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21 November 2013 The operation of privilege to advice given to a strata owners corporation

By Tony D'Agostino, Partner


Question: can an owners corporation claim legal professional privilege over documents in connection with legal advice on its books and records as against a lot owner?


The answer is yes, to an extent, but to what extent you may ask?
 
The short answer is that it depends on the nature of the legal advice. Generally speaking, if the advice was obtained in relation to a dispute with the lot owner then the owners corporation can claim privilege over the advice. If the advice was obtained in relation to some other party (and it can be said that the interests of the owners corporation and lot owner are aligned) then it is not privileged as against the lot owner.
 
Swaab recently represented an owner in a dispute involving the chairman of an owners corporation, his consultancy company and the owners corporation. The principal proceedings involved a claim by the lot owner that a consultancy agreement entered into between the owners corporation and the chairman's consultancy company was void, on the basis that there was a conflict of interest that resulted in a breach of fiduciary duty owed by the chairman to the owners corporation.
 
As part of the proceedings, the lot owner subpoenaed documents comprising the legal advice which had been provided to the owners corporation regarding the consultancy agreement.
 
After the documents were produced, the owners corporation brought a motion seeking to restrict access to the documents by the lot owner on the basis of privilege.
 
At a hearing before Hallen J, His Honour determined that the lot owner was entitled to the documents on the basis of its common interest with the owners corporation. The reason for the decision was upheld on appeal (although the appeal was allowed on other grounds) (see The Owners - Strata Plan No. 74602 v Eastmark Holdings Pty Limited [2013] NSWCA 221.
 
The following is a brief summary of the principles that can be drawn from the case regarding legal advice obtained by an owners corporation:

  • As a starting point, lot owners are able to inspect all documents on the books and records of the owners corporation as a consequence of section 108 of the Strata Schemes Management Act 1996.   
  • Section 108 does not abrogate the common law "rights, privileges and immunities" such as legal professional privilege.
  • More specifically, legal professional privilege can only be asserted against a lot owner in circumstances where the lot owner and the owners corporation were adversaries in relation to the advice at the time that it was given.
  • It follows that privilege cannot be asserted against any other lot owners (i.e. those lot owners who are not adversaries in relation to the advice), who are effectively presumed to share a common interest with the owners corporation based on the relationship between the lot owners and the owners corporation as described in the legislation.

In the circumstances of the case, the lot owner was entitled to access all of the advice on the subject of the owners corporation's proposal to enter into an agreement with the chairman's consultancy company given prior to the commencement of the proceedings by the lot owner because at that time all owners (except for the chairman) shared a common interest in receiving that advice.
 
Nearly all disputes between lot owners and the owners corporation (including in relation to section 108) are decided under the dispute resolution provisions of the Strata Schemes Management Act 1996 by Adjudicators or the Consumer Trader and Tenancy Tribunal. They are commonly disputes such as breaches of by-laws, challenging the passing or refusal to pass by-laws, approvals (or refusals to grant approvals) and obligations of the owners corporation for repairs. 
 
In announcing reforms to the strata laws recently, Fair Trading Minister, Anthony Roberts, noted that a staggering 30 per cent of people in NSW either live or work in strata schemes. That number is expected to grow even larger as the greater Sydney Metropolitan area continues to rapidly expand. What that means is that an increasing number of lot owners, developers, strata managing agents and others will be faced with legal challenges regarding strata issues which will inevitably result in an increased incidence of strata litigation.

For further information, please contact:

Tony D'Agostino, Partner  |  Phone: +61 2 9233 5544  |  Email: tda@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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