Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Casuarina Rec Club Pty Limited v The Owners - Strata Plan 77971 [2011] NSWCA 159 Hearing dates: 28 February 2011 Decision date: 24 June 2011 Before: Macfarlan JA at [1]; Young JA at [7]; Handley AJA at [97] Decision: (1) Appeal allowed. (2) Declare that by-laws 22.1 and 27.1(4) made by the respondent are valid by-laws under the Strata Schemes Management Act 1996. (3) Declare that the "Facilities Agreement" made between the parties on 22 March 2007 was authorised by the said by-laws. (4) Vary order 7 made by McDougall J accordingly. (5) Order that the respondent pay the costs of the appeal. (6) Order that the respondent have a certificate under the Suitors Fund Act 1951 in respect of the costs of the appeal if eligible. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: VALIDITY OF BY-LAWS- By-laws made under Strata Schemes Management Act 1996 authorising "Facilities Agreement" with Rec Club 15 minutes from resort- whether such by-laws were outside the powers of the Owners' Corporation- the power to make by-laws is to be construed liberally- limitations on the making of by-laws to be construed from the enabling statute- there must be a clear nexus between the subject matter of a by-law and the use or occupation of the property in question- there is no precise rule to determine the existence of a nexus- where a by-law is original, a very strong case must be made out to declare it invalid- by-laws authorising "Facilities Agreement" upheld as valid. Legislation Cited: Strata Schemes Management Act 1996, ss 12, 43, 44, 45, 47, 49, 50, 61 111 Strata Schemes Management Regulation 2005 Sch 4 Strata Schemes Management Regulation 2010 Sch 5 Cases Cited: AG v Mersey Railway Co [1907] AC 415 AG (Vic) v The Commonwealth [1935] HCA 31; 52 CLR 533 Birmingham Dudley and District Banking Company v Ross (1888) 38 Ch D 295 City Developments Pty Ltd v Registrar-General (NT) [2000] NTSC 33; 156 FLR 1 Dukart v District of Surrey (1978) 86 DLR (3d) 609 Eley v The Positive Government Security Life Assurance Co (1876) 1 Ex D 88 Elliott v NMRP Pty Ltd (Bryson J, 8 November 1994, unreported) Federal Commissioner of Taxation v BHP Minerals Ltd (1983) 68 FLR 132 Forrest v The Manchester, Sheffield and Lincolnshire Railway Co (1861) 30 Beav 40; 54 ER 803 Gallagher v Rainbow [1994] HCA 24; 179 CLR 624 Hamlena Pty Ltd v Sydney Endoscopy Centre Pty Ltd (1990) 5 BPR 11,436 London Association of Shipowners and Brokers v London and India Docks Joint Committee [1892] 3 Ch 242 Mayor of Wellington v May of Lower Hutt [1904] AC 773 New Balkis Eesteling Ltd v Randt Gold Mining Co [1904] AC 165 Pugh v Savage [1970] 2 QB 373 Queen Victoria Niagara Park Commissioners v International Railway Co (1928) 63 OLR 49 Re Ellenborough Park [1956] Ch 131 Todrick v Western National Omnibus Co [1934] 1 Ch 561 White v Betalli [2006] NSWSC 537; 66 NSWLR 690 White v Betalli [2007] NSWCA 243; 71 NSWLR 381 Wilby v West Cornwall Railway Co (1858) 2 H & N 703; 157 ER 290 Category: Principal judgment Parties: Casuarina Rec Club Pty Ltd (Appellant) The Owners - Strata Plan No 77971 (Respondent) Representation: N C Hutley SC and E A J Hyde (Appellant) J B Simpkins SC and P Bambagiotti (Respondent) Norton Rose Australia (Appellant) Leverage Australia (Respondent) File Number(s): CA 2010/231914 Decision under appeal Citation: Santai v The Owners - Strata Plan No 77971 [2010] NSWSC 628 Date of Decision: 2010-06-17 00:00:00 Before: McDougall J File Number(s): SC 2009/298685 Headnote [This headnote is not to be read as part of the judgment] This was an appeal from a decision of McDougall J regarding the validity of a number of agreements made by the Owners' Corporation of a Resort at Casuarina Beach in the Tweed Shire of northern New South Wales. On appeal, it was only the validity of the "Facilities Agreement", entered into with the appellant, a recreation club 15 minutes down the road, that was contested. The primary judge had that found the Facilities Agreement was invalid because the by-laws authorising it were beyond the powers of the Owners' Corporation. The Facilities Agreement purported to authorise the owners of lots (and their invitees and guests) to use the facilities of the appellant for an annual contribution payable by the respondent, the Owners' Corporation. The act enabling the Owners' Corporation to make by-laws was the Strata Schemes Management Act 1996 (the "SSM Act"). Section 43 of the SSM Act provides: 43 What can by-laws provide for? (1)By-laws may be made in relation to any of the following: safety and security measures; details of any common property of which the use is restricted; the keeping of pets; parking; floor coverings; garbage disposal; behaviour; architectural and landscaping guidelines to be observed by lot owners; matters appropriate to the type of strata scheme concerned. (2)Subsection (1) does not limit the matters for which by-laws may be made. (3)The regulations may prescribe model by-laws which may be adopted as the by-laws for a strata scheme. (4)A by-law has no force or effect to the extent that it is inconsistent with this or any other Act or law. The by-laws in question were: 22.1 The Owners Corporation has the power and function to enter into the Facilities Agreement to provide access to the Facilities for Residents. 27.1 Without limitation to its other powers, the Owners Corporation has the function to and the power and authority appoint [sic] and to enter into other agreements to provide for Services to the Common Property or Residents as necessary including but not limited to: ... (4) an agreement and authorisation to enter into an agreement relating to the use of Residents of facilities (such as gymnasium facilities). The validity of the Facilities Agreement was dependent on the validity of the by-laws authorising it. This raised a number of questions: 1. What are the limitations in the SSM Act on the making of by-laws? 2. Are there any limits inherent in the nature of by-laws? 3. What is the relevance of the fact that they were original by-laws? 1. The limitations in the SSM Act: Per Macfarlan (Handley AJA agreeing): A valid by-law under the SSM Act must have a clear nexus between its subject matter and the use or occupation of the subject property. There is no precise rule to determine if that nexus exists. For by-laws relating to amenities, the amenities must be capable of enhancing the occupiers' use or enjoyment of the premises. Per Young JA (Macfarlan JA and Handley AJA agreeing): A provision in the form of a model by-law cannot be held to be ultra vires. Neither can a by-law dealing with the same subject matter as a model by-law. New Balkis Eersteling Ltd v Randt Gold Mining Co [1904] AC 165 applied. A section that prohibits the making of certain by-laws suggests that, without the section, such a by-law could have been made. Hamlena Pty Ltd v Sydney Endoscopy Centre Pty Ltd (1990) 5 BPR 11,436 applied. The power to make by-laws should be generously construed. No ejusdem generis or noscitur a sociis rule of construction applies to s 43 of the SSM Act. White v Betalli [2006] NSWSC 537; 66 NSWLR 690 and White v Betalli [2007] NSWCA 243; 71 NSWLR 381 applied. 2. Limits inherent in the nature of by-laws: Per Young JA (Macfarlan JA and Handley AJA agreeing): There is no limit in the nature of a by-law that requires it to be a subsidiary law. A by-law must relate to the particular community to which it applies, beyond that, any limit must arise from the enabling statute. White v Betalli [2007] NSWCA 243; 71 NSWLR 381 applied. The power to make by-laws encompasses not only a company's principle activity, but also all incidental and ancillary activities. The incidental power cannot be used to expand the company's activities. Queen Victoria Niagara Park Commissioners v International Railway Co (1928) 63 OLR 49, Forrest v The Manchester, Sheffield and Lincolnshire Railway Co (1861) 30 Beav 40; 54 ER 803, AG (Vic) v The Commonwealth [1935] HCA 31; 52 CLR 533, Wilby v West Cornwall Railway Co (1858) 2 H & N 703; 157 ER 290, AG v Mersey Railway Co [1907] AC 415 cited. The power to make by-laws is to be liberally interpreted subject to the doctrine of fraud on the power and with the proviso that an unreasonable by-law will be held to be invalid. 3. Relevance of the fact that the by-laws were original: Per Macfarlan JA (Handley AJA agreeing): There is an assumption that owners are aware, or should be aware, of the terms of by-laws that existed when they purchased their units. Per Young JA (Macfarlan JA and Handley AJA agreeing): Buyers of a lot in a strata scheme buy with notice of an original by-law. It is very rare that an original by-law will be held to be invalid. White v Betalli [2006] NSWSC 537; 66 NSWLR 690 applied. Eley v The Positive Government Security Life Assurance Co Ltd (1876) 1 Ex D 88 distinguished. The Court found that the by-laws in question were not outside the powers of the Owners' Corporation and accordingly, the Facilities Agreement was upheld as valid. Judgment 1MACFARLAN JA : I agree with Young JA. I add the following observations. 2For a by-law made under the Strata Schemes Management Act 1996 to be valid there must clearly be a nexus between the subject matter of the by-law and the use or occupation of the subject property. I do not consider that it is possible to formulate more precise rules that will determine whether that nexus exists in any particular case. The most that can be said is that, so far as by-laws relating to amenities are concerned, the amenities must be capable of enhancing the occupiers' use or enjoyment of the premises. As Young JA points out, requiring the amenity to be enjoyed on the premises would be arbitrary and unjustified. There would therefore be no reason why an Owners Corporation could not in ordinary circumstances make a by-law relating to the use of a tennis court on an immediately adjacent property. 3The question to be determined is one of fact and degree. There may no doubt come a point where an amenity is so remote from the subject premises that its use could clearly not be said to relate to the occupiers' use or enjoyment of the premises. For example, a by-law providing for the use by occupiers of New South Wales premises of tennis courts in London in the event that some of those occupiers travelled to London would be unlikely to be regarded as having the requisite connection. 4Like Young JA, I derive some assistance from the easement cases to which his Honour refers. They involve a similar task to that required in the present case of identifying the way in which, and the extent to which, the enjoyment of premises is enhanced by the use of other premises. 5My view is that the relevant nexus did exist in the present case. Whilst the recreation centre was not adjacent to the Santai Resort it was sufficiently close to enable the inference to be drawn that a right of access to it would be capable of enhancing the occupiers' enjoyment of their units at the Resort. 6In conclusion I emphasise that the present case is concerned with the powers of an Owners Corporation to make an original by-law. Thus all owners would have been, or at least should have been, aware of the terms of the relevant by-law at the time that they purchased their units. Accordingly its terms can be assumed to have been a matter that they took into account in deciding to purchase the units. It is not necessary in this case to comment on the breadth of the power under s 47 to amend by-laws and I do not do so. 7YOUNG JA : This appeal concerns whether an agreement purportedly made between the parties on 22 March 2007 (the "Facilities Agreement") with respect to the use of the appellant's facilities by lessees or guests of the respondent, is valid and effective. 8The respondent is the Body Corporate of a strata scheme being a holiday resort (the "Santai Resort") at Casuarina Beach near Kingscliff in the Tweed Shire of northern New South Wales. The resort has 114 units, swimming pools and a restaurant. At least 80 units have been sold. However, 60 units, including units which are now in the ownership of purchasers from the developer are available for lease to the general public. These units are let out for short term holiday purposes. 9The Santai Resort is at 9-13 Dianella Drive, Casuarina Beach. 10The appellant operates a recreation centre about 15 minutes walk from the respondent's property. That centre contains, inter alia, a gymnasium, a pool and tennis courts. 11The Facilities Agreement purports to give the persons described in the Facilities Agreement as "Owners", rights to use the appellant's facilities for an annual contribution payable by the respondent. "Owners" is defined as meaning the owners of lots in the strata scheme, their invitees and guests. 12The respondent purportedly entered into the Facilities Agreement relying on by-laws made under the Strata Schemes Management Act 1996 (the "SSM Act"), particularly by-laws 22.1 and 27.1(4). 13The by-laws in question are as follows: By-law 22 - Facilities Agreement 22.1 The Owners Corporation has the power and function to enter into the Facilities Agreement to provide access to the Facilities for Residents. By-law 27 - Power of Owners Corporation to Enter into Other Agreements 27.1 Without limitation to its other powers, the Owners Corporation has the function to and the power and authority appoint [sic] and to enter into other agreements to provide for Services to the Common Property or Residents as necessary including but not limited to: ... (4) an agreement and authorisation to enter into an agreement relating to the use of Residents of facilities (such as gymnasium facilities). 14The proceedings from which this appeal is brought were heard by McDougall J in the Commercial List of the Equity Division of this Court. Those proceedings involved multiple parties. 15The plaintiffs below, who included the appellant, sought declarations and injunctions that certain agreements, including the Facilities Agreement, were valid and effective. 16It should be noted that the proceedings at first instance involved considerations which are not germane to this appeal. The present point was really only a side issue below and this explains why the evidence on it in some respects is rather sparse. 17The primary judge in his reasons of 17 June 2010 ([2010] NSWSC 628) said that the Facilities Agreement was not authorised to be entered into by the respondent and that the by-laws relied upon were invalid. However, he declined to make the declaration of validity sought by the appellant and ordered that, apart from specific orders, the proceedings "be otherwise dismissed". 18The central point in the appeal is whether there was the requisite power to make the by-laws set out earlier. 19The appeal was heard on 28 February 2011, Mr N C Hutley SC and Mr E A J Hyde appearing for the appellant and Mr J Simpkins SC and Mr P Bambagiotti appearing for the respondent. 20The appellant says that the issue as to whether there was power to make the relevant by-laws involves three questions, viz: A. What are the limitations contained in the SSM Act on the power to make by-laws? B. Are the primary judge's findings at [61]-[63] of the judgment correct? C. Did the primary judge err in finding that by-laws 22.1 and 27.1(4) were not valid under the SSM Act? 21The three questions overlap and I will consider them together. 22The power to make by-laws is found, principally, in s 43 of the SSM Act. There was some discussion as to whether there might be some inherent power in the Owners Corporation to make by-laws. However, it was acknowledged by Mr Hutley that such a point was not raised below and that he did not make any submissions on it. Thus, apart from flagging the fact that we are aware of the possible argument, I put it aside. 23Section 43 of the SSM Act reads: 43 What can by-laws provide for? (1) By-laws may be made in relation to any of the following: safety and security measures details of any common property of which the use is restricted the keeping of pets parking floor coverings garbage disposal behaviour architectural and landscaping guidelines to be observed by lot owners. matters appropriate to the type of strata scheme concerned. (2) Subsection (1) does not limit the matters for which by-laws may be made. (3) The regulations may prescribe model by-laws which may be adopted as the by-laws for a strata scheme. (4) A by-law has no force or effect to the extent that it is inconsistent with this or any other Act or law. 24The Regulation made under the SSM Act contains sets of model by-laws. In Sch 4 of the 2005 Regulation the set of by-laws for resorts (now appearing as Sch 5 of the Strata Schemes Management Regulation 2010), cl 12 allows the body corporate by special resolution to be authorised to provide amenities of electricity, water, gas and cable television to owners or occupiers of one or more of the lots. 25Whilst cl 12 does not cover the present case, it is clear that a provision in the form of a model by-law cannot be held to be ultra vires, New Balkis Eersteling Ltd v Randt Gold Mining Co [1904] AC 165, 167. A by-law dealing with the same subject matter as a model by-law is in the same situation. 26What is more important is that the existence of this model by-law shows that this type of by-law is within the competence of the Owners Corporation. 27The authorities show that the power to make by-laws is to be generously construed and that in particular (a) one does not apply any ejusdem generis or noscitur a sociis rule of construction to limit s 43(2) nor (b) does one limit the word "type" in the last of the points listed in s 43(1), see White v Betalli [2006] NSWSC 537; 66 NSWLR 690 and on appeal [2007] NSWCA 243; 71 NSWLR 381. 28There was some argument before us that the very nature of a by-law meant that there was some limitation on the power to make a by-law. I doubt whether this is true, but, if it is, it is, practically speaking, irrelevant. 29The term by-law, as Campbell JA said in White at [195] et seq, probably derived from "by" or "byr", an old English or Norse word for a village or town. A by-law was then a local law for a town. However, there is often nowadays the sense that a by-law is some subsidiary law. Chambers Dictionary of Etymology (2010) Chambers Harrap Publishers Ltd points out at p 131 that this meaning first appeared only in 1541 in the writings of Coverdale who confused the element "by" with the current English word meaning aside or near. There is no reason to continue this confusion. 30At [205] of the W hite case in the Court of Appeal, Campbell JA said, in a passage with which I would respectfully agree: There is nothing in the notion of a by-law that, of itself, imposes any kind of limitation on the kind of regulation that might be adopted, beyond that it is for the regulation of the particular community to which it applies. Any limitation on the type of restriction or regulation that can be a by-law must arise from the statute that enables the by-laws to be created, or from the general framework of statute law, common law and equity within which that local community is created and administered. 31In the current context, the "particular community" for which an owners corporation may make by-laws is the strata scheme - that is to say, the owners of lots and the owners corporation itself. 32The SSM Act itself does impose some limitations on the power to make by-laws: see, for example, ss 49 and 50. 33Mr Hutley takes the position that the SSM Act must be construed to give a wide view of the power to make by-laws, subject to the limitations which apply to all by-laws, that they must not contravene the law, must not be made in fraud of the power to make by-laws and must not be unreasonable. 34Mr Simpkins says that to be valid, a by-law must relate to the use and enjoyment of the site or the common property. He thus submits that the relevant by-laws are invalid because there is no sufficient connection between them and the role or functions of the Owners Corporation. 35Mr Hutley concedes that there may be some point where there is so little nexus between the by-law and the land occupied by the Strata Plan that the by-law would be void as unreasonable. 36The primary judge discussed the judgments in White and then said at [61] et seq: [61] Any limitations on the power of an owners corporation to make by-laws (I leave aside express limitations either under the SSM Act or under other legislation) must derive from a consideration of the legislative framework of the SSM Act as a whole. Under that framework, an owners corporation is established on registration of a strata plan for a strata scheme (see s 8(1) of the SSM Act). Once established, an owners corporation has vested in it the common property shown in the strata plan. See s 18(1) of the Strata Schemes (Freehold Development) Act 1973 (NSW) (SSFD Act). It holds that common property as agent for the proprietors of lots from time to time (see s 20 of the SSFD Act). Common property is to be dealt with in accordance with the SSFD Act and the SSM Act. [62] Further, once established, an owners corporation has principal responsibility for the management of the strata scheme (see s 8(2)). In aid of that responsibility, the owners corporation has functions conferred or imposed on it under the SSM Act and other relevant legislation (s 12 of the SSM Act). Those functions are spelled out in some detail in Ch 3, which deals with "key management areas". Section 61 says what those key management areas are [His Honour set out the text of that section, referred to Part 6 of the SSM Act and continued]: [63] Thus, it seems to me, for a by-law to be valid, it must be fairly referable to the role of an owners corporation as "owner" of the common property or to its role as "manager" of the strata scheme. Reference to those roles picks up the functions of the owners corporation. In general terms, those functions include the key management areas set out in s 61. In more specific terms, they include the detailed duties and functions set out in Pts 2 to 6 of Ch 3 of the SSM Act. 37It can thus be seen that the primary judge followed the Simpkins approach. 38It is useful to look at other portions of the SSM Act to see if any clue is provided as to the width of the power to make by-laws. 39First, one should consider the role of the Owners Corporation. 40Section 12 provides that the corporation has the functions conferred or imposed on it under the SSM Act or any other Act. The Dictionary to the Act defines "function" as including "a power, authority or duty". 41Section 61 sets out the key management areas for a strata scheme in the following terms: (1) An owners corporation has, for the benefit of the owners: (a) the management and control of the use of the common property of the strata scheme concerned, and (b) the administration of the strata scheme concerned. (2) The owners corporation has responsibility for the following: (a) maintaining and repairing the common property of the strata scheme as provided by Part 2, (b) managing the finances of the strata scheme as provided by Part 3, (c) taking out insurance for the strata scheme as provided by Part 4, (d) keeping accounts and records for the strata scheme as provided by Part 5. (3) Other functions of an owners corporation are included in Part 6. 42It can readily be seen that these key areas all concern the strata buildings or the common property and not what might happen outside the site. 43Passing to another aspect, s ection 49 limits the power to make by-laws so that, for instance, no by-law can prohibit the use of a guide dog. As I said in Hamlena Pty Ltd v Sydney Endoscopy Centre Pty Ltd (1990) 5 BPR 11,436 at 11,440 with respect to the Strata Titles Act 1973 (a dictum approved in White and not affected when the appeal from Hamlena was dismissed ) , the fact that this section prohibits the making of certain by-laws suggests that, without the section, such a by-law could have been made. 44Part 6 of the SSM Act contains miscellaneous provisions relating to the functions of the Owners Corporation. Section 111 provides that the corporation may enter into an agreement with an owner or occupier for the provision of services or amenities to that person. The section does not cover the present case. It is directed to the situation in a resort strata scheme where the body corporate arranges for a hire company to supply cots and extra bedding, etc for occupiers. The presence of the section shows that the provision of amenities not only to the lot but also to the owner or occupier of the lot is within the function of the body corporate. This points to it being within power to make a by-law covering the topic. 45Mr Simpkins submits that the s 111 situation involves a service to the strata building so that it has no relevance to the present problem. However, with respect, there is no reason to limit the provision of amenities to the occupier of a lot to those which he or she can only enjoy whilst on the land occupied by the strata buildings. 46Sections 44 and 45 tend in the opposite direction in that they proceed on the basis that a by-law is an actual law which must be obeyed. This is consistent with the basic nature of a by-law. As Lindley LJ said in London Association of Shipowners and Brokers v London and India Docks Joint Committee [1892] 3 Ch 242 at 252 , the power to make by-laws is very different from the power to make agreements: "A by-law is not an agreement, but a law binding on all persons to whom it applies". 47The next consideration is how far, if at all, s 47 bears on the present problem. The primary judge at [64] considered that it supported the view he took. 48Section 47 is as follows: 47 Can an owners corporation add to or amend the by-laws? An owners corporation, in accordance with a special resolution, may, for the purpose of the control, management, administration, use or enjoyment of the lots or the lots and common property for the strata scheme, make by-laws adding to, amending or repealing the by-laws for the strata scheme. 49As the primary judge pointed out, the instant case concerns by-laws established on registration of the relevant strata plan, not by-laws created by amendment of or addition to those original by-laws. However, he considered that if amendment or addition can be justified because what is changed or added is associated with the control, management, administration, use or enjoyment of lots or common property, the criteria for assessing the validity of the original by-laws should be no narrower. 50Some very different considerations arise when one is considering whether an original by-law is valid as opposed to an amended by-law. In the case of an original by-law, people have vested rights which are not lightly to be diminished by an amendment at the behest of the majority. 51As White J said in White at first instance (p 699 [46]) the original by-laws accompany the strata plan and people who buy a lot in the strata scheme buy with notice of the by-law, so that it can hardly ever be said that the by-law creates an injustice. 52It must be observed that for that very reason it is rare that an original by-law (or, in the case of limited companies, an original article) will be held to be invalid. An illustration of the rare exception is provided by Eley v The Positive Government Security Life Assurance Co Ltd (1876) 1 Ex D 88 where an original article purporting to appoint a non-member as the company's solicitor was held to be ultra vires and void. 53Indeed, it may be that one should consider that the strata scheme includes the original by-laws. This matter was argued as a peripheral matter: Mr Simpkins denied the proposition. I favour it, but would not wish to be taken as having so held on the slight argument presented on the point. 54The point that must be made is that whilst the power to make by-laws is no less than the power to alter under s 47, it may well be more extensive. 55Next, I believe it is useful to look to some of the older authorities to see if they will be of assistance. The classic period of debate about by-laws seems to be 1825-1960, that is, beginning with the railway and canal company by-laws up to municipal by-laws. 56The early railway and canal cases show that the company's powers were to be construed as not only encompassing their principal activity, but also all incidental and ancillary activities. Thus, a company which had power to operate a railway station could also run a souvenir stall on that station, eg Queen Victoria Niagara Park Commissioners v International Railway Co (1928) 63 OLR 49. A railway company with authority to own ferries in connection with its railway, could use those ferries as pleasure boats when the boats were otherwise unemployed: Forrest v The Manchester, Sheffield and Lincolnshire Railway Co (1861) 30 Beav 40; 54 ER 803. 57It must be noted, however, that in AG (Vic) v The Commonwealth [1935] HCA 31; 52 CLR 533, 562 , Rich J, when commenting on Forrest's case, said that it was a matter of degree as to how far this association could be pushed. Where the line is to be drawn is sometimes difficult. It is clear that the incidental power cannot be used to expand the company's activities. Thus, whilst a company can contract with another to carry goods from the end of its line to a further destination ( Wilby v West Cornwall Railway Co (1858) 2 H & N 703; 157 ER 290 ) it may not be able to extend its business by operating its own buses from its terminus, AG v Mersey Railway Co [1907] AC 415 . 58The consequential issue before the primary judge was whether the Facilities Agreement was one which came within the power to make by-laws. In the primary judge's opinion, it did not. 59One reason the primary judge gave was that the Facilities Agreement had nothing to do with the management or control of the common property. He said that whilst it was doubtless of value to some occupiers to have free use of tennis courts and the like, those persons should pay for the right rather than have the cost borne by all owners. 60With respect, this point is not of high significance for a number of reasons. First, if this point was relevant, the evidence necessary to decide it was deficient. One would have expected that the marketing material encouraging buyers would have been put in evidence or at least there would have been some evidence whether the existence of a facility agreement adds to the capital value of each individual unit. 61Where there is an evidentiary vacuum on the point, it is of no real value to comment that some people will use the facility and some will not. What may be significant is whether the existence of the Facilities Agreement affected the capital value of the individual units as would almost always be the case. 62Secondly, cases on easements such as Re Ellenborough Park [1956] Ch 131, 173, a case to which I shall return, suggest that an increase in value of the dominant tenement may be a material consideration. 63Whatever the extent of the incidental powers of the Owners Corporation, it is clear that there is some room for authorising the availability of some amenities to its unit owners and their licensees. 64Mr Simpkins does not really dispute this proposition, but he puts that the amenities must be on the site or adjacent thereto. 65The primary judge seems to have been attracted to this notion of "adjacent". The reason for such attraction is obvious, it removes some of the illogicalities involved in limiting amenities to the site itself. 66I have already set out the terms of by-laws 22.1 and 27.1(4). 67The primary judge noted at [114] that Mr Simpkins had submitted that by-law 27 was invalid "on the basis that it did not regulate the rights and responsibilities of lot owners, occupiers, or the owners corporation, in respect of the lots, or the lots and the common property, for the scheme". 68The primary judge upheld that submission. His reasons for doing so were as follows: [116] I start with by-law 22.1. I have set out at [59] to [66] above what I perceive to be relevant limits on the power of an Owners Corporation to make by-laws. In my view, that power does not extend to making a by-law authorising the Owners Corporation to enter into an agreement with an owner of nearby (but not adjacent) facilities that gives lot owners and other residents the use of those facilities, at least where that agreement has nothing to do with the lots or the common property, or the rights of lot owners as between themselves or as between themselves and the Owners Corporation. [117] In this case, the relevant by-law does not involve the management or control of the common property, or any of the functions of the Owners Corporation under the SSM Act or other relevant legislation. [118] It could perhaps be said that the use of the gymnasium and recreational facilities provided by Club might contribute to the "enjoyment" by lot owners or tenants of their time spent at the Santai resort. But it does not follow that a by-law authorising the making of the facilities agreement was, therefore, one for the "enjoyment" of the lots concerned. In the context of s 47 of the SSM Act, "enjoyment" seems to me to pertain to the lots (or lots and common property). If those who own or occupy lots wish to enjoy the benefits of recreational facilities nearby, they should do so at their own expense, rather than, through the Owners Corporation, at the expense of all owners. [119] I do not accept that the facilities agreement is authorised by by-law 27.1(4). On its proper construction, that by-law should be read as authorising only the making of agreements that have the necessary degree of connection with lots or common property, or the rights of owners and the Owners Corporation in relation to them, or the other functions of the Owners Corporation. If it extended to authorising agreements of the kind in question, then it would be void for the same reason that by-law 22.1 is void. [120] It follows that the Owners Corporation was not authorised to enter into the facilities agreement, and is not bound by it. As with the security services agreement, the appropriate response is to dismiss the relevant prayer for declaratory relief, but not to make any declaration of invalidity in circumstances where no such declaration was sought by way of cross-claim on behalf of Club. 69It can be seen that the word "adjacent" has found its way into [116]. Indeed, it also appeared in the primary judge's introduction to the problem in [12] of his reasons. 70The judgment does not disclose how this word came to feature in the decision or what was its scope. 71There has been some consideration of this sort of matter in connection with the rule that an easement must accommodate the dominant tenement. 72It is clear that, when considering whether an easement over the servient tenement accommodates the dominant tenement, the dominant and servient tenements need not be contiguous: Todrick v Western National Omnibus Co [1934] 1 Ch 561; Gallagher v Rainbow [1994] HCA 24; 179 CLR 624, 648 . Whilst this is so, the cases do not seem to have upheld an easement where the dominant and servient tenements were not contiguous unless "the two sets of premises shall be so adjacent as that the enjoyment of one should be evidently connected with and dependant on the state of the other" (per Bowen LJ in Birmingham Dudley and District Banking Company v Ross (1888) 38 Ch D 295, 314). 73In Pugh v Savage [1970] 2 QB 373, 381, Cross LJ put that the servient tenement must be " sufficiently close" to the dominant tenement for the easement to be sensibly described as appurtenant. See also Elliott v NMRP Pty Ltd (8.11.1994, unreported) where Bryson J considered the matter. Professor Butt took from that case the proposition that it was unlikely that an easement would be upheld unless the two tenements were contiguous or almost contiguous, see Butt, Land Law , 6 th ed (Thomson Reuters, 2010) at [16 15]. 74Even if it is unlikely, there are cases where such an easement has been upheld. In City Developments Pty Ltd v Registrar-General (NT) [2000] NTSC 33; 156 FLR 1, Thomas J did not consider that the fact that some of the dominant owners had to pass through other land to get to the servient tenement (a lake and its beach) was a disqualifying factor. 75Another aspect of the law of easements which needs to be examined is whether it is sufficient to constitute an easement being appurtenant and so touching the enjoyment of the dominant tenement that the value of the dominant tenement is enhanced by the existence of the right in question. 76It will be noted from [118] of the judgment quoted earlier, that the concept of "enjoyment" of the dominant land is a concept that may be relevant in this connection: it certainly is in the law of easements, if that is an analogous situation. 77In Re Ellenborough Park , Evershed MR, giving the reasons of the English Court of Appeal, said at p 173 that the fact that the right claimed in that case enhanced the value of the property could not be dismissed as wholly irrelevant, but it was in no way decisive. It needed to be shown that the right was connected with the normal enjoyment of the property. 78At p 174, the court said that it agreed that a right given to the owner of property to have free admission to the zoo or the local cricket ground could not be said to have sufficient nexus with the use of the property. However, the right to use a close by communal garden would qualify. 79In City Developments Pty Ltd v Registrar-General (NT) , Thomas J had little difficulty in holding that the right to enjoy a nearby lake and its beach benefited the land, not just its individual owner. Her Honour relied on the decision of the Supreme Court of Canada in Dukart v District of Surrey (1978) 86 DLR (3d) 609, 616 where Estey J held that the right to use a pleasure lake was akin to a condition running with the land. 80There was some discussion during oral argument of the relevance of cases which have considered whether an easement touches and concerns the dominant tenement. Both sets of counsel were reluctant to enter this field. It seems to me that this line of enquiry does support the proposition that one looks at the nexus question liberally, but one still ends up with a question of fact as to whether the enjoyment of the land as opposed to the owner thereof is benefited. 81The appellant's counsel say that, if some concept of adjacent is relevant (they submit otherwise), all that needs to be shown is that for X to be adjacent to Y, X is near or close to Y: see Mayor of Wellington v Mayor of Lower Hutt [1904] AC 773 ; Federal Commissioner of Taxation v BHP Minerals Ltd (1983) 68 FLR 132. 82Mr Simpkins puts that the whole of the reasons show that the primary judge used the word to denote something that had a close connection with the site and ruled that a recreation club a few blocks away from it was not sufficiently close. 83Thus, Mr Simpkins puts, analysis of the word "adjacent" and noting how it had been interpreted in other cases, was of no assistance. 84In the instant case, the undisputed evidence was that the club was approximately a 15 minute walk from the Resort. The appellant submits that the judge should have held that it was adjacent to the Resort. 85The primary judge did not explicitly record his reasons as to why he did not consider the two pieces of land were adjacent or sufficiently close. However, it is clear that he had in mind some guideline such as "very close nearby" and that the appellant's site was not within such bounds. The question is one of fact and the judge could have come to his conclusion on the evidence before him. I do not consider I can disturb it. In any event, I do not consider that whether or not the two sites are sufficiently close or adjacent is anything more than a peripheral matter for consideration. 86While the above discussion is illuminating to an extent, I agree with the submission that this concept of "adjacent" is a bit of a red herring. The vital question is whether the by-law was within the powers of the Owners Corporation, and a proper exercise of its functions under the SSM Act. 87Whilst the focus of the Owners Corporation's functions is the site itself, it has not been demonstrated to me that the making of by-laws is restricted to the site. As shown in the earlier discussion, it can include at least some by-laws relating to the owners or occupiers of units on the site. 88Examples can be given to show the awkwardness of limiting the power to what happens on the site (or on adjacent land). Why should it be fine to have a tennis court on the site to which owners and their licensees could have free access and in respect of which by-laws could be made, but there be no power to allow such people the right to use tennis courts down the street? What does it really matter to anyone where facilities are situated so long as there is easy access? Why should not a group of people consider that one gymnasium to which four resorts can have access is a more economic solution than having four gymnasia in the actual resorts? 89In my view, the proposition which Mr Hutley championed is correct. The power to make by-laws is to be liberally interpreted subject to the doctrine of fraud on the power and with the proviso that an unreasonable by-law will be held to be invalid. 90Furthermore, if an original by-law is to be declared invalid, a very strong case must be made out as people make their purchases on the basis of the original by-laws as filed. 91Thus, I conclude that the present by-laws did not step outside being sufficiently connected with the functions of the Owners Corporation, nor were they unreasonable. 92It follows that the learned primary judge took too narrow a view of the power to make by-laws in a resort strata scheme. Accordingly, I would uphold the appeal. 93I suppose that the proper order to make is as sought in paragraphs 2 and 3 of the notice of appeal, though little attention was given to that question during the oral argument. 94There is nothing in the appeal papers to show what order for costs was made below. In those circumstances, I would not make any new order as to that matter. 95I should remind the parties that if there is to be any protest about the orders which will be made on the delivery of the reasons for judgment they must be made within 14 days and that the Court has virtually no power to extend that time. 96Accordingly, I would propose the following orders: 1. Appeal allowed. 2. Declare that by-laws 22.1 and 27.1(4) made by the respondent are valid by-laws under the Strata Schemes Management Act 1996. 3. Declare that the "Facilities Agreement" made between the parties on 22 March 2007 was authorised by the said by-laws. 4. Vary order 7 made by McDougall J accordingly. 5. Order that the respondent pay the costs of the appeal. 6. Order that the respondent have a certificate under the Suitors Fund Act 1951 in respect of the costs of the appeal if eligible. 97HANDLEY AJA: I agree with Macfarlan JA and subject thereto I agree with Young JA. ********** 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. Decision last updated: 24 June 2011