In answer to your questions:
1) YES – Sect 65 of the NSW Strata Schemes Management Act applies, although if the work cannot be classified as being an “emergency” (seek Council’s advice/support) then your Owners Corporation (O/C) must seek the Orders cited in the Section.
2) The Owner doesn’t have to sign the Special By-Law, but if it includes a provision that seeks to transfer future responsibility for maintaining all areas of Common Property involving the proposed second bathroom (e.g. floor tiles) from the O/C to the current and all future Owners of the Lot, which it should, then the current Lot Owner needs to agree in writing to that provision. The strict consequence of that decision is that the O/C would decline to give its consent to the Owner’s works, and typically Councils will similarly decline to consider a Building or similar Application for those works unless it’s first endorsed by the O/C placing its Common Seal on the submitted Application / Plans. Have a talk with Council’s Inspector and give them the “heads-up”.