Published: 06 January 2008.

By Small Myers Hughes Lawyers

Have we finally seen the end of the “delegation” argument in New South Wales?

For those long term readers of Resort News, you will recall that I have previously written numerous articles about cases in New South Wales where management rights agreements have been challenged on the basis of the “delegation” argument.

The first case involved a building in Castlereagh Street, Sydney called “Victoria Tower” (the Broadsand case). This involved a management agreement that was entered into under the old Strata Titles Act. A judge of the Supreme Court declared the agreement to be void on the basis that:

(a) the agreement purported to delegate certain powers and functions of the Owners Corporation to the onsite manager, and

(b) the Strata Titles Act provided that an Owners Corporation could only delegate its powers and functions to a licensed strata managing agent, and

(c) because the onsite manager did not hold a strata managing agent’s licence, the agreement was void.

Obviously, this decision caused considerable anxiety to other caretaker managers in New South Wales.

This court case was shortly followed up by a further decision of a Supreme Court judge in the matter of “Regis Towers”, another large building in the Sydney CBD. The management agreement in this case was entered into after the Strata Schemes Management Act replaced the Strata Titles Act in 1996. The same “delegation” issue was argued in this case but with a different result. The trial judge effectively held that similar clauses to those in the Victoria Tower case did not constitute a delegation in the Regis Towers case. This decision was later upheld by the New South Wales Court of Appeal.

An example of what I mean by way of the “delegation” argument is as follows:-

If you have a management/caretaking agreement that says that the Owners Corporation delegates to the manager the power to enforce the by-laws of the Owners Corporation and where applicable, evict offending occupiers, then this was held to be a delegation based on the Victoria Tower decision. However, if the wording in the caretaker/management contract stated that the caretaker must report to the Owners Corporation executive committee on breaches of the by-laws and, if directed by the Owners Corporation executive committee, deliver breach notices to the offending occupier, then this is not a delegation.

You can see that the argument is very technical in its nature and application.

The judge in the Regis Towers decision (in my opinion) applied a much greater degree of common sense than the judge in the Victoria Tower case. Effectively, he recognized that for a Caretaker/Manager to properly carry out his duties in assisting an Owners Corporation, there had to be some form of delegation and this was acceptable, as long as it was not substantial.

On 10 February 2003, the New South Wales government introduced the caretaker changes to the Strata Schemes Management Act. These changes effectively recognised the role of the caretaker manager in assisting with the operation of strata schemes and differentiated the caretaker’s role from that of a strata manager (carrying out the secretarial work on behalf of the Owners Corporation). It was thought (certainly by the writer) that this legislation, coupled with the decision of Court in Regis Towers, effectively and finally killed off the delegation argument in New South Wales. However, I was proved wrong!

Recently, an Owners Corporation in Kent Street, Sydney went back to the Supreme Court and again sought to argue the delegation issue in an endeavour to terminate the caretaker/manager’s long term agreement.

The caretaker manager was forced to defend its position in the New South Wales Supreme Court and the caretaker won the case (and might I say so, won the case comprehensively!).

I think that it would be a very brave strata lawyer who would now advise an Owners Corporation to again take a delegation argument to the Supreme Court to endeavour to terminate a caretaker manager’s agreement. The Owners Corporation in this case not only has to pay its own legal costs but also the significant legal costs of the caretaker manager. I estimate that these fees will be in the range of $150k to $200k.

Leave a comment

619,929 pages have been viewed from this website for February 2012. Please click here if you'd like to reach our audience..