If a tree falls in the forest and nobody hears it, does it really make a sound?

And if an owners corporation sacks its manager without strictly complying with the Owners Corporation Act, has that manager really been terminated? And until that question is resolved is the spurned manager required to hand over the OC’s records and funds to some new manager that the OC claims to have installed as the first manager’s place?

In Jenkins & Ors v OCVM Commercial Pty Ltd [2019] VCAT 1078 the tribunal did not answer the tree question but it did serve up some unwelcome news (and an adverse costs order) to a jilted owners corporation manager in answer to both of the OC questions.

An OC manager had been appointed by a subdivision’s  developer. The manager’s budget was approved at $170,000. The development was then mainly sold off to private lot owners. The new private lot owners quickly became disgruntled with the cost and quality of the OC management services they were receiving and found an alternative manager at almost half the originally-budgeted cost. They voted overwhelmingly to change managers. But the incumbent manager refused to hand over the OC’s records and funds to the new kids.

Was this explained by truculence or a fair reading of the Owners Corporation Act?

At last month’s VCAT hearing, the spurned manager argued that it had never been validly removed by the private lot owners and hence did not have to deliver up the OC’s records and funds to the putative new manager. VCAT’s Member Rowland was never more than tepidly sympathetic in her written reasons published today. True, the sacked manager had been misnamed in the formal ballot removing it. True also, that 86 per cent of the private lot owners who voted unanimously to eject the manager were non-financial at the time of that ballot. (And, yes, that did make the ballot’s quorum problematic.)  And true again, a subsequent special general meeting did not expressly ratify the manager’s removal (although the sentiment was clear enough from related votes at that meeting).

But such non-compliance with formal requirements of the Owners Corporation Act did not necessarily invalidate the OC’s coup against its manager ruled Member Rowland

The nub of the reasoning appears at paras 45 – 47:

I do not consider invalidating every decision made in breach of the [Owners Corporation] Act serves the purpose of [the Owners Corporation Act]….the Act recognizes that a breach may be substantial or trifling. Each breach needs to be examined in its own context to determine what remedy, if any, is fair…. Not every breach will justify a remedy.

Member Rowland concluded that although the OC had not strictly complied with the Owners Corporation Act in removing its manager the breaches were not matters that, of themselves, had caused any prejudice to the manager nor to any private lot owners and that the manager’s removal had subsequently been ratified in any event.

The decision concludes with the observations that –

• OC managers are bailees of their clients’ records and funds and obliged to deliver them up to those client OCs upon demand;
• This obligation is not changed by a manager’s view that it has not been validly terminated; and
• The sacked OC manager had “comprehensively lost the technical arguments” and should pay the costs.

The lessons?

Strict compliance with the Owners Corporation Act is always desirable.  But, in reality, sometimes it is also unnecessary.

This is because some breaches of the Owners Corporation Act have no automatic consequences. Moreover, breaches of the Act can often be rescued by subsequent ratification by the OC concerned or by VCAT simply exercising its discretion to take no action about those breaches.

Lawyers typically assess statutory compliance as a binary exercise: did a particular action comply with the applicable legislation or didn’t it? Jenkins is a reminder that the complexities of the Owners Corporation Act call for some additional filters:

• Does the Owners Corporation Act prescribe any consequences for the particular statutory non-compliance in issue?
• If not, is there any practical reason why VCAT might exercise its discretion to intervene?

In Aussie Rules footy, infractions are very commonly waived under the ‘advantage rule’, where the umpire’s intervention would unnecessarily interrupt and impede play.  VCAT can exercise a similar discretion to shrug off even clear breaches and call “Play on!”