The Owners Strata Plan 56443 v Regis Towers Real Estate Pty Ltd [2003] NSWCA 274

What the court decided

The owners corporation engaged Regis Towers Real Estate Pty Ltd as caretaker of the Regis complex in Sydney by a deed dated 6 August 1999 [13]. That deed was later varied by a deed of 17 October 2000 [2]. The argument focused on the original deed, and it appeared to be common ground that if it was not in breach the amended deed was not either [12]. The owners corporation contended that the deed was void under section 13(3) of the Strata Schemes Management Act 1996 (NSW) (the 1996 Act), which prohibits an owners corporation from delegating any of its functions unless the 1996 Act specifically authorises the delegation [4]. Macready AJ, the primary judge, answered a separate question by holding that the deed was not void or unenforceable [2]–[3].

Hodgson JA gave the only reasons, and Handley JA and McColl JA each agreed with him, so there was no dissent [1], [38]. The court granted leave at the end of the argument and reserved its decision on the appeal [21].

The primary judge had treated it as a material consideration that the deed gave the caretaker only some of the powers needed to maintain and repair the common property, the specific power to delegate in section 28 not appearing to extend to part of a function [19]. The owners corporation submitted that he had erred in holding that there would be no breach unless the whole of a function was delegated [22]. Consistently with the owners corporation's submissions, Hodgson JA said that it would not be a correct approach to find delegation only if the whole of an identified function was entrusted to another party [27].

His Honour held that what section 13(3) prohibits is engaging another person to undertake "significant decision-making and control" in relation to the owners corporation's areas of responsibility [29]. Accepting the caretaker's submission, his Honour also held that section 13(1) allows an owners corporation to engage contractors to carry out tasks contributing to its functions [28]. The test of significant decision-making and control differs from the owners corporation's first ground of appeal, that any delegation of a power or function was enough whatever its substance or significance [20], [29], [36].

Applying the test, his Honour found that the deed required the performance of duties rather than giving a general authority to make decisions or exercise control [30]. The deed also required compliance with the owners corporation's reasonable directions, and clauses 10, 15, 17 and 26.3 tended to confirm its control [30]. Authority to pledge the owners corporation's credit up to $1,500.00 per month could, in a building the court was told had some hundreds of units, fairly be regarded as a petty cash float [31].

Hodgson JA identified two matters that could suggest delegation [32]. The first, the duty dealing with enforcement of by-laws, did not give the caretaker authority to determine for itself that a notice of breach should be served, because his Honour read it subject to the condition in section 45 [33]. The second was a group of duties allowing the caretaker to make contracts binding the owners corporation, apparently on its own judgment [34]. That authority was given in several limited areas, and the owners corporation could lay down guidelines for those contracts [34]. What his Honour called "the crucial question" was whether those provisions gave over sufficient decision-making and control in relation to the maintenance and repair functions to amount to a delegation of some of them [35].

On balance, his Honour held that the contracting provisions did not give over that degree of decision-making and control [36]. Most of the matters were relatively minor and many would recur, so directions could be given at least for the future [36]. Some, such as repainting the pool, could involve significant expense, but the areas in which the caretaker could act were limited [36]. The deed was therefore not in breach of section 13(3) [36].

The court dismissed the appeal and ordered the owners corporation to pay the caretaker's costs of the application for leave and the appeal; it made no order as to the costs of Meriton Apartments Pty Ltd, which had sought to intervene [26], [37].

Why it matters

The test asks whether significant decision-making and control has been handed over, not whether the whole of a function has passed [27], [29], [36]. In my view, the reasoning directs attention, in a caretaker agreement, to any provision that would leave the caretaker to decide for itself whether to serve by-law notices, which here was answered by reading the deed subject to the statutory condition [33]. It also directs attention to any authority to contract on the caretaker's own judgment, where the question is how limited, minor and open to direction those areas are [34], [36]. The result turned on this deed, including its limited areas of contracting authority and modest credit limit [31], [34], [36]. It does not establish that every caretaker agreement avoids the prohibition in section 13(3).

The decision construed and applied section 13(3) of the 1996 Act [4]. It applied that Act as it stood before the Strata Schemes Management Amendment Act 2002 (NSW), on which the caretaker sought to rely because it was expressed to apply to certain agreements in force immediately before its commencement [25]. Hodgson JA said that reliance would beg the question, because a deed already void before the amendment would not be "in force" [25]. Readers in New South Wales should check the legislation now in force. The Owners Corporations Act 2006 (Vic) must be read on its own terms, and this decision does not say what it requires.

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.