Project Lawyers, acting for the applicant in the recent decision of The Owners – Strata Plan 49574 v Scorpio Holdings (Aust) Pty Ltd & Ors [2018] NSWLEC 54, successfully obtained orders from the Court requiring a respondent (dissenting lot owner) in strata renewal proceedings to prepare and serve evidence of the respondent’s compensation claim under the Land Acquisition (Just Terms Compensation Act) 1991 (JT Act), with the Court finding that it was a fundamental requirement for an applicant to know the respondent’s position on compensation early in the proceedings. The Court also made findings on the respondent’s application for security for costs, with the Court rejecting any lawful basis for a respondent in strata renewal proceedings to obtain security for costs.

 

Respondent’s obligation to disclose particulars of compensation

During the course of the proceedings the applicant sought an order requiring both respondents to serve position papers outlining their respective compensation claims under the relevant provisions of the Strata Scheme Development Act 2015 (SSD Act), the Strata Schemes Development Regulation 2016 (SSD Regulation) and section 55 of the JT Act.

The applicant contended that it was a fundamental requirement for an applicant to know precisely what market value and disturbance claims were being pursued by the respondents. The applicant submitted that this was the standard order for parties in class 3 proceedings involving the compulsory acquisition of land by public authorities and should similarly apply to strata renewal proceedings. In short, the applicant argued that it was not open to a respondent to remain silent on this critical issue.

The first respondent provided particulars of its claim. The second respondent, however, contended that compensation under the JT Act, was one of a number of matters the Court is required to determine under s182 of the SSD Act and that the outcome of its security for costs application had some bearing on its timeframe to disclose its compensation claim.

The Court ultimately rejected the second respondent’s submissions, finding that it was a fundamental obligation for a respondent to particularise its compensation claim in strata renewal proceedings.

The Court turned to s182(1) of the SSD Act, which sets out the seven considerations in relation to which the Court must be satisfied before giving effect to a strata renewal plan. Importantly, one of those considerations, set out in s182(1)(d), requires the Court to be satisfied as to whether “the proceeds of sale apportioned to each lot is not less than the compensation value of the lot.” That requirement could only be addressed by the Court in the context of a proper understanding of the valuations adopted by the parties to the proceedings, including those of the dissenting lot owners.

More fundamentally and separate to the obligations set out in the SSD Act, the Court found that the principles of procedural fairness required the parties to disclose their positions.

[39] Lest there be any doubt that orders requiring parties to serve and file a Statement of Facts and Contentions and a Position Paper which includes an outline of their respective compensation claim, akin to that which would be required under s 55 of the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act) (obviously limited to those considerations which would be relevant to the dissenting owner’s interests and claim under the Development Act), one only needs to reflect on the “indispensable requirement of justice” embodied in procedural fairness.

The Court also stressed the importance of addressing the particulars of compensation as early in the proceedings as possible to ensure that all parties to the proceedings understood one another’s case. The Court observed that such particulars must include:

  • sufficient particulars of the dissenting owner’s objection, with a focus on compensation value as required under s182(1) and thereafter providing the necessary corresponding particulars required under s55 of the JT Act; and
  • a Statement of Facts and Contentions and Position Paper which must include an outline of a dissenting owner’s compensation claim akin to that required under s55 of the JT Act.

The second respondent was ordered to serve a statement of facts and contentions and position paper.

 

Security for Costs

The second respondent also made an application to the Court for the applicant to pay ‘security for costs’ to cover the second respondent’s anticipated legal costs of the proceedings. It was a novel application in an otherwise novel jurisdiction (being strata renewal proceedings in Class 3 of the Land and Environment Court). The second respondent further contended that it was not in a position to advance its case, and the preparation thereof, until in receipt of the quantum claimed in its security for costs application.

The Court made a number of observations regarding the unique application. Firstly, rule 42.21 of the Uniform Civil Procedure Rules 2005 (UCPR) provides the Court with power to make orders for security for costs, including proceedings conducted in Class 3 of the Court’s jurisdiction. However, the Court observed, it is a prerequisite for the exercise of that power that there be a “plaintiff” and a “defendant”. The Court noted that a dissenting owner in strata renewal proceedings “finds itself a party only by its own volition… applying to the Court to be a party pursuant to s181(6)”. That characterisation of a dissenting owner in strata renewal litigation, involving a positive step on the part of the dissenting owner to be joined to the proceedings (by way of a notice of motion), does not sit comfortably with the meaning of “defendant” under the UCPR.

Secondly, s180(3) of the SSD Act provides that a person who files an objection “need not be party in proceedings before the court relating to the strata renewal plan”, with the Court observing that this further complicated any attempt to equate a dissenting owner with the concept of defendant.

In summary, the Court was not satisfied that a security for costs application under rule 42.21 of the UCPR was available to a dissenting lot owner in strata renewal proceedings. The Court observed that, even if such power was available, the Court would face considerable difficulties in determining with any accuracy, at the commencement of the proceeding, the reasonableness of any claim for anticipated costs (albeit that quantification is a challenge in connection with any security for costs application).

The Court acknowledged that the parties could, by agreement, facilitate the payment into Court of an amount of money representing, on one view, security for costs, but the quantum of that payment could not, on any view, represent a finding by the Court as to the reasonableness of the costs of the proceedings as contemplated by s188 of the SSD Act.

 

Observations

The findings of the judgment make it clear that the Court will expect all parties involved in strata renewal proceedings, including dissenting lot owners, to fully comply with their obligations under the SSD Act and SSD Regulation, a key element of which includes the particularisation of each party’s position on compensation, in a timely and suitably detailed manner. Regarding the question of costs in strata renewal proceedings, the Court traversed the entirely uncontroversial statutory provisions under the SSD Act, requiring the owners corporation to pay the dissenting owner’s costs of the proceedings, with the Court emphasising that such costs must be “reasonable” (arguably sounding a message to dissenting owners). The Court went on to find that, notwithstanding the costs regime in place under the SSD Act to ultimately protect dissenting lot owners, that regime and the nature of the parties in strata renewal proceedings, did not give rise to any power for the Court to make security for costs orders.

The judgment of The Owners – Strata Plan 49574 is one of the first judgments handed down by the NSW Land and Environment Court to address substantive issues surrounding the conduct of strata renewal proceedings in NSW.[1] Given the relative newness of the jurisdiction and the imperfect nature of the SSD Act, we can expect a number of determinations of the Court over the next few years clarifying the operation of the SSD Act. We can also expect a number of amendments to the SSD Act and the SSD Regulation.[2]

 

Project Lawyers

The team at Project Lawyers has extensive experience in both strata law and class 3 proceedings in the Land and Environment Court relating to the compulsory acquisition of properties and businesses, which has uniquely equipped Project Lawyers to provide industry leading advice to owners’ corporations and developers on the intricacies of strata renewal plans and strata renewal proceedings.

 

[1] The NSW Land and Environment Court has handed down two prior judgments in strata renewal proceedings, addressing relatively minor procedural matters: The Owners – Strata Plan 6877 v 2-4 Lachlan Avenue Pty Ltd [2018] NSWLEC 13 and The Owners – Strata Plan 6666 v Kahu Holdings Pty Ltd [2018] NSWLEC 15.

[2] By way of example, the Building and Construction Industry (Security of Payment) Act 1999(NSW) (SOP Act), which commenced on March 2000, resulted in numerous challenges in the NSW Supreme Court and the NSW Court of Appeal involving the interpretation of the SOP Act, many of which resulted in amendments to the SOP Act itself.