White City Investments Pty Ltd and the Owners Of 43 Kinsella Street Joondanna Strata Plan 14493

[2015] WASAT 37

JURISDICTION     :   STATE ADMINISTRATIVE TRIBUNAL

ACT: STRATA TITLES ACT 1985 (WA)

CITATION:   WHITE CITY INVESTMENTS PTY LTD and THE OWNERS OF 43 KINSELLA STREET JOONDANNA STRATA PLAN 14493 [2015] WASAT 37

MEMBER:   MR C RAYMOND (SENIOR SESSIONAL MEMBER)

HEARD:   13 JANUARY 2015

DELIVERED          :   7 APRIL 2015

FILE NO/S:   CC 1302 of 2014

BETWEEN:   WHITE CITY INVESTMENTS PTY LTD

Applicant

AND

THE OWNERS OF 43 KINSELLA STREET JOONDANNA STRATA PLAN 14493
Respondent

Catchwords:

Strata Titles Act 1985 (WA) ­ Whether by­laws invalid ­ Whether by­laws inconsistent with Act ­ By­laws amended to preclude right to demand poll vote based on unit entitlement ­ Whether by­laws not in accordance with other requirement that ought to have been observed ­ Whether by­laws passed in fraud of power ­ Whether by­laws not made having regarding to the interest of all proprietors ­ Whether election of council invalid

Legislation:

Interpretation Act 1984 (WA), s 31, s 31(2)
Corporations Act 2001 (Cth)
Strata Titles Act 1985 (WA), s 5, s 14, s 15, s 35(1)(b), s 42(1), s 42(2), s 83, s 83(6), s 93, s 97, Sch 1, Sch 2

Result:

Application partly successful

Summary of Tribunal's decision:

The applicant applied under s 93 of the Strata Titles Act 1985 (WA) and on various other bases for orders declaring amendments made to the standard Sch 1 by-laws invalid, and that the election of the council was invalid.

The amendment to the by­laws had been passed at an annual general meeting of the strata company by the then administrator of the company acting under plenary powers granted to him by the Tribunal.  The effect of the amendment was to amend all by­laws providing for the entitlement of a lot proprietor to demand a poll vote to be determined by reference to the unit entitlements of the lot proprietors.  As a result, the applicant who is the owner of eight of the 20 lots included within the strata plan would only have one vote on a show of hands.

The Tribunal found that the by­laws were inconsistent with s 14 of the Strata Titles Act 1985 (WA) which provides that the unit entitlement of the lot determines the voting rights of a proprietor and was therefore made without power because the Sch 1 and Sch 2 by­laws may only be amended in a manner which is not inconsistent with the Strata Titles Act 1985 (WA).

The Tribunal declined to declare the election of the council invalid because it found that the administrator was entitled to convene the annual general meeting and to rule that the council be constituted by four members, and there would have been no different result and no prejudice suffered by any proprietors being led to believe, wrongly, that they would be able to exercise a vote by proxy.

Category:    B

Representation:

Counsel:

Applicant:     Miss J Allanson

Respondent:     Mr M Hallgate (Acting as Agent)

Solicitors:

Applicant:     Mony De Kerloy

Respondent:     N/A

Case(s) referred to in decision(s):

Banning and The Owners of 106 Terrace Road Perth – Strata Plan 6289 [2006] WASAT 296

Grant and the Owners of Rosneath Farm – Strata Plan 35452 [2006] WASAT 162

Radford v Owners of Miami Apartments Kings Park Strata Plan 45236 [2007] WASC 250

Seghezzi and The Owners of 9 The Avenue Crawley Strata Plan 27842 [2013] WASAT 53

Western Australian Planning Commission and Dungey [2010] WASC 52

REASONS FOR DECISION OF THE TRIBUNAL: 

Introduction

1. By orders of the Tribunal made in other proceedings on 24 January 2014, an administrator was appointed to the respondent strata company.  The administration has since expired.

2. During the period of the administration, the administrator who had been granted all of the powers, authorities, duties and functions of the strata company without restriction, convened an annual general meeting (AGM) of the strata company to be held on 29 July 2014. At the meeting, the administrator used his plenary powers to amend a number of the standard Sch 1 by­laws which apply to the strata company. Annexure B to the strata plan discloses that there is no management statement or other non-standard by­laws which are applicable although there have been notifications of a change of by­laws lodged. Details of these changes have not been provided in evidence but neither party has suggested that they would have any impact on the matter. The said Annexure B also reflects that an amendment of by­laws was lodged on 30 July 2014 said to be 'pursuant to State Administrative Tribunal order under s 102 of the Strata Titles Act 1985 (WA)', this being the power under which the administrator was appointed. Although there is no evidence before the Tribunal, it can be reasonably inferred that the amended by­laws registered on 30 July 2014 are the amendments which were passed at the AGM on 29 July 2014.

3. The precise terms of the amendments are set out in order 1 to be issued by the Tribunal, as set out at the conclusion of these reasons for decision. The effect of the amendments are to amend the standard Sch 1 by­Laws so as to remove the right to call for a poll vote and to ensure that any vote at a general meeting be by way of a show of hands, with each individual lot owner having only one vote regardless of the number of lots which might be owned by that proprietor.

4. The applicant owns eight of the 20 lots within the parcel, having a total voting entitlement based on unit entitlement, of 3,981 units out of a total of 10,000 units.  On a show of hands, the applicant is entitled to only one vote out of a total of 13 lot proprietors.  The removal of the right to call for a poll vote based on unit entitlement has the effect of reducing the applicant's voting power, relative to other lot proprietors, from 39.81% to 7.69%.  The minutes of the AGM reflect that Mrs R Mijatovic is the owner of Lot 1 (Unit 1), Mr T Mijatovic is the owner of Lot 5 (Unit 5) and Miss E Mijatovic is the owner of Lot 8 (Unit 8).  Mr T Mijatovic was appointed as a proxy for the applicant.

5. The administrator's report dated 12 September 2014 refers to the receipt of a letter from a group of proprietors who describe themselves as the majority of owners of 55% of the lots in the strata company, which letter was signed by Radmila Mijatovic, Tomas Mijatovic, Erin Mijatovic and on behalf of the applicant White City Investments Pty Ltd.  The report referred to 'examples of inappropriate actions' attributed to the former council of the strata company comprising the abovenamed persons.  The report further explains that to create an environment for future harmony and proper and appropriate management to the strata company affairs, a change of the by­laws of the strata company was placed on the notice for the AGM held on 29 July 2014.  I make no judgment on the veracity or justification for the contents of the report.  The Tribunal which appointed the administrator was differently constituted, and I am unaware of the precise grounds on which an administrator was appointed, but it can be inferred that an administrator was appointed because the strata company was not functioning as it should.  Clearly, the administrator saw the solution to this was to dilute the voting power of those who had the majority unit entitlement.  Whether that is permissible is another matter.

6. Also at the AGM, the administrator used his plenary powers when conducting an election of councillors to determine that the number of councillors to be elected would be four and to vote in four members of council, none of which included Mrs R Mijatovic, Mr T Mijatovic in his own right, or Mr T Mijatovic on behalf of the applicant, all of whom were nominated.

7. The applicant seeks orders from the Tribunal which would have the effect of nullifying the amendments to the by­laws and the council election, all of which is addressed below.  It requires no perspicacity to realise that at the heart of this dispute is a fight for control of the strata company.

Conclusion

1. I have concluded that the applicant is entitled to an order under s 93(2)(a) of the Strata Titles Act 1985 (WA) (ST Act) declaring the amendments to the by­laws described in the contemplated Order (a) to be invalid on the basis that the amendments made are inconsistent with the ST Act and therefore not permitted under s 42(1) thereof, and consequently were made without power and not in accordance with the ST Act. I have come to this conclusion reluctantly because I fear that in time the management of and control of the strata company will revert to those whose previous management of the strata company was not effective enough to prevent the need for the appointment of an administrator. Should the management of the strata company become dysfunctional it may again be necessary to appoint an administrator to deal with specific issues as and when the need arises.

2. I have, also, concluded that the applicant is not entitled to an order invalidating the election of the councillors.

3. Under the headings which follow, I address firstly the basis upon which the applicant has succeeded in establishing that the amendment to the by­laws should be declared invalid, and thereafter, all other bases for relief advanced by the applicant and the respondent's opposition thereto.  In the reasons which follow all references to legislation, or parts of legislation, are references to the ST Act or relevant or parts of it.

By­laws made without power and not in accordance with the ST Act

1. Section 42(1) empowers a strata company to make by­laws not inconsistent with the Act, for amongst other things, its corporate affairs and matters relating to the management, control, use and enjoyment of the lots of any common property.

2. The applicant relies on s 14 which provides that the unit entitlement of the lot, as stated in the schedule referred to in s 5, determines, relevantly, the voting rights of a proprietor. It is submitted that the effect of the amendments is that all proprietors of lots have only one vote, regardless of the unit entitlements of their lots or the number of lots they own and consequently the applicant has had its voting entitlement massively reduced.

3. These submissions must be understood in the context of the standard by­laws applying to regulate the respondent's corporate affairs and the management and control of common property. These Sch 1 and Sch 2 By­laws apply pursuant to s 42(2). Schedule 1 By­law 14 governs the votes of proprietors. The scheme of the by­law is that on a show of hands each proprietor has one vote but that on a poll vote the proprietors have the same number of votes as the unit entitlements of their respective lots. Schedule 1 by­law 12 governs proceedings at general meetings and provides, relevantly, that at any general meeting a resolution by the vote of the meeting shall be decided on a show of hands unless a poll is demanded by any proprietor present in person or by a proxy (By­law 12(7)). In my view s 14 must necessarily be read as if it were expressed to be subject to the provisions of the Act. That is necessarily so, as a matter of construction, because other provisions of the legislation demonstrate that the unit entitlement of a lot does not in all cases determine the voting rights of a proprietor.

4. There are many circumstances dealt with in Pt II of the Act in which unanimous resolutions or resolutions without dissent are required. Further, it must be noted that the Sch 1 and Sch 2 by­laws form part of the written law constituted by the Act pursuant to s 31(2) of the Interpretation Act 1984 (WA). Schedule 1 by­law 4(7) provides that on an election of members of the council, the proprietor shall have one vote in respect of each lot owned by him. This excludes, therefore, the right to call for a poll vote when the vote would be determined having regard to unit entitlements.

5. The respondent submits that because provision is made for unanimous resolutions, resolutions without dissent, and for a vote for the election of the council to be determined in the above manner, there would be an internal inconsistency within the legislation unless the reference to voting rights in s 14 were read as meaning no more than 'the right to vote'. I am unable to accept this submission. Section 14 provides that the unit entitlement of the lot as stated in the schedule referred to in s 5 determines the voting rights of a proprietor. Section 5 sets out the strata plan requirements and includes that it be accompanied by a schedule specifying the proposed unit entitlement in respect of each lot into which the parcel is to be subdivided and specifying also the proposed aggregate unit entitlement. The schedule incorporated in Strata Plan 14493 does precisely that and gives various unit entitlements in respect of each of the 20 lots, totalling an aggregate 10,000 units. The clear intent of s 14 is that the proportionate unit entitlement applying to each lot determines the voting rights of a proprietor. This accords with the plain reading of s 5 and s 14. The inconsistency is met by interpreting s 14 in a manner which requires that it be read subject to the Act, because it is obvious that other sections expressly provide for voting determined by whether all lot owners vote in favour of a resolution or that there is no dissent thereto which is not dependent on unit entitlement. It simply means that any proposed amendment or variation of the by­laws must not be inconsistent with those other provisions. If the Act requires a unanimous resolution or a resolution without dissent that cannot be changed, nor can the manner of election of members of the council pursuant to Sch 1 By­law 4(7). But, apart from any specific provisions relating to the vote on resolutions before the strata company, the Act contemplates that voting at a general meeting will be by a show of hands unless a poll vote is demanded, and in that event, the proprietors' voting rights are determined by their unit entitlements.

6. The respondent endeavoured to support its submissions by reference to the definitions of 'voting interests', 'voting power' and 'voting share' under the Corporations Act 2001 (Cth), as well as the definition of the term 'right to vote' in constitutional law and other contexts. I do not consider that these references are at all helpful. The starting point for the construction of a statute is the text and a provision of the statute must be construed consistently with the language and purpose of all the provisions of the statute: see the authorities and principles discussed in Western Australian Planning Commission and Dungey [2010] WASC 52 at [27] and following.

7. It follows that the amendments to the by­laws removing the right to demand a poll vote based on unit entitlements is inconsistent with the Act and is not permitted pursuant to s 42, and was therefore made without power. As the Tribunal is therefore satisfied that the elements of s 93(3)(a) and s 93(3)(b) are met, namely that the amendments were made without power and were not made in accordance with the Act, I consider that it is appropriate that orders be made declaring that the amendments to the by­laws of the strata company made on 29 July 2014 are invalid. For the avoidance of doubt and as discussed further below this does not affect the election of the council at the general meeting held on 29 July 2014.

Section 93(3)(b): whether any other requirements ought to have been observed

1. The applicant advances as a basis for declaring the amendments to the by­laws to be invalid that the amendments were not made in accordance with any other requirement that ought to have been observed as provided under s 93(3)(b). It is submitted that the 'other requirements' include having regard to the concept of fraud on a power, relying on Radford v Owners of Miami Apartments Kings Park Strata Plan 45236 [2007] WASC 250 at [138] (Radford).  Radford does not stand as authority for the proposition for which the applicant contends. At [138], his Honour Justice Simmonds did no more than state that the doctrine of fraud on the minority might apply so as to qualify or define the power of a strata company acting through the process relevant to making, repealing or amending its by­laws. His Honour noted that the doctrine of fraud on the minority might have no application to s 93(3)(b) because it is a proscription, not a requirement, and because it is subsumed by s 93(3)(a) (at [143]). His Honour went on to find that, on the facts, in any event, the doctrine had no application.

2. In the absence of authority, and as it is not necessary, in any event, for me to determine this issue, given the conclusion that the amendments to the by­laws are inconsistent with the Act and are made without power, this is not the appropriate matter to attempt to fully examine the complex issue of whether or not the doctrine of fraud on a power is a requirement that ought to have been observed under s 93(3)(b).

Section 93(3)(c): in the interests of all proprietors

1. The applicant relies on Banning and The Owners of 106 Terrace Road Perth – Strata Plan 6289 [2006] WASAT 296 (Banning) to submit that a proposal is not for the benefit of all proprietors if it is detrimental in a substantial way to some but not all of the proprietors.  The view was expressed in Banning, although it was not necessary for the purposes of the decision, that in the circumstances of that case, the removal of common property gardens to provide additional parking to produce rental income and contain levy increases, was of general benefit to all proprietors but was so detrimental to those on the ground floor, that it could not be said that the proposal was for the benefit of all proprietors.

2. However, it is a matter of fact and degree in each case as to whether detriment suffered by some proprietors is so significant that a proposal relating to common property may be considered not to be for the benefit of all proprietors.  In Grant and the Owners of Rosneath Farm – Strata Plan 35452 [2006] WASAT 162 (Rosneath) at [100] and following, the Tribunal considered this issue in the context of a range of by­laws which restricted a proprietors use of common property. Prior to purchasing a lot, prospective proprietors had to attend courses explaining the operation of the Rosneath Farm development. Some individuals were given particular rights in relation to the growing of crops and other benefits. The Tribunal found that to the extent that the proprietor accepted a by­law which restricted his rights in the common property, corresponding benefits were received in being able to enjoy the lifestyle which Rosneath Farm was intended to offer.

3. In effect, the requirement to manage common property for the benefit of all the proprietors is a good governance provision. It does not mean that restrictions cannot be placed on some proprietors. A corresponding meaning should, in my view, be given to the phrase 'having regard to the interests of all proprietors in the use and enjoyment of their lots with a common property' as used in s 93(3)(c).

4. In any event, the Tribunal previously considered that, at a time when the management of the strata company was in the hands of a council which included the applicant the appointment of an administrator was justified. In causing the various amendments to the by­laws to be made, which the administrator did on behalf of members of the strata company, the administrator obviously considered that they would result in a fairer system of management than previously existed. In the absence of evidence subjected to proper testing at a hearing, or other clear unchallenged evidence, it is simply not possible to make a proper judgment of whether or not the amendment to the by­laws can be considered to be not in the interests of all the proprietors in the sense in which that phrase is used in s 93(3)(c).

Section 97: the calling of the meeting

1. Section 97 has been held to provide power to the Tribunal to invalidate any resolution of, or election held as a result of non-compliance with the provisions of the Act in relation to the calling or conduct of a meeting: see Seghezzi and The Owners of 9 The Avenue Crawley Strata Plan 27842 [2013] WASAT 53 (Seghezzi).

1. The applicant submits that the calling of the general meeting on 29 July 2014 was confusing given that at the same time the administrator had applied to the Tribunal to extend the period of the administration and because those who could not attend the meeting were informed by the notice of meeting that they could fill out a proxy form, which implied that they would be able to vote.  In fact, the administrator called the meeting and made clear at the commencement of the meeting that he would preside as chairman and in accordance with his plenary powers and authorities he would exercise all votes at the meeting on behalf of all proprietors, and that the meeting was essentially one to impart information.

2. Subsection 97(2) proscribes that the Tribunal shall not make an order refusing to invalidate a resolution or election unless it considers that:

   a)the failure to comply with the provisions of the Act did not prejudicially affect any person, and

   b)compliance with the provisions of the Act would not have resulted in the failure to pass the resolution or have affected the result of the election, as the case may be.

3. Firstly, it must be observed that the application has been advanced on the basis that the by­laws were amended to stipulate that the number of council members would be four named proprietors:  see paragraph 5 of Annexure B to the amended application.

4. There is no evidence to support this aspect of the applicant's case. To the contrary, the minutes of the AGM show that the amendment to the by­laws and the election of council were conducted quite separately. Item 10 of the minutes sets out the process which was followed. The chairman determined that the number of council members would be four. Under Sch 1 By­Law 4(3), it is provided that where there are not more than three proprietors the council shall consist of all proprietors and where there are more than three proprietors the council shall consist of not less than three nor more than seven proprietors as is determined by the strata company. The strata company in general meeting was therefore entitled to determine the number of proprietors to constitute the council and the administrator was entitled under the plenary powers granted to him by the administration to exercise that power.

5. Furthermore, the only way in which the administrator could exercise his plenary powers to pass or amend by­laws or to conduct an election was by calling an AGM because that is the only way the strata company could have done so, and the administrator had only the same powers as the strata company.  There is no basis for criticism of what the administrator did in this respect, save for the assertion that the notice of the meeting indicated that proxy votes could be used by those unable to attend.  There is no evidence to that effect because the notice of the meeting has not been provided in evidence.  In any event, even assuming that to be so that would not have prejudiced any person.  While a proprietor might have thought that he or she was exercising a proxy vote or that they would have a right to vote if they attended the meeting, in fact they had no right to do so, and the result would have been no different.  I would therefore refuse to invalidate a resolution relating to the passing of the relevant by­laws or the conduct of the election.

Section 83 of the ST Act

1. Finally, the applicant contends that should the Tribunal not be satisfied that orders should be made as sought by it and either s 93 or s 97, s 83 could be used to the same effect. In doing so the applicant relies on the Seghezzi decision to which reference has already been made.

2. With respect, the effect of Seghezzi has been misconstrued.  In Seghezzi an attempt was made to set aside a resolution under s 97 but no criticism was made of the manner in which the extra ordinary general meeting in question had been convened or conducted. The resolution related to a proposal to alter the common property gardens. The Tribunal found that the decision made as reflected in the resolution was not made for the benefit of all the proprietors contrary to s 35(1)(b). The Tribunal concluded that because s 97 was not available to attack the resolution, s 83 could be used as a basis for an order determining that the proposal was contrary to s 35(1)(b) and that the strata company was therefore not entitled to proceed with the proposal.

3. In this case, there is no basis upon which to find that the proposed by­laws, or for that matter the election of only four councillors, were not in the best interests of all of the proprietors in the sense discussed above. In relation to the amendment of the by-laws s 83 cannot be used if the relief sought and the basis upon which it might be granted is provided for by any specific section of Pt VI of the Act (s 83(6)). Insofar as the restriction of the number of councillors is concerned, there is no evidence upon which to conclude that the administrator did not act in the best interests of all proprietors, for the reasons given above, in discussing s 93(3)(c).

Orders

1. For the reasons given above the applicant is entitled to an order declaring the amendment to the Sch 1 By­laws passed at the annual general meeting on 29 July 2014 are declared to be invalid. Pursuant to s 115 a copy of the order certified by the Executive Officer of the Tribunal as a true copy must be lodged with the Western Australian Land Information Authority together with the prescribed fee. The applicant is required to ensure compliance with that requirement pursuant to s 115(2).

   Accordingly, the Tribunal shall cause orders to issue as follows:

   1.It is declared pursuant to s 93(2)(a) of the Strata Titles Act 1985 (WA) that the amendments to the by­laws of the strata company made on 29 July 2014 in the following terms:

   That the Schedule 1 by­laws be amended as follows:

   '1.Schedule 1 by­law 4(7): replace "in respect of each lot owned by him" with "only, irrespective of the number of lots owned by that proprietor".

   2.Schedule 1 by­law 5(5)(b): repeal "in respect of each lot in respect of which he is entitled to vote".

   3.Schedule 1 by­law 5(6)(b): repeal "each lot" and replacing it with "the lots".

   4.Schedule 1 by­law 12(7): repeal "unless a poll is demanded by any proprietor present in person or by proxy".

   5.Schedule 1 by­law 12(8): repeal "Unless a poll be so demanded".

   6.Schedule 1 by­law 12(9): repeal.

   7.Schedule 1 by­law 12(10): repeal.

   8.Schedule 1 by­law 12(11): repeal "whether on a show of hands or on a poll".

   9.Schedule 1 by­law 14(1): after the word 'vote' add "only, irrespective of the number of lots owned by that proprietor".

   10.Schedule 1 by­law 14(2): repeal.

   11.Schedule 1 by­law 14(3): repeal "or on a poll".

   12.Schedule 1 by­law 14(8): repeal.

   13.Schedule 1 by­law 14(9): repeal':

   are invalid.

   2.The applicant must forthwith lodge a copy of this order certified by the Executive Officer of the Tribunal as a true copy in the Office of the Western Australian Land Information Authority together with the prescribed fee.

   3.The proceedings are otherwise dismissed.

I certify that this and the preceding [33] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

___________________________________

MR C RAYMOND, SENIOR SESSIONAL MEMBER