The concept Developer Pty Ltd v Conroy
[2015] VSC 464
•14 SEPTEMBER 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2014 06533
| THE CONCEPT DEVELOPER PTY LTD (ACN 007 364 712) | Plaintiff |
| v | |
| CHRISTINE LENORE CONROY & ORS | Defendants |
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JUDGE: | JOHN DIXON J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 24 AUGUST 2015 |
DATE OF JUDGMENT: | 14 SEPTEMBER 2015 |
CASE MAY BE CITED AS: | THE CONCEPT DEVELOPER PTY LTD v CONROY & ORS |
MEDIUM NEUTRAL CITATION: | [2015] VSC 464 |
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ADMINISTRATIVE LAW - Appeal from order made by the Victorian Civil and Administrative Tribunal – Alteration of lot liability on a plan of subdivision – Whether Tribunal correctly construed s 32 and s 33 of the Subdivision Act 1988 - Whether s 33(1) creates a right to apply to Registrar of Titles for a change in lot entitlement and lot liability independent of right to do so under s 32(k) - Meaning of ‘just and equitable’ in s 33(3) – Relevant considerations – ss 3, 32, 32AE, 33, 34D(1)(a), 34(2), 34(D)(3), of the Subdivision Act 1988 considered.
PROPERTY LAW - Plan of subdivision – Owners Corporation - Alteration of lot liability on a plan of subdivision - Whether s 33(1) creates a right to apply to Registrar of Titles for a change in lot entitlement and lot liability independent of right to do so under s 32(k) - Meaning of ‘just and equitable’ in s 33(3) – Relevant considerations – ss 3, 32, 32AE, 33, 34D(1)(a), 34(2), 34(D)(3), of the Subdivision Act 1988 considered.
STATUTES – Interpretation – s 32 and s 33 of the Subdivision Act 1988 - Context and purpose considered - Words and phrases - ‘change to lot liability’, ‘just and equitable’, ‘administrative and general expenses of the owner’s corporation.’
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | JJ Isles | Michael Whittington |
| For the Defendants | NP Jones | HWL Ebsworth |
HIS HONOUR:
Background
A property known as 29 Gipp Street, Richmond was originally a warehouse but in 1988 it was subdivided into 6 apartments, 3 car parks and common property by Plan of Subdivision No SP030438K. The plaintiff is the owner of lot 12 and a car park lot in the subdivision. The first and second defendants owned lot 16 and 17 and a car park lot. The third defendant is the owners corporation created by the plan of subdivision.
The plaintiff appeals an order of the Victorian Civil and Administrative Tribunal.[1] The proceeding before the tribunal concerned the lot entitlements and lot liabilities of the owners in the subdivision. The plaintiff’s lot is the largest of the apartments and occupies the top of the main building. The lot extends 25 metres above the floor of the topmost story of the building, which is above the roofline. The roof of the building is part of lot 12, not part of the common property. Four of the 6 apartments and 3 car parks are located underneath lot 12. Originally, the plaintiff’s lots had a large entitlement and a small liability as set out in the table below in paragraph [5]. The first and second defendants applied under s 34D(1)(a) of the Subdivision Act 1988 for an order altering the lot entitlements and liabilities in the plan of subdivision.
[1]Pursuant to leave granted by Derham AsJ on 19 February 2015.
The tribunal concluded that the lot entitlements and liabilities in the Gipp Street subdivision should be altered. On 12 November 2014, the tribunal ordered that the owners corporation apply to the Registrar of Titles to alter the lot entitlement and lot liability in the plan of subdivision in the manner specified in its order.
The plaintiff alleged two errors of law on the part of the tribunal in making this order. First, the tribunal erred in construing the operation of s 32 and 33 of the Act. Secondly, the tribunal misconstrued the meaning of ‘just and equitable’ in s 33(3) of the Act.
The entitlements and liabilities in the subdivision as registered and the alteration ordered by the tribunal were as set out in the following table:
Land Parcel Original Entitlement Altered Entitlement Original Liability Altered Liability Common property 0 0 Lot 6 (car park) 2 1 1 0.5 Lot 9 5 17 8 22.5 Lot 10 6 18 12 37 Lot 11 15 17 4 31.5 Lot 12 35 35 9 51 Lot 13 (car park) 1.5 1 0.5 0.5 Lot 14 (car park) 1.5 1 0.5 0.5 Lot 16 2 7 4 13.5 Lot 17 9 31 16 43 Total 77 128 55 200
Statutory provisions
Section 34D of the Subdivision Act 1988 permits a member of an owners corporation to apply to the tribunal for an order requiring the owners corporation to do any of the things set out in s 33 of the Act.
34D Applications relating to plans
(1)A member of the owners corporation, an owners corporation, an administrator of an owners corporation or a person with an interest in the land affected by the owners corporation may apply to the Victorian Civil and Administrative Tribunal for—
(a) an order requiring the owners corporation to do any of the things set out in section 32 or 33; or
…
(2) The Victorian Civil and Administrative Tribunal may make an order on an application under subsection (1)(a) even though there is no unanimous resolution of the owners corporation authorising the action.
Section 33 of the Act provides that:
33 How can lot entitlement and liability be altered?
(1)If there is a unanimous resolution of the members, the owners corporation may apply to the Registrar in the prescribed form to alter the lot entitlement or lot liability.
(2)In making any change to the lot entitlement, the owners corporation must have regard to the value of the lot and the proportion that value bears to the total value of the lots affected by the owners corporation.
(3)In making any change to the lot liability, the owners corporation must consider the amount that it would be just and equitable for the owner of the lot to contribute towards the administrative and general expenses of the owners corporation.
In this case, there was no unanimous resolution of the members of the owners corporation. However, s 34D(2) provides that the tribunal may make an order on an application under subs 34(D)(1)(a) even though there is no unanimous resolution authorising the action. The question of whether the owners of lots 16 and 17 were permitted to apply to the tribunal under s 34D(1)(a) was affirmatively determined as a preliminary question by Garde J on 23 May 2014.[2] There was no challenge to that decision.
[2]Conroy v Owners Corporation Strata Plan 30438 [2014] VCAT 550.
It is convenient to set out other provisions from the statute in order to follow the arguments.
Section 3 of the Act contains the following relevant definitions:
lot entitlement in relation to a lot affected by an owners corporation, means a number specified in the plan as the lot entitlement for that lot, expressing the extent of the lot owner's interest in any common property affected by the owners corporation;
lot liability in relation to a lot affected by an owners corporation, means a number specified in the plan as the lot liability for that lot, expressing the proportion of the administrative and general expenses of the owners corporation that the lot owner is obliged to pay.
Section 32 of the Act provides:
32 Powers to alter subdivision
If there is a unanimous resolution of the members, an owners corporation may proceed under this Division to do one or more of the following—
(a) dispose of the fee simple in—
(i) all or part of any common property vested in it; or
(ii) any other land purchased or obtained by it;
(b) purchase or otherwise obtain land—
(i) for inclusion in or to become common property; or
(ii) which is or is to become a lot;
(c)alter the boundaries of any land affected by the owners corporation, whether or not the alteration results in an increase or decrease of the area of land affected by the owners corporation;
(d)increase or reduce the number of lots affected by the owners corporation;
(e) create new lots or new common property;
(f)create and name an owners corporation and specify the land to be land affected by that new owners corporation and specify lot entitlement and lot liability in relation to that owners corporation;
(g) dissolve itself if—
(i)it is an owners corporation without common property vested in it and it owns no land; or
(ii)it disposes under this section of all its common property and all the land that it owns;
(h)merge with another owners corporation (created on the same or another plan) if—
(i)none of the land affected by the first owners corporation is land affected by the other owners corporation and the merger would not result in the same land being land affected by 2 or more unlimited owners corporations; or
(ii)one of the merging owners corporations is an unlimited owners corporation and the land affected by that owners corporation includes all the land affected by all other merging limited owners corporations;
(i)create, vary or remove any easement or restriction (including an implied easement);
(j)consolidate into a single lot all the land affected by the owners corporation if—
(i)it is an unlimited owners corporation and, if any land affected by it is also affected by a limited owners corporation, the members of that limited owners corporation by unanimous resolution consent to the consolidation; or
(ii)none of the land affected by the owners corporation is land affected by another owners corporation;
(k)create, alter or extinguish lot entitlement or lot liability in any way necessary because of the exercise of its other powers under this section;
(l)amend or cancel a scheme of development under the Cluster Titles Act 1974 in any way necessary because of the exercise of its other powers under this section;
(m) create roads or reserves.
Section 32AE provides that in exercising its powers under s 32 to create, alter or extinguish lot entitlement or lot liability, an owners corporation must comply with ss 33(2) and 33(3), set out above.
The lot liability determines the extent of the fees charged, contributions or amount payable to the owners corporation in respect of any lot. Section 28 of the Owners Corporation Act 2006 restricts a lot owner’s liability to pay or contribute to the funds of the owners corporation to the proportion of the amount required calculated by reference to the lot owner’s lot liability.
Relevant findings
None of the tribunal’s factual findings were challenged.
In March 2013, building consultants advised the owners corporation that it should carry out maintenance work to the value of $186,450 over the following three years. In March 2014, those building consultants further recommended that the west façade of the building be upgraded. The findings do not reveal the recommended cost. None of this work has yet been undertaken but, presumably, because it is borne by the members of the owners corporation in proportion to their lot liability, questions arose as to whether the obligations on lot owners to contribute towards the administrative and general expenses of the owners corporation was just and equitable. In February 2014, the first and second defendants issued the s 34D(1)(a) proceedings seeking orders amending the schedule of lot entitlement and liability.
As noted, the tribunal answered a preliminary question on 23 May 2014. Pausing briefly to explain this decision, the plaintiff had contended that the first and second defendants ought to have applied under s 34D(1)(b) of the Act, which permits a member of the owners corporation, and others, to apply to the tribunal for an order consenting on behalf of a member or group of members of an owners corporation to the doing by the owners corporation of any of the things set out in section 32 or 33. Section 34D(3) provides that the tribunal must not make an order on an application under subsection (1)(b) unless it is satisfied that, relevantly,—
(c)the member has or members have refused consent to the proposed action and—
(i)more than half of the membership of the owners corporation having total lot entitlements of more than half of the total lot entitlement of the members of the owners corporation consent to the proposed action; and
(ii)the purpose for which the action is to be taken is likely to bring economic or social benefits to the subdivision as a whole greater than any economic or social disadvantages to the members who did not consent to the action.
Garde J ruled[3] that, before making an order on the application, the tribunal did not need to be satisfied that more than half the members of the owners corporation, having total lot entitlements of more than half of the total lot entitlement of the members of the owners corporation, consented to the proposed action and the purpose for which the action is to be taken is likely to bring economic or social benefits to the subdivision as a whole greater than any economical or social disadvantages to the members who did not consent to the action. Garde J ruled that the application may be brought, as it was, under s 34D(1)(a) of the Act.
[3]Ibid.
The tribunal’s reasons
Before the tribunal on the final hearing, the plaintiff submitted that the owners corporation could not alter the lot entitlement or liability unless there was an event or circumstance referred to in s 32 of the Act which made it necessary to do so. Although the tribunal accepted that s 32 gave an owners corporation power to alter lot entitlement and liability when alterations to the subdivision of the kind set out in that section were made, it held that s 33 of the Act gave the owners corporation a general power to make alterations to lot entitlement and liability that was not dependent on an alteration to the subdivision of a kind identified in s 32.
The plaintiff’s first contention, raised again on this appeal, is that s 33 of the Act is not a separate and independent right to apply for a change in lot entitlement and lot liability on a plan of subdivision but is merely facilitative of the right to alter the lot entitlement and lot liability contemplated on alteration of the subdivision under s 32. The tribunal rightly rejected this argument. It concluded that s 32 was not relevant. The tribunal identified its task to be first to decide if the division of liability was just and equitable and then, if it was not, to decide what would be just and equitable.
Turning to the evidence, for the defendants, Mr Richard Ford valued each of the lots in the subdivision. The plaintiff’s valuer, Mr Steve Demchinsky, only valued the plaintiff’s lot. The tribunal preferred the evidence of Mr Ford and its findings in relation to the lot values are not challenged. A surveyor, Mr David Monahan, gave evidence that, for registration, tables of entitlement and liability in plans of subdivision are normally prepared by licensed surveyors. Following the statute, entitlement is based purely on the value of the lots. Mr Monahan’s practice was to base value on the developer’s anticipated sale price. Using the figures supplied to him by Mr Ford, he gave evidence of the values that he would attribute to the lot entitlements.
Mr Monahan told the tribunal that lot liability was usually apportioned, at least in the case where the lots are of similar use to one another such as residential apartments, on a ratio derived from the number of persons potentially to inhabit each lot. That assessment was made by reference to the number of bedrooms and bathrooms. Mr Monahan considered this approach to be just and equitable in the case of the Gipp Street subdivision because there was not a lot of common property and, of the owners corporation budget, 75% was spent on insurance and the balance was mostly spent on fire protection. Mr Monahan checked his calculations by a sensitivity analysis that considered the change if one additional person was added to any lot. Mr Monahan did not take into account the fact that lot 12 had the obligation to maintain the roof and he did not make any allowance for the plaintiff’s assertion that it had paid a premium by reason of lot 12’s low liability.
A solicitor who was involved in the registration of the original subdivision gave evidence that he determined the allocation of lot entitlements and liability and that, in short, he gave lot 12 a low lot liability because it included the roof, which the owner of lot 12 would be obliged to maintain.
A director of the plaintiff gave evidence that when he bought lot 12 he took into account the lot entitlement and liability, as well as the fact that the plaintiff would be obliged to maintain the roof. He asserted that had he known that the plaintiff would have a higher lot liability than lot 12 currently bears, the plaintiff would have paid less for lot 12 than it actually did pay. The owner of lot 12 spent between $1,000 and $2,000 each year on the roof. He said that the owners corporation had paid $6,380 to repair the roof in 1996, and that there had been a claim on the owners corporation insurer in 2012 in respect of flood damage associated with the roof gutters. The plaintiff tendered estimates from a roof plumber that the cost of entirely replacing the roof and guttering was in excess of $232,000. The tribunal made no finding about when this work would be needed.
The plaintiff argued that, despite the apparent inequality, the lot liabilities were just and equitable for three reasons. The other lot owners enjoyed a benefit because lot 12 maintained the roof. Because lot 12 had a low liability, the plaintiff had paid a premium for it. All lot owners knew when they bought their lots what their respective liabilities were.
The tribunal, correctly in my view, made no finding that the plaintiff paid a premium because lot 12 had a low lot liability. The tribunal also rejected the notion that other lot owners enjoyed a benefit because lot 12 maintains the roof. The roof was not part of the common property created by the plan of subdivision. Accordingly, the cost of maintaining the roof was irrelevant to the issue that the subsection addressed; what would be just and equitable for a lot owner to contribute towards the administrative and general expenses of the owners corporation.
Accepting the evidence of Mr Monahan and rejecting the plaintiff’s arguments that the current lot liabilities were just and equitable, the tribunal concluded that the current lot liabilities were unjust and inequitable. The tribunal concluded that a reallocation of liabilities in the Gipp Street subdivision was necessary and that it was appropriate to adopt the methodology and conclusions advanced by Mr Monahan.
The tribunal was satisfied that the lot entitlements previously registered on the plan of subdivision were not based on the proportionate value of the lots and that applying entitlements based upon Mr Ford’s values would lead to a substantial change in entitlements. The tribunal concluded that in view of this large disparity, the present entitlements should be altered and that they should be changed to the entitlements proposed by Mr Monahan pursuant to s 33 and s 34(1)(a).
Ground one - the relationship between s 32 and s 33 of the Act
The plaintiff submitted that the power to alter lot liability and lot entitlement under s 33 of the Act was not a general power that could be exercised at any time. It contended that it could only be exercised on the occurrence of an event described in s 32, an alteration to the subdivision. The plaintiff submitted that so much was clear from three previous decisions of the tribunal where, in each case, lot liability and entitlement were adjusted under s 33 following such an event. In Butten v Khung[4] there was a sale of part of the centre’s owners corporation property for $1,000,000 to a large supermarket chain. In Owners Corporation PN21615 v Rayina Pty Ltd,[5] the owners corporation sought to amend the strata plan by including various lots in the common property and by extinguishing lot entitlement and liability for such lots. In J & G Knowles & Associates Pty Ltd v Owners Corporation RP12247,[6] 26 lots and part of the common property delineated on the plan of subdivision became a single lot owned by the plaintiff.
[4][2010] VCAT 252.
[5][2012] VCAT 1439.
[6][2014] VCAT 98.
The plaintiff submitted that s 33 is facilitative, providing the mechanism and the indicia relevant to what happens if there is to be any change to lot entitlement or lot liability. The words ‘in making any change’ in s 33 referred to changes to the subdivision of the type catalogued in s 32. The plaintiff submitted that lot liability and lot entitlement remained fixed as originally specified in the plan of subdivision unless there was a unanimous resolution of the members of the owners corporation to alter the subdivision in a way specified in s 32. The plaintiff contended that it followed that an owners corporation could not, by a unanimous resolution, vary lot liability and lot entitlement in the absence of an alteration to the subdivision of the kind specified in s 32.
Part 5 of the Subdivision Act is concerned with subdivisions with owners corporations. The Part is comprised of 5 divisions. Division 1 governs how owners corporations are created. Division 2 regulates the vesting of, and dealings in, common property on a plan of subdivision. Division 3 regulates the alteration of a subdivision. Division 4 sets out various general provisions relating to plans of subdivision. Division 5 contains provisions for the resolution of disputes and other proceedings relating to owners corporations.
It was common ground between the parties that the proceeding below did not concern the exercise of any power to alter the subdivision under s 32 of the Act. None of the provisions of Part 5 Division 3 of the Act were engaged. However, in response to a submission put by the plaintiff, I note that each of the acts that an owners corporation may by s 32 undertake to alter the subdivision by a unanimous resolution of the members is likely to affect lot entitlement or lot liability. Unsurprisingly, there is power under s 32(k) for an owners corporation to create, alter or extinguish lot entitlement or lot liability in any way necessary because of the exercise of its other powers under s 32. The owners corporation is required by s 32AE, in exercising that power, to comply with s 33(2) and (3).
The power to create, alter or extinguish lot entitlement or lot liability (s 32(k)) is concomitant with the power to alter a subdivision (s 32 (a)-(j), (l)-(m)). There is, in that circumstance, no occasion to rely on s 33(1), which permits an owners corporation to alter (but not to create or extinguish) lot entitlement or lot liability on a unanimous resolution of the members when there has not been any alteration to the subdivision.
First, I see no support for the plaintiff’s submission that in its earlier decisions the tribunal acted under s 33(1) in conjunction with a triggering event under s 32. In each case the relevant power to amend the plan was found in s 32(k) of the Act.
Butten v Khung[7] concerned sale of part of the common property under the plan of subdivision. The owners corporation had exercised the power to create a new lot and to dispose of the fee simple in part of the common property that was vested in it. In Owners Corporation PN21615 v Rayina Pty Ltd[8] the relevant subdivision was a commercial site that included factories and warehouses. The owners corporation sought to amend the plan by including 19 accessory lots[9] in the common property and by extinguishing lot entitlement and lot liability for those same lots. Accordingly, the subdivision had been altered by the purchase of land become common property and the alteration of the boundaries of the owners corporation land.
[7][2010] VCAT 252.
[8][2012] VCAT 1439.
[9]See the definition of ‘accessory unit’ in s 4(1) of the Transfer of Land Act 1958.
J & G Knowles & Associates Pty Ltd v Owners Corporation RP12247[10] was also a proceeding in which the owners corporation sought to exercise powers under s 32 to alter the subdivision. The applicant owned 26 out of 231 lots in a subdivision. The applicant’s 26 lots were within a building known as Knowles Lodge which the applicant wished to develop and refurbish. Within Knowles Lodge there was common property vested in the owners corporation. The applicant sought to alter the plan of subdivision by acquiring the common property within Knowles Lodge from the Owners Corporation in order that it might proceed with its plans. The proposal included a consolidation of the common property to be acquired and the 26 lots owned by the applicant into a single lot.
[10][2014] VCAT 98.
The absence of a proposal to alter the subdivision may have precluded the owners corporation from adjusting lot entitlement or lot liability under s 32(k) of the Act, but it was not precluded from proceeding under s 33 with a different application, namely an application to the Registrar to alter the lot entitlement or lot liability in respect of the plan of subdivision without any other amendment or variation to the plan. Having considered the structure of the Act as a whole, and in particular the structure of Part 5 of the Act, I discern a clear distinction between an application under s 33 to alter the lot entitlement or lot liability defined by a plan on the basis of a unanimous resolution of members to do no more than that, and an application to alter the subdivision in any one or more of the ways specified in s 32.
Second, where a power has been exercised under s 32 to alter the subdivision, the application to the Registrar will necessarily involve more extensive amendment to the plan of subdivision than changes to the schedule of lot entitlement and liability. It is likely to be inevitable that the creation, alteration or extinguishment of lot entitlements or lot liabilities will become necessary because of other alteration to the plan and s 32(k) facilitates the appropriate adjustment. The Act does not preclude the alteration of lot entitlement or lot liability without any change to the boundaries within the plan of subdivision or to the common property or to any other aspect of the plan. Consistently with its submissions, the plaintiff accepted that s 33 did not permit the owners corporation to apply to the Registrar to alter lot entitlement or lot liability on an unanimous resolution of the members. This concession which contradicts the text of s 33 exposed the fallacy in the plaintiff’s contentions, which must be rejected.
Third, as the High Court made clear in Project Blue Sky & Ors v Australian Broadcasting Authority.[11]
The primary object of statutory construction is to construe the relevant provisions so that it is consistent with the language and purpose of all of the provisions of the statute and the process of construction must always begin by examining the context of the provision that is being construed.
The relevant context, the provision here being construed, is s 33. Considered in context, s 32 is separate to s 33. Section 33 is enlivened by a unanimous resolution[12] of the members of an owners corporation to alter the lot entitlements and liabilities. The statute plainly permits, by s 33(1) applications to the Registrar that alter no other aspect of the plan of subdivision apart from lot entitlement or lot liability.
[11](1998) 194 CLR 355, 381 [69].
[12]The requirement for a unanimous resolution must be read subject to s 34D(2) of the Act, which permits certain persons to apply to the tribunal for an order requiring the owners corporation to do any of the things set out in [s 32 or] s 33 even though there is no unanimous resolution of the owners corporation authorising the action.
Although the plaintiff contended that there was a connection between s 32 and s 33 evident from s 34D(1)(a), I do not agree. The use of the disjunctive ‘or’ enables that section to be read solely by reference to s 33 of the Act. Section 34D(6) provides that the tribunal may make any order it thinks fit on an application under the section.
Further, the plaintiff pointed to the words ‘in making any change’ that appear in s 33(2) and (3), contending that the reference to ‘any change’ must be to alteration of the subdivision under s 32. I do not agree. The expression refers to the change that is made by altering the lot entitlement or lot liability envisaged by the resolution for an application permitted by s 33(1). Section 32AE demonstrates a legislative intention that when lot entitlement or lot liability is to be created, altered or extinguished under s 32(k) because of an alteration to the subdivision, then the owners corporation must comply with ss 33(2) and 33(3). Section 32AE facilitates consistency by its reference to the guiding principles for changing lot entitlement or lot liability that are set out in s 33(2) and (3) but it cannot, simply by requiring compliance with s 33, constrain the owners corporation’s power to apply to the Registrar to alter lot entitlement or lot liability to circumstances where there has been an alteration in the subdivision under s 32.
Ground two - meaning of ‘just and equitable.’
The plaintiff contended that the tribunal misconstrued the meaning of ‘just and equitable’ in s 33(3). It submitted that the relevant considerations when determining whether a contribution is just and equitable are not confined exclusively to subject matter constituted by or described in the section as ‘the administrative and general expenses of the owners corporation’.
In support of its contention, the plaintiff cited judicial consideration in two decisions of the expression ‘just and equitable,’ each in a different context. Under company law, a company may be wound up where it is just and equitable to do so.[13] That expression, in the context of the Companies Act 1961, was considered by Menhennitt J in Re Tivoli Freeholds Ltd:[14]
The ground is that it is just and equitable to wind up the company. These are well known words and there is no adequate equivalent for them. They give the court a wide discretion which must, of course, be exercised judicially. The question involved is basically a question of fact and all of the circumstances must be looked at. The facts rendering it just and equitable that a company be wound up and the decisions on that ground cannot be resolved into an exhaustive set of categories. (Citations omitted)
The question in that case was whether it was just and equitable to wind up the company because it had engaged in acts that were entirely outside what could fairly be regarded as having been within the general intention and common understanding of the members of the company when they became members, which is referred to in company law as a failure of the substratum.
[13]See s 461(1)(k) of the Corporations Act.
[14][1972] VR 455, 468.
In Sandford v Sandford,[15] the High Court of Australia considered the expression in the context of s 79(2) of the Family Law Act, which provided that the Family Court of Australia should not make an order under s 79 altering interests of parties to a marriage in the property of those parties unless it was satisfied that, in all the circumstances, it was just and equitable to make the order. Although the court identified fundamental propositions in the interpretation of this expression that gave due recognition to the purposes of the Family Law Act, the plaintiff submitted that it was pertinent in the present circumstances to take account of the following statement:[16]
[15](2012) 247 CLR 108, [2012] HCA 52.
[16]Ibid, 120, [36]-[39].
The expression "just and equitable" is a qualitative description of a conclusion reached after examination of a range of potentially competing considerations. It does not admit of exhaustive definition. It is not possible to chart its metes and bounds. And while the power given by s 79 is not "to be exercised in accordance with fixed rules", nevertheless, three fundamental propositions must not be obscured.
First, it is necessary to begin consideration of whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property. So much follows from the text of s 79(1)(a) itself, which refers to "altering the interests of the parties to the marriage in the property" (emphasis added). The question posed by s 79(2) is thus whether, having regard to those existing interests, the court is satisfied that it is just and equitable to make a property settlement order.
Second, although s 79 confers a broad power on a court exercising jurisdiction under the Act to make a property settlement order, it is not a power that is to be exercised according to an unguided judicial discretion. In Wirth v Wirth, Dixon CJ observed that a power to make such order with respect to property and costs "as [the judge] thinks fit", in any question between husband and wife as to the title to or possession of property, is a power which "rests upon the law and not upon judicial discretion". And as four members of this Court observed about proceedings for maintenance and property settlement orders in R v Watson; Ex parte Armstrong:
"The judge called upon to decide proceedings of that kind is not entitled to do what has been described as 'palm tree justice'. No doubt he is given a wide discretion, but he must exercise it in accordance with legal principles, including the principles which the Act itself lays down".
Because the power to make a property settlement order is not to be exercised in an unprincipled fashion, whether it is "just and equitable" to make the order is not to be answered by assuming that the parties' rights to or interests in marital property are or should be different from those that then exist. All the more is that so when it is recognised that s 79 of the Act must be applied keeping in mind that "[c]ommunity of ownership arising from marriage has no place in the common law". Questions between husband and wife about the ownership of property that may be then, or may have been in the past, enjoyed in common are to be "decided according to the same scheme of legal titles and equitable principles as govern the rights of any two persons who are not spouses". The question presented by s 79 is whether those rights and interests should be altered. (Citations omitted)
The plaintiff submitted that the tribunal erred in construing the ‘just and equitable’ requirement in s 33(3) for the following reasons:
(a) The tribunal wrongly suggested the ‘just and equitable’ criterion is fettered by a contextual prism.
(b) The words ‘administrative and general expenses of the owners corporation’ do not determine what is ‘just and equitable’ in the context of a change to lot liability.
(c) The operation of s 33(3) of the Act involved a two-tier process. First, the owners corporation may consider the amount that would be just and equitable for a lot owner to pay in all of the circumstances that triggered the need to make a change to the amount of a lot owner’s liability. Second, once the appropriate liability is crystallised, it is applied towards the administrative and general expenses of the owners corporation being that lot owner’s contribution.
(d) Because the payment is made towards ‘the administrative and general expenses of the owners corporation’, those words play no role in determining the context of the owners corporation’s consideration of what contribution would be just and equitable for the relevant lot owner to pay in the circumstances. To do otherwise is to ‘shoe horn’ the operation of the expression into a pre-determined context.
(e) The plaintiff submitted that the tribunal failed to take into account relevant considerations.
First, there was the cost to the plaintiff of maintaining its roof. The plaintiff contended that the tribunal wrongly discounted this consideration on the basis that the maintenance of the roof could not form part of the administrative and general expenses of the owners corporation because it is part of lot 12 and not part of the common property. The plaintiff submitted that determining what is just and equitable for lot 12 to contribute to the administrative and general expenses of the owners corporation in all of the circumstances required consideration of the obligations on lot 12 in maintaining its own property.
Secondly, the tribunal disregarded the evidence of the solicitor that explained the circumstances that gave rise to the existing lot liability. The fact that the plaintiff bore the cost of maintaining the roof made the apparent imbalance in lot liability fair. The maintenance of the roof was a substantial benefit enjoyed by all unit holders that was solely borne by the plaintiff.
Thirdly, the existing lot liabilities were relied on by purchasers, particularly the plaintiff which paid a premium for a low liability.
There is no support in the legislative text for the plaintiff’s submission.
First, s 33(3) makes no reference to the circumstances of the lot owner or to the circumstances peculiar to a particular lot other than in a context I will shortly identify. What must be considered by the owners corporation in varying lot liability is the range of potentially competing considerations that affect the distribution of responsibility for the administrative and general expenses of the owners corporation. That inquiry begins with consideration of the existing lot liability for contribution towards the owners corporation expenses.
Secondly, it is clear that the owners corporation expenses are central to the inquiry. The nature of the common property and the extent to which the occupiers of the lots within the subdivision will make use of the common property or will contribute to the quantum of the administrative and general expenses that are incurred by the owners corporation in respect of the common property are relevant considerations. These considerations are revealed by the statutory text.
I draw from the authorities that whether a lot liability is just and equitable is not to be determined in accordance with fixed rules. It is a question of fact to be resolved in all of the circumstances in a principled way. The relevant circumstances are revealed by the statutory purposes and text. The owners corporation should begin by identifying the objectives of a lot liability, which is to express the proportion of the administrative and general expenses of the owners corporation that a lot owner is obliged to pay. Therein lies the rights and obligations of the lot owners. The initial focus will be on the nature of the subdivision, the number of lots, the area, layout, and uses of the common property, the existing expenses of the owners corporation and how those expenses are incurred in relation to the use of common property by lot owners and their invitees onto the subdivision. If known, how the proportionate contributions were initially set may be a relevant consideration.
The owners corporation should then consider the existing contributions of each lot owner to those expenses by reference to these considerations. The question is whether a lot liability should be altered involves understanding the existing lot obligations. The owners corporation should not start with the assumption that a lot owner’s lot liability is or should be different from that specified in the plan of subdivision.
Altering the lot liability then will involve a conclusion that the existing lot liability is not just and equitable when the competing considerations that I have identified are reviewed in the context of the legal obligation of each lot owner to pay a proportion of the owners corporation’s expenses. That legal obligation is identified from the statutory text. As between lot owners, each is required to pay a just and equitable proportion of the administrative and general expenses of the owners corporation.
What would be a just and equitable proportion to pay of expenses is an assessment made by reference to the considerations that I identified above (at [50]). The broad discretion that is conferred on the owners corporation and on the tribunal where it makes an order requiring the owners corporation to make a change to the lot liability under s 33(3) is a wide discretion but not one to be exercised by administering what the plaintiff described as ‘palm tree justice’.[17] The interests of lot owners are to see that the expenses of the owners corporation are justly and equitably borne by all lot owners and the rights of lot owners are to pay no more than a just and equitable proportion of the expenses. That is the nature of the balancing exercise to be undertaken by a principled consideration and, if done in this way, it would not be amenable to being described as idiosyncratic or ‘palm tree justice’.
[17]By the indulgence of idiosyncratic notions of fairness and justice, Muschinski v Dodds (1985) 160 CLR 583, 615.
The question posed by the subsection was correctly addressed by the tribunal. In the first instance, the tribunal was satisfied that, having regard to the existing contributions by the lot owners, it was just and equitable to make a change to the lot liability. It did not assume that the obligations of lot owners should be altered. In determining that a change to the lot liability was warranted, the tribunal’s focus was on the rights and obligations of lot owners in and over the common property of the owners corporation.
The plaintiff’s primary contention that the lot owners in the subdivision benefitted from the plaintiff’s obligation to maintain the roof on its lot was not the subject of any finding by the tribunal. The contention is no more than supposition, which finds no support in the definition of the common property by the plan of subdivision. The plan defines the common property as all the land in the parcel except the land in lots 2, 4, 6, 9, 10, 11, 12, 13, 14 and 15. Lot 12 not only includes the roof, but it includes all of the space for 25 metres above the floor line of the top most storey. If lot owners derived a common benefit from the roof in the sense of the shelter and protection it provided from the elements for all levels of the building, that benefit was not recognised when the plan was initially registered.
A moment’s reflection shows the question of common benefit for all lots from the roof over lot 12 to be complex. Ground floor lots have multiple levels of protection from the elements but it could not be sensibly suggested that the maintenance expenses of the lots immediately above them are relevant. Although the owner of lot 12 bore the obligation to maintain the roof as part of that lot, the owner also enjoyed the benefit of the exclusive use of the roof. The evidence showed that the benefit had been enjoyed. Part of the roof had been converted into an area of open deck which formed recreation space for lot 12. Further, the roof contained skylights that provide light for the exclusive benefit of lot 12.
The obligation to maintain part of the building within the boundaries of an individual lot is not a relevant consideration because it does not affect either the use of the common property by any lot or the expenses incurred by the owners corporation in respect of the common property. The tribunal rightly rejected the plaintiff’s claim that it was relevant.
The plaintiff also relied on an assertion made before the tribunal that the owner of lot 12 paid a premium for that lot because of the low lot liability associated with it. The tribunal made no finding of fact to this effect and it was not open to it on the evidence below for it to have done so. Moreover, its failure to make that finding is not a ground of appeal. However, even if the tribunal was satisfied that a premium had been paid for that specific reason, there is nothing in the text of s 33(3) that warrants taking account of a premium paid in determining the contribution that would be just and equitable for that lot owner to make towards the administrative and general expenses of the owners corporation.
The fact that a plan of subdivision specified lot liability and that the liability specified by the plan was known to the purchaser of a lot at the time of acquisition is also not a relevant consideration since the Subdivision Act clearly enables the lot entitlement and lot liability set by a plan of subdivision to be altered.
It was open to the tribunal on its merits review to conclude that the lot liabilities specified by the plan of subdivision were not just and equitable and should be altered. The tribunal accepted the evidence of the experienced surveyor Mr Monahan. The tribunal noted that the evidence of Mr Monahan began with the logical question ‘Who will make most use of what the owners corporation provides’. That question was answered by the surveyor in a logical fashion based upon the area of common property controlled by the owners corporation, the nature of the owners corporation’s expenses and the size and likely occupation of the lots by individuals. From these matters, the surveyor made an assessment of a number of occupants and the likely number of visitors who might use the common property and contribute towards the administrative and general expenses of the owners corporation. Further, the surveyor tested his conclusions appropriately with a sensitivity analysis. The tribunal’s assessment of the evidence before it was in accordance with the proper approach to the exercise of the power to alter lot liability under the section.
For these reasons I reject the plaintiff’s contention that the tribunal failed to take into account relevant considerations in determining to make a change to the lot liability in respect of this plan of subdivision.
Conclusion
The proceeding will be dismissed and the orders of the tribunal affirmed. Subject to any further submission from counsel, the plaintiff should pay the costs of the proceeding of the first and second defendants, including reserved costs.
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