Posted on March 26, 2013 by

Company title unit disputes to be heard in the Local Court

Before the first strata titles legislation was passed in New South Wales most home units were regulated under company law.  A number of older home units still exist that are not regulated by strata legislation.  Owners of these units own shares in a company which owns the complex; ownership of the shares gives rise to the right to occupy a designated unit.Because the units are regulated under the law that applies to corporations they are referred to as “company title” units.

One major challenge for company title unit holders is that the only forum to resolve a dispute is the Supreme Court of NSW.  Whereas in the case of a strata scheme a dispute involving owners who are using common property in a strata scheme or simple disagreements over pets, finishes or awnings can be resolved in the Consumer, Trader & Tenancy Tribunal (CTTT) the only recourse you have in a company title dispute is a Superior Court of record with all the attendant legal costs.  The Equity Division of the Supreme Court becomes the default forum for disputes “however trivial they may be”: Oliver v Bryant Strata Management Pty Limited (1995) 41 NSWLR, per Levine J at 518.

This problem has existed for over a century and it was in part to address this difficulty that the State enacted strata titles legislation in 1961 to allow for a cheap, quick and simple forum for dispute resolution.

Some disputes are not so simple.  Many banks will not lend on a company title because the company itself can refuse to recognise the mortgage.  Likewise home unit companies often reserve a prohibitive range of rights to themselves such as the right to refuse a tenant whom the owner of the unit would like to let the unit (Magill v Santina Pty Limited [1983] 1 NSWLR 517).  The company can even refuse to allow transfers of shares to persons whom the Board of Directors do not approve thus seriously inconveniencing unit holders.

The Law Reform Commission of NSW identified 1,872 home unit companies throughout the Commonwealth of Australia in 2006 of which 732 were in NSW.  In April 2007 the Law Reform Commission produced its Report 115 “Disputes in company title home units”. This recommended that company title unit disputes be brought within the ambit of the CTTT arguing that company title unit holders should be able to approach the CTTT in relation to similar disputes to those which a strata owner or owners’ corporation can bring.

The only disputes which the Commission felt could not be dealt with by the CTTT were the serious issues:

• sale and transfer;
• leasing;
• relief against oppression by majority shareholders;
• forfeiture of shares;
• winding up the company

Six years after Commissioner James Wood made his recommendations the NSW State Government has legislated to address many of the problems that the Commission identified.  However the Government has not adopted some key recommendations.

The Local Court Amendment (Company Title Home Unit Disputes) Bill 2013 (Bill) was passed on 13 March 2013 and awaits proclamation.

Rather than allow “minor” matters to be disputed in the CTTT the Bill expands the jurisdiction of the Local Court to deal with a range of disputes similar to those which the CTTT can hear in relation to strata units.

In introducing the Bill the Attorney General advised the House that the Government had decided to give the jurisdiction to the Local Court rather than the CTTT because of doubts as to whether a State Tribunal had power to hear disputes over what are ostensibly Federal Corporations Act matters.

The Bill utilises section 5G of the Corporations Act 2001.  Section 5G allows the State to enact a displacement provision giving the State the ability to introduce a law which would otherwise be inconsistent with the Commonwealth Act.

The Bill, contrary to the recommendation of the Law Reform Commission, allows a unit holder to take the corporation to Court if the corporation wishes to refuse an owner the right to lease the company unit to a person of her or his choice.

However, where there is a lease, the Bill does not oust the operation of the Residential Tenancies Act 2010. Any dispute between a company unit holder and the tenant are still covered by that Act and will still be heard by the CTTT.

Disputes over the sale of company shares (and indeed the mortgages of those shares), transfers, forfeiture of shares or the winding up of the corporation are still matters for the Equity Division of the Supreme Court.  The Local Court’s powers in relation to orders for payment of money are limited to the Court’s jurisdictional limit ($100,000) so any dispute  where an amount in excess of this figure is in question will still require the Plaintiff to approach the Supreme Court.

The Local Court will also have wide powers to require a person to do, or refrain from doing any act in relation to the unit; to declare the rights and obligations of any party arising under the constitution of the corporation or under a contract; declaring the meaning of any term in the constitution or an agreement; and declaring whether any such term is void, invalid or otherwise unenforceable.

The Bill will become law in the very near future.  It will allow, for the first time, many company title unit holders the ability to challenge unjust or unfair decisions of the company in the Local Court in a more just, cheap and quick manner.