Section 62 of the Strata Schemes Management Act 1996 (NSW) establishes the strict liability of an owners corporation to maintain and repair its common property. The ability of a lot owner to sue for damages for a breach of section 62 was however limited by the decision of the NSW Court of Appeal in The Owners Strata Plan 50726 v Thoo [2013] NSWCA 270 (Thoo).

Thoo reiterated the principle that an owners corporation holds the common property on trust for lot owners. It is also authority that a lot owner is not entitled to damages for a loss of increased rent on the basis that the Owners Corporation breached its statutory duty under section 62 to maintain and repair common property. The High Court approved this decision by refusing special leave to appeal in Thoo v Owners – Strata Plan No 50276 & Ors [2014] HCASL 79.

Thoo left the possibility open that a lot owner may take a claim in negligence against an owners corporation for its failure to maintain and repair its common property. The ability to claim in negligence was considered in a recent Supreme Court decision as was the ability of a lot owner to make a claim for equitable compensation for a breach of trust.

The claim arose out of a levy recovery action commenced by an owners corporation in the Local Court. The lot owner cross claimed for damages for loss caused by an alleged breach of section 62 arising out of the owners corporation’s failure to repair common property adjacent to the lot and the matter was transferred to the District Court. As Thoo prevented the lot owner from continuing their claim for damages under the statutory duty, the lot owner sought to amend their cross claim.

Essentially, the proposed amended damages claim was that the lot owner’s loss was due to:

– the owners corporation’s negligence in failing to maintain and repair the common property; and / or

– a breach of trust by the owners corporation in that either:

  • section 62 was a term of the trust requiring the owners corporation to maintain and repair the common property and that this trust term was breached; or
  • the owners corporation breached its fiduciary duty as a trustee by preferring its own interests over those of lot owners or that it had a conflict of interest in pursuing the builder for damages to try to avoid the need for a special levy.

The question of whether the District Court had jurisdiction to hear the matter was raised and the question was referred to the Supreme Court. Interestingly, in respect of the claim for negligence the Owners Corporation sought to rely on the recent decision in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36 (Brookfield Multiplex) as authority that the lot owner could not claim for economic loss as they were not vulnerable in the relevant sense.

His Honour Justice Brereton in determining whether the District Court had the jurisdiction to determine the proposed amendments to the claim held that:

1. in respect of the negligence claim:the lot owner’s claim for damages in negligence was not doomed to failure, that if the District Court did not have jurisdiction (which it did) the proposed amendments would have been allowed by the Supreme Court;

  • a lot owner who bought a lot from a previous owner (and not the body corporate) may not be in a position to adequately protect itself by contract from the acts or omissions of the owners corporation and therefore they may be vulnerable;
  • the lot owner’s claim was not just based on economic loss but was also based on loss caused by physical damage to the lot;

2. in respect of the claim in equity for breach of trust it was held to be untenable:

  • as the owners corporation was a bare trustee, had no relevant active duties to perform, and “[t]he statutory obligation to maintain common property under s 62 is not a term of the trust, and no breach of trust is involved in breaching that duty”; and also
  • as the failure to maintain the common property could not be a conflict of interest by the owners corporation as a trustee as it is not an aspect of its trust obligations.

The Supreme Court ultimately held that held that the District Court did have jurisdiction to hear the negligence claim and the lot owner’s application to amend their cross claim will be determined in the District Court, with that Court no doubt taking note of the Supreme Court’s reasoning.

As the ability to claim in negligence against an owners corporation was not ultimately decided, the possibility for a lot owner to do so remains open following Thoo. Given the reasoning by Justice Brereton it seems likely even should a Brookfield Multiplex argument be made.