This article will focus on the time limitation on claims for economic loss pursuant to section 106 of the Strata Schemes Management Act 2015 (NSW) as in Tezel v The Owners – Strata Plan No 74232 [2022] NSWCATAP 149 (10 May 2022).
Section 106 of the Strata Schemes Management Act 2015 (NSW) (the SSMA)
Section 106 is in Part 6 Division 1 – Common Property of the SSMA. Subsections 1 and 2 impose certain duties on the owners corporation:
(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 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.
Subsection 5 of s 106 provides a remedy for a lot owner when any duty under subsections 1 and 2 has been breached by the owners corporation as long as there is a causal link between the owners corporation’s breach and the lot owner’s loss, and the loss passes the reasonably foreseeable test.
(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.
Subsection 6 of s 106 provides a limitation period for the lot owner’s cause of action.
(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.
The issue in the economic loss claim
In case of owners corporation’s breach of its statutory duty as imposed by s 106(1), the applicant suffers damage as a result, namely loss of rent. Whether the applicant is time barred when started proceedings, on 6 November 2020, claiming damages in term of rent loss, incurred since 2016.
Chronology of the case[i]
(A for the ‘applicant’; R for the ‘respondent’)
2012 – A first noticed water penetrating her lot when it rained heavily.
2013 – R became aware of water penetration and damage to A’s lot.
Jan 14 – A obtained a building report which was provided to R.
2014 – A ceased residing in her lot full-time.
2016 – A ceased residing in her lot and decided to rent it.
03 Jun 19 – R obtained report which indicated required repairs.
20 Apr 20 – R obtained quote for repairs from XL Build Pty Ltd (XLB).
05 May 20 – R obtained a revised quote for repair work.
15 May 20 – A’s solicitor wrote to R regarding damage and repairs.
Jul 20 – R engaged XLB for Part A but not Part B of the repair work (Part A related to common property, Part B to lot property).
12 Aug 20 – A engaged Pure Protect Pty Ltd to investigate mould in Lot 10.
04 Aug 20 – Unsuccessful attempt at resolution by mediation.
Sep 20 – R engaged XLB to repair windows in Lot 10.
Oct-Dec 20 – Repair work carried out on common property adjacent to Lot 10.
06 Nov 20 – These proceedings were commenced by A.
09 Feb 21 – Points of claim, which included a claim for loss of rent, were filed
At first instance
At first instance[ii], the Tribunal held, at [27], that the limitation period for a lot owner would be expressed in terms of the loss rather than the breach.
“The limitation clock” only starts to run under section 106(6) of the SSMA when the lot owner first becomes aware of the loss rather than the more stringent alternative of the breach.
- The applicant first became aware of the rent loss in 2016. Hence, the applicant may not recover loss for a period of more than two years prior to commencing proceedings.
The appeal
On appeal[iii], the Appeal Panel (the Panel), consisted of the Hon. D A Cowdroy, AO QC, Principal Member, and G K Burton SC, Senior Member, adopted the reasoning in State of Western Australia v Wardley Australia Ltd[iv] that there is a distinction between the operation of a statute of limitations which prevents the enforcement of rights of action independently existing, and a time limitation imposing a condition which is the essence of a new right.
The Appeal Panel held that:
- The use of the term “reasonably foreseeable loss” is to be construed as a loss which is reasonably foreseeable as a result of the breach by the owners corporation of its obligation, which would necessarily include losses during a defined and ordered period for remediation if the claim was combined with a work order, at [32].
- The elements constituting (and required to be satisfied in respect of) the statutory right to compensation from breach of duty are, as the Full Court in Wardley found, distinct from the time limitation in s 106(6). The time limitation in s 106(6) must operate on a cause of action which has crystallised in its elements under s 106(5), at [35].
- That crystallised cause of action may not be bought more than two years after the owner “first becomes aware of the loss”. The awareness is of “the loss” that is one element of the crystallised cause of action, at [36].
- “The loss” may be economic loss, rather than loss to a specific physical asset. Where a loss is economic loss, it has been held that the loss is not sustained until it is detected, at [37].
- With actual economic loss as a result of this ongoing breach of strict statutory obligation, the crystallisation of the complete actual loss occurs and the cause of action is constituted only when the ongoing breach ceases. However, at any point there is a breach of the ongoing duty for which the loss arising from that breach is distinct so as to constitute the two elements required to bring an action under the SSMA s 106(5). That action, by reason of the statutory pre-requisites for its being brought, is necessarily distinct from any other claim that could be brought under s 106(5)as constituted by factual elements of breach of duty and loss, at [41].
- SSMA s 106(6)operates on the completely-constituted claim under s 106(5), which means that the owner’s first awareness must be of “the loss” that constitutes an element of that claim, not of any other loss even if it is of the same character or is of a continuing nature with the relevant loss for the claim, at [42].
- The foregoing analysis recognises that the limitation in SSMA s 106(6)is a time limitation on the bringing of a claim for relief that is crystallised. It is not a limitation on the measure of loss that is but one element in the claim as specified in s 106(5). If it were otherwise, then the time limit itself would be an ingredient within the right of claim in s 106(5). A limitation on the measure of loss is the effect of the alternative characterisation endorsed by the Tribunal in the primary decision under review, at [43].
Significance
The decision suggests that if a lot owner suffers damage as a result of owners corporation’s breach of statutory duty in s 106 of the Act, and the damages are economic loss. The economic loss has continuous and accumulative character and the breach is ongoing. The lot owner may claim damages in the form of economic loss from the initial owners corporation’s breach till when the ongoing breach is rectified as long as the lot owner starts proceedings within two years of the rectification of the breach. It clarifies some uncertainties surrounding the time limitation imposed by s 106(6).
If you want to know more about how to claim damages as a result of the owners corporation’s breach of its s 106 statutory duties in the Strata Schemes Management Act 2015 (NSW), Foulsham and Geddes solicitors can help answer your questions.
Endnote
[i] Tezel v The Owners – Strata Plan No 74232 [2021] NSWCATCD 132 (8 November 2021) [11].
[ii] Ibid.
[iii] Tezel v The Owners – Strata Plan No 74232 [2022] NSWCATAP 149 (10 May 2022).
[iv] State of Western Australia v Wardley Australia Ltd [1991] FCAFC 314; (1991) 30 FCR 245.