Community Association DP 270982 v Registrar-General for New South Wales

Supreme Court of NSW|2018-02-27|Before: Community Association DP, Kunc J, Palmer J

Summary

This is an application under s 70 of the Community Land Development Act 1989 (NSW) (the "Act") for the termination of a community scheme in the Armidale area (the "Scheme"). All interested parties consent to the Scheme being terminated.
It was precisely this situation to which Palmer J referred in Community Association DP 270212 v Registrar General for the State of New South Wales [2004] NSWSC 961; (2004) 62 NSWLR 25 (the "Earlier Decision") in recommending an amendment to the Act to facilitate the making of such consent applications. However the legislative response to Palmer J's suggestion has not produced such a straightforward outcome. Nevertheless, the Court is satisfied that the Scheme should be terminated under s 70(1)(b) or (c).
The Scheme comprises four lots. The first plaintiff is the registered proprietor of Lot 1, being the community property. The second plaintiff, who appeared both for herself and for the first plaintiff, is the only member of the first plaintiff and the registered proprietor of Lots 2, 3 and 4 in the Scheme.
In accordance with s 71(2) of the Act, the Registrar General was joined as defendant to the proceedings and was represented by Ms L A Walsh of Counsel. The Registrar General neither consented to nor opposed the application, but assisted the Court by making of a number of helpful submissions, including as to the ultimate form of orders which should be made.
The only other interested party is the bank which holds a mortgage over the land comprising the Scheme. The bank, while not formally a plaintiff in the proceedings, has, by an affidavit sworn by its Head of Lending, indicated that it supports and consents to the present application.

The Act

In its current form, s 70 provides: "70 Variation or termination of scheme by Supreme Court (1) If the Supreme Court is satisfied: (a) that completion of a staged scheme has become impracticable - the Court may vary any applicable development contract or terminate the scheme, or (b) that continuation of a scheme (whether or not a staged scheme) has become impracticable - the Court may vary or terminate the scheme, or (c) that the association of a community scheme, each proprietor of a lot within the community scheme and each registered mortgagee, chargee and covenant chargee of a lot within the community scheme have made an application to the Court to terminate the scheme - the Court may vary or terminate the community scheme and any scheme within the community scheme. (2) An order of the Supreme Court varying a development contract may provide for: (a) the conversion of a development lot or former development lot to community property or precinct property, or (b) the conversion of a neighbourhood lot to neighbourhood property, or (c) the severance from the scheme of a development lot or a neighbourhood lot, or (d) any other matter the Court considers to be appropriate, just and equitable in the circumstances. (3) An order of the Supreme Court varying or terminating a scheme may provide for all or any of the following: (a) the adjustment, exercise and discharge of rights and liabilities under the scheme of an association and its members, (b) disposal of the assets of an association or of a strata corporation that is a member of an association, (c) the vesting of estates or interests in land within the staged scheme, (d) the winding up of an association or of a strata corporation that is a member of an association, (e) a variation of unit entitlements in accordance with a new valuation, (f) the registration of a new plan or reversion to a former plan, (g) any other matter that the Court considers to be appropriate, just and equitable in the circumstances. (4) If the Supreme Court orders termination of a scheme, the parcel that was subdivided to constitute the scheme is, for the purposes of section 23F of the Conveyancing Act 1919, reinstated as a lot in a current plan. (5) Subsection (4) does not apply if the Supreme Court orders the lodgment for registration of a current plan for the parcel."

Does s 70(1)(c) apply?

In the Earlier Decision, Palmer J was also confronted with a situation where all persons interested in the community scheme consented to its termination. At that time, s 70(1) comprised only sub-sections (a) and (b). At the conclusion of the Earlier Decision, Palmer J said: "41 Before parting with this case, I should observe that s.70 of the Act seems to place unwarranted difficulty in the way of termination of a community scheme where the reason for termination is not impracticability but rather the desire of all those who have an interest in it that it should cease to exist. 42 As I have observed, there is no such difficulty in the termination of a strata scheme under s.51 of the Strata Schemes (Freehold Development) Act and, as at present advised, I do not see why there should be any different policy consideration applicable to the termination of a community scheme. 43 If all persons bound together in a property relationship constituted by a community scheme see no further advantage in its continuation, I do not see why they should not be able to dissolve the relationship by consent, subject to the protection of the interests of third parties who might be affected. Legislative review of s.70(1) of the Act may be advisable in the light of what has occurred in the present case."
The legislature later responded to Palmer J's suggestion by means of the Statute Law (Miscellaneous Provisions) Act (No 2) (2004) (NSW) which inserted s 70(1)(c) into the Act.
At first glance it might, therefore, be thought that the present application could easily be dealt with under s 70(1)(c). However, as both the plaintiffs and the defendant noted, this may not be so if a strictly literal view were taken of the words "have made an application to the Court" in that sub-section. The use of those words, on one view, represents a shift from Palmer J's suggestion of all parties being able to "dissolve the relationship by consent" (at [43] in the Earlier Decision).
In my opinion, on the proper construction of s 70(1)(c) the present circumstances are able to be brought within that sub-section. This is because the chapeau to s 70(1) requires the Court "to be satisfied" of the matter then set out in sub-section (c). The matter of which the Court has to be satisfied is the jurisdictional fact: "that the association of a community scheme, each proprietor of a lot within the community scheme and each registered mortgagee, chargee and covenant chargee of a lot within the community scheme have made an application to the Court to terminate the scheme".
The Court's discretion to make the order for termination is enlivened upon being satisfied of that fact.
The question of statutory construction is whether the Court can be satisfied of that jurisdictional fact, that all interested parties "have made an application" when, as a matter of form, not all of them are plaintiffs in the proceedings.
The purpose of Palmer J's suggestion for law reform was to invite the legislature to create a simple and cost-effective way for this kind of application to be dealt with when all relevant parties were in agreement as to what should be done. That history makes it clear that subsection (c) was introduced with a facultative or remedial purpose. Such provisions should, in general, be interpreted in a way that gives effect to that purpose rather than literally or technically (see, for example, IW v City of Perth (1997) 191 CLR 1 at 12 per Brennan CJ and McHugh J; at 39 per Gummow J; [1997] HCA 30).
In the present case, to define "made an application" strictly and literally as requiring each interested party to be a plaintiff in the proceedings leads to an inconvenient, and potentially cumbersome and expensive, outcome in what should be a relatively simple and straightforward exercise. While the number of parties involved in this case is relatively small, it is entirely possible that other applications for the termination of a community scheme will involve several different legal persons, some or all of whom may, for example, feel it necessary to have separate legal representation. That would only add to the cost and complexity of any such application for no good reason.
In my respectful view, the Court is able to be satisfied that all interested parties "have made an application" where some of those parties have indicated their consent to the application without necessarily themselves being joined as plaintiffs in the proceedings. In other words, the Court may reach the requisite state of satisfaction because one or more of the necessary parties are plaintiffs and others have expressly supported or consented to the application. On the proper construction of "have made an application" in this particular legislative context, those others have made the application by their support or consent as much as if they had been formally plaintiffs themselves.
In the present case, the only party referred to in subsection (c) that could be a plaintiff, but is not, is the bank. However, the bank has clearly indicated that it supports the application and consents to orders giving effect to the application. The terms "support" and "consent" appear in the Head of Lending's affidavit.
The Court is therefore satisfied in this case that, for the purposes of s 70(1)(c) of the Act, all requisite persons "have made an application to the Court to terminate" the Scheme.

Does s 70(1)(b) apply?

Against the possibility that the construction to which I have come in relation to s 70(1)(c) is in error, I will also consider the application by reference to the requirement of impracticability in s 70(1)(b).
In the Earlier Decision, Palmer J considered the meaning of "impracticable": "18 I do not think that the continuation of the Community Scheme containing provisions such as By-law 1.2 has been shown to be impracticable in the sense of being totally impossible. There is no evidence of a proposal for development within the Community Scheme which has been considered and rejected by the community association as not complying with By-law 1.2, resulting in a dispute as to whether or not the requirements have been met. It is just possible that all proposed developments in the future may be found to accord with the aesthetic sensibilities of the community association. However, I do not think that that possibility is a realistic one, given the variety of tastes of particular owners of the lots in the Community Scheme and their differing perceptions of the uses to which their land can or should be put in the indefinite future. 19 In my opinion, s.70(1) does not require the applicant for termination of a scheme to prove that continuation of the scheme is impracticable in the sense of being totally impossible; rather, the applicant must show that in the particular circumstances of the case the scheme cannot continue as a matter of practicality. There is well established authority for construing "impracticable" in this way. … 28 I do not think that s.70(1) of the Act always requires the Court to find that the continuation of a community scheme "has become impracticable" because a particular unexpected problem has arisen and has proved to be insoluble. No doubt that situation would be the most common one in which the section would be applied. But in some cases, the Court may find that continuation of a scheme "has become impracticable" because a problem, inherent in the terms of the scheme itself and previously unrecognised, is now seen as inevitably producing impracticability at some time in the future during the life of the scheme. In my opinion, that is the case with the present Community Scheme. 29 One could say that the Community Scheme could be continued if all lot proprietors consented to a variation of the Architectural Standards or sought a variation order under s.70(1)(b) of the Act. I do not think that that consideration is to the point; the point is that the Community Scheme, in its present form, is demonstrated to be impracticable in the relevant sense. If all the proprietors desire that no other community scheme be substituted, either by agreement or by a variation order under s.70(1)(b), I do not see why the Court should, in effect, force a different scheme upon them unless outright termination would substantially prejudice the interests of other persons affected by the Scheme. I can see no public policy in favour of the continuation of such schemes where all parties affected do not wish that continuation. The very existence of such schemes is for the benefit and convenience of those who have an interest in them."
For the purposes of these reasons, it is unnecessary for me to set out in detail the matters on which the second plaintiff addressed the Court to demonstrate why the Scheme is now "impracticable". Without intending any disrespect to the careful way in which the matter was explained, it seems to me that the essential point can be made succinctly.
Since the Scheme was brought into existence, there has been a change in zoning in the relevant land. The evidence discloses that the purpose of that change in zoning was to permit dwellings to be built at a greater level of density than had previously been the case. This was achieved in the re-zoning by permitting lots of as little as 500 square metres.
When the Scheme was created, one of its purposes was to enable residential lots to be created and built upon in a size then not generally available in the area. The second plaintiff now wishes to develop what is, in effect, her land in a way that takes full advantage of the new zoning.
I respectfully express my agreement with, and gratefully adopt, Palmer J's analysis of what is "impracticable" for the purposes of s 70(1)(b), most importantly that it does not have to be shown to be impracticable in the sense of being totally impossible. The second plaintiff has candidly admitted that it would be possible for her to create lots of an appropriate size within the Scheme to take advantage of the rezoning within the rules applying to a community scheme. However, the second plaintiff has also demonstrated that to do so would involve numerous, burdensome administrative and other steps and, more importantly, the creation of a large community property area that would sterilise a significant part of the land in a way that would not be necessary if the land was simply dealt with as separate lots under the Torrens scheme. While not impossible, adherence to the community scheme approach is no longer efficient either economically or as a matter of rational land use.
I have no difficulty, on the basis of the explanation proffered by the second plaintiff, in concluding that the continued maintenance of the Scheme is impracticable in the requisite sense. The Court is therefore satisfied that its discretion to make orders to terminate the Scheme has been enlivened under both sub-sections 70(1)(b) and (c).

How should the discretion be exercised?

There are at least three reasons why I am satisfied that the Court should make the orders sought.
First, I respectfully adopt the words used by Palmer J in the Earlier Decision (at [29]) that: "...I do not see why the Court should, in effect, force a different scheme upon them unless outright termination would substantially prejudice the interests of other persons affected by the Scheme. I can see no public policy in favour of the continuation of such schemes where all parties affected do not wish that continuation. The very existence of such schemes is for the benefit and convenience of those who have an interest in them."
In the present case, the second plaintiff is the person whose interests are primarily affected. I am satisfied that the continued existence of the community scheme would, for the reasons I have set out in paragraph [23], not be for the benefit and convenience of the second plaintiff.
Second, there is no prejudice to anyone affected by the scheme if it is terminated. In this case it is the interests of the bank as mortgagee that need to be taken into account. The bank supports and consents to the present application, including on the basis that its mortgage or mortgages will be registered over the same land which currently comprises the Scheme under its new guise as lots in the proposed Torrens deposited plan. There will be no prejudice to the bank if the orders are made.
Third, it is necessary to consider the interests of anyone who may have dealt with the first plaintiff. In some cases this will necessitate consideration of the financial position of the community association and, in particular, whether it has any debts. That is not an issue in the present case. The evidence discloses that the first plaintiff, has, in effect, never traded. It certainly has no creditors.
In the Earlier Decision (at [36]), Palmer J made the observation that the administration of the winding up of the community scheme should be placed in the hands of a liquidator entitled to administer liquidations under the Corporations Act 2001 (Cth) "except where the winding up of the community association is very straightforward." This is plainly such a "very straightforward" case and it is not necessary for the Court to appoint a liquidator to give effect to the winding up of the Scheme.
For these reasons, I am satisfied that the Court should exercise its discretion to terminate the Scheme and make the ancillary orders sought by the plaintiffs.

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: 28 February 2018

Community Land Development Act 1989(NSW)

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