THE DOOR REOPENS: LOT OWNER CLAIMS AGAINST OWNERS CORPORATIONS

Legal Directions

McElwaine v The Owners – Strata Plan 75975 [2017] NSWCA 239

The NSW Court of Appeal has resurrected the potential for strata lot owners to recover in negligence and nuisance their losses suffered as a result of the failure of their owners corporations to maintain common property.

While the inability of lot owners to recover their losses has been somewhat addressed by the recent introduction of s106 of the Strata Schemes Management Act 2015 (NSW), this recent authority may extend rights beyond those provided by s106 and thereby render its introduction somewhat otiose.

Background

In 2013, the NSW Court of Appeal resolved in The Owners – Strata Plan 50276 v Thoo [2013] NSWCA 270 a long-running controversy as to whether a lot owner could recover damages for losses suffered as a result of an owners corporation’s breach of its statutory duty under s62, Strata Schemes Management Act 1996 (NSW)
(SSMA 1996) to maintain and repair the condition of common property. The Court of Appeal held that a lot owner did not have a private cause of action against its owners corporation to recover damages for a breach of the statutory duty under s62, but rather could only avail themselves of the statutory enforcement regime under
Chapter 5, SSMA 1996 to compel certain works to be undertaken pursuant to that statutory duty.

Thoo did not however determine, or comment on, whether a lot owner might have a separate cause of action against an owners corporation either in nuisance (by permitting or adopting an unlawful interference with quiet enjoyment at the lot) or in negligence (for breach of a common law duty of care which may be owed by the owners corporation to the lot owner). No authorities expressly recognise the existence of these causes of action, although there are potentially analogous circumstances which might support the existence of such actions.

However, in late 2016, two judgments of the Supreme Court of NSW determined that an owners corporation did not owe an independent common law duty of care to a lot owner to maintain and repair the condition of the common property and that a lot owner could not have an action in nuisance against an owners corporation. One of those judgments, McElwaine v The Owners – Strata Plan No. 75975 [2016] NSWCA 1589, has now been appealed with the NSW Court of Appeal determining that
SSMA 1996 does not exclude the potential for a common law action in negligence or nuisance.

McElwaine

Mr McElwaine was a lot owner in a strata plan and sustained damage to his unit from water penetration through the common property. His losses included diminution in the value of his unit, loss of rent, and expenses incurred in obtaining reports. He alleged that the owners corporation was liable to him under the common law tort of nuisance, as the water ingress constituted unreasonable interference with his use of the unit and that it should have taken reasonable steps to prevent that interference (by undertaking repairs to the common property).

At first instance, Acting Justice Young observed both the owners corporation’s obligation under s62 SSMA 1996, and the regimes provided under SSMA 1996 for both funding of works by the owners corporation and as to disputes about the duties and obligations of the owners corporation. In his view, permitting common law claims by lot owners against an owners corporation would ‘throw out the balance’ of the scheme for undertaking and funding repairs and maintenance of the common property. His Honour therefore found that Mr McElwaine had no remedy against the owners corporation in nuisance.

On appeal, the Court (Basten JA, White JA and Sackville AJA) unanimously held that the enforcement regime of Chapter 5, SSMA 1996 did not exclude the potential for an action in nuisance or negligence.

In particular, White JA observed that s226(1), SSMA 1996 provided that ‘Nothing in this Act derogates from any rights or remedies that an owner … of a lot or an owners corporation … may have in relation to any lot or the common property apart from this Act’. His Honour considered that s226(1) preserved any existing common law rights that a lot owner may have against the owners corporation and SSMA 1996 did not otherwise indicate any legislative intent to exclude those common law rights.

Further, the absence of a statutory action to recover damages for breach of s62, SSMA 1996 (per Thoo) remained consistent with s226, SSMA 1996 preserving a lot owner’s rights otherwise to recover damages under the common law (that is, in negligence or nuisance).

Finally, White JA did not agree that permitting lot owners to pursue claims against owners corporations would ‘throw out of balance’ the scheme for funding repairs and maintenance to common property, given that an owners corporation could still owe a duty of care to third parties (who were not lot owners) and had the benefit of insurance coverage for any liabilities arising from breach of those duties.

The Court therefore held that SSMA 1996 did not exclude the potential for Mr McElwaine to have a remedy against the owners corporation in nuisance or negligence and therefore remitted his claim for determination.

The Court was not expressly required to determine whether an action in nuisance or negligence existed, but rather only whether SSMA 1996 and Thoo excluded the existence of such actions. The Court was not however troubled with the concept that a duty of care could be owed and commented that other authorities supported the potential for an action in nuisance or negligence (including Ridis v Strata Plan 10308 [2005] NSWCA 246 and Strata Plan 21702 v Krimbogiannis [2014] NSWCA 411).

The Court’s comments suggesting the existence of an action in nuisance or negligence is somewhat contrary to the other late 2016 Supreme Court judgment of Justice Darke (James v The Owners Strata Plan No. 11478 [2016] NSWCA 1558) in which His Honour could not identify any legal authorities supporting the existence of a common law duty of care and did not consider there were sufficient ‘salient features’ to recognise such a duty of care as it would ‘cut across the statutory regime to an intolerable extent’.

Comment

The Court of Appeal’s judgment in McElwaine will no doubt be construed as recognising the existence of an action in nuisance or negligence for a lot owner against an owners corporation, however the judgment in fact only supports that such actions (if they exist) were not displaced by SSMA 1996 or Thoo. As observed by Darke J in James, there is still a need for the courts to find and recognise the existence of such a duty of care.

However, if courts do recognise the existence of actions in nuisance/negligence, such actions would appear to overcome the limitations that exist under s106 of the Strata Schemes Management Act 2015 (NSW) which permit the recovery of losses by lot owners in certain circumstances (unless the courts are to determine that the statutory action now available under s106 displaces common law rights – which were thought not to exist).

Authored by Andrew Toogood, Partner and Stephanie Lee, Associate, Sydney


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