Parker and the Owners Of Timberside Villas - Strata Plan 27426 & Anor - [2006] WASAT 253

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL

STREAM: COMMERCIAL & CIVIL

ACT: STRATA TITLES ACT 1985 (WA)

CITATION: PARKER and THE OWNERS OF TIMBERSIDE VILLAS - STRATA PLAN 27426 & ANOR [2006] WASAT 253

MEMBER: MR C RAYMOND (SENIOR MEMBER)

HEARD: 8 MAY 2006

DELIVERED : 25 AUGUST 2006

FILE NO/S: CC 3349 of 2006

BETWEEN: NORMA PARKER
Applicant
AND
THE OWNERS OF TIMBERSIDE VILLAS - STRATA PLAN 27426
First Respondent
TIMBERSIDE VILLAS MANAGEMENT PTY LTD
Second Respondent

Catchwords:

Strata Titles Act 1985 (WA) – Application for termination of management agreement under s 103E(1) – Grounds for determination

Legislation:

Retirement Villages Act 1992 (WA), s 3(1), s 19, s 56
State Administrative Tribunal Act 2004 (WA) s 91
Strata Titles Act 1985 (WA) s 32, s 35, s 36, s 36(1), s 36(2), s 39A, s 39A(1), s 39A(4), s 39A(5), s 39A(6), s 83, s 83(1), s 102, s 103E, s 103E(1), s 103E(4)

Strata Titles Amendment Act No 58 of 1995 (WA), s 2, s 77

Result:

Application successful in part

Category: B

Representation:

Counsel:

Applicant:     Mr D Levey (Acting as Agent)
First Respondent           :     Mr T Leppard (Acting as Agent)
Second Respondent       :     Mr A Prime of Counsel

Solicitors:

Applicant:     N/A
First Respondent           :     Timberside Villas Strata Council
Second Respondent       :     McCallum Donovan Sweeney

Case(s) referred to in decision(s):

Nil

Case(s) also cited:

Breedon and Strata Company (unidentified – Unreported decision dated 12 January 1988)
Coleman and The Owners of Mt Prospect Apartments – Strata Plan 3951 ST/2004 – 000055 (Unreported decision dated 19 October 2004)
Gillett and The Owners of 130 Mandurah Terrace, Mandurah – Strata Plan 9721 ST/2002 – 000116 (Unreported decision dated 22 August 2003)
Parker and Timberside Villas Management Pty Ltd RT No 2004 – 000002 (Unreported decision dated 31 August 2004)
Timberside Villas Management Pty Ltd v Parker [2005] WADC 246 (Unreported decision dated 15 December 2005)
Whichello and Townhouse 76 – Strata Plan 461 (Unreported decision dated 6 July 1999)

REASONS FOR DECISION OF THE TRIBUNAL:

Summary of the Tribunal's decision

The applicant applied for a principal order under s 103E of the Strata Titles Act 1985 (WA) terminating a Management Agreement entered into between the first and second respondents on the grounds that it was for an excessively long term and was unfair to the proprietors of 25% or more of the aggregate unit entitlement of 110 lots in the Scheme. The vast majority of lot owners were happy with the performance of the second respondent, as strata manager. It was submitted for the second respondent that, because of the satisfaction with its performance and by reason that there was provision in the Management Agreement for it to be terminated for default, the term of 80 years was not to be regarded as excessive.
The Tribunal accepted the submissions made on behalf of the applicant that s 39A was indicative of the length of a term which the legislature considered to be excessive although ultimately the issue was a matter of fact to be determined on the merits of each case. Section 39E applies to management agreements entered into after 16 April 1996 and implies an agreement for the provision of services to which the section applies, a right to terminate five years after the entry into the agreement, subject to the power of the Tribunal to extend the term for an additional five years. The Tribunal did not accept that a high level of satisfaction with the performance of the first respondent was a relevant criterion under the relevant section, nor did the section require any consideration of default.
The Tribunal considered that a term of 80 years was excessive in the absence of any explanation as to why a term of this length was required. In order to minimise disruption, the Tribunal concluded that there should not be any immediate termination of the Management Agreement, but that the term should be reduced to 31 October 2006, on which date the Agreement would come to an end.
There was insufficient evidence for the Tribunal to conclude that the Management Agreement was unfair to the proprietors of 25% or more of the aggregate unit entitlement of the lots in the scheme. However, there were a number of ancillary orders sought by the applicant, which required the Tribunal to assess whether or not expenditure had been properly allocated as between the strata company and the retirement village operation. It was concluded that incorrect principles had been applied to the allocation of expenses. Nevertheless, the Tribunal declined to grant the ancillary orders sought which were designed to ensure that the first respondent entered into another Management Agreement with an independent entity and took steps to enforce an adjustment of accounts between the retirement village and the strata company. The Tribunal considered that this was primarily a matter for the council of the strata company to consider, and if necessary, for the members to determine whether any action should be taken. The Tribunal accordingly made orders shortening the term of the Management Agreement to 31 October 2006, but otherwise dismissed the application.

The application

The applicant is the owner of Lot 32 on strata plan 27426 which is within the Timberside Villas Estate Retirement Village (the Village). The Village is managed by the second respondent, which is the "administering body" as defined in s 3(1) of the Retirement Villages Act 1992 (WA) (RV Act). The second respondent is also the manager of the strata company which is the first respondent. The strata company came into existence, pursuant to s 32 of the Strata Titles Act 1985 (WA) (ST Act), upon registration of the strata plan. The strata plan was registered on 20 December 1994.
The strata plan comprises 141 lots, plus common property. Lot 42 is owned by Fabray Pty Ltd (the Developer), which developed the Village. Lot 42 comprises the Village Centre which contains various facilities which are available for the use of residents of the Village, who together with the applicant, own all of the other lots. The residents are entitled to the use of the Village Centre facilities under a Residency Deed, which each resident, including the applicant, entered into with the Developer and second respondent. The second respondent is referred to in the Residency Deed as the manager and is charged thereunder with obligations to use best endeavours to manage, operate and maintain the Village, subject to some irrelevant exclusions, as a retirement village, in a proper and efficient way. In particular, there are specific maintenance obligations prescribed.
The Residency Deed also prescribes the role to be played by an Advisory Board and a Village Council, in the management of the Village. The Village Council is not the same body as the council of the strata company (the Strata Council).
The applicant seeks a primary order terminating the Management Agreement in terms of which the second respondent is appointed as the manager of the strata company (the Management Agreement). The specific orders sought by the applicant are as follows:
"1.A principle [sic] order under Section 103E of the Strata Titles Act 1985 to immediately terminate the Management Agreement dated 10 January 1995 made between 'the Owners of Timberside Villas Estate – Strata Plan 27426' ('the Strata Company') and the Respondent in relation to services to be provided by the Respondent to the Strata Company, on the basis that it is:
(a)for an excessively long period (80 years);
(b)unfair to the proprietors of 25% or more of the aggregate unit entitlement of the lots in the scheme;
(c)related to the provisions of services to 'The Strata Company'; and
(d)was entered into before 14 April 1996 which was the date of commencement of Section 77 of the Strata Titles Amendment Act 1995.
2.A declaration that the Village Budget for 2006/06 contravenes the order of the Retirement Village Disputes Tribunal in Matter No. RT/2004-000002 and Matter No. RT/2004-000008.
3.A declaration that the Village Advisory Board and the Village Council have no part in Strata Company matters, except insofar as individual members of the Advisory Board or Council are themselves members of 'the Strata Company'.
4.An ancillary order that the 1st Respondent must prepare a new Management Agreement for continued management of the Strata Company, and obtain approval of the new Management Agreement from the State Administrative Tribunal.
5.An ancillary order that the 1st Respondent must appoint a new and independent Strata Manager that is a member of the Strata Titles Institute of Western Australia (Inc.) and is in no way affiliated with Fabray Pty Ltd or Timberside Villas Management Pty Ltd or their Directors or Subsidiaries.
6.An ancillary order that the 2nd Respondent at its cost preserve and provide full records of its accounts and services in respect of the management Agreement to the new Strata Manager appointed as a result of this application.
7.An ancillary order that the new Strata Manager appoint a properly qualified and experienced auditor to carry out a complete and retrospective audit of all funds raised from and all bank accounts relating to any funds raised from the proprietors of lots on Strata Plan 27426 to distinguish funds raise, held and expended on behalf of the Strata Company from fund [sic] raised, held and expended under the Residency Deed.
8.An ancillary order that the new Strata Manager initiate such actions as may be required on behalf of the Strata Company to correct the current financial position of the Strata Company, including possible legal action to re-claim money incorrectly improperly or illegally taken from the strata Sinking Fund or deducted from monthly levies."
In a related application (matter no CC 3350 of 2005), the applicant also seeks an order under s 102 of the ST Act for the appointment of an administrator, to perform duties related to the carrying out of an audit of the first respondent's accounts, the taking of such actions as may be required on behalf of the first respondent, including the taking of legal action for the recovery of monies incorrectly, improperly or illegally taken from the first respondent's funds, the carrying out of "all such duties required under the" ST Act and the preparation of a new Management Agreement and appointment of a new strata manager.
The applicant filed a comprehensive lever arch file containing the documents relied upon for the relief in both proceedings, which were ordered to be heard together.

The principal issues

The principal issues in these proceedings may be simply stated, and they are:
1.Is the Management Agreement unfair to the proprietors of 25% or more of the aggregate unit entitlement of the lots in the scheme; or
2.Is the Management Agreement for an excessively long term; and,
3.If an affirmative answer is given to either of the above questions, should the Management Agreement be terminated?
The orders sought, going beyond termination of the Management Agreement, raise a number of issues, which are more directly relevant to the consideration of whether an administrator should be appointed as sought in the related proceedings in matter no CC 3350 of 2005. However, there is a great deal of overlap between the two applications, and consideration will be given to each of the other orders sought in light of the conclusions reached in respect of the above issues.

Background and statutory provisions

There has been a long history of disputation between the applicant and the second respondent, which caused some concerns to be expressed about aspects of the financial management of the Village by the Retirement Villages Dispute Tribunal (RVD Tribunal) in Parker and Timberside Villas Management Pty Ltd RVDT No 2004 – 000002 dated 31 August 2004. The Tribunal does not intend to repeat those concerns but they will be compounded by the outcome of these proceedings and the Tribunal's reasons for its decision. The last mentioned decision was appealed to the District Court which upheld the decision of the RVD Tribunal, although there was a finding that the operation of s 19 and s 56 of the RV Act had been misinterpreted by the RVD Tribunal. Those concerns are more relevant to some of the ancillary relief sought in these proceedings and to the application for an appointment of an administrator.
At this stage, therefore, the more pertinent facts are as follows:
The Management Agreement is dated 10 January 1995. The applicant disputes it could have been executed on that date and the respondents have provided no evidence to the contrary. The term of the Agreement is expressed by cl 3 to be 80 years. There are no express statutory criteria to be applied in determining whether or not a term is excessively long. It is therefore a matter of fact to be determined in each case. The ST Act was amended in 1995 by the Strata Titles Amendment Act No 58 of 1995 (WA) (Amendment Act). One of the amendments effected by the Amendment Act was the insertion of s 103E providing for the power to terminate or shorten "an agreement to which this section applies made between the strata company and another person". By subsection 103E(4), the section applies to an agreement if:
(a)it relates to the provision of services to the strata company or the proprietors; and
(b)it is made before the commencement of section 77 of the Amendment Act.
The Amendment Act came into effect on 14 April 1996 (s 2 of the Amendment Act and Government Gazette dated 21 February 1995, p 567).
One of the other amendments effected by the Amendment Act was the insertion of s 39A of the ST Act which provides that there is implied in every agreement to which the section applies, a provision that the strata company may terminate the agreement, by notice in writing to every other party to the agreement, after five years have passed since the agreement was entered into. By subsection (5), the Tribunal may, on the application of any person made in respect of an agreement, by order extend the period of five years provided for by subsection (1), so far as it applies to that agreement, if satisfied that the agreement:
(a)is fair to all proprietors; and
(b)will remain fair to all proprietors during the extended period.
By subsection (6), any extended period is not to exceed the term specified in the agreement or a period of 10 years from the time when the agreement was entered into, whichever is the lesser. By virtue of subsection (4), s 39A applies to an agreement if:
"(a)it relates to the provision of services to the strata company or the proprietors, including the services of an agent in connection with the management of the common property or the performance of the functions of the strata company;
(b)it is made after the commencement of s 41 of the Amendment Act; and
(c)either –
(i) it was entered into by the strata company when any proprietor held 50% or more of the aggregate unit entitlement of the lots; or
(ii)the Tribunal has, by order made on the application of a proprietor, determined the agreement is unfair to the proprietors of 25% or more of the aggregate unit entitlement of the lots."
As s 39A only came into effect on 14 April 1996, being the date on which the Amendment Act commenced, as set out above, s 39A would not apply to the Management Agreement if it was executed, as it purports to have been executed, on 10 January 1995. There is doubt about the true date of execution of the Management Agreement. It is evident that the secretary of the Strata Council, Grace Kennard, was a signatory to the Management Agreement, yet the uncontradicted evidence from the applicant is that Ms Kennard only purchased her unit on 13 March 1995. Neither respondent has been able to produce any evidence, other than the Management Agreement itself, to support the date of its execution on 10 January 1995. Nevertheless, the case has been conducted by all parties on the basis that the Management Agreement was entered into prior to s 39A coming into effect. The applicant points to s 39A as being relevant as an indicator of when an agreement, in this case the Management Agreement, may be regarded as being for an excessively long term, within the meaning of s 103E of the ST Act.
The primary basis advanced by the applicant for asserting that the Management Agreement is unfair to the proprietors of 25% or more of the aggregate unit entitlement of the lots in the scheme, is that it is alleged that there has been an unfair apportionment of costs between proprietors. The Residency Deed, entered into between the respondents and all proprietors individually, provides by cl 5.3 that each proprietor, referred to as "Resident", agrees to pay a Combined Charge covering the strata levy and Common Care Services Fees in an amount fixed by the Developer and Manager (the second respondents) and the Timberside Villas Council (not the Strata Council) and as approved by the Advisory Board. Common Care Services Fees are defined to mean the fees payable for common care services as listed in Annexure 1 to the Residency Deed. Annexure 1 reads as follows:

Annexure 1
Common Care Services	Charges:
1. Services of the Village coordinator or carers providing care coordination, facilitation in health care, welfare, recreation and activity areas.	Single - $21.45/per week Double - $24.14/per week
2. Monitoring and response to the Emergency call system 24 hours a day.
3. Administration and management of the Village.
4. Painting, repairs, cleaning of the Village Centre, gardening and maintenance of its paths and gardens.
5. Security lighting for the Village Centre.
6. Printing of Village News.
7. Any other services that the manager may from time to time agree to provide.
8. Provision of the Village bus.

Clause 5.4 of the Residency Deed provides for an annual review of the Combined Charge. It was common cause that Common Care Services Fees are charged equally to all residents subject to a minor adjustment for "Singles" and "Doubles", which is a reference to residents living either alone, or with a partner, respectively. By contrast, by virtue of s 36 of the ST Act, the strata levy requires contributions to be made by proprietors in proportion to their unit entitlements of their respective lots. The unit entitlements as reflected in the strata plan total 10 000 unit entitlements and vary through a range of 61 unit entitlements per lot through to 292 units as applying to Lot 42, which is the Village Centre owned by the Developer.
The applicant asserts that the costs of Common Care Services and contributions payable by way of strata levies have been incorrectly apportioned, in such a manner that most costs have been allocated to Common Care Services, resulting in an unfair distribution of costs. The applicant asserts that this is demonstrated by comparing earlier budgets with the most recent budget.
Reference was made to the strata company budget for 1998/1999. This contained provision for the following:
Audit fees and accounting fees  Nil
Bank charges  $150
Insurance/strata  $5000
Lawn/maintenance cost  $4000
Postage, printing, stationery  $100
Repairs and maintenance  $1500
Wages – gardeners  $50 448
Water usage  $7000
$68 198
By contrast, the Common Care Services Fee budget for 1998/1999 included allowances for a more significant range of expenses. Without listing all expenses, they included:
Audit fees and accounting fees  $500
Bank charges  $1100
Energy – gas and electricity  $12 000
Management fee  $20 000
Photocopying and postage  $1100
Repairs and maintenance  $6000
Sinking fund –
General  $5000
Village bus replacement     $1500     $6500

The budget for 2005/2006 for the strata company reflected the following expenses only.
Contract gardening   $79 000
Insurance  $20 076
Lawns and gardens  $4000
Strata management fee  -
Water  $500
The 2005/2006 Common Care Service budget covered a wider range of expenses including the following.
Audit and accounting fee  $2550
Bank charges  $1000
Energy – gas and electricity  $15 000
Management fee  $20 076
Painting$20 000
Photocopying and postage  $1000
Printing and stationery  $2000
Rates – lodge and common areas                   $4000
Repairs and maintenance  $16 000
Water consumption  $12 000
Village sinking fund  $20 000
The applicant has provided a schedule as Appendix 6 to its submission file showing, firstly, the 2005/06 budget reflecting the allocation between the strata levy and Common Care Services Fee in which the total expenses are, respectively, strata $103 576 and common care $310 845. Secondly, based on the same budgeted expenditure, the applicant has allocated $307 744 to the strata levy and $106 677 to the Common Care Services Fee. The schedule shows that the difference between option 1 and option 2 results in 71.2% of lot owners being detrimentally affected with a range of variances in the combined charges from a reduction as high as approximately $480 for the year, but with a greater number of lots facing smaller increases, although one lot would face an increase of approximately $430.
An issue is also raised concerning an unbudgeted expenditure of $69 634 for the replacement of an Emergency Call System. The applicant contends that this is a strata expense and that the expenditure incurred was not authorised by the Strata Council. There is therefore an issue as to where this expenditure properly lies, within the strata company or as a common care services expenditure.

Secondary bases for relief

The applicant raises a wide range of issues, being the alleged failure to keep proper records and financial accounts, the circumstances in which the Management Agreement was executed, alleged breaches of the orders of the Retirement Villages Disputes Tribunal and contempt of the District Court decision, a series of alleged breaches of duties of the strata company, attempts to remove references to the ST Act from the Residency Deed, and the failure to keep strata issues separate from retirement village issues. Reference is also made to the passing of a motion of no confidence in the second respondent passed at a general meeting of the strata company on 23 February 2004.

Relevant provisions of the ST Act

Section 35 of the ST Act provides that a strata company shall –
"(a) …
(b)control and manage the common property for the benefit of all the proprietors;
(c)keep in good and serviceable repair, properly maintain and, where necessary, renew and replace –
(i)the common property, including the fittings, fixtures and lifts used in connection with the common property; and
(ii)any personal property vested in the strata company,
and to do so where the damage or deterioration arises from fair wear and tear, inherent defect or any other cause … "
31 and thereafter proceeds to set out obligations in relation to a range of matters not relevant to these proceedings.
Section 36(1) of the ST Act provides as follows:
"(1) A strata company shall –
(a)establish a fund for administrative expenses that is sufficient in the opinion of the company for the control and management of the common property, for the payment of any premiums of insurance and the discharge of any other obligation of the strata company;
(b)determine from time to time the amounts to be raised for the purposes described in paragraph (a);
(c)raise amounts so determined by levying contributions on proprietors –
(i)in proportion to the unit entitlements of their respective lots; or
(ii)where by-law referred to in section 42(b) or an order under section 99A is in force, in accordance with that by-law or order;
and
(d) … " (not relevant).

Submissions

The parties have made extensive oral and written submissions.
A wide range of issues have been raised, as reflected above. The Tribunal has reviewed a transcript of the oral submissions and all written submissions which have been filed, all of which have been taken into account. In the circumstances, the Tribunal will refer to the submissions, only where necessary, in dealing with its considerations on a particular issue.
It is relevant to note that 12 lot owners have supported the application and have signed a joint letter to that effect. The first respondent filed 20 letters signed by 90 of the 140 lot owners opposing the application and in particular supporting the second respondent as manager. They stress in the standard form letter signed by them that as far as the strata budget is concerned, "the owners have voted on this budget over the years and are happy with the split between strata items and common care items … ". Subsequently, a further two standard letters supporting the first and second respondent and signed by a further seven owners were filed. A separate letter has also been filed by a Mrs Ludlow on 5 February 2006. She and her husband found the repercussion of any financial outlay as proposed by the applicant to be very worrying and stressful as they could not afford it. Further, most residents with whom Mrs Ludlow had spoken, had limited financial means and were very worried, and their only wish was to see out their remaining years in peace.
Mr Leppard, the chairman of the strata company, made very strong submissions in much the same vein at the hearing.

Considerations

Standing of second respondent

The second respondent submits that, to the extent that any of the orders sought by the applicant "are sought against it", a manager is not one of the specified parties against whom an order may be made under s 83(1) of the ST Act relying on the decision of Gillett and the Owners of 130 Mandurah Terrace, Mandurah Strata Plan 9721 ST/2002 – 000116 dated 22 August 2003.
The principal order sought for termination of the Management Agreement is sought expressly under s 103E, not s 83 of the ST Act. Quite clearly, some of the ancillary orders could only be made under s 83 and the all parties have proceeded on that basis.
While the delegate to the Strata Title Referee (Referee) found that she did not have jurisdiction to make an order sought in the Gillett matter for the termination of a management agreement, that was because the application was made under s 39A, the effect of which is simply to incorporate as an implied provision, a right vested in the strata company to terminate an agreement, otherwise falling under the section, after a period of five years from the date of entry into the agreement. The only power which the Referee had and which this Tribunal has under s 39A is to make an order extending the period of five years. It is of note that subsection 39A(5) refers to an application by "any person". Section 103E specifically empowers the Tribunal to terminate or shorten the term of an agreement entered into between the strata company and "another person". Consequently, even though no specific order might be made against that person, it would be inappropriate for the Tribunal to consider the grant of an order, affecting the right of another person, without that person being joined in the proceedings. The second respondent is therefore properly before the Tribunal and will be bound by the orders made, although the orders cannot be made directly against it.

The application of s 103E of the ST Act

No issue was raised as to the application of s 103E to the Management Agreement. Subsection (4) provides that the section applies to the agreement if it relates to the provision of services to the strata company and is made before the commencement of s 77 of the Amendment Act, that is, 14 April 1996. The case was conducted on the basis that, although the actual date of execution may be uncertain, it was entered into prior to 14 April 1996. By its terms, it clearly provides for the provision of services to the strata company, and again, no issue was made to the contrary.

Criteria for terminating (or shortening)

It is necessary only that the applicant show either that the Management Agreement is unfair to the proprietors of 25% or more of the aggregate unit entitlement or that it is for an excessively long term.
The second respondent submits that the term is not excessively long because it contains a provision to terminate the Agreement on the grounds of default, or if the second respondent goes into liquidation or enters into a scheme of arrangement, or ceases to carry on business. Clause 14 of the Management Agreement is to that effect. The second respondent emphasises that the vast majority of lot owners are happy with the performance of the second respondent. The difficulty with this is that s 103E does not require that any default in performance be shown. The legislature has obviously considered that it is disadvantageous to allow any service provider to become entrenched in the provision of services for an excessively long period. Default and the level of performance are not relevant considerations except in shaping the appropriate form of relief under the section.
The submission for the applicant is accepted that regard can be had, at least to some extent, to s 39A of the ST Act in order to provide some guidance as to what may be considered an excessive term. In the circumstances there outlined, in which an agreement is entered into when any proprietor held 50% or more of the aggregate unit entitlement of the lots, it is clear that the legislature considered that the strata company should have a right to terminate within five years of entry into the agreement, or within a maximum extended term of an additional five years thereafter, that is, ten years in total.
The legislature has therefore contemplated that, after 14 April 1996, strata companies would have an implied right to terminate any agreement for the provision of services entered into after that date, if the term of the agreement exceeded five years, and if any one proprietor at the relevant time held 50% or more of the aggregate unit entitlement of the lots. But, the Strata Titles Referee (and now this Tribunal) would have a discretion, to be exercised judicially, in respect of agreement for the provision of services entered into prior to that date. The second respondent submits that it is relevant that there is no fee payable under the Management Agreement, but with respect, that is a consideration which is more relevant to whether or not the agreement operates unfairly to the proprietors of 25% or more of the aggregate unit entitlement of the lots in the scheme.
Any submission to support the term of the Management Agreement should focus on why a particular term should not be regarded as excessive. Thus, the nature of issues which might arise in the performance of the Agreement, or the time which is taken to build a pool of knowledge necessary for the efficient provision of the services, and like factors, may be relevant. No evidence, or submissions, have been provided in support of such considerations, to justify why a term of 80 years might be considered appropriate, that is, not for an excessive term.
The Tribunal considers that the term of the Management Agreement of 80 years is excessive, in the absence of any explanation as to why a term of this length is required.

Relevance of other grounds to appropriate relief

The Tribunal was singularly unimpressed with the second respondent's approach taken to the allocation of expenses as between the strata company and the Common Care Services Fee payable under the Residency Deed in relation to repairs and maintenance. The Residency Deed, by Annexure 1, makes plain that repairs and maintenance for the Village Centre (Lot 42) falls under Common Care Services, but there is nothing to suggest an obligation to maintain and repair the exterior of the individual lots and strata common property.
The second respondent attempted to address that by submitting (T:83):
"Mr Prime: Sir, again, the difficulty arises, by reason of the fact that you have both common care fee and a strata levy fee, and to the extent that it requires the common property be kept in a good state of repair, the submission is that it is kept in a good state of repair, and that a fund isn't necessary, for that purpose, to that extent that it is otherwise dealt with, and therefore any obligation has been discharged from the fee that is being paid for the property."
That, with respect, is a disingenuous argument.
The strata company has a duty, under s 35 of the ST Act, to maintain and repair common property. Under s 36(1), it is similarly obliged. It "shall" establish a fund for administrative expenses that is sufficient in the opinion of the company for the control and management of the common property, for the payment of any premiums of insurance and the discharge of any other obligation of the strata company. That is, there must be a fund, established by the usual budgetary regime, to meet the strata company's obligations. It is specious to suggest that, as the cost is being paid for out of the Common Care Services Fee, the strata company is discharging its obligations – particularly so when that fee happens to be paid for by the members of the strata company.
The strata plan, in its various stages, carries endorsements to the effect that the external faces of the buildings are the boundaries of the lots of parts of the lots which are buildings shown on the strata plan. The Residency Deed does not reflect that Common Care Services shall include painting and repair of the external faces of the buildings. Clause 5.6(f) says that the Combined Charge (which makes no reference to an obligation to pay for repairs and maintenance to the external faces of the buildings), will be used to pay all outgoings, costs and expenses incurred in the maintenance, management and operation of the Village, the Village Centre including but not limited to the repair and management costs for the Village Centre and Village incurred under related maintenance contracts other than work provided for in cl 2.8 for which the resident is responsible. The definition of "Village" includes the Land, which, in turn, is defined as the whole of the land in the strata plan 27426, the Units, the Village Centre and ancillary facilities comprising a retirement village shown on the Plans. Clause 2.8 is somewhat disjointed but refers to the cost of works which improve, extend, vary or reduce the Common Areas. "Common Areas" is defined to mean those parts of the Village, excepting certain areas including the strata lots and the strata plan common property which effectively excludes all of the land comprised in the strata plan. The true meaning of cl 5.6 is not entirely clear, but it covers all repair and maintenance costs of the Village which includes the units or strata lots.
Some further assistance is gleaned from cl 3.3(d) which provides that the Developer and Manager must keep all parts of the Village which are of a repairable nature, in proper repair, working order and condition, except for Excluded Maintenance. The definition of "Excluded Maintenance" means, with regard to the residents' Unit, those categories of maintenance and repairs listed in Sch 2 which are the residents' responsibility. Schedule 2, in summary, applies to internal fixtures and fittings, the maintenance of any particular stated external fixtures and fittings and of improvements, either internal or external.
Thus, it can be concluded that there is an intent that the Combined Charge would be sufficient to include the cost of external maintenance and repair of the units or lots. But that expense is not a Common Care Services Fee and therefore, the required funding can only be through the strata levy.
There is insufficient evidence to make findings on each and every item of the strata and Common Care Services budgets, but the Tribunal is satisfied, on what has been provided, that there has been an incorrect allocation of expenditure between the two budgets. It must be recognised that expenses which, in 1999 were regarded as strata expenses, are no longer so regarded by the second respondent. There is no real advantage, either to the Developer or the second respondent in the current budgetary process, other than possibly ease of administration. It does, however, have potential financial implications for lot owners, the exact extent of which can only be known if there is a proper and detailed analysis of budget items and expenditure.
The information provided by the applicant, and the calculation in appendix 6 of her submission, do not permit any specific finding to be made. It is, however, sufficient to show that any incorrect allocation of expenses between the strata budget and Common Care Services budget will result in lot owners paying either a greater or lesser share of expenses than they should.
The second respondent, as the appointed strata manager, was bound under cl 5 of the Management Agreement, to ensure that the strata company complied with its obligations under the ST Act. There appears to have been a change in policy over time as to what the second respondent considered should be included in the strata budget. While the Tribunal cannot conclude that this change was influenced by reason of the relationship between the Developer and second respondent, there may be reason to believe that an entirely independent and objective strata manager would have opposed the way in which expenses have been allocated. The defence to the applicant's challenge to the expense allocation suggests to the Tribunal that it is desirable that the Management Agreement be terminated within a relatively short period.
The Tribunal considers that the Management Agreement should be terminated in this way, rather than immediately, to ensure that there is no unnecessary disruption in the management of either the Village or the strata company. In effect, the order that the Tribunal will make, which it considers to be consistent with the relief sought, is an order which shortens the term of the agreement to a date to be expressed in the order approximately two months hence, when the Management Agreement will terminate.
It would obviously defeat the purpose of the order which the Tribunal will make, shortening the term of the Management Agreement, if the first respondent were to simply re-engage the second respondent under another management agreement, subsequent to the termination of the existing Management Agreement. It is necessary to ensure that the first respondent does conduct its affairs independently of the Developer and second respondent. For that reason, the Tribunal will issue an ancillary order precluding such re‑engagement.
The Tribunal does not find that the Management Agreement is unfair to the proprietors of 25% or more of the aggregate unit entitlement of the lots in the scheme. For the reasons given above, the evidence is insufficient to make any such finding.

Comments on secondary bases for order sought

Strictly speaking, it is not necessary for the Tribunal to deal with any of these issues, in view of the conclusions reached above. Nevertheless, as it may be of some assistance to the parties developing a working relationship in the future, or at least in minimising some disputes which might otherwise continue, the Tribunal will express views on some of the matters raised.

Breaches of orders of the Retirement Villages Disputes Tribunal/contempt of court

The Tribunal does not accept the applicant's submissions as to the effect of the District Court decision to which reference has been made above, nor the construction which the applicant places on the decision made by the RVD Tribunal. The RVD Tribunal's order related only to the applicant's Residency Deed, not to any other proprietor, so that the Residency Deed is to continue in full force and effect without any of the proposed deletions, alterations or additions referred to in a deed dated 26 March 2003, or in accordance with a resolution of a meeting of residents of the Village held on 28 January 2004. Consequently, the reference thereafter to the management and conduct of the Village and its funds being deemed to have continued without taking into account any such deletions, alterations or additions could only apply in relation to accounting issues between the parties to the applicant's Deed and no other.

It should be noted that the only issue between the parties was the interpretation and application of the District Court decision. The Tribunal expresses no view on the correctness of that decision, but does not wish it to be thought that it would necessarily follow the decision. These reasons for decision compound the financial management difficulties referred to at p 51 of the RVD Tribunal's decision and there may be much to be said for the Residency Deeds to be varied so as to regulate the Village operations more clearly. In which event, the parties may be well advised to seek this Tribunal's approval pursuant to s 19 read with s 56 of the Retirement Villages Act 1992 (WA) to avoid the uncertainty of a possible challenge.

Emergency call system

To the extent that the expenditure in relation to the emergency call system may relate to an instalment in the Village Centre, the costs may be properly recovered through the Common Care Services Fee. However, to the extent that any costs relate to installations to individual villas, those would appear to be costs which should be recoverable through the strata company.

Accounting issues

The submissions made on behalf of the applicant are accepted that the bank account provided by the respondent indicate that there does not appear to be a proper separation of accounts as between the strata company and the Village. The strata accounts provided by the second respondent show that there were no payments in or out during a three month period, while at the same time, payments of combined charges were made via the Village account. This issue should be addressed by the first respondent as soon as possible.

The sinking fund

The applicant contends that the sinking fund was originally a strata sinking fund and has been transferred to operate as a Village sinking fund. The applicant asserts that the amended deed of March 2003, which was the subject of the previous litigation referred to, sought to remove the words "strata titled" from parts of the Residency Deed and that, thereafter, there were specific references to a Village sinking fund.
The Tribunal is not prepared to make any definitive finding on this issue. The reference to the sinking fund in cl 5.6(k) of the Residency Deed is ambiguous because it makes reference to the Village, which by definition, includes all of the land within the strata plan, but at the same time refers to Common Areas, which, by definition, exclude common property under the strata plan. It is also noted that the 1998/1999 budget referred to a sinking fund under the Common Care Services Fee budget but not under the strata budget. The amended deed of March 2003 may therefore have been intended to remove ambiguity.
In concluding as above, the Tribunal is mindful that references were made in a strata company Extraordinary General Meeting on 26 June 1996 to a sinking fund. However, the references were made in response to questions concerning the sinking fund, and it is therefore not clear that any suggestion was being made that it was a strata company sinking fund.
There is no obligation under the ST Act for a strata company to have a sinking fund, or as it is termed in the legislation, a reserve fund, for the purposes of meeting contingent expenses, other than those of a routine nature, and other major expenses likely to arise in the future (s 36(2) of the ST Act). The creation of such a fund is discretionary. However, in view of the Tribunal's conclusions stated above in relation to the allocation of expenses in respect of repairs and maintenance, particularly to the external faces of the units or lots, the strata company will need to give serious consideration to the establishment of a strata sinking fund. If it can be established that funds have been built up in the Village sinking fund, on the assumption that the fund would be used to meet expenses, which on the Tribunal's reasoning are to be properly regarded as strata expenses, consideration will need to be given to the transfer of monies to the strata company. These are matters for the Strata Council and/or members of the strata company to address.

Ancillary orders

For the reasons given above, the Tribunal does not consider that either the first or second respondent have contravened orders made by the RVD Tribunal. In relation to the second declaration sought, it is noted that the second respondent has no objection to such a declaration. The Tribunal considers that the strata council, with the benefit of these reasons for decision, will be aware of the need to re-examine the budget, and it must be assumed that the strata council will act properly and independently in a manner consistent with the views expressed by the Tribunal. In any event, because of the difficulty of enforcement of any declaration, it is more appropriate that if a difficulty arises, a specific application is made to the Tribunal. The Tribunal is, therefore, not prepared to make either of the declaration orders sought in par 2 and par 3 of the proposed orders.
The fourth order sought is that the first respondent must prepare a new Management Agreement for the continued management of the strata company, and obtain approval of the new management agreement from this Tribunal.
The Tribunal does not accept that there is a need for the first respondent to prepare a new Management Agreement. The Tribunal envisages that proper management of the Village will require an ongoing relationship and cooperation with the second respondent. The second respondent remains the manager of the Village under the Residency Deed. It is only the strata Management Agreement which will be terminated.
What is important is that the members of the Council take very seriously and discharge their responsibilities under the ST Act. They will need to call for far more detailed information than has obviously been provided to date, in order to ensure the proper allocation of expenditure and so that decisions with regard to the management of strata affairs are made independently by the council. In doing so, the Tribunal considers that the council members are likely to be greatly assisted by information provided by the second respondent. If that information is not sufficient, it will be necessary to call for greater detail. It is largely in the hands of the strata council to ensure that future disputes are avoided by them transparently carrying out their duties and by ensuring that there is open communication with owners.
In these circumstances, the Strata Council may not find it necessary to appoint a new strata manager. If it is necessary, the role of that strata manager may be extremely limited and may extend only to advising the Strata Council on specific issues which arise, and assisting in the conduct of meetings. The understandable concerns of owners and residents, to avoid incurring unnecessary expenditure, may thus be met. It is unlikely that, with cooperation from the second respondent, the task of managing the strata company should prove too onerous. The Tribunal accordingly declines to make order no 4 as sought.
It follows from the above reasoning that the Tribunal is not disposed to make the fifth order sought requiring the respondent to appoint a new and independent strata manager. It is important that the first respondent have access to independent strata management advice if the need arises. Should the Strata Council fail to do so, it will risk future disputes, which will affect the harmony of the Village. It is perhaps important for the residents and owners to realise that it is not sufficient to say that they are happy with the way the Village is run. It must be run in accordance with the law, and the applicant has been entitled to take the action which she has to ensure that occurs.
The sixth ancillary order sought is that the second respondent, at its cost, preserve and provide full records of its accounts. The Tribunal has no jurisdiction to make orders against the second respondent. For the reasons given above, it is appropriate for the second respondent to be joined in these proceedings as a second respondent, but there is no power under the ST Act for the Tribunal to make an order as sought.
The seventh and eighth ancillary orders relate to the appointment of an auditor to investigate the past accounts and an order that the new strata manager take such actions as might be necessary to recover such funds to which the strata company may be entitled.
The Tribunal is not satisfied that Strata Council members, with the benefit of the guidance provided by these reasons for decision, will not properly discharge their obligation in relation to the future conduct of the strata company. There is insufficient evidence to suggest that steps should be taken to investigate past actions.
It would be of assistance if all parties, including the applicant, could demonstrate a willingness to now move forward to avoid future disputes. In relation to past expenditure, it is obvious that funds have to be provided to meet expenditure incurred and it is not demonstrated, on the evidence before the Tribunal, that there is likely to be any significant financial adjustment given that the source of funds ultimately is the same, the owners of the strata lots. Any forensic steps taken to endeavour to adjust the accounts are likely to be disproportionately costly against any benefit achieved. If the Strata Council, in the proper discharge of its obligations, ascertains that there has been any significant expenditure in the past, which obviously should be adjusted, but the Developer or second respondent opposes doing so it will firstly be a matter for the Council, and thereafter the members of the strata company, to determine what action should be taken, if any.

Orders

The Tribunal orders as follows:
1.The Management Agreement entered into between the owners of Timberside Villas Estate Plan No 27426 and Timberside Villas Management Pty Ltd dated 10 January 1995 is amended by reducing the term of the agreement in clause 3 to 31 October 2006, on which date the Management Agreement shall be at an end.
2.The first respondent is to refrain from entering into any further Management Agreement with the second respondent, or with any entity associated with the second respondent, Fabray Pty Ltd, or any entity associated with either of them, their directors or shareholders.
3.The application is otherwise dismissed.
4.The first respondent is directed to serve a copy of this order and the Tribunal's Reasons for Decision dated 25 August 2006 on all persons who were given notice of the proceedings by it pursuant to s 79(2) of the Strata Titles Act 1985 (WA) and who made written submissions to the Tribunal.
I certify that this and the preceding [78] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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MR C RAYMOND, SENIOR MEMBER