The Owners Strata Plan No 73943 v 2 Elizabeth Bay Road Pty Ltd

[2013] NSWSC 1769

Supreme Court

New South Wales

Medium Neutral Citation:	The Owners Strata Plan No. 73943 -v- 2 Elizabeth Bay Road Pty Ltd [2013] NSWSC 1769
Hearing dates:	30 October 2013
Decision date:	29 November 2013
Jurisdiction:	Equity Division - Technology and Construction List
Before:	Hammerschlag J
Decision:	Motion dismissed with costs
Catchwords:	STATUTORY CONSTRUCTION - Section 80D of the Strata Schemes Management Act 1996 (NSW) - meaning and effect - where proceedings commenced prior to resolution of the general meeting of owners corporation in contravention of s 80D(1) - whether statutory inhibition imposed by s 80D can be lifted by ex post facto resolution of the owners corporation at general meeting - whether resolution was passed within a reasonable time - HELD proceedings commenced without compliance with s 80D(1) are not a nullity and ex post facto resolution of a general meeting of owners corporation can remove statutory inhibition - HELD resolution passed within a reasonable time
Legislation Cited:	Strata Schemes Management Act 1996 (NSW) Home Building Act 1989 (NSW) Workers Compensation Act 1987 (NSW) Body Corporate and Community Management Act 1997 (QLD)
Cases Cited:	The Owners Strata Plan No 46528 v Hall [2009] NSWSC 278 The Owners Strata Plan No 70798 v Bakkante Constructions Pty Ltd (2013) 17 BPR 32,159 Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364 Presentaciones Musicales SA v Secunda [1994] Ch 271
Texts Cited:	F M B Reynolds, Bowstead and Reynolds on Agency, 17th ed (2001) Law Book Co. Sydney
Category:	Procedural and other rulings
Parties:	The Owners Strata Plan No. 73943 - Plaintiff/Respondent 2 Elizabeth Bay Road Pty Limited - Defendant/Applicant
Representation:	Counsel: P.S. Braham SC with G.B. Carolan - Plaintiff/Respondent T. M. Lynch SC with D.P. O'Connor - Defendant/Applicant Solicitors: Makinson & d'Apice Lawyers - Plaintiff/ Respondent Mills Oakley Lawyers - Defendant/ Applicant
File Number(s):	2012/346116

Judgment

Background

1. The plaintiff is the owners corporation Strata Plan No 73943 which is a residential apartment building at 2 Elizabeth Bay Road, Elizabeth Bay, New South Wales, consisting of over 160 apartments. The defendant is a lot owner.

1. Section 80D of the Strata Schemes Management Act 1996 (NSW), which appears in div 3 of pt III, provides:

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

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

1. Regulation 15 of the Strata Schemes Management Regulation 2010 (NSW) provides:

(1) The seeking of legal advice, the provision of legal services or the taking of legal action is exempt from the operation of section 80D of the Act if the reasonably estimated cost of seeking the legal advice, having the legal services provided or taking the legal action would not exceed:

(a) an amount equal to the sum of $1,000 for each lot in the strata scheme concerned (excluding utility lots), or

(b) $12,500,

whichever is the lesser.

(2) In a case where the cost, or estimated cost, of seeking legal advice, having legal services provided or taking legal action has been:

(a) disclosed by the Australian legal practitioner concerned in accordance with the Legal Profession Act 2004, or

(b) set out in a proposed costs agreement under that Act,

the reasonably estimated cost of seeking the legal advice, having the legal services provided or taking the legal action is taken, for the purpose of this clause, to be the cost or estimated cost so disclosed or set out.

(3) The seeking of legal advice, the provision of legal services or the taking of legal action is exempt from the operation of section 80D of the Act if its purpose is to recover unpaid contributions and interest under section 80 of the Act.

1. By letter dated 24 September 2012 solicitors Makinson d'Apice set out the terms upon which they would accept a retainer from the plaintiff to give advice in relation to a potential claim against the defendant for breach of statutory warranties under the Home Building Act 1989 (NSW) in respect of defective building work which the defendant had carried out on behalf of a builder which the plaintiff had retained. The provision of the legal services to be provided under the retainer was exempt from the operation of s 80D(1) because the estimated cost was below the threshold provided in reg 15. On 9 October 2012 the executive committee resolved to retain them.

1. Under the Home Building Act such claims have a time limitation. It became apparent that there was a risk that the claim which the plaintiff might have, might be about to expire. To preserve the plaintiff's claim against the defendant, the solicitors urgently initiated legal action against the defendant by suing out of the District Court of New South Wales a Statement of Claim. The builder is in liquidation. The plaintiff claims that as against the defendant it has the benefit of statutory warranties. The proceedings were transferred to this Court pursuant to s 144 of the Civil Procedure Act 2005 (NSW).

1. References below to sections are, unless otherwise stated, references to sections of the Strata Schemes Management Act.

1. It is not in dispute that the payment that the plaintiff will be required to make to the solicitors in acting for the plaintiff in the legal action will exceed the threshold in reg 15.

1. Before the action was initiated, no resolution was passed at a general meeting of the plaintiff approving the taking of it.

1. However, on 7 March 2013 a general meeting of the plaintiff passed a resolution to the following effect:

1. RESOLVED that the owners corporation RESOLVES, for the avoidance of any doubt and to ensure that any issue said to arise under or in connection with and pursuant to section 8D of the Strata Schemes Management Act 1996 (NSW), and/or regulation 15 of the Strata Schemes Management Regulation 2010 is appropriately addressed, that the owners corporation authorise, approve and ratify the seeking of advice and/or services from Makinson and d'Apice Lawyers and/or the taking of legal action against the builders/developers (and such other parties as may be necessary) of Gazebo in relation to the building defects claim.

This application

1. The defendant moves for an order that the proceedings be struck out or dismissed on the grounds that they were commenced "without lawful authority".

1. It puts that the prohibition in s 80D(1) on initiating legal action is only capable of being removed by a resolution passed before the action is taken and that the plaintiff's resolution passed afterwards is ineffective to remove it. It puts that the absence of a prior resolution is an insuperable statutory inhibition on the commencement of proceedings and denies them legal effect.

1. The plaintiff accepts, the point having been taken, that to further the action there must be compliance with s 80D(1). It says that the resolution of 7 March 2013 is compliance. It accepts that if this is not the case the action cannot proceed.

1. This gives rise to the following two related questions:

(a) are proceedings commenced without prior compliance with s 80D(1) of no legal effect, that is, a nullity?

(b) if not, can the bar to legal action imposed by s 80D(1) be lifted by a subsequent resolution?

1. For the reasons which follow, I consider that the answer to (a) is no and the answer to (b) is yes. The result is that the defendant's motion must fail.

Nullity?

1. In The Owners Strata Plan No 46528 v Hall [2009] NSWSC 278 David Kirby J concluded that where proceedings were initiated by an owners corporation against a lot owner without compliance, the owners corporation "lacked the capacity to bring its action". His Honour upheld the decision of a Magistrate dismissing, on that basis, proceedings brought by an owners corporation. However, at [65] his Honour also concluded that the restrictions on spending in div 3 have been included for the benefit of owners and are not for the benefit of third parties. His Honour expressed the view that the issue of compliance in an action against someone who is not a unit holder is irrelevant and that one would not infer that the legislative purpose of s 80D(1) was to invalidate the corporation's action in such circumstances.

1. In The Owners Strata Plan No 70798 v Bakkante Constructions Pty Ltd (2013) 17 BPR 32,159, Pembroke J concluded that the language of the section was imperative and provided a compelling linguistic indication that the purpose of the legislation is that an act done in contravention of s 80D(1) or reg 15 "will be invalid". His Honour concluded that such actions "should be treated as invalid and unauthorised" and ruled that the proceedings must be dismissed. At [85] to [86] his Honour did "not accept the distinction drawn by Kirby J, nor the reasoning in which it is based", expressing the view that the protection of lot owners will be achieved by the knowledge that decisions made in contravention of the Strata Schemes Management Act will be invalidated.

1. Relying on Hall and Bakkante, in particular the holding in Bakkante that the proceedings should be treated as "invalid", the defendant argues that the proceedings must be denied any legal effect and are a nullity, and that it follows that a subsequent resolution has no effect.

1. The plaintiff invited the Court to hold that Hall and Bakkante are clearly wrong.

1. The question whether a subsequent resolution can be effective to lift the bar did not arise in either case. Irrespective of whether the proceedings were a nullity, absent a resolution, after the point was taken, it seems clear that proceedings were susceptible to dismissal or at least to a stay.

1. On this footing I consider the ultimate conclusion in both Hall and Bakkante to be correct. However, to the extent that either held that proceedings commenced absent compliance with s 80D(1) are a nullity, I respectfully disagree.

1. Although David Kirby J spoke of lack of capacity and Pembroke J spoke both of invalidity and of lack of authorisation (which involve different juridical concepts), the findings of both seem to entail a conclusion of nullity.

1. In Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364 Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ, in considering the effect of s 151C of the Workers Compensation Act 1987 (NSW), which stipulated a six month delay before commencement of court proceedings against an employer for damages, observed that when it comes to proceedings in superior courts of record of general jurisdiction the introduction of concepts of nullity or validity can cause very real difficulty because they obscure the distinction between such courts and courts of limited jurisdiction. In the case of the superior courts, acts in excess of jurisdiction cannot be characterised as invalid until quashed or set aside on appeal whereas that is not necessarily true of courts of limited jurisdiction.

1. At [9] the Court observed that s 151C of the Workers Compensation Act created an imperfect obligation in that no express provision was made by the statute for the consequences of failure to comply. At [12] and [13] the Court observed that that section referred generally to court proceedings and that workers' claims were cognisable in a range of courts, and that a construction should not be preferred which would result in a section having differential application depending on the court in which proceedings were commenced. At [16] the Court observed that a defendant would not be denied the possibility of denying a plaintiff's right to invoke the jurisdiction where there was non-compliance, but the denial would have to be made within the structure of the relevantly engaged procedural law and not outside it. At [23] the Court observed that very clear legislative intent is required before treating a statutory provision as taking away common law rights of a plaintiff where there is an alternative construction available. At [25] the Court observed:

Counsel for the employer sought to establish that the section was intended for the benefit of the public, in as much as it promotes non-litigated solutions for the benefit of the broader community. However, to describe the effect of a section concerned with litigation in this way is misleading. The public may well benefit and be intended to benefit from general compliance with s 151C, but that does not in any way lessen the benefit also received by the defendant in being freed from litigation for a stipulated period of time. The strategic advantage of such a provision in an adversarial system may be significant. As Mason CJ pointed out in Verwayen (26), the critical question is whether that benefit is personal or private or whether it rests in the relevant sense upon considerations of State. The public benefit here is mediated through a benefit conferred on individual litigants, not (as will be seen below) through restricting the court's jurisdiction.

1. At [86] Kirby J observed that where Parliament has enacted a provision in language which holds back from attaching consequences of nullity and voidness to the acts of a person in breach, it requires a very strong indication elsewhere in the Act that this is Parliament's purpose, if the court is to derive an implication that this is so. This is because of the drastic consequences that can follow conclusions of nullity and voidness in the law.

1. At [87] his Honour went on to observe that:

...an indication that a different consequence was envisaged by the Parliament appears in the fact that the subject matter of s 151C(1) of the Act is the commencement of court proceedings. In referring to non-entitlements, the Act does not use language appropriate to the denial of jurisdiction in the courts concerned or the withdrawal of jurisdiction earlier exercised. It is self-evidently a serious matter to suggest that a proceeding in a court, although apparently valid, is conducted without lawful jurisdiction, and is void and without effect. To impose such drastic consequences, so potentially disruptive to court proceedings, disconcerting to parties and misleading to the public that relies on the validity of such proceedings, the clearest language in the legislative prescription would be required. The language of s 151C(1) falls far short of requiring such an interpretation (83).

1. As was the case with the section considered in Berowra Holdings, s 80D(1) creates an imperfect obligation in that the statute makes no express provision for the failure to comply, it applies to court proceedings generally and the legal action which is affected is not susceptible of confinement to proceedings in any particular court. These considerations point against nullity in the present case.

1. Division 3 of the Strata Schemes Management Act is directed to curtailing expenditure and more widely to minimising internal dispute by way of imposing requirements on processes internal to the owners corporation.

1. The words of s 80D(1) do not, let alone clearly, reveal an intention to take away any common law right of the plaintiff or to curtail the jurisdiction of the court to entertain a claim.

1. I do not consider that a statutory purpose of a provision directed to limiting expenditure (and then only above particular levels) without specific authority is to visit nullity on legal action taken and the possible forfeiture of common law rights even where the necessary authority is given ex post facto.

1. Whilst I agree with the observation of David Kirby J that div 3 has been included for the benefit of owners rather than third parties, in a general sense the public may well benefit, and be intended to benefit, from general compliance with the section: see Berowra Holdings at [25]. However, I also agree with Pembroke J that this distinction does not work with respect to the operation of the section. The difference in approach is accommodated if one does not treat proceedings commenced without compliance as a nullity but leaves it to the defendant to deny the plaintiff's right invoke the jurisdiction of the court within the relevantly engaged procedural law and not outside it. The public benefit is mediated through a benefit conferred on individual litigants not through restricting the court's jurisdiction: see Berowra Holdings at [16] and [25].

1. There is sufficient incentive for prior compliance by way of the significant risk to persons in management positions in strata schemes who act without authority in any given case. The risk extends to legal practitioners who act without a retainer. Whilst a resolution beforehand will, in nearly all cases, be preferable, it may not be possible particularly in emergencies.

1. A further consideration favouring the conclusion of non-nullity is that the plain wording of s 80D(1) accommodates fulfilment by a resolution even if it is passed after the initiation of an action or the taking of legal advice, as the case may be. A resolution approving the taking of action, even after it has been taken, is a resolution approving that action. A resolution framed to approve initiation of legal action remains a resolution approving initiation even if it comes after it.

1. In addition, the wording of s 80D(1) can be contrasted with other provisions which impose a strict, temporal or sequential requirement, for example s 45(2) and s 65A(1) which provide:

45 How can an owners corporation enforce the by-laws?

(2) A notice cannot be issued under this section unless a resolution approving the issue of the notice, or the issue of notices for the type of contravention concerned, has first been passed by the owners corporation or the executive committee of the owners corporation.

65A Owners corporation may make or authorise changes to common property

(1) For the purpose of improving or enhancing the common property, an owners corporation or an owner of a lot may take any of the following action, but only if a special resolution has first been passed at a general meeting of the owners corporation that specifically authorises the taking of the particular action proposed:

(a) add to the common property,

(b) alter the common property,

(c) erect a new structure on the common property.

Subsequent resolution?

1. The statutory bar is removed upon the passing at a general meeting of a complying resolution. Given my conclusion that the proceedings are not a nullity and that the section on its plain wording accommodates fulfilment by subsequent resolution, the passing of such a resolution simply removes the bar to the action being furthered.

1. On this analysis questions of lack of authority and ratification by subsequent resolution do not properly arise. However, if the interim position is viewed as an action instituted without authority, the subsequent resolution is valid ratification of the action taken, with effect from the time that it was taken.

1. Recently, in McEvoy v The Body Corporate for 9 Port Douglas Road [2013] QCA 168 the Queensland Court of Appeal considered s 312 of the of the Body Corporate and Community Management Act 1997 (QLD) which provides, relevantly, that the body corporate for a community title scheme may start a proceeding only if the proceeding is authorised by a special resolution of the body corporate. No such resolution was passed before the proceedings were commenced but subsequently the body corporate voted to ratify the decision of the committee to bring them. The Court held that the situation was analogous to the unauthorised issuing of a writ which act was capable of being subsequently ratified. At [39] Holmes JA referred to the rule that ratification relates back to the date of the unauthorised act. Although McEvoy was decided before Bakkante, Pembroke J's attention was apparently not drawn to it.

1. I do not consider there to be any material difference between the provision under consideration there and that under consideration here and on the footing that it is a question of ratification, I propose to follow the Queensland Court of Appeal.

1. The defendant put that if ratification was possible it was not effective in this case because it would be caused undue prejudice if it was. These proceedings were in existence and remained in existence as at the time of the ratification. No undue prejudice is caused to the defendant by giving it effect. Rather, to not give it effect would give the defendant "a windfall defence" in a case where the vice against which the time period in the Home Building Act which is designed to protect the defendant against claims at a time so far after the occurrence of a cause of action that it is put at a disadvantage in defending the claim does not exist: see Presentaciones Musicales SA v Secunda [1994] Ch 271 and F M B Reynolds, Bowstead and Reynolds on Agency, 17th ed (2001) Law Book Co. Sydney at [2-089].

Reasonable time

1. As a fall back position the defendant put that if a subsequent resolution is effective ratification, it must be passed within a reasonable time and that the resolution here does not meet this requirement. This question may not arise on an analysis which does not involve ratification. However, in any event I do not accept this submission.

1. The point about compliance with s 80D(1) was drawn to the plaintiff's attention on 21 December 2012 by the defendant's solicitors. On 17 January 2013 the executive committee of the plaintiff noted that the annual general meeting was to be held just over a month later and that it did not see the need to have an extraordinary general meeting sooner. The annual general meeting was held on 7 March 2013 and the resolution passed. The proceedings had barely begun and little could or would have been achieved in the period between the time they were commenced and the time of the resolution, even less so between the time the point was taken and the time of the resolution. Even in the context of proceedings in this list where parties are expected to act with due dispatch, the passage of time was modest. The resolution was passed within a reasonable time.

Conclusion

1. The motion is dismissed with costs.

1. I will stand the matter over to a convenient date for further directions.

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Decision last updated: 28 November 2013