WALSH and REID
[2020] WASAT 82
•29 JULY 2020
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
ACT: STRATA TITLES ACT 1985 (WA)
CITATION: WALSH and REID [2020] WASAT 82
MEMBER: DR B MCGIVERN, MEMBER
HEARD: DETERMINED ON THE DOCUMENTS
DELIVERED : 29 JULY 2020
FILE NO/S: CC 23 of 2020
BETWEEN: JENNIFER TEUCHERT WALSH
Applicant
AND
JEANNE REID
Respondent
Catchwords:
Strata scheme (other than a single tier scheme) - Obligation of strata company to effect and maintain insurance - Insurance lapsed - Insurance effected by proprietor - Claim against another proprietor for payment of proportion of premium - Whether justified in exercising power to insure - Relevance of insurance held by other proprietor - Effect of strata by-law
Legislation:
Strata Titles Act 1966 (WA)
Strata Titles Act 1985 (WA), s 3, s 3(1), s 3(2), s 3AB, s 32(1), s 35(1)(b), s 36(1), s 36(1)(a), s 36B, s 42, s 42(1), s 42(2), s 42(4), s 54(1)(a), s 54(3), s 56, s 56A, s 103L, s 103L(1), s 103L(2)(c), s 103L(3), Pt IV, Div 4, Sch 1, Sch 2
Strata Titles Amendment Act 2018 (WA)
Result:
Application allowed
Category: B
Representation:
Counsel:
| Applicant | : | N/A |
| Respondent | : | N/A |
Solicitors:
| Applicant | : | N/A |
| Respondent | : | N/A |
Case(s) referred to in decision(s):
Byrne v The Owners of Ceresa River Apartments Strata Plan 55597 [2016] WASC 153
Jordan v Van Schoubroeck [2005] WASCA 120
Maludra Pty Ltd & Ors and Owners of Windsor Towers & Ors [2012] WASAT 160
Maludra Pty Ltd and The Owners of Windsor Towers Strata Plan 80 [2017] WASAT 112
Polaris Properties (WA) Pty Ltd and Pickworth [2018] WASAT 31
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction
The applicant is the proprietor of lot 3, and the respondent is the proprietor of lot 1, on strata plan 3240 (Strata Plan) which created a strata scheme known as '47, 49 Saunders St & 31, 31A Axford St' (Scheme).
The application is brought pursuant to s 103L of the Strata Titles Act 1985 (WA) (ST Act). In broad terms, the applicant claims that she has paid insurance premiums to CHU Underwriting Agencies Pty Ltd (CHU) for cover in respect of the Scheme, and seeks reimbursement from the respondent of a proportion of those premiums.
Pursuant to orders made on 15 May 2020, the matter is to be determined entirely on the documents, which comprise:
(a)the application, together with a bundle of supporting documents comprising:
(i)Policy Schedule for CHU Residential Strata Insurance Plan policy number (HU0000005532) (Policy), for the policy period 15 October 2018 to 15 October 2019;
(ii)a renewal certificate issued in respect of the Policy, for the policy period 15 October 2019 to 15 October 2020; and
(iii)copies of correspondence and email correspondence passing between the parties during the period 15 October 2018 to 17 October 2019,
filed by the applicant on 13 January 2020;
(b)copies (searches) of:
(i)the Strata Plan;
(ii)Notification of Change of By-laws G333045 and Notification of Change of By-laws K836115; and
(iii)Certificate of Title Volume 1421 Folio 818 (being the certificate of title for the applicant's lot),
filed with the Tribunal by the applicant on 19 February 2020, pursuant to orders made on 31 January 2020; and
(c)the respondent's response to the application filed by the respondent on 30 March 2020 (Response) (the Tribunal notes that two further copies of the Response were filed by the respondent, together with covering emails, on 12 May 2020 and 17 May 2020).
The Scheme is a development described on the Strata Plan as a 'brick [and] tile two storey quadruplex residence'.
Regulatory framework
The Strata Plan was registered in November 1975 pursuant to the Strata Titles Act 1966 (WA) (1966 Act), prior to the commencement of the ST Act. Such schemes are known as 'legacy schemes'.
However, as noted in Maludra Pty Ltd and Owners of Windsor Towers Strata Plan 80 [2017] WASAT 112 (Maludra 2017) at [196], despite the Scheme being registered pursuant to the 1966 Act, the provisions of the ST Act will, subject to the transitional provisions, apply to it.
Further, since the application was filed and therefore proceedings commenced in the Tribunal before 1 May 2020 (being the commencement date for amendments introduced by the Strata Titles Amendment Act 2018 (WA)), the determination of the dispute is governed by the ST Act as it stood before 1 May 2020.
In these reasons, unless otherwise specified, any references to legislative provisions are references to the provisions of the ST Act as it stood before 1 May 2020.
Section 32(1) provides that upon registration of a strata scheme, the proprietors from time to time shall comprise a strata company.
Among the obligations of a strata company are duties:
(a)under s 35(1)(b), to control and manage the common property (which, pursuant to s 3(1), is that part of the land which does not comprise the lots on the strata plan) for the benefit of all the proprietors; and
(b)under s 36(1)(a), to establish a fund for administrative expenses that is sufficient to discharge the obligations of the strata company including, amongst other things, 'the payment of any premiums of insurance'. Pursuant to s 36B, however, that duty may be set aside where:
… a strata company for a scheme in which there are 3, 4 or 5 lots … has, by resolution without dissent, made a by-law to that effect and that by-law has effect under section 42(4).
Because the Scheme comprises four lots, the exemption contemplated by s 36B is available to it.
Scheme by-laws
Default by-laws contained in Sch 1 and Sch 2 to the ST Act are deemed to be the by-laws of every strata company: s 42(2) ST Act. However, as noted in Byrne v The Owners of Ceresa River Apartments Strata Plan 55597 [2016] WASC 153 (Byrne) at [53]-[55], those default by-laws may be amended or replaced in two ways: by inclusion of a management plan when a strata plan is first lodged for registration, or at any time thereafter in accordance with the relevant provisions of s 42.
In the latter case, any by-law changes made after a scheme is registered must be voted on at a General Meeting of the strata company. To be effective, by-law variations must within three months of the passing of the resolution adopting the amendments, be registered on the strata plan where they are recorded on the encumbrance schedule: s 42(4). Registration is effected by lodging a Notification of Change of By-Law form (Notification) with Landgate.
Two such Notifications are registered on the encumbrance schedule of the Strata Plan: Notification G333045, registered on 21 November 1996, and Notification K836115, registered on 28 January 2009. There is no dispute between the parties in relation to the validity of the bylaws introduced by those Notifications.
The change to by-laws introduced by Notification G333045 are not relevant to this dispute.
Notification K836115 introduced by-laws 21 to 25 in relation to the Scheme. Relevantly:
(a)by-law 25 (By-law 25) provides that, pursuant to s 36B the Scheme strata company shall be exempt from s 36(1) relating to the requirement of a fund for administration purposes; and
(b)bylaw 24 (By-law 24) provides that:
[the] proprietor of each lot shall on an annual basis pay his, her or its contribution to the strata company insurance cost by direct debt [sic] to the insurer, being a quarter share of the premium.
Insurance
Part IV of the ST Act deals with the management of strata schemes. Specifically, Div 4 of that Part deals with insurance. In addition to containing provisions relevant to all strata schemes (Div 4, Subdiv 4), there are separate provisions for single tier strata schemes (Div 4, Subdiv 2) and for schemes other than single tier strata schemes (Div 4, Subdiv 3).
A single tier strata scheme is, pursuant to s 3(1), a strata scheme in which no lot or part of a lot is above or below another lot.
In this case, the Strata Plan shows that lot 4 is above lot 3, and this is consistent with the description of the Scheme on the Strata Plan as a 'two storey quadruplex residence'. Accordingly, the Scheme is not a single tier strata scheme and the provisions contained in Div 4, Subdiv 3 apply.
Relevantly, s 54(1a) provides that a strata company for a scheme other than a single tier strata scheme must:
(a)insure and keep insured the building to the replacement value (against various risks); and
(b)effect and maintain insurance in respect of various damage for which the strata company could become liable in damages,
(such cover referred to collectively in these reasons as Strata Insurance).
The need for a strata company to effect insurance in respect of 'the building' arises from the nature (and limitations) of lot ownership under a strata scheme.
The definitions of 'lot' and 'floor plan' under s 3(1), when read with s 3(2), have the following effect:
(a)the proprietor of a lot owns 'one or more cubic space forming part of the parcel to which a strata scheme relates'; and
(b)noting that the Scheme is not a single tier strata scheme (and so the alternative boundary provisions in s 3AB do not apply), the boundaries of a cubic space are to be determined in the 'ordinary way', as follows:
[T]he inner surface of the walls of a lot that correspond with the lines on the strata plan comprise the vertical boundaries of the lot and the horizontal boundaries of the lot comprise the underside of the ceiling and the upper surface of the floor[.]
(Maludra Pty Ltd and The Owners of Windsor Towers Strata Plan 80 [2017] WASAT 112 at [197], citing Maludra Pty Ltd & Ors and Owners of Windsor Towers & Ors [2012] WASAT 160 and Jordan v Van Schoubroeck [2005] WASCA 120).
Accordingly, the building itself (being the structure beyond its inner surfaces) is not owned by the proprietor of any lot and instead forms part of the common property, falling within the scope of the strata company's managerial responsibility.
The failure of a strata company to comply with its insurance duties under s 54(1a) is an offence (although there is defence under s 54(3) if the strata company can prove that, despite having taken all reasonably practicable steps available to it to comply with that subsection, no insurer is willing to enter into a contract of insurance, on reasonable terms, that meets the obligation).
Section 56 provides that nothing in Div 4 limits any right of a proprietor to effect insurance, and if so effected, then such insurance will not affect any amount payable to a strata company under a policy it has taken out.
Of particular relevance to this proceeding, s 56A (which applies to all strata schemes) provides:
If a proprietor considers that a strata company is in breach of any obligation to insure imposed on it by this Act, the proprietor may effect and maintain in the name of the strata company such insurance as he thinks the strata company ought to effect and maintain to meet that obligation.
Read together, s 103L(1) and s 103L(2)(c) provide that, where in accordance with s 36B there is no administration fund under s 36(1)(a), a proprietor who has paid a premium for any Strata Insurance effected or maintained under section 56A may apply to the Tribunal for an order that any other proprietor (or the strata company) pay to the applicant a proportion of the premium.
Pursuant to s 103L(3) the Tribunal may make such an order if it is satisfied that the applicant was justified in exercising the power in s 56A to effect or maintain Strata Insurance.
Parties' contentions
The applicant's contentions may be summarised as follows:
(a)for a period commencing 12 October 2017 (upon expiration of a policy of Strata Insurance held in respect of the Scheme with CHU), the Scheme was uninsured and the strata company was in breach of its duty under s 54(1a);
(b)pursuant to s 56A, on or about 15 October 2018, the applicant, in the name of the Scheme strata company, arranged and paid for Strata Insurance under the Policy for the period 15 October 2018 to 15 October 2019, at a cost of $1,718.68 (First Premium);
(c)pursuant to s 56A, on or about 15 October 2019, the applicant, in the name of the Scheme strata company, arranged and paid for Strata Insurance under the Policy for the period 15 October 2019 to 15 October 2020, at a cost of $1,928.51 (Second Premium);
(d)the applicant has sought from and been refused by the respondent payment for a quarter of each of the First Premium and the Second Premium; and
(e)the applicant is entitled to an order under s 103L(2)(c) that the respondent pay to the applicant a quarter of each of the First Premium and the Second Premium.
In her Response, the respondent includes the following factual contentions:
(a)for a number of years, the respondent was the 'strata manager' of the Scheme during which time she organised Strata Insurance for the Scheme. During that time, in breach of By-law 24, various lot proprietors refused or failed to pay their contributions in respect of the Strata Insurance;
(b)in or about April 2016, as a result of the respondent's difficulties in recovering contributions to the Strata Insurance from lot proprietors in the Scheme, the respondent decided to insure her unit independently;
(c)some time after the applicant bought her lot (the Tribunal notes the applicant became the registered proprietor of lot 3 on 28 November 2016), the applicant was informed that the respondent was 'privately insured';
(d)in June 2018, the respondent received an email (sent to all lot proprietors in the Scheme) from the applicant advising that Strata Insurance for the Scheme had expired in October 2017 and that the applicant 'had paid it on behalf of all owners'; and
(e)the applicant did not confer with the respondent before effecting Strata Insurance for the Scheme.
The respondent's contentions in respect of the substantive dispute appear to be that:
(a)the applicant acted unreasonably in effecting and maintaining Strata Insurance for the whole of the Scheme under the Policy because:
(i)there was no need for Strata Insurance to be taken out in respect of, or to cover, the respondent's lot because she had already insured her lot;
(ii)the applicant failed to confer with the respondent before effecting or renewing the Policy and paying the First Premium and the Second Premium; and
(iii)the payment by the applicant of the whole of the First Premium and the Second Premium was not in accordance with By-law 24;
(b)in the circumstances, the applicant:
(i)was not justified in exercising the power in s 56A to effect or maintain Strata Insurance for the Scheme under the Policy; and
(ii)the applicant is not entitled to an order for contribution against the respondent under s 103L(2)(c).
Findings of material fact
The Tribunal is satisfied that, for a period of time following 12 October 2017, the Scheme (as a whole) did not hold Strata Insurance cover.
(a)The respondent states that in or about June 2018 the applicant sent an email to the proprietors in the Scheme advising that she had, by that time, paid for such insurance (see [30(d)]).
(b)The Policy documents filed by the applicant show that Strata Insurance cover was certainly in place by 15 October 2018 (see [3(a)]).
It is unnecessary for these purposes to determine the precise uninsured period. The Tribunal finds that for a period of some months following 12 October 2017 the strata company for the Scheme had not effected or maintained Strata Insurance cover.
It is not in dispute between the parties, and the Tribunal finds, that before arranging Strata Insurance for the Scheme under the Policy, the applicant made enquiries about whether the Scheme was covered under a policy of Strata Insurance, and that those enquiries revealed that it was not.
Consideration
The Tribunal may only make an order under s 103L(3) if it is satisfied that the applicant was 'justified in exercising the power in s 56A to effect or maintain Strata Insurance'.
The language of s 103L(3) is instructive. It is not in terms that an applicant for relief must have acted reasonably in any general sense; it is in terms that the applicant must be 'justified' in exercising power under s 56A. This observation is not to suggest that the applicant did not act reasonably, but rather to recognise that that is not the key question to which the Tribunal must address itself (see also: Polaris Properties (WA) Pty Ltd and Pickworth [2018] WASAT 31 at [44]).
The foundational justification for an exercise of power under s 56A is articulated in the provision itself. It is triggered 'if a proprietor considers that a strata company is in breach of any obligation to insure' (see [26] above).
The requirement s 103L(3) in that an applicant for relief be 'justified' in exercising power implies that an objective assessment must be made in relation to the basis upon which an applicant could consider a strata company to be in breach of its obligation to insure.
Reading s 103L(3) and s 56A together, the Tribunal considers that a proprietor may be found to have been justified in exercising power under s 56A where:
(a)a reasonable proprietor could in the circumstances properly form the view that the strata company in question was in breach of its obligation to insure; and
(b)the applicant acted reasonably in the selection of insurance cover.
Individual insurance
Subject to any defence under s 54(3) or an order for exemption under s 103J (neither of which apply in this matter), the obligation on a strata company under s 54(1a) to effect and maintain Strata Insurance is strict.
Notably, in the context of the respondent's contentions (see [30(b)] and [31(a)(i)] above), the obligation is not varied by and to the extent that individual proprietors may have effected insurance cover in respect of all or any part of their lots (or any building or structure within the lot).
On the contrary, s 56 specifically contemplates and makes provision for the possibility of such double insurance. In those circumstances, the proprietor's insurance is valid but has no effect on the strata company's cover under a Strata Insurance policy. There is nothing to suggest any derogation from the duty in s 54(1)(a) (indeed, the opposite is suggested by the preservation of strata company entitlements).
That position is unsurprising because (for the reasons outlined at [22][23] above) insurance taken out in respect of a lot would not normally cover 'the building' and would in any event leave other common property and the strata company itself uninsured.
It follows that any assessment about whether or not a strata company is in breach of its obligation under s 54(1)(a) is not impacted by consideration of whether or not individual proprietors hold any policies of insurance in respect of their lots.
Bylaw 24
A further objection raised by the respondent is to the effect that the insurance effected by the applicant did not facilitate payment of premiums by direct debit as contemplated by, and the payment by the applicant of the whole of the First Premium and the Second Premium was inconsistent with, By-law 24 (see [16(b)] above).
In relation to this issue, the Tribunal notes that proper approach to construing by-laws was set out in Byrne, as follows:
75The ordinary principles of contractual construction should guide the construction of the By-Laws. They are that the rights and liabilities of parties under a term of a contract are determined objectively, by reference to the contract's text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose. However, in the case of the By-Laws, those principles are subject to four qualifications.
76First, to the extent that their terms permit, the By-Laws should be construed so that they are not inconsistent with the ST Act (bearing in mind that a strata company has no power to make a by-law which is inconsistent with the ST Act).
77Secondly, in interpreting a term of a contract which is ambiguous, it is possible in some circumstances to refer to objective extrinsic material to ascertain the meaning of the term. However, in the context of the ByLaws, caution should be exercised in going beyond the language of the By-Laws and their statutory context to ascertain their meaning, and a tight rein should be kept on having recourse to surrounding circumstances. […]
78Thirdly, the statutory context of the bylaws of a strata company should be taken into account by the Court in construing the ByLaws. That statutory context includes the fact that the function of the By Laws is to regulate the rights and liabilities of the Respondent, the proprietors of the lots in the Complex and certain other parties with rights or interests in the lots and the common property in the Complex.
79Fourthly, in ascertaining the meaning of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood its terms to mean. That will involve a consideration of the language used, the circumstances addressed by the contract, and the commercial purpose or objects to be secured by the contract[.]
The inability to make by-laws that are inconsistent with the ST Act (see Byrne at [76]), which arises from s 42(1), has particular relevance in the context of this matter.
By-law 24 should, as far as its terms permit, be construed to be consistent with:
(a)the power of a proprietor to effect or maintain Strata Insurance on behalf of a strata company under s 56A; and
(b)the ability of such a proprietor to claim from the strata company or another proprietor, and the power of the Tribunal to order, payment of a proportion of a premium under s 103L.
In the Tribunal's view, the terms of By-law 24 are capable of being construed as, and are, consistent with those statutory provisions.
Read in context, By-law 24 is directed towards facilitating the objective of By-law 25, by providing a mechanism for the payment of Strata Insurance premiums without the need for the Scheme's strata company to collect and administer administration funds. That is, Bylaw 24 binds the proprietors to payment of a quarter of the premium of any Strata Insurance effected by the Scheme’s strata company.
By-law 24 is not directed to, and is not properly construed as having the effect of, limiting the power exercised by a proprietor under s 56A when the strata company is in breach of its insurance obligations. Indeed, the express power and effect of s 56A would be thwarted by such a construction, and would be inconsistent with the protective purpose of that section (see Byrne at [78]). Such a construction is not required by the terms of By-law 24, and cannot objectively have been understood as their effect at the time of drafting (see Byrne at [79]).
Accordingly, the objection to the application on the basis of Bylaw 24 is misconceived.
By-law 24 does, however, assist the Tribunal in determining the proportion of any premium that is payable by a proprietor in the Scheme, being a one quarter share.
Conclusion
In the circumstances outlined at [33] above, at the time that the applicant first effected Strata Insurance under the Policy, there was a reasonable basis upon which the applicant could properly form the view that strata company for the Scheme was in breach of the obligation to insure under s 54(1a).
Further, there is no material before the Tribunal to suggest that, at any time prior to renewal of the Policy by the applicant, the strata company sought to assume responsibility for renewing or otherwise arranging alternative Strata Insurance cover for the Scheme. Accordingly, at the time of renewal, there was a proper basis upon which the applicant could consider that the strata company remained in breach of its obligation to insure.
Finally, there is no dispute about the premiums paid by the applicant and no contention that the Policy does not meet the requirements for Strata Insurance or was otherwise unreasonably selected (indeed, it appears the applicant simply continued the cover that had been put in place by the strata company prior to 12 October 2017).
For the reasons outlined above, the Tribunal:
(a)finds that the applicant was justified in exercising the power in s 56A to effect and maintain Strata Insurance; and
(b)considers that, pursuant to s 103L(2)(c) and s 103L(3), it is appropriate to order the respondent to pay to the applicant a proportion (specifically, one quarter) of each of the First Premium and the Second Premium.
Although no submissions have been put to the Tribunal in relation to the time by which payment must be made, the Tribunal (taking account of the amounts to be paid and the period over which the dispute has run) considers that a period of 28 days is appropriate.
Orders
The Tribunal orders:
1.Pursuant to s 103L(2)(c) of the Strata Titles Act 1985 (WA), the respondent must, by 26 August 2020, pay to the applicant:
(a)the sum of $429.67, being an amount equivalent to one quarter of the premium of $1,718.68 paid by the applicant to CHU Underwriting Agencies Pty Ltd for the period 15 October 2018 to 15 October 2019; and
(b)the sum of $482.13, being an amount equivalent to one quarter of the premium of $1,928.51 paid by the applicant to CHU Underwriting Agencies Pty Ltd for the period 15 October 2019 to 15 October 2020.
I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.
DR B McGivern, MEMBER
29 JULY 2020
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