A decision of the Victorian Supreme court earlier this year followed the approach of the NSW Court of Appeal in the 2014 decision of 2 Elizabeth Bay Road (which necessarily has to be read with Bakkante), in dealing with the equivalent legislation and requirements in Victoria.

Justice McDonald in Burbank Australia Pty Ltd v Owners Corporation [2015] VSC 160 (29 April 2015) was dealing with (as part of an appeal from VCAT that had refused to strike out the proceedings there on these issues) the until then apparently untested question of whether the Victorian Domestic Building Contracts Act 1995 (the equivalent of NSW’s Home Building Act) applied to multi-apartment developments (which it does His Honour found).

Part of the defence raised by the defendant builder was whether the legal proceedings were commenced without being authorised by special resolution as required by Victoria’s Owners Corporation Act 2006.

His Honour found that the Owners Corporation had not passed the required special resolution. However, he found (at [4]) that “the absence of a valid special resolution by Owners Corporation is a procedural irregularity which may be cured. The Court will order that the proceedings in VCAT be stayed until Owners Corporation is authorised by special resolution to bring the proceedings against Burbank.”

In the VCAT proceedings the Owners Corporation conceded that a special resolution authorising the bringing of proceedings had not been passed when the proceedings were commenced in November 2012. An interim special resolution was passed on 16 April 2013. It was also conceded that there were some defects in the notice of interim special resolution forwarded to members pursuant to s 97 of the Owners Corporation Act, which required:

“The notice under sub-s (2) or (3) must state that the interim special resolution will become a special resolution at the end of 29 days after it was passed unless lot owners who hold more than 25% of the total votes for all the lots affected by the Owners Corporation petition the secretary against the resolution.”

His Honour found (at [39]) that “The consequence of a finding of non-compliance with s 97(4) is that there has also been non-compliance with s 18 of the Owners Corporation Act which provides that an owners corporation must not bring legal proceedings unless it is authorised by a special resolution to do so.”

The builder conceded at the hearing in the appeal that noncompliance with section 97(4) (which in turn resulted in noncompliance with section 18) did not have the effect that the proceedings commenced by Owners Corporation against Burbank in November 2012 were a nullity, that noncompliance with section 97(4) gave rise to a procedural irregularity which was capable of being cured, and that if the court found irregularity by reason of noncompliance with s 97(4) the court should make an order pursuant to section 148(7)(b) of the VCAT Act staying the VCAT proceedings until such time as Owners Corporation passed a valid special resolution. The Owners’ barrister made a submission to the same effect.

His Honour upheld VCAT’s decision to not strike out the proceedings, but made an order staying the proceeding until such time as Owners Corporation was authorised by special resolution to bring the proceedings that were commenced in November 2012. Costs were to be argued, given the builder had originally sought to strike out the proceedings rather than stay the proceedings due to the failure to pass the special resolution.

Bakkante and 2 Elizabeth Bay Road made clear that any resolution had to be passed within a reasonable period of commencing. In this case the Owners Corporation clearly sought to pass the resolution soon after commencing, but failed to do so validly. The builder changing its position at the hearing of the appeal avoided the Court needing to decide whether the Owners Corporation took reasonable steps to resolve any apparent problems in the resolution, or if the lack of a valid resolution would be a basis to strike out the resolution rather than staying proceedings. However, it does make clear that staying proceedings is a step the Court will consider rather than striking out, and if the resolution was not passed then obviously the stay would not be lifted (and might lead to a strike out application if needed).