Reported Decision : (2006) NSW ConvR 56-151 New South Wales Supreme Court CITATION : Milstern Retirement Services Pty Ltd v The Owners Strata Plan No 22521 [2006] NSWSC 301 HEARING DATE(S) : 11 April 2006 JUDGMENT DATE : 11 April 2006 JURISDICTION : Equity JUDGMENT OF : Campbell J EX TEMPORE JUDGMENT DATE : 04/11/2006 DECISION : Caveat extended CATCHWORDS : REAL PROPERTY – strata and related titles and occupancy – charge given by individual lot holders over their lots – nature of interest of lot holder in common property – whether charge extends to lot holders interest in common property – CONVEYANCING – LAND TITLES UNDER THE TORRENS SYSTEM – caveats against dealings – application for extension of caveat – whether to be considered as analogous to application for interlocutory injunction, or as analogous to application for final injunction – appropriate form of order for extension of caveat Conveyancing Act 1919 LEGISLATION CITED : Real Property Act 1900 Strata Schemes (Freehold Development) Act 1973 Strata Schemes Management Act 1996 70 Pitt Street Sydney v McGurk [2004] NSWSC 413; (2004) 11 BPR 21,643 Gay v Gooden (1989) NSWConvR 55-445 Kerabee Park Pty Limited v Daley [1978] 2 NSWLR 222 CASES CITED : Martyn v Glennan [1979] 2 NSWLR 234 Owners - Strata Plan No 43551 v Walter Constructions Group Limited [2004] NSWCA 429, (2004) 62 NSWLR 169, 12 BPR 22,639 Ridis v Strata Plan No 10308 [2005] NSWCA 246; (2005) 63 NSWLR 449 Ruxan Pty Limited v Peachme Pty Limited [2004] NSWSC 1221 PARTIES : Milstern Retirement Services Pty Ltd - Plaintiff The Owners Strata Plan No 22521 - Defendant FILE NUMBER(S) : SC 1160/06 COUNSEL : M Southwick - Plaintiff D Coulton - Defendant SOLICITORS : Cohen & Krass - Plaintiff Coyne & Whittemore Solicitors - Defendant LOWER COURT DATE OF DECISION : 04/11/2006 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST CAMPBELL J TUESDAY 11 APRIL 2006 1160/06 MILSTERN RETIREMENT SERVICES PTY LTD (ACN 002 053 018) v THE OWNERS STRATA PLAN NO 22521 JUDGMENT – Ex Tempore (Revised and expanded 18 April 2006) 1 HIS HONOUR: This is an application for the extension of a caveat. The plaintiff was the developer of a retirement village known as the Bayside Park Retirement Village in Blakehurst, New South Wales. The plaintiff continues to be the operator of that village. The village consists of the twenty-two retirement units which are the separate lots in a strata title scheme, Strata Plan 22521. 2 The village is located next door to a nursing home, which is called the Bay Nursing Home. That nursing home was formerly owned by the plaintiff or an entity associated with the plaintiff, but is now operated by Christadelphian Homes Ltd. There is an arrangement which is secured by a charge over the land of the nursing home whereby the nursing home kitchen makes meals available to the residents of the village, and nursing home staff can be called upon to perform various services for residents of the village. 3 On the boundary of the village land which adjoins the nursing home is an area known as the croquet green or the drying area. It is land which is not built on, apart from some lines for the drying of clothes on one part of it. A proposal for the sale, by the Owners Corporation of Strata Plan 22521 of the croquet green land to Christadelphian Homes, has given rise to the present dispute. 4 The caveat which the plaintiff seeks to have extended is one which it placed on the Certificate of Title to the common property of the Strata Plan on 7 December 2005. It claims an equitable interest in the common property pursuant to charges registered on the titles to lots 1 to 22 in the Strata Plan and section 24 of the Strata Schemes (Freehold Development) Act 1973. The caveat states the facts by virtue of which the estate or there is claimed as being: "The Caveator has an interest as chargee in respect of each lot in Strata Plan 22521 which, pursuant to section 24 of the Strata Schemes (Freehold Development) Act 1973, includes an estate or interest in the land being common property vested in the Body Corporate. " 5 The caveat prohibits the recording in the register of any dealing other than a plan affecting that estate or interest, and the registration or recording of any plan other than a delimitation plan which affects that estate or interest. The Legislation 6 The critical legislative provisions are those contained in the Strata Schemes (Freehold Development) Act 1973, namely: "20. Body corporate to hold common property as agent for proprietors The estate or interest of a body corporate in common property vested in it … shall be held by the body corporate as agent: (a) … (b) where different persons are proprietors of each of two or more of the lots the subject of the strata scheme concerned—for those proprietors as tenants in common in shares proportional to the unit entitlements of their respective lots. … 24 Dealings with lots include common property (1) In any dealing or caveat relating to a lot, a reference to that lot includes a reference to any estate or interest in common property which is vested in the body corporate as agent for the proprietor of that lot without express reference to the common property and without that dealing or caveat being recorded in the folio of the Register comprising the common property. (2) The beneficial interest of a proprietor of a lot in the estate or interest in the common property, if any, held by the body corporate as agent for that proprietor shall not be capable of being severed from, or dealt with except in conjunction with, the lot. 25 Transfer or lease of common property (1) A body corporate may, pursuant to a special resolution, execute a transfer or lease of common property other than common property the subject of a lease accepted or acquired by the body corporate under section 19(2). … (4) The Registrar-General shall register a dealing referred to in this section by making in the Register such recordings with respect to the dealing as he considers appropriate." The Interest of a Lot-holder in Common Property 7 The effect of these sections, so far as any lot owner having an estate or interest in the common property is concerned, has been authoritatively decided by the decision of Spigelman CJ (with whom Ipp and McColl JJ agreed) in the Owners - Strata Plan No 43551 v Walter Construction Group Limited [2004] NSWCA 429, (2004) 62 NSWLR 169, 12 BPR 22,639. At paragraphs [42] – [45] his Honour said: 42 In my opinion, the word "agent" in s 20 and s 24 is not used in the technical sense of the law of agency. The characterisation of the relationship for purposes of determining standing to sue turns on an assessment of the whole statutory scheme, including the powers and duties with respect to common property set out above. There is a tension between the use of the word "agent" and of the words "beneficial interest' in s 24(2). The fact that the statute vests title in the owners corporation is particularly significant. 43 In Carre v Owners Corporation — Strata Plan 53020 [2003] NSWSC 397; (2003) 58 NSWLR 302 Barrett J referred to the words "beneficial interest" in s 24(2) and said: 28 … The statute seems clearly enough to proceed on the footing that each proprietor of a lot is to be regarded as the equitable owner of an undivided interest as one of several tenants in common in the estate or interest of which the owners corporation is the legal owner. … 29 It is clear from the statutory scheme that an owners corporation is in no sense the beneficial owner of common property. Its ownership is always in a representative capacity identified by the Act as that of 'agent', with the lot proprietors, as the owners in equity of undivided interest of tenants in common, each identified as having a 'beneficial interest'. The restrictions upon alienation and other dealings and the provisions with respect to repair, renewal and replacement proceed on the assumption that common property exists for the benefit of the lot proprietors as a general body. … As was observed in Houghton v Immer (No 55) Pty Ltd (1997) 44 NSWLR 46, by Handley JA (with whom Mason P and Beazley JA concurred), a provision that vests this common property in an owners corporation as 'agent' for lot proprietors makes the proprietors equitable tenants in common. 44 Gzell J said in Lin v The Owners — Strata Plan No 50276 [2004] NSWSC 88: 7 The notion of an agency in this context is odd. If common property is vested in the owners corporation for the benefit of the lot owners, one would expect the relationship to be that of trustee and beneficiary rather than that of agent and principal. That something more than the relationship of principal and agent was intended by the legislation was clear from the terms of the Strata Schemes (Freehold Development) Act 1973 , s 24(2) which spoke of the beneficial interest of a proprietor of a lot in the estate or interest in the common property held by the body corporate as agent for that proprietor. 8 It is not surprising, then, that the nature of the interest of a lot owner in the common property has been described as an equitable interest as a tenant in common with other lot owners ( Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 at 56) and as a proprietary right ( Young v Owners — Strata Plan No 3529 (2001) 54 NSWLR 60 at 64). 45 I agree with these observations of Barrett J and Gzell J. It is not appropriate to characterise the statutory role of an owners' corporation solely in terms of an agency at common law." 8 The statements of Barrett and Gzell JJ, referred to in the passage just quoted, have also been referred to with apparent approval by McColl JA in Ridis v Strata Plan No 10308 [2005] NSWCA 246; (2005) 63 NSWLR 449 at [118]-[120], 473-4. Documents Creating Legal Rights Re the Retirement Village 9 While the retirement village land is subject to a Strata Plan, there are some additional legal documents which enable it to operate as a retirement village. There is a deed, which is entered into by the plaintiff with any incoming purchaser, under which the plaintiff covenants to provide certain of the support services which residents of a retirement village need to have access to. To preserve the character of the lots as a retirement village as well, there is an instrument under section 88B of the Conveyancing Act 1919, which creates a variety of easements and restrictions on user. The one which is presently relevant is numbered 9. It burdens each lot in the Strata Plan, and the benefit of it is conferred on every other lot in the Strata Plan and the common property. That restriction on user requires, amongst other things, that any burdened lot should only be occupied, even as a residence, with the consent of the plaintiff. It goes on to provide various circumstances in which that consent shall not be withheld, one of which is that the intended occupant is a person who has attained the age of 55 years, and has entered into a deed substantially in the form of an annexure to the 88B instrument. That deed contains provisions concerning the making available of services to the residents. The restriction contained in that 88B instrument is notified on the Certificate of Title to the common property. 10 A practice exists whereby when anyone purchases a lot in the village, that person is required to give a charge to the plaintiff over the lot being purchased. That charge takes the form of a charge in registrable form under the Real Property Act 1900. Typically, the charge provides that the charger "... covenants with the chargee that the provisions set out in Annexure hereto are incorporated in this charge, and for the purpose of securing the payment of the annuity referred to in the Annexure, charges all the above estate for the benefit of the chargee, the payment to be made at the times and in the manner set out in the Annexure." 11 The annexure contains various restrictions on the ability of the charger to transfer the land, one of which is that the charged land shall not be transferred unless the transferree gives the chargee a registrable charge incorporating all the provisions of the firstmentioned charge. 12 The firstmentioned charge contains, as well, a provision whereby the charged land cannot be transferred unless at the time of the transfer the transferor pays a sum of money to the chargee. That sum of money is calculated by reference to a formula stated in the charge. For the vast majority of the charges over lots in the village, that formula makes provision for there being a sliding scale of payments, such that 2.5 percent of the initial purchase price is payable if the property is sold within two years of the date of purchase, and the percentage gradually increases until 25 percent of the purchase price is payable if the property is sold after ten years from the date of purchase. Some of the charges which have been given vary this pattern somewhat by nominating different percentages, and some of them also take the percentage as being a percentage of the selling price rather than the initial purchase price. Nonetheless, there is a common pattern in the charges whereby a fee is to become payable to the chargee upon the transfer of the land. The charge also provides that the charged land shall not be transferred unless at the time of delivery of the transfer the transferor pays the chargee all sums which are due and owing to the plaintiff for the provision of goods or services. It is these amounts of money that are the "annuity" referred to in the charging clause. 13 Each of those charges has been registered under the Real Property Act 1900, and appears on the Certificate of Title of the individual lot which is charged. There is no mention of these charges on the Certificate of Title of the common property, however. The Meetings 14 On 25 August 2003 an Extraordinary General Meeting of the Owners Corporation resolved to accept an offer from Christadelphian Homes to purchase the croquet green. The moving force in the plaintiff is Mrs Millie Phillips. By February 2004, she knew that the Owners Corporation had passed that special resolution. She gives evidence, which I accept, that she did not realise at the time that she had any right to object to it. 15 On 26 July 2004 the Owners Corporation entered into a contract to sell the land in question to Christadelphian Homes Ltd for $528,000. Completion of the contract was subject to registration of a deposited plan, which would incorporate the croquet green land agreed to be sold into the title of land which was owned by the nursing home. 16 On 17 August 2005 the Annual General Meeting of the Owners Corporation resolved that $223,000 of the purchase price should be distributed to lot owners, in accordance with their unit entitlement, upon receipt of the land sale proceeds. The Plaintiff Discovers the Contract 17 The deposited plan has still not been registered. On 22 September 2005 the Land Titles Office sent a requisition to Blessington Judd, the solicitors for Christadelphian Homes, concerning the proposed deposited plan. One of the requisitions required that all chargees should consent to the registration of the plan. While that was the form the requisition took there is, in fact, only one chargee, under each of the various charges that had been given, namely, the plaintiff. It was when Blessington Judd wrote to the plaintiff, seeking that consent, that Mrs Phillips discovered that the contract had actually been entered into. She made that discovery in October 2005. The caveat in question was lodged, as I have said, on 7 December 2005. 18 For completeness, I mention that a lapsing notice was served which resulted in the plaintiff applying to the Court for interim relief. Orders have been made extending the caveat until 21 June 2006. Serious Question to be Tried and Balance of Convenience? 19 The plaintiff's submissions concerning whether the caveat should be extended were cast in terms of whether there was a serious question to be tried, and the balance of convenience. Frequently, when a question arises about whether a caveat should be extended, that is the appropriate legal frame for the Court to consider the question in: Kerabee Park Pty Limited v Daley [1978] 2 NSWLR 222; Martyn v Glennan [1979] 2 NSWLR 234; Gay v Gooden (1989) NSWConvR 55-445; 70 Pitt Street Sydney v McGurk [2004] NSWSC 413; (2004) 11 BPR 21,643 at [15], 21,645; Ruxan Pty Limited v Peachme Pty Limited [2004] NSWSC 1221 at [9]. That happens when the extension which is being sought is one which is to last for a limited time, while litigation is under way to establish whether or not the caveator really has the interest which it claims. 20 However, the present application for extension of caveat is not interlocutory in that way. The hearing today has been a hearing, on a final basis, on the question of whether the plaintiff has the interest which it claims. If the plaintiff succeeds in establishing that interest, it would be entitled to maintain a caveat over the land until such time as it ceased to have that interest, not merely until the conclusion of a piece of litigation. Thus, the appropriate framework of legal principle to apply is one which draws more upon the law concerning final injunctions. Whether there is a serious question to be tried, and what course the balance of convenience favours, is not part of that enquiry. Rather, the questions to address are whether the plaintiff has the estate or interest it claims to have in the common property, and if so whether damages are an adequate remedy to protect that estate or interest. If damages are not an adequate remedy, one then turns to whether there is any discretionary reason why the caveat ought not be extended. Without trying to be exhaustive, one reason might be if a remedy less than extension of the caveat would provide adequate protection for the estate or interest. Finally, if extension of the caveat is appropriate, there is a question of on what terms or basis that extension should be granted. Decision on Caveatable Interest 21 The defendant characterises the plaintiff's claim as, in effect, one for a perpetual injunction to restrain any sale by the defendant of any part of the common property. There is one element of overstatement in that submission, in that if the caveat remains on foot, individual dealings can be consented to by the caveator. Even so, there is a substantial measure of correctness in the defendant's submission, because the effect of extending the caveat will be that, while it has the interest it claims, the caveator has an effective veto over whether dealings of the kind proposed by the caveat become registered. 22 The defendant points out that section 25 Strata Schemes (Freehold Development) Act 1973 confers on the Owners Corporation an express power to sell common property. It is that power, the defendant submits, which has been exercised here. 23 While section 25 confers a power to sell common property, it does not confer a power to sell common property notwithstanding proprietary interests which third parties might have in it. Thus, for instance, if the common property of a Strata Plan was not subject to any mortgage or charge, section 25 could enable it to be sold. However, if there is an encumbrance of some sort on the common property, there will be a practical necessity for the encumbrancer to either consent to the sale or for the encumbrance to be discharged before the power to sell in section 25 can be exercised. 24 The fundamental question in this litigation concerns whether the plaintiff has any such rights in the nature of an encumbrance on the common property. The defendant submits that section 24 of the Strata Schemes (Freehold Development) Act 1973 does not apply. The defendant submits that the only dealing that section 24 could be talking about, when applied to the present context, is the dealing whereby part of the common property is sold to Christadelphian Homes. That transfer, the defendant submits, is not a dealing "relating to a lot" within the meaning of section 24 - instead, it is a dealing relating to the common property. 25 However, the plaintiff does not focus upon the intended transfer to Christadelphian Homes as being the relevant dealing for the purpose of section 24. Rather, it says that there are 22 relevant dealings, namely the charges whereby each lot holder gave a charge to secure money to the plaintiff. 26 There is no definition of "dealing" in the Strata Schemes (Freehold Development) Act 1973. However, section 6 says that that Act is to be "read and construed with the Real Property Act 1900 as if it formed part thereof." 27 Section 3 Real Property Act 1900 defines "dealing" as being: "Any instrument other than a grant or caveat which is registrable or capable of being made registrable under the provisions of this Act, or in respect of which any recording in the Register is by this or any other Act or any Act of the Parliament of the Commonwealth required or permitted to be made." 28 A charge granted by an individual lot holder is, it seems to me, a dealing within that definition. Thus, it is a dealing within the meaning of section 24. Furthermore, when a charge is granted over an individual lot, the instrument creating that charge is a "dealing ... relating to a lot", within the meaning of section 24. 29 Section 24, when combined with the understanding of what estate or interest in common property the proprietor of an individual lot has, produces the effect that when any lot holder granted a charge over his or her lot to the plaintiff, that charge was also, without any express reference, the granting of a charge over the interest of the lot owner in the common property. Thus, the plaintiff has that interest in the common property, which is precisely the interest which was claimed in the caveat. 30 Counsel for the defendant submits that even if there is a charge, it is a charge which has not yet crystallised. The obligation to pay money to which the charge attaches is an obligation to pay money only upon the occasion when the present registered proprietor of a lot transfers his or her interest in the lot. 31 I accept that the charge does not secure the payment of any sum of money which is presently payable. Even so, the law is well familiar with the notion of an obligation to make a payment, where the obligation is presently in existence, even though it is not performable until some time in the future. It is an obligation of that kind, in my view, which is created by the registration of the charges. Whether Damages an Adequate Remedy 32 When as a matter of law the charge granted over an individual lot also extends to the interest as tenant in common of that lot holder in the common property, the plaintiff would not be receiving the full extent of the security to which it was legally entitled if some form of specific protection of the plaintiff's interest in the common property were not provided. The very fact that a charge has been granted by the lot holder amounts in itself to an admission by conduct that a mere personal covenant will not adequately protect the plaintiff's right to receive the various amounts which are secured by the charge. In those circumstances, it seems to me that damages would not be an adequate remedy. Failure of the Plaintiff to be on Strata Roll, or to Vote 33 An argument which the defendant put drew attention to the fact that the plaintiff had never become registered on the strata roll, or voted at a meeting of the Owners Corporation. The thought inherent in this argument is that if the plaintiff had failed to take an easy way open to it of protecting its interest, the Court ought not intervene by extending the caveat. 34 The procedure for meetings of strata schemes is set out in Schedule 2 of the Strata Schemes Management Act 1996. Clause 7 defines "priority vote" as: ""priority vote" , in relation to a lot, means a vote on a motion that relates to insurance, budgeting or fixing of a levy, that will require expenditure above the prescribed amount by the owners corporation or on any matter that requires a special or unanimous resolution by: (a) the mortgagee of the lot under a mortgage shown on the strata roll as having priority over any other mortgage, and over any covenant charge, shown on the strata roll in relation to the lot, or (b) the covenant chargee of the lot under a covenant charge shown on the strata roll as having priority over any mortgage shown on the roll in relation to the lot, or (c) the covenant chargee of the lot under a covenant charge shown on the strata roll without any mortgage being shown on the roll in relation to the lot." 35 The definition of "mortgage" in the dictionary at the end of the Strata Schemes Management Act 1996 says " "mortgage" , in relation to a freehold strata scheme, means a charge, other than a statutory interest or a covenant charge, on a lot for securing money or money's worth. " 36 Clause 10 of Schedule 2 provides that a person entitled to a priority vote has voting rights at a general meeting of the Owners Corporation but only if that person is shown on the strata roll. Clause 10(9) provides : " Effect of casting of priority vote If a priority vote is cast in relation to a lot, a vote on the same matter by the owner of the lot does not count. However, a priority vote has no effect unless at least 2 days' written notice of intention to exercise the priority vote at the particular meeting has been given to the owner of the lot." 37 The plaintiff, because it had never been registered on the strata roll, was never eligible to vote. Further, the vote to sell the land in question, and to distribute the proceeds or distribute part of the proceeds amongst the individual unit holder, was not a priority vote. Thus, the plaintiff could not have voted on those resolutions even if it had been on the strata roll. Further, the property rights which the plaintiff has under its charge exist independent of any vote which it might or might not make. 38 For these reasons, the facts that the plaintiff is not on the strata roll, and did not vote on the resolutions, do not provide a reason to not extend the caveat. I say nothing about whether, if it had been open to the plaintiff to vote against the resolution to sell the land, that would have provided a reason not to extend the caveat. Delay 39 The defendant also submitted that the plaintiff had engaged in excessive delay, and for that reason should be denied equitable relief. I pass over the question of whether an exercise of the statutory power to extend a caveat is on all fours with equitable relief. Assuming, without deciding, that it is, in my view, there has not been any delay of a kind which would disentitle the plaintiff to an extension of the caveat. The plaintiff had notified its charge to the world in general, by registering it on the title of the individual lots. As a matter of law anyone who wished to find out whether or not the common property was subject to any encumbrances would, because of the way section 24 operates, which I have earlier explained, need to check the title of the individual lots within the Strata Plan. 40 As well, while the plaintiff knew there was an active proposal for sale, it was only in October 2005 that Ms Phillips found out that it had actually become a Contract for Sale. After that time, there was no undue delay in bringing the matter on for hearing. The plaintiff has not delayed to an extent that disentitles it to an extension of the caveat. Form of order 41 The interest which the plaintiff presently has in the one-twentysecond share of an individual lot holder in the common property will cease when that lot holder ceases to be a lot holder. However, the present likelihood is that that interest will be replaced by a new interest, of similar type, which will be granted by the purchaser from that lot holder. But, the new interest granted by the purchaser from the present lot holder at present seems likely to not be identical in all respects to the charge given by the present lot holder, because it will secure a different sum of money, if only because the purchase price which the purchaser pays for the lot would ordinarily be different to the purchase price which the present lot holder has paid. 42 If the caveat is construed as at the date it was granted, it will come to make a claim of an estate or interest which is inaccurate as soon as the first of the existing lot holders sells his or her lot and pays the amounts secured by the charge presently in existence. However, if the new owner of that lot gives a charge similar in type to the charge presently given by the lot holder, the caveat, while strictly inaccurate, would nonetheless not be particularly misleading. 43 If the caveat were to be construed as speaking from time to time, and the present system whereby a purchaser of a lot gives a charge of similar type to the charges already given by existing lot holders, the caveat would not be inaccurate at all, even after existing lot holders had sold. 44 I do not propose to decide whether the caveat ought more properly be construed as speaking as at the date it was made, or as speaking from time to time. But the matters to which I have just referred show that it would not be appropriate to decide, now, that the caveat ought remain on foot indefinitely. The appropriate order is that the caveat be extended until further order. Orders 45 For these reasons, the order which the Court makes is that the caveat be extended until further order. I order the defendant to pay the plaintiff's costs of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.