Dropulich v McHarg

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 7426 of 2006

SILVIA DROPULICH, DUSAN DROPULICH AND ANGELA DROPULICH	Plaintiffs
V
LOLA ELAINA McHARG, VOLLENE McHARG AND BODY CORPORATE No RP9991	Defendants

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JUDGE:	WILLIAMS J
WHERE HELD:	Melbourne
DATES OF HEARING:	6, 7, 11 and 12 March 2008
DATE OF JUDGMENT:	2 July 2008
CASE MAY BE CITED AS:	Dropulich & Ors v McHarg & Ors
MEDIUM NEUTRAL CITATION:	[2008] VSC 238

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DECLARATION – INJUNCTION – Strata subdivision – Implied easements and rights under s 12 (2) and s 12 (4) Subdivision Act 1988 over common property – Whether licence granted to unit owner in relation to part of common property – Whether licence ratified by special resolution – Whether future licence should be expressly subject to easements and rights under s 12 (2) and (4) Subdivision Act 1988.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr P Lacava SC and Mr D Ferrari	Brand Partners
For the First and Second Defendants	Mr T Best	Angela Torcasio
For the Third Defendant	Mr M Simon	LFS Legal

TABLE OF CONTENTS

The application .…………………………………………………………………………………… 1

The issues............................................................................................................................................ 1

The fourth amended statement of claim.................................................................................... 3

The legislation.................................................................................................................................... 5

The Strata Titles Act 1967.............................................................................................................. 5
The amendment of the by-laws................................................................................................... 6
The Subdivision Act 1988 and regulations.................................................................................. 8

Background facts.............................................................................................................................. 10

The VCAT proceeding............................................................................................................... 12
The Magistrates’ Court proceeding.......................................................................................... 14
The Supreme Court proceeding............................................................................................... 17

Submissions...................................................................................................................................... 20

Conclusions....................................................................................................................................... 21

The Licence Agreement and the ratification ballot................................................................ 21
The terms of a future licence..................................................................................................... 22
Relief restraining the McHargs from preventing use of the courtyard.............................. 24
Relief against the body corporate............................................................................................. 25
Summary of conclusions............................................................................................................ 25

HER HONOUR:

The application

This is an application for declaratory and injunctive relief.

The following facts are either matters of common ground or about which I am satisfied by the evidence. The plaintiffs, Ms Silvia Dropulich and her parents, Mr Dusan Dropulich and Mrs Angela Dropulich, are the registered proprietors of unit 3 in a four unit development at 23 Camden Street, St Kilda. Ms Dropulich has lived there since about May 2003. The first and second defendants, Mrs Lola McHarg and her daughter, Ms Vollene McHarg, own unit 1 which is situated directly beneath unit 3. Mrs McHarg has lived in unit 1 since about 16 May 2003. The third defendant (which I will describe as “the body corporate”, despite it now being described as an owners corporation under the Owners Corporations Act 2006) is the body corporate in relation to the property.

There is an area of common property around the McHargs’ unit. It is described in this proceeding as a courtyard. The courtyard is surrounded by a fence which has a gate with a lock. Mrs McHarg and Ms McHarg both have keys. Keys are also held by a maintenance man and the manager of the body corporate, Mr Bill Morris, (who presently has two). Both the occupier of unit 2 and Ms McHarg also have keys to Mrs McHarg’s apartment and each knows where she keeps the key to the gate. In the courtyard there is a water meter with a tap presently controlling the water supply to all four units. The water meter can only be accessed either through Mrs McHarg’s unit or via the gate into the courtyard.

On about 15 June 2007, three of the four body corporate members resolved to accept a quotation for the installation of separate meters and control taps in relation to the supply of water to each of the units. The Dropuliches voted against the resolution. The separate maters had not yet been installed at the time of the trial.

The issues

The dispute involves the Dropuliches’ access to the courtyard. The McHargs claim to have contractual rights to exclusive use of the courtyard for 99 years under a Licence Agreement (“the Licence Agreement”) which, they argue, was validly made between them and the body corporate on 31 May or 17 July or about 19 October 2006 or, alternatively, ratified on about 19 October 2006.

The Dropuliches deny that the McHargs have rights under a valid licence. They refer to the statutory requirements for the grant of such a licence and those relating to the affixation of the body corporate common seal on the purported Licence Agreement. They point out that the body corporate had not made the necessary special resolution to grant a licence and that the common seal was not affixed in accordance with a body corporate resolution or in the presence of two unit owners. The Dropuliches also deny the McHargs’ assertion that the licence agreement was either subsequently validly made or that its defects were cured by its purported ratification on about 19 October 2006. Accordingly, they seek declarations and injunctions to the effect that the McHargs do not have a valid licence and that they are not entitled to prevent the Dropuliches from using the courtyard.

It is common ground that, under s 12(2) and (4) of the Subdivision Act 1988, the Dropuliches have the benefit of implied easements over the courtyard for the passage and provision of water, sewerage and drainage and any necessary related access, which entitle them to reasonable access to the water meter and control tap located there.

The Dropuliches contend that the terms of the Licence Agreement are inconsistent with the recognition of those implied easements or rights attaching to them. As a result, they also seek declarations and injunctions which will have the effect of preventing the body corporate from making any licence agreement with the McHargs except one which is made expressly subject to the easements. In addition, they seek declarations and injunctions against the body corporate and the McHargs to protect their rights to enjoy the benefit of the easements.

The Dropuliches argue that it is necessary to obtain declarations and injunctions against the body corporate because it has not maintained a neutral stance in the ongoing dispute between the unit owners and is not the “disinterested innocent bystander who agrees to abide by the Court’s decision” as asserted by counsel on its behalf. In the circumstances, they submit, they have a reasonable apprehension that each of the defendants will act to the Dropuliches’ detriment. They contend that the declarations sought are directed at real, rather than hypothetical, situations.

The body corporate responds that it will abide by the outcome of the proceeding and that there is no evidence to suggest that it would do otherwise than act appropriately in accordance with the direction of its members.

The fourth amended statement of claim

The Dropuliches’ fourth amended statement of claim has abandoned an earlier claim for a declaration that they are entitled to full and unfettered access to the courtyard (although it continues to claim recognition and protection of their alleged entitlement to use the courtyard and enjoy the benefit of the implied easements).

Their claims are set out as follows in the remaining paragraphs of the prayer for relief as follows :

B.Declarations that the First and Second Defendants are not entitled to:
a.exercise sole and exclusive occupation of the common property adjacent to Unit 1;
b.exclude and prevent the Plaintiffs from enjoying use of the common property adjacent to Unit 1;
d.have the Third Defendant execute a licence granting them the sole and exclusive use of the common property adjacent to Unit 1 as a courtyard, unless such licence is expressly made subject to the easements and rights referred to in paragraphs 14 and 16 above.
[Note : paras 14 and 16 of the statement of claim refer to s 12(2) and (4) of the Subdivision Act 1988.]

C.Declarations that:
a.the purported licence agreement referred to in paragraph 7 of the amended statement of claim is void and of no effect;
[Note: para 7 of the statement of claim refers to the alleged Licence Agreement of 31 May 2006 between the body corporate and the McHargs.]
b.unless pursuant to a special resolution duly and properly passed pursuant to s.14 of the Owners Corporations Act 2006 (Vic) and for the purposes of s.31A(1)(c) of the Subdivision Act 1988, the Third Defendant does not have power to grant to any person a lease or licence to have sole and exclusive use and occupation of the common property adjacent to Unit 1 unless such lease or licence is expressly made subject to the easements and rights referred to in paragraphs 14 and 16 above.

D.A declaration that the purported ratification referred to in paragraph 12 of the statement of claim is null void and of no effect.
[Note: para 12 of the statement of claim refers to the alleged ratification of the 31 May 2006 Licence Agreement by a special resolution by postal ballot on about 19 October 2006.]
E.A declaration that there are implied over the common property adjacent to Unit 1 for the benefit of the Plaintiffs all easements and rights necessary to provide:
a.passage or provision of water, sewerage and drainage services;
and

b.passage or provision of rights of way.

F.A declaration that the Plaintiffs, as persons entitled to use the easements and rights referred to in paragraph E above, can gain access to the said easements and rights over the common property adjacent to Unit 1 for the purpose of using the said easements and rights.
FF.A declaration that the plaintiffs, as persons entitled to use the easements and rights referred to in paragraph E above have the right to enter the enclosed common property adjacent to Unit 1 for the purpose of:
(a)gaining access to the water supply which regulates the provision of water to all units including Unit 3;
(b)gaining access to and using the right of way between the gate to the enclosed area and the water supply referred to in (a) hereof.

G.Permanent injunctions:
a.restraining the First and Second Defendants whether by themselves, their servants, agents or howsoever otherwise from engaging in any conduct that has the effect of excluding or preventing the plaintiffs from enjoying use, in common with other unit holders of the Plan, of the common property adjacent to Unit 1;
and

c.that unless pursuant to a special resolution duly and properly passed pursuant to s.14 of the Owners Corporations Act 2006 and for the purposes of s.30A(1)(c) of the Subdivision Act 1988, restraining the Third Defendant from granting or purporting to grant to any person a lease or licence to have sole and exclusive use and occupation of the common property adjacent to Unit 1 unless such lease or licence is expressly made subject to the easement and rights referred to in paragraphs 14 and 16 above.
d.restraining the first and second defendants, whether by themselves, their servants and agents or howsoever from preventing, hindering or obstructing the plaintiffs from:
(a)gaining access to the water supply which regulates the provision of water to all units including Unit 3;
(b)gaining access to and using the right of way between the gate to the enclosed area and the water supply referred to in (h) hereof.

The legislation

The legislative history and the grants of licences to previous unit owners are relevant to the resolution of the issues and I will now turn to those matters.

The Strata Titles Act 1967

Plan of Strata Subdivision No. 9991 was registered on 18 July 1977, under the Strata Titles Act 1967. Section 12 of the Strata Titles Act provided for a appurtenant easements as follows:

12(1) The common property and each unit on a registered plan shall by virtue of this section have as appurtenant thereto all such rights of support, shelter and protection, and for the passage or provision of water, sewerage, drainage, gas, electricity, garbage, air and all other services of whatsoever nature (including telephone, radio and television services) over the parcel and every part thereof as may from time to time be necessary for the reasonable use or enjoyment of such common property or unit.
(2)The common property and each unit on the registered plan shall by virtue of this section have as appurtenant thereto –
(a)a right to the full free and uninterrupted access and use of light to or for any windows doors or other apertures existing at the date of registration of the plan and enjoyed at that date; and
(b)a right to maintain overhanging eaves existing at the date of registration of the plan –
over the parcel and every part thereof.

(3)The rights created by this section shall be easements, and shall carry with them all ancillary rights necessary to make them effective: Provided that any person exercising such rights shall make good all damage done in the exercise thereof.

As far as the common property was concerned, s 13(1) provided that the registered proprietors of the units should be the registered proprietors of the common property as tenants in common in shares proportionate to their unit entitlement.

Section 24 stated that the control, management, administration, use and enjoyment of the units and the common property was to be regulated by the by-laws. The by‑laws were set out in the first and second schedules to the act according to s 24(2). The by‑laws in the first schedule amended by unanimous resolution under s 24(3).

The first schedule set out the obligations and powers of the body corporate, including the power to:
5 (f)Grant to a member or anyone claiming through him any special privilege (not being a lease) in respect of the enjoyment of part or parts of the common property provided that any such grant shall be determinable by special resolution.
The amendment of the by-laws

On 30 August 1983, the by-laws in the first schedule in relation to Plan of Subdivision No. 9991 were amended by unanimous resolution to include a new power allowing the body corporate under by-law 5 to:
(g)make an agreement with any member of any occupier of a unit in relation to the enjoyment and use of part or parts of the common property in the form annexed hereto.
The annexed document was a “Licence Agreement” between the body corporate and the then owner of unit 2, Vera Rene Arthur in the following terms :
LICENCE AGREEMENT
THIS AGREEMENT is made the   day of            1983
BETWEEN:              BODY CORPORATE NO. RP 9991
of 23 Camden Street, Balaclava
(“the Body Corporate”) of the one part
AND  VERA RENE ARTHUR
of 15 Linton Street, Balaclava
(“the Owner”) of the other part
WHEREAS
A.THE OWNER is the registered Proprietor of the property known as Unit 2, 23 Camden Street, Balaclava and being all that land in the Parish of Prahran County of Bourke being Unit 2, delineated on Registered Plan Number 9991 and an undivided share in the common property and being the land more particularly described in Certificate of Title Volume 9211 Folio 783 (“the premises”)
B.CERTAIN portions of the said common property have been set apart by the Body Corporate for use as a courtyard and lock up garage as marked on the copy of the Strata Plan annexed hereto (“the Property”).
C.THE Body Corporate has agreed to grant to the Owner the sole and exclusive use of the Property for a period of ninety-nine (99) years in conjunction with her ownership of the premises.
NOW THIS AGREEMENT WITNESSETH as follows: -
1.        THE BODY CORPORATE HEREBY GRANTS to the Owner licence and liberty to the sole and exclusive use of the Property for a period of ninety‑nine (99) years which licence shall commence on the date herein before written.
2.        THE Owner shall pay to the Body Corporate an annual licence fee of ONE DOLLAR ($1.00) if such fee is demanded by the Body Corporate.
3.        THE OWNER HEREBY COVENANTS with the Body Corporate as follows: -
(i)      to observe and comply with the rules and by-laws of the Body Corporate;
(ii)     to maintain the Property in its condition as at the commencement of this Licence;
(iii)     not to use the Property or suffer anything to be done so as to render payable any increased or extra premium for any insurance effected by the Body Corporate against any insurable risk or which might make void or voidable any policy for such insurance or insurances;
(iv)     not to cause any nuisance damage obstruction annoyance or inconvenience to the members of the Body Corporate or their families or tenants;
(v)     to keep the Body Corporate indemnified against all expenses claims actions and demands whatsoever arising out of the failure of (sic) on the part of the Owner to observe or perform the provisions of this Licence;
(vi)     not to assign or in any way dispose of any interest in this Licence unless the proposed Assignee is a tenant of the Owner in relation to the premises;
(vii)    to pay all stamp duty on this Licence and the Body Corporate’s costs in connection with the preparation of this Licence.
4.        NOTWITHSTANDING anything hereinbefore contained this Licence shall be deemed to be revoked forthwith upon the Owner ceasing to be the registered Proprietor of the premises PROVIDED HOWEVER that the BODY CORPORATE HEREBY COVENANTS with the Owner that it will enter into a new Licence Agreement with any purchaser from the Owner of the premises upon the same terms and conditions of this Licence and in relation to the Property.
5.        THE BODY CORPORATE AGREES that it will not grant to any other person firm or company a sole and exclusive right to use the Property during the continuance of this Licence.
6.        NOTHING in these presents shall create or be construed as creating or shall confer or shall be construed as conferring upon the Owner a proprietary interest in the Property or any part thereof.
IN WITNESS WHEREOF the parties hereunto have duly executed these presents the day and year first above written.

The body corporate subsequently made agreements, essentially in accordance with the pro forma, with the owners from time to time of unit 1. On 26 November 1985 it made one with Herbert Storm and Caroline Perry Storm, on 10 February 1987, with Mary Anne Willox and, on 20 June 1995, with Radmilla Stanculovic.

The Subdivision Act 1988 and regulations

In the meantime, the Strata Titles Act 1967 had been repealed as from 30 October 1989, when the Subdivision Act 1988 and the Subdivision (Body Corporate) Regulations 1989 (“the 1989 regulations”) commenced operation. Bodies corporate became bodies corporate under the new legislation.

Section 28A of the Subdivision Act 1988 gave the body corporate the power to deal with the common property in accordance with the regulations.

The 1989 regulations gave the body corporate power to lease or licence all or part of the common property under reg 401(m), by a special resolution as required by reg 402(a). However, it is conceded by senior counsel for the Dropuliches that of the relevant by-laws made under the Strata Titles Act 1967, only by-law 5(f) survived by virtue of the transitional provisions in the 1989 regulations.

By 2006, the 1989 regulations had been replaced by the Subdivision (Body Corporate) Regulations 2001 (“the 2001 regulations”) which had come into operation on 17 April 2001. By-law 5(f) had not survived and reg 218(1) of the 2001 regulations gave the body corporate power to lease or licence the whole or any part of the common property by special resolution.

Regulation 311(2) of the 2001 regulations also provided that the common seal of a body corporate must only be affixed in accordance by a resolution of the body corporate and reg 311(3) that the common seal must be affixed in the presence of two body corporate members.

Section 12 of the Subdivision Act 1988 (like s 12 of the Strata Titles Act 1967) made provision for easements for the benefit of unit owners. It was (and remains) relevantly in the following terms :

12 Plan must show easements and other rights
(2)Subject to sub-section (3), there are implied –
(a)over –
(i)all the land on a plan of subdivision of a building; and
(ii) that part of a subdivision which subdivides a building; and
(iii)any land affected by a body corporate; and
(iv)any land on a plan if the plan specifies that this sub‑section applies to the land; and

(b)for the benefit of each lot and any common property –
all easements and rights necessary to provide –
(c)support, shelter or protection; or
(d)passage or provision of water, sewerage, drainage, gas, electricity, garbage, air or any other service of whatever nature (including telephone, radio, television and data transmission); or
(e)rights of way;
(f)full, free and uninterrupted access to and use of light for windows, doors or other openings; or
(g)maintenance of overhanging eaves –

if the easement or right is necessary for the reasonable use and enjoyment of the lot or the common property and is consistent with the reasonable use and enjoyment of the other lots and the common property.
…

(4)Any person, Council or referral authority entitled to use an easement can gain access to that easement over the common property and any lot for the purpose of using the easement and must repair any damage caused in gaining access to or using the easement.

The Owners Corporation Act 2006

The Subdivision Act 1988 was amended by the Owners Corporation Act 2006 which came into operation on 31 December 2007. It is a result of the amendments that the body corporate is now an owners corporation. Section 14 of the Subdivision Act 1988 now also gives an owners corporation power to lease or licence the common property by special resolution.

Background facts

The Dropuliches rely in part upon the history of the relationship between themselves and the McHargs and the body corporate in support of their claims. As a result, it is necessary to record my findings of fact as to relevant background matters. Many of these facts are also matters of common ground.

Shortly after moving into unit 3, Ms Dropulich asked Mr Joe Getreu of Melbourne Body Corporate Elwood, the body corporate manager, where the water meter and control tap were located. On 17 November 2003, Mr Getreu informed her by email that the main tap could be found next to the water meter and that she should contact the owner of unit 1 to have the locked gate of the courtyard opened for access to it.

On the following day, 18 November 2003, Mrs McHarg emailed Ms Dropulich as follows:

Hi, Sylvia – I am not home very much on w/ends so I will leave the key in your letter-box on Saturday morning and you can return it to my letter-box when you are finished. Can you advise roughly what time you will be turning off the water so if I am not soaked under the shower!

Mrs McHarg included her home, work and mobile telephone numbers and her fax number in the email.

On 26 November 2003, Ms Dropulich emailed Mrs McHarg in relation to the subject of the key to the back gate:

Dear Lola
Would it be possible for you to leave the back door key in my letter box tomorrow morning? I’m trying to organise for the body corporate plumber to come out tomorrow to have a look at the metre (sic) and taps.
Thanks
Silvia

Ms Dropulich gave evidence that, however, on a third occasion when a tradesman working on flywire screens in her unit had tools fall into the courtyard area below, she did not bother to try to obtain a key from Mrs McHarg. She did not seek to recover the tools either.

On about 17 July 2004, Mr Dropulich wrote to Mr Getreu asking for clarification about the issue of access to the common property. He referred to their discussion earlier that year in relation to the use of the common property and the rights of each of the four unit owners. He stated his belief that all four units should have access to the common property “as determined by the Land Titles Office, not some arbitrary decision by individual owners or the Body Corporate, which is what seems to be the current situation.” He asked for a copy of the licence or legal documentation concerning what he described as “unit 2’s 99 year lease” to a section of the property. Mr Getreu responded on 5 August 2004, enclosing a copy of a licence agreement relating to unit 2.

Later in 2004, Ms Dropulich had what she described in court as a “hot water emergency” when she was unable to turn off the hot water tap in her kitchen. She called Mr Getreu, seeking a key. He told her to contact Mrs McHarg. Ms Dropulich went downstairs and found Mrs McHarg was not at home. Mr Getreu told her about Mrs McHarg’s daughter’s address, but she became upset and told him that she did not wish to “traipse around half of Victoria looking for a key”. Although she had Mrs McHarg’s telephone and mobile telephone numbers, she did not make any attempt to contact her by phone. Ultimately, the hot water problem was fixed, without any need to turn off the water.

On 13 April 2005, after attending a body corporate annual general meeting with Mrs McHarg and Mr Getreu, Mr Dropulich spoke to Mrs McHarg about obtaining a key for the purpose of fixing leaking taps in unit 3. Mrs McHarg told him that she had an interest in the property and Mr Dropulich stated that he gained the impression she was telling him that she could give him a key if she wanted to, but was not obliged to do so.

At that meeting on 13 April 2005, Mr Getreu’s company, Melbourne Body Corporate Management Elwood, was re‑appointed as managing agent of the property.

The VCAT proceeding

Ms Dropulich then commenced a proceeding at VCAT seeking damages of $35,000 from Mr Getreu, the manager of Melbourne Body Corporate Management Elwood.

Her action in part involved allegations that Mr Getreu had engaged in misleading and deceptive conduct contravening s 9 of the Fair Trading Act 1999 by stating, in a certificate given at the time of her purchase of unit 3, effectively, that the body corporate did not know of any lease, licence or privilege granted by it over the common property. Ms Dropulich claimed to have been denied access to the common property for two years. She sought an amount comprised of 5% per annum of the purchase price of her unit plus the cost of alleged over‑payment of rates and water bills relating to the gardens in units 1 and 2, together with the cost of electricity relating to her use of a clothes dryer because she had allegedly been prevented from accessing a clothesline. Ms Dropulich sought orders that the body corporate install separate water meters to service each individual unit in the block. She sought an order dismissing Melbourne Body Corporate Management Elwood as the manager of the body corporate and the appointment of an alternate body corporate manager.

On 23 August 2005 the body corporate solicitors wrote to Ms Dropulich’s solicitors advising that there was no licence agreement in the name of the current owner of unit 1 of which the body corporate was aware. The letter further noted that the licence agreement in respect of the former owner of unit 2 had been included in the contract of sale in relation to the Dropulich unit. The solicitors sought the discontinuance of the proceeding against the body corporate.

On 19 September 2005, the McHargs applied to be joined as parties to the VCAT proceeding. The letter from Mrs McHarg explaining their application to Senior Member Vassie notes that the orders sought by Ms Dropulich for access to the common property would deny her the sole and exclusive occupation of the courtyard which she claimed to have enjoyed since settlement of the purchase of her unit on about 16 May 2003. Mrs McHarg’s letter refers to the property being advertised as having a courtyard and the agent’s representation that there was an existing 99 year lease with at least 87 years remaining and a peppercorn rent of $1.00 per year. At settlement she had been given the only key to the courtyard. The application also noted that the McHargs were seeking orders that the body corporate manager execute a licence agreement to them for the sole use and occupation of the courtyard in the form of an agreement attached to the letter to VCAT.

On 20 September 2005, Ms Dropulich’s solicitors wrote to the solicitors for the body corporate seeking “full and unfettered access to the common property adjacent to Units 1 and 2” on the basis that “it appear[ed] that there [were] not any valid licence agreements in place in relation to those units”.

The VCAT proceeding was withdrawn on 23 September 2005, after Senior Member Vassie had determined that the tribunal had jurisdiction to hear and determine the Fair Trading Act claim, but that it otherwise had no jurisdiction to determine the matters raised in Ms Dropulich’s claim.

After the VCAT hearing, Ms Dropulich asked Mrs McHarg to leave the key to the gate to the courtyard on top of Mrs McHarg’s meter box at the front of her property, in order to give everyone access to the courtyard. Mrs McHarg responded that she would not leave the key there because there were people coming and going all the time.

I note in this regard that I accept Mrs McHarg’s evidence that she believed at the time that Ms Dropulich had a lot of people coming and going from her flat for parties and the like. I also accept that she was concerned about people coming in and out of her back gate, being, as she said, a frightened old woman who was concerned that it was unsafe to leave a key on the meter box outside her front door when there was so much passing traffic. (Mrs McHarg was aged 73 when she purchased unit 3 in March 2003.)

I am further satisfied that Mrs McHarg had written to each of the occupants of the other units, indicating how they could obtain a key to access the courtyard and had also left keys to her own unit with her friend, Judy, in unit 2 and her daughter, Ms McHarg, who lived one street away. Both of them knew where Mrs McHarg kept the back gate key inside her unit. I am persuaded that Mrs McHarg was truthful when she agreed under cross-examination, that she was opposed to Ms Dropulich having a key for the purpose of maintenance and repairs. I also accept that she was again telling the truth when she agreed with senior counsel for the Dropuliches that the reason for her opposition was her belief that Ms Dropulich would use the key for other purposes and that she did not trust her.

Finally, I accept Mrs McHarg’s evidence that she could not recall any instance upon which any of the Dropuliches had telephoned her to obtain the key.

The Magistrates’ Court proceeding

On 30 September 2005, Ms Dropulich commenced proceedings in the Magistrates’ Court against Mr Getreu. The letter attached to the statement of claim, by way of particularisation, referred to the certificate included in her contract of sale of unit 3. The letter went on to record Ms Dropulich’s “problems” with regard to access to the main water supply control tape in the courtyard. The letter stated that Ms Dropulich sought the following :

1.Immediate full and unfettered access to all common property, as described on the plan and title for Unit 3 – 23 Camden Street, East St Kilda.
2.The immediate dismissal of Joe Getreu as manager of the block of units at 23 Camden Street.
3.That the four owners in the block convene a special meeting to appoint a new body corporate manager for the block.
4.Compensation of $40,000 (or whatever amount the Magistrate deems fair and equitable). My figure is calculated conservatively at being denied access to 5% of the property I paid for, for over two years (ie. 5% of $304,000 x 2 years = $30,400 + $5,000 + > $5,000 plus in legal and court application costs thus far + >$4,600 sundries & miscellaneous over two years).
5.That any compensation I may be awarded not affect innocent parties in the block in the form of any increased costs or levies. Mr Getreu is solely responsible.
6.The waiving of the ‘painting’ levy.

On 17 October 2005, Ms Dropulich’s solicitors advised Mr Getreu that they had instructions to withdraw the complaint. The proceeding was discontinued by a notice filed on 18 October 2005.

On 30 November 2005, Melbourne Body Corporate Management Elwood/St Kilda gave the unit owners 28 days’ notice of their resignation as managers of the body corporate.

On 7 December 2005, Mrs McHarg’s solicitors wrote to Mr Getreu enclosing three copies of the licence agreement signed by Mrs McHarg for sealing by the body corporate. On 20 December 2005, Ms McHarg wrote to the other unit holders as follows:

Dear Judy, Silvia and Nancy.
I will be away for a short time over Christmas and Silvia is concerned that there could be a plumbing crisis in her flat. I am leaving the back gate key with Judy in flat 2 so Silvia’s Plumber has access to the control tap at the back of flat 1. Nancy, as you know, if and when you have a plumbing crisis your plumber needs to access the control tape at the back of flat 2. If the water is turned off at the meter it cuts off water to ALL flats. When we have a new body corporate management they will hold a back gate key for emergencies.
Lola McHarg
1/23 Camden Street
Balaclava 3183

On 20 December 2005, Mr Getreu informed the McHargs’ solicitor that he was reluctant to sign the licence agreement forwarded to him for execution. After pointing out some inconsistencies between the licence document and previous licences relating to the common property, Mr Getreu stated that he was not prepared to execute the agreement which might involve him in further litigation and dispute. He suggested that a meeting of the body corporate be called to address the issue.

On 7 March 2006, Ms Dropulich’s solicitors wrote to the shortly to be appointed new body corporate manager, Victoria Body Corporate Services Pty Ltd, claiming that she was being denied entry to the common property on the ground floor adjacent to both units 1 and 2. The letter sought immediate unfettered and unrestricted to that common property and threatened legal proceedings against the body corporate manager if it did not do everything possible to achieve that objective.

On 14 March 2006, the appointment of the new body corporate manager was effected by resolution at the annual general meeting attended by Mrs McHarg, Ms Dropulich and the owners of unit 4.

Eventually, on 31 May 2006, Mr Bill Morris, manager of Victoria Body Corporate Services Pty Ltd returned two executed copies of the Licence Agreement in relation to the courtyard to Mrs McHarg’s solicitors. The Licence Agreement was signed by Mrs McHarg and Ms McHarg as licensees and the document was executed in the presence of Mrs McHarg and Mr Con Stoisos who was an occupant, rather than an owner, of unit 4. Under the Licence Agreement the body corporate purported to grant to the McHargs “licence and liberty to the sole and exclusive use of the courtyard for a period of ninety-nine (99) years which licence shall be deemed to have commenced on 16 May 2003”. The document was otherwise apparently in the form of the document annexed to the unanimous resolution of 30 August 1983.

On 30 June 2006, however, the Dropuliches’ solicitors demanded “full and continuing access” to the courtyard within seven days and the removal of all fences and gates within a reasonable time. Legal proceedings were foreshadowed if the demand was not met.

The Supreme Court proceeding

Ms Dropulich commenced this proceeding on 11 July 2006.

On 17 July 2006, the Licence Agreement was resealed in the presence of Mrs McHarg and Ms Nancy Rodic, after Mrs McHarg’s solicitor had done a title search which revealed that Mr Stoisos who had witnessed the initial affixation of the seal was not the proprietor of Unit 4.

On 25 July 2006, the McHargs’ solicitors responded to the 30 June letter and the receipt of the writ and statement of claim. A copy of the Licence Agreement was enclosed as evidence of the McHargs’ right to sole and exclusive use of the courtyard. The solicitors indicated that the proceeding would be strenuously defended and that their letter would be produced in relation to costs.

The Dropuliches’ solicitors advised Victorian Body Corporate Services Pty Ltd that a special resolution of members of the body corporate was required for the grant of the licence. The affixation of the seal was challenged as ultra vires and the Licence Agreement as null and void.

After further requests from the Dropuliches’ solicitors about the circumstances in which the Licence Agreement was executed, on 19 September 2006, Victorian Body Corporate Services Pty Ltd responded as follows:

We refer to your previous letter and email dated 18.9.06 and advise the following:
1. Owner of unit came into office and requested it to be sealed.
2. Owner took licence to committee for execution.
Hoping this now clarifies the matter for you.

There were then steps taken to ratify the Licence Agreement. On 3 October 2006 Mr Morris gave written notice to the owners of units in the following form:

BODY CORPORATE PLAN NO. 9991
23 CAMDEN STREET, BALACLAVA
NOTICE TO OWNERS
POSTAL BALLOT
RATIFICATION OF LICENCE AGREEMENT
All owners please find attached Postal Ballot for the ratification of Licence Agreement, executed by the Body Corporate on 31.5.06.
Would all owners please complete Postal Ballot and return to this office by 17.10.06.

The postal ballot document itself was in the following terms:

BODY CORPORATE PLAN NO. 9991
23 CAMDEN STREET, BALACLAVA
POSTAL BALLOT – RATIFICATION OF LICENCE AGREEMENT
(in accordance with Regulation 408, Subdivision (Body Corporate) Regulations 2001)

Date of issue: 3.10.06 Closing date: 17.10.06

The motion under consideration is –
“Members of the body corporate resolve by special resolution to the ratification of the Licence Agreement executed by the Body Corporate on 31.5.06 and to Lolita Elaina McHarg and Vollene McHarg in respect of Courtyard 1”.

Mrs McHarg obtained quotes from approximately six plumbers in relation to the installation of separate cold water service check meters and controls for each unit. The meters were to be placed on the outside of each of the units from where they could be read from the street. All unit holders could be billed separately for water usage this way. Control taps were also to be supplied in a position accessible from inside the unit just above the basin in each bathroom.

On 16 May 2007, Mrs McHarg obtained a quotation for a price of $7,700.00 from Peter Stone Plumbing Pty Ltd. The body corporate manager, Mr Morris, asked the unit owners to consider Mr Stone’s quote and another for $8,864.00. On 15 June 2007, Mr Morris announced that 3 of the 4 unit owners had voted to accept Mr Stone’s quote, and that the matter would proceed, “subject to resolving where the meters will be installed”.

Ms Dropulich voted against the resolution on 6 June 2007, despite being in favour of the installation of separate meters and control taps. She emailed Mr Morris on 13 June 2007 acknowledging her “in-principle support … regarding water meter installation, pending points 1,2,3,4,5”. Her email then quotes para 9 of a 30 May 2007 letter from her solicitors to the McHargs’ solicitor, as follows :

“Our clients will consent to
9.1. the installation of four remote control meters, subject to:
9.2discussion about positioning of the meters in a suitable location on common property (not private property);

9.3. all Body Corporate members agreeing to the proposal;
9.4. compliance with South East Water requirements;
9.5. compliance with the Water industry Act 1994;”

Ms Dropulich said in evidence in chief that her concern about the proposal arose out of her understanding that the control taps were to be placed on the outside walls of the units, accessible only through a window over the baths. She denied that Mr Stone had explained to her that the taps could be placed inside the bathroom in a cupboard over the basin. She conceded that she did not raise her concerns with the body corporate manager before voting against accepting either of the quotes.

Ms Dropulich’s solicitors subsequently contacted the McHargs’ solicitors on 22 June 2007 seeking access for her to attend an appointment in the courtyard with a representative from South East Water to discuss the location of separate taps inside the courtyard. The McHargs’ solicitor responded on 25 June refusing access on the grounds that the 75% vote had been in favour of accepting the quote for the installation of separate meters on the back wall of the unit building. It was asserted that Ms Dropulich had had time before the vote to clarify any matters relating to that proposal.

Submissions

Counsel for the plaintiffs challenge the validity of the Licence Agreement. They argue that it was not granted pursuant to a special resolution, as required by reg 218 of the 2001 regulations, that the common seal was not affixed in the presence of two members of the body corporate and no resolution had been passed that the seal should be affixed in compliance with reg 311 of the same regulations.

As far as the ratification document is concerned, they contend that the ratification resolution was ineffective because the postal vote documents failed to sufficiently identify the Licence Agreement or inform the members about the nature of its defects. Counsel for the Dropuliches refer to authorities including Taylor v Smith,[1] in which it was held that full knowledge of all material circumstances is required for ratification of an agent’s unauthorised action by a principal. (Neither the researches of counsel nor my research has been able to produce a case directly in point.)
[1](1926) 38 CLR 48.

Counsel for the McHargs first responds that the execution of the Licence Agreement was sufficient evidence of a resolution by the signatories for the affixation of the common seal. Counsel then argues that, in any event, the Licence Agreement was ratified by the 19 October 2006 special resolution.

Counsel for the McHargs also relies upon the body corporate’s power under s 29(6) of the Subdivision Act 1988 to do all things necessary or convenient to enable it to carry out its duties to argue that it did have the power to retrospectively create or ratify the Licence Agreement.

Counsel also calls in aid the description of the body corporate’s functions under regs 201(e) and (f) of the 2001 regulations. (Regulation 201(e) describes the body corporate’s function of acting where necessary or desirable to ensure that the regulations and the rules of the body corporate are complied with. Regulation 201(f) sets out the body corporate’s function of carrying out other functions conferred by the Subdivision Act 1988, the regulations or any other law.) Regulation 202(1) also gives the body corporate the powers necessary to enable it to perform its functions.

Counsel for the body corporate submits that it maintained a neutral position in relation to the validity of the Licence Agreement and the ratification. He contends that the body corporate had simply followed instructions throughout in the context of the dispute between the parties. He says that the matters sought to be the subject of declarations applying to his client are merely hypothetical and that the balance of convenience does not favour the grant of injunctive relief.

Conclusions
The Licence Agreement and the ratification ballot

I am not persuaded that the body corporate granted a valid licence to the McHargs by the Licence Agreement. Regulation 218 of the 2001 regulations gave it the requisite power only when acting in accordance with a special resolution. I agree with senior counsel for the Dropuliches that, even if by-law 5(f) were otherwise to be deemed a rule of the body corporate under reg 220 of the 2001 regulations, it would not survive to the extent that it was inconsistent with reg 218 and did not require a special resolution authorising the body corporate to enter into a licence agreement. In other words, the Licence Agreement would not be saved by by-law 5(f) in that regard.

I am not persuaded that the 19 October 2006 ratification rescued the Licence Agreement. I agree with counsel for the Dropuliches that the McHargs needed to prove that those ratifying the agreement were fully informed as to its identity, its substance and the reasons for its invalidity. In all the circumstances, Mrs McHarg did, in effect, act as an agent of the body corporate in the exercise of its power to grant a licence and I am persuaded that the relevant principles of the law of agency relied upon by the Dropuliches are applicable to its ratification by the body corporate as principal.

The McHargs did not satisfy me that each of the three owners was informed or aware of the identity, substance and defects of the Licence Agreement the subject of the special resolution. No copy of the Licence Agreement was attached to the document and it was not specifically identified otherwise in the terms of the proposed resolution. There was no description of the substance of the agreement which purported to retrospectively affect the rights of the unit holders to the courtyard from 16 May 2003, rather than from its date of 31 May 2006. The circumstances of the affixation of the seals on 31 May and 17 July 2007 were not described and there was no reference to the failure to comply with the requirements of reg 311 of the 2001 regulations.

Whilst it might be inferred from her involvement in the process that Mrs Rodic would have been aware of the failure to comply with reg 311 in relation to the witnessing of the affixation of the seal, there is no evidence about any awareness of relevant matters on the part of the owner of unit 2 which was identified only as the “Estate of V Arthur” on the postal ballot form.

The terms of a future licence

Nevertheless, I am not persuaded to make any declaration or to grant the Dropuliches an injunction against any of the defendants directed at preventing the grant of a licence to the McHargs which does not expressly refer to the implied easements under s 12(2) and (4) of the Subdivision Act 1988.

First of all, the Owners Corporations Act 2006 does not require any grant of a lease or licence under s 14 to expressly refer to the implied easements under s 12. I note in that regard that the applicable statutory scheme over time had empowered bodies corporate to grant “privileges”, licences and leases over common property, without any stated requirement for express reference to easements or rights relating to that common property created in similar terms in legislation, regulations or by-laws.

Secondly, there is no dispute between the parties warranting such relief, as the McHargs have throughout recognised the priority of the Dropuliches’ rights under the easement over any rights they might have or acquire under any licence agreement. The McHargs also otherwise acknowledge the Dropuliches’ rights as co-owners of the common property.

The ambit of the s 12(2) and (4) Subdivision Act 1988 implied easements and secondary rights is restricted, not only to the extent that the easement and rights are necessary for the reasonable use or enjoyment of the unit (as was the case under s 12(1) of the Strata Titles Act 1967 ), but also to the extent that they are “consistent with the reasonable use and enjoyment of the other lots and the common property” under s 12(2) of the Subdivision Act 1988. The word “necessary” is to be given its meaning of “essential” in the context of the concepts of the reasonable use or enjoyment of the benefited unit.[2] The assessment as to what is reasonable in either regard must be determined in all the circumstances which include the availability of an alternative means of utilising the easement.[3]
[2] Body Corporate No 431424R v Sheppard & Anor [2008] VSCA 118, [80] (Dodds- Streeton JA with whom Buchanan JA and Osborn AJA agreed).
[3]Ibid [81].

In Body Corporate 413424R v Sheppard & Ors,[4] Dodds-Streeton JA (with whom Buchanan JA and Osborn AJA agreed) held that the trial judge had correctly considered whether an alleged easement was necessary for the reasonable use and enjoyment of the benefited property in terms of the function it sought to secure and the available alternative means of achieving that objective. Although the Court of Appeal was considering the test to be applied in relation to the existence of the claimed easement, as opposed to the secondary rights attached to its enjoyment, Dodds-Streeton JA relevantly said:

While the mere possibility of an alternative to the easement would not preclude the satisfaction [that the easement was necessary for that reasonable use and enjoyment] , his Honour … correctly concluded that if the alternative were reasonable, although involving some inconvenience or additional cost, an implied easement would not be necessary in the relevant sense.[5]

[4][2008] VSCA 118.

[5][2008] VSCA 118, [82].

The ambit of ancillary rights reasonably necessary for the use and enjoyment of an easement under s 12 can be no greater than what is reasonably necessary to give effect to the primary easement implied and it will not be enough to show that the secondary right will avoid inconvenience.[6]
[6]See: Biki v Chessells [2004] VSCA 70, [16] (Ormiston JA).

Senior counsel for the Dropuliches, in effect, submits that the supply of a key to the courtyard would provide the access which his clients seek as necessary for the reasonable enjoyment of their implied easements under s 12 (2) and (4) and consistent with the reasonable use and enjoyment of the McHargs’ unit and the courtyard.[7] I am not persuaded that, in all the circumstances and in light of the history of Mrs McHarg’s demonstrated willingness to provide access to the courtyard (in the context of her belief that the McHargs held a valid licence), it would be necessary, as opposed to merely convenient, for the Dropuliches to have a key to the courtyard in the future if the McHargs were to be granted a valid licence.
[7]T49 lines 8-18.

I reach this conclusion because I am satisfied that Mrs McHarg in the past made reasonable arrangements to make the key to the courtyard available to the Dropuliches whenever access was required. She was an elderly lady in a ground floor unit with security concerns and she took action to arrange for the installation of separate meters and control taps. The only evidence that Mrs McHarg denied access was that relating to what I consider was her reasonable refusal of Ms Dropulich’s request to attend the courtyard with the South East Water representative after the body corporate had resolved to locate separate meters on the back wall of the units.

Relief restraining the McHargs from preventing use of the courtyard

I am further not persuaded that the McHargs would be likely to act so as to deprive the Dropuliches of their rights as co-owners of the courtyard in the future, if the McHargs were to have no licence.

Nor am I satisfied that, if they were to be granted a licence in the future, they would be likely to try to prevent the Dropuliches from exercising those rights secondary to their enjoyment of the benefit of the s 12 easements.

Accordingly, I am not persuaded that the Dropuliches have made out a case for the relief restraining the McHargs from acting so as to prevent their use of the courtyard or the enjoyment of the easements. Nor, in any event, am I persuaded that the balance of convenience would favour the relevant injunctions sought against the McHargs.

Relief against the body corporate

I am satisfied that the declarations I propose to make as to the invalidity of the Licence Agreement and the ineffectiveness of the purported ratification should be made as against all the defendants.

Whilst the body corporate has not sought to uphold the validity of the Licence Agreement, it has not conceded its invalidity or the ineffectiveness of the ratification.

Summary of conclusions

In summary, I am persuaded that the Licence Agreement dated 31 May 2006 and resealed on 17 July 2006 is invalid. I am not persuaded that a valid licence agreement was made by virtue of the 19 October 2006 special resolution or that the Licence Agreement was validly ratified by that resolution. I will make suitably worded declarations against each of the defendants to that effect.

Further, I am not persuaded that any future licence agreement relating to the courtyard which the body corporate might properly make under s 14 of the Owners Corporations Act 2006 should be made expressly subject to the easements and rights enjoyed by the Dropuliches under s 12 (2) and (4) of the Subdivision Act 1988. I will therefore refuse the applications for relief by way of declaration and injunction in that regard.

Finally, I am not satisfied that I should grant declaratory or injunctive relief sought to restrain the McHargs from preventing the Dropuliches from enjoying whatever rights they might have in relation to the courtyard, whether or not the McHargs themselves shall have been granted a licence. I will refuse the applications for that form of relief.

I will hear the parties as to the form of orders and in relation to costs.

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Citations

Dropulich v McHarg [2008] VSC 238

Cases Citing This Decision

0

Cases Cited

3

Statutory Material Cited

0

Taylor v Smith [1926] HCA 16

Body Corporate No 413424R v Sheppard [2008] VSCA 118

Biki v Chessells [2004] VSCA 70

[2008] VSC 238

2 July 2008