Uncertainty surrounding jurisdiction of NCAT in relation to claims for damages under s106(5) of the Strata Schemes Management Act 2015 (NSW)

22/01/2020

Recently we acted for a client, who owned a strata unit.

The strata unit was located on the ground floor of a multi-story building and was leased to a commercial tenant.

Early in the tenancy, water penetration occurred, due to the failure of the Owners Corporation to comply with its duty to maintain and repair the common property in the Strata Scheme.

Such a duty arises by reason of section 106 of the Strata Schemes Management Act 2015 (NSW) (SSM Act 2015) which relevantly provides:

Duty of Owners Corporation to maintain and repair property

(1)      An Owners Corporation for a strata scheme must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the Owners Corporation.

(2)      An Owners Corporation must renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the Owners Corporation.

(5)      An Owner of a lot in a strata scheme may recover from the Owners Corporation, as damages for breach of statutory duty, any reasonably foreseeable loss suffered by the Owner as a result of a contravention of this section by the Owners Corporation.

(6)      An Owner may not bring an action under this section for breach of a statutory duty more than 2 years after the Owner first becomes aware of the loss.

(8)      This section does not affect any duty or right of the Owners Corporation under any other law.

Despite our client notifying the Strata Managing Agent of the problem, the water penetration continued.

Ultimately, the tenant terminated the lease on the grounds of the failure of the Owner to provide quiet enjoyment of the premises.  As the cause of the water penetration was affectation of the common property, it was not within the power of our client to remedy the problem, which exposed our client to termination of the tenancy by its tenant.

Our client has been unable to let the strata unit since and has been unable to sell the strata unit either. The rent lost from its former tenant alone (being from the date of termination of the lease by the tenant until the date it was due to expire) is only marginally below the jurisdictional limit of the Local Court, which is $100,000.

Following our consideration of the issues and advice, our client instructed us to seek two remedies against the Owners Corporation:

• An order to compel the Owners Corporation to comply with its duty under the legislation (Section 106 of the SSM Act 2015) so as to stop the water penetration problem.
• Damages against the Owners Corporation for our client’s reasonably foreseeable loss suffered as a result of the breach of duty by the Owners Corporation.

Prior to the end of October 2019, such applications seeking both of these remedies would have been commenced in NCAT.

However, in a decision [1] of an Appeal Panel of NCAT in October 2019, it was held that, while the NCAT has undoubted jurisdiction in relation to the first claim, it does not have jurisdiction for the damages claim.

Our client was then confronted with having to determine whether to commence two separate actions - one in NCAT, and another in a Court - or whether there was a Court that was the appropriate jurisdiction in which to make both claims for relief.

There is no doubt that the Supreme Court of New South Wales would have jurisdiction to deal both actions.

However, in circumstances where the damages claim was likely to fall within the jurisdiction of the District Court, the question arose as to whether the District Court would be a suitable forum for both claims or at least the damages claim.

The Local Court has jurisdiction for damages claims up to $100,000, and the District Court has jurisdiction for damages claim up to $750,000.

Historically, the District Court has very limited jurisdiction to grant the appropriate order to compel the Owners Corporation to maintain the common property, and the Local Court has no jurisdiction to obtain an order to compel the Owners Corporation to perform its statutory duty under section 106.

However the District Court has limited jurisdiction to order an injunction as long as it is ancillary to another claim within its jurisdiction, which our client's claim for damages clearly is.

Accordingly, proceedings were commenced by our client in the District Court.

We note that there is some prospect that an appeal to the Supreme Court at some future time will resolve finally the issue as to whether in fact the Tribunal does have jurisdiction for damages claims as well, as it was thought to have prior to the decision referred to above in October 2019.

If the Application is commenced in NCAT for damages under Section 106 of the SSM Act 2015, there is a real risk that at the hearing (at first instance or an appeal), it will be held that the proceedings will fail.  This would most probably include an order that the lot Owner pay the Owners Corporation’s cost of the hearing.

Watson & Watson have extensive experience in Strata law and are happy to advise on all aspects relating to Strata Title (and related building) issues.  Please call Richard Watson Senior Strata Solicitor or Shereen Da Gloria his Personal Assistant to discuss your concerns and seek timely advice.