Strata Corporation No 4512 Incorporated v Redreuch Pty Ltd & Atlantic Tower Pty Ltd - [2016] SADC 94

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
STRATA CORPORATION NO 4512 INCORPORATED v REDREUCH PTY LTD & ATLANTIC TOWER PTY LTD
[2016] SADC 94
Reasons for Decision of Her Honour Judge McIntyre
12 August 2016
REAL PROPERTY - STRATA AND RELATED TITLES - MANAGEMENT AND CONTROL - BODY CORPORATE: POWERS, DUTIES AND LIABILITIES
An application was brought in the Magistrates’ Court of South Australia by the respondents under s.41A of the Strata Titles Act 1988 (SA) seeking to restrain the applicant from carrying into effect a resolution passed on 26 November 2015 to defend proceedings brought by the first respondent in the Environment Resources and Development Court of South Australia (ERD Court). Subsequently the respondents amended the application brought in the Magistrates Court to seek a further order that the applicant refrain from acting upon or putting into effect a resolution of the management committee of the applicant on 2 March 2016 in which it resolved that the applicant would defend the Magistrates Court proceedings. The Magistrate found in favour of the respondents and published reasons for decision on 8 April 2016.
The applicant seeks a review of this decision contending that the Magistrate:
• erred in his application of s.41A(1)(b) and s.41A(7) of the Strata Titles Act 1988 (SA) in determining the respondents' application;
• took into account irrelevant considerations and failed to take into account relevant considerations; and
• denied procedural fairness to the applicant.
Held:
1. The Magistrate did not err in his application of s.41A of the Strata Titles Act 1988 (SA)
2.There was no denial of procedural fairness to the applicant nor has the applicant established any error in the approach or findings of the Magistrate.
3.The application for review is dismissed
Magistrates Court Act 1991 (SA) s 38; Strata Titles Act 1988 s12, s13, s13(3)(b), s41A, s41A(9)(d), referred to.
JM Properties Pty Ltd v Strata Corporation No 13975 Inc. & Ors. [2006] SADC 12, considered.

STRATA CORPORATION NO 4512 INCORPORATED v REDREUCH PTY LTD & ATLANTIC TOWER PTY LTD
[2016] SADC 94
Introduction

This is an application under s.38 of the Magistrates Court Act 1991 (SA) (‘MCA’) to review a minor civil decision made on 8 April 2016 by Mr J Fahey SM.
The matter before the Learned Magistrate was an application brought by the respondents under s.41A of the Strata Titles Act 1988 (SA) (‘STA’) to restrain the applicant from carrying into effect a resolution passed on 26 November 2015 (‘the November Resolution’). The November resolution was passed at a Special General Meeting to defend proceedings brought by the first respondent against the applicant in the Environment Resources and Development Court of South Australia (‘ERD Court’). Subsequently, the respondents amended the application brought in the Magistrates Court to seek a further order that the applicant refrain from acting upon or putting into effect a resolution of the management committee of the applicant on 2 March 2016 in which it resolved that the applicant would defend the Magistrates Court proceedings (‘the March resolution’).
The Learned Magistrate found in favour of the respondents. His decision in respect of the November resolution is the main area of contention because, in most respects, the application in respect of the March resolution has been overtaken by events.
Background
The first respondent is the lessee and occupier of unit 2 in Strata Plan No. 4512 in premises situated at 760 Anzac Highway, Glenelg. The second respondent is the registered proprietor of units 2 and 29.
At an Extraordinary General Meeting of the Strata Corporation held on 20 April 2015 the first respondent brought a notice of motion seeking to amend the current schedule of unit entitlements in line with a valuation report commissioned by the applicant. The notice was brought under s.12 of the STA. That section requires a unanimous resolution of the unit holders to pass such a motion. The unit holders voted 7 in favour and 18 votes against the change.[1]
[1] Applicant’s Written Case [10-18].
On 28 September 2015 the first respondent commenced an action in the ERD Court under s.13 of the STA seeking a variation of unit entitlements in accordance with the motion proposed by it at the Extraordinary General Meeting. The respondents contend that the first respondent’s application to the ERD Court under s.13(3)(b) of the STA is in its nature ex parte. It is implicit in the applicant’s case that this contention is disputed. The first respondent’s contention that it was required by Part 6 of the ERD Court Rules to name a respondent notwithstanding its view about the ex parte nature of the application was not disputed by the applicant. On 26 November 2015 at a Special General Meeting of the applicant, a majority of the unit holders resolved that the Strata Corporation should actively defend the ERD Court proceedings.[2]
[2] Applicant’s Written Case paragraph [21] and footnotes.
The respondents issued proceedings in the Magistrates Court under s.41A of the STA seeking an order that the Strata Corporation be restrained from carrying the November resolution into effect having been told that the ERD Court did not have jurisdiction to consider that issue. It is, to say the least, an unusual situation that one court is asked to determine the standing of a party to defend proceedings in another court however the applicant accepted that this was the effect of the STA.[3] Whilst I am troubled by this issue, I will proceed on the basis that this is the proper procedure to determine the issue in the light of the applicant’s concession and the position of the ERD Court.
[3] Transcript p8.
On 2 March 2016 the Management Committee of the applicant resolved that the Strata Corporation should defend the proceedings in the Magistrates Court. The respondents filed an amended application on 29 March 2016 seeking a further order that the applicant be restrained from carrying the March resolution into effect.
The Learned Magistrate found in favour of the respondents and published reasons for his decision on 8 April 2016. His Honour ordered, inter alia, that:
Pursuant to s.41A(9)(d) of the Strata Titles Act the respondent should refrain from acting upon or putting into effect the November resolution or the March resolution.
The applicant filed an application for review of that order in this court on 29 April 2016 seeking the following orders:
1That the review be allowed;
2That the applicant is not restrained from acting or putting into effect the November resolution and the March resolution; and
3That the respondents pay the applicants costs of the Magistrates Court proceedings and of the review.
The nature of the application
Section 38(6) of the MCA provides that the District Court may, on the application of a party dissatisfied with a judgment given in a minor civil action, review the matter. The decision of the District Court on such review is final and not subject to appeal.
The procedural rules applicable to a review are set out in s.38(7) of the MCA. The District Court may inform itself as it thinks fit and is not bound by the rules of evidence. In hearing and determining the review the court must act with equity, good conscience and the substantial merits of the case without regard to technicalities and legal forms.
The factual basis of this matter is not contentious. Neither party sought to adduce any additional evidence to that presented before the Magistrate. The matter proceeded before the Magistrate and before me as a legal argument. I must therefore consider the reasons for decision and the arguments advanced before the Learned Magistrate and this court.
The applicant’s case
The application for minor civil review sets out six grounds upon which the applicant relies. In summary, the applicant says that the decision was wrongly decided because the Learned Magistrate:
·erred in his application of s.41A(1)(b) and s.41A(7) of the STA in determining the respondents’ application;
·took into account irrelevant considerations and failed to take into account relevant considerations; and
·denied procedural fairness to the applicant.
Did the Learned Magistrate err in his application of s.41A(1)(b) and s.41A(7) of the STA?
The respondents’ action was brought under Section 41A of the STA which relevantly provides:
(1)    An application may be made under this section:
(a)    If the applicant claims that a breach of this Act or of the articles of the corporation has occurred; or
(b)    If the applicant claims to have been prejudiced, as occupier of a strata unit, by the wrongful act or default of the strata corporation or a delegate of the management committee of the strata corporation, or of some other member of the strata corporation.
(c)    If a member of a strata corporation claims that a decision of the strata corporation or a delegate or the management committee of the strata corporation is unreasonable, oppressive or unjust.
…..
(9)     A court may, in respect of an application under this section:
…
(d)    Order that a party refrain from any further action of a kind specified in the order.
The Learned Magistrate was not satisfied that there was a breach of the STA as referred to in s.41A(1)(a) and did not address the respondents’ contention in respect of s.41A(1)(c). He was, however, satisfied that the respondents established their entitlement to the orders sought pursuant to s.41A(1)(b).
Did the Magistrate identify a wrongful act?
The applicant contends that the Learned Magistrate did not identify the wrongful act for the purposes of s.41A(1)(b). I reject that contention. His Honour accepted the respondents’ submission that the applicant should not defend the ERD court proceedings and the Magistrates’ Court proceedings because it had no interest in its own right in defending those proceedings, and that in so doing, it would be acting against its own members. He further accepted the submission that members who supported the November resolution were in effect causing the applicant to act as their own vehicle in seeking to prevent any alteration to the unit entitlement values rather than appearing in their personal capacity. Having accepted these submissions the Learned Magistrate made findings that there was a dispute or difference of opinion between the unit holders and that the applicant was representing the interests of the majority of unit holders against the interest of a minority group of its unit holders.[4] He found that it was improper for the applicant to take sides in that dispute. He found that the applicant’s entry into that dispute was a wrongful act for the purpose of s.41A(1)(b).[5]
[4] Reasons at [11].
[5] Reasons at [13].
Was the applicant’s entry into the dispute a wrongful act for the purposes of s.41A(1)(b)?
The applicant contends that the Learned Magistrate erred in finding that the applicant’s entry into the dispute is a wrongful act for the purposes of s.41A(1)(b) of the STA on two grounds. They are summarised in the applicant’s written case in paragraph 36 as follows:
36 The Strata Corporation submits that the Learned Magistrate erred in finding at Reasons [13] that the Strata Corporation’s entry into the dispute is a wrongful act for the purposes of section 41A(1)(b) of the Act. That is because:
36.1 The ERD Court Proceedings and the Magistrates’ Court Proceedings were brought by the applicants naming the Strata Corporation as a respondent. For that reason the Strata Corporation cannot be said to have “entered” any dispute.
36.2 The Learned Magistrate expressly found at Reasons [13] that the Strata Corporation did not breach the Act or act in any way that is prohibited by the Act. It is inconsistent with that finding for the Learned Magistrate to also find that the Strata Corporation committed a “wrongful act” for the purposes of section 41A(1)(b) of the Act.
The Learned Magistrate found that the applicant’s conduct was “entry into the dispute” based on his previous finding; that it was improper for the applicant to take sides in the dispute; and his acceptance of the respondents’ submission that the applicant had no legitimate interest of its own in the ERD court proceedings and by extension the Magistrates’ Court proceedings. It is my view that the learned magistrate was correct to find that it was improper of the applicant to take sides on the issue of unit entitlement and to accept that the applicant had no legitimate interest of its own in defending the proceedings. The naming of the applicant in the proceedings by the respondent is irrelevant to that issue.
The ERD Court proceedings were brought under Section 13 of the STA which provides as follows:
13 – Amendment by order of ERD Court
(1)    The ERD Court may, on application under this section, order the amendment of a strata plan.
(2)    An application may be made under this section by –
(a)the strata corporation; or
(b)a unit holder; or
(c)any other person who has a registered interest in a unit or
(d)an insurer of a unit or any of the common property.
(3)    Such an application may only be made –
(a)for the purpose of correcting an error in the plan;
(b)for the purpose of varying the unit entitlements of the units;
(c)for the purpose of achieving amendments that have become desirable in view of damage to buildings within the strata scheme;
(d)for the purpose of achieving any other amendments that are desirable in the circumstances of the particular case.
(3a)    If it appears to the ERD Court that the proposed amendment of the strata plan       could adversely affect a person who is not a party to the proceedings, the ERD      Court should not order the amendment unless the ERD Court is satisfied that the         person has been notified of the possibility that such an order could be made and has been given a reasonable opportunity to make submissions to the Court in relation to        the matter.
(3b)    In determining an application under this section the ERD Curt must have regard to the matters (if any) prescribed by relation.
(4)    The ERD Court may, on an application under this section, make –
(a)an order for amendment of the strata plan;
(b)any further orders that may be necessary to achieve justice between those affected by the amendment;
(c)incidental or ancillary orders.
(5)    Where an order for the amendment of a strata plan is made, the Registrar-General will, on lodgement of the order and any other documental material the Registrar-General requires, amend the plan in accordance with the order.
It is plain from this section that orders need not be sought as against any person including a Strata Corporation and that interested parties, such as the other unit holders, have a right to be heard but need not be parties to the proceedings. Where an order for amendment of a strata plan is made the Registrar-General carries that order into effect. Initially the ERD Court application sought costs against the applicant but that claim was withdrawn in October 2015. Accordingly, the respondents contend that the ERD court proceedings, whatever their outcome, will not affect the rights or interests of the applicant.
The applicant contends, on the other hand, that it has a legitimate interest in defending the ERD Court proceedings first because of the November resolution and second because of its obligations under s.25 of the STA.
The November Resolution
The applicant says that it has a mandate from the majority of unit holders to defend the ERD Court proceedings by virtue of the November resolution. During the course of argument before me the applicant identified the interest it was seeking to advance in the ERD court proceedings as follows:
The position as the current mandate holds, namely the mandate of the unit holders, is to defend the proceedings and in effect adopt the position that the majority has arrived at by their own resolutions, namely that there won’t be a change in the unit entitlement.[6]
[6] Transcript p 16.
I was directed to the notice of that special general meeting and the accompanying explanatory memorandum dated 9 November 2015 and a further addendum explanatory memorandum dated 25 November 2015 in support of the proposition that there was no improper conduct on the part of the applicant.
I did not take the submissions put on behalf of the respondents to suggest that the conduct of the applicant in calling the November meeting was wrongful nor indeed was it suggested that the manner in which the meeting was conducted was improper. Rather the respondents contended that there was a more fundamental question as to whether the applicant could ever accept a direction from a general meeting to defend such proceedings brought by a minority of unit holders.
Given that the amendment sought by the first respondent could take place by way of a unanimous resolution, most, if not all applications to the ERD Court under s.13 of the STA will occur in a situation where there are dissenting unit holders. If those dissenting unit holders are in the majority, and the applicant is correct, then the majority could always direct the Strata Corporation to defend proceedings on their behalf. This cannot be correct as a matter of principle particularly in circumstances where the majority have rights as individuals to be heard on such proceedings. To say, as the applicant did in argument, that it was doing no more than upholding the status quo does not advance the argument. Not only is that always likely to be the case but a Strata Corporation should properly have no interest in either maintaining or overturning the status quo on the issue of unit entitlements. Assuming for the moment that the first respondent had been able to issue the ERD Court proceedings ex parte the applicant would have had to establish that the proposed amendment to the strata plan could adversely affect it in order to gain standing to make submissions to the ERD Court.[7] The proper allocation of units under a strata plan is fundamental to the rights and obligations of the unit holders under the STA. A Strata Corporation has no interest in the allocation of those units beyond knowing what the allocation is for the purpose of discharging its responsibilities under the STA.
The applicant’s obligations under the STA
[7] s 13(3a) STA.
This leads to the second argument as to the applicant’s obligations under s.25 STA. This argument was advanced before the Learned Magistrate who found, correctly in my view, that there was nothing in the ERD proceedings which would affect the applicant’s ability to perform the functions and duties of a Strata Corporation set out in s.25 which provides as follows:
25 – Functions
The functions of the strata corporation are as follows:
(a)    to administer and maintain the common property for the benefit of the unit holders and, to such extent as may be appropriate, other members of the strata community; and
(b)    to administer all other property of the corporation; and
(c)    to enforce the articles of the corporation.
The applicant’s ability to perform the functions set out in s.25 is not affected by the proceedings in the ERD Court because its obligations are to carry out those functions under the Articles as they are from time to time.
I consider therefore that the Learned Magistrate was correct to conclude that the applicant does not have any legitimate interest in taking an active role in the ERD court proceedings.
Was the applicant denied procedural fairness?

The applicant further contends, in Ground 2 of its application, that the Learned Magistrate failed to have regard to the applicants proper interest in the proceedings in considering whether for the purposes of s.41A(1)(b) of the Act it had committed a wrongful act. It is said that the effect of the finding was that the applicant was not entitled to defend an application in respect of allegedly improper conduct which is contrary to natural justice and to the fundamental principle that a party has a right to be heard in relation to a claim made against it. It is further said that the finding prevented the applicant from making submissions in relation to the November Resolution in respect of which it has a specific legal interest and finally that in so restraining the applicant the Learned Magistrate did not act according to equity, good conscience and the substantial merits of the case.
This ground of review is not made out. As I have indicated above, His Honour was correct to find that the applicant had no specific legal interest in defending the ERD court proceedings and, by extension, the Magistrates’ Court proceedings. There was no failure of natural justice in reaching that conclusion. The applicant was given a full hearing in the Magistrates Court. It filed documents, was represented throughout and made detailed submissions. The submissions made on its behalf were the subject of careful consideration by the Learned Magistrate before he reached his decision. The orders made by the Learned Magistrate were prospective orders preventing the applicant from taking further part in the ERD Court proceedings and the Magistrates Court proceedings save and in respect of this appeal.
Ground 3
The applicant submits that the Learned Magistrate erred in finding that the respondents have been prejudiced by its defence of the Magistrate Court proceedings and the ERD Court proceedings and in finding that it would not be a fair result for the respondents to pay a share of the applicant’s legal costs regardless of the outcome of the proceedings because he failed to have any regard or any proper regard to:
40.1   The ERD Court Proceedings and the Magistrates’ Court Proceedings were          brought by either Redreuch alone or by both Redreuch and Atlantic Tower         and those entitles [sic] therefore demonstrated a willingness to incur legal
costs.
40.2   Redreuch and Atlantic Tower have consistently taken the position that they           would not contribute to the legal costs of the Strata Corporation, including at               order 3(c) of the amended application dated 29 March 2016 where Redreuch            and Atlantic Tower sought an order that the Strata Corporation pay the costs         of the application but not from monies contributed by those entities.
40.3   The issue of how legal costs would be incurred and what legal entity would           pay legal costs was an irrelevant consideration in any event.
40.4   Any perceived prejudice (which has not, in any event, been established)               could have been cured by an appropriate order as to costs. [8]
[8] Appellant’s Written Case at [Ground 3].
The contentions at paragraph 40.1 and 40.2 of the applicant’s written submissions appear to be contradictory – either the respondents have demonstrated willingness to incur legal costs in the sense that they are prepared to contribute to the applicant’s legal costs as well as their own or, they have consistently indicated their unwillingness to do so. In any event, I reject the contention that the issue of costs was an irrelevant consideration. It is plainly relevant to a consideration of the application of section 41A(1)(b) of the STA. The respondents claimed to be prejudiced, inter alia, by reason of the fact that would have to pay a share of the applicant’s legal costs win or lose because of the applicant’s involvement as a party to proceedings and their obligation to contribute funds to the applicant in line with their unit holding. Further, whilst His Honour did not specifically deal with this aspect of the respondents’ case, it was also relevant to the respondents’ contention under section 41A(1)(c) that the decisions of the strata corporation were unreasonable, oppressive or unjust. In those circumstances it was incumbent upon the Learned Magistrate to consider that issue.
His Honour considered the respondents’ submissions on the issue of their responsibility for the applicant’s legal costs as follows:
A unit holder’s liability to pay strata fees is determined according to each unit holder’s individual unit entitlement. The strata corporation has instructed Thomson Geer to represent it in this court and in the ERD court and so the strata corporation will incur a liability for Thomson Geer’s services regardless of the outcome of these proceedings. In the normal court the [respondents] would be liable for a share of those costs. Win or lose the [respondents] would have to pay their own lawyers and a share of the [applicant’s] legal costs. Such is the consequence of the strata corporation’s involvement as a party to the proceedings. This is not a fair result for the [respondents][9]
[9] At [10].
I agree with that conclusion and add that, in the event of default of payment, the effect of s.21 of the STA is to make any obligations or costs incurred by the applicant enforceable jointly and severally against the unit holders.
It is said that any perceived prejudice could be cured by an appropriate order as to costs. I do not agree. It would be challenging to structure such an order. There may also be enforcement difficulties depending upon the circumstances in which such an order was made. Even if it was possible to overcome those issues the respondents would likely incur additional solicitor client costs in achieving that result. Further, diversion of funds contributed by other unit holders towards legal costs would mean less available funds to carry out the proper functions of the Strata Corporation.
I do not consider that the Learned Magistrate fell into error when he considered this issue. It was one of several factors he properly took into account when reaching his conclusion that the wrongful conduct of the applicant caused prejudice to the respondents within the meaning of s.41A(1)(b).
Ground 5
Ground 5 of the application for review contends that the Learned Magistrate erred in the exercise of his discretion by taking into account an irrelevant consideration namely the fact that Thomson Geer was instructed by individual unit holders before it was instructed by the applicant. I reject that contention. Read in context, it was not the fact that Thomson Geer was originally instructed by the majority unit holders that His Honour considered relevant. Rather, it was the fact that the instructions did not change despite the change in the identity of the client.[10] This was a factor in his Honour’s finding that the applicant was representing the interests of the majority of unit holders against the interest of a minority group and ultimately to his finding that the wrongful conduct of the applicant caused prejudice to the respondents within the meaning of s.41A(1)(b). It was in my view a proper factor for his Honour to take into account.
[10] At [11].
Ground 6
The final ground of review contends that the Learned Magistrate impermissibly reversed the onus of proof by placing the burden of proof on the applicant to satisfy the Court about “why it should be permitted to defend the action”. I do not consider that his Honour did reverse the onus of proof. The comment when read in context was no more than a comment upon one of the applicant’s submissions which his Honour suggested demonstrated a fundamental misunderstanding of the respondent’s position. It is clear from reading the whole of his reasons for decision that the Learned Magistrate saw the onus as resting with the respondents and that he considered that they had discharged that onus.
Other matters
Both parties have referred to the case of JM Properties Pty Ltd v Strata Corporation No 13975 Inc. & Ors.[11] It is my view that this matter is distinguishable as the Learned Magistrate found. That case was a dispute on a number of topics between the tenant and the Strata Corporation. The Strata Corporation had an obvious interest in that matter. I further note that the issue of the Corporation’s standing to be a party in those proceedings was not raised before the Court.
[11] [2006] SADC 12
I have also considered the cases from other jurisdictions to which the applicant referred me. The question as to whether it was appropriate for the Corporation to take part in the proceedings was not apparently in issue in any of those cases and therefore not decided. The cases further relate to other jurisdictions with different legislative provisions. I find them unhelpful to a determination of this matter albeit they may be of relevance to the matters to be considered in the ERD Court.
The respondents have contended that the Learned Magistrate appears to have overlooked their argument as to the potential application of s.41A(1)(c) of the Act. I accept that this is the case. Given my findings in respect of the Learned Magistrate’s decision under s.41A(1)(b) I do not need to further consider that issue.
Conclusion
For the reasons outlined above I dismiss the application for review.
I will hear the parties as to the question of costs.