONOUR: Yesterday I held, in substance, that Mr Ziade's authority from the owners’ corporation did not include the termination of the retainer of the plaintiff's lawyers. I also held that his authority to give instructions for the conduct of the proceedings and to settle proceedings was not revoked by the expression of wishes of the lot owners having 52 per cent of lot entitlements, not given as part of a resolution in a general meeting of the owners’ corporation.
I held that the plaintiff's lawyers were required to act on his instructions provided those instructions were proper. The fact that the instructions were contrary to the wishes of other lot owners did not establish any impropriety. Because the solicitors and counsel declined to act on Mr Ziade's instructions to put a case for the form of relief that, he said, should be put, and because Mr Ziade had no opportunity to arrange other legal representation for the owners’ corporation, I concluded that the hearing would have to be adjourned.
I also held that Mr Ziade's authority included giving the usual undertakings as to damages on behalf of the owners’ corporation. I said that I proposed to extend the interlocutory injunction on the continuation of the plaintiff's undertakings as to damages given for it by Mr Ziade and that I would refer the parties to the Chief Judge to try to ascertain an early hearing date.
I said that if one were available earlier than that sought by Mr Ziade (who had sought an adjournment of four to five weeks), the earlier date should be fixed because of the defendants' claim for continued loss of approximately $30,000 per day whilst the current injunction continues.
Before making any orders to give effect to my reasons, counsel for the plaintiff sought to re-open to establish that it had been proper for the plaintiff's lawyers to refuse to act on Mr Ziade's instructions because the instructions that he gave were improper. In particular, it was said that the plaintiff's lawyers could not properly have acted on his instructions that a case should be put that the only way forward was by carrying out underpinning work and that submissions should be made that grout injection was not appropriate. I was told that the position that the solicitors and counsel have been instructed to put was not supported by the evidence of the plaintiff's expert, Mr Joannides.
Reluctantly, I acceded to the request of the plaintiff’s counsel to call Mr Joannides. Having heard Mr Joannides' evidence as to his views on the proposal for grout injection and as to his preferred option for stabilising the ground, I see no reason why Mr Ziade's instructions as to the relief that should be sought could not have been followed. Mr Joannides said that he had stated that, as expressed in his report of 27 March, underpinning was his preferred option for stabilising the ground; that grout injection could be carried out, but that there was a potential that it might not be fully successful based on his experience. In his experience, based on 30 projects that he had carried out, there were three that were not totally successful, giving a 90 per cent success rate. I do not see why putting a submission of the kind which Mr Ziade instructed should be put would be improper having regard to that evidence. Whether the submission would be successful or not, is a different question.
There was further disputed evidence as to observations said to have been made by Mr Ziade to Mr Ton, the plaintiff's solicitor, including as to whether a proposal to be made to the defendants for the resolution of the proceedings should have been made on an open or without prejudice basis, and including statements said to have been made by Mr Ziade which could be considered to show a disregard for the potential liability of the owners’ corporation to an adverse costs order. That evidence was, as I have said, the subject of real dispute. I do not find it necessary to resolve that dispute. Whatever the true position might have been, I see no reason that the case that Mr Ziade had sought to advance in Court yesterday could not have been advanced for the plaintiff.
The further evidence given yesterday has caused me to revise my opinion as to whether the final hearing should be adjourned. I now consider that an adjournment is not warranted. As I have said, I see no reason the plaintiff could not properly advance the claim for relief in accordance with Mr Ziade's instructions. In my view, the plaintiff should simply proceed. If at the end of the day the plaintiff faces an adverse costs order because it proceeds on Mr Ziade's instructions, no doubt I will hear submissions as to whether the burden of such a cost order should be placed on the lot owners controlled by Mr Ziade.
In reaching the conclusion that the proceeding should continue now, I also take into account that I understand that the earliest dates that would be available for the resumption of an adjourned final hearing are dates on which Mr Joannides will be overseas.
Taking all of those matters into account, I do not make the orders that I foreshadowed yesterday and we should simply proceed.

**********

Decision last updated: 13 May 2015

Medium Neutral Citation:	Owners – Strata Plan 11011 v Integrated Project Services Pty Ltd [2015] NSWSC 553
Hearing dates:	Monday, 27 April 2015
Decision date:	28 April 2015
Jurisdiction:	Equity Division
Before:	White J
Decision:	Refer to para [55] of judgment.
Catchwords:	LEGAL PRACTITIONERS – obtaining instructions from owners’ corporation – director of lot owners with minority interest in plaintiff owners’ corporation appointed as representative to provide instructions in relation to litigation – other lot owners with majority interest purported to instruct lawyers to settle the dispute at an invalidly held meeting contrary to representative’s instructions –representative’s authority has not been revoked – whether plaintiff’s solicitors and barrister were required to follow representative’s or majority lot owners’ instructions – whether representative’s instructions were improperly given – held that the plaintiff’s solicitors and barrister were obliged to follow instructions properly given by the representative, and that there was nothing improper in the representative taking a position contrary to that taken by lot owners with a majority interest STRATA SCHEMES – conferral of authority on individual to conduct litigation by owners’ corporation – plaintiff owners’ corporation purported to “delegate the authority” to provide instructions to solicitors in relation to litigation to an individual –whether that delegation contravened s 13(3) of the Strata Schemes Management Act 1996 (NSW) – whether the individual was employed to assist the owners’ corporation within s 13(1) of the act – held that the conferral of authority was not a delegation of the owners’ corporation’s functions under s 13(3), and held that the concept of employment in s 13(1) of the act extends beyond appointing individuals as employees, so that the individual here was authorised under s 13(1) by the owners’ corporation’s resolution to instruct the owners’ corporation’s lawyers and to give the usual undertaking as to damages on behalf of the owners’ corporation, but not to terminate the lawyers’ retainer
Legislation Cited:	Strata Schemes Management Act 1996 (NSW)
Category:	Procedural and other rulings
Parties:	Owners – Strata Plan 11011 (Plaintiff) Integrated Project Services Pty Ltd (1st Defendant) L & C’s Treasure Pty Limited (2nd Defendant)
Representation:	Counsel: Ms J Wright (Plaintiff) Mr J Ziade (Representative for the Plaintiff) Mr D Currie (Defendant) Solicitors: Grace Lawyers (Plaintiff) T K Legal (Defendant)
File Number(s):	2015/51343