Show Me the Strata Money!
Or, when strata buildings get sued for damages …
Getting sued is no fun. But, when a strata building is sued by one of the strata owners, complex issues about jurisdictions, legal principles, intra-owner obligations, and relations have proved hard to resolve and many remain unsolved.
Introduction
Strata buildings can get sued by others for a range of things.
But, one of the more legally [and internally] controversial damages claims occurs when a strata owner sues the strata building for damage and losses because the strata building hasn’t properly maintained the common property.
You know the scenario:
Strata building roof leaks into an apartment.
Strata building delays fixing the leaks [for good or bad reasons].
The leaks damage private property in the apartment [carpets, cabinets, etc].
The apartment is leased and the tenant leaves.
It takes 6 months before the leaks are fixed and the apartment made habitable.
Strata owner sues for damage for the cost of replacing the damaged profit and for lost rent.
Those kinds of legal claims have been problematic because Courts and Tribunals have struggled to define whether those claims are tortious [arise under the common law], are a common law claim for breach of statutory duty, and/or are statutory claims made under the strata laws.
And, as result, there’s been a related ongoing dispute about whether those kinds of legal claims must be taken in civil Courts [Local, District or Supreme] or they can be made in Tribunals [like NCAT, VCAT, etc].
In fact, in New South Wales, since the strata laws were changed in 2016 to introduce s 106(5) that specifically refers to an owner’s right to claim damages for not maintaining common property, NCAT has made a series of contradictory decisions about whether it could or could not order such damages as follows.
In Shum’s case [August 2017] NCAT awarded damages under s106(5)
In Shih’s case [October 2019] the NCAT Appeal Panel cast doubts over NCAT’s ability of NCAT to award damages under s106(5) indicating it may have the power to do so under s232)
In Pullicin’s case [January 2020] the NCAT Appeal Panel decided NCAT did not have the power to award damages
And, in the first appeal in Vickery’s case [January 2020] the NCAT Appeal Panel confirmed that decision.
This left strata stakeholders pretty unsure about what to do when damages claims arise.
Vickery’s Case in the NSW Court of Appeal
But, those doubts have been clarified in New South Wales after the NSW Court of Appeal’s decision in the final appeal in Vickery’s Case decided in November 2020.
In Vickery’s case, the NSW Court of Appeal decided [by a 2/1 majority] that NCAT has the power to order that a strata building pay damages to a strata owner under s 106(5) of the Strata Schemes Management Act 2015 as it has independent power to do so under s 232 of those laws despite any separate ability of strata owners to claim those damages in civil Courts.
A more detailed review of Vickery’s case is in my Strata Gavel: Vickery’s Case Clarifies Damages Claims at NCAT for those who like a bit more legalism.
It’s an important strata law decision that helps strata owners, strata lawyers, and strata buildings handle strata owners’ damages claims and ends a lot of confusion.
But, it’s only part of the strata damages dilemma when strata buildings are asked to ‘show me the money’ by strata owners [and others].
Broader strata building damages claims and liability issues
When strata buildings are sued by strata owners some fascinating and difficult conceptual issues arise that go well beyond which Court or Tribunal can deal with their claims.
Here are 6 issues that I’ve identified.
Unfortunately, at this stage, I don’t profess to have the answers to all of them.
1. What kind of legal claim is being made by the strata owner?
Vickery’s case had to deal with categorising the legal basis for damages claims but only to the extent that the NSW Court of Appeal was satisfied that it was a dispute about a strata building’s actions that allowed NCAT to make an order to resolve that dispute.
However, the NSW Court of Appeal did not finally determine the true nature of a strata owner’s damages action against a strata building and there are a few possibilities.
A. The damages claim could be simply an action that is expressly permitted under one or more strata laws. In other words, simply a statutory right to claim damages that can be made if the preconditions are satisfied. That was what Vickery’s case approved.
B. But, Courts have also recognised the ability of strata owners and others to claim damages from strata buildings under non statute based claims. For instance, as negligence claims which involve the strata building failing to meet a duty of care that arises from the relationship between the parties including the existence of statutory duties to maintain and repair common property.
This is the kind of claim someone who is injured on the common property makes.
But, this kind of claim is more complex since the formulation of the duty of care is generally not straightforward and, is even more difficult in a strata title building context.
That kind of claim has [unsurprisingly] also had a checkered history in superior Courts and it’s tricky to know exactly whether and when it arises.
C. Finally, Courts have identified a different civil law basis for damages claims against strata buildings mostly described as a breach of statutory duty. That’s different from a claim made expressly under the strata laws [like under s 106(5) as in Vickery’s case] but it relies on the strata laws to create a duty, which if breached, gives rise to a common law claim for consequential damages.
It’s a hybrid kind of legal basis that combines statute and common law.
Again, some Courts have questioned whether that type of legal claim actually exists and others have endorsed it. In Vickery’s case some of the judges were sceptical about its existence.
This matters to strata stakeholders: claimants so they can properly frame their damages claims; and; strata buildings need to know what things will make them more or less liable to damages as they differ according to the relevant legal principles.
At the moment, it’s likely that strata buildings are actively exposed to all three kinds of claims
2. Who can [and should be able to] sue strata buildings?
Whilst Vickery’s case was about a strata owner’s damages claims, what about other claimants?
Should tenants be able to sue for the same kinds of problems? S 106(5) of the NSW strata laws doesn’t extend to tenants and they generally don’t have standing to make NCAT applications. So, even if they can and should be able to make damages claims, they’d need to take civil action relying on one of the other common law principles.
And, there’s also the potential for dual and parallel claims that could arise in commercial strata buildings with:
one claim by a strata owner for loss of rent, and
a second claim by a strata tenant for loss of profits due to business closure or interruptions.
Finally, there are strangers to the building who might get injured, have their property damaged, or suffer money losses when visiting or working in the strata building due to a strata building’s failure to properly maintain common property. Should they be able to sue strata buildings for those losses as these are more remote than those of strata owners and tenants?
These kinds of claims can also introduce new legal principles such as occupiers liability just to make the legal issues a little more difficult.
Defining the limits to what kinds of losses and damages strata buildings are liable for might not be possible in the strata laws, as they typically can’t limit common law rights.
So, we can expect more complex and difficult superior Court cases on these issues in the future.
3. Owner v. Owner claims: how does that work?
An interesting feature of damages claims by strata owners against strata buildings is that they are effectively claiming damages against themselves alleging that they failed to maintain the common property.
That’s because even though the strata corporation is a separate legal entity, it is the legal vehicle by which all the strata owners operate collectively and not a truly independent entity. So, when it acts to do something, it is all the owners who are doing that thing.
I’ve written about this strata ‘duality’ more generally in ‘The Dilemma of One v. Many in Strata Buildings: Part 1’ but I am covering some of the more specific consequences for strata owner damages claims below.
I believe there’s a more fundamental issue at work in strata owner damages claims since they create a circularity between strata owners within strata buildings that makes no sense when taken to its extreme.
It’s a bit like the Droste effect in art [you know the picture of a picture of a picture repeating endlessly].
So, let me illustrate the issues with the following scenarios.
A. When 1 strata owner in a 10 lot strata building sues for damages over a roof leak that seems okay as the other 9 pay.
B. When 3 strata owners in a strata building sue for damages over a roof leak, that might also be okay since the other 7 pay.
C. When 7 strata owners in a strata building sue for damages over a roof leak, that gets a bit trickier as only 3 pay.
D. When all 10 strata owners in a strata building sue for damages over a roof leak, who pays? All or none of them?
In reality, it’s even a bit more complex than that, since each owner actually pays their share of the damages claims according to unit entitlements via the levying mechanisms and the damages each suffers will not be the same.
So, in the extreme scenario where all strata owners sue the strata building, they will actually be adjusting their losses between themselves according to the extent of the damage they suffered and their unit entitlements.
And, now my strata head explodes!
4. What about strata owner actions that contribute to the damage and loss?
It’s often alleged in strata owner damages claims that the strata owner contributed to the loss in some way. The most common allegation is that they did not report the water leak soon enough which affected the strata building’s awareness, delayed the strata building’s action to deal with it, and exacerbated the damage.
But, this kind of contributory action doesn’t fit well into the main areas of legal liability since:
it’s not recognised in s 106(5) although it might be a factor NCAT could consider under s 232,
it probably isn’t available if the damages claim is made as a breach of statutory duty,
it might be contributory negligence if the damages claim is made in negligence, and
it may or may not be apportionable to a strata owner as a joint tortfeasor under newer civil liability laws.
So far there are no significant reported cases on this issue so we don’t have any guidance.
Plus, there are quite a few kinds of strata owner actions that might also be contributing factors as follows.
Not inspecting their strata lot regularly enough to identify actual or potential damage.
Not notifying the strata building of damage in their strata lot.
Delaying notifying the strata building of damage in their strata lot.
Delaying or impeding strata building inspections and/or works to address the relevant common property faults.
Voting against strata building decisions to address the relevant common property faults.
Not paying their share of strata levies necessary to address the relevant common property faults.
It’s likely as strata owner damages claim increase in number and amount, more and more of these issues will be raised as defences for Tribunals and Courts to consider.
5. Strata owner exclusions from damages payments and costs orders
Most strata laws have mechanisms that exclude strata owners from having to contribute to damages orders in their favour, costs orders in their favour, the strata building’s legal and other costs, or, all of them. Sometimes that’s automatic and in other instances needs specific orders.
Either way, they leave those liabilities with the remaining strata owners.
It makes superficial sense that a person who suffers a loss because of another’s legal defaults should be fully compensated and that wouldn’t’ happen in strata buildings without these kinds of exclusion orders.
But, strata buildings are different. So, maybe that’s not appropriate.
After all, the strata owner still has to pay their share of the common property repairs that were the cause of the damages claim.
Plus, aren’t intra strata owner damages like the other compromises between strata owners on where strata money gets spent [like the ground floor owner who pays for the lift they don’t use]. So, aren’t all the strata owners in it together [for better or worse]?
And, what about strata owners who have suffered damage but didn’t make claims either because they were owner-occupiers [so suffered no economic loss] or because they weren’t so litigious. Are they effectively donating reverse damages to the strata building and the other strata owners?
I’ve already described the effect of this when taken to the extreme in item 3.
Perhaps, this needs a conceptual rethink.
6. Strata owner harmony impacts are widespread
I take a fairly pragmatic approach to strata issues that puts compliance, operational smoothness, asset, and money outcomes, living quality, and fairness ahead of ‘softer’ issues like the social life in strata buildings or how strata owners ‘feel’.
But, I’ve seen first-hand the serious impacts on strata owner harmony that occur when a strata owner sues their strata building for a lot of money. Especially, but not only, when they win.
It usually disrupts many other day to day strata activities, creates tensions at meetings, and in face-to-face encounters between, the strata owners become opponents [by the necessity of the litigation], and there’s resentment about paying money.
These sentiments also linger after the end of the case with some strata owners harbouring ‘payback’ dreams or intentions.
And, sometimes one or more of the strata owners decide to sell out and leave the building.
These are significant costs [or losses] to all strata owners that are not counted in the damages claims.
Conclusions
Vickery’s case is a welcome clarification about strata owner damages claims in New South Wales.
But, it only deals with a small part of the problem and many legal and practical issues remain to be properly considered and resolved by regulators, Courts, and strata stakeholders.
I await the next chapter in this strata story.
April 23, 2021
Francesco …