Flammable Cladding Action Group

The Owners Corporation Network (OCN) is calling on all residential owners facing potential financial imposts due to flammable cladding to contact the OCN on eo@ocn.org.au ASAP, to be part of a Flammable Cladding Action Group.

The OCN has seen the benefits of strata owners pooling resources to resolve shared challenges. In addition, OCN is holding a seminar:

 Simplifying Strata – Successfully Managing Building Defects & Major Projects on Saturday 6 October 2018, 9.00am – 11.30am, at the Kirribilli Club

to assist people dealing with building defects, flammable cladding or looking to carry out major projects.  Cost for non-members is just $55 (incl GST), which includes OCN membership to 30 June 2019.

The Minister for Innovation and Better Regulation, The Hon. Matt Kean will open the session, outlining recent regulatory changes which will benefit strata owners.

OCN will introduce you to Better Living in Strata (BLISS!).  OCN is run by strata owners for strata owners with the aim to deliver Better Living in Strata Schemes for the increasing number of people choosing to make strata home.

Global building specialists, Sedgwick (formerly Sergon), will explain how to successfully manage building defects identification and resolution, including combustible cladding, as well as major repairs and upgrade projects.

For more information and to book, visit www.ocn.org.au/events.

University Research Project on Building Defects

Deakin and Griffith Universities are undertaking a research project on building defects. One part of the project involves interviewing stakeholders (including committee members) about their experiences and opinions dealing with building defects.

All participant information will be re-identified to provide anonymity.

If you are interested and available, the researchers can interview you via teleconference at any time between now and mid-December 2018.

If you are a committee member who is interested in participating, please email Christopher Kerin (christopher@kerinbensonlawyers.com.au) who will forward your details onto the relevant academics.

Building Defect Bond Scheme

The website Sourceable has reviewed the new building defect bond scheme which came into force on 1 January 2018 under the Strata Schemes (Management) Act. Christopher Kerin is quoted in relation to some of the issues surrounding the new scheme. To read more, click here.

The Owners Corporation, it’s statutory duty to maintain the common property and liability under section 106(5)

The NSW Civil & Administrative Tribunal’s Appeal Panel today handed down a decision that will significantly affect a number of lot owners and owners corporations. The decision was that of The Owners – Strata Plan No 30521 v Shum [2018] NSWCATAP 15.

In the case below Mr Shum had been successful in obtaining compensation under section 106(5) of the Strata Schemes Management Act 2015 (the “SSMA”) for damage to his lot property and loss of rent when his commercial lot was subject to severe water penetration. Mr Shum also received interest on the amount awarded for his loss of rent. The Owners Corporation appealed the decision challenging both the jurisdiction of the Tribunal to award damages and the decision that s106(5) was retrospective in awarding damages for losses incurred prior to 30 November 2016 (the SSMA’s commencement date).

The Appeal Panel has now set the boundaries for a lot owner’s ability to claim damages under s106(5) of the SSMA. Key points to take away from the decision are:

  • NCAT has jurisdiction to award damages pursuant to section 232 for an owners corporation’s breach of its statutory duty under section 106;
  • NCAT’s jurisdiction to award damages has no monetary limit;
  • Section 106 is a continuing obligation on an owners corporation to maintain and keep its common property in a state of good and serviceable repair;
  • A breach of section 106 can be ongoing and can give rise to multiple causes of action;
  • Under s106(5) a lot owner has a right to recover “reasonably foreseeable loss suffered in consequence of each breach”;
  • Section 106 is not retrospective meaning that NCAT has no power to award damages for any loss suffered prior to 30 November 2016.

For the above reasons, Mr Shum was awarded damages however his damages claim was limited to loss incurred on and after 30 November 2016.

If you have suffered loss due to a failure in the common property or, your owners corporation is subject to a claim for loss, you should obtain legal advice specific to your circumstances as while the decision in Shum prevents claims under s106(5) of the SSMA it may be possible to make a claim in nuisance or, in certain circumstances, in negligence.

Building Cladding Crisis and Orders

In the light of the current crisis around building cladding, the NSW Government is sending Notices of Intention to Issue an Order to buildings it suspects of having flammable wall cladding.

Please see the typical letter being sent to owners corporations by the NSW Government enclosing the Notices of Intention to Issue an Order.

The NSW State Government (in addition to local councils) has the power to issue such notices although typically it is local councils who issue Notices of Intention to Issue an Order.

Once a Notice of Intention to Issue an Order has been provided to an owners corporation, a Fire Safety Order can issue requiring an owners corporation to complete work at its own cost to rectify any non-compliances with the Building Code of Australia.

Notices of Intention to Issue an Order and Fire Safety Orders are issued as part of the ongoing responsibility of the NSW State Government and local councils to enforce the fire safety provisions of the Environmental Planning and Assessment legislation.

Appeal Rights

It is important for owners corporations to appeal an Order if one is received and the owners corporation does not wish to complete all the work required by the Order (because some or all of the work required by the Order may not be necessary). This is because not appealing greatly weakens the bargaining power of the owners corporation in any negotiations regarding compliance with the subject matter of the Order. That is, there is ultimately little an owners corporation can do to resist total compliance with an Order if no appeal is lodged and the NSW Government digs its heals in over compliance.

There are two types of appeal that can be made against an Order:

  • a “class 1” merits appeal; and
  • a “class 4” legal process appeal.

The relevant legislation governing this area of fire and life safety is the Environmental Planning and Assessment Act 1979 (the Act) (see especially Divisions 2A and 4 of Part 6 of the Act). Both appeals are made under the Act.

Class 1 Merits Appeal

In this appeal, the Land and Environment Court effectively looks at the Order and determines if the Order should be revoked, modified or given subject to no modifications.

Such an appeal must be made within 28 days after service of the Order.

It should be noted that this is a much stronger appeal as it can address a wider range of issues than a limited class 4 Legal Process Appeal.

Class 4 Legal Process Appeal

In this appeal, the Land and Environment Court looks at whether the legal process required has been followed prior to the issue of the Order.

It is a procedural appeal and there is no specified time period for taking such an appeal, although sooner is better than later. An example of a procedural appeal would be where an Order was given but no Notice of Intention to Issue an Order was given beforehand (assuming it is not an emergency fire safety order).

It is important to note that a procedural appeal, if successful, does not necessarily stop the NSW Government from re-issuing an order following the required legal process.

It should also be noted that under section 121ZN of the Act, making an appeal will not automatically stay an order (although a stay could be applied for once an appeal was commenced).

Consequences of Non-Compliance

There are a number of potential consequences of not complying with an Order including:

  • pecuniary penalties;
  • the work may be carried out by the NSW Government and then the cost of this recovered from the owners corporation;
  • compliance costs;
  • enforcement proceedings;
  • summary criminal proceedings;
  • personal liability of executive committee members (although executive committee members are insured for negligent acts or omissions); and
  • possible inability to obtain an Annual Fire Safety Statement (with attendant penalties).

In addition, owners corporations should notify their insurer if a Notice of Intention to Issue an Order or an Order is received. Further, while an owners corporation may have an insurance policy, the liability of the owners corporation and executive committee members is unlimited (whereas any insurance coverage is limited).

Next Steps

Please see the Order Flow Chart (NSW) which sets out the process to be followed when an owners corporation receives a Notice of Intention to Issue an Order. It is important to act quickly as rights are lost if timely action is not taken.

In particular, there are two things which are recommended to be done:

  1. representations on the proposed order should be made by the required date to avoid an Order being issued; and
  2. an EGM be called to pass a resolution to commence court proceedings in the event an Order is issued by the NSW Government as there is usually not sufficient time to call an EGM to seek approval to commence appeal proceedings and then commence the appeal proceedings within the 28 day appeal period (if an order issues).

Please contact Christopher Kerin on (02) 8706 7060 if you have any questions.

Australian Building Codes Board has published additional information on Non-Conforming Building Products

The Australian Building Codes Board has added a new page to its website entitled “Non-Conforming Building Products”.

This webpage is presumably a response to various concerns raised about the risks of using substandard products or materials (‘non-conforming’), or using products and materials incorrectly (‘non-complying’).

The new webpage has general information on non-conforming building products (NCBP) including answering questions such as:

  • what are non-conforming building products?
  • what are the requirements for compliance and conformance for building products?
  • what are the responsibilities of the various stakeholders?
  • how to ensure that the right building products are being used?
  • what to do in the event of non-conformance?
  • how to lodge a query or report a suspected non-complying building product.

To visit the page, click here.

NSW Court of Appeal finds Lot Owners can claim against Owners Corporations in Nuisance after Thoo

 Section 106 of the Strata Schemes Management Act 2015 (NSW) (the 2015 Act) establishes the strict liability of an owners corporation to maintain and repair its common property in the same terms as section 62 of the Strata Schemes Management Act 1996 (NSW) (the 1996 Act).

The 2015 Act also establishes the new ability of a lot owner to sue for damages for up to two years after the lot owner becomes aware of their loss under subsections 106(5) & (6). The statutory change, which came into effect on 30 November 2016, effectively reversed the decision of the NSW Court of Appeal in The Owners Strata Plan 50276 v Thoo [2013] NSWCA 270 (Thoo).

While the statutory changes assisted lot owners who had suffered a loss after 30 November 2014, it did little to assist lot owners with longer term issues and it also limited the ability of a lot owner to claim damages to two years.

In the case of McElwaine v The Owners – Strata Plan No. 75975 [2017] NSWCA 239 (McElwaine), in which Kerin Benson Lawyers acted, Mr McElwaine, a lot owner, had commenced proceedings for damages alleging water penetration through the common property into his lot due to defective waterproofing. The cause of action relied on was the breach of section 62 of the 1996 Act and also negligence. Following the decision in Thoo, which prevented a lot owner obtaining damages for a breach of section 62, Mr McElwaine’s claim was amended to plead common law nuisance as a cause of action.

The Owners Corporation challenged the ability of a lot owner to claim damages in nuisance and this preliminary point was put to the Supreme Court for determination as a separate question. The Owners Corporation’s argument was that Mr McElwaine’s claim in nuisance depended on a breach of section 62. As such, the Owners Corporation argued that Chapter 5 of the 1996 Act dealing with dispute resolution was comprehensive in providing for rights, responsibilities and potential claims and it abrogated the ability of a lot owner to make a common law claim against the Owners Corporation. The NSW Supreme Court found for the Owners Corporation and dismissed the claim.

On appeal the NSW Court of Appeal found for Mr McElwaine. In doing so His Honour Justice White JA found at paragraph 26 that “an owners corporation, as legal owner of the common property, may owe a general law duty of care or a general law duty not to create a nuisance, and not merely a statutory duty that can be enforced only through the mechanisms provided in Ch 5” and that “the rights of a lot owner or occupier of a lot to enforce an owners corporation’s duty in respect of the management or repair of the common property that is owed to an owner or occupier of a lot in that capacity” is not negated by the 1996 Act.

In allowing the appeal the Court’s reasoning, at paragraphs 44 and 60, was that while Thoo dealt with the duty an owners corporation owed to lot owners as beneficial owners of the common property it did not deal with the duties an owners corporation as legal owner of the common property owed to lot owners as legal owners of their lots or address the question of whether the 1996 Act excluded a general law right of action 

What does this decision mean for lot owners, occupiers and owners corporationsThis decision enables lot owners and occupiers to sue their owners corporations in nuisance. An action in nuisance or negligence is very different to an action for damages under section 106 of the 2015 Act. First, it is a common law action rather than an action based on a statutory right and different elements must be established to prove the nuisance. Secondly, and perhaps more importantly for lot owners and occupiers, in nuisance the time limit to take action is six years from the date the cause of action accrues. This is a significantly longer time frame than that provided by section 106(6) of the 2015 Act which is two years from the date the loss becomes known.

Interestingly, in McElwaine, the Court considered the fact that Parliament had not granted Adjudicators or the NSW Civil & Administrative Tribunal the power to award damages telling as to its intention noting that it would have done so if it had intended to abrogate an owners common law rights and remedies. Under the 2015 Act the Tribunal was granted the power to award damages for a breach of section 106(5) and we note the decision in Rosenthal v The Owners – SP 20211 [2017] NSWCATCD 68 indicates that the Tribunal considers that there is no jurisdictional limitation on its power to award such damages. Further actions in nuisance under the 2015 Act will determine whether the new power of the Tribunal to award damages affects the ability of a lot owner to sue an owners corporation for a breach of its common law duties.

Note: Kerin Benson Lawyers acted for Mr McElwaine. 

Kerin Benson Lawyers

Author: Allison Benson

Office: Sydney & Newcastle

Email: allison@kerinbensonlawyers.com.au

Date: 21 September 2017