Tag Archive for: litigation

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.

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…

Resilience and dispute management

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Recently, I attended the SCA National Conference in Hobart where I spoke about the importance of not only growing resilience in yourself but also teaching resilience in the workplace so that it becomes a fabric of the business and the way that we service our clients.
Resilience to me broadly covers 3 elements:

  1. Resilience in yourself. Do you go the extra mile to get a result?
  2. Resilience in your business. Do you have all the robust systems and procedures, checks and balances?
  3. Resilience in your staff. Do you look for that X factor in your staff or do you just fill vacant positions.

As the strata and community industry has grown and matured, so have the issues that we as an industry deal with become more complex and the types of dispute and dispute resolution processes become more convoluted.
As strata managers are involved more and more in tribunal matters, planning law disputes, mediations and insurance disputes, you are also taking on more risk.  Some of the opportunities for strata managers are:

  • Time recording – find out what you spend time on
  • Debt collection is a good teacher – step by step.  Learn to do your business in stages
  • In litigation, do you charge for:
    • Preparing witness statements
    • Attending hearings
    • Drafting correspondence
    • Going on site
    • Dealing with the lawyer
  • In the office
    • What additional things do you do to reduce stress in the office
    • What training is there to assist
    • Value the time of people and your own – what are you doing to be better
    • How do you get emotional composure and stress management – you need to teach it
    • Train in problem solving and change “readiness”
    • Look for tenacity and persistence in staff
    • Physical health and food health
    • Do not compromise on governance and accountability
    • In essence what coping mechanism do you have for your business and your staff – your responsible for them both
    • Shoot the dogs (a great book) – if they can’t make it don’t be shy

As you are more involved in disputes on behalf of clients you are also involved in disputes with clients. Everything you do is subject to review by someone. Disputes with clients (and ensuing court proceedings) arise from:

  • Not following instructions
  • Exceeding authority
  • Lack of power and paperwork
  • Mistakes
  • Negligence and fraud

Everyone is good at keeping records of financials and billing, but very few businesses record and assess client disputes and the lost time and resources caused by dealing with such disputes. Failing to do so means that you forego the ability to see the opportunities in your business, manage the risks and determine the skills and training needed.
Did we lose a client? Was this good or bad overall? What could we have done better?
It is essential to implement systems into your business that allow you to see the opportunities and manage risk, but more importantly, you cannot neglect your greatest asset in managing risk, your staff.

Resilience is learned through experience. It is not news to anyone that clients will more than likely be happy if staff are happy. If management is resilient, but your staff are stressed, overworked and unhappy, then clients will be unhappy and the business will never grow.
Here are some systems which Grace Lawyers have implemented to manage risk, ensure that we understand our business to continuously identify opportunities, and permeate resilience as a fabric of our business:

  1. Risk Management
    • Basic skill development of staff
    • Logging all calls
    • Record management:
      1. Emails – do you save every single one?
      2. Categorisation of all correspondence in and out between clients and non clients (general email files)
    • Task management – how are they actioned?
    • Logging internal emails and correspondence
  1. Understanding our business
    • Categorising client and non client tasks
    • Time recording for not only client related tasks but for administration, meetings, training, dispute resolution, debt collection, etc.
    • Analyze all facets of the business
    • Look for opportunities to increase revenue on things you do
    • If they or you can’t do it, question why it is being done at all
    • If staff can’t do it – time for new staff
  1. Teaching resilience
    • improve our staff and ourselves not just in legislation but in how to cope
    • additional things to reduce stress in the office:
      1. Mentoring program for all junior lawyers
      2. Buddy system for all other staff
      3. Flexible work arrangements
      4. Some pets in office from time to time
      5. Supporting charities and getting staff involved
      6. Monthly guest speakers to staff meetings – not just legal topics
      7. Vocalise mental health and physical health/diet
      8. Provision of food and general items
      9. Fun days
      10. Weekly treats

It is proven that if you have a good set of systems and procedures in place with well trained staff who are treated with respect and helped to grow your business will grow quicker that you could imagine.  So, try new things, enjoy what you do and above all have fun.

Can an Owners Corporation include legal costs on an owner ledger? Yes!

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A common question we are asked on the topic of strata levy recovery is whether legal costs for chasing unpaid arrears are payable by owner before the Owners Corporation has obtained a court judgment for them. This question is often followed by another, more practical question, which is “can legal costs be included on an owner ledger?”

In a recent case – in which Grace Lawyers acted for the successful Owners Corporation – the NSW Civil and Administrative Tribunal has vindicated our long-held view that, yes they are, and yes you can!

The decision bucks conventional industry wisdom and has the potential to save Owners Corporation’s thousands of dollars in legal costs by avoiding the long, drawn out Court process.

Background

Almost all Owners Corporations will experience debt recovery litigation at some point. An owner stops paying their levies, interest accrues, and the Owners Corporation has to take action to recover the money it is owed.

Oftentimes these matters end quickly. After a few strident letters, the owner coughs up the money, blaming a change of address or a lazy property agent for the delay.

All good, right? Well, no. Not for the Owners Corporation which has expended the time and costs of chasing the owner for the levies. Costs which the industry will tell you the Owners Corporation must now shoulder. Multiply that by the five or so owners who fall into arrears each quarter, and you have the potential for the Owners Corporation to be wasting hundreds, if not thousands of dollars in legal costs in chasing down levies.

But does an Owners Corporation really have to swallow these costs? The industry position on this has been overwhelming negative. Most take the view that that costs can only be recovered from an owner – or included on an owner ledger – after the Owners Corporation has obtained a court judgment for them.

The reason for this is that section 86(2A) of the Strata Schemes Management Act 2015 (NSW) states that Owners Corporation can only recover a contribution not paid at the end of 1 month after it becomes due and payable, “together with any interest payable on that unpaid contribution and the reasonable expenses (i.e. costs) of the owners corporation incurred in recovering those amounts.”

Because Courts are the only ones capable of determining if expenses are in fact reasonable, conventional wisdom has been that an Owners Corporation must commence legal proceedings to recover costs. Otherwise, a Court could never certify the costs are reasonable and an owner would never become liable to pay them!

This was the view adopted by the Local Court of NSW in The Owners – Strata Plan No 52098 v Khalil [2014] NSWLC 2. This decision is parroted by a number of big industry bodies and pressure is put on strata managers to follow its lead.

Grace Lawyers have never agreed with this view.

The case of Oliveira v The Owners – Strata Plan No 74698

In the case of Oliveira v The Owners – Strata Plan No 74698, an applicant owner sought an order from the Tribunal to remove thousands of dollars in legal costs from an owner ledger. That was said to be on the basis that – you guessed it – the Court had not yet found the costs were reasonable, and so the owner was not yet liable to pay them.

The background to the matter was that the Owners Corporation had obtained a number of default judgments in the Local Court against the owner. Those judgments had recently been set aside. The costs on the owner ledger were therefore no longer “secured” by a court judgment, and had to be removed.

The Owners Corporation opposed the order, arguing the following:

  1. That section 86(2A) of the Act, properly understood, meant that a debt recovery expense is immediately payable by the lot owner at the time it is incurred by the owners corporation, not when the Court enters judgment.

    The costs would not otherwise be a “debt” and the Owners Corporation would not have a cause of action to recover them.

  2. An interpretation of section 86(2A) whereby an Owners Corporation was required to sue an owner just to have Courts rubber-stamp even if the smallest amount of costs, would lead to complete disproportionality of costs and a revolving door of litigation. 

  3. The decision in Khalil was clearly wrong, and was consistent with the heavily criticised position of the Queensland Civil and Administrative Tribunal’s in Body Corporate for Liberty CTS: 27241 v Alotier Pty Ltd, Steward Silver King and Burns [2009] QCCTBCCM 3 (11 February 2009).

    The Liberty decision followed the same logic as Khalil, and had been rejected by numerous courts (and QCAT itself, at a later date) since it was handed down in 2009.

  4. The owner ledger was nothing more than a transaction summary. It was not binding on an owner. If an owner disagreed with its contents, he/she/it could choose not to pay it.

The Tribunal agreed with all of these points. In dismissing the lot owner’s application, the Tribunal expressly declined to follow Khalil and stated that:

It cannot be said that recovery expenses incurred pursuant to s 86 of the SSMA are not owed by a lot owner until they are assessed by a court. Subsection 86(2A) means what it says – recovery action is available to an owners corporation if a levy contribution is not paid at the end of 1 month after it becomes due and payable.

The Tribunal found that any amendment of the owner ledger should occur after the Local Court proceedings had concluded. If the Court found any of the costs included on the ledger were unreasonable, those costs would need to be removed.

What does this mean for Owners Corporations?

The decision is a welcome reprieve for Owners Corporation and strata managers who have stuck to their guns and maintained this position in the face of staunch criticism (including from industry bodies).

Moving forward, strata managers delegated the function of debt recovery should ensure the following practices are implemented:

1. Costs, including lawyer’s invoices and charges pursuant to agency agreements, should be included on the owner ledger.

However, Owners Corporations should remain diligent to ensure payments by owners are not mistakenly applied to costs. Payments must always be allocated in the following matter:

(a) In accordance with the owner’s instructions at the time of payment;

(b) If no instructions are provided, what the Owners Corporation can reasonably infer the payment is for based on the amount and timing of the payment.

For example, if a $1,200.00 payment is received on the date the $1,200.00 March quarterly levies fall due, one can reasonable assume the payment was for this purpose;

(c) If the Owners Corporation cannot infer what the payment is for, based on the Owners Corporation’s policy regarding how payments are to be applied;

(d) If no such policy exists, to the oldest debts first.


2. Costs should always be included in letters of demand. This is extremely important.

If a lot owner pays the outstanding levies and interest only before the issue of a claim to recover levies, interest and costs, the Owners Corporation may lose the ability recover costs.


3. Ledgers should be adjusted following court judgments.

For example, if $1,000.00 in costs is included on an owner ledger but the Court only awards $500.00, the additional $500.00 must be removed.

Strata managers should ensure the ledger is always an accurate reflection of what is owing.

For further information please contact Daniel Radman on 1300 144 436.

A NEW DAWN FOR NON-RESIDENTIAL STRATA SCHEMES IN DEFECTS CASES

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A New Dawn: Owners in non-residential strata schemes have right to recover their share of the cost of common property defects from developers

In a landmark judgment handed down last month, the NSW Court of Appeal has confirmed that owners of lots in non-residential strata schemes can, under certain circumstances, recover from developers their share of the cost to rectify defects in the common property.

The judgment is the biggest development in building defect law since the decision of the High Court of Australia in Brookfield Multiplex Ltd v. Owners Corporation Strata Plan 61288 & Anor (Brookfield), which confirmed that Owners Corporations for non-residential strata schemes could not sue builders to recover the cost of common property defects.

Background

Up until October 2014, the ability of owners to recover the costs of common property defects was set in stone.

For residential strata schemes, an owners corporation had the benefit of statutory warranties under section 18B of the Home Building Act 1989 (NSW) (the HBA). The HBA is a unique part of the law which holds that a number of warranties are “implied” into all contracts for residential building work. Those warranties – which include, for example, a warranty that the work was conducted with due care and skill – were enforceable by owners corporations against a builder and developer.

For non-residential strata schemes, it was generally accepted that an owners corporation could sue a builder under the common law duty of negligence. The process of proving a case in negligence is a bit different to a case for breach of statutory warranties under the HBA, however the net result was the same. That is, an owners corporation could recover the cost of rectifying defects in the common property caused by bad workmanship.

That all changed on 8 October 2014, when the High Court of Australia handed down its judgment in Brookfield.

In Brookfield, the Court made two key findings which meant owners and owners corporations in non-residential strata schemes were seemingly left with no way to recover the cost of rectifying defective common property. Those findings were:

  1. That when defects exist in the common property which the Owners Corporation must rectify, it is the owners, not the Owners Corporation, who suffer a loss.
  2. That builders do not owe a common law duty of care to Owners Corporations, because Owners Corporations are not sufficiently ‘vulnerable’.

Since then, the industry position on this has been bleak, with nearly all non-residential strata schemes choosing to swallow the cost of rectifying defects in the common property.

Until now.

The case in Rialto Sports Pty Limited v Cancer Care Associates Pty Limited; CCA Estates Pty Limited; Davjul Holdings Pty Limited; Armmam Pty Limited [2022] NSWCA 146

In 2018, four lot owners in a commercial strata scheme sued the developer for their share of the cost of rectifying defects in the common property. The cases were the first of their kind in Australia.

Grace Lawyers acted for each lot owner from day one.

The facts of each case were very similar:

  1. Two of the four plaintiffs had bought their lots “off the plan”. Another plaintiff was the assignee of a cause of action to sue (the original suit having been brought by another “off the plan” buyer).eme had been registered. The last plaintiff had bought its lot after the strata scheme had been registered.
  2. The terms of the development consent for the strata scheme included a condition that the development must be carried out in accordance with the provisions of the Building Code of Australia;
  3. Three of the four contracts contained clauses requiring the developer to “cause the construction and completion of the Building in a proper and workmanlike manner in accordance with the Development Consent.” The remaining contract provided for ten specific items of work to carried out by Rialto and its builder prior to completion of the contract.
  4. Various defects existed in the common property which the Owners Corporation was required to rectify. The defects had been valued at several million. However, the Owners Corporation had only raised one special levy – of $660,000.00 – to cover the cost of replacing combustible cladding;
  5. Each owner sued to recover the amount of their contributions toward the entire cost of the defects (not merely the cladding). Those contributions were based on each owner’s respective unit entitlements.

It was common ground that the word “Building” meant the entire building, not merely the lots.

The developer opposed the claims, arguing (among other things) that:

  • the lot owners had no standing to sue the developer, because the owners corporation was the proper plaintiff to bring any claim for damage to common property. This is what is known as the “proper plaintiff rule” in litigation.
  • the claims circumvented the scheme of the Strata Schemes Management Act 2015 (NSW) (the Act), in particular section 106, which confers responsibility upon the owners corporation to maintain and repair the common property, thereby giving a statutory cause of action to lot owners against the owners corporation to compel it to adhere to that duty;
  • the lot owners’ share of the cost to rectify the common property, reflected in statutory levies imposed by the owners corporation under the Act, is not a form of “damages” recoverable by the lot owners. That was because the remedial works had not been done, and the lot owners could never do the works themselves.
  • lot owners may not recover a “reflected” form of loss, being their proportionate share of the loss suffered by the owners corporation for damage to common property, nor is a statutory levy a form of damages recoverable by lot owners.

The lot owners were wholly successful at first instance. The developer appealed to the NSW Court of Appeal.

The NSW Court of Appeal’s Decision

Although the appeal was allowed in part (due to the District Court failing to give sufficient reasons for its decision, the Court of Appeal rejected each of the arguments above, finding as follows:

  • Because the lot owners claim was for breach of contract, the “proper plaintiff’ rule did not apply. Furthermore, because of the High Court’s decision in Brookfield, it could not be suggested that the owners corporation also had a claim against the developer in negligence;
  • It does not matter that the Act confers responsibility on the owners corporation to maintain and repair common property, and gives lot owners the right to compel the owners corporation to adhere to that duty. These things do not negate any personal rights a lot owner may have against a third party for breach of contract, even if that breach involves damage to the common property;
  • Damage to the common property is an infringement of the owner’s proprietary interest in the common property as an equitable tenant in common with other lot owners. The consequence of any such damage is a diminution in the value of the lot owner’s interest in the common property;
  • The lot owners had standing to claim damage for their share of the cost of rectifying damage to common property, because they were ultimately the ones who suffered the loss. That is consistent with what the High Court said in Brookfield;
  • Provided that the remedial work is necessary and reasonable, it does not matter that the owners corporation may never do the works (for the amount claimed by the lot owners or otherwise).

The question is whether a loss is suffered by reason of the breach of contract by the developer.

What this means going forward

For owners of lots in non-residential strata schemes, the decision is a massive boost for consumer protection, finally plugging the gap left by the Brookfield decision in 2014.

For lot owners (particularly “off the plan” buyers) seeking to make similar claims, set out below are a number of vital considerations:

1. What do the contracts say?

This is the starting point in any claim for breach of contract. If the contract for sale does not promise that the common property will be defect free (or something similar), then there can be no claim. That is because the cost of rectifying the defective common property (i.e. the damages) must be characterisable as a breach of the contract.
Other considerations include:

  • Do the contracts say the clauses requiring the delivery of a defect free building merge on completion?
  • Do the contracts have a mandatory dispute resolution clause?
  • Do the contracts limit the vendor’s liability?

2. How do I ensure commerciality?

Speak with your fellow lot owners and band together. Engaging one lawyer to act for all lot owners will be much less expensive.

Consolidating the legal proceedings will also ensure there are not multiple sets of legal proceedings happening at one time.

3. Are their other claims available, other than breach of contract?

Potentially.

It is arguable that the NSW Court of Appeal’s findings could be extrapolated to a claim for misleading and deceptive conduct under the Australian Consumer Law.

Unfortunately the same cannot be said for claims made under the Design and Building Practitioners Act 2020 (NSW), because this act is solely concerned with places where people live (such as serviced apartments).

However, this has yet to be tested.

Grace Lawyers acted for the owners corporation in Brookfield and the successful lot owners in Rialto Sports and are the leaders in strata building & construction disputes.

If you require advice about your particular circumstances or claim, please contact any of our building and construction team Jessica Bates, Daniel Radman or Paul Berrill .

2 Year Limitations on Lot Owner Claims Confirmed

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In a result that is beneficial to owners corporations, the Court of Appeal has overturned the decisions of the NSW Civil and Administrative Tribunal Appeals Panel in Tezel v The Owners – Strata Plan No 74232 relating to the application of the 2 year limitations period for damages claims arising from a breach of the obligation to maintain the common property under Section 106(1) of the Strata Schemes Management Act 2015 (NSW).

The NCAT Appeal Panel had overturned a decision of a Tribunal Member finding that a lot owner is required to commence proceedings within 2 years of becoming aware of a particular type of damage (in that case loss of rent). This is even if the damage continues to accrue over time such that some of the damage is within 2 years. The substance of the Appeal Panel’s decision was that where there was a continuing breach of Section 106(1), the 2 year clock “resets” with every day until the common property is rectified.

In overturning the Appeal Panel decision, the Court found that section 106(6) is a statutory limitation which requires a lot owner to commence proceedings two years after they become aware of a loss. The Court also found that if there is a continuing breach of s106(1) it does not follow that “the loss” occurs on a rolling basis so as to reset the point of first awareness. As such, if the lot owner becomes aware of a loss of rent claim on 1 November 2017, the lot owner has until 1 November 2019 to commence proceedings, contrary to the previous train of thought in the Tribunal, which allowed a lot owner to file the application and then backdate their loss two years from the date of filing. In reaching its conclusion, the Court of Appeal did consider the impact on other lot owners in a strata scheme of a lot owner delaying taking any legal action and potentially running up the value of their claim unnecessarily.

The Court also advised that s 106(4) operates as a qualification on the owners corporation’s obligation to comply with the duty in s 106(1), meaning that if an owners corporation has taken action against an owner or other person in respect of damage to the common property, it may defer compliance with subsection (1) or (2) in relation to the damage to the property until the completion of the action if the failure to comply will not affect the safety of any building, structure or common property in the strata scheme. However, the fact that an owners corporation defers compliance under s 106(4) would not impact upon a lot owner’s entitlement to bring an action under s 106(5).

Overall, the Court of Appeal provided a well-reasoned decision, which has clarified what the relevant “loss” was under s106(5) and also that the lot owner’s clock starts ticking the moment they become aware of the loss.

There will no doubt be future battles over whether the 2-year limitations period can be extended and what is meant by “becoming aware of a loss”. However, overall we consider the Court of Appeal decision to be a welcome rebalancing of the scales in these types of claims against owners corporations.

In light of the Court of Appeal decision, we would recommend the owners corporation does the following to protect its position:

  • As soon as a lot owner makes a demand or it becomes aware of potential lot property damage, obtain from the lot owner or make a record of the damage to the lot property and financial loss claimed, including any allegation the lot is not habitable;
  • In appropriate cases, engage a building consultant to record the lot property damage and send a copy to the lot owner;
  • Seek appropriate legal and expert advice on the owners corporation’s obligations.

Should you wish to discuss this decision further or obtain advice, please do not hesitate to contact Peter Ton from our Sydney office.

Bullying and Harassment in Schemes

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By Colin Grace, Partner – Grace Lawyers Sydney

At the recent SCA Principals Night Off (April) that I attended we discussed the many changes and challenges since COVID 19, including bullying. In Jason Carlson’s articles and seminars about “Keyboards don’t have feelings” an issue that keeps arising is the bullying and harassment of managers by clients, or individuals within schemes.

Bullying and harassment in a scheme can have serious consequences for the affected individuals and the wider community. As we know, schemes are wide and varied and can be residential, commercial, retail, industrial, or mixed-use communities. As management of these schemes is overseen by a committee, it is a difficult task to have a harmonious community all the time. Then adding in the overlay of a manager the issues get interesting…

Unfortunately, incidents of bullying and harassment are not uncommon in schemes across the Country (and probably the world). As lawyers, we see disputes constantly, and assume that managers see it more than anyone, especially the rise of the “keyboard warrior”.

These behaviours can take many forms, including verbal abuse, physical intimidation, exclusion, and cyberbullying. Bullying and harassment can occur between residents, between residents and the committee, or between different members of the committee and finally the manager who can get it from all sides.

The impact of bullying and harassment can be severe. Victims may experience feelings of fear, anxiety, and depression, which can impact their quality of life and mental health. Bullying can also damage relationships between neighbours and create a toxic living environment. Additionally, bullying and harassment can create legal issues, particularly if the behaviour constitutes discrimination or breaches scheme by-laws.

In all States and Territories, schemes are governed by legislation, which sets out the rights and responsibilities of residents and the committee. The legislation also outlines procedures for resolving disputes and addressing breaches of scheme by-laws/management statements. If a resident or owner believes they are being bullied or harassed, they can report the behaviour to the committee or the police if it is a criminal offense.

Naturally, to prevent bullying and harassment, it is important to promote a culture of respect and inclusion. The committee can play a vital role in this by developing clear policies and procedures for dealing with complaints, and ensuring that all residents understand their rights and responsibilities. Communication and transparency are also essential, as residents should be kept informed of any decisions or actions taken by the committee. The problem is that sometimes the committee may be the bully…

Now, all this sounds fine, but what about practical implications?

There seems to be prevalence of schemes being treated as work places. This is irrespective of whether the scheme is the “employer” of various persons conducting work on site or the scheme is a purely residential one. If the scheme employs people, clearly the Fair Work Act 2009 applies to the treatment of those workers – that is a discussion for another day.

Generally, schemes do not directly employ any workers, but instead, enter into a number of contractual relationships with other third-party businesses to provide services (like managing agent, building managers and concierges). In all of the above, each of your building managers, concierges, managing agents, and any other contractors engaged by the schemes will be deemed to be “workers” for the purposes of the Fair Work Act 2009 (Cth) – this is due to the Fair Work Act adopting the broad definition for “workers” contained in the Work Health and Safety Act 2011 (Cth).

This wide definition even covers volunteers and people running businesses from a lot or common property.

However, we may be saved!! Or are we… In the decision [2021] FWC 6575, the Fair Work Commission found an owners corporation was not a “constitutionally covered business” as its principal activities were not of a financial or trading nature and as a result the legislation did not apply –phew… So we are not covered…

So, whilst this helps the schemes from not being the defendant in any claim, a worker can commence legal proceedings and obtain orders against individual owners and/or occupiers in respect to their behaviour (if they were part of the committee, the scheme may be “roped in” in any case by office bearers, insurance in some cases or just being responsible for the legal bills for a defence). This is on the basis that the scheme (and in some instances lot property) is a workplace to the extent that the worker works on the common property.

So, if the committee does behave badly, workers can do something about it. Putting that into a “manager” context. If you are receiving the 100 emails a day from the lot owner (either on behalf of the committee or not) making accusations, claims and bullying, then there are some problems for the scheme, the person doing the bullying and the management company managing the scheme (if you don’t act quickly).

“Bullying at work” is defined broadly and involves repeated behaviour towards a worker or group of workers that creates a risk to health and safety. In relation to the concept of “risk to health and safety”, causing unreasonably stressor affecting the mental health of a worker (including losing sleep) can constitute bullying for the purposes of the Fair Work Act 2009 (Cth).

These are some examples that have resulted in the Fair Work Commission making orders against an individual:

  • An individual repeatedly making belittling or disparaging comments about another lot owner (who owned and operated a retail lot) in emails and at meetings. This included talking over the other lot owner at meetings, accused her of lying or being dishonest, and copying other people into rude or abusive emails.
  • An individual acting in an intimidatory way whilst on the common property, for example letting doors close in the face of an individual as she approached, staring at the individual, and mumbling under his breath.
  • Deliberately and without justification withholding the payment of invoices to cause financial and/or mental distress.
  • Sending multiple emails to a contractor about their work performance, the frequency, tone, timing, and content of which was unreasonable.

What Orders can be made? 

The Fair Work Commission has a very broad power to make orders designed to stop the bullying behaviour.

  • Restricting or stopping altogether any communication or interaction between the persons involved.
  • A requirement that the persons involved agree to a communication protocol/process to ensure communications are conducted in a reasonable and respectful manner at all times.
  • Attendance at anti-bullying training.

If a stop bullying order of the Fair Work Commission is breached, a person can be subject to a monetary penalty of up to 60 penalty units (up to $16,500.00).

What should the schemes do?

The main thing committees and managers need to do is make everyone aware of the implications of bullying and harassment, including that of what constitutes, as it is wider than what most people think. Schemes should have codes of conduct for meetings, emails, written communications, and guidelines for owners to follow. These may even extend to by-laws/management rules. Attending meetings with the SCA Pledge is a great place to start, it opens the conversation around respectful communication and sets the standard for a set of behaviours to be adhered by.

Managers need to be ever vigilant in ensuring that committees and owners/occupiers do not bully or harass their staff and have within their agreement policies that schemes must follow in dealing with their staff.

In conclusion, bullying and harassment in schemes is a serious issue that requires attention by the industry as a whole. By promoting a culture of respect and inclusion, enforcing scheme by-laws, and addressing complaints promptly and effectively, we can create a safe and harmonious living environment for everyone in the community

Beware – Changes to Unfair Contract Terms

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Unfair contract terms (UCT) refer to provisions in a contract that create a significant imbalance between the rights and obligations of the parties, to the detriment of one party. These terms are often found in standard form contracts where one party, usually the larger or more powerful one, dictates the terms without allowing the other party to negotiate or make changes.

In Australia, UCTs are governed by the Australian Consumer Law (ACL), which is a part of the Competition and Consumer Act 2010. The ACL applies to businesses that supply goods or services to consumers.

Under the current UCT regime, if a contract is deemed to contain unfair terms, those terms will be considered void and unenforceable by the court. The rest of the contract, however, will continue to bind the parties if it is capable of operating without the unfair terms.

In determining if a contract term is unfair, the following factors are considered:

  • The term causes a significant imbalance between the parties’ rights and obligations.
  • The term is not reasonably necessary to protect the legitimate interests of the party advantaged by the term.
  • The term would cause detriment (financial or otherwise) to a party if it were applied or relied upon.
Changes to the UCT regime will come into effect nationally from 10 November 2023. These changes are significant, and this date looms large for businesses who must be prepared and aware of the large penalties. The key changes include:
  • UCTs are illegal and attract penalties. Proposing, applying, and relying upon UCTs may attract significant monetary penalties imposed by the courts. Each UCT in a contract is an individual contravention. Previously, UCTs were merely void and unenforceable.
  • Further detail on ‘standard form contracts’. In addition to the existing factors courts may take into consideration when determining if a contract is a ‘standard form contract’, courts must also consider whether the party that prepared the contract has used the same or similar contracts before.
  • Expanded definition of ‘small business’. The UCT regime applies to ‘standard form contracts’ with ‘small businesses’. A ‘small business’ now means a business with 100 employees or less (this has been increased from 20 employees), or a business with an annual turnover of less than $10 million in the previous income year. The expansion of the definition means that more businesses will be protected by the UCT regime.

Industry Update – No Finger Pointing Allowed! NSW Court of Appeal finds that proportionate liability DOES NOT apply to claims under the Design and Building Practitioners Act 2020

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In a massive win for consumer rights in NSW, the Court of Appeal on Wednesday handed down its decision in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301, finding that defendants claims for breach of the statutory duty under section 37 of the Design and Building Practitioners Act 2020 cannot reduce their liability to a plaintiff by deflecting blame to other parties.

In this case, Grace Lawyers on behalf of the Owners Corporation successfully argued that the proportionate liability scheme under Part 4 of the Civil Liability Act 2002 (CLA) did not apply whatsoever to claims for breach of the statutory duty.

The decision is a welcome relief for Owners Corporation’s across NSW – mirroring the protections already afforded to homeowners and owners corporations under the Home Building Act 1989.

 

Why is the decision so significant?

The Pafburn decision is significant because its shuts down what was, until now, believed to be one of the biggest weapons in a defendant’s arsenal in defending claims under the DBP Act – being the proportionate liability scheme under Part 4 of the CLA. That was notwithstanding that s 39 of the DBP Act stated that the duty of care is “non-delegable”.

The proportionate liability regime, in effect, allows a builder/developer to a claim that it was somebody else involved in the construction that is responsible for the damage etc.  What they are doing by naming these other parties – known as “concurrent wrongdoers” – is asking the Court to reduce the amount of damages payable by them to reflect the number of parties who caused that loss, and their degree of culpability. In other words, the defendant is saying “if it’s my fault, it’s not only my fault” and asking the award of damages to reflect that.

For example, in a claim brought by an owners corporation against a builder for $1 million in damages arising from defective waterproofing, the builder might name any of the following parties as concurrent wrongdoers:

  • The waterproofer who performed the work;
  • More arguably, the principal certifying authority who issued an occupation certificate despite the defective work; or
  • Even more arguably, the engineer who prepared the hydraulic blueprint for the building.

This could lead to a situation where the Court, accepting all four parties are responsible to some extent, “apportions” the damages amongst them accordingly.

In a perfect world, the builder, the waterproofer, the certifier and the engineer parties would all be parties to the claim, resulting in the Owners Corporation recovering its $1 million from four different parties (in proportions determined by the Court). Unfortunately, apportionable claims are rarely that simple.

The difficulties created by the proportionate liability regime for plaintiffs (particularly owners corporations) include the following:

  1. The possibility of some parties being insolvent. This is particularly prevalent in modern developments where companies are set up as special purpose vehicles for the duration of a development, before being put into liquidation afterwards
  2. The fact that the plaintiff ‘bears the risk’ of not joining a party to the claim once they have been nominated as a wrongdoer. If the Court finds that a non-party is liable for a portion of the loss claimed, the plaintiff is simply disentitled to that amount. This means that an Owners Corporation, when faced with a proportionate liability defence, is required to make an independent assessment of whether the party can or even should be joined to the claim. This is particularly onerous in the case of owners corporations, who are not privy to the contractual arrangements between parties involved in the building work before its time. As a result, these assessments are often conducted on nothing but the strength of the defendant’s pleading.
  3. Commerciality concerns. Circling back to our example of the owners corporation with the defective waterproofing, let’s say the owners corporation is successful in obtaining $1 million in damages against the defendant waterproofer (who is found 100% liable). The builder, certifier and engineer are found not to be liable to any extent.

That would probably result in the Owners Corporation being hit with costs orders in favour of those successful defendants. Those costs orders, depending on how complex the claim is, could very quickly swallow up the $1 million in damages.

With these issues in mind, it is easy to see why owners have been wary of making of claims under the DBP Act. These risks, coupled with the eye-watering costs of multi-party litigation, can make these claims unattractive and expensive to pursue.

 

The Pafburn Appeal

In the Pafburn matter, the Owners Corporation sued the builder (Pafburn) and the developer (Madarina) alleging breach of the duty of care under s 37 of the DBP Act.

The builder and developer (together, the Defendants) defended the claim by trying to apportion the blame on others (they named 9 others including various subcontractors, the certifier, the architect and the project manager. Many of those parties were companies that had been deregistered. Others could not be joined due to the effluxion of limitation periods.

The Owners Corporation’s claim was simple in theory (but complex in legal terms).  We argued that the duty owed by the builder and developer was “non-delegable”, and hence, the proportionate liability regime did not apply.

The primary judge found that the proportionate liability regime did apply, and allowed the builder and developer to run those defences.

The Owners Corporation appealed the decision.

 

The Appeal

The Court of Appeal allowed the appeal, finding as follows:

  • Section 37 of the DBP Act both extends the scope of the common law duty of care to owners and subsequent owners of land and creates a new cause of action deriving from statute which is to be treated as if it were a cause of action in tort;
  • Section 5Q of the CLA should not be read down to exclude claims under the DBP Act, because doing so would undermine the statutory purpose of the provision. Section 5Q was intended to address the full scope of non-delegable duties. As such, liability for breach of the duty of care under section 37 of the DBP Act was characterisable as “liability in tort” for the purpose of section 5Q of the CLA;
  • The proportionate liability regime under Part 4 of the CLA does not apply to claims for breach of the duty of care under section 37 of the DBP Act. The legislative intention was clear by s 39 of the DBP Act, which makes the duty “non-delegable”. The builder was thus vicariously liable for breaches by concurrent wrongdoers.

As a result of these the Court of Appeal’s findings:

  • A defendant who has breached a non-delegable duty causing loss is liable for the entirety of the loss suffered by the plaintiff flowing from that breach. It cannot ‘offload’ liability onto others at the plaintiff’s expense;
  • Whilst a defendant is entitled to file cross-claim against an alleged concurrent wrongdoer for a contribution, it cannot reduce its own liability to a plaintiff for the whole of the loss suffered. That is an important distinction because it shifts the risk of joining the wrongdoer (or an insolvent party) onto the defendant.

The decision is welcome one – paving the way for owners corporations to continue making claims under the DBP without the uncertainty and cost of the proportionate liability regime involved.

More importantly this decision also marks another win for the 19 lot Owners Corporation who were strong enough to fight for their rights.

Daniel Radman and Sean Turner of Grace Lawyers acted for the successful owners corporation in this appeal, and in the court below.

Are Your Committee Members Vaccinated? Defamation in Strata

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QLD

Parliament introduced a vaccine into the Body Corporate and Community Management Act (Qld) 1997 to protect committee members from civil liability including defamation.

But, these protections are limited, and committee members must act cautiously to avoid exposure to potentially expensive legal action.

General protection

Section 101A gives committee members general protection from civil liability.

This section does not extend to protect a committee member from criminal liability and is conditional on committee members acting in good faith and without negligence.

In St Minivers [2017] QBCCMCmr 352, Adjudicator Rosemann stated:

“…a liability claim against individual committee members would need to establish some element beyond a simple error or oversight. Considerations might include, for example, that the committee members were on notice that they were not entitled to approve the spending and acted despite that, that they knew the majority did not approve the scaffolding, that they personally benefited from the decision, that the conduct was objectively unreasonable in the circumstances, and/or that the Body Corporate or other owners suffered specific harm as a consequence of the decision.”

The person making the claim will bear the onus of proving the committee members acted negligently and in bad faith.

Specific protection

Section 111A gives committee members protection from liability for defamation.

This protection is limited to when a committee publishes required material for a general meeting of the body corporate and that required material contains defamatory matter.

‘Required material’ is defined to include:

  1. a motion (including the substance of a motion) submitted other than by or for the committee for the general meeting;
  2. an explanatory note for such a motion that is prepared by the submitter of that motion.

Notably, the protection does not apply to:

  1. committee meeting material;
  2. general meeting motions submitted by the committee;
  3. all material that may be published by a committee, such as an explanatory schedule prepared by the committee and published with the general meeting material.

Defamation Act

Section 24 of the Defamation Act (Qld) 2005 provides that a defence under that Act (including under the general law) is additional to any defence or exclusion of liability available to a person under other law.

This means that, if defamatory matter is published outside of the limited protections offered by section 111A of the body corporate legislation, there may still be a valid defence to a defamation claim.

Insurance

The insurance for a community titles scheme will generally contain a policy covering office bearer’s liability. However, this policy will generally contain an exclusion from protection for defamation.

This means that if a defamation claim is made against a committee member, the insurer will generally not provide cover for any costs incurred defending that claim.

Can the body corporate pay the costs?

There are statutory restraints regarding how a body corporate may apply its funds.

Paying for costs incurred by a committee member defending (or initiating) a defamation claim are not usually considered costs that fall within the functions of a body corporate.

But, in The Glades-Peninsula [2019] QBCCMCmr 37, Adjudicator Rosemann stated:

“There could conceivably be circumstances where it might be reasonable for a body corporate to pay the legal costs of a committee member arising from actions or omissions taken by them in their capacity as a committee member on behalf of the body corporate. However, I am of the view that such circumstances would be limited. For example, if there was a legal claim relating to actions or omissions that were specifically authorised by the committee or were in accordance with specific statutory obligations, it might be appropriate for a body corporate to indemnify the committee member. However, the mere fact that a person was a committee member at the time that they made comments that another person objected to, or that comments were made in a body corporate meeting, would not be sufficient in my view.”

What should committee members do?

There are less protections available to committee members from defamation under the Body Corporate and Community Management Act (Qld) 1997 than may be first thought.

Many people are surprised to learn how broad the concept of defamatory matter is interpreted by the Courts. Accordingly, great care must be exercised before publishing material (either orally or in writing).

Whether you are a committee member or not, it is important that you seek legal advice before publishing any material that may contain defamatory matter as the risk of doing so may result in exposing yourself to a defamation claim with limited protections under the legislation.

 

Written by Brendan Pitman, Partner, Grace Lawyers