Abstract

Keywords

Community Schemes Ombud Service Act; dispute resolution; Ombud Service; sectional title schemes.

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1 Introduction

Before the implementation of the Community Schemes Ombud Service Act (the CSOSA), 1

* Jacomina Gerharda Horn. B Proc LLB LLM MA (HES) LLD (North-West University). Senior lecturer in Property Law and Sectional Titles, University of the Free State, South Africa. E-mail: hornjg@ufs.ac.za. ORCiD: https://orcid.org/0000-0001-5220-7386.

** Nathan Shane Christians. LLB LLM (University of the Free State). Associate at PH Attorneys, Bloemfontein, South Africa. E-mail: nathan@phinc.co.za. ORCiD: https://orcid.org/0000-0002-4744-2530.

1 Community Schemes Ombud Service Act 9 of 2011 (CSOSA).

However, the suitability of rule 71 arbitration for resolving sectional title disputes came under considerable criticism, 8

8 Van der Merwe 2014 Stell LR 403.

More specifically, the main focus is to shed light on some of the practical challenges the Ombud Service has faced at different stages of implementing the CSOSA dispute resolution system. The article does not discuss all the cases brought before the court or the Ombud Service, nor does it offer a full analysis of all practice directives issued by the Ombud. Moreover, it does not negate the major role the Ombud has played in dispute resolution in sectional title and other types of fragmented property schemes. Rather, the article highlights some of the interesting cases that, having gone through the Ombud Service process, ended up in court for clarity.

In addition, the CSOSA dispute resolution system is compared to dispute resolution in so-called strata title schemes in New South Wales, Australia, to determine whether the South African system stands to learn any lessons from that jurisdiction.

First, however, a brief overview of the historical legislative developments that led to the dispute resolution procedures contained in the CSOSA offers a useful frame of reference as to why the CSOSA measures were indeed necessary.

2 Historical foundation of dispute resolution in sectional title schemes

Disputes regarding the management, maintenance or financial affairs of a sectional title scheme or disputes among sectional title owners are an inevitable consequence of living in this type of fragmented property scheme. While earlier sectional title laws paid little attention to the settlement of disputes, lawmakers soon wised up to this reality, and dispute settlement was increasingly incorporated into subsequent legislation.

2.1 Pre-2000 sectional title laws

The concept of sectional titles was introduced in South Africa by the Sectional Titles Act 66 of 1971 (the 1971 STA). The 1971 STA did not expressly provide for the settlement of disputes between sectional title owners or between owners and the body corporate, 12

12 Butler 1998 Stell LR 256.

The 1971 STA was repealed by the Sectional Titles Act 95 of 1986 (the 1986 STA). Similar to its predecessor, the 1986 STA initially failed to provide for dispute settlement among sectional owners themselves or between sectional owners and the body corporate, 15

15 Butler 1998 Stell LR 256.

The rule 71 arbitration process became the preferred method for dispute resolution in all matters where litigation was not deemed appropriate. 18

18 Pienaar Sectional Titles 222.

Yet rule 71 was not without flaws: Applying to disputes only among sectional owners or between sectional owners and the body corporate, 20

20 Rule 71(1) of Annexure 8 to the 1986 STA regulations (GN R664 in GG 11245 of 1 June 1988, repealed by reg 13 of GN R427 in GG 40842 of 12 May 2017), now generally provided for in s 2(7) of the STSMA; Butler 1998 Stell LR 260.

Although the management rules, specifically rule 71, have since been repealed, their provisions still apply to litigation instituted before their repeal. 24

24 Via Quinta paras 21-22.

2.2 Post-2000 sectional title laws

By the early 2000s it had become clear that the 1986 STA, including the rule 71 arbitration process, was inadequate to deal with the practical problems that arose in the day-to-day running of sectional title schemes. 25

25 Van der Merwe 2017 TSAR 280.

Although the main aim of the STSMA is to deal with the management aspects of sectional title schemes, it still provides for dispute settlement in certain instances. These include that "the body corporate may sue … in its own name" 27

27 Section 2(7) of the STSMA.

In terms of dispute settlement in sectional title schemes, however, the most significant legislative development has been the promulgation of the CSOSA and its establishment of the Ombud Service. 31

31 Section 3(1) of the CSOSA.

A board, 35

35 Section 6(2) of the CSOSA.

The CSOSA empowers the Chief Ombud to issue practice directives on the operation of the Ombud Service. 38

38 Section 36 of the CSOSA.

3 Dispute resolution by the Ombud Service: How things have changed under the CSOSA

3.1 Locus standi

It is clear from the provisions of the CSOSA that not anyone may apply to the Ombud Service to have a dispute settled. This is already evident from the definition of "dispute", which limits the parties to a dispute to those with a material interest in the sectional title scheme, one of whom must be an owner, occupier or association. 40

40 Section 1 of the CSOSA.

The issue of legal standing to apply to the Ombud Service did come before the court in Body Corporate of Durdoc Centre v Singh, 41

41 Body Corporate of Durdoc Centre v Singh 2019 6 SA 45 (KZP) (hereafter Body Corporate of Durdoc Centre).

3.2 Consideration of an application

A notable deviation from the rule 71 arbitration process is that the CSOSA limits the jurisdiction of the Ombud Service to seven categories of disputes, namely financial matters, 44

44 Section 39(1)(a)-(f) of the CSOSA.

The CSOSA and the latest practice directive on dispute resolution – Practice Directive No 1 of 2019 (hereafter "the Practice Directive of 2019") – provide various grounds on which an ombud should reject an application. 51

51 Section 42 of the CSOSA; Practice Directive of 2019 para 12.3.

If an application is allowed, the Ombud must notify all persons it deems materially affected by such application. 53

53 Section 43(1)-(3) of the CSOSA.

3.3 Conciliation

Where the Ombud believes that negotiations may settle the dispute, the matter should be referred for conciliation by a trained conciliator, 54

54 Section 47 of the CSOSA.

Only those parties directly involved in the matter, the representative of a sectional title or other community scheme and those permitted by the conciliator may attend conciliation proceedings. 57

57 Practice Directive of 2019 paras 19.1-19.2.

Should the parties reach an agreement either before 61

61 Practice Directive of 2019 para 16.2.

The conciliator's role ceases once the conciliation proceedings have ended, whether by resolution of the matter or the issuance of a certificate of non-resolution. 63

63 Practice Directive of 2019 para 16.5.

3.4 Adjudication

A matter will be referred for adjudication only if conciliation has failed. 64

64 Section 48(1) of the CSOSA.

Where a dispute qualifies for adjudication, it must be referred to an adjudicator chosen by the parties from the Ombud's list, 67

67 Section 48(2) of the CSOSA.

Where an adjudication proceeds, the adjudicator must send a notice of set-down to the parties involved. Parties are not allowed legal representation during the adjudication hearing unless the adjudicator permits it. 71

71 Section 52 of the CSOSA.

Should either party be absent at the adjudication hearing, the adjudicator may continue in that party's absence, provided that attempts have been made to reach the absent party to ascertain the reason for the absence. 74

74 Practice Directive of 2019 para 25.1.

Any dissatisfied person affected by the adjudication order may appeal to the high court. This right to appeal is limited to questions of law and should be lodged within 30 days after the adjudication order has been made. 77

77 Section 57 of the CSOSA.

It is clear that the CSOSA provides a structured dispute resolution process, and that where it falls short, the Ombud Service's practice directives – particularly the Practice Directive of 2019 and the amendments thereto – play a vital role to fill the gaps. But while the system appears uncomplicated and easy to apply, its implementation has thrown up a few challenges. In the next section the focus shifts to a few examples where the application and interpretation of the CSOSA and Ombud Service's provisions has posed some practical problems

4 Problems encountered with the new dispute resolution system

4.1 The jurisdiction of the Ombud Service

Section 38(1) of the CSOSA, which provides that any person may apply to the Ombud Service for dispute resolution "if such person is a party to or affected materially by a dispute", is not as clear as it may seem at first glance. This was demonstrated in Trustees for the Time Being of the Avenues Body Corporate v Shmaryahu (hereafter Avenues v Shmaryahu), among others. 78

78 Trustees for the Time Being of the Avenues Body Corporate v Shmaryahu 2018 4 SA 566 (WCC) (herafter Avenues v Shmaryahu).

The respondent, Mr Shmaryahu, was a former owner of a unit in a sectional title complex. Having sold his unit, he contended that the levies he had paid had been calculated based on an "irregular levy formula". This contention he based on the fact that certain other owners had illegally converted their garages into living areas, while others had extended their units. He demanded access to the body corporate's books of account to determine whether the levies he had paid had been calculated in line with the provisions of the 1986 STA. 79

79 Avenues v Shmaryahu para 4.

In his initial application to the Ombud Service, Shmaryahu indicated that the relief he sought was for "all the units to be remeasured by a land surveyor (independent) to determine the correct amounts payable (i.e., levies)", which would clarify "if a refund is due". 81

81 Avenues v Shmaryahu para 8.

The adjudicator ultimately ordered as follows:

To partially grant the applicant's prayers for relief sought under paragraph 4 and to order the respondent to calculate the levies paid by the applicant by determining the participation quota of the applicant concerning the participation quota as established in terms of the new registered sectional title scheme based on the revised participation quota. 84

84 Avenues v Shmaryahu para 23.

The body corporate subsequently exercised its right to appeal the order in terms of section 57 of the CSOSA. 85

85 Avenues v Shmaryahu para 24.

On reflection, both the Ombud and the adjudicator appear to have taken their cue from section 38(1) of the CSOSA in allowing the application, but failed to consider whether the matter constituted a "dispute" as defined in section 1. The Ombud should have dismissed the application upon assessment, as Shmaryahu was no longer an owner of a unit in the scheme and therefore had no material interest in the scheme. 87

87 Van der Merwe 2020 TSAR 160-161.

4.2 The orders that adjudicators may make

Avenues v Shmaryahu also illustrates the uncertainty regarding the adjudicator's powers, with the court finding that the adjudicator had exceeded his mandate, as the order did not fall within the scope of the section 39 remedies that the adjudicator may grant. 89

89 Avenues v Shmaryahu para 30.

Another example where an adjudicator exceeded the scope of his powers is Evergreen Property Investments v Messerschmidt. 92

92 Evergreen Property Investments v Messerschmidt 2019 3 SA 481 (GP).

Of course, adjudication orders may also be taken on review. This the court in Waterford Estate Homeowners Association v Riverside Lodge Body Corporate 94

94 Waterford Estate Homeowners Association v Riverside Lodge Body Corporate (24576-2020) [2024] ZAGPJHC 192 (27 February 2024).

The few cases cited above show that the role of the Ombud is not yet clear-cut, and that despite their training, the adjudicators and staff of the Ombud Service still experience some difficulty in applying the provisions of the CSOSA.

4.3 Inappropriate court applications sidestepping the Ombud Service

Coral Island Body Corporate v Hoge 97

97 Coral Island Body Corporate v Hoge 2019 5 SA 158 (WCC) (hereafter Coral Island Body Corporate).

While the court found in favour of the body corporate, it also elected to withhold a cost order, 99

99 Coral Island Body Corporate para 10.

It stands to reason, therefore, that the affordability intention of the Ombud Service would be undermined if "the courts were indiscriminately to entertain and dispose of matters that should rather have been brought under the Ombud Act". 103

103 Coral Island Body Corporate para 10.

4.4 Lack of standardised process to appeal adjudication orders

Section 57 of the CSOSA gives a party who is dissatisfied with an adjudicator's order a right of appeal, although only on a question of law, provided that such an appeal is made within 30 days after such an order is made. Yet the CSOSA fails to elaborate on the process to be followed when such an appeal is lodged. As a result, the appeal process has seen significant change and has been hotly debated over the years. 106

106 Freitas dos Santos 2020 https://www.paddocks.co.za/paddocks-press-newsletter/the-evolution-of-the-csos-appeal-procedure/.

In Avenues v Shmaryahu the court took the opportunity to lay down a procedure for section 57 appeals, noting that such a procedure was neither provided for by the CSOSA nor by the rules of court. 107

107 Avenues v Shmaryahu para 25.

The procedure was followed in subsequent appeals to the high court, including Body Corporate of Durdoc Centre v Singh. 110

110 Body Corporate of Durdoc Centre para 15.

(a) The appeal should be brought by way of notice of appeal where the grounds of appeal are set out succinctly.

(b) The notice should be served on the respondent parties by the Sheriff.

(c) Both the adjudicator and CSOS [Community Schemes Ombud Service] should be cited as respondents.

(d) While the adjudicator or CSOS might be expected to abide the judgment of the court, nothing precludes them from filing a report for the court in respect of any aspect of law which they might consider to be helpful to the court. 114

114 Stenersen and Tulleken para 45.

Barely a year later, though, the court in Kingshaven Homeowners' Association v Botha (hereafter Kingshaven) 115

115 Kingshaven Homeowners' Association v Botha (6220/2019) [2020] ZAWCHC 92 (4 September 2020) (hereafter Kingshaven).

Technically the Stenersen and Tulleken ruling had to repeal the Avenues v Shmaryahu procedure reflected in the Practice Directive of 2019. 122

122 Practice Directive of 2019 para 34.2.

In the meantime the KwaZulu-Natal division of the high court, based on the decision in Ellis v Trustees of Palm Grove Body Corporate, 123

123 Ellis v Trustees of Palm Grove Body Corporate (2293/2020P) [2021] ZAKZPHC 97 (7 December 2021).

4.5 A final word on the Ombud Service's practical challenges

As the CSOSA has been in effect only since 2016, its implementation will still pose some practical challenges. Periodic errors in applications made to the Ombud Service, such as in the type of relief sought, should be expected. Yet the fact that these errors appear to go undetected from the lodging of the application up until the issuing of an adjudication order raises questions as to the training received by the Service's staff.

In addition, the murkiness around the procedure for bringing section 57 appeals could have been avoided had the CSOSA laid down a procedure. The different approaches suggested by the Practice Directive of 2019 (as per Avenues v Shmaryahu and Stenersen and Tulleken, along with the comments made in Kingshaven, attest to an ongoing debate between the divisions of the high court. The fact that the KwaZulu-Natal division has since also published its own practice directive indicates that there is still a long way to go towards a standardised system.

According to its 2022/23 annual report, the Ombud Service had at that point resolved 6 008 disputes, 97% of which within 90 days. 128

128 Community Schemes Ombud Service 2023 https://csos.org.za/wp-content/uploads/2023/11/CSOS-AR-22-23-web-file-1-final-printed.pdf 8; see 47 for a classification of matters in terms of section 39.

However, for 2022/23 a total of 44 of the disputes handled by the Ombud Service were appealed in court: Eleven orders were set aside, 4 were upheld, 6 matters were withdrawn and 23 were still pending. 131

131 Community Schemes Ombud Service 2023 https://csos.org.za/wp-content/uploads/2023/11/CSOS-AR-22-23-web-file-1-final-printed.pdf 47.

5 A comparison between dispute resolution under the CSOSA and under New South Wales's Strata Schemes Management Act

In the consultative stages of the drafting of the CSOSA, New South Wales's law relating to sectional titles was cited as among the most comparable to South Africa's. 132

132 Van der Merwe Sectional Titles, Share Blocks and Time-sharing para 18.1.3.

At the outset, though, it is important to keep in mind that while the CSOSA established the Ombud Service specifically to deal with community scheme disputes, 134

134 Sections 3(1) and 4(1)(a) of the CSOSA.

5.1 Internal resolution of disputes

Upon inspection of the provisions relating to dispute resolution in the Strata Schemes Management Act, 136

136 Part 12 of the Strata Schemes Management Act.

5.2 First avenue for external dispute resolution

The first avenue for external dispute resolution provided for by the Strata Schemes Management Act is mediation through the secretary of the Department of Fair Trading. 142

142 Division 2 of the Strata Schemes Management Act; Pienaar and Horn Sectional Titles 235-236.

A significant difference between the two acts is that unlike the Strata Schemes Management Act, which contains extensive provisions on mediation, information on conciliation in the CSOSA is relatively sparse apart from the provisions of section 47. However, this is remedied to a fair degree by the information about conciliation contained in the Practice Directive of 2019. 145

145 Practice Directive of 2019 paras 16-20.

Yet the two acts also share several similarities. Both the Strata Schemes Management Act and the CSOSA read with the Practice Directive of 2019 provide for the limitation of relief sought in applications to the secretary or the Ombud Service respectively. 147

147 Section 218 of the Strata Schemes Management Act; Practice Directive of 2019 para 7.1.

5.3 Second avenue for external dispute resolution

As the second avenue for dispute resolution, the Strata Schemes Management Act provides for dispute resolution by the Civil and Administrative Tribunal, which may choose to resolve a dispute by conciliation and a hearing, or a directions hearing, depending on the relief sought. 152

152 NCAT 2023 https://ncat.nsw.gov.au/documents/factsheets/ccd_factsheet_strata_ schemes.pdf.

5.3.1 Application for dispute resolution

A noteworthy similarity between applying to the New South Wales Tribunal and referring a dispute for adjudication by the South African Ombud Service is that both the Strata Schemes Management Act and the CSOSA require that a prior attempt should have been made to resolve the dispute – by mediation in terms of the former, 153

153 Section 227(1) of the Strata Schemes Management Act.

Nevertheless, while the Strata Schemes Management Act contains exceptions to the requirement of prior mediation, the CSOSA does not allow for exceptions to the requirement of prior conciliation. Again, however, this gap is filled by the Practice Directive of 2019. 155

155 Practice Directive of 2019 para 21.

The specific exceptions are a further area of difference between the two acts. The exceptions relating to prior mediation appear to be limited to those contained in the Strata Schemes Management Act. Those relating to prior conciliation, in turn, are up to the discretion of the Ombud, having considered the factors prescribed in the Practice Directive of 2019. 156

156 Practice Directive of 2019 para 21.5.

5.3.2 Relief that may be sought

In terms of the orders that may be made or the relief that may be sought under the two Acts, the Strata Schemes Management Act does not contain a section specifically setting out the various categories of disputes and the relief available under each. However, on the whole the Strata Schemes Management Act and the CSOSA provide for very similar types of relief. As expected, though, there are some orders contained in the one that are not provided for in the other. For instance, section 237 of the Strata Schemes Management Act makes provision for an order for the appointment of a managing agent, whereas the CSOSA contains no such provision. The CSOSA in turn provides for an order directing the managing agent to comply with the terms of the agent's contract of employment, 157

157 Section 39(5)(a) of the CSOSA.

Another difference in terms of the available relief is that, unlike the CSOSA, the Strata Schemes Management Act provides for interim orders in urgent matters. 158

158 Section 231 of the Strata Schemes Management Act.

5.4 Appeals

In contrast to the CSOSA's provision for appeal to the high court – albeit somewhat muddied at present 160

160 See para 4.4 of this article.

Yet New South Wales's Civil and Administrative Tribunal Act 161

161 Civil and Administrative Tribunal Act 2 of 2013.

5.5 Structural differences

The most significant difference between the two acts, however, does not stem from their substantive content, but rather from their general structure.

As mentioned above, unlike the CSOSA, the Strata Schemes Management Act does not contain a specific section that lists the various categories of disputes and the available relief under each. As a result the multiple forms of relief that may be sought in terms of the Strata Schemes Management Act are dispersed throughout the text under different sections. However, the New South Wales law does include a useful table that lists the various orders that may be sought, along with an indication of who may seek these orders and a reference to the specific section that provides for the order. 165

165 Part 12 of the Strata Schemes Management Act.

Another notable contrast with the CSOSA is that the Strata Schemes Management Act does not provide for the publication of practice directives or similar instruments that are to be read in conjunction with the empowering legislation. One could argue that the inclusion of practice directives provides some flexibility and scope, for instance to include more forms of relief to keep pace with the changing landscape of sectional title schemes, or to change how appeals should be lodged, without having to constantly make legislative amendments.

5.6 A final word on lessons to be learnt from New South Wales

Many of the notable differences between the Strata Schemes Management Act and the CSOSA can be attributed to the fact that the former was drafted to deal with both the managerial aspects and dispute resolution in strata schemes. The CSOSA, on the other hand, is dedicated to dispute resolution.

That being said, certain provisions in the Strata Schemes Management Act are worth considering for potential replication in the CSOSA. A provision relating to interim orders, for instance, would be beneficial, as would be an additional, internal avenue for appeals. Potential benefits of the latter include reduced costs compared to the costs involved in high court appeals, as well as lightening the caseload of our courts.

6 Recommendations

The dispute resolution procedure introduced by the CSOSA is still relatively new and could still be fine-tuned to prevent sectional title disputes from ending up in court. To overcome the practical challenges identified earlier, and based on the comparison with New South Wales's Strata Schemes Management Act, some potential improvements include:

7 Conclusion

The approach to sectional title disputes in South Africa has changed dramatically over the years – from litigation, to the arbitration mechanism introduced by management rule 71, to referral to the Ombud Service created by the CSOSA.

The two-stage (conciliation and adjudication) dispute resolution mechanism provided by the Ombud Service has effectively reduced the number of sectional title disputes reaching our courts. It also saves applicants time and money. Ultimately, the dispute resolution procedure introduced by the CSOSA resolves more disputes than it does not.

Yet case law suggests certain practical challenges in the implementation of the CSOSA, and some shortcomings in the operation of the Ombud Service. The recommendations above could help streamline the Service into an even more suitable and effective alternative for resolving sectional title disputes.

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List of Abbreviations