Owners Corporation No. 1 PS644619K v Sofy Pty Ltd
[2022] VCC 1408
•31 August 2022
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-19-01448
| OWNERS CORPORATION NO. 1 PS646619K | Plaintiff |
| v | |
| SOFY PTY LTD (ACN 165 191 177) | Defendant |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28-30 September and 4 October 2021 | |
DATE OF JUDGMENT: | 31 August 2022 | |
CASE MAY BE CITED AS: | Owners Corporation No. 1 PS644619K v Sofy Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 1408 | |
REASONS FOR JUDGMENT
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Subject:CONTRACTS – IMPLIED EASEMENTS
Catchwords: Construction of licence agreement – whether licence agreement permitted defendant to construct and maintain lift on common property – quantum of damages in lieu of mandatory injunction under “user principle” – whether licence agreement invalid under s68(1) of the Owners Corporation Act 2006 (Vic) – whether defendant entitled to maintain generator on private lot pursuant to implied easements under s12(2) of the Subdivision Act 1988 (Vic) – whether plaintiff estopped from denying generator can remain on private lot – leave to amend pleadings
Legislation Cited: Owners Corporation Act 2006 (Vic), s68; Subdivision Act 1988 (Vic) ss12(2)–(3)
Cases Cited:Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201; Aventus Cranbourne Thompsons Road Pty Ltd v Home Consortium Leasehold Pty Ltd [2020] VSCA 199; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; Avranik Pty Ltd v Lloyd [2013] VSCA 244; Tratt v Somersault Network Pty Ltd [2015] VCAT 691; Yango Pastoral Co Pty Ltdv First Chicago Australia Pty Ltd (1978) 139 CLR 410; Break Fast Investments Pty Ltd v PCH Melbourne Pty Ltd [2007] 20 VR 311; Plenty v Dillon (1991) 171 CLR 635; Shelfer v City of London Electric Lighting Co (1895) 1 Ch 287; Lewis v Australian Capital Territory (2020) 271 CLR 192; Sydney Local Health District v. Macquarie International Health Clinic Pty Ltd [2020] NSWCA 274; Body Corporate No 413424R v Sheppard [2008] VSCA 118; Owners Corporation PS507084R v Marley [2020] VSC 95; Traffic Technique Pty Ltd v Burgmann & Anor [2020] VSCA 319; Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | J McKay | Bugden Allen Graham Lawyers |
| For the defendant | P Best | Kalus Kenny Intelex |
HIS HONOUR:
Summary and outcome
1The plaintiff (“the OC”) is the owner’s corporation for the 12-level (primarily) residential apartment building known as SKY2 at 33 Claremont Street, South Yarra (“SKY2”). On about 11 July 2013, Deusaf Pty Ltd (“Deusaf”) entered into a contract of sale for the purchase of Lot S3, which then comprised part of level 10 and most of a proposed level 11 of SKY2 (“Lot S3”). Deusaf later nominated the defendant (“Sofy”) as purchaser under the contract. Sofy became the registered proprietor of Lot S3 effective on 15 March 2016. Sofy is owned and controlled by Brett Rogers.
2On 22 December 2015, pending completion of its purchase, Sofy sought planning approval for a level 12 penthouse to be constructed above the then existing level 11 at the property. The OC claims that Sofy has trespassed to the common property of the OC by constructing a lift between levels 10 and 12 (“Lift”) and seeks an order for removal or, alternatively, damages. Sofy counter-claims that the OC has trespassed to Sofy’s property comprising Lot S3, by installing and maintaining a diesel generator partly on Lot S3 (“Generator”) and claims an order for removal or, alternatively, damages.
3The issues agreed by the parties (excluding those not pressed in the proceeding) can be paraphrased as follows:
(a) On its proper construction, did the Access and Construction Licence between the OC and the developer NOH Developments Pty Ltd (“NOH”) executed on about 13 August 2013 (“Licence”), authorise Sofy to construct the Lift?
(b) If so, is the Licence invalid by operation of s68 of the Owners Corporations Act 2006 (Vic) (“OC Act”)?
(c) Is the OC entitled to an injunction compelling removal of the Lift or damages and, if the latter, in what amount?
(d) Is the OC entitled to maintain the Generator and associated infrastructure in its current location despite its encroachment on Sofy’s Lot S3, under an implied easement pursuant to s12(2) of the Subdivision Act 1988 (Vic) (“Subdivision Act”) or based on an estoppel?
(e) If not, is Sofy entitled to an injunction compelling removal of the Generator or damages and, if the latter, in what amount?
4In my judgment, on its proper construction, the Licence did not authorise Sofy to construct the Lift. However, the OC’s application for a mandatory injunction for the removal of the Lift will be refused, and it will instead be awarded damages in lieu in the sum of $190,000. I am satisfied that the OC has an implied easement pursuant to s12(2) of the Subdivision Act and will make a declaration accordingly. The remaining issues therefore do not arise for consideration. Had it been necessary to decide these, it is likely that I would have found against the OC on its estoppel claim, but would have preferred its arguments on an injunction and damages, and awarded Sofy damages in the sum of $12,000.
5On the question of costs, it seems to me that the OC has been largely successful on its claim and defence to counterclaim. I will therefore order that Sofy pay the OC’s costs of and incidental to the proceeding, including reserved costs, on the standard basis in default of agreement, unless either party has a basis for seeking a different order on costs. I will direct the parties to consult with a view to formulating agreed orders to give effect to these reasons. Any remaining issues the parties are unable to resolve (including on interest and costs) will be the subject of brief written submissions and will be determined on the papers.
Factual background
6NOH purchased 33 Claremont Street, South Yarra in 2010 and set about the construction of SKY2. NOH had purchased the land from a company associated with Mr Rogers, but Mr Rogers continued his involvement with the property in two ways. First, NOH engaged Mr Rogers’ company Baracon to act as NOH’s project manager on the construction and to assist with marketing. Baracon later came to occupy the office space on levels 10 and 11 of SKY2. Second (as explained further below), Sofy became the owner of Lot S3, comprising that office space on levels 10 and 11, as well as the penthouse on level 12.
7The original building included a basement carpark and 10 floors and was completed on or about 9 August 2013. At about the time the work commenced on SKY2, the plan of subdivision PS644619K (“POS”) version C dated 22 December 2010,shows the area on level 10 that later became Lot S3, as “Common Property No. 1” with the notation “Roof Plant”.
8An electrical services plan dated October 2010, confirms that it was originally proposed that the Generator would be located in this area, roughly where the words “Roof Plant” appear on POS version C. The electrical services plan depicts a rectangle labelled “CONTAINERISED GENERATOR 2300mm LONG x 1000mm WIDE x 1600mm HIGH”. POS version C also shows that the area that later became the room housing the Generator in its final location, is depicted as comprising five storage cages (numbers 1055 to 1059) and the end-section of a corridor giving access to those cages, labelled as included in “Common Property No. 1”. The area later occupied by the lift on level 10 is labelled “Plant Room”.
9Mr Rogers said that, despite being responsible for managing and superintending the works on behalf of NOH, he did not really get involved with where electrical generators were located. According to Mr Rogers, this was a matter for Hutchinsons, the builder under the design and construct contract with NOH. However, Mr Rogers confirmed that the electrical services drawing showing the original proposed location for the Generator formed part of the tender documents. He accepted that it was something he would have seen in the course of Baracon’s role as project manager, among hundreds of other drawings.
10The plan for level 10 appearing in POS version D dated 7 February 2013is relevantly no different from POS version C. In her evidence, Ms Mi Thian De-Wind, an OC Committee Member and resident of SKY2, thought POS version D was the version of the POS she was given in around February 2013.
11The next iteration of the POS in evidence was version F, dated 10 July 2013. The plan for level 10 appears to be the first version of the POS where the common property at the rear of level 10 has been relabelled as “PART S2” (denoting lot “stage 2”) (“Lot S2”). Also, notably, the small areas previously shown as the five storage cages 1055 to 1059 on earlier iterations, are now shown with hatched lines, apparently indicating that these are to become part of the newly created Lot S2. However, the corridor area giving access to these cages is still shown as “Common Property No. 1”. This corridor is the origin of the odd shaped section of the common property that is shown in the expert surveyor reports intruding into the generator room.[1] The evidence was that POS version F was registered on 21 August 2013.
[1]See Attachment 1 – described further below
12An electrical services drawing dated 6 August 2013 and stamped by “GMB Electrics Pty Ltd” shows the Generator located in its current location, sitting among the five storage cages labelled “Store”. Mr Rogers accepted in evidence that there are no emails or other communications produced by Sofy to explain how the Generator came to be positioned in the location shown on this drawing. Mr Rogers’ evidence was that this drawing is an “as-built” drawing, probably done by the electrical contractor at the completion of the project and provided to the builder Hutchinsons.
13Mr Rogers also accepted that this meant the Generator was in the location shown on the drawing as at 6 August 2013. He said: “I didn’t see this drawing”. It was put to Mr Rogers in cross-examination that the positioning of the Generator in this location could not have happened without some kind of interaction and communication between the electrical contractor and Baracon. Mr Rogers denied this. He said he did not have anything to do with the electrical contractor. Mr Rogers agreed that the drawing also showed the “as-built” location of the electrical services cabinet.
14Mr Rogers’ evidence was that the undated contract of sale for Lot 3 was executed on 11 July 2013 (“Sale Contract”), taking this date from the 15 April 2014 assignment of the Licence discussed below, which refers to Sale Contract as “dated 11 July 2013”. The Sale Contract is between NOH as vendors and Deusaf (another entity controlled by Mr Rogers) as purchaser. Deusaf later nominated Sofy, which was ultimately registered as proprietor of Lot S3 on 15 March 2016. The contract of sale included handwritten special conditions 44 and 45 as follows:
“Purchase subject to the assignment of the attached Signage Deed by the vendor to the purchaser.
Purchase subject to the assignment of the Access & Construction Licence Agreement (attached) by the vendor to the purchaser.”
15Although nothing of substance turns on this, there must be real doubt about the accuracy of Mr Rogers’ evidence as to the date of signing of the Sale Contract. Among other things, the evidence suggests that Lot S3 did not exist until early August 2013, when some changes to carparks on the ground floor resulted in Lot S3 being created out of Lot S2. The creation of Lot S3 by not later than 23 August 2013 is confirmed by POS “Version B” of that date referred to below.
16Further, the Signage Deed and Licence referred to in the handwritten special conditions above, are dated 23 August 2013. Mr Rogers also accepted in evidence that the Sale Contract must have been altered after signing by the insertion of POS “Version B” dated 23 August 2013, which specifically identifies the areas comprising Lot S3.
17Another incongruity in relation to the Sale Contract and the attached POS Version B dated 23 August 2013, is that the POS shows the lot liability for Lot S3 as 132 units. It is not clear how a POS showing that lot liability could have been created on 23 August 2013, when the OC resolution giving effect to the reduction in lot liability for Lot S3 to 132 units was only passed that day.
18The OC held its first meeting on 23 August 2013. The meeting was constituted only by Nicholas O’Halloran, the director and secretary of NOH, as the sole owner of all lots in SKY2 at the time of the meeting. At that meeting, the OC adopted modified rules and also relevantly resolved by special resolution as follows:
“13. Special Resolution-License of Common Property-Signage
It was resolved by Special Resolution that Owners Corporation 1 enter into the Licence Agreement tabled at the meeting granting a license to NOH Developments Pty Ltd and/or their assignee over Common Property 1 for the purposes of signage.
Raised & Seconded: N O’Halloran Passed: Yes
14. Special Resolution - License for Access & Construction (Lot S2)
It was resolved by Special Resolution that Owners Corporation 1 enter into a License Agreement tabled at the meeting granting a license to allow NOH Developments Pty Ltd as registered proprietor of Lot S2 (certificate of volume 11441/193) or its successor in title to have access to and the use of the common property for the purposes of construction on lot S2 in accordance with Permit No. 0071/13 (as amended) and the endorsed plans and for the purpose of construction of an access route through common property no.1 to Lot S2 in the plan of subdivision.
Raised & Seconded: N O’Halloran Passed: Yes
15. To pass a Unanimous Resolution for Alteration of Lot Entitlement & Liability
The meeting resolved by unanimous resolution that the Owners Corporation agrees to allow application under Section 33(1) Subdivision Act 1988 to alter the allocation of lot entitlements and lot liability as shown in the attached schedule, on the basis that the schedule allocation was erroneous and only once amended will it represent a fair and equitable allocation of the entitlement and liability. As registered, the lot liability would severely disadvantage the owners corporation in the event of an insurance claim.
Raised & Seconded: N O’Halloran Passed: Yes
19On the same date, the OC as licensor and NOH entered into the Licence. The Licence relevantly provided as follows:
“RECITALS
…
C. The Licensee has requested the Licensor’s consent to enter upon the Common Property for the purposes of undertaking the Construction Works on and to the Property.
D. In consideration of the payment of the Fee, the Licensor has agreed to provide access to such part of the Common Property to the Licensee as is necessary for the purposes of providing access to the Property for the purposes of undertaking the Construction Works upon the terms and conditions set out in this Deed.
1.1 Definitions
In this Deed:
Building means the building known as “SXY2”, 33 Claremont Street, South Yarra, Victoria, 3141.
…
Common Property means the common property in the Plan of Subdivision including that part of the common property constituted by airspace over and around the Building.
Construction Works means all necessary works to the Property necessary to create a dwelling substantially in accordance with the Permit.
…
Improvements means the improvements to be constructed on Lot S2 in accordance with the Permit.
…
Licence means a licence to access the Property over and through the Common Property for the purposes of undertaking the Construction [sic].
…
Permit means permit number 0491/08 (as amended) and a reference to “Permit” in this Deed includes a reference to the plans endorsed by the Council and any amendment to either the Permit or the endorsed plans.
Plan of Subdivision means registered plan of subdivision 644619K which is registered over the Land.
Property means Lot S2 on Plan of Subdivision 644619K.
Services means the services provided by authorities, the Licensor or others to the Premises, including electricity, water supply and sewerage, together with all plant and equipment necessary for the delivery of those Services to the Building and the Property.
1.2 Interpretation
In this Deed, unless the context requires otherwise:
…
(d)a reference to any party to this Deed includes the party's successors in title, legal personal representatives, permitted assigns, servants, agents, employees, contractors and representatives;
…
2. LICENSEE’S RIGHTS
(a)In consideration of the Fee, the Licensor hereby grants to the Licensee a licence to do enter upon, do all things reasonably necessary to, through and on the Common Property and to use the Common Property in common with other users for the purposes of gaining access to the Property and for the purposes of undertaking the Construction Works.
(b)The Licensee’s rights under clause 2(a) include the right to do the following at the Licensee's cost:
(i)bring onto the Land all necessary plant and equipment necessary to enable the Licensee to complete the Construction Works including cranes or other heavy equipment;
(ii)use of a crane and other equipment to lift plant, equipment and materials over Common Property to the Property where necessary to carry out the Construction Works;
(iii)the right to remove and replace window cleaning access points on the Common Property;
(iv)construct any necessary temporary fencing, hoarding or scaffolding on Common Property for the purpose of undertaking the Construction Works;
(v)alter the Common Property where necessary to complete the Constructions [sic] Works including for the delivery of Services to the Property;
(vi)construction within the Common Property of stairs and a fire proof access route as a permanent structure to provide permanent access through the Common Property to the Property for the occupants and registered proprietors of the Property, provided always that the Licensor shall retain the right to use the access route to obtain access to the Common Property located on the roof of the Building for the purposes of cleaning and maintenance of the Common property and in the event of an emergency;
(vii)connect the Improvements in accordance with this Deed to the Services;
…
4. PERMITS
…
(b)The Licensor authorises Licensee to execute any document on its behalf in connection with an application by Licensee for any necessary Permit and appoints Licensee as its attorney under power for the purposes of signing an application for any necessary Permit.
5. LICENSOR’S OBLIGATIONS
(a) The Licensor must:
…
(iv)not do anything which may be an obstruction or hindrance to or interference with the exercise by the Licensee of its rights under this Deed, and promptly remove any obstruction or hindrance which would reasonably interfere with the exercise by the Licensee of its rights under this Deed;
…
7. ASSIGNMENT BY LICENSEE
(a)The Licensor consents to the assignment or novation by the Licensee of its rights (or any of them) under this Deed to any person or persons that becomes the registered proprietor of the Property.
(b)The Licensor must do all things necessary to ensure that such assignment or novation is valid and enforceable against the Licensor by the assignee including executing any document that the assignee reasonably requires.
…”
20The only witness called to give evidence on behalf of the OC was Ms Thian De-Wind. Ms Thian De-Wind is a lawyer and has been a member of the OC committee since she purchased Lot 803 in the SKY2 building in around September 2013. Although she has recently transferred lot 803 to her partner, Ms Thian De-Wind has maintained her membership of the OC committee.
21When Ms Thian De-Wind purchased lot 803, SKY2 had been marketed as a boutique one and two bedroom development over nine levels, with the common property on the rooftop. In the marketing material she received, the only thing on the rooftop was a communal barbecue space and what looked like plant and equipment, which she assumed included air-conditioning units, water heaters and the like.
22The only awareness Ms Thian De-Wind had of any change was when the last plan was sent out a month or so before settlement, “where the car park and storage lots were combined and that lot S2 was created”. She did not realise at the time that the creation of lot S2 meant that common property had been converted into a private lot. No explanation was provided by the developer or otherwise to the owners of apartments in SKY2 as to the effect of the creation of lot S2.
23By a letter dated 15 April 2014, NOH assigned the Signage Deed and Licence to “Deusaf Pty Ltd’s nominee Sofy Pty Ltd… in accordance with the contract of sale between NOH & Deusaf/SOFY dated 11 July 2013”.
24On 22 December 2015, Sofy sought planning approval for the level 12 penthouse. In early March 2016, the City of Stonnington received objections to the application for planning approval from three SKY2 owners, namely, Mr Koch (then the chair of the OC committee), Ms Rachael Miskowiec and Ms Thian-De Wind (both OC Committee Members). On 13 July 2016, the City of Stonnington overruled the objections and approved an amendment to Planning Permit number 0491/08 to allow an additional 12th level as a dwelling with a rooftop terrace. On 3 August 2016, the three objectors appealed the City of Stonnington’s decision to the Victorian Civil and Administrative Tribunal (“VCAT”).
25On 19 December 2016, the VCAT proceedings were settled pursuant to terms under which (among other things) Sofy agreed as follows:
“1.1Prior to the commencement of the Works, SOFY will provide to the Owners Corporation manager and Owners Corporation Committee a management plan for the Works which details the following:
1.1.1no obstruction to the use and enjoyment of common property by occupants and their guests;
1.1.2 the hours of approved work on site;
1.1.3 daily cleaning regime following completion of work;
1.1.4that all construction materials for the structure will be craned to the site;
1.1.5the common property lift will be used only for delivering personnel to the site and transporting fit out materials during which the protective curtain will be fitted at all times;
1.1.6 a complaints procedure for occupants.
1.2 Prior to the commencement of the Works, SOFY will provide the Owners Corporation Manager with written confirmation of a $10,000 bond held in the Trust Account of Planning and Property Partners Pty Ltd and that bond will be released to SOFY:
…
1.2.2after an inspection of the ground level, lift and Level 10 common property areas of the Land and preparation of a report on those areas by an independent building inspector appointed by agreement of the Parties…
…
1.3 Prior to the commencement of the Works, SOFY will make a one-off additional $2500 contribution to the Owners Corporation maintenance levy for any perceived additional use of common property during the works period or inconvenience caused by the works.”
26The OC had a meeting at 6.00pm that same day (19 December 2016). At the meeting, 36 lots were represented in person or by proxy, being more than the 50% required for a quorum, but less than the 75% required for passing a special resolution. The individuals present included Ms Thian-De Wind, Mr Koch (who was elected chair), Mr Paul Ngo representing Trintin Property Services (the OC manager) and Viet Le on behalf of Sofy. The resolutions passed at the meeting relevantly included the following:
“2. Lot liability
Members were concerned that the levies paid by Levels 10 and 11 were currently inequitable and while it was pointed out that lot liabilities were determined during the plan of subdivision, members remain concerned that the levies paid by two commercial levels was inequitable compared to what is paid by a one-bedroom apartment. It was agreed that an independent assessment would address these concerns.
Members resolved to have the lot liability of level 10 and 11 reviewed by an independent assessor to ensure equity to all lot holders
Favour: All Against: Viet Le
3. Access license - seek revocation through VCAT
Members discussed the Access Licence relied upon by Baracon to access common property. Members expressed concern that this licence permits Baracon unfettered access to the common property for construction. This licence was signed when the developer was the sole member of the Owners Corporation, in anticipation of building Level 10 and 11. Concerns were expressed that this licence was not signed in good faith, even if technically permitted.
A number of members were upset that they were not made aware of the construction of Level 10 and 11.
…
A question was posed to the [sic] Viet Le, proxy for Lot S3 whether a lift had been constructed within their lot as some members noted that they had seen this lift. This was unequivocally denied.
Concerns were then expressed about the proposed construction of Level 12. It was raised that construction preparation work such as plumbing had already commenced, which resulted in the water being turned off for residents. At the time, these works were advised by Trintin to be essential maintenance, and members asked who paid for these essential maintenance.
Members expressed the view that Lot S3 should be subject to the same conditions as any other lot owner.
Interim Special Resolution:
Members resolved to seek revocation of Access Licence to NOH Developments Pty Ltd via VCAT.
Favour: All Against: Maureen Le Scoul, Andrew Logus, Viet Le”
27Ms Thian De-Wind explained in her evidence that one of the members of the OC had noticed that a lift door had been installed on level 10, and so a question was put to Viet Le at the 19 December 2016 OC meeting as to whether a lift had been or was being built. She said that the discussion “was actually very heated, so I can remember it quite clearly, the member asking the question was quite upset, and the response was also quite heated that there was no lift and there wasn’t a lift being built”.
28In cross examination, Ms Thian De-Wind said that the resolution to apply to terminate the License Agreement was not made with a view to preventing the construction of the penthouse on level 12. She said the OC knew that it had lost that issue. The purpose of seeking to revoke the Licence was to prevent any further similar developments into the future.
29On 19 January 2017, the City of Stonnington issued an amended planning permit 04191/08, comprising an amendment in the following terms:
“Plans to be amended as follows:
·Construction of one additional level [level 12] that accommodates a dwelling with a roof top terrace.
·Internal reconfigurations at existing level 10 and 11 to allow for a new staircase.”
30On 31 January 2017, Mr Rogers sent an email to the property manager, Mr Ngo of Trintin Services, including the following:
“Further to our telephone conversation I confirm we have now received a Planning Permit for the Level 12 extension, a copy of which is attached.
…
Further we have been investigating with our consultants the possibility of installing a lightweight domestic lift between our levels and believe we have found a solution however in its proposed location (shown in blue on the attached plan) it will encroach on unused common property in the plant room, we also note the buildings [sic] backup diesel generator (shown in lime green on the attached plan) is located on our title, we seek a simple way forward to resolve the matter and would appreciate the opportunity to meet to discuss a solution.
Please give me a call to discuss at your convenience.”
31Ms Thian De-Wind confirmed in evidence that the first she knew of the lift was when this email of 31 January 2017 was forwarded to her, at about the time it was sent. Ms Thian De-Wind said that this email was also the first time the OC had heard of any issue with the location of the Generator.
32Mr Ngo responded by email on 3 February 2017, raising a number of questions on behalf of the OC. Mr Rogers next wrote to Mr Ngo by letter dated 6 March 2017. This refers to an email from Mr Ngo of 14 February 2017, which is not in evidence. Omitting formal matters, Mr Rogers’ letter is as follows:
“We are pleased that you and the Owners Corporation note our good intention in this matter. We intend to keep you informed as to all works as a matter of courtesy. We confirm that we will comply with all of our legal obligations, both statutory and contractual.
The works we are carrying out are permitted under the Licence and Access Agreement dated 23 August 2013, which (as we understand it) is drafted broadly so as to accommodate any necessary or required changes. It is a legally enforceable document created by the Owners Corporation at the instigation of the owner and developer of the land (NOH Developments Pty Ltd).
You and the Committee will note it allows permanent structures to be created in Common Property. It acknowledges the existence of the implied rights of the Owners Corporations [sic]. These rights are not being denied.
The common property impacted by the works is inaccessible to any other occupant of the building. It is of no use or benefit to the members. Of course, statutory rights under the Subdivision Act are preserved.
The plant and equipment, which is wrongfully on our title, must be relocated to a location where it is properly within common property and is available for the benefit of all occupants. Alternatively, we can discuss other possibilities.”
33On 14 March 2017, the OC sent an email to Mr Rogers advising that the OC was seeking legal advice and requesting that any further works in relation to the lift be put on hold. Briefly, the events thereafter leading up to the commencement of this proceeding were as follows:
(a) on 8 June 2017, the City of Stonnington approved a request to further amend planning permit 0491/08-7, pursuant to a “secondary consent”. It included: “Addition of an internal lift from level 10 to level 12”;
(b) by a letter dated 6 July 2017, Broadbent Legal on behalf of the OC wrote to Baracon (Mr Viet Le) setting out in detail the background to the matter and the OC’s concerns about the proposed construction of the level 12 penthouse and reserving a right to commence proceedings;
(c) Kalus Kenny Interlex responded on behalf of Sofy on 14 July 2017, denying the allegations in the letter from Broadbent Legal, confirming that the building works for level 12 would be proceeding and threatening a counterclaim;
(d) Broadbent Legal responded to this letter on 7 December 2017 , indicating that the OC would no longer oppose construction of the level 12 penthouse, and raising a series of questions about both the Generator and the proposed Lift;
(e) Ms Thian De-Wind’s evidence was that there was no response on behalf of Mr Rogers or Baracon to these questions;
(f) on 1 January 2018, the construction modules for the lift were lifted onto the SKY2 roof;
(g) on 24 January 2018, the OC served a formal Notice to Rectify Breach on Sofy. This relevantly stated that:
“You have constructed a lift on common property without approval of the Owners Corporation, which is in breach of clause 3.3.1.
…
The Owners Corporation request you to restore the common plant room to its original conditions, and asks you to instruct your workman to refrain from leaving the security doors open and their tools on common BBQ area.”
(h) although the precise date on which construction of the Lift commenced, it seems likely that it was in around February 2018, with the work concluding in May 2018;
(i) at the annual general meeting of the OC on 29 May 2018, the OC resolved by an interim special resolution, (in part) as follows (emphasis in original):
“13 Legal Proceedings-Construction of Level 12 Lift on common property
It was noted that building on common property without the Owners Corporation’s consent was a breach of regulations, and that the Owners Corporation had issued a breach notice and advised Lot S3 multiple times that it did not have the Owners Corporation’s consent.
Members present discussed Lot S3’s assertion that the space in the plant room was unused. It was noted that the future needs of the building could not be predicted and that the said space was the only available space if a future need were to arise. As such, owners determined that the space should not be relinquished.
Members resolved as a Special Resolution within the meaning of section 96 of the Owners Corporations Act 2006 (OCA) to issue legal proceedings in the Victorian Civil and Administrative Tribunal and/or any court of competent jurisdiction against NOH Developments Pty Ltd and any purported transferee, assignee or successor to the Access and Construction License dated 23 August 2013…”
(j) Ms Thian De-Wind’s evidence was that the delay between the OC resolution to commence legal proceedings and the commencement of those proceedings in April the following year, was because it took the OC that long to get legal advice and to prepare their case;
(k) the construction of the penthouse Level 12 of the SKY2 building was completed on about 30 June 2018; and
(l) this proceeding was commenced by the OC on 1 April 2019.
34The current position status of the two pieces of building infrastructure at the centre of this dispute is as follows.
The Lift
35The Lift is adjacent to the main lift servicing the remainder of the floors. The relevant part of design drawings for levels 10 to 12 included in documents supplied by the OC’s licensed surveyor expert Andrew Smith showing the location of the Lift on level 10, is attached to these reasons as “Attachment 1” (an extract from the first page of exhibit P4). The Lift entry doors can be accessed only by first crossing onto the Lot S3 private property on Level 10. There is no barrier between the two sets of lift doors, and the boundary of the Lot S3 private property in the area of the two lifts is identified only by a change in the type of flooring.
36The Lift housing and the base of the Lift shaft are contained wholly in an unused area of the plant room. The entire plant room is common property, and is accessible by a door at the rear (north) side of the plant room, which is in turn accessed via common property. It seems the door to this plant room is not accessible to residents in the building, as all plant room doors are locked for maintenance personnel only. Sofy asserts that is not an area that would be used in the future.
The Generator
37The Generator is located in a room adjacent to the main plant room on Level 10. A diagram showing the location of the Generator taken from the expert report of Sofy’s licenced surveyor Alan Norman is attached to these reasons at Attachment 2 (court book page 78). This diagram was accepted by the OC’s surveyor Mr Smith as accurate. The Generator occupies 3.0 square metres of floor space; 1.8 square metres is contained in Lot S3 and 1.2 square metres is contained within Common Property No.1.
38There is also a substantial Mechanical Services Switch Board cabinet (“MSSB cabinet”) installed in front of the generator which is primarily on common property but encroaches a further 0.1 square metres into Lot S3. This blocks access to the Generator from the common property, and means that the gate into the space where the Generator is housed (and thus access to the Generator) is on Lot S3. There is also 1.0 square metres of ducting, servicing the Generator wholly on Lot S3. Sofy argues that no part of Lot S3 contained within that room can be used effectively while the Generator remains in place.
How should the Licence be construed?
Submissions
39Mr McKay for the OC submits that, properly construed, the License did not allow Sofy to construct the Lift in its current location. In his written submissions, Mr McKay focussed on clause 2(b) of the License Agreement, on the basis that he took it as giving “flesh and content” to the general obligation in clause 2(a). However, given that clause 2(a) featured prominently the submissions by counsel for Sofy, Mr McKay began his oral submissions with an examination of clause 2(a).
40Mr McKay made two points concerning clause 2(a). First, that the words conferring the licence in that clause, must be read as qualified by the stated purpose. That is, the entering upon, doing all things reasonably necessary and so on, to and on the “Common Property”, must be (emphasis added) “for the purpose of gaining access to the Property and for the purposes of undertaking the Construction Work”. Construction Work means (emphasis added) “all necessary works to the Property” and “the Property” means Lot S2. Thus, the licence only permits (relevantly) doing all things necessary to the Common Property, for the purpose of gaining access to and undertaking works on Lot S2.
41Second, even if the court were to ignore the qualification by purpose found in the latter part of clause 2(a), the more general opening words themselves contain another important limitation, being the limitation of “reasonable necessity”. Mr McKay submits that there was insufficient evidence that construction of the Lift on common property was “reasonably necessary”. He argued in substance that the evidence went no further than establishing that the location in the plant room was “the best place for [the Lift]”, and fell short of proving that there were no other feasible or reasonable locations wholly within Lot S3. Mr McKay added that the existence of the provision for, and building of, the staircase also stands against the proposition that it was “necessary” to construct the Lift.
42Turning to clause 2(b), Mr McKay’s written closing submissions begin by highlighting the importance of clause 2(b)(vi) to the construction of the clause as a whole. He submits that this clause provided in express terms that the only significant structure that was contemplated on the common property was a staircase. That structure was ample to allow the two storeys of the proposed office to be accessed by the occupants – indeed the stairs could be, and were, extended to allow access to the penthouse. Mr McKay also notes that Mr Rogers conceded in evidence that, at the time the Licence was executed, he had not contemplated or discussed with anybody building an elevator.
43Mr McKay next argues that the scope of the licence “was largely formulated by reference to a single expression”, namely, “Construction Works”. As noted in Mr McKay’s oral submissions discussed above, this is defined as “all necessary works to the Property necessary to create a dwelling substantially in accordance with the Permit” and “the Property” is defined as Lot S2. Mr McKay then observes that, other than the staircase, all the permanent buildings contemplated at the time the Licence was signed, were situated within Lot S2. He argues that:
“It must follow that any further buildings contemplated at the time of formation were limited to buildings on the private lot, together with: (i) temporary structures on common property to complete the works on the private lot; (ii) access rights over the common property to facilitate the works on the private lot; and (iii) the provision of necessary services to the private lot.”
44Mr McKay submits that clause 2 contemplating only temporary structures on the common property is reinforced by clauses 2(b)(i) to (iv) which all refer to equipment, structures and alterations that were either:
(a) self-evidently temporary (for example cranes and heavy equipment necessary to “carry out the Construction Works”); or
(b) expressly temporary (for example, temporary fencing, hoarding or scaffolding and (emphasis added) “removing and replacing” window cleaning access points).
45In relation to clause 2(b)(v), which permits the licensee to “alter the Common Property”, Mr McKay argues that:
(a) the provision only applies “where necessary to complete the Construction Works including for the provision of Services to the Property”;
(b) it is not “necessary” to construct a lift to the upper levels, since the stairs authorised under clause 2(b)(vi) would already facilitate that access;
(c) the “provision of Services” does not extend to the construction of the Lift, given that “Services” were defined in a more limited sense as “services provided by authorities, the Licensor, and others to the Premises, including electricity, water supply, and sewerage, together with all plant and equipment necessary for the delivery of those Services to the Building and the Property”.
46Mr McKay submits that the reference to services such as electricity and water suggests that the word “Services” was not intended to encompass the construction of a private means of access on the common property, in addition to that which was expressly provided for in clause 2(b)(vi) (the stairs). He posits the question:
“Why would such an outcome be justified by such oblique language when the licence already provided for a means of access, and the clause allowing the alteration of the common property to construct the ‘Services’ was limited to services that were ‘necessary’?”
47Mr McKay further submits that:
(a) clauses 2(b)(vii), (viii), and (ix) also support a definition of “Services” that is limited to utility services such as electricity and sewerage – they allow the licensee to “connect” to the Services, to “relocate and disrupt” the Services “as necessary to establish a connection” to the Services, and to install such meters “as may be necessary to separately meter” the Services; and
(b) similarly, clause 3(b) requires the licensee to “pay on time for the Services supplied to or in connection with the Construction Works”, clause 3(e) requires the licensee to give advance notice of “disruption to the Services” and clause 5(a)(i) requires the OC to “maintain the supply of Services to the Property”.
48Mr McKay submits that none of this is redolent of a definition of “Services” that would encompass the construction of a permanent and private means of access by a lift.
49Finally, Mr McKay refers to the fact that “Permit” (which forms part of the definition of “Construction Works”) was defined to mean permit 0491/08 and “any amendment” to the “Permit”. Mr McKay submits that construing clause 2 of the Licence as allowing permanent structures on common property, in conjunction with this open-ended definition of “Permit”, would lead to an uncommercial result. It would effectively confer on the licensee an unlimited entitlement to erect any buildings on common property that was allowed under any amendment to permit 0491/08. Mr McKay argues that such a construction would also give rise to a disconformity with the surrounding circumstances provided by the good faith obligation, prescribed by s68 of the OC Act.
50In both his written and oral submissions, Mr Best for Sofy relies principally upon clause 2(a), which he says granted Sofy a license for two separate purposes: not simply to access the common property, but also to construct upon the common property. Further, that construction included the development of the common property and the airspace over SKY2, thus encapsulating the construction of the Lift. Mr Best argues that the licence under clause 2(a) was (emphasis added):
“…a licence to do enter upon, do all things reasonably necessary through and on the Common Property and to use the Common Property in common with other users for the purposes of gaining access to the Property and for the purposes of undertaking the Construction Works’
51Mr Best argues that “all necessary works” in the definition of Construction Works means any construction works, provided they were in accordance with permit number 0491/08, and any amendments to that permit (including the amendment making provision for the Lift). Mr Best also argues that the licence is not restricted to the alteration of the common property for delivery of “Services” to Lot S2. He submits that clause 2(b)(v) makes clear that “Services” is inclusive of or in addition to “Construction Works” (in other words, the definition of “Construction Works” encompasses the “Services”, but also extends to other works and structures).
52Mr Best’s written submissions set out a lengthy extrapolation of what, he argues, is the effect of the licence on its proper construction, including the following:
(a) the OC granted a perpetual licence to the licensee authorising the licensee (being the named licensee and successors in title and an assignee of the licence who becomes the registered proprietor of Lot S2) to “do all things reasonably necessary to the Common Property”;
(b) the Licence was granted for the purposes of undertaking the Construction Works (being all necessary works to Lot S2 necessary to create a dwelling substantially in accordance with permit number 0491/08 any amendment to either the “Permit” or the endorsed plans);
(c) the Licence conferred a right to alter the Common Property (including that part of the common property constituted by airspace over and around the Building) where necessary to complete the Construction Works (as defined); and
(d) the Licence also conferred a right to alter the Common Property (including that part of the common property constituted by airspace over and around the SKY2 building) where necessary for the delivery of Services (as defined).
53In his oral submissions, Mr Best argued that clause 2(a) was very expansively drafted, because at the time it entered into the Licence, the developer presumably could not foresee what development issues it might have. He said:
“It's not a matter of the construction works being on lot S2 or S3, but they are ‑ the extent of the construction works. The construction works are obviously, according to clause 2(a), capable of being carried out on and to the common property.”
54On the relevance of clauses 2(b)(vi) and (vii),[2] Mr Best describes these as almost “miscellaneous provisions”, that do not affect the overall purpose and intent of the Licence, which is to allow for “Construction Works”. He argues that the OC’s reliance on these provisions to construe the true effect of the Licence in clause 2(a), amounted to suggesting that the tail should wag the dog. Mr Best also explained in his oral submissions that Sofy does not rely on the definition of “Services” as its primary submission, but submits that it is quite arguable that the Lift is a “Service” and therefore it fell within the definition.
Analysis
[2]The transcript correctly refers to Mr Best referencing clauses 2(b)(vi) and (vii), but this seems to stem from my question, also referring to those clauses. It is clear from the fact that clause 2(b)(vii) does not expressly contemplate permanent alterations to the common property, that my reference to that clause was mistaken, and I had intended to refer to clauses 2(b)(v) and (vi).
55In his written submissions, Mr McKay conveniently summarised the principles applicable to the construction of commercial contracts, derived from the recent decisions of the Court of Appeal in Adaz Nominees Pty Ltd v Castleway Pty Ltd[3] and Aventus Cranbourne Thompsons Road Pty Ltd v Home Consortium Leasehold Pty Ltd,[4] which in turn cited and distilled the principles stated in the more recent leading High Court decisions, primarily Electricity Generation Corporation v Woodside Energy Ltd,[5] and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd.[6] In the former High Court decision, the court held (citation omitted):
“The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties … intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.”
[3] [2020] VSCA 201 at [70] per Whelan and McLeish JJA and Riordan AJA
[4] [2020] VSCA 199 at [36]–[38] per Kyrou, Niall, and Hargrave JJA
[5] (2014) 251 CLR 640 at [35] per French CJ, Crennan and Kiefel JJ
[6](2015) 256 CLR 104 at [46]–[52] per French CJ, Nettle and Gordon JJ
56I am otherwise content to adopt Mr McKay’s summary (with some elaboration), as follows:
(a) the terms are construed objectively, and the subjective intentions of the parties are irrelevant;
(b) the objective approach of interpretation requires reference to the text and its ordinary meaning, together with the context, being the entire text of the contract including matters referred to in the text, and its purpose;
(c) these matters will ordinarily be identified by reference to the contract alone, but evidence of mutually known objective background circumstances relevant to the purpose is admissible no matter how clear the ordinary meaning of the words;
(d) identification of purpose may allow admission of evidence of the genesis of the transaction, the background, and the context in which the contract was formed;
(e) a court is entitled to approach the task of interpretation on the assumption that the parties intended to produce a commercial result and should construe it so as to avoid a commercial nonsense;
(f) if after completion of this process, the language used in the contract is ambiguous or susceptible of more than one meaning, then evidence of surrounding circumstances external to the contract is admissible to assist with interpretation of the language in question; and
(g) a court must have regard to all of the words used in the agreement so as to render them all harmonious one with another and to ensure the congruent operation of the various components as a whole.
57Applying those principles, Mr McKay’s approach to the construction of the Licence is to be preferred, essentially for the reasons he gives. I am not persuaded that there is any ambiguity in the provisions of the Licence sufficient to justify resort to surrounding circumstances, external to the Licence. But I am satisfied that the objective background circumstances relevant to the purpose of the Licence, strongly reinforce the construction urged by Mr McKay.
58The purpose of the Licence is conveniently identified in the recitals. In referring to the recitals, I do not overlook Mr Best’s submission that I “can’t make this document swing about because of anything in the recitals”. Mr Best referred me to the decision of the Court of Appeal in Avranik Pty Ltd v Lloyd,[7] (a case dealing with similar issues to those before me), in which the court held that the recitals in the licence must be read subject to the operative provisions of the agreement. In my view, the recitals and the operative provisions of the Licence are in accord.
[7][2013] VSCA 244 at [16(d)] per Osborne JA
59The recitals relevantly provide that (emphasis added):
“The Licensee has requested that Licensor’s consent to enter upon the Common Property for the purposes of undertaking the Construction Works on and to the Property.
…[T]he Licensor has agreed to provide access to such part of the Common Property to the Licensee as is necessary for the purposes of providing access to the Property for the purpose of undertaking the Construction Works…”
60The emphasised language in the recitals above also features in the operative provisions of the Licence, most notably in the definition of “Construction Works” itself, which is worth repeating: “means all necessary works to the Property necessary to create a dwelling substantially in accordance with the Permit”. Similar language is found in clauses 2(a) and (b). It is also worth repeating that “Property” means “lot S2 on Plan of Subdivision 644619K”. (I note, in passing, that the OC does not seek to make any point out of the fact that at the time of the construction of the Lift, Lot S2 had become Lot S3 – Mr McKay conceded that Lot S2 included Lot S3.)
61I am satisfied that the purpose of the Licence is to permit access to the common property as is necessary for the purpose of undertaking the Construction Works. In my view, Mr Best’s argument that clause 2(a) in fact identifies two discrete purposes, namely, access to the common property and undertaking the Construction Works, creates a false dichotomy. This is because the definition of Construction Works expressly and unequivocally limited the permissible works as works to “the Property” (that is, Lot S3), not the “Common Property” as separately defined.
62Thus, the definition of “Construction Works” brings the focus of clause 2(a) back to necessary works to Lot S3, not to construction work on and to the common property. I therefore reject Mr Best’s submission that the “Construction Works” are “obviously, according to clause 2(a), capable of being carried out on and to the common property”. Indeed, this submission exemplifies the difficulties with Mr Best’s arguments on this issue generally. They overlook that the definition of Construction Works is expressly limited to “all necessary works to the Property”, and makes no reference to the “Common Property”.
63The reference in the definition of “Constructions Works” to the “Permit” (accepting that “Permit” includes the endorsed plans and any amendment to the Permit or endorsed plans), does not alter the conclusions above. In particular, in my view, the fact that the Permit was ultimately amended to include the Lift, did not enlarge the meaning of “Construction Works” to accommodate the construction of the Lift outside Lot S3 and on “Common Property” as defined.
64The above findings are sufficient to deal with the construction issue. However, for completeness, I make the following further findings:
(a) The effect of Sofy’s submissions is that the Licence should be construed so that, for a nominal fee of $1.00, Sofy has the right to undertake construction works that permanently partitions common property for its exclusive use, subject only to it securing an amendment to the “Permit” for those works. In my judgment, this cannot be described as a construction that produces a commercial result, at least for the OC.
(b) I reject Mr Best’s submission that particular sub-clauses of clause 2(b) are almost “miscellaneous provisions”, that do not affect the overall purpose and intent of the Licence. As the authorities referred to above make clear, I must have regard to all of the words used in the Licence so as to render them all harmonious and to ensure the congruent operation of the various components as a whole.
(c) I accept that clause 2(b)(v) and (vi), read with the chapeau, provide in effect that the “Licensee’s rights under clause 2(a) include the right to…alter the Common Property…for the delivery of Services to the Property [and for]…construction within the Common Property of stairs…”. However, it would be a misreading of the Licence as a whole to treat these as giving Sofy open-ended rights to make permanent changes to, or construct permanent structures on, the Common Property, in addition to those that are expressly permitted by clause 2(b)(v) and (vi).
(d) The better view is that these provisions operate as an exception to the more limited rights conferred under clause 2(a) discussed above. Namely, a right of access to facilitate construction works on the Property (Lot S3), not a right to erect permanent structure on the Common Property, except as otherwise expressly provided.
(e) Clause 2(b)(v) and (vi) thus reinforce that the only “permanent structures” contemplated on the common property were alterations to accommodate the delivery of “Services” to Lot S3, and the construction of staircase and fire-proof access route. To my mind, a reasonable businessperson considering the Licence as a whole would conclude that, if the parties had intended that a lift also be another permissible permanent structure, they would have said so.
(f) I agree with Mr McKay that the use of “necessary” throughout the Licence (and notably in the recitals and clauses 2(a) and (b)(v)), imposes a further limitation on Sofy’s rights. Further, the better view is that the express provision for stairs in clause 2(b)(vi) means that the Lift may have been desirable, but was not “necessary” to facilitate access to the upper levels. This is reinforced by Mr Rogers’ evidence to the effect that he did not contemplate the installation of a lift for the purpose of accessing the offices on level 11.
(g) I also agree with Mr McKay that the provisions in clause 2(b) dealing with the delivery of “Services” as defined, is limited to services in the nature of utilities, such as electricity, water, sewerage and internet. This is tolerably clear from the definition itself, but is reinforced by the other provisions referenced by Mr McKay that speak of connection, disruption, installing meters and payment, none of which is redolent of a lift.
(h) There is arguably a further limitation in the words of clause 2(a) itself, where it speaks of permitting the use of the common property “in common with other users”. On no view could it be suggested that a lift intended to service private office space and a penthouse is a use “in common with other users” of the “Common Property”. On the other hand, I accept that it is arguable that the words “in common with other users” qualifies only the immediately preceding words (“to use the Common Property”) and not the rights conferred under the earlier part of the clause (“to do enter upon, do all things reasonably necessary to through and on the Common Property”).
65For the reasons above, I am satisfied that the Licence did not confer on Sofy a right to construct the Lift on Common Property (within the meaning of the Licence), including in its current location.
Is the License invalid by operation of s68 of the OC Act?
66Section 68(1) of the OC Act provides that:
“Subject to subsection (3), the initial owner of land affected by an owners corporation must act honestly and in good faith and with due care and diligence in the interests of the owners corporation in exercising any rights under this Act.”
67In one of the few decisions dealing with s68, Member Sweeney in Tratt v Somersault Network Pty Ltd,[8] likened the obligation under s68 to a fiduciary duty. The Member held that:[9]
“The duty under s.68 is owed by the initial owner such that it must act in the interests of the owners corporation in exercising any rights under the Act.
Assume that Gembrook, as the initial owner and under the s68 statutory obligation, has a duty to act in a manner analogous with having a fiduciary duty. The obligation is to act in the interests of the owners corporation in the exercise of rights under the Act.”
[8] [2015] VCAT 691
[9]Tratt v Somersault Network PtyLtd [2015] VCAT 691 at [49]-[50]
68Mr McKay argues that, if the License were construed so as to permit Sofy to construct the Lift in its current location, this would be excessively beneficial to Sofy. It would allow construction of a permanent, private access route through the common property, of unlimited area and duration. It would also allow the construction of further buildings on the common property, provided they comply with the “Permit”, as defined. Mr McKay argues that in granting this excessive benefit, NOH breached s68(1) of the OC Act, entitling the OC to an order declaring the Licence invalid, as falling within each of the three categories in Yango Pastoral Co Pty Ltdv First Chicago Australia Pty Ltd.[10]
[10] (1978) 139 CLR 410 at 413
69Mr McKay accepts the OC’s case on s68 would be “considerably weaker” if I preferred his construction of the scope of the Licence. I would go further. In my view, the proper construction of the Licence as outlined above essentially eliminates any imbalance in the Licence and renders the OC’s case on s68 unsustainable. Further, Mr McKay made clear that the OC does not need to rely on s68 if it succeeds on the construction issue. It is therefore not necessary for me to reach a concluded view on whether NOH’s conduct in granting the Licence breached s68 and, if so, the effect of that breach on Sofy’s reliance on the Licence.
70I will nevertheless make the following brief observations on the issue:
(a) I have significant reservations about Mr McKay’s purported reliance on other alleged conduct of NOH at around the time of granting the Licence, in support of the OC’s case on lack of good faith. It seems he is relying on this conduct as tendency evidence, but without doing so expressly. In any event, I agree with Mr Best that its relevance is questionable.
(b) I also agree with Mr Best that, at the time the Licence was granted, the Lot S2 development was to be effected pursuant to a permit for staged development entered into months earlier, and the majority of Lot S2 was undeveloped air space. It is far from clear that there is a lack of good faith in granting a Licence to undertake that further development, particularly without evidence of the value of that undeveloped air space absent the proposed development.
(c) I also have real doubts about the application of the authorities relied on by Mr McKay in support of the relief claimed.[11] To my mind, there is force in Mr Best’s submissions that the application of those authorities is less straightforward than Mr McKay contends. And I share Mr Bests uncertainty about the precise form of the relief the OC is claiming. It does not in terms seek a declaration of invalidity ab initio, but anything less than that would be futile.
(d) Mr McKay argued in response that the declaration would simply be that the Licence was void, with the result that it does not protect Sofy from the OC’s allegation of trespass on common property. However, this tends to downplay the potentially drastic nature of the remedy in relation to the development of Lot S3 as a whole. Thus, even if a breach of s68 was established, I am not presently persuaded that an exercise of discretion in favour of the equitable remedy sought is justified.
[11]Yango Pastoral Co Pty Ltdv First Chicago Australia Pty Ltd (1978) 139 CLR 410 at 413; Nelson v Nelson (1995) 184 CLR 538 at 613
Is the OC entitled to an injunction and, if not, how should damages be assessed?
Injunction
71In pressing for a mandatory injunction for removal of the Lift, Mr McKay cites Break Fast Investments Pty Ltd v PCH Melbourne Pty Ltd[12] (“Break Fast”) (discussed below) and asserts that an injunction for the removal of the encroachment is the prima facie remedy in a circumstance such as the present. He argues that the injury to the OC was not “small” and any compensation to do justice between the parties would not be nominal. He says that “most significantly”, the evidence revealed that Sofy had built the Lift in knowing disregard of the OC’s protestations. He submits that no basis to displace the prima facie remedy has therefore been established.
[12] [2007] VSCA 311
72Mr Best submits that the injury to Sofy’s rights is small because:
(a) there is no evidence that the OC has suffered any injury or damage by the loss of use of the column of air above the former roof space on level 10 (which is the alleged injury);
(b) there is no evidence that the OC or a lot member has been inconvenienced or impeded in any way by the Lift, which is locked to lot owners and does not impede the OC or the lot owners;
(c) the lift occupies an insignificant part of the common property throughout the SKY2.
73Further, according to Mr Best, the injury to the OC can be estimated by money. He adds that a party subject to a trespass is entitled to damages, but if the plaintiff does not suffer damage or injury as a consequence of the trespass, then the damages awarded are trifling, citing Plenty v Dillon.[13] Mr Best submits that in this case the notional injury can be adequately compensated by a payment of $1.00.
[13](1991) 171 CLR 635 at 645 per Mason CJ, Brennan and Toohey JJ, 654 per Gaudron and McHugh JJ
74In contrast, according to Mr Best, Mr Rogers gave evidence that removing the Lift would present immense practical difficulties and disruption to the occupants of SKY2 and the OC for weeks, if not months. The effect of that evidence was that the Lift is effectively tied to floors 11 and 12, as the wall of the Lift shaft is a wall in levels 11 and 12. Further, it provides a structural column and structural support to levels 11 and 12 and there would be a need to determine whether additional lateral support would be required for the SKY2 building after removal. Mr Rogers said that removal would require dedicated access to the main building lift, a loading zone for bins, set down areas in the carpark for the dismantling of the lift car, the equipment and three levels of lift rails.
75In Break Fast, Dodds-Streeton JA (with Ashley JA and Cavanough AJA concurring) considered the currency of the “good working rule” as to when the appropriate remedy may be damages in lieu of a mandatory injunction, formulated in 1895 by AL Smith LJ in Shelfer v City of London Electric Lighting Co,[14] (“Shelfer”) as follows:
“(1) If the injury to the plaintiff's legal rights is small,
(2) And is one that is capable of being estimated in money,
(3) And is on which can be adequately compensated by a small money payment,
(4) And the case is one where it would be oppressive to the defendant to grant an injunction:
then damages in substitution for an injunction may be given.
There may also be cases in which, though the four above-mentioned requirements exist, the defendant by his conduct, as, for instance, hurrying up his buildings so as if possible to avoid an injunction, or otherwise acting with a reckless disregard to the plaintiff's rights, has disentitled himself from asking that damages may be assessed in substitution for an injunction.”
[14](1895) 1 Ch 287 at 322–323
76After setting out the relevant passages from the judgment in Shelfer, including those extracted above, her Honour considered recent criticisms of the “good working rule”.[15] However, she observed, the status of the rule remains high. Her Honour concluded on the rule as follows:[16]
“Despite its limitations, it has been frequently approved and applied in subsequent authorities as a useful guide to the factors fundamental to determining the crucial question whether it would be unjust to do more than award damages in all the circumstances of a given case.
While the factors potentially relevant to the exercise of the discretion cannot be exhaustively stated, Shelfer, in my opinion, correctly accorded primary importance to identifying a small injury to the plaintiff, and disproportionate hardship constituting oppression, to the defendant.
In determining whether a substitution of damages for in specie relief is just, the interests of the parties are not of broadly equivalent weight. It will not suffice that the hardship entailed to the defendant by an injunction marginally outweighs the relief that the plaintiff will obtain thereby. Rather, the courts have typically required a significantly disproportionate damage to the defendant, reflected in the criterion of oppression in the Shelfer working rule.
In that sense, the Shelfer working rule itself implicitly assumes that in order to justify the substitution of damages, it is ordinarily necessary that there be a relationship of significant disproportion between the relief afforded to the plaintiff’s injury and hardship to the defendant entailed by the grant of an injunction.
The question whether to substitute damages for an injunction for trespass to land is necessarily determined after the plaintiff (in contrast to an applicant for an interlocutory injunction) has established the invasion or breach of its property right. Ordinarily, in such circumstances, unless the hardship to the defendant entailed by a specific remedy is out of all proportion to the relief thereby assured to the plaintiff, the plaintiff should not be compelled to exchange or suffer continuing invasion of its proprietary right for a money payment at the behest of the wrongdoer.”
[15]Break Fast at [42]–[44], referring to Spry QC, I.C.F. The Principles of Equitable Remedies (7th ed, 2007) 640
[16]Break Fast at [45]–[49]
77Thus the “useful working rule” should now be treated as no more than useful guide, and adapted to suit the circumstances of each case. In particular, it would be a misapplication of the rule to apply it in the manner suggested by Mr McKay. That is, to award a mandatory injunction unless all four elements of the rule are established or if the plaintiff can show a “reckless disregard” by the defendant for the plaintiff’s rights. Rather, to justify the substitution of damages, Sofy needs to show a relationship of significant disproportion between the relief afforded to the OC’s injury and the hardship to Sofy entailed by the grant of an injunction.
78In my judgment, that significant disproportion exists in this case. As Mr Best has submitted, the inconvenience to the OC and lot owners created by the Lift in its current location is modest, at best. And while Sofy was somewhat cavalier in its approach to the construction of the Lift, I do not consider that it reaches the level of “reckless disregard” for the rights of the OC. In particular, I accept that it held a belief that the construction was permitted by the Licence, albeit one that (as I have found) was misplaced.
79I also accept Mr Rogers’ evidence concerning the substantial cost and disruption likely to be caused by the removal of the Lift. Further, the hardship involved would not be limited to Sofy. The removal would also occasion significant inconvenience to the OC and lot owners, for little or no advantage. Indeed, I doubt very much that the individual lot owners would thank the OC for pressing for the removal, if they properly understood the level and duration of the likely disruption. In any case, I am comfortably satisfied that Sofy would suffer significantly disproportionate damage if the injunction sought by the OC was granted and the mandatory injunction will therefore be refused.
Damages
80Having determined that the appropriate remedy for the trespass of the Lift is damages in lieu of an injunction, it is necessary to quantify those damages. The parties differ both as to the methodology for assessing damages and as to the calculation. In particular, Mr Best urges at some length that the “user principle” should be applied to the OC’s claim for damages, and that the result of doing so is that the OC is entitled to only nominal damages. The user principle also features prominently in Mr Best’s submissions on damages payable in relation to the Generator.
The application of the user principle
81Mr Best begins by noting that the OC has not suffered any actual loss by the trespass which could be compensated by an award of compensatory damages, and it does not claim compensatory damages. Mr Best continues:
“The OC’s claim for damages for trespass prima facie is on a restitutionary basis, that is the benefit to Sofy in having the lift in situ in the common property. The OC has formulated its restitutionary claim on the basis of the value of the 12th floor apartment with and without a lift. It is submitted that the OC has adopted a wrong methodology.”
82According to Mr Best, it is not the 12th floor apartment that is alleged to be trespassing on the common property, it is the Lift. Further, the benefit derived by Sofy from the Lift on common property is not determined by the market value of the 12th floor apartment with or without a lift. Rather, the benefit Sofy has received is that it “has not had to pay for the right of user of the common property”. He said that damages for trespass on a restitutionary basis “are assessed as the hypothetical market rent for a lease of the trespassed area (being the cost of the benefit that the trespasser has received by its trespass) (hypothetical negotiation damages)”.
83With respect, the difficulty with Mr Best’s submissions on this issue is that they ignore a number of the clear statements in the primary authority on which he relies, namely, the recent High Court decision of Lewis v Australian Capital Territory[17] (“Lewis”). Although this is a case about damages for false imprisonment, in the course of affirming the decisions by the courts below that the appellant was entitled to only nominal damages, both Gordon and Edelman JJ (in separate judgments), drew support for their conclusions from an analysis of the law relating to damages for trespass to goods and property.
[17](2020) 271 CLR 192
84Gordon J confirms the general principle that: “In cases involving trespass to land or goods, the plaintiff is entitled to what have been described as damages for use regardless of whether the plaintiff would, but for the tort, have used the land or goods”.[18] However, it is clear from her Honour’s further elucidation of the principle that it does not focus solely on what the plaintiff has lost by the trespass, but also on what the defendant has gained (citations omitted, emphasis added):[19]
“It is no answer for a wrongdoer who has deprived the plaintiff of their chair to point out that they do not usually sit in it or that they have plenty of other chairs in the room. The plaintiff was deprived of their chair. That is the loss or damage. The next question is how to value that loss or damage: ‘the damages recoverable will be, in short, the price a reasonable person would pay for the right of user’. The interference with the plaintiff’s proprietary right is valued as if the plaintiff waived the tort and charged for use of their property. The object of the award is not merely to compensate the plaintiff but to deny the defendant the value of the property which the defendant had improperly used or retained.”
[18]Lewis at [82]
[19]Ibid at [83]
85The position is stated even more plainly in the decision of Edelman J who (as Mr McKay points out) is also the author of McGregor on Damages[20] (“McGregor”) (discussed further below) on which he relies. For example, Edelman J held (citations omitted):[21]
“In these cases based upon the user principle the remedy attempts to rectify the wrongful act by requiring payment of an amount that would have made the use lawful. As Fletcher Moulton LJ famously expressed the basic principle in relation to patents, ‘if you want to use it your duty is to obtain … permission’ and if permission is not obtained damages are payable for what ‘could have reasonably been charged for that permission’. In short, ‘[r]ecompense is given to the wronged property owner that requires the wrong to be seen as righted, by requiring a price or hiring charge to be paid for the wrongful use’.”
[20]James Edelman, McGregor on Damages (20th ed, The Common Law Library)
[21]Lewis at [145]
86Notably, in the citation of the principle “famously expressed” by Fletcher Moulton LJ, the Lord Justice refers to “a price or hiring charge”. Edelman J refers to this passage in effect as describing two instances of a user principle award. However, Mr Best’s submissions focus on the first of these (the “hiring charge”) and do not grapple with the alternative concept of the “price”. Similarly, his Honour later held (citations omitted, emphasis added):[22]
“In seeking to rectify the wrongful act, the user fee, which is often calculated by a hypothetical negotiation between a willing licensor and a willing licensee, usually focuses upon both the reasonable value of the wrongful acts to the defendant and their reasonable price to the claimant. As Lord Reed expressed the point more recently, without the user fee award the defendant will be permitted to take ‘something for nothing, for which the owner was entitled to require payment’, so that ‘there is a sense in which it can be said that the damages in those cases ‘may be measured by reference to the benefit gained by the wrongdoer from the breach’, provided the ‘benefit’ is taken to be the objective value of the wrongful use’.”
[22]Ibid at [148]
87In the recent decision of the New South Wales Court of Appeal in Sydney Local Health District v Macquarie International Health Clinic Pty Ltd[23] also referred to in Mr Best’s submissions, the court again recognises that the user principle can extend to an examination of the use enjoyed by the defendant:[24]
“The ‘user principle’ invites attention to the use in fact enjoyed by the defendant of the plaintiff's land because it is that use for which compensation is due. This is where the historical character of damages for mesne profits may have some significance for present purposes, irrespective of the actual taxonomical label to be attached to such damages. As has been seen, historically it was the defendant's actual "profits" derived from the unauthorised "demesne" or possession over another's property that could be awarded for trespass following repossession.”
[23][2020] NSWCA 274
[24]Ibid at [113]
88In responding to Mr Best’s submissions on the user principle, Mr McKay took me to extracts from McGregor. He submitted that the learned author draws a distinction between:
(a) cases where “the rental approach” urged upon me by Mr Best is applied; and
(b) those where the court will instead assess damages based on a proper and fair price; that is, what, in negotiation, the trespasser would have been prepared to pay for the right they have secured.
89In general terms, the former approach is appropriate for transitory trespasses, while the latter is applied where an injunction to prevent the continuance of the trespass is refused, and the wrongdoer effectively gains the right to use the land in perpetuity.[25] This dichotomy is borne out in the extracts from the authorities above. I agree with Mr McKay that the appropriate approach in this case is the latter. Paraphrasing Edelman J in the second passage from Lewis above, the user fee in this case should be calculated by reference to a hypothetical negotiation between the OC and Sofy, based on the reasonable value of the wrongful acts to Sofy.
[25]McGregor at [39-046] and [39-060]-[39-061]
90Thus, I do not agree with Mr Best that in advocating this approach the OC has adopted the wrong methodology. The methodology does not depend on establishing that it is the 12th floor apartment that is trespassing on the common property. Nor is it a matter of calculating the right of user gained by Sofy by reference only to the square-metreage of common property occupied by the Lift. Damages should be measured simply by reference to the benefit gained by Sofy from its trespass, being (in substance) the extent to which the Lift has enhanced the value of penthouse.
119I am nevertheless satisfied that neither of these options could conceivably be considered as feasible and reasonable, particularly viewed in light of Ginnane J’s observations in Marley. It is clear that both options, as a minimum, would involve considerable cost and pose substantial, and possibly insurmountable, technical and logistical challenges. This view was supported by the OC’s surveying expert, Mr Smith.
120I note in passing that the cost and inconvenience of denying the easement in this case are a world apart from those in Sheppard. In Sheppard, the easement (refused at trial and on appeal) was being claimed to enable service personnel access to the roof area as of right through the living area of a private apartment, to avoid the inconvenience of walking up 14 levels of fire stairs. Thus the inconvenience and cost were modest and the level of intrusion to the private apartment were (unsurprisingly) held to be “inconsistent with the reasonable use and enjoyment of that property”.
121Here, the likely cost and inconvenience is obvious and substantial, and there is no more than a notional intrusion onto a small part of Lot S3 that is not presently accessible to the owner from the balance of Lot S3. Mr Rogers gave evidence that, if the Generator were relocated, he could use the part of Lot S3 inside the Generator room for a bathroom or an extension to the Baracon boardroom on the other side of the concrete wall. In the absence of expert evidence, I have reservations about whether the expense of punching through the concrete wall, building a new wall on the Lot S3 boundary within the Generator room and arranging services to that area (even assuming all that were physically possible), is a realistic prospect. Regardless, unlike the position in Sheppard, the likely interference with Sofy’s reasonable enjoyment of the affected part of Lot S3 is more theoretical than real.
122I would add that it seems to me that similar considerations affect the MSSB cabinet, whether this required relocation either because of its encroachment on Lot S3, or to enable the relocation of the Generator. No evidence was led about the logistics of relocating this substantial and self-evidently highly technical item of infrastructure or how (if at all) it connects to and integrates with the Generator. I note that Sofy has not pressed for the relocation of the MSSB cabinet, despite its encroachment onto Lot S3. This is perhaps because the encroachment is small, the cabinet is accessible from common property and it does not preclude the (asserted) potential use of the area of Lot S3 inside the Generator room, in the same way as the Generator itself.
123It seems to me unarguable that the section of the MSSB cabinet encroaching on Lot S3 enjoys an easement pursuant to s12(2) of the Subdivision Act. Accepting that, it is difficult to see a clear justification for treating the Generator any differently under the principles applicable to the first condition discussed in Sheppard. To my mind, the differences between the two items of infrastructure are matters of degree, not substance.
124I also agree with Mr McKay that the process of removing and relocating the Generator would face regulatory and safety impediments, including the possible contravention of the Occupancy Permit which requires the backup Generator. In considering the Sheppard factors, having regard to the physical, legal, safety and cost impacts in removing the Generator, I am comfortably satisfied that any proposed removal alternatives fall squarely within the category contemplated by the Court of Appeal and Ginnane J in Marely, as neither feasible or reasonably available.
125Even if I was of the view that one or both removal options were feasible, there is the additional difficulty of determining to where the Generator should be relocated. Sofy suggested one option would be the communal recreation area on the rooftop. However, relying on the marketing materials, photographs and videos, Mr McKay submits that locating the Generator on the entertainment area would significantly undermine its aesthetic and functionality. I agree. The Generator is 2.7 metres long, 1.1 metres wide and 1.5 metres high. This, together with cabling and other ancillary equipment (potentially including the MSSB cabinet) would constitute a substantial intrusion into the SKY2 building’s only communal recreation area, and is not a feasible or reasonable option. No other possible options were canvassed in the evidence.
126In closing submissions, Mr Best submitted that without evidence as to why the Generator must remain in situ, I cannot imply an easement. First, I do not accept this premise to the submission. In my view, the evidence establishes that for all practical purposes, the Generator must remain in situ for the reasons above. Second, and in any event, neither party suggested that the Generator is not required for the SKY2 building. Indeed, the Occupancy Permit makes it clear the Generator is a legal requirement. Therefore, the Generator must be located somewhere, and the only plausible alternative location proffered by the parties is not feasible.
Analysis – second condition
127As Mr Best submitted, Dodds-Streeton JA in Sheppard held that this second condition “is directed only at the property subject to the implied easement, rather than all the property globally”.[33] He argues that it is therefore the reasonable use and enjoyment of Lot S3 (not the other lots) which must be considered. He says that the reasonable use and enjoyment of the plant room is impacted by the implied easement, pointing to Mr Rogers’ evidence discussed above that if the Generator was removed, he would use the space as a bathroom or extension to the office boardroom.
[33] Sheppard at [88]
128The test of “reasonable use and enjoyment” is an objective one.[34] In both Sheppard and Marley, the claimed easements were found to be inconsistent with the reasonable use and enjoyment of the property. In particular, in Sheppard, Dodds-Streeton JA found:[35]
“[t]he number and frequency of the required service visits, the ambit of the necessary route through the respondents’ key private living areas and the associated conveyance of service equipment and chemicals through those areas would constitute intrusion of a degree and nature wholly incompatible with the reasonable use and enjoyment of a private residence.”
[34] Marley at [65]
[35] Sheppard at [90]
129However, the circumstances attending the claimed easement here are markedly different, for a number of reasons. Each of those reasons is probably sufficient to support the opposite finding on the facts of this case. Cumulatively, the effect is overwhelming. Those reasons are as follows:
(a) I do not agree with Mr Best that it is only the reasonable use and enjoyment of Lot S3 (not the other lots) which must be considered. Section 12(2) expressly extends to (emphasis added) “each [affected] lot and any common property” and “the reasonable use and enjoyment of the lot or the common property”. It is not in dispute that the Generator (and therefore the claimed easement) extends over both Lot S3 and common property. Likewise with the MSSB cabinet. Further, all of the cabling and ducting to, from and around this equipment traverses these areas. I would also infer that the cabling then travels through and supplies power (including back-up power) throughout SKY2.
(b) It follows that I can also have regard to the reasonable use and enjoyment of the common property affected by the easement. Noting that Sofy has not sought the removal of the MSSB cabinet, the common property to the rear (east) of this cabinet can presently only be accessed by passing through Lot S3, regardless of the location of the Generator. Thus, while the MSSB cabinet remains in place, the easement is necessary for the reasonable use and enjoyment of that section of common property behind the MSSB cabinet.
(c) As discussed, the impact of the implied easement on use and enjoyment of Lot S3 is markedly different from that in Sheppard. I have referred above to my reservations about the practicalities of gaining access to the Lot S3 space within the Generator room, to link it back to the balance of Lot S3. Further, I am satisfied that Sofy cannot assert that it had any expectation about the use and enjoyment of this space probably until around early 2017, when Mr Rogers raised the encroachment of the Generator in the email to the OC of 30 January 2017. Certainly there is no evidence that Sofy was aware of any entitlement to the area when the subdivision was finalised and it completed the development of the office space on part of Lot S3 on level 10.
(d) As the summary above of the evidence shows, even as late as POS version F dated 10 July 2013 and registered on 21 August 2013, the precise area of the proposed Lot S2 was unclear – the only sign that it would take in five storage cages were some hatched lines around those cages. But for reasons that were never explained, the corridor area giving access to those cages were then, and continues to be, common property. More importantly, the evidence established and Mr Rogers accepted that the Generator was already in situ by 6 August 2013. Thus the finalisation of the registered POS and all Sofy’s planning and development of level 10 occurred around the existing Generator.
(e) Mr Rogers’ evidence to the effect that he was oblivious to all this during the planning and development of levels 10 and 11 was unconvincing. Mr Rogers was the principal of Baracon and, in that capacity, was closely involved in both the overall project management of SKY2, as well as the planning and development of Baracon’s offices on levels 10 and 11 of the building.
(f) I accept that the location of the Generator was not front of mind for Mr Rogers in around August 2013, and it is therefore unsurprising that he did not recall that he was aware of its existence some eight years earlier. However, it is improbable that by around August 2013 he (and therefore Sofy) had no knowledge that the Generator and MSSB cabinet were located within the area they now occupy.
(g) In my view, it is more likely that he knew they were there, but assumed when the subdivision was finalised and the balance of Lot S3 on level 10 was developed, that all of the Generator room and the access to the room was located on common property. The fact that it is not is almost certainly an error in the subdivision planning or some historical quirk – it makes no sense to include this area as part of Lot S3 and then shut it off entirely from the rest of Lot S3 by the construction of the Generator room.
(h) Against this background, it is difficult for Sofy to argue convincingly that it will suffer any tangible loss of use of enjoyment of the affected part of Lot S3. As I have noted, the likelihood is that it was unaware of its existence when the subdivision was finalised and the balance of Lot S3 on level 10 was developed.
(i) Thus any difficulties the location of the Generator poses to access for Sofy are not of the same character as those contemplated by Dodds-Stretton JA in Sheppard. Her Honour considered the number and frequency of required service visits, the ambit of the necessary route through the respondent’s key private living areas and associate conveyance of service equipment and chemicals through those areas.[36] None of those factors are present here.
[36] Ibid
130I am therefore satisfied that the second condition under s12(2) of the Subdivision Act is satisfied, and that the OC enjoys an implied easement over Lot S3 pursuant to that section for:
(a) the area occupied by each of the Generator, the duct and the MSSB cabinet;
(b) the room in which each of these is housed; and
(c) the small area outside the access gate into that room (formally a storage cage) described as “Part S3” in the attached plan, that allows access through the gate to the Generator room.
131It follows that the OC is not required to relocate the Generator.
132For completeness, I note the easement is clearly for the location of the Generator for the purpose of provision of electricity. While Mr Best did not press this issue in submissions, Mr Rogers gave evidence that the Generator is for back-up electricity only in relation to the power for the lift to operate and for the smoke pressurisation. Thus, it is not for provision of energy on an everyday basis or for the power of the building as a whole in the event of a power outage. I see no basis for arguing that that these limitations take the Generator outside the categories included in s12(2)(d) of the Subdivision Act. As Mr Rogers later confirmed in his evidence, without the Generator the building would face serious safety issues in a blackout or other emergency, as the lifts could not operate, and the fire services would not be operational.
Estoppel and remaining issues
133It follows from my findings above that it is unnecessary for me to consider whether the OC can also claim an estoppel preventing Sofy from requiring it to relocate the Generator. Nor do I need to make findings in relation to Sofy’s claim for an injunction for the removal of the Generator, or for damages in lieu. I will however make the following brief observations on these matters.
Estoppel
134Mr Best objects to the OC seeking relief based on principles of proprietary estoppel, when the OC’s amended defence to counterclaim clearly pleads promissory estoppel. Mr McKay concedes that the OC’s pleadings could have been clearer, but submits that the defence to counterclaim was less than definitive on the species of estoppel relied on in the pleading. Mr McKay pointed in particular to paragraph 9(j) of the defence to counterclaim, which states Sofy “is estopped in equity from denying that the Generator is a fixture that can remain in situ… and is not permitted to demand or obtain in this Court any remedy that would require the removal of the Generator”.
135If required to decide, I would probably have accepted Mr McKay’s submissions on this issue – the pleading is equivocal, and it is difficult to see how Sofy is prejudiced by permitting the OC to press for orders based on proprietary estoppel. There seems to me to be no material difference in the evidence that would have been adduced had Mr Best believed he was meeting a case based on proprietary estoppel rather than promissory estoppel, and none was suggested by him.
136However, this is not the OC’s primary obstacle to a successful claim based on either promissory or proprietary estoppel. That difficulty arises from the disconnect between the party said to have made the relevant representations (NOH) and the party against whom that estoppel is asserted (Sofy). To my mind, there is also no clear line of sight between the alleged representation and the party said to have relied on them (the OC). My preliminary view is that these difficulties would have defeated the OC’s estoppel claim.
137Mr McKay seeks to overcome these difficulties essentially by alleging that:
(a) Mr Rogers of Sofy and Mr O’Halloran of NOH knew all of the relevant facts concerning the decision to move the Generator from its originally anticipated location to its present location, and appeared to be unaware that in doing so the Generator would encroach on Lot S3;
(b) had Mr Rogers and Mr O’Halloran been aware of the encroachment, they would have amended the plan of subdivision to create an easement to accommodate the Generator or extended the common property to encompass the land occupied by the Generator or otherwise conveyed to the OC an interested in the affected land;
(c) Mr Rogers (via Baracon) was acting as the project manager of NOH and his knowledge of the relevant matters is attributable to NOH;
(d) Mr O’Halloran was the director of NOH during the events as outlined above and his knowledge of matters should be attributable to NOH;
(e) NOH was the sole member of the OC upon the OC coming into existence on 21 August 2013 and Mr O’Halloran’s knowledge of the above matters should also be attributable to the OC;
(f) by Mr O’Halloran declining to take the steps stated above in (b), the OC should have been taken to have relied to its detriment on an implied assurance the Generator could remain in its present location in perpetuity; and
(g) when Sofy acquired Lot S3, it had knowledge of each of the above matters through Mr Rogers.
138Mr Best submits (and I agree) that estoppel is an in personam remedy and only binds those who were party to the estoppel. I also agree with Mr Best that the OC’s argument that the knowledge of Mr Rogers and Mr O’Halloran can be attributed to the present parties to this case – the OC and Sofy – cannot be sustained. Mr Rogers was not a director, officer or shareholder of NOH. In my view, his directorship of NOH’s project manager, Baracon, is an insufficient basis to attribute his knowledge to NOH, in the absence of further evidence about the legal nature of that relationship and the day to day dealings by Baracon on behalf of NOH.
139Further, Mr O’Halloran was not called as a witness and, in the absence of evidence from him, I would not be prepared to make any concluded findings about his knowledge of the relevant matters or what he may or may not have done if had possessed that knowledge. I am also not persuaded that principles stated in the extract from of Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies[37] cited by Mr McKay, apply on the facts of this case. While I have found above that Mr Rogers probably knew that the Generator was in its current location by around August 2013, there is scant evidence to suggest that he played any role in any decisions to move it to that location.
[37]J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015) at 527[17-130]
140Similarly, I agree with Mr Best that there is no evidence that the OC (created on 21 August 2013) turned its mind to the position of the Generator until it was drawn to its attention by Sofy on 31 January 2017. In the absence of evidence about this from Mr O’Halloran, it seems to me that is not open to conclude that the OC actually assumed that the generator would remain in its present position on a permanent basis. There is no evidence that NOH knew or intended that the OC would form the belief or assumption. There is no evidence that the OC acted in reliance on the belief or assumption.
Injunction or damages in lieu
141Had I allowed Sofy’s counterclaim for trespass, I would not have granted a mandatory injunction requiring the relocation of the Generator, essentially for the same reasons for declining that relief in relation to the Lift. Indeed, the argument against a mandatory injunction in relation to the Generator is probably stronger, in view of the likely more substantial costs and logistical difficulties associated with the relocation of the Generator discussed in my analysis of the implied easement issue above.
142On the question of the quantum of damages in lieu of injunction, I prefer the evidence of Mr Ferrier. His approach to selecting the appropriate comparisons (storage cages) was more logical and coherent, as was his methodology for assessment. As with the Lift, given that the Generator will remain in its present location indefinitely, I would again reject Mr Best’s application of the user principle based on rental, and instead assess damages based on a once-off price arrived at in a hypothetical negotiation. I note that Mr Cation only adopted the 99 year rental methodology because he was instructed to do so, and he agreed that it was problematic.
143In the circumstances, I adopt Mr McKay’s conclusion on this issue as follows:
“Mr Cations failed to have regard to storage cage values, and instead relied on telecommunications infrastructure and other usages that bore no resemblance to the land in question. His method ultimately yields a result that is so obviously in excess of the true value of the affected land that some fundamental error of approach is suggested. Accordingly, if SOFY succeeds on the Generator issue the Court should assess damages in accordance with the methodology of Mr Ferrier and award $12,000 in damages.”
Leave to amend
144On the third day of trial, Mr McKay for the OC foreshadowed an application to file and serve a proposed further amended statement of claim dated 29 September 2021 (“FASOC”), adding a claim for trespass to the common property by the deck on level 12. I deferred argument on the amendment until the final day of trial. Sofy opposed the amendment on the following bases:
(a) Mr Best received Mr Cation’s fourth report dealing with the added claim only two minutes before recommencing after the luncheon adjournment on the final day of trial. He had no time to consult with Mr Cations, or any indication of what would be in the report until he saw it, and could not take instructions from his instructor or client in respect of the report.
(b) If the pleading had been properly articulated earlier, Sofy may have raised different defences concerning the deck.
(c) The OC ought to have been aware of this issue sooner. The subdivision documents were completed long before the proceeding was issued on 1 April 2019 (Mr Cation’s report filed 26 August 2021 expressly raised the point). Mr Ferrier was also aware of the point, as he adopted a distinction in his first and second reports.
(d) There is prejudice to Sofy, including the requirement that it consider hypothetical issues. Indeed, the issue of trespass by the deck was not canvassed in evidence or in discovery, and was raised at the last moment.
(e) The proposed amendments is inconsistent with trial directions. The OC has adjourned the proceeding twice, and Sofy has not adjourned the proceeding.
(f) There was no adequate explanation for the delay in seeking the amendment.
145Sofy expanded upon the question of defences to the amendment as follows:
“[T]he OC was au fait with the development of the 12th floor apartment because, according to my learned friend's witness…there were up to 12 objectors and at least three members of the committee… went to council and they saw the documents, et cetera. There may have been an estoppel argument that we might have been able to plead in respect of that. That would have led to a chain of new evidence…we would have made a search [for]…further documents, and…we would [have] made discovery and…led them in evidence and I would have adduced evidence from Mr Rogers [or others about the documents].”
146Mr McKay initially pressed the amendment on the following bases:
(a) The reason for the amendment is the OC’s legal advisers misread the cross-section in the plan of subdivision. They realised that the trespass could canvas the deck on the first day of trial. Counsel conceded this was not a satisfactory excuse and the basis for the amendment could have been discovered earlier.
(b) There is no prejudice since the experts have canvassed the issue already.
(c) The decking area is a significant area of the penthouse. To allow Sofy to have the permanent benefit of that land would be unfair.
(d) Sofy was on notice of the OC’s position in respect of the deck. Letters throughout 2017 from Broadbent Legal and from the OC’s manager advised it not to erect the relevant structures.
(e) The foreseeable defences to the amendment (such as estoppel) lack a proper basis.
(f) The trial will not need to be adjourned.
147I declined the OC’s application to file and serve the FASOC and gave brief oral reasons. I said that I would expand on those reasons in my written reasons for judgment.
148In Traffic Technique Pty Ltd v Burgmann & Anor,[38] the Court of Appeal recently outlined the principles applicable to amendments, as follows:
(a) The trial judge balances the merits of the proposed pleading against case management considerations (such as the interests of other parties, the prospect of an adjourned trial, and the need to facilitate public confidence in the justice system).[39] This is consistent with Aon Risk Services Australia Ltd v Australian National University (“Aon”).[40]
(b) This supersedes the approach in State of Queensland South Bank Corporation vJL Holdings Pty Ltd,[41] where the merits of the proposed pleading were the dominant criterion.
(c) There is no single, universal approach to amendments.[42]
(d) There is no universal proposition that applications for an amendment, even at a late stage, must fail. [43]
(e) The essential question is: “what do the interests of justice dictate?”[44]
[38] [2020] VSCA 319
[39] Ibid at [57]
[40] (2009) 239 CLR 175
[41] (1997) 189 CLR 146
[42] Aon at [56]
[43] Ibid at [56]
[44] Ibid at [58]
149In Aon, French CJ made similar observations as follows:[45]
“In the proper exercise of the primary judge’s discretion, the applications for adjournment and amendment were not to be considered solely by reference to whether any prejudice to Aon could be compensated by costs. Both the primary judge and the Court of Appeal should have taken into account that, whatever costs are ordered, there is an irreparable element of unfair prejudice in unnecessarily delaying proceedings. Moreover, the time of the court is a publicly funded resource. Inefficiencies in the use of that resource, arising from the vacation or adjournment of trials, are to be taken into account. So too is the need to maintain public confidence in the judicial system.”
[45] Ibid at [5]
150As I indicated at the hearing, this issue is finely balanced. On this application, case management considerations play a less significant role because there is no suggestion the trial would be adjourned by any amendment. Nonetheless, I take account of the fact that the trial has already been adjourned twice at the instigation of the OC. In this case, the decisive factor against the OC’s application is prejudice to Sofy.
151I am satisfied there was a serious risk of prejudice to Sofy if the amendment were granted. The application and accompanying expert report of Mr Ferrier were filed at the eleventh hour, during the proceeding. This put Sofy in a difficult position. It was required to consider and respond to that material on the run, in the midst of a complex and fast-running trial. It would be required to defend a new claim of trespass, which had not been explored in discovery or in evidence.
152Further, I accept Mr Best’s submission that the OC was on notice of the issue well before the trial commenced, and could therefore have made the application to amend to add a claim relating to the deck in sufficient time before the trial to avoid any prejudice. Both experts canvassed the deck as separate from the lift in their reports. Letters throughout 2017 from Broadbent Legal and from the OC’s manager advised it not to erect the relevant structures, and these included the deck.
153Finally, the explanation for the late amendment was (as the OC conceded) deficient. The OC ought to have realised the necessity of adding a claim for the deck earlier. I note that shortly before the trial adjourned, Mr McKay said that, having reflected on the submissions and ruling declining the OC’s application earlier that day, he accepted that it was a correct decision. He said it was regrettable that the OC found itself in the position of having to make the application so late.
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Certificate
I certify that these 62 pages are a true copy of the judgment of his Honour Judge Woodward delivered on 31 August 2022.
Dated: 31 August 2022
Claire Findlay
Associate to his Honour Judge Woodward
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