Introduction
The recent decision in The Owners – Strata Plan No 2661 v Selkirk [2024] NSWSC 760 (“Selkirk”) provides useful guidance on the relationship between the obligations imposed upon owners corporations to maintain and repair common property under s62 of the Strata Schemes Management Act 2015 (NSW) (“SSMA”), and the practical limits of a lot owner’s claim for damages, where the owner’s own conduct gives rise to an arising condition or prolongs their loss. It also helps clarify the higher courts’ treatment of causation and mitigation regarding statutory claims for damages under the SSMA.
Background
One example was a building owner, Ms Selkirk, who claimed a leak in her common property bathroom elements had made her apartment unliveable, and she’d lost rental income as a result. The owners corporation admitted it had failed to comply with its statutory duty under section 106(1) of the SSMA to maintain and repair common property. Once there has been a breach of a duty, section 106(5) provides that a lot owner is entitled to recover “reasonably foreseeable loss suffered … as a result of” that breach. The owner claimed a large amount of lost rent over a lengthy period, arguing that the continuing inability to let the apartment was due to the owners corporation’s failure to fix the problem.
In the first instance, the Senior Member of the NSW Civil and Administrative Tribunal (“NCAT”) ruled that, although the owners corporation breached its duty, the cause of such extended loss ultimately “lay at the feet” of the conduct of the lot owner themselves. The Senior Member found that the owner had acted unreasonably and was seeking to exploit insurance processes to obtain a more extensive renovation (i.e. a “like-for-like” replacement of all the bathroom tiles) than allowing the owners corporation to rectify the problem expeditiously. So, he rejected the lot owner’s argument.
On appeal to NCAT’s Appeal Panel, a range of legal points were put forward, including the relevance of the conduct of the lot owner to the recoverability of damages. The Appeal Panel accepted the appeal and referred the matter back, seeming to imply that an owners corporation’s right to apply for section 122 SSMA entry and rectification means that an owner’s refusal to allow access or call for alternative repair methods can never sever the chain of causation or amounts to a failure to mitigate loss.
The Supreme Court’s Decision
The owners corporation then appealed to the NSW Supreme Court, limited to questions of law. The judgment contains a thorough exposition of the proper interpretation of the SSMA and relevant case law, especially in relation to causation, mitigation, and the ambit of the owners corporation’s duty under section 106.
The Court reaffirmed that section 106(1) is, in effect, a strict duty on owners corporations. They have to ensure that common property is kept properly maintained and in good repair. The actual breach occurs without you ever taking reasonable care, which is not a defence. But establishing a breach is not enough to entitle a lot owner to damages. The owner also must prove that the claimed losses were incurred “as a result of” that breach.
Capacity of lot owner to claim for loss
This SSMA section 106(5) provides that a lot owner is entitled to “reasonably foreseeable losses” resulting from a breach of the owners corporation’s duty. Importantly, however, the Court confirmed that the rules of common law are analogous to causation and mitigation which apply. While the legislation does not mention “mitigation” by name, the phrase “as a result of” opens the door to a causal investigation. A loss that is not actually caused by, or sufficiently connected to, the owners corporation’s breach(s) cannot be recovered by a lot owner.
The Supreme Court rejected the Appeal Panel’s seemingly broad ruling that the defiance or obstruction of a lot owner with respect to the repair process is of no moment. It is correct that owners corporations can apply under section 122 for entry orders to carry out repairs, but this does not mean the owner’s conduct is irrelevant.
If a lot owner’s conduct unreasonably prolongs the rectification of the defect and, as a result, increases the period of lost rent, that conduct can mean the extended period of loss is no longer “within the contemplation of the parties” or something that arose “as a result of” the original breach, Justice Leeming emphasised. Put another way, if an owner refuses reasonable repair options, pursues impossible “betterment” through their insurance claims, or refuses access without valid reason, any ongoing losses can be attributed to the owner’s actions, and not the owners corporation’s original misstep.
While “mitigation” is not specifically set forth in the SSMA, the Court relied upon similar principles grounded in contract, tort, and similar statutes. It is well-established that a claimant is not entitled to damages which they could not reasonably avoid. Transposed to this context, the meaning is that although the breach places the owners corporation in a peremptory obligation to remediate the difficulty, the lot owner is also constrained from engaging in conduct that amplifies or elongates the damage claim they now assert.
If the owners corporation establishes that a part of the loss claimed arises from the owner’s failure to cooperate with reasonable repairs, those additional losses are not “as a result of” the owners corporation’s breach. As such, the owners corporation’s “mitigation defence” is available.
The Court underscores that causation must be evaluated practically. The “as a result of” wording in sub-section 106(5) is purposive, and it directs the decision-maker to take into account the statutory setting and practical realities of strata scheme management. There is nothing in the SSMA that indicates an owners corporation must bear all losses, regardless of the conduct of the lot owner. The aim is to ensure fairness and accountability on both fronts.
Additionally, the Supreme Court added that in all save exceptional cases, a breach of the duties in s106(1) or (2) will make it appropriate for an order rectifying those breaches pursuant to s232 to be made, including to the extent necessary an order authorising investigative works.
Conclusion
Selkirk enunciates the legal landscape for damages claims pursuant to s106(5) of the SSMA. While owners corporations are under a strict duty to maintain and repair common property, lot owners cannot take advantage of that duty to recover losses that are, primarily, the result of their own unreasonable conduct. The principles of causation, along with the duty (or onus) to mitigate losses, underpin the interpretation of “as a result of” within the statutory scheme.
The decision serves as a reminder that owners corporations and lot owners have responsibilities to meet in order to achieve fair and efficient outcomes.
We Can Assist You
If you are a lot owner or an owners corporation with strata issues that are not as straightforward as determining your obligations, responding to questions about unauthorised works, or disagreements about repairs and maintenance responsibilities, we are able to assist you. We are specialists in strata law and offer practical, clear advice specific to your situation.
Feel free to contact us via email at enquiries@pobilawyers.com or call our office on (02) 8324 7565 to discuss how our services can help you.
Disclaimer
This article was published by Pobi Lawyers and the material in it is intended only as general information. This does not constitute legal advice, nor create any solicitor-client relationship. We recommend that you seek your own independent legal advice in relation to your own individual circumstances, before acting or relying on the contents of this article. Pobi Lawyers shall not be responsible for any reliance placed on this information, and its contents are liable to change at any time without notice.
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