The Owners Corporation – Units Plan 3217 v AJ Properties Pty Ltd And Anor (Unit Titles)
[2019] ACAT 35
•22 March 2019
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
THE OWNERS CORPORATION – UNITS PLAN 3217 v AJ PROPERTIES PTY LTD AND ANOR (Unit Titles) [2019] ACAT 35
UT 20/2018
Catchwords: UNIT TITLES – application of insurance money by owners corporation – amount held in trust by manager of Owners Corporation – delay in settlement – repair works personally funded by units owner – application for refund of payment for work already carried out – responsibility for managing units plan – priorities in application of insurance money
Legislation cited: Unit Titles (Management) Act 2011 ss 6, 7, 9, 10, 16, 19, 24, 50, 60, 99, 100, 103, Part 8
Tribunal: Senior Member G Lunney SC
Date of Orders: 22 March 2019
Date of Reasons for Decision: 22 March 2019
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) UT 20/2018
BETWEEN:
THE OWNERS CORPORATION – UNITS PLAN 3217
Applicant
AND:
AJ PROPERTIES PTY LTD
First Respondent
XBOX PROJECTS PTY LTD
Second Respondent
TRIBUNAL: Senior Member G Lunney SC
DATE:22 March 2019
ORDER
The Tribunal orders that:
1.Of the sum of $1,000,000 held by it, the manager of Units Plan 3127 should pay the sum of $540,192 to the applicant owners corporation.
2.The applicant is to disburse, from those funds, all payments necessary for completion of rebuilding and reinstatement work on unit 13 in the Units Plan in accordance with the scope of works prepared by Aaron Still and incorporated into spreadsheet ‘A’ in the Joint Expert Report, Exhibit 12 in these proceedings.
3. Should any amount of the funds remain unspent after all payments in relation to rebuilding and reinstatement work on unit 13 have been made, that remaining sum should be paid to the second respondent in these proceedings upon the condition referred to in order 5.
4.The manager of Units Plan 3127 should then pay the balance remaining, $459,808, to the second respondent on compliance with the order 5.
5.Payment shall be made upon production by the second respondent of receipts under the hand of Olive Tree Construction Pty Ltd for payment by the second respondent for construction work done by that company at the request of the second respondent at 65 Tenant Street, Fyshwick, Australian Capital Territory of amounts equal to or more than the amount paid out.
6.Execution of these orders is stayed until close of business on 1 April 2019.
………………………………..
Senior Member G Lunney SC
REASONS FOR DECISION
1.This is an application brought under the Unit Titles (Management) Act 2011 (UTM Act) for orders to be made against unit owners in respect to competing claims on the Owners Corporation (OC) for payment of insurance money paid to the OC following a fire at the premises.
Background
2.The factual background is complex. The summary that follows is taken from the narrative attached to the application filed on 3 July 2018.
3.The subject premises are commercial units at 65 Tennant Street, Fyshwick, in the Australian Capital Territory (the property). The first respondent is the registered proprietor of unit 13 of the property.
4.The second respondent is the registered proprietor of units 1, 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, 14, 15, and 17, and was the developer of the premises.
5.On 17 October 2016 there was a fire at the premises which started in unit 13. Units 11, 12, 13, and 14 were damaged in the fire. Three of the units damaged were owned by the second respondent, and one was owned by the first respondent.
6.The premises were insured by the OC with CHU Underwriting Agencies Pty Ltd (the insurer). A claim was made for cost of remediation and loss of rent of the affected properties. The insurer appointed a loss adjuster, Tony O’Connor (TO), of a firm called Cunningham Lindsey.
7.Other brokers and insurers became involved in relation to contents insurance. None was held by the OC, but the second respondent had a policy through PSC Insurance Brokers with AAI Limited trading as Vero Insurance.
8.The first respondent had sublet its unit, unit 13, to FM Projects Australia Pty Ltd (FM) which was insured with The Hollard Insurance Company Pty Ltd for its contents. FM made a claim on the policy which included a fit–out which they did mainly on the ground floor of unit 13. This claim was paid out with some reduction for underinsurance asserted by the insurer.
9.The definitions of ‘contents’ and ‘building’ were mutually exclusive in the policies, so that there were theoretically no double insurance conflicts.
10.There was some delay with the claim mentioned in paragraph 6, the cause of which is not relevant. The insurer requested a report from Sergon Building Consultants (Sergon) on or about 2 November 2016;[1] however the report which became Exhibit 3 was not done until 4 April 2017.
[1] Exhibit 4 (Witness statement of Philip Dimov dated 20 August 2018) [60]
11.However, the second respondent moved independently of the process adopted by the insurer and had some remedial work done by a building firm called Olive Tree Construction Pty Ltd (OT). This process commenced as early as 21 October 2016 when Mr Philip Dimov (PD), the principal of the second respondent, inspected the site with a representative of OT with a view to making some temporary repairs so that tenants might return to occupation.
12.On about 27 October 2016, OT quoted $123,538 to undertake rectification works for units 11 and 14 in order to bring them back to habitable condition. They had been less affected by the fire than units 12 and 13. Of that amount, $65,000 was paid by the second respondent’s contents insurer, Vero Insurance. The unit 14 tenant moved back in on 8 November 2016.
13.On about 8 November 2016, OT issued a quote to undertake rectification works on units 12 and 13. The breakup of that was $55,406 plus GST and $64,590 plus GST.[2]
[2] Exhibit 4 [65]
14.PD says that the second respondent received payment of a total of $93,564.80 from the OC.[3]
[3] Exhibit 4 [70]
15.Evidently a draft copy of the Sergon Scope of Works report became available at the end of March 2017, although the final report is dated 4 April 2017.[4]
[4] Exhibit 3 (Sergon Building Consultants ‘Scope of Works’ Report dated 4 April 2017)
16.On about 17 March 2017, PD contacted the quantity surveyor, Mr Aaron Still, who had worked on the construction of the premises[5]. Mr Still provided a report to PD on or about 18 May 2017 which costed the Sergon Scope of Works at $1,123,500 plus GST.[6]
[5] Exhibit 4 [92]
[6] Exhibit 4 [105]
17.Around 12 April 2017, the insurer paid $57,580 to the OC for past works done by OT, which was then paid by the manager to the second respondent. This was followed by another payment of $35,984.80 on 28 June 2017.
18.On about 30 May 2017, PD received a detailed costs estimate from Sergon quantifying the Scope of Works it had prepared. This was $1,123,500 plus GST.
19.A meeting was then held on 6 June 2017 at which both the first respondent and the second respondent were represented. The insurer provided a quotation from a Sydney builder for $937,862.42 and proposed that funds would be provided by the insurer for acceptance of that quote. Evidently the first respondent was not willing to have a Sydney builder undertake the work.
20.The first respondent engaged another quantity surveyor, Mr James Osenton of WT Partnership Australia, to prepare a costing of the Sergon Scope of Works. His report is dated 27 June 2017 and is consistent with the report of Mr Still.[7] He costed the work at $1,120,153.35.
[7] Exhibit 2 (Second Respondent’s Bundle of Documents) tab 69
21.By September 2017, the insurer had fallen behind in payment of the unit 13 loss of rent claim and the insurance of the property was about to expire.
22.On 5 October 2017, PD emailed all owners that due to delays and other reasons he had decided to start repair works “by next week”.[8] He would obtain a loan, fund the costs himself and ask the insurer to reimburse. At that stage he had received a quote from OT for completion of rectification of $583,000. The quote[9] indicates that it is only for external works and excludes all internal works and services.
[8] Exhibit 2 tab 80
[9] Exhibit 2 tab 77
23.On 6 October 2017, the insurer sent a letter by email to the proprietors of Units Plan 3217. The letter summarised the situation to that time and made two proposals for rectification that included continuing payment of the loss of rent claims for units 12 and 13. A little over an hour after the sending of that email, PD replied saying “please be advised we have engaged a builder and made payment to start works and order materials.”[10] A reply from the insurer on 10 October 2017 indicates that the insurer had referred the claim to its legal department.
[10] Exhibit 7 (Affidavit of John Glass dated 10 August 2018) Annexure D
24.Then, on 7 October 2017, OT requested Angelo Damiano of the first respondent to sign forms to enable the external work to proceed.
25.On 11 October 2017, the first respondent notified the manager that its preference was to accept one of the offers made by the insurer. This is confirmed in a more lengthy email of 13 October 2017. The external work by OT proceeded.
26.A final invoice of $250,000 inclusive of GST was presented by OT to the second respondent on 26 November 2017. A Certificate of Occupancy and Use was issued in respect of unit 13 on 27 November 2017. This describes the extensive nature of the work carried out.[11]
[11] Exhibit 2 tab 101
27.The present condition of unit 13 was not the subject of detailed evidence. It was clear, however, that further work was needed in order for unit 13 to be used for commercial purposes.
28.Further negotiations between the parties failed to settle the outstanding issues and the matter went to mediation, at which it was settled by the insurer making a payment of one million dollars with mutual releases. A deed was entered into and is dated 21 June 2018. The settlement sum was paid to the manager of Units Plan 3217 and abides the outcome of these proceedings.
The hearing
29.The two respondents have been the principal litigants and the approach of the applicant has been to abide the orders of the Tribunal. Much of the evidence focussed on issues of fault, as the parties analysed the insurance and remediation issues that arose after the fire.
30.Almost all of the remediation work has been carried out by OT at the direction of PD, the principal of the second respondent. However there was some direct intervention by the insurer. This is referred to in its letter of 6 October 2017.[12] It obtained the Scope of Works undertaken by Sergon dated 4 April 2017. Based on that report the insurer engaged an engineer to provide advice on the precast concrete walls and steel roof beams of unit 13. After receiving advice from an engineer that partial demolition was required to make the assessment, Irwin and Hartshorn Pty Ltd undertook the necessary partial demolition. It is likely on the evidence that these precast concrete slabs have been reinforced rather than replaced. It is of note that the principal of OT refers to strengthening the slabs in an email of 18 September 2017 when quoting for the external work to units 12, 13 and 14.[13]
[12] Exhibit 2 tab 82
[13] Exhibit 2 tab 77
31.The two respondents put forward competing claims in respect of the amount held in trust.
32.The first respondent claimed payment of a total of $729,796.77. This amount was composed of $656,336.77 being Mr Osenton’s estimate of the rectification costs of unit 13[14] plus a claim for loss of rent and associated expenses.
[14] Exhibit 7 Annexure AB
33.The second respondent seeks payments made to OT for which reimbursement has not been paid. This relates to work commenced by OT around 6 October 2017 which were described as external works to units 12 and 13 which share structures at their front. The other works that were ordered by PD for OT to undertake were commenced in about July 2018 and related to internal fit–out of unit 12.
34.Each of the respondents had engaged quantity surveyors to advise them. The surveyors each gave reports, but were willing to get together and discuss their reports and their differences and to prepare a joint report which was dated 12 November 2018. This report is highly relevant to the resolution of these proceedings and will be referred to later. Before doing so, it is desirable to examine the earlier reports prepared by these two experts.
Aaron Still of Aaron Still Consulting Pty Ltd
35.Mr Still’s early work commenced in mid March 2017 when the second respondent asked him to assist with some costings. This he proceeded to do, providing some Opinions of Probable Cost for OT. He also prepared a costing based on the Sergon report, which he estimated at $1,123,500. He prepared a separate report dated 11 November 2018 which gives a costing of the last two lots of work done on the premises, usually referred to as the third and fourth OT works. This report has now been admitted into evidence as Exhibit 14.
James Osenton of WTP Australia Pty Ltd
36.Mr Osenton’s report is dated 23 July 2018. He was engaged by the first respondent to provide an assessment of the costs required to repair the remaining resultant fire damage to unit 13. He had previously been asked by the first respondent to prepare a costing of damage repair based on the Sergon report. He visited the site on 19 June 2017. His estimate was $1,232,168.69.
The joint report
37.In the joint report, each expert has estimated costings of fire damage firstly to unit 13; and, secondly, to unit 12 including the rest of the building. The report itself is divided into six parts each with a corresponding detailed Appendix as follows:[15]
[15] Exhibit 12 (James Osenton and Aaron Still ‘Joint Report’ dated 12 November 2018)
Paragraph 10 Appendix A Overall costing comparison
Paragraph 12 Appendix B Costs in Agreement
Paragraph 13 Appendix C Costs in Disagreement
Paragraph 14 Appendix D Costs of works not done by OT
Paragraph 15 Appendix E Costs of works done by [OT] that are a result of a change in rectification methodology as outlined in the Sergon Report
Paragraph 16 Appendix F Costs of items[16]
Legislative background
[16] These were items included in Mr Still’s report and claimed by OT and the second respondent but not included in the Sergon Report. They were not costed by Mr Osenton
38.The UTM Act regulates the management of units plans. Section 6 sets out the objects of the Act and paragraph 6(a) provides that the first object is to make it clear who is responsible for managing units plans. Section 7 provides that the owners corporation is responsible for managing the units plan. The note to that section says that an owners corporation may be assisted in that by the executive committee, a manager engaged under section 50, or a service contractor under section 60. The evidence indicates that no executive committee has yet been appointed, and a service contractor is not relevant to the issues in this case. Mr Mark Sukroo of Jones Lang LaSalle (JLL) gave evidence at the hearing and identified that firm as being the appointed manager of Units Plan 3217. Mr Sukroo’s position with JLL is ‘Head of Property and Asset Management – ACT’.
39.The deed of settlement of 21 June 2018 provided for the insurer to pay one million dollars to the owners of Units Plan 3217 in settlement of the insurance claim on the terms contained in the deed. The owners were defined in the deed as being the OC and the individual lot owners of units 11, 12, 13, and 14 which in the circumstances were the first and second respondents. The owners could not reach agreement as to distribution of the funds and it was agreed to seek orders from the tribunal regarding distribution.
40.It was the OC which held the insurance against which the claim was made. Section 9 of the UTM Act provides that the OC is a corporation with the independent existence associated with that term. Section 10 of the UTM Act provides that the members of the owners corporation are the owners of the units. Section 16(1)(b) provides that the OC has the control, management and administration of the common property. Section 19 provides that the OC holds the common property as agent for the owners of the units.
41.Section 24 of the UTM Act imposes an obligation on the OC to maintain the common property. Section 100 obliges the OC to insure all buildings on the land for replacement value from time to time.
42.‘Building’ is defined in section 99 of the UTM Act as follows:
99 Meaning of building and land—div 5.4
In this division:
building, on the land—(a) includes—
(i) any improvements and fixtures forming part of the building; and
(ii) any improvements and fixtures, including site improvements, consisting entirely of common property; and
(iii) anything prescribed by regulation as forming part of a building; but
(b) does not include—
(i) paint, wallpaper and temporary wall, floor and ceiling coverings; or
(ii) fixtures removable by a lessee or sublessee of a unit at the end of a lease; or(iii) anything prescribed by regulation as not forming part of a building. [example omitted]
43.Section 103 of the Act relates to use of insurance money by an OC:
103 Application of insurance money by owners corporation
(1) If an owners corporation for a units plan receives insurance money for damage to, or destruction of, any building on the land, the corporation must, without delay, apply the insurance money to rebuilding and reinstating the building.
(2) Subsection (1) applies subject to this Act, other territory laws and any order of a court.
44.The competing claims of the first and second respondents have included claims for loss of rental. Payments of this nature were terminated by the insurer at a time when it could be inferred that its view was that settlement of the claim was unlikely to occur within its parameters. The claims are controversial and it is within the Tribunal’s jurisdiction to determine them.
45.However, the amount paid by the insurer and the settlement deed does not differentiate between components of the claim and the amount settled on is well within the range of cost of repair constituted by the builders’ quotations and the estimates of Mr Still and Mr Osenton. However, more importantly, without differentiation by either the insurer, or the settlement deed, the amount paid in settlement comes squarely within the terms of section 103 of the UTM Act — “insurance money for damage to, or destruction of, any building on the land”. In those circumstances, it is appropriate that the settlement sum should be expended on, as first priority, reinstatement of outstanding damage; and, as second priority, refund or payment for work already carried out.
Consideration
46.Sections 100 and 103 of the UTM Act have already been referred to. The settlement sum which is held by the manager is covered by section 103 and is to be applied to rebuilding and reinstating the building. Section 24 of the UTM Act establishes the obligation of the owners corporation to maintain the common property, so that it is for the owners corporation to apply the funds in reinstatement of the fire damage.
47.Reinstatement of some of the fire damage has been paid for by the second respondent and some in unit 13 remains outstanding. In these circumstances, it would be appropriate for the insurance fund to be applied by the owners corporation to execution of outstanding work and refund of expenditure by the second respondent. The fund is limited and is the result of compromise by the owners corporation of its insurance claim resulting from the fire damage. It is within the quite wide jurisdiction of the Tribunal under Part 8 of the UTM Act to direct an equitable distribution of the insurance fund between the two destinations.
48.It would be inappropriate and inconsistent with the UTM Act to provide part of the fund to a party other than the owners corporation and allow it to undertake outstanding restoration. That the work must be done and the amount of the funds available to do it are constants, but discretionary decisions will have to be made by the corporation in the course of construction and that discretion will be subject to the legislation and, if necessary, the tribunal.
49.During the hearing, allegations of the fault of parties were raised and some issues explored. The obligation of the corporation under section 103 of the UTM Act to reinstate, and to refund past cost of reinstatement, is clear and for the purposes of this litigation relating to the disbursement of an existing insurance fund, independent of issues of fault.
Reinstatement of unit 13
50.The cost of further repairs to unit 13 was the subject of assessment by both quantity surveyors in their joint report.[17] Mr Osenton’s opinion was solely based on the Sergon report, whereas Mr Still took into account some savings achieved in other areas, and his assessment at $520,488.41 plus GST is less than Mr Osenton’s at $655,093.60.
[17] Exhibit 12
51.The difference between the experts can be explained largely due to difference in methodology, referred to above, and more details are found in the joint report.[18] The evidence indicates that OT retained a structural engineer to advise on the strengthening of the rear tilt up panels resulting in significant savings. Further, Mr Still has avoided costing duplication of work already undertaken by OT. The Tribunal prefers the costing by Mr Still.
[18] Exhibit 12 [13]
52.The issue of costing outstanding work is somewhat complicated by the circumstance that the unit was tenanted at the time of the fire. The tenant had contents insurance and a claim was met by the insurer. The evidence indicates that the contents definition in the policy excluded structures or material that would be included as the building under the corporation’s cover. This has the effect that claims for contents and common property are by definition mutually exclusive and double insurance disputes have been rare.
53.It became apparent in cross-examination of Mr John Glass,[19] a director of the first respondent, that there was some cross-over between the insurance claim by the tenant in unit 13 and some of the items relating to the outstanding work described in the Sergon report, and thus in the appendices to the joint expert report. The following items[20] should not be regarded as common property fixtures, on the basis of concessions made by Mr Glass:
[19] Transcript of proceedings 12 November 2018 page 129ff
[20] Exhibit 12 Appendix A, items 3.10, 3.21, 4.27 and 5.5
Item number
Appendix A
Description Costing (Aaron Still Consulting – Unit 13 works) 3.10 Supply and install new metal grid ceiling $10,619.10
3.21 Allow for supplementary [air‑conditioning] unit to the meeting room… n/a 4.27 Supply and install quality downlight fittings… $7,969.50 5.5 Supply and install quality downlight fittings… $10,815.75 Total $29,404.35
54.This leads to a total costing before GST of $491,084.06, and $540,192 after addition of GST.
Olive Tree works (third and fourth claim)
55.The amount of the third OT claim was $550,639 inclusive of GST; the fourth claim has not been specified by the second respondent. However, there is an evaluation of both claims by Mr Still: his evaluation of the third claim is $506,220 inclusive of GST, and his evaluation of the fourth claim is $147,840 inclusive of GST The total amount of these claims for reimbursement — being $654,000 inclusive of GST — exceeds the amount that would remain from the one million dollar settlement amount after deduction of $540,192 for the outstanding restoration and reinstatement (being $459,808).
56.Mr John Glass gave evidence of a theory of double claiming by the second respondent for construction work done by OT at its request. He supported this theory with a spreadsheet which formed part of Exhibit 5. The spreadsheet purported to show Sergon report items calculated to be included in more than one claim for payment.
57.The Tribunal does not accept the calculations and spreadsheet prepared by Mr Glass, referred to in his evidence on 12 November 2018. There is no mystery as to the payment of $93,564.80 by the insurer. This consisted of two payments to the OC — one of $57,580, which was paid to the second respondent on 12 April 2017, and $35,984.80 paid by the insurer to the OC on 28 June 2017. Mr Still’s fit–out assessment for unit 12 does not have the Sergon report as its basis[21] and the Tribunal is unable to relate it directly to that report. None of the documents relied on by Mr Glass appear to form a proper basis for the assumptions and calculations he has made.
[21] Exhibit 2 tab 61A
58.There is little specific description of the work done by OT contained in the evidentiary material, however Mr Still had been able to analyse the works done by OT in November 2017 and July 2018 (referred to as the third and fourth Olive Tree works). He said in his report of 11 November 2018 that he had transcribed the figures into the joint experts spread sheet. The Tribunal accepts the accuracy of his two analyses and prefers Mr Still’s evidence to that of Mr Glass.
Summary
59.The breakup of the claims as ordered by the Tribunal is as follows. Amounts are inclusive of GST.
Funds held in trust by the manager of Units Plan 321 $1,000,000
Amount for rectification of unit 13 $540,192
Refund for unpaid work undertaken by OT $459,808
60.The orders that will be made by this Tribunal cast an obligation found in section 103 of the UTM Act to apply insurance money to rebuild and reinstate the building when damaged or destroyed. Should any dispute arise in the course of execution of that obligation, then the procedures referred to in Part 8 of the UTM Act can be used.
………………………………..
Senior Member G Lunney SC
HEARING DETAILS
FILE NUMBER:
UT 20/2018
PARTIES, APPLICANT:
The Owners Corporation – Units Plan 3217
PARTIES, RESPONDENT:
AJ Properties Pty Ltd
XBOX Projects Pty Ltd
COUNSEL APPEARING, APPLICANT
N/A
COUNSEL APPEARING, RESPONDENT
N/A
SOLICITORS FOR APPLICANT
Aulich Civil Law
SOLICITORS FOR RESPONDENT
Snedden Hall & Gallop (for the First Respondent)
Mills Oakley (for the Second Respondent)
TRIBUNAL MEMBERS:
Senior Member G Lunney SC
DATES OF HEARING:
12 and 13 November 2018
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