Casuarina Rec Club Pty Ltd v The Owners Strata Plan 77971 [2011] NSWCA 159

What the court decided

The respondent was the owners corporation of the Santai Resort, a holiday resort strata scheme [8]. The appellant operated a recreation centre about 15 minutes' walk from the resort [10]. An agreement purportedly made between the parties on 22 March 2007, which Young JA called the Facilities Agreement, purported to give lot owners and their invitees and guests rights to use the appellant's facilities for an annual contribution payable by the owners corporation [7], [11]. The owners corporation relied on by-laws 22.1 and 27.1(4), made under the Strata Schemes Management Act 1996 (NSW), which this note calls the 1996 Act [12]–[13].

The primary judge, McDougall J, held the by-laws relied on invalid and declined the declaration of validity the appellant sought [17]. On by-law 22.1, he held that the power to make by-laws did not extend to a by-law authorising an agreement with the owner of nearby but not adjacent facilities, at least where the agreement had nothing to do with the lots or the common property, or the rights of lot owners as between themselves or with the owners corporation [68]. He read by-law 27.1(4) down to agreements with the necessary connection to the lots, the common property or the owners corporation's functions [68].

Macfarlan JA agreed with Young JA and added observations of his own [1]. Handley AJA agreed with Macfarlan JA and, subject to that, with Young JA, so there was no dissent [97].

Young JA held that the by-law power, found principally in section 43, is to be generously construed, with no ejusdem generis limit on section 43(2) [22], [27]. He reasoned that section 111, on agreements with owners or occupiers for amenities, showed that providing amenities to owners and occupiers is within the owners corporation's functions [44].

The by-laws here were original by-laws, and Young JA distinguished an original by-law from an amended one, adopting the view that buyers take with notice of the original by-laws [49]–[51]. He left undisturbed the primary judge's finding that the centre was not within a guideline such as "very close nearby", and treated closeness as a peripheral matter [85].

Young JA accepted the appellant's proposition that the power to make by-laws is to be liberally interpreted, subject to the doctrine of fraud on the power and to the proviso that an unreasonable by-law is invalid [89]. He added that "a very strong case must be made out" to have an original by-law declared invalid, because people buy on the basis of the original by-laws [90]. His Honour concluded that the by-laws were sufficiently connected with the functions of the owners corporation and were not unreasonable, so the primary judge had taken too narrow a view of the power to make by-laws in a resort strata scheme [91]–[92].

Macfarlan JA said that a valid by-law requires a nexus between its subject matter and the use or occupation of the property [2]. Amenities must be capable of enhancing the occupiers' use or enjoyment of the premises [2]. The question is one of fact and degree, and a by-law for occupiers of New South Wales premises to use tennis courts in London would be unlikely to have the connection required [3]. Applying that test, his Honour found that the centre, though not adjacent, was close enough to infer that access to it could enhance the occupiers' enjoyment of their units [5].

Young JA and Macfarlan JA therefore treated closeness differently: for Young JA the vital question was whether the by-laws were within power [86], while Macfarlan JA found the centre close enough [5]. Handley AJA agreed with Macfarlan JA and only subject to that with Young JA, so Macfarlan JA's finding on closeness had the support of two of the three judges [5], [97]. Young JA also treated the nexus as a question of fact, looked at liberally [80].

The court made the orders Young JA proposed, allowing the appeal and declaring that by-laws 22.1 and 27.1(4) were valid under the 1996 Act and authorised the Facilities Agreement [96]. It varied order 7 of McDougall J, ordered the owners corporation to pay the appeal costs and granted it a Suitors Fund Act 1951 (NSW) certificate if eligible [96].

Why it matters

In my view, on the reasons of Macfarlan JA, with whom Handley AJA agreed, the decision allows an original by-law of a resort scheme to authorise off-site amenities for owners and occupiers, where the amenity is close enough to be capable of enhancing their use or enjoyment of the premises [2], [5]. That is a matter of fact and degree with an outer limit [3], and the by-law must still be connected with the owners corporation's functions and not be unreasonable or a fraud on the power [89], [91]. A challenge to an original by-law also needs "a very strong case" [90]. The point was a side issue at trial, on evidence sparse in some respects [16]. Macfarlan JA declined to comment on the breadth of the power under section 47 to amend by-laws [6]. Young JA said that different considerations arise for an amended by-law and that the original power may well be more extensive [50], [54].

The case was decided on the 1996 Act. Readers in New South Wales should check the legislation now in force. In Victoria, the Owners Corporations Act 2006 (Vic) must be read on its own terms, and this decision does not say what it provides.

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.