SP74232 v Tezel: NSWCA on s106(6) time bar

The Owners – Strata Plan No 74232 v Tezel [2023] NSWCA 35

In short

1. A lot owner ‘first’ becomes aware of loss at a single point in time, starting the 2 year time limit.

2. A claim for s 106(5) damages, especially loss of rent, will be time barred if the owner was aware of that loss more than 2 years before commencing the action.

3. Cl 8, Sch 4 of the NCAT Act may provide recourse for a lot owner that has exhausted their s 106(5) cause of action, but where the breach and loss continues after judgment.

4. The Court declined to provide any guidance on the Tribunal’s power to award post judgment damages.

Background

The lot owner respondent observed water leaking into her Bondi Beach apartment following heavy rain in 2013, causing her to permanently vacate the apartment. The lot was deemed unoccupied from 2016 following failed attempts to rent it.

In November 2020, the respondent commenced proceedings in the Tribunal under s 106(5) seeking to recover two years’ loss of rent from November 2018. The Tribunal dismissed the application at first instance, finding that the proceedings were time barred by s 106(6). The lot owner successfully appealed that decision in the Appeal Panel. The owners corporation applicant successfully appealed from that decision in the NSW Court of Appeal.

The law

Section 106 of the Strata Schemes Management Act 2015 provides that:

• (5) an owner of a lot may recover from the owners corporation, as damages for breach of statutory duty, any reasonably foreseeable loss suffered by the owner as a result of a contravention of [s 106] by the owners corporation; and

• (6)  an owner may not bring an action under [s 106] more than 2 years after the owner first becomes aware of the loss.

The Question

Especially relevant to loss of rent, whether “the loss” is the concept of loss of rent as a whole, or the loss of each day’s lost rent accruing on a rolling and daily basis. Essentially, can a lot owner recover the last 2 years’ lost rent for 5 years of vacancy, or would the entire claim be time barred?

Decision

The grounds of appeal were that the Appeal Panel:

1. erred in its construction of the words “the loss” in s 106(6) as referring to the loss occasioned only when an ongoing breach ceases; and

2. should have instead upheld the first instance construction, rendering the claim time barred.

The Court accepted the applicant’s submission that the phrase “first becomes aware of the loss” should be construed to mean the time at which the owner was first aware of the kind or type of loss the subject of the application. The Court accepted the further submission that the loss (to which awareness attaches) does not recur on a rolling basis until the statutory breach is remedied.

The Court upheld the Tribunal’s first instance finding that the respondent first became aware of loss of rent in 2016 when she was unable to rent the apartment. An alternative construction whereby the loss is ‘first’ discovered on each day of lost rent was deemed artificial and gave the word ‘first’ no work to do in the legislative framework.

The Court noted that the enactment of s 106(5) was a protective measure for lot owners to recover their losses from an owners corporation in breach of its statutory duty, subject to that action being brought within two years. Contrast was made between the time limit starting from the date of the cause of action (the statutory breach) and the date on which the loss first becomes known, which may be unknown for some time after the statutory breach.

The Court accepted the applicant’s submission that the statutory purpose of the time limit was to ensure that a lot owner not delay in bringing proceedings, as an owners corporation’s right of recovery against others may be prejudiced by the passage of time. The alternative argument, that only two years’ worth of loss of rent could be claimed, was rejected.

The appeal was upheld.

Test

While not expressed as a test, the Court framed the question posed by section 106(6) as: when did the lot owner first become aware of the loss that s 106(5) entitles a lot owner to recover (subject to establishing the elements of the cause of action)?

Miscellaneous

• Suggestion was made in obiter that a lot owner may have a right of recourse under a renewal application if an owners corporation continues its statutory breach, continuing the loss the subject of the proceedings, after a decision has been made.

• The Court made no comment and took no issue with the Tribunal having no jurisdictional limit (monetary ceiling on damages).