OWNERS CORPORATION - Decision of the Victorian Civil and Administrative Tribunal - Appeal to the Trial Division of the Supreme Court of Victoria - Appeal to the Court of Appeal - Rules of owners corporation - Licenses for car spaces - Entitlement of members from time to time under the rules - Principles of construction - Owners Corporation Act 2006 ss 138, 162 - Appeal dismissed.

1 This appeal concerns the interpretation of body corporate rules and a licence granted under those rules governing the entitlement (if any) of the first and second respondents to the use of a car parking space in conjunction with a penthouse apartment.

2 The appellant ('Avranik') was the initial registered proprietor of seven penthouse units created by the subdivision of a pre-existing lot comprising the penthouse levels of the relevant apartment building. Avranik obtained exclusive licences to the use of seven car spaces in conjunction with the ownership of the seven penthouse units.

3 The Victorian Civil and Administrative Tribunal ('VCAT') and in turn Garde J on appeal at first instance have concluded that when the first and second respondents purchased one of the penthouse units:

(a) they became entitled to the grant of one of the car park licences by the owners corporation; and

(b) the licence held by Avranik had terminated with respect to the car park in respect of which the first and second respondents became entitled.

4 In my opinion Garde J was correct to uphold the decision of VCAT for the following reasons.

5 471 Little Bourke Street comprises a hotel and apartment complex. A plan of subdivision was registered on 26 March 1998 enabling the sale of separate apartments within the building. In early 1999 Avranik agreed to buy the penthouse floor of the building which was then comprised in lot 1100.

6 On 10 May 1999 the body corporate amended its special rules and on the same day a set of consolidated rules was registered with the Office of Titles.

2 Car Spaces

The body Corporate must allocate car spaces in the basement area of the common property to members of the Body Corporate from time to time, as follows:

Lot 1100 - 7 car spaces ('penthouse spaces')

Lot G - 5 car spaces

Lot 100, 200 and 700 - 2 car spaces per lot

Lot 300, 400, 500, 600, 800, 900 and 1000 - 1 car space per lot

Where car spaces are allocated the following provisions apply:

(a) Other than in respect of the penthouse spaces, the right of occupation shall be by way of a non-exclusive licence with the position of the car spaces to be allocated by the Body Corporate from time to time.

(b) The rights and obligations of the member(s) who is or are registered as proprietor(s) of Lot 1100 on the plan of subdivision (or any lot created on further subdivision of that lot) are set out in full in Rules 2(b), 2(d) and the licence agreements for the penthouse spaces (**'**Licences'). The Body Corporate shall on transfer of any lot or re-subdivided lot ensure that the relevant transferee is provided with a copy of the Licences.

(c) Subject to (b) above, the tenant of a member's lot has the right to use (to the exclusion of that member) the car spaces allocated to that member if the tenant's lease so provides.

(d) A member must not and must ensure that the occupier or tenant of a member's lot does not:

(i) make any alteration or addition to the allocated car spaces without written consent of the Body Corporate;

(ii) use the allocated car spaces other than for the parking of motor vehicles which are in day to day use and are not of such dimensions as to overlap the limits of any allocated car space;

(iii) subject to Rule 2(c) not to part with possession of an allocated car space other than to a person entitled to use and occupation of the member's lot or part of the member's lot;

(iv) permit a nuisance or storage of goods in an allocated car space;

(v) park a vehicle in an allocated car space in such a manner as to obstruct other vehicles;

(vi) do or omit to permit to be done or omitted any act, matter or thing which might damage the common property or any equipment or plant in the common property.

(e) The member must ensure that the allocated car spaces are kept in a good condition and tidy and free from rubbish.

(f) Nothing in these Rules shall create a tenancy or shall confer upon the member or person authorised under these Rules to use an allocated car space any proprietary interest in any allocated car spaces.

8 On the same day 10 May 1999 the body corporate (now the owners corporation) granted 99 year licences to Avranik in respect of each of seven car spaces (numbered one to seven) respectively described on the plans attached to each licence.

9 The licences first set out by way of recital the following matters:

1.1 The Body Corporate is a body corporate which was created on registration of plan of subdivision No. 408887C ('the Plan').

1.2 The Licensee has agreed to purchase the unit on the Plan as set out in the Schedule ('the Unit').

1.3 The Licensee requires exclusive use and possession of that part of the common property on the Plan as described in the Schedule as the licensed area ('the Licensed Area').

1.4 The Body Corporate has exercised its powers under Regulation 401(m) of the Subdivision (Body Corporate) Regulations 1989 by granting by special resolution a licence of the Licensed Area to the Licensee subject to the terms and conditions contained in this Licence.

1.5 The Body Corporate has consented to the Licensee subdividing the Unit into seven (7) further units ('Penthouse Units') and it is a requirement of the Licensee that the right to use the Licensed Area set out in this Licence can be transferred or granted to the occupier or owner of one of the Penthouse Units.

10 The licences then relevantly set out by way of agreement the following:

2. WHAT IS AGREED

2.1 The Body Corporate grants to the Licensee as from the commencement date set out in the Schedule the right to sole and exclusive use and enjoyment of the Licensed Area to the exclusion of all members of the Body Corporate and all other persons subject to the terms, covenants, conditions and restrictions contained in this Licence.

...

2.3.3 Subject to clause 2.3 and this Licence not to part with possession of the Licensed Area other than to a person entitled to the use and occupation of the Unit or Penthouse Unit.

...

2.5.1 This Licence will continue for such time as the Licensee is the owner of the Unit.

2.5.2 Should the Licensee sell the Unit or any Penthouse Unit, this Licence may be transferred to the purchaser of the Unit or a Penthouse Unit without obtaining the consent of the Body Corporate provided that the Licensee obtains from the purchaser an acknowledgment that the purchaser agrees to be bound by the terms of this Licence and then forwards a copy of that acknowledgment to the Body Corporate.

2.5.3 This Licence is not transferrable except in accordance with Clause 2.5.2.

...

2.8 The Body Corporate covenants with the owner that the owner paying the rent and observing the covenants and agreements in this [Licence] may subject to Clause 2.3, during the term of this Licence Agreement peaceably and quietly hold and enjoy the Licensed Area without any interruption by the Body Corporate or any person lawfully claiming under the Body Corporate.

2.9 The Background forms part of this Licence.

11 Each licence was executed as an agreement under seal by the body corporate and Avranik.

12 The schedule to the licence identified Avranik as the licensee and lot 1100 as 'the Unit'. The licensed area in each case was a particular car parking space numbered one to seven for the purposes of the licence and the commencement date of the licence was specified as being the day on which the licensee became registered as the proprietor of lot 1100.

13 Thereafter Avranik sold one of the penthouse units to a Mr Ghorpade and in turn the first and second respondents have subsequently become the registered proprietors of it.

14 Section 138 of the Owners Corporation Act 2006 ('the Act')[1] enables an owners corporation to make rules with respect to any matters set out in sch 1 of the Act. These include rules with respect to common property[2] and the behaviour of owners, occupiers and invitees on common property.[3]

15 The rules of an owners corporation are relevantly binding upon the owners corporation, the lot owners and any occupier of a lot.[4]

16 The following principles of construction are relevant to the interpretation of the rules and the licence:

(a) The rules of the body corporate must prevail over the terms of the licence. The licence is contemplated by the rules but its form is not specified by the rules. It is the rules which empower and require the granting of licences.

(b) The rules and licence are each to be read as a whole and due effect must be given to the provisions of each as a whole so far as that can be done.[5]

(c) The rules and licence are to be given business efficacy.[6] In particular they are plainly intended to have continuing effect after the re-subdivision of lot 1100.

(d) The recitals in the licence must be read subject to the operative provisions of the agreement,[7] albeit that the recitals are declared to be part of the agreement.

(e) The interpretation of the rules and the licence came before VCAT by way of an owners corporation dispute pursuant to s 162 of the Act as a dispute under the rules of an owners corporation that affected an owners corporation. In turn in determining whether it should make an order requiring a party to comply with the rules of the owners corporation pursuant to s 165 of the Act, VCAT could make any order it considered fair, including an order under s 165(f) declaring the meaning of a rule of the owners corporation. In making such an order VCAT was required to consider amongst other things:

• the impact of a resolution or proposed resolution on the lot owners as a whole; and

• whether a resolution or proposed resolution was oppressive to, unfairly prejudicial to or unfairly discriminated against a lot owner or lot owners.[8]

17 It follows from the first principle identified above that the first and second respondents are correct to direct attention in the first instance to the provisions of special rule 2. In my opinion both the Tribunal and the judge at first instance were correct to conclude that the first and second respondents fell within the description 'members of the body corporate from time to time'. In turn it followed the body corporate was bound to allocate car spaces to them if they fell within those having an interest in the relevant category then listed namely:

18 In my opinion the obligation to allocate car spaces did not terminate with the subdivision of lot 1100 but must be understood to be ambulatory and continue proportionally to the ownership of penthouse units formerly comprised in lot 1100. It follows that the first and second respondents are entitled to an allocation of a car space under the rules.

19 This construction is supported by the fact that rule 2(b) specifically contemplates that right to licences under cl 2 will continue following the re-subdivision of a lot referred to as having an entitlement under rule 2.

20 It should be noted that the initial duty to grant licences is imposed and the corresponding entitlement of members is created by the words which precede the statement:

Where car spaces are allocated the following provisions apply: ...

21 The following sub-paragraphs do not create the entitlement to an allocation but govern its terms. They govern the content of rights created by the initial provisions of cl 2. These rights are rights granted to members which are enforceable against the owners corporation.

22 In turn the obligation of the owners corporation to allocate spaces must be interpreted in accordance with s 140(a) of the Act:

A rule of an owners corporation is of no effect if it -

(a) unfairly discriminates against a lot owner or an occupier of a lot; ...

23 The owners corporation is implicitly required to exercise the power of allocation in a way which does not unfairly discriminate against a lot owner or occupier of a lot.

24 Avranik submits that the provisions of rule 2 requiring the allocation of spaces to members from time to time are 'consistent with' the reallocation of spaces following transfer by voluntary agreement collateral to the purchase of a penthouse unit as against the automatic transfer of any entitlement to spaces consequent upon the acquisition of penthouse units. In one sense this may be so but the primary entitlement established by rule 2 is inconsistent with a refusal by the body corporate

to allocate as necessary from time to time a car park space in the absence of transfer by voluntary agreement.

25 Avranik further submits that the terms of rule 2(b) indicate that the transfer of licences will proceed by voluntary agreement. Whilst not decisive in itself the fact that rule 2(b) speaks of the rights and obligations of members who acquire any re-subdivided lot and further requires that the body corporate provide such transferees of any re-subdivided lot with a copy of the licence points rather to an entitlement to such licence independently of acquisition from the seller of the lot.

26 In turn the licence conditions read as a whole are consistent with the construction of the rules which I prefer. Clause 2.5.1 provides that the licence will continue for such time as the licensee is the owner of 'the Unit', ie unit 1100. Avranik's construction would require each licence held by it to be read as continuing until either a voluntary transfer of the licence to the purchaser of a penthouse unit or the sale by the licensee of the whole of unit 1100. The better view is that what is contemplated consistently with rule 2 is that Avranik's entitlement to licences will lapse proportionately in conjunction with the disposition of ownership of a penthouse unit. Such disposition will necessarily involve a disposition of ownership of part of the land formerly comprised in unit 1100 and the creation of new members who own part of what was lot 1100.

27 As Garde J observed,[9] Avranik's construction involves the concept of a postponed entitlement to an effective allocation of car spaces. I respectfully agree that this concept makes little sense.

28 Further, as both the Tribunal and the appeal judge at first instance noted the identification of seven car parking spaces in the schedule to the licence corresponds directly to the number of penthouses which were proposed to be created at the time

of the granting of the licences and which in fact resulted from the re-subdivision of unit 1100.

30 The numbers 1 to 7 are entirely superfluous unless they refer to penthouse units 1 to 7. The plan which is attached to the table describes the car park spaces by the numbers next allocated to each unit ie '17 and Pt 18' etc. The numbering 1 to 7 is not necessary for the purpose of reading the plan unless it is intended to identify penthouse unit numbers.

31 In addition, the terms of both cls 1.5 and 2.3.3 of the licence expressly contemplate the transfer or grant of the specific licence in issue to the owner or owner of one of the penthouse units. When the licence is read as a whole I agree that the intention is that the licence to car park number 20 be allocated to the member owning penthouse unit 2.

32 The construction I prefer results in a resolution of the dispute which is not oppressive to the first and second respondents who in effect sit in the position of minority unit holders within what was formerly unit 1100. Conversely Avranik's construction would potentially allow it to oppress purchasers of the individual penthouse units by preventing them taking the benefit constituted by the car park entitlement attaching to lot 1100 proportionately to their beneficial interest in the property formerly comprised in such lot. The construction I prefer is also neither unfairly prejudicial to or unfairly discriminatory against a lot owner or lot owners. It provides for the equitable apportionment of the entitlement to car park licences which the rules grant to the owners of the former lot 1100. Avranik submits that the construction would be unfair to it because it would deprive it of a valuable asset. The short answer to this is that the value inherent in the car parking licence was capable of being realised by Avranik as a component of the onsale of the penthouse unit.

33 Avranik's primary submission is however that the provisions of the licence as a whole are inconsistent with an automatic entitlement to a licence upon acquisition of a penthouse unit. It points first to recital 1.5 which states:

1.5 The Body Corporate has consented to the Licensee subdividing the Unit into seven (7) further units ('Penthouse Units') and it is a requirement of the Licensee that the right to use the Licensed Area set out in this Licence can be transferred or granted to the occupier or owner of one of the Penthouse Units.

34 This recital does not materially support Avranik's case:

(b) the recital sets out the background to the licence and not its operative terms;

(c) the recital must be read subject to the operative terms of the agreement;

(d) the recital expressly contemplates that the licence can be transferred 'or granted' to the owner of one of the penthouse units. It does not contemplate acquisition of a licence by transfer alone and begs the question (governed by the rules) of the right to obtain a grant in the absence of a transfer; and

(e) the recital expressly contemplates that the licence in respect of one car parking space may be granted to the occupier or owner of one of the penthouse units.

35 Clause 2.3.3 upon which Avranik next relies obliges the Licensee:

2.3.3. Subject to clause 2.3 and this Licence not to part with possession of the Licensed Area other than to a person entitled to the use and occupation of the Unit or Penthouse Unit.

36 This provision does not assist Avranik. It simply contemplates that a person entitled to the use and occupation of a penthouse unit may take possession of the licensed car parking space.

37 Clauses 2.5.2 and 2.5.3 to which Avranik next refers provide a mechanism for transfer of the licence in conjunction with the sale of any penthouse unit. Whilst the provisions offer some potential commercial advantage to the subdivider of unit 1100 in packaging the sale of a penthouse unit with a transfer of licence, they cannot be determinative of the effect of the underlying rights created by the rules. Rather, the provision for transfer can take effect only because its consequence is entirely consistent with the outcome required by the rules. In essence cl 2.5.2 simply provides that if a transfer occurs there is no need to issue a new licence to the transferee provided that the transferee forwards an acknowledgment of obligations under the licence to the body corporate. Both VCAT and Garde J were correct to characterise the provision as 'facilitative'.

38 It follows that Avranik's interpretation of the rules and the licence should be rejected and the decisions of VCAT and Garde J upheld.

39 Avranik makes a series of further submissions concerning the reasoning of Garde J which it is strictly unnecessary to consider but with which I shall deal in a summary way.

40 First Avranik submits that his Honour erred in relying in part upon the provisions of rule 15 as supporting his conclusion:

15. Lot 1100

A member who is an owner of lot 1100 or owner of any lot created on subdivision of lot 1100 ('penthouse member') must not, and must ensure that the occupier of a penthouse member's lot must not, use the penthouse lot in any manner that does or is likely to unreasonably interfere with the operations of the hotel or serviced apartment [scil. complex] which is located in the building located at and known as 471 Little Bourke Street, Melbourne, Victoria, 3000.

41 I accept that this rule is concerned with the use of the penthouse units and not the car parking spaces but this does not affect the analysis above.

42 Avranik further submits that his Honour misconceived the effect of cl 1.5 of the licence agreement. Nothing material turns on this recital for the reasons I have explained.

43 Next, it is submitted that his Honour erred in agreeing with VCAT that it would be 'farfetched' to interpret cl 2.5.1 of the licences as allowing Avranik to retain seven car parking spaces while retaining only one penthouse unit. The appropriateness of this characterisation does not add to or detract from the arguments supporting the construction I prefer.

44 Avranik further submits that the first and second respondents' construction of cl 2.5.1 involves an unwarranted implication. The implication involved is derived first from the provisions of the rules pursuant to which the licence is granted and secondly from the need to give business efficacy to the obvious intent of the parties that the licence should not terminate upon the re-subdivision of unit 1100. Some implication is necessary. All parties agree that the clause cannot be given its literal meaning.

45 Lastly, Avranik submits that no entitlement to the allocation of a licence can arise in the absence of a power for the cancellation of a previously granted licence relating to the car space in issue or a consensual transfer of such space. This submission should be rejected. The initial words of rule 2 plainly envisage the ongoing grant of licences from time to time as membership of the body corporate changes. The rights granted under the rules are rights restricted to members or tenants of members' lots. They do not survive relevant loss of membership. Likewise the licence provides by cl 2.5.1 that it terminates upon the licensee ceasing to be the owner of the relevant unit. For the reasons I have already explained it is

necessary to read down cl 2.5.1 to apply to the ownership of a particular penthouse unit and not merely the ownership of the pre-existing lot 1100. The right of the owner to peaceable and quiet enjoyment of the licensed area pursuant to cl 2.8 of the licence continues only during the term of the licence.

46 Avranik has not demonstrated that VCAT erred in making the following orders:

1. I declare that by operation of rule 2.5.1, the licence for car space 20 which was granted to the first respondent on 10 May 1999 terminated in or about August 2001, on transfer of unit 1102 to Mr Ghorpade.
2. The third respondent must issue to the applicants a licence for car space 20 in the same terms as the licence which the third respondent granted to Avranik on 10 May 1999.
3. The third respondent must remove the barrier preventing access to car space 20.
4. Liberty is reserved to the parties to apply for directions about the further conduct of this proceeding upon reasonable notice to the Tribunal and to each other.

48 I agree with the reasons given by Osborn JA. The appeal should be dismissed.

49 For the reasons stated by Osborn JA, I agree that the appeal should be dismissed.

[1] The Owners Corporation Act 2006 replaced provisions of the Subdivision Act 1988 previously relating to subdivision bodies corporate. Schedule 2 cl 3 of the Act deemed subdivision bodies corporate to be owners corporations. Schedule 2 cl 4 of the Act provides that references to subdivision bodies corporate in any document must be read as a reference to an owners corporation. Schedule 2 cl 5 of the Act provides that the rules of a subdivision body corporate in force immediately before the commencement of the Act are deemed to be rules of the owners corporation under the new Act to the extent that they are not inconsistent with the new Act or regulations made under it.

[5] Barton v FitzGerald [1812] EngR 245; (1812) 15 East. 530; Chamber Colliery Ltd v Twyerould (1893) [1915] 1 Ch. 268 (Note).

[6] Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd & Ors [2006] FCAFC 144; (2006) 156 FCR 1.

[7] Franklins Pty Ltd v Metcash Trading Pty Ltd [2009] NSWCA 407 [390].

[9] Avranik Pty Ltd v Lloyd & Anor [2012] VSC 306 ('Reasons'), [42].