Lucky Developments v Hsu

[1999] NSWSC 412

CITATION:	Lucky Developments v Hsu [1999] NSWSC 412
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	3921 of 1998
HEARING DATE(S):	30 April 1999
JUDGMENT DATE:	30 April 1999
PARTIES :	Lucky Developments Pty. Ltd. (Plaintiff) Jung-Kang Hsu (First Defendant) Tao Hsu (Second Defendant)
JUDGMENT OF:	Windeyer J at 1

COUNSEL :	Ms L Stapleton (Plaintiff) Mr. J. McKenzie (First and Second Defendants)
SOLICITORS:	R.S. Davis & Davis (Plaintiff) James Lee (First and Second Defendants)
CATCHWORDS:	REAL PROPERTY - Co-Owners - s66G Conveyancing Act 1919 - Claim for appointment of trustees for sale - cross-claim for partition - whether partition beneficial - extent of equality moneys
ACTS CITED:	Conveyancing Act 1919 s66G
CASES CITED:	Re: Cordingley (1948) 48 SR(NSW) 248. Story: Equity Jurisprudence 7th Ed s654
DECISION:

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SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

FRIDAY, 30 APRIL 1999

3921/98 LUCKY DEVELOPMENTS PTY LIMITED v JUNG-KANG HSU & ANOR

JUDGMENT

HIS HONOUR: The contest between the parties in this matter is whether or not an order should be made for the appointment of trustees to hold the property on statutory trust for sale or whether an order should be made for the appointment of trustees to hold the property on statutory trust for partition.

The property, which is the subject of the proceedings, comprises the land in folio identifiers 12/733307, 13/828889 and 14/828889. The combined area of land has a substantial frontage to Dunblane Street and also a substantial frontage to Briggs Street, Camperdown. Those roads connect with Missenden Road, Camperdown, which is a major thoroughfare in that area.

The plaintiff company is registered as proprietor of a two-thirds interest in the whole of the land and the defendants each own a one-sixth interest in that land, the holdings being as tenants in common. For some reason which does not matter, there has clearly been a major disagreement between the plaintiff and the defendants as to the management of the property and its development.

The land is vacant land. It is clear that it will be developed, probably in the same way as the surrounding area is being developed, it being zoned under South Sydney Council Plan as No. 10 Mixed Use Zoning. That would allow the construction of unit development for residential purposes on the property, although the council would have some discretion as to what was allowed. The floor space ratio in the area is 1.5:1 and, on the evidence of one of the valuers, may allow a total number of dwelling units of twenty-two to be placed on the property, assuming the floor area of 90 square metres for each such unit. That would appear to be a maximum development, which Mr Koh, an architect engaged by the defendants, says is unlikely to be achieved. I accept his evidence that it is highly unlikely that a development would be achieved of twenty-two dwelling spaces of that size, there being requirements for setback, access and like considerations which would make it unlikely that such a high use could be achieved.

The defendants wish to retain part of the property. They say that they purchased it with that in mind and that, if the property is sold, they will have to acquire another development property at some disadvantage to them.

There is some evidence, which I think should be given little weight, of the capital gains tax effect which would be brought about by a sale of the property as a whole as opposed to the partition of the property and the retention of part of that property by the defendants. The reason I say that little weight should be given to it is that there is no evidence of the tax affairs of either party and (it is difficult to accept that abstract evidence of the effect of one particular transaction is reliable so far as the tax liabilities of these parties are concerned).

There is little purpose in setting out descriptions of the properties held in the three titles other than to say that what might be described as the property having a major frontage to Briggs Street also has a reasonable frontage to Dunblane Street, so that if there is to be some partition then the partition which is envisaged is one under which there would be two blocks provided, the property having the Briggs Street frontage being limited to that, so that the two lots along the Dunblane Street frontage at the present time would be added to that part of the Briggs Street frontage property which is between those two lots fronting Dunblane Street. The subdivision proposed by the defendants would bring about two lots, that facing Dunblane Street having an area of 558.75 square metres and that facing Briggs Street having an area of 782.55 square metres. There may be some little discrepancy in that, but that, in general, is the area.

The evidence of Mr Mangioni, the valuer for the defendants, is that the properties, valued separately in accordance with the proposed subdivision, are worth more than the properties as a whole. That valuation of Mr Mangioni, at least in the first instance, put forward a figure of $900,000 for the proposed lot fronting Briggs Street and $800,000 for the proposed lot fronting Dunblane Street with a figure of $1,600,000 for the total site. In other words, on that valuation made in November 1998, there is a difference of $100,000 between the total value of the two blocks valued separately and the value of the land as a whole.

In a subsequent affidavit sworn a few days ago, the same valuer increased the value of the Briggs Street property by $200,000. He was cross-examined about this and, as I understood his evidence, explained it by having given further consideration to a comparable sale of a Briggs Street property, but it is fair to say that I did not think his explanation of the increase was convincing. However, it must be borne in mind that in this matter the defendants seeking partition are offering what is generally described as equality money on the basis of that higher figure giving the plaintiff/cross-defendant the option of picking whichever lot he wishes to take in the event that a partition into two lots is ordered. Mr Mangioni valued the property having regard to comparable sales, checking this, in a somewhat unconvincing way, against what might be described as the land cost per dwelling for other nearby developments.

The valuer called by the plaintiff, Mr Feilich of Messrs Dyson Austen, did not consider comparable values a satisfactory way of valuing this property, saying, as I understood it, that it was a special site, he would have described it as unique, and saying that all properties in the area had their certain qualities and, for development sites, a hypothetical development calculation method of valuation was more reliable. On that basis, relying on the views of Mr Koh as to what development could reasonably be approved and constructed on the combined site and on each of the subdivided sites, he came to the same conclusion as did Mr Mangioni for the total site, namely $1,600,000, but he said that if each of the properties were sold separately then the total which would be achieved would be lower and his value for the Dunblane Street lot was $690,000 and, for the Briggs Street lot, $770,000, bringing about a total if the properties were valued separately of $1,460,000.

The reason why the lower figure was arrived at was, to a large extent, based on the views of Mr Koh as to there being a larger development available on the total site as against the combined development available if the sites were treated separately, there being, in the latter case, additional requirements for access, setback, underground parking and the like which would not need to be doubled-up in a single development. In other words, he considered that the realisations would be less on a two lot basis than on a combined basis, thereby reducing the value of the site.

In ordinary circumstances, in another place, the difference in valuation methods may be more significant than, in my view, it is in this case. It is fair to say that it would be difficult to accept either value on its face. The reason for that is that the evidence of Mr Koh convinced me that obtaining the density of development put forward by the cross-claimants was quite unlikely. As against that, the hypothetical development calculation put forward by Mr Feilich as the basis of his conclusions was entirely based on the rather conservative view of Mr Koh of the development which could be put on the land and of the type of development which it was likely would be put on the land.

The reason why I say it is not as significant in this case as it might otherwise be to determine which, if either, valuer should be accepted is that the defendants, who are, of course, endeavouring to show that the partition would be beneficial to the majority interest holders, are prepared to accept and in fact offer an order under which the plaintiff would have the option of acquiring either of the lots and of being paid equality money adjusted on the basis of the higher figures put forward by the defendants/cross-claimants. Those higher figures include the figure of $1.1 million put forward in the end by Mr Mangioni in respect of the Briggs Street property. Thus, if an order for partition were made as proposed by the cross-claimants and the plaintiff took the smaller of the two lots then the plaintiff would receive that lot having, on the basis of the evidence of Mr Mangioni, a value of $800,000 together with equality money of $471,447.75, based on the figure of $1,100,000 for the Briggs Street property put forward by Mr Mangioni in his final valuation.

Under the provisions of s 66G of the Conveyancing Act 1919, where a co-owner applies for the appointment of trustees on statutory trust for sale, the Court has the power to make an order for partition of the property if the other co-owners satisfy the Court that partition would be more beneficial for the co-owners interested to the extent of upwards of a moiety in value than in sale. In this case, of course, it is the plaintiff whom the Court must be satisfied would be in a more beneficial position on partition than on sale. Even so, the matter is still in the discretion of the Court and the Court is not bound to make an order for partition in such circumstances, the position being that it cannot do so unless those circumstances exist. (Section 66G(4)). Sale and partition remain as true alternatives; Re: Cordingley (1948) 48 SR(NSW) 248.

It is, I think, important to understand that if an order were made for the appointment of trustees for sale there is no particular reason why those trustees should not be given power, if they did not otherwise have power, to consolidate and/or subdivide the total area of land in whatever way they thought would bring about the best sale and it has not been suggested otherwise. Nevertheless, it has not been suggested that there is any better subdivision available than that which is put forward by the cross-claimants as a proper basis for partition and that, I think, is obvious enough in view of what might be described as the straight line approach which would be expected to make the design of any development easier.

The land in question in total has an area of 1,341.3 square metres. The entitlement of the plaintiff on an area basis is 894.2 square metres. On the subdivision or partition put forward, if the plaintiff took the larger block, then the area which the plaintiff would obtain would be 782.5 square metres, a reduction of 112 square metres in the area of mathematical entitlement, being a reduction of about 12.5 percent in land area as against actual entitlement. If that partition came about then equality money of $159,914 would be paid by the cross-claimants to the plaintiff/cross-defendant.

If the plaintiff elected, as it is proposed it should be entitled to do, to take the smaller block then the position would be that it would obtain a very substantial amount of money by way of an equality payment but, on the other hand, would receive an area of land 336 square metres less than its entitlement on an area basis. No other method of partition has been put forward and it has not been suggested that trustees should be appointed to work out some other form of partition; in other words this case has gone forward on the basis that the partition, which is probably best shown in the annexure to the affidavit of McNeil Ingham sworn 25 February 1999, was the appropriate partition. In spite of that I should say that as the plaintiff opposes partition it could not be expected to propose another scheme, and there is no reason to think that a scheme which made a large block closed to an area of 89 square metres could not be achieved.

I have come to the conclusion, I should say with some regret, that I do not think that an order should be made for partition along those lines. The reason for that is that I think it would be only in most unusual circumstances that some sort of option would be given to the party with the majority interest seeking to have a sale under which they could take whatever part they wished, but then be subject to differing amounts of equality money. It would not be impossible, but taking into account entitlements to land on an area value it would be unusual that this would be appropriate. Thus, while it might seem entirely reasonable for the plaintiff to take the smaller block of land and a vast amount of equality money, there seems to be no reason in principle for the Court to think that that would be a proper order to make if the option of the larger block did not exist. In other words, to make an order for partition under which the majority interest holder would take an area so much smaller than its actual interest on an area basis would, in my view, not be reasonable and I do not think it would be likely that an order for payment of equality moneys of an amount in the figure of $471,447 would be the type of evening-up which is envisaged by the old-fashioned idea of owelty moneys. Neither do I think that, in the circumstances which exist here, the Court should make an order under which the plaintiff would receive an area of land 12.5 percent less than its entitlement on an area basis with a figure for equality money of nearly $160,000, which once again I think is far in excess of the ordinary figure which would be envisaged for adjustment between the parties on a partition of what is vacant land, it not being suggested that the situation is anything like that which has existed in other partition cases where reasonably substantial equality moneys might have been ordered because of the different values of houses which would be taken by each party on the partition. While I acknowledge that the advantage equity had over the law is that pecuniary compensation could be ordered in cases where partition upon actual entitlements is not desirable, (See Story: Equity Jurisprudence 7th Ed s654 and the cases cited in 5) the particular circumstances are very important. This is vacant land and it is not known that a partition according to true entitlements is not sensible or appropriate.

One of the reasons why I have hesitated is that it might be thought that what the plaintiff should do is to accept what is an offer of the smaller area of land and a suitable amount of money and, if the plaintiff does not wish to retain that land, then allowing it to sell it as it wishes for whatever sum can be got for it on the basis that I prefer the evidence of Mr Mangioni as to its value to that of Mr Feilich. The difficulty about that is that the partition should not be ordered on the basis that the party who does not want it can just go ahead and sell the land left to him, that land having a substantially lesser area than the area of land to which he is in fact entitled, taking the risk of getting for that what is available on the open market. It seems to me that, when those circumstances arise, the plaintiff is entitled to have the order for appointment of trustees for sale made and I propose to make that order. As I say, I do so with some reluctance, but it seems clear enough that the parties are determined not to agree and thus that is the order that I am required to make in this case.

I have been asked to make some particular orders as to the method in which a sale should be conducted. In my view, that is not appropriate once trustees are appointed. However, I reiterate that it is for those trustees to determine how that land should be sold and to save any difficulties or doubt about that I will make an appropriate order giving them power to sell it as a whole or in lots as they think fit with power to consolidate the lots and re-subdivide as they think fit. In addition, each of the parties will be given the right to bid at the sale. I do not think it appropriate for the Court to set a reserve price, but no doubt the trustees when doing that will take into account the valuations which are in evidence before the Court.

I make orders in accordance with the document called "Orders" initialled by me and dated today.

Last Modified: 05/04/1999