The Owners - Strata Plan No 49458 v The Owners -Strata Plan No 49458

[2018] NSWCATCD 62

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

The Owners - Strata Plan No 49458 v The Owners -Strata Plan No 49458 [2018] NSWCATCD 62

Hearing dates:

2 August 2018Submissions closed 18 September 2018

Date of orders:

23 October 2018

Decision date:

23 October 2018

Jurisdiction:

Consumer and Commercial Division

Before:

P Boyce, Senior Member

Decision:

(1) Pursuant to section 236(1) of the Strata Schemes Management Act 2015 the allocation of unit entitlements among the lots in Strata Plan no. 49458 be in accordance with the schedule of unit entitlements contained in the valuation report of Walter Dobrow of Dobrow Valuations Pty Ltd dated 1 November 2017, a copy of which is attached to the application in Tribunal file number SCS17/07210.

 

(2) The Owners-Strata Plan No 49458 must take all necessary steps to lodge with the Registrar General of the Land and Property Management Authority and to have recorded on the common property title of Strata Plan No 49458 the orders of the Tribunal within 28 days hereof; and

 (3) The Owners-Strata Plan No 49458 are to inform each of the Lot Owners in Strata Plan 49458 in writing of it lodging a copy of these orders with the Registrar-General of the Land and Property Management Authority within 7 days of lodgement.

Catchwords:

LAND LAW-Strata Title-reallocation of unit entitlements-unreasonable initial allocation-application by owners corporation-valuers method of valuation-exercise of discretion

Legislation Cited:

Civil and Administrative Tribunal Act 2013
Strata Schemes Development Act 2015
Strata Schemes Development Regulation 2016
Strata Schemes Management Act 1996
Strata Schemes Management Act 2015

Cases Cited:

Anderson Stuart v Treleaven (2000) NSWSC 283; 49 NSWLR 88
Brett v Warhaftig [2018] NSWCATAP 167
Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336
Gray v Owners Strata Plan 12862 9Strata & Community Schemes) [2007] NSWCTTT 730 (31 December 2007);
Green and Rogan v The Owners Strata Plan No 8718 [1999] NSWSSB 5 (2 February 1999);
Isabella DIT Pty Limited v Lee Wharf Developments Pty Ltd & Anor [2104] NSWCATCD 224
Karenlee Nominees Pty Ltd v Gollin & Co Ltd [1983] 1 VR 657
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705
McClenahan v Owners Corporation SP69904 [2017] NSWCATAP 112
Owners Corporation SP179 v Owners Corporation SP179 & Joseph Fridrich & Sons Pty Ltd (Strata & Community Schemes) [2005] NSWCTTT 579 (20 August 2008);
Owners Corporation SP54813 v Owners Corporation SP54813 (unrep)[NCAT File SC17/30773];
Riana Pty Ltd v The Owners-Strata Plan No 22336 [2007] NSWSC 1033
Robinson and Cutsforth v Andonovski and Ors (unrep)[NCAT File No. SC18/17059].
Sahade v The Owners-Strata Plan 62022 (2014) 87 NSWLR 261
Sahade v The Owners-Strata Plan No 62022 & Ors [2015] NSWCATAP 146
Sahade v The Owners-Strata Plan No 62022 & Ors [2015] NSWCATCD 5
Schrader v Owners Corporation (Strata & Community Schemes) [2003] NSWCTTT 772 (20 November 2003);
Spencer v Commonwealth (1907) 5 CLR 418
The Owners-Strata Plan No 86208 v Lowry & Ors [2014] NSWCATCD 226
Western Australian Planning Commission v Arcus Shopfitters Pty Ltd [2003] WASCA 295
Younger v Owners-Strata Plan No 57504 [2014] NSWCATCD 142

Category:

Principal judgment

Parties:

The Owners - Strata Plan No 49458 (Applicant and Respondent)
Sister Cecil Carmody, Lawrence and Anastasia Seeto and Pamela Edmonds (Opposing Owners)

Representation:

Counsel:
D Hand (Applicant)
J Hutton (Opposing Owners)
Solicitors:
Bannermans (Applicant)
Addisons (Opposing Owners)

File Number(s):

SC 17/48402

Publication restriction:

Unrestricted

REASONS FOR DECISION

Application

1. This is an application by The Owners-Strata Plan 49458 made on 9 November 2017 for an order pursuant to s 236(1)(a) of the Strata Schemes Management Act 2015 (“SSMA”) that the Initial Schedule of Unit Entitlements in a Strata Scheme be replaced by a revised Schedule of unit entitlements.

Jurisdiction

2. Section 28 of the Civil and Administrative Tribunal Act 2013 provides:

(1) The Tribunal has such jurisdiction and functions as may be conferred or imposed on it by or under this Act or any other legislation.

(2) In particular, the jurisdiction of the Tribunal consists of the following kinds of jurisdiction:

(a) the general jurisdiction of the Tribunal,

(b) the administrative review jurisdiction of the Tribunal,

(c) the appeal jurisdiction of the Tribunal (comprising its external and internal appeal jurisdiction),

(d) the enforcement jurisdiction of the Tribunal.

(3) Subject to this Act and enabling legislation, the Tribunal has jurisdiction in respect of matters arising before or after the establishment of the Tribunal

Note. Section 35D of the Ombudsman Act 1974 enables the Ombudsman and the President to enter into arrangements with respect to the co-operative exercise of the respective functions of the Ombudsman and the Tribunal (including providing for the referral of matters between them).

3. The section 4 of the SSMA defines “Tribunal” as meaning the Civil and Administrative Tribunal.

4. Section 236 of the SSMA provides that:

236   Order for reallocation of unit entitlements

(1) Tribunal may make order allocating unit entitlements The Tribunal may, on application, make an order allocating unit entitlements among the lots that are subject to a strata scheme in the manner specified in the order if the Tribunal considers that the allocation of unit entitlements among the lots:

(a)  was unreasonable when the strata plan was registered or when a strata plan of subdivision was registered, or

(b)  was unreasonable when a revised schedule of unit entitlement was lodged at the conclusion of a development scheme, or

(c)  became unreasonable because of a change in the permitted land use, being a change (for example, because of a rezoning) in the ways in which the whole or any part of the parcel could lawfully be used, whether with or without planning approval.

(2)   Matters to be taken into consideration In making a determination under this section, the Tribunal is to have regard to the respective values of the lots and to such other matters as the Tribunal considers relevant.

(3)   Persons who may apply for order

An application for an order under this section may be made by any of the following:

(a)  an owner of a lot (whether or not a development lot) within the parcel for the strata scheme,

(b)  the owners corporation,

(c)  the lessor, in the case of a leasehold strata scheme,

(d)  the local council, or by any other public authority or statutory body representing the Crown, being an authority or body that is empowered to impose a rate, tax or other charge by reference to a valuation of land.

(4) Application to be accompanied by valuation

An application for an order must be accompanied by a certificate specifying the valuation, at the relevant time of registration or immediately after the change in the permitted land use, of each of the lots to which the application relates.

(5) Qualifications of person making valuation

The certificate must have been given by a person who is a qualified valuer within the meaning of the Strata Schemes Development Act 2015.

(6) Ancillary orders that may be made if original valuation unsatisfactory The Tribunal may, if it makes an order allocating unit entitlements that were not allocated in accordance with a valuation of a qualified valuer and, in the opinion of the Tribunal, were allocated unreasonably by an original owner, also order:

(a)  the payment by the original owner to the applicant for the order of the costs incurred by the applicant, including fees and expenses reasonably incurred in obtaining the valuation and the giving of evidence by a qualified valuer, and

(b)  the payment by the original owner to any or all of the following people of the amounts (if any) assessed by the Tribunal to represent any overpayments (due to the unreasonable allocation) for which liability arose not earlier than 6 years before the date of the order:

(i)  the lessor, in the case of a leasehold strata scheme,

(ii)  the owners corporation,

(iii)  the owners of lots.

(7) Lodgment of order The owners corporation must ensure that a copy of an order made by the Tribunal under this section is lodged in the Registrar-General’s office no more than 6 months after the order is made. Nothing in this section prevents a person who is entitled to apply for an order under this section from lodging a copy of an order made under this section.

Note.

Section 246 contains provisions with respect to the recording of an order made under this section.

NSW Government

5. Section 4 of the Strata Schemes Development Act 2015 (“SSDA”) defines:

"unit entitlement" of a lot in a strata scheme means the unit entitlement of the lot shown on the schedule of unit entitlement for the scheme..

And:

"schedule of unit entitlement" , in relation to a strata scheme, means the schedule recorded as the schedule of unit entitlement in the folio for the common property in the scheme.

6. Section 90 of the SSDA provides:

Revised schedule of unit entitlement

(1) If, at the conclusion of a development scheme, the owners corporation considers that the schedule of unit entitlement for the strata scheme does not apportion the unit entitlements so as to reflect the market value of the lots in the strata scheme, the owners corporation may lodge a revised schedule of unit entitlement for the scheme.

(2) The revised schedule of unit entitlement must be lodged within 2 years after the conclusion of the development scheme.

(3) A revised schedule of unit entitlement must:

(a) be in the approved form, and

(b) be clearly identified as a revised schedule of unit entitlement, and

(c) show, as a whole number apportioned on a market value basis and totalling the unit entitlements, the unit entitlement of each lot, and

(d) be accompanied by a certificate in the approved form signed by a qualified valuer certifying that the unit entitlements of the lots are apportioned on a market value basis, and

(e) be accompanied by a certificate in the approved form signed by the owners corporation and certifying that it has, by special resolution, agreed to the substitution of the existing schedule of unit entitlement with the revised schedule.

(4) In this section:

"market value basis" -see clause 1 of Schedule 2.

7. Clause 1 of Schedule 2 of the SSDA defines “market value basis” and “valuation day” as:

Definitions

In this Schedule:

market value basis, in relation to the proposed unit entitlement of a lot or development lot, means the basis for determining the value of the lot or development lot prescribed by the regulations.

valuation day, in relation to apportioning unit entitlements, means the day prescribed by the regulations as the valuation day for the purposes of the clause in which the term is used.

8. Regulation 7 of the Strata Schemes Development Regulation 2016 (“SSDR”) provides:

Schedules of unit entitlement

(1) A proposed schedule of unit entitlement in respect of a strata scheme must set out in a column each lot number in the scheme (or if the proposed schedule of unit entitlement relates to the subdivision of a development lot under section 14 of the Act—each lot number to be created by the subdivision) in numerical sequence with the unit entitlement for each lot set out opposite the lot number in a second column with the aggregate unit entitlement at the foot of that second column.

(2) If successively numbered lots have the same unit entitlement they may be grouped together in an abbreviated form.

(3) For the purposes of the definition of market value basis in Schedule 2 to the Act, the basis for determining the value of a lot or development lot is to estimate the amount for which the lot or development lot would be sold by a willing but not anxious seller to a willing but not anxious buyer.

(4) Valuation day means:

(a) for the purposes of clause 2 or 4 of Schedule 2 to the Act, a day that is not more than 2 months before the day on which an application is made under Part 4 of the Act for a strata certificate in relation to the relevant strata plan or strata plan of subdivision, or

(b) for the purposes of clause 5 of Schedule 2 to the Act, the day nominated as the valuation day in the original schedule of unit entitlement that accompanied the strata plan.

9. The application is made by The Owners-Strata Plan 49458.

10. Section 236(3)(b) prescribes that an application for an order under section 236 may be made an owners corporation.

11. The Tribunal is satisfied that from the strata plan and the copy of the folio identifier for the common property from the NSW Registrar General’s Register, exhibited to the Tribunal in the evidence before it, that the applicant is the owners’ corporation for Strata Plan 49458 and has standing to bring the application.

Facts and Findings

12. Filed with the application is a copy of the Strata Plan 49458, a copy of folio identifier CP/SP49458, a copy of the Consolidated by-laws for the strata scheme, a copy of the Strata Roll for SP 49458 and a copy of a valuation report prepared by Dobrow Valuations Pty Ltd dated 1 November 2017.

13. The application for the Initial Schedule of Unit Entitlements in a Strata Scheme to be replaced by a revised Schedule of unit entitlements is opposed by the Sister Cecil Carmody, the registered proprietor of Lot 35, Lawrence and Anastasia Seeto, the owners the registered proprietors of Lot 37, and Pamela Edmonds, the registered proprietor of Lot 38, (together called in these proceedings “the Opposing Owners”).

14. The Tribunal is satisfied that:

1. the applicant has standing and is the correct applicant to bring these proceedings;

2. the proprietors of all lots in the Strata Scheme have been given notice of the application;

3. The Opposing Owners are lot owners in the strata scheme and have filed with the Tribunal their responses to the application and are entitled to be heard in regard to their opposition to the application.

4. Strata Plan 49458 was registered on 17 May 1995 and the provision of the SSMA apply to this application;

15. It is necessary to consider the threshold question in relation to the valuation evidence before the Tribunal. If the valuation does not comply with the provisions of section 236 of the SSMA then the application will fail. If the valuation satisfies the requirements of section 236, then the Tribunal will consider the merits of the application and then decide whether to exercise its discretion or not.

16. The applicant relies on the valuation of prepared by Wally Dobrow of Dobrow Valuations Pty Ltd dated 1 November 2017 and 24 May 2018. In his reports, Mr Dobrow states that he is a Fellow of the Australian Property Institute and a Certified Practicing Valuer. Section 4 of the SSDA provides that a qualified valuer means a person who, amongst other qualifications has membership of the Australian Property Institute (other than student or provisional membership), acquired in connection with his or her occupation as a valuer. The Tribunal is satisfied that Mr Dobrow is a qualified valuer for the purpose of section 236 of the SSMA. The valuation dated 24 May 2018 prepared as an expert report complying with the Tribunal’s Expert Witness Procedural Direction 3.The first report filed with the application is dated 1 November 2017. Mr Dobrow has given a certificate within the meaning of the Strata Schemes Development Act 2015.

17. The Tribunal is satisfied that the Mr Dobrow’s valuations comply with the requirements of section 236 of the SSMA.

18. Mr Dobrow sets out at page 26 of Exhibit A5 a table showing the disparities between the original allocation of unit entitlements and the valuation of the lots determined by him.

Evidence and submissions of the Applicant and the Opposing Owners

19. The Scheme is for a building known as the “Anchorage” at 5 Milsons Road Cremorne Point and consisted of 44 residential flats when it was built in 1960-61. A company, Anchorage Pty Ltd, owned the estate in fee simple in the land.

20. From the time of the construction of the building until May 1995, the residential flats were occupied by shareholders in The Anchorage Pty Ltd under a company title system entitling the shareholders to exclusive occupation of a particular flat.

21. At a meeting of the shareholders in The Anchorage Pty Ltd it was resolved to apply for registration of a strata plan in respect of the land and building with unit entitlements in respect of each lot in accordance with the strata plan that was subsequently registered. On 17 March 1994 the company’s directors resolved to determine unit entitlement upon the conversion to strata title on the basis of the area of the units, with adjustment for such factors as the floor level of the unit and whether or not the unit had a balcony, garage or car space. The evidence is that the directors preferred “area” over “value” or “shareholding” as the means of determining unit entitlement in the new strata scheme and the subsequent unit entitlement was determined on the “area” basis.

22. The Opposing Owners submit that basis was agreed by all participants in the making of the decision and on its face, it is “the antithesis of ‘unreasonable’”.

23. The Strata Plan was registered on 17 March 1995 and 38 lots were created by that registration.

24. The application is brought 23 years after the Strata Plan was registered.

25. The applicant contends that it is uncontroversial that in determining the application, the Tribunal is required to engage in a three stage process as found by Sackville J in Sahade v The Owners-Strata Plan 62022 (2014) 87 NSWLR 261 at [62]. That process is:

1. Stage one: to ascertain the respective values of the lots as at 17 May 1995;

2. Stage two: to determine whether, having regard to the respective values and such other matters as it considered relevant, the allocation of unit entitlements in May 1995 was unreasonable; and,

3. Stage three: if the allocation was unreasonable, consider whether to make an order reallocating unit entitlements among the lots subject to the strata scheme.

26. The Opposing Owners submit:

1. The application is completely unmeritorious. The initial unit entitlement allocation was agreed by the owners of lots in the Scheme on 17 March 1994 and was made on 17 May 1995 when the strata plan was registered.

2. The evidence is that the sole reason that the initial unit entitlement allocation is now challenged is that The Owners have committed to undertake very substantial renovation and remedial works (“Renovations”) costing between $3-4 million. The building contractor has been engaged and the Renovations have commenced and will be paid for by loans obtained by The Owners to avoid raising levies under the existing unit entitlement allocation.

3. The Opposing Owners evidence is that the decision to bring the present application was passed by only a relatively narrow margin, with 36% of the votes cast on the resolution being against it.

4. Since Sahade the case decided by the Tribunal shows a heavy burden is borne by an applicant seeking to contest a unit entitlement reallocation under section 236 of the SSMA.

5. The Opposing Owners refer to the remitted proceedings in Sahade, Sahade v The Owners-Strata Plan No 62022 & Ors [2015] NSWCATCD 5 (13 January 2015-Thode SM) and Sahade v The Owners-Strata Plan No 62022 & Ors [2015] NSWCATAP 146 (21 July 2015-Harrowell PM and Robberds QC SM) (“Sahade No 2”); Younger v Owners-Strata Plan No 57504 [2014] NSWCATCD 142 (Ringrose GM) (“Younger”), which applied Riana Pty Ltd v The Owners-Strata Plan No 22336 [2007] NSWSC 1033 (Rothman J) (“Riana”); Isabella DIT Pty Limited v Lee Wharf Developments Pty Ltd & Anor [2104] NSWCATCD 224 (19 November 2014) (Ringrose GM) (Isabella”); The Owners-Strata Plan No 86208 v Lowry & Ors [2014] NSWCATCD 226 (18 November 2014) ( Harrowell PM) (“SP86208”); Brett v Warhaftig [2018] NSWCATAP 167 (11 July 2018) (Harrowell PM and McAteer SM) (“Brett”). In each of these cases the application for reallocation was refused even though the initial application had been in place for shorter than the 23 years in the current application.

1. The cases cited show:

1. The Tribunal must be satisfied that the initial unit entitlement allocation was unreasonable at the time it was made. The applicant bears the onus of positively satisfying the Tribunal of any such unreasonableness. A relevant matter being whether the initial allocation was set by a developer or by the owners themselves. If by the owners, then the Tribunal should be less inclined to have regard to it as being unreasonable.

2. Even if the initial allocation was unreasonable, the Tribunal must independently consider whether a reallocation should be ordered and whether it has a proper basis for reallocation. The cases cited require the Tribunal:

1. To have before it reliable evidence of the respective values of each lot at the time of initial allocation: Isabella;

2. Despite being satisfied that the initial allocation was unreasonable the Tribunal may refuse to make the reallocation because:

3. It did not have appropriately reliable evidence to support the proposed reallocation: Sahade No 2;

4. The degree of unreasonableness did not warrant the reallocation: Sahade No 2;

5. The lots had been bought and sold and the affairs of the building managed, based on the existing allocations for many years: Sahade, Sahade No 2 and Younger;

6. The impact of the proposed reallocation on the voting rights and financial liabilities of individual lot owners was unfair or unduly burdensome: Sahade No 2;

7. The Owners have not shown that the first stage of the test, that is proof that the initial allocation was unreasonable because:

8. The applicant bears the burden of putting before the Tribunal reliable evidence of the respective values of each lot as at 17 May 1995 and satisfying the Tribunal that evidence means that the initial allocation was unreasonable when it was made.

9. The applicant relies on the two Dobrow Reports in support of the application. The Opposing Owners submit both reports take the completely wrong approach as a matter of principle. The Reports are based on insufficient evidence, involve impressionistic, arbitrary adjustments and are internally inconsistent and mathematically wrong and as such do not satisfy the Tribunal of the unreasonableness which are addressed separately by the Opposing Owners in submissions referred to below.

10. Even if Mr Dobrow evidence is accepted the resulting change in unit entitlement as a percentage of all existing unit entitlements of less than 1% for 34 of the 38 units and a maximum change in unit entitlement allocation of only 1.77%. The reallocation will not result in a significant change in allocation for most lot owners even though the financial impact will be significant on the Opposing Owners. As such, that demonstrates that the initial allocation was not unreasonable when it was made: see SP86208, Sahade No 2 and Brett.

11. The initial allocation was set by the owners as shareholders under a company title arrangement. Neither there is evidence as to the voting on the resolution to convert the company title to the strata title nor is there any evidence that the resolution was other than unanimous (see Minutes of Directors Meeting, 17 March 1994, Exhibit R4, tab 5). It cannot be said that the initial allocation was not unreasonable even if Mr Dobrow’s opinions are fully accepted.

12. Even if the Tribunal finds that the initial allocation to be unreasonable it may not order a reallocation because units had been bought and sold on the basis of the existing allocation: see Sahade No 2, Isabella and Younger.

13. The Tribunal should not make a reallocation order because:

14. There is no reliable evidence of the respective values of each lot as at 17 May 1995. Mr Dobrow’s assessment is unreliable or unexplained for the reasoning in most of the lots and for the balance he adopts assumptions that are not justified.

15. If there is any unreasonableness found, it does not warrant reallocation the valuation being less than 1% for 34 of the 38 units and at the highest 1.77%.

16. Lots have been bought and sold and the affairs of the building managed on the basis of the existing allocations for 23 years without any reallocation being foreshadowed or sought until 2016 after the Renovations became inevitable. There have been 56 changes of ownership in the building since 17 May 1995, trading on the faith of the current allocation.

17. The impact of reallocation on the financial liabilities on individual lot owners will be unfair and unduly burdensome.

The allocation of unit entitlements was unreasonable

27. The applicant contends that:

1. The valuation of lots as at May 1995 is a fundamental consideration for the Tribunal in determining the question of unreasonableness. In this application the significant disparities between the valuation and the original allocations points towards a finding that the allocations were unreasonable.

2. Mr Dobrow has undertaken the valuation task and the applicant relies upon his valuation. Mr Dobrow is a qualified valuer and has provided a certificate as required by section 236(4) of the SSDA that as to the valuation as at 17 May 1995 in his report of 1 November 2017.

3. Mr Dobrow’s curriculum vitiae sets out his experience and qualifications. He has more than 30 years’ experience as a property valuer. In the mid 1980’s he was employed by the NSW Valuer General as a valuer. He is a registered valuer of all real estate in NSW, a certified practicing valuer and a fellow of the Australian Property Institute.

4. His evidence is that he carried out internal inspections of 28 of the 38 lots in the Scheme over a period of three days. He adopted the Australian Property Institutes definition of “market value” in arriving at his valuation of the lots as at May 2015 and including those lots aspect, outlook and access.

5. In his report he gave evidence that he considered the values of the subject lots by analysing the actual prices achieved for lots within the Scheme at around May 1995 as well as the sale price of lots in nearby strata buildings. In his supplementary report (Exhibit A6) he says that:

“The benefit of using sales within the subject strata scheme is that they are directly comparable, although some may be post the relevant date, market movement has been slight, and therefore the adjustment for market movement is small, making these sales reliable.”

6. The methodology adopted by Mr Dobrow was a direct comparison method including using a rate per square metre subject to adjustment for factors such as location, the position of the lot in the building, its size and its views.

7. Market movement was assessed by reference to seven sales of lots in the Scheme occurring around May 1995 and to the Valuer General’s ‘Blue Book’ for the financial year ended 30 June 1995 and 1996.

8. Attached to Mr Dobrow’s expert report are his worksheets in which he sets out his calculations of the valuation for each lot.

9. Mr Dobrow also carried out an Equivalent Market exercise which he used to explain was capable of more clearly demonstrating the anomalies and inconsistency with the existing unit entitlements.

10. The applicant submits that the general principles of valuation are set out in Spencer v Commonwealth (1907) 5 CLR 418 at 442-443 where Isaacs J quoted with approval form the Privy Council decision in Secretary of State for Foreign Affairs v Charlesworth Pilling & Co [1901] AC 373 at 391:

“It is quite true that in all valuations, judicial or other, there must be room for inferences and inclinations of opinion which, being more or less conjectural, are difficult to reduce to exact reasoning or to explain to others. Everyone who has gone through the process is aware of this lack of demonstrative proof in his own mind, and knows that every expert witness called before him has had his own set of conjectures, of more or less weight according to his experience and personal sagacity. In such an inquiry as the present, relating to subjects abounding with uncertainties and on which there is little experience, there is more than ordinary room for such guesswork; and it would be very unfair to require an exact exposition of reasons for the conclusions arrived at.”

11. “Valuation is a matter of estimation, not of precise mathematical calculation”: per Mason J in Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 at 381.

12. In Karenlee Nominees Pty Ltd v Gollin & Co Ltd [1983] 1 VR 657 at 669, the Full Court of the Victorian Supreme Court observed:

“The valuation of land and buildings involves matters of judgment. Opinions notoriously vary on this subject matter-it would be surprising to find two valuers who agreed on the valuation to be given to land and buildings of the nature of the subject premises. There is no scientific exactitude in the valuations of land and buildings. They are as hypothetical as is the hypothetical purchaser whom they assume.

13. In Western Australian Planning Commission v Arcus Shopfitters Pty Ltd [2003] WASCA 295 at [71] McClure J observed:

“…the formation of an opinion on value has been likened, correctly in my view, to the exercise of judicial discretion. Rules affecting weight must be sufficiently generalised to allow for different methodologies and circumstances. For the reasons already given, it is not a requirement that a valuer identify the most important comparable sale. There may be no such sale.”

“The correct principle is, in my view, that the valuer must reveal as far as possible the process of reasoning actually employed so as to enable the Court to evaluate the evidence and the expert’s conclusions: Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at 729-745.”

14. The Tribunal should be satisfied that Mr Dobrow has revealed the process of reasoning employed by him and accept his expert opinion as to the value of the lots as at the date of registration of the strata plan.

15. The disparities between the valuation and the original unit allocation points to a finding that the original allocations were unreasonable.

16. In the case of 19 of the 38 lots in the Scheme, adjustments of more than 10% to existing unit entitlements would be required in order to cause those entitlements to reflect the respective lot values as at the date of registration. For several lots the necessary adjustment exceeds 30%.

17. The Tribunal should determine that the allocation of unit entitlements in May 1995 was unreasonable.

28. The Opposing Owners submit:

1. The applicant bears the onus of establishing that the allocated unit entitlements were unreasonable;

2. A reliable valuation of each of the respective lots as at the relevant date is a fundamental consideration in determining one factor, that is unreasonableness: McClenahan v Owners Corporation SP69904 [2017] NSWCATAP 112 at [32](1)-(5).

3. There is no obligation on the Opposing Owners to establish an alternative case; they are however, entitled to test the applicant’s case. In SP86208 the reallocation was refused without the opposing party leading any valuation evidence of its own. The Tribunal found that the evidence of the valuer relied upon by the applicant was not sufficiently reliable for it to make a finding of unreasonableness.

4. In Anderson Stuart v Treleaven (2000) NSWSC 283; 49 NSWLR 88 Santow J held, in accordance with Spencer v The Commonwealth [1907] HCA 82; 5CLR 418, “value” in the context of section 183(3) of the Strata Schemes Management Act 1996 (“SSMA1996”) is to be assessed by reference to the price which would be paid by a willing but not anxious purchaser to a willing but not anxious vendor. The Opposing Owners submit the same basis applies to the context of section 236(2) of the SSMA.

5. Mr Dobrow’s evidence does not establish the value of each lot as at 17 May 1995.

6. Mr Dobrow’s evidence does not show that the initial allocation was unreasonable. The disparity arising from the valuation of each lot as at the time of initial allocation is not sufficient to warrant a reallocation (see Sahade and SP86208).

7. The initial allocation of unit entitlements was as a result of consideration of the factors referred to previously and an agreement between the shareholders of The Anchorage Pty Ltd, which should be contrasted with a developer who unilaterally fixes unit entitlements for lots in a strata plan before selling them to purchasers who have no part in the unit allocations. The initial allocation was not unreasonable in the circumstances.

8. Since registration 23 years has passed before the notion of reallocation of unit entitlement was raised.

Exercise of Discretion

29. The applicant submits that:

1. Although there is opposition from some lot owners to the making of an order reallocating unit entitlement, this is not the case where the governance of the Scheme will be adversely affected by the reallocation of unit entitlements as sought by the applicants.

2. There are only 3 of 38 owners who wish to be heard in opposing the application. Each of which will have a larger unit entitlement if the unit entitlement is adjusted to conform the Mr Dobrow’s valuation along with 20 other lots. The owners of those lots have not opposed the reallocation.

3. There is no evidence to suggest that the original allocation of unit entitlements was a factor that weighed in the Opposing Owners decision to purchase into the Scheme or that the reallocation sought would visit an injustice on them.

4. The Tribunal should exercise its discretion to reallocate the unit entitlements to reflect the value of the lots as at 17 May 1995 as contained in the Certificate of Valuation in Mr Dobrow’s expert valuation report.

30. The Opposing Owners submit that:

1. Even if the Tribunal finds that the initial allocation of unit entitlements was unreasonable, the Tribunal must exercise its discretion whether or not it will order a reallocation of unit entitlements.

2. In Sahade Basten JA canvassed various matters that may be relevant to the Tribunal’s decision depending on the factual context of the case. They included:

1. Over 23 years have passed since the relevant date, there have been 56 changes in ownership. Insofar as unit entitlements constitute aright attaching to property it may be a sufficient reason to not interfere with the basis of the known allocation that consecutive owners have relied upon;

2. Financial consequences such as liability for rates, payments with respect to maintenance and upkeep of common property, levies for administration and sinking funds; and sharing in the assets and liabilities of the body corporate on termination of scheme. Sackville AJA said in Sahade at [91] that a failure to take into account a parties opposition to an adjustment on the grounds of the prejudice they would suffer by increased levies may constitute an error of law.

3. Management power consequences-elections and motions at general meetings of the Owners Corporation where a poll is demanded, determining a quorum or requisitioning a meeting.

3. If the Tribunal finds that the initial allocation was unreasonable then the Tribunal should decline to make an order for the reallocation because:

1. There was insufficient evidence of the respective values of each of the lots as at 17 May 1995;

2. Degrees of unreasonableness does not warrant reallocation;

3. Lots have been bought and sold and the affairs of the building managed based on the existing allocations for 23 years;

4. Financial impact is unfair, particularly given the timing of reallocation application.

Conclusion and Determination

31. Notwithstanding the Opposing Owners arguments and contentions the Tribunal is satisfied as to the unreasonableness of the allocation of unit entitlements as at 17 March 1995 and will make the orders as sought by the applicant.

32. The Tribunal is satisfied that the valuation evidence of Mr Dobrow comprises his three reports, the preliminary report of Dobrow Valuations dated 30 June 2016 (Exhibit R4 tab14) and in compliance with section 236(4) of the SSMA (“Preliminary Report”), the report of Dobrow Valuations dated 1 November 2017 (Exhibit A5) (“First Report”) and the report of Dobrow Valuations dated 24 May 2018 (Exhibit A6) (“Second Report”).

33. Despite the cross examination of Mr Dobrow on his reports, the Tribunal finds that the First and Second Reports establish:

1. The First Report provides a certificate specifying the valuation of the lots as at 17 May 1995 in compliance with section 234(4) of the SSMA;

2. Mr Dobrow inspected the majority of the lots in the Scheme and considered the size, configuration, layout, outlook and access of each lot and considered values of sales for lots within the Scheme and in nearby schemes at the relevant time in arriving at his determination as to value of the lots.

3. Mr Dobrow used the direct comparison valuation method, including using a rate per square metre and made adjustments for location, position in the building, the lot size, views and market movement.

4. Mr Dobrow is an expert valuer with more than 30 years’ experience and is qualified to give the reports he has.

5. The First and Second Reports were the only expert evidence before the Tribunal.

34. The Tribunal is also satisfied that the Preliminary Report was not relied upon by the applicant except to the extent that was a valuation that informed the applicant of the likely unreasonableness of the initial allocation. Further the Opposing Owners 4 aide memoirs prepared by the Opposing Owners were not tendered into evidence and do not form part of the evidence before the Tribunal. The aide memoirs were shown to Mr Dobrow during his cross examination and he rejected them as being incorrect as they failed to identify all of the relative factors he took into consideration in drawing his conclusions.

35. The Opposing Owners argument about the degree of unreasonableness falls short of satisfying the Tribunal. The Opposing Owners submissions relying on the table of entitlements included in their submissions does not show the actual difference between the existing entitlements and the proposed unit entitlements. The Tribunal is satisfied that Mr Dobrow’s First Report (Exhibit A5 at pages 98-99) shows the actual difference in the allocation. The reallocation for 9 lots will result in those lots having a variance of over 20%. The present case can be distinguished from Sahade and Brett. Those cases related to 3 lot strata schemes and the individual lots have a higher relative proportion of unit entitlements than in a larger scheme such as is the subject of this application. SP86208 can also be distinguished from the present as in that case the valuation did not indicate the proposed change would be significant enough to warrant a reallocation of unit entitlements or did it refer to what the proposed change was that the Tribunal was considering in the circumstances. In the present case the evidence is that there is a variance of the unit entitlement of such significance that the existing unit entitlement cannot be reasonable and as such the Opposing Owners submission that degree of unreasonableness does not warrant reallocation cannot be maintained.

36. The fact that the existing allocation of unit entitlement has been in place for 23 years and as such no order reallocating should be made does not result in the Tribunal not needing the make an order. The Tribunal (and its predecessors, the NSW Strata Schemes Board and the CTTT) has reallocated unit entitlements for schemes where there has been a lengthy time between initial allocation and reallocation (see Green and Rogan v The Owners Strata Plan No 8718 [1999] NSWSSB 5 (2 February 1999)-25 years; Schrader v Owners Corporation (Strata & Community Schemes) [2003] NSWCTTT 772 (20 November 2003)-approximately 26 years; Owners Corporation SP179 v Owners Corporation SP179 & Joseph Fridrich & Sons Pty Ltd (Strata & Community Schemes) [2005] NSWCTTT 579 (20 August 2008)-44 years; Gray v Owners Strata Plan 12862 9Strata & Community Schemes) [2007] NSWCTTT 730 (31 December 2007)-29 years; Owners Corporation SP54813 v Owners Corporation SP54813 (unrep) [NCAT File SC17/30773]-20 years; and, Robinson and Cutsforth v Andonovski and Ors (unrep) [NCAT File No. SC18/17059]-20 years.

34. The Opposing Owners citation of the decision of Younger can be distinguished from the present case as there is no lengthy delay in bring these proceedings from the time the applicant first commissioned the Preliminary Report in 2016, these proceedings were commenced in 2017 and the respondents evidence is that a number of lot owners have changed during the time since the existing allocation of unit entitlement. The Tribunal accepts that lot owners change with the passing of time and the membership of Owners Corporation changes with that. It was not until 2016 that the applicant became aware what it regarded as an incorrect allocation of unit entitlements and acted to reallocate the entitlements.

35. The purpose of the application is to reallocate the unit entitlements correctly and fairly in accordance with the requirements of section 236. By doing so, the cost of bearing levies will be distributed equitably burdening some particular lot owners in proportion to the value of their lots in relation to the valuation of all the lots.

36. Despite the Opposing Owners submission about the state of mind of the shareholders of the company at the time of voting to covert the company title to a strata title, there is no evidence to support such a submission. The Tribunal cannot know the basis upon which the existing allocation was made in the absence of such evidence.

37. The Opposing Owners rely on Rolleston to support their submission about the unreliability of the Valuation Evidence. In that case, the Court rejected a valuation report in support of an insurance claim for failing to meet the criteria in section 79 of the Evidence Act 1995. The Opposing Owners draw an analogy between the valuer in Rolleston and Mr Dobrow’s methodology as they both rely on the direct comparison method. The distinction is that Mr Dobrow provides extensive reasoning in support of the conclusions he reaches in the First and Second Reports. The Tribunal is sufficiently satisfied that Mr Dobrow has justified his determination as to value by his reasoning in the First and Second Reports.

38. The Opposing Owners contend that the market value and the ascribed unit entitlements in the Preliminary Report expose the flaws in Mr Dobrow’s process as being provisional and inadequate and that he sought to bolster his and supplement his reasoning while clinging to his preliminary reasoning and that he backfilled his evidence to support his opinion in the Preliminary Report. Such an assertion cannot be maintained on the evidence before the Tribunal.

39. Mr Dobrow evidence is that he inspected the scheme externally in conjunction with the strata plan and considered internal and external comparable sales evidence around the date of registration of the strata plan. His reasoning process was the same in the Preliminary, First and Second Reports; however, it was only detailed in the First and Second Reports.

40. The Tribunal accepts Mr Dobrow’s evidence that he adopted the same process in the First and Second Reports as he did in the Preliminary Report without “backfilling” his reasoning.

41. The Tribunal is satisfied that Mr Dobrow used the evidence that was available to him in coming to the conclusions he did. He maintained his position as to the process and methodology in arriving at his conclusions under cross examination.

42. The Tribunal is satisfied that the requirements of section 236 of the SSMA have been met by the applicant and in the circumstances and on the valuation evidence adduced the Tribunal will exercise its discretion to make the orders sought.

Orders

46. That pursuant to section 236(1) of the Strata Schemes Management Act 2015 the allocation of unit entitlements among the lots in Strata Plan no. 49458 be in accordance with the schedule of unit entitlements contained in the valuation report of Walter Dobrow of Dobrow Valuations Pty Ltd dated 1 November 2017, a copy of which is attached to the application in Tribunal file number SCS17/07210.

47. The Owners-Strata Plan No 49458 take all necessary steps to lodge with the Registrar General of the Land and Property Management Authority and to have recorded on the common property title of Strata Plan No 49458 the orders of the Tribunal within 28 days hereof; and

48. The Owners-Strata Plan No 49458 is to inform each of the Lot Owners in writing of it lodging a copy of these orders with the Registrar-General of the Land and Property Management Authority within 7 days of lodgement.

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

Registrar

Decision last updated: 24 January 2019