POLAND SUPERANNUATION PTY LTD and THE OWNERS OF DOLPHIN APARTMENTS MANDURAH STRATA PLAN 49518

Case •

[2022] WASAT 103

•

24 NOVEMBER 2022

JURISDICTION     :   STATE ADMINISTRATIVE TRIBUNAL

ACT: STRATA TITLES ACT 1985 (WA)

CITATION:   POLAND SUPERANNUATION PTY LTD and THE OWNERS OF DOLPHIN APARTMENTS MANDURAH STRATA PLAN 49518 [2022] WASAT 103

MEMBER:   MS C BARTON, MEMBER

HEARD:   15 AUGUST 2022 AND 16 AUGUST 2022

DELIVERED          :   24 NOVEMBER 2022

FILE NO/S:   CC 851 of 2020

BETWEEN:   POLAND SUPERANNUATION PTY LTD

Applicant

AND

THE OWNERS OF DOLPHIN APARTMENTS MANDURAH STRATA PLAN 49518

Respondent


Catchwords:

Strata titles - Scheme dispute - Scheme participants - Resolution of a scheme dispute - Declaratory relief - Tribunal's jurisdiction - Whether dispute about an amount owed as a debt - Allocation of strata levies - Retail and residential cost centres - Contribution to future budgeted expenses - Whether overpayment of levies - Interpretation of by-laws - Exclusive use by-law - Whether by-law grants exclusive use

Legislation:

Strata Titles Act 1985 (WA), s 43, s 43(3), s 91(1)(c), s 99(2), s 100, s 100(1)(c), s 100(2), s 100(4)(c), s 197(1), s 197(1)(a), s 197(1)(a)(iv), s 197(1)(a)(vi), s 197(2), s 197(3), s 197(3)(f), s 197(4), s 199(1), s 199(3), Sch 2A, Sch 5, cl 14(1), cl 53E
Strata Titles Act 1985 (WA) (prior to May 2020), s 35(1)(c), s 36, s 42, s 42(1), s 42(11)(b), s 42B, s 42B(1), Sch 2A
Strata Titles Amendment Act 2018 (WA)

Result:

Application allowed in part

Category:    B

Representation:

Counsel:

Applicant : Mr S MacFarlane
Respondent : Mr P McGowan

Solicitors:

Applicant : Bugden Allen Graham Lawyers
Respondent : Lewis Kitson Lawyers

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

Andrews and The Owners of Coralie Garden Strata Plan 44374 [2022] WASAT 2

Aussie Airlines Pty Ltd v Australian Airlines Ltd, Qantas Airlines Ltd & Federal Airports Corporation (1996) 68 FCR 406

Blaszkiewicz and The Owners of 7 Henderson Street Fremantle (Strata Scheme 74918) [2021] WASAT 56

Byrne v The Owners of Ceresa Apartments Strata Plan 55597 [2017] WASCA 104; (2017) 51 WAR 304

Byrne v The Owners of Ceresa River Apartments Strata Plan 55597 [2016] WASC 153

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337

Efficient Building Team Pty Ltd and The Owners of 25, 27, 29, 31 Parry Street Fremantle Strata Plan 6413 [2021] WASAT 158

Grenside and The Owners of Upper Eastside Apartments Strata Plan 41133 [2008] WASAT 229

Santos v The State of Western Australia [2011] WASCA 216

Westfield Management Ltd v Perpetual Trustee Co Ltd (2007) 233 CLR 528

REASONS FOR DECISION OF THE TRIBUNAL:

Introduction

  1. On 21 July 2020, the applicant, Poland Superannuation Pty Ltd (applicant), being the registered proprietor of Lot 61 (Retail Lot/Lot 61) on Strata Plan 49518 (Strata Plan), commenced proceedings in the Tribunal pursuant to s 197(4) of the Strata Titles Act 1985 (WA) (ST Act) to resolve a scheme dispute.

  2. The respondent is The Owners of Dolphin Apartments Mandurah Strata Plan 49518 (Strata Company/respondent) which is the Strata Company for the strata scheme known as Dolphin Apartments (Scheme).  The Scheme comprises a mixed use residential/commercial development with ground floor commercial shops and three upper floors of residential apartments.

  3. The by-laws for the Scheme (Scheme By-laws) are set out in the management statement registered on 24 July 2006 as Statement J844200 (Management Statement).

  4. The applicant seeks an order, and a declaration, from the Tribunal that the Strata Company allocate strata levies between the retail and residential cost centres in accordance with Sch 1 by-law 18 of the Management Statement (By-law 18) to properly reflect the applicant's contribution to future budgeted expenses of the Scheme. The applicant also seeks a declaration that the Strata Company overcharged it $161,679.23 by levying contributions in contravention of the Scheme By-laws and the ST Act.

The Tribunal's jurisdiction to determine the application

  1. Pursuant to s 197(4) of the ST Act, an application for the resolution of a scheme dispute can be made to the Tribunal by a party to the dispute. The Tribunal has jurisdiction to resolve a dispute between 'scheme participants' that, amongst other things, relates to any matter arising under the Act or the scheme by-laws.[1] Schedule 5 to the ST Act addresses the transition of the Strata Titles Act 1985 (WA) that was in force prior to 1 May 2020 (prior ST Act), and relevantly provides that a scheme dispute may involve an event that occurred, or a matter that arose, before the commencement of the ST Act.[2]

    [1] ST Act, s 197(1)(vi).

    [2] ST Act, Sch 5, cl 14(1).

  2. The expression 'scheme participants' is defined in s 197(2) of the ST Act to include, relevantly, a member of the strata company for the strata titles scheme and the strata company for the strata titles scheme.

  3. Section 197(3) of the ST Act provides that certain disputes are not 'scheme disputes' for the purposes of the ST Act, including a dispute about an amount owed as a debt (other than a debt owed under s 99(2) of the ST Act or cl 53E of Sch 2A to the ST Act).

  4. The respondent contends that the true nature of the dispute relates to an amount owed as a debt and, therefore, the application before the Tribunal is not a 'scheme dispute' for the purposes of s 197(1) of the ST Act.[3]  Alternatively, the respondent says it is an equitable claim based on unjust enrichment for which the Tribunal has no jurisdiction.[4]  On these bases, the respondent says that the Tribunal does not have jurisdiction to grant the order and declarations sought by the applicant.  Even if the Tribunal has jurisdiction to determine the dispute, the respondent says that it should decline to make the orders sought because it would not finally resolve the dispute between the parties.[5] 

    [3] ts 167-168, 16 August 2022.

    [4] ts 168, 16 August 2022.

    [5] ts 170, 16 August 2022.

  5. In contrast, the applicant contends that the Tribunal has jurisdiction to determine the dispute because the dispute relates to the interpretation of the Scheme By-laws and the ST Act in relation to the imposition of levies, and decisions of the Strata Company to impose those levies.[6]

Jurisdiction - findings

[6] ts 146, 16 August 2022.

  1. For the reasons that follow, I find that the Tribunal has jurisdiction to determine the application.

  2. The Tribunal has broad jurisdiction under s 197(1) of the ST Act to resolve 'scheme disputes' between 'scheme participants'. I find that the applicant is the owner of Lot 61 on the Strata Plan and, therefore, is a member of the Strata Company and a scheme participant for the purposes of s 197(2) of the ST Act. I further find that the respondent being the Strata Company of the Scheme, is also a scheme participant.

  3. Relevantly, the expression 'scheme disputes' is defined in s 197(1)(a) of the ST Act to include a dispute between scheme participants concerning a resolution or decision of the strata company (or council of a strata company), and any other matter arising under the ST Act or the scheme by-laws.

  4. There was no contest that the parties, as scheme participants, are in dispute.  The dispute is concerned with the interpretation of scheme by­laws, specifically how Scheme expenses are to be allocated between the Retail Lot and the owners of Lots 1 to 60 (Residential Lots) having regard to the Scheme By­laws, and whether the owners of the Residential Lots have exclusive use of certain common property and are, therefore, responsible for expenses relating to its repair and maintenance under the ST Act. The dispute also concerns past decisions made by the Strata Company in relation to the allocation of expenses between the Retail Lot and Residential Lots. For these reasons, I am satisfied that the dispute can be characterised as 'a resolution or decision of a strata company' and, more broadly, 'any other matter arising under this Act or the scheme by-laws' for the purposes of s 197(1)(a)(iv) and s 197(1)(a)(vi) of the ST Act respectively.

  5. Consequently, I find that the dispute between the parties, as scheme participants, falls within the meaning of the expression 'scheme disputes' for the purposes of s 197(1)(a) of the ST Act. Even if the dispute between the parties can be characterised as a scheme dispute falling within s 197(1)(a) of the ST Act, it is nevertheless excluded from being a scheme dispute if it falls within the scope of s 197(3) of the ST Act.[7]

    [7] See Blaszkiewicz and The Owners of 7 Henderson Street Fremantle (Strata Scheme 74918) [2021] WASAT 56 at [50].

  6. Section 197(3) of the ST Act lists those disputes that are not 'scheme disputes'. Relevantly, s 197(3) provides that the following is not a scheme dispute:

    …

    (f)a dispute about an amount owed as a debt (other than a debt owed under section 99(2) or clause 53E)[.]

  7. Whilst the applicant says it has been overcharged levies due to the incorrect allocation of expenses between the Retail Lot and Residential Lots, it contends that the dispute is not about 'an amount owed as a debt' for the purposes of s 197(3)(f) of the ST Act because it is not seeking reimbursement of any overcharged levies in these proceedings.[8] It was common ground that the amount the applicant claims it has been overcharged in strata levies is not a debt owed under s 99(2) of the ST Act (which empowers an owner to effect and maintain insurance where the strata company fails to do so) or a debt for the purposes of cl 53E of Sch 2A to the ST Act (which relates to the recovery of insurance premiums by an owner where no administrative fund has been established).

    [8] ts 146, 16 August 2022.

  8. The term 'debt' is not defined in the ST Act, but it is used, for example, in the context of the non-payment of strata levies in s 100 of the ST Act. A contribution levied under s 100 of the ST Act, including any interest accrued, may be recovered as a debt by the strata company against an owner of a lot in a court of competent jurisdiction.[9]

    [9] ST Act, s 100(4)(c).

  9. The Macquarie Dictionary Online defines the term 'debt' as follows:

    noun 1. that which is owed; that which one person is bound to pay to or perform for another.

    2.a liability or obligation to pay or render something.

    3.the condition of being under such an obligation[.]

  10. Consequently, I find that the phrase 'an amount owed as a debt' in s 197(3)(f) refers to a sum of money that is due or owed, and which one person is obliged to pay to another.

  11. The application brought by the owner of the Retail Lot is not seeking reimbursement[10] of a sum of money that is owed to it by the Strata Company and which the Strata Company is already under an obligation to pay. Rather, the applicant is asking the Tribunal to determine whether it has been overcharged strata levies contrary to the Scheme By-laws and the ST Act.

    [10] See Blaszkiewicz and The Owners of 7 Henderson Street Fremantle (Strata Scheme 74918) [2021] WASAT 56 at [52].

  12. Accordingly, I accept the applicant's contention, and I find, that the Tribunal's jurisdiction to resolve the scheme dispute under s 197(1)(a) of the ST Act is not affected by the purported overcharging of levies to the Retail Lot.

The issues for determination

  1. The following issues arise for determination by the Tribunal:

    1)Properly construed, does By-law 18 (or the Scheme By-laws taken as a whole) require the applicant, as the owner of the Retail Lot, to contribute to:

    a)any or all of the expenses listed in Sch 1 by­law 18(1) (By-law 18(1));

    b)any or all of the expenses listed in Sch 1 by­law 26 (By-law 26); and

    c)any or all of the expenses to operate, maintain, repair and where necessary renew and replace all the common property and facilities that are located on or above the first floor of the Scheme building in accordance with Sch 1 by­law 17(2) (By-law 17(2))?

    2)If the answer to (1) (a), (b), or (c) is in the negative, what amount, if any, represents the levies charged in excess of the applicant's obligations with respect to budget items 'Category A', 'Category B', and 'Category C' in the table of Scheme levies filed by the applicant on 24 August 2022 (Levy Table)?

    3)Is By-law 17(2) an exclusive use by-law or does it grant a special privilege or exclusive use rights over the common property to owners of the Residential Lots?

    4)If the answer to (3) is in the affirmative:

    a)are the owners of the Residential Lots responsible for the repair and maintenance, and, where necessary, the renewal and replacement of the common property for which those owners have exclusive use (Special Common Property)?

    b)is the respondent required to allocate the expenses for the repair, maintenance, renewal and replacement of the Special Common Property solely to the owners of the Residential Lots?

    5)Can levies for the reserve fund be allocated other than in accordance with unit entitlements?

    6)Is the applicant required to contribute levies to the reserve fund for the Residential Lots cost centre?

Witness evidence

  1. The applicant relied on the evidence of Mr Andrew Thorpe, who is the company secretary of the applicant.  Mr Thorpe prepared a witness statement dated 16 May 2022 and a further witness statement dated 12 August 2022.  The applicant also relied on the evidence of Mr Gregory Poland, who is a director of Strzelecki Holdings Pty Ltd (Strzelecki), the developer and original registered proprietor of each of the Lots 1 to 61 in the Scheme.  Mr Poland prepared a witness statement dated 15 May 2022.

  2. The applicant sought the opinion of Ms Catherine Lezer on the allocation of levies to the Retail Lot.  Ms Lezer produced a witness statement dated 11 August 2022, which included a report of the same date.  Ms Lezer holds a Master's Degree in Business Administration, and a Bachelor of Business in human resource management.  She has significant corporate governance experience and is the current president of Strata Community Association WA.  Whilst the applicant sought to rely on Ms Lezer as an expert in the financial management of strata schemes, I am not satisfied, based on her qualifications and experience, that she would qualify as an expert witness in this area.  For this reason, I have afforded her evidence limited weight.

  3. The respondent did not rely on any witness evidence.

Factual background

  1. Certain relevant factual matters were not in dispute between the parties.  I make the findings set out in this paragraph in relation to those matters. 

    1)The Scheme building is located at 37 Dolphin Drive, Mandurah.  The land on which the Scheme building is located is formally known as Lot 1 to 61 on Strata Plan 49518 being the whole of the land in Certificate of Title Volume 2630, Folio 199.

    2)The applicant is the registered proprietor of the Retail Lot in the Scheme.

    3)The respondent is the Strata Company for the Scheme.

    4)Strzelecki was the developer and original registered proprietor of each of the Lots 1 to 61 in the Scheme.

    5)At all material times, the director of Strzelecki was Mr Poland.

    6)The first annual general meeting of the Strata Company was held on 4 August 2006 (2006 AGM).[11]

    [11] Exhibit 2, page 9.

    7)From 2006, Strzelecki sold each of the Lots 1 to 61 in the Scheme.  The Retail Lot was sold to Mr Poland and his wife, Ms Karen Poland.

    8)The applicant acquired the Retail Lot on or about 2 May 2008.

    9)The Retail Lot is located on the ground floor and the Residential Lots are located on the upper three floors with the car bays and storerooms for the Residential Lots located on the ground floor.

    10)By-law 18(2) of the Scheme By-laws (By-law 18(2)) anticipates that the Strata Company, in the calculation of levies, will use a cost centre for the Retail Lot and a separate cost centre for the Residential Lots.

    11)The respondent did not establish separate cost centres under By-law 18(2), or at all, until the annual general meeting held in 2017 (2017 AGM), for the financial year ending 30 June 2018.  At the 2017 AGM the following cost centres were established:

    a)the general administrative fund to which the applicant was required to contribute (General Administrative Fund);

    b)the Dolphin Apartments administrative fund to which the applicant was not required to contribute (Dolphin Apartments Administrative Fund); and

    c)the Dolphin commercial administrative fund to which the applicant was required to contribute (Dolphin Commercial Administrative Fund).

    12)A general reserve fund was established by the Strata Company prior to the 2017 AGM to which the applicant was required to contribute (General Reserve Fund).

    13)Since the 2017 AGM, the General Administrative Fund, the Dolphin Commercial Administrative Fund, and the General Reserve Fund budgets have included items of budgeted expenditure which the applicant disputes on the basis that they were either unauthorised or relate only to the Residential Lots or only partly to the Retail Lot.

    14)The applicant has declined to pay any levies from around January 2021 on the basis that it asserts that it is owed more than $160,000 by the respondent.

    15)The applicant has made a claim in the Magistrates Court against Logiudice Property Group Pty Ltd, the strata manager for the Scheme at the time of the 2006 AGM, for breach of contract.[12]

The Tribunal's consideration

[12] Exhibit 7; ts 87, 15 August 2022.

  1. The Scheme By-laws, which form part of the Management Statement, were made under s 42 of the prior ST Act. Section 42(1) of the prior ST Act provides that a strata company may make by-laws, not inconsistent with the prior ST Act, for its corporate affairs, any matter specified in Sch 2A to the prior ST Act, and other matters relating to the management, control, use and enjoyment of the lots and any common property. By-laws made under s 42 of the prior ST Act are properly characterised as a statutory contract as opposed to subsidiary legislation: Byrne v The Owners of Ceresa River Apartments Strata Plan 55597 [2016] WASC 153 at [61].

  2. The correct approach to the construction of a management statement was referred to in Byrne v The Owners of Ceresa Apartments Strata Plan 55597 [2017] WASCA 104; (2017) 51 WAR 304 (Byrne) at [139]-[140]. The Western Australia Court of Appeal (Court) stated in Byrne, in obiter, that a management statement is to be construed objectively, by reference to what a reasonable person would understand the language of the instrument to mean. The Court stated that a management statement is to be construed in the context of the registered strata plan and in the relevant statutory context. It follows that if there are constructional choices properly open, a construction of the Scheme By-laws should be preferred which is consistent with s 42(1) of the prior ST Act.[13]

    [13]Byrne at [139]-[140].

  3. The Court in Byrne also observed that an unamended management statement is on the Torrens Register and, therefore, rules of evidence assisting the construction of contracts inter partes of a nature explained in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337[14] do not apply.[15]

What are the applicant's obligations to contribute to common property expenses?

[14] At 350-352.

[15] Byrne at [139]-[140]. See also Westfield Management Ltd v Perpetual Trustee Co Ltd (2007) 233 CLR 528 at [37].

  1. By-law 18 was made at the time the prior ST Act applied. Section 42B(1) of the prior ST Act provides that by-laws made by a strata company may provide for a method of assessing contributions to be levied on an owner otherwise in proportion to the unit entitlement of their respective lots.

  2. By-law 18 provides for the variation of levy contributions pursuant to s 42B(1) of the prior ST Act as follows:

    (1)The proprietor of lot 61 (or lots created by the sub-division of lot 61) shall be exempt from contributing to any costs associated with the operation, maintenance, repair, replacement and cleaning of the lifts, the swimming pool and gymnasium located on the first floor.

    (2)The strata company in the annual budget and in the calculation of the levies shall use a cost centre for the retail lot and a separate cost centre for the residential lots.  The costs shall be calculated for each cost centre in proportion to the unit entitlement of those lots in that cost centre only.

  1. There was no dispute, and I find, that for the purposes of By­law 18(1), the swimming pool and gymnasium are common property facilities located on the first floor of the Scheme building, and that the lifts form part of the common property of the Scheme.

  2. Based on a proper construction of By-law 18(1), I find that the applicant, being the owner of Lot 61, is not required to contribute to any costs associated with the operation, maintenance, repair, replacement and cleaning (repair and maintenance) of the lifts, swimming pool and gymnasium.  This finding is consistent with By­law 17(2) which provides that the owner of Lot 61 is not permitted to use any part of the common property or common property facilities that are located on or above the first floor.

  3. It follows that the applicant, as the owner of Lot 61, is not permitted to use and, therefore, is not required to contribute to the repair and maintenance of common property facilities located on or above the first floor, specifically the swimming pool and gymnasium, or the repair and maintenance of the common property lifts. 

  4. In relation to the intercom, security and other common property expenses relating to reticulation and drainage, By-law 26 provides:

    The proprietors of the lots 1 to 60 (inclusive) shall share in proportion to their unit entitlement all costs and expenses -

    (a)that is necessary to operate, repair and maintain the intercom and security system;

    (b)needed to maintain the common property vehicle paved access way, the reticulation and drainage system and the water used for the gardens and landscaping that are on the common property.

  5. Based on a proper construction of By-law 26, I find that the applicant, as the owner of Lot 61, is not obliged to contribute to the costs and expenses that are necessary to operate, repair and maintain the intercom and security system.  Nor is the applicant obliged to contribute, under By-law 26, to the costs and expenses needed to maintain the common property vehicle paved access way, the reticulation and drainage system, or the water used for the gardens and landscaping that are on common property.

  6. Subject to my findings below, it follows that the obligation on the owner of Lot 61 to contribute to the costs and expenses of repairing and maintaining the common property (and common property facilities) of the Scheme is limited to the common property (and common property facilities) that fall outside the scope of By-law 18(1), and By-law 26.

Is By-law 17(2) an exclusive use by-law or does it confer any exclusive use rights to the Residential Lots over the common property on the first floor?

  1. I will next consider whether By-law 17(2) is an exclusive use by­law or confers exclusive use rights to the Residential Lots in respect of the common property on or above the first floor of the Scheme building.  Notably, the Retail Lot is granted exclusive use of certain parts of the common property walls, fixtures and fittings on the ground floor.[16]

    [16] By-law 40 and By-law 42 of the Scheme By-laws.

  2. By-law 17(2) provides as follows:

    (2)The proprietor of lot 61 (or lots created by a re-subdivision of lot 61) is not permitted to use any part of the common property or common property facilities that are located on or above the first floor level.

  3. The expression 'exclusive use by-laws' is defined in s 43 of the ST Act as follows:

    43.Exclusive use by‑laws

    (1)Exclusive use by‑laws of a strata titles scheme are scheme by‑laws that confer exclusive use and enjoyment of, or special privileges over, the common property in the strata titles scheme or specified common property in the strata titles scheme (the special common property) on the occupiers, for the time being, of a specified lot or lots in the strata titles scheme (the special lots).

    (2)Exclusive use by‑laws may include the following —

    (a)terms and conditions on which the occupiers of special lots may use the special common property;

    (b)particulars relating to access to the special common property and the provision and keeping of any key necessary;

    (c)particulars of the hours during which the special common property may be used;

    (d)provisions relating to the condition, maintenance, repair, renewal or replacement of the special common property;

    (e)provisions relating to insurance of the special common property to be maintained by the owners of special lots;

    (f)matters relating to the determination of amounts payable to the strata company by the owners of special lots and the imposition and collection of the amounts.

    (3)Subject to the terms of exclusive use by‑laws, the obligations that would, apart from this subsection, fall on the strata company under section 91(1)(c) in relation to the special common property fall instead on the owners of the special lots[.]

  4. I find that By-law 17(2), properly construed, does confer exclusive use rights to the occupiers of the Residential Lots in respect of the Special Common Property (the common property located on the first floor of the Scheme building and above) because the owner of Lot 61 is not permitted by By-law 17(2) to use any part of the common property or common property facilities on the first floor or above. I further find that By-law 17(2) provides particulars relating to access to the Special Common Property in so far as it prevents the proprietor of Lot 61 from accessing the Special Common Property. Consequently, for these reasons, I find that By­law 17(2) is an exclusive use by-law for the purposes of s 43 of the ST Act.

  5. Section 91(1)(c) of the ST Act provides a general duty on a strata company to repair and maintain common property. Section 91(1) of the ST Act provides:

    91.General duty

    (1)A strata company must —

    [(a)deleted]

    (b)control and manage the common property for the benefit of all the owners of lots; and

    (c)keep in good and serviceable repair, properly maintain and, if 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 owned by the strata company,

    and to do so whether damage or deterioration arises from fair wear and tear, inherent defect or any other cause.

  6. Section 91(1)(c) of the ST Act is in essentially identical terms to s 35(1)(c) of the prior ST Act. Further, pursuant to s 42(11)(b) of the prior ST Act, an owner is responsible for the performance of the duty of the strata company under s 35(1)(c) of the prior ST Act in respect of the common property to which the exclusive use by-law relates unless excused by the by-law.

  7. By virtue of s 43(3) of the ST Act (and s 42(11)(b) of the prior ST Act), I find that the obligations that would ordinarily fall on the Strata Company under s 91(1)(c) of the ST Act (and s 35(1)(c) of the prior ST Act) in relation to the Special Common Property fall instead on the owners of the Residential Lots. This finding is consistent with By­law 18(1) which provides that the proprietor of Lot 61 (or lots created by the sub­division of Lot 61) shall be exempt from contributing to any costs associated with the operation, maintenance, repair, replacement and cleaning of the lifts, the swimming pool and gymnasium located on the first floor. Whilst the Scheme By-laws do not specifically exclude the proprietor of Lot 61 from contributing to the repair and maintenance costs of the Special Common Property located above the first floor of the Scheme building, I find that s 43(3) of the ST Act operates to impose an obligation solely on the owners of the Residential Lots to be responsible for those costs.

  8. It follows that the respondent is required by the ST Act (and was required by the prior ST Act) to allocate the costs of repair and maintenance, as well as any necessary renewal and replacement expenses, of the Special Common Property to the owners of the Residential Lots and not to the applicant.

Can strata levies for the reserve fund be allocated other than in accordance with unit entitlements?

  1. Section 36 of the prior ST Act provides for the establishment of both administrative and reserve funds for a scheme and the levying of contributions on proprietors in proportion to the unit entitlement of their respective lots. Pursuant to s 42B(1) of the prior ST Act, by-laws made by a strata company could provide for a method of assessing contributions to be levied on proprietors, in respect of both the administrative and reserve funds, other than in proportion to the unit entitlement of their respective lots.[17]

    [17] See Grenside and The Owners of Upper Eastside Apartments Strata Plan 41133 [2008] WASAT 229 at [88].

  2. By-law 18(2) provides for the creation of separate cost centres for the Retail Lot and the Residential Lots with costs calculated for each cost centre in proportion to the unit entitlement of the lots in that cost centre only.  By-law 18(2) provides:

    (2)The strata company in the annual budget and in the calculation of the levies shall use a cost centre for the retail lot and a separate cost centre for the residential lots.  The costs shall be calculated for each cost centre in proportion to the unit entitlement of those lots in that cost centre only.

  3. On 1 May 2020, s 42B of the prior ST Act was repealed by the Strata Titles Amendment Act 2018 (WA) (Amendment Act). Sch 5 to the ST Act provides transitional provisions for the Amendment Act. In relation to scheme by-laws that were in force immediately before the commencement of the ST Act, Sch 5 to the ST Act relevantly provides:

    4.Scheme by-laws

    (1)The by-laws (including any management statement) of a strata company as in force immediately before commencement day continue in force, subject to this Act, as scheme by-laws and as if they had been made as governance by-laws or as conduct by-laws according to the classification into which they would fall if they had been made on commencement day.

    (2)However, all by-laws that are in force immediately before commencement day in the terms set out in Schedule 1 clauses 11 to 15, or Schedule 2 clause 5, as then in force are taken to be repealed on commencement day.

    (3)A by-law under section 42(8) as in force immediately before commencement day is taken to be an exclusive use by-law subject to this Act[.]

  4. Further, item 23 of Sch 5 to the ST Act, in relation to financial management, relevantly provides:

    23.Financial management

    (1)An administrative fund of a strata company established under section 36 as in force immediately before commencement day is taken to be an administrative fund established under section 100.

    (2)A reserve fund of a strata company established under section 36 as in force immediately before commencement day is taken to be a reserve fund established under section 100.

    (3)Contributions or other arrangements determined under section 36 as in force immediately before commencement day for any period that continues on or after commencement day are taken to be contributions or arrangements determined under section 100[.]

  5. The applicant contends that s 42B(1) of the prior ST Act and the Scheme By-laws, specifically By-law 18(2), preclude the owner of the Retail Lot from contributing levies to the reserve fund for the Residential Lots cost centre. The applicant says that it has an 'accrued right'[18] not to contribute those levies because there would be no point in establishing separate cost centres if the owner of the Retail Lot was required to contribute to expenditure relating to common property it did not share.

    [18] In the sense referred to by Hall J in Santos v The State of Western Australia [2011] WASCA 216 at [157].

  6. It is the respondent's position that the owner of Lot 61 is only exempt from contributing to the administrative fund for the Residential Lots cost centre and not the reserve fund for that cost centre in respect of costs expressly stated in By-law 18(1).[19] The respondent observed that s 100(1)(c) of the ST Act confers power on a strata company to levy contributions, other than in proportion to unit entitlements, only to an administrative fund because there is no equivalent power conferred in s 100(2) of the ST Act in relation to contributions to a reserve fund.[20]

    [19] ts 175, 16 August 2022.

    [20] ts 175, 16 August 2022.  See Andrews and The Owners of Coralie Garden Strata Plan 44374 [2022] WASAT 2 at [14].

  7. By-law 18(2) establishes an arrangement whereby the strata company is to use a separate cost centre for the Retail Lot and the Residential Lots to levy contributions for the administrative and reserve funds of the Scheme (with costs calculated in proportion to the unit entitlement of those lots in the relevant cost centre). The expression 'cost centre' is not defined in the ST Act or the Scheme By-laws. The Macquarie Dictionary Online defines 'cost centre' as follows:

    noun Finance a unit within a business with the responsibility of managing costs in its area of operation.

  8. On a proper construction of the transitional provisions, I find that By law 18(2) continues in force as a governance by-law because it was in force immediately before commencement day as a Scheme by-law and is not a Sch 1 or Sch 2 by-law referred to in item 4(2) of Sch 5 to the ST Act.

  9. I further find that the use of separate cost centres under By-law 18(2) and the concomitant payment of levies in proportion to unit entitlement of those lots in the relevant cost centre are taken to be arrangements determined under s 100 of the ST Act. Whilst there is no express power under s 100(2) of the ST Act for a strata company to levy contributions to a reserve fund other than in proportion to unit entitlements, I am satisfied that the use of separate cost centres, required by By-law 18(2), is an arrangement that continues in force by virtue of the transitional provisions.

  10. On a proper construction of By-law 18(2), I find that there would be no need for the use of separate cost centres by the Scheme if the owner of the Retail Lot was required to contribute levies in respect of common property for which the owners of the Residential Lots had exclusive use.

  11. Consequently, for these reasons, I find that the applicant is not required to contribute levies to the reserve fund for the Residential Lots cost centre.

Has the applicant contributed to common property expenses in accordance with the Scheme by-laws?

  1. Strata levies are approved by a simple majority vote at an annual general meeting based on the anticipated or budgeted expenses for the upcoming year.  From 1 September 2017 the budgeted expenses for the Scheme were categorised as General Administrative Fund, Dolphin Apartments Administrative Fund, Dolphin Commercial Administrative Fund and General Reserve Fund.[21]  Prior to that date, and before the separate cost centres were established, the budgeted expenses were categorised as General Administrative Fund and General Reserve Fund.[22]

    [21] Exhibit 9, Witness Statement of Andrew Cecil Thorpe, dated 26 May 2022, Attachment 3.

    [22] Exhibit 9, Witness Statement of Andrew Cecil Thorpe, dated 26 May 2022, Attachment 1.

  2. The applicant contends that between 21 July 2015 and 21 July 2021 (relevant period) it was charged levies that are not in accordance with its obligations under the Scheme By-laws.  The applicant further contends that there are items of expenditure allocated to the General Reserve Fund that should have been allocated solely to the Residential Lots cost centre.  In support of its position, the applicant relied on the evidence of Ms Lezer and Mr Thorpe.

  3. Ms Lezer stated in her report that, in her opinion, the Retail Lot has paid more than it should have.[23]  However, she acknowledged that the precise amount of mis-allocated costs would require a detailed analysis of actual invoices for all years and how the expenses were allocated.[24]

    [23] Exhibit 5, Witness Statement of Catherine Eve Lezer, dated 11 August 2022, page 153.

    [24] Exhibit 5, Witness Statement of Catherine Eve Lezer, dated 11 August 2022, page 153; ts 53, 15 August 2022.

  4. Mr Thorpe stated that there are items of expenditure in the approved budgets for the relevant period that should not have been allocated to the Retail Lot cost centre and, therefore, should not have been levied as a contribution from the applicant.[25]  Mr Thorpe observed that items of expenditure had been included in the General Reserve Fund, such as the pool renovation and pool heater, despite the Strata Company being on notice that the Retail Lot 'was excluded from having to make these contributions'.[26]

    [25] Exhibit 10, Witness Statement of Andrew Cecil Thorpe, dated 12 August 2022, para 8-9.

    [26] ts 121-122, 16 August 2022.

  5. The respondent provided to the applicant hard copies of invoices of actual expenses for the period 2017 to 2021.[27]  Mr Thorpe said that the invoices had post-it stickers on the top of each bundle with notations that described how the respondent had categorised the items of expenditure in the budget (post-it notes).[28]  Mr Thorpe gave each of the invoices a Category 'A', 'B' or 'C' in keeping with the categories that the applicant had identified.

    [27] Exhibit 10, Witness Statement of Andrew Cecil Thorpe, dated 12 August 2022, para 13.

    [28] ts 133, 16 August 2022; Exhibit 10, Witness Statement of Andrew Cecil Thorpe, dated 12 August 2022, para 14.

  6. The applicant produced a Levy Table for the relevant period showing the budget items from which the respondent raised levies in columns labelled 'Reserve Fund', 'Category A', 'Category B', and 'Category C'.

  7. Category A of the Levy Table lists all items of expenditure that the applicant says should not have been allocated to the Retail Lot cost centre because, by operation of By-law 18, the owner of the Retail Lot is expressly exempt from contributing to those expenses.  It includes costs associated with the repair and maintenance of the lifts, and the swimming pool and gymnasium located on the first floor.

  8. Category B of the Levy Table lists expenses for which the applicant says it derives no benefit.  Category B expenses include those relating to the Special Common Property used exclusively by (or set aside for the exclusive use of) the owners of the Residential Lots.  By operation of By­law 17(2), the applicant says that it is not required to contribute to the repair and maintenance of the Special Common Property and Special Common Property facilities that are located from the first to third floors, which equates to approximately 75% of the Scheme building.  The applicant further says that the repair and maintenance expenses for the lift and lift lobbies on the north-east and south-west corners of the ground floor should be allocated to the owners of the Residential Lots because By­law 18(1) expressly exempts the owner of Lot 61 from contributing to those expenses.  Also, the applicant says that, by operation of By­law 26, the repair and maintenance expenses for the paved vehicle access ways on the ground floor are the responsibility of the Residential Lots.  The applicant contends that the ground floor area over which the owners of the Residential Lots have repair and maintenance obligations is approximately 15% of the Scheme building.

  9. On this basis, the applicant says that the items of expenditure in Category B of the Levy Table (except legal fees incurred by the Strata Company related to these proceedings for which the applicant says it receives no benefit)[29] should have been allocated as follows:

    a)90% of the Category B expenses to the Residential Lots cost centre; and

    b)10% of the Category B expenses to the general cost centre comprising the residual common property used by both the Residential Lots and the Retail Lot.

    [29] ts 124, 16 August 2022; Levy Table, page 2.

  10. Category C of the Levy Table lists items of expenditure for which the applicant says the allocation between the Residential Lots and the Retail Lot is indeterminate because there is insufficient information available to confirm whether the expense (or any part of the expense) should be allocated to the Residential Lots cost centre.

  1. The respondent observed that the way in which monies were spent after each budget was approved is not an issue before the Tribunal.  Rather, the respondent says the issue is the allocation that occurs in the budget which, when approved, sets the basis upon which levies are then raised.[30]  The respondent relies on the statement made by Mr Poland, at the 2006 AGM, that certain levies in respect of repair and maintenance were to be charged to Strzelecki and says, based on that statement, the defence of promissory estoppel is available to it.  The 2006 AGM minutes record the following:[31]

    Mr Poland proposed and agreed that he is prepared to be included in all cost centres for the complex.

    [30] ts 176, 16 August 2022.

    [31] Exhibit 2, page 11.

  2. At the time of the 2006 AGM, the applicant says that Mr Poland was a director of Strzelecki which was the developer and original proprietor of all lots in the Scheme, including Lot 61.  Consequently, it is the applicant's position that the respondent cannot rely on the statement made by Mr Poland at the 2006 AGM to subsequently disregard the Scheme By-laws and fail to properly allocate expenses between the Retail Lot and the Residential Lots.

  3. Counsel for the applicant asked Mr Poland about the content of the 2006 AGM minutes, to which Mr Poland replied:[32]

    … Well, as I've said earlier, [the strata manager] spoke to us before the meeting and said we had a problem with no apartments settling we needed money short-term.  So I said, 'Well, that's easy.  I'm the developer.  I own all the apartments.  I will put extra money in until we settle'.

    [32] ts 77, 15 August 2022.

  4. I find, based on the uncontested evidence of Mr Poland, which I accept, that following the 2006 AGM, Strzelecki was responsible for the payment of levies for the Retail Lot and the Residential Lots.  I also accept the evidence of Mr Poland, and I find, that this was a short-term arrangement to cover expenses until the Residential Lots settled.  Consequently, based on Mr Poland's evidence, I do not accept the respondent's contention that certain levies in respect of repair and maintenance of the Residential Lots were to be shared with Strzelecki indefinitely.[33]  For these reasons, I find that the respondent's defence of promissory estoppel is not supported on the evidence before me.  I see no reason why the initial arrangement described by Mr Poland should prevent the creation of separate cost centres as required by By­law 18(2) (which have now been established) or the proper allocation of Scheme expenses between those cost centres.

    [33] Exhibit 8, Witness Statement of Gregory David Poland, dated 25 May 2022, para 10.

  5. Whilst I accept that the invoices tendered by the applicant for part of the relevant period (from 2017 to 2021) were admissible as business records of the respondent, I do not accept that the post-it notes on the invoices should be relied upon as evidence of how the budgeted expenses were categorised.  If I am wrong, and the post-it notes support a finding that certain expenses were incorrectly allocated to the Retail Lot cost centre, I nevertheless find that there was insufficient evidence of the assumptions relied on for budgeting the expenses used for the levy calculations.  Notably, the strata managers who prepared the budgets were not called to give evidence of how expenses were allocated between the separate cost centres, or the assumptions they made for budgeting future expenses.

  6. Turning to Category A of the Levy Table, I find that the items of expenditure in this category are budgeted expenses that, by operation of By-law 18, should have been allocated solely to the Residential Lots cost centre.  I further find that the Retail Lot was levied, based on the Category A expenses, in proportion to its unit entitlement.

  7. Consequently, I accept the Levy Table in so far as it relates to the Category A expenses for the administrative fund budgets, and I find, that for the relevant period the applicant was overcharged levies in respect of the Category A expenses in the amount of $20,011.16 (excluding GST).  Based on the uncontested evidence before me, I am satisfied that the levies raised by the Strata Company in respect of these Category A expenses were applied for the sole benefit of the Residential Lots cost centre.

  8. However, I am not satisfied that there is sufficient evidence to support a finding that 90% of the Category B expenses should have been allocated to the Residential Lots cost centre.  The scope of the repair and maintenance obligations that the applicant contends is the responsibility of the owners of the Residential Lots was based on an approximate calculation of the area of the Scheme building over which those owners have exclusive use.  The applicant did not adduce technical evidence from a surveyor or any other evidence to accurately measure the relevant area.  The area of the ground floor over which the owners of the Residential Lots have repair and maintenance obligations was also approximated by the applicant.  Further, given the limited description of the items of expenditure which fall within Category B, and without evidence from the strata managers who prepared the budgets, I am unable to fully assess whether the applicant derived a benefit from the budgeted expenses, including the projected expenditure on legal fees.  For these reasons, it is not possible to reliably determine the levies overcharged for the Category B expenses during the relevant period.

  9. In relation to the General Reserve Fund, I find that the applicant is not required to contribute to the Residential Lots cost centre for the reasons set out above at [46] to [56].  However, in contrast to an administrative fund, the purpose of a reserve fund is to accumulate funds to meet contingent expenses and other major expenses of the Strata Company.  Because the approved budgets for the relevant period show that past reserves have been used to fund current expenses, it is not possible to reconcile the levies raised against the expenses in any one period.  Further, I am not satisfied that the levy contributions made by the applicant to 'top up' the General Reserve Fund were applied against the Residential Lots cost centre expenses.  The applicant did not adduce reliable evidence about how the General Reserve Fund levies were raised and expended; nor did it call the strata managers responsible for administering the General Reserve Fund to support its position.

  10. Finally, the applicant acknowledged, and I accept, that there was insufficient evidence to support a finding that the Category C expenses should have been allocated to the Residential Lots cost centre.

  11. The applicant has made a claim against a third party in the Magistrates Court in respect of levies payable by the Retail Lot.  Whilst the existence of the claim was brought to my attention by the respondent, it was not a factor I relied on in determining the issues in dispute in these proceedings.

The applicant's proposed order and declarations

  1. Pursuant to s 199(1) of the ST Act, the Tribunal may exercise its discretion to grant declaratory relief instead of or in addition to any order the Tribunal makes in these proceedings. Section 199(3) of the ST Act sets out, without limitation, the circumstances in which a declaration may be made. It follows that the Tribunal has broad discretion to make or refrain from making a declaration depending on the circumstances of the matter before it.[34]

    [34] Efficient Building Team Pty Ltd and The Owners of 25, 27, 29, 31 Parry Street Fremantle Strata Plan 6413 [2021] WASAT 158 at [98].

  2. In Aussie Airlines Pty Ltd v Australian Airlines Ltd, Qantas Airlines Ltd & Federal Airports Corporation (1996) 68 FCR 406, Lockhart J provided a useful summary of the rules that should in general be satisfied before granting declaratory relief.[35]

    •The proceeding must involve the determination of a question that is not abstract or hypothetical.  There must be a real question involved, and the declaratory relief must be directed to the determination of legal controversies ….  The answer to the question must produce some real consequences for the parties.

    •The applicant for declaratory relief will not have sufficient status if relief is 'claimed in relation to circumstances that [have] not occurred and might never happen' …. or if the Court's declaration will produce no foreseeable consequences for the parties …

    •The party seeking declaratory relief must have a real interest to raise it …

    •Generally there must be a proper contradictor[.]

    (citations omitted)

    [35] At 415.

  3. The applicant seeks a declaration that the respondent is required by By­law 18 of the Scheme to allocate strata fees for costs reasonably incurred in managing the Scheme between the Retail Lot and Residential Lots cost centres so that the retail centre is responsible only for costs in respect of Lot 61, the area over which the owner of Lot 61 has exclusive use, the roof and external structure of the Scheme building and the provision of services to the building. The applicant also seeks an order requiring the respondent to allocate future budgeted expenses in accordance with the declaration. In addition, the applicant seeks a declaration that the respondent overcharged it levies in the sum of $161,679.23 by levying contributions in contravention of the Scheme By-laws and the ST Act.[36]

    [36] Applicant's amended orders and declarations sought dated 15 June 2022.

  4. The respondent contends that the form of the declaration and order sought by the applicant in relation to the effect of By-law 18 is not established on any plain reading of it and, therefore, is a patent overreach.[37]  The respondent says that it would be an inappropriate exercise of the Tribunal's discretion to grant declaratory relief in the form sought.

Conclusion

[37] ts 174, 16 August 2022.

  1. The dispute between the parties, which concerns the allocation of Scheme expenses between the Retail Lot and the Residential Lots, is a 'scheme dispute' for the purposes of the ST Act and, consequently, the application falls within the jurisdiction of the Tribunal.

  2. In summary, I have found that By-law 18(2) requires the respondent to allocate Scheme expenses between the Retail Lot cost centre and the Residential Lots cost centre but that the applicant is not required by the Scheme By-laws and the ST Act to contribute levies:

    1)for the repair and maintenance of common property (and common property facilities) of the Scheme expressly referred to in By-law 18(1), and By-law 26;

    2)for the repair and maintenance of the Special Common Property; and

    3)to the reserve fund for the residential cost centre.

  3. Accordingly, I will order the respondent to allocate Scheme expenses between the Retail Lot cost centre and the Residential Lots cost centre to reflect these findings.  It is unnecessary in the circumstances of this matter to make a declaration to the same effect because it would be re­stating the terms of the order without creating any binding obligation on the respondent.

  4. In respect of the Category A expenses for the administrative fund budgets, I will make a declaration that, for the relevant period, the respondent has overcharged the applicant levies in the sum of $20,011.16 (excluding GST).  I will otherwise decline to make the declaration sought by the applicant in relation to the overcharging of levies.

Orders

The Tribunal orders:

1.Pursuant to s 200(2)(l) of the Strata Titles Act 1985 (WA) the respondent is required in accordance with by-law 18(2) of the scheme by-laws to allocate scheme expenses between the retail and residential cost centres noting that the owner of Lot 61 is not required pursuant to the scheme by-laws and the Strata Titles Act 1985 (WA) to contribute levies to:

(a)repair and maintain the common property (and common property facilities) on the first floor of the scheme building (by­law 18(1));

(b)repair and maintain or renew and replace the common property on the second and third floors of the scheme building (by­law 17(2));

(c)operate, repair and maintain the intercom and security system (by-law 26(1));

(d)maintain the common property vehicle paved access way, the reticulation and drainage system and the water used for the gardens and landscaping located on common property (by­law 26(2)); and

(e)the reserve fund for the residential cost centre (by-law 18(2)).

2.Pursuant to s 199(1) of the Strata Titles Act 1985 (WA) the Tribunal declares that based on the budgeted expenses of the strata scheme for the period 21 July 2014 to 21 July 2021 the respondent overcharged the applicant levies in the sum of $20,011.16 (exclusive of GST).

3.The application is otherwise dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.

MS C BARTON, MEMBER

24 NOVEMBER 2022


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