Authors: David Andrews, Partner and Steven Song, Special Counsel
The Owners corporations have responsibilities to manage and administer the strata scheme for the benefit of owners within the scheme. The Tribunal is typically reluctant to interfere with the democratic decision-making processes at general meetings, recognising that lot owners are generally best placed to determine how their scheme should be managed.
However, the Tribunal retains a broad discretion under section 237 of the Strata Schemes Management Act 2015 (NSW) (SSMA 2015) to appoint a compulsory strata managing agent where it is satisfied that the owners corporation is not functioning or is not functioning satisfactorily. The threshold for such intervention is high — the Tribunal must be satisfied that the dysfunction is of sufficient gravity to warrant displacing the ordinary democratic processes of the scheme.
The NSW Civil and Administrative Tribunal has recently considered the boundaries of this jurisdiction in Birns v The Owners – Strata Plan No. 95983 [2026] NSWCATCD 33, a decision which extends the application of section 237 to circumstances where a majority lot holder’s conflict of interest effectively subverts the governance of the scheme, even where procedural requirements have been formally satisfied.
Relevant Background
The scheme is comprised of 16 lots in Marrickville. The developers owned 8 of the 16 lots. Another lot was owned by an entity that was related to the developers. The developers had effective control over the decision making of the owners corporation.
The owners corporation had commenced legal proceedings in the Supreme Court of NSW against the developers for alleged breaches of statutory warranties under the Home Building Act 1989 (NSW) (Defect Proceedings) at a time when the developers believed they were excluded from voting on motions related to the Defect Proceedings. The owners corporation obtained expert evidence which valued the cost to rectify the alleged defects at $2.85 million.
From March 2025, the developers caused the owners corporation to pass a series of resolutions which had the effect of constraining the owners corporation’s ability to engage experts, brief Counsel and to incur costs in relation to the Defect Proceedings. The owners corporation obtained advice from its legal representatives which advised against the resolutions.
In April 2025, the developers caused the owners corporation to pass further resolutions which caused the owners corporation to take no further steps in the Defect Proceedings until the owners corporation’s experts have participated in a conclave with the developer’s preferred expert.
The explanations offered by the developers for the resolutions at the March and April meetings was they had not had the opportunity to review the underlying costs agreements and bills, they wished to “reduce unnecessary costs” for the owners corporation by entering into an informal regime of expert conclaves.
The owners of 6 of the 16 lots commenced proceedings to appoint a compulsory strata manager to exercise the functions of the owners corporation on the basis the owners corporation had breached its obligations under section 9 of the Strata Schemes Management Act 2015 (SSMA 2015) to manage and administer the scheme for the benefit of owners as a whole.
The Decision
There was no suggestion that the March and April meetings did not comply with the procedural requirements under the SSMA 2015.
Nevertheless, the Tribunal found:
- the developers held the majority vote in the owners corporation through their ownership and control of lots;
- no other lot owners could possibly have any impact on any vote of the owners corporation and the owners corporation’s compliance with section 9 of the SSMA 2015 relies solely on the votes of the developers;
- the developers had a conflict of interest in the Defect Proceedings;
- there was insufficient evidence that the developers were able to separate their own interests from that of the owners corporation when voting in relation to the Defect Proceedings;
- the decisions of the owners corporation (which was contrary to the advice of its legal representatives in the Defect Proceedings) was not in the best interest of the owners as whole; and
- the state of affairs would likely continue if there was no compulsory managing agent and the continued conflict of interest would potentially prejudice the owners corporation’s position in the Defect Proceedings.
The Tribunal found the above circumstances amounted to dysfunction within the meaning of section 237 of the SSMA 2015 and exercised its discretion to appoint a compulsory manager. Critically, the Tribunal reached this conclusion notwithstanding that the resolutions were passed at meetings which complied with the procedural requirements of the SSMA 2015 and that the developers were not, on their face, excluded from voting.
Significance of the Decision
The appointment of a compulsory manager is often perceived as a drastic measure because it removes the owners corporation’s ability to democratically manage its affairs for a period of time. In recent section 237 decisions, the Tribunal has consistently emphasised that the power should be exercised sparingly and only where the evidence demonstrates a clear inability of the owners corporation to function in the interests of lot owners as a whole. Dysfunction has typically been established in cases involving prolonged deadlock between factions, a sustained failure to comply with statutory obligations, or financial mismanagement of a serious nature.
What distinguishes Birns is the Tribunal’s willingness to look beyond procedural regularity and examine the substantive quality of decision-making. The developers’ resolutions were not irregular in form — they were passed at properly convened meetings with requisite notice. However, the Tribunal found that the substance of those decisions, made by parties with a direct and irreconcilable conflict of interest and contrary to the advice of the owners corporation’s own legal representatives, was sufficient to constitute dysfunction. This represents a meaningful development in the Tribunal’s approach to section 237, confirming that formal compliance with the SSMA 2015 will not insulate decision-making from scrutiny where a majority lot holder’s self-interest is demonstrably adverse to the interests of the scheme.
The decision also carries practical implications for developers who retain majority ownership of lots within a scheme. Where a developer is the subject of defect proceedings brought by the owners corporation, the Tribunal will closely scrutinise any exercise of voting power that constrains the owners corporation’s capacity to prosecute those proceedings. The decision suggests that in such circumstances, the developer’s conflict of interest may be so fundamental that any exercise of voting power in relation to the proceedings is unlikely to satisfy the obligation under section 9 of the SSMA 2015 to manage and administer the scheme for the benefit of owners as a whole.
More broadly, Birns reinforces the principle that the democratic framework established by the SSMA 2015 is not an end in itself, but a mechanism for achieving good governance of strata schemes. Where that mechanism is co-opted by a party whose interests are adverse to the scheme, the Tribunal will not hesitate to intervene, even where the procedural architecture of the legislation has been formally observed.