Barel v Segal

Partition 5Before dealing with the facts, I should make some observations about the statutory remedy provided by Section 66G of the Conveyancing Act. The purpose of the remedy of partition, and for that matter sale, is to facilitate the alienation of land where co-owners are unable or unwilling to agree on its use or management: Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635 at 650-651 (Brennan J). The premise on which any such application is made and the remedy granted, is the existence of disagreement. But the existence of disagreement between co-owners is not a reason for preferring sale to partition. Subsection (5) contemplates that a scheme of partition prepared by a trustee appointed pursuant to subsection (4) may itself generate disputes that are to be resolved by further application to the court. And subsection (6) provides an additional power to the court to alter a statutory trust that has been ordered, whether the statutory trust is for sale or partition. Taken as a whole, the legislative scheme demonstrates, in my view, that the process contemplated by Section 66G(4), (5) and (6) is intended to be ambulatory and flexible. In a particular case, depending on the facts, it may proceed in stages. 6I acknowledge that as a general rule, orders are more often made for the appointment of trustees for sale, rather than for partition. This is probably because a sale will often be less complicated, especially where, as in this case, there is a mortgage over the whole of the land. It is also because the terms of Section 66G(4) require the satisfaction of additional conditions that need not be proved on an application for the appointment of trustees for sale. But Section 66G(1) contemplates either sale or partition. It is probably just a matter of semantics, but I do not think that it is entirely accurate to say that the legislation makes sale the "preferred" remedy. cf Butt, Land Law, 6th edition, 2010 at 265-266. 7The origin of the notion that sale is the preferred remedy seems, at least in part, to be an observation of Sugerman J in Re Cordingley (1948) 48 SR (NSW) 248 at 250. His Honour said no more than that "it may perhaps be suggested" that "the emphasis has in another way been shifted from partition as the primary right, with sale in particular cases, to sale as the primary right with partition in special circumstances". He added however that it was unnecessary to express a concluded opinion on the point. The notion that sale is the preferred remedy may also date from the earlier Partition Acts in the United Kingdom and New South Wales. The Partition Act 1868 (UK) was followed by the Partition Act 1878 (NSW) which was replaced by the Partition Act 1900 (NSW). This legislation made sale the preferred remedy in the sense that if the co-owners entitled to one half or more of the property preferred sale to partition, then the court had to order a sale in the absence of "good reason to the contrary": Squire v Rogers (1979) 27 ALR 330 at 340; Pannizutti v Trask (1987) 10 NSWLR 531 at 539; Butt (supra) at 265. 8The language of Section 66G is however different. It does not state expressly that sale is or should be the preferred remedy. True it is that partition is only available if the conditions stated in subsection (4) are met and even then it remains a matter of discretion. If those conditions are not met or if the discretionary factors do not favour partition, then sale will follow. In a practical sense, sale is the default position. But the distinction I have sought to draw is that a judge does not start with a predisposition towards sale simply because it is cleaner, simpler and more straightforward. The choice of sale or partition will depend on the particular facts and careful consideration of the discretionary factors: Hayward v Skinner (1981) 1 NSWLR 590 at 593-4.

Scheme of Partition - Subdivision 9In this case, the plaintiff's claim for partition is dependent on an approval for subdivision of the land which has not been, and may not be, granted. A plan of subdivision has been prepared for submission to Council but, as I have mentioned, the defendant refuses to sign it. Absent the consent of both co-owners, the plan of subdivision cannot be progressed. I will shortly explain the features of that plan to which the defendant takes exception. However, they are matters which I infer are capable of resolution or accommodation - especially having regard to the court's powers under Section 66G(5) and (6) and the plaintiff's undertaking to which I referred in paragraph [4] above. But if those matters are in truth insoluble and no approval for subdivision eventuates, then implementation of the order for partition will be impossible, the order should be revoked and sale ordered instead. 10There is nothing particularly unusual in an order for partition being made on a contingent basis, namely so that its implementation is subject to the grant of subdivision approval. An order to similar effect was expressly contemplated by Deane J in Squire v Rogers (supra) at 341. His Honour said: The requirement of s 29 of the Ordinance that land be held and occupied as one undivided parcel would not preclude the actual making of a decree for partition. The making of such a decree would not, in itself, involve a division of the holding or occupation of the land in respect of which the decree was made. The existence of the provisions of s 29 might lead the court either to frame a decree for partition in such a way as to ensure that the necessary approval for subdivision was obtained before the decree could be carried into effect by actual division of the property or to provide, by ancillary orders, for the actual making of an application for approval of the necessary subdivision (see, for example, the form of order made in Dougan v Ley (1946) 71 CLR 142 at 145, 152 and 154. 11This was also the basis of the decision in Sovova v Ojvan (1987) 72 ACTR 10 (esp at 12) (Miles CJ). See also Butt (supra) at 269. In some other cases, judges have contemplated different means by which an appropriate result could be achieved. Thus in Asimus v Asimus [1999] NSWSC 1020, Hodgson CJ in Eq was willing to grant a stay of orders for the appointment of trustees for sale so that evidence could be presented that subdivision was a probability.

Meaning of More Beneficial 12The other matters that require consideration are the criteria for the application of Section 66G(4). The principal criterion is that partition of the property would be more beneficial than sale for the co-owners interested to the extent of upwards of a moiety in value. In the case of co-owners having equal shares, as in this case, that means that partition must be more beneficial for both of them. But there is an initial question of construction concerning the meaning of "beneficial". 13The ordinary and natural meaning of "beneficial" is "conferring a benefit; advantageous; helpful". A "benefit" is anything that is for the good of a person or thing: Macquarie Dictionary, 5th Edition, 2009. There is no clear indication in the language or syntax of sub-section (4), or in the surrounding textual context, that the adjective "beneficial" should be given a limited meaning. In particular, I do not discern any express or implied legislative intention that it be limited to a pecuniary benefit. 14I accept that the issue of whether partition is more beneficial than sale will frequently be resolved by reference to an evaluation of the respective economic benefits. But in any given case, there may be other relevant factors. That is not to say that a court is likely to go into questions of sentiment. That would usually be far too nebulous. But there is no binding appellate authority that compels me to read "beneficial" in sub-section (4) as if it only meant "financially beneficial". And I have not done so, notwithstanding the respect that I naturally have for the reasoning of Young J (as he then was) in Cryer v Ossher [1997] NSWSC 613 and the line of authority on which he relied. That line of authority started with a remark by Jessel MR in Drinkwater v Ratcliffe (1875) LR 20 Eq 528 at 533. For my part, I do not regard that typically robust remark by Sir George Jessel as a sure foundation for the question of construction that I must address. In any event, in his subsequent decision in Gilbert v Smith (1879) 11 LR Ch D 78, Jessel MR applied the criterion of "more beneficial" broadly by reference to considerations such as the nature of the property and the number of parties interested. More recently, in Pannizutti (supra), Kirby P was not sure that "beneficial" should be confined to financial benefits and Needham A-JA said that the point should be kept open (at 542). And in Re Darby (1999) 2 Qd R 350 White J held (at 353), following Pemberton v Barnes (1871) LR 6 Ch App 685 at 693, that emotional and other considerations might be relevant. Pemberton v Barnes (supra) was a decision of Lord Hatherley who, despite being expelled from Winchester following a revolt against the headmaster, rose to become Lord Chancellor. His reasoning reveals a broader analysis than a mere comparison of value according to whether sale or partition is ordered. I acknowledge that in many cases a valuation that compares the value of the aggregate land with the value of its individual lots on a partition, will be material. Lucky Developments v Hsu [1999] NSWSC 412 is an example of a case where there was evidence of that kind. But I do not think that such evidence is always essential or necessarily determinative.

Consent 15The other criterion for the application of Section 66G(4) is that "the incumbrancers of the entirety (if any)" consent to the appointment of a trustee or trustees of the property on the statutory trust for partition. This has not been done - although the solicitors for the mortgagee, the Commonwealth Bank of Australia, have stated that the bank has no objection in principle to the subdivision proposed by the plaintiff subject to certain understandable qualifications. In this case, the absence of the precise evidence called for may be cured. I will provide an opportunity to the plaintiff, before formal orders are made, to rectify the omission if the evidence is available. The result of partition will of course be to alter the nature of the bank's security from one held over the entire property to one held over the divided shares of each of the plaintiff and the defendant. There is no difficulty with this in principle so long as the bank consents: Fulton v 523 Nominees Pty. Ltd. [1984] VR 200 at 204 (Tadgell J). Given its stated position in relation to the proposed subdivision, I would expect the bank to consent to the appointment of a trustee of the property on the statutory trust for partition. However the bank will need to consider its commercial position and the matters that I have explained in these reasons. Its consent cannot be assumed.

The Defendant's Objections 16That then leads me to the defendant's objections to the plan of subdivision proposed by the plaintiff. It is important to appreciate that this hearing is not the forum or the occasion for the determination of objections to the proposed plan of subdivision, as if I were some sort of environmental assessor, or even worse, a planning officer at Waverley Council. Properly characterised, the defendant's objections are put forward as reasons why, it is said, an order for partition would be futile. They are also put forward as going to the exercise of my discretion. I will deal separately with the discretionary considerations. But the basis of the futility argument is that I should infer that the Council will not grant subdivision approval. 17I doubt that the proposed subdivision application will be futile. The Council may impose certain conditions. It may reject the current proposal but entertain a revised application. There are a number of combinations and permutations that could arise. Not only does the Council have options open to it, but Section 66G itself promotes flexibility. Thus the first step is for the trustee to prepare a scheme of partition: Section 66G(5)(a). If we get to that point, I will provide guidance to the trustee. And the process by which the trustee must prepare a scheme of partition may itself involve some consideration of the defendant's objections. I am confident that the very experienced trustee whom the parties have proposed will, if appointed, diligently bring her expertise and judgment to bear in putting forward a scheme of partition that is appropriate and objectively reasonable from the perspective of both parties. 18Even when a scheme of partition has been prepared by a trustee, it remains open to either party, if dissatisfied with the scheme, to apply to the court for a variation of the same: Section 66G(5)(a). In that event, I will reluctantly be the final arbiter. Further still, as I have mentioned, if I order a statutory trust for partition, Section 66G(6) provides an additional power to the court to alter the trust, if rendered necessary or appropriate by subsequent events, or for any other reason. There is thus ample scope for ensuring that the ultimate outcome is just.

The Planning Issues 19I must now turn, with what I concede is limited enthusiasm, to the detail of the precise planning issues. Counsel for the defendant has explained to me, with a great deal of care and concision, why it may well be that the form of strata subdivision plan proposed by the plaintiff will not meet with the approval of the Council. I can see why that might possibly be the case. But I cannot be certain. There was, on the one hand, no evidence from any planning officer of the Council or from a qualified certifier. On the other hand, Mr Saxon, a surveyor who has been closely involved with the project, said that the buildings as constructed were generally in accordance with the approved building plans. In his view, once certain requisitions raised by the Department of Lands were complied with, the plaintiff's strata plan of subdivision was registrable. 20The defendant's contentions came down to two matters. It was said that in two respects what has been constructed does not satisfy a condition of Council approval given as long ago as 16 December 1997. That approval was a consent to a development application to "strata subdivide the detached dual occupancy development". In 1996 Council had approved the construction of two separate dwellings on the land. That made it a dual occupancy development. The Council's 1997 consent to the development application seeking strata subdivision approval was subject to a condition that the proposed development be "carried out in accordance with the development application submitted 6 November 1997 and to conform with Plan No 10076 Sheets 1 and 2". 21I have been led on a microscopic comparative review of Plan No 10076 and the plaintiff's proposed plan of strata subdivision. The comparison appears to reveal two discrepancies in the construction by the plaintiff of the building on Lot 1. First, the void over the entry landing has been filled in and a new wall constructed across the area. Second, a concrete slab on the terrace outside the kitchen and family room has been extended. There was no evidence that the first matter involved any inconvenience or loss of amenity to the occupant of Lot 2. Counsel for the defendant nonetheless suggested, somewhat obliquely, that the new wall diminishes the light which Lot 2 would otherwise receive. But this was not proved. Even if it was, the issue is too problematic and speculative to found the basis of any decision by me. 22The second matter was the subject of more evidence. That evidence indicated that the extension of the concrete slab interferes with and appears to prevent, the passage of an inclinator from street level to Lot 2, which is situated higher up on the land. However Mr Saxon said: The installation of the inclinator is irrelevant to the strata plan registration, and the plan has been constructed in such a way as to entitle the owner of Lot 2 to install it at a later date. The buildings have been under construction since 1996, and the question of how the inclinator could be installed should have been resolved by 2011. 23The question raised by Mr Saxon's evidence is whether provision for an inclinator should be regarded as a sine qua non of strata subdivision approval. I would not have thought so. But this is a planning matter on which I am not qualified to predict the answer. It did not appear to be essential when the Council reviewed the original building application. Although that application was deemed to be refused in 1995, it specified the construction of either an inclinator or steps along the eastern boundary. Council raised a number of reasons for deferring consideration (resulting in a deemed refusal), but it did not suggest that an inclinator should be the only means of pedestrian access to the dwelling proposed for the higher level. Nor am I satisfied that there was any agreement or understanding between the plaintiff and the defendant that there must necessarily be an inclinator. 24But the point is that neither of these discrepancies advances the defendant's case. They are matters of form and detail. As I have explained, the Council may or may not reject the strata subdivision application. It may waive the non-conformity. It may impose conditions. It may require rectification to achieve conformity. There is no necessary insuperable obstacle. We will not know until an application is made and determined. The trustee, if and when appointed, may herself take the view that, before submission to Council, the plaintiff's proposed plan of strata subdivision should be altered in some way. And of course the plaintiff is prepared to do what is necessary and has given the undertaking to which I referred in paragraph [4] above.

More Beneficial in Fact 25The defendant's more substantial grounds of opposition relate to whether partition is more beneficial than sale and even if so, whether my discretion should be exercised in favour of partition. I have already observed that, having regard to the physical features of the property, strata subdivision is an overwhelmingly obvious and logical choice. It is conceivable that there may be some buyer willing to pay a premium price for the single block, with its two separate dwellings. But it is more probable than not, that on a strata subdivision, the value of the individual lots will exceed that of the single block. This was assumed to be self evident during submissions. The defendant called no valuation evidence and made no submission to suggest otherwise. His contentions as to why partition was not more beneficial raised different issues. 26In order to respond to the defendant's contentions, I should expand on the history of the development of the land and the mutual intention of the parties. As I mentioned, both the plaintiff and the defendant commenced on the path to strata subdivision in 1997. They had obtained building approval (BA893/96) in 1996 for the construction of separate dwellings on the land. On 30 October 1997 a preliminary strata subdivision plan was submitted to Council. On 16 December 1997 the Council granted development consent to strata subdivide the proposed dwellings on the basis of the preliminary strata subdivision plan. The plan contemplated that the material of the walls and roofs would form part of each lot so that there would be a minimum amount of common property. 27In 1998 the parties digressed. They decided to change strategy and to attempt to obtain approval to a Torrens title subdivision. This was never likely given that the area of the site is less than 1,000 square metres and it was impossible to comply with the Council's minimum allotment requirements. The application was duly rejected. The only possible form of subdivision was that which the parties had originally intended, namely strata subdivision. 28In the meantime, the plaintiff and the defendant continued with the construction of their separate dwellings on the land. Over time there were some modifications to the plans for each of the dwellings - which the Council approved. The initial course of dealing between the plaintiff and the defendant was that they contributed equally to the construction costs. For some time the defendant was closely involved, attending on site and liaising with architects and engineers. The plaintiff instructed tradesmen and obtained materials. He kept records and presented invoices to the defendant. They met on site on a weekly basis. Periodically they balanced the expenditure. They now disagree on their relative contributions. 29In 2002 the relationship between the plaintiff and the defendant deteriorated. The progress of the construction work was slow. Neither house was complete although the lower house was closer to lock-up stage than the upper house. The strata subdivision was stalled. They bickered. There was and still is, a disagreement about what seems to be an excessive number of garages demanded by the defendant. The plaintiff wanted to be independent of the defendant. But they needed more money to complete the works. They came to an arrangement that the plaintiff would work on his house on Lot 1 and would also assist the defendant with the house on Lot 2. For some time the defendant paid the plaintiff $1,000 per week for his assistance. In February 2003 the defendant organised a joint loan from the Commonwealth Bank for $1.3 million. In January 2004, the Commonwealth Bank granted each of them an additional line of credit - $300,000 for the plaintiff and $200,000 for the defendant. 30In September 2005 the plaintiff and his family commenced occupation of the lower house on Lot 1. The defendant now says that he did not agree to the plaintiff's occupation. I regard this unqualified statement as dissembling. The position was not so straightforward. Certainly however, the defendant was uncooperative and difficult and the mutual trust and confidence between them had diminished. Despite numerous requests, the defendant has since refused to sign any plan of subdivision. 31In 2007 the plaintiff instructed Mr Saxon's firm Clement & Reid to prepare another preliminary strata plan. This was done. It reflected the envelope of the buildings as constructed. A re-definition plan was also prepared in accordance with the policy of the Land and Property Management Authority (LPMA). In 2009 Mr Saxon again inspected the site. In December Mr Reid, a fellow director of Mr Saxon, also inspected the site together with Len Robinson (a former Strata Commissioner) and Graham Davies. Mr Robinson and Mr Davies were retained to prepare the by-laws for the strata plan. They were joined by John Arthur a team leader from the Strata Plan Section of the LPMA. The primary purpose of the inspection was to facilitate an understanding of the issues that officers of the LPMA would have to consider on presentation of the final strata plan. 32In February 2011 Mr Saxon prepared a final strata plan. He certified that it complied with each of the requirements of Schedule 1A of the Strata Schemes (Freehold Development) Act 1975. He said that, following an inspection of the site to discuss registration of the strata plan, officers of the LPMA raised no queries. It is clear, he said, that the building is at a stage where a strata plan can be registered. Nonetheless the defendant will not sign the strata plan. He refuses to be part of the process. In early 2011, Mr Saxon submitted the strata plan to the Department of Lands for pre-examination to determine whether the plan was registrable. The pre-examination elicited a list of requisitions each of which Mr Saxon says can be accommodated. In his opinion, the pre-examination process did not reveal any issue that will prevent the plan from being registered, once he has attended to the requisitions. 33That history raises a number of issues. Foremost is that, by his intransigence, the defendant has manufactured the disputes and objections on which he relies to justify his refusal to sign the plan of strata subdivision. I do not mean to suggest that his objections are not genuinely held. But as I mentioned, strata subdivision is the obvious and logical choice. The defendant knows this. He told me that he was not opposed to strata subdivision - just the plaintiff's strata subdivision. He is inflexible. I have formed the view that there is no prospect of him agreeing with the plaintiff. That is why, if partition is ordered, it will be necessary to have recourse to the experience and judgment of the proposed trustee. It may also be necessary for me to rule on objections by the defendant pursuant to Section 66G(5)(a). But above all it will be necessary to submit the plan to Council, to ascertain whether it has any objections, whether it will impose any conditions and whether it will be necessary for the plaintiff to give effect to his undertaking referred to in paragraph [4]. This can only be done by a trustee appointed by the court. The unwillingness of the defendant to agree with the plaintiff, and the grounds of objection that he has raised to the plaintiff's strata plan, do not by themselves compel me to prefer sale to partition. The flexibility inherent in Section 66G(4), (5) and (6) will ensure that a reasonable outcome is achieved. 34It is obvious that partition will be more beneficial to the plaintiff. It will enable him to remain in the home where he has lived with his family since 2005. He has invested considerable monetary and emotional capital, not to mention fifteen years of his life, in the project. The real question is whether it is appropriate to characterise partition as more beneficial than sale for the defendant. For both plaintiff and defendant partition will provide certainty and security of title in accordance with their original objective. It will enable each of them to re-finance on a separate basis their current joint indebtedness to the Commonwealth Bank. It will remove the source of their disputation. The defendant will become the registered proprietor of Lot 2. It will be more saleable than his current half share of the undivided land. He will have the choice of completing the fitting-out of Lot 2 or selling it in its current state. If he chooses to complete the construction, he will no longer have to deal with the plaintiff as if he were the co-owner that he once was. For both parties, the bank's proceedings for possession of the jointly owned property should be resolved. The prospect of a mortgagee sale over their jointly owned property will be averted. Each will be responsible for his own property and his own indebtedness. Above all, partition, if ordered, will result in the defendant having what was intended to be his - before he set his face against co-operation. 35But there are unresolved and complex financial considerations. They go to the question of what is more beneficial for the defendant and which way the discretion should be exercised. The complexity arises because of the dispute between the parties as to the amounts of money paid towards the project by each of them. To the extent, if any, that the defendant has made monetary contributions for the benefit of the plaintiff towards the construction of the dwelling on Lot 1, or in an amount that reflects more than the cost of the existing construction on Lot 2, it may be possible to provide a mechanism to ensure that there is an adjustment in the defendant's favour for which he will have security pending payment. But the working out of any adjustment cannot be determined until these amounts have been ascertained. 36I made clear during the hearing, and both parties welcomed the fact, that I will appoint a referee to determine as soon as possible the remaining issues including the competing contentions between them as to their respective financial contributions and the quantification of any adjustment that should be made in the defendant's favour, if at all. Whether there should be any equality money, and if so how much, will also need to be considered: Section 66F(3)(b). The finalisation of those matters will enable me to determine whether I should continue to prefer partition. 37I acknowledge of course that the remedy of sale, just like partition, will permit the parties to disentangle their affairs and their lives. But as is partition, it is a discretionary remedy. Given the history that I have recounted, and the matters to which I referred in paragraphs [3] and [4] above, I am reluctant to order a sale unless it is necessary to do so. Taken as a whole, and subject to hearing further when the amounts of the parties' contributions have been determined, I regard partition as more appropriate and consistent with the parties' earlier objective. And I am quite confident that any scheme of partition that is arrived at, and any strata subdivision that I expect will follow, will be objectively reasonable to both parties. 38The defendant's submissions emphasised the disputes between the parties concerning their respective financial contributions. They also relied on an allegation by the defendant that the plaintiff holds some undefined part of his share of the land on trust for the plaintiff. The evidence relating to this matter has not yet been addressed. The defendant's submissions also relied on the bank's proceedings for possession. As I have now made clear, the considerations that arise from those issues are best addressed when the accounting between the parties has been finalised, when it is clear whether the bank consents to partition, when the remaining issues have been resolved and when submissions have been addressed to the question of any monetary adjustment or any equality money that may be necessary in the light of the proved facts. Naturally I will only order partition if I am satisfied that it will produce a just outcome for both parties.

Relief & Orders 39I have explained why at this stage, and subject to hearing further, I favour partition over sale. However, the plaintiff will need to provide evidence of the bank's consent in accordance with Section 66G(4) before any order can be made. And there are other remaining issues in the proceedings that must be heard and determined before I can reach a final conclusion as to whether it is proper to characterise partition as more beneficial to both parties and whether my discretion should be exercised in favour of the plaintiff. At this stage, the only orders that I make are as follows: (a)I adjourn the proceedings to 24 October 2011 before me for directions. (c)I order that possession proceedings No 2011/90694 in the Common Law Division of this court be transferred to the Equity Division and be listed together with these proceedings on 24 October 2011. 40On 24 October, or such other date as is convenient, I will make an order for the referral to a referee of all necessary remaining issues, including those relating to the respective contributions by each party to the acquisition of the land and the construction of the dwellings on it. I am disposed to appoint Mr P R Callaghan SC as the referee for that purpose if he is available and willing to accept the appointment. I will also entertain on that date an application for a stay of the possession proceedings, if necessary. To that end, I give the following directions: (a)The plaintiff's solicitors should forthwith provide a copy of these reasons to the solicitors for the Commonwealth Bank of Australia; (b)The legal representatives of the plaintiff and the defendant should confer with a view to providing to me on 24 October, or such other date as is convenient, the following: (i)an agreed list of the issues required to be referred to a referee; (ii)confirmation that Mr P R Callaghan SC is available and willing to accept appointment as a referee, and if not, the names of other proposed referees willing to do so. 000

Amendments 05 September 2012 - Correction of citation Amended paragraphs: 11 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: 05 September 2012