Supreme Court New South Wales

• Medium Neutral Citation: The Owners Corporation SP 70798 v Bakkante Constructions Pty Limited (No 2) [2014] NSWSC 147
• Hearing dates: 18, 19 & 24 February 2014
• Decision date: 13 March 2014
• Jurisdiction: Equity Division
• Before: Pembroke J

Decision

Notice of Motion dismissed

• Catchwords: CASE MANAGEMENT - re-opening - after hearing - after reasons published - discretionary considerations; CASE MANAGEMENT - finality of litigation - importance of - public interest; REAL PROPERTY - strata titles - section 80D of the Strata Schemes Management Act 1996 (NSW) - purported ratification of legal proceedings commenced by owners corporation - principles - ratification after hearing
• Legislation Cited: Civil Procedure Act 2005; Strata Schemes Management Act 1996; Strata Schemes Management Regulation 2010
• Cases Cited: Aon Risk Services v Australian National University [2009] HCA 27; (2009) 239 CLR 175; Bamford v Bamford [1970] 1 Ch 212; Fidelities Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630; Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37; Forge v Australian Securities & Investments Commission [2004] NSWCA 448; Hawthorn Glen Pty Ltd v Aconex Pty Ltd (No 1) [2007] FCA 2010; Owners SP 2187 v Astoria Asset Management Ltd (District Court (NSW), 14 October 2011, unrep); Owners SP 56117 v Drexler [2013] NSWDC 67; Owners SP 46528 v Hall [2009] NSWSC 278; Metwally v University of Wollongong [1985] HCA 28; (1985) 60 ALR 68; The Owners Corporation SP 70798 v Bakkante Constructions Pty Limited [2013] NSWSC 848; The Owners Corporation Strata Plan No 73943 v 2 Elizabeth Bay Road Pty Ltd [2013] NSWSC 1769; Urban Transport Authority of New South Wales v Nweiser (1992) 28 NSWLR 471; Wentworth v Woollahra Municipal Council [1982] HCA 41; (1982) 149 CLR 672; Winthrop Investments Ltd v Winns Ltd (1975) 2 NSWLR 666
• Texts Cited: P Watts and F Reynolds, Bowstead & Reynolds on Agency, (19th ed, 2010, Sweet & Maxwell)
• Category: Interlocutory applications
• Parties: The Owners Corporation SP 70798 - plaintiff; Bakkante Constructions Pty Limited - first defendant; William Andrew Zankin - second defendant
• Representation: Counsel: F Corsaro SC with P Bambagiotti - for the plaintiff; M Pesman SC - for the first defendant; K Rees SC - for the second defendant; Solicitors:
• File Number(s): 2011/275811

Judgment

Introduction

1 This is an unusual interlocutory application brought by the plaintiff owners corporation. It is eight months since I gave what I thought was effectively a final judgment disposing of proceedings that had been referred to me as Expedition Judge: [2013] NSWSC 848. In my judgment I answered the questions posed for determination. Those questions were designed by the parties to encompass the issues in dispute. The last question was 'Is the consequence of (a) to (d) that the proceedings must be dismissed?'. The answer I gave was 'Yes'. I then ordered the plaintiff to pay the defendants' costs.

2 The central issue was whether the proceedings against the first defendant (a builder) had been commenced and conducted by the plaintiff (an owners corporation) in contravention of Section 80D of the Strata Schemes Management Act 1996 (NSW). I will not set out the terms of Section 80D but its relevant purpose and object is to ensure that an owners corporation does not initiate legal action unless a resolution is passed at a general meeting of the lot owners approving the taking of the action. The relevant statutory language is 'must not initiate legal action unless ...'

3 I held that there had been non-compliance with Section 80D and that the consequence was that the proceedings were invalid and unauthorised, and hence that they should be dismissed. I made the following observations in paragraph [83] of my first judgment:

The natural corollary of this regime is that actions taken by an executive committee in contravention of Section 80D, and without complying with the requirements for exemption set out in Regulation 15, should be treated as invalid and unauthorised. 'Must' means 'must'. It is an imperative - expressing necessity, obligation and compulsion. There is no halfway house; no reason for attempting to ameliorate the outcome because of the particular consequences in a given case of wasted costs or aborted legal action. Consequences such as those are the inevitable result of invalidity. They cannot control the meaning and effect of the statutory regime. In a case such as this, the executive committee, and particularly its chairman, only have themselves to blame.

4 No question of ratification arose for my consideration at the first hearing although it was a natural question that might well have been raised if circumstances permitted. In fact, one of the separate questions posed for my consideration was whether any non-compliance with Section 80D had been cured by reason of a resolution of the owners corporation on 19 December 2011. However at the commencement of the hearing, senior counsel informed me that ratification was not pressed and that separate question (d) need not be determined. Ratification did not therefore arise and no prospective ratification was foreshadowed. My observations about the effect of contravention of Section 80D were not made with the possibility of ratification in mind. The issue was neither mentioned nor considered.

Ratification

5 Whether ratification is in principle available to an owners corporation in a case where the mandatory requirements of Section 80D have not been met, may be a difficult question. The question must turn on the construction of Section 80D and consideration of its purpose. The following observations by the authors of Bowstead & Reynolds on Agency, 19th ed 2010, Sweet & Maxwell at [2-058] are apt:

Illegality. It has been said that 'life cannot be given by ratification to prohibited transactions' [citation omitted]; and in that case ratification of a prohibited insurance contract was refused validity. The extent to which it is correct to regard a transaction affected by illegality as actually void will, however, turn on the nature of the illegality, the wording of any relevant statute, and the extent of the illegality. The law is far from clear.

(emphasis added)

6 Subsequent to my decision, Hammerschlag J held in The Owners Strata Plan No 73943 v 2 Elizabeth Bay Road Pty Ltd [2013] NSWSC 1769, relying in part on a decision of the Queensland Court of Appeal that dealt with a different statutory provision, that 'the statutory inhibition imposed by Section 80D can be lifted by ex post facto resolution of the owners corporation at general meeting'. I was informed that an appeal has been filed from that decision. Some other cases contain reasoning and analysis that might suggest a different result: Owners SP 46528 v Hall [2009] NSWSC 278; Owners SP 2187 v Astoria Asset Management Ltd, (District Court (NSW), 14 October 2011, unrep); Owners SP 56117 v Drexler [2013] NSWDC 67 at [90]. In particular there would seem to be force in the following observation by the experienced judge in Owners SP 2187 v Astoria Asset Management Ltd at [68]):

Secondly, one of the plain objectives of the section is for the owners to have a chance to voice their opinions [in advance] about both the prospects and cost of legal action. If ratification could cure a failure to comply with s80D, this purpose would be frustrated, since legal costs would already have been incurred.

(emphasis added)

7 In any event, although comity and consistency require me to respect the decision of Hammerschlag J, the facts on which it was based are distinguishable. Among other things, that case did not concern a ratification after judgment and the ratification in question was made within a reasonable time. Furthermore, the threshold question in this case is a discretionary one - whether I should allow the issue to be agitated in the events that have occurred. Even if ratification is available in principle for a contravention of Section 80D, which I need not decide, its availability in any particular case will depend on the precise circumstances.

Unique Factors

8 In this case, there are a number of unique factors. Not only did the purported ratification occur after my judgment but, prior to the hearing in June 2013, the plaintiff made a strategic decision not to seek to ratify the commencement and conduct of the proceedings, or the costs incurred. As well as separate question (d) being abandoned at the hearing, another more comprehensive ratification proposal was abandoned a few weeks before the hearing. The latter proposal arose and then subsided in the following circumstances:

(a) from February 2013, those advising the plaintiff gave active consideration to whether non-compliance with Section 80D 'can be cured by a retrospective ratification of proceedings by the lot owners in subsequent general meeting';

(b) in March, senior counsel recommended ratification 'if the executive committee is of the opinion that it will be successful in passing such a motion';

(c) on 8 March the plaintiff's solicitor advised the managing agent that 'if we can show that the [lot owners] want to continue with the proceedings, knowing all of the costs borne and likely future costs then it will be difficult for His Honour not to take this into heavy consideration';

(d) on 12 March, senior counsel set aside time to draft a ratification motion that 'is faultless and covers all grounds';

(e) on 19 March, a carefully drafted proposed ratification motion was provided to the managing agent for circulation to the executive committee;

(f) on 22 March, Ms Macrossan, the secretary of the executive committee, wrote that she did not like the motion because 'it could be read as though nothing was done properly in previous years and we are now trying to plug the holes';

(g) on 25 March, Ms Yardin, another member of the executive committee, wrote that 'many owners have expressed to me that they are opposed to full blown litigation' and that 'I cannot say that they all or any would vote for these motions and not suddenly get cold feet on viewing the numbers in black and white';

(emphasis added)

(h) on 11 April, Ms Macrossan again wrote to say that she could not 'sell' the motion because it read as if 'approval wasn't gained in the past on all of those items listed so we are now seeking it from you';

(i) on 22 April, the plaintiff's then solicitor submitted to the managing agent and some members of the executive committee the proposed motion and explanatory notice;

(j) the proposed explanatory notice revealed that the plaintiff's costs of the proceedings to date were now in excess of $690,000 and recommended that lot owners 'ratify and approve both the original decision by the executive committee to commence proceedings against Bakkante, and also all subsequent steps taken and costs incurred';

(k) between 12 March and 21 April, senior counsel for the plaintiff invested 19 hours of his time to the proposed ratification resolution, for which he rendered fees of $14,630;

(l) on 23 April, Ms Macrossan wrote 'Murray [Groom] is not going to put [the motion] up .... Best to focus on the case at this point';

(m) on 20 May, the solicitor for the second defendant, a lot owner, requested an appointment to inspect the owners corporation's books and records;

(n) on 22 May, the plaintiff's solicitor advised the managing agent, in response to the request for inspection, to conceal from the second defendant's solicitor 'the ratification motion' and related documents;

(o) on 24 May, the managing agent wrote 'I spoke to Murray [Groom] last night - I think it's more trouble than its potentially worth holding that EGM';

(p) between 13 and 21 June 2013, at the hearing before me, neither the defendants nor I (nor the majority of lot owners) were aware of the ratification proposal or the decision taken to abandon it a few weeks before the hearing.

9 At this further hearing, Ms Macrossan gave the following answers to questions put to her:

Q And the reason why you didn't want to submit this motion to lot owners was because you regarded it as effectively conceding that Mr Zankin's complaints about the commencement of these proceedings had a real basis, do you agree?

A Yes. ...

Q On 24 May 2011 you decided in discussion with Ms Yardin not to take the risk that a ratification motion would fail, correct?

A Correct.

Q You instead decided to take the risk as to the outcome of the case in front of Justice Pembroke without a ratification motion being available?

A Correct.

Election

10 In the result, the executive committee of the plaintiff chose to allow the hearing to be conducted over four days before me in June 2013 without first having sought to obtain the retrospective approval of lot owners to the initial decision. If they had done so, and obtained lot owners' approval, the original hearing before me would have been substantially truncated and the issues narrower. The reluctance of the executive committee to put the matter to lot owners before the hearing was partly caused by a concern that if the past and likely future costs of the proceedings were revealed to lot owners, the ratification resolution might not be passed and that, in some way, this would affect my judgment on the main issue. The unauthorised incurred costs were, by this stage, in excess of $690,000.

11 For reasons of strategy, and, I think, self interest, the executive committee did not wish, before the hearing, to 'obtain absolution and forgiveness': Bamford v Bamford [1970] 1 Ch 212 at 238 (Harman LJ); Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 at 706 (Mahoney JA). And they did not wish, before the hearing, to make 'full disclosure of all material circumstances' to lot owners: Forge v Australian Securities & Investments Commission [2004] NSWCA 448 at [390]-[393]. The irony is that it was the unwillingness of an earlier executive committee in 2009 to be full and frank with lot owners in connection with the commencement of the proceedings that was the initial cause of the problem on which I was asked to rule. A common factor in both decisions was Mr Groom.

Application After Hearing

12 My judgment on 19 July 2013 was followed by a change of legal representation for the plaintiff and a change of attitude. I was asked not to make orders for the time being. A meeting of the plaintiff occurred on 15 August 2013 in unusual circumstances to which I will later refer. After the meeting, the plaintiff filed a notice of motion in these proceedings seeking, among other things, an order that 'before making any order disposing of the proceedings, the court hear and determine the following additional questions':

(a) Whether, on a proper interpretation of section 80D of the Strata Schemes Management Act 1966 and regulation 15 of the Strata Schemes Management Regulation 2005, the Plaintiff's contravention, as found, in commencing the proceedings in the CTTT on 13 February 2009, and in expanding the proceedings in about May 2009 ("the Contravention"), [is] capable of being cured by the subsequent ratification passed at a general meeting of the Plaintiff on 15 August 2013?

(b) If yes to 1(a), was the Contravention cured?

(c) If yes to 1(a) and 1(b), is the consequence that the proceedings should not be dismissed?

13 In substance, the plaintiff's application seeks to introduce a new issue that depends on facts occurring after the conclusion of the hearing and after the publication of reasons and proposed orders. It invokes the court's discretion, in effect to re-open the hearing, on an issue 'which might have been brought forward [at the hearing] as part of the subject in contest': Fidelities Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630 at 643 (Diplock LJ). I recognise that the precise issue could not have been brought forward at the hearing, since the meeting of 15 August occurred after my judgment on 19 July. But if the executive committee had not chosen to hold back from putting a ratification resolution to lot owners before the hearing, and the resolution had been approved, I would have decided on a final basis in June 2013 the same core issue relating to the effect of Section 80D and the availability of ratification, that the plaintiff now seeks to agitate in February 2014, without having to weigh the many discretionary considerations that have subsequently intruded. I would not have been placed in the position of having to consider whether I should reverse the proposed final order dismissing the proceedings that I pronounced on 19 July 2013. And there would not have been the additional complication of having to consider the legal effect of a purported ratification after judgment.

14 The fact is that the plaintiff made a decision to conduct the June 2013 hearing on the basis that there had been no ratification of its original decision to commence. As Ms Macrossan said, the executive committee of the plaintiff decided to 'take the risk as to the outcome' of the case before me. Not only did the plaintiff take that risk, it took several other risks. It took a risk as to whether a purported ratification after judgment would be effective. And it took a risk as to whether I would exercise my discretion to allow the hearing to be re-opened and these proceedings prolonged.

15 As to the second risk, I should observe that in Forge v Australian Securities & Investments Commission (supra), it was said at [387]:

Many corporate ratifications have been designed to defeat pending proceedings. This is permissible, certainly pre-trial or pre-judgment: see Bowstead & Reynolds, Article 18(2). Counsel were unable to refer the court to any case where ratification had been effective post-judgment.

(emphasis added)

No case was referred to me.

16 As to the third risk, it is salutary to bear in mind what was said in Metwally v University of Wollongong [1985] HCA 28; (1985) 60 ALR 68 at 71:

It is elementary that a party is bound by the conduct of its case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case has been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.

(emphasis added)

See also Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37.

17 Strictly speaking there has not yet been 'judgment' in this case, only findings and reasons. But the only reason why I refrained from making orders was because the plaintiff requested me to do so. I now regret not having made an order on 19 July 2013 dismissing the proceedings. The real question for me now is one of discretion, having regard to case management principles, the interests of justice and the objects of the Civil Procedure Act 2005 (NSW).

18 In the result, I have reached the view that this unsatisfactory litigation should be brought finally to rest and that I should dismiss the plaintiff's notice of motion filed on 4 September 2013. That is not to say that a party to proceedings in this court may never ratify its conduct after an adverse judgment or that a contravention of section 80D is not capable of ratification - only that I will not allow the plaintiff in this case to re-open the hearing before me to introduce these new issues. If I dismiss the notice of motion, it will follow that I should also dismiss the proceedings, as I intended to do in July last year. I should note, for what it is worth, that there was no evidence before me that would have enabled me to form a view as to the prospects of success, if any, of the plaintiff's underlying claim against the first defendant.

Finality of Litigation

19 I should make some general observations before turning to a number of particular matters. Courts are usually reluctant to allow parties to approbate and reprobate in the conduct of litigation. They will generally be bound by their elections, including by the case presented at the hearing. If this were not so, there would be no finality of litigation and the orderly process of dispute resolution would be disrupted. There are many instances of the application of this principle. A well-known statement of the principle appears in Wentworth v Woollahra Municipal Council [1982] HCA 41; (1982) 149 CLR 672 at 684:

The public interest in the finality of litigation necessarily means that the power to re-open to enable a re-hearing must be exercised with great caution. Generally speaking, it will not be exercised unless the applicant can show that by accident without fault on his part he has not been heard.

20 Where decisions have been taken for tactical reasons, courts are even more reluctant to allow a further hearing. Thus in Urban Transport Authority of New South Wales v Nweiser (1992) 28 NSWLR 471 at 478, Mahoney, Clarke and Meagher JJA observed:

Where, for instance, a decision was based on tactical grounds, it may be difficult to resist the conclusion that the interests of justice were better served by the rejection of the application.

And in Hawthorn Glen Pty Ltd v Aconex Pty Ltd (No 1) [2007] FCA 2010, Goldberg J stated at [48] that after judgment has been reserved (let alone, as in this case, after reasons have been published and proposed orders announced), parties should only be able 'to re-visit tactical decisions they have made in exceptional circumstances'.

21 In this case, the plaintiff's executive committee made a deliberate and informed choice not to agitate ratification prior to the hearing in June 2013 and prior to my judgment in July. It made that decision contrary to the recommendation of its then senior counsel, knowing that there was a risk that the proceedings would be dismissed. Not only was its decision strategic but it was attended by self-interest. As I observed in paragraphs [10] and [11], the executive committee did not wish to admit error; did not wish to reveal the full disaster of the costs which had been incurred or were still to be incurred; and did not wish to make full disclosure to lot owners.

22 The executive committee preferred to gamble on the success of its case in circumstances where it knew that the proceedings had been given an expedited hearing and that any attempt to invoke the issue of ratification after judgment would necessarily involve substantial further expense, further hearing time and additional uncertainty. After my judgment, the executive committee assumed that the scarce resources of the court should be made available automatically to allow it to have a second hearing on an issue which it chose not to bring forward before the first hearing. In the result, not only was further hearing time allocated that could have been given to other litigants, but additional time was spent before another judge as the plaintiff waged an unmeritorious claim to resist the production of relevant documents. In the result, following an order by Stevenson J, the plaintiff only finally produced certain documents on the eve of this hearing. I have summarised the effect of those documents in paragraph [8] above.

23 The position is made worse by the executive committee's secrecy concerning its election not to proceed with the ratification proposal before the June 2013 hearing. The defendants only became aware of that decision on the day before this hearing, when the plaintiff finally produced the relevant documents. And no one at the meeting on 15 August 2013, except members of the executive committee, was aware of the election that took place prior to the June hearing.

24 It must be understood clearly that the conduct of litigation is not merely a matter for the parties: Aon Risk Services v Australian National University [2009] HCA 27 at [93]; (2009) 239 CLR 175. The court does not operate a 'come and go' facility for the benefit of litigants. Despite the misconceptions of clients and the plaintive pleas of counsel for 'justice', parties generally only have one chance to put their case. The orderly progress of dispute resolution requires control by the court and rigour by the parties. It depends on the identification of precise issues in advance through pleadings or separate questions. The system of justice under which we operate does not readily cater for after-thoughts or changes of heart, more especially when they are the result of an adverse judicial determination. A just resolution must be understood in this context. The process is not open-ended and, except where there are exceptional circumstances, a party will be bound by the consequences of its own decisions.

The Executive Committee

25 I regret to say that another unfortunate aspect of the overall discretionary circumstances is the odour that attaches to the conduct of the executive committee and the unsatisfactory evidence of the principal witnesses called on behalf of the plaintiff. In my first judgment I referred critically to the evidence and conduct of Mr Groom in connection with the original decisions to commence and conduct the proceedings. I did not know then that, even though Mr Groom had ceased to be a member of the executive committee, he was apparently instrumental in the plaintiff's decision in May 2013 to abandon the ratification resolution that was then proposed.

26 At the further hearing, Mr Groom returned to the witness box and again gave implausible and unimpressive evidence, more than once denying what was obvious on the face of contemporaneous documents. He was joined by Ms Macrossan who became a member of the executive committee in June 2012. Her evidence was defensive, unforthcoming and, I thought, unreliable. She seemed to see the work of the executive committee and the conduct of the proceedings as part of some sort of 'propaganda war' (to use her phrase) with all those lot owners, including those associated with the builder, who could not be relied upon to support the incumbent executive committee. As I explained in my first judgment, this is the very adversarial and single-minded approach that contributed to the defective original decision. In my view, neither Mr Groom nor Ms Macrossan was completely frank in their evidence. Both were advocates. And both strained to avoid giving a direct answer to any question where he or she thought that a direct answer might not assist the plaintiff's case.

Discretion

27 The particular discretionary considerations that weigh against the plaintiff's application are multiple and are not limited to the election that I explained in paragraphs [10]-[11] above. To start with, the supposed ratification resolution passed on 15 August 2013 is itself highly contentious and is apt to give rise to interminable controversy, not all of which was fully or thoroughly investigated before me. I have not attempted to finally resolve these issues but I will summarise some of the problems:

(a) the defendants made many complaints about the adequacy of the disclosure to lot owners at the meeting, including that the lot owners were not told that prior to the June 2013 hearing the executive committee had decided not to proceed with a comprehensive ratification proposal because, among other things, they did not wish to concede any absence of authority or reveal the full extent of past costs and anticipated future costs;

(b) at the time the ratification resolution was purportedly passed, the lot owners' rights of self-management had been taken away because an order had been made pursuant to Section 162 of the Act appointing a strata managing agent on the ground that 'the management structure of [the] strata scheme' was 'not functioning or is not functioning satisfactorily'; the strata managing agent does not appear to have acted at the 15 August 2013 meeting in the manner contemplated by the Act; and there are questions about the voting entitlement of some lot owners at the meeting;

(c) there is a legitimate question as to whether, when making the Section 162 order, the Adjudicator ever contemplated that the strata managing agent should do anything more than hold a meeting to enable fresh solicitors and barristers to be engaged and legal advice to be obtained. There is something unpalatable and unlikely about a strata managing agent being appointed pursuant to Section 162 to hold a meeting (of himself), in order to ratify past decisions of an owners corporation constituted by many different lot owners.

Other Pending Proceedings

28 In addition, there are pending parallel proceedings in other places, apparently regularly commenced, in which the validity of the supposed ratification resolution is in issue. Both of those proceedings are brought by a lot owner (Mr Khor) who is not a party to these proceedings. Neither is infected by the same factual and discretionary complications that attend this interlocutory application. In the New South Wales Civil & Administrative Tribunal (NCAT) an order is sought pursuant to Section 153 of the Strata Schemes Management Act that the ratification resolution purportedly passed on 15 August, be invalidated. In other proceedings in this court, similar relief is claimed. I was informed that:

(a) shortly after the meeting on 15 August 2013, Mr Khor filed an application for mediation with the Office of Fair Trading, complaining of 'excessive levies, voting rights [and] breach of section 80D ...'

(b) on 5 February 2014, Mr Khor commenced proceedings in his Court seeking relief in respect of levies raised by the owners corporation in respect of these proceedings and associated relief in debt recovery proceedings being brought against him by the owners corporation for unpaid levies. Mr Khor pleaded that the owners corporation 'is not acting the best interest of the registered proprietors of the Strata Plan'; and

(c) on 7 February 2014, Mr Khor filed an application with the NSW Civil and Administrative Tribunal seeking an order under section 153 of the Act to invalidate the resolutions passed on 15 August 2013 and to have a compulsory manager appointed as the owners corporation 'has failed to perform its duty of care under the Act'.

The Resolution

29 The foundation of this interlocutory application is the ratification resolution of 15 August and the meeting at which it was purportedly passed. I summarised a number of questionable features of both in paragraph [27]. At the date of the meeting the lot owners had no right to vote. That was because on 6 August 2013 Mr Westgarth, the Strata Titles Adjudicator, had made a limited order pursuant to Section 162(1)(a) of the Act appointing Whelan Property Group Pty Ltd as the strata manager with power 'to exercise all of the functions of the Owners Corporation' including all of the functions of the Chairman, Secretary, Treasurer and Executive Committee. The ground for making the order was that the management structure of the strata scheme was not functioning satisfactorily and that the owners corporation had failed to perform its duties under the Act.

30 The reasons of the Adjudicator reveal that the application was made by Ms Macrossan; that it was made without notice to other lot owners; and that the purpose of the application, and the necessity for the order, were said to be to enable a general meeting of the owners corporation to be called on 15 August among other things 'to approve the engagement of [fresh] solicitors and counsel' to advise on 'steps the owners corporation should take to protect its interests'. The order was limited in time until the end of the proposed meeting on 15 August, with the qualification that it would run to 6 November if the meeting were adjourned. It seems to have been contemplated that after the meeting and following the obtaining of legal advice, the lot owners could make up their own minds about what to do and that there would then be no need for the continuation of the strata managing agent's appointment.

31 It is obvious that the Adjudicator's order was made for a specific purpose; to overcome a specific problem. That purpose was informed by the terms of Ms Macrossan's application and was explained in the Adjudicator's reasons. Neither the word 'ratification' nor anything like it appears in the reasons and the application. The Adjudicator described the general basis of the application as follows:

...the executive committee has advice from a solicitor to the effect that it is in the interests of the owners corporation to have an appointment under s162 made urgently pending the meeting on 15 August 2013 to enable the owners corporation to take steps to protect itself against further adverse developments in the Supreme Court proceedings. Such developments are possible given the fact that the proceedings are listed this Friday 9 August 2013 and there is correspondence from the second defendant's solicitor in the proceedings foreshadowing an application to seek indemnity costs.

32 The application described both the orders sought and the reasons for seeking those orders. The appointment of Whelan Property Group was said to be necessary to effect the engagement of solicitors and barristers to attend court and to advise on 'steps the owners corporation should take to protect its interests'. The reasons set out in the application provide the following indication of the perceived need for the appointment. They stated:

2.14 ... the owners corporation has been left in the position whereby it is without a solicitor on the record in the proceedings.

2.18 ... the executive committee is unable to appoint a solicitor ... authorise the engagement of counsel ...

2.10 ... it would be in the interests of the owners corporation to have a 162 appointment made so that the owners corporation is able to take steps to protect itself until such time as a general meeting is held and resolutions are able to be made at a general meeting for the ongoing conduct of the matter.

(emphasis added)

33 The express terms of the application are bereft of any hint that the appointment of Whelan Property Group was intended to be used to conduct a meeting (of one) to attempt to ratify the actions and conduct of the owners corporation that I had previously held to be invalid and unauthorised. It is therefore understandable that the Adjudicator's reasons made no mention of any proposal that a resolution be put to the proposed meeting to enable the strata managing agent, by himself, to ratify the original unauthorised decision of the executive committee; in effect approving the past unauthorised expenditure; approving the incurring of unquantifiable future costs in the proceedings; and bringing about a practical reversal of the decision that I announced on 19 July.

34 It is true that among the bulky documents attached to the application was a letter of advice from Chambers Russell to the plaintiff. It noted that a general meeting had been called and said that a copy of the agenda was enclosed. Although the agenda listed several proposed ratification and adoption resolutions, the solicitor's advice explained that the purpose of the meeting, among other things, was to 'determine the approval of seeking further advice, (sic) legal services and the taking of appeal proceedings'. It added that 'until such time as that meeting is held, the owners corporation ... is unable to protect its interests because it is unable to take the benefit of having a solicitor on the record and having counsel represent and advise it'. There was no express reference in the advice to any ratification resolution to be considered at the proposed meeting.

The Meeting

35 There is another issue. A Mr Andrew Terrell from Whelan Property Group chaired the meeting on 15 August 2013. In doing so, he adopted a hybrid position. He told those present that 'despite the scheme being under compulsory appointment... the meeting would be run as if the scheme was not operating under such an appointment and those entitled to vote on motions would vote as normal'. This was a strange approach. Section 32 of the Act provides that when a strata managing agent is appointed by an Adjudicator, he alone must exercise the relevant function. That requires him to make up his own mind and not merely to parrot the views of lot owners who, by definition, are not entitled to vote.

36 Rather than exercising his independent judgment, Mr Terrell conducted the meeting as if lot owners were entitled to vote, almost as if the Section 162 order had never been made. There were written voting forms and voting on each motion was conducted by poll. The value of votes cast was calculated by reference to the unit entitlements of each lot owner who, according to the false hypothesis on which Mr Terrell was acting, was 'entitled to vote'.

37 In fact, not only was no lot owner entitled to vote but, if the meeting had been a valid meeting unaffected by the Section 162 order, the votes of a number of lot owners who purported to vote may have been held to be invalid. The second defendant contended that:

(a) 1,369 votes (18.4%) out of the total of 7,427 representing those present in person or by proxy at the meeting were attributable to lot owners who had a conflict of interest because they been members of the executive committee when the original contentious decision had been made in February 2009;

(b) 1,078 votes (14.5%) out of the total of 7,427 were attributable to lot owners who had a conflict of interest because they had been members of the executive committee that took the decision in May 2013 not to proceed with a ratification proposal before the June hearing; and

(c) 776 votes were not counted because they represented unfinancial lot owners, some of whom were in that position because they had not paid levies imposed by the executive committee to fund the plaintiff's burgeoning legal costs of the proceedings.

38 I am not in a position to decide those hypothetical questions of conflict of interest, which were raised late. In the events that occurred, they do not arise because lot owners were not entitled to vote. Nor do I propose on this application to attempt to resolve the true scope of the Section 162 order made by the Adjudicator. This issue also emerged late and was only addressed in written submissions. Both issues are however troubling and the fact of these further controversies constitutes an additional factor on which I have relied in exercising my discretion to dismiss the plaintiff's application.

Disclosure

39 The problems are, however, greater still. Although lot owners who attended the 15 August meeting were asked to indicate their assent to the motions put forward by Ms Macrossan seeking to ratify the original decision of the executive committee to commence these proceedings in February 2009, neither Ms Macrossan nor anyone else informed the meeting that a proposal to similar effect had been considered and abandoned shortly before the June 2013 hearing; that the executive committee had not then wished to disclose to lot owners the full 'numbers [for legal costs] in black and white'; that it elected to take a risk as to the outcome of the hearing; a further risk as to whether ratification after judgment would be legally effective; and another risk that I would exercise my discretion to allow the hearing to be re-opened.

40 Unfortunately, there is more. Senior and junior counsel who provided a written opinion at the 15 August 2013 meeting, were wholly unaware of the decision to abandon the ratification proposal before the June 2013 hearing or the costs thrown away by the executive committee's decision in so doing. Nonetheless, in their advice they stated presciently that there 'can be no guarantee that ... Pembroke J will not dismiss the proceedings. On any account, any ratification comes very late'. They pointed to the conundrum that if a ratification resolution were passed 'the proceedings will be ratified after the conclusion of a hearing which has found the proceedings to be invalid'. They then warned: 'These are difficult circumstances for the owners corporation to successfully overcome'. One can only speculate as to what advice counsel might have given if they had known the full facts. Just how lot owners might have reacted if they had known those facts, and had received the benefit of considered advice that took them into account, is incapable of determination. It is a mystery.

Conclusion

41 I have said enough to explain why the many unsatisfactory features of what has occurred make this an inappropriate case for the exercise of my discretion to allow the plaintiff to re-open the hearing to raise the issue of post-judgment ratification. I have regrettably reached the conclusion that, notwithstanding the consequences, these proceedings should be brought to an end, as I intended in July 2013, before any further costs are incurred. Like Pelion piling on Ossa, one mistake has followed another in this sorry litigation. I should not allow these proceedings to expand by the introduction of greater complexity, more reasons for lining the pockets of lawyers and more grounds to occupy the time of the Court of Appeal. The members of the executive committee only have themselves to blame.

Orders

42 I make the following orders:

(a) I dismiss the plaintiff's notice of motion;

(b) I dismiss the proceedings;

(c) I order the plaintiff to pay the defendants' costs of the proceedings excluding the costs of the hearing on 4 March 2013;

(d) I order the second defendant to pay the costs of the plaintiff and the first defendant of the hearing on 4 March 2013;

(e) I order that the second defendant be excused from his proportionate liability as a lot owner for the costs in (c).

Amendments

13 March 2014 - CLR should read ALR in citation
Amended paragraphs: 16

Decision last updated: 14 March 2014