The Owners - Strata Plan No 58872 v Bridgewater Pty Ltd

[2018] NSWSC 1559

Supreme Court

New South Wales

Medium Neutral Citation:	The Owners – Strata Plan No 58872 v Bridgewater Pty Ltd [2018] NSWSC 1559
Hearing dates:	26 September 2018
Date of orders:	17 October 2018
Decision date:	17 October 2018
Jurisdiction:	Equity
Before:	Darke J
Decision:	Plaintiff’s claim that property is held for it on constructive trust not made out.
Catchwords:	EQUITY – constructive trusts – block of apartments converted from company title to strata title – separate lot created for parking space upon creation of Owners Corporation – all shareholders in company relinquished shares in exchange for strata title except for two shareholders – the company remains the registered proprietor of the parking space – question whether there was a common intention between company and its shareholders that the benefit of the parking space would flow to the Owners Corporation – whether company holds title to parking space upon a constructive trust – no common intention established
Legislation Cited:	Environmental Planning and Assessment Act 1979 (NSW) Strata Schemes Management Act 2015 (NSW)
Cases Cited:	Bahr v Nicolay (No 2) (1988) 164 CLR 604 Pallant v Morgan [1953] Ch 43
Category:	Principal judgment
Parties:	The Owners – Strata Plan No 58872 (Plaintiff) Bridgewater Pty Ltd (First Defendant) Peter Michael Lubrano (Second Defendant)
Representation:	Counsel: Dr C J Birch SC (Plaintiff) Mr D A Savage QC (Defendants)   Solicitors: Le Page Lawyers (Plaintiff) Rankin Ellison Lawyers (Defendants)
File Number(s):	2017/295135
Publication restriction:	None

Judgment

Introduction

1. The plaintiff is the Owners Corporation for Strata Plan 58872. The strata scheme concerns a residential building in Waruda Street, Kirribilli. There are 26 units in the building. By its Statement of Claim filed on 29 September 2017, the Owners Corporation seeks relief in respect of Lot 27 in the Strata Plan. Lot 27 is an outdoor uncovered parking space with a total area of about 20m2. It has a value of about $175,000 to $200,000.

2. The registered proprietor of Lot 27 is the first defendant, Bridgewater Pty Ltd (“Bridgewater”). The Owners Corporation claims that Lot 27 is held by Bridgewater on constructive trust for it. Declaratory relief to that effect is sought, as well as orders for the sale of the lot and the payment to the Owners Corporation of the net proceeds of sale. The Owners Corporation also seeks to have set aside a registered mortgage over Lot 27 held by the second defendant, Peter Lubrano.

3. The strata scheme was established on 16 February 1999 upon the registration of Strata Plan 58872. Bridgewater thereupon became the registered proprietor of Lot 27, and has remained so ever since. Prior to the establishment of the strata scheme the land upon which the building stands (Lots 7 and 8 in Deposited Plan 13064) was owned by Bridgewater. The land was occupied pursuant to what is commonly described as a company title arrangement. The shares in Bridgewater entitled the holders of the shares to occupy specified parts of the land (referred to as flats, garages and car parking spaces). The shares also conferred rights to use, in common with other holders of shares, certain other areas including the area that later became Lot 27.

4. In 1991 a proposal was advanced for the conversion of the land to strata title. The Owners Corporation claims that in the course of the pursuit of the proposal a common intention was formed, as between Bridgewater and its shareholders, in respect of the area that later became Lot 27. It is alleged that the common intention was to the effect that upon completion of the conversion to strata title, Lot 27 would either be incorporated in the common property of the strata scheme, or sold by Bridgewater with the proceeds of sale paid to the Owners Corporation.

5. The Owners Corporation alleges that Bridgewater became bound by equitable obligations to deal with Lot 27 in accordance with the common intention, but has instead retained Lot 27 for its own benefit (and the benefit of its current shareholders). The Owners Corporation contends that the conduct of Bridgewater is unconscionable, and Bridgewater is thus liable to be declared a constructive trustee of Lot 27. It is further contended that Bridgewater breached its equitable obligations by granting the mortgage of Lot 27 to Mr Lubrano, and that Mr Lubrano, by reason of his knowledge of all relevant facts and circumstances, is subject to a personal equity which precludes him from maintaining the mortgage as against the Owners Corporation. The Owners Corporation also seeks the removal of a caveat Mr Lubrano lodged over Lot 27.

6. The defendants resist the claims brought by the Owners Corporation. In short, they deny the existence of the alleged common intention, they challenge the entitlement of the Owners Corporation to bring the claims, and they complain that the Owners Corporation has been guilty of laches.

Summary of salient facts

7. In 1991, Bridgewater obtained a report from Blackshaw Lindsay & Bugden, solicitors, concerning a possible conversion of the company title scheme to a strata title scheme. The report contained a section headed “Preliminaries to Conversion” in which the following appeared:

2.3.1   It is not a legal requirement that decision to convert to strata titles is unanimous although it is important to attempt to achieve a unanimous decision in this area. Although it may be possible to force a conversion upon an unwilling shareholder a conversion under these circumstances could be very risky and the consequence could be all or any of the following: -

(a)   Equity proceedings against the company by a shareholder claiming that the rights given to him by his class of shares have been varied by the conversion process; and

(b)   the company may not be able to proceed to liquidation nearing the conclusion of the stratering process if the dissenting shareholder refuses to accept transfer of the strata lot upon completion of the conversion, thus necessitating both a company scheme and a strata scheme to run parallel for some time.

2.3.2   In the event of the latter situation, some proprietors would achieve the benefit of conversion to strata, but there would be general disruption and additional expense caused by both schemes operating concurrently.

2.3.3   We recommend that the consent in writing of all shareholders be obtained prior to the proposed conversion if the decision to convert is unanimous. Apart from the matters referred to above relating to practical difficulties in completing the conversion process, this will reduce the likelihood of any shareholder seeking to raise questions of breach of contract or variation of class of rights under the Company’s Memorandum and Articles of Association.

8. On 14 November 1991 a letter was sent by the directors of Bridgewater to the shareholders in the company. The letter included the following:

You will recall that the question of converting Bridgewater to Strata Title was discussed at the Annual General Meeting on 12th December, 1990. At that meeting it was resolved to proceed to Strata Title provided there were no significant additional costs involved in conversion.

During the period since 12th December, 1990 considerable work has been done on the building. The work included extensive painting, erection of a fence on the Beulah Street side of the property, the erection of a security door at the entrance to the upper level parking and in particular structural work. The structural work was undertaken with the specific purpose of enabling the building to obtain a Section 317AE Certificate. You will be aware that after many years the building has finally been issued with such a certificate.

…

We have obtained advice from the company solicitors regarding the advantages and disadvantages of the two forms of Title.

…

We suggest that we are now in the strongest position to arrange for the conversion. In the circumstances we should like to proceed immediately. The owners of the majority of shares in the company have indicated that they are in favour of such a conversion. We believe that the advantages of the conversion far outweigh any perceived disadvantages.

We advise that the Annual General Meeting of the Company is to be held on Monday 9th December, 1991. An official notice of meeting is to be sent to you by the managing agent shortly.…

9. The agenda contained in the notice for the Annual General Meeting of Bridgewater to be held on 9 December 1991 included the following:

It is proposed that the following Resolution be passed:

“It is RESOLVED that the Company’s Solicitors be instructed to act on behalf of the Company to convert the title to Bridgewater Pty Ltd to Strata Title and that the Solicitors be authorised to take all necessary action in this regard”.

AND FURTHER that all Shareholders give their consent on the attached form to such conversion of title.

10. There was a lengthy discussion at the Annual General Meeting about the proposal to become a strata scheme. The minutes record that the proposed resolution, minus the part referring to all shareholders giving their consent to the conversion, was passed, with 20 votes for and 3 against. The resolution of the shareholders was thus in the following terms:

“It is RESOLVED that the Company’s Solicitors be instructed to act on behalf of the Company to convert the title of Bridgewater Pty Ltd to Strata Title, and that the Solicitors be authorised to take all necessary action in this regard.”

11. It seems that Blackshaw Lindsay & Bugden were instructed in relation to the conversion to strata title. A letter from the firm about the matter was noted in the minutes of the meeting of the directors of Bridgewater held on 30 April 1992. In the meantime, the board of Bridgewater had taken steps to advance the matter. Arrangements were made for surveys to be carried out by Frank M Mason & Co Pty Ltd. At the meeting of directors held on 26 March 1992, various draft survey plans were discussed. A resolution was passed at the meeting in the following terms:

RESOLVED that the flat concreted area near the NW corner be identified on the plans as a parking space, with the intention of either exclusive use or sale to a Bridgewater shareholder.

12. The area referred to in the resolution is (or at lease includes) the area that eventually became Lot 27.

13. The minutes of the meeting of directors held on 30 April 1992 include the following note under the heading “Extra Parking Spaces”:

Surveyor to include an unused area off Beulah Street, on the plan as parking spaces. The Director’s intention being the possible future sale of such spaces to shareholders. There is to be a covenant included on the plan prohibiting the building of garages or car ports on this new space.

The area referred to as “unused area off Beulah Street” is (or at least includes) the area that eventually became Lot 27.

14. The minutes of the meeting of directors held on 2 September 1992 contains the following, under the heading “Progress on Strata Conversion":

The Chairman advised that this process was almost complete and that in the near future the plans would be available for inspection by shareholders at the offices of Alliance Strata Management. Car spaces would be on separate title which is effectively the current situation.

Council approval is being sought for the creation of one new car space which will become an asset of the company. Proceeds from sale of this space, if approved, will be applied to building improvements.

15. An Annual General Meeting of Bridgewater was held on 17 December 1992. The minutes indicate that the conversion to strata title was discussed. The minutes include the following:

Some Shareholders expressed concern about the possible “blow-out” in conversion costs. The Chairman advised that Shareholders will be kept informed on all of the costs as conversion progresses. In addition, a spare piece of common property has been identified that Directors considered suitable for a car space and that the option was available for this space to be sold to a shareholder, prior to conversion and that the revenue raised thereby, be used to defray the costs of conversion.

16. On about 12 February 1993 a development application (No 1052/93) for the conversion of the building to strata title was lodged by Frank M Mason & Co Pty Ltd with North Sydney Council. The accompanying letter from the surveyors included the following:

The proposal is to convert the existing 26 residential flats to Strata Title and to create an additional carspace (Lot 27 on the proposed plan) with a frontage to Beulah Street, and a new courtyard area.

17. It seems that the Council insisted that certain fire safety requirements be met before consent to the application would be considered. Those matters had been dealt with by late October 1994.

18. An issue then arose concerning the imposition of a condition of consent requiring the making of a “section 94 contribution” (i.e. payment of a monetary contribution pursuant to a condition imposed pursuant to s 94 of the Environmental Planning and Assessment Act 1979 (NSW) - now see s 7.11 of that Act). On 30 November 1994 the directors of Bridgewater resolved to seek legal advice in relation to that issue.

19. An Annual General Meeting of Bridgewater was held on 21 December 1994. The minutes record that the Chairperson, Ms Dettmann, provided a report on progress with the conversion to strata title.

20. The board of directors met on 31 March 1995. The minutes record that a resolution was passed to the effect that Mr Thompson and Mr Lubrano would represent Bridgewater at a meeting to be held with the Council concerning the development application. Mr Thompson was, but it seems that Mr Lubrano was not then, a director of the company.

21. On 3 April 1995 the Council determined to grant consent to development application No 1052/93 subject to conditions, including a condition requiring payment of a s 94 contribution of $46,200. The consent was based on the drawings prepared by Mr Holder of Frank M Mason & Co Pty Ltd that had been lodged in February 1993. Those drawings show Lot 27 as a lot in the proposed strata plan, with an area of about 20m2 and a unit entitlement of 500. Lot 27 is described on the plan as a car space. A number of garages, and various spaces on the lowest level, were to become parts of lots in the strata scheme.

22. At a meeting held on 28 April 1995 the directors of Bridgewater resolved that Ms Hill (a director), with assistance from Mr Lubrano, would “draft a Class 4 submission to the Land and Environment Court regarding the section 97 [sic] contribution”, which draft submission would then be sent to Ms Margaret Hole, solicitor, to be finalised. It appears that by May 1995 a draft submission had been prepared and was ready to be sent to Ms Hole. It further appears that Ms Hole thereafter provided advice concerning the validity of the s 94 contribution, and suggested that an opinion be obtained from counsel. However, at the Annual General Meeting held on 1 December 1995, it was resolved to instead prepare and submit a new application to the Council, with re-drawn plans. The minutes do not explain the respects in which the plans were to be altered. I note that Mr Lubrano was elected as a director at this Annual General Meeting. He was not elected as a director at the next Annual General Meeting held on 11 December 1996.

23. An Extraordinary General Meeting of Bridgewater was also held on 11 December 1996. By that time, advice had been received from Ms Hole to the effect that the s 94 contribution would have to be made in order to convert to strata title. A resolution was passed at the Extraordinary General Meeting to the effect that the strata title conversion proceed, with shareholders accepting that the s 94 contribution would be imposed. It was also resolved to seek advice from Ms Hole in relation to whether the car parking lots could be separated so that they no longer formed part of the lots associated with each unit.

24. Another Extraordinary General Meeting was held on 3 November 1997. By that stage the surveyors had prepared some revised drawings which showed a number of garages, and spaces on the lowest level, as separate lots in the proposed strata scheme, which would comprise 40 lots rather than the 27 lots shown on the earlier plans. Lot 27 remained a lot with a unit entitlement of 500 in the revised plans, although I note that a curious reference to common property has been added in the vicinity of Lot 27. In any event, the minutes of the Extraordinary General Meeting held on 3 November 1997 record that after considerable discussion the shareholders resolved (with Mr Lubrano and Mr Petersen voting against) “to approve conversion of the company home unit scheme to strata title in accordance with the strata plan – Version A (where garages and car parking spaces are comprised in proposed lots) tabled at this meeting”. I infer that “Version A” is a reference to the plans that had been lodged with the Council in February 1993.

25. It seems that in view of the dissent to the resolution, the directors present indicated that the Board would be willing “to resolve all reasonable concerns before the matter is progressed”. A further motion was passed at the Extraordinary General Meeting in the following terms:

To resolve to also approve the later re-subdivision of lots where garages and car parking spaces are comprised in those lots into separate lots for the flat and the garages and car parking spaces in accordance with the strata plan – Version B (where garages and car parking spaces are comprised in proposed lots) for the owners of those lots that wish to undertake the separation of titles at their own cost and subject to the lots comprising garages or carparking spaces being designated as utility lots under Section 39 of the Strata Titles (Freehold Development) Act 1973.

26. Bridgewater had by that time retained Blessington Judd, solicitors. The firm had provided a letter of advice to the board on 4 July 1997.

27. On 16 June 1998 the firm lodged an application with the Council for consent to a plan of sub-division pursuant to the development consent granted on 3 April 1995.

28. Objections to the application were received, including from Mr Lubrano who was dissatisfied with having his unit area and garage area contained on a single lot in the strata plan. At least one other shareholder, Ms Penelope Hill, was also of that view. However, the Council advised that its policy prohibited residential units and associated parking spaces being held on separate titles.

29. It seems that the Council required further information to be submitted in relation to the application, including a Fire Safety Strategy Report. The application had not been approved by 3 December 1998 when a “Special” General Meeting of shareholders in Bridgewater was held. A resolution to submit to Council a revised plan of strata sub-division, involving several separate parking and garage lots, was defeated.

30. On 2 February 1999 the Council gave its approval to the application for the plan of sub-division that had been lodged in June 1998. The plan of sub-division was then lodged for registration. Registration of the plan (Strata Plan 58872) occurred on 16 February 1999. Bridgewater became the registered proprietor of all of the lots in the strata scheme.

31. On 11 February 1999 Blessington Judd sent a letter to Mr and Mrs Petersen, who were shareholders in Bridgewater. The letter stated:

We act for Bridgewater Pty Limited in respect of its conversion to strata title.

The strata plan has now been approved by North Sydney Council and lodged for registration at the Land Titles Office.

To allow finalisation of the conversion process, we attach the following documents which we would like you to complete and return to our office as soon as possible.

Instruction from Member – This document authorises us to take action on your behalf in conjunction with Bridgewater Pty Limited to give effect to the conversion process. Please provide us details of your mortgagee (if any).

Consent of Member – This document confirms your agreement to the conversion and the change in the structure of your ownership of your lot.

If you have any questions about the documents, please contact our office.

32. The Instructions from Company Member form included the following:

3.   I/We acknowledge having received and examined a copy of the proposed strata plan and confirm my/our approval.

4.   I/We agree to accept a transfer of the proposed lot corresponding to my/our flat in exchange for all rights of occupancy I/we have in relation to such flat under the Constitution of the Company.

33. The Consent of Member form included the following:

I/We agree to accept the transfer of the lot relating to the flat which I/We exclusively occupy pursuant to the provisions of the Constitution in exchange for my/our own rights to such exclusive occupancy;

I/We consent to any modification of my/our rights as member/s in the company that may be involved in the conversation [sic]; and

I/We waive any contractual rights that I/We may have which are inconsistent with the conversion.

34. It is likely that Blessington Judd sent letters in substantially the same terms to all the other shareholders in the company.

35. On 15 March 1999 solicitors acting for Mr Lubrano sent a letter to Blessington Judd (in reply to their letter of 11 February 1999) in which it was stated that Mr Lubrano did not agree to accept transfer of title to Lot 2 in the Strata Plan, due to the fact that “an interest in the garage shares” had been transferred to Mr Lubrano’s brother, and the shares in relation to the unit had been transferred to Ms Annette Fordham. It was stated in the letter that if the garage could be transferred to a person who was not necessarily the owner of the unit, Mr Lubrano and Ms Fordham would consent to conversion to strata title. The Court was informed that Ms Fordham is Mr Lubrano’s partner.

36. Blessington Judd responded on 21 April 1999, stating that a resolution in favour of conversion to strata title had been validly passed by Bridgewater. Issue was also taken with the notion that shares could be validly transferred to Mr Lubrano’s brother.

37. The evidence is sketchy at best as to what occurred between Bridgewater and its shareholders at that time. It appears that on 23 April 1999 Blessington Judd sent a letter to a shareholder, Mr Michael Ahern. It seems likely that, as requested, Mr Ahern signed the forms that had been sent by Blessington Judd. The firm’s letter to him was in the following terms:

We advise that the Transfer of the above lot to you was registered at the Land Titles Office on 19 April 1999. Enclosed is a copy of the Certificate of Title Folio Identifier 22/SP58872 showing you as the registered owner of the lot.

Would you please forward the original Share Certificate in respect of shares numbered from 100,301 to 104,300 to us as soon as possible.

On receipt of the original Share Certificate, we will forward the original Certificate of Title to you.

38. Mr Ahern replied on 27 April 1999 in these terms:

Enclosed is original Share Certificate in respect of shares numbered 100,301 to 104,300 to the above property.

Would you please return the original Certificate of Title as soon as possible.

39. On 30 April 1999 Blessington Judd sent a further letter to Mr Ahern. This letter was in the following terms:

We refer to the above matter and confirm receipt of the original Share Certificate in respect of shares numbered from 100,301 to 104,300 from you.

Accordingly, we now enclose the original Certificate of Title (Folio Identifier 22/SP58872) showing you as the registered owner of the property for your safekeeping. Please note that the title deed is evidence of your interest in the property and should be kept in a safe place.

Would you please acknowledge receipt of the deed by signing and returning the attached letter to our office.

40. The “attached letter” does not seem to have been adduced in evidence.

41. It appears from a letter sent by Blessington Judd to the secretary of Bridgewater on 20 May 1999 that title to 13 of the lots in the strata scheme had been “transferred to the respective shareholders”. The letter also included the following:

We note that the lot 27 created under the strata plan does not belong to any of the existing shareholders. Please advise whether that lot is to be transferred.

We will liaise with the remaining shareholders/mortgagees to finalise the registration of the Transfers relating to their lots. Once all the Transfers are registered (including lot 27), we will let you know so that an accountant can be engaged to wind up the company.

42. Correspondence continued thereafter between Blessington Judd and Mr Lubrano’s solicitors, without resolution of the issues. Mr Lubrano maintained his position that he did not want to take title to the lot associated with his unit, but it seems that he may have lodged a caveat over the title to the lot.

43. The first Annual General Meeting of the Owners Corporation was held on 1 July 1999. The owners of 13 lots were present either in person or by proxy. It appears that by 21 July 1999 title to six out of the 26 lots had yet to be transferred. A letter dated that day from Blessington Judd to the secretary of Bridgewater contained the following:

The Strata Scheme currently operates alongside the company, Bridgewater Pty Limited. This will remain the case until all the lots created by the strata plan are transferred from the company.

In practice, the lot owners (including Bridgewater Pty Ltd whilst it remains the registered owner of any lot) will make contributions to strata levies in proportion to their respective unit entitlements.

At the same time, those shareholders who are not yet registered as owner of the lot pertaining to their share group, will continue to make levy contributions to the company as before.

Once all lots are transferred from the company (including lot 27 which we understand is to be sold by the company), an accountant can be appointed to wind up the company.

In relation to the company’s existing funds, the company can resolve to transfer the funds to the strata scheme as part of the conversion process and this should be done by the directors before the next annual general meeting. We suggest that most but not all of the funds be transferred (in proportion with the relative conversion) so that the remaining shareholders cannot complain they are being oppressed.

44. The process of transferring lots from Bridgewater to the relevant shareholders continued thereafter. The strata managing agent, Jamesons, sent a notice to “all owners” on 10 August 1999 in which it was stated that until that process was complete the strata scheme “operates alongside the company”. Jamesons evidently envisaged that when the process was complete, the company would be wound-up.

45. On 8 June 2000 Blessington Judd sent a letter to the secretary of Bridgewater. The letter included the following:

We advise that all lots in Strata Scheme 588772 [sic] have now been transferred to the respective shareholders except for lot 2 (Lubrano) and Lot 27 (carspace to be sold).

The company should now arrange for the sale of the lot 27 carspace as soon as possible.

We note that the draft Contract for Sale of Lot 27 was forwarded to you on 29 May 2000. Please let us know the proposed auction date.

We have agreed with Angus Rolle’s (lot 23) mortgagee for the exchange of securities to be undertaken by us. Accordingly, the company should keep Mr Rolle’s replacement share certificate which we note you are holding.

46. It was envisaged by at least some of the lot owners that Lot 27 would be sold. A sale of Lot 27 appears to have been a topic of discussion at meetings of the Executive Committee of the strata scheme. Also, Blessington Judd sent a letter to the secretary of Bridgewater on 3 October 2000 in which it was stated:

We refer to our letter to you dated 29 May 2000 enclosing draft Contract and letter to shareholders.

We note that we have not heard from you in relation to the proposed sale of lot 27 by the company.

Please let us know whether you have obtained a valuation for the property and when the property will be auctioned.

…

Normally, once all the lots have been transferred and the company no longer has any assets, the conversion process can be finalised by having the company wound up.

However, as you are aware, Mr Lubrano has to date refused to provide us with the details to enable lot 2 to be transferred to him.

In the circumstances, we consider that you should arrange for the sale of lot 27 as soon as possible so that once the sale has been completed, Mr Lubrano (as sole shareholder) can be left to deal with the company as he wish.

We await your further instructions regarding the sale of lot 27.

47. The Blessington Judd letter of 29 May 2000, and the enclosed draft contract and letter to shareholders, are not in evidence.

48. In August 2001 a mortgage, granted by Bridgewater to Mr Lubrano over Lot 27, was registered. The mortgage apparently secures advances totalling $8,000.

49. On 15 October 2001 Blessington Judd sent a letter to the secretary of Bridgewater in the following terms:

We note our previous advice to you that the company should transfer the carspace lot (lot 27) to the Strata Scheme as soon as possible. Subsequently, you were to arrange for the sale of that carspace lot.

We understand that to date, neither the transfer nor the sale has been effected.

We point out that the Owners Corporation of Strata Plan 58872 may consider it prudent to protect the interests of the proprietors of the strata scheme in the carspace to place a caveat over that property until issues of ownership or transfer are resolved.

At present we have no current instructions from you and must therefore assume that we may close our file. Accordingly, if we do not hear from you after 14 days, we will close our file.

50. Bridgewater was by then (and probably had been since about June 2000) effectively under the control of Mr Lubrano and/or Ms Fordham. The other shareholders appear to have provided their share certificates to Blessington Judd, and ceased to play any role in the affairs of the company. It is admitted on the pleadings that by 2002 Mr Lubrano and Ms Fordham were the only shareholders in Bridgewater, and its only directors.

51. In April 2002 Mr Lubrano sent letters to the secretary of the Owners Corporation on Bridgewater letterhead “for Bridgewater Pty Ltd”. It is apparent from that correspondence that various issues existed between the Owners Corporation and Mr Lubrano. One of the letters contained the following:

Bridgewater Pty Ltd has made no determination of what will happen to its car space No. P9 known as Lot 27. Ideally, however, it is desired to wind up the company and fix all outstanding issues.

52. The Owners Corporation, at its Annual General Meeting held on 5 April 2002, resolved to retain solicitors to take action “in respect of the transfer of Lot 27 to Strata Plan 58872” and the possible recovery of monies held by Bridgewater. At some stage, the Owners Corporation lodged a caveat against the title to Lot 27. However, no action was taken until these proceedings were commenced about 12 months ago.

The alleged common intention

53. The Owners Corporation submitted that the project for conversion to strata title included a mutual assumption or understanding held by Bridgewater and its shareholders that the benefit of what became Lot 27 was to flow to the Owners Corporation that would be created when the strata scheme was established. It was put that the project for conversion could best be characterised as a form of joint venture between Bridgewater and its shareholders. The Owners Corporation accepted that the evidence as to the mutual assumption or understanding was not entirely clear, and further that there was a question as to whether Lot 27 was to be realised for the benefit of the shareholders of Bridgewater or the Owners Corporation itself. However, it was contended that it only made practical sense in the circumstances for the benefit of Lot 27 to be realised for the Owners Corporation, which was to become “the new representative of the owners from time to time”.

54. The Owners Corporation then submitted that it would be unconscionable for Bridgewater to act contrary to the mutual assumption or understanding by retaining Lot 27 for itself (and its remaining shareholders). It was put that the situation was similar to that found in Pallant v Morgan [1953] Ch 43 where it was held that the circumstances in which a property was acquired by the defendant made it appropriate to declare that the property was held jointly for the defendant and the plaintiff, and order that the property be sold.

55. The defendants submitted that the evidence did not establish the existence of the alleged common intention. It was put that there was never unanimity amongst the shareholders of Bridgewater about Lot 27, and the evidence suggested that various intentions were held at different times. It was further submitted that the evidence was unclear as to the circumstances in which the shares of various shareholders were dealt with and cancelled at the time they became lot owners in the strata scheme. I note, in this regard, that the parties apparently accept that the shares of at least some of the shareholders had been cancelled (see Statement of Claim paragraph 17; Defence paragraph 17).

56. Before turning to the evidence that bears upon this issue, it should be noted that the common intention alleged in relation to Lot 27 is claimed to form part of a broader common intention, expressed in paragraph 16 of the Statement of Claim in the following terms:

At all material times, it was intended by Bridgewater and the shareholders of Bridgewater who became the initial transferees from Bridgewater and owners of lots in the strata scheme that the owners of the lots would retain their shares in Bridgewater, but that upon the completion of the strata conversion, Lot 27 would be incorporated in the common space of the strata scheme, or that Lot 27 would be sold and the proceeds conveyed by Bridgewater to the owners corporation, and thereupon Bridgewater would be wound up by resolution of its shareholders.

Determination

57. The evidence is clear that Lot 27 was at all relevant times intended to become a lot in the scheme, rather than part of the common property of the scheme. It is depicted as a lot in the proposed strata scheme in the drawings submitted to the Council in February 1993 in support of the development application, and the drawings submitted to the Council in June 1998 in support of the application for consent to the plan of subdivision. That aspect of the alleged common intention can be put to one side. It is necessary to instead focus upon whether there was a common intention that Lot 27 would be sold and the proceeds paid to the Owners Corporation.

58. The Owners Corporation was correct to acknowledge that the evidence in this respect was not entirely clear. The question of what might become of the area that eventually became Lot 27 was considered by the directors of Bridgewater in 1992, after the company had resolved to proceed with the conversion to strata title. In that context, the directors considered the possibility of selling the area to a shareholder, or perhaps granting rights of exclusive use to a shareholder. The idea was floated of a covenant to prohibit building on the area, but this seems not to have been pursued at all. In September 1992 the directors turned their minds to how the proceeds of a sale of the area would be applied. It was then thought that the proceeds would be applied towards building improvements. The means by which that was envisaged to occur is not apparent. The directors were clear that the area “will become an asset of the company”. The directors should be taken to have been aware that the area already formed part of the land owned by the company. The statement about the area becoming an asset of the company should therefore be treated as a recognition of what would occur once the strata scheme was established. The directors should be taken to have appreciated that it was up to the company to determine how the area would be dealt with.

59. At the Annual General Meeting held on 17 December 1992 the option of a sale of the area to a shareholder, prior to the conversion to strata title, was raised. It was evidently thought that the proceeds of such a sale could be put towards the costs of the conversion process.

60. There is a paucity of evidence of further consideration being given to the matter in the lengthy period leading up to the establishment of the strata scheme on 16 February 1999. The company and its shareholders seemed to have been concerned with other issues, notably the s 94 contribution matter and the issue concerning separate lots for units and parking spaces.

61. By 16 February 1999 no settled position had been reached between the company and its shareholders as to what to do with Lot 27. No formal resolution of the company was passed on the subject; no informal statement of an agreed position on the subject was made.

62. The conclusion that no settled position had been reached in relation to Lot 27 is consistent with the tenor of the Blessington Judd letter of 20 May 1999 in which advice was sought from the secretary of the company as to whether Lot 27 was to be transferred. It seems that Blessington Judd envisaged that there would be a transfer, followed by a winding up of the company. However, there is no suggestion that any decision along those lines had already occurred. In their letter of 21 July 1999, Blessington Judd said that they understood that Lot 27 was to be sold, but the basis of that understanding (including when it arose) is not stated.

63. On 29 May 2000 Blessington Judd sent a letter to the secretary of the company that enclosed a draft contract for sale in respect of Lot 27 and a letter to shareholders. Unfortunately, neither the 29 May 2000 letter nor its enclosures are in evidence. These documents are referred to in other letters written by Blessington Judd. However, these letters shed little light upon the contents of the 29 May 2000 letter or its enclosures, including as to whether they touch upon the matter of how the proceeds of any sale of Lot 27 would be applied. It can be inferred that Blessington Judd received instructions to prepare documents in order to facilitate a sale of Lot 27, although I note that in their letter of 3 October 2000 Blessington Judd refer to “the proposed sale of lot 27 by the company”, and say that it was waiting for further instructions regarding the sale.

64. By that time, Blessington Judd were advising that arrangements for the sale of Lot 27 should be made as soon as possible. In their letter of 15 October 2001, Blessington Judd referred to having previously advised that the company should transfer Lot 27 “to the Strata Scheme as soon as possible”. The advice itself is not in evidence, and the foundation for it is not apparent. Blessington Judd expressed the view in their 15 October 2001 letter that the Owners Corporation might have an interest in Lot 27 that could be the subject of a caveat, but the nature of the interest, and the circumstances in which it may be said to have arisen, are not identified.

65. It is also necessary to consider the evidence concerning the steps taken to have the shareholders in Bridgewater become lot owners in the strata scheme. It appears that the shareholders were asked by Bridgewater to accept a transfer of a lot in the scheme (corresponding to the area occupied pursuant to the rights attaching to their shares in the company) in exchange for all rights of occupancy of the relevant area. The shareholders were also asked to consent to any modification of their rights as members that may be involved in the conversion, and waive any contractual rights they may have which are inconsistent with the conversion. It seems that between February 1999 and June 2000 all shareholders, aside from Mr Lubrano (or Ms Fordham), agreed to those terms. It further seems likely that, as part of the process, the consenting shareholders agreed to relinquish their original share certificates in exchange for the original certificate of title to the strata lot that was transferred to them.

57. As mentioned earlier, the parties accept that the shares of at least some of the shareholders were cancelled. The defendants plead that the shares were cancelled at the request, or with the consent, of the shareholders. No evidence was adduced by any party about the actual cancellation of any shares, or the terms of such. It is not clear, for instance, whether shares were “cancelled” as part of a capital reduction, or a surrender (see Articles 52 and 53 of the Articles of Association of Bridgewater). It is not known whether any shares were “cancelled” on the basis of any promises or assurances given by Bridgewater. The documents in evidence do not include any references to such matters.

58. As I have said, no settled position had been reached between Bridgewater and its shareholders by 16 February 1999 as to what to do with Lot 27. In my view, the evidence of what followed in the process of finalising the conversion to strata title does not establish that a settled position was thereafter reached on that matter. Whilst it appears to have been widely contemplated that a sale of Lot 27 (as opposed to the retention of the asset) would occur, no decision to sell was made and the details of how a sale would be conducted, and importantly how the proceeds would be applied, were never finalised.

59. There were various possibilities in that respect. The proceeds could have been applied against expenses of the company (including costs associated with the conversion process), distributed to the shareholders by way of dividends or upon a winding up of the company, or paid to a third party such as the Owners Corporation. The proceeds could have been dealt with by a combination of these options. Whilst there was undoubtedly some logic in favour of paying the proceeds of a sale to the Owners Corporation, I am unable to accept the submission that in the circumstances it only made practical sense to deal with the proceeds in that fashion.

60. I have considered the entirety of the evidence placed before the Court. I am not persuaded that there was a common intention (or mutual assumption or understanding) held by Bridgewater and its shareholders to the effect that Lot 27 was to be sold with the proceeds to be paid to the Owners Corporation. The alleged basis of the claim that Bridgewater is not entitled to retain the benefit of Lot 27 has in my view not been made out. It seems to me that when Bridgewater became the registered proprietor of Lot 27 it was not subject to equitable obligations owed to the Owners Corporation in respect of the lot. Further, I am not satisfied that Bridgewater later became subject to obligations of that nature due to the manner in which the conversion process proceeded.

61. I appreciate the point made by the Owners Corporation that it seems an odd result that Bridgewater, which is now effectively under the control of Mr Lubrano and/or Ms Fordham, can retain Lot 27 for its own benefit. Nevertheless, apart from some evidence given by one shareholder (Mr Petersen), the evidence is consistent with the shareholders being content to relinquish their shares and play no further part in the affairs of the company even though no decision had been made by the company and its shareholders to sell Lot 27 and pay the proceeds to the Owners Corporation. As pointed out by the defendants, the evidence was unclear as to the circumstances in which individual shareholders dealt with their shares. Individual shareholders might have regarded Lot 27 as a matter of little importance, or might have simply overlooked the matter. Dr Petersen went only so far as to state that he did not understand that by surrendering the share certificates the shareholders would lose control over the assets and affairs of Bridgewater. I do not think that it can be inferred from that evidence, and from the apparent willingness of shareholders to relinquish their shares, that there was a common intention as alleged.

62. The onus rests upon the Owners Corporation to establish the existence of the common intention that is the foundation of its claim, and in my opinion it has failed to do so. It follows that the plaintiff’s claims against Bridgewater, and its claim in respect of Mr Lubrano’s mortgage over Lot 27, must be dismissed.

63. I should add that had the alleged common intention been established, it would have been my opinion that Bridgewater would have held its title to Lot 27 subject to equitable obligations to sell the property and pay the proceeds of sale to the Owners Corporation. It would have been appropriate to declare that Lot 27 was held by Bridgewater as a constructive trustee, subject to those obligations, for the benefit of the Owners Corporation. Whilst the circumstances of the case are quite different from those found in Pallant v Morgan (supra), it would be a situation where Bridgewater, as part of the process of conversion to strata title engaged in by it and its shareholders, acquired title to Lot 27 on the basis that the lot would be dealt with in a particular way for the benefit of the Owners Corporation. In my opinion, Bridgewater would have been bound by a personal equity that would preclude it from asserting, as against the Owners Corporation, that its title to Lot 27 was not subject to obligations to deal with the property in accordance with the basis upon which the title was acquired (see Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 614-5 and 638). For Bridgewater to assert otherwise would have involved moral turpitude on its part (compare the notion of fraud referred to by Harman J in Pallant v Morgan (supra) at 48-9).

64. I should also state my view that the Owners Corporation, as the beneficiary of the alleged constructive trust, has standing to seek relief to enforce the trust. Moreover, it is my opinion that the Owners Corporation, as a body governed by the Strata Schemes Management Act 2015 (NSW), has the power to do so. It seems to me that in seeking to enforce the trust, including by orders for the sale of Lot 27 and payment to it of the proceeds, the Owners Corporation is acting in the course of its function of administration of the strata scheme (see Strata Schemes Management Act s 9). It is acting to obtain funds which it would be bound to use for the purposes of the strata scheme.

65. In view of the conclusion I have reached in relation to the alleged common intention, it is not necessary to further consider these matters, or the other defences raised by the defendants.

66. The Court will order that the Statement of Claim be dismissed, save in respect of Mr Lubrano’s caveat. That matter was of minor significance in the proceedings. It was accepted by Mr Lubrano that the caveat could not be sustained. The Court will order that the caveat be removed. In these circumstances it is appropriate that the Court order that the plaintiff pay the defendants’ costs of the proceedings.

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Decision last updated: 17 October 2018