Tan v The Owners Strata Plan 22014 (No 2)

[2015] NSWSC 1920

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Tan v The Owners Strata Plan 22014 (No 2) [2015] NSWSC 1920
Hearing dates:	14 October 2015
Date of orders:	17 December 2015
Decision date:	17 December 2015
Jurisdiction:	Equity
Before:	Robb J
Decision:	Parties are to bring in short minutes of order to reflect these reasons for judgment.
Catchwords:	PROCEDURE – costs – whether to order owners corporation to indemnify plaintiffs for their costs – plaintiffs members of executive committee – NCAT orders vesting all functions of owners corporation in strata manager – apparent inability of owners corporation to appeal – rule in Foss v Harbottle applies to owners corporations – whether interests of justice exception to the proper plaintiff rule satisfied – owners corporation ordered to indemnify plaintiffs but not for costs incurred in pursuit of plaintiffs’ own interests   PROCEDURE – costs – whether plaintiffs should pay the third defendant’s costs – not appropriate to order plaintiffs to pay third defendant’s costs – third defendant effectively appointed as the contradictor by the court – provisionally, the third defendant entitled to an indemnity from the owners corporation - owners corporation given leave to make submissions on whether it should be ordered to indemnify third defendant
Legislation Cited:	Civil and Administrative Tribunal Act 2013 (NSW) Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) Strata Schemes Management Act 1996 (NSW) Supreme Court Act 1970 (NSW)
Cases Cited:	2 Elizabeth Bay Road Pty Ltd v The Owners – Strata Plan No 73943 [2014] NSWCA 409; (2014) 88 NSWLR 488 Aliprandi v Griffiths Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 APX Projects Pty Ltd v The Owners – Strata Plan No 64025 [2015] NSWSC 1250 Australian Securities and Investments Commission v Farley [2001] NSWSC 326; (2001) 51 NSWLR 494 Biala Pty Ltd v Mallina Holdings Pty Ltd (1993) 13 WAR 83 Buzrio Pty Ltd v Consumer, Trader & Tenancy Tribunal [2009] NSWSC 836 Buzrio Pty Ltd v Consumer, Trader and Tenancy Tribunal (No 2) [2009] NSWSC 937 Carpenter v Pioneer Park Pty Ltd (in liq) [2004] NSWSC 1007; (2004) 51 ACSR 299 Carre v Owners Corporation – SP 53020 [2003] NSWSC 397; (2003) 58 NSWLR 302 Eastmark Holdings Pty Ltd v Kabraji [2013] NSWSC 1763; (2013) 97 ACSR 161 Farrow v Registrar of Building Societies [1991] 2 VR 589 Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732 Hill v King (1993) 31 NSWLR 654 Meagher v Stephenson (1993) 30 NSWLR 736 Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69 Re the Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 Re Wan Jia (Australia) International Development Pty Ltd [2012] NSWSC 1007 Reading Entertainment Australia Pty Ltd v Whitehorse Property Group Pty Ltd (prov liq apptd) [2007] VSCA 309 Tan v The Owners Strata Plan No 22014 [2015] NSWSC 71 The Owners – Strata Plan No 70798 v Bakkante Constructions Pty Ltd [2014] NSWCA 410; (2014) 88 NSWLR 513 The Owners Corporation SP 70798 v Bakkante Constructions Pty Ltd [2013] NSWSC 848 The Owners Strata Plan No 73943 v 2 Elizabeth Bay Road Pty Ltd [2013] NSWSC 1769; (2013) 17 BPR 32,475 Wallersteiner v Moir (No 2) [1975] QB 373 Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570
Category:	Costs
Parties:	Patrick Tian Teng Tan (first plaintiff) Ian Paterson Walters (second plaintiff) Rose Sok Kio Tan (third plaintiff) Owners Corporation Strata Plan No 22014 (first defendant) Whelan Property Group Pty Ltd (second defendant) Janette Daisy Porter (third defendant)
Representation:	Counsel: N Cotman SC (plaintiffs) D Russell (solicitor) (first and second defendants) D Hand (third defendant)   Solicitors: Terrett Lawyers (plaintiffs) Chambers Russell Lawyers (first and second defendants) Mills Oakley Lawyers (third defendant)
File Number(s):	2014/176516
Publication restriction:	None

Judgment

Introduction

1. The court is no longer required to determine any of the claims for relief made by the plaintiffs in these proceedings. For the reasons that will appear below, the need for the proceedings has disappeared. The parties all accept that an order should be made that the proceedings be dismissed. The only outstanding issues concern the orders that should be made in respect of the legal costs incurred by the parties.

2. The plaintiffs are Dr Patrick Tian Keng Tan, Dr Ian Paterson Walters, and Dr Tan’s wife, Ms Rose Sok Kio Tan, who live in the apartment building known as “The Quay” at Circular Quay in Sydney. Dr Walters and his wife, and Mrs Tan, are lot owners in The Quay.

3. The first defendant, The Owners Corporation Strata Plan No 22014 (the Owners Corporation), is the owners corporation under the Strata Schemes Management Act 1996 (NSW) (the SSM Act) in respect of the strata scheme for The Quay.

4. The second defendant, Whelan Property Group Pty Ltd (Whelan), was appointed as the compulsory strata manager of the Owners Corporation by an order made by the Civil and Administrative Tribunal of New South Wales (NCAT) on 20 May 2014.

5. Janette Daisy Porter became the third defendant to the proceedings, pursuant to an order made by White J on 27 June 2014. Ms Porter is also a lot owner in The Quay, and was the applicant in the proceedings in NCAT in which the order referred to in the preceding paragraph was made.

6. The effect of the order as originally made by NCAT was that Whelan was appointed as the strata manager for Strata Plan 22014 for a period of 24 months under s 162(1)(a) of the SSM Act. That provision authorised the appointment of a managing agent to exercise all the functions of an owners corporation. The order was not made under s 162(1)(b). If it had been, Whelan would have been given powers that would have been required to be specified in the order. As it was not, the apparent effect of the order was to give Whelan all the functions of the Owners Corporation. That would have the effect of giving Whelan not only the functions of the executive committee of the Owners Corporation, but also the functions of the lot owners that they would ordinarily exercise in general meeting.

7. The parties to the NCAT proceedings were Ms Porter and the Owners Corporation. The apparent consequence of the orders made by NCAT was that, for 24 months, only Whelan could exercise the functions of the executive committee and the lot owners in general meeting. How then could the Owners Corporation, or any of the lot owners, initiate an appeal, or any other proceedings to overturn the effect of the orders by which the lot owners, and through them the executive committee, had lost control of the Owners Corporation?

8. The difficulty faced by the lot owners and the executive committee was apparently exacerbated by the fact that s 80D(1) of the SSM Act provides:

An owners corporation or executive committee of an owners corporation must not … initiate legal action, for which any payment may be required unless a resolution is passed at a general meeting of the owners corporation approving ... the taking of that action.

9. Accordingly, it appeared that Whelan had the power that would otherwise have resided in the executive committee or the Owners Corporation to initiate an appeal or other relevant application, and in any event they could not do that without the required resolution being passed at a general meeting, but Whelan also had the exclusive power of the general meeting.

10. That led the plaintiffs, in circumstances that I will explore more fully below, to commence the present proceedings in the Supreme Court, in which they sought a number of alternative orders designed to enable the Owners Corporation to appeal from the NCAT decision, or to otherwise have it set aside.

11. One aspect of the claim for relief that the plaintiffs made was to request the court to make an order that they be indemnified by the Owners Corporation in relation to the costs of their application, as well as the costs of conducting an appeal in the name of the Owners Corporation.

12. As it has happened, however, after a number of appearances in this court, and other steps taken by the parties in relation to the application, the underlying cause for the application unexpectedly disappeared. The senior member of NCAT, who made the original orders on 20 May 2014, subsequently made a number of orders under s 190 of the Act, which had the effect of varying the original orders to make it clear that Whelan was only given the function of the executive committee of the Owners Corporation for the period of 24 months. Consequently, the power of the lot owners in general meeting to resolve for the Owners Corporation to institute the proceedings contemplated by the orders sought by the plaintiffs was revived. They no longer needed the authority of the court to commence and prosecute an appeal or other action in the name of the Owners Corporation.

13. On 26 August 2014, apparently by consent of all of the parties to the proceedings, I made orders including the following:

3   Makes orders in terms of the short minutes of order initialled by Robb J and dated today’s date, namely:   

(1)    The Owners Corporation Strata Plan No 22014 indemnify the Plaintiffs in respect of costs and liability incurred in respect of this proceeding.

(2)   The Owners Corporation Strata Plan No 22014 pay the costs of the Third Defendant of the proceeding on a party/party basis as agreed or, failing agreement, as assessed.

(3)   Otherwise the Plaintiffs be granted leave to discontinue the proceeding with no further Order as to costs.

4   Orders the Owners Corporation Strata Plan No 22014 pay the costs of the second defendant of the proceedings on a party/party basis as agreed or failing agreement as assessed.

14. Those orders were made by the court on the basis that the Owners Corporation was a consenting party to the making of the orders.

15. However, another lot owner, Ms Mary Jane Magney, objected to the terms of the agreement that led to the consent orders being made, on the ground that the Owners Corporation had not acted validly to instruct the solicitor who gave instructions to counsel to inform the court that the Owners Corporation consented to the orders. On her application, Ms Magney was added as a fourth defendant, and she applied for an order setting aside orders 3 and 4 that I made on 26 August 2014.

16. On 19 February 2015, I made orders setting aside orders 3 and 4 made by the court on 26 August 2014, for the reasons that I published as Tan v The Owners Strata Plan No 22014 [2015] NSWSC 71.

17. The consequence of those orders being made was that the plaintiffs’ application to be indemnified by the Owners Corporation for their costs of making the application, as well as Ms Porter’s application for costs, has been revived. Those issues are the subject of the present application.

Relevant facts

18. The most convenient way to explain the basis of the present application will be to place the proceedings in their historical context.

19. It appears that, for some time, some disharmony has existed between the lot owners at The Quay, or between some lot owners and the executive committee. It is not necessary to examine that history in detail.

20. Ms Porter commenced an application in what was then the Consumer, Trader and Tenancy Tribunal (the CTTT) against the Owners Corporation on 25 November 2011 (Proceedings SCS 11/58190). It is not necessary to consider the grounds upon which the application was made in any detail. Ms Porter sought a number of orders, but it is significant that the first order sought was as follows:

1 Whelan Property Group corporate licence number 1373234 is appointed under section 162 Strata Schemes Management Act 1996 for a period of 12 months from the date of these orders to exercise all the functions of the Owners Corporation, the Chairperson, Secretary, Treasurer and Executive Committee.

21. The significance of this claim is that it extended to the appointment of Whelan as strata manager, not just as manager of the functions of the executive committee, but also to the functions of the Owners Corporation. Although the order ultimately made by NCAT was for a period of 24 months, it made the appointment of Whelan in terms that were worded differently than, but arguably had the same effect as, this order.

22. I will come below to a consideration of whether it was reasonably apparent from the reasons for judgment published by the senior member as to whether or not he intended to make the orders that he did. But it will need to be borne in mind that a reader who was aware, not only of the reasons and the orders made, but also of the orders applied for by Ms Porter, may have understood that in the end the order made was not an aberration, but was in substance the order actually sought by Ms Porter, save for the extension of the period of operation of that order from 12 to 24 months.

23. On 4 May 2012, the adjudicator appointed to determine Ms Porter’s application dismissed the application.

24. Ms Porter appealed. I infer that the decision on appeal became proceedings SCS 12/28925. Ms Porter also commenced additional proceedings in the CTTT on about 19 December 2012 against the Owners Corporation, in which she sought additional relief (Proceedings SCS 12/64572). The senior member of NCAT who ultimately dealt with both proceedings, Mr G Meadows, explained at the beginning of his reasons for decision why it was appropriate for him to deal with the appeal and the new application at the one hearing.

25. Order 1 sought by Ms Porter in the new proceedings was for the appointment of Whelan as strata manager for a period of two years. Order 1 did not repeat the express request in order 1 of the first proceedings that Whelan be appointed as strata manager with the functions of both the executive committee and the Owners Corporation.

26. As Mr Meadows explains in his reasons for decision published on 20 May 2014, the proceedings involved a titanic battle between the parties with an immense amount of evidence.

27. Mr Meadows rejected a considerable part of Ms Porter’s claims, but ultimately, for reasons that he explained at [89] to [114], he found that the Owners Corporation was not functioning satisfactorily, in that the executive committee was failing to comply with the requirements of the SSM Act with regard to the procedures for convening executive committee meetings, passing resolutions at those meetings or some of them, and in putting those resolutions, where appropriate, before a general meeting, and in some cases rescinding resolutions made at an executive committee meeting at informal meetings between some members of the executive committee: see [114]. He also found that the executive committee treated some members of the Owners Corporation in a helpful and favoured manner, while subjecting other members to harassment.

28. It is fair to say that, in his reasons for decision, Mr Meadows singled out certain conduct by Dr Walters as involving inappropriate conduct by a member of the executive committee: see [97] to [109]. However, at [110], for the sake of clarity, he noted that his criticisms related to the functioning of the executive committee, not Dr Walters alone.

29. The final paragraph of Mr Meadows’ reasons for determination says:

115   I appoint the Whelan Property Group as compulsory strata manager to

perform all the functions of the executive committee for a period of two years.

30. Notwithstanding this statement, as I have noted above, Mr Meadows expressed the appointment of Whelan as having been made under s 162(1)(a) of the Act, which appeared to convey the meaning that Whelan was given the functions of both the executive committee and the Owners Corporation.

31. As I discussed at [15] to [20] of my reasons for judgment in [2015] NSWSC 71, a careful analysis of Mr Meadows’ reasons for determination would have conveyed the strong impression that he in fact only intended to appoint Whelan as strata manager with the functions of the executive committee. He effectively said so at par [115] of his reasons. However, it could not be said that there were no countervailing indications. Mr Meadows said at [114] that he found that the Owners Corporation was not functioning satisfactorily in that the executive committee was failing in various respects. Furthermore, as I have said, there is an argument that, although expressed in different terms, order 1 made by Mr Meadows was consistent with the express claim in order 1 of Ms Porter’s first application, for Whelan to be appointed as strata manager with the functions of both the executive committee and the Owners Corporation.

32. The manner in which Mr Meadows formulated his order 1 therefore left the members of the executive committee, and any lot owners who supported them, in the quandary that I have outlined above in relation to how they would go about causing the Owners Corporation to appeal from, or otherwise obtain some order setting aside, the orders made by NCAT.

33. At the date NCAT made its orders, there were six members of the executive committee of the Owners Corporation, two of whom were Dr Tan and Dr Walters.

34. An informal meeting of the lot owners, who were members of the Owners Corporation, and related people, occurred on 26 May 2014. A note of what occurred at the meeting was put into evidence as an annexure to one of Dr Tan’s affidavits. There were 15 people present. Advice was given to the meeting by a solicitor who is a well-respected practitioner in relation to strata title law. The solicitor advised that there were a number of errors of law in the reasons for determination on which the Owners Corporation might base an appeal. She advised that Whelan be requested to convene an extraordinary general meeting of the Owners Corporation to determine whether or not to appeal the NCAT orders. The meeting agreed that it would be in the best interests of the lot holders to appoint the plaintiffs’ present solicitors to act on the matter. The following agreement was also recorded:

The meeting nominated 2 former EC members, Ian Walters and Patrick Tan, to instruct Peter Terrett, lawyer, to act on their behalf and on behalf of the EC members and other Owners who indicated their support to commence proceedings in the Supreme Court to appeal the Tribunal decision.

35. The note also recorded that the owners who agreed to request an extraordinary general meeting represented at least 69% of the aggregate unit entitlements of Strata Plan 22014.

36. On 30 May 2014, Terrett Lawyers, on behalf of Dr Tan and Dr Walters, wrote a letter to Whelan that enclosed a requisition signed by lot owners who held more than 25% of the aggregate unit entitlements in the Strata Plan to convene an extraordinary general meeting of the Owners Corporation. The motions to be put to the meeting were:

To Consider Motions:

1.   The owners approve and/or ratify the filing of an application to the Supreme Court of New South Wales by Dr Patrick Tan and Dr Ian Walters on behalf of the Executive Committee and the Owners Corporation appealing against the Decision of the New South Wales Civil and Administrative Tribunal dated 20 May 2014 in relation to Strata Plan 22014.

2.   The owners express their confidence in the members of the Executive Committee elected by them and resolve to seek the removal of Whelan Property Group as strata manager of Strata Plan 22014.

3.   The legal costs and expenses of Dr Patrick Tan and Dr Ian Walters incurred in relation to the application to the Supreme Court of New South Wales be paid out of the funds of the Owners Corporation.

4.   Dr Patrick Tan and Dr Ian Walters be requested and authorised to take such action and to sign such documents on behalf of the Owners Corporation as they may reasonably consider to be desirable in relation to the implementation of the above Motions and for purposes reasonably incidental thereto.

37. The letter also advised Whelan that the solicitors had been instructed by Dr Tan and Dr Walters to apply to the Supreme Court for certain orders, including orders setting aside the NCAT orders and related relief, and an order that an extraordinary general meeting of lot owners in the Strata Plan be convened to approve or ratify the application. The letter also requested a detailed undertaking from Whelan to restrict the actions that it might take as strata manager under the NCAT orders.

37. Whelan’s solicitors, Chambers Russell Lawyers, responded on behalf of Whelan by letter dated 4 June 2014. Chambers Russell stated in the first paragraph of the letter that they acted for the Owners Corporation, even though the letter under reply had been written to Whelan. The letter agitated certain matters concerning the request for the undertaking and the proposed application by Dr Tan and Dr Walters, and included the following statement:

Our client is presently unable to hold any general meeting by reason of the appointment of Whelan Property Group under section 162(1)(a) of the Strata Schemes Management Act 1996 imposed by order of Senior Member Meadows on 20 May 2014.

39. It is of significance that this letter was written on behalf of the Owners Corporation. It must be inferred that Whelan instructed Chambers Russell to act on behalf of the Owners Corporation. The Owners Corporation was the original source of the contention that the effect of the NCAT orders was that an extraordinary general meeting of the Owners Corporation could not be held. Albeit, as will be seen, the original NCAT orders were subsequently retrospectively varied to remove the appearance that Whelan was given the functions of the members of the Owners Corporation in general meeting, at that time Whelan acted in accordance with a view of the effect of the orders that precluded any general meeting of the Owners Corporation occurring. It was in that sense that the Owners Corporation, by its apparent strata agent, took the step that impelled the plaintiffs to make their application to this court. While Chambers Russell sought further information, they did not agree on behalf of the Owners Corporation to take any of the steps required by Dr Tan and Dr Walters.

40. Dr Tan attended a conference with Mr Cotman SC on 11 June 2014. After that date, Mr Cotman delivered an advice, which is undated. Mr Cotman reviewed the background and the reasons for the decision made by Mr Meadows. Mr Cotman’s conclusions included the following:

85. As noted above, the Order is having the practical effect that the prospects of the Corporation appealing are frustrated by the fact of the appointment of the special strata manager, whose position depends on upholding the order and who controls all the legal affairs of the Owners Corporation.

…

87. Because [the Owners Corporation] is not a company incorporated under the companies legislation the reforms to the law of derivative actions by shareholders does not apply. However, there is a clear body of law that the inherent jurisdiction of the Supreme Court of NSW supports capacity in the court to order that a party be appointed to represent the company (or trust etc.) in proceedings where, without that appointment, rights might remain unsatisfied or a legal position vindicated.

88. I advise that a person who is a unit holder, as the closest analogue to a shareholder, would be a person with prima facie standing to seek such an appointment to vindicate the rights of the Corporation...

89. Wallersteiner v Moir (No 2) [1975] QB 373 is authority for the proposition that a person in the position of a putative or actual representative party in a derivative suit (that is, suing to vindicate rights of the Corporation) is entitled to seek an order for indemnity from the company will be given indemnity by the company and, before or after commencement of the suit, seek judicial directions, supported by counsel’s advice, that they are justified in propounding the action, as a trustee or executor might in relation to proceedings by or against them, as in In re Beddoe, Downes v Cottam [1893] 1 Ch 547.

90. I advise that the appropriate mechanism to determine these matters is the Summons I have already settled, which Summons invites the court to determine the framework for the resolution of the representation issue and the indemnity issue…

41. Mr Cotman had earlier advised that an appeal from the decision of Mr Meadows had merit, and that leave to appeal should be sought, and if granted, the matters that he set out in par 83 of his advice constituted a basis for reasonable prospects of success.

The proceedings

42. The plaintiffs were given leave by the duty judge on 13 June 2014 to file a summons in court.

43. The plaintiffs claimed the following relief:

The plaintiff claims:

1.   Order that the Plaintiffs be authorised to use the name of the Owners Corporation Strata Plan No 22014 in filing and prosecuting an application for leave to Appeal and Appeal with and in this Honourable Court against the Decision of the New South Wales Civil and Administrative Tribunal of 20 May 2014 in the matter of Janette Daisy Porter v the Owners – Strata Plan No 22014 (the Appeal).

2.   Order that the Owners Corporation Strata Plan No 22014 indemnify the Plaintiffs in respect of costs and liability incurred in respect of this application and of the said Appeal.

3.   In the alternative to Order 1 and 2, an Order that the Second Defendant convene an Extraordinary General Meeting of the Owners of Strata Plan No 22014 to ratify and/or approve the filing and prosecution of the Appeal, by the Plaintiffs or by such other person or persons as the Court directs.

4.   Alternatively, an Order that the Second Defendant cause the First Defendant to file initiating process for the Appeal with this Honourable Court from the Decision of the New South Wales Civil and Administrative Tribunal on 20 May 2014 and that such proceedings be conducted by the Plaintiffs to maintain and continue the Appeal.

5.   Order that the Owners Corporation Strata Plan No 22014 indemnify the Plaintiffs in relation to their costs reasonably incurred in relation to the Appeal and any liability to costs incurred by reason of their conduct of the Appeal.

6.   Directions regarding the service of this Summons and the Appeal and such further directions as the Court may deem appropriate in relation to the further conduct of the proceeding and the holding of the Extraordinary General Meeting of the Owners Corporation Strata Plan No 22014.

7.   Order extending the time for the Plaintiffs and/or the Defendants to file an Appeal with this Honourable Court beyond 17 June 2014 to such later date as the Court deems fit.

8.   Such further or other Orders the Court may deem fit.

44. The matter came before the court on a number of occasions in the duty list for the purpose of the making of directions, and on 27 June 2014, White J made an order that Ms Porter be joined in the proceedings as the third defendant. An order was also made that the summons be served on each owner in the Strata Plan, together with the notice annexed to the orders, and all other lot owners were given an opportunity to apply to be joined as a party to the proceedings.

45. These orders were made in chambers after the parties had appeared before White J on 24 June 2014. On that date, Mr Cotman SC appeared for the plaintiffs. The court’s records are unfortunately equivocal about whether, on the various occasions the proceedings were before the court, Mr Corsaro SC, or his solicitor, Mr Russell, appeared for the Owners Corporation or Whelan, or both. There is on the court’s file a notice dated 14 April 2014 that the Owners Corporation had appointed Mr Russell to act for it in the proceedings. The transcript for 24 June 2014 suggests that Mr Corsaro appeared for the plaintiff and Mr Cotman appeared for the defendant, which is obviously wrong. Mr Cotman has always appeared for the plaintiffs, and a record that states that Mr Corsaro or Mr Russell appeared for the defendant is unhelpful, because on different occasions one or both have been recorded as having appeared for the Owners Corporation or Whelan, or both. The record kept by White J’s associate records that Mr Corsaro appeared for the defendant. I do not know what the position was before White J, but my recollection is that, on the occasions that Mr Corsaro appeared before me, he spoke primarily, if not exclusively, for Whelan. However, both the transcripts and my associate’s records of who Mr Corsaro and Mr Russell appeared for record changes in the parties for whom those gentlemen appeared from time to time. In the circumstances, I cannot be sure that Mr Corsaro made any statements to the court formally on behalf of the Owners Corporation.

46. There appears to be some confusion in the transcript as to what occurred on that date, in that a number of statements are attributed to Mr Corsaro, which most likely were made by Mr Cotman. It appears likely that the first statement made by Mr Corsaro is that attributed to him at T p 4.35. During the hearing, Mr Corsaro said at T p 5.37:

…There are various difficulties that I should perhaps indicate.

Whelan Group currently stands required to exercise its functions under s 162. It has no choice. It has been appointed by a Tribunal order and it needs to fulfil that function. This is as I stand here, your Honour, I need to stand in the shoes of the Owners' Corporation and presumably oppose any attempt to take the proceedings out of 162 territory until such time as the 162 order has been set aside because, on a Foss v Harbottle situation, presumably it is the owners’ corporation or directors, whoever acts for the owners’ corporation, has to put the owners’ corporation position…

47. Mr Corsaro also (T p 12) referred to the possible significance of the decision of Pembroke J in The Owners Corporation SP 70798 v Bakkante Constructions Pty Ltd [2013] NSWSC 848. In that case, his Honour held at [83] that if proceedings were instituted by the executive committee of an owners corporation, without the resolution required by s 80D of the Act having been made, the proceedings would be invalid and unauthorised, so that they should be dismissed. The point being made by Mr Corsaro is not entirely clear on the transcript (which I attribute to difficulties with the transcript). I understand that the point raised by Mr Corsaro, for the purpose of being helpful in relation to the future conduct of the proceedings, was that the NCAT order appeared to give the functions of the lot owners in general meeting to Whelan. The lot owners could therefore not meet in general meeting to pass the resolution required by s 80D. Pembroke J had decided that proceedings could not validly be instituted without the resolution first being passed. Therefore, there might be a complete statutory impediment to the Owners Corporation being able to appeal from the NCAT decision.

48. I will not describe the interlocutory directions that have been made from time to time, unless that is necessary for the purpose of deciding the issues that are now before the court.

49. The plaintiffs filed an amended summons on 30 June 2014, in which the only change they made was to join Ms Porter as third defendant.

50. The matter came before me sitting in the duty list on 22 July 2014. Mr Cotman observed that the reason why the plaintiffs were seeking a representation order was the inability of the Owners Corporation to act in its ordinary way because of the orders that had been made. Mr Cotman therefore appeared to be accepting the position taken by the Owners Corporation.

51. The solicitor who appeared for the Owners Corporation, Mr Russell, said that the Owners Corporation did not want to be heard on the principal relief. (Mr Russell is recorded in the transcript and my associate’s record as having appeared for the Owners Corporation). However, it did “want to make submissions to the court in support of the claims for relief in prayers 2 and 5 which relate to indemnification for costs” (T 22/07/14 p 2).

52. The matter was then stood over to 25 July 2014 for mention, in order to give counsel for Ms Porter, Mr Bambagiotti, time to digest the summons, Mr Meadows’ reasons for determination, and the relevant evidence.

53. I gave leave to the plaintiffs to file a further amended summons in court on 25 July 2014 They added the following new order:

6   In the alternative to Orders 1, 3, 4 and 5, order that the orders and decision of the Tribunal in the Appeal be quashed.

54. Mr Corsaro observed that the Owners Corporation’s position was consistent with that of Whelan, and “is open-minded by the Tribunal in circumstances where that order must be considered as being valid until otherwise determined”: (T 25/07/14 p 9.11 – there appears to be an error in the transcription of the statement attributed to Mr Corsaro). I must be careful lest I do injustice to the position adopted by Mr Corsaro on behalf of the Owners Corporation and Whelan. I think it is fair to say that he proceeded on the basis that it appeared that the effect of the NCAT orders was that Whelan had been appointed strata manager with the functions of both the executive committee and the Owners Corporation. Mr Corsaro was, however, at pains to make clear that, as far as possible, the Owners Corporation wished to maintain a neutral position, and that in particular Whelan did not wish to participate in the proceedings in a manner that may appear to be in its own personal interests.

55. I fixed the hearing of the plaintiffs’ application for the relief claimed in prayer 1 of the further amended summons before me on 26 August 2014.

Variation of the NCAT orders

56. On 7 July 2014, Mr John Loverage, a lot owner in the strata plan, wrote a letter to Mr Meadows in which he requested that NCAT amend the orders that it made on 20 May 2014 to reflect the fact that the reasons for judgment did not suggest that NCAT intended to appoint a strata managing agent to exercise all of the functions of the Owners Corporation.

57. On 24 July 2014, Mr Meadows made an order under s 190 of the SSM Act to “correct” order 1 made on 20 May 2014. The corrected order was:

Pursuant to section 162(1)(b) of the Strata Schemes Management Act 1996 (“the Act”), I order that Whelan Property Group is appointed as strata manager of Strata Plan 22014.

58. Section 162(1)(b) of the SSM Act provides:

(1)   An Adjudicator may by order appoint a person as a strata managing agent…

(b)   to exercise specified functions of an owners corporation…

59. All of the other orders made on 20 May 2014 were confirmed. The only change made to order 1 was to replace the reference to s 161(1)(a) with a reference to s 161(1)(b). The intent of this change was apparently to establish that NCAT did not appoint Whelan as strata managing agent of the Owners Corporation to exercise all the functions of an owners corporation, but only to exercise specified functions. Order 1 did not, however, itself specify any functions. The change brought order 1 into alignment with order 3, which appointed Whelan only to exercise all of the functions of the executive committee and its officers, in accordance with s 162(2)(a) of the SSM Act.

60. Section 190 of the SSM Act provides:

(1)   The Tribunal may vary an order, whether or not on application, for the purpose of correcting or clarifying it or extending a time limit and the order as so varied is taken to be the order instead of the original order.

(2)   An application under this section may be made by any of the following persons:

(a)    the owners corporation,

(b)   the lessor of a leasehold strata scheme,

(c)   the applicant for the original order,

(d)   any person who made a written submission on the application for the original order,

(e)   any other person who is required by the original order to do or refrain from doing a specified act.

61. It appears, therefore, that Mr Loverage took matters into his own hands. He may perhaps have had an interest in the proceedings before NCAT, but he was not a party, and was not authorised to act for the Owners Corporation. It equally appears that Mr Meadows was prepared to act upon Mr Loverage’s request.

62. Subject only to the question of whether the change to the orders was effective to bring to an end the apparent exclusive power of Whelan to exercise all of the functions of the Owners Corporation, the need for the plaintiffs to seek the court’s authorisation to institute an appeal from Mr Meadows’ determination in the name of and on behalf of the Owners Corporation disappeared.

63. When the parties became aware of the new orders made by Mr Meadows on 24 July 2014, the matter was relisted before me on 30 July 2014. I was advised of the making of the orders. I think it is fair to say that none of the counsel present had had sufficient time to work out the consequences of the new orders. As Mr Corsaro said (T 30/07/14 p 3), there was a question concerning the validity of this step taken by Mr Meadows; a matter as to which he had not yet formed an opinion. I fixed a further directions hearing on 5 August 2014.

64. On 5 August 2014, I was advised by Mr Russell on behalf of Whelan that it wished to file a submitting appearance. There was discussion about the effectiveness of Mr Meadows’ second order, and Mr Bambagiotti informed me on behalf of Ms Porter that the matter had been relisted before Mr Meadows for the purpose of resolving the uncertainties that had arisen.

65. When the matter came on for the hearing of the plaintiffs’ claim for prayer 1 in their further amended summons on 26 August 2014, I was advised by Mr Cotman that the previous day, Mr Meadows had advised the parties to the NCAT proceedings that he would make a further order under s 190 of the SSM Act to resolve any residual doubt, and confirm that Whelan had been appointed solely to exercise the functions of the executive committee, and not to exercise any functions of the Owners Corporation. In due course, Mr Meadows made orders that had that effect.

66. As I have described above, apparently by consent of all parties, I made orders that the Owners Corporation indemnify the plaintiffs in respect of their costs, that it pay Ms Porter’s costs, and that the proceedings be discontinued. Those orders have subsequently been vacated.

The Plaintiffs’ application for an indemnity for their costs

67. In the events which have happened, the plaintiffs now only pursue the claim in par 2 of their summons, which I will repeat for convenience:

2.   Order that the Owners Corporation Strata Plan No 22014 indemnify the Plaintiffs in respect of costs and liability incurred in respect of this application and of the said Appeal.

68. The plaintiffs served written submissions on 24 April 2015, the Owners Corporation responded (undated), and the plaintiffs replied on 1 June 2015.

69. However, before the hearing, the plaintiffs and the Owners Corporation exchanged statements of issues which, as I understand it, has led to the following agreed statement of issues:

The [Owners Corporation] has conceded (at para 5 of its Submissions) that:

(a)   The “proper plaintiff” rule in Foss v Harbottle applies to a strata title owners corporation such as the [Owners Corporation].

(b)   The court has power to make the representative orders sought by the Plaintiffs.

(c)   The court has power to make the indemnity orders sought by the Plaintiffs.

On that basis the issues are:

1.   Whether the Plaintiffs were justified in seeking a representative order in relation to the conduct of an appeal by the [Owners Corporation] against the Orders of [NCAT] of 20 May 2014 in the matter of Janette Daisy Porter v The Owners – Strata Planned No 22014 (NCAT Orders)?

2.   Whether the Plaintiffs were otherwise justified in seeking to procure orders to confer on the [Owners Corporation] capacity for it to consider an appeal against the NCAT Orders by the calling of a general meeting, or in seeking to require it to do so, as sought in the Summons?

3.   If so, are the Plaintiffs entitled to be indemnified in respect of their costs and liability incurred in respect of these proceedings and the proposed appeal? In that regard:

3.1.   Does that question require the Court to entertain a theoretical hearing of the Plaintiffs’ claim for an order in the nature of prayer 1 of the Further Amended Summons filed 17 July 2014 (Representative Order), which is no longer sought?

3.2.   If so, should the court entertain such a hearing?

3.3.   If so, would the Plaintiffs have been entitled to the Representative Order in the face of the rule in Foss v Harbottle, on the basis of the “interests of justice” exception to that rule? In particular, are the Plaintiffs able to demonstrate:

3.3.1.   There is no other remedy to address the alleged wrong?

3.3.2.   That serious injustice would arise if the Plaintiffs were precluded from pursuing the Proposed Appeal?

4.   If the Plaintiffs are entitled be indemnified in respect of their costs and liability incurred in respect of these proceedings and the proposed appeal, should that indemnity extend to the Plaintiffs’ liability to the Fourth Defendant for her costs?

5.   If there are discretionary considerations that are either applicable or determinative of the issue of indemnity, are there any disqualifying factors preventing the Plaintiffs from obtaining an order for indemnity in respect of their costs on and incidental to the application? In particular:

5.1.   Whether it could be said the proposed proceedings were an abuse of process, in the sense of being a re-run of some earlier proceeding, or the Plaintiffs were seeking to achieve some improper or collateral personal advantage?

5.2.   Whether there was a remedy already available to the Plaintiffs outside the representative proceedings?

5.3.   Whether the proceeding was doomed to fail?

6. What effect, if any, does section 80D of the Strata Schemes Management Act have on the Plaintiffs’ claim for indemnity for the costs and liability incurred in and in respect of their application?

7.   Should the Plaintiffs pay the Third Defendant’s costs of these proceedings?

8.   Should the proceedings otherwise be dismissed?

9.   Costs.

70. An analysis of the written and oral submissions made on behalf of the Owners Corporation by their solicitor, Mr Russell, brings the issues into sharper focus.

71. The status of the concession made by the Owners Corporation, set out in the statement of issues at par (c), that the court has power to make the indemnity orders sought by the plaintiffs is unclear, as the Owners Corporation submitted that there is no authority for the proposition that an indemnity order can be made in respect of an owners corporation constituted under the SSM Act. The Owners Corporation also submitted on this issue, that there is no authority that such an order can be granted absent the actual existence of derivative proceedings.

72. It does not appear to me that the Owners Corporation has specifically contested Issues 1 and 2; that is, as to whether the plaintiffs were justified in seeking a representation order in relation to the conduct of an appeal, or an order to confer on the Owners Corporation capacity for it to consider an appeal by calling a general meeting (further amended summons pars 1 and 3). It appears that the only specific issue that the Owners Corporation has raised, in par 5.1 of the statement of issues, is whether the proposed proceedings were an abuse of process, in the sense of being a re-run of some earlier proceeding, or the plaintiffs were seeking to achieve some improper or collateral personal advantage. I will return to par 5.1 below.

73. The Owners Corporation relied primarily on two issues in its oral submissions; being the issues raised by pars 3.1 and 3.2 on the one hand, and the issue raised by par 3.3 on the other.

74. As to the first of these issues, the Owners Corporation submitted that the trigger for the plaintiffs’ entitlement to an indemnity was the existence of the derivative proceedings, and that the indemnity order can only be made where there is in fact a derivative action. It then submitted that, as the reason for the commencement of any derivative action had disappeared, so that the proceedings should be dismissed, the proper order should be that all parties pay their own costs. The court should not determine the theoretical question of whether an order for indemnity would have been granted, had the need for the derivative action not disappeared. The Owners Corporation relied upon the well-known statement of principle by McHugh J in Re the Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624.

75. In relation to the second issue, the Owners Corporation submitted, first, that the plaintiffs had an effective remedy other than commencing derivative proceedings in the name of the Owners Corporation. One available proceeding was for the plaintiffs, as lot owners, to institute proceedings for judicial review of the NCAT decision, in the nature of certiorari on the ground of error of law on the face of the record, under s 69 of the Supreme Court Act 1970 (NSW). The Owners Corporation did not, in its oral submissions, refer to the possibility that the plaintiffs could have made the same type of application under s 190 of the SSM Act that was made by Mr Loverage. However, it relied upon that possibility in its written submissions, and I will take it that the Owners Corporation says, secondly, that another available course of action to the plaintiffs was to simply make an application to NCAT under s 190.

76. The Owners Corporation also submitted, in relation to this second issue, that no serious injustice would arise, if the plaintiffs were precluded from pursuing the proposed appeal in the name of the Owners Corporation. As I understand the argument, this submission also relied upon the availability to the plaintiffs of alternative procedures to achieve reasonably equivalent relief to what could be achieved by conducting an appeal in the name of the Owners Corporation.

77. The Owners Corporation submitted, in relation to Issue 4 in the statement of issues, that even if some indemnity is granted to the plaintiffs in respect of their costs, that indemnity should not extend to the costs incurred by the plaintiffs in unsuccessfully resisting the application by Ms Magney for the court to set aside the orders made by apparent consent on 26 August 2014. The plaintiffs, in taking that course were acting in their own interests, and not in the interests of the Owners Corporation.

78. As mentioned above, Issue 5.1 is whether the proposed proceedings were an abuse of process, in the sense of being a re-run of some earlier proceeding, or the plaintiffs were seeking to achieve some improper or collateral personal advantage. As I understand it, the case originally made by the Owners Corporation was that the NCAT proceeding was in substance and reality a dispute between the executive committee, which included the plaintiffs, and Ms Porter. The submission was that the plaintiffs’ desire to be permitted to appeal from the orders made by NCAT in the name of the Owners Corporation was really only a further step in these personal proceedings. The Owners Corporation abandoned that position in oral submissions. Mr Russell said that this was only a “secondary issue”, and he accepted that the appeal would be more than a continuation of an individual dispute, because the objective of the appeal was to secure the result that the Owners Corporation “would receive its powers back”. Mr Russell submitted, nonetheless, that it was relevant to how the court exercised its discretion as to whether or not to order the Owners Corporation to indemnify the plaintiffs, as the plaintiffs and the other members of the executive committee had been criticised by Mr Meadows, and an aspect of the appeal was to reverse the consequences of that criticism.

79. Issue 5.2 raises the same question as Issue 3.3.1.

80. The Owners Corporation did not address Issue 5.3, by putting any submissions to the effect that any appeal by the Owners Corporation from the decision of NCAT was doomed to fail. It is not necessary to give further consideration to that issue.

81. Issue 6 raises the effect of s 80D of the SSM Act. That section relevantly provides:

(1)   An owners corporation or executive committee of an owners corporation must not seek legal advice or the provision of any other legal services, or initiate legal action, for which any payment may be required unless a resolution is passed at a general meeting of the owners corporation approving the seeking of the advice or services or the taking of that action.

(2)   The regulations may make provision for or with respect to exempting any type of legal service or legal action from the operation of this section.

82. The Owners Corporation submitted that the significance of s 80D was that it reserved decisions on legal expenditure to a majority of lot owners in general meeting (relying upon Bakkante Constructions referred to above), so it should be rare for the court to order an owners corporation to indemnify lot owners for their costs of pursuing legal proceedings on behalf of the owners corporation, because that would circumvent the powers of the general meeting, and also the statutory prohibition designed specifically to protect the interests of the majority.

83. The Owners Corporation did not submit that any derivative proceedings instituted on behalf of an owners corporation without the resolution required by s 80D first being passed would be unauthorised and invalid. It ultimately accepted the validity of the reasoning of Hammerschlag J in The Owners Strata Plan No 73943 v 2 Elizabeth Bay Road Pty Ltd [2013] NSWSC 1769; (2013) 17 BPR 32,475 at [29], that the effect of the absence of a resolution, where it is required by s 80D, is not “to visit nullity on legal action taken and the possible forfeiture of common law rights even where the necessary authority is given ex post facto”.

84. The Owners Corporation was not directly interested in Issue 7, which raised the question of whether the plaintiffs should be ordered to pay Ms Porter’s costs of the proceedings. As will be seen below, the issue of whether the Owners Corporation should be ordered to pay Ms Porter’s costs, or whether the Owners Corporation should be ordered to indemnify the plaintiffs, including in respect of an order against the plaintiffs that they pay Ms Porter’s costs, was not raised in submissions until Mr Cotman’s submissions in reply. At that time, Mr Cotman submitted that the court should make one or other of those orders, rather than to order that the plaintiffs pay Ms Porter’s costs.

85. Mr Russell specifically noted in his written submissions on behalf of the Owners Corporation that no party had submitted that the Owners Corporation should be required to pay Ms Porter’s costs, and accordingly the Owners Corporation reserved its position on that question, if such an application were to be made.

86. Mr Russell was not given an opportunity to respond to the submissions made by Mr Cotman in his reply. As will appear below from my consideration of the issue of Ms Porter’s costs, the question reserved by Mr Russell has become a live one. I will consider what ought to be done about this matter below.

87. As I understand it, no party suggests any other outcome in respect of the proceedings but that they be dismissed. Issue 8 does not require separate consideration.

88. Issue 9 raises the question of costs generally. The Owners Corporation submitted that the proper order to be made as between the plaintiffs and the Owners Corporation is that no order for costs should be made, with the intention that all parties bear their own costs, except for the costs of the plaintiffs’ application that they be indemnified by the Owners Corporation, as to which the plaintiffs should be ordered to pay the Owners Corporation’s costs.

89. I should note that Mr Russell, who acted for the Owners Corporation on this aspect of the proceedings, had earlier acted for Whelan. Whelan did not take part in this aspect of the proceedings, and did not seek any order in respect of its costs.

Relevant legal principles

90. Notwithstanding the agreement between the parties that the proper plaintiff rule in Foss v Harbottle applies to a strata title owners corporation such as the Owners Corporation, and their partial agreement concerning the effect of the relevant authorities, it will be appropriate to address those authorities in order to provide a foundation for the determination of the issues between the parties.

91. The parties accept, as do I, the validity of the conclusion expressed by Barrett J (as his Honour then was) in Carre v Owners Corporation – SP 53020 [2003] NSWSC 397; (2003) 58 NSWLR 302, that the rule in Foss v Harbottle applies to owners corporations created by the SSM Act; and, further, that the so-called “fifth exception” to the rule; being, in any other case where justice requires it, exists. It is this fifth exception upon which the plaintiffs rely in the present case.

92. Darke J considered the operation of the fifth exception in Eastmark Holdings Pty Ltd v Kabraji [2013] NSWSC 1763; (2013) 97 ACSR 161 in the following terms:

[78] In Carre v Owners Corporation — Strata Plan 53020 (2003) 58 NSWLR 302; [2003] NSWSC 397 Barrett J (as his Honour then was) held that the proper plaintiff rule in Foss v Harbottle applied to an owners corporation governed by the Act (see at [20]–[25]). All parties appeared to accept the correctness of that proposition. All parties also appeared to accept the existence of the interests of justice exception to the rule in Foss v Harbottle. I would in any event reach that conclusion, based on the reasons advanced by Barrett J in Carre (above) at [34]–[40].

[79] However, each of the defendants submitted that the present case was not one of those “rare” or “unusual” cases in which it was in the interests of justice to permit a plaintiff, who is unable to bring itself within one of the four well-recognised exceptions to the rule in Foss v Harbottle, to nonetheless pursue a derivative action. It was further submitted by the defendants that in order for Eastmark to bring itself within the interests of justice exception to the rule, it was necessary for Eastmark to demonstrate:

(a) that it brings the action bona fide in the interests of the Owners Corporation and not for an ulterior purpose;

(b) that normal corporate procedures have failed to achieve the justice sought;

(c) that there is no other remedy to address the alleged wrong; and

(d) that serious injustice would arise if it was precluded from pursuing the derivative action.

[80] The defendants relied upon various authorities in support of the contention that the four matters listed above were requirements that had to be satisfied before the interests of justice exception could be found to apply. These authorities included Barrett v Duckett (1996) 14 ACLC 3101 at 3106 (a decision of the English Court of Appeal), Cope v Butcher (1996) 20 ACSR 37 at 40, and Biala Pty Ltd v Mallina Holdings Ltd (1993) 13 WAR 11 at 73.

[81] Eastmark, for its part, submitted that, unlike the statutory regime which now exists under the Corporations Act 2001 (Cth) (see ss 236 and 237), there was no list of matters which needed to be “ticked” in order for the interests of justice exception to apply. Eastmark further submitted that Cope v Butcher (above), a decision of Johnston AM of the Supreme Court of Western Australia, should not be regarded as an authority for the proposition that it is necessary to show that normal corporate procedures have failed to achieve the justice sought. Otherwise, Eastmark appeared to accept that the matters identified by the defendants were at least relevant to whether the interests of justice exception applied in this case. It was further submitted by Eastmark that the circumstances of the present case were analogous to those which existed in Biala v Mallina Holdings Ltd (above) in which Ipp J found that the interests of justice required that he allow the minority shareholder in a company to pursue a derivative action in relation to breaches of fiduciary duties owed to the company. In this context it was also submitted that (as in Biala v Mallina Holdings Ltd (above)) where the court has received all of the evidence concerning the alleged breaches of fiduciary duty, and where that evidence establishes those breaches, it would be absurd for the action to be defeated by a complaint of a lack of standing.

[82] Nevertheless, as mentioned earlier, it seems to me that it is both logical and convenient to deal first with the question of standing. There is no reason why the question of the applicability of the interests of justice exception cannot be so dealt with in this case. Moreover, it seems to me that, at least as a general rule in cases of this kind, the court should not embark upon a determination of the merits of alleged causes of action unless it has first determined that it is in the interests of justice that such causes of action be able to be pursued by the plaintiff. To do so would tend to undermine the rule in Foss v Harbottle.

…

[89] I agree with Eastmark’s contention that the four matters identified by the defendants should not be seen as factors, each of which must invariably be established before a plaintiff can invoke the interests of justice exception to the rule in Foss v Harbottle. I do not think that the exception ought to be so confined. However, the four matters are each plainly relevant to the question whether the exception applies in any particular case, and the failure of a plaintiff to establish any one of them will generally indicate that the exception is not applicable. In the present case, I accept the general thrust of the submissions made by the defendants concerning those matters, and, for the reasons which follow, I have concluded that Eastmark has failed to show that, in all the circumstances, it would be in the interests of justice for it to be permitted to prosecute the derivative claims it seeks to bring.

93. Darke J’s observations were accepted by Slattery J in APX Projects Pty Ltd v The Owners – Strata Plan No 64025 [2015] NSWSC 1250 at [52] and [53].

94. In the present proceedings, the Owners Corporation submits that the matters set out by Darke J in [79], sub-pars (c) and (d) of the matters relevant to the establishment of the interests of justice exception to the rule have not been satisfied.

95. In Carre, at [25] Barrett J stated: “Without the active consent of the owners corporation, Ms Carre can be put into such a position [being that she can act for the owners corporation] only by court order. She asserts an entitlement to such an order on the basis of an exception to the proper plaintiff rule”.

96. In Oates v Consolidated Capital Services Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69, Campbell JA, with whom Spigelman CJ and Allsop P agreed, considered at [71] to [107] the question of whether leave of the court is possible, or necessary, to start a general law derivative action. His Honour concluded that [105]:

[105] To summarise, a plaintiff who seeks to bring a derivative action under the general law must allege, in the initiating process, facts that show that he or she falls within a recognised exception to the prima facie rule that the proper plaintiff in an action in respect of a wrong alleged to be done to a corporation is the corporation itself. If the initiating process fails to make those allegations, it is liable to be struck out if the defendant chooses to apply to have it struck out. If the initiating process makes allegations which, if true, would suffice to enable the plaintiff to enforce a right owed to the company in which the plaintiff was a shareholder, but the defendant asserts that the allegations are so insubstantial that the matter should not go to trial, the defendant can move to seek summary dismissal of the claim. If trial of the merits of the action would be long and complicated, a defendant might choose to have a question of the plaintiff’s standing to bring a derivative action decided as a preliminary question. But there is no requirement under the general law relating to derivative actions for leave to be obtained before a plaintiff commences such an action.

97. The plaintiffs in the present case sought an order that the plaintiffs be authorised to use the name of the Owners Corporation in filing and prosecuting an application for leave to appeal, and an appeal, to the Supreme Court from the orders made by NCAT. There was no explanation in the submissions of whether “be authorised” in order 1 of the further amended summons was intended to have the same meaning as “be given leave”. None of the other parties submitted that it was either not necessary, or wrong, for the plaintiffs to seek this order. The application is consistent with the observations made by Barrett J in Carre at [25]. It may be that the plaintiffs took the view that they needed an order of the court, because they wished to be able to appeal in the name of the Owners Corporation from orders made in a tribunal, being NCAT, and they were not simply instituting proceedings commenced by statement of claim in which they could plead the facts necessary to show that they fell within a recognised exception to the rule in Foss v Harbottle, as discussed by Campbell J at [105]. As no issue was raised, and no submissions put by any party concerning the procedure adopted by the plaintiffs, it will not be necessary for me to consider that matter further. I would only observe that it is understandable that parties in the position of the plaintiffs may think it is necessary to seek an order from the Supreme Court, exercising its general equitable jurisdiction, authorising some steps to be taken in the name of an owners corporation in proceedings that are an application for leave to appeal from the decision of a tribunal, before those steps are taken.

97. The authorities considered thus far deal with the circumstances in which a lot owner may be entitled to take representative proceedings in the name of an owners corporation. A related, but separate, question is whether, in cases where representative proceedings are permitted, the owners corporation should be ordered to indemnify the lot owner against his or her costs of the representative proceedings.

98. The plaintiffs in this case seek to rely upon the decision of the English Court of Appeal in Wallersteiner v Moir (No 2) [1975] QB 373, as establishing that the court has power to order the Owners Corporation to indemnify them for their costs, if the court is satisfied that they are entitled to institute an appeal in the name of the Owners Corporation.

99. Wallersteiner has been followed by Ipp J (as his Honour then was) in Biala Pty Ltd v Mallina Holdings Pty Ltd (1993) 13 WAR 83; by Marks J in Farrow v Registrar of Building Societies [1991] 2 VR 589, and by Finkelstein J in Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570.

100. Campbell JA, in Oates, discussed the relevant parts of Wallersteiner, with apparent approval, at [86] to [91]:

[86] The other two judges in the Court of Appeal did not join in Lord Denning’s account of the history of the derivative action. In these circumstances Wallersteiner v Moir (No 2) is not authority for leave to commence a derivative action ever having been part of the procedure under the general law.

[87] A procedural device of the plaintiff in a derivative action approaching the court at an early stage to seek the approval of the court to the continuance of the action was suggested in Wallersteiner v Moir (No 2). The English Court of Appeal was there considering a situation in which a shareholder who had brought a derivative action had achieved some success in the action, but the action was not complete, and the shareholder was concerned about his potential future liability for costs. The potential avenues through which he might obtain such protection were listed by Lord Denning MR at 389H as being:

(1) indemnity from the company;

(2) legal aid; and

(3) contingency fee.

[88] All members of the Court of Appeal held that legal aid was not available, Lord Denning MR, at 395, would have allowed a derivative action to be brought on the basis of a contingency fee arrangement with solicitors, but Buckley LJ, at 403, and Scarman LJ, at 407, would not permit contingency fees in those circumstances. However all three members of the Court of Appeal approved a procedure that was adapted from that available to a trustee of seeking directions of the court concerning the conduct of litigation. If a trustee conducted the litigation in accordance with such directions, the trustee was entitled to an indemnity for costs from the trust estate. Lord Denning put it this way, at 392:

In order to be entitled to this indemnity, the minority shareholder soon after issuing his writ should apply for the sanction of the court in somewhat the same way as a trustee does: see Re Beddoe, Downes v Cottam [1893] 1 Ch 547 at 557–558. In a derivative action, I would suggest this procedure: the minority shareholder should apply ex parte to the master for directions, supported by an opinion of counsel as to whether there is a reasonable case or not. The master may then, if he thinks fit, straightaway approve the continuance of the proceedings until close of pleadings, or until after discovery or until trial (rather as a legal aid committee does). The master need not, however, decide it ex parte. He can, if he thinks fit, require notice to be given to one or two of the other minority shareholders — as representatives of the rest — so as to see if there is any reasonable objection. (In this very case another minority shareholder took this very point in letters to us.) But this preliminary application should be simple and inexpensive. It should not be allowed to escalate into a minor trial. The master should simply ask himself: is there a reasonable case for the minority shareholder to bring at the expense (eventually) of the company? If there is, let it go ahead.

[89] Buckley LJ, at 404F-5C, was of a similar opinion:

After issuing his writ a minority shareholder plaintiff could apply by summons in the action for directions as to whether he should proceed in the action and, if so, to what stage without further directions. I think that such an application should in the first instance be made ex parte. In a relatively simple case the court may feel able to deal with the matter without joinder of any other party. When the summons comes before the court, directions could be given as to whether the company or another minority shareholder or the defendants or any of them or anyone else should be made respondents and whether any respondent should be appointed to act in a representative capacity for the purposes of the summons. The court might at this stage think it desirable to require the plaintiff to circularise or convene a meeting of other minority shareholders and to place their views, so far as ascertained, before the court. The summons should be supported by affidavit evidence of any relevant facts, to which instruction to counsel and his opinion thereon should be exhibited. The respondent or respondents to the summons, if any, would also be permitted to file evidence. The evidence of other parties would not be disclosed to the defendants in the action unless the court so directed, and the defendants, if made respondents to the summons, would not be permitted to be present when the merits of the application were discussed. Upon the effective hearing of the summons the court would determine whether the plaintiff should be authorised to proceed with the action and, if so, to what stage he should be authorised to do so without further directions from the court. The plaintiff, acting under the authority of such a direction, would be secure in the knowledge that, when the costs of the action should come to be dealt with, this would be on the basis, as between himself and the company, that he has acted reasonably and ought prima facie to be treated by the trial judge as entitled to an order that the company should pay his costs, which should, I think, normally be taxed on a basis not less favourable than the common fund basis, and should indemnify him against any costs he may be ordered to pay to the defendants. Should the court not think fit to authorise the plaintiff to proceed, he would do so at his own risk as to the costs. A procedure on these lines could, I think, be adopted without any amendment or addition to the rules of court, although it might well be thought desirable that an appropriate rule should be made.

[90] Scarman LJ, at 407D, agreed with the procedural proposed by Buckley LJ, saying it: “… would be suitable and should be adopted until such time as a rule of court is made which covers the situation.”

[91] It is to be observed that the procedure thus endorsed by the Court of Appeal was not seeking leave to commence the action, but applying for directions in the action at an early stage after it was commenced. Further, there was no compulsion on a member bringing a derivative action to make any such application. Rather, the making of such an application was envisaged to be an act of self-protection on the part of the member, to provide some assurance that his or her costs would ultimately be paid from the company’s assets, and that there was nothing to stop a member from pressing on with the action without such protection if he or she chose to do so.

102. That there may be occasions when parties connected with a corporation are permitted to bring actions for the benefit of, or in the name of, the corporation (whether with the formal leave of the court, or otherwise), and that the court has power to order such persons to be indemnified by the corporation, leads to a more detailed consideration of the orders that should be made concerning the costs of the persons and the corporations. This issue has arisen in the present case because the Owners Corporation has relied in its submissions on authorities in which the party in the position of the present plaintiffs has been ordered to indemnify the corporation as a condition to being permitted to sue in the name of the corporation.

103. In its written submissions, the Owners Corporation submitted that the proper order in the present case would be, if the plaintiffs were permitted to appeal in the name of the Owners Corporation, that the plaintiffs indemnify it in respect of the costs of the application and the appeal. As has been noted above (at [78]), the Owners Corporation did not pursue this argument in final submissions. It claimed that the parties should be ordered to bear their own costs, except in relation to the present application for an order that the Owners Corporation indemnify the plaintiffs, for which a costs order should be made in favour of the Owners Corporation.

104. The final position adopted by the Owners Corporation obviates the need for the court to consider in any detail the authorities in which applicants have been ordered to indemnify the corporation as a condition to being permitted to sue in the name of the corporation.

105. As I understand it, the Owners Corporation only places some residual reliance upon those authorities in order to counter the plaintiffs’ claim that the Owners Corporation should be ordered to indemnify them for their costs of the application.

106. It is sufficient for me to note that there are circumstances in which the court has jurisdiction, either as part of its inherent equitable jurisdiction, or as a component of its statutory jurisdiction, to permit or give leave to parties who are connected with corporations in some appropriate way, to bring proceedings for the benefit of, or in the name of, the corporation. The inherent equitable jurisdiction includes the power of the court to permit parties to sue in the name of companies in liquidation, and also the power that is relevant in the present case to permit parties to sue for the benefit of a corporation, where the proper plaintiff rule in Foss v Harbottle still applies, and the circumstances satisfy one of the exceptions to that rule. An equivalent statutory power is created by Part 2F.1A of the Corporations Act 2001 (Cth) in relation to derivative actions on behalf of corporations under that Act.

107. There is a concomitant discretionary power in the court to make appropriate orders for the costs of legal proceedings brought for the benefit of, or in the name of, corporations (which, in the case of the Corporations Act power is found in s 242).

108. It is not necessary, for the purpose of deciding the present case, to delve into detailed considerations of how the discretionary power to deal appropriately with costs should be exercised in the different contexts in which the power arises. It is possible that, in subtle ways, differences in the nature of the relationship between parties and the relevant corporations that may be accepted in the different situations as grounding an entitlement for parties to sue for the benefit of, or in the name of, corporations, may have natural consequences for the determination of the costs orders that should be made.

109. It is sufficient to note that the present context is one in which the court may permit one or more members of a corporation to sue to recover some benefit to which the corporation alone is entitled, and in respect of which it is the proper plaintiff, and where success should benefit all of the members of the corporation equally in proportion to their respective interests in the corporation. It must be remembered that Lord Denning in Wallersteiner drew inspiration from the somewhat remotely analogous situation of a trustee, and the application recognised in Re Beddoe. The point of equivalence is that, as the trustee wishes to sue for the benefit of all of the beneficiaries of the trust estate equally according to their respective shares, the members of a corporation who wish to sue for the benefit of the corporation seek to achieve a benefit that will be received by the corporation, and therefore benefit all members equally according to their entitlements.

110. The authorities show that there are other situations in which the circumstances of the corporation, or the nature of the impediment to the corporation commencing proceedings in its own name, or the distribution of the benefits that would be generated from the success of the proceedings, show that some other order than that the corporation indemnify the party suing for its benefit, or in its name, is appropriate.

111. It will be useful to start by mentioning Carre, which is of particular significance because Barrett J recognised that the proper plaintiff rule, and the exceptions to that rule, applied to owners corporations. That case concerned an action by a lot owner, who held 50% of the lot entitlements in the particular owners corporation, against the other lot owners, who together held 50%, and who were the developers who built the building, and against other parties who participated in the building. The issue was the inadequate design and construction of the air-conditioning for the plaintiff’s lot. It was discovered that part of the air-conditioning plant was constructed on the common property, so that the owners corporation was the proper plaintiff. Barrett J permitted the plaintiff to sue the defendants in the name of the owners corporation, as there was a stalemate in the general meeting which precluded the owners corporation instituting proceedings of its own motion.

112. This was clearly a case where the plaintiff wished to vindicate her own rights as against the interests of all other lot owners, and it was found to be a technical requirement that the owners corporation participate in the proceedings as a plaintiff, in a way that would generate a benefit for the plaintiff, if successful, without any benefit to the other lot owners, who were defendants.

113. Barrett J gave the plaintiff liberty to prosecute the claim on behalf of the owners corporation, but only on the basis that the plaintiff indemnify the owners corporation in respect of all costs obligations that it might incur. Even then, the order for indemnification was made subject to the qualification “except to the extent (if any) that the court hereafter otherwise orders”.

114. The question will be in the present case whether the plaintiffs wished to appeal in the name of the Owners Corporation to achieve a result that would be a genuine benefit for the Owners Corporation, and for all of the lot owners, or whether, instead, the purpose of the application was to secure a benefit for the plaintiffs, that for technical reasons required the ability of the plaintiffs to be able to wield the name of the Owners Corporation to secure that benefit for themselves.

115. There are many other cases in which the court has required the party who wishes to sue in the name of the corporation to indemnify the corporation. They do not require detailed consideration, but include Aliprandi v Griffiths Vintners Pty Ltd (in liq) (1991) 6 ACSR 250; Carpenter v Pioneer Park Pty Ltd (in liq) [2004] NSWSC 1007; (2004) 51 ACSR 299; Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732; and Reading Entertainment Australia Pty Ltd v Whitehorse Property Group Pty Ltd (prov liq apptd) [2007] VSCA 309.

116. The range of circumstances that can arise in relation to the costs orders that are appropriate in derivative actions was recognised by Black J in Re Wan Jia (Australia) International Development Pty Ltd [2012] NSWSC 1007, where his Honour said:

[28] JSC seeks an order under s 242 of the Corporations Act, that the Company bear the costs of the proceedings to be brought by the Commercial List Response and Cross-Claim in the Commercial List Proceedings. In the alternative, JSC indicates that he will consent to an order that he bear the costs in the first instance, subject to an ability to apply to the court for leave to recover them at a later date.

[29] In Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 412 ; (2005) 53 ACSR 732, Austin J declined to make a costs order where the company’s claim was, as here, one aspect of a wider dispute between the parties. His Honour observed at [51] that:

Sometimes satisfaction of the “serious question to be tried” criterion will lead readily to the conclusion that the applicant should be permitted to assert the company’s claims on its behalf. But where, as here, the assertion of those claims is simply a manifestation of aspects of the overall dispute between the parties, it will often be appropriate for the court to address the question of costs in the event that the claims fail. A suitable way of doing so, addressed during the hearing of the present application, is to grant leave on terms that the applicant is responsible for the costs ordered against the company, and undertakes not to seek contribution or indemnity from the company.

In Roach v Winnote Pty Ltd [2006] NSWSC 231 ; (2006) 57 ACSR 138 at [29], Barrett J observed that:

It is thus clear that courts are concerned in some cases to ensure that the person granted leave under s 237 should bear, either wholly or in part, the burden of the company’s costs in relation to the proceedings in which that person is to represent the company. Measures of that kind are intended to protect the company’s financial resources and are merely part of the domestic arrangements within the company as to the basis on which the person concerned will be permitted to act for it.

In Sub Rosa Holdings Pty Ltd v Salsa Sudada Production Pty Ltd [2006] NSWSC 916 at [49], Barrett J similarly noted that:

[i]t is commonplace for a person given permission to pursue a claim on behalf of a company to be required, in the first instance, to bear the burden of costs.

On the other hand, an order that the company pay the costs may be made in an appropriate case, as occurred in Farrow v Registrar of Building Societies [1991] 2 VR 589 (where that costs order was later revoked) and in Woods v Links Golf Tasmania Pty Ltd [2010] FCA 570.

[30] On balance, I do not consider that I should make an order that the Company bear the costs of the steps to be taken in the Commercial List Proceedings at this stage. Those steps seem to me to be a relatively small part of what is, in substance, a dispute between the respective shareholders in the Company. I recognise that, as JSC contends, the Chinese Agreement contemplates that he will hold the entire interest in the Company and, if that had occurred, he would (subject to the interests of creditors in an appropriate case) be entitled to cause the Company to defend the Commercial List Proceedings and bring a Cross-Claim in them at the Company’s cost. However, there are presently disputes between the parties as to the performance of the Chinese Agreement and the evidence before me does not allow me to assess the potential impact of those disputes on the Company.

[31] In my view, the court will be in a significantly better position to exercise its discretion as whether JSC or the Company should bear those costs when the Commercial List Proceedings have been resolved, and the prudent course is to defer making a ruling as to the costs of those proceedings until that point. That position may also be affected by any order as to costs made in those proceedings.

117. The question is not whether, once and for all, the Owners Corporation should be ordered to indemnify the plaintiffs for their costs, or the plaintiffs should be ordered to indemnify the Owners Corporation. As was explicitly recognised in Wallersteiner, an indemnity order may be made in respect of sequential stages of the proceedings. As Black J recognised, there may be cases where the proper order to make cannot safely be discerned early in the proceedings, so that the plaintiff may be required to proceed at its own risks as to costs, with the entitlement to apply for an indemnity order against the corporation at a later time. Further, as Black J observed by reference to the Farrow case, an indemnity order against the corporation that may be made in favour of the plaintiff at an early stage of the proceedings may be reversed, if it should subsequently appear that the plaintiff ought to have indemnified the corporation.

1. As my earlier decision shows, the plaintiffs did not limit their response to discontinuing their application and ensuring that their claim for an indemnity was determined by the court on a proper basis. Rather, they participated in an ineffective meeting of the executive committee, and caused the Owners Corporation to enter into a compromise whereby their application was to be discontinued on the basis that the Owners Corporation would fully indemnify them for their costs of the application. Therefore, the time between their participation in the meeting of the executive committee, and the making of the orders on 26 August 2014, should be regarded as a phase in which the plaintiffs were not acting solely to end their application on a proper basis in respect of their indemnification for their costs.

2. Between 26 August 2014, when the plaintiffs were granted leave to discontinue the proceedings, and the time when Ms Magney first challenged the authority of the Owners Corporation to enter into the compromise that led to the court making the orders that it did on 26 August 2014, any costs incurred by the plaintiffs could not have related to their original application, but only to their personal interests in trying to cause the Owners Corporation to take steps to overturn the remaining orders made by NCAT.

3. Between the date when Ms Magney first challenged the authority of the Owners Corporation to enter into the compromise, and the date of the hearing on 24 November 2014 of Ms Magney’s application for an order setting aside orders 3 and 4 made by the court on 26 August 2014, any legal costs incurred by the plaintiffs could only have fallen into the following two categories. First, the costs could have related to the plaintiffs’ actions in trying to preserve for their personal benefit the order made on 26 August 2014 that the Owners Corporation indemnify them for their costs of the proceedings. Secondly, the costs could have related to their personal interests in relation to the activities of the Owners Corporation.

4. Between 24 November 2014 and the delivery of my judgment on Ms Magney’s application on 19 February 2015, any legal costs incurred by the plaintiffs could only have related to their personal interests in relation to the activities of the Owners Corporation.

5. Between 19 February 2015 and 14 October 2015, when I heard the plaintiffs’ application for an order that they be indemnified by the Owners Corporation for the costs of the proceedings, the plaintiffs may have incurred some legal costs in relation to their personal interests, but they were also faced with the consequences of the orders made on 26 August 2014 being set aside, so they were required to incur additional legal costs in prosecuting their claim for an indemnity.

6. In the period between 14 October 2015 and the publication of my earlier reasons for judgment on 19 February 2015, the parties ought to have been awaiting the outcome of Ms Magney’s application. It is possible that some legal costs were incurred by the plaintiffs in relation to the steps necessary to discontinue the proceedings.

7. From 19 February 2015 to the hearing of the application the subject of the present reasons for judgment on 14 October 2015, the plaintiffs were required to incur legal costs to substantiate their claim for an indemnity. It is also possible that some additional legal costs were incurred in relation to the discontinuance of the proceedings.

164. I should acknowledge that these different stages in the proceedings should be treated as being indicative only. My purpose in describing them is only to illustrate how circumstances have changed since the date of the initial NCAT orders, in relation to the issue of whether the plaintiffs have incurred costs in the interests of the Owners Corporation or their own interests. It is possible that the division may in fact be more equivocal than my division of the period into separate phases would suggest. Ultimately, it would be a matter for assessment on ordinary principles as to whether particular legal costs related to the interests of the Owners Corporation, or the plaintiffs personally.

165. In my view, the plaintiffs are entitled to an order that the Owners Corporation indemnify the plaintiffs in respect of their costs of the proceedings seeking leave to appeal in the name of the Owners Corporation, and those costs will include the costs of their application for an indemnity order, and their costs of terminating the proceedings after the need for the proceedings unexpectedly disappeared.

166. However, the Owners Corporation should not be obliged to indemnify the plaintiffs for legal costs incurred by the plaintiffs concerning the pursuit of their own personal interests in relation to the internal processes of the Owners Corporation.

167. It must be acknowledged that, in relation to the individual components of the costs incurred by the plaintiffs, the distinction between costs incurred in the interests of the Owners Corporation, and in their personal interests, may not always be clear. Judgments may be called for in the process of assessment.

168. Also, in my view, the Owners Corporation should not be ordered to indemnify the plaintiffs for their costs of causing the executive committee to enter into the invalid compromise, nor of resisting Ms Magney’s application to the court to set aside the orders made on 26 August 2014. It was for the plaintiffs, acting on their own legal advice, to decide whether the facts of which they were aware, supported the activities of the executive committee, or the Owners Corporation’s retainer of the solicitor who instructed counsel to advise the court on behalf of the Owners Corporation that it consented to the orders made on that date. After Ms Magney challenged the validity of the retainer, the plaintiffs acted in their own personal interest in trying to preserve the order made in their favour on 26 August 2014. I am not satisfied that the costs incurred in that exercise were sufficiently necessary, or connected with the application by the plaintiffs for leave to appeal in the name of the Owners Corporation, to justify the indemnity covering those costs. The plaintiffs were aware from about 24 July 2014, that the need for the proceedings had disappeared because of the initial variation of his orders made by Mr Meadows.

Did the plaintiffs act solely in their personal interests?

169. In stating my decision that the plaintiffs are entitled to an order that the Owners Corporation indemnify them for some of their costs, I have not ignored the remaining issues raised by the Owners Corporation.

170. The first of those issues, described by Mr Russell as a “secondary issue”, was whether the court in the exercise of its discretion should decline to make the order because in some measure the present application has been made to promote the personal interests of the plaintiffs. As I have explained above at [120], in my view, both the proceedings that led to the NCAT orders, and these proceedings, have always involved the interests of the Owners Corporation. It is true, as a matter of fact, that the conduct of the plaintiffs, and in particular Dr Walters, was the focus of some criticism in Mr Meadows’ reasons for judgment. While that formed a significant aspect of the basis for the orders made by Mr Meadows, that was because the plaintiffs’ conduct formed part of the conduct of the executive committee in its dealings with Ms Porter, on behalf of the Owners Corporation. Given that the appeal from the NCAT orders to this court could only be made by leave, and as to questions of law, it is highly unlikely that the present proceedings would have yielded anything of significance to the personal interests of the plaintiffs. The residual personal benefit to the plaintiffs in bringing these proceedings would not cause me to exercise my discretion against making an indemnity order.

What is the significance of s 80D of the SSM Act?

171. Finally, it is necessary to consider the significance of s 80D of the SSM Act (Issue 6). As I have explained above, the Owners Corporation accepted the conclusion reached by Hammerschlag J in the 2 Elizabeth Bay Road case. The wisdom of the Owners Corporation in adopting this position is established by the recent decisions of the Court of Appeal in 2 Elizabeth Bay Road Pty Ltd v The Owners – Strata Plan No 73943 [2014] NSWCA 409; (2014) 88 NSWLR 488, and The Owners – Strata Plan No 70798 v Bakkante Constructions Pty Ltd [2014] NSWCA 410; (2014) 88 NSWLR 513, which have accepted Hammerschlag J’s reasoning.

172. In 2 Elizabeth Bay Road, Barrett JA, with whom Leeming JA specifically agreed at [105], said (so far as is relevant to the effect of s 80D):

[43] Valuable light is cast on the meaning of s 80D by the decision of this court in The Owners — Strata Plan 5709 v Andrews [2009] NSWCA 189. In that case, a strata managing agent had been appointed by an adjudicator acting under s 162 of the SSM Act. Pursuant to s 162(1)(a), the agent was appointed “to exercise all the functions of an owners corporation“. In exercise of authority thus conferred, the agent commenced certain legal proceedings.

[44] An issue in the case before this court was whether s 80D precluded commencement of the legal proceedings in the absence of a resolution passed at a general meeting of the owners corporation…

[45] It was argued that, having regard to the terms of … s 80D(1), the particular function (… initiation of legal action …) was incapable of being exercised unless a resolution in relevant terms had been passed at a meeting of the owners corporation. Hodgson JA (with the concurrence of Tobias and Young JJA) dealt with that argument as follows (at [69]–[70]):

…

Section 80D deals with other functions of an owners corporation, including initiating legal action; and again, if that function is exercised by a strata managing agent appointed pursuant to section 162(1)(a), it is not exercised by the owners corporation itself; and again, in my opinion, section 80D has no application. This view is confirmed by the language of section 80D. The language “resolution is passed“ is inapt to refer to a determination unilaterally made by a strata managing agent exercising the functions of the owners corporation.

[46] It was thus held that … s 80D was concerned not with the existence or availability of a function or the capacity to perform it but with the exercise of the function. If the function of initiating legal action (being a function of the owners corporation) had fallen to be exercised in the ordinary course by action of the executive committee, a resolution passed at a meeting of the owners corporation would have been required. That is the effect of s 80D. But because, in the particular case, the function of the owners corporation was to be exercised by an agent of the owners corporation pursuant to authority derived from s 162(1), a resolution passed at a meeting of the owners corporation was not required.

[47] It is thus clear that one species of agent of an owners corporation may, in the absence of any resolution under s 80D, cause its principal to initiate legal action of the kind with which that action is concerned…

173. The decisions in Andrews and 2 Elizabeth Bay Road provide support for the proposition that, if the issue is whether the court should permit or authorise lot owners to prosecute proceedings in the name of the owners corporation, which does not involve any decision by the executive committee, s 80D has no application.

174. The Owners Corporation’s argument distilled to the proposition that the existence of s 80D of the SSM Act should have the effect of “raising the bar” when it came to the court exercising its discretion in favour of making an indemnity order. The Owners Corporation submitted that the court should act on the basis that the section expressed a statutory objective that owners corporations should not be subjected to the burden of legal costs without the lot owners first resolving that those costs should be incurred.

175. The court must, of course, respect the statutory intent inherent in s 80D. However, it is difficult to see how the court could logically give any effect to the section in the present context. The parties all understood that the effect of the NCAT orders was that the lot owners could not meet in general meeting, so compliance with s 80D was impossible. Furthermore, when the plaintiffs tried to persuade Whelan to convene a general meeting of the lot owners, Whelan declined, because of its understanding of the effect of the NCAT orders.

176. Consequently, the court has to apply what I might call the Wallersteiner principle on the basis that it must decide what is in the interests of the Owners Corporation, in the absence of any relevant resolution by the lot owners in general meeting. (It is not necessary to consider the alternative possibility, which the plaintiffs sought by order 3 in their further amended summons, that the court might order that an informal meeting of the lot owners be convened for the purpose of providing evidence to the court of the wishes of the lot owners. The plaintiffs properly sought that alternative order, but events intervened, so that the court did not have an opportunity to decide whether or not it should make orders 1 and 2, without order 3 first having been made and implemented).

177. I do not think that the absence of compliance with s 80D is in the circumstances of this case a proper reason for the court to decline to make the indemnity orders that I have decided should be made . (I add that the court should also not be concerned with what the lot owners may resolve after they regain the capacity to meet in general meeting. It would not be surprising if they resolved against indemnifying the plaintiffs for their costs after the need for the proceedings commenced by the plaintiffs had disappeared. The entitlement of the plaintiffs to an indemnity should be decided on the basis of the facts as they appeared when the plaintiffs had to make their decision as to whether or not they would commence the present proceedings).

The third defendant’s application for costs

178. As I have said above, Ms Porter, the third defendant, was joined to the proceedings by order made by White J on 27 June 2014.

179. Ms Porter sought an order that the plaintiffs pay her costs of the proceedings on an indemnity basis, and if not on that basis, the ordinary basis. (She did not ask for an order that her costs be paid by the Owners Corporation, whether directly or by indemnifying the plaintiffs against an order that they pay her costs).

180. The plaintiffs’ response was to submit that Ms Porter ought to have filed a submitting appearance, if she did not want to take the risk of having to bear her own costs of the proceedings. Alternatively, she should bear her own costs on the basis of the Lai Qin principle. Finally, if the court were minded to make an order for costs in her favour, the order should be made directly against the Owners Corporation, or alternatively, if the plaintiffs were ordered to pay Ms Porter’s costs, the indemnity that they should receive from the Owners Corporation should include their obligation to pay Ms Porter’s costs.

181. Written submissions dated 21 May 2015 were filed in support of Ms Porter’s application. Mr Hand, of counsel, who was not the counsel who drafted the written submissions, appeared for Ms Porter at the hearing. He made brief submissions that were mainly consistent with the written submissions.

182. In essence, Ms Porter’s claim is that the plaintiffs should be ordered to pay the costs because they have in effect capitulated, and in so far as they have sought leave to discontinue the proceedings, the ordinary consequences of discontinuance should follow.

183. I do not accept that it is correct to characterise the position taken by the plaintiffs in these proceedings as a capitulation. They prosecuted these proceedings until, apparently to the surprise of all parties, Mr Meadows indicated, by his response to Mr Loverage’s letter, that he would readily vary the initial orders that he made, apparently under s 190. Consequently, the need for the proceedings disappeared. It became inevitable that the proceedings would have to be discontinued or dismissed. The plaintiffs acted to achieve that result on terms that they thought to be reasonably appropriate. When the apparent compromise miscarried, they have only sought an order indemnifying them for their costs.

184. Ms Porter also submits that the plaintiffs should not have commenced these proceedings and sought leave to take proceedings in the name of the Owners Corporation, and should not have sought an order that the Owners Corporation indemnify them in respect of their costs. Instead, she says that the plaintiffs ought to have made an application in their own names for judicial review of the orders made by NCAT under Part 5 of the Supreme Court Act 1970 (NSW), or relisted the matter before NCAT for the purpose of having the orders made by NCAT corrected under s 190. Mr Hand put the argument slightly differently in his oral submissions. He submitted that the plaintiffs ought to have requested Ms Porter to make an application to NCAT under s 190. Mr Hand may have taken this course because of an appreciation that the plaintiffs, both as lot owners and members of the executive committee of the Owners Corporation, did not fall within the categories listed in s 190(2) of the SSM Act as being parties entitled to make an application under that section. Ms Porter, as the applicant for the original order, had that standing under s 190(2)(c).

185. Ms Porter submits that the plaintiffs should be ordered to pay her costs on the basis that she put a Calderbank offer to the plaintiffs by letter dated 8 August 2014, which the plaintiffs rejected on 15 August 2014.

186. Two affidavits were read at the hearing in support of Ms Porter’s claim. The first was sworn by her husband, Mr Anthony Porter, dated 7 May 2014, and the second by her solicitor, Mr Paul Jurdeczka, dated 21 May 2015.

187. I will set out the part of the transcript that deals with the reception of this evidence. I do so because it is material to understanding a number of errors in the identification of the counsel that were addressing the court at the time. The extract is at 14/10/15 17.2-18.7 (I have made a number of observations or revisions in square brackets):

HIS HONOUR: Mr Hand.

HAND: Your Honour, I read two affidavits. One is the affidavit of anything [read Anthony] Porter, this is in vol 3 of the court book, at p 1047. I should make clear, your Honour, too, that my client does not wish to be heard on this question of the indemnity. My client's application is rather discrete and goes to the question of the protocols [?] to these proceedings.

HIS HONOUR: Yes.

COTMAN: I'm sorry, your Honour, might I rise in relations [sic] to Anthony Porter's affidavit. My learned friend's quite right in so far, my learned friend says that the quarter [read Porter] position is a position in relation to costs only, that is to say their application for costs in the proceedings. A great deal of this affidavit appears to be dealing with the merits of the appeal for matters. In fact I frankly don’t understand what they have to do with the questions of costs at all. Seeking to in effect un pick it is almost impossible. We object to it so far as it deals with the entitlement to costs of the Porters in respect of the proceedings.

The first point that seems to be actually germane to it is with reference to the joinder of Mrs Porter as a party, and then the consent orders dealt with in para 24 and following, down to para 27, and then the balance of it deals with another set of proceedings altogether.

HIS HONOUR: Mr Hand, what do you say about this?

HAND: Your Honour, this affidavit goes to meet what I anticipate will be a submission that my client acted unreasonably in resisting the application before this Court. All this affidavit sets out is the context in which my client participated in these proceedings, and the activities that she took in the course of these proceedings, and ultimately the submission I'll make to you is that she made every attempt to try and resolve it.

HIS HONOUR: Mr Cotman, I think that's a reasonable basis for receiving the evidence. I'll hear submissions as to its ultimate relevance.

AFFIDAVIT OF ANTHONY PORTER SWORN 07/05/15 READ

HIS HONOUR: What is exhibit AP1 about?

COTMAN: Your Honour, some of those documents I may not seek to tender. Perhaps I could come back to that in a few moments. The next affidavit I read is at p 1185 of volume 3.

AFFIDAVIT OF PAUL STANISLAW JURDECZKA SWORN 21/05/15 READ SUBJECT TO THE FOLLOWING RULINGS ON OBJECTIONS

Paragraphs 29 to 32, irrelevant; rejected

COTMAN: Your Honour, I won't burden you with the exhibits to either of those affidavits. I do not tender those exhibits.

HIS HONOUR: That will be noted. That's the evidence?

COTMAN: Yes.

188. The first observation that must be made is that, as I read this transcript, every reference to Mr Cotman after the first one should be a reference to Mr Hand.

189. The second observation is that the evidence of Mr Porter was admitted on the limited basis described by Mr Hand where he said: “All this affidavit sets out is the context in which my client participated in these proceedings, and the activities that she took in the course of these proceedings, and ultimately the submission I'll make to you is that she made every attempt to try and resolve it”.

190. In relation to Ms Porter’s submission that the plaintiffs ought to have restricted their response to the orders initially made by NCAT to an application in their own names for judicial review by the Supreme Court, I reach the same conclusion as I have set out above when considering the plaintiffs’ application against the Owners Corporation. I am not satisfied that reasonable conduct on the part of the plaintiffs required them to be content with the possible fruits of a successful judicial review application.

191. In relation to the initial submission made on behalf of Ms Porter, that the plaintiffs ought to have made an application in their own name to NCAT to vary the original orders under s 190, I take the view that the plaintiffs acted reasonably in believing that they did not have personal standing to make that application, and that in addition they did not have power to make the application in the name of the Owners Corporation.

192. It is correct to say that there is no evidence that the plaintiffs asked Ms Porter to make an application under s 190. Ms Porter could have made that application herself, but did not do so. There is no evidence given on behalf of Ms Porter that, if she had been asked by the plaintiffs to make the application under s 190, she would have done so.

193. I have formed the view that it would not be appropriate to order that the plaintiffs pay Ms Porter’s costs on an indemnity basis because the plaintiffs failed to accept the Calderbank offer made by Ms Porter on 8 August 2014. The reality is that, when Mr Meadows made his initial variation of the orders at the request of Mr Loverage, the basis upon which all parties to the proceedings had been acting changed fundamentally. There was apparently a view that there was a residual uncertainty concerning the validity and effect of the varied orders (which was resolved by the third set of orders made by Mr Meadows), but all parties came to understand that Mr Meadows was ready to vary his orders on the application of any party who appeared to have some interest in the matter (even apparently parties who did not clearly fall within the categories set out in s 190(2)).

194. The plaintiffs made a somewhat complicated offer to settle the proceedings in a letter dated 1 August 2014. Ms Porter made a counter offer in her letter of 8 August 2014, relying upon the Calderbank principle. The plaintiffs rejected that offer in their 15 August 2014 letter, but made a further counter offer. All of this led to an apparent agreement on particular terms that ultimately were reflected in the short minutes of order that I made on 26 August 2014, under the misapprehension that all of the parties, including the Owners Corporation, consented to the making of those orders.

195. The short point is, which I believe can be made in the circumstances without any elaborate analysis of the correspondence, that after Mr Meadows made his initial variation orders, all of the parties appeared genuinely to have investigated the possibility of disposing of the proceedings on appropriate agreed terms. The attempt to do so miscarried for the reasons that I have explained above. I do not accept that the offers made by any of the parties were obviously more reasonable than the positions adopted by the others. I also do not accept that it is feasible in the exceptional circumstances of this case to decide that the final outcome is so obviously worse for the plaintiffs than was offered by Ms Porter in her 8 August 2014 letter, that it was unreasonable for the plaintiffs to fail to accept that offer. Finally, in any event, Ms Porter’s offer was subject to the Owners Corporation in general meeting agreeing to the particular settlement proposed, and there is no evidence that the Owners Corporation would have made that agreement.

196. The true position of Ms Porter in these proceedings can be distilled in relatively simple terms. Ms Porter was the applicant in the NCAT proceedings. She partly succeeded in those proceedings. For the period in which it appeared that the effect of the NCAT orders was that neither the executive committee nor the lot owners in general meeting could resolve to cause the Owners Corporation to appeal from the NCAT orders, or to challenge them in some other way, it was reasonable for the plaintiffs to seek to act in the name of the Owners Corporation. For the same reason, it appeared that there was no party who could act as a proper contradictor. Ms Porter was the obvious party to select as a possible contradictor, and she was joined as a party by order of the court, and not of her own motion. While it is true that Ms Porter could have simply filed a submitting appearance, that course would not have satisfied the reasons why Ms Porter was joined by an order of the court in the first place. Had she submitted, the court would probably have had to consider whether some other contradictor should be appointed. Ms Porter acted in the manner contemplated by the circumstances in which she was joined as third defendant, and in my view all of her subsequent actions were reasonable from that perspective. The initial variation of the NCAT orders occurred relatively early in the proceedings, and it is generally true to say that Ms Porter and her legal representatives did no more than was necessary and reasonable for them to do in order to investigate the issues and to decide the course that it would be proper for Ms Porter to take. I accept that Ms Porter went to reasonable lengths to try to achieve a satisfactory compromise of the proceedings.

197. I am satisfied that Ms Porter has acted reasonably, and that she has incurred legal costs, essentially at the behest of the court, because of the need for there to be a contradictor in relation to the claims made by the plaintiffs, given the appearance that was accepted by all of the parties that the Owners Corporation could not, in any way, look after its own interests. It would not be proper in these circumstances for Ms Porter to have to bear her own legal costs, particularly if that result was caused by the unexpected disappearance of the need for the relief sought by the plaintiffs to be granted.

198. I propose to state my preliminary view as to the course that should be taken by the court in relation to Ms Porter’s costs. I will not form a final view until the Owners Corporation has had the opportunity, which I will give it, to make further submissions on the issue. I will state my preliminary views in the hope they will be of assistance to the parties, but I will remain open to reconsideration on the basis of any further submissions that are received.

199. There are exceptional features of the present case. In the more general case, where parties who have a proper interest in causing a company to take proceedings to seek relief for wrongs done to the company commence proceedings for the benefit of the company, the reason why the company does not take those proceedings itself is because the company is under the control of the alleged wrongdoer. On the one hand, the need for a mechanism to exist that permits the company to receive the relief to which it is entitled may justify the court ordering the company to indemnify a plaintiff who properly acts to take proceedings for the benefit of the company to seek that relief. On the other hand, the defendant will be the alleged wrongdoer, whose responsibility it will be to defend the claim made on the company’s behalf against that party, and at least in the first instance to fund the legal costs of that defence. In the present case, all parties initially acted upon the common assumption that the Owners Corporation did not have power to act on its own behalf, and that no other party had power to do so. The Owners Corporation’s need was not to seek recovery in respect of a wrong done to it by some wrongdoer who was in control of the Owners Corporation. The need was for the Owners Corporation to take legal action to set aside orders made by NCAT that were believed to have the effect that both the executive committee and the lot owners in general meeting were deprived of all power to exercise their ordinary rights and powers for a period of 24 months. The question therefore arose as to whether the court should authorise the plaintiffs to act in the name of the Owners Corporation, and require the Owners Corporation to indemnify the plaintiffs in respect of their legal costs. That is a question that the court had to determine in an apparent vacuum as to contradiction by some other party, who had a proper interest in resisting the orders sought by the plaintiffs. The determination could not have been made based upon a preliminary judgment concerning the appearance of wrongdoing against the company, and control of the company by the alleged wrongdoer.

200. In the particular circumstances of this case, I cannot see why, if the court has jurisdiction to order the Owners Corporation to indemnify the plaintiffs in respect of their legal costs, the court does not also have power to order the Owners Corporation to indemnify Ms Porter for her legal costs, as the contradictor effectively appointed by the court, where the appointment was not made on her own motion. In the more usual case, there will be no doubt that the company has effective power to decide to institute proceedings for relief against the wrongdoer. The problem is that that power is in the hands of the alleged wrongdoer. Where, as here, the problem is that it is believed that the company has no power to make its own decision, and there is no question of a wrongdoer being in control of the company, it would not be rational to distinguish between the position of the party who seeks the court’s leave to commence proceedings on behalf of the company, and the party who is chosen by the court to contradict the application. Provided that both parties act properly and reasonably in relation to their respective roles, the need for the application and its contradiction is made necessary by the apparent absence in the company of the power to make its own decision, so the steps taken by both parties are equally in the interests of the company. It is an unfortunate expense for the company to have to bear, but in my view Ms Porter in the present case is as much entitled to an indemnity from the Owners Corporation as are the plaintiffs.

201. It appears to me that, at least in the case where a party in Ms Porter’s position has been joined to the proceedings by order of the court, the simplest and most logically sound approach is to order that the Owners Corporation indemnify her for her costs directly. I cannot see any proper basis for ordering the plaintiffs to pay Ms Porter’s costs, as they did not choose to join her as a defendant, and as the need for the proceedings unexpectedly disappeared, they should not be made liable for her costs on the Lai Qin principle. It would, in the circumstances, be artificial and pointless nonetheless to order the plaintiffs to pay Ms Porter’s costs, and then order the Owners Corporation to indemnify the plaintiffs in respect of that liability.

Conclusion

202. It will be necessary for me to make directions to give the Owners Corporation an opportunity to make submissions on the issue of whether it should be ordered to indemnify Ms Porter for her costs of these proceedings.

203. Subject to that issue, I propose to give the parties an opportunity to bring in short minutes of order to reflect these reasons for judgment. It is particularly appropriate that I take this course, because although I have ruled that an order should be made that the Owners Corporation indemnify the plaintiffs for their costs of these proceedings, that order will be made subject to qualification in relation to certain activities of the executive committee, to Ms Magney’s application, and it will also not extend to any costs incurred by the plaintiffs in pursuing their own personal interests. As there may well be practical difficulties in the process of assessing what costs should fall within the indemnity, I should invite the parties to consider the form of orders that might be made by the court that will minimise the practical difficulties that may arise.

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Amendments

27 June 2016 - amendment to case name on cover sheet

27 June 2016 - amended pars 190,194,195,197 incorrect reference to non-tender

Decision last updated: 27 June 2016