The Owners Strata Plan No 50276 v Thoo [2013] NSWCA 270

What the court decided

Dr Thoo owned several lots in the Hunter Connection, a strata building in Sydney [22], [24]. He planned to lease three shops in lot 17 for cooking and selling hot food, which a council condition made subject to adequate exhaust ventilation [25]–[26]. He asked the owners corporation to guarantee lot 17 an exhaust capacity of 3600 litres per second from the mechanical exhaust ventilation system, which was part of the common property [27]. It declined, maintaining that the system was already used to the limit of its design capacity [28]. At its 2009 annual general meeting it resolved unanimously under section 62(3) that it was inappropriate to renew or replace the system [30].

Slattery J, the trial judge, declared that the owners corporation had breached section 62(2), that the resolution was invalid and that the owners' votes for it were a fraud on the minority [35]. His Honour ordered work to give lot 17 not less than 3600 litres per second [35]. In a second judgment he held that the breach gave Dr Thoo a private cause of action in damages [36].

Tobias AJA gave the principal reasons, with which Barrett JA agreed while adding observations [1], [22]. Preston CJ of LEC agreed with both [227].

Tobias AJA held that fixtures or fittings must be renewed or replaced under section 62(2) only when they are no longer operating effectively or have fallen into disrepair, so that they can no longer be kept in good and serviceable repair under section 62(1) [130]. The system had not fallen into disrepair and was operating according to its original design capacity, so refusing to replace it was no breach [96], [130]. Enlarging its capacity to meet the anticipated reasonable demands of all lots in the food court and basement went beyond section 62(2) and could not proceed without compliance with section 65A [127].

Barrett JA said that replacement is a large concept, connoting no more than the installation of one thing in place of another to achieve functional equivalence [4]. The comparison is with the common property at its most recent reference point, being registration of the strata plan or a later addition or alteration made in accordance with the legislation [6]. Alteration or addition incidental to renewal or replacement is both required and allowed, but section 62(2) imposes no positive requirement for superior functionality [7]. The duty is discharged by renewal or replacement giving performance at least equivalent to that at the most recent reference point, and while that performance continued here there was no duty to act [8].

Tobias AJA held that the alternative claim, based on Dr Thoo's equitable interest as a tenant in common of the common property, also failed [134], [147].

Tobias AJA held, in case he was wrong on section 62(2), that the resolution was valid [148], [225]. He accepted that the owners corporation had to address the matters in paragraphs (a) and (b) of section 62(3), inappropriateness and no effect on safety or appearance [46], [183]. Nothing in section 62(3) required reasons or a specific opinion on them beyond a special resolution in terms such as those passed [161]. He said such a resolution remains open to administrative law challenge, though none was suggested [162]. He found a proper and rational basis for the safety determination [172]. He inferred from the unanimous vote a bona fide and rational view that, at least at that time and without further investigation, replacement was inappropriate [183]. The structure of section 62 leaves very little room for the doctrine of fraud on the minority, because section 62(3) itself, at least inferentially, contemplates the negative impact on those who would benefit from the work [196]. The trial judge's findings of fraud on the minority and that the resolution expropriated Dr Thoo's right to reasonable access to the system could not be sustained [187], [197]. Barrett JA said that a section 62(3) resolution cannot be impugned because the subjective views of those voting for it did not match the evaluation it expressed [15]. Improper purpose would go instead to fraud on a power, and a resolution might in theory be invalid where the improper motive was the sole or dominant one and a majority would otherwise have voted against; none was shown [16]–[19].

On damages, Tobias AJA held that, in any event, a breach of section 62 by an owners corporation does not give rise to an action for damages for breach of statutory duty [222], [225]. He preferred the obiter view of McColl JA in an earlier Court of Appeal decision and declined to follow the first instance decisions relied on by Dr Thoo [221]–[222]. That decision was Ridis v Strata Plan 10308 (2005) 63 NSWLR 449; [2005] NSWCA 246 [42].

The appeal was allowed, the cross-appeal was dismissed and Dr Thoo's claim was dismissed with costs [226].

Why it matters

The case was decided on the Strata Schemes Management Act 1996 (NSW) [22]. Readers must check the New South Wales legislation now in force and the Victorian position under the Owners Corporations Act 2006 (Vic). On the reasoning of Tobias AJA and the observations of Barrett JA, the duty to renew or replace keeps a shared service to its design or most recent functional standard, while an upgrade for new demand needs a special resolution specifically authorising it [8], [47], [127], [130]. Where section 62 is breached, the remedy is an order that the work be done, not damages: the court distinguished its preserved jurisdiction to grant declarations and mandatory injunctions, and the statutory adjudication scheme allows such an order [211], [219]–[220], [222]. Here the order to do the work was set aside because there was no breach [131].

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.