The oper­a­tion of priv­i­lege to advice giv­en to a stra­ta own­ers corporation

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.