Wilson v Meudon Pty Ltd - [2005] NSWCA 448

No judgment structure available for this case.

CITATION:
Wilson & Anor v Meudon P/L & Anor [2005] NSWCA 448

HEARING DATE(S):
7/9/05 – 8/9/05

JUDGMENT DATE:

15 December 2005

JUDGMENT OF:
Handley JA at 1; Hodgson JA at 10; Bryson JA at 16

DECISION:
Appeal allowed with costs and relief granted to appellants: see orders at [92].

CATCHWORDS:
CORPORATIONS – home unit company title – It was held that provisions of articles delineating an area of the roof adjacent to the Penthouse as “Roof Garden for Penthouse” were part of the rights annexed by the Articles to the shares relating to the Home Unit immediately under the Penthouse, and were Class Rights which could not be altered except according to Modification of Rights Article, over which holders of those shares had control. The holders of those shares were entitled to restrain the Company and the holder of the Penthouse shares from acts and decisions which would enable extension of the Penthouse over part of the Roof Garden – Consideration of operation of Articles in Home Unit Company, Class Rights, Modification of Rights Article, whether holder has leasehold or contractual licence, entitlement to quiet enjoyment. Reid House Pty Ltd v Beneke (1986) 5 ACLC 451 disapproved

LEGISLATION CITED:
Corporations Act 2001 (Cth) ss.136(2), 140, 232, 246B(1) & C(5), 258B(1)
Companies Act 1981 (Cth) s.125(3)
Corporations Law s.197
Companies (NSW) Code ss.123(13), (14)
Companies Act 1961 (NSW) ss.31(1), 144(1)
Companies Act 1936 ss.94, 97
Conveyancing Act 1919 (NSW) Schedule 4 Para 21
Companies Act 1985 (UK) s.125
Interpretation Act 1987 (NSW) s.21(b)

CASES CITED:
Bagust v Rose [1964] NSWR 5; (1963) 80 WN (NSW) 604
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; (1977) 45 LGRA 62; (1977) 16 ALR 363; (1977) 52 ALJR 20
Brentwood Village Ltd v Corporate Affairs Commission (1983) 8 ACLR 93; (1983) 1 ACLC 1006
Buckland v Johnstone (1991) 5 ACSR 404; (1991) 9 ACLC 1193
Crumpton v Morrine Hall Pty Ltd [1965] NSWR 240; (1965) 82 WN (Pt 1) (NSW) 456
Cumbrian Newspapers Group Ltd v Cumberland & Westmorland Herald Newspaper & Printing Co Ltd [1987] Ch 1
Duomatic Ltd, Re [1969] 2 Ch 365; [1969] 1 All ER 161; [1969] 2 WLR 114
East v Bennett Bros Ltd [1911] 1 Ch 163
Fischer v Easthaven Ltd [1964] NSWR 261; (1963) 80 WN (NSW) 1155
H H Halls Ltd v Lepouris (1965) 39 ALJR 259
H H Halls Ltd v Lepouris [1964-5] NSWR 1535; (1964) 65 SR (NSW) 181; (1964) 82 WN (Pt 2) (NSW) 87
Herrman v Simon (1990) 4 ACSR 81; (1990) 8 ACLC 1094
Jenkins v Harbourview Courts Ltd [1966] NZLR 1
John Smith's Tadcaster Brewery Co Ltd, Re [1953] Ch 308
Lace v Chantler [1944] KB 368; [1944] 1 All ER 305
Magill v Santina Pty Ltd [1983] 1 NSWLR 517; (1983) 8 ACLR 289; (1983) 1 ACLC 1108; (1983) NSW ConvR 55-137
O'Keefe & McKenna v Williams (1910) 11 CLR 171; (1911) 17 ALR 113; (1910) 11 SR (NSW) 29; [1910] HCA 40
Old Silkstone Collieries Ltd, Re [1954] Ch 169
Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386; [1992] 3 All ER 504; [1992] 3 WLR 279
Reid House Pty Ltd v Beneke (1986) 5 ACLC 451
Shepperd v Ryde Corporation (1952) 85 CLR 1
Smith v Nottingham County Council (Court of Appeal of England 13 November 1981)
Tarval Pty Ltd v Stevens (1990) NSW ConvR 55-552
Tittman v Traill (1957) 74 WN (NSW) 284
White v Bristol Aeroplane Co Ltd [1953] Ch 65
Wik Peoples v State of Queensland (Pastoral Leases case) (1996) 187 CLR 1; (1996) 141 ALR 129; (1996) 71 ALJR 173; [1997] 1 Leg Rep 2; [1996] HCA 40

PARTIES:
First Appellant – Michael Wilson
Second Appellant – Roberta Wilson
First Respondent – Meudon Pty Limited
Second Respondent – John Baker

FILE NUMBER(S):
CA 41169/2004

COUNSEL:
First & Second Appellant – S.D. Rares SC & K.L. Andronos
First Respondent – M. Cashion SC & R. Scruby
Second Respondent – D. Murr SC & M.K. Meek

SOLICITORS:
First & Second Appellant – Anthony Murrell
C/- Southern Cross Lawyers
First Respondent – Dibbs Barker Gosling
Second Respondent – Stephen Wawn & Associates

LOWER COURT JURISDICTION:
Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S):
SC 5011/2002

LOWER COURT JUDICIAL OFFICER:
Gzell J

CA 41169/2004

Handley JA
Hodgson JA
Bryson JA
15 December 2005

Michael Wilson & Anor v Meudon Pty Ltd & Anor

Judgment

1 HANDLEY JA: In this appeal I have had the considerable benefit of reading the reasons for judgment of Bryson JA and Hodgson JA in draft. Subject to the clarification in the reasons of Hodgson JA I agree with the reasons of Bryson JA and the orders he has proposed but will add some additional reasons of my own.

2 The first respondent (the company) is a home unit company that owns the residential flat building at 13 Onslow Avenue, Elizabeth Bay. The appellants are the holders of the shares designated in Article 6 of its Articles as group number 17 which, under that article, confer the right to occupy unit 17. This is the highest unit on one side of the seventh floor situated under an area designated “roof garden for penthouse” and a small area of common property. The penthouse is located above other parts of the seventh floor.

3 The group 1 holder has the right, under Article 6, to occupy the penthouse and to have the exclusive use of the roof garden. The company proposes to permit him to build over part of that garden, above unit 17, without the consent of the appellants as the group 17 shareholders. The appellants claim that the group 17 shares comprise a separate class and that the action proposed by the company and the group 1 shareholder would vary their rights as the holder of those shares.

4 I agree with Bryson JA that the group 17 shareholders have rights in respect of the area designated “roof garden for penthouse” which the company and the group 1 shareholder threaten to infringe, and that the group 17 shareholders are entitled to equitable protection against such infringement.

5 The rights of the group 17 shareholders flow from the proper construction of Article 6, read with the plan referred to. Their right to occupy unit 17 is a right to occupy the space on the seventh floor of the building designated on the plan located under the roof garden shown on the plan. If the group 17 shareholders have the right to insist on the space above their unit remaining a roof garden their claim to equitable protection will not depend on the Court’s assessment of the value or importance of that right. There are nevertheless reasons for thinking that the right is of substantial benefit to the group 17 shareholders and adds appreciably to the value of their shares.

6 This construction of Article 6 is supported by cases dealing with the sale of land by reference to a plan showing the proposed development of the area. In Shepperd v Ryde Corporation (1952) 85 CLR 1 the High Court considered the effect of a contract for the sale of land by reference to a project identified in a plan. The joint judgment of four of the Judges stated at 12-13:

“The plan records in diagrammatic form the features of the project of which the subdivision into lots is only a part. When a prospective purchaser was invited to buy a lot with a home erected upon it, it was upon the footing of the project, the existence and effectiveness of which was, as it appears to us, an assumption from which the transaction was intended to proceed. The allocation of an individual lot to the purchaser, his acceptance of the allocation and the execution of a contract for the purchase of that lot necessarily supposed the prior formulation of Housing Project No 4 as the foundation of the transaction. Unless the main features of the project were fixed, it would be meaningless. It is, we think, a reasonable construction of the Council’s action in putting forward the project as the basis upon which the intending purchaser could proceed, if it is treated as amounting to or involving an undertaking or promise by the Council to him that they would adhere to and maintain the project, if he would become a purchaser of a lot …”.

7 The joint judgment continued at 17-18:

“But the cardinal question is the meaning and effect of the description, in the contract, of the allotment of land sold as part of the vendor’s Housing Project No 4 and being allotment No 85 … The reference to the project makes it both legitimate and necessary to resort to evidence to ascertain what is the project and what are its constituent parts or features … The evidence before us as to the nature and identity of Ryde Council Housing Scheme No 4 is restricted to the plan … once the plan is scrutinized, enough appears to show that the project is a planned development of a housing area according to an entire design with parks reserved as an amenity for the common advantage of the purchasers. For the protection of the purchasers against the destruction of the amenities or diversion of the advantages nothing will suffice short of an obligation to use the land only as parks …”.

8 In Tarval Pty Ltd v Stevens (1990) NSW ConvR 55-552 this Court applied the decision in Shepperd v Ryde Corporation to a contract for the sale off the plan of a strata unit in a building described in the contract as an apartment building, a flat building, and a home unit building of 68 home units on 18 residential levels. A copy of the draft strata plan showing such a building was annexed to the contract. The vendor changed the lower 10 residential floors to commercial offices, and the purchaser rescinded. In my judgment, which was concurred in by Clarke and Meagher JJA, I said at 59-080:

“The approach in Shepperd v Ryde Corporation … dealing, as it did, with implications from economical language in the contract where the relevant plan was not annexed in my view require the description in Annexure A and the plan, Annexure D, in the present case to be given contractual force. Thus it was, in my opinion, part of the contractual description of the home unit contracted to be sold to the Silvas that it would be a home unit in a wholly residential building.”

9 Likewise, in my judgment, the description of unit 17 by reference to the plan as being situated below a roof garden for the penthouse, must also be given contractual force as part of the rights conferred by Article 6 on the group 17 shareholders. The roof garden formed part of the amenity of unit 17 and the group 17 shareholders were entitled to equitable protection, to borrow the language of the High Court in Shepperd’s case, “against the destruction of the amenity or diversion of the advantages”. The orders proposed by Bryson JA should be made.

10 HODGSON JA: I agree with the orders proposed by Bryson JA and, subject to what I say below, substantially with his reasons. I also agree with the judgment of Handley JA.

11 I agree with Bryson JA that the area marked “Roof Garden for Penthouse” does not form part of the home unit identified as the Penthouse, any more than the areas marked “This Part Used only by Units 5 and 6” or the like form part of those home units; and that the right to the use of these areas arises from the words themselves appearing on a plan adopted by the Articles.

12 I also agree that each group of shares associated with a home unit constitutes a different class of shares within the meaning of Article 54 of the Company’s Articles of Association, and that Crumpton v. Morrine Hall Pty. Limited [1965] NSWR 240 is to be preferred to Reid House Pty. Limited v. Beneke (1986) 5 ACLC 451, for the reasons given by Bryson JA.

13 However, in my opinion, Bryson JA has stated too widely what are “the rights attached to any class” that may be varied only as provided by Article 54. In my opinion, the relevant rights are the exclusive right to use and enjoy the identified home unit, and rights constitutive of that right. The exclusive right to use and enjoy the identified home unit includes, in my opinion, the right to use the home unit with the characteristics indicated by the plan, including its situation indicated on the relevant plan in a building of the character indicated by the relevant plan. In my opinion, that right will be varied by alterations to the building, even if they are not alterations to the home unit itself, if those alterations materially alter the characteristics of the home unit as indicated by the plan, for example by altering its situation in the building or the character of the building; but that right will not, in my opinion, be varied by alterations to the building or to the rights of other unit holders that do not affect the right to use the home unit in question by materially altering the unit’s characteristics.

14 Thus, in my opinion, it would alter the characteristics of a home unit, and thereby vary the rights to attach to the class of shares associated with the unit, if (for example) all other floors in the building were altered from home units to commercial premises, or if lift access to the floor of the home unit as shown on the plan was taken away. On the other hand, in my opinion, it would not alter the characteristics of the home unit, and thereby vary the rights attached to the class of shares associated with it, if there was merely a re-arrangement of the layout of units on other floors, that did not impact either on the character of the building or the unit’s situation within it; or if the lift was merely modified or replaced.

15 Turning to the present case, in my opinion to erect another unit on top of a unit that presently has no unit above it would materially alter the characteristics of the former unit, by materially altering its situation in the building; and in that way, it would vary the right to use and occupy that home unit. For that reason, I agree with Bryson JA that implementation of the proposal under consideration in this case would vary the rights attached to the class of shares owned by the appellants.

16 BRYSON JA: Meudon is a seven-storey residential building in Onslow Avenue, Elizabeth Bay, New South Wales. The building is said to have been built about 1929, and its appearance and style bear this out. Since 1969 it has been owned by Meudon Pty Ltd, the first defendant in the Equity Division and the first respondent on appeal. I refer to Meudon Pty Ltd as the Company. The Company's constitution is in appropriate form for what are commonly but not accurately referred to as Company Title Home Units. The constitutions of such companies are not standardised, and careful regard has to be paid to the terms of the Company's constitution itself. Unfortunately the statutory regime for strata title home units, with its provisions for the resolution of disputes and relative standardisation of the terms of holdings has not been used. Companies legislation is principally based on and appropriate to a Joint Stock Company, a commercial venture in which a number of people contribute to a fund or other stock with which their company trades. Companies legislation is not primarily adapted or well adapted to an enterprise in which the Company's assets are made available to members for their own use, a situation closer to other statutory schemes for regulating corporations such as Co-operative Societies.

17 When Company Title Home Units were relatively new various reasons were expressed for doubting the effectiveness of the scheme. The view that Articles of Association which enable home unit companies to make home units available for use by shareholders conflict with statutory provisions which require maintenance of capital and forbid unauthorised distributions was expressed in Jenkins v Harbourview Courts Ltd [1966] NZLR 1. If this in truth was a difficulty it has been overcome by legislation, ss.123(13) and (14) of the Companies (NSW) Code and now s.258B(1) of the Corporations Act 2001 (Cth). In Magill v Santina Pty Ltd [1983] 1 NSWLR 517; (1983) 8 ACLR 289; (1983) 1 ACLC 1108; (1983) NSW ConvR 55-137 Mahoney JA noted (528-529) several grounds on which the validity of company title rights had in the past been called into question; none of these difficulties has been established to be correct. The effectiveness of creation of contractual rights of occupation by Articles of a company has come to be accepted. Decisions which recognise that rights of occupation in a home unit company may validly be given by Articles of Association to a member include Fischer v Easthaven Ltd (1963) 80WN (NSW) 1155; Crumpton v Morrine Hall Pty Ltd [1965] NSWR 240; (1965) 82 WN (PT 1) (NSW) 456; Magill v Santina Pty Ltd and Brentwood Village Ltd v Corporate Affairs Commission (NSW) (1983) 1 ACLC 1006; (1983) 8 ACLR 93 at 95-96 (McLelland J).

18 After decades of experience some generalisations about Company Title Home Units can now be ventured. One is that Articles of Association like Article 6 of Meudon Pty Ltd create contractual licences, not leases: I deal with this further in an excursus. Another should, in my opinion, be that the shares related to each Home Unit are a class of shares, and that rights under them are entrenched against alterations unless the holders of those shares participate. Later I give reasons for this. Generalisations are no more than they are, and the Constitution of each Home Unit company must be considered separately.

19 Meudon Pty Ltd was formed on 29 January 1969 under the Companies Act 1961 (NSW) and acquisition of the building was the first of its objects. The capital of the Company when formed was $330,000 - clause 4 of the Memorandum of Association. Article 6 provided for the owners for the time being of groups of shares to use home units and created 18 groups of shares. Article 6 was first amended by a Special Resolution passed at an Extraordinary General Meeting on 10 December 1973. The additional passage to which I give emphasis was inserted by the first amendment.

and such home unit shall be available subject to these Articles for his or her or their exclusive use and enjoyment within the area shown by such number on the plan hereunto attached and marked “A” prepared by Messrs. Craig and Rhodes, Surveyors, dated the 22nd day of August, 1972

ALL THAT

Group No. of Serial Numbers Home Unit
No. Shares No.

The respective rights to the exclusive use and occupation conferred by this Article may be exercised by the respective owner or owners for the time being of the respective groups of shares or subject to the approval of the directors by his or their tenants. Where two or more persons hold shares jointly the only person recognised as having the right to occupy conferred by these Articles shall be the person whose name appears first upon the company’s share register.

20 Article 7, in shorter terms, creates exclusive rights to use and occupy two garages, each of which relates to a group of 1000 shares. The garages are not shown on the Plan, suggesting that they are not in the main building.

21 Articles such as Article 6 conferring exclusive rights to use a particular unit on the holders of a shares are altogether central to the functioning of Home Unit companies. The primary motivation of purchasers of shares is use of the home unit, and the shares would have relatively less value and would be valuable to a different array of persons if those rights were not effectually annexed. These rights are vulnerable to amendments of Articles of Association or constitutions of home unit companies, and statutory powers to make amendments expose owners of home units to adverse decisions by the members overall. Powers to amend are now found in Corporations Act 2001 s.136(2); when the company was formed there were such powers in Companies Act 1961 s.31(1).

22 The plan prepared by the Surveyors shows the location of the home units and other aspects of the building. The area of each home unit is shown. Home Unit No. 2 is on the ground floor. There is also a caretaker’s flat on the ground floor; until 1998 no group of shares related to that. Home Units 3 and 4 are on the first floor and then there are two home units on each floor up to and including the seventh floor with Home Units 16 and 17. These are accessible by stairs and by a lift. On the roof level there is a home unit in an area marked “PENTHOUSE”. The area of the Penthouse is marked as 530 sq. ft. Adjacent to the Penthouse is another area marked "ROOF GARDEN FOR PENTHOUSE" and its area is marked as 1268 sq. ft. Also on the roof is an area marked “Stair & Lift well” and another area marked "Drying Area"; both of these are indicated as "COMMON PROPERTY". In the part of the Plan marked "PENTHOUSE" there is a table of areas as follows:

Penthouse

Roof Garden

1268 “

Total

23 Markings on the plan show the location and boundaries of home units. The plan shows “CARETAKER’S FLAT” and some “COMMON PROPERTY” on the ground floor, indicated as "Stair & Lift well” and "Foyer". On the first floor as well as Home Units 3 and 4 there are again areas shown as “COMMON PROPERTY”, “Stair & Lift well” and “Foyer”. On the second floor the Plan shows two home units, “COMMON PROPERTY” shown as “Stair & Lift well”, and a small area marked on the plan "This part used only by Units 5 & 6". The third floor shows Units 7 and 8 and common property – “Stair & Lift Well”. The fifth, sixth and seventh floors are shown in a similar way, but the fourth floor, like the second floor has a small area marked "This part used only by Units 9 & 10". There are minor variations from floor to floor in the layout of home units and the area of each is given in square feet. So the boundaries and exact areas of each Home Unit and of all common property in the building are defined quite exactly in a plan prepared by surveyors. The building, the structure of the building and the location, dimensions and structure of each other home unit are among the facts which establish what Home Unit 17 is.

24 There are significant variations in the number of shares in the groups. The group for Home Unit No. 17 is one of three groups of 25,000 shares, the greatest number. Three have 22,000 shares and others have various numbers from 24,000 shares for Home Unit No. 10 down to 12,500 shares for the Penthouse. Except for the Penthouse, the numbers of shares in a group tends to increase the higher the home unit is.

25 There were many issues in the litigation but the issues to which I attribute most importance relate to Article 54 entitled "Modification of Rights" which is in these terms:

26 Class rights attached to any existing class of shares are also protected by provisions of the Articles relating to issue of new shares:

50. The company in general meeting by Special Resolution may from time to time increase the capital by the creation of new shares of such amount as may be deemed expedient.

27 Article 54 is in a standard form, and exactly follows Article 4 in Schedule 4 Table A to the Companies Act 1961 (NSW) except for omission of several commas. A special resolution required notice of 21 days for a general meeting to consider a special resolution; see s.144(1) of the Companies Act 1961.

28 It will be seen that Article 54 is directed to varying rights attached to a class of shares, and amending the Articles of Association is not necessarily the only method by which the rights attached to a class of shares may be varied. Article 54 extends to all methods. Rights and powers found elsewhere in the Articles of Association cannot be exercised so as to overrule class rights unless the procedures in Article 54 are followed. If this were otherwise doubtful, it is established by s.246B of the Corporations Act 2001. In Meudon Pty Ltd class rights are protected, and sufficiently protected by subs.246B(1). Section 246B(1) makes similar provision for the protection of class rights as earlier found in s.125(3) of the Companies Act 1981 (Cth) and corresponding provisions of the Companies (NSW) Code, and in s.197 of the Corporations Law. This protection extends to control of all decisions of the company and its organs, including its directors, which might otherwise vary rights annexed to groups of shares; including decisions under directors’ powers of management under Article 111, and under powers relating to the issue of new shares and to attaching rights to new shares.

29 Modification of Rights articles commonly follow a form represented by Article 54 and are expressed in language which is facultative in that it appears to create authorisation to vary the rights attached to classes of shares; but their meaning in context is not merely facultative, and they entrench rights attached to classes of shares so that they may not be varied in any other way. The context of rights to occupy dwellings gives this reading a special force for home unit companies; see Crumpton v Morrine HallPty Ltd at 245 (Jacobs J):-

I take into account the fact that by the Act any company can alter its Articles by special resolution, and that it cannot prevent itself from so doing, and that no doubt any person who purchases shares in a company must be taken to know the power of the company to alter its Articles by special resolution. However, just as a shareholder must be taken to know this as part of the law, no doubt he or she must now also be taken to know that there are limits – indefinite as they are on the present law – beyond which the company cannot go in the alteration of its Articles.

Fisher v. Easthaven Ltd

30 For the reasons given by Jacobs J., Modification of Rights articles have the special force his Honour attributed to them and not a lesser significance based on literal reading. This part of Jacobs J.'s reasons has not been doubted in the decades since Crumpton v Morrine Hall Pty Ltd, and was not challenged in the present proceedings. An amendment varying rights attached to classes must be made in accordance with the Modification of Rights articles, companies will be restrained from acting otherwise, and amendments purportedly made without complying will be avoided.

31 The appellants Mr and Mrs Wilson who were plaintiffs in the Equity Division bought Group No. 17 of the Shares in 1996, and they live in Home Unit 17. If Group 17 is a class of shares to which Article 6 attaches rights of the kind referred to in Article 54, and if those rights affect use of the area marked “ROOF GARDEN FOR PENTHOUSE”, they are entitled to resist various decisions and proposals for extending the Penthouse. Measures taken with the purpose of conferring additional rights, or of exercising assumed additional rights with respect to the Roof Garden, gave rise to the litigation. There have been various proposals for extending the Penthouse and, in different forms, they all involve building over Home Unit No. 17. The appellants very strongly feel that this should not happen. They claim remedies to prevent it happening, on a number of grounds; but I deal first with those relating to Article 54 and Modification of Rights. In the Equity Division Gzell J held that the Groups of shares referred to in Article 6 are not classes to which rights are attached for the purposes of Modification of Rights in Article 54. His Honour also held against the appellants on all their other grounds; and they have appealed.

32 In the appellants’ view the use of the roof above their home unit for any purpose other than as a roof garden is inappropriate. They have advanced a number of reasons for this, supported by evidence; their reasons include their view that the value of their own home unit will be lessened if another home unit or a part of one is built above theirs, so that they would no longer be living at the highest position in their part of the building. There is expert valuation evidence to support this assertion. They also fear loss of amenity and disturbance caused by noise during building operations above them, and also by occupation of some newly constructed structure above them. There are bodies of evidence either way on the significance of such events. Of at least equal importance for the appellants as considerations like these it is the simple fact that they do not wish construction over their home unit to happen; they bought at the top and they want to stay at the top.

33 Article 6 confers a right "to use and enjoy the home unit the number of which appears … in the fourth column”. For the Penthouse no number appears, but there is no room for misunderstanding that rights are conferred in respect of the Penthouse in the same way as for all those home units for which a number is given. The words inserted by the first amendment identify by reference to the plan the area within which a home unit is to be available; again the amendment refers to "… the area shown by such number on the plan" and again the plan does not give a number for the Penthouse; but there is no difficulty in understanding that the Penthouse is available as a Home Unit within the area shown by the word PENTHOUSE on the plan. The express words of Article 6, before and after the first amendment, do nothing to confer any right in respect of the area marked "ROOF GARDEN FOR PENTHOUSE"; and the same is true of the small areas on the second floor and on the fourth floor marked "This Part Used Only by Units 5 & 6" or similarly marked. All the work which the words of Article 6 do to confer an entitlement to exclusive right to use and enjoy the Penthouse relates only to the area marked "PENTHOUSE".

34 Counsel for Meudon contended that the words “ROOF GARDEN FOR PENTHOUSE” should be regarded as purely descriptive of the area's current use and not as imposing any qualification or limitation upon rights of use of the area. In the view I take, the right of use of the area is itself created by implication from the words "Roof Garden for Penthouse", the whole of the words and the whole implication must be taken together, and the area has no association with the Penthouse except as a roof garden. “PENTHOUSE” and “ROOF GARDEN FOR PENTHOUSE” are two different areas and they are marked in different ways. The reasonable reading of the amended article including the plan is that rights are conferred by the markings on the plan: a right to use the area marked "ROOF GARDEN FOR PENTHOUSE" as a roof garden is impliedly conferred, and those words and the other markings on the plan of the roof level, together with the table of areas, impliedly show that the roof garden is intended to be used exclusively with the Penthouse. In the same way there are rights to use the areas on the second and fourth floor for the holders of the groups of shares connected with Home Units 5, 6, 9 and 10. By a similar implication the plan shows that the various parts of the building marked "COMMON PROPERTY" are available for use, as a matter of entitlement, by the owners of each group of shares as Common Property.

35 Insofar as rights arise by implication from markings on the plan, those rights only exist within any confines indicated by the terms of the markings on the plan, and in relation to the area marked "ROOF GARDEN FOR PENTHOUSE", the right is and can only be a right to use the area as a roof garden for the Penthouse; not to use the area in any other way than as a roof garden, and in particular not a right to build or extend the Penthouse over it. No origin for a right to build or extend a penthouse over the roof garden can be found in Article 6 or in the first amendment or in the plan; and any such right is inconsistent with what is found in and implied by those documents.

36 In the Memorandum of Association clause 5(a) provides:

5(a) The Company shall from time to time have power to increase the capital and to divide the capital for the time being into different classes and to attach thereto respectively and preferential special qualified or deferred rights and may subdivide or consolidate its shares.

37 By Article 2(a) the right to transfer shares is restricted "in the manner hereinafter provided". Articles 37 and following deal with transfer and transmission of shares and Article 39 provides:

Shares shall be only transferable in groups as set out in Articles 6 & 7 hereof and the directors may decline to register any transfer of shares without assigning any reason therefor.

38 References in the Articles to the singular include the plural and vice versa; Article 3 incorporates the Interpretation Act of 1987 (NSW) including s.21(b). Articles which should be noticed with the last sentence of Article 6 are Article 11 under which if two or more persons are registered as joint holders of a share, the person first named on the Register is deemed the sole owner for a number of purposes including the service of notices and the right to vote, and Article 73 which provides:

In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the other joint holders; and for this purpose seniority shall be determined by the order in which the names stand in the register of members.

39 Article 21 authorises the directors from time to time to make a levy on the holders of groups of shares for an amount sufficient to provide for payment of charges of various kinds indicated including council and water rates and land tax, insurance, external repairs and maintenance, cleaning of common areas and internal and external areas and any other expenditure properly incurred in the running or conduct of the building as a “First-Class Residential Unit." Article 23 and the following articles regulate Forfeiture and Lien over shares for levies. Articles 61 and following provide for annual general meetings, and other general meetings and extraordinary general meetings; with provisions for notices and for special business. Articles 65 and following deal with proceedings at general meetings, and Article 65 provides that two members present in person are to be a quorum.

40 Article 111 deals with the powers of directors and in a familiar form provides for the management of the business of the Company to be vested in the directors. Article 151 empowers the directors to make regulations " for the efficient economic and orderly conduct as a block of residential units of the building …” and a first set of regulations is scheduled to the Articles of Association.

41 A concept central to the appellants’ case is that, that in the operation of Article 54, Group 17 of 25,000 shares 303001-328000 relating to Home Unit No. 17 is a class of shares, one of (at least) 17 classes of shares into which the Share Capital is divided; and rights are attached to that class of shares (as to each class).

42 It is clear and has long been established that Articles in a home unit company, such as Article 6, which allocate rights of occupation of units to holders of groups of shares confer rights enforceable against the Company. See Magill v Santina Pty Ltd at 524-525(B) (Glass JA). The multipartite contractual nature of such rights is stated in Corporations Act 2001 s.140.

43 In my understanding of Gzell J's reasons his Honour was of the view that the groups were not classes of shares the rights to which were protected by Article 54 because the provisions of Article 54 relating to consent of the holders of the shares or special resolution of a separate general meeting of those holders could not be conformed with, in view of other provisions of the Articles.

44 By Article 37 shares are only transferable in groups, with the effect that there can only be one holder of a group of shares; or two or more co-owners. If there are two or more co-owners the person first named is deemed to be the sole owner for a number of purposes under Article 11, and by Article 73 only one, usually the one first named in the Register, may vote at a general meeting. The provisions of Article 54 speak as if they contemplate a plurality of holders of shares in a class. In his Honour's view it follows that, in relation to the groups referred to in Article 6 the machinery provisions cannot be observed; and that it should therefore be concluded that shares in groups do not form a class within the meaning of Article 54 and that Article 54 does not operate to protect the rights attached to them.

45 Gzell J. was of the view that the rights attached to the groups of shares were essentially the same. His Honour said "each group gave exclusive use and enjoyment to a home unit” (judgment [30]), and in his view this characteristic established that the groups of shares were not classes of shares for the purposes of Articles and legislation protecting rights of classes of shares. In my respectful opinion his Honour took a wrong view of Article 6; the rights attached to the groups of shares are not essentially the same, as each refers to the use and occupation of a different home unit, and each has its own array of interests both in the occupation of that one home unit and in the limits of rights of occupation of other home units; an array of interests different to those of any other group.

46 The reasons of the learned Trial Judge recognise that it is the effect of Article 6 that rights are attributable to each group of shares, but in the view taken by his Honour those rights are limited to rights to use and enjoy a particular home unit. The Trial Judge rejected a submission that if construction on the roof went ahead rights attributable to Home Unit 17 in the plan would be changed in a significant respect in that Unit 17 would no longer be on the top floor of the building. His Honour said: [11] – [12]

11. … An extension to the penthouse would constitute a variation in the rights attributable to the penthouse shares. But that would not constitute a variation in the rights attributable to the Wilsons’ shares. They would continue to hold that group of shares that granted the exclusive right to the use and enjoyment of home unit numbered 17.

of BP Refinery (Westernport) Pty Ltd v Shire of Hastings

47 In my opinion Article 6 attaches rights to each group of shares to which it refers. These rights include the right to exclusive use and occupation of a particular home unit; and the area to which that right relates is carefully established by the terms of Article 6 as first amended and of the Plan. However that is not the only right which is created by Article 6. Except as provided by Article 6, the property of the company cannot be made available for the exclusive use of any shareholder. Article 6 prescribes, in relation to the rights of the holder of each group of shares, the limits, including the limits in area, of the rights of the holder of each other group of shares. Article 6 not only creates a right in the owner of each group to use a particular part of the building; it creates a right in the owners of each group that the rest of the building will be used by other shareholders in defined ways, particularly defined as to area, and will not be used otherwise; that is, a right is conferred on the holder of each group that the rest of the building will be used in the ways specified and within the areas specified and not otherwise. All shareholders have an interest in the way in which the Company's property is used by other shareholders, and an interest in limits over the use of and the disposition of the Company's property. This has special force in a home unit company; the shareholders have an interest that the Company in which they own shares will not have its property used by others except within defined limits. It is a right annexed to the appellants’ group of shares that, for example, Unit 2 will not be extended into the area shown as the caretaker’s flat, or extended beyond the bounds of the building as shown; similarly it is an annexed right that the owners of other groups of shares will not use the common property otherwise than as Common Property, and that (for example) no one other than the owners of units on the second floor will use the areas set apart for use by them.

48 The rights in Article 6 should be understood to be exceptions to what would otherwise be the position; the Company under the management of its directors has power and disposition over all its assets in accordance with its constitution generally, and it is the right of the members and of each member that the assets of the Company should be dealt with accordingly and not made available for the benefit of some particular shareholder. There is a positive side and a negative side to the conferral of rights on the holders of each group of shares in Article 6; the negative side being that other shareholders are limited to the rights expressly conferred and no more. In the context of the constitution of a home unit company the outer limits in area and purpose of what other shareholders may do within the building are almost as important to each shareholder as the outer limits of what that shareholder may do. The limits on rights of other shareholders are just as much rights attached to the holders of each group of shares as are their own rights of use and occupation.

49 It is not necessary to resort to implication or to refer to the law as explained in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; (1977) 45 LGRA 62; (1977) 16 ALR 363; (1977) 52 ALJR 20 to establish this; the terms of Article 6 as amended and of the Plan show that both the conferral of rights over one home unit and the limits of rights attributable to other home units and groups of shares are both created by Article 6. The implied rights which operate are the rights implied by markings on the plan.

50 It has been recognised in this Court in cases relating to home unit companies that such rights are class rights. This was explicitly decided by Jacobs J. in Crumpton v Morrine Hall Pty Ltd, notwithstanding the opinion to a different effect of Else-Mitchell J in Fischer v Easthaven Ltd in an interlocutory decision relating to extension of an injunction; the reasons expressed by Jacobs J. were in my respectful opinion well considered and cogent. In Herrman v Simon & Ors (1990) 8 ACLC 1094; (1990) 4 ACSR 81 at 83 the Court of Appeal (Meagher JA, with whom Samuels AP and Priestley JA concurred) accepted and acted on the view that failure to comply with a Variation of Rights Article which required notice to the owners of classes of shares and separate meetings produced the result, referred to as the normal result, that a Special Resolution was invalid. The attention of the Court of Appeal was principally directed to what was referred to as the Duomatic Principle (Re Duomatic Ltd [1969] 2 Ch 365; [1969] 1 All ER 161; [1969] 2 WLR 114) which relates to assent with full knowledge of the person whose rights were protected by the Variation of Rights Article. Reid House Pty Ltd v Beneke & Ors (1986) 5 ACLC 451 (Needham J) is a decision to the opposite effect.

51 Counsel referred to several judicial observations on whether shares form classes. In Cumbrian Newspapers Group Ltd v Cumberland and Westmorland Herald Newspaper & Printing Co. [1987] Ch 1 special rights were granted by the Articles to a shareholder in his capacity as a shareholder, although the rights were not said by the Articles to be attached to any particular shares. Scott J. held that these were rights attached to a class of shares for the purpose of s.125 of the Companies Act 1985 (UK) which corresponds generally with s.246B(1). At 22 his Lordship said:

In my Judgment, a company which, by its articles, confers special rights on one or more of its members in the capacity of member or shareholder thereby constitutes the shares for the time being held by that member or members, a class of shares for the purposes of section 125. The rights are class rights. I have already expressed the opinion that the rights conferred on the plaintiff under articles 5, 7, 9 and 12, were conferred on the plaintiff as member or shareholder of the defendant. It follows that, in my judgment, the shares in the defendant for the time being held by the plaintiff constitute a class of shares for the purpose of variation or abrogation of those rights.

52 Scott J’s decision that on the facts before him shares fell within the reference in the legislation to "rights attached to any class of shares" illustrates the kind of construction exercise which is now required. Several other cases to which counsel referred deal rather with whether there was a variation of rights attached to what were indisputably classes of shares: In Re Old Silkstone Collieries Ltd (1954) Ch 169, White v Bristol Aeroplane Co. Ltd (1953) Ch 65, In Re John Smith’s Tadcaster Brewery Co Ltd (1953) Ch 308.

53 Memorandum of Association cl.5(a), to which I earlier referred, empowers the company to divide capital into different classes and to attach special rights to classes. Provisions in Articles of Association are one available means of dividing capital into different classes and attaching special rights thereto; there is no further or detailed prescription in the Memorandum of the manner in which capital is to be divided into classes. Whether the company has by its articles or in some other way divided capital into classes does not depend on the use of any particular means, formula or language. Article 6 attaches special rights to each group of shares in a clear way. The question whether the treatment in Article 6 of groups of shares is an event by which the company divided the capital into different classes is, in my view, a question of construction to be resolved by considering the meaning of the language used. I see no way in which it could be doubted, in terms of the ordinary meaning and usage of language, that by Article 6 the company divided the capital into different classes, that is into the different groups referred to. In a similar way I regard it as clear that s.246B(1) and its reference to rights attached to shares in a class of shares applies to Article 54 and to the groups of shares referred to in Article 6.

54 Reid House Pty Ltd vBeneke & Ors (Needham J.) related to business units held under company title, and the Articles resembled those of Meudon Pty Ltd in conferring entitlements of use and occupation on holders of groups of shares and also in restricting transfers of shares to whole groups. Needham J. was of the view that the Modification of Rights articles did not affect a decision of a general meeting which appropriated part of a unit so as to be able to comply with an order which required works for fire safety. His Honour said, at 458:-

3. I do not consider that the plaintiff required the sanction of a resolution of an extraordinary general meeting of the company, but, if it did, it received such a sanction by implication in the meeting of 1 July 1985.Perhaps involved in this issue is the question, which was fully argued, of the scope of article 45. The defendants submitted that the plaintiff had no power to "vary" the "rights attached to any class" of shares without the sanction of an extraordinary general meeting of the holders of shares of that class, and they relied upon the decision of Jacobs J in Crumpton v Morrine Hall Pty Ltd [1965] NSWR 240. The decision was that owners of groups of shares in a home unit company were holders of shares of a class within the meaning of that word in a modification of rights article. The terms of the relevant article do not appear in the report, and I therefore do not know whether it was an article similar to article 45. But, assuming that the acts of the plaintiff in complying with the Council's notice could be classified as a variation of the rights of the members, I cannot agree that article 45 can apply. While Jacobs J, in the decision referred to, equated, in that context, "groups" of shares to "classes" of shares, it seems to me that no such equation can be reached in the present case. This is a commercial and business building. It is apparent that some, if not all, of the groups of shares will be owned by companies or individuals. Article 45 prescribes meetings of holders of shares of a class, in which a three-fourths majority is required to accept a variation of rights. The quorum for such a meeting is two persons holding or representing by proxy one third of the issued shares of the class concerned. While the registered owner of shares may appoint more than one proxy to vote on his behalf, it would be a totally artificial construction of article 45 to suggest that one owner, by nominating two proxies, each to vote on a portion of his shareholding, could thus satisfy the requirements of a quorum. It is, I think, clear that article 45 envisages a number of holders of the shares of a particular class. Its terms are quite inappropriate to the groups of shares envisaged by article 8(1)(b) as being created in this company.

55 Jacobs J’s judgment shows that the Modification of Rights articles before Jacobs J. was in a usual form, as was that before Needham J. Jacobs J. said of Article 44 of Morrine Hall Pty Ltd at (243) “… which I may describe generally as a modification of rights article in a usual form." Article 45 of Reid House Pty Ltd was also a Modification of Rights article in the usual form; 5 ACLC at 455:2; it corresponds exactly with Article 4 in Table A of the Companies Act 1961. I compare Article 8(1)(b) of Reid House Pty Ltd (455:1) "… The shares shall be held in groups by the members and … the shares comprising each group shall be transferable and transmissible together as a group and not otherwise" with Article 30(a) of Morrine Hall Pty Ltd (241):

“30(a) the shares of the Company shall be held by numbers in groups of shares consisting respectively of the number of shares set forth in the schedule hereunder having the distinguishing numbers therein mentioned.

56 The ground of Needham J’s decision was not considered in Fischer & Ors v Easthaven Ltd or in Crumpton v Morrine Hall Pty Ltd, although it appears to have been available on the facts of those cases. There were variation of rights clauses in standard form in the articles of each company, and shares were transferable only in groups referable to a particular home unit. In my respectful opinion there was no ground upon which Crumpton v Morrine Hall Pty Ltd could be properly distinguished in Reid House v Beneke. There is no difficulty of substance in applying a Modification of Rights article in the usual form to a group of shares of which there can only be one holder. The view taken in Reid House Pty Ltd v Beneke by Needham J. was incorrect, and should not be applied to similar Articles.

57 Counsel referred to Buckland v Johnstone (1991) 5 ACSR 404; (1991) 9 ACLC 1193. That case did not relate to a home unit company. It related to class rights of classes of shares each of which had only one member; but as there was no provision limiting membership of a class to one member the point on which Reid House Pty Ltd v Beneke was decided did not arise.

58 It was contended that the references to class and classes of shares in Article 54 should be construed in the context in which those references appear, and that the context plainly contemplates that a class consists of shares which may be owned by more than one person capable of voting. Although the machinery provisions give a contextual indication of that kind, that should not in my opinion govern the construction of Article 54. Another contextual element is that Article 54 is a standard form of article used without adaptation to the circumstances of Meudon Pty Ltd. When the articles were adopted, Article 6 was the only article which could come under consideration as possibly creating class rights. There was the possibility that class rights would later be created in some way, but if that were to happen it would be possible for the newly created class to consist of one share only, or for the ownership of all shares in it to pass into the hands of one person; and these tend to show that Article 54 should be given a construction in which it would not be defeated if all shares in a class could only be in or passed into the hands of one person. A contextual element of overwhelming importance, in my opinion, is the nature of the Articles of Association as the articles of home unit company, and of Article 6 as the protection which shareholders have of their rights of use and occupation of their homes; it is highly unlikely that, on a true view of what the Articles means, they leave that right, which after all is central to the whole purpose of organising the company at all, without any effectual protection, but deal with modification of rights only in the abstract. The machinery for variation is an unlikely place in which to look for provisions or for implications which show that purported grants of rights on a subject central to the organisation of the company are not protected. The influence of context is enhanced by the consideration that Article 54 follows exactly a standard form intended to be employed for a multiplicity for companies of all kinds, and it is unlikely that Article 54 was adopted so as to indicate limits on the rights granted by Article 6 in terms special to Meudon Pty Ltd.

59 On a substantial level, it is in my opinion not the true meaning and effect of Article 54 that the protection given by that Article is only available if the machinery referred to can be literally complied with. Literality is not a guide to the operation of Article 54, either on the approach to Modification of Rights Articles which was achieved by the courts or under the statutory enactment of the same view now represented by s.246B(2) of the Corporations Act 2001. Notwithstanding its facultative form Article 54 does not exist to prescribe means by which rights attached to classes of shares may be varied, but to ensure that they are not varied unless by means which give the holders of the shares in that class control over the process. This was explained in Crumpton v Morrine Hall Pty Ltd at 245 by Jacobs J. in these terms:-

I think that Article 44, at least, is a recognition in the Articles of Association of the principle that there would be no variation of the rights attaching to a particular class of shares without the approval of a certain majority of the members of that class. It may be true to say that the original purpose of the Article when introduced into earlier companies was facultative so that a small minority of shareholders of a particular class could not seek relief alleging that the Articles had been altered to their prejudice. I think that this is true, but I think that nevertheless there is by implication a recognition in the Articles that rights particularly attached to classes of shares cannot be altered except in accordance with the procedure laid down. For many years it has been accepted by text-writers and by the courts that such an Article has such an effect.

60 I turn to form rather than substance. It is not in my opinion correct that the machinery in Article 54 cannot be applied. Although Meudon Pty Ltd does not at present have and never has had any shares which furnish an example, Modification of Rights Articles in standard form like Article 54 are applicable to classes of shares which may be owned by many different owners. If one person agglomerates ownership of all shares in a class, an ordinary event, it cannot be supposed that the meaning of Article 54 is that the rights attached to the class of shares are no longer protected. Articles 11 and 73 preferring the position of the person whose name first appears do not deal with giving consent under Article 54. There can be a plurality of co-owners of a group of shares in Article 6, and if all joined in giving their consent in writing it could be said that the holders of three quarters (and more) of the issued shares of that group had given consent. It cannot be right that the machinery of Article 54 works and the rights attached to the group of shares are protected if there are more than one registered owners of the same group but not if there is only one. If there is only one, he is in a position to give a consent, which would be the consent of the holders of three quarters (and more) of the issued shares of that class. Similar highly formal but correct answers can be given for the provisions about a separate general meeting; if there is only one holder, he can be the meeting and he can cast the only vote. The concept of holding a meeting of a class of persons of which there is only one member has not been treated as a difficulty; see the explanation in East v Bennett Bros Ltd [1911] 1 Ch 163 at 170 (Warrington J.). In Herrman v Simon & Ors Meagher JA’s discussion at 83 appears to proceed on the basis that a meeting of a class of shareholders of which there was only one member should have been held, with the implication that it could have been held. If there are more co-owners than one they or some of them can attend and be a meeting, even though only one of them can vote; or they can appoint a plurality of persons to hold their joint proxies. If all members of the class are present, no use needs or can be made of provisions relating to a quorum; there is no concern about a quorum if everyone eligible is present, even if only one or two persons are eligible to be present.

61 I turn to an excursus on whether the appellants have a leasehold interest. If they did they would have an implied right of quiet enjoyment, which their Senior Counsel submitted they could enforce. Memoranda of Association or Articles of Association or more recent forms of constitutions of home unit companies do not confer rights of occupation in uniform ways, so circumspection is required when proceeding from decisions on one constitution to decisions on another. Article 6 takes the form of directly conferring a right of occupation on members, without interposing other machinery such as an entitlement to the creation of a lease, or entitlement to the creation of a licence by some other document. The nature of the rights of occupation of shareholders is illustrated by H H Halls v Lepouris (1964) 65 SR (NSW) 181; [1964-5] NSWR 1535; (1964) 82 WN (Pt 2) (NSW) 87. The Home Unit Company’s Articles gave the directors a discretionary power to grant leases to holders of shares, but that had not happened. A shareholder granted or purportedly granted a lease to another person to occupy the unit; the lease had no force as against the Company. The successor as owner of the shares was not entitled to eject the purported tenant, as the successor had no interest in land. In Magill v Santina Pty Ltd the Articles created an exclusive right of occupation in terms quite close to those in Article 6. Article 4(b) went on to give the directors a discretionary power to lease the home unit to the holder of the groups of shares; no such lease had been granted. There is no corresponding provision in the Articles of Meudon Pty Ltd. In Reid House Pty Ltd v Beneke the Articles provided for the grant of a formal licence. The Articles of Meudon Pty Ltd do not contain any such provision.

62 In H H Halls Ltd v Lepouris business premises were held as units under company title. The Articles of Association (cl.5(b)) said that the holding of each group of shares was to "entitle the registered holder thereof for the time being to the absolute and exclusive possession, occupation and use" of the related portion of the building. This relevantly resembles Article 6 of Meudon Pty Ltd. Clause 5(d) provided for the grant of a lease of the related portion of the building to the allottee of the shares and the lease was to be held by the allottee or other holder for the time being of the shares, while cl.23 created machinery for transfer of the lease when groups of shares were transferred. However this had not been acted on, no lease had been granted to the allottee, and the claimant, which was the transferee of the group of shares, did not have a lease. There was a right to underlease, restricted to a lease under cl.5(d). The transferee brought ejectment proceedings against a person who had purportedly been granted a lease by the allottee, and failed because the transferee did not have an interest in land and had no right to possession of the land which would support ejectment proceedings. In the Supreme Court in Banco Sugerman J. said at 191:

in rem

63 This decision was affirmed on appeal by the High Court of Australia: (1965) 39 ALJR 259 in terms which throw no doubt on Sugerman J's observations. At 261 Barwick C. J. and Menzies J. said:

Lace v Chantler,

64 The views expressed by Sugerman J. were already well established: see Tittman v Traill (1957) 74 WN (NSW) 284, Bagust v Rose [1964] NSWR 5; (1963) 80 WN (NSW) 604. In all three cases there were references in the Articles or other documents of the Company to tenants of holders of groups of shares, or to subleasing, or similar expressions, and these references were not treated as showing that holding a group of shares of itself conferred a legal estate or interest in land. In Tittman v Trail there was a right of subleasing to an approved tenant. In Bagust v Rose the articles conferred a right on the holder of shares to use a flat as a home, said that he was not liable to pay rent, and said he could let the flat with the approval of the Board. It was held that he did not have an estate in the land. The views of Sugerman J. were approved in Magill v Santina Pty Ltd at 525 C-D (Glass JA) and at 529 (Mahoney JA). In that case too there was a reference in the Articles to tenants of shareholders, but the rights conferred were nonetheless personal rights and not an estate or interest in land. Glass JA treated the reference to tenants as a misnomer for licensees; see 526F.

65 Lace v Chantler [1944] KB 368; [1944] 1 All ER 305 to which Barwick CJ and Menzies J. referred decided to the effect that a letting "for the duration of the War" did not create a good leasehold interest because the term was uncertain when the agreement took effect. The decision of the House of Lords in Prudential Assurance Co. Ltd v London Residuary Body & Ors [1992] 2 AC 386; [1992] 3 All ER 504; [1992] 3 WLR 279, in which Lace v Chantler was applied, establishes the need for certainty of duration in the creation of a leasehold. On the need for a certain term see too Bagust v Rose at 607 and cases there referred to. If there were no other reason this would be a sufficient reason for holding that Article 6 does not create a leasehold or other interest in land. The right of occupation under Article 6 exists as long as the Shares are owned; it is not terminable at will and does not expire at any ascertainable date. The right is not related to any term or to any recurring periods and is not terminable by the Company by notice, nor is it terminable by the Company at all. A right of this kind is quite inconsistent with a leasehold or a tenancy of any kind, including a tenancy at will or at sufferance.

66 The question whether or not Article 6 created an interest in land is unlikely to have passed without the close attention of those drafting and adopting Article 6. Words which unmistakably create leasehold interests are ready to hand, but their use brings with them various legal consequences, possibly including rating, local government voting and other entitlements and obligations, and also possibly encountering legal controls on subdivision. There are references to tenants of shareholders in the Articles of Meudon Pty Ltd and in regulations made under the Articles; these references are somewhat oblique and do not take the form of conferring authorisation on shareholders to create tenancies or leases. When all the Articles are read together this should be seen as loose use of language, because it is quite clear, on a whole view and particularly on Article 6, that shareholders are not tenants and do not have an interest in land. If shareholders purportedly leased home units to tenants of their own, those transactions would create tenancies by estoppel as between the parties to them, but not so as to bind or involve the company. On the operation as a tenancy by estoppel of a purported tenancy granted by a shareholder who had no more than a licence, see in Magill v Santina Pty Ltd Hutley JA at 523, Glass JA at 525D, Mahoney JA at 529. Such tenancies by estoppel would not be estates or interests in land.

67 In my opinion Article 6 does not create a leasehold interest, or an interest in land of any kind; its operation is contractual, it creates an agreement among the members and the Company that the holders of each group of shares will have the use and occupation of a particular home unit, a contractual licence. I end the excursus by saying that the considerations I have mentioned have led me to the view that Articles like Article 6 of Meudon Pty Ltd create contractual licences, not leases, even if loose language elsewhere than in the provision conferring rights seems to speak in other terms. The appellants do not have a leasehold interest and do not have an implied covenant for quiet enjoyment.

68 A grant of a right, including a contractual right, of use and occupation carries with it a right to be free from substantial interference with use and occupation. An observation generally of this kind was made in O'Keefe & McKenna v Williams (1910) 11 CLR 171; (1911) 17 ALR 113; (1910) 11 SR (NSW) 29; [1910] HCA 40 in relation to an occupation license granted under Crown lands legislation; that is, an implied agreement by the Crown not to derogate from rights under the occupation license. (However in O'Keefe v Williams a high view was taken of the right conferred by the occupation licences; see Wik Peoples v State of Queensland (1996) 141 ALR 129; (1996) 71 ALJR 173; [1997] 1 Leg Rep 2; [1996] HCA 40; (1996) 187 CLR 1 at 150 (Gaudron J)). Counsel referred to a holding to similar effect, in relation to an occupation license, in Smith v Nottingham County Council (Court of Appeal of England 13 November 1981) cited in Hill & Redman Law of Landlord and Tenant (1982) Vol 1 at 200.

69 With respect to the claim based on a right of quiet enjoyment the Trial Judge said:

14. Cases dealing with the right to quiet enjoyment by tenants, that were relied upon by the Wilsons, can be set to one side.

70 Gzell J referred to and distinguished Reid House Pty Ltd v Beneke, where the Articles of Association required the execution of licence agreements which contained covenants for quiet enjoyment. The Trial Judge also said:

18. The articles of association of a home unit company must be construed in context. Their purpose is to grant the owners of stipulated shares the exclusive use and enjoyment of an identified home unit. But exclusive use and enjoyment is not without outside interference in a home unit company that contains more than one unit. People who live in a home unit with home units adjacent horizontally or vertically must expect some degree of interference from the normal activities of the occupants of those units.

Magill

20. The exclusive right to the use and enjoyment of a home unit in a home unit company does not entitle the shareholder to prevent reasonable alterations to home units surrounding the shareholder’s unit.

71 In the approach to the construction of the Articles of Association of a home unit company, its character as a home unit company is a factor to be borne in mind. In Magill v Santina Pty Ltd Hutley JA (at 522) said:

Some principles of company law cannot be applied automatically to this creature without recognition of its special character. As Professor Ford Principles of Company Law 2nd ed (1978) s 233, at 59, has said:

The nature of the company is relevant to the question whether a right or duty is conferred on a member in his capacity as member. For example, if it is a home unit company formed for the purpose of allocating rights of enjoyment of a building and its surrounding ground such a right conferred by the articles on the holder of certain shares would be given to him in his capacity as a member: Fischer v Easthaven Ltd [1964] NSWR 261; Crumpton v Morrine Hall Pty Ltd [1965] NSWR 240.

Clause 4 of the articles is a representation by the company as to the exclusive rights of each corporator and from the point of view of people becoming corporators, it is their fundamental charter. In construing cl 4 of the articles, therefore, undue weight should not be given by the board to the general good. Though living together involves a measure of give and take, the exclusive rights in art 4 should not be read down except to the extent necessary to permit living together in a reasonable way.

72 Although these observations were expressed in a dissenting judgment, in my respectful opinion they express a correct view. The exclusive enjoyment of which Article 6 speaks does not give an entitlement to the complete exclusion of disturbance. Although the rights of the holder of shares should not be equated with a covenant for quiet enjoyment such as the standard covenant for leases in Sched.4, para.21 to the Conveyancing Act 1919, the exercise by all shareholders of rights in Article 6, and the exercise by directors and the company of powers affecting such rights are subject to the need to enable shareholders to live together in the building which is an underlying purpose of the articles as a whole. People who live in a home unit with home units adjacent horizontally and vertically must expect some degree of interference from the normal activities of the occupants of other units. Use of a roof garden is not inconsistent with all structures; hot houses may be part of a garden. The measure of give and take necessary to permit living together in a reasonable way involves tolerant acceptance of noises and other inconveniences associated with exercise by other shareholders of their rights, including from time to time noise and inconvenience arising from carrying out renovations and alterations in a reasonable way. Time passes and sooner or later everyone in the building will carry out some alteration or renovation, and tolerating noise and other conveniences connected with the work is part of the give and take in which other shareholders must participate. No right associated with their shares entitles the appellants to prevent or restrain alterations within the existing Penthouse area, subject to limits of reasonableness. In my respectful view the observations of Gzell J. at paras 14, 15, 18, 19 and 20 of the judgment, which I have set out, were correct.

73 There were other issues in the proceedings. There was an issue about the Board’s powers, and whether the powers of the Board of Directors extend to granting approval for extension of the Penthouse in any way, including by issuing further shares to which further rights are attached. There were issues about the effect and continued operation of a resolution of the members of Meudon Pty Ltd of 22 October 1996 and in particular whether that resolution enlarges the rights attached to the Penthouse group of shares, and if so whether it was valid. Other issues relate to the claim of the appellants that a series of events, conduct and resolutions of Meudon and of members and Directors, extending over a number of years, fall within s.232 of the Corporations Act 2001 and the powers of the Court to deal with conduct contrary to the interests of the members of Meudon Pty Ltd as a whole or oppressive or unfairly prejudicial to or discriminatory against the appellants.

74 The series of events is very complex, and I will not set them all out. It begins with a resolution of an Annual General Meeting of Meudon on 22 October 1996 in these terms:

THAT

(a) That in the event of this plan being approved by the South Sydney City Council the extension is to be carried out within a period of 18 months from the date of approval.

(b) That on completion of the work the shareholding for the Penthouse (or Unit 18) is to be increased or an additional levy imposed or some other appropriate financial adjustment made in recognition of the increased residential area resulting from the building extension, such alternative financial arrangement to be based on some equitable criteria such as the percentage increase in the floor area or market value of the unit.

(c) That the work is to be carried out under such conditions as the Board may determine.

(d) That the new building extension on its completion is to be deemed to be vested in the Company.

(e) That all expenses incurred by the Company in processing this application and consequent upon any approval being given are to be borne by the shareholder.

75 This Resolution has the significance that the appellants voted in favour of it, as did all at the meeting. In various ways some continuing significance has been claimed for this Resolution, but for several reasons it does not have any continuing significance. On 24 January 1997 Mr Bill Blundell made an application for Development Consent for the extension spoken of in the resolution, and did so with the support of the company. At that time the Penthouse was owned by Mr Blundell, who then was but no longer is a member of Meudon Pty Ltd. The Building Application as shown in the Plan was not approved by South Sydney City Council; although an approval was granted to a modified form of it. No extension was carried out within a period of 18 months from the date of approval and no extension has ever been carried out. Mr Blundell did not carry out any building work. With the elapse of the 18 months period referred, the Resolution ceased to have any further effect. We were told during the hearing on appeal that there is no intention now to carry out the relatively small extension referred to in this Resolution.

76 This Resolution is referred to in the Minutes of the Annual General Meeting as "Resolved as a Special Resolution" but it was not referred to in the Notice of Meeting as a proposed special resolution. The reference in the Notice to a special resolution related to Motion 6, which also related to the Penthouse, and was defeated. Article 54 should be understood to refer to a Special Resolution as provided for in the Companies Act 1961 s.144, which was in force when the Articles were adopted. Subsection 144(1) required that Notice of the general meeting should specify the intention to propose the resolution as a special resolution, and as it did not, the resolution to adopt Motion 7 was not a special resolution.

77 The Resolution of 22 October 1996 did not purport to confer any rights on Mr Blundell or to annex any rights to his shares or to restrict the rights attached to any group of shares. There are uncertainties in some of the things which it provides, including as to the contribution which is to be made; it was left to further decision whether there was to be an increase of shareholding or an additional levy or some other appropriate financial adjustment, "based on some equitable criteria". The decisions made were incapable of being carried out without some further decisions, and what it was left to the Board to decide – “the conditions under which the work was to be carried out" was to be decided at a different stage to decision about an alternative financial arrangement, which was to take place on completion of the works. Nothing in that resolution authorised an extension other than the extension of 25.92 square metres, and there was no authorisation for the Board to authorise an extension over a greater area.

78 Council granted Development Consent on 27 March 1997 subject to conditions, including a condition requiring obtaining approval of a building application before commencement of any building work. Mr Blundell later made an application for building approval, but it related to a different and larger proposed extension than that referred to in the Resolution of the General Meeting and in the Development Approval. The second extension had the approval of the Board on 29 April 1997, but not of a General Meeting. On 28 May 1997 Mr Blundell asked Council to amend the Development Consent, and on 4 September 1997 he applied for Building Approval of plans for his larger proposed extension, and Council gave Building Approval on 12 of September. It appears that Council thereby approved the amendment. There was no building consent and (as far as appears) no application for building approval relating to the extension which the General Meeting approved. The approvals of October 1996 and April 1997 were not granted to Mr Baker, and even if they were otherwise effective for Mr Blundell there is no ground upon which another person such as Mr Baker could have the benefit of them.

79 An Extraordinary General Meeting on 3 February 1998 passed a Special Resolution which provided for the capital of the Company to be $380,000, consisting of 380,000 $1 shares, an increase of 50,000 new ordinary $1 shares. Under the Special Resolution 9000 of the new shares became a separate additional share group known as Share Group 18, related to the caretaker’s flat, and 41,000 shares became a separate additional share group known as Share Group 19, not related by the Special Resolution to any particular area. This is the second amendment to Article 6. The Special Resolution did not make any direction about the rights and privileges to be annexed to the new shares when they were issued, leaving that to the directors to determine, subject to the limits in Article 51. Section 246C(5) to which Gzell J. referred (judgment [31]) would not operate on an issue of new shares because the company already has more than one existing classes of shares.

80 When on 1 May 2000 the Board granted or purportedly granted Mr Blundell an extension of time to 24 September 2002, the Board had no authorisation in the resolution of 22 October 1996 to do this, but acted contrary to that resolution, which itself specified the period during which the extension was to be carried out.

81 Mr Baker, the second defendant in the Equity Division and the second respondent to the appeal, acquired Mr Blundell's shares in May 2001. When in 2000 Mr Blundell advertised an auction of his home unit and shares, concerns were expressed about the sale; these were dealt with at length by Gzell J. at paras 44-55. Mr Blundell agreed to sell his shares to Mr Baker by a written agreement of 22 December 2000 and later transferred the shares to Mr Baker with the Board’s approval. Mr Baker sought approval of the Board of another proposed extension, and the Board rejected this proposal on 27 March 2001.

82 On 8 November 2001 Mr Baker gave notice that he intended to commence work on the extension in Mr Blundell's plan which the Board approved on 29 April 1997. The Board purported to consent to a proposal by Mr Baker for a further extension, and entered into a Deed of Indemnity with him. The Board resolved to affix the common seal to the Deed of Indemnity on 9 July 2002. Curiously Mr Wilson had earlier been informed at a board meeting of 26 March 2002 that the Deed of Indemnity had been signed. Mr Baker caused a dwarf wall of brick blocks to be erected on 10 September 2002; this may have been intended to be a commencement or a substantial commencement of the development approved by South Sydney City Council upon the amendment application relating to Mr Blundell’s second proposal. Notice was given of an Extraordinary General Meeting to be held on 11 October 2002 to consider among other things a special resolution ratifying the director's approval of 29 April 1997 and grant of extension of time on 1 May 2000. The appellants responded by commencing the present proceedings. The Special Resolution was passed on 17 October 2002. The Deed of Indemnity was executed by the directors on behalf of Meudon Pty Ltd on 14 March 2003 and transmitted to Mr Baker’s solicitor.

83 After many events and dealings, on 26 May 2003 the directors gave notice of a general meeting to be held on 25 June 2003, and of a Special Resolution by which Company’s Constitution was to be amended to vary rights and to provide for the issue of further shares. The proposed resolution was:-

MOTION THREE SPECIAL RESOLUTIONS

THAT the members of the company specially resolve;

2. That the Company issue an additional 12,500 shares at $1.00 each to Mr Baker upon payment by Mr Baker to the company of $12,500.00 and the Company amend Article 6 of the Company's Articles of Association to include these additional shares.

4. If Mr Baker wishes to undertake additional works over and above the "Works" ("Additional Works") then the Board is authorised to negotiate with Mr Baker, the conditions (including consideration of $120,000.00) of approving the Additional Works subject to the Articles of Association being amended to reflect the changes (if requested).

84 Under some interlocutory arrangement the Proposed Special Resolution was not considered by the meeting. However there has been no event by which it can be said that the Proposed Special Resolution has been abandoned. The Trial Judge said:

121. Additional shares have not been issued to Mr Baker. Nor has he been granted final approval to extend the penthouse. Those were matters to be considered at a general meeting of Meudon before the undertakings were given in consequence of the commencement of these proceedings.

85 In my opinion the arrangements made in the Deed between the company and Mr Baker, a shareholder, lack effect because they are contrary to Article 6 of the Articles of Association. If they had effect they would vary the rights of the appellants, and of the holders of each group of shares, but they are not supported by any Special Resolution under Article 54. Mr Baker's evidence showed, and his counsel informed the Court of Appeal that the only project which Mr Baker now wishes to proceed with is Mr Blundell’s second extension proposal, that is the extension to 45 square metres approved by the Board on 29 April 1997; it is the work in these plans that is authorised by the Deed of Indemnity. As Mr Baker's intention now is to carry out Mr Blundell second proposal, and not the proposal notified for the Meeting of 25 June 2003, the most important subject for consideration is whether construction of extensions in accordance with Mr Blundell’s second proposal would be a breach of the rights annexed to the appellants' group of shares.

86 Gzell J. did not uphold the appellants’ claim that they were entitled to remedies on the ground of oppression, and as the appeal should in my opinion be upheld on other grounds I do not propose to consider fully or make a ruling upon the contentions upon which the appellants attacked that decision. I refer in this judgment to some matters relevant to the oppression claim, but I do not give the subject the detailed attention which adjudication on it would require.

87 It appears to have been the view of Gzell J. that it was within the power of the directors to authorise Mr Baker to carry out extensions according to Mr Blundell’s second proposal. In my view this is not correct, because Mr Blundell's second proposal and indeed any extension proposal to which evidence referred would be in breach of the rights annexed to the appellants’ shares.

88 It would be a departure from Article 6 and a breach of the Articles of Association on the part of the Company, as well as on the part of the holder of the Penthouse shares, if the Company were to authorise construction of an exterior of the Penthouse over the roof garden area. I do not regard it as necessary to resort to law relating to derogation from a grant; my conclusion is based on the terms of Article 6.

89 For reasons I have stated, the rights attached to the appellants’ shares include a right that the roof above their home unit should not be used otherwise than as a roof garden: it would be a breach of those rights for any member to erect a dwelling or extend the Penthouse over the roof garden, and for the company to allow it to be done, in the absence of modification of those rights in accordance with Article 6. There has been no such modification, the Special Resolution proposed for the General Meeting of 25 June 2003 would be ineffective, and the appellants are entitled to restrain the company from considering or adopting the proposed Special Resolution. The appeal should be allowed and the orders sought in the Amended Originating Process should be made, with the exception of claim 3B, for which no ground has been shown.

90 Order 1 made by Gzell J. on 17 December 2004 established that the appellants are not bound to contribute to the Special Levy. Order 1 should not be set aside. Gzell J. also made some orders upholding claims made by Mr. Baker in a cross-claim. Two of these orders established that the Roof Garden is not common property: this was not contentious on appeal. Otherwise the orders on the cross-claim established alleged rights of Mr. Baker in the contrary sense to those I have decided the appellants have: these orders should be set aside. The orders of Gzell J. which should continue are these:

1. ORDERS that, pursuant to section 233(1) of the Corporations Act 2001 (Cth), the plaintiffs be excused from paying the amount levied against them pursuant to a special levy made by the first defendant with effect from about March 2004, such special levy relating to the funding by the first defendant of the conduct of these proceedings.

7. DECLARES that the Articles of Association of the First Defendant, and in particular Article 6, do not confer on the shareholders of the First Defendant any right to use, in common with the other shareholders the area on the roof level of the building “Meudon”, 13 Onslow Avenue, Elizabeth Bay designated “Roof Garden for Penthouse” on the plan of Craig and Rhodes, surveyors dated 22 August 1972, referred to in Article 6 (‘the Roof Garden’).

91 The Court of Appeal should make the substantive orders claimed in the Amended Originating Process (Red 1-2) except for claim 3B restraining the company from issuing any shares to Mr. Baker. In submissions on appeal this was modified so as to allow issue of shares to Mr. Baker with the consent of the appellants. The appellants are not entitled to an order in either form.

92 In my opinion the Court of Appeal should order:-

(1) Appeal allowed with costs.

(2) Set aside orders of Gzell J. of 17 December 2004 other than orders 1, 7 and 8.

(4) Order that the respondents pay the appellants’ costs of the proceedings in the Equity Division upon the appellants’ claims.

(6) The Respondents receive a certificate under the Suitor’s Fund Act if
otherwise entitled.

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Citations

Wilson v Meudon Pty Ltd [2005] NSWCA 448

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CITATION:	Wilson & Anor v Meudon P/L & Anor [2005] NSWCA 448
HEARING DATE(S):	7/9/05 – 8/9/05
JUDGMENT DATE:	15 December 2005
JUDGMENT OF:	Handley JA at 1; Hodgson JA at 10; Bryson JA at 16
DECISION:	Appeal allowed with costs and relief granted to appellants: see orders at [92].

CATCHWORDS:	CORPORATIONS – home unit company title – It was held that provisions of articles delineating an area of the roof adjacent to the Penthouse as “Roof Garden for Penthouse” were part of the rights annexed by the Articles to the shares relating to the Home Unit immediately under the Penthouse, and were Class Rights which could not be altered except according to Modification of Rights Article, over which holders of those shares had control. The holders of those shares were entitled to restrain the Company and the holder of the Penthouse shares from acts and decisions which would enable extension of the Penthouse over part of the Roof Garden – Consideration of operation of Articles in Home Unit Company, Class Rights, Modification of Rights Article, whether holder has leasehold or contractual licence, entitlement to quiet enjoyment. Reid House Pty Ltd v Beneke (1986) 5 ACLC 451 disapproved
LEGISLATION CITED:	Corporations Act 2001 (Cth) ss.136(2), 140, 232, 246B(1) & C(5), 258B(1) Companies Act 1981 (Cth) s.125(3) Corporations Law s.197 Companies (NSW) Code ss.123(13), (14) Companies Act 1961 (NSW) ss.31(1), 144(1) Companies Act 1936 ss.94, 97 Conveyancing Act 1919 (NSW) Schedule 4 Para 21 Companies Act 1985 (UK) s.125 Interpretation Act 1987 (NSW) s.21(b)
CASES CITED:	Bagust v Rose [1964] NSWR 5; (1963) 80 WN (NSW) 604 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; (1977) 45 LGRA 62; (1977) 16 ALR 363; (1977) 52 ALJR 20 Brentwood Village Ltd v Corporate Affairs Commission (1983) 8 ACLR 93; (1983) 1 ACLC 1006 Buckland v Johnstone (1991) 5 ACSR 404; (1991) 9 ACLC 1193 Crumpton v Morrine Hall Pty Ltd [1965] NSWR 240; (1965) 82 WN (Pt 1) (NSW) 456 Cumbrian Newspapers Group Ltd v Cumberland & Westmorland Herald Newspaper & Printing Co Ltd [1987] Ch 1 Duomatic Ltd, Re [1969] 2 Ch 365; [1969] 1 All ER 161; [1969] 2 WLR 114 East v Bennett Bros Ltd [1911] 1 Ch 163 Fischer v Easthaven Ltd [1964] NSWR 261; (1963) 80 WN (NSW) 1155 H H Halls Ltd v Lepouris (1965) 39 ALJR 259 H H Halls Ltd v Lepouris [1964-5] NSWR 1535; (1964) 65 SR (NSW) 181; (1964) 82 WN (Pt 2) (NSW) 87 Herrman v Simon (1990) 4 ACSR 81; (1990) 8 ACLC 1094 Jenkins v Harbourview Courts Ltd [1966] NZLR 1 John Smith's Tadcaster Brewery Co Ltd, Re [1953] Ch 308 Lace v Chantler [1944] KB 368; [1944] 1 All ER 305 Magill v Santina Pty Ltd [1983] 1 NSWLR 517; (1983) 8 ACLR 289; (1983) 1 ACLC 1108; (1983) NSW ConvR 55-137 O'Keefe & McKenna v Williams (1910) 11 CLR 171; (1911) 17 ALR 113; (1910) 11 SR (NSW) 29; [1910] HCA 40 Old Silkstone Collieries Ltd, Re [1954] Ch 169 Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386; [1992] 3 All ER 504; [1992] 3 WLR 279 Reid House Pty Ltd v Beneke (1986) 5 ACLC 451 Shepperd v Ryde Corporation (1952) 85 CLR 1 Smith v Nottingham County Council (Court of Appeal of England 13 November 1981) Tarval Pty Ltd v Stevens (1990) NSW ConvR 55-552 Tittman v Traill (1957) 74 WN (NSW) 284 White v Bristol Aeroplane Co Ltd [1953] Ch 65 Wik Peoples v State of Queensland (Pastoral Leases case) (1996) 187 CLR 1; (1996) 141 ALR 129; (1996) 71 ALJR 173; [1997] 1 Leg Rep 2; [1996] HCA 40
PARTIES:	First Appellant – Michael Wilson Second Appellant – Roberta Wilson First Respondent – Meudon Pty Limited Second Respondent – John Baker
FILE NUMBER(S):	CA 41169/2004
COUNSEL:	First & Second Appellant – S.D. Rares SC & K.L. Andronos First Respondent – M. Cashion SC & R. Scruby Second Respondent – D. Murr SC & M.K. Meek
SOLICITORS:	First & Second Appellant – Anthony Murrell C/- Southern Cross Lawyers First Respondent – Dibbs Barker Gosling Second Respondent – Stephen Wawn & Associates

LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 5011/2002
LOWER COURT JUDICIAL OFFICER:	Gzell J