Quest Rose Hill Pty Limited v The Owners Corporation of Strata Plan 64025

[2012] NSWSC 1548

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Quest Rose Hill Pty Limited v The Owners Corporation of Strata Plan 64025 and Anor [2012] NSWSC 1548
Hearing dates:	8, 9 August 2012, plaintiffs supplementary submissions 10 August, first defendants supplementary submissions 10 August, further written and oral submissions 22 October 2012, further written submissions on 23 and 25 October 2012
Decision date:	13 December 2012
Jurisdiction:	Equity Division
Before:	Sackar J
Decision:	Paragraphs 313 - 323
Catchwords:	Strata Schemes (Freehold Development Act) 1973 (NSW), Strata Schemes Management Act 1996 (NSW), serviced apartment, strata title apartment, whether lease or licence, construction of lease, validity of lease of common property, whether void, whether executed ultra vires, whether indefeasible, s 42 Real Property Act 1900 (NSW), unauthorised affixing of company seal, requirements of fraud, relation to indoor management rule, extent of indefeasibility, indefeasibility and certain personal covenants, proper construction of lease, delegation of functions, reasonable directions on voting rights, dealing with common property, whether valid exercise of right to be granted new leases, whether in contravention of relevant legislation, whether void or unenforceable, contravention of terms of lease, estoppel, specific performance of lease
Legislation Cited:	Commercial Arbitration Act 1984 (NSW) Strata Schemes (Freehold Development) Act 1973 (NSW) Strata Schemes Management Act 1996 (NSW) Real Property Act 1900 (NSW) Evidence Act 1995 (NSW)
Cases Cited:	Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corp (1985) 1 NSWLR 561 Assets Co Ltd v Mere Roihi [1905] AC 176 Australian Guarantee Corporation Ltd v De Jager [1984] VR 483 Bahr v Nicolay (No 2) (1988) 164 CLR 604 Blatch v Archer (1774) 1 Cowp 63 Briginshaw v Briginshaw (1938) 60 CLR 336 Broadlands International Finance Ltd v Sly (1987) 4 BPR 9420 Butler v Fairclough (1917) 23 CLR 78 Chan v Cresdon Pty Ltd (1989) 168 CLR 242 Davis v Williams [2003] NSWCA 3713 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Email Ltd v Robert Bray (Langwarrin) Pty Ltd [1984] VR 16 Eventang Development (Pyrmont) Pty Ltd v The Owners Strata Plan 51573 [2001] NSWSC 452 Fitzgerald v Masters (1956) 95 CLR 420 Frazer v Walker [1967] 1 AC 569 Gillett v Halwood Corp Ltd [1998] NSWCA 281 Grgic v Australian and New Zealand Banking Group Ltd [1994] 33 NSWLR 202 Gumland Holdings v Duffy Bros (2008) 234 CLR 237 Jones v Sutherland Shire Council [1979] 2 NSWLR 206 Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 King v Poggioli (1923) 32 CLR 222 Lee v Ferno Holdings Pty Ltd [1993] 33 NSWLR 404 Lym International Pty Ltd v Marcolongo and Another [2011] NSWCA 303 Mehmet v Benson (1965) 113 CLR 295 Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326 National Commercial Banking Corp of Aust Ltd v Hedley (1984) 3 BPR 9477 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 Owners - Strata Plan No 43551 v Walter Construction Group Ltd [2004] NSWCA 429 Owners - Strata Plan No 44999 v Premier Holdings Corp Pty Ltd [2012] NSWSC 171 Owners - Strata Plan No 56443 v Regis Towers Real Estate Pty Ltd [2003] NSWCA 274 Ponsford v HMS Aerosols Ltd [1979] AC 63 PT Ltd v Maradona Pty Ltd [1992] 25 NSWLR 643 Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 Quest Rose Hill Pty Ltd v White [2010] NSWSC 939 Radaich v Smith (1959) 101 CLR 209 Russo v Bendigo Bank Ltd and Another [1999] 3 VR 376 Stolfa v Owners Strata Plan 4366 [2009] NSWSC 589 Telado Pty Ltd v Vincent (1996) 7 BPR 14,874 Tenstat Pty Ltd v Permanent Trustee Australia Ltd [1992] 28 NSWLR 625 The King v Darling Island Stevedoring and Lighterage Co. Ltd.; Ex parte Halliday and Sullivan (1938) 60 CLR 601 The Owners - Strata Plan No 44999 v Premier Holdings Corp Pty Ltd and Anor [2012] NSWSC 171 Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1 TX Australia Pty Ltd v Broadcast Australia Pty Ltd [2012] NSWSC 4 Vetter v Lake Macquarie City Council (2001) 202 CLR 439 Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 71623 [2010] NSWCA 226 Walsh v Lonsdale (1882) LR 21 Ch D 9 Westpac Banking Corporation v Sansom (1994) 6 BPR 13,790 Wicks v Bennett (1921) 30 CLR 80 Wilson v Northampton and Banbury Junction Railway Co (1873-74) LR 9 Ch App 279
Texts Cited:	Peter Butt, Land Law (4th ed., Lawbook Co, Sydney, 2001) Fry on Specific Performance (6th ed., Stevens and Sons, London, 1921)
Category:	Principal judgment
Parties:	Quest Rose Hill Pty Limited - plaintiff The Owners Corporation - strata plan 64025 - first defendant Keith Bernard White (representing the lot owners referred to in the amended schedule 4 in the further amended second cross claim) - second defendant Keith Bernard White - third defendant
Representation:	Counsel: D E Grieve QC, J Van Aalst - plaintiff M Ashhurst SC - first defendant P W Gray SC, P Koroknay - second & third defendants Solicitors: David Le Page - plaintiff J S Mueller & Co - first defendant Lodhia lawyers - second and third defendants
File Number(s):	2010/342330

Judgment

The Proceedings

1. In these proceedings the plaintiff Quest Rose Hill Pty Limited, (QRH) seeks a myriad of declarations, approximately fifteen in number. The first four declarations concern various items of expenditure dealt with at the 2010 Annual General Meeting (AGM) of the first defendant (the Owners Corporation) and which in turn call for the proper construction of a lease entered into by QRH and the Owners Corporation, (registered number 8455000J).

1. Declaratory relief is sought as to the proper construction of clauses 13.1 and 13.2 of the lease and QRH's ability to nominate a strata managing agent. In addition a declaration is sought to the effect that pursuant to clause 13.2 the Owners Corporation is obliged to grant QRH a lease of the common property within a specified time frame on the same terms and conditions as long as the rental is calculated in accordance with clauses 15.2.1 and 15.2.2 of the lease.

1. Further declaratory relief is sought to the effect that certain resolutions purportedly passed at the AGM in November 2010 were and are of no force or effect.

1. Declaratory relief is also sought to the effect that on 16 November 2010 QRH issued reasonable directions (as it alleges it was entitled) on how lot owners were to vote at the AGM convened on 18 November 2010.

1. A declaration is sought that by reason of the freehold in the common property being vested in the first defendant as agent for the lot owners under s 20(b) of the Strata Schemes (Freehold Development) Act 1973 (NSW) (SDA) who to the first defendants knowledge, were and are the plaintiff's lessors, under the relevant leases the first defendant is thereby estopped from doing or causing to be done anything with the common property that interferes with the plaintiff's business or its exclusive use of the common property. An injunction is also sought restraining the first defendant from dealing with the common property.

1. A declaration is also sought that QRH, by its letters to the second and third defendant and others dated 17 September 2010 has validly exercised its right to be granted new leases for a further term which commenced on or about 19 February 2006 for a rental to be determined in accordance with clause 15.2.

1. Further declarations are sought by QRH which turn upon the delivery of a notice prior to 19 November 2005, (in accordance with clause 15.1.1 of the lot leases) that each represented lot owner became bound to grant leases to QRH for a period of five years commencing on the day of the expiry of the relevant lot lease granted by Roseprop (the original developer) on the same terms and conditions (as to rental and renewal options). Further a declaration is sought that QRH could on certain terms and conditions make a written request for such a lease not later than three months prior to the expiration of the period. Further again a declaration that by the plaintiff delivering a notice to each of the represented defendants on 17 September 2010 they became bound to enter into the various agreements described.

1. Orders are also sought pursuant to the Commercial Arbitration Act 1984 (NSW) for QRH to be granted leave to enforce against certain defendants an award made by the Arbitrator a Mr John McDermont dated 14 October 2008. An order is also sought that the defendants who are party to the arbitration proceedings refund certain monies by way of rent overpaid, by QRH with interest.

1. An order for specific performance is sought in relation to the lease agreements referred to above.

1. The Owners Corporation has filed a defence and a cross claim. The issues which are raised by it involve questions concerning the validity of the lease of the common property (No 8455000J). Various grounds are put forward as to why the lease is void and unenforceable.

1. The Owners Corporation seeks a declaration that the lease referred to above is void or unenforceable as a result of the manner in which it was executed in particular in circumstances where it was beyond the power of the Owners Corporation to grant it. Alternatively it seeks the same declaratory relief in relation to certain clauses; 3.1, 5.1 and 11.1, namely that they are void and unenforceable.

1. The Owners Corporation also seeks a declaration that clause 2.2 of the common property lease is void and unenforceable and not binding. It also seeks a declaration as to the proper construction of clause 2.2.

1. Further the Owners Corporation seeks a declaration that it is entitled to terminate the lease on one month's notice.

1. The Owners Corporation also seeks declarations that the QRH cannot exercise any relevant functions without the Owners Corporation's consent.

1. The second defendant (Mr White) raises a number of issues in common with the Owners Corporation. He also seeks declarations and an injunction. His relief also involves the proper construction of clauses 2.2 and 13.2 of the lot leases. They are in identical terms to those clauses in the common property lease.

1. Mr White asserts and that by reason of QRH having failed properly to exercise the relevant option, QRH has no legal estate or interest in the lots and is therefore, pursuant to clause 7.2 of the lease, holding over, and as such was not entitled to seek the exercise of the option for renewal of the 2011-2016 term.

1. Mr White also seeks declaratory relief to the effect that while the purported exercise of the option by QRH may bring into existence an agreement to lease, equity should refuse relief (in particular specific performance) by reason of the number of discretionary considerations but in particular that a lease either cannot be brought into existence retrospectively or that the plaintiff is in breach of essential terms of the lot leases and therefore the Court should exercise its discretion against granting specific performance to QRH.

1. Mr White likewise seeks a declaration he is entitled to terminate the lot leases on one month's notice or for breach.

1. Other declarations are sought which involve a construction of clause 6.2 of the relevant lease.

Background Facts

1. The plaintiff, QRH operates a serviced apartment franchise business from premises, namely a strata title apartment building, situated at 8 Hope Street Rose Hill (the premises).

1. The premises were developed by Roseprop Pty Ltd (Roseprop).

1. Construction of the premises was completed in about late 2000. The premises contain a basement carpark, 55 apartments and common property which includes a swimming pool, common grounds and landscaped areas.

1. On 5 February 2001, strata plan 64015 was registered and pursuant to the relevant legislation the Owners Corporation was brought into existence; section 8, Strata Schemes Management Act 1996 (SSMA).

1. Shortly after the strata plan was registered a number of leases were entered into as follows:

(i) The Owners Corporation purported to grant to QRH a lease over the whole of the common property in the strata scheme;

(ii) Roseprop granted to QRH as tenant leases over each of the 55 apartments in the premises.

1. 19 February 2001 was the date of commencement of lease of Lot 35 (now owned by Mr White) by Roseprop to QRH. It was a 5 year lease, terminating on 8 February 2006.

1. In April 2001 Mr White purchased lot 35 from Roseprop. During 2001 other apartments were sold to investors, some of whom bought off the plan.

1. The common property and apartment leases are in identical terms, apart from the start and end dates of each and the rent payable under each of the leases. The term of each lease is for 5 years commencing on various dates from February 2001 and each lease contained four options to renew, each of 5 years duration.

1. In the case of the common property lease, the start date was 23 February 2001 the end date was 23 February 2006 and the rent payable by QRH was $1 for the first and second years increased by 4% per annum thereafter. The apartment leases purportedly gave QRH control over the apartments in the premises so as to enable QRH to find tenants for the apartments by sub-letting or licensing the use of the apartments thereby enabling QRH to operate the serviced apartment business.

1. The common property lease permitted QRH to use the common property for the purpose of serviced apartments or other long or short term lettings (First Schedule, item 2: Use).

1. On 19 April 2002 the common property lease was registered.

1. On 18 October 2004 the following took place:

• Mr Bailey became a director of QRH
• His company, Food Concepts acquired all 6 shares in QRH
• A franchise agreement was entered between Quest NSW Pty Ltd (sub franchisor), Spencer Bailey and Food Concepts (ATF Bailey Family Trust) ("Franchisor"/"Tenant Company") and Spencer Bailey ("Guarantor")
• QRH was not a party to the franchise agreement although it executed the agreement
• Food Concepts commenced to operate the serviced apartment business, with QRH as the lessee of the lots.

1. On 23 March 2005 Roseprop was deregistered.

1. The Owners Corporation asserts that the lease of the common property expired on 22 February 2006. QRH (it is accepted) did not exercise its option to renew the lease but of course has remained in possession of the common property.

1. From about May 2006 onwards, QRH sent various rent notices to lot owners. As a result a dispute ensued in relation to the rent. An action group was formed to represent the interests of lot owners.

1. Mr White however does not dispute that QRH purported to exercise the options to renew the leases of the represented lot owners for the first further term (19 February 2006 to 18 February 2011).

1. A number of disputes between the parties having been referred to arbitration. On 14 October 2008 a Mr John McDermott as Arbitrator published his award and found:

• The rent notices served upon certain lot owners by QRH in May 2006 were valid, although served outside the time provided for in the lease
• The lot owners should execute new leases as requested
• The rent for what was described as group 1 landlords was to be determined by clause 15.1.3(b) of the lot leases
• The rent for what was described as group 2 landlords to be as per QRH's rent notices.

1. More particularly as for lot owners who had objected to the rent notices the Arbitrator ruled that those owners were to execute leases in favour of QRH once rental valuations in accordance with the terms of the leases had been obtained.

1. As for lot owners who had not objected to the rent notices the Arbitrator ruled that they were to execute leases in favour of QRH for the first further term.

1. However the first further term expired (in February 2011) before either the rental valuations were provided to the objecting lot owners or leases were executed by the non objecting lot owners.

1. On 12 March 2009 Network Pacific gave notice of its resignation as Strata Manager, to be effective 12 April 2009.

1. On 4 May 2009, a notice (deferred) of the AGM was circulated indicating the meeting was to be held on 21 May 2009. The agenda items included:

• That the budget for the administrative fund be $193,963.00.
• That the Owners Corporation appoint a new strata manager.

1. On 15 May 2009, Supreme Court proceedings 2009/288819 were commenced, by the filing of a statement of claim and notice of motion to restrain voting at the AGM.

1. On 22 September 2009 a franchise agreement was entered between Quest Serviced Apartments Pty Ltd ("Franchisor"), Food Concepts ("Franchisee"), Spencer Bailey ("Guarantor") and QRH ("Tenant Company").

1. On 24 August 2010, Ward J delivered judgment in matter 2009/288819; Quest Rose Hill Pty Ltd v White [2010] NSWSC 939 (Quest Rose Hill).

1. On 17 September 2010, QRH issued a letter purportedly exercising an option for renewal of lot leases from 18 February onwards for a further 5 years. This was apparently not received by Mr White until 9 November 2010.

1. In October 2010, these proceedings were commenced by summons.

1. On 2 November 2010 a notice for the resumption of 2009 AGM was circulated. On the same day a notice was issued for the 2010 AGM.

1. On 16 November 2010 directions were issued to lot owners by QRH purporting to direct them on how to vote in relation to the 2010 AGM.

1. On 1 December 2010 QRH issued letters to lot owners purporting to give notice as to the rent for the term 2011 to 2016.

1. On 21 December 2010, Mr White wrote to QRH rejecting the rent notice.

1. On 24 December 2010 numerous letters issued from other lot owners rejecting the rent notices.

1. On 10 January 2011 QRH sent letters to lot owners giving notice of an intention to carry out certain renovations. There are numerous letters refusing consent however QRH asserts it has carried out the works in any event.

1. On 28 January 2011 a statement of claim was filed in these proceedings.

1. In February 2011, the first further term of the lot leases expired.

The Core Issues

1. The parties in this litigation are at war and have been for some time. These disputes raise in my mind serious questions as to whether this type of investment sits comfortably with the concept of a strata title. Ward J had similar doubts; Quest Rose Hill [142].

1. As is apparent from the brief sketch of the relief sought on both sides and the various matters raised by the Owners Corporation and Mr White, the case turns to a very great extent on whether the arrangements between QRH and the defendants (as to the common property or any particular lot) is or is not governed (as the case may be) by enforceable and valid leases, or ones which equity ought to enforce. The construction of important terms of those leases is also a matter of contest.

1. As a prelude to many of its arguments, the Owners Corporation seeks to argue that what QRH has is at best only a licence. The substance of the remaining arguments turn on whether the leases are inconsistent with relevant legislation and hence unenforceable.

1. I should also observe in passing that both sides filed voluminous affidavit materials annexing minutes, spreadsheets, correspondence and other documents. There was no cross examination of any witness. That presents it own limitations. There was no attempt to file any expert evidence of an accounting or other kind. The Court is therefore left to discern in a number of respects for example what is or is not a reasonable estimate or expense on the basis of assertion and counter assertion. Important matters were left to the written evidence such as it was and what reasonable inferences were available therefrom. The difficulties in demarking the boundaries between a permissible inference and speculation is often a difficult one: Jones & Anor v Sutherland Shire Council [1979] 2 NSWLR 206 at 222 to 229, per Mahoney JA. As Lord Mansfield said long ago in Blatch v Archer (1774) 1 Cowp 63 at 65, "all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other side to have contradicted". See also Apollo Shower Screens Pty Ltd, v Building and Constructions Industry Long Service Payments Corp (1985) 1 NSWLR 561 at 565 and Vetter v Lake Macquarie City Council (2001) 202 CLR 439 at [36].

Lease or Licence

1. It is submitted on behalf of the Owners Corporation that the common property lease does not in fact confer exclusive possession in favour of the QRH and therefore, consistently with the principles articulated in Radaich v Smith (1959) 101 CLR 209, is not a lease and therefore does not create an interest in land which would gain the protection of indefeasibility pursuant to section 42 of the Real Property Act 1900 (NSW).

1. In Radaich, Taylor J said at 217:

I have no doubt that the substance and effect of the instrument in question here was to grant to the appellant a right to the exclusive possession of the subject premises upon the specified conditions for the prescribed term. The deed obviously contemplated that the appellant should have the right to occupy the premises for the purposes of her business and the business was to be carried on upon the premises at all times when they might lawfully be kept open. The character of the business was such that it could only be effectively carried on if the appellant had exclusive occupation and it seems clear that, even at times when they could not lawfully be kept open for the purposes of the business, the premises were to remain under her effective control. That being so it is inevitable that we should hold that the instrument created a leasehold interest and that at the material time the relationship of lessor and lessee existed between the parties.

1. In the same case Windeyer J said at 221 - 222:

The distinction between a lease and a licence is clear. "A dispensation or licence properly paseth no interest, nor alters or transfers property in anything but only makes an action lawful which without it had been unlawful".

...Whether the transaction creates a lease or a licence depends upon intention, only in the sense that it depends upon the nature of the right which the parties intend the person entering upon the land shall have in relation to the land. When they have put their transaction in writing this intention is to be ascertained by seeing what, in accordance with ordinary principles of interpretation, are the rights that the instrument creates.

1. The document here is described as a "lease" on the front page of the agreement. It describes the respective parties as lessor and lessee. It was pointed out by Counsel for the Owners Corporation that the document purports to grant a lease to the Tenant (QRH) and the Tenant's invitees to use the common property "in common with other persons entitled to use the same subject however to the Owners Corporation rules for the time being in force and to the covenants conditions, restrictions herein contained". The argument was to the effect that if others are entitled to use the common property then exclusive possession has not been granted to the Tenant. I am not persuaded however that that is the correct construction of the document. If persons have for example statutory entitlements such as lot owners, I see no difficulty in the lease being qualified to that extent. Equally the fact there may be invitees would not mean that the arrangement was not a lease.

1. Clause 4.1 indicates clearly that the Tenant will not at any time use or permit the use of the premises other than for the purposes specified in Item 2 of the first schedule, provided that the Tenant may with the consent of the Landlord alter the usage of the premises. Item 2 in the first schedule in turn indicates that the use is for serviced apartments or other long or short term lettings.

1. Clause 6.1.1 however obliges the Landlord to allow the Tenant "quiet enjoyment and possession and use of the premises". The premises are of course defined as the common property in folio identifier CP/SP64025 or the various lots e.g. 35/SP64025. Clause 6.1.3 obliges the Landlord not to interfere with the Tenant's business. This is entirely consistent with exclusive possession in the relevant sense.

1. Given the nature of the business and those particular terms to which I have referred I consider there is sufficient indication of exclusive possession to warrant the arrangement embodied in the leases being characterised as a lease as opposed to a licence. That is clearly in my opinion the better view. I reject the Owners Corporation argument to the contrary.

Validity of the Lease of the Common Property

1. The Owners Corporation contends that for a number of reasons the common property lease is void and unenforceable and not binding on the Owners Corporation. Insofar as it was registered, the registration did not give QRH an indefeasible title because QRH had relevantly engaged in a statutory fraud.

1. There are some factual issues which are germane to this issue and which I will set out prior to dealing with the various legal propositions advanced. The relevant chronology is as follows:

(i) On 24 February 1999 a Mr Paul Constantinou was appointed director of Roseprop Pty Ltd;

(ii) On 2 June 1999 Mr Constantinou was appointed a director of the plaintiff, QRH;

(iii) On 22 December 2000 a lease was executed for Unit 35 executed by Roseprop (Constantinou signs as secretary) and the Plaintiff (Constantinou signs as secretary and director of the Plaintiff and executes guarantee of the Plaintiff's obligations under lease);

(iv) On 26 January 2001 the first meeting of the Owners Corporation of SP64025 was held;

(v) On 5 February 2001 Strata Plan 64025 was registered;

(vi) On 26 February 2001 units 33 and 48 in Strata Plan 64025 are transferred from Roseprop to third party purchasers;

(vii) Between 3 March and 4 April 2001 units 12, 13, 30, 37, 38, 39, 40, 44, 45, 47, 50 and 51 are transferred from Roseprop to third party purchasers;

(viii) On 17 April 2001 the common property lease is executed by affixing the common seal by Julie Briffa (purportedly on behalf of the Owners Corporation) and by Paul Constantinou on behalf of QRH;

(ix) On 26 April 2001 unit 25 is transferred from Roseprop to a third party purchaser;

(x) On 27 February 2002 the second meeting of the Owners Corporation of SP64025 is held. A resolution is passed appointing Network Pacific Real Estate as managing agent pursuant to section 27 of the Strata Schemes Management Act;

(xi) On 19 April 2002 the common property lease is registered.

1. For the purposes of the argument it is common ground that the lease over the common property was:

not executed pursuant to a special resolution passed at a general meeting of the Owners Corporation as required by section 25 of the SDA;

purportedly executed by affixing the seal of the Owners Corporation by Julie Briffa who at the time was neither a lot owner, member of the executive committee, nor the strata manager of the Owners Corporation in contravention of section 238 of the Strata Schemes Management Act, 1996 (NSW) (SSMA).

1. The Owners Corporation relies upon section 21 of the SDA which provides that the common property in the premises may not be dealt with except in accordance with the provisions of the SDA and the SSMA. The Owners Corporation also relies upon section 25 of the SDA which relevantly provides that an Owners Corporation may, pursuant to a special resolution passed at a general meeting, execute a lease of common property.

1. The first argument advanced therefore by the Owners Corporation is that the common property lease was executed ultra vires and is therefore void and unenforceable. The Owners Corporation also rely upon the manner in which the common seal was affixed to support an argument of invalidity. The seal was affixed with the attestation of a Ms Julie Briffa.

1. It is clear from section 238 of the SSMA that in order to be able to affix the seal of the Owners Corporation, the person has to be a lot owner, a member of the executive, or a strata manager of the Owners Corporation. It is common ground that Ms Julie Briffa was none of these, and therefore it is submitted that section 238 of the SSMA has not been complied with. It is further contended by the Owners Corporation that as the seal was not properly affixed to the common property lease (and hence it was not executed in accordance with the requirements of section 238 of the SSMA) it was not the Owners Corporation's agreement and therefore is not binding on the Owners Corporation.

1. QRH responds to both of these arguments on the basis that as the common property lease was registered QRH can avail itself of section 42 of the Real Property Act 1900 (NSW) and hence claim indefeasibility which would overcome what would otherwise be irregularities or defects.

1. The Owners Corporation however relies upon a number of authorities to support its contentions. In particular it relies upon Gillett v Halwood Corp Ltd [1998] NSWCA 281. It also relies upon Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 71623 [2010] NSWCA 226 (both decisions of the New South Wales Court of Appeal) and a decision of Justice Black in The Owners - Strata Plan No 44999 v Premier Holdings Corp Pty Ltd and Anor [2012] NSWSC 171.

1. In Gillett's case the Court held that a management agreement by which an owners corporation purported to appoint a manager was unenforceable as against the owners corporation because it had not been authorised by the executive committee of the owners corporation pursuant to the legislation.

1. In Waldorf the Court determined that an owners corporation was not bound by a building management agreement because it lacked the necessary resolution passed authorising entry into the agreement and again was thereby contrary to the relevant legislation.

1. In Premier, Black J on the other hand rejected an ultra vires argument because in the circumstances he found the defendant was entitled to rely upon the indoor management rule, but did find that the services specified in the relevant management agreement were an unauthorised delegation of the powers of the owners corporation.

1. In addition, the Owners Corporation relies upon the decision of the High Court in Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146. Again it is submitted that because the seal was improperly affixed it was not relevantly the act of the Owners Corporation and hence the common property lease was invalid.

1. It seems to me that none of the arguments advanced (at least at this stage) by the Owners Corporation have substance. First none of the cases referred to above by the Owners Corporation involved any consideration of section 42 of the Real Property Act and hence the question of indefeasibility. Subject to any relevant exception to section 42 it seems to me that while it is clear various provisions of the relevant legislation may not have been complied with, once registered by operation of section 42 the interest has the benefit of indefeasibility. The whole point of section 42 is that, subject to the fraud exception, it is intended to overcome voidness in the instrument. In relevant circumstances it can cure a forgery, Frazer v Walker [1967] 1 AC 569. It can certainly provide a cure where there has been a lack of authority to authorise the execution of an instrument: Broadlands International Finance Ltd v Sly (1987) 4 BPR 9420.

1. The Owners Corporation nonetheless submitted that QRH could not acquire an indefeasible title to the common property when the common property was not dealt with in accordance with the SDA. This was because the requirements of the SDA were said to override or impliedly repeal section 42 of the Real Property Act. This argument was not advanced in oral submissions and I consider it is likewise without substance. Both legislative regimes have their own work to do. Section 42 provides for indefeasible title upon registration subject to for example a relevant fraud. The SDA along with the SSMA regulates the business of strata titles. Both pieces of legislation are dealing with entirely different topics to the Real Property Act and insofar as they may well interact it would be necessarily assumed that both were valid enactments of the New South Wales Parliament. In any event I see no conflict between the respective pieces of legislation.

1. The Owners Corporation puts as an alternative argument that what occurred here amounted relevantly to a statutory fraud for the purposes of section 42. It was said that "dishonestly" permitting a dealing to be registered, in circumstances where there was knowledge that there had been a false attestation, was a dealing that fell within the fraud exception in section 42. In particular it was submitted that the relevant director of QRH, Mr Constantinou, was also a director of the company that was the developer and major lot owner in the Owners Corporation when the common property lease was executed, and therefore would have known that the lease was executed without a special resolution being passed and in breach of section 238 of the SSMA. In this regard the Owners Corporation relied upon a number of authorities but in particular Australian Guarantee Corporation Ltd v De Jager [1984] VR 483 and Westpac Banking Corporation v Sansom (1994) 6 BPR 13,790 at 13,795.

1. It is therefore necessary to consider the terms of section 42 and the relevant case law in relation to it. The principle of indefeasibility of title is the foundation of the Torrens system of title: Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 613, per Mason CJ and Dawson J.

1. Section 42 is in the following terms:

42 Estate of registered proprietor paramount

(1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except:

(a) the estate or interest recorded in a prior folio of the Register by reason of which another proprietor claims the same land,

(a1) in the case of the omission or misdescription of an easement subsisting immediately before the land was brought under the provisions of this Act or validly created at or after that time under this or any other Act or a Commonwealth Act,

(b) in the case of the omission or misdescription of any profit à prendre created in or existing upon any land,

(c) as to any portion of land that may by wrong description of parcels or of boundaries be included in the folio of the Register or registered dealing evidencing the title of such registered proprietor, not being a purchaser or mortgagee thereof for value, or deriving from or through a purchaser or mortgagee thereof for value, and

(d) a tenancy whereunder the Tenant is in possession or entitled to immediate possession, and an agreement or option for the acquisition by such a Tenant of a further term to commence at the expiration of such a tenancy, of which in either case the registered proprietor before he or she became registered as proprietor had notice against which he or she was not protected:

Provided that:

(i) The term for which the tenancy was created does not exceed three years, and

(ii) In the case of such an agreement or option, the additional term for which it provides would not, when added to the original term, exceed three years.

(2) In subsection (1), a reference to an estate or interest in land recorded in a folio of the Register includes a reference to an estate or interest recorded in a registered mortgage, charge or lease that may be directly or indirectly identified from a distinctive reference in that folio.

(3) This section prevails over any inconsistent provision of any other Act or law unless the inconsistent provision expressly provides that it is to have effect despite anything contained in this section.

1. The Owners Corporation used the epithet "dishonest" to describe the conduct of Mr Constantinou, in particular given (it was said) the state of his presumed knowledge. I should observe that neither Mr Constantinou nor Ms Briffa were called to give evidence and the Owners Corporation sought to rely upon their absence in further support of the contention that dishonesty had been afoot.

1. It is as well to remember that the notion of fraud in section 42 has been considered by a number of Courts and whilst it may be accepted that fraud for the purposes of section 42 is wider than the common law concept of fraud (because it is not confined to deceit or fraudulent misrepresentation), dishonesty in the sense of moral turpitude is in my opinion an essential element. The definition in section 3(1) of the Real Property Act to the effect that fraud "includes fraud involving a fictitious person" does not affect the necessity for dishonesty or moral turpitude to be present.

1. In Assets Co Ltd v Mere Roihi [1905] AC 176 at 210 the Privy Council defined fraud under the Act (there the Land Transfer Act 1870 and 1885) as actual dishonesty. In Butler v Fairclough (1917) 23 CLR 78 the notion of "moral turpitude" was used as an alternative by Isaacs J at 97. In Wicks v Bennett (1921) 30 CLR 80 at 91 Knox CJ and Rich J noted that the fraud is "something more than mere disregard of rights of which the person sought to be affected had notice".

1. Mason CJ and Dawson J in Bahr v Nicolay said at 614 that it was by no means the case that all species of equitable fraud were outside the concept of fraud under the Real Property Act. However, the New South Wales Court of Appeal in Grgic v Australian and New Zealand Banking Group Ltd [1994] 33 NSWLR 202 dealt with that authority and Powell JA said at 221:

Those species of "equitable fraud" which are regarded as falling within the concept of "fraud" for the purposes of section 42 of the Act are those ... in which there has been an element of dishonesty or moral turpitude on the part of the registered proprietor of the subject interest or on the part of his or its agent.

1. In Russo v Bendigo Bank Ltd and Another [1999] 3 VR 376, Ormiston JA who wrote the leading judgment said at [33]:

Consequently having regard to the manner in which the interpretation of the concept of fraud has changed over the years both in New Zealand and in Australia, I would respectfully suggest that the most satisfactory definition of the concept of fraud was given in 1923 by Salmond J. In the Waimiha Sawmilling Case when heard by the New Zealand Court of Appeal: [1923] NZLR 1137 at 1173:

The term "fraud" is not here used in its most restricted sense as including merely deceit, nor in its widest sense as including the constructive or equitable fraud of the Court of Chancery. It means dishonesty - a wilful and conscious disregard and violation of the rights of other persons.

1. The Court of Appeal in Victoria has said that the mere fact that a person might have discovered fraud if further enquiries had been made does not of itself prove fraud. Inquiry is an inquiry for actual dishonesty not for want of due care: Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 at 194.

1. The Owners Corporation relies upon the decision of Tadgell J in Australian Guarantee Corporation Ltd v De Jager [1984] VR 483. In that case a husband and a wife were jointly registered as registered proprietors of land. The husband arranged a mortgage over the property with AGC however the wife refused to sign the mortgage documents. Someone (unidentified) forged her signature on the mortgage documents. An intermediary of the husband took the documents to AGC. The intermediary noted he witnessed the husband's signature, not the wife's, however attested both in front of AGC's employee. The mortgage was registered. When the husband defaulted the mortgagee sought to exercise its power of sale. The reason the wife was able to claim the fraud exception is because the Court found that AGC had (through its employee) represented to the Registrar General that the wife's consent had been witnessed when it had not. Tadgell J expressly found a fraud sufficient to defeat the registered interest. There was clearly dishonesty in the registration process. This also explains Rolfe J's judgment in Westpac Banking Corporation vSansom at 13,796 and 13,798.

1. In Russo, although there was a false attestation of a signature on a mortgage as having been signed in the presence of a clerk employed by a solicitor, the Court, having heard from the clerk held that it was not shown she knew of the significance of her attestation in the process of registration, or even that the mortgage was going to be submitted for registration (see 387). The Court found it was therefore not shown that the clerk's attestation had the requisite element of dishonesty or moral turpitude required for fraud as explained by Ormiston JA.

1. Whilst the Owners Corporation allege dishonesty in terms, the foundation for such an assertion was based upon the knowledge to be inferred of Mr Constantinou in that it is said he must have known that there was no special resolution and that further he must have known Ms Briffa was not authorised to affix the common seal and hence acted dishonestly. I am not so certain about that on the facts. It does seem to me that equally open is that these events occurred through a want of due care. When a Court is considering allegations as serious as that of dishonesty it is necessary to take into account the well known passages of Briginshaw v Briginshaw (1938) 60 CLR 336 and/or the provisions of section 140 (2)(c) of the Evidence Act 1995 (NSW). This is also a matter upon which the Owners Corporation bears the onus.

1. The Owners Corporation submitted that such inferences could be drawn by reason of QRH's failure to call either Mr Constantinou and/or Ms Briffa on the question of what inferences could or should be drawn by reason of the failure on the part of QRH to call either evidence. It is as well to remember what Campbell JA recently said in Lym International Pty Ltd v Marcolongo and Another [2011] NSWCA 303 at paragraphs [91] to [92]:

[91] Jones v Dunkel authorises, but does not require, a tribunal of fact to engage in two different types of reasoning. One is to infer that the evidence of an absent witness, if called, would not have assisted the party who failed to call that witness. The other is that the tribunal of fact can draw with greater confidence any inference unfavourable to the party who failed to call the witness, if that witness seems to be in a position to cast light on whether that inference should properly be drawn: Manly Council v Byrne [2004] NSWCA 123 at [51]. It is only the first of those courses that the trial judge followed in the present case.

[92] Glass JA identified a number of propositions for drawing such an inference in Payne v Parker [1976] 1 NSWLR 191 at 201-202. Among these were the following conditions:

(6) Whether the principle can or should be applied depends upon whether the conditions for its operation exist. These conditions are three in number: (a) the missing witness would be expected to be called by one party rather than the other, (b) his evidence would elucidate a particular matter, (c) his absence is unexplained.

(7) The first condition is also described as existing where it would be natural for one party to produce the witness: Wigmore, para 286, or the witness would be expected to be available to one party rather than the other: O'Donnell v Reichard [1975] VR 916, at 921, or where the circumstances excuse one party from calling the witness, but require the other party to call him: ibid [1975] VR 916, at p 920, or where he might be regarded as in the camp of one party, so as to make it unrealistic for the other party to call him: ibid [1975] VR 916, at 920, Regina v Burdett (1820) 4 Barn & Ald 95 ; 106 ER 873, or where the witness' knowledge may be regarded as the knowledge of one party rather than the other: Earle v Castlemaine District Community Hospital [1974] VR 722, at 733, or where his absence should be regarded as adverse to the case of one party rather than the other: ibid [1974] VR 722, at 734. It has been observed that the higher the missing witness stands in the confidence of one party, the more reason there will be for thinking that his knowledge is available to that party rather than to his adversary: ibid [1974] VR 722, at 728. If the witness is equally available to both parties, for example, a police officer, the condition, generally speaking, stands unsatisfied. There is, however, some judicial opinion that this is not necessarily so: ibid [1974] VR 722, at 728. Evidence capable of satisfying this condition has been held to exist in relation to a party's foreman: Cafe v Australian Portland Cement Pty Ltd (1965) 83 WN (Pt 1) (NSW) 280; his safety officer: Earle v Castlemaine District Community Hospital [1974] VR 722; his accountant: Steele v Mirror Newspapers Ltd [1974] 2 NSWLR 348; his treating doctor: O'Donnell v Reichard [1975] BR 916, at 921.

1. I should note here that there is no evidence that QRH has (or indeed had) any association with Mr Constantinou or for that matter Ms Briffa and on the basis of the evidence in the case it is not obvious QRH would be expected to call them. Mr Bailey was not asked a single question about this or for that matter any other issue.

1. In further written submissions the Owners Corporation however drew my attention to two further authorities. National Commercial Banking Corp of Aust Ltd v Hedley (1984) 3 BPR 9477, and Davis v Williams [2003] NSWCA 371. It is pointed out by the Owners Corporation that the Court in Hedley more comfortably reached the conclusion of dishonesty by reason of the bank there having failed to call the relevant manager to give evidence in the case. Nonetheless Hedley did involve a finding that the registered proprietor had not in fact signed the relevant instrument and that the proprietor's signature had been falsely attested to. In Davis the relevant person (without the knowledge or instructions of any of the parties) altered a transfer prior to registration by deleting the claim "joint tenants" and substituting "tenants in common" in the mistaken belief that that the alteration may save stamp duty. Hence the particular person had a dishonest motive in making the alteration.

1. Having considered these authorities it seems to me that they highlight the importance of the presence of what may be described as moral turpitude or an intention of depriving a person of an interest in the land by some dishonest act. It was submitted on behalf of the Owners Corporation that there is no relevant distinction between a forged instrument and an instrument created and sealed without the authority of the registered proprietor. I disagree. One is necessarily created by reason of a dishonest act, whereas the other may well occur through a want of due care.

1. There are many authorities where a lack of authority as well as other irregularities have been cured by registration. For example the cases discussed by Professor Peter Butt in Land Law, 4th Edition, at [2017] where, for example, powers of attorney have been deficient, statutory provisions concerning subdivisions breached, etc. In other words there are many cases where instruments were created and sealed and registered without there being any authority to do so and yet registration provided the cure.

1. It was further submitted by the Owners Corporation that in any event as explained by Dawson and Toohey JJ in Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 201 and 207 - 208, the unauthorised affixing of a corporate seal as here, is a form of forgery and as a consequence, as I understand the argument, should be regarded as fraud for the purposes of section 42.

1. However in Northside, Mason CJ thought forgery may be an exception to the indoor management rule but again did not apply in that case (at 157-158). Brennan J thought one must go further than affixing the genuine seal of the company for there to be the forgery exception to the indoor management rule (at 180 - 185).

1. Dawson J drew distinctions between different types of forgery. For example he distinguished between a forgery which involved a counterfeit signature or seal and that which did not. He thought the former was clearly a nullity. His Honour did consider there may be mixed answers subject to whether or not there was an intention to defraud present (at 200).

1. Toohey J on the other hand thought if there was no actual forgery in the strict sense, the consequences would depend upon the conduct of the company.

1. In this case before me the actual seal of the company was affixed. Authority was however lacking but I do not consider the decision in Northside assists the Owners Corporation in their argument on fraud. In any event of course Northside was not a case concerning section 42.

1. I do not consider in all the circumstances that the evidence permits an inference to be drawn that Mr Constantinou knew there was no special resolution and that Ms Briffa had no authority to affix the seal such that his conduct could be said to amount to dishonesty or indeed even moral turpitude. I do not therefore consider there has relevantly been a fraud for the purposes of section 42.

A Further Alternative

1. The Owners Corporation puts a further alternative argument namely that registration insulates only provisions of a dealing that "delimit or qualify" the registered interest or those which are otherwise necessary to assure that interest to the registered proprietor or that have a "direct application" to the registered interest. It may be accepted that not every term of an instrument enjoys indefeasible status. There is no doubt that in the context of a lease, registration of the lease confers priority not only on the original term of the lease, but also on any option to renew contained in the lease because an option to renew is an incident of the interest created by the lease. As Gibbs J remarked in Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326 at 345 - 346:

The right of renewal is so intimately connected with the term granted to the lessee, which it qualifies and defines, that it should be regarded as part of the estate or interest which the lessee obtains under the lease, and on registration is entitled to the same priority as the term itself.

1. In Travinto Nominees Pty Ltd v Vlattas (1973) 129 CLR 1, Barwick CJ (with whom McTiernan and Stephen JJ agreed) said at 17

Though as a term "indefeasibility" is convenient enough, it must always be remembered that it is the title to and possession of the land or of the interest in the land of which there is a registered proprietor which is rendered secure by the registration. In the case of a leasehold it may be and frequently is the case that the extent of the leasehold interest is not merely described by reference to a term of years but must of necessity be determined by reference to the operation and effect of those terms and conditions of the lease which affect or qualify the interest in the land which the lease purports to create.

1. In Pt Ltd v Maradona Pty Ltd [1992] 25 NSWLR 643 Giles J was asked to consider whether the personal obligation of a Mrs Thompson as guarantor of a mortgage achieved indefeasibility by reason of the mortgage being registered under the Real Property Act 1900. The defendants argued that the registered estate or interest did not extend to the right to enforce the personal covenant in the mortgage. His Honour said at 679:

The general position thus indicated is, I think as follows. That which is attained by registration is, in the words of s 42, an estate or interest in the land. Registration does not validate all the terms and conditions of the instrument which is registered. It validates those which delimit or qualify the estate or interest or are otherwise necessary to assure that estate or interest to the registered proprietor.

1. In Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 Giles JA (with whom Handley and Stein JJA agreed) said at [59]:

Duncan v MacDonald differs from Pt Ltd v Maradonna Pty Ltd in the extent of the operation given to the mortgagor's personal covenant. The Wall parties submitted that the operation given to a lessee's covenant to pay rent would be akin to that given to the mortgagors personal covenant in Duncan v MacDonald so that the lessor could re-enter on the failure to pay rent but could not sue to recover the unpaid rent. Whatever be the position as to the mortgagor's personal covenant in my opinion registration would give wider operation to a lessee's covenant to pay rent, entitling the lessor to enforce the covenant. Payment of the agreed rent is an essential part of the transaction between the lessor and lessee. The lessor gives the lessee an estate or interest in land in return for the lessee giving the lessor rent, rent being "a sum issuing out of the land demised payable by the lessee to the lessor for the right to occupy that land and all that went with it": Junghenn v Wood (1958) SR (NSW) 327 at 330 per Owen J. The covenant to pay rent, to adopt the words of Blanchard J in Duncan v McDonald, is a condition upon which the leasehold interest is held and intimately related to the lessee's title created upon registration, taking up concepts found in Travinto Nominees Pty Ltd v Vlattas and in Mercantile Credits Ltd v Shell Co of Australia Ltd, because of its connection with the continuance of the lessee's interest in the land, it delimits or defines that interest.

1. The Owners Corporation submits that indefeasibility would not protect the personal covenants. They refer in a footnote (Fn 23, Outline submissions 6 August 2012) to fourteen clauses or subclauses. Not all of these clauses were the subject of detailed written or oral submissions. Clauses 2.2 and 13 (which were addressed in some considerable detail otherwise). Clauses, 3 (insurance), 5 (the Tenant's covenants), 7 (7.1, 7.3, 7.4, 7.5 and 7.6, setting mutual responsibilities), 8.2 and 8.3 (assignment of franchise and guarantees), 9 (ownership of contents), 10 (ownership of common furnishings and fittings) and 12 (damage, destruction and suspension of services) it was submitted should not be seen as running with the land and therefore would not be protected by registration. In short it is submitted they cannot affect the nature, quality or mode of use of the property.

1. Reliance was placed upon the decision of the High Court in Gumland Holdings v Duffy Bros (2008) 234 CLR 237. That case however was concerned with s 117 of the Conveyancing Act1919 (NSW) and its historical origins. That provision ensures that covenants in leases are enforceable by or against an assignee of a lease or an assignee of the reversion notwithstanding lack of priority of estate. The terms of the legislation and its historical origins, say nothing about notions of indefeasibility and covenants in a lease which may or may not enjoy that status.

1. The purpose of s 117 is to deal with rights which are incident to a reversionary estate in the land and also to confer rights such as to provide standing of a person who may derive income from the land. The provision therefore can be called in aid even if a lease is not registered under the Real Property Act. I am not persuaded that the decision of Gumland is of relevance to the problem I have to deal with here.

1. It must be recalled that the Tenant has remained in possession and conducts its business from the premises. The building is (and everyone relevantly knew) that it was to be run as a block of serviced apartments and not as individual dwellings for particular lot owners. People clearly invested on that basis. I can see force in the proposition that, given the rather special nature of this arrangement and the use to which the land is put, and, as Giles JA observed in Karacominakis, upon registration a number of clauses would and should be given a wider operation notwithstanding they are personal covenants. As Giles JA observed, payment of the agreed rent was an essential part of the transaction (as he explained it) and hence intimately connected with the lessee's title. I consider the same here can be said of each of the clauses sought to be impugned but certainly of clauses 2.2 and 13 as examples. Many of these clauses about which complaint is made are said to be essential terms by reason of clause 19 of the lease. (in relation to the Tenant, clauses 2.1, 2.2, 5, 9.4 and 11.1; and in relation to the Landlord clauses 2.3, 6. 11.3, 13 and 23.1). I consider it is difficult (in the circumstances here) not to give a wider operation to each of the relevant personal covenants to which objection is taken.

1. It was put by the Owners Corporation that so far as any provisions did not enjoy the status of indefeasibility upon registration of the lease, they would not otherwise have any contractual force. This is because the provisions must be seen as being part of a contract made without authority and hence they would not be binding upon the Owners Corporation. That may well be correct but it does not arise here by reason of the views I have expressed above.

The Statutory Framework

1. Before dealing with other arguments it is necessary to consider the statutory context in a little more detail.

1. Broadly speaking there are two relevant statutory enactments. The SDA, which deals with the subdivision of land into cubic spaces and the development for real estate for that purpose. There is also of course the SSMA which deals with the management and administration of strata schemes.

Relevant Provisions

1. Section 18(1) of the SDA provides that upon the registration of a strata plan, any common property in the plan vests in the body corporate.

1. Section 20 is in the following terms:

20. Body corporate to hold common property as agent for proprietors.

The estate or interest of a body corporate in common property vested in it or acquired by it shall be held by the body corporate as agent;

(a) where the same person or persons is or are the proprietor or proprietors of all of the lots the subject of the strata scheme concerned - for that proprietor or those proprietors, or

(b) where different persons are proprietors of each of two or more of the lots the subject of the strata scheme concerned - for those proprietors as tenants in common in shares proportional to the unit entitlements of their respective lots.

1. Section 21 provides that common property shall not be capable of being dealt with except in accordance with the provisions of the 1973 Act and the 1996 Act.

1. Section 24 is in the following terms:

24. Dealings with lots include common property.

(1) In any dealing or caveat relating to a lot, a reference to that lot includes a reference to any estate or interest in common property which is vested in the body corporate as agent for the proprietor of that lot without express reference to the common property and without that dealing or caveat being recorded in the folio of the Register comprising the common property.

(2) The beneficial interest of a proprietor of a lot in the estate or interest in the common property, if any, held by the body corporate as agent for that proprietor shall not be capable of being severed from, or dealt with except in conjunction with, the lot.

1. Section 25 provides that a body corporate may "pursuant to a special resolution" execute a transfer or lease of common property.

1. In the Owners - Strata Plan No. 43551 v Walter Construction Group Ltd [2004] NSWCA 429 Spigelman CJ made the following comments at [42] to [46]:

[42] In my opinion, the word "agent" in s 20 and s 24 is not used in the technical sense of the law of agency. The characterisation of the relationship for purposes of determining standing to sue turns on an assessment of the whole statutory scheme, including the powers and duties with respect to common property set out above. There is a tension between the use of the word "agent" and of the words "beneficial interest" in s 24(2). The fact that the statute vests title in the owners corporation is particularly significant.

[43] In Carre v Owners Corporation - Strata Plan 53020 [2003] NSWSC 397; (2003) 58 NSWLR 302 Barrett J referred to the words "beneficial interest" in s 24(2) and said:

1. I should observe that no party suggested that in considering its claim for relief I should regard damages to be an adequate alternative remedy. QRH has been in possession for some years and runs its business from the premises. It seems to me fairly obvious that damages could not be an adequate remedy. As Lord Selborne LC said in Wilson v Northhampton and Banbury Junction Railway Co (1873 - 74) LR 9 Ch App 279 at 284:

The principle which is material to be considered in the present case is, that the Court gives specific performance instead of damages, only when it can by that means do more perfect and complete justice.

1. Specific performance is of course a discretionary remedy. Past defaults, of themselves are not a bar to the remedy: Fry on Specific Performance, (6th Ed. 1921), page 435, where the then author states:

With regard to the matters to be done by the plaintiff according to the terms of the contract, it is, from obvious principles of justice, incumbent on him, when he seeks the performance of the contract, to show, first, that he has performed or been ready and willing to perform, the terms of the contract on his part to be then performed; and secondly, that he is ready and willing to do all matters and things on his part thereafter to be done; and a default on his part in either of these respects furnishes a ground upon which the action may be resisted.

1. There are a number of decisions of the High Court which discuss the factors that may as a matter of discretion disentitle a claimant to specific performance. Courts have in this context distinguished the consequence of being in breach of essential as opposed to inessential terms: Mehmet v Benson (1965) 113 CLR 295. Fitzgerald v Masters (1956) 95 CLR 420; King v Poggioli (1923) 32 CLR 222.

1. In Mehmet at (307 - 308), Barwick CJ said:

That the plaintiff was in default in payment of the instalments of the price and of the interest on the unpaid balance of it (time not being of the essence) though relevant to that question does not establish that he was not in the relevant sense ready and willing to perform the contract. If it were otherwise a purchaser in substantial default of inessential terms could never be granted specific performance. Indeed, the significance of the distinction between essential and inessential terms is derived form the fact that a person in breach of inessential terms may be granted specific performance. "...A plaintiff in equity may even have actually broken his contract in the letter and yet succeed, if the substance remains": per Isaacs and Rich JJ. In Fullers Theatres Ltd v Musgrove (1).

The question as to whether or not the plaintiff has been and is ready and willing to perform the contract is one of substance not to be resolved in any technical or narrow sense. It is important to bear in mind what is the substantial thing for which the parties contract and what on the part of the plaintiff in a suit for specific performance are his essential obligations. Here the substantial thing for which the defendant bargained was the payment of the price: and, unless time be and remain of the essence, he obtains what he bargained for if by the decree he obtains his price with such ancillary orders as recompense him for the delay in its receipt. To order specific performance in this case would not involve the court in dispensing with anything for which the vendor essentially contracted.

Of course, the plaintiff must not by his unreadiness or unwillingness to perform have disowned his obligation to do so, or abandoned his rights to the benefit of the contract. But it is the essential terms of the contract which he must be ready and willing to perform.

1. Windeyer J said in Mehmet at 314:

The finding that the plaintiff was not ready and willing to meet his obligations on the dates stipulated in the contract is supported by the evidence: and the plaintiff clearly failed to prove the allegation in the statement of claim in this sense. But, with respect to his Honour, I think that there should be some qualifications to the conclusion at which he arrived. He fully appreciated that the readiness and willingness that a plaintiff must show relates only to essential terms, and that a defendant cannot rely upon the unreadiness of the plaintiff to perform what he, the defendant, has waived. But he thought that, in this case, any waiver by the vendor of stipulations as to time went only to the non-payment of moneys, instalments and interest, that had become due and owing before November 1959; that it did not extent to later instalments. I appreciate this view of the facts. But, for reasons that I have given, I agree with the opposite view that the Chief Justice has expressed: see Hunter v Daniel (1).

1. For QRH to succeed in obtaining specific performance it is not obliged to show it has at all times strictly and literally complied with all of its obligations under the leases. It is certainly not fatal if a plaintiff such as QRH asserts a wrong view of the lease, acts upon it, and is thereby in breach of its obligations. I accept that QRH believed in good faith it was adopting the appropriate construction of clause 2.2.

1. Moreover I accept that QRH will, as proffered, pay such amounts as are outstanding and is ready, willing and able to perform the contract as properly construed: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1977) 138 CLR 423 at 431 - 2.

1. In all the circumstances of this case given its equitable rights and notwithstanding QRH's defaults I do propose to grant specific performance in respect of the common property lease and the relevant lot owners leases. To that end it would seem to me that I should grant the relief sought, by way of orders requiring the Owners Corporation and relevant lot owners to enter leases, subject to the necessary rental (clause 15.2) in registrable form and on the same terms and conditions (including an option to renew) as those that exist in the leases before the Court and which leases are to run for a term ending in 2016. The leases should however commence from the date of registration. I am conscious of the imperfections in the terms of the leases, especially the one dealing with the common property. That said I consider justice is better served by such an order.

Relief

1. In the light of the above findings I will indicate my views with the various aspects of relief sought by the respective parties.

1. As I indicated above at [260] I would, subject to submissions, be prepared to send certain questions out to a Referee.

1. Having considered the terms of this judgment the parties can take the course they are advised to take. I will of course hear the parties on the precise terms of any orders I have indicated I am prepared to make, and on any other aspect of relief. The matter can be relisted before me for the making of final and other orders and costs in due course.

Relief Sought by QRH in the Second Further Amended Statement of Claim

1. I would refuse the relief sought in paragraphs 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 13, 17, 18, 19, 20 21 and 22 as being contrary to my reasons or lacking utility.

1. I would grant the relief sought in paragraphs 23 and 24.

1. I would grant QRH specific performance in accordance with my reasons and on terms indicated in [312] above.

Relief Sought by the Owners Corporation in Their Cross Claim

1. I would refuse the relief sought in paragraphs 1, 2, 4, 5, 6, 8, 9, 10, 11 as being contrary to my reasons or lacking utility.

1. Insofar as paragraph 3 is concerned I am prepared to hear submissions given my reasons as to whether what is there requested is appropriate in that form. I would obviously consider making a declaration in the appropriate form to encapsulate my views on the construction of clause 2.2.

1. I would be prepared to hear submissions on the utility of making declarations in the form requested in paragraphs 7 and 9.

Relief Sought by Mr White in the Amended Second Cross Claim

1. I would refuse the relief sought in 1, 2, 3, 4, 5, 6, 7, 9, 10 as being contrary to my reasons or lacking utility.

1. I would be prepared to hear submissions on the utility of making the declarations sought in paragraphs 8, 11, 12, 13.

Costs

1. I reserve the question of costs.

1. I would grant liberty to the parties to have the matter relisted at a convenient time and they may approach my Associate to make suitable arrangements

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Amendments

14 December 2012 - amended last sentence to read: "In any event I see no conflict between the respective pieces of legislation."

Amended paragraphs: [79]

Decision last updated: 14 December 2012