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Supreme Court 28 June 2011

Thoo v The Owners Strata Plan No. 50276

[2011] NSWSC 657

Other
REAL PROPERTY STRATA AND RELATED TITLES AND OCCUPANCY

Citation: Thoo v The Owners Strata Plan No. 50276 [2011] NSWSC 657
Court: Supreme Court of New South Wales
Date: 28 June 2011
Judge(s): Slattery J

Background

The Hunter Connection is a mixed-use building near Hunter and George Streets in Sydney, comprising a freehold strata scheme of 58 lots across five floors. The plaintiff, a lot owner, held several lots including Lot 17 in the basement level, which he wished to redevelop for use by food retailers. Under health and safety regulations, any such use required an adequate exhaust ventilation system to extract cooking fumes.

The building's exhaust ventilation system was housed in the common property and had been the subject of earlier litigation. Following a 2004 Supreme Court decision requiring the owners corporation to connect a food court owner's lots to the system (Lin v Owners SP 50276), the owners corporation upgraded the system in 2005. By 2007, however, the combined system again lacked sufficient spare capacity to meet the lot owner's request for a guaranteed supply of 3,600 litres per second (l/s). The owners corporation offered to allow connection, but estimated only approximately 620 l/s would be available to the lot, and declined to guarantee any particular level.

The lot owner commenced proceedings in March 2008, claiming the owners corporation was in breach of its duty under section 62 of the Strata Schemes Management Act 1996 (the Management Act) to maintain, renew and replace common property fixtures. The owners corporation defended on several grounds, including that a special resolution passed at its 2009 Annual General Meeting exempted the exhaust ventilation system from the section 62 duty, and that 2004 legislative amendments had modified that duty.

  • Whether the owners corporation was required under Management Act s 62 to upgrade the exhaust ventilation system to provide a reasonable level of capacity to Lot 17.
  • Whether offering connection at only 620 l/s while refusing to guarantee any particular level of exhaust ventilation constituted a breach of ss 62(1) and (2).
  • Whether a special resolution passed at the 2009 AGM validly exempted the exhaust ventilation system from the s 62 duty under s 62(3).
  • Whether, if otherwise validly passed, the special resolution constituted a fraud on the minority of lot owners.
  • Whether the 2004 legislative amendments (introducing s 65A) reduced the owners corporation's obligations to upgrade common property.
  • Whether the lot owner had suffered any recoverable loss as a result of any breach.

Decision

The Court held that the owners corporation owed a duty under Management Act s 62 to provide a reasonable level of exhaust ventilation capacity from the common property system to Lot 17. The 620 l/s effectively on offer did not constitute a reasonable level of exhaust ventilation capacity for that lot, whereas 3,600 l/s was found to be a reasonable level. The owners corporation had therefore been in breach of its duty to Lot 17 from approximately 1 December 2007.

On the special resolution, the Court found that Resolution 7 passed at the 5 August 2009 AGM was invalid, null and void. The resolution failed to comply with the procedural and substantive requirements of s 62(3), which sets out specific conditions an owners corporation must satisfy before it can exempt property from the s 62 duty. The 2004 legislative amendments and the introduction of s 65A did not eliminate or sufficiently modify the existing duty under s 62 in the circumstances of this case.

The Court also considered, without it being strictly necessary to decide, whether the 2009 AGM resolution constituted a fraud on the minority of lot owners. Slattery J concluded it would also have been invalidated on that basis, noting the resolution would have left Dr Thoo and others in a position analogous to lot owners whose access to a basic building service had been arbitrarily curtailed by the majority.

On the question of loss, the Court declined to make a final determination on damages at this stage. Instead, it directed the parties to consult with a view to agreeing on the form of an inquiry into damages arising from the breaches found.

Orders Made

  • A declaration that the owners corporation has a duty under Management Act s 62 to provide reasonable exhaust ventilation capacity from the common property system to Lot 17, and that 620 l/s does not meet that standard while 3,600 l/s does.
  • A finding that the owners corporation has been in breach of that duty since approximately 1 December 2007.
  • An order that an inquiry be conducted as to the damage, if any, suffered by the lot owner as a result of the breach.
  • A finding that Resolution 7 of the 5 August 2009 AGM was invalid, null and void.
  • Directions that parties consult on the form of the inquiry as to damages and bring in short minutes of order to give effect to the reasons.
  • Costs to follow the event, subject to any special submissions from the parties.

Key Takeaways

  • Under Management Act s 62, an owners corporation's duty to maintain, renew and replace common property extends to providing a reasonable level of service capacity from a shared building system, not merely to permitting physical connection to that system.
  • A special resolution purporting to exempt property from the s 62 duty under s 62(3) must strictly comply with the statutory requirements; failure to do so renders the resolution invalid, null and void.
  • The doctrine of fraud on the minority, drawn from general corporate law principles including Gambotto v WCP Limited (1995) 182 CLR 432, has potential application to special resolutions in strata schemes where a majority exercises its power in a way that oppressively strips a minority of access to a fundamental building service.
  • The 2004 amendments to the Management Act, which introduced s 65A relating to improvements and enhancements to common property, did not, in this case, displace or materially reduce the baseline duty under s 62 to maintain and replace existing common property infrastructure.
  • Where a breach of s 62 is established but the quantum of loss is unclear, the Supreme Court may order a separate inquiry into damages rather than resolving the question at the primary hearing.

Legislation and Cases Referenced

Legislation
- Strata Schemes Management Act 1996 (NSW), ss 62, 62(1), 62(2), 62(3), 65A
- Strata Schemes Management Amendment Act 2004 (NSW)
- Strata Schemes (Freehold Development) Act 1973 (NSW)
- Conveyancing (Strata Titles) Act 1961 (NSW)

Cases
- Lin & Anor v The Owners - Strata Plan No 50276 (2004) 11 BPR 21,463
- Gambotto v WCP Limited (1995) 182 CLR 432
- Heydon v NRMA Limited & Ors (2000) 51 NSWLR 1
- Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449
- Carre v Owners Corporation - Strata Plan 53020 (2003) 58 NSWLR 302
- Houghton v Immer (No. 155) Pty Ltd (1997) 44 NSWLR 46
- Owners - Strata Plan 43551 v Walter Construction Group Ltd (2004) 62 NSWLR 169
- Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157
- Lubrano v Proprietors of Strata Plan No 4038 (1993) 6 BPR 13,308
- Northwind Pty Ltd v The Proprietors - Strata Plan No. 3143 (1981) 2 NSWLR 809
- Eventang Development (Pyrmont) Pty Limited v Owners Strata Plan 51573 [2001] NSWSC 452
- British Equitable Assurance Co Ltd v Baily [1906] AC 35