NSW Court of Appeal Invalidates Management Statement Clause

The Court of Appeal ruled that a clause in the management statement was invalid due to inconsistency with the Management Act and lack of authorisation under the Development Act. The clause required owners' corporations to appoint and retain the same agent as the building management appointed as the manager for the entire wharf.

Court of Appeal Supreme Court New South Wales Medium Neutral Citation: [COMPANY] v [NAME] – [NAME] No 61618 [2023] NSWCA 125 Hearing dates: 14 April 2023 Date of orders: 5 June 2023 Decision date: 05 June 2023 Before: Leeming JA at [1] [NAME] at [2] [NAME] at [59] Decision:

1. The application for leave to appeal is granted.

2. The applicant is to file and serve a notice of appeal in the form of the draft notice of appeal within 7 days.

3. The appeal is dismissed with costs. Catchwords: [NAME] title — [NAME] – where three owner corporations of [ADDRESS] development at Woolloomooloo passed resolutions terminating appointment of [NAME] and appointing new one – where [NAME] is different to [NAME] agent appointed for Wharf as a whole by building management [NAME] as a result – where clause of [NAME] management statement ("SMS") required owners' corporations to "appoint and retain" the same [NAME] as the building management [NAME] appoints as [NAME] manager for Wharf as a whole – whether clause of SMS inconsistent with [NAME] Management Act 2015 (NSW), not authorised by [NAME] Development Act 2015 (NSW) or uncertain Legislation Cited: [NAME] Development Act 2015 (NSW) [NAME] Management Act 1996 (NSW) [NAME] Management Act 2015 (NSW) Cases Cited: [NAME] – [NAME] No 74232 v Tezel [2023] NSWCA 35 White v Betalli (2007) 71 NSWLR 381; [2007] NSWCA 243 Category: Principal judgment Parties: [COMPANY] (Applicant) [NAME] (First Respondent) [NAME] ([NAME] Respondent) [NAME] (Third Respondent) [NAME] (Fourth Respondent) [NAME] (Fifth Respondent) [NAME] (Sixth Respondent) [NAME] (Seventh Respondent) [NAME] (Eighth Respondent) [NAME] (Ninth Respondent) [NAME] (Tenth Respondent) [NAME] (Eleventh Respondent) [COMPANY] (Twelfth Respondent) [NAME] (Thirteenth Respondent) [NAME] (Fourteenth Respondent) [COMPANY] (Fifteenth Respondent) [NAME] (Sixteenth Respondent) [COMPANY] (Seventeenth Respondent) [NAME] (Eighteenth Respondent) [COMPANY] (Nineteenth Respondent) [COMPANY] (Twentieth Respondent) Representation: Advocates: J Ireland KC (Solicitor) (Applicant) JS Emmett SC and J Jaffray (First to Eleventh, Thirteenth to Fourteenth, Sixteenth, Eighteenth and Twentieth Respondents)

Solicitors: [redacted] [NAME] (First to Eleventh, Thirteenth to Fourteenth, Sixteenth, Eighteenth and Twentieth Respondents) File Number(s): 2022/318549 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2022] NSWSC 1246 Date of Decision: 16 September 2022 Before: Parker J File Number(s): 2022/176310

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in [NAME] note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] The applicant, [COMPANY], owns lots in two of the seven [NAME] schemes in the [ADDRESS] development at Woolloomooloo, Sydney. It brought proceedings in the Supreme Court in relation to resolutions passed by three [NAME] schemes, by which the [NAME] terminated the appointment of [COMPANY] ("[NAME]") as [NAME] and appointed [COMPANY] ("[NAME]") in its place. It argued that, by doing so, the [NAME] breached cl 8.11 of the [NAME] management statement ("SMS") for the Wharf, which required the [NAME] of each [NAME] lot in the Wharf to appoint and retain the same [NAME] as the building management [NAME] ("[NAME]") appointed as the [NAME] Manager. It also contended that two [NAME] had breached a provision of their by-laws, which was in similar terms to cl 8.11. By way of separate cross-claims, the [NAME] and the Chairperson of one of the [NAME] challenged the validity of cl 8.11 and the equivalent by-laws. As to cl 8.11, invalidity was alleged on the basis that the clause was inconsistent with the [NAME] Management Act 2015 (NSW) ("the Management Act"), beyond the power conferred by the [NAME] Development Act 2015 (NSW) ("the Development Act"), and uncertain. Justice Parker upheld each of those arguments. The applicant sought leave to appeal, which application was heard concurrently with the appeal. It argued that the resolutions breached the obligation in cl 8.11 to "retain" [NAME]. Absent amendment of the SMS, which required a unanimous resolution at a meeting of the [NAME], the obligation in cl 8.11 could not be outflanked by resolutions at the level of individual [NAME]. [ADDRESS] ([NAME] agreeing), granting leave to appeal and dismissing the appeal, held: (1) It is appropriate to grant leave to appeal in light of the general importance of the proper construction of the provisions of the Development Act and the Management Act: at [10]. (2) Clause 8.11 of the SMS is inconsistent with the Management Act and consequently contrary to s 105(5) of the Development Act. The Management Act contemplates that decisions about the appointment of a [NAME] and the powers or duties to be delegated to it are to be made by the [NAME] acting through an [NAME]. The legislative intent is that the [NAME] has primary responsibility for [NAME] the [NAME] scheme and its powers of delegation are to be exercised for the benefit of [NAME]. Inconsistently, cl 8.11 extinguishes the right of the [NAME], in a general meeting, to appoint a [NAME] of its choosing, and to terminate that agent's services if necessary: at [10], [37]-[53]. (3) Clause 8.11 is not authorised by the Development Act. The statutory concept of an SMS as a "management" statement "for the building and its site", and the functions of the [NAME] as "[NAME] the building and its site" do not extend to a complete takeover of management of all the functions which may be delegated by an [NAME] to a [NAME]. Additionally, the list in cl 4 of Sch 4 of the Development Act of the matters for which an SMS may provide does not support an SMS that effectively prescribes the management arrangements for the individual [NAME] schemes which form part of the building: at [10], [54]-[55]. (4) Given the Court's findings in relation to inconsistency and ultra vires it is not necessary to consider whether cl 8.11 is also invalid for uncertainty: at [10], [36], [56].

JUDGMENT 1. LEEMING JA: I agree with [NAME]. 2. [NAME]: This application for leave to appeal concerns the validity of certain resolutions passed by the [NAME] of three of seven [NAME] schemes in the [ADDRESS] development at Woolloomooloo, Sydney. By those resolutions, the [NAME] terminated the appointment of [COMPANY] ("[NAME]") as [NAME] and appointed [COMPANY] ("[NAME]") in its place.

3. By way of background, pursuant to the legislative predecessor of the [NAME] Development Act 2015 (NSW) ("the Development Act"), the Wharf was divided into eight three-dimensional lots, seven of which were further subdivided by way of a registered [NAME] plan and constitute independent [NAME] title schemes. The registered [NAME] management statement for the Wharf ("SMS") established a building management [NAME] ("[NAME]") which, among other things, was responsible for appointing a [NAME] Manager. Clause 8.11 of the SMS required the [NAME] of each [NAME] lot in the Wharf to appoint and retain the same [NAME] as the [NAME] appointed as the [NAME] Manager.

4. Before late May 2022, [NAME] was both the [NAME] and the [NAME] for each of the [NAME] schemes. That position changed as a result of the resolutions passed at extraordinary general meetings of the [NAME] of the [NAME] schemes known as [NAME] and [NAME], in late May and early June 2022.

5. The applicant, [COMPANY], owns one lot in [NAME] and two lots in [NAME]. It brought proceedings in the Supreme Court contending that the [NAME] of those three [NAME] schemes had breached cl 8.11 of the SMS in terminating the appointment of [NAME] as [NAME] and appointing [NAME]. The applicant also contended that by this conduct, [NAME] breached a provision of their respective by-laws, which was in similar terms to cl 8.11.

6. The [NAME] of [NAME] and [NAME] were active respondents on the application for leave, along with certain individual and corporate [NAME]. [NAME] was also a respondent but it did not participate in the appeal.

7. In the court below, the [NAME] and the [NAME] respondent, who was the Chairperson of the [NAME] of [NAME], filed cross-claims. Although there was some variation between them, central to each cross-claim was a challenge to the validity of cl 8.11 of the SMS on the basis that it was inconsistent with the [NAME] Management Act 2015 (NSW) ("the Management Act"), was otherwise beyond the power conferred by the Development Act, or, alternatively, was uncertain. The cross-claimants also challenged the validity of the similarly-worded provision in the by-laws of [NAME].

8. Parker J conducted an expedited hearing limited to the validity of cl 8.11 and the equivalent by-law, on the basis that other issues raised on the cross-claims would only require determination if the applicant succeeded on that anterior issue. His Honour concluded that cl 8.11 of the SMS was uncertain, inconsistent with the provisions of the Management Act, and beyond the scope of the provisions of the Development Act dealing with [NAME] management statements. His Honour also concluded that the impugned by-laws were uncertain and inconsistent with the provisions of the Management Act.

9. Although the draft notice of appeal raised seven proposed grounds of appeal, the applicant's written and oral submissions on the leave application reduced to a core point. The applicant contended that pursuant to s 105(1) of the Development Act, the SMS was binding on each of the [NAME]. [NAME]' appointment breached cl 8.11 of the SMS. Absent amendment of the SMS, which required an unanimous resolution at a meeting of the [NAME], the obligation in cl 8.11 could not be outflanked by resolutions at the level of individual [NAME].

10. The respondents opposed the grant of leave to appeal on the basis of the merits of the application. They contended that the applicant's argument in support of leave did not engage with his Honour's conclusion that cl 8.11 was invalid. In order to succeed on the appeal, the applicant needed to identify error with respect to each of the bases on which his Honour reached that conclusion; and it had not done so.

11. The application for leave to appeal was heard concurrently with the appeal. In light of the general importance of the proper construction of the provisions of the Development Act and the Management Act, I would grant leave to appeal. However, I would dismiss the appeal. The primary judge was correct to conclude that cl 8.11 was contrary to s 105(5) of the Development Act on the basis of inconsistency with provisions of the Management Act, and that it was otherwise not authorised by the Development Act. (It may be that there is an overlap between those two grounds but it is unnecessary to express a view on the point and I have addressed them separately.) It is unnecessary in those circumstances to consider whether the clause was also invalid for uncertainty.

12. The respondents filed a draft Notice of Contention, contending that if the applicant succeeded on any of its appeal grounds the primary judge should have confined the declaratory relief by reference to the inconsistency of the disputed clauses with the legislation and uncertainty, so as not to cut across other relief that was the subject of the various cross-claims. As I would dismiss the appeal, it is unnecessary to consider the Notice of Contention.

Background to the application for leave 1. There was no challenge to the primary judge's summary of the background against which the issues for consideration arose. [ADDRESS] is owned by a government instrumentality, currently Transport for New South Wales: J [6]. As I noted above, the Wharf structures have been divided into eight three-dimensional lots, seven of which were further subdivided by way of a registered [NAME] plan. The eighth lot has not undergone a [NAME] subdivision and was referred to by the primary judge as the "stratum lot": J [3].

2. Section 99(1) of the Development Act provides that the Registrar-General must not register a plan as a [NAME] plan that creates a part [NAME] parcel "unless the Registrar-General also registers a [NAME] management statement for the building and its site" (see also s 10(1)(d)). The term "[NAME] management statement" is defined in s 4 of the Development Act to mean "a [NAME] management statement that complies with section 100". Section 100 provides that a [NAME] management statement must be in the approved form and comply with Sch 4 of the Act.

3. In accordance with ss 10(1) and 99(1) of the Development Act, the SMS for the Wharf was registered with the [NAME] plan that created the seven [NAME] lots and the stratum lot. Clause 2.2 of the SMS provided that the [NAME] for each [NAME] lot was a member of the [NAME] (referred to in the SMS as "the [NAME]"), as was the leaseholder of the stratum lot and the owner of the freehold. The [NAME] was "responsible to manage and operate [ADDRESS] on behalf of the Members according to this management statement": cl 66.

4. Pursuant to cl 4.3 of the SMS, the [NAME] was required to appoint a [NAME] Manager, with cl 8.2(a) broadly describing the [NAME] Manager's role as "manag[ing] [ADDRESS] and provid[ing] administrative, financial management and book keeping services according to this clause". Clause 8.2(b) permitted the [NAME] to delegate its functions and the functions of its officers to the [NAME] Manager (subject to some limitations in cl 8.4 which are not presently relevant). Clause 17(a) of the SMS provided that the appointment (or termination) of the [NAME] Manager must be determined by resolution of the [NAME].

5. Clause 8.11 was central to this application and provided: Obligations of [NAME] 8.11 Members which are [NAME] must, after the expiry of the initial period for their [NAME], appoint and retain under section 28 of the [[NAME] Management Act 1996 (NSW)] the same [NAME] Manager the [NAME] appoints under this clause.

1. Section 28 of the [NAME] Management Act 1996 (NSW) ("1996 Management Act"), to which cl 8.11 referred, was the predecessor of s 52(1) of the Management Act, which deals with the [NAME] delegating functions to the [NAME]. There was a suggestion below that the reference to s 28 may have been a typographical error, and that the intended reference was to s 27, which dealt with appointment of the [NAME]: J [139]. Ultimately it was, and remains, unnecessary to resolve this issue.

2. Clause 18 of the SMS listed the matters for which an unanimous resolution of the [NAME] is required. Those matters included, in paragraph (a), "amending, adding to or repealing parts of this management statement".

3. As I noted above, the by-laws for [NAME] contained an equivalent provision that required the [NAME] to appoint as its [NAME] the [NAME] manager appointed by the [NAME]: J [16]. Although the draft notice of appeal does not take issue with the primary judge's decision on the by-laws, his Honour's reasoning on the by-laws was applied to cl 8.11 in some respects. The primary judge extracted by-law 28 of the [NAME] scheme (which is identical to by-law 24 of the [NAME] OC by-laws) at [100]: Agreement with the [NAME] Manager The [NAME] must … appoint and retain under section 27 of the [1996] Management Act the same [NAME] manager that the Building Management [NAME] appoints under the [NAME] Management Statement.

1. Unlike cl 8.11, both by-laws referred to s 27 of the 1996 Management Act, which was the legislative predecessor of s 49(1) of the 2015 Management Act: J [139].

2. As Parker J observed, for more than twenty years there was no dispute about aligning the management of the Wharf with the management of the seven [NAME] schemes: J [14]. Relevantly to the current dispute, on 12 March 2019 the [NAME] engaged [NAME] as the [NAME], and in December 2021 extended its contract: J [12]. [NAME] was also duly appointed as the [NAME] for each of the seven [NAME] schemes: J [14]-[15]. In late May and early June 2022, the [NAME] of [NAME] and [NAME] passed the impugned resolutions terminating the appointment of [NAME] and appointing [NAME]: J [15].

The decision of the primary judge 1. It was common ground in the proceedings below that the issues of construction which arose (and which now arise on the application for leave to appeal) should be considered by reference to the current legislation: J [35]-[40].

2. The primary judge first addressed the validity of the challenged by-laws and the argument that they were void for uncertainty, which his Honour accepted: J [116]. The [NAME] respondent, who was separately represented below, submitted that it was not sufficient merely to appoint a [NAME] as the [NAME], because ss 49(1) and 52(1) of the Management Act also required specification of the functions to be delegated: J [102]. The challenged by-laws did not identify the specific functions which were to be delegated to the [NAME], nor did they provide for the terms of that appointment, and certain terms (such as remuneration) would have to be the subject of negotiation.

3. The primary judge rejected the applicant's argument that determining the scope of the delegation bound up with the words "appoint and retain" was a "constructional choice" which did not affect the validity of the challenged by-law: J [107]-[112]. His Honour considered that if the applicant's argument was correct, "once an agent has been appointed by the [NAME] as its [NAME] agent, an [[NAME]] has no alternative but to agree to whatever terms the agent may nominate for accepting appointment as the [NAME] for that [[NAME]]": J [115]. This was an "absurd consequence" that showed the unworkability of the by-law, to which no definite meaning could be ascribed: J [116].

4. Although his Honour's conclusion on uncertainty was sufficient to invalidate the challenged by-law, "for the sake of completeness" his Honour also determined the issue of inconsistency: J [117]. His Honour referred to s 49(2) of the Management Act, which provides that the appointment of a [NAME] requires an ordinary resolution of the [NAME]. His Honour observed that the challenged by-law purported "to impose the obligation on the [NAME] to make the appointment, not on the [NAME] to attend a meeting and vote for it": J [124]-[125]. His Honour considered that this gave rise to inconsistency between the terms of the challenged by-law and the provisions of the Management Act, which invalidated the by-law.

5. The primary judge was also "inclined to think that the challenged by-law was ultra vires", on the basis that it went beyond the scope of the power to make by-laws in s 136(1) of the Management Act, for "the management, administration, control, use or enjoyment of the lots or the common property and lots" of the relevant [NAME] scheme: J [119]. However, the point was not addressed in argument and it was unnecessary to make a final decision about it: J [123].

6. In relation to cl 8.11 of the SMS, his Honour adopted the same reasoning on uncertainty as his Honour had applied to the challenged by-laws and concluded that cl 8.11 was uncertain: J [142]. On the question of ultra vires, which was argued in relation to cl 8.11, his Honour observed that the clause required the appointment of a [NAME] as a [NAME] over a multi-[NAME] scheme, and the delegation of all functions which may be delegated by an [NAME] under the Management Act. His Honour considered that this took the clause outside the scope of s 99 of the Development Act, which describes an SMS as a "management" statement for "the building and its site": J [146], [154]. His Honour also had regard in this context to clauses in Sch 4 of the Development Act which made more detailed provision for the content of [NAME] management statements and which, in his Honour's opinion, limited the scope of "management…of the building and its site".

7. Finally, his Honour addressed the question of inconsistency in relation to cl 8.11. His Honour first referred to s 105(5) of the Development Act, which provides: A [NAME] management statement has no effect to the extent that it is inconsistent with: (a) a condition imposed on a planning approval relating to the site of the building to which the statement relates, or (b) an order under Part 12 of the [NAME] Management Act 2015, or (c) any other Act or law.

1. The terms of s 105(5) bear some similarity to the terms of cl 1 of Sch 4 of the Development Act, which relevantly provides that a [NAME] management statement "must not be inconsistent with": (a) the conditions imposed on a planning approval relating to the site of the building to which the statement relates, or (b) this Act or any other Act or law.

1. Senior counsel for the [NAME] respondents submitted in this regard that the effect of cl 8.11 was to transfer the choice of [NAME] from the [NAME] to the [NAME], which infringed the prohibition on the delegation of functions under s 10(2) of the Management Act. Senior counsel also submitted that the clause was inconsistent in effect with s 49 of the Management Act, which placed the decision to appoint a [NAME] and, if so, on what terms, with the [NAME]. Further, the clause derogated from the right of the [NAME] to apply to the Tribunal for review of an appointment pursuant to s 72 of the Management Act. If the Tribunal considered that the appropriate relief in such a case was for termination and removal of the agent, that would "for practical purposes", be nullified by an obligation on the part of the [NAME] to reappoint the agent: J [166]-[167]. More generally, the clause "overrode the right of individual [NAME] to vote at the general meeting as they chose in deciding whether and whom to select as the agent": J [169].

2. In response, the applicant submitted that "there was nothing impermissible about a [NAME] making a contract which obliged the [NAME] to vote in a [NAME] way at a general meeting of the [[NAME]]". It contended that the enforceability of such a contract was "well accepted in the parallel case of company shareholders": J [170].

3. The primary judge concluded that cl 8.11 of the SMS was inconsistent with the Management Act. In rejecting the applicant's argument, his Honour stated at J [172]-[173]: "In my view, the present case differs from the case in which a company shareholder agrees to vote in a [NAME] way in general meeting. It is one thing for a [NAME] to make a contract with a third party or another owner to vote in a [NAME] way. It is quite another to impose upon all of the [NAME], as a result of their status as such, an obligation to do so. If article 8.11 does work in the way for which [NAME] contends, it would make the meeting a charade. The importance of lot-owner democracy is shown by the Parliament's reluctance to interfere with it. The Tribunal's power under s 237 to take the appointment of the [NAME] out of the hands of [NAME] is limited to circumstances where there is no practical alternative if the scheme is to function. Even where the power is exercised, the maximum period of appointment is two years: 2015 Management Act s 237(7). In my view article 8.11 is indeed inconsistent with the 2015 Management Act."

The application for leave to appeal 1. The focus of the draft notice of appeal was cl 8.11 of the SMS. As I noted above, the seven proposed grounds in the draft notice of appeal were refined to a central contention in the applicant's written and oral submissions. The applicant submitted that following the appointment of [NAME] as [NAME], cl 8.11 of the SMS required each of the [NAME] to appoint [NAME] as [NAME]. Further, the language of "appoint and retain" in the clause required each of the [NAME] not to terminate [NAME]' appointment as [NAME] for so long as it remained under contract as [NAME] Manager. In passing the impugned resolutions in late May and early June 2022, the [NAME] of each of [NAME] and [NAME] had breached the obligation to "retain" [NAME].

2. The applicant relied on s 105(1) of the Development Act, which provides that a registered [NAME] management statement for a building "has effect as an agreement under seal" which is binding upon, among others, the [NAME] of a [NAME] scheme for part of the building and an owner of a lot in a [NAME] scheme for part of the building. The SMS could only be amended by an unanimous resolution, which was absent; and in those circumstances the purported resolutions were in defiance of the SMS and invalid.

3. The applicant submitted that as the issue was one of contract, the primary judge's "excursus" into other issues was unnecessary and irrelevant. Save for this submission, the applicant did not engage with the reasoning by which the primary judge concluded that cl 8.11, on which it relied, was invalid. As the respondents submitted, the applicant needed to establish error in relation to each of the three bases on which the primary judge considered cl 8.11 was invalid.

4. The respondents' submissions sought to defend all three bases, but only one need be upheld to maintain the orders of the primary judge. Although his Honour upheld the argument regarding the uncertainty of the terms of cl 8.11 and only addressed the inconsistency and ultra vires arguments for completeness, as the latter two arguments are directed to the scope of the power to make [NAME] management statements it is appropriate to consider them first.

5. His Honour was correct to conclude that cl 8.11 of the SMS was invalid by reason of s 105(5) of the Development Act, because it was inconsistent with the provisions of the Management Act which place the appointment and functions of the [NAME] in the hands of the [NAME], acting through the [NAME].

6. In White v Betalli (2007) 71 NSWLR 381; [2007] NSWCA 243 at [204], in a passage the respondents extracted in their written submissions, Campbell JA described the [NAME] legislation as establishing "a statutory framework within which a type of local community can be created and administered". His Honour described that community as one "where co-ownership, and the physical proximity of spaces that [NAME] are entitled to occupy, create the opportunity for both cooperation and conflict". In [NAME] – [NAME] No 74232 v Tezel [2023] NSWCA 35 at [31], I observed that the objects in s 3 of the Management Act recognise those diametrically opposed possibilities, expressing the dual aim of providing "for the management of [NAME] schemes" and "for the resolution of disputes arising from [NAME] schemes".

7. The principal responsibility for the management of a [NAME] scheme is vested in the [NAME], which is constituted under s 8 of the Management Act: s 9(1). The responsibility imposed on the [NAME] is "for the benefit of [NAME] of lots in the [NAME] scheme", and includes management and control of the use of the common property (s 9(2)(a)), and the administration of the scheme (s 9(2)(b)).

8. Pursuant to s 10(2) of the Management Act, an [NAME] must not delegate any of its functions to a person "unless the delegation is specifically authorised by this Act". Pursuant to s 13(1), certain functions of an [NAME] may be delegated to or conferred only on a [NAME] or a [NAME], including the levying of contributions, the taking out of insurance, the conduct of meetings of the [NAME], and the maintenance of records required to be kept under the Act.

9. Part 4 of the Management Act deals with the appointment and responsibilities of [NAME]. Pursuant to s 49(2), the appointment of a [NAME] must be made "by instrument in writing authorised by a resolution at a general meeting of the [NAME]". Section 50 prescribes the term of a [NAME], restricting it to three years if not terminated earlier by the authority of a resolution at a general meeting of the [NAME]. Section 52 then deals with delegation of the [NAME]'s functions to a [NAME], with s 52(1) providing that, by instrument appointing a [NAME] "or some other instrument", an [NAME] may delegate to the [NAME]: (a) all of its functions, or (b) any one or more of its functions specified in the instrument, or (c) all of its functions except those specified in the instrument.

1. Section 52(4) further provides that an [NAME] "may delegate the functions only if authorised to do so by a resolution at a general meeting", while s 52(5) provides that a resolution is also required to revoke or vary a delegation pursuant to s 52. Section 54 permits the instrument of appointment of a [NAME] to provide for the agent to exercise all or specified functions of the [NAME] or [NAME] of the [NAME].

2. The provisions of the Management Act to which I have referred contemplate that questions of whether there should be a [NAME], who that should be, and which powers or duties should be delegated to it, are to be decided by the [NAME] from time to time. Specifically, ss 49(2), 50(2) and 50(3) of the Management Act provide that the appointment, reappointment or termination of a [NAME] must be effected by way of a resolution at a general meeting of the [NAME]. The delegation of functions must also be so authorised: Management Act, s 51(1). The Management Act also includes provisions by which the [NAME] is to report to the [NAME] on the performance of its functions (see for example ss 55 and 58-61). These requirements collectively reflect the importance to [NAME] of the appointment of a [NAME], of the agent's performance of the functions that an [NAME] delegates to it, and of ensuring the ongoing accountability of the agent to [NAME] through the [NAME].

3. As the respondents submitted, in the face of these provisions it was "entirely unsurprising" that the primary judge found that cl 8.11 the SMS was inconsistent with the Management Act. The provisions to which I have referred evince an intention that it is the [NAME] which has primary responsibility for the management of a [NAME] scheme, with obligations to exercise its functions and powers, including the power of delegation, for the benefit of [NAME]. Clause 8.11 extinguished the right of the [NAME], in general meeting, to appoint a [NAME] of its choosing, and to terminate that agent's services if that was considered necessary.

4. Additionally, as the respondents further submitted, cl 8.11 was inconsistent with the jurisdiction that s 72 of the Management Act confers on the Tribunal to review the performance of [NAME] and building [NAME]. The powers of the Tribunal in this regard include terminating an agreement to appoint a [NAME] in circumstances where the agency agreement is "harsh, oppressive, unconscionable or unreasonable": subss 72(1)(a) and (3)(f). The conferral of this power on the Tribunal is not constrained, inter alia, by the terms of a [NAME] management statement.

5. The inclusion of unreasonableness as a basis on which to terminate an agency agreement may be contrasted with the restriction on the power to make by-laws, which is confined to by-laws which are "harsh, unconscionable or oppressive": s 139(1). The power of the Tribunal to invalidate a by-law is correspondingly confined to by-laws meeting that statutory description: s 150(1).

6. The respondents also drew attention to s 139(7) as having separate significance. It provides that community management statements and precinct management statements (made under other legislation) prevail over by-laws, but makes no reference to [NAME] management statements made under the Development Act. A provision of a similar nature appears in the Development Act, namely, s 155. It is in Part 10 of the Act, which deals with the [NAME] renewal process for freehold [NAME] schemes and is not directly relevant to the issues in this case. What is of note is that s 155(1) provides that "[i]f there is any inconsistency between the [Management Act] and this Part or an order of the court made under this Part, this Part and the order prevail to the extent of the inconsistency". The provision illustrates that the legislature has considered the interaction between the Development Act and the Management Act and has made express provision in [NAME] circumstances as to which is to prevail.

7. Returning to the Management Act and the provisions dealing with dispute resolution, in Part 12 of the Management Act, the "interested persons" who may apply to the Tribunal are defined in ss 226(1) and 226(2); the latter refers to where an application relates to a [NAME] scheme for a part [NAME] parcel and includes, in (a), "a [NAME] for… any other scheme affecting the building". As the respondents submitted, the Management Act contemplates different [NAME] for different schemes within a building.

8. Section 232(1)(c) of the Management Act confers power on the Tribunal to make orders to settle disputes or rectify complaints, including about "an agreement appointing a [NAME] or a building manager". Section 232(4) and (5) apply specifically in relation to part [NAME] parcels, and provide: (4) Disputes involving management of part [NAME] parcels The Tribunal must not make an order relating to a dispute involving the management of a [NAME] scheme for a part [NAME] parcel or the management of the building concerned or its site if— (a) any applicable [NAME] management statement prohibits the determination of disputes by the Tribunal under this Act, or (b) any of the parties to the dispute fail to consent to its determination by the Tribunal. (5) The Tribunal must not make an order relating to a dispute involving a matter to which a [NAME] management statement applies that is inconsistent with the [NAME] management statement.

1. Although s 232(4) and (5) might at first blush be thought to tell against the general tenor of the respondents' contentions in reliance on the provisions of the Management Act, I accept their submission that the references to a [NAME] management statement in s 232(4) and (5) assume a [NAME] management statement that complies with the provisions of the Development Act, including, relevantly, s 105(5)(c). Put another way, the subsections take as their starting point a valid [NAME] management statement.

2. Pursuant to s 237(1) of the Management Act, the Tribunal may appoint a [NAME] to a [NAME] scheme. However, the power of appointment is subject to s 237(3), which provides the Tribunal may make an order only if satisfied that: (a) the management of a [NAME] scheme the subject of an application for an order under this Act or an appeal to the Tribunal is not functioning or is not functioning satisfactorily, or (b) an [NAME] has failed to comply with a requirement imposed on the [NAME] by an order made under this Act, or (c) an [NAME] has failed to perform one or more of its duties, or (d) an [NAME] owes a judgment debt.

1. As the primary judge recognised, s 237 demonstrates the importance of [NAME] democracy under the Management Act, with the Tribunal's power to take the appointment of the [NAME] out of the hands of [NAME] limited to circumstances "where there is no practical alternative if the scheme is to function": J [173]. Further, such an appointment is temporary, and cannot exceed two years: s 237(7).

2. It is apparent from the provisions of the Management Act to which I have referred that the primary judge did not err in concluding that cl 8.11 of the SMS was inconsistent with provisions of the Management Act and, in accordance with s 105(5) of the Development Act, was invalid.

3. His Honour's conclusion that cl 8.11 was invalid on the basis that it was not authorised by the provisions of the Development Act was also correct. As set out above, the term "[NAME] management statement" is defined by reference to s 100 of the Development Act. Section 100 provides that a [NAME] management statement must be in the approved form and comply with Sch 4 of the Act. Clause 2(1) of Sch 4 lists the matters for which a [NAME] management statement must provide, including, in (a), the establishment and composition of a building management [NAME] and its [NAME], the functions of the [NAME] and its [NAME] "in [NAME] the building and its site", and in (c), "the way in which the statement may be amended". Clause 4, which is headed "Other Matters", relevantly provides as follows: (1) A [NAME] management statement may include provisions regulating, or providing for the regulation of, any one or more of the following— (a) the location, control, management, use and maintenance of part of the building or its site that is a means of access, (b) the storage and collection of garbage on and from the various parts of the building, (c) meetings of the building management [NAME], (d) the keeping of records of proceedings of the [NAME]. (2) A [NAME] management statement may include particulars relating to any one or more of the following: (a) safety and security measures, (b) the appointment of a [NAME] agent, (c) the control of unacceptable noise levels, (d) prohibiting or regulating trading activities, (e) service contracts, (f) an architectural code to preserve the appearance of the building. (3) This clause does not limit the matters that may be included in a [NAME] management statement. … 1. As the primary judge observed at [154], the description in s 99 of an SMS as a "management" statement "for the building and its site" does not, "in the natural meaning of that phrase, extend to the complete takeover of management of all of the function[s] which may be delegated by an [[NAME]] to a [NAME]" under the Management Act. I note that the description in cl 2(1)(b) of Sch 4 of the functions of the [NAME] as "[NAME] the building and its site" uses similar language to s 99. Additionally, and significantly, the content of cll 4(1) and 4(2), even though expressed to be without limitation (in cl 4(3)), does not support a [NAME] management statement effectively prescribing the management arrangements for individual [NAME] schemes forming part of the building.

2. In circumstances where cl 8.11 of the SMS is invalid as a matter of power, it is unnecessary to determine whether the clause is also invalid on the basis of uncertainty.

Conclusion 1. I propose the following orders: 1. The application for leave to appeal is granted. 2. The applicant is to file and serve a notice of appeal in the form of the draft notice of appeal within 7 days. 3. The appeal is dismissed with costs. 1. [NAME]: I agree with [NAME].

********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 June 2023