Case note: Section 80D – Court of Appeal Win for Owners Corporations

The NSW Court of Appeal has upheld a decision of the Supreme Court in favour of owners corporations. The case of 2 Elizabeth Bay Road Pty Ltd v The Owners – Strata Plan No 73943 is the latest win in a series of cases where the developers and builders have attempted to use non-compliance with section 80D of the Strata Schemes Management Act 1996 (NSW) to have building defects proceedings struck out or dismissed.

The argument

Section 80D requires an Owners Corporation to pass, at general meeting, a resolution authorising the seeking of legal advice or the initiation of legal proceedings. Briefly, the argument being used is that if an owners corporation has commenced legal proceedings but not complied with the requirements of section 80D, those proceedings are either invalid or null and void. If successfully argued, the proceedings could be dismissed. This would mean that if the owners corporation was out of time to commence new proceedings it would be left with a strict liability to repair building defects under section 62 of the Act and no means to recover the costs from the builder/developer.

In this case the owners corporation was in danger of being out of time to commence a building defects claim under the statutory warranties in the Home Building Act 1989 (NSW). The executive committee authorised the filing of a statement of claim and the owners corporation, at its AGM approximately 5 months later, ratified the executive committee’s decision. The Supreme Court heard the developer’s motion to have the claim struck out or dismissed on the basis that section 80D had not been complied with and dismissed the motion. The developer then appealed.

The NSW Court of Appeal decision

On 5 December 2014, the NSW Court of Appeal handed down its decision in 2 Elizabeth Bay Road Pty Ltd v The Owners – Strata Plan No. 73943. The three members of the Court determined that:

  •  The owners corporation had breached s80D by commencing legal action without previously passing a resolution authorising the action at a general meeting;
  •  The legal action brought in breach of s80D was not however invalid and therefore it need not necessarily be struck out; and
  •  Justice Hammerschlagg in the Supreme Court was correct in dismissing the developers motion.

The Court, while all agreed in dismissing the appeal were split 2:1. Their Honours Basten and Leeming JA determined that the owners corporation had the capacity and the right to commence proceedings but did so contrary to section 80D. The language of section 80D did not deny jurisdiction however or require it to be exercised in a particular way. This meant there was discretion in respect of exercising the procedural rules of the Court. In the circumstances where the breach of s80D was cured promptly they determined that the Supreme Court’s decision should be upheld. Their Honours did not make a determination on the basis of whether or not the executive committee’s decision could be ratified.

His Honour Justice Barrett’s decision revolved around the ratification point. His Honour held that the executive committee was not authorised to initiate legal proceedings but that the owners corporation had the power to do so. Using this reasoning when section 80D was read in the context of the Strata Schemes Management Act as a whole it meant that the executive committee’s decision to initial legal proceedings was not ultra vires as it was an act that the owners corporation was itself was capable of taking. Therefore the commencement of legal proceedings was capable of being cured by the owners corporation ratifying the executive committee’s decision at a general meeting.

What does this mean for Owners Corporations?

If at all possible owners corporation’s should comply with the requirements of section 80D prior to seeking legal advice or services or commencing legal action. However, time constraints mean that this may not always be possible for example, where a lot owner is conducting unauthorised structural work to the common property and an urgent injunction is required to prevent further damage. In this situation there would be no time to comply with the notice requirements of a general meeting (in fact there may be no time to hold an executive committee meeting). Provided that the owners corporation promptly (and after full disclosure) cured the action by approving or ratifying the executive committee’s decision to commence proceedings by passing a s80D resolution at general meeting the NSW Court of Appeal’s decision could be used as authority to defend a strike out motion by the defendant.

For further information about an owners corporation’s duties I have previously written about the requirements of section 80D on my blog: www.allisonbensonau.com see “Section 80D: What is it? Why is it important? How to get your ducks in a row”)and in the case note “Section 80D In Question Again” published on Kerin Benson Lawyers’ linked in page.

Kerin Benson Lawyers

Author: Allison Benson

Office: Sydney & Newcastle

Email: allison@kerinbensonlawyers.com.au

Date: 31 August 2014

Case: 2 Elizabeth Bay Road Pty Ltd v The Owners – Strata Plan No 73943 [2014] NSWCA 409

Posted in Case Review, NSW, Strata Disputes and tagged , , , , , , , , , , .