In the case of Dunstan v The Owners – Strata Plan No. 79749, an order was made to appoint a compulsory strata manager for a 12 month period to exercise all functions of the Owners Corporation and strata committee.
The strata scheme consists of 13 units built in 2008. In 2019/2020, the strata complex was destroyed by bushfire leaving only 4 or 5 lots remaining, though all are now uninhabitable. The claim on insurance in relation to the fire had not be finalised at the time of the hearing though it was anticipated that the insurer would determine the property to be a total loss and would settle the claim by way of a cash settlement of $10.5 million to the Owners Corporation.
The Applicant is an owner of a lot in the strata scheme and alleged that there was a serious dysfunction in the Owners Corporation. The examples given include the following:
- A series of by-laws passed that place the Applicant and another lot owner on ‘communication protocol’ whereby their communication with the Owners Corporation is limited to a response by writing of 500 words per week. The Applicant alleged that this highlighted the serious dysfunction of the Owners Corporation by not allowing equal participation and representation, and also discriminating against certain owners.
A by-law passed that provided that the Owners Corporation could recover costs against a lot owner for any litigation action taken that is withdrawn or fails. The Applicant argued that this is a breach of s 136(2) and 139(1) of the SSMA 2015.
- The committee is comprised of a single member, who also acts as Counsel and provides legal advice to the Owners Corporation.
- The provision of information to lot owners. The Applicant had sought information from the Owners Corporation in the past (in regard to a successful insurance payout for a building claim). However, they were repeatedly denied or refused. Other lot owners provided evidence of this by way of statutory declarations and submitted that they were not provided with notice of meetings and denied the opportunity to oppose motions.
- The Applicant submitted that there is no insurance in place for the strata scheme.
The secretary of the Owners Corporation submitted that:
- There was no need for compulsory management given that there were no physical buildings to manage. He denied that a committee of one demonstrates dysfunction as it is allowed under the SSMA 2015. He submitted that the communication protocol by-law was enacted because of multiple lengthy emails per week.
- Of the 11 times the Applicant had sued the Owners Corporation, only three had been successful and that is why the Owners Corporation had introduced the by-law in regard to withdrawn/failed litigation cost recovery.
- the litigation history and bushfire damage had prevented the Owners Corporation from obtaining insurance and that they had been denied over twenty times.
The Tribunal found that just because owners do not agree, this does not make the Owners Corporation dysfunctional. The Tribunal held that:
- the Owners Corporation’s failure to maintain common property over the last 6 to 8 years was not in itself sufficient to find the Owners Corporation dysfunctional.
- the litigation by-law was suggestive of serious dysfunction because it limited an owner’s ability to exercise their rights in accordance with the SSMA 2015. Though, overall this was not determinative in itself of serious dysfunction.
- The Tribunal held that the communication protocol by-law and its very existence was evidence of the Owners Corporation’s serious dysfunction.
- The Tribunal gave little weight to the Applicant’s submission that there had been irregularities with voting as it had been over three years ago and other remedies had been available.
- The Tribunal had regard for the genuine concerns raised by the Applicant in relation to the resolution of the current bushfire insurance claim and the future of the strata scheme.
- The Tribunal held that the Owners Corporation had breached it’s obligations under s 237(3)(c) of the SSMA 2015 in respect of their failure to be forthcoming with access to documentation.
- The Tribunal also found that while a one member strata committee is allowed by the SSMA 2015, the fact that the sitting member was also providing legal advice to the Owners Corporation was suggestive that there may be a conflict of interest.
Overall, the Tribunal held that there was strong objective evidence that the management of the Owners Corporation was dysfunctional and the Tribunal was satisfied that the Owners Corporation had not functioned satisfactorily on numerous occasions.
In the alternative, the Tribunal considered whether the Owners Corporation failed to comply with one of more of its duties and held that the Owners Corporation was in breach of their obligation pursuant to s 160(1) of the SSMA 2015 to obtain and hold a current insurance policy. The Tribunal concluded that this was a sufficient basis to warrant the appointment of a compulsory strata manager pursuant to s 267(3)(c) of the SSMA 2015.
This decision demonstrates that Owners Corporations and strata managers should ensure they are performing their duties properly in accordance with the SSMA 2015 to avoid an order being made for the appointment of a compulsory strata manager.
This is general information and should not be considered to be legal advice. You should obtain legal advice specific to your individual situation.
Authors: Laura Cashman, Jasmin H.Singh & Allison Benson