When Rain Is Not a Storm

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In the aftermath of the recent rains and floods in Queensland and New South Wales insurers are likely to have been inundated (pun intended) with claims for water damage to insured properties said to have resulted from rain and floods.

As was seen in the aftermath of the 2011 Queensland floods and other floods at the same time and since, there has been an increasing amount of pressure on insurance claims departments to correctly assess water damage claims and make defensible determinations based on policy terms. At the same time, insurers have had to grapple with sometimes unrealistic community expectations on the claims that are able to be accepted and those that cannot, in other words events that are insured and those that are not.

This office has recently been involved in a case where it was able to successfully defend a declination of a water damage claim by a large national insurer. This included having a subsequent application for leave to appeal dismissed by the NSW Court of Appeal.

In the context of more recent inundation, the case is a good reminder of the issues that arise when making determination on water damage claims and how those issues play out when challenged in Court.

Background
The matter involved an insured property located in regional New South Wales. As with the case with many rural properties, the house located on the insured property had been constructed in the 1920s and appeared not to have been maintained for some time. At the end of a sustained period of rain in 2011 the insured lodged a claim for water damage to the insured property allegedly as a result of “storm”.

It is important to note at this juncture that the insurance policy was a defined events covering “storm” damage. Storm was a defined term in the policy which required there to be an atmospheric disturbance that could be accompanied by rain, hail or wind.

Further, the policy contained an exclusion clause in relation to damage caused by a lack of maintenance.

The insurer declined the claim on the basis the damage was not caused by an insured event (storm) and further that the water damage was caused by a failure to maintain the roof of the property.

Inevitably, the insured took a different view by asserting the water damage was caused by rain and therefore should be covered under the policy. Consequently, the insured commenced proceedings in the District Court seeking damages (being the amount of the repairing the water damage).

The insurer filed a defence on the basis insured had not proven the water damage had been caused by a “storm” as defined in the policy and on the basis of the Wayne Tank principle in respect to the failure to maintain (an excluded event) causing or contributing to the water damage.

Final Hearing
The legal proceedings were ultimately the subject of a two day hearing before a District Court Judge. To make things more challenging, the presiding Judge decided the hearing would proceed by way of “oral evidence” rather than the parties prepare and exchanging written evidence beforehand, the latter being the more common course in modern litigation. As a consequence, the insurer (and the insured) had no knowledge of the substance of the other side’s case prior to the hearing.

As the hearing unfolded it became clear the insured had failed to grapple with the defined event nature of the policy and instead took the position that “rain” was synonymous with “storm”. In this regard, meteorological evidence was led about heavy “rain” events that had occurred over several months but there was no evidence of “storms”. Although the insured gave evidence, she could not directly testify as to how the damage occurred as she did not live in the insured property at the time.
No real expert evidence was led as to how the damage occurred although a quote had been obtained from a builder making a bare reference to “storm” damage.

At the completion of the insured’s case, the insurer elected to take a forensic risk and not put on any evidence. Instead, the insurer made submissions that the insured had failed to prove the water damage was “storm” damage and therefore covered under the policy.’In making the forensic decision not to put on any evidence, the insurer effectively curtailed its ability to run a case based on the Wayne Tank principle (i.e. the damage to the insured property had been caused at least in part by an excluded event, being a lack of maintenance and therefore not covered at all irrespective if it was also caused by a “storm”).

Judgment in Favour of Insurer
After considering the dispute over a number of weeks, the District Court Judge gave judgment in favour of the insurer and dismissed the damages claim.
The principle reasons for the judgment were as follows:
The onus was on the insured to prove the water damage was caused by a defined event, in this case a storm;
The definition of storm under the policy required there to be more than rain, it required there to be proof of an atmospheric disturbance;
The insured have failed to prove an atmospheric disturbance and had simply proven “rain”;
Further, the insured had failed to prove the damage to the insured property had been caused by a “storm” (or indeed “rain”). In this regard, the absence of expert evidence meant the Court could not make any finding on “causation”.
Appeal
As a consequence of being dissatisfied with the dismissal of her claim, the insured lodge an application for leave to appeal with the NSW Court of Appeal.

Again, the insurer defended the application on the basis the original decision was correct in its principle reasons.

The application for leave to appeal was eventually heard and dismissed by the NSW Court of Appeal as having little or no prospects of succeeding on a full appeal.

In dismissing the application for leave to appeal, the NSW Court of Appeal confirmed the following:

The onus is on the insured to prove damage to an insured property is caused by a defined event covered under the policy;
The onus of proof includes the requirement on an insured to obtain proper expert evidence where the cause of the damage to insured property is unclear and would not be within the knowledge of an ordinary person.
Conclusion
While the ultimate decision of the NSW Court of Appeal would appear to be quite simple, it is a timely reminder of the fundamentals of claim determinations irrespective of the size and community expectations surrounding particular types of claims, namely:

The onus is ultimately on the insured to prove a particular claim falls within the terms of the policy;
A claim determination should be based on a clear understanding of the evidence before the insurer and a correct application of the policy terms.

High Court bowls over NCAT (NSW) powers to make decisions

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The High Court of Australia has recently ruled that the New South Wales Civil and Administrative Tribunal (NCAT) did not have the power to resolve a dispute between residents of different States: Burns v Corbett; Burns v Gaynor [2018] HCA 15.  Australia’s Constitution reserves the power to resolve those disputes with the Courts.

This may have significant repercussions for dispute resolution in Australia’s strata industry and may have catastrophic consequences for the day to day operations of owners corporations and bodies corporate throughout the States and Territories.

The basis of the decision is relatively simple.  Where the dispute involves people who reside in different States or Territories to each other, only the Courts can deal with that dispute and the specialist Tribunal lacks the jurisdiction to deal with it.

What this means is where any party to a dispute resides in another State/Territory outside of NSW, NCAT cannot hear the dispute and it will need to be taken to a Court.  In Strata, NCAT has wide power to hear disputes under the Strata Schemes Management Act 2015 and the Home Building Act 1989.

Owners Corporations now need to consider where the person they are taking action against is located to work out whether they go to NCAT or a Court (in most cases the Supreme Court).

This High Court decision deals with NCAT in NSW but the concept may have widespread consequences not only in NSW.  Each State and Territory will now need to consider their own Tribunal powers.

For example in QLD most strata disputes are resolved by:

  • adjudicators in the Office of the Commissioner for Body Corporate and Community Management; or
  • the Queensland Civil and Administrative Tribunal (QCAT).

However, unlike NCAT, QCAT (which deal with “complex disputes”) has been held to be a court of record so has been treated as a court of the State: Owen v Menzies & Ors; Bruce v Owen; Menzies v Owen  [2012] QCA 170. That means QCAT may be unaffected by this High Court decision. However the Owen case was considered way before this High Court decision.

Further, under the  Body Corporate and Community Management Act 1997 (Qld) ( BCCM Act ), only adjudicators have jurisdiction to resolve “non-complex disputes”, which is the significant majority of disputes that arise in the strata living environment in Queensland and include by-law contraventions, disputes about the reasonableness of a body corporate’s decision; and compliance with the BCCM Act (such as with the conduct of a committee or general meeting).

The question is whether this High Court decision will affect most of these strata disputes or not.  It will probably only affect disputes that involve a resident of another state – for example, an investor owner who resides inter-state. It may mean that only a Court, not an adjudicator, may resolve a strata dispute involving the inter-state owner.

What should Owners Corporations/Bodies Corporate do? 

What owners corporations / bodies corporate should do depend on whether they have already commenced action or intend on commencing action soon.

Where they have commenced action in NSW, they should seek urgent advice about the impact of the High Court decision on their particular case (whether a matter needs to be restarted etc). In all other State/Territories, advice should be sought to see if the High Court Decision would have any implication.

Where the owners corporation/bodies corporate has not commenced action,
It should:

  • obtain advice on the potential impact of the case on the proposed dispute
  • determine which jurisdiction is relevant
  • consider alternate dispute resolution options

What is Grace doing?

Grace is seeking to co-ordinate input from stakeholders in all States/Territories on the impact to their legislative system in association with its role as National Partner of SCA National.  Following this, formal legal advice will be considered and approaches made to the relevant Government Departments to see what action can be taken to alleviate stakeholder impact and to clearly define how matters are to be dealt with.

In the meantime, we recommend that owners corporations and bodies corporate take care to determine whether any parties to a dispute they are involved with reside inter-state.  If the dispute involves an inter-state party, you should encourage the owners corporation/body corporate to take legal advice.

Watch this space…

Landlords on notice over noisy tenants

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Come in and feel the noise: landlords to pay for rowdy tenants.
Photocopies stickytaped to city lamp posts offering dirtcheap, shared-room rentals in luxury apartments could soon be a thing of the past after a landmark court ruling. Previously, landlords who crammed partying backpackers and students into houses and apartments could ignore complaints about noise, passing them back to tenants who changed so often no one could be held responsible. But in a gamechanging move, a noise-abatement order has been served on the owners, rather than their tenants, of a Double Bay apartment. The downstairs neighbours had  complained for years of noise and disturbance.
Anyone breaching a noise-abatement order can face fines of up to $5500 as well as charges of contempt of court that could lead to jail terms.
For Jean Whittlam, 71, and her son Anthony, 41, the noiseabatement order marks the end of a five-year battle with the owners of the apartment above their flat in New South Head Road, Double Bay.
”We’ve been told this is the first time anything like this has ever happened,” said Mr Whittlam, who said the upstairs flat had been run as a backpacker flophouse. ”It’s great … It gives all of us hope.”
Landlords John and Sarah Hanna, who own more than 100 properties in the eastern suburbs, denied the allegation.
”It’s an insult to call the tenants of this flat backpackers,” Mrs Hanna, 76, said. ”They were educated people from good families who just happened to be English and Irish.”
However, Jean Whittlam claimed in court that the Hannas’ tenants were often shouting and singing at night, slamming doors, playing soccer at 2am, swearing, partying and playing loud music.
The Hannas’ lawyer disputed that the owners could limit the noise because they did not live in the apartment, but the magistrate, Harriet Grahame, ruled they were responsible because they could control who they leased the apartment to, for how long and, if necessary, make physical changes to the property to decrease noise.
Colin Grace, of Grace Lawyers, whose firm represented the Whittlams, said this was a landmark decision. ”It means if a landlord has been told about a problem with their tenants but does nothing about it they effectively ‘adopt’ the problem and are responsible for it.”
Recent changes in the tenancy laws allowing landlords to demand written consent before tenants can sublet mean owners have even less excuse for not knowing who lives in a property.
The case was won by Peter Ton.

Grace Lawyers Proves that Strata Can Have a Vexatious Litigant

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Grace has recently been successful in a decision before the Supreme Court in Singh v The Owners – Strata Plan No 11723 and Ors [2013] NSWSC 1595 where orders were made pursuant to the Vexatious Proceedings Act 2008 (NSW) against a lot owner, prohibiting him from instituting any further proceedings in NSW (known as a vexatious proceedings order) against the Owners Corporation and his bankruptcy trustees.

The Owners Corporation had been involved in litigation with the lot owner for over 3 years in various state and federal Courts. Initially the dispute arose in the Local Court from unpaid strata levy arrears which were a relatively modest amount. However, due to the nature of the lot owner who attempted to re-litigate the same issues which had been decided against him in various Courts, the Owners Corporation had incurred significant legal costs in defending the lot owner’s applications.

Historically, applications for orders pursuant to the Vexatious Proceedings Act 2008 (NSW) are made by the Attorney-General to prohibit persons from wasting the Courts’ resources and in the interest of protecting the public at large. Since the enactment of the Vexatious Proceedings Act 2008 (NSW), only 14 persons have been subject to an order prohibiting them from commencing proceedings in NSW.

Further, pursuant to section 8 of the Vexatious Proceedings Act 2008 (NSW), the Court can take into account proceedings which have been instituted or conducted in “any Australian Court or tribunal” including the CTTT. However previously, applications for orders against a vexatious litigant were only available under section 84 of the Supreme Court Act 1970 (NSW) which prescribed that the Court should consider a person’s litigation history in Court proceedings only.

Before exercising a discretion to make orders under the Act, the Court must first be satisfied that a person has:

  1. instituted or conducted;
  2. “vexatious proceedings” as defined in the Act; and
  3. has done so “frequently”.

It has been said that an order pursuant to the Vexatious Proceedings Act 2008 (NSW) is an “extreme remedy” and a serious matter to deprive a litigant of access to the Courts. Even if the Court is satisfied that its jurisdiction to make the vexatious proceedings order is enlivened, it is not bound to do so.

In this case, His Honour Justice Slattery of the Supreme Court was satisfied that the lot owner had instituted 14 vexatious proceedings against the Owners Corporation and his bankruptcy trustee over 2 years and considered this to be “frequently”.

Consequently, the Court made orders prohibiting the lot owner from commencing proceedings in any Court or tribunal in NSW against the Owners Corporation and his bankruptcy trustee, in recognition of the “forest of litigation” which these parties had been subjected to.

This is the first decision where a vexatious proceedings order has been made in favour of an owners corporation and is an example of the relief which may be available to an owners corporation.

Appeal tribunal upholds a by-law banning short term letting

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The Fairway Island appeal.

You have been told time and time again that a body corporate cannot make a by-law banning short term letting or Airbnb within its strata community.

But a strata community we have been working with closely for almost two years put in place a by-law prohibiting lettings of less than one month as a means of protecting the special residential amenity of their community.

The by-law was overturned when the lot owner challenged it in the Commissioner’s Office.  The strata community was successful in its appeal, and its by-law has been validated.

The reasons given by the appeal tribunal give a most compelling case for why a body corporate’s power to make by-laws is robust, and rightly so.

What happened?

The by-law relevantly provided:

“…each proprietor shall not use or permit his lot to be used other than as a private residence of the proprietor or for accommodation of the proprietor’s guests and visitors. Notwithstanding the foregoing, the proprietor may rent out his lot from time to time provided that in no event shall any individual rental for a period of less than one (1) month.”

The by-law was made by one of those rare bodies corporate, Fairway Island, still governed by the Building Units and Group Titles Act 1980 (Qld) (BUGTA).

Similar to the position under the Body Corporate and Community Management Act 1997 (Qld) (BCCMA), a BUGTA body corporate has the power to make by-laws to regulate the use and enjoyment of a lot.

The fundamental focus for this body corporate was to impose restrictions on the use of lots in order to protect the special residential amenity of its community.

At first instance, a referee (the BUGTA equivalent of an adjudicator) simply found that the by-law offended a provision of BUGTA that provided that a by-law cannot prohibit or restrict a lease or other dealing with a lot.  The referee followed the way that many other referees and adjudicators had applied the same provision in the BCCMA, such as in Washingtonia [2018] QBCCMCmr 256:

“…a by-law that purports to prevent a lot from being rented for a term of less than 6 months, or more than twice in one year to different tenants, would operate to ‘restrict’ a ‘lease’ of that lot.”

The body corporate argued that the referee’s interpretation of this statutory provision was wrong, and that short term letting did not amount to a ‘lease’ that would be protected by that provision.  The appeal tribunal, presided over by a Magistrate, agreed.

The real task for judging the validity of a by-law is to consider what its true intent is and the purpose for its creation in the context in which it was made, when deciding whether it is within power.  The Magistrate said:

“Here the lots are undoubtedly established with a view to privacy and amenity. That much can be gleaned by the presence of a security gate to the entry of a luxury cluster of houses effectively surrounded by a moat and acres of private golf course. Presumably this inspired the name – Fairway Island. The true character of the by-law is to ensure that only people who have some longer term commitment to the premises occupy them. That is, they are residents there and subject to some longer term control over their behaviour.”

Impact on the strata industry

This does not mean that every body corporate is in the clear to make a by-law banning short term letting – that approach would misapply the reasoning of the Magistrate and the other authorities he was persuaded by.  Great care must be taken on how this decision can be applied to community titles schemes subject to the BCCMA.

What is exciting about this decision is the considered views the Magistrate gave to why Parliament has given bodies corporate the power to make by-laws, and the purpose that by-laws are intended to achieve.

Adjudicators, and even QCAT when dealing with appeals, have adopted conservative approaches to the power to make by-laws.  By-laws are often invalidated for being unreasonable, and many strata communities are left with a sense of futility in making a by-law that can be of any meaningful effect.

Committees are regularly told that it is unreasonable to assume that a dog will cause a nuisance by barking, or that the creation of a large deck will be used to hold noisy parties.  The Magistrate made these helpful and common sense statements:

“It appears to me that BUGTA intended to allow the BC to pass by-laws to protect lot owners from even a hypothetical nuisance of the occupier of a lot. They need not wait until a marching band starts rehearsals at midnight in one lot to ban such an activity. The requirement to get approval for a pet is a standard by-law. This is based on no evidence whatsoever that any particular animal is a problem but on the potential for one to be….

…Regulation is not just about stopping proven past behaviours from repeating but also about preventing anticipated breaches based on experience elsewhere or common sense. Likewise regulations need not be limited to just preventing certain noise during certain hours but may in principle act to eliminate the source of some potential problems altogether. The response must be appropriate but there is no need to wait until a problem has actually manifested before addressing it.”

The Magistrate looked abroad to other ways that laws are made to mitigate the risk of problems occurring, even if there is no guarantee that the problem will in fact occur:

“A simple example from the traffic laws illustrates the regulatory response to some problems can be aimed at certainty and ease of enforcement rather than a case-by-case nuanced application of a broader law. Not all drivers at 0.05% BAC will be affected the same way. But it is having that concentration in the blood that is made an offence, not driving badly. Parliament targets the risk that the use of the road by such persons is best regulated by keeping them off the road.”

Parliament gave bodies corporate the power to make by-laws for good reason: local, state and federal governments do not want to decide what the pool opening and closing hours will be for a particular strata community.  It’s a matter that lot owners can decide upon amongst themselves.

That is why bodies corporate are regularly referred to as the fourth tier of government.  A body corporate is responsible for the management and administration of the lots and common property within their community, and they are given the power to make by-laws to discharge that responsibility effectively.

Lessons to be learnt

One of my biggest criticisms of the BCCMA is the way in which it gave bodies corporate the power to make by-laws with one hand, but then with the other hand seemingly ‘watered down’ that power by imposing so many restrictions on what a by-law cannot do.[1]

This has been compounded by more than two decades of adjudications out of the Commissioner’s Office in which a decision-maker that has never visited the strata community, let alone made the significant decision to purchase or reside in a lot within that community, deciding whether the by-law is reasonable.

If an overwhelming majority of voters decide to impose a particular by-law upon their community, why should adjudicators, referees or a minority of owners be empowered to invalidate it?  The circumstances should be very limited.

Bodies corporate should be able to make by-laws to set and enforce the values, expectations and rules that the majority consider to be appropriate to properly define their community.  The Magistrate made these salient comments:

“In principle there is no reason why a group of people could not set up a highly regulated small community in a way that made it attractive to themselves or likeminded purchasers.

A group of allergy suffers might want to establish a community in which certain plants or animals are prohibited. The ability of a community to govern itself (requiring a 75% majority) would enable the benefits of group titles to extend beyond simply being small lots that share common property.”

Where to from here?

This decision is still within the period in which it could be appealed.  But irrespective of whether it is appealed, the Magistrate’s robust decision should influence how referees, adjudicators and strata communities view the power to make by-laws and the limited circumstances in which they should be invalidated.

This case has so far turned on the considered way Fairway Island crafted the by-law that was ultimately challenged, and the purpose the by-law was intended to serve.  This was not a body corporate that commissioned a law firm to cheaply provide it with a by-law from a suite of precedents in the hope that what was seemingly suitable for hundreds of other communities might be suitable for theirs.

This considered approach to managing a unique strata community stands as best practice within the industry.  It also reflects one of our core values: we want to help create and foster harmonious communities, even though it will not always be smooth sailing.  Please watch this video if you would like to learn more on this: https://gracelawyers.com.au/what-is-strata/

[1] For example, see section 180 of the BCCMA: a by-law cannot restrict the type of residential use of a lot, it cannot discriminate between types of occupiers, it cannot impose a monetary liability on owners or occupiers, and it cannot be oppressive or unreasonable.