Shih v The Owners - Strata Plan No 87879

[2018] NSWCATCD 74

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:	Shih & ors v The Owners - Strata Plan No 87879 [2018] NSWCATCD 74
Hearing dates:	12 November 2018
Date of orders:	28 November 2018
Decision date:	28 November 2018
Jurisdiction:	Consumer and Commercial Division
Before:	P Boyce, Senior Member
Decision:	1. The Tribunal orders that the respondent, The Owners-Strata Plan No 87879, pays to the applicants, Susan Shih, Virginia Shih and Emiliano Shih, the amount of $542.86 immediately. 2. Otherwise the application is dismissed.
Catchwords:	LAND LAW - Strata titles - lot owner – damages –deferred - action taken by the owners corporation against builder
Legislation Cited:	Strata Schemes Management Act 2015 (NSW)
Cases Cited:	Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36; 254 CLR 185 Hasell v Bagot, Shakes & Lewis Ltd [1911] 13 CLR Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157; 12 BPR 23,673 Shum v Owners Corporation SP30621 [2017] NSWCATCD 68 Sotiros Shipping Inc. and Aeco Maritime S. A v Sameiet Solholt; ( The ‘Solholt’) (1983) 1 Lloyds Rep, 605 Steven Miller & Anor v Grosvenor Australia Pty Ltd [2017] NSWCATCD 42 TCN Channel 9 v Hayden Enterprises Pty Limited (1989) 16 NSWLR 130 The Owners Strata Plan No 6534 v El Khouri [2015] NSWCATCD 145 The Owners-Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067 Urban Traders v Paul Michael [2009] NSWSC 1072
Category:	Principal judgment
Parties:	Susan Shih, Virginia Shih and Emiliano Shih (Applicants) The Owners-Strata Plan No 87879 (Respondent)
Representation:	Solicitors: Kerin Benson Lawyers (Applicants) Bannermans Lawyers (Respondent)   Counsel: J Liu (Applicants) S Williamson-Solicitor Advocate (Respondent)
File Number(s):	SC18/14261
Publication restriction:	None

REASONS FOR DECISION

Application

1. The applicants are the owners of a Lot 28 in Strata Plan 87879. The respondent is the owners’ corporation for Strata Plan 87879.

2. By application filed with the Tribunal on 22 March 2018 the applicants’ commenced proceedings against the respondent seeking orders under s 232 and s 106 of the Strata Schemes Management Act 2015 (NSW) (“SSMA”) that:

1. The respondent complete rectification works to the common property of the Strata Plan which has caused water penetrations to Lot 28; and

2. The respondent pays compensation for loss of rent and the cost of replacing water-damaged carpet.

Legislative provisions and jurisdiction

3. Section 232 of SSMA provides that the Tribunal may make an order to settle disputes or rectify complaints as follows:

232 Orders to settle disputes or rectify complaints

(1) Orders relating to complaints and disputes

The Tribunal may, on application by an interested person, original owner or building manager, make an order to settle a complaint or dispute about any of the following:

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

(b) an agreement authorised or required to be entered into under this Act,

(c) an agreement appointing a strata managing agent or a building manager,

(d) an agreement between the owners corporation and an owner, mortgagee or covenant chargee of a lot in a strata scheme that relates to the scheme or a matter arising under the scheme,

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

(f) an exercise of, or failure to exercise, a function conferred or imposed on an owners corporation under any other Act.

(2) Failure to exercise a function

For the purposes of this section, an owners corporation, strata committee or building management committee is taken not to have exercised a function if:

(a) it decides not to exercise the function, or

(b) application is made to it to exercise the function and it fails for 2 months after the making of the application to exercise the function in accordance with the application or to inform the applicant that it has decided not to exercise the function in accordance with the application.

(3) Other proceedings and remedies

A person is not entitled:

(a) to commence other proceedings in connection with the settlement of a dispute or complaint the subject of a current application by the person for an order under this section, or

(b) to make an application for an order under this section if the person has commenced, and not discontinued, proceedings in connection with the settlement of a dispute or complaint the subject of the application.

(4) Disputes involving management of part strata parcels

The Tribunal must not make an order relating to a dispute involving the management of a strata scheme for a part strata parcel or the management of the building concerned or its site if:

(a) any applicable strata management statement prohibits the determination of disputes by the Tribunal under this Act, or

(b) any of the parties to the dispute fail to consent to its determination by the Tribunal.

(5) The Tribunal must not make an order relating to a dispute involving a matter to which a strata management statement applies that is inconsistent with the strata management statement.

(6) Disputes relating to consent to development applications

The Tribunal must consider the interests of all the owners of lots in a strata scheme in the use and enjoyment of their lots and the common property in determining whether to make an order relating to a dispute concerning the failure of an owners corporation for a strata scheme to consent to the making of a development application under the Environmental Planning and Assessment Act 1979 relating to common property of the scheme.

(7) Excluded complaints and disputes

This section does not apply to a complaint or dispute relating to an agreement that is not an agreement entered into under this Act, or the exercise of, or failure to exercise, a function conferred or imposed by or under any other Act, if another Act confers jurisdiction on another court or tribunal with respect to the subject-matter of the complaint

4. S 106 of the SSMA provides that the owners corporation has a duty to maintain and repair the common property as follows:

106 Duty of owners corporation to maintain and repair property

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

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

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

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

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

(4) If an owners corporation has taken action against an owner or other person in respect of damage to the common property, it may defer compliance with subsection (1) or (2) in relation to the damage to the property until the completion of the action if the failure to comply will not affect the safety of any building, structure or common property in the strata scheme.

(5) An owner of a lot in a strata scheme may recover from the owners corporation, as damages for breach of statutory duty, any reasonably foreseeable loss suffered by the owner as a result of a contravention of this section by the owners corporation.

(6) An owner may not bring an action under this section for breach of a statutory duty more than 2 years after the owner first becomes aware of the loss.

(7) This section is subject to the provisions of any common property memorandum adopted by the by-laws for the strata scheme under this Division, any common property rights by-law or any by-law made under section 108.

(8) This section does not affect any duty or right of the owners corporation under any other law.

5. The Tribunal is satisfied that the applicants are lot owners in the strata scheme is a person having an estate or interest in the strata scheme and are able to bring proceedings in the Tribunal for an order under s 232 of the SSMA as interested parties.

6. Section 227(1)(a) and (b) of the SSMA provides that a registrar of the Tribunal must not accept an application made to the Tribunal under this Act unless mediation by the Secretary under Division 2 or otherwise has been attempted but was not successful, or a party refused to participate in the mediation.

7. Filed with the application is a letter dated 5 February 2018 from NSW Fair Trading for the Secretary of the Department of Finance, Services (“OFT”) and Innovation advising the applicants that mediation has been declined by the respondent.

8. The Tribunal is satisfied that the Registrar has properly accepted the application and that s 227 has been complied with.

9. The Tribunal is satisfied that it has jurisdiction to hear and determine the application.

Facts

10. The applicants and the respondent agreed on a Statement of Agreed Facts and Issues at the hearing.

11. Those Agreed facts are as follows:

1. The applicants are the owners of Lot 28 in Strata Plan 87879 (“Strata Scheme”). The applicants initially purchased Lot 28 “off the plan” in August 2015 and have continuously owned Lot 28 since then.

2. The respondent is the Owners Corporation for the Strata Scheme, constituted under the SSMA.

(3) The Strata Scheme is a residential building comprised of 29 lots over 4 floors. The Strata Scheme is located at 70-72 *** Street, ***********, NSW.

3. The parties have previously attempted mediation without success.

4. On about 29 April 2016, the applicants became aware of water penetration issues affecting Lot 28 when a tenant renting Lot 28 notified the applicants of the issue.

5. On 2 May 2016, the applicants lodged a complaint against the builder of the Strata Scheme with OFT.

6. On 5 July 2016, OFT made a rectification order requiring the builder to complete the rectification works affecting Lot 28 by 2 August 2016.

7. The builder attended Lot 28 to perform rectification works on:

1. 13 July 2016;

2. 19 October 2016;

3. 17 November 2016.

8. On 9 March 2017 the respondent engaged Mark Kavanagh, building consultant to inspect Lot 28.

9. On 10 March 2017, the tenant of Lot 28 vacated the property and stopped paying rent. There has been no tenant occupying lot 28 since 10 March 2017.

10. On 20 April 2017, Mark Kavanagh provided a Preliminary Technical Report to the respondent (“The Report”). The Report identified all observable defects in the Strata Scheme, including defects in the common property causing the water penetration in Lot 28. The Report recommended the method for rectification of the defects.

11. From about March 2017 to June 2017, the applicants informed the respondent that Lot 28 was affected by water penetration issues and that the applicants were unable to find a tenant for Lot 28 because of the defects affecting Lot 28.

12. On 19 May 2017 OFT issued a further rectification order to the builder to rectify defects affecting Lot 28 by 9 June 2017.

13. On 30 May 2017, the respondent commenced proceedings in the Tribunal (HB17/25899) against the builder.

14. On 22 January 2018 the respondent resolved at its extraordinary general meeting to proceed with repairs to the defects causing water penetration issues affecting Lot 28.

15. On 3 and 8 February 2018 the strata managing agent for the respondent and its contractors accessed Lot 28 to determine the scope of remedial works required to rectify the defects to Lot 28.

16. On 19 March 2018, the strata managing agent for the respondent requested further access to Lot 28 to undertake remediation works.

17. On 22 March 2018, the applicants commenced these proceedings.

12. The agreed issues are:

1. Whether s 106(4) of the SSMA excepts the respondents from liability under s 106(5)?

2. Whether any issue of failure to mitigate losses arises in this case and, if so, to what extent?

3. Whether the orders sought by the applicants under s 232 are appropriate?

4. Whether the claimed loss of rental income is a reasonably foreseeable loss?

5. Whether the applicants are estopped from bringing these proceedings?

Facts additional to Agreed facts

13. The respondent commenced proceedings against the builder on 30 May 2017. The proceedings were commenced before the date of compliance for the builder to undertake the rectification work under the Office of Fair Trading complaint, 9 June 2017.

14. The respondent and its remedial contractors inspected Lot 28 on 3 and 8 February 2018 for the purpose of arranging to undertake temporary rectification work.

15. On 19 March 2018 the strata managing agent sent an email to the applicants advising that the respondent was ready, willing and able to undertake rectification work to Lot 28 and requested access promptly to Lot 28 as wet weather was forecasted.

16. On 23 March 2018 Virginia Shih sent an email to the managing agent denying access and refusing to provide access unless the respondent entered into a deed with the applicant that it would undertake the full scope of work set out in Mr Kavanagh’s report.

17. On 29 March 2018 the managing agent sent an email to Virginia Shih confirming that the respondent agreed to repair the water ingress into Lot 28, noting that Virginia Shih had refused to provide access to the premises to allow the works to be carried out.

18. In the proceedings against the builder in the Tribunal a conclave of expert witnesses facilitated by Senior Tribunal Member Briggs was undertaken on 10 October 2018 and on 111 October 2018 Building Experts Kavanagh and Frizell issued a joint report based on the conclave and setting out agreement on the scope of works required to rectify the defects in Lot 28.

Applicants’ submissions

19. The applicants submit that:

1. The respondent does not deny and has adduced no evidence to the contrary that serious defects to the common property contribute to the water penetration to Lot 28. Although the applicants objected to a report dated 26 October 2018 by Mr Kavanagh, served on the applicants on 30 October 2018, the Tribunal allowed the respondent to rely on the report for the reasons given ex tempore at the hearing.

2. The Appeal Panel in Shum v Owners Corporation SP30621 [2017] NSWCATCD 68 at [135] described the relevant statutory duty “to repair and maintain the common property so as to prevent water penetration to” the applicants’ lot. Because the respondent has commenced proceedings against the builder, which it says allows it to defer its obligations under s 106(1), it must accept as a consequence of asserting such a defence that there are defects to the common property which it has an obligation to repair but which obligation it has chosen to defer. The applicants contend that, by the respondent’s response it is accepting that it has not complied and it is not complying with s 106(1) it is entitled to defer compliance with s 106(4).

3. In Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157; 12 BPR 23,673 at [18] Brereton J found that “[a]s common property is comprised of those parts of an allotment which are not within an individual lot, the tiles, and more particularly the membrane underneath them, were part of the common property”. In its correspondence with the applicants, the respondent appears to have accepted that the balcony constitutes common property and that the applicants could not therefore, unilaterally effect repairs to the balcony to fix the water penetration. The disrepair of the common property has caused the water penetration.

4. In Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36; 254 CLR 185 French CJ observed at [11] that the “duties of the owners corporation do not depend upon whether someone was to blame for the common property being other than in a state of good and serviceable repair”. The Chief Justice went on to approve the statement of the primary judge in that case “[t]he duty to maintain and repair common property is not limited by reference to the source of the problem that gives rise to the need for maintenance of [repair]. The duty will extend, in an appropriate case, even to the rectification of defective work left unrectified by the builder”. In Shum the Appeal Panel said further “the obligation of an owners corporation to maintain and keep in a good and serviceable state of repair is a continuing obligation, breach of which occurs on each and every day the duty is not performed”.

5. The authorities cited support the proposition that the respondent is in breach of its obligations under s 106. The applicants urge the Tribunal to not accept the respondent’s asserted defences for the following reasons:

1. The respondent cannot simply rely on s 106(4) because that provision only states that an owners corporation “may defer compliance with subsection (1) or (2)” in relevant circumstances. In this case, at the Extraordinary General Meeting (“EGM”) held on 22 January 2018, the respondent resolved to make certain decisions about its claim against the builder in the Tribunal and at item 6 of the minutes of the EGM resolved “to proceed with the repairs to the water penetration/ water ingress issues in Unit 28”. The respondent cannot benefit from s 106(4) because it had not elected to defer compliance with s 106(1). Despite previous attempts to rectify the defect to Lot 28, they have not been rectified in compliance with s 106(1). Brereton J in Seiwa states that the “duty is not one to use reasonable care to maintain and keep in good repair the common property, nor one to use best endeavours to do so, nor one to take reasonable steps to do so, but a strict duty to maintain and repair”.

2. On the material before the Tribunal, even if the respondent had elected to defer compliance with s 106(1) it cannot make out the defence in s 106(4). The respondent must identify “the damage” and “the property” that is the subject of the relevant action with sufficient particularity so as to defer compliance in respect of specific damage to specific property. Without that particularity, any action taken against a third party by an owners’ corporation would excuse an owners corporation from compliance with its strict statutory duty. The Tribunal should not lightly conclude that s 106(4) applies unless the party invoking the defence clearly satisfies the sections requirements. The Explanatory Note to the SSMA emphasises the need for s 106(4) to apply with precision, stating that the “obligation of an owners corporation to maintain and keep in repair common property may be deferred for a particular item of property if the owner or another person is liable for damage to the property and the owners corporation has taken action in respect of the damage.” [Emphasis added by applicants in their submission].

3. Even if the Tribunal accepts that the respondent has taken action against a person in respect of damage to the relevant common property, s 106(4) would still not apply because there is ample evidence that the respondent continued to fail to comply with s 106(1) affects the safety of structures and common property in the Strata Scheme. This is evidence from:

1. The report of Douglas Kennedy;

2. The report of Rob Seymour: ‘Re: Mould Investigation and Report’;

3. The Preliminary Technical Report by Mr Kavanagh;

4. The witness statement of Virginia Shih and photographs annexed to them.

4. The Appeal Panel in Shum at [138] stated that “the respondent’s loss and damage was caused not only by the initial failure to carry out repairs in consequence of the water penetration that occurred on or before 1 September 2016, but also by the continuing failure to affect the repairs.” In the present case, the applicants informed the respondent of the loss of rent caused by the defects from at least 27 March 2017. The respondents continuing failure to carry out appropriate repairs caused the loss of rental income. The damaged carpet falls into a clearer category and Mr Kennedy’s expert report explains the causal nexus between the water penetration and the damage to the carpet which requires replacement.

4. S 106(6) operates to prevent an owner bringing an action for “the breach of a statutory duty more than 2 years after the owner first becomes aware of the loss”. The section does not apply in this case as the loss of rental income is ongoing and Lot 28 has not been tenanted since 10 March 2017 and the applicants’ brought this action on 22 March 2018.

5. None of the evidence before the Tribunal supports a case that the applicants have not mitigated their losses. This is fatal to any reliance on this point as a defence because “[t]he plaintiff does not have to show that he fulfilled his duty; the onus is on the defendant to show that he has not, and to show the extent to which he has not done so”: TCN Channel 9 v Hayden Enterprises Pty Limited (1989) 16 NSWLR 130 Hope JA at p158E; Steven Miller & Anor v Grosvenor Australia Pty Ltd [2017] NSWCATCD 42 at [43]. The statements of the various witnesses for both parties show the applicants were and remain anxious to have the defects rectified so they can rent out Lot 28 again.

6. Mitigation of losses and contributory negligence do not provide the respondent with a defence to the strict liability duty such as s 106(1): Seiwa at [21]. The defences and limitations on recovery of damages for breach of statutory duty under s 106 are contained in the provision. S 106(5) limits recoverable damages to “any reasonably foreseeable loss suffered by the owner as a result of a contravention of this section by the owners corporation.” The authorities recognise that the correct understanding of this principle is that “[a] defendant is only liable for such part of the plaintiff’s loss as is properly to be regarded as caused by the defendants’ breach of duty”: Steven Miller at [41] referring to Sotiros Shipping Inc. and Aeco Maritime S. A v Sameiet Solholt; (The ‘Solholt’) (1983) 1 Lloyds Rep, 605. In The Owners-Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067, Ball J at [42] restated the general principle that “the plaintiff is not entitled to recover losses attributable to its own unreasonable conduct”. Even if the applicants’ failure to mitigate loss could operate to qualify recoverable damages in this case, the respondent bears the onus of proving that the applicants engaged in unreasonable conduct and that certain losses resulted from alleged unreasonable conduct, which it does not.

7. The applicants are entitled to an order for damages in the amount of lost rent and the cost of replacement of the carpet.

Respondent’s submissions

20. The respondent’s submissions are extensive and exhaustive. The Tribunal does not intend to reproduce all those submissions. It will only extract those submissions necessary to make its determination.

21. The respondent submits:

1. The operation of s 106(1) and (2) was deferred on 22 January 2018 when the respondent resolved that it would be prepared to undertake repairs to stop water penetrating inside Lot 28 to allow that lot to be tenanted.

Statutory Interpretation

1. The respondent contends that ss 106(4) and (5) of SSMA should be applied literally: Project Blue Sky v ABA [1998] CLR 355. In that judgement the High Court cited at [48] with approval Dixon CJ in Commissioner for Railways (NSW) v Agalianos “the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed” and at [49] “a legislative instrument must be considered on the prima facie basis that its provisions are intended to give effect to harmonious goals”. Further, at [51] “only by determining the hierarchy of the provisions will it be possible in many cases to give each provisions the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme”. At [52] “a court construing a statutory provision must strive to give meaning to every word of the provision”.

2. In the Interpretation Act 1987;

S 9 provides:

3. In any Act or instrument, the word “may”, if used to confer a power, indicates that the power may be exercised or not, at discretion.

4. In any Act or instrument, the word “shall”, if used to impose a duty, indicates that the duty must be performed.

S 33 provides that regards is to be had to purposes or objects of Acts and statutory rules:

In the interpretation of a provision of an Act or statutory rule, a construction that would promote the purpose or object underlying the Act or statutory rule (whether or not that purposes or object is expressly stated in the Act or statutory rule, in the Act under which the rule was made) shall be performed to a construction that would not promote that purpose or object.

5. The respondent further submits that in respect to the use of the words “if” and “may”, the word “if” is a conjunction connecting two clauses or sentences together, making one sentence a condition of the other. The word “may” is a modal verb which expresses necessity or possibility:

The Right to Defer Repair and Maintenance

1. There is no dispute that the respondent has an obligation under ss 106(1) and (2) to maintain and keep in good and serviceable repair the common property of the Strata Scheme.

2. The subject matter of the proceedings is primarily the interpretation of s 106(4). The respondent submits that it should be interpreted:

1. Subs 1 and 2 mandate a strict obligation which is unchallenged by the respondent; and,

2. Sub 3 is not relevant to the proceedings, but it is informative to the interpretation of sub 4.

Sub 3 has two parts. The first does not apply.

3. Sub 4, like sub 3 has two part:

1. Firstly:

“if an owners corporation has taken action against an owner or other person in respect of damage to the common property.”

2. Secondly:

It may defer compliance with subsection (1) and (2) in relation to the damage to the property until the completion of the action if the failure to comply will not affect the safety of any building, structure or common property in the strata scheme.”

Unlike sub 3, sub 4 does not require that the “owners’ corporation determines” and therefore it also does not specify that a resolution is required.

3. Sub 3 completely releases an owners corporation from the statutory duty of sub (1) and (2). Sub 4 does not. In sub 4 the statutory duty remains in force, but there is no obligation to comply with it, there is a temporary right to defer the obligation. The difference in wording of subs (3) and (4) is intentional and the Tribunal is bound to acknowledge the differences and apply them accordingly as provided for in Project Blue Sky.

3. The respondent submits that there is no need to “determine” to defer its statutory duty. If parliament had wanted an owners corporation to make a determination it would have made the deferral the subject to a resolution. Further, the first part of sub (4) starts with the word “if”. It prescribes a condition; the only condition is to take an action. There are two outcomes, either affirmative or negative. Either there is an action or not. If there is an action then the second part of sub (4) takes effect. Once the second part takes effect, an owners corporation has a discretion, not an obligation, as to whether it will undertake work to satisfy the statutory duty.

4. The respondent submits that the applicants’ submission that the owners corporation resolution to undertake rectification work, and attempts to undertake rectification, amount to an election not to defer. Such a submission is without basis and fails to satisfy the test in Project Blue Sky and does not satisfy the wording of s 106(4). Sub 4 does not require a determination nor require that the owners corporation make an election. At best it gives permission not to comply with the statutory duty.

5. The respondent submits that sub 106(4) should be interpreted such that compliance with subs 106(1) and (2) was not required as the respondent had taken the following action:

1. OFT Complaint made on 2 May 2016 with a rectification order for works completed by 2 August 2016;

2. OFT Complaint made on 31 March 2017, with rectification order made on 19 May 2017 for works completed by 9 June 2017;

3. NCAT proceedings HB 17/25899 commenced on 30 May 2017 and remain on foot.

What constitutes an “action” for the purposes of section 106(4)

1. The water leak was first reported by the applicants’ tenant on 29 April 2016. The first complaint to OFT was made on 2 May 2016 which resulted in rectification orders being made, attempts by the builder to rectify and subsequent complaints and orders made. The respondent commenced proceedings on 30 May 2017, which are yet to be determined.

2. The respondent submits that s48E and 48D of the HBA are in Part 3A of the HBA. That Part is headed “Resolving building disputes and building claims”. The Part also includes the preferred outcome provisions in s 48MA. The motivation for the preferred outcome is the quick, cheap and fair resolution of the defects. The dispute resolution mechanism is so entrenched in the HBA as it requires a registrar to be satisfied that the OFT has investigated a complaint before proceedings can be commenced. This philosophy is picked up in the SSMA, with s 106(4) to motivate an owners corporation to take action against persons responsible for defective building work to justly, quickly and cheaply resolve the issue. The respondent submits that it is the legislative intent for the SSMA and the HBA to operate in harmony so far as building effects are concerned.

3. The respondent submits that a finding that an OFT complaint does not constitute an action would undermine the preferred outcome and s 48J of the HBA. It is the respondent’s position that the complaint made by the respondent on 2 May 2015 to OFT constituted an action and operated to defer its obligations under s 106(1) and (2) and then again on 31 March 2017 and by commencing proceedings on 30 May 2018.

When will, or has, the action been completed

1. The respondent submits that the action is not complete. As a result of the OFT rectification orders the builder carried out repairs to Lot 28 on 6 August 2016, 19 October 2016 and 17 November 2016. The tenant vacated Lot 28 on 10 March 2017 and a further complaint made to OFT by the respondent on 31 March 2017. The rectification order made by OFT on 19 May 2017 requiring compliance by 9 June 2017. The order was not complied with as the respondent commenced action against the builder in the Tribunal on 30 May 2017 and those proceedings remain on foot.

Meaning of the words “defer compliance”

1. The respondent submits that the word “defer” means “put off (an action or event) to a later time; postpone” and the word “compliance” means “The state or fact of according with or meeting rules or standards” (

2. In Urban Traders v Paul Michael [2009] NSWSC 1072 McDougall J considered the right to suspend building work in the context of s 27 of the Building and Construction Industry Security of Payment Act 1999. He said “The right to suspend work would lose much of its efficacy if a proprietor could, with impunity and without cost, react to the suspensions by withdrawing the work from the builder”. Where there is a right to suspend or to defer, someone else is likely to be effected. The purpose of s 106(4) is to restrain a lot owner’s right of recovery of damages where an action has been taken.

Affect the safety of any building, structure or common property

1. The respondent relies on the expert report of Mr Kavanagh. Other than the unestablished risk of an electrical fault from an alleged water leak into a light fitting and mould growth and degradation, Mr Kavanagh found no other risks that could be classified as safety risks. The applicants rely on the report of Rob Seymour dated 25 September 2018 as to mould growth and contamination. His report states that the report can only be relied upon from the point of time at which the inspection was conducted. He advised that the lot should not be occupied until resolution of the water ingress problem and mould remediation carried out. The mould does not affect the safety of the building, structure or common property. There is no evidence when the mould first occurred.

Duty to mitigate

1. The applicants are under a duty to mitigate. The respondent submits that the reliance by the applicants on the strict duty of the respondent under s 106(1) and (2) extends to s 106(5). It does not. The test of mitigation is a test of reasonableness and it applies to any claim and any loss unless legislation provides otherwise. The underlying principle in Hasell v Bagot, Shakes & Lewis Ltd [1911] 13 CLR 374 applies: “a party seeking damages is bound to exercise reasonable care in mitigating the injurious consequences of the breach and is not entitled to recover from the party in default any damage which the exercise of reasonable care on his part would have prevented from arising”.

2. The applicant failed to mitigate by their failure to accept a lesser rent that would have been available taking into account the water damage to the premises. Their insistence on receiving rent at the rate for premises in good order and repair was unreasonable in the circumstances.

3. The evidence of Mark Casemore, a Real Property Valuer is that Lot 28 could be leased in its current state but with a discounted rental. He does not find that the Lot is unrentable. He finds that the rent that could be achieved with the Lot in its present state would be $540 per week. The current market rent of Lot 28 without defects is $675 per week. The evidence is that the applicants refused to resile from their expected rent of $730.00 per week.

Estoppel/ No Causation

1. Virginia Shih was first elected to the strata committee on 7 December 2016 and held the position of secretary until “a couple of months ago” [Ms Shih’s cross examination]. Susan Shih was first elected to the strata committee on 19 August 2015 and held the position of Chairperson during that time until 28 August 2017.

2. It was during the Ms’s Shih’s incumbency that the need for rectification works to the common property was first identified. The committee had attempted to cause the builder to rectify the defects, without carrying out an independent investigation of the cause of the defects. The respondent submits that, despite s 65A of the SSMA 1996 precluding a defence of estoppel, Member Ringrose in The Owners Strata Plan No 6534 v El Khouri [2015] NSWCATCD 145 if there was a history of acquiescence it would be manifestly unreasonable not to take estoppel into account.

3. The respondent submits that the applicants are estopped from pursuing their claim in that:

1. Both parties adopted an assumption as to their legal relationship based upon Virginia and Susan Shih being strata committee members in charge of rectification of defects;

2. The managing agent was to follow instructions of Virginia and Susan Shih as members of the strata committee:

1. An email to the then strata manager from Susan Shih on 16 December 2016 instructed the strata manager not to engage other contractors but to liaise with the builder to investigate defects;

2. On 14 March 2017 the builder agreed to undertake work on Lots 26 and 27;

3. Om 27 March Virginia Shih instructed the strata manager to instruct the builder to deal directly with her, without advising the other members of the committee;

4. By a letter sent by Kerin Benson Lawyers dated 24 November 2017 addressed to the secretary of the respondent, they proposed that other members of the committee take over from Virginia Shih as the main point of contact in relation to the building defects.

5. The applicants and the respondent adopted an assumption that by filing an OFT complaint on 2 May 2016 and 31 March 2017 and liaising with the builder they were taking action pursuant to the HBA. There was also a common assumption that the respondent would not undertake rectification work as its obligation to do so had been deferred and the builder was attending to the rectification works.

6. With the failure of the builder to be able to satisfactorily rectify the defects the applicants demanded that the respondent undertake the works on 22 May 2017.

7. The respondent relied on the applicants in their capacity as strata committee members and secretary and chairperson in charge of liaising with the builder on the rectification of the defects and damage.

8. It would be a manifestly unreasonable exercise of the Tribunal’s discretion for the relief sought to be granted having regard to the history of the matter.

4. The applicants’ insistence that the respondent’s enter into a Deed and a scope of works before they would grant access to the respondent to carry out the rectification work was unreasonable in the circumstances. The work proposed was to common property and the applicants had no right to refuse access or condition access on certain works being carried out.

Findings

22. The comprehensive submissions of both parties have greatly assisted the Tribunal in making a determination. Although those submissions addressed all possible issues that arose during the course of the hearing, the threshold issue will determine whether there is a bar to the applicants claim and if so to what extent.

23. The threshold issue is whether the provisions of s 106(4) defer the strict liability of the respondent under s 106(1) and (2). If it does fully, then does the applicants claim for damages under s 106(5) fail? If it does to an extent then, what damages would flow. If there is no bar then what are the reasonable damages that the applicants would be entitled to?

24. S 106(1) and (2) impose a strict liability on the respondent to properly maintain and keep in a state of good and serviceable repair the common property of the strata scheme: see Siewa. The respondent does not argue otherwise.

25. The Tribunal is not satisfied that the applicants’ submission that the respondent must elect to defer compliance with s 106(1) and identify the damage and the property the subject of the action with particularity can be sustained in light of the evidence. The respondent has done so by its identification of the defects to Lot 28 by the expert building report of Mr Kavanagh relied upon by the respondent in the proceedings against the builder. The defect, its cause and the method of rectification are particularised in his expert report. By its actions, the respondent has elected to defer compliance with its obligations until the determination in the proceedings against the builder.

26. The Tribunal is satisfied that even though the strict duty in s 106(1) remains, the effect of making complaints to the OFT and ultimately filing a claim in the Tribunal against the builder constitute individually periods in which “actions” for the purposes of s 106(4) have been taken. That is, action was taken by the respondent:

1. On 2 May 2016 and continued until the time for compliance by the builder on 2 August 2016;

2. On 31 March 2017 and would have continued until the date required for the compliance by 9 June 2017, but for the filing of the NCAT proceedings on 30 May 2017, which remain unresolved and consequently compliance with s 106(1) remain deferred.

27. There were no actions being taken by the respondent for the period 3 August 2016, when the time for compliance by the builder with the OFT rectification order ended, and until 31 March, when the respondent made another complaint to the OFT resulting a further rectification order. Before the time required for compliance with the second rectification order, the period of action was extended until such time as the Tribunal makes a determination and if that determination requires rectification work to be done or monies to be paid , the expiry of the time for carrying out that work or payment of monies.

28. The Tribunal is also satisfied that Mr Kavanagh’s findings do not disclose that the safety of the building, structure or common property will be involved by the deferral. The applicants’ reliance on the report of Mr Seymour as to the presence of mould is at best limited to the time that Mr Seymour carried out his investigation and report on 25 September 2018. His report says the Lot should not be occupied until mould remediation is carried out. The Tribunal does not find on the evidence that the mould issue is such that it could not be remedied to allow the Lot to be occupied. The Tribunal does not regard the mould issue as affecting the safety of the building or the common property, on Mr Seymour’s evidence he only advises against occupancy until it is remediated and in any case makes no finding when the mould issue arose. At best he says it was present on the date of his report.

27. For the period 2 August 2016 and 31 March 2017 when no action was being taken by the respondent, the respondent was liable for damages for breach of statutory duty for any reasonably foreseeable loss. The first claim by the applicants is for the loss of rent from 10 March 2017 and continuing plus the cost of replacement of the carpet damaged by the water penetration from the common property into Lot 28.

28. The applicants’ tenant vacated the premises on 10 March 2017 because of water penetration to Lot 28. At the time the tenant was paying $730 per week rent. The second action of the respondent was commenced on 31 March 2017. That is, the loss of rent suffered by the applicant was from 11 March 2017 until 31 March 2017. A period of 20 days. At $730 per week, an amount of $2,085.71. However, the applicants had a duty to mitigate their loss. The evidence is that the applicants did not agree that with their agent that the rent should be reduced in an effort to secure a tenant. The evidence is that the rental value of Lot 28 with the water penetration defects was determined by Valuer Casemore to be $540 per week. It is that amount that should be deducted from $730 to arrive at a balance of $190 per week. For 20 days is $542.86. That amount is the loss suffered by the reduction in rent because of the water penetration to the Lot from the common property.

29. The applicants’ carpet was damaged by water penetration from the common property since about April 2016. That is, before the proclamation of the SSMA on 1 November 2016. If the cause of action arose before 1 November 2016, then the SSMA1996 applied and there was no provision in that Act for a claim to be made for damages as there is in s 106(5) of the SSMA and the applicants claim in this respect must fail. If the Tribunal is in error in this regard and the cause of action arose when the builder replaced the underlay and battens of the carpet in August 2016, then the replacement still predated the proclamation of the SSMA which included s 106(5). On 4 April 2017 the applicants had the carpet inspected by North Shore & Eastern Suburbs Bricklaying and the report provided by that firm stated that the carpet and underlay were saturated and the timber batten tracking turning black. The applicants did not make their claim for damages for the damaged carpet until they filed their application with the Tribunal on 22 March 2018. That is, the application was filed after the action was taken by the respondent.

30. The Tribunal finds that the provisions of s 106(5) should be applied literally. “The context, general purpose and policy of the provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed”: Project Blue Sky. When read in context with s 106(4), the legislative intent is to permit the strict liability and the consequences of non-compliance to be deferred while the owners corporation takes action against the builder. The Tribunal finds that the right to recover damages for breach of statutory duty under s 106(5) is similarly deferred until the completion of the respondent’s action against the builder.

31. The evidence is that during the time Virginia and Susan Shih were office holders in the committee they caused the respondent to make complaints to the OFT in respect of the alleged defects to Lot 28. The rectification work ordered by OFT and carried out by the builder as a result of those 2 complaints did not rectify the defect. There was a degree of acquiescence in the manner in which the complaints by the applicants were managed by Virginia and Susan Shih in their role as members and office holders on the committee. As such, that history of acquiescence allows estoppel to be taken into account: see El Khouri.

32. The independent expert building consultant, Mr Kavanagh, was engaged by the respondent on or about 27 April 2017 to prepare a building report of the defect in the common property. Although, Susan Shih was the Chairperson of the committee until 28 August 2017 and Virginia Shih remained on the committee until “a couple of months ago” the respondent proposed that from 24 November 2017 Virginia Shih be removed as the point of contact for the building defects claim.

33. The Tribunal makes no finding in regard to the respondent’s defence of estoppel.

34. The Tribunal is satisfied on the evidence that the respondent is taking action to rectify the defects in the common property. The proceedings taken by the respondent in the Tribunal against the builder predating the applicants’ application are in themselves evidence of the respondent fulfilling its obligations. As such there is no utility in making an order under s 232 requiring the respondent to complete rectification works to the common property of the Strata Plan which has caused water penetrations to Lot 28.

Conclusion

37. The Tribunal orders that the respondent pays to the applicants the amount of $542.86 for loss of rent.

38. Otherwise the application is dismissed.

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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 01 February 2019