The Owners Strata Plan No 57164 v Yau

This dispute concerns Strata Plan No 57164, which is a strata scheme for a multi-storey residential and commercial building in Sydney known as Millennium Towers. The plaintiff is the Owners Corporation of the scheme. The defendants (“the Yaus”) are the owners of Lot 330 in the scheme. Lot 330 is a commercial lot located on the ground floor of the building.

In 2011 the Yaus commenced proceedings in this Court against the Owners Corporation, being proceedings 2011/183457. Those proceedings came to an end on 14 August 2013, the third day of the hearing before Bergin CJ in Eq. Various orders were made by consent by Bergin CJ in Eq. The orders were entered on 15 August 2013.

On 17 December 2014 the Owners Corporation commenced these proceedings against the Yaus, seeking the setting aside of those orders and the repayment of certain amounts of damages and costs that had been paid in accordance with the orders. It contends that the hearing of the proceedings should then resume before Bergin CJ in Eq.

The Owners Corporation claims that the settlement agreement that underlies the consent orders is not binding upon it. Various reasons are advanced in support of that contention. The primary argument is that Senior Counsel for the Owners Corporation lacked authority, whether actual or ostensible, to make the agreement on behalf of the Owners Corporation. The Owners Corporation submits that the want of authority stems from:

The Owners Corporation contends that it is not open to the Yaus to rely on any ostensible authority of its legal representatives in circumstances where the Yaus were aware that the relevant Executive Committee meeting was not held in accordance with the requirements of the Act.

The Owners Corporation claims that the lack of authority for the making of the settlement agreement affords a ground to set aside the consent orders (see Harvey v Phillips (1956) 95 CLR 235 at 243; Romeo v Papalia [2014] NSWCA 221 at [80] and [87]).

The Owners Corporation relies upon s 73 of the Civil Procedure Act 2005 (NSW) as the primary source of power to set aside the orders. In the alternative, the Owners Corporation relies upon Uniform Civil Procedure Rules 2005 (NSW) r 36.15.

The Yaus do not dispute that the Court has power to set the orders aside. They submit that UCPR r 36.15 is the relevant source of this power, not s 73 of the Civil Procedure Act. The Yaus, however, submit that there is no sound basis for setting the orders aside. They take issue with the contentions that the settlement agreement is not binding on the Owners Corporation and was made without authority. The Yaus submit that in any case the subsequent conduct of the Owners Corporation amounts to a ratification of the making of the agreement, and acquiescence in the validity of the agreement. The Yaus further submit that the conduct of the Owners Corporation gives rise to an estoppel that precludes it from now asserting that it is not bound by the agreement. They also complain of laches and delay.

The salient facts of the matter were not in dispute. Affidavits from four deponents were read. Three of the deponents were cross-examined. It was not suggested that any parts of the evidence of any witness should not be accepted.

By 2010 issues had arisen between the Owners Corporation and the Yaus concerning a grease arrestor and a kitchen exhaust system located on the common property. The Yaus, who wanted to operate a restaurant in their lot, wanted access to the grease arrestor and the kitchen exhaust system and were also asserting that the Owners Corporation was under a duty to maintain such equipment (see s 62 of the Act).

At an extraordinary general meeting of the Owners Corporation held on 16 December 2010 special resolutions were passed in the following terms:

On 3 June 2011 the Yaus commenced proceedings in this Court against the Owners Corporation. The relief sought in the Statement of Claim included declarations that the special resolutions referred to above constituted a fraud on the minority and were void; orders requiring the Owners Corporation to maintain and repair the grease arrestor and kitchen exhaust system in accordance with s 62 of the Act; injunctions requiring the Owners Corporation to cause the Yau’s lot to be connected to the grease arrestor and the kitchen exhaust system; and equitable compensation.

It appears that the Owners Corporation retained Peter Murphy and Associates, solicitors, in relation to the proceedings, although the defence that was filed on 24 August 2011 was filed by Curwoods Lawyers for the Owners Corporation. In any event, it is clear that Peter Murphy and Associates subsequently became the solicitors with the conduct of the proceedings for the Owners Corporation.

The minutes of various meetings of the Executive Committee of the Owners Corporation (“the EC”) indicate that the Yau proceedings were regularly discussed at meetings of the EC.

By June 2012 Mr Philip Clay SC and Ms Anne Hemmings had been retained as counsel for the Owners Corporation in the proceedings. On 17 October 2012 they provided a joint advice on prospects.

On 16 November 2012 the Yaus filed an Amended Statement of Claim. The amended pleading included, amongst other things, a claim for damages for breach by the Owners Corporation of its duties under s 62 of the Act. On 12 December 2012 a Defence to the Amended Statement of Claim was filed on behalf of the Owners Corporation by Peter Murphy and Associates.

An Annual General Meeting of the Owners Corporation was held on 18 March 2013. The minutes of the meeting show that a resolution to the following effect was passed:

The minutes of the Annual General Meeting also indicate that it was resolved that no matter or type of matter was decided to be one to be determined only by the Owners Corporation in general meeting (cf s 21(2)(b) of the Act). Further, it was resolved not to remove the limitation imposed by s 80A(1) of the Act upon expenditure by the EC on certain items.

Finally, it appears from the minutes that the Yau proceedings were not discussed at the Annual General Meeting.

The proceedings were, however, discussed at a meeting of the EC held on 27 May 2013. The minutes of that meeting record the following:

On 7 June 2013 Mr Clay and Ms Hemmings provided a joint advice for the purposes of the mediation. It was noted (in paragraph 111) that any agreement reached at the mediation would have to be subject to a resolution of a general meeting of the Owners Corporation.

The mediation did not result in any settlement. On 15 July 2013 the Yaus served an Offer of Compromise which was expressed to be open for acceptance until 26 July 2013. The proceedings had, by this time, been set down for hearing to commence on 12 August 2013. It appears that it was estimated that the hearing may take five days.

The EC met on 30 July 2013. The minutes record that the mediation did not achieve a settlement, and that the Yaus had made an Offer of Compromise. The minutes noted the hearing date of 12 August 2013, and reiterated that:

The EC met again on 6 August 2013. The minutes record that an advice from Peter Murphy & Associates was tabled, reviewed and discussed at length. The advice evidently concerned the making of a settlement offer. The minutes record the following:

On 7 August 2013 Peter Murphy and Associates sent a settlement offer to the solicitors for the Yaus, Accentro Legal. The offer provided, amongst other things, for the payment to the Yaus of damages of $260,000 and costs of $100,000. The offer, as conveyed, made no mention of any requirement for the offer, if accepted, to be submitted to an Extraordinary General Meeting for determination. However, later on 7 August 2013, Mr Murphy sent an email to Mr Wong of Accentro Legal which was in the following terms:

Shortly thereafter Mr Wong responded to Mr Murphy’s email. This response (which I infer attached Mr Murphy’s email) was copied to Mr Darren Jenkins of counsel, who had been retained to appear for the Yaus in the proceedings.

Later on 7 August 2013 Accentro Legal sent a detailed response to the settlement offer. The offer was not accepted. Numerous queries were raised about various aspects of the offer. For example, the reasonableness of the period for completion of certain works was questioned. On the next morning Mr Murphy sought advice from Mr McDonald concerning the earliest time that an Extraordinary General Meeting could be held to ratify any settlement agreement. Mr McDonald informed Mr Murphy that realistically about three weeks would be required from an in principle settlement.

During the evening of 8 August 2013 Mr Jenkins submitted a settlement offer to Mr Clay.

On the morning of 9 August 2013 Mr Murphy sent an email to Mr McDonald in which he stated that he had heard the previous evening that the Yaus had rejected the Owners Corporation’s offer and that they wanted $285,000 in damages and their costs paid on an agreed or assessed basis. Mr Murphy stated that he and counsel were still seeking to negotiate a settlement.

In the afternoon of 9 August 2013 Mr Clay sent an email to Mr Murphy. Mr Clay recommended that, subject to certain amendments, the settlement offer made by the Yaus be accepted. Later on 9 August 2013 Mr Murphy forwarded Mr Clay’s email (which attached the settlement offer) to Mr Burns and Mr McDonald. Mr Murphy noted that counsel recommended that the offer “be accepted by Executive Committee on behalf of Owners”.

At about 5pm on 9 August 2013 Mr Wong sent an email to Mr Murphy attaching an amended settlement offer said to be made pursuant to the principles in Calderbank v Calderbank [1975] 3 AII ER 333. The offer was stated to be open for acceptance until 9:30am on 12 August 2013. Mr Murphy promptly forwarded the offer to Mr Burns and Mr McDonald. It is apparent that the amended offer incorporated some of the changes recommended by Mr Clay. Two further paragraphs had also been added, including one that referred to s 73 of the Civil Procedure Act 2005 (NSW). The offer took the form of Court orders that would be made by consent and in full and final resolution of the proceedings.

Mr Burns deposed that after receiving the offer he had a conversation with Mr Murphy and Mr Clay in which words to the following effect were said:

The settlement offer was the subject of discussion amongst members of the EC on the evening of 9 August 2013. These discussions are referred to in an email sent by Mr Burns to other members of the EC on 10 August 2013. The email included the following:

The hearing of the proceedings commenced on 12 August 2013 before Bergin CJ in Eq. During the course of the day Mr Clay came to the view that the hearing was not going well for the Owners Corporation. He gave certain advice to Mr Murphy and Mr Burns at the conclusion of the days’ proceedings. The advice was confirmed in an email sent by Mr Clay to Mr Murphy in the early evening. The email includes the following:

On 13 August 2013 at the conclusion of the second day of the hearing, Mr Jenkins had a conversation with Mr Clay to the following effect:

At 5:25pm on 13 August 2013 Mr Burns sent an email to the other members of the EC and to Mr Clay and Mr Murphy. The email is in the following terms:

At 6pm on 13 August 2013 Mr Clay sent an email to the members of the EC and to Mr Murphy. The email included the following:

Between about 7pm and 9:30pm on 13 August 2013 a meeting took place involving most but not all of the members of the EC. Mr Clay, Ms Hemmings and Mr Murphy also attended. Five members of the EC were present in person. Two others were present via a conference telephone, one of whom later attended the meeting in person. Two of the nine members did not attend at all.

The minutes of the meeting, which appear to have been based upon a record made by Mr Murphy and which incorporate some amendments suggested by Mr Clay, include the following:

At the conclusion of the meeting, Mr Burns spoke to Mr Clay and told him that:

At 9:31pm on 13 August 2013 Mr Clay sent an email to Mr Jenkins which was in the following terms:

Mr Jenkins then had a telephone conversation with Mrs Yau. It appears that in the course of that conversation he read to Mrs Yau the terms of Mr Clay’s email. The conversation ended with Mrs Yau saying that she wanted to think about the matter and would speak further with Mr Jenkins about it in the morning.

At 9:50pm on 13 August 2013 Mr Jenkins sent an email to Mr Clay which was in the following terms:

Prior to the commencement of the hearing on 14 August 2013 Mr Jenkins and Mr Clay had a conversation in which Mr Jenkins said words to the following effect:

At about 10am on 14 August 2013 the proceedings resumed before Bergin CJ in Eq. Mr Jenkins informed the Court that he was ready to proceed. Mr Clay sought an opportunity to obtain some instructions, and requested that the matter stand down. Mr Jenkins was content with that course and her Honour then adjourned the Court. Mr Jenkins observed that Mr Clay then left the courtroom and spoke to Mr Burns.

Mr Jenkins deposed that a short time later Mr Clay returned and a conversation took place to the following effect:

Mr Jenkins further deposed that he and Mr Clay then had a discussion about the settlement offer, during which various handwritten alterations were made to the document by Mr Jenkins. At the conclusion of that process, arrangements were made for Bergin CJ in Eq to return to the Bench.

Upon the resumption of the matter, the amended document, now styled “Short Minutes of Order”, was handed up to Bergin CJ in Eq. Her Honour queried the necessity for paragraph 15 (which noted the Court’s power under section 73 of the Civil Procedure Act), and counsel indicated that the paragraph was not necessary. Bergin CJ in Eq then struck through the paragraph, renumbered the following paragraph, and said:

The Short Minutes of Order relevantly provide as follows:

Later on 14 August 2013 Mr Clay sent a copy of the orders made by the Court to, amongst others, the members of the EC.

During the afternoon of 14 August 2013 Mr Burns commenced taking steps to organise the undertaking of the works that were required to be undertaken pursuant to the orders of the Court.

Also on the afternoon of 14 August 2013 Mr McDonald sent an email to lot owners attaching the minutes of the EC meetings held on 30 July 2013 and 6 August 2013. The email drew attention to a note added to the minutes of the 6 August 2013 meeting to the effect that the proceedings had been settled at Court on 14 August 2013 on the advice of counsel, and that full details of the settlement would be provided to lot owners in due course.

A memorandum prepared by Mr Clay on 14 August 2013 provides further detail as to the events of the evening of 13 August 2013 and the morning of 14 August 2013. The memorandum contains the following:

On 19 August 2013 notice of an EC meeting to be held on 26 August 2013 was sent to lot owners. The settlement of the proceedings was referred to in the notice as a matter to be considered at the meeting.

The minutes of the EC meeting held on 26 August 2013 indicate that the settlement of the proceedings was discussed at length. The minutes include the following:

The minutes record that a resolution was passed in the following terms:

On 27 August 2013 Mr Burns sent an email to Mr Clay and Mr Murphy enquiring whether the recent decision of the Court of Appeal in Owners Strata Plan 50276 v Thoo [2013] NSWCA 270 may enable the Owners Corporation to vary the Court orders in relation to damages. That decision, which was given on 22 August 2013, had been brought to the attention of Mr Burns and Mr McDonald by a lot owner. On 30 August 2013 Mr Murphy sent an email to Mr McDonald in relation to the consequences of the decision. Mr Murphy stated that he was seeking the opinion of counsel on the position concerning the settlement of the proceedings. He noted that the Court of Appeal had now found that a breach of s 62 of the Strata Schemes Management Act by an owners corporation does not give rise to an action for damages for breach of statutory duty. Mr Murphy further stated that the effect of the decision was very worrying as the Yaus appeared to have obtained a windfall unjustly.

Later on 30 August 2013 Mr McDonald sent an email to Mr Murphy asking him to cease to act in the Yau matter and “set aside any further advice” in it. The email also included the following:

On 2 September 2013 Mr McDonald sent an email to lot owners attaching the minutes of the EC meeting of 26 August 2013, the advice of Mr Clay, and a copy of the orders made by the Court.

It appears that on 30 August 2013 Mr McDonald obtained some advice from Ms Hoskinson-Green of Makinson d’Apice Solicitors in relation to the settlement of the proceedings. Ms Hoskinson-Green had evidently been speaking to Mr Terrence Lynch of Senior Counsel in relation to the matter. She conveyed that Mr Lynch did not see any basis to avoid the agreement evidenced by the Court orders. In response to a question from Mr McDonald concerning s 73 of the Civil Procedure Act, Ms Hoskinson-Green stated in effect that the section relates to disputes about the terms of a settlement and that there was no such dispute in this case. Ms Hoskinson-Green’s advice was forwarded by Mr McDonald to Mr Burns. He in turn sent it to at least one other member of the EC.

On 17 September 2013 Makinson d’Apice Lawyers sent a cheque for $285,000 to Accentro Legal in payment of the damages required to be paid in accordance with order 8 made on 14 August 2014.

The settlement of the proceedings was further discussed at the EC meeting held on 26 September 2013. It appears that the payment of the damages was noted and that there was discussion concerning the progress of the works required to be undertaken in accordance with the orders of the Court.

On 27 September 2013 Makinson d’Apice Lawyers sent a letter to Accentro Legal. The letter concerned the subject of special resolutions to be passed at an Extraordinary General Meeting so as to empower the parties to comply with the orders of the Court. On 4 October 2013 Mr Lin of Accentro Lawyers sent an email in response to the letter. He generally took issue with what had been proposed.

Also on 4 October 2013 a lot owner, Ms Curnik, made an application to the Consumer, Trader and Tenancy Tribunal (“the CTTT”) seeking an order under s 153 of the Strata Schemes Management Act to the effect that the EC meeting held on 13 August 2013 was invalid and that any resolutions made at that meeting were null and void. Ms Curnik’s complaints included that the EC meeting had been called without notice, and that its resolution to instruct counsel to settle the proceedings had the effect of breaching limitations placed on the Owners Corporation budget at the Annual General Meeting held on 18 March 2013.

The works required to be undertaken by the Owners Corporation pursuant to the orders of the Court were substantially completed by late October 2013. From about that time, the Yaus commenced to undertake the works they were required to undertake in accordance with those orders. There is evidence that the Yaus spent in excess of $57,000 in the carrying out of those works. More than $23,000 of that amount had been spent by the end of 2013.

On 3 December 2013 the strata managing agent, under instruction of the EC, lodged a submission with the CTTT concerning Ms Curnik’s application. The submission included the following:

On 23 December 2013 the strata managing agent sent a letter to Mr and Mrs Yau in which it was stated that the Yaus had connected their lot to the kitchen exhaust system and grease waste pipes without obtaining the consent of the Owners Corporation. The letter further stated that the failure to obtain the consent of the Owners Corporation constituted breaches of orders 4(e), 5(i) and 7 made by the Court on 14 August 2013. It was stated that it was important that the Owners Corporation not only protect the common property, but ensure that the orders made by the Court are carried out.

On 10 January 2014 the CTTT dismissed Ms Curnik’s application.

On about 24 January 2014 notice was given to lot owners of an Extraordinary General Meeting to take place on 18 February 2014. The notice included reference to the obtaining of legal advice on various matters, including on “all available options to the Owners Corporation” in relation to the proceedings with the Yaus. The notice also referred to the raising of a special levy (for $821,151.00) to cover the works, damages and costs associated with the proceedings.

Resolutions for the obtaining of such legal advice, and the raising of the special levy, were passed at the Extraordinary General Meeting held on 18 February 2014.

In the meantime, Ms Curnik had lodged an appeal with the New South Wales Civil and Administrative Tribunal (“NCAT”) in respect of her unsuccessful application to the CTTT.

On 3 June 2014 the Owners Corporation paid the Yaus $2,472.61 by way of interest on the damages sum of $285,000.

The Annual General Meeting of the Owners Corporation took place on 17 June 2014. The following resolution was passed:

On 30 July 2014 the strata managing agent wrote to Mr and Mrs Yau. The letter advised that the Owners Corporation believed it had grounds to impugn the settlement of the proceedings, and that if a resolution could not be achieved by 29 August 2014, the Owners Corporation would commence proceedings to set aside the Consent Orders.

On 31 July 2014, a Deed of Settlement was entered into between Ms Curnik and the Owners Corporation, and Ms Curnik’s appeal was resolved by NCAT making consent orders on 26 August 2014. Amongst those orders (made pursuant to s 181(3) of the Act) was an order that the resolution made by the EC on 13 August 2013 in respect of the settlement of the Supreme Court proceedings was of no force or effect.

These proceedings were commenced by the Owners Corporation on 17 December 2014.

In November 2015 the Yaus, utilising a garnishee process, obtained payment of their assessed costs of the previous proceedings in the sum of $262,372.21.

Before dealing with the particular arguments advanced on the question of authority, it is necessary to note certain matters which do not appear to be controversial. These are:

The Owners Corporation, for whom Mr Kelly SC and Mr Kerr of counsel appeared, submitted that the EC did not have authority to instruct Mr Clay to enter into this settlement agreement on behalf of the Owners Corporation.

The first reason advanced in support of that submission is that the meeting of the EC held on the evening of 13 August 2013 (which was the source of the instruction to Mr Clay to settle the matter on the best terms possible in accordance with the Yaus’ latest offer) was not convened in accordance with clause 6 of Schedule 3 to the Act. Clause 6 relevantly provides:

Strata Plan 57164 is a “large strata scheme” within the meaning of the Act (see clause 5 of Part 2 of the Dictionary).

The EC did not give notice as required by clause 6. No notice was given to lot owners, other than to those who were members of the EC. The notice to the members of the EC was given by way of Mr Burns’ email sent at 5:25pm on 25 August 2013. (It is not clear whether the email addresses had been given as addresses for service as contemplated by clause 6(4).)

The Owners Corporation contends that by reason of the failure to comply with the notice requirements the meeting of the EC was invalid, and the resolution or decision of the EC to instruct Mr Clay to settle the Yau proceeding was similarly invalid or of no force or effect.

The second reason advanced in support of the submission that the EC did not have authority to instruct Mr Clay to enter into the settlement agreement made on 14 August 2013 is that certain parts of the agreement either involved matters that were reserved for the Owners Corporation in general meeting, or involved expenditure which the EC was precluded by s 80A of the Act from spending.

The parts of the agreement said to involve matters reserved for the Owners Corporation in general meeting were:

The parts of the agreement said to involve expenditure which the EC was precluded by s 80A of the Act from spending were paragraphs 8, 9 and 11 of the consent orders, which required the spending of money for which the Owners Corporation’s annual budget did not allow.

I will deal first with the failure by the EC to comply with the notice requirements of clause 6 of Schedule 3 to the Act.

The Act does not in express terms specify the consequences of such a failure. In particular, it is not expressly stated whether an EC meeting convened contrary to the requirements of clause 6 is invalid, or that decisions made at such a meeting are invalid or of no force or effect. It is necessary to undertake a task of statutory construction in order to ascertain the consequences of the failure to adhere to the notice requirements.

In Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1988) 194 CLR 355 McHugh, Gummow, Kirby and Hayne JJ stated at [91]:

After referring to the distinction that had traditionally been drawn between directory and mandatory requirements, their Honours continued at [93]:

Clause 6 of Schedule 3 employs the imperative “must” in relation to the notice requirements of clauses 6(1) and 6(3). “Must” is frequently used in the Act. As observed by Barrett JA in 2 Elizabeth Bay Road Pty Limited v The Owners – Strata Plan No 73943 [2014] NSWCA 409; (2014) 88 NSWLR 488, the Act frequently uses other words in relation to the performance of the functions of an owners corporation, such as “may”, “must not” and “cannot” (at [17], [34] and [36]). Barrett JA (at [35]) identified three types of “must not” provisions, including a type where there is no explicit indication that disobedience constitutes either an offence or an actionable wrong. His Honour (at [37]) observed that the “cannot” provisions indicated a lack of power or ability to act.

2 Elizabeth Bay Road Pty Limited v The Owners – Strata Plan No 73943 (supra) was concerned with s 80D of the Act which relevantly provides that an owners corporation or executive committee of an owners corporation must not initiate legal action for which any payment may be required unless a resolution is passed at a general meeting of the owners corporation approving of the taking of the action. Barrett JA (at [41]) identified the section as a “must not” provision that does not indicate consequences of a criminal kind or consequences in terms of actionable wrong. After considering the decision of the Court of Appeal in The Owners – Strata Plan 5709 v Andrews [2009] NSWCA 189, Barrett JA found at [51]-[52] as follows:

Similar reasoning is in my view applicable to the “must” provisions of clause 6 of Schedule 3. This reasoning supports the conclusion that the provisions regulate the exercise of powers by the EC and that compliance with them is not a necessary condition for the existence of power on the part of the EC.

Moreover, I do not discern a legislative purpose to invalidate any act of the EC that is carried out without the EC complying with the notice provisions of clause 6 of Schedule 3. The Act does not employ language that says so. The notion of an invalid executive committee meeting is recognised in Schedule 3 (see, for example, clause 9(4)), and so too is the notion of a decision of an executive committee having no force or effect (see, for example, clause 11(2)). But these notions are not incorporated into clause 6.

Further, s 153 of the Act confers a power upon an adjudicator to make an order invalidating any resolution of persons present at a meeting of an owners corporation if the provisions of the Act have not been complied with in relation to the meeting. That provision suggests that such non-compliance does not itself result in invalid resolutions or decisions. A remedy is instead provided, which may be given in appropriate circumstances. (As noted earlier, s 153 was invoked in this case. An order was eventually obtained in relation to the decision of the EC to settle the Yau proceeding, but not until after the settlement agreement, as embodied in the orders of the Court, had been substantially performed.)

Finally, a failure to comply with the notice requirements of clause 6 of Schedule 3 may take any number of forms. Some failures may be significant, others may be trifling. It is difficult to see why the objects or purpose of the Act would be promoted by holding that every resolution or decision of an executive committee made at a meeting convened contrary to the notice requirements was invalid and of no effect.

For these reasons it is my opinion that the failure of the EC to comply with the requirements of clause 6 of Schedule 3 in relation to its meeting on 13 August 2013 did not render the meeting invalid, or cause the resolution or decision of the EC to instruct Mr Clay to settle the Yau proceeding to be invalid or of no effect. That challenge to the authority of the EC to so instruct Mr Clay fails.

I turn now to deal with the argument that the EC did not have authority to instruct Mr Clay to enter into the settlement agreement made on 14 August 2013 due to its subject matter.

As noted earlier, it did not appear to be controversial that the Owners Corporation had the power to enter into a settlement agreement with the Yaus on the terms of the agreement made on 14 August 2013. I would in any case proceed on that basis. An owners corporation may be sued, and an owners corporation possesses a power to do all things necessary for or incidental to its functions (see ss 50(1)(c) and 50(1)(e) of the Interpretation Act 1987 (NSW)). That power would include a power to compromise proceedings brought against an owners corporation.

The relief sought against the Owners Corporation by the Yaus included:

However, the relevant question is whether the subject matter of those parts of the agreement have the consequence that the EC did not have authority to instruct Mr Clay to enter into the agreement.

Section 21 of the Act provides:

As explained by Barrett JA in 2 Elizabeth Bay Road Pty Limited v The Owners – Strata Plan 73943 (supra) at [25] and [29]:

It follows that except for decisions of the type that fall within s 21(2), and subject to any disagreement between the Owners Corporation in general meeting and the EC (as envisaged by s 21(4)), the EC possesses a decision-making power that corresponds to that of the Owners Corporation.

On 13 August 2013 the EC decided to accept Mr Clay’s advice and instruct him to settle the Yau proceeding on the best terms possible, generally in accordance with the Yaus’ latest offer, which had been made at about 5pm on 9 August 2013. In my opinion, the EC had the power to make that decision. The decision was not a decision that fell within s 21(2) of the Act. Neither was it conduct that involved the EC spending money contrary to s 80A of the Act.

In my view, the decision ought be characterised as a decision to authorise Mr Clay to settle the proceedings along certain lines. It is true that the offer made by the Yaus contained a term to the effect that the Owners Corporation undertook to pass resolutions to revoke the special resolutions (the validity of which were in issue) passed pursuant to s 62(3) of the Act on 16 December 2010. Any resolutions revoking those resolutions would themselves have to be special resolutions (see clause 23 of Schedule 2). Accordingly, a decision to revoke a s 62(3) special resolution is a decision required under the Act to be made by the owners corporation by special resolution in general meeting. Such a decision is one that falls within s 21(2)(a) of the Act.

However, the giving of an undertaking to pass a special resolution is not the same as the passing of such special resolution, which remains a matter for the owners in general meeting. A fortiori, a decision to authorise an agent to enter into an agreement which includes an undertaking to pass a special resolution is distinct from the passing of such special resolution. I therefore do not think that a decision to authorise an agent to enter into an agreement which includes an undertaking to pass a special resolution that would revoke a s 62(3) special resolution should be regarded as a decision that falls within s 21(2)(a) of the Act.

It is also true that the offer made by the Yaus contained terms that would require the Owners Corporation to carry out repairs to, or alterations to, parts of the common property of the strata scheme, namely, the grease arrestor and kitchen exhaust system. Those parts of the common property were the subject of the s 62(3) special resolutions the validity of which was in issue in the Yau proceedings. The Owners Corporation was thus not obliged by s 62 of the Act to keep in good repair those parts of the common property. The Owners Corporation contended that the effect of the s 62(3) special resolutions, whilst in force, was to preclude the Owners Corporation from carrying out any repair or maintenance work, such that revocation of the special resolutions would be necessary to enable such work to be carried out. Even if that is so, I do not think that a decision to authorise an agent to enter into an agreement which includes an obligation to carry out such work is a decision that falls within s 21(2)(a) of the Act. Again, the decision is distinct from a decision to revoke a s 62(3) special resolution, which is a decision required under the Act to be made by the owners corporation by special resolution in general meeting.

Insofar as alterations to the common property are concerned, s 65A(1) of the Act requires that any such work only be carried out if a special resolution authorising the work has first been passed by the Owners Corporation in general meeting. A decision under s 65A(1) of the Act to authorise alterations to common property is a decision that is required by the Act to be made by the owners corporation by special resolution in general meeting. It is thus a decision that falls within s 21(2)(a) of the Act. However, I do not think that a decision to authorise an agent to enter into an agreement which includes an obligation to carry out alterations to the common property should be regarded as a decision that falls within s 21(2)(a) of the Act. Such a decision is distinct from a decision under s 65A(1) of the Act to authorise alterations to the common property.

Section 80A of the Act provides:

The offer made by the Yaus contained terms that would require the Owners Corporation to pay damages of $285,000, and costs. Specific amounts for expenditure on damages or costs had not been determined as referred to in s 75(5) of the Act at the Annual General Meeting of the Owners Corporation held on 18 March 2013. It follows in my view that s 80A(1) was not engaged in relation to expenditure on such items. In any event, it seems to me that the conduct of the EC in authorising Mr Clay to settle the proceedings on terms that included obligations on the part of the Owners Corporation to pay damages and costs does not amount to the spending of money by the EC. I therefore do not think that such conduct involved the EC spending money contrary to s 80A of the Act.

For these reasons I do not accept that, due to the subject matter of the settlement agreement, the EC did not have authority to instruct Mr Clay to enter into it. That challenge to the authority of the EC to so instruct Mr Clay also fails.

In my opinion the EC possessed the power and the authority to instruct Mr Clay to settle the Yau proceeding on the best terms possible, generally in accordance with the Yaus’ latest offer. The EC, in so acting, was exercising the power of the Owners Corporation to compromise the proceedings that had been brought against it. The EC had been carrying out the task of providing instructions to the lawyers retained by the Owners Corporation, and the Owners Corporation in general meeting did not place any restrictions or limitations upon the EC in respect of the instructions it may give to the lawyers, including in relation to any compromise of the proceedings (see s 21(2)(b) of the Act). Neither the failure of the EC to comply with clause 6 of Schedule 3, nor the subject matter of the compromise in respect of which the EC provided instructions, removed or curtailed the power and authority of the EC to instruct Mr Clay to settle the proceedings.

It follows that I do not agree that the decision of the EC to instruct Mr Clay to settle the proceedings was invalid or of no effect at the time that decision was made. The consent order made by NCAT on 26 August 2014 is to the contrary, but in my view that order does not operate to retrospectively remove the power and authority the EC had to give its instruction to Mr Clay. Neither does the resolution passed at the Annual General Meeting on 17 June 2014 to the effect that the Owners Corporation disagreed with the decision of the EC to settle the proceedings (see s 21(4) of the Act).

The instruction of the EC was carried into effect by Mr Clay. It was not suggested that the agreement he made on 14 August 2013 with Mr Jenkins did not accord with the instructions given by the EC. In these circumstances, it seems to me that Mr Clay had express actual authority to make the settlement agreement on behalf of the Owners Corporation. Accordingly, the settlement agreement became binding upon the Owners Corporation.

It is thus not necessary to deal with the argument advanced by the Yaus that the validity of the settlement agreement can be supported on the basis that Mr Clay had an implied or an ostensible authority to make it. However, I will briefly state the following.

Mr Clay (as well as Ms Hemmings and Peter Murphy & Associates) had been retained by the Owners Corporation in the Yau proceeding, and would ordinarily possess an implied and an ostensible authority to bind the Owners Corporation to a compromise of the proceedings: Donellan v Watson (1990) 21 NSWLR 335 at 342 (Handley JA). There was no suggestion that the Owners Corporation had placed any limits or restrictions upon the authority of their lawyers to compromise the proceedings, or that the Yaus were on notice of any such limit or restriction.

Nevertheless, the Yaus were aware on 13 August 2013 and 14 August 2013 (including through the knowledge of their counsel, Mr Jenkins) that Mr Clay was acting on instructions from the EC or members of the EC in relation to the settlement of the proceedings. In those circumstances, and notwithstanding Mr Jenkins’ statement to Mr Clay that he was proceeding on the basis that offers communicated by Mr Clay were “cloaked in counsel’s ostensible authority”, it is debatable whether the Yaus were in fact placing reliance upon an implied or ostensible authority held by Mr Clay by virtue of his retainer (cf Harvey v Phillips (supra) at 241, where the legal representatives of the defendant were aware that the legal representatives of the plaintiff were endeavouring to obtain instructions from the plaintiff to accept an offer that had been made). That is, it is questionable whether the Yaus entered into the settlement agreement in reliance upon any representation made by the Owners Corporation, in retaining Mr Clay, that he had an implied or ostensible authority to bind it to a compromise.

I note in this regard that Mrs Yau gave evidence in cross-examination to the effect that she understood the EC had authority to make decisions about the running of the case. She also gave evidence that Mr Burns made the decision and gave the instructions to Mr Clay on 14 August 2013 to settle the proceedings. It seems that Mrs Yau’s understanding was at least partly based on the minutes of the EC meetings (which she would have received as a lot owner) that noted that Mr Burns was the point of contact with the solicitors, and he could provide instructions to them and to counsel.

In case my conclusion that Mr Clay had authority to make the settlement agreement on behalf of the Owners Corporation is wrong, I turn now to consider the question whether the Owners Corporation subsequently ratified the settlement agreement.

Mr Greenwood SC, who appeared with Mr Griscti of counsel for the Yaus, submitted that the conduct of the Owners Corporation from 14 August 2013 until January 2014 amounted to a ratification of the settlement agreement. It was contended that such ratification, even if not express, could at least be implied from the Owners Corporation’s conduct in relation to the agreement and the orders of the Court which embodied it, and the Owners Corporation’s acquiescence in the existence of the agreement (Taylor v Smith (1926) 38 CLR 48 at 54; Learn & Play (Rhodes No 1) Pty Limited v Lombe [2011] NSWSC 1506 at [21]).

The conduct and acquiescence in that period relied upon in support of the submission includes the following:

It was submitted that the above occurred in full knowledge of the material circumstances in which the settlement agreement was entered into. Finally, it was submitted that the first indication of any desire to review the position in relation to the settlement was contained in the notice of the Extraordinary General Meeting to be held on 18 February 2014. That notice referred to the obtaining of legal advice on “all available options to the Owners Corporation” in relation to the proceedings.

I was referred to the decision of the Court of Appeal in Leybourne v Permanent Custodians Pty Limited [2010] NSWCA 78 as to the applicable principles concerning ratification of the making of contracts by unauthorised agents. The Court of Appeal there said (at [131]-[134]):

Mr Kelly submitted that there was no ratification in the present case because the acts relied upon were further acts of the EC or acts of others directed by the EC, and not acts of the Owners Corporation itself. He submitted that, in any event, the EC, acting on legal advice concerning its powers and the binding nature of the consent orders, did not have full knowledge of the material circumstances, and its actions could not be regarded as unequivocal adoptive acts. Mr Kelly further submitted that ratification could only occur through acts of the Owners Corporation in general meeting. In that regard, reliance was placed upon 2 Elizabeth Bay Road Pty Limited v The Owners – Strata Plan 73943 (supra) at [57]-[59] where Barrett JA said:

I do not read what his Honour said as leading to the conclusion that only the Owners Corporation in general meeting could act to ratify the making of the settlement agreement. Barrett JA was speaking in the context of s 80D of the Act which in terms requires a resolution passed at a general meeting of the owners corporation approving the relevant action. The making of an agreement to compromise litigation against an owners corporation is not required by the Act to be the subject of such a resolution. It is not “something exclusively within the province” of the general meeting. It therefore seems to me that such an act, if done without authority, can be ratified by the owners corporation in ways other than by the passing of a resolution in general meeting.

Further, I do not think it is correct to regard acts of the EC (or acts of others directed by the EC) as separate from acts of the Owners Corporation itself. The conduct of an owners corporation as a whole, including acts carried out by its executive committee or its strata managing agent, need to be considered in assessing whether ratification has occurred. In this context, the conduct of an owners corporation also includes failures on its part to take action.

Had I been required to determine this question, I would have come to the conclusion that the conduct of the Owners Corporation in the period from 14 August 2013 to January 2014 did amount to a ratification of the making of the settlement agreement.

An email was sent to lot owners on the afternoon of 14 August 2013 which referred to the Yau proceeding having settled at Court that day on the advice of counsel. It was stated that full details of the settlement would be provided in due course. Lot owners were then given notice of the EC meeting to be held on 26 August 2013 at which the settlement was to be considered. The settlement was considered at that meeting, as recorded in the minutes of the meeting. Those minutes were sent to lot owners on 2 September 2013 together with Mr Clay’s advice and a copy of the orders made by the Court. The lot owners had clearly been informed by that time of the details of the settlement (and the Court orders which embody it) as well as the circumstances in which the settlement was reached.

Moreover, the minutes of the EC meeting of 26 August 2013 referred in detail to the works and other matters (including the payment of damages to the Yaus) to be attended to pursuant to the orders of the Court. The minutes of the EC meeting held on 26 September 2013 referred to the damages having been paid and again to the works to be done in accordance with the orders. The lot owners were thus aware that action was being taken on behalf of the Owners Corporation to comply with its obligations under the settlement agreement and the orders of the Court.

In those circumstances, no steps were taken by the Owners Corporation to do anything to disavow the settlement, or even question its validity. No meeting was held. Nothing was done to attempt to halt or suspend the performance of the agreement. No attempt was made to stay the operation of the orders of the Court or to challenge them in any way.

Throughout the period the Owners Corporation acted consistently with having become bound by the agreement and the orders of the Court. This is exemplified by the letter to Mr and Mrs Yau sent on 23 December 2013 by the strata managing agent of the Owners Corporation. The letter complained that the Yaus were breaching the orders and stated that it was important that the Owners Corporation ensure that the orders made by the Court are carried out.

In my opinion, the conduct of the Owners Corporation, in taking steps to perform the agreement and in failing to disavow it or question its validity, was unequivocal. Having knowledge of the material facts and circumstances in which the settlement agreement was made on its behalf by Mr Clay, the Owners Corporation clearly adopted this agreement as binding upon it.

Accordingly, even if Mr Clay lacked authority to make the settlement agreement on behalf of the Owners Corporation, the subsequent ratification of the agreement he made has the consequence that Mr Clay is treated as having had the requisite authority.

It follows from the above that the asserted grounds for the setting aside of the consent orders have not been made out. The settlement agreement is binding upon the Owners Corporation.

It is not necessary, in light of that conclusion, to deal with the submission made by the Yaus in the alternative that the Owners Corporation is estopped from asserting that it is not bound by the settlement agreement. I would observe, however, that once the Yaus became aware in late January 2014 that the Owners Corporation was seeking legal advice about its position it would not have been reasonable for the Yaus to continue to rely on any representation by the Owners Corporation to the effect that it intended to be bound by the agreement. Mrs Yau appreciated that the Owners Corporation was then considering the possibility of challenging the consent orders. Of course, by that time, the Yaus had spent more than $24,000 in effecting works in accordance with those orders.

The above reasons are sufficient to dispose of the Owners Corporation’s application to set aside the orders of the Court made on 14 August 2013. That is so whether the relevant source of power to set aside the orders is s 73 of the Civil Procedure Act or UCPR r 36.15.

As noted at the outset, the Owners Corporation primarily relied upon s 73 of the Civil Procedure Act as the source of the Court’s power to set aside the orders. However, it is my opinion that s 73 has no application in the present circumstances. Section 73 confers a power on the court “in any proceedings” to determine certain questions in dispute between the parties to the proceedings, including whether the proceedings have been settled. In my view, the power conferred by s 73 is one which may be exercised in the proceedings in which the questions in dispute arise, not, as here, in separate proceedings for that purpose. That view is consistent with the observations recently made by Basten JA in Gorczynski v Bendigo and Adelaide Bank Limited [2016] NSWCA 170 at [6] (see also Dimarti v Dimarti [2015] NSWSC 97 at [3]-[6] (Lindsay J)).

It seems to me that UCPR r 36.15 is the relevant head of power. It relevantly provides:

The orders of the Court made on 14 August 2013 (and entered on the following day) have not been shown to have been made irregularly, illegally or against good faith within the meaning of the rule. If the Owners Corporation had succeeded in showing that the underlying settlement agreement was not binding upon it, the making of the orders could then be regarded as irregular (see Romeo v Papalia (supra) at [87]). A question would have then arisen as to whether sufficient cause was shown to warrant the exercise of the power to set aside the orders.

Had that question arisen, I would not have exercised the power. In brief, I would have taken that course due to the conduct of the Owners Corporation which I have found would have amounted to a ratification of the settlement agreement, together with its failure to make any application to set the orders aside until December 2014. At least until late January 2014 the orders of the Court were not challenged or questioned in any way, and were indeed largely carried into effect, including by the Yaus spending money to undertake certain works. The orders of the Court were made by consent in the course of a contested final hearing, and were stated to be in full and final resolution of the proceedings. In view of the delay in seeking to challenge those orders, I would not consider it just to set them aside now and leave the parties to resume their litigation.

The Amended Statement of Claim will be dismissed with costs.