The Owners - Units Plan No 3908 v SDNM Pty Limited (Unit Titles
[2019] ACAT 74
•8 August 2019
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
THE OWNERS – UNITS PLAN NO 3908 v SDNM PTY LIMITED (Unit Titles) [2019] ACAT 74
UT 34/2018
Catchwords: UNIT TITLES – merits review of an unsuccessful motion at a general meeting – request for differential contributions to general fund – what is the correct and preferable decision – whether the objections were reasonable – consistency with previous decisions of the owners corporation – ownership of electrical infrastructure located on common property – legislative framework for ownership, maintenance and decision making
Legislation cited: ACT Civil and Administrative Tribunal Act 2008 s 48
Unit Titles Act 2001 ss 13, 16, 17, 19
Unit Titles (Management Act) 2011 ss 20, 23, 24, 25, 73, 75, 78, 108, 112, 129
Cases cited: Brudenell & Ors v Owners Corporation Unit Plan No 202 [2016] ACAT 101
Castro v The Owners Unit Plan No 246 [2016] ACAT 111
Clews v The Owners- Unit Plan No 3069 [2018] ACAT 82
Nash v The Owners – Units Plan 2413 & Ors [2018] ACAT 54
SDNM Pty Limited v The Owners - Units Plan 3908 [2018] ACAT 102
Uren & Anor v The Owners Unit Plan No 396 [2017] ACAT 51
Tribunal: Senior Member E Ferguson
Date of Orders: 8 August 2019
Date of Reasons for Decision: 8 August 2019AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) UT 34/2018
BETWEEN:
THE OWNERS – UNITS PLAN NO 3908
Applicant
AND:
SDNM PTY LIMITED
Respondent
TRIBUNAL: Senior Member E Ferguson
DATE: 8 August 2019
ORDER
The Tribunal orders that:
1. The application is dismissed.
………………………………..
Senior Member E Ferguson
REASONS FOR DECISION
The application
1. Unit Plan 3908 is a mixed-use development comprising 10 commercial units and 69 residential units; the respondent company (SDNM) owns one of the commercial units.
2. The applicant seeks an order pursuant to section 129(1)(g) of the Unit Titles Management Act 2011 (UTMA) giving effect to the following motion proposed by the executive committee (Motion 8) which failed to pass at a general meeting on 29 November 2018:
That the Owners Corporation determine a general fund contribution for the Commercial Air Conditioning/ Maintenance/ Repair Budget portion of the General Fund Budget as… This general fund contribution is to be paid by all commercial lot owners (lots 70-79) in accordance with the following amounts [a schedule then sets out the amount payable by each commercial unit].
3. As the motion proposed differential contributions to the general fund between residential and commercial owners it could only be passed by an unopposed resolution. SDNM, and one residential owner, who is not a party to these proceedings, opposed the motion.
4. Section 129(1) lists the orders the ACAT may make, including at subsection (g):
an order giving effect to an unsuccessful motion for a resolution of a general meeting(either as originally proposed or as amended by the ACAT) if the ACAT is satisfied after a merits review of the motion that opposition to the motion was unreasonable;
5. I heard the application on 19 April 2019. Gary Green represented the Owners Corporation. Mr Green, who is an owner and Chair of the executive committee, also gave evidence of the factual circumstances of the dispute. The respondent company was represented by its solicitor Susan Proctor. Luka Ujdur, the sole director of SDNM, attended and gave evidence.
6. Both parties submitted witness statements from some of the other owners, which mainly addressed the conduct, and character of Mr Green. The applicant had several witnesses available to give oral evidence and be tested on their statements, but after the issues in dispute between the parties were narrowed Mr Green decided it was not necessary to call them. After hearing the parties’ evidence and submissions I reserved my decision.
7. Upon conducting a merits review I found that while the options advanced by both parties were correct, the default position supported by the respondent was preferable.
8. The applicant’s proposal was intuitively attractive because it recognised the historic advantage commercial owners had collectively enjoyed, albeit unwittingly, at the expense of residential owners. It also had widespread support from both commercial and residential owners. However on balance I found Motion 8 a flawed means of redressing past inequity, and a potentially unhelpful precedent. I found SDNM’s position more logically consistent with the scheme of ownership, responsibility and decision-making established by the UTMA, as well as previous decisions and actions of this owners corporation made in accordance with that scheme.
9. Having found the option advanced by SDNM objectively preferable to Motion 8 it follows that opposition to Motion 8 was not objectively unreasonable, and accordingly I dismissed the application.
10. In this decision a reference to the ‘tribunal’ or ‘ACAT’ refers to the ACT Civil and Administrative Tribunal generally and a reference to the ‘Tribunal’ or the first person refers to the member who heard the matter. All prices include GST unless otherwise indicated.
Issues
11. In late 2018 the electricity infrastructure of the complex underwent remediation at a significant cost to the owners corporation. The purpose of that work was twofold, firstly to establish separate metering of all the electricity consumed by each commercial unit; and secondly to resolve recurrent disruptions to the commercial owners air-conditioning. The dispute is about the basis upon which individual owners contribute to the cost of the remediation.
12. The applicant proposed that the costs be borne only by the commercial unit holders, with each contributing to the general fund an allocated share of the cost based on the proportion of the works related to their individual unit. All the commercial owners, other than the respondent, have agreed to pay the amount allocated to them, regardless of the outcome of these proceedings.
13. The respondent said the cost should be met in the usual way for the establishment of utility infrastructure – that is, from contributions levied on all the unit holders, both residential and commercial, in proportion to their unit entitlement. Since the other nine commercial owners have committed to pay the bulk of the costs, it is only the amount attributed to SDNM in Motion 8, which will be affected by this decision.
14. This substantive dispute has come before the tribunal before. The owners corporation passed a similar motion for an identical purpose at the Annual General Meeting (AGM) on 13 June 2018 only to have it declared void for irregularity by a differently constituted tribunal because it was not presented to the meeting as an unopposed resolution as required by the legislation. I have adopted Senior Member Robinson’s findings of fact and law in the first hearing insofar as they were still relevant to the circumstances when I heard the matter.
Background
15. The background to the dispute can be briefly stated as follows.
16. The complex was built in 2011 and consists of two multistorey blocks (A and B). All the commercial units are located at street level. The residential apartments occupy the five floors above. The electrical infrastructure as established had the following features.
17. All the air conditioning compressors for the commercial units were located on the roof of building B. Two of the units shared a compressor. The electricity supply to all the commercial owners air conditioning compressors was via one cable going to the common power meter and switchboard which serviced the common property generally.
18. The compressors for the residential owners were located within their unit entitlement. All the electricity consumed by both commercial and residential owners within their units was separately metered, except that which powered the commercial owners’ air conditioning.
19. Pursuant to a decision of the owners corporation in 2016 (the 2016 Resolution) individual owners were levied with the cost of the electricity they consumed where that consumption could be ascertained, including by individual metering. The power consumed for the commercial air-conditioning was indistinguishable from the common power supply. The owners corporation paid for the common power and recovered the cost from all unit owners in accordance with their unit entitlements by way of contributions to the general fund.
20. The idiosyncrasies of the infrastructure remained undiscovered until 2017 when an electrical contractor investigating recurrent disruptions to the commercial owners’ air-conditioning found that only one cable served all the commercial compressors. That cable had insufficient capacity to meet peak demand causing the circuit breaker in the main switchboard to routinely overload and trip in summer when usage was highest.
21. It is not disputed that before the remediation the residential owners were subsidising the cost of powering the commercial owners’ air conditioning. As Mr Green pointed out, given the residential apartment owners have 83% of the total unit entitlements and the commercial unit owners have 17% of the total unit entitlements, commercial unit owners collectively paid only 17% of the electricity used by their air conditioning.
22. The parties agreed that it was unfair for the residential owners to continue to contribute to the cost of running the commercial owners’ air conditioning, and that action was necessary to remedy that situation, as well as the tripping issue. The executive committee (EC) engaged a firm of building consultants to provide an expert report with a range of options to resolve both issues.
23. The consultant noted in relation to the scope of its brief:
We were advised that the Executive Committee did not want to explore any power apportioning or runtime-based apportioning measures, which in our opinion would be a substantially cheaper option to implement. …However, this could come with the risk of tenant disputes associated with apportioning accuracy.
24. In late 2017 the consultant delivered a report which canvassed a range of options, including some which, while less expensive, only addressed the tripping issue. It recommended that separate air-conditioning for each commercial unit be established. This entailed installation of an extra air-conditioning compressor on the roof to allow each commercial owner to have a dedicated compressor; a new electrical supply cable to connect each commercial unit with the corresponding compressor; and upgraded switches and meters in each of the commercial units.
25. The owners corporation adopted the recommendation and, following a tender process, approved funding for the remediation at the AGM on 13 June 2018. Work commenced in or about August 2018 and was completed by late November 2018.
The first hearing
26. The EC attempted to implement its funding proposal as part of the annual budget at a general meeting on 13 June 2018 by putting a motion entitled, “Budget (Ordinary Resolution)” which dealt with a range of contributions to the administrative fund. In relation to the commercial air conditioning maintenance/repair budget the motion provided:
b) That the Owners Corporation determine the general fund contribution for the administrative fund required from the owners in accordance with both the unopposed resolution passed by the owners of the unit plan no 3908 on 4 April 2016 and the following:
…
iv. That the commercial Air Conditioning Maintenance/ repair budget of… (ex GST) be accepted for the twelve month period … to be contributed by lots 70-79 (commercial units only) in accordance with the specific consumption amount applicable to that unit, based on advice from ESBS Consulting Engineers.
27. The motion received 13 votes in favour and one vote (SDNM) against. SDNM applied to the ACAT to have the motion declared void for irregularity because sub clause (4) was not passed by an unopposed resolution as required by the legislation.
28. On 10 October 2018 Senior Member Robinson upheld the application on the grounds that the legislation “requires that general fund contributions be paid by each unit in proportion to their unit [holding], unless an alternative arrangement is agreed by unopposed resolution”. She further found that sub clause (4) could not be severed and so the entire motion failed.
29. Senior Member Robinson described the scheme of the legislation as follows:
23. Section 73 of the UTM Act provides for the establishment of a fund for the general administration of the corporation (an administrative fund).
24. Section 75 of the UTM Act provides that at each annual general meeting of an owners corporation, the corporation must, by ordinary resolution, approve a budget for the administrative fund and any special fund (the general fund budget).
25. Section 78 then sets out the requirements for contributions to the general fund budget. It provides:
78 General fund—contributions
(1) An owners corporation for a units plan may, from time to time, determine a contribution (a general fund contribution) required from its members for the corporation’s general fund.
(2) The general fund contribution payable for each unit is—
(a) the proportional share for the unit of the total general fund contribution; or
(b) a proportion of the total general fund contribution worked out in accordance with a method set out in an unopposed resolution.
(3) A resolution under subsection (2) (b) may provide that only stated unit owners, or unit owners in a stated class, are required to pay a particular contribution, or a contribution of a particular kind.
(4) A resolution under subsection (2) (b) may only be—
(a) amended by unopposed resolution; and
(b) revoked by special resolution.
30. After considering options for resolving the underlying dispute Senior Member Robinson concluded at [49]:
The most practical option for the EC may be to put a motion back before the owners, and this time seek unopposed approval. I acknowledge that it is unlikely the resolution will be unopposed, and it is nearly inevitable that the matter will be back before this Tribunal, in a slightly different form, for the purposes of a merit review.
The current application
31. The EC followed Senior Member Robinson’s suggestion and, at the AGM on 29 November 2018, sought unanimous support for Motion 8. The intended effect of Motion 8 is identical to the failed proposal put to the owners in June. As expected the motion failed to achieve the necessary support, with 21 owners voting in favour and two, SDNM and a residential owner, voting against.
32. As a precaution against the complete failure of its preferred funding model the executive committee had negotiated the agreement of the nine other commercial owners to contribute the amount allocated to them in Motion 8. Deeds of agreement (the deeds) to this effect were executed by each of the nine. At the same meeting at which Motion 8 failed the owners passed the following ordinary resolution (Motion 10 of 2018):
That the Owners Corporation to enter into and execute with one or more of the commercial lot owners in the form annexed to the Notice of the General Meeting dated 2 November 2018 and take all necessary steps to do so.
33. The executive committee only intended to rely on the deeds if this tribunal did not uphold Motion 8:
If the Tribunal determines in the Applicant’s favour, there will be no need to action the Deeds at Resolution 10.
34. As foreshadowed by Senior Member Robinson the matter came back before the Tribunal for a merits review. This time initiated by the EC who filed an application on 6 December 2018 for orders pursuant to section 129 (1)(g) to give effect to Motion 8.
Merits review
The test
35. I have followed the approach previously taken by the Tribunal in determining applications under section 129(g) which was succinctly summed up by Senior Member Sutherland as follows in Uren & Anor v The Owners Unit Plan No. 396:
17. From these decisions, I draw the following conclusions about how section 129(1)(g) is to be applied:
(a) The provision involves a two-step process, firstly to undertake a merits review to determine which is the correct and/or preferable decision, and then to determine whether opposition to the motion was ‘unreasonable’.
(b) The review is de novo and the Tribunal is able to consider issues of both fact and law.
(c) The ACAT considers and determines issues as at the date of the hearing and is able to consider evidence not available to, or not considered by, the owners corporation at the time of their decision.
(d) When conducting the merits review, there is no threshold question of reasonableness or unreasonableness of the original decision to be determined before the ACAT may proceed to make an order. However, before an order giving effect to an unsuccessful motion is made, the ACAT must be satisfied that opposition to the motion was unreasonable.
(e) The test to determine if the opposition to the motion was unreasonable is not a subjective test of the intentions of the unit owners who opposed the motion. Rather, it is an objective test taking into account all relevant circumstances.
(f) An opponent to the motion is not required to act with altruism or sympathy for the interests of the proponent, at the expense of the opponent’s reasonably held view of their own interests.
(g) Whether or not there is evidence of other pending applications, it may be reasonable to consider the cumulative effect of multiple identical improvements generating an adverse impact in deciding whether to oppose a motion.
36. There are three options available to me under section 129(1)(g):
(a) Uphold Motion 8 in its current form.
(b) Uphold Motion 8 in an amended form.
(c) Not uphold Motion 8.
What is the correct decision?
37. Senior Member Robinson observed in Clews v The Owners- Unit Plan No 3069 (Clews) at [54]:
A ‘correct’ decision is a decision that it without legal error or other fundamental problems.
Consistency with previous decisions of the owners corporation
38. SDNM asserted that the proposal put by the applicant was incorrect because it was inconsistent with a previous binding decision of the owners corporation.
39. At an AGM on 4 April 2016 the owners corporation passed the following unopposed resolution: “CONSUMPTION CHARGES (UNOPPOSED RESOLUTION)”:
That pursuant to section 78(2)(b) of the Unit Titles (Management) Act 2011, consumption charges, including all utility charges, incurred by the Owners Corporation be levied to individual unit owners in accordance with the following methodology:
(a) All establishment, supply and/or general charges be levied to all unit owners in accordance with their unit entitlement;
(b) Where specific consumption charges can be calculated and attributed to one or more individual unit owners (including by metering), that those owners be levied with those charges; and
(c) All consumption charges other than those attributed and charges to specific unit owners be levied to all remaining unit owners in accordance with their unit entitlement.
40. The owners corporation argued at the first hearing that the differential levies proposed at the June AGM were authorised the 2016 Resolution.
41. Senior Member Robinson thoroughly considered the interpretation of the 2016 Resolution and its application to the costs of the remedial works to the electricity infrastructure and concluded:
36. I do not need to consider the meaning of ‘supply’ or ‘general’ charges at this time. I am satisfied that the commercial air-conditioning/maintenance repair budget is directed to establishing the new electricity infrastructure. This cost is an establishment cost.
37. The 2016 Resolution clearly provides that establishment costs are shared proportionally between unit owners in accordance with their unit entitlements. There is nothing in the clause that permits or authorises a different approach.
42. Although the 2016 Resolution applied to all utilities it was passed for the specific purpose of facilitating apportionment of water consumption charges between owners.
43. Senior Member Robinson observed at [19]:
The oral evidence of Mr Green, given at the preliminary hearing, was that the 2016 Resolution was enacted to allow the apportionment of water consumption costs. As established, there was no individual metering of water usage in the complex, and accordingly residential owners bore the brunt of the consumption charges. The EC dealt with this issue by installing individual sub meters for each unit. The 2016 Resolution that authorised the apportionment of water charges from that time on.
44. The cost of installing individual water meters was met by the owners corporation.
45. At the hearing before me SDNM relied on Senior Member Robinson’s findings to argue that Motion 8 was not only inconsistent with the 2016 Resolution and the action taken pursuant to it in relation to the water infrastructure; but also with ordinary resolutions 4 and 6 passed at the meeting on 29 November 2018 which expressly relied on the 2016 resolution.
46. Ms Proctor submitted at the hearing:
I’m saying it’s not correct and I’m saying that it’s not preferable because in the context of the same meeting in the November 2018 meeting two other resolutions have been held to be passed pursuant to the 2016 April resolution. So in the same breath, in the same context of that meeting, where resolution eight has been put there are two other resolutions that have been put in reliance upon the 2016 resolution.
47. Resolutions 4 and 6 (and associated resolutions 5 and 7) created separate funds within the general fund budget for residential owners for “services” (the Residential Services Budget) and commercial owners (the Commercial Services Budget). Members of each user group were levied with contributions to their respective funds.
48. It is not necessary for me to consider whether resolutions 4 and 6 are authorised by the 2016 Resolution, or indeed the legislation, as they are not the subject of these proceedings. It is sufficient to note that the EC put the budget proposal to the general meeting as an ordinary resolution and expressly relied on the 2016 Resolution.
49. I accept the logic of Ms Proctor’s submission to the extent that Motion 8, if upheld, would create an exception to a resolution adopted by the owners in 2016 and subsequently relied upon.
50. I am satisfied that the 2016 Resolution applied not only to contributions to expenditure in the annual general fund budget enacted at the 2016 AGM but also to expenditure in subsequent years. Although section 75 requires a new general fund budget be established each year at the AGM, section 78 is not locked into an annual cycle but instead allows the owners corporation to determine a contribution for a units plan, from time to time.
51. The decision-making scheme established by the UTMA does not prevent an owners corporation from revoking or amending (including by creating an exception) its previous decision provided it does so in the manner prescribed.
52. The 2016 Resolution was passed pursuant to section 78(2)(b) and therefore, pursuant to section 78(4)(a), could only be amended by an unopposed resolution.
53. The executive committee took on board Senior Member Robinson’s finding that the original motion was inconsistent with the 2016 Resolution and revised its approach accordingly. The motion put to the owners on November 2018, was correctly framed as an unopposed resolution.
54. The UTMA prescribes no particular form of words to revoke or amend an earlier resolution; nor does it require that the owners be notified that the effect of a motion, if passed, would be to revoke, amend or create an exception to an earlier resolution.
55. In my view neither of the options proposed by the parties would be incorrect at law. However, inconsistency is relevant to which decision is preferable and I will return to it in that context.
What is the preferable decision?
56. Senior Member Orr QC observed in Nash v The Owners – Units Plan 2413 & Ors at [59]:
As to preferable, developing the comments by Senior Member Robinson in Rampala v The Owners – Units Plan 1330 at [60], having regard to the framework of the Unit Titles Management Act the preferable decision is one that will ensure the efficient and effective management of the complex, protect and advance the interests of the owners corporation as a whole, and protect the interests of the individual unit holders.
57. The original problems, and their costly remediation, could have been avoided if greater physical separation of services to different user groups was incorporated into the electricity infrastructure in the first place. The EC concluded it was impractical to pursue action against the developer. It therefore found itself in the invidious position of having to call on its members to fund rectification of a problem that none of them had created.
58. In assessing the alternative options I had regard to the following issues raised by the parties:
(a) Consistency with previous decisions of the owners corporation.
(b) The impact on individual unit holders of alternative funding proposals.
(c) User pays:
(i) Who benefits from the new infrastructure?
(ii) Who owns the new infrastructure?
(d) Redress for past unfairness under the original infrastructure.
(e) The level of support from the owners.
Consistency with previous decisions
59. Motion 8 does not refer to the 2016 Resolution and it is not otherwise apparent on the face of the motion that it is inconsistent with the earlier decision. It is the interests of the owners corporation as a whole that the effect of its decisions be transparent and clear. Owners are entitled to know the implications of any proposal put before them. Accordingly, in my view it is preferable that where the effect of a proposal in a motion is to amend a previous decision of the owners corporation that effect should be clear on the face of the motion.
60. Is lack of consistency of the applicant’s proposal with a previous decision of the owners corporation a problem per se?
61. As previously observed an owners corporation is not bound to follow its previous decisions, however it is generally preferable that it uses clear and consistent rationale to make comparable decisions because doing so:
(a) promotes predictability;
(b) protects against unfair prejudice against a minority;
(c) promotes confidence in the logic of its decision making; and
(d) provides a logical framework to assist future decisions.
62. The respondent argued that the EC’s funding proposal for the establishment of separate electricity meters was logically inconsistent with the approach previously adopted by the owners corporation in relation to water meters.
63. At the hearing Mr Green explained the critical difference between the changes made to water and electricity infrastructure as follows:
So, the difference between the two is the water meters was a relatively straightforward task with one water meter and similar piping for every commercial unit. So there wasn’t a disparity in costs related to each commercial unit owner. By contrast what we had to do in order to facilitate a user-pays solution for commercial air conditioning is we had to run individual power cables to the roof-top units back to the commercial owner’s units so that they paid for their own electricity consumption and no longer would the body corporate be forced to pay a significant amount which I can quantify roughly towards those commercial unit owners. And as we saw from our previous submissions residential unit owners for six years were paying 83 per cent of commercial unit owner’s electricity costs.
64. In my view a disparity in establishment costs does not explain the different funding approach. The critical similarity is that the absence of separate metering in the case of both water and electricity, collectively advantaged the commercial owners over the residential owners. Therefore it would be logically consistent to adopt the same approach to funding in both cases and require that either:
(a) the commercial owners as a group bear the entire cost of establishing the new infrastructure, regardless of how that cost is apportioned between them – consistent with Motion 8; or
(b) all owners contribute to the cost in accordance with their unit entitlements – consistent with the 2016 Resolution.
65. It is not clear whether Mr Green was also asserting that the different approach is justified because the commercial owners derived a significantly greater financial benefit from the original electricity infrastructure than it did from the original water infrastructure – but if he is he has not established either the extent of that difference, or its relevance.
66. It is not logically consistent for the owners corporation to pay to establish the new water meters but not the new electricity meters. This suggests that one or other of the proposals is not the preferable approach to funding the establishment of utility infrastructure. The approach taken to the water meters has the advantage of at least being consistent with an unopposed resolution (the 2016 Resolution) in accordance with the mechanism for determining decisions of this kind established by the legislation.
Impact on unit holders of the alternative funding option
67. The applicant submitted that: “Motion 8 results in a financial benefit to all 69 residential owners, has been agreed to by nine of the ten commercial owners and is a detriment to none except for the Respondent.”
68. The impact of upholding Motion 8 on individual owners is unaffected by the concessions made by nine of the commercial owners, that is all residential owners would benefit by being relieved from contributing to the cost of the new works; and the commercial owners, including the respondent, would bear the entire cost of remediation in proportion to the extent to which the works related to their own units according to ESBC.
69. However, the agreement between the EC and the other commercial owners transforms the effect of not upholding the motion.
70. The full cost of the works was $112,000, of which the nine other commercial owners have agreed to reimburse to the owners corporation a total of $102,175.80. This arrangement cannot negate the requirements of section 78(4)(a) of the UTMA. Therefore if Motion 8 is not upheld the remaining $9,824.20 will be levied against all seventy-nine unit holders in proportion to their unit entitlements in accordance with the 2016 Resolution, with the following effect.
71. SDNM would enjoy a significant financial benefit – effectively paying a fraction of what it would if Motion 8 were upheld. The proportion of the costs, which under Motion 8 would have been paid by SDNM, would instead be divided between SDNM and the other seventy-eight owners in accordance with their unit entitlements – resulting in an average additional levy of $124.86 (excluding GST).
72. In my view all of the unit holders, apart from the respondent, would suffer a relatively modest financial detriment, including the commercial owners who were already paying for most of the cost of the works.
73. The imbalance between SDNM’s contribution and that of the other commercial unit holders, who were in a comparable situation, might seem particularly unfair. However the position of the other commercial owners, with the attendant obvious risk that not all would sign up, was one they voluntarily assumed.
74. On balance SDNM would suffer a greater detriment if Motion 8 were upheld than the potential detriment to each other owner if Motion 8 were not upheld.
75. The fact that only one person would suffer a detriment from Motion 8 is not sufficient reason to uphold it especially when section 78 safeguards minorities from the imposition of differential contributions, which disadvantage them.
User pays – Who benefits from the new infrastructure?
76. The owners corporation argued that the differential levy was justified on the basis of the user pays principle, which in this case is perhaps more accurately described as the beneficiary pays principle – that is, that the person who benefits from a resource should pay for it. As a fundamental principle of fairness – it seems uncontroversial and reflects individual unit holders interest in only paying in proportion to the benefit they receive.
77. The parties accepted that electricity consumption costs should be allocated on a user pays basis. Should this principle extend to the cost of establishing electricity infrastructure? Before I turn to this question I will consider which user group gained most from the remediation.
78. The establishment of the new infrastructure gave the 69 residential unit owners immediate and ongoing relief from subsidising the commercial units’ electricity consumption. The commercial unit owners benefitted from the improved functioning of their air-conditioning in summer, although if this was sole purpose could have been achieved a lower cost.
79. Although commercial owners would now bear the running costs of their own air conditioning the respondent accepted that this was a fair and preferable state of affairs. In my view, although all unit owners benefited, the residential owners derived most financial benefit from the remediation undertaken.
User pays – Who owns the new infrastructure
80. In an extension of the user pays argument the applicant argued that the commercial owners acquired ownership of the new infrastructure, to the extent it exclusively served their unit, and therefore were responsible for the cost of establishing it.
81. Mr Green submitted:
Having now completed the works each commercial owner owns and will be responsible for their own air conditioning and electrical cabling as it is dedicated to their respective units and therefore (is) not common property.
82. Are the premises of Mr Green’s argument compatible with the concepts of ownership and responsibility established by the legislative framework?
83. The UTMA establishes a scheme of ownership of property within a unit plan and responsibility for maintaining that property. Property in a unit plan is either owned by individual unit owners or forms part of the common property. The owners corporation holds the common property as agent for the owners as tenants in common in proportion to their unit entitlements. There is no capacity under the current legislation for title in the common area to be split between groups of owners to reflect how those areas are differentially used.
84. The works changed the electricity infrastructure as follows.
85. Originally some commercial owners shared a compressor. All shared electrical cabling and a meter and switch. The new electricity infrastructure serves only one owner; each has a dedicated air conditioning compressor on the roof and is connected to it by a separate electricity cable, which is separately metered. The original separate refrigerant pipe, running from each commercial unit to a compressor on the roof, was unaffected.
86. Common property is defined in the section 13 of the Unit Titles Act 2001:
Common property is all the parts of a parcel identified as common property—
(a) before a units plan is registered--in the relevant unit title application; or
(b) after the relevant units plan is registered—in the units plan.
87. Section 17(3)(c) provides that “a unit title application must show as common property all parts of the parcel that are not shown as units or unit subsidiaries”.
88. The new system consists of both existing and new components: the existing refrigerant pipe; the new individual electrical cabling and the mainly existing, but newly dedicated air conditioning compressors are located on the common property. Part of the components are presumably located within the units they serve, for example the new switchboard and one end of the electrical cabling and refrigerant pipe.
89. The applicant provided a copy of the floor plan for Unit Plan 3908 and a schedule of unit entitlements. The plan shows the unit entitlement for unit 74, the respondent’s unit, as the envelope located on the ground floor at street number 19. It included an entitlement to a yard and two car spaces in the basement – it does not include the roof top or anything between the envelope and the roof top. It is not clear how the cabling and refrigerant piping made the journey from the commercial units to the roof, but I have assumed it was through the common property service ducts shown on the floor plan.
90. The roof top is not shown on the plan but I am satisfied that it is, based on reasoning in Castro v The Owners Unit Plan No 246 (Castro):
…that, in the absence of the units plan identifying common property, it is appropriate to conclude that the common property is that which is not marked as part of a unit, or a subsidiary to the unit.
91. The infrastructure was originally, and remains, primarily located on the common property. Many of the components of the original infrastructure were incorporated into the new infrastructure. The original infrastructure served more than one unit and it was, on any reasonable construction, common property.
92. The owners corporation power to authorise the changes to the infrastructure derives from section 23(1)(a) of the UTMA which relevantly provides:
An owners corporation for a units plan may, if authorised by an ordinary resolution—approve the installation of sustainability or utility infrastructure on the common property;
93. The applicant argued that because the new infrastructure establishes separate air conditioning system for each commercial owner they own that part of the new infrastructure, which exclusively serves their unit.
94. Under the scheme of ownership established by the UTMA all owners own the common infrastructure, regardless of whether they can use it or not. The residential owners could not use the compressors on the roof or the refrigerant pipe leading to each commercial unit but that did not mean that it was not common property. It was only because it was common property that the owners corporation was authorised to modify it. By what mechanism does the applicant say the infrastructure was converted to private property?
95. The logical progression of the applicant’s argument, as I understood it, was:
(a) individual commercial owners are now responsible for the maintenance of that part of the new infrastructure established by the owners corporation, which exclusively serves their unit, regardless of whether it is located on the common property or within their individual lot;
(b) because commercial unit owners are now responsible for maintaining that part of the new infrastructure, which serves their unit, they own it; and
(c) because they own it they are responsible for the cost of establishing it.
96. I will consider each step in turn.
Maintenance
97. Are the individual commercial owners responsible for maintaining that part of the new infrastructure which serves their unit?
98. Section 24(1) imposes a responsibility on the owners corporation, where the development is not a staged development, to maintain the common property. Because all owners own all of the common property, whether they can use it or not, they, generally, all contribute to maintenance repairs and replacement of the common property, in proportion to their unit entitlements.
99. Under the UTMA maintenance of a building, a facility for a utility service or a utility conduit, means maintenance in good repair and working order, and includes:
(a) repair;
(b) replacement;
(c) renewal; and
(d) restoration.
100. The question of who benefits from the property is irrelevant, with one exception. Section 24(1)(e) provides that the owners corporation is only responsible for maintaining a utility service if it is provided for the potential benefit of all units and facilities associated with the provision of the utility services, including utility conduits.
101. ‘Utility services’ are defined to include; gas, electricity and air services (including air-conditioning and heating). A ‘utility conduit’ is defined in turn to mean:
a conduit of any kind for the provision of a utility service, and includes, for example, pipes, wires, cables and ducts for a utility service.
102. As a result of the changes the OC was relieved of the responsibility of maintaining the new infrastructure – not because they are the property of individual unit owners – but because they serve each unit exclusively.
103. However section 24(1)(e) does not impose a positive obligation on a unit owner to maintain a utility service, which exclusively serves them. It is also not clear that the definition of a utility services in the Act extends to the air conditioning compressors located on the roof.
104. Section 25 provides that an owners corporation may, by special resolution, and subject to certain other provisos, exempt itself from maintenance obligations for common property imposed by section 24(1). The applicant has sought to avail itself of this process in order to resolve any uncertainty as to who is responsible for maintaining the new infrastructure.
105. At the date of the hearing the EC had given notice of a special resolution (Motion 7) to be put to the AGM to be held in three days’ time. It proposed that the house rules be changed pursuant to subsections 25 and 108 of the UTMA to provide that:
Unit owner responsibilities include maintenance, repair or replacement of air conditioning systems and its conduit and cabling, whether inside or outside of a unit, which serves only that unit. To avoid doubt, the rooftop or external to a unit air conditioning compressor may be situated on common property but this does not result in any obligation for the Owners Corporation to maintain, repair to replace the unit and its conduit and cabling.
106. I am not aware of the fate of Motion 7 at the AGM on 8 April 2019, but it is in any event irrelevant to this dispute because a responsibility to maintain, repair or replace an existing utility service does not either:
(a) retrospectively make a unit owner responsible for the cost of establishing the service infrastructure; or
(b) establish individual ownership of the service infrastructure.
107. The owners corporation is a creature of statute and thus only has the powers conferred upon it by statute. It is beyond the power of the owners corporation to convert communal infrastructure to the private property of individual unit owners. Section 20(2) of the UTMA states: “an owners corporation may not transfer, sublet or mortgage at law or in equity its interests in the common property”.
108. On the basis of logical appeal, the legislation and previous decisions of the tribunal, I prefer the respondent’s argument that both the new and original infrastructure, in so far as it is located outside the lot and subsidiary entitlements of an individual unit owner is part of the common property. The logical corollary is that components situated within a unit and its subsidiary is the property of the owner of that unit. The works have effectively converted infrastructure from common property, which served a number of units, to common property, which only serves individual commercial unit owners.
Redress past unfairness caused by the original infrastructure
109. The applicant submitted that:
Motion 8 was the most practical way of redressing the unfairness arising from the Original Electricity Infrastructure such that each commercial owner pays for their own consumption and the Remedial Electrical Infrastructure.
110. It is self-evident that the significant financial benefit accrued to commercial owners for six years under the old system to the detriment of other owners. It should be noted that current owners are not necessarily original owners. The degree of relative benefit or detriment experienced by current owners depends on how long they held their units before separate metering was established.
111. The applicant adduced in evidence a comparative analysis by Mr Green of common electricity costs before and after the separate meters were installed. Mr Green relied on figures, which he said showed a significant reduction in common power costs in December 2018 and January 2019 compared with corresponding months in the previous year. He attributed the whole of that difference to removing the cost of the commercial air conditioning from the common power bill.
112. From the difference Mr Green extrapolated the estimated annual financial benefit derived by the respondent from the old infrastructure. Because SDNM’s consumption under the old infrastructure was unmetered and so could not be ascertained Mr Green inferred the benefit attributable to SDNM from its unit entitlements relative to other commercial owners.
113. I found Mr Green’s methodology unreliable in several respects – the sample period was too short, the data relied upon was not produced; other variables, which may have affected his conclusions, were not identified or accounted for, and most importantly he demonstrated no relationship between unit entitlement and electricity consumption.
114. To his credit Mr Green frankly acknowledged the difficulties of quantifying the benefit received by SDNM, or indeed any other commercial owner, under the old infrastructure. I concluded that it was simply not possible to do so on the evidence before me.
115. I also found the applicant’s funding model logically inconsistent with the stated aim of redressing past unfairness. The proposed allocation of costs between current individual commercial owners is unrelated to the past benefit each received; or the past disadvantage suffered by current residential unit owners; instead it is based on how much of the new infrastructure served each commercial unit.
116. Although the idea of balancing current pain against past gain intuitively appeals to fairness, I am not convinced that the imposition of differential levies on a unit owner without their consent to fund rectification of common infrastructure is an appropriate mechanism to rectify past inequities either in this case or in general.
117. In my view such an approach is inconsistent with the scheme of collective ownership and responsibility for infrastructure established by the legislation and could create a troublesome precedent for the owners corporation. It is particularly inappropriate in these circumstances because the relative benefit or disadvantage experienced by current owners cannot be reliably established on available evidence.
Support for Motion 8
118. The EC’s funding solution was overwhelmingly accepted by not just the residential owners who voted at the meeting, which is to be expected in the circumstances, but also by all the other commercial owners, many of whom stood to lose more than the respondent from its implementation.
119. Majority, even overwhelming, support whilst a factor in favour of Motion 8 is not a sufficient reason to uphold it. The UTMA mandates different standards of support depending on the type of decision being made ranging from a bare majority to unanimous support. The requirement of an unopposed resolution is a high bar.
120. Presidential Member (then Member) Daniel provided the following helpful guidance to how the tribunal should determine the question of what is the preferable decision in Brudenell & Ors v Owners Corporation Unit Plan No. 202:
It must be the case that the proper basis of evaluation, of reaching the preferable decision, in these cases, is reference to community standards or community values. It is not the decision-maker’s idiosyncratic view of what will adequately protect the public which is relevant, but what the decision- maker determines will achieve that result in accordance with community standards or values.
The reference to ‘community standards’ in the preceding excerpt is not a reference to the views expressed by the parties in a particular matter, it is a reference to ‘more permanent values’ such as those encapsulated in legislation.
121. In Clews the Tribunal reviewed a motion proposing a change to the permitted purpose of a Crown lease, which like changes to the method of levying contributions in section 78, requires an unopposed resolution. Senior Member Robinson observed that; “There must have been some legislative intention behind such a high threshold for change.” Although she observed that intention could not be discerned from the Explanatory Memorandum.
122. Legislative intent, while not determinative, is a factor in the respondent’s favour. I also observe that the bar set by section 78 while high, is achievable – as demonstrated by previous unopposed resolution of the owners corporation in 2016 imposing differential levies based on consumption of utility services. Differential charges based on individual consumption are perhaps less controversial because they relate to services consumed by individuals, not jointly owned infrastructure.
Conclusion — merit review
123. There is no perfect solution to the funding dilemma the owners corporation found itself in. The executive committee, with the co-operation of the other nine commercial owners, has made arrangements, which mitigate the financial impact of the remediation on the residential owners. This dispute was about whether SDNM should be compelled to join in.
124. For all the reasons set out above I prefer the option advanced by the respondent, that is, that the unopposed decision of the Owners Corporation in the 2016 resolution prevail. In general I found SDNM’s option more logically consistent with both the legislative framework; and the previous decision of the owners corporation made in accordance with that framework.
Was the opposition to Motion 8 unreasonable?
125. The second step of merit review is to determine whether SDNM’S opposition to the motion was unreasonable.
e) The test to determine if the opposition to the motion was unreasonable is not a subjective test of the intentions of the unit owners who opposed the motion. Rather, it is an objective test taking into account all relevant circumstances.
126. Mr Green accused Mr Ujdur of acting in his own self-interest to the detriment of other owners. Whether he did or not is irrelevant because, as observed by Senior Member Sutherland:
(f) An opponent to the motion is not required to act with altruism or sympathy for the interests of the proponent, at the expense of the opponent’s reasonably held view of their own interests.
127. The two limbs of merits review overlap. Having found the option advanced by SDNM is objectively preferable to Motion 8 it follows that opposition to Motion 8 was not objectively unreasonable, and accordingly I dismissed the application.
Costs
128. SDNM sought an order under section 129(1)(d) directing the applicant to pay it the sum of $1,000 as, “The Respondent has incurred significant legal expenses in this matter to simply pursue its legal right to reasonably oppose an unopposed motion”.
129. Section 129(1) lists the types of orders the ACAT may make, including an order under subsection (d), “requiring a person to pay to the Territory or someone else an amount of not more than $1,000”.
130. The respondent is seeking to rely on section 129(1)(g) to recover at least some of its costs in these proceedings. The only power I have to award costs is derived from section 48 of the ACT Civil and Administrative Tribunal Act 2008 which provides at subsection(1)(a), “the parties to an application must bear their own costs unless this Act or another territory law otherwise provides or the tribunal otherwise orders”.
131. Although section 129(1)(d) is another territory law it does not confer a costs power on the Tribunal. Section 48(2) sets out other circumstances in which the Tribunal may make a costs order. As none of these exceptions apply in this case I declined to make the order sought by SDNM.
Comments
132. Both Mr Green and Ms Proctor referred to the limited capacity of the current legislative framework to recognise and address the unique challenges of mixed use developments. This dispute has come at a significant cost to the owners of UP 3908 both financially and in terms of good will. It may be that much if not all of that cost could have been avoided if the original physical service infrastructure, and/or the scheme of legal title under the Act, was more responsive to the differing needs and interests of the different user groups within the complex. I concur with the observations of Senior Member Robinson at paragraph 50 that:
It is apparent from the circumstances of this case that there is significant potential for disagreement and conflict of interest between the owners of residential and commercial units in a mixed-use facility. No doubt such developments are attractive and vibrant places to live. However, the reality is that the interests of those who are running and business and those who are maintaining a home may not always be harmonious, particularly when it comes to the costs of services, such as utilities and rubbish removal, as well as lifestyle issues such as noise abatement and car parking. The current rules in relation to budget arrangements, in particular, appear to be unhelpful and inflexible and a legislative remedy may be necessary. Models in other jurisdictions, with longer histories of mixed-use developments, may present helpful models for reform.
………………………………..
Senior Member E Ferguson
HEARING DETAILS
FILE NUMBER:
UT 34/2018
PARTIES, APPLICANT:
The Owners – Units Plan No 3908
PARTIES, RESPONDENT:
SDNM Pty Limited
COUNSEL APPEARING, APPLICANT
N/A
COUNSEL APPEARING, RESPONDENT
N/A
SOLICITORS FOR APPLICANT
N/A
SOLICITORS FOR RESPONDENT
Proctor Legal
TRIBUNAL MEMBERS:
Senior Member E Ferguson
DATES OF HEARING:
19 April 2019
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