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Legal Professional Privilege in Strata and Community Schemes

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The issue of legal professional privilege has been somewhat of a vexed issue for strata schemes and community associations for some time.

Questions frequently arise about the ability of owners corporations and community associations to keep legal advice confidential. The issue particularly occurs in relation to proceedings being instituted or contemplated against an owner – for example, for failure to comply with a by-law, recovery of arrears of levies and so forth.

On the one hand, owners are entitled to inspect and take copies of all the books and records of the strata scheme under section 108 of the Strata Schemes Management Act 1996 (the Act). A Community Association (including a Neighbourhood or Precinct Association) has similar obligations under Schedule 4 to the Community Land Management Act 1989 (CLMA).

There is a view that all owners, regardless of any contemplated or existing dispute, are entitled to access all information provided to the owners corporation. The position is similar with respect to community associations.

In order to protect the interests of the owners corporation or community association, a practice has developed whereby privileged communications with the owners corporation or community association have been kept in separate files and not made available for review by all owners. Until now, there has been some doubt about the validity of that course of action and, indeed, in a recent Supreme Court decision, the judge held that at common law, in circumstances where the owners corporation was purporting to act on behalf of the lot owners in obtaining legal advice, the advice was not confidential  as between the lot owners and the owners corporation. It did not matter that one of those owners was in dispute with the owners corporation about the subject matter of the advice.

The owners corporation appealed that decision and the Court of Appeal of NSW has now unanimously determined that where an owners corporation and a lot owner are clearly adversaries, the lot owner is not entitled, because of his capacity as a potential opponent in adversarial proceedings vis a vis the owners corporation, to access documents that relate to the dispute the subject of those potential or actual proceedings:  The Owners - Strata Plan No. 74602 v Eastmark Holdings Pty Ltd [2013] NSWCA 221 (19 July 2013).

The Court affirmed the primary judge’s opinion that statutory provisions such as that contained in section 108 of the Act and Schedule 4 to the CLMA, are not to be construed as abrogating important common law rights, privileges and immunities, such as legal professional privilege, in the absence of clear words or necessary implication to that effect.

This is an important decision for those charged with managing the functions of owners corporations, particularly strata managing agents and executive committees. It is a clear statement of the rights, and indeed obligations, of the owners corporation (or community association) to sequester privileged documents and ensure that their confidentiality is maintained until completion of the legal proceedings.