New South Wales Supreme Court CITATION : Shean v Strata Scheme Board [2000] NSWSC 526 CURRENT JURISDICTION: Common Law FILE NUMBER(S) : SC 12747 of 1999 HEARING DATE(S) : 18 May, 31 May and 1 June 2000. JUDGMENT DATE : 14 June 2000 Michael Frederick Shean and Nicolette Annette Voss (Plaintiffs) v Strata Scheme Board of New South Wales (First Defendant) Toni Fitzgerald (Second Defendant) Colin Chapman (Third Defendant) PARTIES : Warren Hannerman (Fourth Defendant) Brian Withers (Fifth Defendant) Paul Kozub (Sixth Defendant) Jane Hall (Seventh Defendant) Michael Stevens (Eighth Defendant) Owners Corporation SP14452 (Ninth Defendant) JUDGMENT OF : Master Malpass LOWER COURT Strata Scheme Board of New South Wales JURISDICTION : LOWER COURT SB 99/197; SB 99/208 and SB 99/209 FILE NUMBER(S) : LOWER COURT Mr Cochrane JUDICIAL OFFICER : Mr P W Larkin (Plaintiffs) N/A (First Defendant) COUNSEL : Mr M D Young (Second to Seventh Defendants) N/A (Eighth Defendant) N/A (Ninth Defendant) Horowitz & Bilinsky (Plaintiffs) I V Knight - Crown Solicitor - Submitting appearance (First Defendant) SOLICITORS : David Le Page (Second to Seventh Defendants) N/A ( Eighth Defendant) Haylen McKenzie - Submitting appearance - (Ninth Defendant) CATCHWORDS : Appeal against orders of the Board - purported appointment of strata managing agent with full powers and functions not exercisable by any other person (not on application) in appeal from adjudicator - interested parties not involved in appeal - procedural fairness, notice and opportunity to be heard not given. Strata Schemes Management Act 1996, ch 2 Pt 1, LEGISLATION CITED : S 8; Pt 2; Pt 3, s 21, 22 and 23; Pt 4, ; ch 5 Pt 1; Pt 3; Pt 4, s 162, s 162 (3), s 162 (7), Div 12, s 181; Pt 5, Div 3, s 200, s 200 (5) (d). CASES CITED : N/A DECISION : See orders paragraph 52- 53. THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER MALPASS WEDNESDAY 14 JUNE 2000 12747 of 1999 MICHAEL FREDERICK SHEAN & ANOR v STRATA SCHEME BOARD OF NEW SOUTH WALES & ORS JUDGMENT 1 Strata Plan No. 14452 comprises inter alia 24 lots. It is located in Rosebank Street, Darlinghurst. It has been a fertile area for disputation and legal process. 2 These proceedings arise out of what was done by the Strata Schemes Board of New South Wales (the Board). The Board is the first defendant in these proceedings and it has become a submitting party. The second to seventh defendants are lot owners and have been described during the proceedings as the balcony owners. The eighth defendant was then the Chairman of the Owners Corporation SP 14452 (the Owners Corporation). It is the ninth defendant. Both the eighth and ninth defendants are also submitting parties. 3 It is unnecessary to become too deeply enmeshed in the detail of past disputes and litigation. It suffices to say that there were applications brought before the Adjudicator. There was an application brought in the name of the Owners Corporation (it was in fact brought by the eighth defendant). There was an application brought by the second and third defendants. Orders made by the Adjudicator went on appeal to the Board. 4 The Adjudicator made an order for an exclusive use by-law in favour of the second and third defendants. An appeal was brought against this order in the name of the Owners Corporation by the eighth defendant (SB 99/197). An order was made against the balcony owners for the demolition of balconies. An appeal was brought against this order by the balcony owners (SB 99/208). The Adjudicator had refused to make an exclusive use by-law in respect of the balconies. An appeal against this order was brought by the balcony owners (SB 99/209). 5 The matters in dispute which came before the Adjudicator and then the Board related to issues which have been described as relating to the Lot 22 works by-law and that of the balconies. The Adjudicator dealt with these matters on the basis that Mr Stevens was authorised to act on behalf of the Owners Corporation. During the course of the appeal, the question of his authority came to be agitated. The Board found that he was not properly authorised to either lodge or defend applications on behalf of the ninth defendant. It determined to proceed on the basis that they were either lodged or defended by him personally. The balcony owners had success in each of the appeals. Apart from orders made in relation to the appeals, orders were made in relation to the appointment of a managing agent (the orders). 6 At this stage it is convenient to further look at the circumstances which led to the making of the orders. It was not a matter raised by the parties to the appeal. It was in fact raised by Mr Cochrane (who sat as the Board). There is dispute between the parties as to whether or not it became the subject of a motion by the balcony owners. It was the subject of scant attention. There were two occasions on which it was raised (on one of them it was raised by Mr Cochrane). I shall set out the two passages in the transcript of proceedings before the Board which record the extent of the attention that was given to the matter. 7 At page 73, the following was recorded:- "COCHRANE:………………I would also like to hear your submission on whether the provisions of Section 162 are alive for the Board. That is the appointment of a strata managing agent. YOUNG: This one is slightly out of left field. I will take that." (Mr Young was the counsel appearing for the balcony owners). 8 At pp 98-99, the following is recorded:- "YOUNG: …………..Would it be in order - Mr LePage has some thoughts on Section 162 and if he just briefly put those? COCHRANE: Mr Stevens, any objection to that? STEVENS: No sir. COCHRANE: Mr LePage? LE PAGE: Thank you sir. Sub section three of 162 allows the adjudicator to appoint a managing agent in the absence of an application. In its terms it is confined to the adjudicator rather than the Board. I looked through the provisions of the Act sir to see if anywhere that jurisdiction could be assigned to you as it were. Under Section 181 sub section (3) you can on an appeal substitute your own order for the order appeal (sic) against, however the terms of the section would suggest that you may do so for the purpose of determining an appeal. Determining the appeal so perhaps that is not relevant in a case such as this one. Section 187 allows you to make an order under one provision although the application was made under another provision that you think inappropriate. But that section I think goes to the inappropriateness of the provision rather than the inappropriateness of the order. So that is probably not relevant in this case either. And Section 188 gives you certain ancillary and consequential powers which perhaps are not relevant. So sir, the only thing that occurred to me certainly if you were disposed to look at that type of relief, would be for you to make the order as an adjudicator following your investigation of this matter as the Board. You could change hats as it were. But certainly in our submission sir it would be a most beneficial event for a managing agent to be appointed for the reasons I think have been made abundantly clear." 9 The eighth defendant is a retired solicitor. He appeared in person before the Board. Mr Young of counsel appeared for the balcony owners. He was instructed by Mr Le Page. There were no other appearances before the Board. Five of the seven members of the Executive Committee were present during the hearing. 10 What is recorded at pp. 98-99 took place shortly before the conclusion of the hearing of the appeals. This took place on Thursday 2 September 1999. 11 The following was said between then and when the hearing concluded:- "COCHRANE: Thank you. Anything else gentlemen? Nothing. That concludes this matter then apart from the decision. I will try and endeavour with the greatest effort to give a decision to you as quickly as possible. I had hoped that it would be within two weeks. Looks now like it will be within this month, not within two weeks. Some other commitments have come up. But it will be within this month, that is the best I can do I am afraid because of other commitments. All right, thank you." No further hearing took place thereafter. 12 It is common ground that prior to 7 September 1999 the ninth defendant had not passed any motion authorising the eighth defendant to bring and defend applications in its name. Further, it is common ground that such a motion was required to give him that authority. 13 On 26 August 1999, the eighth defendant set in motion the process which led to the holding of a meeting on 7 September 1999. On that day a motion was passed (purporting to retrospectively give him the necessary authority (Exhibit 4) ). 14 This motion was not brought to the attention of the Board. No attempt was made to re-open the hearing. 15 Following the conclusion of the hearing of the appeal, the Board communicated with various managing agents advising that it was going to appoint a strata managing agent with full powers for a period of twelve months. The agents were asked to indicate consent to the appointment. The first approach was made to the then managing agents (Clisdells). There was a telephone call and a letter in late September 1999. Clisdells advised that they did not consent to such an appointment. 16 Following the contact made by the Board with Clisdells, the second plaintiff became aware of the proposed order and wrote a letter to the Board. A copy of that letter is an annexure to her affidavit. It seeks to advance reasons for not making the order. 17 The Reasons for Decision of the Board in the respect of the appeals are dated 12 October 1999. There is nothing in the reasons which suggests that regard was had to the contents of the letter (from the second plaintiff). The reasons record that the dispatch of the decision was delayed because of efforts to find a managing agent who would accept the appointment. It took some time to get an affirmative response. Ultimately, one was received from Mr McCormack. 18 The reasons contain inter alia the following:- "Mr Stevens in his capacity as Chairperson has behaved in such a way that I feel required to make an order under section 162(3) of the Act appointing a strata managing agent with full powers on the basis that the management structure of this strata scheme is not functioning satisfactorily. The effect of such appointment is that for the duration of the appointment the powers given to the strata managing agent are beyond those given in a delegation. The functions given to the agent cannot be exercised by any other person. [Section 32 of the Strata Schemes Management Act 1996]". 19 The orders were made on 5 November 1999. The eighth defendant tendered his resignation from the Executive Committee on 18 November 1999. 20 These proceedings were commenced by Summons filed on 10 November 1999. The plaintiffs seek to disturb the determinations made in each of the appeals (including the orders made by the Board in relation to the appointment of Mr McCormack as managing agent). The plaintiffs are lot owners. Both were members of the Executive Committee of the Owners Corporation at the time of the making of the orders. The second plaintiff was the secretary of the executive committee. 21 The grounds relied on are:- "1. The Board had no power to order the appointment of a managing agent to exercise all the functions of the Owners Corporation SP14452 ('the Owners Corporation') nor did it have power to order the appointment of a managing agent to exercise all of the functions of the Chairperson, Secretary, Treasurer and Executive Committee of the Owner's Corporation. 2. Alternatively, the Plaintiffs and the other members of the Executive Committee of the Owners Corporation (other than Mr Stevens) were denied procedural fairness in that they were not afforded an opportunity to be heard before the Board purported to make an order preventing them from exercising the functions of their offices. 3. The Board (Mr Cochrane) acted in a manner likely to give rise to a reasonable apprehension of bias, in that, after the conclusion of the hearing of the Proceedings Below, and without informing the Plaintiffs or any party to the Proceedings Below, the Board initiated and received ex parte communications relevant to the matters at issue in the Proceedings Below. 4. The Plaintiffs were denied procedural fairness in that they were not provided with an opportunity to be heard in relation to the matters the subject of the ex parte communications referred to in the preceding ground of appeal." 22 The hearing took place on 18 May 2000, 31 May 2000 and 1 June 2000. The plaintiffs have read a number of affidavits. The second to seventh defendants have read an affidavit sworn by the second defendant. There has been cross-examination of deponents (the plaintiffs and Volli Peacock). A considerable volume of documentation has been tendered (including the transcript, of the proceedings before the Board and the reasons). 23 At this stage it may also be convenient to briefly look at the scheme provided by the Strata Schemes Management Act 1996 (the Act). In substance, the objects of the Act are expressed to be to provide for the management of strata schemes and for the resolution of disputes arising in connection with the management of such schemes. 24 In Chapter 2 Part 1, Section 8 makes provision for the establishment of an owners corporation (on the registration of a strata plan for a strata scheme) and gives it the principal responsibility for the management of the scheme. Part 2 makes provision for the lot owners from time to time to constitute a body corporate and for functions and procedure of an owners corporation. Part 3 makes provision for the appointment of an executive committee of the owners corporation. This committee is required to appoint a chairperson, secretary and treasurer. Section 21 provides that a decision of an executive committee is taken to be a decision of the owners corporation. Sections 22 and 23 make provision for the functions of the secretary and the treasurer. 25 Part 4 makes provision for the appointment of a strata managing agent. It sets out the functions of the agent. 26 Chapter 5 deals with disputes and orders of adjudicators and the Board. Part 1 thereof deals with the making of an application for an order to resolve an issue relating to the strata scheme. Part 3 prescribes the procedure to be followed by the Registrar after he receives an application. Part 4 sets out the powers had by an adjudicator. The powers inter alia enable the making of an order appointing a strata managing agent (s 162). Sub-section 3 is headed "Order may be made without application in special circumstances". An order under the section may be made "whether or not on application" but only if the Adjudicator is satisfied that the management structure of the strata scheme is not functioning or is not functioning satisfactorily. Sub-section 7 identifies who may make an application. Division 12 deals with appeals against orders made by an adjudicator. 27 The relevant provisions relating to the Board may be found in Part 5 of Chapter 5. There is no express power to appoint a managing agent. Division 3 of that Part 5 enables the bringing of an appeal against an order of the Board on a question of law (s 200). These proceedings are brought pursuant to that section. The plaintiffs rely on sub-section 5 (d) (a person required to do or refrain from doing any act by the order) to give the locus standi to bring this appeal. 28 The claim for relief in the Summons is drafted in terms which contemplate an attack against the whole of the determination by the Board. The grounds of appeal could be read as having the orders as the principal target of the plaintiffs' attack. In fact, it became clear that the seeking of this relief was viewed largely as a vehicle to enable the plaintiffs to proceed further and attack the other orders made by the Board. The approach taken by the balcony owners is that they do not wish to be heard on the appeal in so far as it concerns the orders (see inter alia Exhibit 10). Their concern is to protect the other orders made by the Board. Submissions were made on the appeal concerning the orders to the extent that it was thought necessary to protect the other orders. 29 I shall first deal with that part of the appeal which concerns the orders. These orders were expressed to be operative for a twelve month period. A significant part of that twelve month period has now elapsed. The court has been informed that Hidden J has reserved judgment on the question of whether or not there is a stay on the orders. 30 At the commencement of the hearing, it appeared that the question of locus standi was an issue. This did not materialise and it was neglected during argument. The plaintiffs' challenge proceeded on three number of bases. Firstly, it is said that the Board had no power to make the order. Secondly, it is said that if it did have power it did not follow the prescribed procedures for the making of an application. Thirdly, it is said that there was a failure to afford procedural fairness to the Owners Corporation and the other lot owners not involved in the appeal. 31 There has been extensive argument in relation to all of the orders made by the Board (both in writing and orally). I indicated during the plaintiffs' reply that I had come to the view that the orders were unsustainable and that I was satisfied that they should be set aside. It was common ground that little purpose would be served by sending this part of the matter back to the Board for re-determination. Accordingly, the parties assented to the course of simply setting aside the orders. I shall now briefly refer to some of the matters which led me to that decision. 32 The first contentious matter dealt with in the reasons is that which was described as "Jurisdiction: Locus Standi". It was decided that the eighth defendant had not been authorised to either lodge or defend proceedings before the Adjudicator on behalf of the ninth defendant. The reasons record that the Board proceeded to deal with the appeals on the basis that the relevant parties were the balcony owners and the eighth defendant. Nothing was done to either reconstitute the proceedings or to give notice to other interested persons. In these circumstances, neither the ninth defendant nor many lot owners were involved in the applications/appeals. 33 In that part of the reasons which can be found under the heading "Jurisdiction: Locus Standi", Mr Cochrane moved on to deal with the matter of an order under s 162 (3) of the Act. Subsequently he dealt with inter alia matters under the headings "The lot 22 by-law" and "The order for demolition of the Balconies and the Balconies By-law". 34 The matter of an order under s 162 (3) was not an issue raised in either any of the applications or in any of the appeals before the Board. To the extent that the matter was agitated in the appeal, it can only be said that the Board moved of its own motion (I do not accept the contention that it was on the application of the balcony owners). It did so in a manner which brought about a denial of natural justice. There was an extraordinary disregard for the requirements of procedural fairness. 35 The transcript conveys the impression that during the course of the hearing the Board of itself came to the view that an order should be made, if it had jurisdiction to do so. The reasons suggest that Mr Cochrane was of the view that the eighth defendant had brought about what he described as "the current schism" and that it was untenable that he now hold the position of chairman. Mr Cochrane observed that "Things really are in an awful mess at Rosebank". The reasons also express an observation that he felt required to make an order. This seemed to flow from his views as to the behaviour of the eighth defendant as chairman. 36 The reasons contain the following:- "The issue of such an order was raised at the hearing of the appeals and submissions made accordingly". 37 It may be benignly said that this was a rather coy statement as to the "raising" of the issue. If it was intended to suggest that the matter had been the subject of full submissions, the comment is blatantly erroneous. 38 The reasons do not in any way impugn the conduct of the then managing agents. Before the delivery of judgment, Clisdells were asked to accept an appointment in terms of the proposed order. It may be added that it is curious that Mr Cochrane chose to take away the concurrent functions of the Owners Corporation, the Executive Committee and of the office holders, when his complaint seems to have been with the then chairman. 39 The matter of the making of an order under the section was at best but briefly raised. It was raised only by general reference to the section itself and the appointment of a strata managing agent. The actual order had in mind was not spelt out. The section in fact enables the making of a variety of orders. What was in fact raised may be seen as little more than a call for assistance on the question of whether or not the Board had jurisdiction under s 162 to make an order (by way of calling upon Mr Young to make a submission). Mr Young was clearly caught by surprise. The eighth defendant was not asked to make any submission. 40 The transcript conveys the impression that the balcony owners later embraced the prospect of an order being made. This would appear from what was said by Mr Le Page. However, for completeness, I should observe that during the course of this appeal it has been said by Mr Young that Mr Le Page was merely addressing as amicus curiae. 41 Whatever be the position, no other interested party was given an opportunity to address either on the merits of the making of an order or as to the nature of the order. The orders that were made were orders that could be expected to have financial and other consequences for all lot owners. They take away functions exercisable by the Owners Corporation, the Executive Committee and holders of office. The Executive Committee had been elected by the lot owners to perform functions under the Act. There are many lot owners (there are twenty four lots). Some of them were referred to as the independents. There were lot owners (including the independents) who had no involvement in the proceedings before the Board. 42 There was some debate on the question of whether the procedural fairness requirements had application in these circumstances. In my view, in the light of the Statute itself and other matters, they have application. 43 The findings that have so far been made in relation to this matter are sufficient to dispose of that part of the appeal. Accordingly, it is unnecessary to pursue the questions of whether or not the Board had power to make an order in relation to the managing agents and whether or not prescribed procedures should have been followed. 44 The express power to make such an order is only given to adjudicators. There was evidence that Mr Cochrane was an adjudicator himself. However, the order was made whilst he was sitting as the Board and hearing an appeal in respect of applications in which no such matter had been raised by the parties. It may be that the prescribed procedures which relate to an application do not operate where the order is not made on application. However, this does not mean that an adjudicator can disregard the requirements of procedural fairness. For present purposes I put aside circumstances where there may be great urgency and justice may require very short term relief. Interested parties should be entitled to expect both notice and an opportunity to be heard. 45 I may add that it appears that provisions of s 181 were looked to in an endeavour to justify what was done by the Board. In my view, they do not give support to what was done. 46 I shall now proceed to deal with the other relief sought by the plaintiffs. I have already mentioned the grounds on which the appeal is brought. No attempt has been made to amend those grounds. Accordingly, the plaintiffs are restricted to those four grounds. Grounds one and two are not material to the remaining questions. The plaintiffs are left to rely on what is raised by grounds three and four. Particulars of these grounds may be found in Exhibit 6. These grounds raise two matters only. One is reasonable apprehension of bias. The other is denial of procedural fairness. It is not put that there was any error of law in the relevant findings. 47 Grounds three and four are temporally restricted to what happened following the conclusion of the hearing. The relevant activities (the initiation and receiving of ex parte communications with various managing agents by the Board) had as their subject the finding of a managing agent who would accept the proposed appointment. This would enable him to be named in the orders. The activities themselves had relevance only to the matter of the orders. Many of the communications took place after publication of the reasons. Some of them (including the communications with Clisdells) took place before that time. The communications reveal that the Board was disclosing to agents that it had made a decision and was seeking consent to an appointment. 48 The communications lack relevance to the issues involved in the lot 22 by-law and balcony matters. Further, although they fall well short of due process, I am not satisfied that the communications throw up any apprehension of impartiality, prejudice or prejudgment in respect of any of those issues or otherwise 49 Ground three seeks to agitate the matter of reasonable apprehension of bias. The attention of the court has been directed to the usual cases cited on the topic of the reasonable apprehension test. For present purposes it is unnecessary to cite those cases. It suffices to say that I do not accept that the Board has acted in a manner likely to give rise to a reasonable apprehension of bias. 50 Ground four seeks to agitate a matter of procedural fairness in relation to the "Ex Parte communications". The identity of the strata managing agent is a matter of interest to lot owners. Although it has not been fully argued, I presently prefer the view that the identity of the managing agent to be appointed is also a matter on which interested persons were entitled to be heard. However, that can only demonstrate further error in relation to the orders and provide further reason for their setting aside. I do not accept that what was done assists the plaintiff in attacking the other orders made by the Board. 51 For completeness, I should mention one further matter. In argument it was put on behalf of the plaintiffs that the question of the managing agent had been dealt with before the Board had proceeded to deal with the lot 22 by-law and balcony matters. One of the submissions put was that because of what happened in relation to that matter, Mr Cochrane should have disqualified himself before proceeding any further and dealing with those other matters. It was an argument that was not fully ventilated and I am not satisfied that it was of any assistance in the circumstances of this case. 52 I set aside the orders made on 5 November 1999. Save as to questions of costs, I refuse the other relief sought in the Summons. The parties have foreshadowed substantial argument on questions of costs. I have been asked to reserve all questions of costs and I make such order. 53 The Exhibits may be returned. ********** Last Modified: 09/26/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.