Going Gets Harder for Owners’ Corporations

Robert Clow
Australian Financial Review, 19 December 2003

Some recent court decisions raise questions about legal redress for owners’ corporations, reports Robert Clow.

The owners of Regis Towers’ apartments in Sydney received another blow this week in the most high profile strata case in Australia when a long legal struggle culminated in the owners dropping their Supreme Court building defects case against Meriton Apartments. But a second case decided last Friday, which did not involve the largest strata scheme in Australia or a property billionaire, could have far wider ramifications for owners seeking redress from builders.

In The Owners Strata 43551 v Walter Construction case the judge, Master Macready , decided that a body corporate could not initiate a claim against a builder unless the owners unanimously decided to pursue the claim.

The decision echoes that of a case involving St James Apartments in Victoria where it was decided that the owners’ corporation could not sue Multiplex and Renaissance Assets because the owners rather than the body corporate owned the common area.

What both these cases show is that it is increasingly difficult for property owners to pursue builders or developers.

“Be aware that it is a David and Goliath situation,” advises Stephen Goddard, the former executive chairman of the owners’ corporation at Regis Towers, who adds, “the purchaser is not the Goliath.”

Recently, Frank Andreone, managing director of the solicitors firm Andreones, made a similar point when he argued that owners are getting more litigious because they are more aware of their rights, while developers and the insurers who stand behind them are more inclined to fight because there are far larger sums at stake than there used to be with some of today’s massive developments. Andreone has been representing the Regis Towers owners against Meriton.

The owners in that case and Andreones’ other case against Walter Construction may still prevail.

This week’s Regis Towers decision marked the end of the Supreme Court proceedings but the Office of Fair Trading has still to make its own insurance assessment. The Bondi apartment scheme has the right to appeal Master Macready’s decision.

“It really contradicts the rest of the legislation,” says David LePage, another strata solicitor, of the Bondi decision, arguing that if the case is not overturned at a higher level the NSW legislature will have to step in.

But even if owners do win the right to sue, that is only the first step.

Goddard explained that Regis Towers’ Supreme Court and OFT claims were started together two years ago. Regis Towers’ owners hoped to run the two claims simultaneously, partially because they were worried that the roughly $13 million maximum that the Office of Fair Trading is empowered to award them might not cover the full amount of their damages.

These are the two avenues of claim which will be available to most apartment owners seeking building defects compensation after December 31, 2001 when high rise apartments ceased to have builders’ warranty protection.

OFT claims are limited to $20,000 per apartment and there are 653 apartments in the massive Regis Towers strata.

The Supreme Court claim was theoretically unlimited and ought therefore to have been sufficient to claim the $20 million to $30 million the owners at one stage thought the building defects might amount to.

The problem was timing. Goddard explains that the owners started the action two years ago because it was worried that it could be excluded from making the claims by the NSW statute of limitations, if it waited too long after the defects were detected.

Goddard is incensed that the OFT has not moved forward with the Regis Towers claim over the past couple of years, because the Supreme Court action was always intended to top those damages up. “The NSW government has let us down,” he says, adding, “the OFT is grossly under-resourced for the quantum of complaints and value of complaints [it deals with].”

The OFT was also dealing with a timing issue, however. “Any claims processed or paid are settled after any other action simply to avoid any double dipping,” says an OFT spokesman.

From that comment it appears the Regis Towers owners were in a bind from the start.

Regis Towers suffered mightily from being the largest strata scheme in Australia, but if 653 owners cannot successfully pursue a defects claim it raises serious questions about what smaller groups could achieve.