New South Wales Supreme Court CITATION : Owners Corporation SP 70672 v Trustees of Roman Catholic Church [2010] NSWSC 946 HEARING DATE(S) : 23 August 2010 JUDGMENT DATE : 30 August 2010 JUDGMENT OF : Ball J DECISION : See paragraphs 19-21 of judgment. CATCHWORDS : PRACTICE AND PROCEDURE - proceedings - separate questions - where some issues might be more appropriately determined by an expert in accordance with agreement - whether part of proceedings should be stayed Civil Procedure Act 2005 (NSW) Contracts Review Act 1980 (NSW) LEGISLATION CITED : Strata Schemes (Freehold Development) Act 1973 (NSW) Strata Schemes Management Act 1996 (NSW) Uniform Civil Procedure Rules (NSW) CATEGORY : Procedural and other rulings Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464 CASES CITED : Ipoh v TPS Property No 2 [2004] NSWSC 289 Strategic Publishing Group Pty Limited v John Fairfax Publications Pty Limited [2003] NSWSC 1134 Tepko Pty Ltd v Water Board (2001) 206 CLR 1 PARTIES : The Owners Corporation Strata Plan 70672 (Plaintiff/Respondent) The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (Defendant/Applicant) FILE NUMBER(S) : SC 2009/289761 Greg Sirtes SC (Plaintiff/Respondent) COUNSEL : Ms J Chambers (Plaintiff/Respondent) I Jackman SC (Defendant/Applicant) Ms G Wright (Defendant/Applicant) SOLICITORS : DTA Lawyers (Plaintiff/Respondent) Corrs Chambers Westgarth (Defendant/Applicant) - 9 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BALL J 30 AUGUST 2010 2009/289761 THE OWNERS CORPORATION STRATA PLAN 70672 v THE TRUSTEES OF ROMAN CATHOLIC CHURCH FOR ARCHDIOCESE OF SYDNEY JUDGMENT 1 This is an application brought by the defendant for orders that certain questions raised by paragraphs 1 to 15 of the amended statement of claim filed by the plaintiff be determined separately and that the balance of the proceedings be stayed until the determination of those questions. 2 The proceedings concern what is known as the Cove Development, which consists of two strata parcels in deposited plan 1053387. One parcel (Lot 1) comprises the strata scheme known as the "Cove Apartments", which consists of residential units and seven levels of underground parking. The other parcel (Lot 2), which is owned by the defendant, consists of three levels of underground parking and commercial premises. 3 In accordance s 28R of the Strata Schemes (Freehold Development) Act 1973 (the SS Act), the strata management statement in respect of the Cove Development (the SMS) was registered with the Registrar-General on 5 September 2003. 4 Section 28U(1) of the SS Act relevantly provides: "The registered strata management statement may be amended only if the amendment is: (a) supported by a special resolution of the body corporate for each strata scheme for part of the building concerned and by each person in whom is vested an estate in fee simple, in any part of that building or its site that is not included in a stratum parcel, or (b) ordered under this or any other Act by a court, or …" 5 Section 28V(1) of the SS Act provides: "(1) The Registrar-General may register a strata management statement or any amendment of such a statement only if the statement or amendment: (a) is lodged with a certificate given by the secretary of the body corporate for each strata scheme (if any) for a part of the building concerned certifying that the statement is supported by a special resolution of the body corporate, and (b) has been signed by each person in whom is vested an estate in fee simple, recorded in a folio of the Register kept under the Real Property Act 1900 , in a part of the building or its site that is not included in a stratum parcel (whether or not it is included in a proposed stratum parcel), and (c) has been signed by every mortgagee, chargee or covenant chargee under a mortgage, charge or covenant charge recorded in a folio of that Register recording such an estate." Section 28V(2) provides that the Registrar-General can also require the consent of others claiming an interest in any common property affected by the statement. 6 Section 28W provides that a registered strata management statement has effect "as an agreement under seal" between: "(a) a body corporate of a strata scheme for part of the building, or (b) a proprietor, mortgagee in possession or lessee for the time being of any of the lots in such a strata scheme, and (c) any other person in whom the fee simple of any part of that building or its site (being a part affected by the statement) is vested for the time being, or the mortgagee in possession or lessee of any such part." By s 28W(2), the parties to the agreement are taken to covenant to carry out their obligations under the statement and to permit the carrying out of those obligations. 7 Clause 15 and Schedule 1 of the SMS sets out a list of shared facilities and how the cost relating to those facilities are to be borne. It provides that the cost of insurance is to be shared between Lots 1 and 2 in accordance with the Strata Schemes Management Act 1996. Section 84 of that Act says, in effect, that the insurance premium for building insurance is to be shared between Lots 1 and 2 in proportion to the replacement value of that part of the building that falls within each lot. With one irrelevant exception, the SMS provides that all other shared costs are to be borne as to 5 per cent by Lot 2 and as to 95 per cent by Lot 1. 8 Under cl 20.1 of the SMS, the statement may be amended by unanimous resolution of the committee established by the statement. That committee consists of representatives of both lots. Clause 21.1 of the SMS states that "the rights of the Owner of Lot 2 may not be decreased and the obligations may not be increased except with the express consent of the Owner of Lot 2". 9 The SMS contains, in cl 16, a dispute resolution procedure. Except for debts, all persons bound by the SMS must deal with disputes about the statement according to that procedure. Under that procedure, if the parties cannot resolve a dispute within 28 days after it has been notified, the dispute must be referred to a Strata Schemes authority pursuant to chapter 5 of the Strata Schemes Management Act 1996 or to an independent expert for determination. Clause 16.9 provides: "No Owner is entitled to commence or maintain any action, whether by way of legal proceedings or arbitration, relating to any dispute until it has been referred and determined as provided in this clause 16." 10 A dispute has arisen between the parties concerning the sharing of shared costs. 11 These proceedings were originally commenced by way of summons. In the summons, the plaintiff sought an order pursuant to s 28U(1)(b) of the SS Act varying the terms of the SMS. The principal variation sought was to vary the proportion of shared costs paid by the parties so that 17.23 per cent of those costs were attributed to Lot 2 and 82.77 per cent were attributed to Lot 1. 12 The defendant made an application for the proceedings to be dismissed under UCPR r 13.4(1)(b) on the basis that they disclosed no reasonable cause of action. The defendant argued that s 28U did not give the court power to amend a strata management statement. Rather, it imposed a precondition to amendment in circumstances where the right to amend was found elsewhere. In this case, that right is contained in the SMS, which requires unanimity of the Committee and consent of the defendant – things which have not been obtained. Although Forster J thought that there was some force in the defendant's argument, his Honour was not prepared to dismiss the proceedings summarily. Instead, his Honour ordered that the proceedings continue on pleadings. 13 By its amended statement of claim, the plaintiff pleads: a The SMS is a contract which was not executed by or on behalf of the plaintiff and consequently is not binding on it (para 1-5); b The SMS was registered in contravention of s 28V(1)(a) of the SS Act because the plaintiff had not passed nor has it ever passed a special resolution in support of the statement (para 7-9); c The SMS is liable to be set aside or varied under s 7 of the Contracts Review Act 1980 (NSW) because, at the time it was drafted, executed and registered, the plaintiff did not exist and therefore did not have an opportunity to negotiate its terms or to obtain advice in relation to it (para 10-12); d The defendant engaged in unconscionable conduct in preparing and registering the SMS because the plaintiff was at a special disadvantage (as it was not involved in the drafting or adoption of the statement) and there was no proper basis to conclude that the defendant's usage of the shared facilities would only be 5 per cent (para 13-15); e In breach of the SMS, the defendant has failed to pay its share (that is, 5 per cent) of shared costs in accordance with the statement (para 16-21); f The replacement value of the part of the building owned by the plaintiff is 88.63 per cent of the whole and the replacement value of the defendant's part is 11.37 per cent of the whole. Consequently, the plaintiff and the defendant should share the costs of the insurance in the proportion of 88.63:11.37 respectively. In breach of the SMS, the defendant has failed to pay its share (para 22-27); g The defendant has refused to pass motions to amend the SMS so as to bring the parties' contributions to shared costs in line with their respective use of the shared services in breach of cl 18.10 of the SMS and, in those circumstances, the SMS is liable to be amended by the court pursuant to s 28U of the Act (para 28-32). 14 Prior to the hearing of the current application, the plaintiff indicated that it proposed to seek leave to file a further amended statement of claim. A final draft of that claim was subsequently provided to me. Essentially, the amendments raise a further claim to the effect that a dispute has arisen between the parties concerning the proportion in which shared costs should be paid, that dispute should be referred for expert determination in accordance with cl 16 and there should be implied in the SMS terms requiring the parties to give effect to any determination reached by the expert. 15 The defendant's application is that the issues that I have identified as a, b, c and d should be determined separately. In support of that application, Mr Jackman says that, if the plaintiff is successful in relation to those issues, the remaining issues will not arise. On the other hand, if the defendant is successful, the parties have agreed in the SMS to refer the remaining issues to expert determination in accordance with cl 16. 16 There is not a serious dispute between the parties concerning the principles applicable to the question whether the court should order separate determination of one or more issues in a case. Mr Jackman points to some recent authority – such as Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464 – where it has been suggested that, since the passing of the Civil Procedure Act 2005, particularly s 56, courts should be more willing to identify separate questions which, if determined, can resolve significant parts of the litigation expeditiously. Nonetheless, the position remains that the determination of separate questions should generally only be ordered if the court is satisfied that doing so will "facilitate the quicker and cheaper resolution of the proceedings": Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 at [7(6)] per Einstein J. In considering that question, the court needs to bear in mind that, while superficially it may appear attractive to order separate questions, experience often shows that that is not the case because, for example, of the complications that can arise in relation to appeals or to overlapping factual issues or to questions of credit, if the same witnesses have to give evidence in relation to questions that are separated and those that are not: see Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at 55 per Kirby and Callinan JJ; Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 at [7(6)] per Einstein J. 17 There are two features about this case which, in my opinion, are particularly relevant to the issue whether the court should make an order for a hearing of separate questions in this case. The first is that the parties have agreed in the SMS that certain questions should be determined in accordance with the dispute resolution procedure set out in cl 16 and that neither party is entitled to commence proceedings in relation to those issues until they have been determined in accordance with that clause. The court starts with the proposition that the parties should be held to their agreement: Strategic Publishing Group Pty Limited v John Fairfax Publications Pty Limited [2003] NSWSC 1134; Ipoh v TPS Property No 2 [2004] NSWSC 289. That is particularly so where, as here, the issues in question turn on matters of expertise – such as the value of different parts of the relevant buildings for the purposes of determining how the insurance premium should be divided between Lots 1 and 2. In my opinion, there is no reason why the parties should not be held to their agreement in this case, at least in so far as that agreement relates to the determination of matters such as value. 18 The second feature of this case is that some of the issues raised by the plaintiff concern the scope and application of cl 16. In particular, one question is whether a deadlock between the parties concerning an amendment to the SMS to alter the proportions in which costs are shared is a dispute to which cl 16 can apply. Another related question is whether the expert can make a determination that is binding on the parties in relation to the proportion in which costs are to be shared notwithstanding cl 21.1. There is a question whether cl 16 applies to a determination of this issue. Even if it does, there seems little point in requiring the parties to submit that issue to determination by an expert in circumstances where the defendant has already indicated that it does not regard itself as bound by an expert's determination of that issue. Moreover, it seems sensible if all issues concerning the construction of cl 16 were dealt with together. 19 It follows from these two points that some part of the proceedings ought to be stayed – that is, that part which is properly the subject of an expert determination under cl 16. On the other hand, it seems to me that there are issues concerning the scope and application of cl 16 which ought to be determined by the court before any expert determination. If those issues are determined adversely to the plaintiff, that will obviate the need for an expert determination of those issues at all. If they are determined favourably to the plaintiff, that will provide a proper context in which the expert determination is to occur and, in doing so, is likely to facilitate a quick determination by the expert. There is no reason why those issues should not be determined at the same time as the issues raised by paragraphs 1 to 15 of the amended statement of claim. Similarly, I cannot see any reason why the court should not determine at that time other legal issues raised by the amended statement of claim – such as whether the court has power to amend the SMS pursuant to s 28U of the SS Act. Those issues are not likely to involve a substantial amount of court time and, it seems to me, there would be efficiencies in having the court determine all issues concerning the construction of the SMS at the same time. 20 There was some discussion at the hearing of this application about the form of any separate questions. It may well be easier in this case to identify the issues that should not be determined by the court rather than those that should. One possibility, for example, is to make an order that all questions raised by the proposed further amended statement of claim other than questions concerning what adjustment, if any, should be made to the proportion in which Shared Costs (as defined in the SMS) are payable and the amount of Shared Costs that are payable by the parties be determined separately. However, I think that it is appropriate to invite the parties to bring in short minutes of order that are consistent with the conclusions that I have reached. If the parties can agree, I will make those orders in chambers. If not, the parties should contact my associate to fix a time for the issue to be dealt with. 21 I think that the appropriate order in relation to costs is to reserve the question of costs. Again, however, if either party contends that some other order should be made, the parties may approach my associate for a time to make an application in that respect. ********** 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.