Claims for unreasonable refusal of bylaws just got trickier
Introduction
In the recent decision of Kaye v The Owners – Strata Plan No 4350 [2022] NSWSC 1386, the Supreme Court of New South Wales dismissed an appeal from the Appeal Panel by three lot owners (plaintiffs) seeking the making of two by-laws to obtain rights of exclusive use and enjoyment of common property. It was held by the Court that the Appeal Panel did not make a legal error in not being satisfied that the refusals were unreasonable.
Background summary
The three plaintiffs are the owners of a lot in a strata scheme. The upper level of their lot includes a staircase which leads to the flat roof of the building on which an area a little under 20 square metres was a roof terrace enclosed by a waist-high balustrade. This staircase protruded above the roof level to allow egress to the roof terrace, the height of that structure forming the upper limit of the plaintiffs lot. Although the roof terrace formed part of the plaintiffs’ lot, it was in fact situated over the adjoining apartment, lot 3. The plaintiffs sought a right of exclusive use and enjoyment of the remaining roof area over lot 3, being an additional area of approximately 60 square metres.
The plaintiffs proposed to construct a glass wall around the perimeter of the roof. According to Section 141(1) and 142 of the Strata Schemes Management Act 2015 (the Act), the plaintiffs’ proposal required a special resolution and a common property rights by-law since the roof over lot 3 (beyond the roof terrace) was common property.
There were two by-law proposals submitted by the plaintiffs to the owners corporation. The first proposal was presented at meetings of the owners corporation held in March and July 2020. The motion failed at each meeting. The first proposal, as well as a second proposal, were again put to a vote at the third meeting on 30 September 2020. Both proposals were rejected.
With respect to the first and second proposals, the plaintiff subsequently filed proceedings in the Tribunal seeking a number of orders, including (in the alternative) orders under s 149(1)(a) of the Act.
The plaintiffs also sought orders that the owners corporation repair the waterproof roof membrane above lot 3 or consent to the plaintiffs performing such work.
As part of the plaintiffs’ first proposal, the plaintiffs offered to perform certain works in exchange for exclusive use and enjoyment of the “roof level.”
In the first proposal, the plaintiffs would install a new waterproof membrane not only over the existing roof terrace (part of lot 4), but also over the remainder of the common property (the roof area over lot 3).
The first proposal contained no provision for any payment to the owners corporation for the exclusive use and enjoyment of the roof area of lot 3, but anticipated the plaintiffs would incur significant costs in replacing the waterproof membrane. In addition, the plaintiffs proposed to undertake to maintain the works in a state of good and serviceable repair.
Two major changes were made to the second proposal from the first. One was to exclude from the definition of the works, “the application of a new waterproofing membrane to the Roof Level (such works to be undertaken by the owners corporation at its own cost)”. It obliged the owners corporation to install the new membrane within 90 days of the passing of the proposed resolution. In addition, the plaintiffs were required to pay $7,500 to the owners corporation in consideration of the exclusive use and enjoyment of the additional 60 square meters of roof level.
With regard to the proposed by-law changes, the Tribunal did not accept that the owners corporation had shown an unreasonable refusal, but it did make an order under section 126 requiring the owners corporation to waterproof the common property roof area above lot 3.
Afterwards, the plaintiffs appealed to the NCAT Appeal Panel, challenging both the dismissal of the application for an order under s 149(1)(a) and the order for the owners corporation to undertake waterproofing work.
The appeal grounds primarily addressed the failure to determine that there was an unreasonable refusal of the plaintiffs’ first proposal. There was no challenge to the dismissal of the application under s 149(1)(a) with respect to the second proposal.
Additionally, there was the argument that, as an alternative relief, the Tribunal should have found that the plaintiffs had consented to the second proposal and, if the payment offered in that proposal were insufficient, would also have consented to a proper amount of consideration of $38,000 (inclusive of GST), as recommended by the plaintiffs’ expert. In accordance with section 149(3), the Tribunal cannot make orders prescribing the making of a by-law except on terms that the applicant consents to.
According to the plaintiff, that provision empowered the Tribunal to prescribe a change to a by-law on terms other than those considered by the owners corporation, provided that the by-law’s proponent consented. However, that power was not engaged unless the Tribunal was satisfied as to the precondition contained in subs (1)(a). The Tribunal was not so satisfied in the present case. Nor, as it eventuated, was the Appeal Panel so satisfied. Accordingly, that aspect of the appeal does not arise directly as a basis for challenging the Appeal Panel decision.
The Appeal Panel upheld as valid reasons the following speculations about a proposal for exclusive use of an area of the roof which only the particular lot owner could access:
(1) the roof was common property and therefore not available for exclusive use and never should be;
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(3) the works would disrupt others with noise;
(4) the use of the area after the completion of works would disrupt others with noise;
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(8) the potential loss of privacy, including any person standing on the proposed exclusive use area will be able to see directly into the lot 8 rooftop area, into the stairwell of lot 8 and possibly into the living area of the lot;
In considering section 149(2) of the Act, the Supreme Court held:
“28. … First, as a matter of statutory construction, the two matters identified in s 149(2) to which regard must be had, are not expressed as relevant to the unreasonable refusal criterion, but to the determination by the Tribunal as to whether to make an order. Furthermore, s 149(2) identifies two sets of interests to which regard must be had: it does not prescribe a weighing of one set against another. Accordingly, if it were true that the senior member failed to follow these aspects of Capcelea, it cannot be said that he erred in law in a material respect.
29. It is true that the criterion of engagement of the power will undoubtedly have a significant bearing upon whether or not an order is made. Having regard to the respective interests of disputants may well inform the question of whether the refusal was unreasonable. Nevertheless, to say that the section prescribed some weighing process is to impose a constraint which is not found in the statute. Taking matters into account is not a mechanical process and may involve a comparison of disparate factors. Apples and oranges can be compared, but how that is done depends on the purpose of the comparison and relevant contextual considerations.
30. Importantly, to apply the test in s 149(2) in determining whether the refusal by the owners corporation was unreasonable is, in effect, to require the owners corporation to apply that test in its decision-making. The fact that the test in s 149(2) does not apply to a determination by the Tribunal of unreasonableness demonstrates that it would be legally wrong to impose that test indirectly on the owners corporation.
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48. Further, the interests of the proponentsand the interests of other lot owners were likely to be in conflict. It was not for the Appeal Panel to seek to “balance” those interests by apportioning weight between them, so as to conclude that a refusal would be unreasonable if the balance favoured the proponents. The function of the Appeal Panel was to determine whether the refusal was “unreasonable”. In making that assessment, it was entitled to treat as a valid reason for voting against the proposal a belief or opinion, whether or not it was supported by “evidence”. The Management Act does not require that the owners corporation accept any proposal which was objectively reasonable. Nor should the Tribunal, in applying s 149(1)(a) of the Act, decide that a refusal was unreasonable merely because it considered the proposal to be reasonable. The plaintiffs’ contentions came close to such an assertion.
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52… the Appeal Panel treated s 149(2) as requiring that it undertake a balancing exercise in determining whether the refusal of the owners corporation was “unreasonable”. As has been noted above, in its terms, s 149(2) does not require a balancing exercise, nor does it address the criterion of unreasonable refusal: it is concerned with the discretionary exercise of the power of the Tribunal to make an order prescribing the by-law, assuming that the criterion of unreasonable refusal has been established. There is no requirement that the owners corporation have regard to the matters in s 149(2) and there is certainly no foothold in the statute for an implication that failure to have regard to those matters would render a refusal unreasonable.”
54… Whilst it correctly assumed that there was an onus on the plaintiffs to establish that the owners corporation unreasonably refused the first proposal, there was a potential gloss on the statute by referring to the failure to establish that there was “no objectively reasonable basis” to refuse the first proposal. What the plaintiffs needed to establish, affirmatively, was that the refusal was unreasonable. The parties accepted that that question was to be addressed by identifying the “reasons” relied by those who opposed the proposal at the extraordinary general meetings and then to assess whether there was an objective basis for those reasons.”
The Supreme Court dismissed the plaintiffs’ appeal.
Key Takeaways
While section 149(2) of the Act requires the Tribunal to have regard to all lot owners’ interests and the proponents’ rights and reasonable expectations in determining whether to order the making of the by-law, it did not require those interests and expectations to be weighed against each other.
It is not unreasonable for an owners corporation to refuse to pass a by-law which was financially attractive in order to retain other intangible, or even speculative, benefits.
It is not necessary for the Tribunal to disregard concerns thatwere not supported by objective evidence.
Owners of lots are entitled to consider their own interests, experiences, and beliefs when considering how the proposed by-law will affect them.
If you need advice or representation in relation to unreasonable refusal of by-law claims, we can assist.
Disclaimer: This is commentary published by Pobi Lawyers for general information purposes only and should not be relied upon as specific legal advice. You should obtain your own legal advice specific to your circumstances before you take any action or otherwise rely on the contents of this article. The content of this article is subject to change. The law is also subject to change.
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