New South Wales Supreme Court CITATION : Owners SP 46528 v Hall [2009] NSWSC 278 HEARING DATE(S) : 01.04.09 JUDGMENT DATE : 17 April 2009 JURISDICTION : Common Law Division JUDGMENT OF : Kirby J (1) The Summons by the plaintiff (the Owners' Corporation) is dismissed. (2) The plaintiff should pay the defendant's costs on the Summons, such costs not to include Senior Counsel. DECISION : (3) The defendant's cross appeal against the order of the Local Court refusing costs is upheld in part. (4) In lieu thereof, the Owners' Corporation should pay the defendant's costs of the Local Court proceedings, such costs to be assessed on an indemnity basis from 23 November 2007. (5) The defendant should also have 75% of his costs on the Cross Summons, such costs not to include Senior Counsel. (6) I order that the defendant, Mr Hall, is exempted from the payment of the costs orders made against the Owners' Corporation in paragraphs (2), (4) and (5) above. CATCHWORDS : CIVIL LAW - appeal against Magistrate's decision - recovery of unpaid levies by Owners' Corportion and legal costs - STATUTORY CONSTRUCTION - operation and effect of s 80D of the Strata Schemes Management Act 1996 and Reg 12C of the Strata Schemes Management Regulation 1997 - effect of non-compliance with s 80D - mandatory or directory provisions - position of unit holders and position of third parties - constitution of Annual General Meeting - failure to comply with notice requirements - whether meeting a nullity - APPEAL - matters about which no ruling made by Magistrate - no appeal in relation to conclusions expressed in obiter - COSTS - general rule - costs follow the event - Magistrate departed from the general rule - interference with discretion of court below - irrelevant considerations - offer of compromise - indemnity costs. Arbitration (Civil Actions) Act 1983 Strata Schemes Management Act 1996 Legal Profession Act 1987 Strata Schemes Management Regulation 1997 LEGISLATION CITED : Uniform Civil Procedure Rules 2005 Local Courts Act 1982 Australian Broadcasting Corporation Act 1983 (Cth) Corporations Act 2001 (Cth) Trade Practices Act 1974 (Cth) Interpretation Act 1987 CATEGORY : Principal judgment Australian Broadcasting Corporation v Redmore Pty Ltd [1989] HCA 15; (1988) 166 CLR 454 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 Zizza v Seymour [1976] 2 NSWLR 135 Conder v Silkbard [1999] NSWCA 459 Master Education Services Pty Ltd v Ketchell [2008] HCA 38: (2008) 82 ALJR 1322 CASES CITED : Attorney General for NSW v Chidgey [2008] NSWCCA 65 House v The King (1936) 55 CLR 499 Eventang Development (Pyrmont) Pty Limited v The Owners Strata Plan 51573 [2001] NSWSC 452 Owners Strata Plan 30695 v Stratacorp [2005] NSWSC 405 Owners of Strata Plan 36131 v Dimitriou [2009] NSWCA 27 Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721 Morgan v Johnson (1998) 44 NSWLR 578 PARTIES : The Owners Strata Plan No 46528 (Pl) John Henry Hall (Def) FILE NUMBER(S) : SC 2008/14682 COUNSEL : D M Bernie (Pl) C M Harris SC (Def) SOLICITORS : E H Tebbutt & Sons (Pl) Francis Commercial Lawyers Pty Ltd (Def) LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 9311/05 LOWER COURT JUDICIAL OFFICER : Curran LCM LOWER COURT DATE OF DECISION : 11.08.08 IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION KIRBY J Friday 17 April 2009 2008/14682 THE OWNERS STRATA PLAN No 46528 v John Henry HALL JUDGMENT 1 KIRBY J: This is an appeal against a Magistrate's decision in a dispute between the Owners of Strata Plan 46528 ("the Owners") and one of the unit holders, Mr John Henry Hall. The appeal by way of Summons has been answered by a Cross Summons issued by Mr Hall. 2 Before going to the Grounds of Appeal and the issues raised by the Cross Summons, let me describe the background to this dispute. Background. 3 Strata Plan 46528 relates to a large city building at 155 King Street, Sydney. The building is on the corner of King and Castlereagh Streets and is known as The Trust Building. There are many unit holders, some commercial premises. Mr Hall was the owner of Lot 11 (unit 1014). He had owned that unit for some time. 4 In the proceedings before the learned Magistrate, both the Owners and Mr Hall relied upon affidavits which annexed many documents setting out the history of their dispute. Some time before 2003, Mr Hall ceased making payments on levy notices received from the agents managing the building. The notices incorporated "standard levies", relating partly to the costs of administration and partly to the sinking fund. In a later affidavit (April 2007), Mr Hall provided his reasons for withholding payment. He said this: (Ex A: p 174) "6. The non-payment of strata fees came about because the strata body did not remedy water entering my unit from the roof of the subject building over an extended period of time. Other unit holders were experiencing similar situations. No attempt was made to remedy the leaks until I defended an action taken through the Local Court for non-payment of strata fees. Then they were remedied during the latter part of 2005." 5 On 16 June 2004 and 21 October 2004, the Owners issued two separate Statements of Claim in the Small Claims Division of the Local Court. They both related to unpaid levies (Ex A: p 39). The proceedings were later consolidated. Mr Hall filed a Cross Claim for an unspecified amount. Because the amount was unspecified, all actions were transferred to the General Division of the Local Court (Ex A: p 55). On 19 April 2005, the matters were determined by an Arbitrator under the Arbitration (Civil Actions) Act 1983 (Ex A: p 53). Mr Hall appeared in person (Ex A: p 55). He withdrew his Defence and discontinued the Cross Claim. The Arbitrator then made awards in respect of each claim by the Owners. He expressed the view, in the body of his award, that both matters were appropriate for determination in the Small Claims Division, a matter relevant to the question of costs (Ex A: p 55). He awarded $3,540.42 in respect of the first claim, which included interest and professional costs (the latter assessed at $427.20) (Ex A: p 55). On the second claim, he awarded the Owners $1,488.55. That amount did not include any award for professional costs (Ex A: p 56). 6 In respect to the Cross Claim, the Arbitrator made the following order: (Ex A: p 56) "The Defendant is to pay the Pl's costs of the Cross-claim now discontinued as agreed or assessed. Such costs include today's attendances." 7 The solicitors for the Owners then wrote to Mr Hall on 29 April 2005 seeking payment (Ex A: p 61). They wrote again on 22 July 2005, once again seeking payment. Their letter included an assessment of their costs (Ex A: p 62-64). The costs, including counsel's fees, totalled $8,458.80 (Ex A: p 63). Attached to the letter were itemised accounts recording each attendance by the solicitors and an amount for each attendance (Ex A: p 65-73). 8 Mr Hall, however, did not make payment. Meanwhile, additional levy notices were served by the strata body upon him and other unit holders, which again he ignored. On 21 April 2006, a Bankruptcy Notice was served upon him (Ex A: p 188). On 25 October 2006, a Bankruptcy Petition was lodged on behalf of the Owners (Ex A: p 188). The petition was served upon Mr Hall on 31 March 2007 (Ex A: p 189). The petition alleged that Mr Hall owed the judgment debt arising from the arbitration award in April 2005 ($5,028.97), together with $18,028.44 being levies unpaid and the legal costs associated with the Local Court proceedings (the latter being $8,458.80) (Ex A: p 210). 9 Mr Hall then paid the judgment debt. He filed an affidavit in response to the petition, stating that he challenged the further amounts claimed ($18,028.44) (Ex A: p 173). He added these words: (Ex A: p 175) · "Those acting on behalf of the Owners of strata plan 46528 have and are not necessarily acting in those owners best interest; · I own the unencumbered title to my subject unit and have the ability to borrow against it to settle the Applicants claim; · There appears to be problems in the balancing of the strata accounts and ensuring resources are safe: ... " 10 On 14 August 2007, the Registrar of the Federal Magistrate's Court made an order that the Owners' petition against Mr Hall should be dismissed. Mr Hall was ordered to pay the Owners' costs, to be agreed or taxed (Ex A: p 240). One gathers that Mr Hall and the Owners had settled their differences in respect of all matters, save for the two issues that ultimately became the subject of the Local Court proceedings and hence the subject of this appeal. The two matters were: · First, the levies imposed by the Annual General Meeting of the Strata Body on 20 December 2004, totalling $2,035.50. · Secondly, the costs associated with the Local Court proceedings in 2004/5, $8,458.80. Further Local Court proceedings. 11 On 23 August 2005, a Statement of Claim was issued in the General Division of the Local Court on behalf of the Owners against Mr Hall in respect of the two matters in dispute. The action came before his Honour Magistrate Curran in March 2008. As mentioned, each party relied upon an affidavit annexing the documentary history of their dispute. The affidavit of Mr Hall provided some insight into the basis for his refusal to pay the legal costs. He said this: (Ex A: p 188) "7. I have not received any bill of costs from the plaintiff's solicitors for the costs of the discontinued cross-claim for agreement or assessment." 12 Each party also filed a case summary. The case summary of Mr Hall identified, succinctly, the basis upon which he was defending the action. In respect of the claim for levies, arising out of the Annual General Meeting of 20 December 2004, it was said that, in truth, it was not an Annual General Meeting because of numerous failures to comply with the procedures set out in the Strata Schemes Management Act 1996 ("the Strata Act"). The levies which such meetings purported to establish were therefore a nullity. As no contributions had been levied, they could not be recovered and interest could not be charged (Ex A: p 31/32). 13 In respect of the claim for legal costs, the case summary asserted that, properly construed, the word "expenses" in s 80 of the Strata Act did not include legal costs. Alternatively, if that were wrong, such costs were not recoverable because there had been a failure to comply with the Legal Profession Act 1987 (Ex A: p 32). One gathers this assertion was based upon the following provision in the Legal Profession Act 1987 (now repealed), referred to in the case summary (Ex A: p 32). That section was in these terms: " 192 Bill of costs to be given before costs can be recovered from client (1) Proceedings for the recovery of costs by a barrister or solicitor for providing legal services must not be commenced or maintained against any person unless at least 30 days have passed since a bill for those costs was given to the person in accordance with this Division." 14 By the time the matter proceeded before the learned Magistrate, the parties had agreed upon a number of factual matters, as set out in his Honour's judgment, namely: (Ex A: p 1/2) First , the sum of $8,400.00 was agreed as being reasonable for the unpaid legal fees associated with the previous court proceedings, so far as quantum was concerned. Secondly , the meeting that purported to set the levies that are the subject of the dispute took place on 20 December 2004. Thirdly , notices of that meeting were sent to unit holders, including the defendant, on 9 December 2004, complying with cl 32 in Schedule 2 of the Strata Act. Fourthly , Mr Hall received that notice. Fifthly , Mr Hall did not attend the meeting on 20 December 2004. Sixthly , the quantum of levies which the meeting purported to set for the following year and backdated to 1 September 2004, were as follows: (a) Sinking Fund $161.00 per quarter (b) Administrative Fund $517.50 per quarter Seventhly , Mr Hall admitted that he received subsequent "levy notices", set out in the documents, forwarded to him dated 11 March 2006 and 10 July 2006 which set out the quarterly levies. Eighthly , Mr Hall did not dispute that the executive committee of the Owners' Corporation authorised the commencement of the proceedings in the Local Court by the issue of the Statement of Claim of 23 August 2005. He did, however, dispute the Corporation's entitlement to commence such proceedings. The judgment in the Local Court. 15 In a reserved judgment, his Honour made some preliminary observations concerning the provisions of the Strata Act. It was an Act regulating what may be termed "community title". The objects of the Act (s 3) were to provide for the management of strata schemes and for the resolution of disputes arising in connection with such management. His Honour said this: (Judgment - Ex A: p 3) "It is to state the obvious that to observe that the Owners Corporation is in the nature of a self funding cooperative. Its funds are provided for by the unit holders and its liabilities and expenses must be borne by the unit holders. There are no other financial resources to be drawn upon other than those available and provided for by the unit holders. They alone provide the income derived from the levies and they alone derive the benefits of the monies spent." 16 His Honour thereafter identified three areas of contention: · First, "a threshold issue", namely, whether the Owners' Corporation could commence the action, relying on the decision of the executive committee. Issues arose as to the proper construction of s 80D of the Strata Act and whether it had been complied with and, alternatively, whether the Corporation could bring itself within the exemption in respect of s 80D provided by Reg 12C of the Strata Schemes Management Regulation 1997 ("the Strata Regulation"). · Secondly, if the action could be brought, could the levies be recovered against Mr Hall as a unit holder ($2,035.50)? Under the Strata Act, the raising of levies was a matter to be dealt with by the Annual General Meeting ("AGM"). Was the meeting called on 20 December 2004 a properly constituted AGM? If so, were the increased levies imposed on unit holders in accordance with ss 76 and 78 of the Strata Act? · Thirdly, did s 80 of the Strata Act allow the Owners' Corporation to recover against an individual unit holder legal fees relating to prior legal proceedings (the claim for $8,400.00)? 17 The same issues arise under the Summons and Cross Summons on this appeal. His Honour determined that Mr Hall's threshold objection was well founded. Section 80D of the Strata Act had not been complied with. The exemption given by Reg 12C had no application. There was no authority for the Owners' Corporation to commence the action against Mr Hall. The action was therefore dismissed. His Honour, at the request of the parties, also dealt with the second and third issues. 18 His Honour later heard submissions on costs. Mr Hall, through his solicitor, sought indemnity costs, having made an offer of compromise of $2,574.25 under Pt 20 r 26 of the Uniform Civil Procedure Rules 2005. His Honour, however, declined to make any order as to costs. That refusal is the subject of complaint in the Cross Summons. 19 I will now go to the Summons and Cross Summons. The Summons and Cross Summons. 20 Under the Local Courts Act 1982, a party dissatisfied with the judgment or order of the court in the General Division may appeal to the Supreme Court on an error of law (s 73(1)). Leave is required where the error involves a mixed question of fact and law (s 74(1)). 21 Here the Owners identified four Grounds of Appeal as follows: "a. His Honour erred in law in finding that Regulation 12C of the Strata Schemes Management Regulation 1997 did not apply so as to exempt the Plaintiff from the operation of s 80D of the Strata Schemes Management Act 1996 ('the Act'). b. His Honour erred in law in holding that non-compliance with s 80D of the Act has the effect of giving a defence to a legal claim made by an owners corporation. c. His Honour erred in law in finding the striking of levies did not comply with ss 76 and 78 of the Act. d. Leave to appeal on mixed questions of fact and law in that his Honour erred in law and fact in finding Regulation 12C of the Strata Schemes Regulation 1997 did not have the effect in this particular case of exempting the operation of s 80D of the Act." 22 Mr Hall responded with a Cross Summons, identifying a number of grounds. Some were later abandoned. Paraphrasing those that remained, they were: · First, that his Honour was in error in his construction of s 80 of the Strata Act, where he determined that the Owners could recover legal costs as "expenses". · Secondly, that his Honour was in error in making no order as to costs in circumstances where he should have awarded indemnity costs. 23 The Cross Summons also sought a consequential order under s 229 of the Strata Act that, in the event of Mr Hall succeeding on appeal or in respect of his cross appeal, and costs being awarded against the Owners' Corporation, that he, as a unit holder, should not have to pay such costs. Power is given under s 229 to exempt him. Counsel for the Owners' Corporation conceded that, if Mr Hall succeeds, such an order would be appropriate (T 76/77). 24 Let me move to the Summons and deal first with Grounds (a), (b) and (d) together. Was there compliance with the Act and Regulations? 25 In respect of the commencement of a legal action by the Owners' Corporation there is, under the Strata Act, a rule and, under the Strata Regulations, an exception. Two issues arise: · First, did the Owners' Corporation comply with the rule and, if not, could they bring themselves within the exception? · Secondly, if neither, could the Owners' Corporation maintain the action? 26 The rule is established by s 80D of the Strata Act, which is in these terms: " 80D Legal action to be approved by general meeting (1) An owners corporation or executive committee of an owners corporation must not seek legal advice or the provision of any other legal services, or initiate legal action, for which any payment may be required unless a resolution is passed at a general meeting of the owners corporation approving the seeking of the advice or services or the taking of that action. (2) The regulations may make provision for or with respect to exempting any type of legal service or legal action from the operation of this section." 27 Here, the conditions for the operation of s 80D(1) were not met. There was no resolution passed at a general meeting of the Owners' Corporation approving the taking of action. As the agreed facts acknowledged, the issue was dealt with by the executive committee. Reference has already been made to the context (supra paras [10] and [11]). On 14 August 2007, the Bankruptcy Petition was dismissed, leaving two issues unresolved. A general meeting of the Owners' Corporation was not called. Rather, the executive committee pursued its action under a Statement of Claim issued on 23 August 2005. His Honour correctly recognised that, if there was authority to commence the action, it had to derive from the exception (Judgment – Ex A: p 6). The exception under the Strata Regulation 12C was in these terms: " 12C Exemptions from need for approval for certain legal action (1) The seeking of legal advice, the provision of legal services or the taking of legal action is exempt from the operation of section 80D of the Act if the reasonably estimated cost of seeking the legal advice, having the legal services provided or taking the legal action would not exceed: (a) ... , or (b) $10,000 ... (2) In a case where the cost, or estimated cost, of seeking legal advice, having legal services provided or taking legal action has been: (a) disclosed by the legal practitioner concerned in accordance with the Legal Profession Act 1987 , or (b) set out in a proposed costs agreement under that Act, the reasonably estimated cost of seeking the legal advice, having the legal services provided or taking the legal action is taken, for the purpose of this clause, to be the cost or estimated cost so disclosed or set out." 28 Where a cost estimate was obtained from a lawyer (under Div 2 of Pt 11 of the Legal Profession Act 1987 which was then in force), s 230A of the Strata Act applied. It made the following provision: " 230A Disclosure of matters relating to legal costs If a disclosure under Division 2 of Part 11 of the Legal Profession Act 1987 is made to an owners corporation in respect of the costs of legal services to be provided to the owners corporation, the owners corporation must give a copy of the disclosure to each owner and executive committee member within 7 days of the disclosure being made." 29 Nothing was circulated to unit holders before the action was commenced. There were no minutes of the executive committee meeting. There was no evidence from those on the executive committee as to what had taken place. There was simply an acknowledgement, in the agreed facts, that the executive committee had authorised the action before the Statement of Claim was issued (supra para [14]). 30 What, then, was the basis upon which Reg 12C could operate? Specifically, upon what basis could it be suggested that the executive committee had reasonably estimated the costs of taking legal action against Mr Hall and that they would not exceed $10,000? The solicitor for Mr Hall before the Magistrate and his counsel on this appeal, said that there was no basis upon which the exemption could be applied. 31 However, counsel for the Corporation (who also appeared on the appeal) pointed to two matters. First, the documentary material before the Magistrate included a letter of 1 September 2003 from the Corporation's solicitors setting out their charge rates. The letter included an hourly rate and specific amounts for typing, telephone calls and so on (Ex A: p 45-49). In respect of debt recovery, the letter noted that the costs would vary, depending upon the seniority of the solicitor who performed the work and the complexity and skill required (Ex A: p 47). The letter also included these words: (Ex A: p 47) " ESTIMATE Estimate not available at this stage as not possible to estimate extent of work required. Client should request estimates at any time or stage as matter progresses. Unless specified, any estimate given should not be taken to include barrister's fees or other disbursements." 32 The second matter concerned the accounts sent by the solicitors to the Owners' Corporation from 25 October 2004, that is after the first action against Mr Hall had been concluded (Ex A: p 66-73). That was not a contested action (beyond Day 1), after Mr Hall withdrew his Defence and Cross Claim. 33 That being the context, let me turn to the decision of the learned Magistrate. Commenting upon ss 80D and 230A of the Strata Act, as well as Reg 12C, his Honour said this: (Judgment – Ex A: p 6) "For reasons that I have set out earlier, the philosophy of the act in part involves an openness within the confines of what is reasonable to the actions of the executive committee. This is to facilitate the right of an individual unit holder, for instance, to have knowledge as to what is being done on his or her behalf, or on their behalf, in what potentially they may be responsible for and allowing for the individual unit holders to have their reservations or opinion made known. Of course, their views may not win the day as far as the proposed legal actions or the proposed actions of the committee are concerned but this is not to the point." 34 His Honour then considered more closely the requirements of the exemption provided by Reg 12C. He said this: (Judgment – Ex A: p 6/7) "This in mind, it is my view that the 'reasonably estimated cost' of taking legal action must have some parameters provided so that lay people, the body corporate or the executive members or indeed the individual unit holders, know what the likely expenditure is likely to be. To make this intelligible, it would be necessary in my view to specify a sum of money or more likely a range of monies likely to be involved. Further, the estimate of costs is to be associated with, and I emphasise, 'the' legal action. The use of the definitive article means that a specific legal action is being considered and in this case, it was for the recovery of the understanding levies and the legal fees previously incurred and obliged to be paid by Mr Hall. In my view, the provisions of a costs agreement in the terms of the document that I have referred to together with the facts of the costs that were incurred in relation to the previous litigation which may or may not have been within the knowledge of the unit holders or the executive committee, as these entities can change from time to time, is not sufficient to comply with the provisions of reg 12C(1). My view is that the committee meeting before 25 August 2005 would have required the provision of a specific cost estimate, even if only the form of a range of, and I stress, the prospective proceedings against Mr Hall and further, evidence that such a cost estimate did not exceed, in this case, $10,000. There is no evidence of such information available. In fact, the only information available potentially is as I have set out in (2) above and I that, as I have said, is not sufficient to comply with reg 12C. It follows then that the plaintiff was not permitted to commence these proceedings, given the provisions of s 80D, it not being exempted by compliance with reg 12C. Therefore, the defence, relying upon the failure to comply with section 80D, is made out and is a good defence to the claim." 35 Counsel for the Owners submitted that his Honour was in error in that Reg 12C did not require a cost estimate. That was one way in which a reasonable estimate of costs could be formed, but it was not the only way. His Honour therefore put a gloss upon the regulation, reading into it a requirement which was not there. 36 Here, I believe there was no error of law as to the availability of Reg 12C. There was no evidence before the executive committee in August 2005 which showed that it had turned its mind to the costs of the legal proceedings to be initiated, that it had formed a reasonable estimate of the likely costs, and that it was less than $10,000. If one were charitable, and made the assumption that the membership of the executive committee in August 2005 included at least one person involved in the previous litigation, and that the committee was aware of the costs letter from the solicitors of 1 September 2003, such material was not capable, in my view, of providing a basis for a reasonable estimate in respect of the action against Mr Hall in August 2005. His Honour was right to emphasise that the regulation used the definite article, "the legal action". The action which was initiated exceeded (fractionally) the jurisdiction of the Small Claims Division (Local Courts Act 1982, s 4). It would proceed in the General Division, which had an impact upon costs. Mr Hall, at the time the Bankruptcy Petition was dismissed, signalled a contested hearing. The previous hearing against him had not been contested. There was no basis upon which a person, even a person with expertise, could extrapolate from the solicitors' note of fees and charges to form a reasonable estimate of the likely costs and that they would be less than $10,000. Nor was there a basis upon which the previous litigation could, with confidence, be used as a basis for making a reasonable estimate of the likely costs of the action to be initiated. Certainly, Reg 12C(1) does not say that the only way in which a reasonable estimate of costs may be formed is through a lawyer's estimate, but such an estimate was one means by which the requirements of Reg 12C(1) could be satisfied (Reg 12C(2)). It had not been used by the executive committee. There was no evidence of any basis upon which the executive committee could reasonably have formed such an estimate. 37 His Honour, when referring to the need for a "specific cost estimate", was not, I believe, suggesting that the estimate had to come through a lawyer, although that was an obvious way. He was saying there had to be evidence that the committee made an estimate, specific to the case under contemplation, upon material which furnished some reasonable basis for concluding that the costs would be less than $10,000. Here, there was none. I believe, therefore, that Grounds (a) and (d) of the Summons fail. Can the action be maintained? 38 Let me turn to Ground (b). Ground (b) essentially argued that a failure to comply with s 80D (and the exemption under Reg 12C) was not fatal. That failure did not provide a defence to a third party, such as Mr Hall. The action should not have been dismissed. 39 Counsel for the Owners referred to Australian Broadcasting Corporation v Redmore Pty Ltd [1989] HCA 15; (1988) 166 CLR 454. By s 70(1) of the Australian Broadcasting Corporation Act 1983 (Cth), the Corporation was told that it "shall not, without the approval of the Minister" enter into a contract exceeding $500,000. The Corporation negotiated a Tenancy Agreement with Redmore Pty Limited without first obtaining the Minister's approval. A dispute arose. The ABC then sought to deny the existence of the agreement, by reason of the absence of approval. The issue was whether the Corporation could be held to its contract. The majority (Mason CJ, Deane and Gaurdon JJ) (Brennan and Dawson JJ dissenting) held that it could. Their Honours said this: (at 457) "As the judgments in the courts below demonstrate, the question whether s 70(1) should be construed as confining power or as directory of the manner of its exercise is a finely balanced one. The words of the sub-section are not compelling either way. In strict terms, they are directory. They speak of the exercise ('shall not ... enter into a contract'), rather than the existence, of power. Their direction is to the ABC and not to an innocent outsider having contractual dealings with the ABC, who would be likely to act on the basis that the ABC would have complied with any statutory duty to obtain the approval of its responsible Minister before purporting to enter into a contract of a kind which required such approval. ... " 40 The majority thereafter examined the structure of the Act, stating the following: (at 457) "As a matter of general structure, provisions of the Act which in terms confer or confine the actual powers of the ABC are collected in Pt IV which is headed 'Powers and Duties of the Corporation'. ... " 41 Their Honours continued: (at 458) "Section 70 of the Act appears in Pt VI which is headed 'Finance'. That Part contains no express reference to the grant or confinement of powers. To the contrary, and putting to one side s 70 itself and s 69(2), Pt VI is plainly concerned with the provision of funds and the institution of a system of governmental controls, checks and supervision in relation to the expenditure by the ABC of those funds in the performance of its functions and the exercise of its powers as defined and conferred by provisions in other parts of the Act. ... " 42 Thereafter the majority said this: (at 459) "It can therefore be seen that both the general structure of the Act and the context provided by the other provisions of Pt VI, particularly s 69(2), support a construction of s 70(1) which sees the sub-section as directory (to the ABC) about the manner of exercise of powers conferred and confined by other provisions and as not concerned to confine the actual content of those powers or to invalidate or render unenforceable contracts with innocent outsiders made in the exercise of them. That construction of s 70(1) is also supported by the legislative history of the sub-section." 43 The result, in the view of the majority, did not reduce s 70(1) to a "pious admonition". It imposed a statutory duty upon the officers of the ABC, breach of which constituted misconduct and would call for a report from the Auditor General (at 459/60). 44 Mr Harris SC, for Mr Hall, responded by taking the Court to Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355, which identified the issues which must be addressed when determining the effect of breaching a condition regulating the exercise of statutory power. McHugh, Gummow, Kirby and Hayne JJ said this: (at 388/89) "An act done in breach of a condition regulating the exercise of a statutory power is not necessarily invalid and of no effect. Whether it is depends upon whether there can be discerned a legislative purpose to invalidate any act that fails to comply with the condition. The existence of the purpose is ascertained by reference to the language of the statute, its subject matter and objects, and the consequences for the parties of holding void every act done in breach of the condition. Unfortunately, a finding of purpose or no purpose in this context often reflects a contestable judgment. The cases show various factors that have proved decisive in various contexts, but they do no more than provide guidance in analogous circumstances. There is no decisive rule that can be applied ( Howard v Bodington (1877) 2 PD 203 at 211, per Lord Penzance); there is not even a ranking of relevant factors or categories to give guidance on the issue." (emphasis added) 45 Their Honours added: (at 390/1) " ... That being so, a court, determining the validity of an act done in breach of a statutory provision, may easily focus on the wrong factors if it asks itself whether compliance with the provision is mandatory or directory and, if directory, whether there has been substantial compliance with the provision. A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid. This has been the preferred approach of courts in this country in recent years, particularly in New South Wales ... In determining the question of purpose, regard must be had to 'the language of the relevant provision and the scope and object of the whole statute'. ... " (omitting references) (emphasis added) 46 Counsel for Mr Hall then addressed each issue. He drew attention to the language of the statute. He emphasised many of the same matters referred to by the learned Magistrate. Section 80D of the Strata Act used mandatory language ("must"). It was, as his Honour found, analogous to s 192 of the Legal Profession Act which had been held to provide a complete defence to any action not preceded by full compliance (cf Zizza v Seymour [1976] 2 NSWLR 135 at 139; Conder v Silkbard [1999] NSWCA 459 at [26]-[29]). Section 245 of the Strata Act stated clearly that no agreement or arrangement can "annul, vary or exclude any of the provisions of (the) Act". There was no provision the equivalent of s 1322 of the Corporations Act 2001 (Cth), which ameliorated or modified its mandatory terms. 47 The second issue suggested by Project Blue Sky concerned the subject matter and the objects of the statute. Section 3 of the Strata Act stated that the objects were the management of strata schemes and the resolution of disputes arising in connection with the management of those schemes. The objective of the legislative scheme (which included s 80D, s 230A and Reg 12C) was expressed by the Minister in the Second Reading Speech in these terms: (Hansard 4.12.03) "Another new initiative will be in relation to the commencement of any form of legal action by executive committees. Concern has been expressed that prior to commencing action individual owners should be made aware of the cost of legal action and the likelihood of success. Most strata schemes will include individuals from a broad cross-section of the community with a variety of personal expectations, attitudes and level of involvement. It is impossible to expect that there will always be perfect harmony. The commencement of legal action on matters concerning the scheme is one area where it is certain that a divergence of views will exist. The Government proposes to minimise the level of internal dispute arising in this area by taking some simple but effective measures. Firstly, if legal action of any type is being contemplated, the estimated cost of the action is to be provided in writing to all owners in accordance with the Legal Profession Act. A meeting of the Owners' Corporation must be called before the action can actually commence, to ensure that everyone can have a say if they wish. These new provisions will not only include the initiation of legal proceedings but also the obtaining of legal advice. Executive committees will effectively be prevented from undertaking legal action under their own initiative, thus removing the possibility that claims will be made that a committee has not acted in the interests of all owners and added to existing conflict rather than dissipat(ing) it. " (emphasis added) 48 The object of s 80D, according to counsel for Mr Hall, was as follows: "The object of the section is quite plainly to ensure that legal proceedings are not commenced unless all owners know of it in advance and have 'a chance to have a say in it'. They should also be told the cost of the action and its likelihood of success. The owners corporation must consult with them before legal proceedings are initiated: they must be given the opportunity to veto that action, or obtain further advice as to whether it ought be taken, before the action is commenced." 49 The third matter, on the Project Blue Sky test, concerned the consequences of holding void every act done in breach of s 80D. According to counsel for Mr Hall, if s 80D were not held to be a complete defence, then it may as well not be there. There would be no sanction. The Court should therefore conclude that compliance was mandatory. Absent compliance, there was no authority for the action, as the learned Magistrate held. That was certainly the position in respect of unit holders such as Mr Hall. But it was also, according to counsel for Mr Hall, the position in respect of an outsider, such as the plumber, who may be sued by the Corporation. The Owners' Corporation (assuming they were in time) could then seek authority. It could convene a general meeting and pass an appropriate resolution, if that was the wish of unit holders. Fresh proceedings could then be commenced. The learned Magistrate had been correct. 50 Counsel for the Owners' Corporation responded that such a construction would be attended by great inconvenience. The provisions were directory, not mandatory. 51 Dealing with these submissions, Australian Broadcasting Corporation v Redmore Pty Ltd (supra), was considered again by the High Court in Master Education Services Pty Ltd v Ketchell [2008] HCA 38; (2008) 82 ALJR 1322. Master Education Services was a franchisor and Ms Ketchell a franchisee. Ms Ketchell was sued for unpaid franchise fees. She had, however, entered the franchise agreement without first having been provided with a written statement where she acknowledged that she had received, read and had a reasonable opportunity of understanding the franchising Code of Conduct. Entry into a franchise agreement, in such circumstances, involved a breach of the code. The Trade Practices Act 1974 (Cth) provided, in s 51AD, that a "corporation must not, in trade or commerce, contravene an applicable industry Code". The Court of Appeal of New South Wales held that the contract was illegal and unenforceable. 52 The High Court (Gummow ACJ, Kirby, Hayne, Crennan and Kiefel JJ) upheld the appeal. It was, the Court said, a question of statutory construction whether a statutory prohibition operated to prohibit a contract. Here, the purpose of s 51AD was to promote compliance with the Code by providing, in effect, that non-compliance will amount to a contravention for which there are remedies under the Trade Practices Act, Pt VI. It was no part of the scheme, and unnecessary for the purposes of the section, to strike down a contract made by a non-complying franchisor. 53 The Court dealt with the situation where the prohibition under the statute was directed at one party only. It said this: "[16] As was pointed out in the passage from Yango Pastoral Co v First Chicago, cited in Australian Competition and Consumer Commission v Baxter Healthcare, it does not always follow from a prohibition directed to one party to an agreement that the contract is void. In Yango Pastoral Co v First Chicago the statutory prohibition in question prohibited a corporation from carrying on any banking business without an authority to do so, and provided a daily penalty for contravention. It was held that securities taken by a corporation which contravened that provision were not rendered void and unenforceable by the Act. Gibbs ACJ observed that it was directed not at the making or performance of particular contracts, but at the carrying on of any banking business. [17] The statutory provision considered in Australian Broadcasting Corporation v Redmore Pty Ltd was addressed to the ABC and enjoined it not to enter certain classes of contract without the approval of the Minister. The section did not specify any penalty. The section was concerned with the manner of exercise of powers conferred by other provisions of the statute and was not directed to outsiders having contractual dealings with the ABC. It followed that the failure by the ABC to observe its internal procedures was no answer to an action against it for breach of such a contract." (references omitted) 54 The Court later said this: "[26] ... As was pointed out in Project Blue Sky Inc v Australian Broadcasting Authority, it is necessary to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid. In determining the question of purpose, regard must be had not only to the language of the relevant provision but also to the scope and object of the whole statute. [27] It was pointed out in Archbolds (Freightage) Ltd v S Spanglett Ltd that, if a court too readily implies that a contract is forbidden by stature, it takes it out of its power to provide remedies according to the circumstances of the case. ... " (references omitted) 55 What, then, was the purpose of s 80D of the Strata Act (in combination with s 230A and Reg 12C)? Was it to invalidate any act that failed to comply with the prescribed conditions? The language of the statute ("must") is important but not determinative. In Master Education Services the statute also used the word "must", but the purpose was not to render unenforceable franchise agreements that did not comply with the Code. Likewise, in ABC v Redmore Pty Ltd (supra), the word "shall" (which is a strong word although less forceful than "must") did not render the contract unenforceable at the suit of an innocent third party contracting with the ABC. Such a party would have assumed that the Corporation had obtained the necessary approval. 56 Here, the learned Magistrate placed some importance upon the structure of the Act, and the fact that s 80D was one of a series of provisions introduced at the same time, designed to provide openness and democracy within the strata body (Judgment - Ex A: p 6). Section 80D was contained in Chapter 3 headed "Key management areas". Section 61(1)(b) provided that an Owners' Corporation "has, for the benefit of the owners, the administration of the strata scheme concerned" (emphasis added). By s 61(2)(b), the Owners' Corporation is given responsibility for managing the finances of the strata scheme. Division 3 of Pt 3, which included s 80D, is headed "Restrictions on spending". That suggests a limitation upon power, not simply a direction as to the manner of its exercise (cf ABC v Redmore Pty Ltd (supra at p 459) (supra para [42]). 57 On the other hand, other sections within Division 3 may undermine the impression created by the heading. Section 80A, for instance, dealt with a monetary limitation imposed upon the executive committee by the Annual General Meeting in respect of expenditure. The section required that the executive committee must not exceed the amount determined, subject to defined exceptions which may be characterised as emergencies. Would a contract made by the executive committee for the provision of services to the Corporation, which exceeded that limit, be invalid or unenforceable? As in ABC v Redmore Pty Ltd, you would not expect the person dealing with the executive committee to be aware of the limitations upon its authority. The prohibition is directed to one party only, that is, the executive committee. On the authority of ABC v Redmore and Master Education Services (paras [16]-[17]), s 80D would appear to be directory rather than mandatory. 58 Let me move to the second aspect which Project Blue Sky suggested was capable of shedding light on the purpose of the statute, namely, the subject matter and objects of the legislation. The purpose of these provisions was expressed forcefully by the Minister in the Second Reading Speech (supra para [47]). It was recognised that the commencement of legal proceedings had the potential to cause disputation and to disrupt the strata body. It was an issue likely to generate strong views, for and against. The legislative scheme was designed to arm unit holders with the facts. Section 230A required that any estimate of costs from lawyers should be circulated within seven days. Unless the expenditure were less than $10,000, the matter had to be dealt with at a general meeting (s 80D). The executive committee, according to the Minister, would be "effectively prevented from undertaking legal action under their own initiative". Her words suggest a restriction on power. Section 33 of the Interpretation Act 1987 requires a section to be interpreted so as to promote the objects of the section. 59 The third aspect of the Project Blue Sky test concerned the consequences for the parties in holding void every act done in breach of the statutory requirements (at 388/9) (supra para [44]). Counsel for Mr Hall suggested that, unless the provision were construed as mandatory, there would be no sanction in respect of a breach. Certainly no sanction was provided by the Act, in contrast to the position in Master Education Services Ltd, where there were sanctions under the Trade Practices Act. No doubt, unit owners could demand that those responsible account for their actions (whether the executive committee or the managing agent or both), taking action under the rules to replace the committee or terminate the agent's retainer. That is a sanction of sorts, although it does not address the consequences of the decision taken without reference to unit owners. 60 There is one consequence which I should mention. If the action were dismissed for non-compliance with s 80D (as happened here), and if costs were awarded against the Corporation (as the Cross Summons contends should have happened here), unit holders would be obliged to pay such costs. However, an order could be made (and is sought by Mr Hall in his Cross Summons) that the unit owner should be exempted. Yet, all unit holders had been deprived of their say, not simply Mr Hall. 61 As mentioned, counsel for the Owners' Corporation argued that the interpretation favoured by the learned Magistrate would be attended by great inconvenience. The section is general and not confined to unit holders. The plumber, if sued, could take the point. 62 Section 80D is concerned with the retention of lawyers to perform work, which may be costly. The section is not confined to taking legal action. There must be a resolution of the general meeting when seeking legal advice, the provision of legal services, or the initiation of legal action. In the context of a strata scheme, it would be unusual for legal advice to exceed $10,000, so that generally such matters would come within the exemption provided by Reg 12C. The same is probably true of most legal services (such as drawing a deed). So usually a resolution would only be required under s 80D when the Owners' Corporation initiated legal action. 63 That being the context, what inconvenience, if any, attends an interpretation of s 80D as a mandatory requirement, where the consequence of failure to seek authorisation (when the point is taken) is that the action must be dismissed? The inconvenience is that of having to seek the unit holders' authorisation in general meeting and start again. How often would the point arise? Before there can be any objection to the Corporation's capacity the defendant must know, or reasonably suspect, that the procedure required by s 80D has not been observed. It may be assumed that a unit holder would know or have the means of determining that the correct procedure had not been followed. No estimate may have been circulated as required by s 230A. No general meeting may have been called, where the issue was identified and discussed. No resolution may have been passed, as required. These would be matters known to unit holders, just as they were known to Mr Hall. 64 Would a plumber, sued by the Owners' Corporation, be in a position to take the same point, and thereby frustrate or at least postpone, the determination of his liability? As a practical matter, the situation is unlikely to arise. The plumber would ordinarily not know of any failure to comply with s 80D or Reg 12C and would have no means of finding out. Were he to subpoena the Corporation, he would require a legitimate forensic purpose in order to gain access to its documents. Absent information provided to him that something was amiss, such a subpoena directed to the Owners' Corporation would be a fishing expedition (Attorney General for NSW v Chidgey [2008] NSWCCA 65, per Beazley JA). 65 What if the plumber had information (presumably provided by a unit holder) and was in a position to demonstrate that the procedure identified in s 80D had not been followed? The restrictions on spending in Division 3, including s 80D have been included in the Act for the benefit of owners (s 61(1)(b) and s 61(2)(b)). They are not for the benefit of third parties. In an action by the strata body against the plumber, it must prove that it is a body incorporated under s 11(1) of the Strata Act. It is not obliged to prove that the Corporation has authority to bring the action. In the context of an action against someone who is not a unit holder, the issue is irrelevant. One would not infer that the legislative purpose of s 80D was to invalidate the Corporation's action in such circumstances. 66 Accordingly, the inconvenience in giving the provision a mandatory interpretation, which the terms of the section suggest, is not substantial. In my view the Owners' Corporation lacked the capacity to bring its action against Mr Hall, a unit holder, having failed to comply with s 80D and not being able to bring itself within the exemption provided by Reg 12C. The learned Magistrate was right to dismiss the action. Ground (b) of the Summons therefore fails. The levies imposed. 67 Ground (c) in the Summons asserted that his Honour erred in law in finding that the levies did not comply with ss 76 and 78 of the Strata Act. However, when the matter was argued, counsel for the Owners' Corporation put the matter somewhat differently. There had been no error of law by his Honour in relation to the construction of ss 76 and 78 (T 28). Rather, his Honour, as a matter of discretion, should not have dealt with the issue, because it had been open to Mr Hall to pursue such issues through the less costly adjudication procedures established by Pt 5 of the Strata Act. 68 There are a number of difficulties with such a submission. First, if, as suggested, his Honour had a discretion to deal or not deal with the issue, then before there can be an error of law some departure from the rule in House v The King (1936) 55 CLR 499 at 505 had to be demonstrated. None was identified and none was apparent. 69 Secondly, and more fundamentally, his Honour upheld the threshold point. He duly dismissed the claim by the Owners' Corporation. He, thereafter, helpfully commented upon a number of issues which had been argued. He did so because the parties had asked him to do so and in case it were determined that he was in error in respect of his ruling on the threshold point (Judgement – Ex A: p 7). His Honour made it plain, however, that his comments were obiter. He made no ruling or determination. He made no order. 70 There is nothing, in my view, that can be the subject of an appeal to this Court (having upheld his earlier ruling). If there were error on the second or third matter, it would not be open to this Court to refer the matter back to be redetermined according to law. The Summons, correctly, had been dismissed. 71 Having said that, I should comment upon one aspect. Under the Act, the strata body was given the power to fix levies at its Annual General Meeting. Schedule 2, cl 34, set out the special requirements for notice in respect of the Annual General Meeting. The clause began with the words that: "Notice of an Annual General Meeting must ... ". It then listed seven matters which the notice of the Annual General Meeting must deal with. Clause 35 dealt with the form of motions placed before the Annual General Meeting. It specified matters that "must" be included or must accompany the notice. 72 Here, the learned Magistrate found that, in a number of respects, clauses 34 and 35 had been breached. Two authorities, Eventang Development (Pyrmont) Pty Limited v The Owners Strata Plan 51573 [2001] NSWSC 452; and Owners Strata Plan 30695 v Stratacorp [2005] NSWSC 405, were put forward by counsel for Mr Hall as authority for the proposition that failure to comply with the Schedule meant that the AGM was a nullity. The Act did not ameliorate that position, except in the timing of the AGM (cl 6(2) of Schedule 2). Counsel for Mr Hall therefore said this: "13. In these circumstances, the Magistrate was correct in concluding that the AGM was a nullity, and that the levies which were the subject of resolutions at that meeting were therefore invalid and unenforceable." 73 Although it is unnecessary for me to decide, I doubt that conclusion. The meeting on 20 December 2004 was, I assume, styled the AGM of the strata plan. It was an agreed fact that notice, as required by cl 32, Sch 2, had been given. There was an agenda and various motions, including a motion to raise levies. The notice dealt with a number of matters required by cl 34, but omitted others. The matters omitted should have been included. The motions were likewise deficient (although, again, not in respect of levies). The issue in these circumstances is the same as that discussed in the context of s 80D of the Strata Act. Was the consequence of failure to comply with the statutory prescription in Schedule 2, expressed as it was in mandatory terms ("must"), that the meeting could not be characterised as the Annual General Meeting and that all business transacted was a nullity? On its face, that seems a startling conclusion. It is certainly a conclusion which would be most inconvenient. What if everything required by cl 34 had been included and transacted, save for one matter? Those at the meeting no doubt believed that they were at the Annual General Meeting of the strata body. They dealt with the matters on the agenda, voted on motions, and passed resolutions, without realising that items had been overlooked. The provisions, important though they are, are directory in my view, not mandatory. Although matters had been overlooked, the meeting was still an Annual General Meeting. Had the meeting, for instance, resolved to renew an insurance policy, the contract, I believe, would have been valid, notwithstanding the deficiencies in the notice used to call the meeting. It was not, in my view, the purpose of the legislation to invalidate such business as had been transacted at the meeting. 74 Let me pass to the Cross Summons. The Cross Summons: s 80 legal expenses. 75 Paragraphs 4 and 5 of the Cross Summons sought to cross appeal that part of the decision of Magistrate Curran which dealt with the plaintiff's claim against Mr Hall for "expenses under s 80 of the Strata Act". The same difficulty arises as described in respect of Ground (c) of the Owners' Summons (relating to levies). His Honour's comments on s 80 were "obiter". He had, by that time, dismissed the Summons. He made no determination and no order. His comments were designed to assist the parties in respect of issues which remained. There can be no appeal in these circumstances in relation to his conclusion. 76 As it happens, some of the issues argued before his Honour have since been determined by the Court of Appeal in Owners of Strata Plan 36131 v Dimitriou [2009] NSWCA 27. That case resolved a controversy by determining (by majority) that s 80 of the Strata Act did include legal costs and disbursements, which are recoverable independently of any order for costs that the Court may make (Hodgson JA paras [33]-[34]; Handley AJA para [116]; Basten JA dissenting). The majority determined that such expenses were limited to party and party costs, which must be sought and recovered in the same proceedings as the claim for contribution (Hodgson JA para [47]; Handley AJA [137]-[138]; Basten JA not deciding). 77 In the light of that decision, some grounds in the Cross Summons were abandoned. Others were refined so that they coincided with the view of the majority. Here, the arrears had been sought in proceedings 6177 of 2004 and 11582 of 2004. It was said on behalf of Mr Hall that such costs could be recovered only in those proceedings and not the proceedings before Magistrate Curran (9311 of 2005). Further, only the "properly and reasonably incurred component" of such costs was recoverable under s 80. 78 I should make two comments, in the same spirit as Magistrate Curran, conscious that this matter will not be resolved by this appeal. First, in the Cross Claim, the Arbitrator ordered that Mr Hall pay the Owners' costs on the Cross Claim, to be agreed or assessed (supra para [6]). Such an order may or may not allow scope for the recovery of such costs, consistent with Dimitriou. Secondly, it will be noticed that Mr Hall made an admission as to the reasonableness of the legal costs charged in the proceedings before Magistrate Curran (supra para [14]). Much may depend upon the precise terms of the admission, and the debate, if any, before the Magistrate, as to whether that was an admission, effectively, in relation to party and party costs. 79 Nonetheless, for the reasons given, I believe the Cross Summons in respect of the s 80 issue is misconceived and should be dismissed. Mr Hall's claim for costs. 80 Having dismissed the action on 11 August 2008, the question of costs was then determined. The solicitor for Mr Hall drew attention to an offer of compromise dated 21 November 2007 and served the following day. The offer was expressed to be open until 21 December 2007. The offer was in these terms: (Affidavit David Francis 25.3.09: p 7) "1. The defendant offers to compromise these proceedings on terms that the defendant pay to the plaintiff and the plaintiff will accept the sum of:- 1. Aggregate of unpaid levies (administration fund and sinking fund) at 23 August 2005 (as per statement of claim) $2,035.50 2. Interest on aggregate of unpaid levies (administration fund and sinking fund) at 23 August 2005 (as per statement of claim) $80.67 $2,116.17 3. Interest on aggregate of unpaid levies (administration fund and sinking fund) at 21 November 2007 (being interest at 10% on $2,035.50 ($0.56 daily) from 24 August 2005 to 21 November 2007, 818 days $458.08 $2,574.25 and continuing at $0.56 a day until payment. 2. The offer remains open until 21 December 2007." 81 It will be noticed that the offer referred to Pt 20, Div 4, of the Uniform Procedure Rules 2005, which dealt with compromise. Unusually, the offer included particulars of the way in which it had been computed. The particulars related to only one aspect of the claim, namely, unpaid levies. There was no reference to the claim for legal expenses under s 80 of the Strata Act. Nonetheless, the offer was expressed to be an offer to "compromise these proceedings". It was not a derisory offer. It conformed with the requirements of Pt 20 r 26. It made no reference to costs, but under the rules, was to be taken as exclusive of costs (Pt 20 r 26(2)). The offer was not accepted by the plaintiff. 82 The Summons having been dismissed, the solicitors for Mr Hall sought indemnity costs. Having heard argument, the learned Magistrate, in an extempore judgment, refused to make any order as to costs. His Honour began his judgment with these words: (T 4/5 (11.8.08)) "Now the question of costs has been addressed. Normally in a claim where a party has been successful a costs order would follow as the night the day unless of course there is a situation which arises by way of an offer of compromise. In the circumstances of this case there is an offer of compromise filed on the defendant's behalf on 21 November 2007. That offer of compromise effectively indicates the defendant will pay the outstanding levies which were in the sum of $2,035.50 I have referred to in the body of my judgment but also he was prepared to pay interest upon those sums of money up until the date of the offer of compromise being filed which was 21 November 2007. The total offer was $2,574.25. That would also necessarily in my view when one looks at the rules in particular pt 20 r 20 and pt 42, r 42(13)A involve an order for party-party costs up to the day on which the offer remained open as specified in that offer of compromise, namely 21 December 2007. As I said in normal circumstances and indeed I would be referring to authority that indicate there need to be exceptional circumstances where a costs order is not to be made in favour of the party that has been successful. In the circumstances of this case the defendant has succeeded and a verdict is to be entered in his favour. However, the costs in any claim ultimately remain at the discretion of the court, but as I have said in circumstances such as this the defendant would only not receive a costs order if there were exceptional circumstances." 83 His Honour then identified the matters he took into account. His first reason was stated in these words: (T 5) "There are a number of matters I have taken into account in determining this issue and they are as follows: Firstly, as I have indicated, the defendant would have failed in his claim in respect of the s 80 argument if the matter had proceeded to a full hearing and if he had not been successful in the technical defence he has mounted in respect of s 80D. I do not use that word 'technical' in any facetious sense. To me there seems to be good public policy reasons why that section is there and why the regulation is there to ameliorate it at least in part. However, it does not in my view necessarily go to the justice of the issues between the parties. It seems to me that undoubtedly at some particular point of time the defendant is going to have to pay one way or the other the $8,400. However, as I have said, he raised what is effectively a defence under a s 80D claim and in my view has been successful in raising that. That, as I said, totalled $8,400, they being the reasonable costs for the previous recovery proceedings and in addition to that there was a sum of $2,035 which were the outstanding fees. In other words the fees bore a relationship of one-fifth to the overall claim." 84 The second reason related to Mr Hall's resistance to the payment of levies. His Honour remarked that, had the matter proceeded, Mr Hall would also have succeeded on that issue, relying upon "technical arguments". He added that it had been open to Mr Hall to have these issues determined, according to the dispute resolution procedures under s 153 of the Strata Act. They were, his Honour said, "a very cost effective way of resolving the disputation between the parties". 85 Thirdly, his Honour referred to the offer of compromise. He said this: (T 6) "The offer of compromise that was filed in this case effectively is an offer to pay the outstanding levies together with the interest thereon. It does not in any way address the sum of $8,400 being the prior legal proceedings which constituted 80% of the quantum of this particular claim. As I have indicated and for reasons I have set out as far as I am concerned my view of the section is that it is a vehicle that can be utilised for the recovery of that sum of money, namely the $8,400 incurred in the recovery of outstanding levels (sic) in a previous situation." 86 A fourth matter was that a strata plan is a form of communal living. It is not "the normal commercial situation". The unit holders must bear the costs, should an order be made in favour of Mr Hall. Here, there were "technical deficiencies" but no significant injustice or oppression of Mr Hall. His Honour concluded as follows: (T 7) "It seems to me when I take into account the peculiar circumstances of this case and my views as to the otherwise successful claim that the plaintiff would have been able to mount particularly in relation to the sum of money for outstanding legal fees for the past proceedings and also bearing in mind particularly the technical notes for the arguments associated with the levying of the fees and the fact that there was a cheap and efficient means available to the defendant to seek resolution of his dispute between himself and the body corporate that was not availed of, it seems to me in the circumstances of this case I am going to decline to make a costs order in favour of the defendant. I appreciate that this is exceptional but it seems to me that there are exceptional and unusual circumstances peculiarly related to litigation of this particular sort. I DECLINE TO MAKE THE ORDER." 87 Counsel for Mr Hall asserted that his Honour's discretion had miscarried, including on the issue of indemnity costs. There was error according to the principles identified in House v The King (supra) at 505. First, the objection taken by Mr Hall to the absence of authority for the Owners' Corporation to bring the action was not "technical". It was an important right, given to unit holders under the Act, and emphasised by the Minister in her Second Reading Speech. Similarly, the defence in respect of levies should not be regarded as technical. A strata body should conform with the requirements of the Act. The view taken by his Honour, according to counsel for Mr Hall, permitted irrelevant considerations to influence his judgment. 88 Secondly, there were limits, according to counsel, on the powers of the Adjudicator to determine the legal issues that separated the parties, such as the proper construction of s 80 and s 80D of the Strata Act. The Adjudicator may have had the power to deal with the levy issue, but that would involve two sets of proceedings, and more expense. 89 Thirdly, it was irrelevant that the offer of compromise appeared to have been computed only on the basis of the outstanding levies. It was an attempt at compromise which the Owners failed to accept (cf Maitland Hospital v Fisher [No 2] (1992) 27 NSWLR 721). 90 Fourthly, it was also irrelevant that the claim concerned a strata body. There was no basis for conferring immunity from costs simply because blameless unit holders would be required to bear those costs, being responsible for the actions of the Owners' Corporation. 91 Finally, it was also irrelevant, according to counsel for Mr Hall, that his client had suffered no significant injustice or oppression, notwithstanding the "technical deficiency" in respect of the imposition of levies. 92 The learned Magistrate had therefore, according to counsel for Mr Hall, acted upon "wrong principles" and "allowed extraneous or irrelevant matters to guide or effect him" when considering the issue of costs. Costs should have been awarded and, under the rules, the Court should have ordered indemnity costs from the day following the offer of compromise. 93 Counsel for the Owners responded that costs were quintessentially a matter for the discretion of the Court. There had been no error. 94 Here, his Honour determined the issue of costs in the context of all three issues argued. The rule is that costs usually follow the event, unless it appears to the Court that some other order should be made (Uniform Civil Procedure Rules Pt 42 r 1). In this case "the event" was the dismissal of the claim upon the basis of the threshold issue. It was that which led to the order that his Honour made. 95 The threshold issue was "technical" in the sense that it halted the proceedings, leaving it open to the Corporation to obtain appropriate authority and begin again. It did not deal with the merits. The provisions of the Act, which had not been observed, were, however, important. The objection was not to be disparaged on that account. In this respect it was rather different, in my view, to the objections taken to the levies which were imposed generally upon all unit holders. Mr Hall had not been singled out. The increased fees were very modest. Litigation is a very cumbersome and expensive way to bring home to the Owners' Corporation that the correct procedures had not been followed. 96 However that may be, the matter which ought, in my view, to have guided his Honour's discretion, was the plaintiff's success upon the threshold issue. The other matters were extraneous and irrelevant, with the exception of the alternative dispute resolution procedure that has been established under the Strata Act, Chapter 5. Even in respect of that aspect, the difficult legal issues arising under s 80 and s 80D made it reasonable that these issues be left to the Court. I therefore believe that the discretion miscarried. There was no reason why Mr Hall should not have been given his costs. 97 The parties, during the course of the hearing, agreed that if there was error, that costs should be assessed by this Court, rather than referring the issue back to the Local Court. The question then becomes whether the defendant, Mr Hall, should have indemnity costs? The principles that emerge from the authorities were extracted in Morgan v Johnson (1998) 44 NSWLR 578, by Mason P in these words: (at 581/2) " .... The following principles can be extracted: (1) The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: Maitland Hospital (at 725-726); Hillier (at 421, 431). (2) The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital (at 724). (3) The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party: NSW Insurance Ministerial Corporation v Reeve (at 102); Hillier (at 422). This is because, from the time of non-acceptance 'notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise': Maitland Hospital (at 724); see also Hillier (at 420). (4) Lying behind the rule is the common knowledge that 'litigation is inescapably chancy': Maitland Hospital (at 725). For this reason, the ordinary provision is expected to apply in the ordinary case: ibid NSW Insurance Ministerial Corporation v Reeve (at 102-103). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: NSW Insurance Ministerial Corporation v Reeve (at 102). As Clarke JA expressed it in Houatchanthara (at 2-3): 'The rule lays down the general principle that should be applied, and the order provided for in that rule should only be departed from for proper reasons which, in general, only arise in an exceptional case. It is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by the defendant to a plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk.' (5) The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind: Maitland Hospital (at 725-726). Reasons must be given for 'otherwise ordering': Hillier (at 419); Quach. " 98 Here, the Statement of Claim was filed on 23 August 2005. The Defence was filed on 10 September 2007, after dismissal of the bankruptcy petition. Mr Hall, in that Defence, specifically raised the threshold point: (Ex A: p 27) "4. The defendant denies that he is liable to pay any of the amounts claimed by the plaintiff in these proceedings as the plaintiff has not complied with the Strata Schemes Management Act 1996 in relation to approval of these proceedings." 99 The remaining paragraphs of the Defence set out other objections to the imposition of levies and the claim for legal expenses. That was the context within which the offer of compromise was made. Part 42 r 15A makes the following provision in respect of such offers: " 42.15A Where offer not accepted and judgment as or more favourable to defendant (1) This rule applies if the offer concerned is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim concerned as favourable to the defendant, or more favourable to the defendant, than the terms of the offer. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, ... " 100 Here, the dismissal of the proceedings was certainly more favourable to the defendant than the offer of compromise served on 22 November 2007. Is there any reason for refusing such an order? Was the judgment and order (dismissing the proceedings) an "order or judgment on the claim"? The judgment dealt with the threshold question. It was not a judgment on the merits. Nonetheless, the point had been foreshadowed. It was an aspect of the chancy nature of litigation, and it was important that the plaintiff take it into account when making its evaluation of the offer. I believe, in the circumstances, it is appropriate to award indemnity costs from the day after the offer was served, ie, 23 November 2007. 101 So far as the costs of this appeal are concerned, I should make one comment. I have been greatly assisted by Senior Counsel who appeared for Mr Hall on this appeal. I do not believe, however, that party party costs, which I am about to award against the Owners' Corporation, should include Senior Counsel. Orders. 102 The orders I make are as follows: 1. The Summons by the plaintiff (the Owners' Corporation) is dismissed. 2. The plaintiff should pay the defendant's costs on the Summons, such costs not to include Senior Counsel. 3. The defendant's cross appeal against the order of the Local Court refusing costs is upheld in part. 4. In lieu thereof, the Owners' Corporation should pay the defendant's costs of the Local Court proceedings, such costs to be assessed on an indemnity basis from 23 November 2007. 5. The defendant should also have 75% of his costs on the Cross Summons, such costs not to include Senior Counsel. 6. I order that the defendant, Mr Hall, is exempted from the payment of the costs orders made against the Owners' Corporation in paragraphs (2), (4) and (5) above. ********** 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.