In the recent case of Hannan v The Owners – Strata Plan No. 20680 [2022] NSWCATCD 15, a few lot owners made an application to the Tribunal for orders that a compulsory strata manager be appointed pursuant to section 237(1)(a) of the Strata Schemes Management Act 2015.

In making an order that a compulsory strata manager be appointed, the Tribunal found the following as evidence that the Owners Corporation was not functioning satisfactorily and was not complying with its obligations under the Act:

  1. The engineering consultant was instructed by the strata committee to update a report despite not receiving an amended fee proposal for this work (the strata committee had resolved to ask for an amended proposal).
  2. The irregularities and uncertainty surrounding the appointment of the engineering consultant lead to him claiming to have a contract and threatening to hold the Owners Corporation to payment for services. This meant that the Owners Corporation incurred the added expense and delay in obtaining legal advice about that claim.
  3. The Owners Corporation resolved not to continue with the engineering consultant but because of the issues around his appointment, it was placed in a position where that decision may have resulted in a claim for damages by him.
  4. Despite the Owners Corporation having advice from the experts engaged by the applicants that the form of contract proposed by the engineering consultant was not appropriate, it did not adequately address those concerns.
  5. There was conflict between members of the strata committee and two separate strata managing agents together with an unwillingness by members of the strata committee to accept advice offered by the strata managing agent.
  6. The Owners Corporation breached section 103 of the Strata Schemes Management Act 2015 when it engaged solicitors to act in the proceedings and incurred and paid legal fees before obtaining a resolution of the Owners Corporation.
  7. There is no evidence that the Owners Corporation provided a copy of the solicitor’s costs disclosure to all owners within 14 days as required by section 105 of the Act. Additionally, by the time the Owners Corporation resolved to enter into the cost agreement, the fee disclosure had been exceeded with no evidence that the strata committee has sought an updated fee disclosure and if did, that it provided that fee disclosure to all owners as required by section 105.
  8. There was evidence that actions had been taken without the authority of a resolution of the strata committee.
  9. It was the responsibility of the Owners Corporation and not an individual lot owner to determine the scope of works to be adopted in order to discharge the Owners Corporation’s responsibility to repair and maintain common property. In this matter, it appeared that the Owners Corporation’s responsibility was delegated to lot owners.
  10. Repairs were not were not handled in accordance with the procedures in the applicable special by-law.
  11. The strata committee allowed the term of the managing agent’s agreement to expire and then purported to extend it under section 50(4) of the Act.

The Tribunal did not consider the following to be evidence that the Owners Corporation was not functioning satisfactorily:

  1. The incorrect counting of votes at a general meeting, as this was the result of an error by the strata managing agent which was explained by them.
  2. The alleged failure to raise the capital for works, as the Owners Corporation was entitled to do so when it resolves to enter into a contract for the works.
  3. Delays arising from the Covid-19 pandemic or the proceedings, except that it was necessary that the proceedings be brought to address the deficiencies in the appointment of the consultant engineer and the proposed contract, and as such the delay could have been avoided.

The takeway from this case is that Owners Corporation’s should ensure that it operates and makes decision in accordance with the Act and any applicable by-laws. Otherwise, it could place itself in a position where a claim is made that it is dysfunctional.

This is general information and should not be considered to be legal advice. You should obtain legal advice specific to your individual situation.

Authors: Jasmin H.Singh & Allison Benson