Warranto v Goodman: UE reallocation & s87

Quo Warranto Pty Ltd v Goodman [2022] NSWCATAP 315

In short

1. Section 87 does not empower the Tribunal to alter an individual contribution without altering the overall amount of the aggregate contributions.

2. No power under s232(1) to ‘fill the gap’ of s87’s inapplicability.

3. The power in s232(1) is broad, but not limitless.

4. The power to make an order under s232(1) is only enlivened where substantive rights and obligations exist at law.

Background

The matter relates to a four-lot scheme in Point Piper where disputes arose between the lot owners as to the repair and maintenance of common property. In March 2019, a compulsory strata managing agent was appointed, in part due to the internal disputes. Broadly, two differing opinions arose between two lot owners and the other two lot owners. At that time, the distribution of the unit entitlements was 25% and 30% (totalling 55% for one faction), and 25% and 20% (totalling 45% for the other).

In May 2020, work commenced to attend to common property in disrepair.

In June 2020, one of the minority faction owners commenced an application to reallocate the unit entitlements.

In August 2020, the owners corporation struck a special levy of $950,000, payable on 1 September 2020. Shortly thereafter, the contractors suspended work due to non-payment.

In October 2020, one of the minority faction owners sought and obtained an order appointing a different compulsory manager, who, in November 2020, subsequently proceeded to rescind the special levy and re-raise it in the same amount.

In December 2020, the application to reallocate unit entitlements was resolved by consent of the active parties. The unit entitlement was then changed respectively to 15% and 24% (totalling 39%) and 33% and 28% (totalling 61%).

The Tribunal’s orders varying the unit entitlements were lodged with LRS in February 2021.

As a result of the unit entitlement reallocation, the respondents’ unit entitlement decreased while the appellant’s increased.

The law

Section 87 of the Strata Schemes Management Act 2015 provides that the Tribunal may make an order for payment of contributions in a different amount and/or in a different manner if satisfied that the amount is inadequate or excessive, or the manner of payment is unreasonable.

First instance

In April 2021, the respondents commenced proceedings seeking to vary the November 2020 contribution to reflect the revised unit entitlement distribution, requiring a lower payment on their part. The appellant was a party to those proceedings but did not participate.

The Tribunal found that:

1. the levy was not excessive;

2. the contributions were to be calculated according to the unit entitlements when the levy was struck in November 2020;

3. section 87 does not confine the Tribunal’s assessment to the time when the levy was raised, thereby enlivening its powers to grant relief under section 87;

4. the power under 232(1) can be enlivened to grant relief if section 87 does not apply; and

5. it should exercise its discretion, arising under section 87, section 232 or both, to grant the relief sought and make an order altering the amounts payable.

The appeal

The appellant appeals the decision in relation to the findings relating to section 87, section 232, and the exercise of discretion.

The appeal concerned questions of law for which leave to appeal was not required. The questions on appeal were relevantly:

1. whether s87(1) empowered altering the contribution;

2. whether s232(1) empowered altering the contribution; and

3. if so empowered under either, whether the discretion to exercise that power miscarried.

Section 87

• Calculation of the contribution payable must be based on the unit entitlement shown on the schedule of unit entitlement in the folio for the common property in the scheme.

• The Owners – Strata Plan No 76830 v Byron Moon Pty Limited [2020] NSWCATAP 186 was endorsed.

• The words “any amount levied or proposed to be levied by way of contributions” refers to the aggregate amount levied, and not to a particular contribution to the amount levied.

• The words “manner of payment of contributions” refers to the way in which contributions are to be paid (ie lump sum or instalments to be paid immediately or at a later date by EFT or cheque).

Ground of appeal established in finding that the power under section 87 arose to vary an individual contribution in the absence of finding that the aggregate amount levied was inadequate or excessive, or that the manner of payment was unreasonable.

Section 232

• The levying of contributions falls within paragraphs 232(1)(a) and (f).

• While the power in 232(1) is broad, it is not limitless.

• The considered authorities do not support a conclusion that the Tribunal can make any order it wants in the absence of a cause of action arising from a substantive legal right or obligation.

• Section 232(1) empowers the Tribunal to make orders in circumstances where substantive rights and obligations exist, being a cause of action arising under the Act, by-laws, other statute or general law.

• The Tribunal was not satisfied that a substantive right is created by section 9(2) to enliven the order making power under section 232(1).

• Rejected the proposition that the owners corporation had an obligation under section 9(2) to alter contributions to a special levy raised before an order varying unit entitlement takes effect.

• Relied on North East Developments [2007] NSWSC 1063 for the proposition that an order varying unit entitlements is not effective until recorded in the Register under section 247.

• Contributions are to be calculated in accordance with unit entitlements as recorded on the Register at the time the contribution is calculated (save for some express exceptions), with the contribution levied on each lot owner by giving the owner written notice of the contribution payable.

Outcome

The appeal was upheld and the order for payment of levies in a different amount at first instance was set aside.