NSWCA Absolves Stratas of Section 62 Statutory Duty Damages Claims

September, 2013

An aspect of the decision in The Owners – Strata Plan No. 50276 v Thoo [2013] NSWCA 270 which requires an article all of its own, is its finding that a breach of section 62 of the Strata Schemes Management Act 1996 (“SSMA”) by an owners corporation does not give rise to a claim in damages. This overturns what had been understood to be the law until now.

The Decision in Thoo

In the earlier New South Wales Supreme Court (“NSWSC”) judgment the subject of the appeal, Justice Slattery relied on Lubrano v The Proprietors of Strata Plan No 4038 (1993) 6 BPR 13,308 to find that the Owners Corporation owed a statutory duty under section 62 of the SSMA to maintain the common property, the breach of which gave rise to a claim for damages. Lin v The Owners – Strata Plan No 50276 [2004] NSWSC 88 cited Lubrano, as did Seiwa Pty Ltd v The Owner of Strata Plan 35042 [2006] NSWSC 1157.

However, the New South Wales Court of Appeal (“NSWCA”) in Thoo said none of the judges in Lubrano specifically addressed the question of whether a breach of the statutory duty gave rise to a private cause of action, and that Seiwa also did not deal with the statutory duty question (as the issue had been dropped shortly before Hearing and thus had not been argued and tested before the Court). It also found that in the decision of Trevallyn-Jones v Owners Strata Plan No 50358 [2009] NSWSC 694, referred to Lubrano and Seiwa, the owners corporation did not dispute that a private right to damages arose by reason of breach of section 62 (meaning the issue had not been tested).

The NSWCA noted that Nicita v Owners of Strata Plan 64837 [2010] NSWSC 68 noted that it was “well established”, and “clearly stated” in Seiwa, that section 62 created a statutory duty. However, it was also noted that Nicita acknowledged the comments in Ridis v Strata Plan 10308 [2005] NSWCA 246 that the system of adjudication established under Chapter 5 of the SSMA existed to deal with disputes as to an owners corporation’s obligations.

The NSWCA noted that McColl J said in Ridis that the lot owner did not assert a statutory cause of action arising from section 62 and relied on common law negligence.

The NSWCA acknowledged that Justice McColl’s comments on the issue of the statutory duty not giving rise to a claim for damages were “obiter dicta” (meaning they were comments made in passing, rather than being the basis of the reasons for the actual decision, referred to as “ratio decidendi”), and noted that Justice Slattery in the earlier Thoo decision being appealed found Justice McColl’s observations in Ridis were not an impediment to find that a breach of section 62 gave rise to a claim in damages.

The Owners Corporation submitted that Justice Slattery should have followed McColl J in Ridis rather than Seiwa, Trevallyn-Jones and Lin as done (and as argued by Dr Thoo).

The question of whether a breach of statutory duty gives rise to a cause of action in damages is a question of legislative intention and legislative language.  The Owners Corporation submitted that it was relevant whether the legislation provides for an alternative remedy, as the existence of Chapter 5 in the SSMA caused Justice McColl to find a breach of section 62 did not give rise to a claim in damages, and that Ridis should therefore be preferred to contrary decisions.

The NSWCA noted that the SSMA sets out to provide for the management of strata schemes and resolution of disputes. Under Chapter 5, an Adjudicator has power to make orders to deal with disputes, which can be appealed to the Consumer, Trader and Tenancy Tribunal and then the New South Wales District Court. The orders of an Adjudicator have effect as a resolution of the owners corporation to do what is necessary to comply with an order of the Court. Accordingly, if the order was to comply with section 62 to repair or replace common property and the owners corporation failed to do so, the obvious remedy would be a mandatory injunction. Section 138(3)(d) provides that an Adjudicator cannot make an order for payment of damages. The NSWCA found this was an indication that such disputes be resolved in a manner not involving the payment of damages.

The NSWCA held that Ridis found, albeit “obiter”, that a breach of section 62 did not allow for a claim for damages because the legislature intended an Adjudicator under Chapter 5 to regulate compliance with section 62 and it had no power to order damages. The NSWCA ultimately found that the approach of Justice McColl should be preferred to the various NSWSC cases cited by Thoo as to the intention of the legislature, although Justice Slattery was entitled to prefer the contrary decisions as he had (they just disagreed).

The NSWCA also found that neither decision in Proprietors of Strata Plan No 30234 v Margiz Pty Ltd nor MacLeod v Proprietors of Strata Plan No 6544 [1980] 2 NSWLR 691 dealt with the issue of whether the equivalent section in the strata legislation prior to section 62 gave rise to a private right to an action in damages. Indeed, Margiz found no such right.

Conclusion

The decision in Thoo throws out what was understood to be the law established by repeated decisions over decades, based on obiter in Ridis.

The NSWCA appears to do this on the basis the various previous decisions that seemed to provide findings to this effect had not dealt with the specific question, while Justice McColl’s obiter comments had dealt with it and the NSWCA agreed with Justice McColl’s reading.

In our view, the reasoning for ignoring Nicita is not clear, although by implication the Court in that case was following earlier decisions which the NSWCA found did not establish what Nicita said had been established.  The NSWCA in Thoo also does not seem to have considered Riley v The Owners – Strata Plan 73817 [2012] NSWCA 410 (which analysed Ridis), although whether the decision would have been different had it had regard to this decision is difficult to say (and would probably need another article again).

The entire approach of the NSWCA seems to be founded on an analysis that Chapter 5 provides a comprehensive scheme for dealing with strata disputes, including those involving section 62. The logic seems to be that, as the scheme explicitly cannot order payment of damages, such cannot be claimed for a breach of section 62.

However, a question that is not explicitly dealt with is what if the only remedy for part or all of the breach is damages? Ensuring an owners corporation undertakes repairs is only a partial remedy if failure to comply with section 62 has caused other damage. For example, if the roof is leaking in a strata scheme and the water ingress causes damage to internal fitting and fixtures, such as furniture and electrical goods, it would seem that Adjudicator’s orders to do work or a mandatory injunction enforcing such would not be an effective remedy in that regard. Similarly, damages appear to be the only adequate remedy to compensate owners for the costs of alternative accommodation if they have to move out while the roof is rectified.

The decision in Thoo would seem to leave open a claim for damages in negligence, as opposed to for a breach of statutory duty. Indeed, the NSWCA says that in Ridis the appellant relied on a breach of section 62 as evidence of negligence (although a breach was apparently not conclusive evidence of such negligence having occurred). A negligence case would still need to be proven, but is still apparently open to persons suffering damages.

Given these types of disputes do arise the issue will almost certainly come before the Courts again in the future. However, it would seem likely the Court of Appeal will need to deal with the issue if it is to be to a different conclusion, as the lower courts will usually find themselves bound by this decision, unless Parliament provides some clarification or guidance prior to then.

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