Community Association DP270212 & Ors v Registrar-General for State NSW & Anor - [2004] NSWSC 961 - NSWSC 2004 case summary — Zoe

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Community Association DP270212 & Ors v Registrar-General for State NSW & Anor

[2004] NSWSC 961

Supreme Court of NSW|2004-10-19|Before: Palmer J

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Court

Supreme Court of NSW

Decision date

2004-10-19

Before

Palmer J

Source

Original judgment source is linked above.

Judgment (56 paragraphs)

[1]

CITATION : Community Association DP270212 & Ors v Registrar-General for State NSW & Anor [2004] NSWSC 961 HEARING DATE(S) : 22 September, 2004 JUDGMENT DATE : 19 October 2004 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Community scheme terminated.

[2]

CATCHWORDS : COMMUNITY LAND DEVELOPMENT - COMMUNITY SCHEME - TERMINATION - Whether continuation of scheme impracticable - meaning of "impracticable" - discretionary considerations - form of orders. - Community Land Development Act 1989 (NSW) - s.3, s.5, s.25(1), s.70(1) LEGISLATION CITED : - Corporations Act 2001 (Cth) - Real Property Act 1900 (NSW) - Strata Schemes (Freehold Development) Act 1973 (NSW) - s.51 - El Sombrero Ltd, Re [1958] 1 Ch 900 CASES CITED : - South British Insurance Co Ltd, In re (1980) ACLC 34,419 - Thornley v Heffernan (unrep.) 12 September 1995 NSWSC Community Association DP270212 - First Plaintiff Rylefloor Pty Limited and Agrico Pty Limited - Second Plaintiffs Julia Mary Ross - Third Plaintiff PARTIES : Peter Tout Pty Ltd - Fourth Plaintiff Bruce Bernhardt Foye and Jan May Foye - Fifth Plaintiffs Registrar-General for the State of New South Wales - First Defendant Scone Shire Council - Second Defendant FILE NUMBER(S) : SC 1583/04 COUNSEL : D.M. Flaherty - Plaintiffs Ms L. Hughes (Sol) - First Defendant SOLICITORS : Hannaford Lawyers - Plaintiffs K.C. Hall, Sol for Registrar-General - First Defendant

[21]

11 The Plaintiffs wish to terminate the Community Scheme entirely because they all wish to be able to utilise their respective lots with more freedom and individuality than is afforded to them under the terms of the present Community Scheme. The question, however, is whether in the circumstances of this case the Court has power to terminate the Community Scheme pursuant to the only statutory provision under which it may be terminated, i.e., s.70(1)(b) of the Act. Under that section the Court has no power to terminate a scheme merely because all of the persons having an interest in the land subject to the scheme consent. The Court has power to terminate a scheme only if "continuation of a scheme … has become impracticable" . 12 Mr Flaherty of Counsel, who appears for the Plaintiffs, says that certain provisions of the community management statement are impracticable within the meaning of that word in s.70(1)(b). By s.5(4) of the Act, a community management statement must be lodged for registration when a community plan is lodged for registration. By s.5(6), upon registration of the community plan, the community management statement becomes part of the plan. A community management statement, upon registration of the community plan, operates as a statement of the by-laws governing participation in the community scheme: s.3(1). 13 The relevant provisions of the community management statement in the present case are as follows. 14 Part 1 relates to the control and preservation of the essence or theme of the Community Scheme and may only be amended or revoked by unanimous resolution of the Community Association. 15 By-laws 1.1 and 1.2 define "Architectural Standards" for the Community Scheme as follows: " 1.2.1 Scope Architectural Standards are required to establish, maintain and enhance the character of "Tarcowie". Standards ensure a consistent quality is achieved throughout the development of "Tarcowie" in the short and long term. … The Community Association must apply the standards, objectives, guidelines and review processes in approving a proposal under the Architectural Standards.

[33]

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. 20 In Re El Sombrero Ltd [1958] 1 Ch 900, the applicant sought an order convening a meeting of a company under a provision of the Companies Act (UK) which enabled the Court to make such an order "if for any reason it is impracticable to call a meeting of the company in any manner in which meetings of that company may be called" . 21 At p.904 Wynn-Parry J said "The question then arises, what is the scope of the word 'impracticable'? It is conceded that the word 'impracticable' is not synonymous with the word 'impossible'; and it appears to me that the question necessarily raised by the introduction of that word 'impracticable' is merely this: examine the circumstances of the particular case and answer the question whether, as a practical matter, the desired meeting of the company can be conducted." 22 In Thornley v Heffernan (unrep. 12 September 1995 NSWSC), McClelland J had to consider the meaning of a clause in the constitution of the Liberal Party of Australia which provided for what could be done "if … time or circumstance … make it impracticable to hold a meeting" . His Honour, referring to Re El Sombrero , said: "The expression 'impracticable' in [the relevant clause] does not mean 'impossible'. It directs attention to considerations of a practical rather than a theoretical nature arising out of the particular circumstances."

[34]

See also In re South British Insurance Co Ltd (1980) ACLC 34,419 . 23 In the particular circumstances of the present case, I am of the opinion that the continuation of the Community Scheme is impracticable having regard to considerations of a practical nature. My reasons are as follows. 24 The terms of the architectural standards in the community management statement to which I have referred, while no doubt commendable as ideals, are so imprecise and general and depend so much on subjective taste and judgment that they cannot be applied with any practical certainty, consistency or predictability. On the contrary, they are likely to lead to frequent disputation whenever particular proprietors of lots seek to do anything on their properties which requires the approval of the community association. It must be remembered that under By-law 1.2.4 the community association has no discretion to waive compliance with the architectural standards. 25 How, for example, is one to decide with any degree of certainty or predictability whether a particular proposed new building has the appropriate "rhythm" , in accordance with By-law 1.2.5(a) and (d), whether its colours are in context with the lot's environment, in accordance with By-law 1.2.5(f), or whether it is consistent with the existing rural character of the local area, in accordance with By-law 1.2.3? 26 In some cases a decision will be quite obvious, as where a proprietor seeks approval to construct a towering glass and steel edifice out of all proportion with the natural environment. But in most cases the decision will not be so obvious: most proprietors seeking to develop their lots would endeavour to comply with the Architectural Standards but what one proprietor might think to be well within the Standards, another proprietor might think to be well outside them. 27 It is doubtless considerations such as these which have persuaded the proprietors of all lots in the Community Scheme that the continuation of the Scheme is inimical to their interests. 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. 30 In my opinion, in the present case, the Court should act upon the basis that the continuation of the present Community Scheme has been shown to be impracticable in the relevant sense so that the Court has power to order termination, if otherwise appropriate.

[35]

31 The question now arises whether, in the exercise of the discretion conferred by s.70(1)(b) of the Act, the Court should terminate the Community Scheme. The Act gives no guidance as to the factors which the Court should take into account in the exercise of the discretion and, as far as I am able to discover, there is no authority directly in point. However, as has been suggested by the Registrar-General in a letter of advice to the Plaintiffs' solicitors, it seems to me that there is a useful analogy between termination of community scheme under s.70(1) and termination of a strata scheme under s.51 Strata Schemes (Freehold Development) Act 1973 (NSW). 32 A significant difference between the two sections is that s.70(1)(b) gives power to the Court to vary or terminate a community scheme only where its continuation is impracticable, whereas s.51(4) gives an unqualified power to the Court to terminate a strata scheme. However, under both sections, the power to terminate is exercisable as a matter of discretion and it seems to me that termination of a strata scheme is likely to give rise to many considerations which will be pertinent to termination of a community scheme. 33 The most important discretionary consideration is whether the interests of anyone affected by the Scheme may be prejudiced if it is terminated. Persons affected by the Scheme would include not only the proprietors of the Lots in the Scheme but also all those having security interests, registered or unregistered, in the Land itself or in the property of the Community Association. Also affected would be those whose use of the Land within the Scheme might be prejudiced, such as those having the benefit of easements, rights of way or restrictive covenants. The local planning authority, that is, the Council, clearly has a planning interest in the continuation of the Scheme. The Court should have evidence which satisfies it that all proper steps have been taken to ascertain those who might be affected by termination of a Scheme and that such persons have been given due notice of the application to terminate. 34 In the present case, as I have noted, everyone who has an interest in the Land comprised in the Community Scheme has been ascertained and has consented to the termination. Scone Shire Council has indicated by its attitude to appearing in the proceedings that it does not see any difficulty in the termination of the Scheme. 35 In most cases, termination of a scheme would require the winding up of the community association as its reason for existence will have ceased. The community association may have assets of considerable value; it may also have considerable debts. Whether or not the community association will be left unable to discharge its obligations to creditors if the Scheme is terminated is a material consideration in the exercise of the Court's discretion. For this reason, the Court should have evidence as to the current financial position of the community association. 36 Except where the winding up of a community association is very straightforward - for example, where there are no creditors and the assets are easily distributable to the proprietors of the lots in the scheme - the administration of the winding up should be placed in the hands of a liquidator entitled to administer liquidations under the Corporations Act 2001 (Cth). 37 The various discretionary considerations to which I have referred are reflected in the orders which the Court may make under s.70(3) of the Act; those considerations have been addressed in the draft orders now proposed by the Plaintiffs. For the sake of convenience, I will refer to each of those matters which is applicable in the present case by the paragraph numbers in the sub-section. 38 As to paragraphs (a), (b), (d) and (e): the First Plaintiff is to be wound up and an independent liquidator is to be appointed. An appropriately qualified liquidator has provided his written consent to act. The most recent accounts of the First Plaintiff show that it is solvent but, for the sake of abundant caution, the Second to Fifth Plaintiffs by their Counsel undertake to the Court as a condition of making the orders that if there are insufficient funds in the liquidation to pay all of the liabilities of the First Plaintiff, including the expenses of winding up, they will contribute to the shortfall pro rata according to the unit entitlements of their lots to the whole of the Land. 39 As to paragraph (f), a new plan of subdivision has been agreed between all lot proprietors and is ready to be lodged for registration. The new plan of subdivision will result in the vesting of the Land in the Second to Fifth Plaintiffs in agreed proportions. The taking effect of the termination order is proposed to be deferred for three weeks after its making to enable the new plan to be lodged for registration. In case of some difficulty in registration, I have provided that this order may be varied pursuant to liberty to apply. Orders