The Owners - Strata Plan 78102 v The Owners - Strata Plan 78101 - [2010] NSWSC 973

No judgment structure available for this case.

CITATION: THE OWNERS - STRATA PLAN 78102 V THE OWNERS - STRATA PLAN 78101 & ORS [2010] NSWSC 973

HEARING DATE(S): 25 June 2010

JUDGMENT DATE :
1 September 2010

JURISDICTION: Equity

JUDGMENT OF: Bergin CJ in Eq

DECISION: Listed on 8 October 2010 at 10.00am. Costs reserved.

CATCHWORDS: STRATA MANAGEMENT – building with mixed commercial and residential – two Owners Corporations sharing costs for shared facilities – obligations in relation to determining shared costs – STRATA MANAGEMENT STATEMENTS (SMS) – whether dispute has arisen regarding proportions of shared costs – appointment of Expert under dispute resolution mechanism – conduct of parties – whether implied term – amendment of SMS – whether in circumstances Court should appoint Expert

LEGISLATION CITED: Strata Schemes (Freehold Development) Act 1973
Strata Schemes Management Act 1996

CASES CITED: BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Bratton Seymour Service Co Ltd v Oxborough [1992] BCLC 693
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337
Idya Pty Limited v Anastasiou [2008] NSWCA 102
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1
Stanham v National Trust of Aust (New South Wales) (1989) 15 ACLR 87
The Owners Corporation Strata Plan 70672 v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2009] NSWSC 1283
Westfield Management Limited v Perpetual Trustee Company Limited (2007) 233 CLR 528

PARTIES: The Owners – Strata Plan 78102 (Plaintiff)
The Owners – Strata Plan 78101 (First Defendant)
Anne Catherine Van Veen (Thirteenth Defendant)
Vedna Rajni Jivan (Thirty-Fifth Defendant)
and forty-three other defendants named in the Schedule to the Amended Statement of Claim

FILE NUMBER(S): SC 2010/00068101

COUNSEL: GA Sirtes SC / EM Peden (Plaintiff)
D Robinson SC / V Kerr / K Viglianti (First and Thirty-fifth Defendant)

SOLICITORS: David Le Page (Plaintiff)
Suzie Broome & Company (First and Thirty-fifth Defendant)
BW Bentley (Thirteenth Defendant)

- 23 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BERGIN CJ in Eq

1 SEPTEMBER 2010

2010/68101 THE OWNERS - STRATA PLAN 78102 V THE OWNERS - STRATA PLAN 78101 & ORS

JUDGMENT

1 This litigation relates to the management of a building on the corner of Albert and Avoca Streets, Randwick that consists of commercial lots (shops and offices) and residential lots (apartments) (the Building). The plaintiff, The Owners – Strata Plan 78102, the Commercial Owners Corporation, owns the common property of the commercial lots and shares some facilities of the Building with the first defendant, The Owners – Strata Plan 78101, the Residential Owners Corporation, that owns the common property of the residential lots. There are 45 other defendants, both individuals and corporations, who are the owners or lessees or occupiers of the commercial and residential lots. Notwithstanding the number of other defendants I will refer to the first defendant as “the defendant”.

2 The Building was completed in 2006. The Strata Management Statement (SMS) registered on 18 December 2006, stipulates the proportion of costs that the plaintiff and the defendant pay for the use of Shared Facilities of the Building, referred to as “Shared Costs”. The lot owners levies are fixed by the plaintiff and the defendant taking into account, amongst other things, the amount of the Shared Costs.

3 The two valuation reports obtained separately by the plaintiff and the defendant each concluded that the proportions of the Shared Costs were unreasonable in that the burden on the plaintiff was greater than was justified. Between late 2007 and September 2008 the plaintiff attempted unsuccessfully to persuade the defendant to agree to change the proportions of the Shared Costs. In September 2008 the plaintiff served a Notice of Dispute on the defendant. There was no agreement on referring the dispute to mediation. There was no agreement on the appointment of an expert to determine the adjustments to be made to the Shared Costs. After the President of the Law Society appointed the Expert, the defendant refused to agree to the prerequisites the Expert imposed on his acceptance of the appointment. Not surprisingly the President of the Law Society declined to appoint another Expert. This process dragged on through 2009 and the plaintiff commenced these proceedings on 17 March 2010.

4 The plaintiff seeks, inter alia, an order that the Court appoint an expert to determine the appropriate apportionment of the Shared Costs or a reapportionment of the Shared Costs in accordance with the provisions of the SMS.

5 The matter was heard on 25 June 2010 when Mr GA Sirtes SC, leading Ms EM Peden, of counsel, appeared for the plaintiff, Mr D Robinson SC, leading Mr V Kerr, of counsel, and Ms K Viglianti, of counsel, appeared for the defendant and the thirty-fifth defendant. Mr BW Bentley, solicitor, appeared for the thirteenth defendant. All other defendants filed submitting appearances. At the end of the hearing the plaintiff’s claim for damages against the thirteenth defendant was dismissed with costs, including indemnity costs from 21 June 2010.

6 The Strata Schemes (Freehold Development) Act 1973 (the Act) provides relevantly as follows:

Division 2B Strata Management Statements

28R Requirement for strata management statement

(1) The Registrar-General must not register a plan as a strata plan creating a stratum parcel unless the Registrar-General also registers a strata management statement for the building and site concerned.

…

28S Formal requirements

(1) A strata management statement and any amendment of such a statement must be in the approved form.

(2) A strata management statement as in force from time to time must comply with Schedule 1C and that Schedule applies to any such statement.

(3) The Registrar-General may register a strata management statement and an amendment of such a statement by making such recordings in the Register as the Registrar-General considers appropriate.

(4) The Registrar-General may refuse to register a strata management statement or any amendment of such a statement if the application for registration fails to comply with any requirement made by this Act or the regulations or is not accompanied by the prescribed fee.

28T Registration of strata management statement

(a) the existence of the statement and of any subsequent amendment of it that is registered from time to time, and

(b) such information relating to the statement and any amendment of it as the Registrar-General considers appropriate.

(a) for each of the bodies corporate for a strata scheme for part of the building concerned, and

28U Amendment of strata management statement

(a) supported by a special resolution of the body corporate for each strata scheme for part of the building concerned and by each person in whom is vested an estate in fee simple in any part of that building or its site that is not included in a stratum parcel, or

Environmental Planning and Assessment Act 1979

(a) for each of the bodies corporate for a strata scheme for part of the building concerned, and

(b) for each part of the building or site concerned that does not form part of a stratum parcel.

28V Signing of strata management statement

(a) is lodged with a certificate given by the secretary of the body corporate for each strata scheme (if any) for a part of the building concerned certifying that the statement is supported by a special resolution of the body corporate, and

Real Property Act 1900

(c) has been signed by every mortgagee, chargee or covenant chargee under a mortgage, charge or covenant charge recorded in a folio of that Register recording such an estate.

…

28W Effect of strata management statement

(a) a body corporate of a strata scheme for part of the building, or

(b) a proprietor, mortgagee in possession or lessee for the time being of any of the lots in such a strata scheme, and

(c) any other person in whom the fee simple of any part of that building or its site (being a part affected by the statement) is vested for the time being, or the mortgagee in possession or lessee of any such part.

(a) a covenant by which those persons jointly and severally agree to carry out their obligations under the registered strata management statement as from time to time in force, and

(b) a covenant by which those persons jointly and severally agree to permit the carrying out of those obligations.

…

Schedule 1C Strata management statements

1 Form of strata management statement

(b) with this or any other Act or any other law.

2 Matters that must be included

(a) the establishment and composition of a building management committee and its office bearers, and

(b) the functions of that committee and those office bearers in managing the building and its site, and

(c) the manner in which the statement may be amended, and

(d) the settlement of disputes, or the rectification of complaints, concerning the management of the building or its site, whether by requiring reference of disputes or complaints to the Director-General or the Tribunal or (with the consent of the person) to any other person for a recommendation or decision or otherwise, …

…

4 Implied provisions

Each strata management statement is taken to include the following provisions, except to the extent that it provides otherwise:

(a) The building management committee must meet at least once each year.

(b) At least 7 days’ notice of a meeting must be given to each person who is a member of the committee. Notice may be given personally or by post or in any way any other notice may be given to the person under this Act.

7 Chapter 5 of the Strata Schemes Management Act 1996 (the Management Act) provides a regime for applications to be made to the CTTT for orders: s 123 to s 125. Section 149 of the Management Act provides that an Adjudicator appointed under Part 2 of Chapter 6 of the Management Act may make an order for payment of contributions of a different amount if the Adjudicator considers that any amount levied or proposed to be levied by way of contributions is inadequate or excessive: s 149(1). Either the plaintiff or the defendant or any of the owners have standing to make such an application: s 149(4).

8 Chapter 5 of the Management Act also provides for applications to be made to the Director-General of the Department of Fair Trading for mediation of "any dispute or complaint relating to the management of a building or its site where a part of the building is included in a stratum parcel": s 126(1). Any person who is bound by an SMS relating to the management of the building may make such an application: s 126(2). However the Director-General may only arrange mediation "with the consent of all parties to the dispute or complaint": s 129(1).

Relevant SMS Provisions

9 The registration of the SMS established the Building Management Committee (BMC): cl 3.1(a). The Members of the BMC are the Residential Owners Corporation and the Commercial Owners Corporation, each of which is obliged to appoint at least one Representative to represent it on the BMC: cl 3.2 and 3.3. Notwithstanding that the Members may appoint more than one Representative to the BMC each of the Residential Owners Corporation and the Commercial Owners Corporation may exercise only one vote at any meeting of the BMC: cl 3.12.

10 The BMC’s functions include (cl 3.4(a)):

v. operate and Repair the Shared Facilities;

vi. change, add to or extend the Shared Facilities;

vii. change, add to or adjust Shared Costs (except those relating to Insurances which are governed by the Strata Titles Legislation);

the manner in which they are to be paid;

the manner in which they are to be collected; and

the manner in which contributions to the Shared Costs should be banked and the manner in which, and by whom, cheques are to be drawn;

…

11 The SMS also provides:

3.14 Deadlock

12 The BMC is required to prepare a budget for each 12 month period based on an estimate of the costs and expenditures to pay, amongst other things, the Shared Costs: cl 4.2. Each budget must include: itemised details of each Shared Facility for which a Member is responsible to contribute; the proportion which each Member must contribute to each Shared Facility; and the amount of the proportion which each Member must contribute to each shared Facility: cl 4.2(c). The SMS also provides:

4.3 Contributions

(a) The Building Management Committee must determine the amount of the contributions it will need for the Administrative Fund and the Sinking Fund for each 12 month period. The amount of the contributions must be based on the budget for the relevant 12 month period.

(b) The Building Management Committee must levy Members their contributions to the Administrative Fund and Sinking Fund in accordance with each of their relevant proportions.

…
4.10 Dispute

(a) If there is a dispute about the payment of an amount, before resolution of the dispute, each Member must pay the amounts advised.

(b) After resolution of the dispute the Building Management Committee must make an appropriate adjustment or payment.

13 The SMS also includes the following:

SCHEDULE 3 – SHARED FACILITIES

This Schedule describes the following:

2. the proportion of Shared Costs payable by the Commercial Building and the Residential Building for each Shared Facility; and

3. the method of dividing the Shared Costs.

The calculation of shared facility percentages are to be determined by the Building Management Committee at its initial meeting.

Proportion Payable By Commercial Stratum	Proportion Payable by Residential Stratum	Method of Dividing Costs
1	Fire Sprinklers	30%	70%	Area
2	Smoke Detection services	30%	70%	Area
3	Mechanical ventilation in carpark	7%	93%	carspace numbers
4	Carpark lighting	30%	70%	Area
5	Fire stairs	30%	70%	Area
6	External lighting	30%	70%	Area
7	Lifts	30%	70%	Area
8	Common Landscaping	30%	70%	Area
9	Security	30%	70%	Area
10	External Doors	30%	70%	Area
11	Carpark Roller Door	7%	93%	carspace numbers
12	Fire Service Inspection	30%	70%	Area
13	Insurance – overall	30%	70%	Area
14	Grease trap	80%	20%	proportional use
15	Carwash Bay	7%	93%	carspace numbers
16	Painting	10%	90%	wall area
17	Cleaning	30%	70%	Area
18	Cleaning in the carpark (pressure)	30%	70%	Area
19	Windows cleaning	10%	90%	wall area
20	Water bills	30%	70%	Area
21	Electricity	30%	70%	Area
22	Building manager	30%	70%	Area
23	Strata manager	30%	70%	Area
24	Phone lines	30%	70%	Area
25	Plumbing (common pipes)	30%	70%	Area
26	Commercial Garbage Room	65%	35%	No of tenancies
27	Residential Garbage Room	0%	100%	No of tenancies
28	Residential Waste Collection	65%	35%	No of tenancies
28	Residential Waste Collection	0%	100%	No of tenancies

14 The Shared Costs are also dealt with in clause 6 of the SMS as follows:

6. COSTS AND THE MANNER OF SHARING THEM

6.1 Shared Costs

Each Member must pay its proportion of the Shared Costs.

6.2 Proportions
(a) The respective proportions of the Shared Costs are:

i. for the Shared Services, the Fire Exit Areas, the fees payable to the Strata Manager and the Facilities Manager, the proportions set out in Schedule 3;

…

(b) The Building Management Committee must apportion the Shared Costs in the proportions stated in this Statement and the Strata Titles Legislation.

6.3 Amending Proportions
The Building Management Committee may vary the proportions stated in Schedule 3 by Unanimous Resolution. If this occurs, each proportion of Shared Costs in Schedule 3 is automatically varied at the time the Chairperson signs the minutes which record the Unanimous Resolution. As soon as practicable after the meeting, the Building Management Committee must register the relevant document at the Department of Land and Property Information to record the change.
6.4 Dispute Regarding Proportions
Disputes regarding proportions must be determined in accordance with clause 18 and the expert must determine the adjustments to be made (if any).

15 A “Unanimous Resolution” is “a resolution on a motion before” the BMC “for which each Member either votes in favour of or does not cast a vote”: Schedule 1.

16 Clause 18 of the SMS provides:

18. DISPUTES

Each member must endeavour in good faith to resolve a dispute about this Statement before they take action under this clause.

18.1 Nature of Dispute
Disputes in connection with this Statement include disputes relating to any matter arising out of or in connection with this Statement or in connection with the respective Functions of any Member.

Notice of Dispute

(a) A Member may at any time notify another Member of a dispute in connection with this Statement.

(b) A Member notifies others by serving a notice on each other Member.

(c) A notice advising of a dispute must:

(d) If the dispute is not resolved within 10 Business Days from the time of receipt of the notice, a Member may by written notice request the Building Management Committee and the Building Management Committee must convene a meeting to discuss whether to:

i. refer the dispute for mediation under chapter 5 part 2 of the Management Act; or

Appointment of an Expert

(a) If the meeting decides not to refer the matter or apply for an order or makes no decision, a Member may within a period of 5 Business Days from the meeting, submit the dispute for decision by an Expert.

sic

(c) The Expert acts as an Expert and not as an arbitrator.

(d) Except as to matters of Law, the Expert’s decision including any decision about an expense arising from the dispute, is final and binding on each member.

(e) The appointment must require the Expert to make a decision within 20 business days of the appointment.

(f) The Expert may appoint consultants as the Expert thinks necessary to advise on any aspect of the dispute.

(g) Each Member may make written submissions to the Expert about the dispute and costs.

Submission to Expert

(a) If a Member makes a submission, that Member must:

(b) A Member who makes a submission must:

(c) Clause 18.4(b) does not apply if the information would be subject to a claim for privilege if the matter were the subject of legal proceedings.

(d) Within 20 Business Days of the Expert’s appointment, the Expert must determine the matters in dispute having regard to the written submissions, this Statement and the Expert’s own enquiries.

18.5 Expert’s Determination

(a) The Expert must:

(ii) determine how the cost of any determination is paid.

(b) A Member is only entitled to commence or maintain an action, either by way of legal proceedings or arbitration for a dispute if that person has first referred the dispute for determination under this clause 18.

Costs

(a) The Parties must equally share the costs of expert or mediator.

(b) Each Party is responsible for their own cost of the dispute

17 The SMS also provides that a Member may exercise “a right” at the member’s discretion separately or together with another right: cl 20.2. Each member is required to give effect to the SMS and the transactions contemplated by the SMS, including the execution of documents, and to cause relevant third parties to do likewise: cl 20.8

18 Prior to the first meeting of the BMC, Leon Cheneval, a registered valuer and principal of Total Strategic Solutions (TSS), was instructed to review the Shared Facilities Schedule and provide an opinion on a reasonable method for the calculation of contributions. The TSS Report dated 4 May 2007 concluded that the SMS Schedule failed to reasonably allocate the division of costs for Shared Facilities. It recommended a revised schedule of contributions.

BMC Meeting – 30 May 2007

19 The first meeting of the BMC was held on 30 May 2007, the Notice in respect of which included the following:

a) That the report from Total Strategic Solutions regarding the shared cost schedule be discussed at the meeting.

MOTION REQUIRING UNANIMOUS RESOLUTION

That

Strata Management Statement,

20 The Minutes of the BMC meeting on 30 May 2007 included the following:

a) Resolved that the report from Total Strategic Solutions regarding the shared costs schedule be accepted as an independent report based upon the approved council plans for SP 78101 & SP 78102, the easement schedule and the strata management statement for the BMC Natalie Apartments. The agent is to email Leon from TSS with some questions and proposed amendments, for a response to be forward ( sic ) to both members for consideration. The agent is to request from Exceland Property and/or Randwick council the original plans that Boland and Dimitri used to prepare the existing shared cost schedule.
MOTION REQUIRING UNANIMOUS RESOLUTION

Motion Not Carried

Both members agreed that the water and electricity accounts which are individually billed to each strata plan be taken out of the shared cost schedule and become payable by the strata plans directly.

The agent is to compose a list of items found not to be in the schedule; such as carpets, tiled repairs, gyprock repairs and globes/light fittings and ask TSS what the proportions would be if the items were added to the shared cost schedule. The alternative being each strata plan paying for each item for the property that physically comprises their plans.

sic

Keen Property Report

21 Keen Property Pty Limited (Keen Property), Real Estate Valuers, Agents and Land Economists, were instructed by Bright & Duggan Strata Management to provide their opinion of the appropriate proportions of the Shared Costs. The Keen Property report of 17 September 2007 proposed the Shared Costs in proportions different from those in the SMS and also different from those recommended by TSS.

22 On 3 December 2007 the defendant’s solicitors, Suzie Broome & Company, wrote to the defendant in relation to the advice it had sought including whether the SMS could be amended to re-allocate the proportion of Shared Costs either generally or at the instigation of the plaintiff and whether, if there was no agreement, the plaintiff would be likely to be successful in an application to the Consumer Trader & Tenancy Tribunal (CTTT) to have the apportionment of Shared Costs in the SMS changed. The summary of the solicitors’ opinion was as follows:

1 Commercial is not entitled to insist on changes to the Strata Management Statement. I consider that, although the matter is not beyond doubt, in the absence of the consent of Residential to the making of an application Commercial does not have standing to seek an order of the Strata Schemes Adjudicator that the Strata Management Statement be changed to amend the proportion of shared costs.

23 On 12 December 2007 the solicitor for the plaintiff, David Le Page, wrote to the defendant confirming that it had failed to respond to his client’s concern that the proportions for Shared Costs in the SMS were “inaccurate, unreasonable, unfair and wrong”. That letter noted that both the Keen Property report and the TSS Report indicated a need to vary that apportionment and advised that the suggested amendments should be adopted. That letter continued:

My client’s position in these circumstances is that the parties should attempt to come to an agreement about the variation of the strata management statement so as to record a proper apportionment of Shared Costs between the parties. Because my client has been unable to obtain from your Owners Corporation a commitment to this proposal, I have been instructed to ask your Owners Corporation for its proposal as to how and when it is prepared to join in varying the strata management statement, and that I be provided with that proposal within 14 days of the date of this letter. I am aware that an Extraordinary General Meeting of your Owners Corporation is to be convened on 18 December 2007 to consider matters germane to this issue.

24 On 29 January 2008 the solicitors for the defendant wrote to the solicitors for the plaintiff advising that the plaintiff’s request to amend the SMS had been considered at the Extraordinary General Meeting of the defendant on 18 December 2007. That letter advised that the residential scheme owners were not prepared to change the apportionment “at this time” principally because: (1) both the residential scheme and the commercial scheme were dealing with significant issues and attendant costs relating to the repair and maintenance of the Building; and (2) the commercial scheme lots were owned by one individual and most, if not all of those lots remained vacant. The letter advised that the residential scheme owners had no idea of the nature of the businesses that would lease and occupy those premises and the consequent effect on the Building as a whole. That letter continued:

The Residential Scheme owners consider that any special resolution to approve changes to the apportionment of Shared Costs in the SMS must be made on the basis of owners being fully informed as to the financial consequences of that decision.

25 On 26 September 2008 Mr Le Page wrote to a representative of the defendant’s on the BMC in terms that included:

I enclose Notice of Dispute under clause 18 of the Strata Management Statement, by way of service upon The Owners – Strata Plan No. 78101.

26 That Notice dated 23 September 2008 was in the following terms:

NOTICE OF DISPUTE UNDER CLAUSE 18 OF STRATA MANAGEMENT STATEMENT

A. Subject matter of the dispute

1. The Owners Strata Plan 78102, being the Commercial Stratum, seeks a variation of the “Shared Costs”, as that term defined in the Schedule 1 – Dictionary of the Strata Management Statement, enshrined in Schedule 3.

2. The Building Management Committee has refused to vary the proportions set forth in Schedule 3 of the Strata Management Statement, pursuant to Clause 6.3 of the SMS.

3. The Owners Strata Plan 78102 disputes the reasonableness of the apportionment contained in Schedule 3 and seeks that those portions be adjusted so as to fairly represent the usage of the costs as between the Commercial and Residential Stratum.

4. The Owners Strata Plan 78102 seeks to have this dispute regarding proportions determined by expert determination pursuant to Clause 18.3 of the SMS, unless otherwise able to be amicably resolved.

B. Facts upon which Owners Strata Pan 78102 relies

5. Schedule 3 of the Strata Management Statement sets forth the proportions payable respectively by the Commercial Stratum and the Residential Stratum of 28 separate costs representing “Shared Costs”. The proportion payable by the Commercial Stratum is unreasonable and ought be readjusted to reflect a fair allocation of shared costs based upon methods deployed by the property valuers retained to date by the respective stratum lots.

6. Each of the Commercial Stratum and the Residential Stratum have independently obtained assessments of the proportions. At Tab A is the Assessment Report of Total Strategic Solutions prepared for the Commercial Stratum on 4 May 2007.

7. Attached at Tab B is the Valuation prepared by Keen Property Pty Ltd for the Residential Stratum on 17 September 2007.

8. Both these reports consider that the present allocation of Shared Costs under Schedule 3 of the Strata Management Statement are unfair and require re-apportionment.

9. A summary of their conclusions are tabularised below;

No	Item	Keen Report %	Proportion payable by Commercial Stratum	TSS Report %
1	Fire Sprinklers	15	30%	15
2	Smoke detection services	15	30%	15
3	Mechanical ventilation in car park	8	7%	5
4	Carpark lighting	26	30%	15
5	Fire stairs	15	30%	5
6	External lighting	14	30%	15
7	Lifts	8	30%	5
8	Common landscaping	14	30%	15
9	Security	0	30%	0
10	External doors	14	30%	20
11	Carpark roller door	8	7%	5
12	Fire service inspection	15	30%	15
13	Insurance – overall	15	30%	15
14	Grease trap	100	80%	100
15	Carwash bay	8	7%	5
16	Painting	14	10%	15
17	Cleaning	14	30%	15
18	Cleaning in the carpark (pressure)	26	30%	15
19	Windows cleaning	-	10%	0
20	Water bills	15	30%	15
21	Electricity	15	30%	15
22	Building manager	15	30%	15
23	Strata manager	-	30%	0
24	Phone lines	15	30%	15
25	Plumbing (common pipes)	15	30%	15
26	Commercial garbage room	100	65%	40
27	Residential garbage room	0	0%	0
28	Commercial waste collection	100	65%	40
29	Residential waste collection	0	0%	0

Provisions of the Strata management Statement relevant to the dispute

10. The relevant provisions of the Strata Management Statement are as follows:

(b) Clause 18, and in particular Clauses 18.3, 18.4, 18.5 and 18.6;

(c) Schedule 1 – Dictionary;

(d) Schedule 3 – Shared facilities;

C. Correspondence and background information relevant to the dispute

11. Attached herewith behind Tab C is (sic) copies of all correspondence and background information relevant to the dispute in the possession of the Commercial Stratum.

D. Particulars of the amount in dispute

27 On 13 November 2008 Mr Le Page wrote to the secretary of the BMC requesting the convening of a meeting to discuss whether to refer the dispute to mediation under Part 2 of Chapter 5 of the Management Act or, if the dispute was not appropriate for mediation, to apply for an order under Part 1 of Chapter 5 of the Management Act. The letter advised that the expression “the dispute” meant the dispute that was the subject of the Notice of Dispute and requested that the meeting be called within 10 business days of receipt of the Notice of Dispute.

28 On 24 November 2008 Mr Le Page wrote to Bright & Duggan confirming the advice that the defendant was to meet in General Meeting on 16 December 2008 to consider various motions and to formulate a response to the plaintiff’s Notice of Dispute. That letter included the prospect of an earlier meeting of the BMC and the following:

My client has been waiting for a constructive response from your client to its concerns, since the matter of the apportionment of Shared Costs was first raised over 12 months ago. Should you, as the strata manager appointed by the Building Management Committee, not issue the Notice of the Building Management Committee meeting as I have proposed in this letter, my client shall assume that you have allowed the performance of your responsibilities as the Building Management Committee’s strata manager to be dictated by The Owners – Strata Plan No. 78101. I have been instructed in those circumstances that I should then seek instructions to take proceedings against Bright & Duggan Pty Limited and The Owners – Strata Plan No. 78101 to obtain orders that each do what is necessary on its part to permit the meeting of the Building Management Committee to be convened immediately, and costs.

29 On 10 December 2008 Mr Le Page wrote to the Secretary of the BMC seeking the inclusion of various Motions on the Agenda for the BMC Meeting then planned for the last week in January 2009. Those Motions included that the BMC determine whether to “refer the dispute the subject of the Notice of Dispute” to mediation and if not, to determine whether to apply for an order under the Management Act.

30 On 5 February 2009 the Extraordinary General Meeting of the BMC resolved as follows:

A motion was put to the meeting that the committee determines whether to refer the dispute the subject of the Notice of Dispute forwarded to The Owners – Strata Plan 78101 on 26 ^th September 2008 is for mediation under Chapter 5 of Part 2 of the Strata Schemes Management Scheme 1996.

Motion lost – SP78101 for; SP78102 against.

Both representatives asked that it be recorded that both had offered to negotiate but that negotiations had broken down. SP78101 would still like to negotiate.

The

Expert Appointed

31 On 12 February 2009 Mr Le Page wrote to the President of the Law Society requesting the appointment of an expert.

32 On 1 May 2009 the President of the Law Society advised that a valuer, (the Expert) had been appointed as an expert to determine the “issues between the parties”.

33 On 15 May 2009 (in a letter wrongly dated 15 May 2008) the Expert wrote to the solicitors for the plaintiff and the defendant advising that he had received the letter from the President of the Law Society informing him "of an appointment to determine a dispute" between the plaintiff and the defendant pursuant to the SMS. The Expert identified the matter of the dispute as the allocation of costs "in running and maintaining one building envelope". The Expert referred to clause 18 of the SMS and set out the procedure that he proposed to utilise in determining the dispute. He then requested that "the respective parties consent to same". That procedure was set out in the letter as follows:

1. Receive written acceptance of my appointment from the parties (as set out on the last page of this letter).

2. I will then write to each party requesting a detailed written submission to be provided to me within 10 working days from the date of that letter.

3. At the same time I will issue separate tax invoices to the parties for their respective shares of my fee.

6. Conduct my own investigations and consider the submissions.

7. Providing there is not a requirement to obtain any supplementary information from the parties or seek a legal opinion on any matter, I will then write to the parties, advising them that the 20 business days in which to hand down the decision has commenced.

8. My determination report will then be completed within the 20 business days from the date of the last letter. The report will set out the reasons for my decision.

34 The letter also included what was described as a "Hold Harmless Agreement" intended to release the Expert from liability and to indemnify him and his company and contractors against all liability, costs, expenses and damages, subject to the usual exceptions of fraud, wilful misconduct and the provisions of the Trade Practices Act 1974. The Expert requested that the parties sign a provision at the conclusion of the letter in which they accepted the "Appointment Terms and Conditions (including that the determination will be final and binding), Proposed Procedure and Share of Fees”.

Annual General Meeting – 19 August 2009

35 The Minutes of the Annual General Meeting of the BMC on 19 August 2009 record the following:

Motion 10 To discuss whether to refer the dispute about the proportions in which the respective Owners Corporations are to contribute to Shared Costs for mediation under Chapter 5 of Part 2 of the Strata Schemes Management Act 1996 and to resolve to do so.

36 It is not clear why the plaintiff’s Representative voted against this Motion and indeed the Motion when it was put to the Extraordinary Meeting in February 2009, when it had been the plaintiff that had been advocating such an application since at least 13 November 2008 when its solicitor, Mr Le Page, wrote to the secretary of the BMC.

Difficulties Arise

37 On 7 September 2009 Mr Le Page wrote to the Law Society advising that two difficulties had arisen with the Expert’s appointment because he would not agree to act as an Expert unless both parties agreed in writing to his appointment and the terms of his appointment and that agreement had not been forthcoming. Mr Le Page suggested that such agreement was unnecessary but noted that the Expert refused to proceed without it. Accordingly Mr Le Page requested that the President nominate another expert.

38 On 18 September 2009 the Expert wrote to the solicitor for the defendant advising that he had informed the solicitor for the plaintiff that he had not received any written approval from the defendant and therefore could not proceed without the defendant's consent. The Expert requested the defendant's solicitor to advise whether instructions had been sought from the defendant in respect of the terms of his letter of 15 May 2009.

39 On 23 September 2009 the defendant’s solicitor wrote to the Expert in terms including the following:

Residential Owners Corporation

Commercial Owners Corporation

Strata Schemes (Freehold Development) Act 1973

only

Accordingly, if a special resolution to amend the Strata Management Statement is unlikely to be adopted by both strata schemes constituting the Building Management Committee, there is no point in the Building Management Committee, of which the Residential Owners Corporation is a member, expending any money on fruitless preliminary exercises. One such exercise would be your appointment.

Accordingly, the Residential Owners Corporation declines to participate in your appointment.

40 On the same date the defendant’s solicitors wrote to the Law Society advising it of the position as stated to Mr Kempthorne.

41 On 23 November 2009 the President of the Law Society wrote to the respective parties advising that he was not in a position to appoint another expert. That letter included the following:

The previous expert resigned on the basis of the refusal of the other party to participate in this process. In light of this refusal and our inability to compel the other party to participate in the expert determination, it is unlikely that the appointment of another expert will progress the matter.

A vote against change

42 On 10 November 2009 at an Extraordinary General Meeting of the defendant, the following Motion was considered:

The Owners Corporation amend the Strata Management Statement filed and registered with Strata Plan 78101 to change the proportions of Shared Costs therein so that the proportions of the Shared Costs borne by each of the strata schemes are amended so that the Owners Corporation's proportion of Shared Costs is adjusted in accordance with the shared cost apportionment report prepared by Keen Property Pty Limited, a copy of which was included with the notice of meeting for this meeting and despatched to all owners.

43 This Motion was defeated by the vote “For 43/Against 306”. A further Motion on the following terms was considered:

The Owners Corporation amend the Strata Management Statement filed and registered with Strata Plan 78101 to change the proportions of Shared Costs therein so that the proportions of the Shared Costs borne by each of the strata schemes are amended so that the Owners Corporation's proportion of Shared Costs is adjusted in accordance with the assessment prepared by Leon Cheneval of Total Strategic Solutions, a copy of which was included with the notice of meeting for this meeting and despatched to all owners.

44 This Motion was also defeated by the vote “For 43/Against 306”.

Competing Claims

45 The plaintiff claims that there is a "dispute" within the meaning of that expression in clauses 6.4 and 18.1 of the SMS. The defendant claims that a "dispute" within the meaning of that expression in those clauses 6.4 and 18.1 of the SMS has not yet arisen. The first issue to be determined is whether there is a dispute within the meaning of clauses 6.4 or 18.1 of the SMS.

46 If it is determined that there is a dispute, there is no issue that: the plaintiff has complied with clause 18.2 of the SMS in giving notice of the dispute; the dispute was not resolved within 10 business days as provided for in clause 18.2(d) of the SMS; the BMC convened a meeting to discuss whether to refer the dispute to mediation or seek an appropriate order under Chapter 5 of the Management Act; there was an attempt to submit the dispute for decision by an Expert; and by reason of the parties’ failure to agree the President of the Law Society was asked to and did appoint an Expert under clause 18.3 of the SMS. That process broke down because of the defendant's unwillingness to comply with the Expert’s requirements. The defendant’s unwillingness to provide its consent to the determination of the dispute by the Expert was because it formed the view that it was unlikely that there would be support for a special resolution to amend the SMS in whatever proportions proposed by the Expert.

47 The plaintiff claims that the defendant has breached the terms of the SMS, in particular clause 20.8 which requires it to do everything reasonably necessary to give effect to the SMS and the transactions contemplated by the SMS, by refusing to agree to the appointment of the Expert and by refusing to comply with the Expert's requirements once he was appointed.

48 The plaintiff seeks a declaration that the SMS contains an implied term that all parties to it must do what is necessary to permit an amendment to the SMS to give effect to any determination of an expert appointed pursuant to clause 18 of the SMS. There is no issue that the plaintiff and all defendants are parties to the SMS and are bound by its terms. The plaintiff also seeks an order that the Court appoint an Expert to determine the appropriate apportionment of the Shared Costs, or any reapportionment of the Shared Costs, in accordance with the provisions of the SMS. Alternatively, the plaintiff seeks an order that the parties use the procedure in clause 18 of the SMS to appoint an Expert to determine the appropriate apportionment of the Shared Costs.

49 The plaintiff seeks an order that all parties implement and do all things reasonably necessary to implement the decision of the Expert including: (1) that the defendant direct its Representative on the BMC to consent in meetings of the BMC to motions to implement any variation of the proportions in which the Shared Costs are to be paid in accordance with the determination of the Expert; (2) that the defendant and the plaintiff pass a unanimous resolution to effect an amendment to Schedule 3 of the SMS in accordance with the Expert’s determination; (3) that the plaintiff and the defendant each pass a special resolution to support any amendment of Schedule 3 as determined by the Expert; (4) that the plaintiff and the defendant cause the BMC to register the relevant documents at the Department of Land and Property Information to record the change.

Has a dispute arisen?

50 The Amended Statement of Claim alleges that from March 2007 the plaintiff sought the consent of the defendant to vary the proportions of the Shared Costs and the defendant refused to consent to that variation “thereby giving rise to a dispute regarding the proportions” of the Shared Costs as referred to in clause 6.4 of the SMS. Clause 6.4 provides that “[d]isputes regarding proportions must be determined in accordance with clause 18 and the expert must determine the adjustments to be made (if any)”.

51 The defendant claimed that there is no dispute "regarding proportions". It submitted that there are two factors that suggest that clause 6.4 only concerns disputes arising under some or other parts of clause 6 and is not directed to disagreements arising under other parts of the SMS or between members generally. The first factor is the context in which clause 6.4 is found in the SMS. It was submitted that clause 6 has three operative parts: (1) clause 6.1 which provides that each member must pay its proportion of Shared Costs; (2) clause 6.2(b) which provides that the BMC must apportion the Shared Costs; and (3) clause 6.3 which provides that the BMC may vary the proportions stated in Schedule 3 by Unanimous Resolution.

52 It was submitted that clause 6.2(b) is concerned with the act of the apportioning of Shared Costs in accordance with certain nominated proportions, whereas clause 6.3 is concerned with the act of varying certain nominated proportions. The defendant further submitted that the verb in clause 6.2(b) is “apportion”, whereas the verb in clause 6.3 is “vary”. Accordingly it was submitted that a dispute concerning the act of apportionment can be readily described as a dispute “regarding proportions” (as used in clause 6.4) since the word “proportions” in clause 6.4 is a derivation of the word “apportion” in clause 6.2(b). Conversely a dispute constituted by the failure to pass a Unanimous Resolution under clause 6.3 is more readily described as a dispute “regarding variation of proportions” than simply as a dispute regarding “proportions”.

53 The defendant submitted that on its proper construction, clause 6.4 only relates to a dispute concerning the BMC’s exercise of the power under clause 6.2(b) to apportion the Shared Costs and does not apply to the BMC’s entitlement under clause 6.3 to vary proportions. The defendant also submitted that commercial sense dictates that clause 6.4 encompasses only disputes arising out of the apportionment required to be carried out by the BMC under clause 6.2(b) and not to the variation of proportions permitted to be resolved by the Building Management Committee under clause 6.3.

54 The expression "regarding proportions" in clause 6.4 is very broad. Clause 6.2(b) uses the expression "apportion the Shared Costs in the proportions" stated in the SMS and the legislation. The expression used in clause 6.3 is that the BMC may "vary the proportions" stated in the Schedule. There is nothing in the SMS that suggests that the reference to “proportions” in clause 6.4 should be limited to only those "proportions" that are apportioned under clause 6.2(b) of the SMS and not to those “proportions” that are varied under clause 6.3 of the SMS.

55 I am not satisfied that such disputes are limited to the exercise of the BMC's power to apportion the proportions under clause 6.2(b) of the SMS. I am satisfied that the expression "disputes regarding proportions" in clause 6.4 is extremely broad and includes disputes regarding proportions either as apportioned or varied.

56 The defendant submitted that if its submissions in relation to the limit of clause 6.4 are not accepted, a dispute has not arisen in any event. It was submitted that the plaintiff did not proffer any definitive proposal for the amendment of the proportions and has not put a motion to the BMC capable of being adopted by resolution under clause 6.3. It was also submitted that at its highest, all the defendant did was to decline to consider changing the apportionment for a period of 12 months from 29 January 2008, the date of its solicitors’ letter to the plaintiff’s solicitors. The defendant advised the plaintiff at that time that it would be willing to “give further consideration” to the plaintiff’s request in 12 months. In those circumstances it was submitted that the assertion in the Notice of Dispute that the BMC had “refused” to vary the proportions is false. The defendant also submitted that the plaintiff has power to convene a meeting of the BMC and propose a Motion to pass a Unanimous Resolution to vary the proportions stated in Schedule 3 in accordance with clause 6.3 of the SMS at that meeting. However the plaintiff has never sought to convene such a meeting or put such a motion to the BMC.

57 The defendant submitted that unless such a Motion is put, it is not possible to identify with precision the dispute that the Expert is required to determine. If a dispute arises because of the failure of the BMC to pass a Unanimous Resolution under clause 6.3, then that dispute must be about the Motion put to the meeting. It was submitted that at its highest the “dispute” the Expert would be required to determine under clause 18 of the SMS is whether to vary the proportions stated in Schedule 3 in accordance with the Motion. It was submitted that the plaintiff’s case seems to be that the Expert may decide to vary the proportions at large and irrespective of whether a Motion has been put to the BMC. The defendant submitted that the plaintiff’s claim is hypothetical and premature and the injunctive relief it seeks should be denied.

58 When the SMS was registered in 2006 it contained the stipulation that the calculation of Shared Facility percentages were to be “determined” by the BMC at its initial meeting. The expression “shared facility percentages” is not defined in the SMS, however having regard to the context in which it appears in the Schedule and the other provisions of the Schedule, it is clear that it referred to the “proportion” of the Shared Costs payable by the plaintiff and the defendant as listed by percentages in the table in the Schedule.

59 The Motion before the BMC at its initial meeting was for the Shared Costs as proposed in the TSS Report to be “accepted”. Properly understood this was a Motion to determine the calculation of the shared facility percentages in accordance with the TSS report albeit that the report referred to a revised schedule of “contributions”, listed by percentages, rather than a revised schedule of “proportions”.

60 The BMC did not "determine" those percentages at its initial meeting. Rather it decided to instigate a "process" for the plaintiff and the defendant to reach a "compromised proposal" within six weeks. Although the resolution of the BMC in this regard included the provision that if a "resolution was not reached" at the end of six weeks “either party may seek mediation” through the CTTT, it unfortunately failed to recognise or anticipate the abovementioned provisions of the Management Act prohibiting the Director-General from referring disputes to mediation without the consent of all parties to the dispute.

61 The six weeks elapsed without a “compromised proposal”. The Keen Property was provided in September 2007 with its suggested proposal for the Shared Costs referring to both “contributions” and “proportions”. However the parties were still unable to reach a “compromised proposal” for the BMC.

62 I disagree with the defendant’s characterisation of its solicitor’s letter of 29 January 2008 as merely indicating that the defendant would be willing to consider the plaintiff’s request in 12 months. The BMC had requested, or directed, that these two parties reach a compromised proposal in 6 weeks. It is clear that the defendant was not prepared to negotiate on a “compromised proposal” at that time and it effectively stonewalled the plaintiff and failed to move the process forward that the BMC had put in place in its initial meeting.

63 Clause 18 of the SMS requires each Member to resolve a "dispute about" the SMS before they take action under the clause. Although the defendant submitted that before the plaintiff can establish that a "dispute" has arisen it must call a meeting of the BMC and put a proposal to a vote, I am not satisfied that a dispute can only arise in this way. Clearly the BMC had an obligation to determine the calculation of the shared facility percentages at its initial meeting.

64 The BMC was required to determine whether the percentages or proportions, in Schedule 3 of the SMS were to remain as stated or to be determined otherwise. The process of embarking upon the determination of those percentages was adjourned on the condition that the plaintiff and the defendant reach a compromised proposal within a specific timeframe. Although other events such as the commissioning of the Keen Property Report have occurred since the imposition of that timeframe, the “process” that the BMC embarked upon has not yet been finalised. The BMC has yet to comply with the stipulation in Schedule 3 of the SMS that it determine the shared facility percentages.

65 The Minutes of the Extraordinary General Meeting of the BMC on 5 February 2009 referred to the "dispute" the subject of the Notice of the Dispute. It does not appear that there was any debate at this BMC meeting that a "dispute" had not arisen. Rather both the plaintiff and the defendant asked that there be recorded in the minutes the fact that both had offered to negotiate but that the negotiations had broken down. The Minutes of the Annual General Meeting of the BMC on 19 August 2009 also referred to the "dispute" describing it as a “dispute about the proportions in which the respective Owners Corporations are to contribute to Shared Costs”. It would appear that neither the plaintiff nor the defendant took issue with the description of the dispute in those Minutes. The expression used in the Minutes picks up the language of clause 6.4 that provides in part that disputes “regarding proportions” must be determined in accordance with clause 18. I am satisfied that there is no relevant difference between the expression “about the proportions” used in the Minutes and the expression “regarding proportions” in clause 6.4 of the SMS. It is clear that the BMC understood that there was a “dispute regarding proportions”.

66 Clause 18.1 defines disputes in connection with the SMS to include disputes relating to any matter arising out of or in connection with the SMS. The dispute that has arisen in the present case relates to the "matter" of the determination of the proportion of Shared Costs in Schedule 3 of the SMS, clearly a matter arising out of the SMS or in connection with the SMS. The dispute arose by reason of the process that was put in place by the BMC and the failure of the plaintiff and the defendant to reach that "compromised proposal". There is a dispute about what percentages should be included in the SMS. Both expert valuers were in agreement that the percentages contained in the SMS as registered are unreasonable. The dispute is whether the proportions proposed in one or other of those reports or some other percentage should be determined as the Shared Costs. I am satisfied that the plaintiff's application is not premature or hypothetical.

67 I am satisfied that a dispute has arisen in connection with the SMS.

Has there been a breach of the SMS?

68 All the parties to this litigation are obliged to comply with their obligations in the SMS: cl 2.2(a). However it is important to identify what those obligations are to determine whether the defendant has failed to comply with those obligations in breach of the provisions of the SMS.

69 The regime under clause 18 requires the parties to try to resolve their dispute "in good faith" before taking action under clause 18. The clear intention of the parties from this provision of the SMS is that they will cooperate with each other in trying to resolve their dispute. If they are unable to resolve their dispute as was the case here, the parties agreed to a regime for a third-party, the Expert, to determine their dispute. In particular in the present case the parties agreed that the Expert would determine the adjustments to the proportions, if any: cl 6.4 and cl 18. The parties also agreed that each would have an entitlement to put submissions to the Expert about the dispute: cl 18.3(g). The parties agreed that if submissions were to be made to the Expert an obligation was imposed on the party making the submissions to cooperate with the Expert and to promptly provide the Expert with information as requested: cl 18.4(b).

70 There is no express obligation imposed on a party who does not make submissions to the Expert to cooperate with the Expert or provide information requested by the Expert. The regime that the parties agreed to in clause 18 clearly envisaged that there might be disagreement between them. They anticipated that they would not be able to agree on jointly appointing an Expert. That is why the provision for the President of the Law Society to appoint the Expert was included.

71 If a party chose not to take part in the process of making submissions then the Expert was entitled to proceed to determine the dispute in the absence of submissions from that party. Once the Expert was appointed, determination should have been made in accordance with clause 18 of the SMS. It was not necessary for the Expert to require agreement from the defendant to his appointment. Indeed the regime in clause 18 recognises that a party may not agree to the appointment of a particular Expert. Unfortunately the Expert required the defendant to indicate its consent to his appointment and to the terms and conditions of his appointment and the defendant declined to do so. I do not think that this was an essential step in the process, however one can understand why the Expert wished both parties to indicate their consent if for no other reason than to ensure that his costs would be paid, notwithstanding clause 18.6 (a) of the SMS.

72 The defendant went a little further than simply declining to agree to the Expert's appointment and terms and conditions. It did not suggest that any particular term or condition was unacceptable, rather it claimed that any process upon which the Expert might embark would be ”fruitless” because there was insufficient support within the defendant to pass a special resolution to support an amendment to the SMS in line with the Expert’s determination. It also suggested that the Expert's appointment would be fruitless. This statement seems to me to be misconceived. The President of the Law Society had already appointed the Expert. The Expert's appointment did not depend upon the defendant's agreement, notwithstanding that the Expert himself required the defendant to so agree.

73 The defendant’s letter to the Expert also demonstrates that the defendant had formed the view that it would not support a special resolution to implement any adjustment to the apportionment of the Shared Costs that the Expert might determine. This seems to me to be rather extraordinary having regard to the fact that the defendant could not know whether the implementation of the determination would be in the best interests of the lot owners or not. It does show a lack of willingness to take part in a process that was agreed between the parties for the resolution of disputes. The defendant could have advised the Expert that there was no obligation on it to make submissions under clause 18 and that it was a matter for the Expert to proceed with the determination of the dispute.

74 The plaintiff makes no application for the implication of a term that the defendant was to cooperate with the Expert, irrespective of whether the defendant made submissions to the Expert. Indeed if such an application were to be made, it may well be submitted that such a term is inconsistent with the express term that limits the requirement for cooperation to a party that makes submissions to the Expert.

75 I am not satisfied that the defendant is in breach of the SMS by reason of its failure to sign the letter forwarded to it by the Expert. However I am satisfied that the defendant has indicated that whatever adjustments to the Shared Costs an Expert may determine would not be supported by the defendant. That position may change when the defendant and the other defendants have time to reflect on the necessity to ensure that the process to which they agreed for resolution of disputes not be impeded by unsatisfactory statements such as were made in the letter from the defendant's solicitor to the Expert on 23 September 2009.

Should an expert be appointed?

76 I am satisfied that an Expert should be appointed to determine the adjustments, if any, to the proportions of the Shared Costs. It is necessary for the BMC to complete the task upon which it embarked in 2007. That is, to determine the calculation of shared facility percentages of the Shared Costs in Schedule 3 of the SMS. It is a matter for the parties as to whether they wish to proceed consensually to the appointment of an Expert now that they have a decision from this Court on the status of the dispute and the nature of their obligations. It would be far better for the future commercial relationship between these two corporations for the appointment to be made by the parties, however if that is not possible it would be appropriate for this Court to appoint an Expert to determine the dispute.

Amendment Process

77 On the assumption that the Expert determines that adjustments should be made to the proportions of the Shared Costs and those adjustments are final and binding on the parties, the question arises as to the process that is to occur to amend the SMS to reflect those adjustments. The defendant has hitherto taken the position that it will apparently not be passing a special resolution to assist in the implementation of any decision made by the Expert. That position is premised on the belief that this is the only way that an amendment to the SMS can occur and seems to me to ignore the provision in s 28U(1)(b) of the Act that provides that a registered SMS may be amended if it is ordered by a court.

78 There has previously been debate as to whether that provision is an enabling provision or whether it can only be enlivened if some other provision, either under the Act or some other statute, enables the Court to make an amendment to an SMS: The Owners Corporation Strata Plan 70672 v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2009] NSWSC 1283. Although Forster J found the submissions that s 28U(1)(b) was not an enabling provision persuasive, it was not necessary for his Honour to decide that matter: The Owners Corporation Strata Plan 70672 v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney at [22].

79 The position is the same in this case because it is premature for the Court to be making an order for an amendment to an SMS prior to the Expert determination. The unsatisfactory stand off that was reached between the parties to this litigation demonstrates the delay that can occur. The SMS is a registered document upon which prospective purchasers or lessees may rely to make decisions as to whether to purchase or lease premises within the Building. In this case both expert valuers who provided their reports to the parties in 2007 reached the conclusion that the proportions of the Shared Costs required adjustment. The fact that the SMS is a registered document available for inspection seems to me to support the proposition that the Court has a broad power to amend an SMS in circumstances that justify such an amendment. However, as I have said, that is not a matter that requires final decision at this stage.

80 The particular dispute in question here arises out of the BMC's obligation to determine the calculation of the shared facility percentages at its initial meeting. That obligation remains because the BMC has adjourned its process. Accordingly when the BMC receives the determination of the Expert the BMC may vary the proportions as determined, if any, by Unanimous Resolution: cl 6.3. It is very difficult to apprehend that such Unanimous Resolution would not be passed in circumstances where the parties have agreed that the Expert's determination is final and binding on them: cl 18.3(d). Once the Chairperson of the BMC signs the Minutes, the BMC is required to "register the relevant document" at the Department of Land and Property Information to record the change. Although there was some debate as to whether all that is necessary is the registration of the Minutes, it seems to me that the "relevant document" is an amended SMS that must comply with Schedule 1C of the Act.

81 Unless an application is made to the Court under s 28U(1)(b) of the Act, it is necessary for the amendment to be supported by a special resolution of each of the plaintiff and the defendant and by the consent of each of the lot owners: s 28U(1)(a). It is also very difficult to apprehend that such a resolution would not be passed and such consent of the lot owners not forthcoming, in circumstances where the parties have agreed that the Expert's determination is final and binding on them. Accordingly it does not seem to me to be a matter that will require the intervention of the Court. However there will be liberty to apply should that be necessary.

Implied Term

82 In anticipation of the defendant maintaining the position that it adopted in its 23 September 2009 letter to the Expert, the plaintiff seeks determination of the question whether there is an implied term in the SMS that all parties to it must do what is necessary on their respective parts to permit amendment to the SMS to give effect to any determination of an Expert appointed pursuant to clause 18 of the SMS.

83 The defendant made a number of detailed submissions in relation to the caution that is to be applied in the implication of terms into statutory contracts. It was submitted that an SMS is analogous to a company's constitution and that courts have been slow to imply terms into such constitutions: Bratton Seymour Service Co Ltd v Oxborough [1992] BCLC 693; Stanham v National Trust of Aust (New South Wales) (1989) 15 ACLR 87; Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 at [239]-[243]. However Handley JA implied a term into an SMS in Idya Pty Limited v Anastasiou [2008] NSWCA 102 at [84]-[85]. Beazley JA, with whom Mason P agreed, expressed the view that an SMS is to be construed as a commercial contract attracting the principles of construction that apply to commercial contracts: at [45]. Although Mason P and Beazley JA reached the same conclusion as Handley JA without the implication of a term, neither made comment in relation to the power to imply terms into an SMS. However if the SMS is to be construed in line with the principles that apply to commercial contracts then there is no impediment to the implication of a term so long as it complies with the relevant principles for such implication: BP Refinery (Westernport) Pty Ltd v. Hastings Shire Council (1977) 180 CLR 266 at 282-283; (1978) 52 ALJR 20 at 26; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337.

84 The defendant also made detailed submissions in relation to the registration of the SMS and the fact that it serves an important purpose beyond regulating the affairs of lot owners in support of the proposition that terms ought not to be implied into an SMS. Reliance was placed on Westfield Management Limited v Perpetual Trustee Company Limited (2007) 233 CLR 528 at 538-541 in particular at [35]-[45]. Another dimension of this aspect of the matter is clause 4 of Schedule 1C of the Act which refers to the implied provisions in every SMS except to the extent that the SMS provides otherwise.

85 It is not necessary to determine all of the matters raised in this regard because I am satisfied that it is not appropriate in the circumstances to imply a term into the SMS. I am not satisfied that there is any necessity to imply a term into the SMS because I am satisfied that when the Expert determines the adjustments the machinery for varying the Shared Costs to reflect those adjustments is contained in clause 6.3 of the SMS. I am satisfied that the express provisions of clause 6 and clause 18 of the SMS requires the BMC to utilise the process provided by clause 6.3 for the variation of the proportions in the SMS by: (1) passing a Unanimous Resolution; (2) causing the Chairperson to sign the BMC Minutes recording the Unanimous Resolution; and (3) registering the amended SMS at the Department to record the change. I am also satisfied that the plaintiff and all the defendants are required to support the change by special resolution and consent respectively.

86 I am not satisfied that the plaintiff has established the necessity for an implied term. I am satisfied that the parties’ obligations are clear from the express terms of the SMS regime.

Conclusion

87 It is unsatisfactory that this dispute has developed in the manner that it has without the parties being able to reach a resolution. The evidence in relation to the reasonableness of the Shared Costs presently listed in Schedule 3 of the SMS is all one way. They require adjustment. I am satisfied that an Expert should be appointed to determine the dispute regarding the proportions in accordance with clause 18 and “determine the adjustments to be made (if any)" to the Shared Costs as referred to in clause 6.4 of the SMS. I am satisfied that once the Expert has so determined the adjustments, if any, the BMC must pass a Unanimous Resolution to vary the proportions stated in Schedule 3 to reflect those adjustments. I am also satisfied that the Minutes of the BMC which include that Unanimous Resolution should be signed by the Chairperson and an amended SMS must be registered with the Department of Land and Property Information to record the change.

88 It seems to me that I should provide the parties with the opportunity to reach agreement in relation to the adjustments, if any, to be made to the proportions of the Shared Costs. They have the benefit of two expert valuations and if they wish they can jointly commission a further valuation as to the appropriate proportions of Shared Costs as at today's date. I am satisfied that it would be far better for the future relationship of these two Owners Corporations if that were to occur. I am going to provide the opportunity for that to occur and stand the matter over to 8 October 2010.

89 However if the parties are unable to reach agreement I intend to make an order that the parties confer for the purpose of agreeing on the Expert to be appointed to determine the dispute regarding the proportions of the Shared Costs. I will also adjourn the proceedings in a manner to ensure that there are no further impediments to the matter being finalised. I will of course hear submissions in relation to the orders to be made in due course. However the only formal orders I will make today are as follows: (1) the matter is listed on 8 October 2010 at 10.00am; (2) the costs of the proceedings are reserved.

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Citations

The Owners - Strata Plan 78102 v The Owners - Strata Plan 78101 [2010] NSWSC 973

Cases Citing This Decision

0

Cases Cited

7

Statutory Material Cited

2

The Owners Corporation Strata Plan 70672 v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2009] NSWSC 1283

Idya Pty Ltd v Anastasiou [2008] NSWCA 102

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24

CITATION:	THE OWNERS - STRATA PLAN 78102 V THE OWNERS - STRATA PLAN 78101 & ORS [2010] NSWSC 973
HEARING DATE(S):	25 June 2010
JUDGMENT DATE :	1 September 2010
JURISDICTION:	Equity
JUDGMENT OF:	Bergin CJ in Eq
DECISION:	Listed on 8 October 2010 at 10.00am. Costs reserved.
CATCHWORDS:	STRATA MANAGEMENT – building with mixed commercial and residential – two Owners Corporations sharing costs for shared facilities – obligations in relation to determining shared costs – STRATA MANAGEMENT STATEMENTS (SMS) – whether dispute has arisen regarding proportions of shared costs – appointment of Expert under dispute resolution mechanism – conduct of parties – whether implied term – amendment of SMS – whether in circumstances Court should appoint Expert
LEGISLATION CITED:	Strata Schemes (Freehold Development) Act 1973 Strata Schemes Management Act 1996
CASES CITED:	BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 Bratton Seymour Service Co Ltd v Oxborough [1992] BCLC 693 Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 Idya Pty Limited v Anastasiou [2008] NSWCA 102 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 Stanham v National Trust of Aust (New South Wales) (1989) 15 ACLR 87 The Owners Corporation Strata Plan 70672 v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2009] NSWSC 1283 Westfield Management Limited v Perpetual Trustee Company Limited (2007) 233 CLR 528
PARTIES:	The Owners – Strata Plan 78102 (Plaintiff) The Owners – Strata Plan 78101 (First Defendant) Anne Catherine Van Veen (Thirteenth Defendant) Vedna Rajni Jivan (Thirty-Fifth Defendant) and forty-three other defendants named in the Schedule to the Amended Statement of Claim
FILE NUMBER(S):	SC 2010/00068101
COUNSEL:	GA Sirtes SC / EM Peden (Plaintiff) D Robinson SC / V Kerr / K Viglianti (First and Thirty-fifth Defendant)
SOLICITORS:	David Le Page (Plaintiff) Suzie Broome & Company (First and Thirty-fifth Defendant) BW Bentley (Thirteenth Defendant)