Owners Corporation SP6534 v Elkhouri; Owners Corporation SP6534 v Perpetual Corporate Trust Ltd

WARD P: I agree with McHugh JA.

MCHUGH JA: The issues in this matter are bound up with the enjoyment of harbour views. Such disputes are often hard-fought. Here, as we were told, the parties never took a backwards step. Before the Court were notices of appeal, notices of contention, applications for leave to appeal with respect to costs, notices of cross-appeal, and almost ten thousand pages of documentary evidence, much of which was never mentioned in submissions.

The main issue concerning matters of principle is whether the primary judge, Elkaim AJ, had jurisdiction to hear and determine the question whether certain conditions of a strata by-law were “unjust” within the meaning of s 149(1)(c) of the Strata Schemes Management Act 2015 (NSW) (the SSMA). I have concluded that the primary judge had jurisdiction.

The remaining issues are, in summary:

The appeal arises from three decisions of the primary judge:

The background is set out in some detail in the Primary Judgment, which recorded his Honour’s reasoning as to liability. Much of the evidence at trial was directed to issues that are no longer directly in contest on the appeal. Accordingly, what follows is confined to what is necessary by way of introduction to the grounds of appeal, cross-appeal, and contention. The facts will be considered in more detail as required in the course of addressing particular grounds.

The appellant (Owners Corporation) is the owners corporation for a strata title apartment building located at Point Piper in Sydney. Under s 8 of the SSMA, the Owners Corporation is a body corporate constituted by the owners of the lots in the strata scheme. The penthouse apartment, which is Lot 11 in the scheme, is situated on the fifth and sixth floors of the building. There are ten other lots in the scheme. The registered proprietor of Lot 11, Mr Said Elkhouri (Mr Elkhouri), died on 24 April 2019. The executors of his estate are his sons, Messrs Karam and Philippe Elkhouri (the Executors), although Mr Elkhouri is still recorded as the registered proprietor of Lot 11. The Executors are the first and second respondents in these proceedings.

Perpetual Corporate Trust Ltd (Perpetual) was until shortly before the hearing of the appeal mortgagee in possession of Lot 11. At the hearing, Perpetual continued to claim an interest in the appeal by reason of an extant costs order. Perpetual had the carriage of the argument on several issues on the appeal, the Executors adopting its submissions on some issues but making distinct submissions on others. After the hearing, the parties informed the Court that Perpetual and the Owners Corporation had reached a settlement of the proceedings between them. The Court deferred making orders to give effect to the settlement until the disposition of the appeal between the Owners Corporation and the Executors. Notwithstanding the settlement, the submissions made by Perpetual remain at the centre of the appeals, and it will be convenient to refer separately to the submissions of Perpetual and the Executors.

By s 135 of the SSMA, certain rights and obligations of lot owners and owners corporations are created by by-laws registered with respect to a strata scheme. The claims in the present case between the Owners Corporation on the one hand, and the Executors (and formerly Perpetual) on the other, arise principally out of:

At a high level, the relevant parts of the common property are the balconies and rooftop spaces on and above levels 5 and 6 (the Exclusive Use Areas), which are the levels occupied by Lot 11. The balconies and rooftop spaces afford spectacular views of Sydney Harbour. When Mr Elkhouri purchased Lot 11 in 2007, it did not enjoy exclusive rights to use those areas of common property. However, those areas were and remain practically accessible only through Lot 11.

From around 2014, Mr Elkhouri and the Owners Corporation were engaged in various proceedings in the New South Wales Civil and Administrative Tribunal and in the Supreme Court of New South Wales. It is unnecessary to trace the history of those proceedings, other than to record that Mr Elkhouri had a measure of success which resulted in his obtaining an order for a by-law conferring certain exclusive use rights with respect to the balconies and rooftop spaces in 2015.

The disputes between the parties continued nevertheless. The disputes included the Owners Corporation’s assertion that ongoing damage to other apartments in the building was being caused by water ingress through the common property areas over which Lot 11 then enjoyed exclusive use rights.

Those disputes were resolved on 6 February 2017 by a deed of settlement and release between the Owners Corporation and Mr Elkhouri. It will be necessary to return to aspects of this deed below. For present purposes it suffices to note that it provided for the Owners Corporation to pass a new by-law (replacing the 2015 by-law), which was annexed as a schedule to the deed. This came to be by-law 30, which was adopted by unanimous resolution at a meeting of the Owners Corporation on 8 March 2017 and registered on 23 May 2017.

It will be necessary to address particular aspects of by-law 30, which is lengthy, more closely below. It is convenient at this stage to summarise some features of the by-law, and how they were dealt with at trial.

By par 30.5 of the by-law, “subject to this by-law 30 (including without limitation paragraph 30.3)”, the owner of Lot 11 was granted the right of exclusive use and enjoyment of certain parts of the common property (i.e., the level 5 and level 6 balconies and rooftop spaces), which were defined as the Exclusive Use Areas. The owner of Lot 11 was also granted the special privilege to carry out work on those areas of common property to repair and maintain them (par 30.5.2).

By par 30.6, the owner of Lot 11 was made responsible, at the owner’s expense, for the ongoing maintenance and upkeep of the Exclusive Use Areas. This obligation was described as “a condition of the grant” of the exclusive use rights.

By par 30.7.1, which was also described as “a condition of the grant” of the exclusive use rights, the owner of Lot 11 was separately required at the owner’s expense to perform certain initial repairs to the Exclusive Use Areas, including “waterproofing”. Those works were to be performed in accordance with a set of identified “Specifications” provided by the Owners Corporation’s “Designated Consultant”, which by-law 30 named as Core Project Consulting (Core). Paragraphs 30.7.1 and 30.7.10 provided for Core to certify the work.

The obligations of the owner of Lot 11 to perform the initial repairs under par 30.7 (but not the ongoing maintenance under par 30.6) were among several defined as “Critical Obligations”.

By par 30.3 (to which the grant of rights in par 30.5 was expressly made subject), the exclusive use rights “cease on the day after the Sunset Date, unless the owner of Lot 11 has fully complied before that time with the Critical Obligations. For this purpose time is of the essence.”

The Sunset Date was defined as the first anniversary of the day on which by-law 30 was lodged for registration. It is common ground that the Sunset Date was 23 May 2018.

A central issue at trial was whether Mr Elkhouri had in fact completed the works required by par 30.7.3 before the Sunset Date, or alternatively should be deemed pursuant to par 30.7.10 to have completed the works in accordance with a certification regime. As noted above, the par 30.7 works were among the Critical Obligations referred to in par 30.3.

There is no doubt that Mr Elkhouri performed substantial work pursuant to par 30.7 prior to the Sunset Date. I will return to some of the evidence about that work and its certification (which is also relevant to a separate issue) shortly. It suffices for present purposes to note that the primary judge found that Mr Elkhouri had not fully complied with the Critical Obligation in respect of works to be done under par 30.7 before the Sunset Date. His Honour also found against Mr Elkhouri on the par 30.7.10 certification/deeming issue. These issues are no longer disputed on appeal (the Executors having abandoned Ground 1 in their notice of cross-appeal which had sought to agitate the certification issue).

The Critical Obligations included two other obligations of the owner of Lot 11 which were in contest at trial, being a requirement to obtain certain insurance under par 30.7.13.2 and a requirement to pay certain moneys under par 30.7.12. Again, it is no longer in dispute that Mr Elkhouri did not comply with those two Critical Obligations before 23 May 2018.

The primary judge concluded that because these three Critical Obligations had not been carried out before the Sunset Date, “Giving effect to cl 30.3, the Granted Rights (the exclusive use rights) ceased on 23 May 2018.” That conclusion is no longer in issue on appeal.

Nevertheless, par 30.3 remains at the centre of the dispute in this Court. The primary judge declared that “Clause 30.3 of By-law 30 is unjust.” His Honour did not expressly add words to the effect, “within the meaning of s 149(1)(c) of the SSMA”. But it is plain, including from his Honour’s order at Primary Judgment [250(4)] remitting the matter to the Tribunal “for orders arising out of the declaration made as to cl 30.3”, that that is what was intended.

The final feature of par 30.3 to note by way of introduction is that, in the event that the owner of Lot 11 failed to perform the obligation to carry out the initial repairs under par 30.7, the by-law also provided that the Owners Corporation could complete that work and obtain reimbursement from the owner of Lot 11 (par 30.7.9); that the owner of Lot 11 must pay damages to the Owners Corporation for “actual losses” (par 30.7.12); and that the owner of Lot 11 must indemnify the Owners Corporation for losses or liabilities incurred arising from any default or neglect in the works (par 30.7.13.1).

The primary judge awarded the Owners Corporation various sums on the basis of those provisions. The question whether the primary judge made findings necessary to establish the Owners Corporation’s claimed entitlements under those provisions is in contest in this Court.

Core had issued its Specifications for the initial par 30.7 repair works as contemplated by the by-law. As noted above, Mr Elkhouri, who had a background in building, carried out substantial work in the period prior to the Sunset Date of 23 May 2018 with a view to complying with the Specifications.

On 28 February 2018 (i.e., well before the Sunset Date), Ian Pomeroy, an engineer employed by Core, issued a certificate of practical completion of certain works performed by Mr Elkhouri. The extent of that certification was a significant issue at trial. The Executors and Perpetual sought to rely upon it as satisfying the deeming regime in par 30.7.10, which provided that the works required under par 30.7 were deemed to have been completed to the satisfaction of the Owners Corporation if they were certified as satisfactorily completed by Core. As noted above, the Executors and Perpetual lost on that issue at trial, and the deeming issue has fallen away in this Court. But the Executors continue to rely on the certificate of practical completion on their cross-appeal in partial answer to the Owners Corporation’s monetary claims.

On 23 March 2018, less than a month after the certificate of practical completion was issued, Core’s Mr Pomeroy conducted a waterproofing test on the level 5 balcony. Mr Elkhouri’s waterproofing work failed the test.

The apparent inconsistency between the 28 February certificate of practical completion and the 23 March failure of the waterproofing test is a matter of some significance on the Executors’ cross-appeal.

The Executors conceded at trial (it seems in light of the failed waterproofing test) that “the works which were certified by Core were not entirely defect-free, at least not to a degree that would have resulted in the issuing of a final certificate of completion”. The concession was made in a context in which it was still a live question whether Mr Elkhouri had complied with the Critical Obligations under par 30.3 before the Sunset Date.

The Executors did not seek to resile from the concession in this Court. But, as will be seen, which defects the concession covered was unclear. The nature and extent of any defects are important issues, because the Owners Corporation’s successful money claims under by-law 30 proceeded from the premise that Mr Elkhouri had not completed the work required by par 30.7 in accordance with Core’s Specifications.

The Owners Corporation’s money claims were brought under a combination of provisions of by-law 30 and s 145(3) of the SSMA, which relevantly provides that an owners corporation may recover as a debt any “money payable by an owner to the owners corporation under a common property rights by-law”. It is common ground that by-law 30 meets that description.

Well after the Sunset Date, in or around December 2018, the Owners Corporation engaged Partridge Remedial Pty Ltd (Partridge) to prepare new specifications and arrange tenders for two distinct work streams which became known as Contract 1 and Contract 2. Contract 1 concerned “works that have arisen from any defect or lack of effectiveness in the design or performance of the works required by By-Law 30” (emphasis supplied). Contract 2 concerned works to the common property that were unrelated to the by-law 30 works.

Importantly for issues on the cross-appeal relating to the Owners Corporation’s money claims, Contract 1 did not distinguish between a defect or lack of effectiveness in the design and a defect or lack of effectiveness in the performance of the works. On the Executors’ construction of by-law 30, the owner of Lot 11 is liable to the Owners Corporation for defects in performing the works in accordance with Core’s Specifications, but not for defects in the “design”, i.e., in the Specifications themselves.

Partridge carried out a substantial amount of work under Contracts 1 and 2, the costs of which the Owners Corporation sought to recover from the Executors. The primary judge referred to evidence of the strata manager for the building, which his Honour appeared to accept, to the effect that a number of invoices from Partridge did not separate the costs applicable to the two contracts, and further that the amounts could not be divided so as to ascertain what figures were attributable to the respective contracts.

The Owners Corporation awarded another company, Renfay Projects Pty Ltd (Renfay), a contract to carry out remedial and other works. Again, the Owners Corporation sought to recover the costs of those works from the Executors.

The Owners Corporation also asserted that Mr Elkhouri’s failure to perform the works required by by-law 30 adversely affected the habitability of two apartments, Lots 9 and 10. On 27 August 2020, the Owners Corporation entered into a settlement deed with the owner of Lot 10, Mr James. The Owners Corporation sought to recover a substantial sum, in excess of $300,000, from the Executors, on the basis that its liability under the settlement deed was referable to Mr Elkhouri’s failure to perform the works as required under by-law 30. On the same basis, the Owners Corporation claimed a much smaller sum on account of a liability for substitute accommodation and storage in respect of Lot 9.

The Owners Corporation’s money claims against the Executors for building-related costs and for what his Honour called “associated claims by lot owners” in total exceeded $1m: Primary Judgment [173].

The Executors did not dispute at trial that the owner of Lot 11 was liable to the Owners Corporation for the sum of $15,048 on account of work done by Core: see Primary Judgment [174(1)]-[175]. The Executors also appear to have conceded the sum of $29,683, which related to a cheque that was not met upon presentation (Primary Judgment [145], [223]). At the hearing of the appeal, the Court was informed that this was “on account of accommodation for a lot owner, for some water ingress that made the unit uninhabitable for a certain period” (AT 121.28-45).

The primary judge awarded the Owners Corporation $283,585.39 for works done by Core, Renfay, and Partridge, and $166,783.98 for damages payable to the Owners Corporation including amounts arising from the deed of settlement with Mr James: Primary Judgment [240]. Those sums included the figures of $15,048 and $29,683 referred to above: see [223].

The Owners Corporation’s entitlement to those amounts, which totalled $450,369.37 before interest, is in issue on the Executors’ cross-appeal.

The primary judge also awarded the Owners Corporation the sum of $128,569.42 on account of unpaid strata levies: see at [237] and [241]. Those sums are not in issue in this Court.

Finally, the primary judge deferred questions of costs, including the cost of recovering the unpaid levies: see Primary Judgment [250(6)]. His Honour returned to those issues in his separate Costs Judgment. The issues are complicated because the Owners Corporation claimed to be entitled to recover those amounts not only pursuant to a costs order, but also:

These matters are, again, all in contest in this Court.

The series of procedural steps by which the matter came to trial is lengthy. It is unnecessary to address it for present purposes save as follows, which provides the background against which the Owners Corporation seeks to argue, for the first time on appeal, that the primary judge lacked jurisdiction with respect to the declaration his Honour made.

By application filed on 13 December 2021, Perpetual, as mortgagee in possession, invoked the Tribunal’s power conferred by s 149(1)(c) of the SSMA. As will be considered in detail below, s 149(1)(c) authorises the Tribunal to make an order prescribing “a change to a by-law” if, among other things, the Tribunal finds “that the conditions of a common property rights by-law relating to the maintenance or upkeep of any common property are unjust”.

Perpetual contended that par 30.3 was a condition of that kind and sought an order from the Tribunal “that paragraph 30.3 be deleted from By-law 30”. Perpetual claimed that par 30.3 was “unjust” for various reasons which are substantially the same as those advanced in this Court. Perpetual’s application also referred to proceedings on foot between the Executors and the Owners Corporation in the Supreme Court. Perpetual asserted that the Supreme Court proceedings primarily concerned the question whether the par 30.7 works had been performed, as well as the Owners Corporation’s cross-claim for moneys owing. Perpetual’s application stated that “the issue the subject of this NCAT application does not arise in the Supreme Court of NSW proceedings.”

The Owners Corporation contested the Tribunal’s jurisdiction. Subclause 5(7) of Schedule 4 of the Civil and Administrative Tribunal Act 2013 (NSW) (the CAT Act) provides:

In seeking to identify the “issue arising” in the Tribunal that was “the subject of a dispute in proceedings pending before a court”, the Owners Corporation pointed to par 31 of Mr Elkhouri’s defence to the Owners Corporation’s cross-claim in the Supreme Court. Paragraph 31 of Mr Elkhouri’s defence pleaded that par 30.3, together with certain other paragraphs of the by-law, were “harsh, oppressive or unconscionable” and consequently of no force or effect. This appears to have been a reference to s 139(1) of the SSMA, which provides that a “by-law must not be harsh, unconscionable or oppressive”.

It will be necessary to return to the relationship between s 149(1)(c) and s 139 below. It suffices for present purposes to record that the Tribunal found that the issues in the Tribunal and Supreme Court proceedings “overlap[ped]”. The application in the Tribunal raised the question whether par 30.3 was “unjust” within the meaning of s 149(1)(c); the Supreme Court proceedings raised an issue as to whether par 30.3 was “harsh, unconscionable or oppressive”. The Tribunal also pointed out that the Owners Corporation was seeking significant damages in the Supreme Court for failure to comply with par 30.3, while the application in the Tribunal was seeking to have par 30.3 deleted.

The Tribunal concluded that subcl 5(7) of Sch 4 of the CAT Act was engaged. The Court was informed that the Owners Corporation’s position in the Tribunal had been that the proceeding should either be dismissed or be transferred to the Supreme Court. The result was that the Tribunal ordered, apparently under subcl 6(1) of Sch 4 of the CAT Act, that Perpetual’s proceeding be transferred to the Supreme Court.

It was common ground before this Court that the effect of that transfer did not operate to enlarge the Supreme Court’s jurisdiction; that is to say, the transfer order did not operate to confer the Tribunal’s functions under s 149(1)(c) on the Supreme Court.

Although it was Perpetual that first raised the s 149(1)(c) issue, the Executors later adopted it and relied on Perpetual’s arguments.

The primary judge made a declaration in terms that “Clause 30.3 of By-law 30 is unjust”.

Ground 1 in the Owners Corporation’s notice of appeal is, “The primary judge erred by making a declaration that By-law 30.3 was unjust.”

Ground 2 is, “The primary judge erred by holding that By-law 30.3 was unjust.”

Ground 3 is, “The primary judge erred by holding that the obligations of increased payment, maintenance and upkeep under By-law 30 continued upon the cessation of the exclusive use right held by Lot 11.”

The Executors and Perpetual each relied, to the extent necessary, on notices of contention that were substantially identical, as follows:

As developed in the parties’ submissions, these grounds of appeal and contention raised a number of interconnected issues:

On these issues, the Executors adopted the submissions made on behalf of Perpetual in this Court.

Ground 1 encompassed a challenge to the Court’s jurisdiction (although the term “power” was at times used in argument). I understood the submission to be that the Court lacked authority to hear and determine, on the Executors’ and Perpetual’s claims for a declaration, the question whether par 30.3 was unjust within the meaning of s 149(1)(c) of the SSMA.

This challenge was advanced in the face of:

Those would be powerful reasons why the Owners Corporation should not be permitted to raise a new point for the first time on appeal, were it not for the fact that the point is jurisdictional. The Executors and Perpetual did not contest that despite the procedural history the Court was bound to address the point. Plainly, however, if the jurisdictional point now succeeds, the circumstances in which it has been raised would be highly material to questions of costs.

Section 142 of the SSMA defines a “common property rights by-law” as a by-law that confers on the owner of a specified lot, either:

As noted above, it is common ground that by-law 30 is a common property rights by-law.

Section 149 of the SSMA relevantly provides:

Subsection (1) involves two stages. The first stage is the making by the Tribunal of a finding as to the existence of one or more of the matters in pars (1)(a), (b), or (c). Relevantly for present purposes, the finding with which par (1)(c) is concerned is that certain “conditions … are unjust.”

The second stage arises only “if” the Tribunal makes such a finding. At this second stage, subs (1) confers a power on the Tribunal (“The Tribunal may …”) to “make an order prescribing a change to a by-law”. Subsection (2) provides for two mandatory considerations to which “the Tribunal must have regard” at the second stage when “considering whether to make an order” under subs (1).

That structure makes clear that a finding by the Tribunal that certain conditions are unjust will not necessarily result in any order at all, still less an order prescribing any particular “change to a by-law” (such as “deleting” the offending conditions). I did not understand any party to the appeal to take a different approach.

Against that background, the Owners Corporation submits that the Supreme Court lacked jurisdiction and accordingly should not have made the declaration that “Clause 30.3 … is unjust”.

The strands in the Owners Corporation’s argument as I understood it were as follows.

The Owners Corporation's challenge to the Court's jurisdiction must be rejected.

I note three matters at the outset. First, senior counsel for the Owners Corporation was not aware of any authority that went as far as the argument advanced.

Secondly, the Owners Corporation accepted that the Supreme Court routinely makes declarations in respect of the meaning of statutory provisions across the spectrum of legislation passed by the Parliament, without any express conferral of jurisdiction on the Court in the statute itself.

Thirdly, senior counsel for the Owners Corporation confirmed that the legal route relied on to reach the conclusion that the Supreme Court lacks jurisdiction is a process of statutory construction of s 149 of the SSMA; in particular, of the words, “if the Tribunal finds”. The Owners Corporation submitted that it would be wrong to characterise this as s 149 ousting the Supreme Court’s jurisdiction. Instead, it was submitted that the Court “cannot have a jurisdiction to make effectively a finding of fact within the meaning of s 149, which is a power confined to the tribunal. So it’s not so much ousted, it’s never there”.

I do not accept that submission. The Owners Corporation’s basic proposition — that where a statute confers power on a tribunal to apply a statutory test, the Supreme Court has no authority to hear or decide questions which involve applying that statutory test unless the statute specifically authorises the Court to do so — stands the proper approach to the Court’s jurisdiction on its head.

As has been said on many occasions, the jurisdiction of the Supreme Court in matters in which a declaration is sought is very wide. Generally speaking, provided that the matter is not hypothetical or otherwise lacking in utility, the question whether a certain set of rights and obligations, or a certain state of affairs, or some combination of the two, meets a statutory description is a question comfortably within the scope of the Court’s authority to decide and its power to answer by the discretionary remedy of a declaration.

Given the breadth of the Supreme Court’s jurisdiction, the correct approach is not to ask whether a given statute confers a power to apply a statutory test on some other tribunal. The correct approach is to ask whether the statute clearly “withdraws the determination of that question from the jurisdiction of the Supreme Court”: Forster v Jododex Australia Pty Limited and Another (1972) 127 CLR 421 at 436; [1972] HCA 61 per Gibbs J (Jododex).

As Mason JA said in Salmar Holdings Pty Limited v Hornsby Shire Council [1971] 1 NSWLR 192 at 201 (Salmar):

Given that the Owners Corporation’s argument is said to arise as a matter of construction of s 149(1)(c) of the SSMA, the oft-quoted statement in The Owners of the Ship “Shin Kobe Maru” v Empire Shipping Company Inc (1994) 181 CLR 404 at 421; [1994] HCA 54 (Shin Kobe Maru) bears repeating:

Nor should the Supreme Court’s jurisdiction or power be read down by making implications or imposing limitations which are not found in the express words of a statute that confers a function on a different tribunal. Section 149(1) confers on the Tribunal, as a first stage, the function of making a finding. As a matter of statutory construction, the expressio unius principle is a wholly inadequate basis on which to construe that conferral as withdrawing or excluding the Supreme Court’s jurisdiction.

I do not see that anything in this case turns on the asserted distinction between a provision which does no more than refer to the existence of a fact as enlivening a power, and a provision which confers the function of finding that fact on a particular tribunal. Even assuming for present purposes the validity of the distinction, the challenge to the Court’s jurisdiction would still fail for the same basic reason: it would turn on an implication drawn from a statutory provision far removed from the one conferring jurisdiction on the Supreme Court. Moreover, the words “if the Tribunal finds” do not suggest any element of subjectivity in the fact-finding process. They afford a weak foundation for any implication that the Parliament intended the Tribunal to have exclusive jurisdiction.

I noted above the Owners Corporation’s attempt to yoke together the two functions that s 149(1)(c) of the SSMA confers on the Tribunal. The first function is one of fact finding: whether “the conditions … are unjust”. The making of such a finding engages the second function, which is a discretionary power to make an order prescribing a change to the by-law. There is no reason why the two functions must be treated the same way for the purposes of the issues in this appeal. For one thing, there is a significant difference between making a finding of fact (as to which there is only one correct outcome) and exercising a discretion (as to which there may be many potential “correct” outcomes, particularly as to the form of any change to the by-law).

The decisions to which the parties referred do not support the Owners Corporation’s argument. Although the cases addressed different statutory regimes or different tribunals, to the extent they are of any assistance at all they are broadly consistent with a conclusion that the primary judge had jurisdiction in this case.

The present case stands outside the Josephson v Walker (1914) 18 CLR 691; [1914] HCA 68 line of authority. That case concerned s 49 of the Industrial Arbitration Act 1912 (NSW), which by subs (1) imposed a statutory liability on employers to pay award rates. By s 49(2) and (3), the liability was enforceable within 6 months of accrual by application “to the registrar or to an industrial magistrate”, or “in any District Court or Court of Petty Sessions” — but not in the Supreme Court. Instead of pursuing the modes of enforcement in s 49(2) and (3), Walker brought an action against his employer Josephson in the Supreme Court of New South Wales claiming £118 6s (692-693). Josephson demurred on the ground that the Supreme Court had no jurisdiction to entertain the cause of action (at 693). Importantly, Walker’s claim was “an action to enforce payment of moneys due to the plaintiff … by virtue of a statutory obligation” (at 700). It was not a proceeding for a declaration of right; the references to allegations in “the declaration” were, rather, to old system pleadings.

The Court upheld the demurrer. Griffith CJ held that by s 49 a “new obligation is created and a special mode of enforcing it is given”, which was “exclusive of any other mode of enforcing it” (at 697; emphasis supplied). Isaacs J held that s 49 created “a new right with an inseparable new remedy” (at 703; emphasis supplied). Powers J, in a short concurrence, also referred to the “specific and sufficient mode of enforcing” the statutory obligation (at 703; emphasis supplied). The language of “enforcing” is not apt to capture a bare declaration.

As to the scope of the principle, Isaacs J said that the question whether the specific method of enforcement was exclusive depended not on any rigid rule, but on the intention of Parliament (at 701). The Chief Justice similarly observed (at 697) that the “rule” may only amount to a very strong presumption which can be displaced depending on the legislature’s intention.

Nothing in Josephson v Walker is inconsistent with the Supreme Court’s having jurisdiction in this matter. First, the “rule” or “presumption” which it discussed concerns statutes that create a specific and exclusive means of enforcing a new statutory right, such that enforcement of the right cannot be divorced from the specific statutory means. That is not this case where the first stage of s 149(1)(c), which is the focus of the Owners Corporation’s argument, is concerned only with making a finding. Secondly, Josephson v Walker was not a case involving a declaration of right. Thirdly, the correct view is that there is no rigid rule; the question whether jurisdiction is exclusive turns on the construction of the particular provision. Fourthly, to the extent that there is any presumption in construing provisions conferring jurisdiction, the presumption must accommodate more recent authority, such as Jododex, Salmar, and Shin Kobe Maru.

One of the matters on which Griffith CJ relied in Josephson v Walker (at 697-698) was that “the whole scheme of the Act seems to be to leave the determination of these questions in the hands of the special tribunal, the Court of Industrial Arbitration.” An appeal lay to the Court of Industrial Arbitration from the registrar and the industrial magistrate (the mode of enforcement in s 49(2)), and from the District Court and Court of Petty Sessions (the mode of enforcement in s 49(3)). But no further appeal or proceeding by way of prohibition was allowed. That scheme excluded the Supreme Court. By contrast, s 83(1) of the CAT Act provides for an appeal by leave on a question of law from the Tribunal to the Supreme Court.

Barraclough v Brown [1897] AC 615, to which Isaacs J referred in Josephson v Walker, takes the matter no further. As Lord Herschell said, there the only right conferred was a right to recover certain expenses “in a Court of summary jurisdiction” (at 619). The right could not be separated from the specified remedy of enforcement by particular means.

As far as they went, the other cases which the parties drew to the Court’s attention were broadly consistent with the existence of jurisdiction in this case: MacLeod v Proprietors of Strata Plan No 6544 [1980] 2 NSWLR 691 at 695-696; North Wind Pty Ltd v Proprietors — Strata Plan 3143 [1981] 2 NSWLR 809 at 814E and 816A; Mulwala & District Services Club Ltd v Owners Strata Plan 37724 (2000) 50 NSWLR 458 at 463; [2000] NSWSC 1040; Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 944 at [519]-[525]; Ippolito v Cesco [2020] NSWSC 561 at [64]-[77].

The declaration in this case should be understood as determining that par 30.3 is unjust within the meaning of s 149(1)(c). That the declaration involved the contested application of a statutory test gives it utility. A bare declaration that par 30.3 was “unjust”, untethered from any statutory or other legal standard, might be open to attack on grounds of uncertainty; remote from any prospect of having a consequence for the parties, it might lack utility.

That the declaration may, either legally or practically, bind the parties to it before the Tribunal if it is called upon to make a s 149(1)(c) finding would be relevant to the question whether the Court should make a declaration. But that consideration does not diminish the Supreme Court’s jurisdiction. Section 149(1) either withdraws that part of the Supreme Court’s jurisdiction or it does not. I do not consider it open to read s 149(1) in that way.

As Mason JA pointed out in Salmar at 201, the grant of the remedy is discretionary. The Court should not be quick to exercise its power to make a declaration of the kind here merely because it has jurisdiction to hear and determine the claim. But whether it is appropriate to make a declaration will depend on the circumstances of the particular case.

The present case is unusual. Perpetual invoked the Tribunal’s jurisdiction, claiming s 149(1)(c) relief; the Owners Corporation successfully objected to the Tribunal’s jurisdiction; the Tribunal transferred the matter to the Supreme Court, where the related question whether the by-law was “harsh, unconscionable or oppressive” within the meaning of s 139(1) of the SSMA was already in issue; and Perpetual and the Executors were left to do the best they could to advance their s 149 claims in the circumstances. Against that background it was open to the primary judge to exercise his discretion to make the declaration. In any event, the Owners Corporation did not attempt to attack his Honour’s discretionary decision to grant relief on House v The King (1936) 55 CLR 499; [1936] HCA 40 grounds.

To the extent that Ground 1 in the Owners Corporation’s notice of appeal encompassed a ground that the Court lacked jurisdiction, it is not established.

It is accordingly necessary to determine whether his Honour erred in the exercise of the jurisdiction he had.

The primary judge found that par 30.3 was “unjust”. His Honour’s reasoning was summary in form. The essential strands were as follows.

His Honour stated that the “starting point is to look at the balance of the interests of Lot 11 and the remainder of the owners in the building.” This appears to have been a reference to s 149(2)(a) of the SSMA, which provides that “[i]n considering whether to make an order, the Tribunal must have regard to - (a) the interests of all owners in the use and enjoyment of the lots and common property”.

In carrying out the balancing exercise, the primary judge emphasised that the other owners did not have any expectation of using the balconies or the rooftop area for personal purposes, and that they did not buy their lots with any such expectation. The reference to expectations here may have been a reference to s 149(2)(b), which requires the Tribunal, when considering whether to make an order, to have regard to the reasonable expectations of owners who benefit under a common property rights by-law (rather than those of owners who do not).

The primary judge contrasted the position of the owner of Lot 11 with that of other owners. His Honour reasoned that exclusive use of the balconies and rooftop area by the owner of Lot 11 “is an almost accepted and intrinsic characteristic of the ownership of the lot.” At [163] of the Primary Judgment, his Honour said:

The primary judge referred to valuation evidence that indicated that the value of Lot 11 with the exclusive use rights was $10 million, but was $7,750,000 without exclusive use rights.

His Honour stated at [166] of the Primary Judgment:

This issue seems to have weighed heavily in his Honour’s decision. He returned to it at [168] of the Primary Judgment:

In this Court, no party suggested that the s 149(1)(c) question, namely, whether the conditions were “unjust”, involved as its “starting point” a balancing exercise of the kind his Honour undertook.

There were two problems with that aspect of his Honour’s reasoning, both of which reflect similar points made by Basten AJ in Kaye v The Owners - Strata Plan No 4350 [2022] NSWSC 1386 at [28], [52]. First, the matters in subs 149(2) are not directed to the “unjust” criterion in subs (1)(c), but rather to the Tribunal's decision whether to make an order. Secondly, subs (2) does not prescribe a balancing or weighing exercise of one set of interests against the other; it simply identifies two sets of interests to which regard must be had. Nothing in s 149(1)(c) of the SSMA supports the proposition that the necessary “starting point” in determining whether any conditions are “unjust” is a “balancing” exercise of the kind his Honour undertook.

Nor did any party support his Honour’s reasoning that Lot 11’s ongoing obligations of maintenance and upkeep of the Exclusive Use Areas (i.e., under par 30.6) would continue even after the exclusive use rights ceased. To the contrary, both at trial and on appeal it was common ground that those obligations of maintenance and upkeep would cease at the same time as the exclusive use rights.

The approach adopted by the parties (that the par 30.6 obligations ceased at the same time as the exclusive use rights) is correct as a matter of construction of par 30.6.1. That paragraph provides that “As a condition of the grant of the Granted Rights [i.e., the rights granted under par 30.5], the Owner of Lot 11 is, at their own expense, to be responsible for the proper maintenance of, and keeping in a state of good and serviceable repair,” the Exclusive Use Areas (emphasis supplied). That language might suggest that once the rights were granted under par 30.5, the obligation under par 30.6.1 attached and therefore continued.

However, as will be seen below, the proper construction of by-law 30 is that the exclusive use rights were granted in two stages. As Mr Elkhouri failed to comply with the Critical Obligations before the Sunset Date, the second stage “of the grant of the Granted Rights” to which par 30.6.1 refers never occurred.

Against that background, par 30.6.1 describes the areas for which the owner of Lot 11 is to have maintenance responsibility by reference to the areas of common property over which a right of exclusive use or enjoyment or a special privilege “is granted under paragraph 30.5.” In the context, I read the words “is granted” as operating only so long as the grant subsists.

That construction is supported by the relationship between pars 30.5 and 30.6. The Granted Rights contain not only the par 30.5.1 exclusive use rights, but also the par 30.5.2 special privilege of carrying out work on the common property to repair and maintain various structures. The by-law contemplates that a special privilege of that kind is necessary in order for the owner of Lot 11 to carry out the ongoing par 30.6 maintenance and repair work. But if the condition in par 30.3 is not satisfied, such that the Granted Rights (including the par 30.5.2 special privilege) cease at the Sunset Date, the owner of Lot 11 will lack authority to carry out the work.

That being so, the obligations in par 30.6.1 did not continue after the Sunset Date. The primary judge erred in finding to the contrary. Ground 3 in the Owners Corporation’s notice of appeal is established.

It follows that the process of reasoning by which the primary judge reached his ultimate conclusion that par 30.3 was unjust cannot be supported.

His Honour’s ultimate conclusion is the subject of Ground 2 in the Owners Corporation’s notice of appeal and the Executors’ notice of contention. The parties proceeded on the footing that this Court should determine whether par 30.3 was unjust on the basis of the arguments presented to it.

The parties raised a number of disputes about the construction of s 149(1)(c).

The proper approach to the interpretation of strata scheme by-laws was discussed by McColl JA in The Owners of Strata Plan No 3397 v Tate (2007) 70 NSWLR 344 at 361-362 [71]-[72]; [2007] NSWCA 207. Her Honour acknowledged that by-laws may be characterised as either delegated legislation or statutory contracts, but said that from an interpretative perspective the characterisation may be a distinction without a substantial difference. Her Honour said that exclusive use by-laws should be interpreted objectively by what they would convey to a reasonable person, consistently with the statutory scheme and exercising caution in considering surrounding circumstances.

What must be found “unjust” under s 149(1)(c) of the SSMA are “the conditions of a common property rights by-law relating to the maintenance or upkeep of any common property”. The parties disputed a number of aspects of the construction of those words.

I did not understand the parties to dispute that par 30.3, which operates “unless the owner of Lot 11 has fully complied before [the Sunset Date] with the Critical Obligations”, is or contains “conditions of a common property rights by-law”.

However, there was a dispute about whether the words “relating to the maintenance or upkeep of any common property” qualify “the conditions” or the “common property rights by-law” as a whole. Because of the proximity of the language, the more natural reading might be that the words “relating to …” qualify the “by-law” rather than the “conditions”. But depending on matters of context, either reading would be available.

Although the words “relating to” are very broad, their function here is to delimit the subject matter of the paragraph. As the Owners Corporation pointed out, s 144(1) of the SSMA provides that a common property rights by-law must provide that either the owners corporation or the lot owner is to be responsible for the maintenance and upkeep of the relevant part of the common property. In other words, every common property rights by-law will relate to maintenance or upkeep. If the words “relating to …” qualified the “by-law”, they would thus serve no purpose of limitation. Accordingly, I consider that the words “relating to …” qualify the “conditions”, rather than the by-law as a whole.

It follows that in order to come within s 149(1)(c), par 30.3 must itself be or contain “conditions … relating to the maintenance or upkeep”.

Paragraph 30.3 operates by reference to compliance with the Critical Obligations, which in turn are defined to include the obligation under par 30.7 to carry out initial repair works. The Owners Corporation submitted that the words “maintenance or upkeep” in s 149(1)(c) are limited to ongoing maintenance, rather than initial repairs of the kind contemplated by par 30.7. I do not agree. The works required by par 30.7.3 are described as “waterproofing”; “balustrades”; and “guttering”. All three kinds of work, but especially “waterproofing”, are readily seen in the context of strata schemes as forms of “maintenance or upkeep”.

Finally, the Owners Corporation submitted that for the purposes of s 149(1)(c) the “injustice” (as opposed to the condition) must relate to the maintenance or upkeep itself. The Owners Corporation submitted that the injustice with respect to par 30.3 was not alleged to arise out of the obligations or maintenance or upkeep; instead, the complaint was that Lot 11's exclusive rights ceased. I do not accept that submission. Section 149(1)(c) does not refer to unjust maintenance or upkeep. It refers to unjust conditions. True, the condition must relate to maintenance or upkeep. But once that criterion is met, the question is whether the condition is in some way unjust.

Paragraph 30.3, thus, comes within the words “conditions of a common property rights by-law relating to the maintenance or upkeep of … common property”.

The SSMA does not define the word “unjust”. The other provisions of the Act offer limited assistance in determining its meaning.

The provision on which the parties focussed was s 139, which relevantly provides in subs (1):

A question arose in argument about the significance of the subheading to subs 139(1): “By-law cannot be unjust”. I consider that, through a combination of s 34(1)(b) and (2)(a) and ss 35(2)(a) and (c) of the Interpretation Act 1987 (NSW), regard may be had to the subheading in interpreting s 139(1). The subheading gives some support for the proposition that, at least for the purposes of s 139(1), the words “harsh, unconscionable or oppressive” are synonymous with the word “unjust”. It requires a further step, and one that is not clearly authorised by s 34 of the Interpretation Act, to equate the word “unjust” in s 149(1)(c) with the words “harsh, unconscionable or oppressive” in s 139(1).

A basic problem with that reasoning is that if Parliament intended to capture exactly the same meaning in the two provisions, it might be expected to have used the same language.

Moreover, ss 139 and 149 have significantly different functions under the SSMA. In particular, although s 139 does not prescribe any consequence for contravention of the prohibition it creates, the note to subs (1) states: “Any such by-law may be invalidated by the Tribunal (see section 150).”

Section 150 of the SSMA then provides:

The words “if the Tribunal considers … that the by-law is harsh, unconscionable or oppressive” in s 150(1) pick up the language of s 139(1).

Where two provisions of the same statute address distinct subject matters and use different language to identify the criteria of engagement of powers the statute confers (“unjust” in s 149(1)(c); “harsh, unconscionable or oppressive” in s 150(1)), that suggests an intention that the criteria differ.

Perpetual nevertheless submitted that there was no difference, at least for present purposes, between “unjust” and “harsh, unconscionable or oppressive.” It said that the two “have a synonymous meaning for our purposes”, while acknowledging that there might be cases where one could point to a difference, and that the two meanings might not overlap completely.

Perpetual cited the reasons of Basten JA concerning the interpretation of s 139(1) in Cooper v The Owners – Strata Plan No 58068 (2020) 103 NSWLR 160 at 167-168 [24]-[28]; [2020] NSWCA 250 (Cooper) as assisting in construing s 149(1)(c). Perpetual submitted that those paragraphs indicated an “equivalence” between “unjust” and “harsh, unconscionable or oppressive”. I do not read the passage in Cooper, which was not directed to s 149, as conveying an absolute identity of meaning; rather, the point was that words such as “unjust” and “unfair” have much in common with the phrase used in s 139 and throw up similar problems of interpretation.

I readily accept that in a given case there may be no difference in the effect of the two statutory criteria, save that s 139(1) is directed to any by-law (and as a whole), while s 149(1)(c) is directed only to certain conditions of a common property rights by-law. But that is not to say that their meaning is identical.

In the passage in Cooper to which Perpetual referred, Basten JA made a number of points relevant to the interpretation of s 139(1), including, in summary, that obtaining a correct understanding of the phrase “harsh, unconscionable or oppressive” is fraught with difficulty; that the phrase invokes the application of values, the content of which derives no elucidation from reference to synonyms, nor from a supposed differentiation from other similar words such as “unjust”; that there is no clear baseline moral standard for what will come within the phrase; and that by choosing so general and inherently variable a standard (like “justness”), Parliament intended for courts to apply contemporary community standards, which may vary over time.

Similar considerations apply to the interpretation of the word “unjust” in s 149(1)(c). It invokes a general and inherently variable standard that requires an evaluative assessment of the conditions of a common property rights by-law relating to the maintenance or upkeep of common property. Save for one matter, I do not consider it helpful for present purposes to attempt to state further general propositions as to its meaning or application.

The evaluative assessment that something is “unjust” requires consideration of relevant circumstances. The difficulty is that s 149(1)(c) does not state the scope of the circumstances which may or must be considered — in particular, whether they extend beyond the terms of the strata scheme and the by-law itself.

By contrast, to take what is now a familiar example of a statute which confers a discretionary power that is engaged by a finding that something is “unjust”, the Contracts Review Act 1980 (NSW) explicitly states the scope of relevant circumstances. By s 4(1), “‘unjust’ includes unconscionable, harsh or oppressive”. Section 7(1) provides: “Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may …” make various far-reaching orders. Section 9(2) then provides that “the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include” various matters such as (a) “any material inequality in bargaining power between the parties”, (b) “whether or not prior to or at the time the contract was made its provisions were the subject of negotiation”, (d) “whether or not any provisions of the contract impose conditions which are … not reasonably necessary for the protection of the legitimate interests of any party to the contract”, (f) “the relative economic circumstances, educational background and literacy of … the parties to the contract (other than a corporation)”. Those considerations go far beyond both the terms of the contract and the extrinsic matters to which regard may be had in interpreting the contract.

Section 149(1)(c) of the SSMA, like s 7(1) of the Contracts Review Act, is beneficial legislation conferring a broad discretionary power to relieve against something found to be unjust. In the absence of contrary authority or any clear indication in the terms of the SSMA, I would consider it at least possible that, depending on the respect in which the particular conditions were said to be unjust, and to whom they were said to be unjust, the determination of that issue might include consideration of circumstances beyond the terms of the by-law.

That was not the view taken with respect to s 139(1) in Cooper. Fagan J said (at 182 [101]; see also at 180-181 [94]):

His Honour excluded from consideration “any matter specific to [the Coopers], including the history of their relationship with the Strata Plan.” Basten JA, referring to “the nature of s 139”, said at 172 [45] that it “focuses on the character of the particular by-law, rather than the state of knowledge, whether actual or constructive, of any particular lot owner.” At 177 [68] his Honour said that the circumstances of the Coopers and their dog were irrelevant to the proper assessment of the validity of the by-law.

The parties in this Court approached s 149(1)(c) on a different footing, namely, that in determining whether “the conditions of a common property rights by-law relating to the maintenance or upkeep of any common property are unjust” it was appropriate to take into account circumstances beyond the inherent qualities of the by-law.

In my opinion they were right to do so in the circumstances of this case, where Perpetual and the Executors argued that par 30.3 was unjust to the owner of Lot 11 because it operated to forfeit the exclusive use rights. Although s 149(1)(c) is engaged where “the conditions … are unjust”, those words do no more than identify the subject matter of the assessment. I do not read the provision as confining the circumstances in light of which the “unjustness” assessment is to take place to those inherent in the by-law itself.

Although this differs from the approach taken to s 139(1) in Cooper — a matter that was not developed in argument in this case — it seems to me that the difference in the subject matters of the two provisions is significant. Section 139(1) is concerned with by-laws of all kinds. The by-laws to which it is directed will involve many rules of general operation (i.e., applying to all lot owners) and which will be expressed in general terms. The by-law prohibiting the keeping of animals in Cooper was, as Fagan J said, of that kind.

By contrast, s 149(1)(c) is directed to a much narrower subject matter: “the conditions of a common property rights by-law relating to the maintenance or upkeep of any common property”. Common property rights by-laws are those giving to one or more lot owners a right of exclusive use and enjoyment, or special privileges, with respect to common property: s 142. By s 143(1), common property rights by-laws can be made only with the written consent of each owner on whom the by-law confers rights or special privileges. By s 143(2), such by-laws may be made subject to conditions, including the payment of money “at specified times or as determined by the owners corporation”.

It is thus of the essence of common property rights by-laws that they treat lot owners unequally. Not only does such inequality tend to invite disputation; it also bears on the scope of the circumstances to be taken into account in determining whether the conditions of such a by-law are “unjust”. Given that the class of by-law to which s 149(1)(c) is directed will generally involve some element of inequality on its face, it seems to me that assessing whether the conditions of the by-law are “unjust” may call for consideration of circumstances extrinsic to the by-law itself.

For example, the immediate circumstances in which the by-law came into existence may be important context in which to assess whether a condition involving maintenance and repair, or the payment of money “as determined by the owners corporation”, is “unjust”. While s 143(1) suggests that the mere fact that the lot owner consented will not, without more, be relevant under s 149(1)(c), it does not follow that consent can never be significant. Its significance will depend on the circumstances in which it was given, including anything obtained in return for it. Perpetual accepted that if a payment had been made to a lot owner as part of a deal that led to the by-law containing the condition at issue, that would be relevant to the s 149(1)(c) “unjust” assessment. Perpetual also accepted that even if no payment had been made, where the by-law was made in settlement of some dispute (i.e., a benefit to the lot owner that was independent of the by-law itself), again that would be a factor that the Court could take into account on the question of “unjust”.

In this context, it should be noted that Fagan J said at 180 [92] that the context of strata plan management did not readily suggest what features or scope of operation of a by-law might make it “unconscionable” within the meaning of s 139(1). His Honour pointed out that the term is generally understood in equity as concerned with a stronger party to a transaction exploiting some special disadvantage of a counterparty. By contrast, his Honour said, by-laws are added, amended or removed by voting at a meeting of the owners corporation, “not by negotiation or by the making of a transaction between persons with greater or lesser bargaining strength or special disadvantage.” But the facts of this case show that there is no necessary dichotomy, and that, particularly in the context of exclusive use rights conferred on one lot owner under a common property rights by-law, the voting at a meeting may indeed be closely connected with a negotiated transaction. Moreover, a common property rights by-law is not (to use Fagan J’s language at 182 [101]) “a rule of general application to all lot owners”; it is inherently discriminatory.

The operation of s 149(1)(c) also differs significantly from that of s 139(1). Section 139(1) directly prohibits by-laws that are harsh, unconscionable or oppressive. That is part of the context in which Basten JA referred at 163 [9] to Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528; [2007] HCA 45 and the restriction on use of extrinsic evidence in construing registered dealings in real property under the Torrens system. Similarly, to the extent that s 139(1) operates in combination with s 150(1), the only power the latter section confers on the Tribunal is to declare the whole by-law invalid. By contrast, s 149(1)(c) operates only after a finding by the Tribunal that the particular conditions are “unjust” enlivens its discretionary power to make an order changing the by-law. Sections 139(1) and 150(1) have far less flexibility than the beneficial discretionary power conferred by s 149(1), which permits the Tribunal to mould appropriate “changes” to a by-law. While the rigid operation of ss 139(1) and 150(1) may provide a reason for confining the “harsh, unconscionable or oppressive” criterion to consideration of the inherent character of the by-law, there is no such reason in relation to s 149(1)(c).

Subsection 149(2) is at least consistent with this approach. It is true that the mandatory considerations in s 149(2) are directed only to the second stage of s 149(1), namely the Tribunal’s exercise of its power to change a by-law after it has found the conditions unjust within the meaning of par (1)(c) (see Kaye at [28], [52]). But the language of subs (2) does afford some indication of the nature of the relevant circumstances at that second stage. Subsection (2) refers to “the interests of all owners in the use and enjoyment of their lots and common property” and “the rights and reasonable expectations of any owner deriving or anticipating a benefit under a common property rights by-law”. The subsection does not expressly confine consideration of those interests, rights or reasonable expectations to what is inherent in the by-law itself. For example, an owner’s reasonable expectations may depend on circumstances extrinsic to the by-law. It would at least be consistent that in determining whether the power was engaged (i.e., in making the anterior finding as to the “unjust” criterion), the Tribunal could take into account relevant circumstances that were extrinsic to the by-law.

Section 149(1)(c) uses the word “unjust” without identifying to whom. Although the focus of the s 149(1)(c) complaint here was unsurprisingly the effect of par 30.3 on the rights of the owner of Lot 11, the Owners Corporation submitted that the interests of the other lot owners were relevant to determining whether the par 30.3 conditions were “unjust”. In light of the way in which the argument proceeded on all sides, it was not disputed that that approach was appropriate in the circumstances of this case.

I have concluded that, depending on the respect in which the particular conditions were said to be unjust, and to whom they were said to be unjust, the matters to be taken into account for the purposes of the evaluative judgment required by s 149(1)(c) are not limited to what is inherent in the by-law.

Perpetual made one further submission in writing about the approach to s 149(1)(c) that requires consideration. Citing the reasons for judgment in Cooper of Basten JA at 173 [49] and Macfarlan JA at 178 [79]-[81], Perpetual submitted that the Court had there adopted “a test of ‘adverse affection’” for purposes of s 139: “a by-law which limited the property rights of lot owners was only lawful (valid) if it protected from adverse affection the use and enjoyment by other occupants of their own lots, or the common property.” Perpetual’s submission was that although a by-law that failed that test would not be lawful, it did not necessarily follow that passing the test would make a by-law lawful.

Perpetual went further, submitting in writing that there “must be some assessment as to whether the benefit objectively and proportionally justifies the degree of restriction of the affected rights.” That submission was expressed in absolute terms. It was not developed in writing or in argument. Nor was it specifically related to the facts. The question whether considerations of proportionality may be relevant to the s 149(1)(c) analysis should be reserved for consideration in a case in which the point is properly argued.

As noted above, in light of Ground 2 in the notice of appeal and the notice of contention, it is for this Court to determine whether there was error in the primary judge’s ultimate conclusion that par 30.3 was unjust.

A substantial part of the argument on this issue concerned the nature and scope of the grant of rights under the by-law. It is thus convenient to begin with the interpretation of those parts of by-law 30 which granted rights of exclusive use in favour of the owner of Lot 11.

Paragraph 30.5 provided in its opening words:

The terms of par 30.3 — including the words, “The Granted Rights cease on the day after the Sunset Date unless …” — were thus expressly incorporated in the terms of the grant. Paragraph 30.5.1 then went on to grant the owner of Lot 11 rights of exclusive use and enjoyment of areas marked on the Plan which it defines as the Exclusive Use Areas. Paragraph 30.5.2 granted the owner of Lot 11 the “special privilege” of carrying out work on the common property to repair and maintain various structures marked on the Plan.

Paragraph 30.3 provided:

The Granted Rights were defined as those granted to the owner of Lot 11 in accordance with par 30.5; the Sunset Date was the day 12 months after by-law 30 was lodged for registration (and thus came into effect); and the Critical Obligations included those under par 30.7.

Thus, as foreshadowed above at [111], par 30.5 in combination with par 30.3 provided for the rights to be granted in two stages.

The interpretation of pars 30.3 and 30.5 as providing for the rights to be granted in two stages is confirmed by par 30.7.2, which provided (emphasis supplied):

Perpetual submitted that the effect of pars 30.3 and 30.5 was not that the rights were granted in two stages for an initial period of 12 months, with a second stage consisting of a conditional extension. Instead, Perpetual submitted that the rights were granted only once, in perpetuity, but subject to a conditional loss of the rights. Perpetual submitted that the language used in both limbs of par 30.5 (par 30.5.1 in relation to the exclusive use rights and par 30.5.2 in relation to the special privilege) was that of immediate grant: “The owner of Lot 11 is granted…”.

Those submissions should be rejected. They are contrary to the language and structure of the parts of the by-law that I have set out above. In particular, in focussing on pars 30.5.1 and 30.5.2, they ignore the opening words of par 30.5, which expressly refer to par 30.3, and the language of par 30.3 itself (“The Granted Rights cease on the day after the Sunset Date, unless …”).

Perpetual also pointed to what it said was a different grant in par 30.7.2. This was, again, said to be expressed in the language of immediate grant: “… the owner of Lot 11 is granted the special privilege to repair the common property required by this paragraph 30.7…”

There are two difficulties with that submission. First, it ignores the opening words of par 30.7.2: “So as to assist the owner of Lot 11 to have an opportunity to do what is required to extend his rights beyond the Sunset Date, the owner of Lot 11 is granted …” (emphasis supplied). That is plainly enough a reference to the “rights” granted by the combination of pars 30.3 and 30.5. Secondly, by par 30.7.2.1, the special privilege expired on the earlier of (a) the works being satisfactorily completed as determined by the Owners Corporation’s Designated Consultant or (b) the end of the day on the Sunset Date.

Paragraphs 30.3 and 30.5 provided for the rights and the special privilege to be granted in the two stages I have described.

I will first address the s 149(1)(c) assessment by reference only to matters inherent in the strata scheme and the by-law itself, before considering any extrinsic circumstances.

It is convenient to structure consideration of this issue largely by reference to Perpetual’s submissions, as many of the Owners Corporation’s submissions were made in anticipation of or in response to those of Perpetual.

Perpetual began with the proposition that par 30.3 operates even where the owner of Lot 11 has carried out 99% of the initial works required by par 30.7, because par 30.3 operates “unless the owner of Lot 11 has fully complied before” the Sunset Date.

That par 30.3 required full compliance may be accepted. It is, however, important to note that Perpetual did not submit that the conditions in par 30.3 were impossible to fulfill, or that they operated capriciously. Paragraph 30.7.8 required the par 30.7 works to be “completed to the Australian Standards and in compliance with all statutory requirements and in a first class manner”. It was not suggested that that gave rise to any uncertainty. The works were to be performed “as directed in writing by, and to the satisfaction of, the Owners Corporation and the Designated Consultant” (i.e., Core): pars 30.7.3 and 30.7.4. The certification regime in par 30.7.10 provided a practical mechanism, whereby the par 30.7 works would “for the purposes of paragraph 30.3” be “deemed to have been completed to the satisfaction of the Owners Corporation, if they are certified as satisfactorily completed by [Core].” It was not suggested that that was anything but a conventional and practical regime to certify compliance.

Perpetual then submitted that three provisions of par 30.7 conferred rights on the Owners Corporation by which it could “be made entirely whole” in respect of the owner of Lot 11’s non-compliance with the par 30.7 obligations.

The first of those provisions is par 30.7.9, which provides that the Owners Corporation may “complete those works, and the owner of Lot 11 must reimburse the Owners Corporation for its actual cost of completing those works and for any additional costs arising from the default including but not limited to legal and consultant costs”.

The second is par 30.7.12, which provides that if the works under par 30.7 were not completed within a specified staged timeframe:

The third is par 30.7.13.1, which provides: “The owners of Lot 11 must: … indemnify the owners corporations [sic] for any losses or liabilities it incurs arising from any fault or neglect in the works or the conduct of the works under this paragraph 30.7”.

The Owners Corporation disputed the absoluteness of Perpetual’s submission. It argued that the effect of those provisions was not to make the Owners Corporation entirely whole. I think the point was rightly made. The Owners Corporation submitted that there was an important difference between a situation in which the owner of Lot 11 performed the works as required by the by-law, and the situation that had occurred, in which the owner of Lot 11 had failed to complete the works and it was necessary for the Owners Corporation to pursue him over them. As the Owners Corporation submitted, not only was there the inconvenience to the Owners Corporation of having to organise completion of the works, there was also the potential for disagreement about the works performed and then about recovery of the costs of carrying them out, and in particular which works were covered by the reimbursement, damages, and indemnity provisions of the by-law and which were not. The issues fought in these proceedings demonstrate that there is substance to the Owners Corporation’s submission.

The next step in Perpetual’s argument was that, despite the fact that pars 30.7.9, 30.7.12, and 30.7.13 gave the Owners Corporation rights to complete the work itself, to be reimbursed, and to obtain damages and indemnity for all loss (and thus, so the argument went, to be made whole if the owner of Lot 11 failed to carry out the par 30.7 works before the Sunset Date), par 30.3 visited a further consequence upon Lot 11’s owner: that the exclusive use rights ceased on the Sunset date.

Perpetual submitted that this was the critical element that made par 30.3 “unjust”. It argued that par 30.3 amounted to a super-added forfeiture or penalty or punishment and was therefore unjust: “The only way you can justify that is … to say, ‘Well if you don’t comply strictly by the date, you have to have both those consequences.’”

It seems to me that Perpetual’s argument, based as it is in notions of forfeiture, penalty, and what could be justified, proceeds from an unstated premise, namely, that in the absence of par 30.3, the owner of Lot 11 was entitled to the exclusive use rights in perpetuity.

The basic problem with the unstated premise is that it does not grapple with the nature and extent of the grant. Paragraph 30.3 was itself one of the terms of the grant, which was to be in two stages. The second stage would occur only if the owner of Lot 11 satisfied the conditions referred to in par 30.3. After the initial 12 months, there was never more than the possibility of a conditional extension.

Perpetual submitted that the distinction between a grant in one stage or two did not matter because, on either view, “rights are granted and they cease.” It is true that it may not matter for present purposes whether by-law 30 is characterised as making one grant or two — but not for a reason that assists the Executors or Perpetual. The burden of Perpetual’s argument that par 30.3 was unjust is that Lot 11’s rights ceased when they should have continued. However one characterises the grant of rights under by-law 30, in my opinion the Executors and Perpetual cannot establish that last step in the argument.

Another way in which Perpetual put its argument was in terms of quid pro quo. It submitted that par 30.3 involved an element of punishment because it required the owner of Lot 11 to pay for the par 30.7 works to be completed while depriving Lot 11 of the quid pro quo for doing those works (i.e., obtaining the rights in perpetuity). The difficulty is in characterising the quid pro quo in that way. Viewed as a whole, by-law 30 provided a number of benefits to the owner of Lot 11, in exchange for a series of obligations. Although it is true that the extension of Lot 11’s rights was conditional upon its owner’s carrying out the par 30.7 works, that does not mean that the quid pro quo for doing the par 30.7 works was the extension of Lot 11’s rights. Under by-law 30, the owner of Lot 11 obtained an immediate benefit, being rights of exclusive use for a period of 12 months, together with the opportunity of extending its rights if it satisfied certain conditions. It seems to me that it was those benefits that were the quid pro quo for Mr Elkhouri’s obligation to perform the par 30.7 works and for the related obligations in relation to reimbursement, damages, and indemnity.

If the by-law had only ever granted 12 months’ exclusive use rights, with no possibility of any extension, but still contained the same obligations for the owner of Lot 11 to perform the par 30.7 works (and to reimburse, etc, if he failed to perform) as are found in by-law 30, the quid pro quo would have to be understood in the way I have just described it. Perpetual accepted in argument that such a by-law would not be unjust, “if what was bargained for was only 12 months”. Perpetual’s answer was to assert that that is not what was bargained for in by-law 30. That merely begs the question of the nature and scope of the grant. In my opinion, the relevant difference between the by-law just posited and by-law 30 as it existed is that by-law 30 conferred an additional benefit on the owner of Lot 11, namely, a conditional possibility of extending their rights. It is difficult to see how that additional benefit could amount to an unjust condition.

One other matter on which Perpetual relied was the contrast between the benefit to Lot 11 of having the exclusive rights and the lack of practical benefit to the Owners Corporation in ending Lot 11’s exclusive use rights.

The Owners Corporation contested the proposition that there was no practical benefit in being free of Lot 11’s exclusive use rights. It gave the example of putting solar panels on the roof. It submitted that even in the absence of a present intention to install solar panels, or to build an external staircase (so that other lot owners could access the roof area), it was necessary to take into account future possibilities given that the exclusive use rights would continue in perpetuity and par 30.3 protected something of potential value to the Owners Corporation. The Owners Corporation’s submission draws some support from the observation in a similar, but not identical, context in Ainsworth and Others v Albrecht and Another (2016) 261 CLR 167 at 187 [62]; [2016] HCA 40 per French CJ, Bell, Keane and Gordon JJ, that a “person with a property interest may reasonably insist on conserving that interest even if it is not presently being employed to that person’s material advantage.”

I accept that in determining whether a condition is unjust, it may be relevant to consider whether it provides any practical benefit. But the Owners Corporation has a legitimate interest in having the right to future use of the balconies and rooftop free of Lot 11’s exclusive use rights. This is not a case like Cooper, where the by-law at issue, a blanket prohibition on keeping animals, forbade “a common incident of property ownership” — such as keeping a companion animal in one’s own apartment — “without providing benefit to others”: per Fagan J at 180 [94] (emphasis supplied); see also at 176 [63] per Basten JA, 178 [79] per Macfarlan JA. Under a strata scheme, it is of the nature of common areas that having exclusive use of them is not itself an incident of owning a lot; and there was a benefit to others in retaining the areas as common areas.

But the more important point for present purposes remains that an assessment of any benefit to the Owners Corporation, like the question whether the Owners Corporation could be made whole under the by-law, is not dispositive given that par 30.3 did not operate to deprive the owner of Lot 11 of rights to which they were otherwise entitled.

The Owners Corporation also submitted that the question whether par 30.3 was unjust should be seen in the context of the ongoing relationships among the parties under the strata scheme. I agree with that submission. Short of selling their apartments and leaving, the owners under the strata scheme were neighbours in a residential building. One thing that par 30.3 avoided was a situation in which the owner of Lot 11, in breach of the par 30.7 obligations to fix the historic and ongoing waterproofing issues, did nothing to prevent, e.g., water ingress to Lots 9 and 10, and fought the Owners Corporation over the extent of its rights of reimbursement, etc, all the while continuing to enjoy exclusive use rights over the areas in question. In the context of the ongoing relationships among lot owners in an apartment building, such a situation might itself attract the description “unjust”. At the least, the existence of the ongoing relationships among the lot owners answers Perpetual’s submission that par 30.3 operated in terrorem. The context of the relationships among lot owners and an owners corporation under a strata scheme is also a reason for rejecting any analogy with contractual penalties.

The arguments considered above concern matters inherent in the strata scheme and the by-law itself.

Approached on that footing, par 30.3 is not unjust within the meaning of s 149(1)(c). The fundamental reason, which answers each of the attacks on par 30.3, is the limited nature and scope of the grant under the by-law. Paragraph 30.5 expressly referred to par 30.3. It was one of the terms on which the grant was made. There is nothing intrinsically unjust about granting a right (in this case, the extension of the rights of exclusive access in perpetuity) only upon the satisfaction of certain reasonable conditions. Nor would there be anything intrinsically unjust in granting a right on the basis that it may be terminated in the event that conditions are not satisfied.

I turn to consider the significance of circumstances extrinsic to the by-law.

Other than the matters relating to practical benefits discussed above, I did not understand Perpetual or the Executors to rely on anything extrinsic to the by-law for the purpose of assessing whether it was “unjust”.

The Owners Corporation submitted that the history of the dispute leading up to its settlement and the making of by-law 30 in 2017 was relevant. The dispute was said to have concerned not only Lot 11’s exclusive use rights, but also work which it was claimed Mr Elkhouri had not carried out to remedy long-standing problems of water ingress, particularly to Lots 9 and 10. The problems of water ingress were said to have been ongoing. The Owners Corporation described the 2017 deed of settlement and release between it and Mr Elkhouri as in effect a commercial bargain resolving all issues. Against that background, the Owners Corporation submitted that par 30.3 had to be seen as part of an overall bargain, and should not be seen as operating in terrorem.

I note the following aspects of the deed.

I did not understand Perpetual or the Executors to dispute the basic facts set out above. As discussed at [145] above, those parties also accepted that matters of that nature were at least relevant to the assessment whether par 30.3 was unjust in the circumstances of this case. Nor did Perpetual or the Executors suggest that par 30.3 was unjust to anyone but the owner of Lot 11.

It seems to me that the Owners Corporation’s characterisation of the deed as an overall commercial bargain to resolve (almost) all issues is fair. The bargain appears to have involved real compromises by the parties resolving several interrelated long-standing disputes. Among other matters, Mr Elkhouri in his capacity as the owner of Lot 11 was facing claims by the Owners Corporation and an appeal against decisions granting him the 2015 exclusive rights by-law. The deed released those claims and provided for Mr Elkhouri as the owner of Lot 11 to obtain new exclusive use rights (i.e., on the terms granted by by-law 30). These were very real benefits to Mr Elkhouri. Central to the parties’ bargain, and to the consideration given by Mr Elkhouri in return for those benefits, was his consent to the obligations of the owner of Lot 11 under the new by-law.

In my opinion these circumstances are relevant to the s 149(1)(c) question, given the basis on which par 30.3 is claimed to be an unjust forfeiture condition. They reinforce the conclusion I expressed above based on matters inherent in the by-law. By-law 30 was a sophisticated instrument. It was an important part of a bargain that secured real benefits to Mr Elkhouri, both extrinsic to the by-law (in releasing claims) and inherent in it (the exclusive use rights). In those circumstances, par 30.3 was not an unjust condition. It was not unjust to Mr Elkhouri as the owner of Lot 11 that par 30.3 had the consequence that his exclusive use rights were not extended when he failed to perform his par 30.7 obligations. That consequence was part of the price he expressly agreed to pay, in return for obtaining real benefits. In the circumstances of the present case, to the extent that community standards inform the question whether par 30.3 is an “unjust” condition, I think they require that the owner of Lot 11 be held to their bargain.

Paragraph 30.3 was not unjust within the meaning of s 149(1)(c). Ground 2 in the Owners Corporation’s notice of appeal is accordingly established. To the extent that Ground 1 in the notice of appeal is directed to matters other than the Court’s jurisdiction, it is also established for the same reasons.

In light of my conclusions above, Grounds 1 (to the extent it was directed to matters other than jurisdiction), 2, and 3 are established. The appeal should be allowed to that extent and the declaration that “Clause 30.3 of By-law 30 is unjust” should be set aside, as should the order remitting the matter to the New South Wales Civil and Administrative Tribunal for orders arising out of the declaration.

Before proceeding to address the balance of the Owners Corporation’s grounds of appeal it is convenient to deal with an issue raised by the Executors (and formerly) Perpetual on their cross-appeals concerning s 139(1).

Ground 5 in the Executors’ notice of cross-appeal is as follows:

Since the Owners Corporation has succeeded on grounds 1 to 3 in its notice of appeal, these grounds of cross-appeal arise. It became clear in argument that the s 139(1) challenge was limited to by-law 30 as a whole, rather than par 30.3.

As I understood it, the principal purpose of invoking s 139(1) was to strengthen the cross-appellants’ position in relation to jurisdiction. Section 139(1) is a freestanding prohibition. There is no reference to the Tribunal or to any other decision maker in s 139(1). And the cross-appellants did not invoke s 150(1). In those circumstances I did not understand the Owners Corporation to submit that the Court lacked jurisdiction to decide the question whether by-law 30 was “harsh, unconscionable or oppressive” within the meaning of s 139(1).

The matters on which the cross-appellants relied in submitting that by-law 30 as a whole was “harsh, unconscionable or oppressive” were the same matters relied on in submitting that par 30.3 was “unjust” within the meaning of s 149(1)(c).

In accordance with Cooper, the s 139(1) question is to be answered by reference only to matters inherent in the by-law and the strata scheme. On that footing, the s 139(1) challenge fails for essentially the same reasons (limited to such matters) given above in relation to s 149(1)(c). In light of the limited nature and scope of the exclusive rights granted under by-law 30, the effect of par 30.3 was not to render the by-law “harsh, unconscionable or oppressive”. That is so whether those words are understood as conveying a single criterion (at 167-168 [26] per Basten JA), or as distinct but closely related parts of a composite expression (see at 180 [90] per Fagan J).

I would dismiss Ground 5 in the notice of cross-appeal.

It is convenient to defer consideration of Grounds 4 and 5 in the Owners Corporation’s notice of appeal, which concern causes of action to recover certain costs and expenses as statutory debts, until after consideration of Grounds 2 and 3 in the Executors’ cross-appeal.

By those grounds of cross-appeal, the Executors challenge the primary judge’s monetary awards made against the Executors, as follows:

By reference to the submissions that were made, Ground 2 should be understood not as saying that those were findings his Honour should have made, but rather that he erred in awarding damages in the absence of such findings.

As noted above, the certificate of practical completion issued by Mr Pomeroy of Core on 28 February 2018 was of central importance to an issue that was hotly contested at trial, namely, whether Core had “certified” the works required under paragraph 30.7 as “satisfactorily completed” within the meaning of par 30.7.10. As also noted above, Mr Pomeroy had conducted an inspection on 23 March 2018 at which the waterproofing failed a test. In the circumstances, the Executors conceded at trial that “the works which were certified by Core were not entirely defect-free, at least not to a degree that would have resulted in the issuing of a final certificate of completion”, as recorded at Primary Judgment [122]. His Honour relied on that concession in finding that the Critical Obligation in respect of work to be done had not been met before the Sunset Date (Primary Judgment [126]).

However, his Honour did not make any further findings about the “degree” to which the defects admitted by the Executors fell short of what was required. His Honour did not make specific findings about the existence of particular defects. Instead, in an earlier part of his reasons, he had referred to Mr Pomeroy’s evidence that there were four possible explanations for the failure of the waterproofing test as follows (Primary Judgment [53]).

As the Executors submitted, the primary judge made no finding preferring any of those four possibilities over the others.

After addressing the s 149(1)(c) issues (which are the subject of Grounds 1, 2, and 3 discussed above), his Honour turned to the Owners Corporation’s economic claims at Primary Judgment [173]. The Owners Corporation had put those claims as debts payable under s 145(3) of the SSMA on various bases, including the obligation to reimburse under par 30.7.9, the obligation to pay damages under par 30.7.12 and the obligation to indemnify under par 30.7.13.

The heading immediately before [173] of the Primary Judgment was “Quantum: the claim by the Owners Corporation”. The nub of the Executors’ complaint in this Court is that the primary judge moved directly to “Quantum” without first addressing questions necessary to establish liability, including making findings as to the causal connection between established defects and the amounts claimed. Since the Owners Corporation submits that his Honour made such findings implicitly, it is necessary to consider his Honour’s reasons in some detail.

His Honour proceeded to quantify the Owners Corporation’s claims under various categories or heads.

The first was a claim for $779,250.72 “for building related costs”: Primary Judgment [173]-[174]. That was made up of separate amounts for work done by Core, work done by Renfay, work done by Partridge, and future work.

As there was no dispute about the amount for the work done by Core, his Honour allowed it.

His Honour found that the figure for future work ($406,152.86) fell away because of his Honour’s finding in respect of by-law 30. No party on the appeal sought to reagitate the primary judge’s dismissal of the head of claim for future work.

As to the amounts claimed in respect of work done by Renfay ($269,155.70) and Partridge ($88,894.16), his Honour found that the Owners Corporation had paid those amounts. But there was a dispute about whether the amounts had been reasonably incurred. His Honour then considered evidence, including expert evidence, that went to the reasonableness of the amounts claimed. It may be noted that that exercise necessarily assumed an anterior step: that liability had been established.

As to the reasonableness of the Renfay work, his Honour stated at Primary Judgment [187]:

The primary judge explained at [188] that he chose the figure of twenty-five percent “because I think considerable weight needs to be given to the actual costs incurred … but there also needs to be a lesser recognition of the absence of independence of the two Partridge witnesses”. On that basis, his Honour reduced the amount claimed on account of Renfay from $269,155.70 to $201,866.77.

His Honour took a substantially similar approach to Partridge’s costs. First, his Honour noted that the Partridge invoices did not distinguish between works related to by-law 30 (i.e., Contract 1) and unrelated works (i.e., Contract 2); and that the Owners Corporation’s approach was to claim 33% (apparently of the total of the Partridge invoices). His Honour then discounted that amount ($88,894.16) by the same 25% reduction as he had earlier used (i.e. on account of the “reasonableness” issue) for Renfay, resulting in a figure of $66,670.62. His Honour considered this approach to be “validated” on the basis that it was “a broad assessment-based deduction where a specific calculation cannot be made. It was also, to some extent, endorsed by Perpetual which seemed to agree with a ‘splitting the difference’ approach”.

His Honour’s statement that “a specific calculation cannot be made” seems to have been a reference to what he had said at [187] of the Primary Judgment.

It may be noted at this point that his Honour’s approach did not account for an issue internal to Contract 1.Some of the Contract 1 costs were referrable to Partridge’s work addressing defects “in the design … of the works required by By-law 30”, i.e., problems with Core’s Specifications, rather than defects in Mr Elkhouri’s works performing Core’s Specifications. The invoices issued pursuant to Contract 1 did not separate out those costs.

The remaining set of claims which his Honour determined in favour of the Owners Corporation was for amounts allegedly owed by it to individual lot owners, and said to be recoverable from the owner of Lot 11 as damages pursuant to par 30.7.12.

The first of the amounts claimed was for “Accommodation in respect of Lot 9: $1,489.00”. This was for a period between 30 November and 8 December 2017 in which the owner of Lot 9 had resided in a serviced apartment. His Honour noted that it was less than the figure of $1,200 per week in par 30.7.12.1.

The second amount claimed was $26,623.96 for storage in respect of Lot 9.

At Primary Judgment [197], the primary judge addressed a submission that the amounts referrable to Lot 9 should not be allowed because the owner “had vacated the unit for different reasons, in particular the removal of asbestos and the presence of mould.” That submission raised an issue of causation, which was an issue going to the question whether the Executors had any liability for these sums at all. His Honour did not deal with the submission in terms of liability. Instead, after quoting solicitors’ correspondence that had referred to other possible causes of water leakage and raised the possibility of a “pro rata split,” his Honour concluded: “I think it reasonable to allow half the amount claimed, namely $13,311.98.” However, because of the short period of the accommodation, he did not reduce the figure of $1,489 for accommodation costs.

The next amount claimed was described as “Loss of rent in respect of Lot 10: $306,428.57”. This figure arose out of a settlement deed made between the owner of Lot 10 and the Owners Corporation on 27 August 2020. His Honour noted that the recitals in the deed referred to doubt, both as to the liability of the Owners Corporation to the owner of Lot 10, and also as to the recoverability of amounts from the estate of Mr Elkhouri. However, his Honour did not address the question how any liability the Owners Corporation might have to the owner of Lot 10 was a liability that was recoverable from the owner of Lot 11. Instead, his Honour focussed on the question whether “the deed reflected a reasonable settlement of the issues it addressed, at least to the extent that the amount of settlement was to be recovered in third-party litigation.” It should be noted that the words beginning “at least”, while acknowledging that the reasonableness of the settlement as between the Owners Corporation and the owner of Lot 10 might be relevant to its recoverability as damages from a “third party”, did not address the anterior step, namely, whether there was any liability in the third party (i.e., the owner of Lot 11) in respect of those amounts at all.

After considering various matters, including the recital in the deed acknowledging a concern as to the validity of the claim against the owner of Lot 11, his Honour found at Primary Judgment [209]: “I am therefore not satisfied that the settlement in respect of the lost rent has been proved to be reasonable.” That could only mean reasonable as between the Owners Corporation and the owner of Lot 10. His Honour then went on to make his own finding as to the figure he considered “objectively reasonable”.

His Honour said he approached that task by “Applying principles of causation and remoteness”: Primary Judgment [215]. On that basis, his Honour rejected part of the claim as preceding the start date of the period covered by the deed, namely 1 May 2019. However, that left a figure of $204,600, which his Honour said “should be discounted by 50% to allow for the factors I have set out above, in particular the probability that Lot 10 would have been vacant for other reasons besides water ingress specifically emanating from defective works at Lot 11”: Primary Judgment [217]. This was a reference to what he had said at [215(3) and (4)]: “the claim does not seem to cater for Lot 10 being vacant for other reasons which could range from different defects in the premises to simply periods of vacancy and maintenance in between tenancies”; and “even if Lot 10 was vacant due to water ingress that ingress may not have emanated from Lot 11 and even if so, may not have been caused by defective waterproofing”. His Honour thus treated a question of causation (indeed, one on which he appears to have found that it was “probable” that Lot 10 would have been vacant for other reasons), as going not to liability but to quantification. His Honour awarded the sum of $102,300.

The final amount claimed under this head was $20,000 described as “Damages in respect of Lot 10”. This was for a separate amount claimed under the settlement deed with the owner of Lot 10, Mr James. His Honour found that the figure of $20,000.00 related to actual work performed by Mr James, and for that reason it had “a reasonableness missing from the vague nature of the rental claim”: Primary Judgment [220]. His Honour allowed the whole of the $20,000.00, such that the total in respect of Lot 10 was $122,300.00. Again, his Honour’s approach assumed that the owner of Lot 11 was liable to the Owners Corporation in damages for this amount, which the Owners Corporation had agreed to pay Mr James.

Mr Elkhouri had sent the Owners Corporation’s solicitors a cheque for $29,683 on 27 March 2018, said to be payment of an amount owing under clause 30.7.12. The cheque had not been met. His Honour added that figure to the figures otherwise assessed on the basis that it was, in effect conceded. What relationship the figure of $29,683 bore to the amounts his Honour had otherwise determined was not explored.

I understood the crux of the Executors’ complaint on the cross-appeal to be as follows. The Owners Corporation’s cross-claim was a series of claims under various provisions of the by-law for the costs of rectifying work said to be defective or incomplete by reference to Core’s Specifications, and for consequential losses. In order to establish its entitlement under each provision on which the Owners Corporation relied, it was necessary to make findings as to the defective or incomplete work, and as to the connection between those defects and the various categories of monies claimed. The primary judge failed to address these essential elements of the Owners Corporation’s entitlement, instead moving directly to quantification. To the extent that his Honour referred to notions of causation, his Honour erred by treating that as relevant to a broad-brush approach to quantification, whereby the amounts claimed were discounted by a percentage.

For reasons I will develop by reference to the by-law provisions on which the Owners Corporation relied, I consider the Executors’ complaint well founded. While the approach his Honour adopted was pragmatic, it was erroneous.

As noted above, the Owners Corporation’s primary position on the appeal was that his Honour should be understood to have implicitly made findings in favour of the Owners Corporation on all issues necessary to establish its entitlement before quantifying the claims. I do not consider that to be an available reading of his Honour’s reasons, which I have addressed in some detail above. It is true that his Honour’s approach necessarily assumed that Mr Elkhouri was liable for the claims which his Honour quantified. But an assumption is not the same as a finding.

I base my conclusion in part on the fact that his Honour expressly referred to matters of causation as part of the discounting exercise he undertook when quantifying the claims. But the greater difficulty with the Owners Corporation’s submission is that, even if one understands his Honour to have found, in light of the Executors’ concession that the works “were not entirely defect-free” (Primary Judgment [122]), that there was a defect of some kind in the works, that does not go far enough. There were no express findings as to what the defect or defects were, nor as to the requisite connection between any defects and the amounts claimed. In order to establish the Owners Corporation’s claims for rectification costs, it was necessary to identify the defects said to have required rectification when measured against the Specifications. In order to establish the claims for consequential losses, it was necessary to identify the defects in order to carry out the counterfactual assessment involved in putting the Owners Corporation in the position it would have been in if Mr Elkhouri had complied with his par 30.7 obligations. It would be difficult to make the causal connection between a defect and an amount claimed without knowing what the defect was, and his Honour did not attempt to do so.

In what follows I will refer to the Owners Corporation’s entitlement to recover monies under provisions of the by-law as “entitlement” from its perspective, and as “liability” from the Executors’ perspective.

Before I turn to the elements of the Owners Corporation’s money claims under by-law 30, it is important to note the centrality of the Core Specifications, and of any directions given by Core, to the obligations of the owner of Lot 11 under par 30.7. By par 30.1.6, “Specifications” was defined by reference to a document titled “Strata Plan SP6534 Remedial works to Units 9, 10 & 11” dated 15 January 2016 on the front cover and prepared by Core. That document was some 84 pages in length. By par 30.7.3, the owner of Lot 11 was required to perform repairs of particular kinds in particular areas “as directed in writing by … the Owners Corporation and [Core]”. By par 30.7.5, the only directions that could be given under par 30.7.3 were either directions to do work as set out in the Specifications, or written directions given by Core “in its professional judgment (including for example because of matters arising in the course of the work)”. By par 30.7.6, the owner of Lot 11 was given one month in which to propose alternate work methods for Core’s consideration, “provided always that in the opinion of [Core] the alternative will be no less efficient and effective in diligently achieving the purposes sought to be achieved by Specifications.” Further, by par 30.7.8, the “works under this paragraph 30.7 must be completed to the Australian Standards and in compliance with statutory requirements and in a first-class manner”.

In summary, the obligation of the owner of Lot 11 under par 30.7 was to complete the works, as set out in Core’s Specifications or otherwise as directed by Core in writing, to Australian Standards, and within the time allowed. That is the context in which the elements of the three paragraphs of by-law 30 on which the Owners Corporation relied for its money claims (pars 30.7.9, 30.7.12 and 30.7.13) are to be understood.

First, par 30.7.9 (addressing reimbursement) provides (emphasis supplied):

The “works required” were those in the Core Specifications or otherwise directed by Core. The Owners Corporation’s entitlement to obtain reimbursement if it chose to complete those works was limited to the “actual cost of completing those works” (i.e., in accordance with Core’s Specifications) and “additional costs arising from the default”.

To establish an entitlement to moneys claimed pursuant to par 30.7.9, it was necessary for the Owners Corporation to prove a defect in part of the works (i.e., that it departed from the Specifications or failed to meet particular Australian Standards, etc, so as not to have been “duly completed”); and to prove the connection between the defect and the particular moneys claimed on account of it. As is often the case, there might be many distinct defects claimed. To the extent that the claim was for reimbursement of the “actual cost of completing those works”, the Owners Corporation had to prove what it had reasonably cost to rectify each such defect. No doubt it might be possible to group defects and the costs of particular rectification work together; but only to the extent that the costs claimed were proved to be costs of rectifying proven defects. To the extent that the claim was in respect of “additional costs arising from the default”, the Owners Corporation again had to establish that the costs claimed arose from some proven defect.

Secondly, par 30.7.12 provided for damages as follows:

This provision is not well drafted. The reference to “30.7.6” appears to be in error; the relevant paragraph is 30.7.7. I have also interpolated the words “[on account of]”, which appear at the start of subpar 30.7.12.1; without them, subpar 30.7.12.2 is missing language necessary to connect it with the words “as follows” at the start of the paragraph.

The only sensible reading of par 30.7.12.2 is that it requires the Owners Corporation to establish that the failure of the owner of Lot 11 to complete the par 30.7 works within the time required caused the “actual losses” suffered. That being so, the claims for damages under par 30.7.12 again required, first, proof of a defect, i.e., the way in which part of the work departed from the Specifications or from Australian Standards. Only then would it be possible to address the next question, which was whether the defect caused the “actual losses”.

To the extent that the claim for damages on account of “actual losses” was for the costs of rectification, it was necessary to prove the (reasonable) cost of the work required to be done to rectify each defect proven in light of the Specifications. Beyond claims of that nature, given (a) that par 30.7.12 is expressed in terms of “damages”; (b) that by s 135(1), the by-laws bind the owners and the Owners Corporation to the same extent as if contained in a deed; and (c), the use of the words “actual losses”, in my opinion, as a matter of construction of the by-law, contractual concepts of causation, remoteness and measure of damage should apply. The object of an award of damages in this context is to put the Owners Corporation in the position it would have been in if the owner of Lot 11 had complied with the par 30.7 obligations, i.e., to complete the works in accordance with the Specifications.

To the extent that the claims for damages on account of “actual losses” arose in circumstances where the Owners Corporation had chosen not to rectify particular defects in the works performed by Mr Elkhouri (i.e., as measured against Core’s Specifications), but instead had engaged Renfay to demolish the whole of those works and to start again with a new set of specifications provided by Partridge, it is not obvious that either the costs of the demolition and new construction, or any consequential losses, would be “actual losses” caused by the failure of Mr Elkhouri to comply with his obligations under the by-law. Nor is it obvious that permitting the Owners Corporation to recover those amounts would be to put the Owners Corporation in the position it would have been in if Mr Elkhouri had complied with his obligations to perform work in accordance with the Specifications.

In this case, par 30.7 required Mr Elkhouri to comply with his obligations to carry out the work as specified within particular timeframes. The Owners Corporation claimed damages for consequential losses on the basis that the defects in Mr Elkhouri’s works had caused damage to other apartments, rendering them uninhabitable, which in turn was claimed to have given rise to liabilities in the Owners Corporation to the affected lot owners. Such claims raised a number of issues, including whether damage to the other apartments was caused by defects in Mr Elkhouri’s work when measured against the Specifications; whether such damage had made the apartments uninhabitable; whether the Owners Corporation was liable to the other owners in respect of such damage; and the timing of the damage (was it before or after the time for Mr Elkhouri to comply with his par 30.7 obligations expired). The need for a careful counterfactual analysis was acute, given his Honour’s reference at Primary Judgment [217] to “the probability that Lot 10 would have been vacant for other reasons besides water ingress specifically emanating from defective works at Lot 11”.

Even if those issues were established on the evidence in favour of the Owners Corporation, the period for which such claims could be made might be limited to a reasonable period for the Owners Corporation to rectify the defects and repair the damage that made the apartments uninhabitable, starting from the dates by which Mr Elkhouri was required to complete the works under par 30.7. Beyond that period, it is not obvious that any liability the Owners Corporation had to other lot owners would have been caused by, or otherwise recoverable from, Mr Elkhouri.

Thirdly, par 30.7.13.1 required the owner of Lot 11 to “indemnify the Owners Corporation for any losses or liabilities it incurs arising from any fault or neglect in the works or the conduct of the works under this paragraph 30.7.” (Emphasis supplied) The words “arising from” and “the works” indicate that at least the same basic elements of Mr Elkhouri’s liability, including proof of defects and causation, must be established. The words “fault or neglect” arguably describe an additional element, beyond a mere failure to comply with the obligations which also had to be made out.

All three provisions on which the Owners Corporation relied thus required his Honour to make findings, including identifying defects and then connecting them with particular costs or liabilities, before reaching a conclusion that the Owners Corporation had entitlements to be quantified. Depending on the evidence, it might, as I have said, have been possible to group the findings about particular defects and particular amounts claimed together on some logical basis. But it was necessary to address those issues before questions of quantification could arise.

The primary judge erred in upholding the Owners Corporation’s economic claims without making the necessary findings.

In the absence of findings addressing the liability issues to which I have referred above, Ground 2 in the Executors’ notice of cross-appeal is made out. The primary judge’s orders awarding those amounts in favour of the Owners Corporation should be set aside.

The question is what order the Court should make for resolution of the Owners Corporation’s claims.

The Owners Corporation submitted that there was evidence before the primary judge which would have permitted him to make the necessary findings on liability in its favour, and that his Honour should have done so. Although the Owners Corporation provided copious references to evidence, it did not make detailed submissions on that evidence. The Owners Corporation did not ultimately submit that this Court should make those findings itself.

Notwithstanding the Executors’ concession that the works were not entirely free of defects, they relied on a number of matters to show that the evidence did not establish that there were any substantial defects in the works, or that the water ingress issue was caused by any such defects. These matters included Core’s certificate of practical completion; the evidence given by Mr Pomeroy as to the four possible explanations for the failure of the waterproofing test; evidence of Mr Hely, another witness called in the Owners Corporation’s case, who agreed with the Executors’ witness Mr Brown that the use of SikaSwell (as specified by Core) was inappropriate; Mr Brown’s evidence that the SikaSwell likely contributed to the water ingress issue; and documentary evidence said to indicate that certain leaks affecting Unit 9 were a combination of historic and new leaks in different locations and attributable to different causes. On that basis, the Executors submitted that the Court would conclude that the primary judge should not have awarded any sum at all against the Executors for these claims.

The Executors submitted in the alternative that even if the Court had found, as a result of the failed waterproofing test, that there were defects in the works requiring rectification, the Court would not award more than the sum of $46,024.92 (being the figure referred to at Primary Judgment [186]). This was said to be the Owner’s Corporation’s own quantification of the cost to rectify a limited number of issues that Mr Pomeroy had identified in a small area of the level 5 balcony during the failed water testing inspection. Indeed, I understood the Executors to concede an obligation to pay the $46,024.92 (AT 121.30, 123.11-19) — a topic to which I will shortly return.

The Executors made similar submissions in support of their Ground 3, which concerns the Owners Corporation’s decision to engage Partridge to formulate a new and different scope of works which Renfay carried out. The Executors submitted that they were not liable for such work. The Executors also relied on the fact that the invoices issued pursuant to Contract 1 did not separate out the costs arising from problems in the Core Specifications as opposed to Mr Elkhouri’s performance of the work required by those Specifications.

The difficulty with all these submissions is that, although they may have some force, in light of the way in which the argument proceeded this Court would not be in a position to make the necessary findings itself, even if it was otherwise appropriate to do so. Findings in favour of the Owners Corporation may have been open on the evidence as to at least some aspects of the claimed amounts. The Executors’ Ground 3 is thus expressed in terms requiring a conclusion (confining any damages to rectification costs) that this Court is not in a position to reach.

However, as I have said above, the Executors’ Ground 2 is made out. Although the primary judge’s orders awarding those amounts in favour of the Owners Corporation should be set aside, I note that there were aspects of the Owners Corporation’s money claims that the Executors conceded below or on the appeal. Those included:

Those concessions are in significant tension with the Executors’ submissions about the absence of findings necessary to establish liability, which I have accepted above. In effect, the Executors put that submission only against the Owners Corporation’s claims for amounts other than the three sums listed above, notwithstanding that the submission would also appear to have been available with respect to those three sums. In any event, the Executors should be held to the way they ran their case.

Counsel for the Owners Corporation submitted that if the Executors succeeded on their Ground 2, the matter should be referred to a referee (the Referee). I did not understand the Executors to dispute that that was an appropriate course if this Court was unable to make the relevant findings itself.

That is the order I propose. The reference should be as to entitlement and quantum with respect to the Owners Corporation’s claims remaining in issue. (The Owners Corporation’s claims to recover costs and expenses are separately addressed below in connection with Grounds 4 and 5 in the notice of appeal.) The parties will not be bound by his Honour’s method or conclusions as to quantification of those claims, if they are established.

The terms of the reference should otherwise be closely circumscribed. These proceedings have already continued for too long, have consumed too much of the limited public resources provided by the Tribunal and the Supreme Court of New South Wales, and no doubt have cost the parties much money, too. The questions on which the primary judge did not make findings (such as the nature and extent of any defects in the work performed by Mr Elkhouri when measured against the Core Specifications, and the connection between any such defects and the particular costs, expenses, and liabilities claimed by the Owners Corporation) were matters on which the parties had the opportunity to lead evidence and address the primary judge. Putting to one side the possibility of fresh evidence, the fact that the primary judge did not to make findings should not result in the parties being given the opportunity to lead any further evidence or to cross examine again. The reference on those claims should be on terms that the Referee determine any question referred on the record as it stood before the primary judge, including any rulings as to evidence which have not been challenged on appeal. To the extent that that may mean that a party is unable to establish a fact in respect of which it bears the onus, that is the nature of an adversarial process.

It will otherwise be for the Referee to determine how the reference is to be conducted, but it would be open to the Referee to make directions that provide for the parties to identify the Owners Corporation’s remaining claims; for the Executors to identify specifically any aspects of the Owners Corporation’s claims that will not be disputed in the reference, whether as to entitlement, quantum, or both (whether because those aspects were conceded or otherwise); for written submissions with agreed page limits in chief and in reply; and for the reference to be conducted to the extent possible using a document set already in existence, whether that be the court book below or the Blue Books on appeal or otherwise. Upon receipt of the Referee’s report, the proceedings should be remitted to a judge in the Equity Division, to be nominated by the Chief Judge in Equity, for consideration of the report.

Grounds 4 and 5 both relate to distinct causes of action to recover the Owners Corporation’s costs, which the primary judge neither determined nor decided to refer to a referee. His Honour’s decision not to refer the claims is recorded in the Costs Judgment at [31].

The costs orders that his Honour did make are important context for these grounds of appeal. As between the Executors and the Owners Corporation, his Honour ordered (at Costs Judgment [59(1)]) that each party pay their or its own costs of the statement of claim (notwithstanding that the Executors had obtained the declaration that par 30.3 was unjust); and that the Executors pay the Owners Corporation’s costs of the cross-claim.

Grounds 4 and 5 are as follows:

Ground 4 is directed to the Owners Corporation’s claim for its costs of recovering certain unpaid strata levies, which levies his Honour had upheld in the sum of $128,569.42.

Section 86(2A) of the SSMA provides:

The primary judge made no express finding as to the Executors’ liability under s 86(2A). That is, he found neither in favour of, nor against, the Owners Corporation on that issue.

Ground 5, which was the focus of submissions on the appeal, is directed to the Owners Corporation’s claim to recover the whole of its costs and expenses associated with any defects in the par 30.7 work. In written submissions, the Owners Corporation described those costs as “costs associated with the works and any defaults, including all ‘legal and consultant costs’ (by-law 30.7.9) and a full indemnity in that regard (by-law 30.7.13)”. Among other things, the costs claimed included amounts for consultants which would not be recoverable as legal costs pursuant to a costs order. This claim was part of the Owners Corporation’s money claims brought under s 145(3) and the provisions of by-law 30, other aspects of which are the subject of Grounds 2 and 3 in the Executors’ cross-appeal discussed above.

Section 145(3) relevantly provides:

The provision starts from the premise that money is “payable” by the owner. That requires an examination of the basis upon which the debt is claimed. To the extent that the Owners Corporation relied on par 30.7.9, as discussed above, the entitlement to “legal and consultant costs” is confined to those “arising from the default”. That is, the Owners Corporation had to establish the connection between a proven defect and the particular costs being claimed. Contrary to the Owners Corporation’s submission, the primary judge made no such findings. Nor did his Honour reject the claim.

To the extent that the Owners Corporation relied on par 30.7.13 for indemnity, again, that provision was limited to losses or liabilities “arising from any fault or neglect in the works or the conduct of the works under this paragraph 30.7”. Again, the primary judge made no finding on this issue either way.

The primary judge dealt with the claims under ss 86 and 145 of the SSMA in his Costs Judgment. His Honour expressly adverted to the statutory basis of the claims at [8]-[10]. As between the Owners Corporation and the Executors, his Honour first addressed the parties’ legal costs of the proceedings, “that is excluding those arising under the SSMA”, at pars [11]-[22]. His Honour then turned at [23] to consider the Owners Corporation’s claims against the Executors under ss 86 and 145.

His Honour decided not to refer either of these claims to recover statutory debts to a referee (Costs Judgment [31]), in circumstances where he had made no findings negativing liability.

It is not clear on what basis the primary judge did so.

After referring to the s 86 SSMA claim at [24], his Honour said at [25]:

The primary judge then turned to the s 145 claim. His Honour referred to the Owners Corporation’s rights to reimbursement, indemnity, and interest under par 30.7. At [30], his Honour recognised that the claim arising from by-law 30 was for an amount that would exceed the recoverable legal costs in the proceedings. His Honour then said at [31] (whether about both claims or only the s 145 claim is unclear):

At several points his Honour referred to the ss 86 and 145 claims on the footing that they were relevant to his discretion as to legal costs: see, e.g., at [22], [31] and [35]. Although his Honour did not say so in terms, the discussion at Costs Judgment [30]-[35] suggests that his Honour may have considered his orders as to legal costs to be relevant to his discretion whether to refer the two claims for statutory debts to a referee.

It was not open to proceed as his Honour did. The Owners Corporation had raised discrete causes of action to recover statutory debts. Those claims had not been determined. The discretion whether or not to refer an issue to a referee is a discretion about how an issue will be determined. It is not a discretion not to determine the issue at all.

In the result, the primary judge erred by failing either to determine the question of the Owners Corporation’s entitlements himself, or to refer the question to a referee.

There is a dispute as to what order this Court should make in relation to these claims, in light of the parties’ competing contentions about how the Owners Corporation approached them below.

The Executors submit that the Owners Corporation made no submissions about liability for these claims at trial, that it adduced very little evidence, if any at all, in support of its claimed entitlements, and that in the circumstances it should be taken to have failed to prosecute the claims properly in circumstances where they were to be determined by the primary judge.

As I understand the Owners Corporation’s ultimate position, it submits that there was “evidence sufficient to make a determination” (i.e., of entitlement) before the primary judge, but that the issues of both entitlement and quantification of these claims should now be referred to the Referee on the basis that further evidence would be led. In support of that course, it relies on the following order made by Robb J on 3 October 2023:

That order does not advance the Owners Corporation’s position in relation to leading further evidence relevant to its entitlements. The order required issues going to “liability” (e.g., including causation) to be determined at the trial by the primary judge.

The Executors submit that the Owners Corporation should be taken either to have misunderstood Robb J’s order as deferring all issues, including liability, on these claims, or to have assumed that issues of liability did not need to be determined at all. At Trial Transcript 41.31-36, counsel then appearing for the Owners Corporation said that “in October last year … , by consent, Robb J made orders that provided that, to the extent that the legal costs formed part of a claim for primary relief, the parties agree that that was to be hived off and given to either a costs assessor or a referee to deal with. We don’t want to burden your Honour with any of that, so we anticipate, at the end of the proceedings, we’ll just make an order that allows for that to be assessed”. (Emphasis supplied.)

In order to show that it had pursued the two claims for statutory debts at trial, the Owners Corporation pointed in its written and oral submissions on the appeal to submissions it made below (being those made at pages 34 and 41-43 of the “Owners’ Outline of Submissions” dated 31 January 2024; page 2 of the “Owners’ Outline of Submissions on Costs & Interest” dated 13 March 2024; and page 2 of the “Owners’ Outline of Submissions in Reply on Costs & Interest” dated 27 March 2024). . I have reviewed those submissions. They asserted that the Owners Corporation had “incurred significant legal costs as a result of Mr Elkhouri’s failure to satisfy the critical obligations by the sunset date”; and recorded that “the quantification of those legal costs” is, “[a]s a result of orders made on 3 October 2023”, “to be determined by assessment or reference.” (Emphasis supplied)

The written submissions addressing the s 145(3) claim included the following:

There followed a list of categories of costs and claims, footnoted to an affidavit made by the Owners Corporation’s solicitor whose evidence described, in summary terms, various files opened on its behalf. Although those submissions and that evidence did not go far towards establishing the underlying elements of the Owners Corporation’s claims, on a fair reading they raised the question of entitlement to various heads of costs under s 145(3) as an issue for determination by the primary judge.

As to the s 86 claim, the submissions referred to the orders that the primary judge had already made requiring the Executors to pay the Owners Corporation $128,569.42 on account of special levies. Those orders themselves demonstrated for the purposes of s 86(2A) that the levies were debts due and payable which the Owners Corporation had had to recover by court proceedings. The Owners Corporation also referred in its submissions to the requirement in s 86(2A) that the expenses claimed be “incurred” in recovering the levies. In light of Robb J’s order deferring quantification, the fact that costs were incurred in recovering the levies was sufficiently established (as to legal costs) as an inference arising from the solicitor’s affidavit in which he deposed to opening a file relating to the Owners Corporation’s cross-claim in these proceedings, which included a claim for the levies. The Owners Corporation’s evidence at trial thus established its entitlement to be paid its reasonable legal costs incurred in recovering the levies under s 86(2A). I would expect those costs to be, at most, a small proportion of its total costs of the cross-claim.

To that extent, Ground 4 is made out. The Owners Corporation is entitled to have its reasonable legal costs incurred in recovering the levies quantified. If they cannot be agreed, those costs should be quantified by a costs assessor. In light of Robb J’s order, the parties would be entitled to adduce further material, on terms to be determined by the assessor, but only as to quantum.

The s 145(3) claim is in a different category. Because the claim was for costs and expenses said to be owing under by-law 30, a finding of entitlement requires proof that particular work was incomplete or defective by reference to the Core Specifications, and proof that those defects caused the Owners Corporation to incur the costs and expenses claimed. As I have said above, this Court is not in a position to make the necessary findings. Accordingly, the s 145(3) claims should be referred to the Referee, together with the Owners Corporation’s other remaining money claims, to determine whether the Owners Corporation is entitled under by-law 30 to recover any costs or expenses. But because that was an issue for determination by the primary judge, the reference as to entitlement should be conducted only on the material that was before the primary judge.

If the Referee determines that the Owners Corporation has any such s 145(3) entitlement, and if quantum cannot be agreed, the entitlement will have to be quantified.

To the extent that the entitlement is in respect of legal costs, those costs will have to be quantified by the costs assessor.

Robb J’s order was that the “determination of the quantum of legal costs claimed as primary relief pursuant to [ss 86 and 145] be deferred until after the determination of liability on those issues”. In light of that order, the parties should be permitted to adduce further material before the costs assessor, on terms to be determined by the costs assessor, for the purposes of quantifying the Owners Corporation’s entitlements (whatever they may be) to legal costs.

The parties should not otherwise be permitted to lead further evidence on the ss 86 and 145 claims.

To the extent that the Referee determines that the Owners Corporation has an entitlement in respect of costs or expenses other than legal costs, such as consultants’ fees or the costs of a strata management company claimed under par 30.7.9, those costs will have to be quantified by the Referee based on the record as it stands.

In the Costs Judgment, the primary judge ordered at [59], inter alia, that:

Both the Executors and the Owners Corporation sought to disturb these costs orders on the basis that they involved identifiable errors in the exercise of his Honour’s discretion. However, in light of the success of both the Owners Corporation on its notice of appeal and the Executors on their notice of cross-appeal, the basis upon which the primary judge made those orders has significantly changed. Those costs orders must be set aside and the discretion re-exercised in any event. But because the exercise of that discretion will be informed (at least as to the costs of the cross-claim) by the outcome of the matters to be addressed by the Referee, this Court is not in a position to re-exercise that discretion itself. It would be undesirable for this Court to make a separate order as to the costs of the statement of claim at this stage. The costs of the proceedings at first instance should be reserved to the judge in the Equity Division to whom the matter is to be remitted upon receipt of the Referee’s report.

In the circumstances, it is not necessary for this Court to address the parties’ discrete challenges to the two costs orders set out above. However, it is desirable to address some of the issues that were raised by the parties.

The Executors, who seek leave to appeal if necessary, challenge the primary judge’s costs orders under Ground 4 in their notice of cross-appeal:

Among other issues the Executors raised, they complained of the primary judge’s reasoning at [31] of the Costs Judgment. There his Honour said that while on one view his costs orders “might be seen as overly harsh against the Executors”, nevertheless “because I propose to not refer the [ss 86(2A) and 145(3)] recovery expenses to a referee the Owners Corporation might be seen as being denied the recovery of any excess of recovery expenses over costs in the proceedings.”

The Executors submitted that this was not a matter that should have informed the costs discretion, i.e., that it was an irrelevant consideration for the purposes of review on the House v the King (1936) 55 CLR 499; [1936] HCA 40 standard. I agree.

No doubt, the fact that one party has a right to recover its costs pursuant to some independent cause of action such as an indemnity may be relevant to the form of any costs order made in the Court’s discretion, in the sense that it may be appropriate to shape the order in a way that avoids double counting. That is not what happened here. To the extent that the primary judge sought to balance on the one hand his decision not to refer to a referee (and not himself to determine) the Owners Corporation’s causes of action for statutory debts in relation to their costs, against, on the other hand, a costs order which would otherwise be “overly harsh against the Executors”, it was not open to him to do so in the exercise of his discretion as to legal costs. The fact that his Honour had decided not to refer (or otherwise to determine) those causes of action, which was itself in error, was not a relevant consideration in the exercise of his discretion as to costs.

Had it been necessary to address the parties’ discrete challenges to the primary judge’s exercise of the costs discretion, I would have granted the Executors leave to appeal (to the extent necessary) to pursue Ground 4 in their notice of cross-appeal. I would have concluded that the Executors had established error in the primary judge’s exercise of discretion, although not as expressed in the terms of Ground 4 (i.e., a failure to award costs in favour of the Executors), and allowed the appeal to that extent.

The Owners Corporation sought leave to appeal in relation to costs.

Ground 1 in the Owners Corporation’s draft notice of appeal is as follows:

As I understand the proposed ground, the Owners Corporation complains that the primary judge, by not referring the Owners Corporation’s claims to recover statutory debts under ss 86(2A) and 145(3) to a referee, should be taken to have “subsumed” those causes of action “into general costs orders”. The essence of proposed Ground 1 is that “[i]t is not within the ambit of the (admittedly) broad discretion reposed in the Court as to costs orders to circumvent relief claimed as a separate head of damage.” This proposed ground is thus another way of agitating the Owners Corporation’s complaint (made under Grounds 4 and 5 of the Owners Corporation’s principal notice of appeal) that his Honour neither determined nor referred out the Owners Corporation’s claims for these statutory debts. I have already found that argument to be well made.

Although the decision below was in error, the substance of the complaint has already been addressed under other grounds of appeal. In the circumstances, I would not have granted leave to appeal to pursue this proposed ground.

Ground 2 in the Owners Corporation’s draft notice of appeal raises a rather different issue.

In the Variation Judgment at [9]-[10], his Honour referred to his earlier finding at [236] of the Primary Judgment that a levy that required the owner of Lot 11 to fund litigation against themselves was unreasonable and unjust. His Honour then made the order at [20(2)] in the Variation Judgment as follows:

The Owners Corporation seeks leave to appeal from that order, which is the subject of proposed Ground 2 as follows:

His Honour stated at Variation Judgment [12] that he was making the order pursuant to s 98 of the Civil Procedure Act 2005 (NSW) rather than s 90(2) of the SSMA because “Perpetual does not fall within the scope of the latter section”.

Under s 90(2) of the SSMA, which applies to proceedings between one or more owners and an owners corporation, the Court may order “that any money (including costs) payable by an owners corporation under an order made in the proceedings must be paid from contributions levied only in relation to the lots and in the proportions that are specified in the order.”

Section 98(1)(b) of the Civil Procedure Act is in much broader terms. It provides that:

Despite the way in which proposed Ground 2 was framed, the Owners Corporation did not ultimately submit that the Court lacked power to make an order under s 98 with respect to the funding of the Owners Corporation’s own solicitor client costs. Instead, the argument was advanced on the basis that the order involved House v The King errors. The alleged errors were stated in a somewhat summary form.

The first such error was said to be that the order was at odds with the compensatory nature of costs orders, given that the Owners Corporation had won the litigation. I do not agree. The compensatory aspect of the power to order costs was reflected in the order which was in fact made against the Executors, namely that they were to pay the Owners Corporation’s costs of the cross-claim as legal costs to be assessed in the usual way. The principle which the primary judge had invoked at [236] of the Primary Judgment (to which he referred at [9] of the Variation Judgment) was that it was unreasonable and unjust to require lot owners to fund litigation against themselves by way of levy. That would be so whether the litigation was successful or unsuccessful.

The Owners Corporation complained that the order presumed that some form of tracing or identification was possible in respect of past contributions by or on behalf of the relevant lot, and thereby created uncertainty as to what the order required. I do not agree. The order does not require the Owners Corporation to use past contributions from other lots; the order says only that it cannot use contributions from Lot 11. If the Owners Corporation is unsure, it can levy the owners of the lots in the premises other than Lot 11 to cover its own solicitor client costs. That was the effect of the order his Honour made in relation to the Owners Corporation’s funding of a costs order he had made on 8 April 2024, which had been an order that the Owners Corporation pay Perpetual’s costs in respect of the Statement of Claim.

The Owners Corporation also complained that his Honour had not taken into account “the right of Lot 11 to duly participate pro-rata as a lot owner in the proceeds” (presumably, the proceeds of the costs order his Honour had made against the owner of Lot 11 in relation to the cross-claim). I do not accept this submission. If the effect of his Honour’s orders was that the Owners Corporation was required to fund the litigation against the owner of Lot 11 out of contributions levied only against the other lots, it is not clear what right Lot 11 would have to participate in any proceeds of an ensuing costs order in favour of the Owners Corporation.

In light of the basis on which the primary judge made order 2 in the Variation Judgment, it does not necessarily follow from the parties’ success on other grounds of appeal that the order would be disturbed so as to require the re-exercise of the discretion. The order is of some significance to the parties; the errors alleged were fairly arguable; and it is desirable to provide certainty about whether it was made in error.

That being so, I would grant the Owners Corporation leave to appeal to the extent necessary to pursue proposed Ground 2 (and a notice of appeal to that effect should be filed), but I would dismiss that appeal.

There being no inconsistency between the orders I propose and those put forward by the parties in settlement of the proceedings between Perpetual and the Owners Corporation, there is no impediment to making those orders by consent, as requested by those parties.

The Owners Corporation has had substantial success on the first three grounds in its notice of appeal and on the Executors’ notice of contention. Although its challenge to jurisdiction failed, it had practical success on the central issue in having the declaration set aside.

The Owners Corporation has also had substantial success on Grounds 4 and 5 in its notice of appeal.

On the other hand, as to the Owners Corporation’s application for leave to appeal with respect to costs, to the extent that leave to appeal should be granted, the appeal must fail.

The Owners Corporation should have its costs of the notice of appeal and the notice of contention, but the Executors should have their costs of the Owners Corporation’s application for leave to appeal.

Ground 1 was not pressed.

As to grounds 2 and 3, the Executors had substantial success with respect to the central issue, which was the challenge to the primary judge’s monetary awards. It was not necessary to determine Ground 4 (as to costs at first instance), but as noted at [311] above if it had been necessary to address that issue, I would have concluded that the Executors had established error in the primary judge’s exercise of discretion and granted leave to appeal to the extent necessary.

The Executors failed on Ground 5 (declaration that by-law 30 was harsh, unconscionable or oppressive), but the argument on that Ground added little to the issues arising under the Owners Corporation’s Ground 2.

The Executors should have their costs of the notice of cross-appeal and the application for leave to appeal.

The orders I propose in each matter are as follows.

GRIFFITHS AJA: I agree with McHugh JA.