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

1 This is an application under s.70(1) of the Community Land Development Act 1989 (NSW) ("the Act") for the termination of a community scheme under which the Plaintiffs together hold title to a large parcel of land. All owners of the land within the scheme consent to the termination and no person having an interest in the land or in the scheme opposes the orders sought. However, there is a real difficulty whether, under s.70(1) as presently framed, the Court can give effect to the wishes of all concerned. There is no decision of the Courts which has considered the question directly. 2 The Plaintiffs are the registered proprietors of all of the ten lots comprising the land in Community Plan DP270212 ("the Land"). The Land, which is a parcel of approximately 3,650 hectares, is situated on the Gundy Road near Scone in the Upper Hunter Valley and is known as "Tarcowie". 3 The Community Plan which effected subdivision of the Land was registered on 21 January 2000 pursuant to s.5 of the Act. 4 Upon registration of the Community Plan the First Plaintiff was incorporated by operation of s.25(1) of the Act and a community scheme affecting the Land came into existence ("the Community Scheme"). Section 3 of the Act defines a community scheme as: "(a) the manner of subdivision of land by a community plan, and

(b) if land in the community plan is subdivided by a precinct plan - the manner of subdivision of the land by the precinct plan, and

(c) the manner of subdivision of land in the community plan, or of land in such a precinct plan, by a neighbourhood plan or a strata plan, and

(d) the proposals in any related development contract, and

(e) the rights conferred, and the obligations imposed, by or under this Act, the Community Land Management Act 1989 and the Strata Schemes (Freehold Development) Act 1973 in relation to the community association, its community property, the subsidiary schemes and persons having interests in, or occupying, development lots and lots in the subsidiary schemes." 5 By Summons filed on 23 February 2004, as later amended, the Plaintiffs seek an order pursuant to s.70(1) of the Act terminating the Community Scheme so that title to the Plaintiffs' Lots comprising the Land will revert to freehold title under the provisions of the Real Property Act 1900 (NSW). Section 70 of the Act relevantly provides: "(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.

(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."

The position of affected parties 6 In accordance with s.71(2) of the Act, the Registrar-General has been joined as First Defendant in the proceedings. Ms Hughes, solicitor, appears for the Registrar General and says that the Registrar-General, who has carefully examined the Plaintiffs' application, does not oppose the orders sought. Indeed the Registrar-General has provided very useful guidance to the Plaintiffs as to how this application to the Court should be made. 7 The Scone Shire Council, as the "consent authority" referred to in s.71(3) of the Act, has been joined as Second Defendant. The evidence satisfies me that the Council has been fully informed of the Plaintiffs' application and has notified the Plaintiffs' solicitors that it does not oppose the application and does not wish to take any part in the proceedings. There has been no appearance on behalf of the Council. 8 All mortgagees and other persons recorded on the New South Wales Land and Property Title Register as having any interest in the lots comprising the Land have consented to the Plaintiffs' application to terminate the Community Scheme and to the conversion of the Land to freehold title. 9 The Plaintiffs' solicitors have advertised this application by public notice in a newspaper circulating in the Scone district and in the Sydney Morning Herald . No response to those notices has been received. 10 By virtue of s.70(4) of the Act, upon termination of the Community Scheme the Land will be reinstated as a single lot in a current plan of subdivision. However, the Plaintiffs have agreed upon a new plan of subdivision which will re-subdivide the Land, giving the Second to Fifth Plaintiffs the same lots as they presently occupy together with a proportionate share in Lot 1, which is the land owned by the First Plaintiff. The new draft plan has been submitted to the Registrar-General and it is expected that there will be no difficulty in procuring its registration.

The provisions of the community management statement

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.

1.2.2 Objectives Lot proprietors who want to develop a Lot or construct a new dwelling or structure or alter the external appearance of an existing dwelling or structure must comply with the design criteria set out within the Architectural Standards and obtain the approval of the Community Association prior to applying to Council for a Development or Building Application consent. The primary reasons for fixing and controlling development in "Tarcowie" are to: encourage environmental excellence; preserve the design integrity and architectural quality of the land, dwellings, structures and environment; and uphold property values for all Lot proprietors. These objectives are achieved through the application of the Architectural Standards and their reviews by the Community Association. Alternative proposals to those that embody the guidelines and standards set out within the Architectural Standards will not be permitted. A major objective is to create and maintain a rural character for the development. In reviewing proposals for development of a Lot or construction of a new dwelling or structure or alteration to the external appearance of an existing dwelling or structure the Community Association must give a high priority for the need to maintain and enhance this rural character.

1.2.3 Architectural Themes "Tarcowie" is located within an extensive natural, rural and native forest environment. The local environment consists of naturally wooded hills and traditional farmlands. The generally undeveloped, remnant, but substantive forest environment supports an abundance of natural flora and fauna. The local architecture is, in the main unobtrusive, low impact and of rural character. Generally these informal buildings are constructed of natural materials with earthy colours all in basic harmony with the rural environment. All development of and improvements to both buildings and landscape must by [sic] consistent with the existing rural character of the local area.

1.2.4 Design and Construction Principles and Review Criteria The Community Association must apply these standards in deciding upon proposals for new works and alterations and additions to "Tarcowie". The acceptability of the finished construction of building and landscape works must be determined under the general criteria or principles set out within this section.

1.2.5 Contextual Relationships Contextual relationships means the relationship of the development of an individual Lot in conjunction with the neighbourhood or community as a whole. Any proposal to the Community Association under these standards must address the following contextual relationship issues:

(a) Compatibility Compatibility is an agreeable relationship in, and in some instances actual continuity of, architectural style, mass, proportions, rhythm, scale, quality of design and materials, and similar use of materials, colour and design details. Buildings and structures are to be sited in harmony with the natural contours of the Lot. Ground level detail must integrate the building with the landform. Buildings must create minimal disturbance to the natural environment and existing natural landscape contours must be respected wherever possible. Dwellings are to be designed with a strong indoor/outdoor relationship of buildings and landscape to promote integration with the natural environment.

(b) Massing and Form Mass or massing is the visual relationship of architectural elements of various sizes to one another and to the immediate environment. Simple built forms are preferable. Roofs are to be traditionally pitched in form. Balconies, terraces, loggias, pergolas, sunscreens and wide eaves are preferred to promote contact with the surrounding natural environment.

(c) Proportion Proportion is the relationship of height to width, voids to solids, bulk of the structure to other nearby structures, and the part to the whole. No building or structure is to be higher than the natural tree canopy existing on the Lot. Facades and forms of dwellings are to be proportioned to exhibit a rural residential character.

(d) Rhythm Rhythm is the regular or irregular occurrence of architectural and landscaping elements as they occur in design.

(e) Scale Scale is the visual effect of architectural and landscape elements of differing size to one another and to the immediate environment. Buildings and structures are to be domestic in scale relating to the local vernacular architecture and the surrounding environment. The use of simple, smaller scale elements and textures and earthy materials will contribute to the integration of the building to the local context.

(f) Colours and Materials Colours and materials including walls, trim, doors, windows, gutters, downpipes, roofing and all other architectural and site elements must relate harmoniously with the Lot and be in context with the Lot's environment. Colours and materials must complement the natural colours, textures and materials of the existing natural environment. Natural, earthy and warm colours are preferred to complement the adjacent landscape colours. The use of natural rustic materials and textures such as timber, stone, masonry and coloured corrugated iron is preferred to complement and integrate with the natural rural environment. Large expanses of reflective glass or metal are not permitted. Transparent glass is preferred to promote a strong indoor/outdoor relationship.

(g) Location and Impact on Neighbours The proposed development or alterations and additions must relate favourably to the neighbour's planning, landscaping, topography and existing character. The primary concerns are preservation of access, sunlight, ventilation, view and drainage, as well as the impact on the privacy and normal use of neighbouring properties. In reviewing impact on neighbours, the Community Association must balance the applicant's property rights and expectations with the existing and future amenity of neighbouring property owners and their relationship to community area and open space areas." 16 By-law 1.3.2 provides that in all cases Community Association approval for any proposed development on a lot must be obtained before any proposal can be submitted to Council. 17 Mr Flaherty says that the Architectural Standards prescribed by By-law 1.2 are so general and vague and depend so much on subjective aesthetic sensibilities as to be impossible to apply with any precision or certainty; yet, they must be applied to any development within the Community Scheme for the indefinite future.

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."

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.

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

40 In these circumstances, I can see no consideration which should persuade me to exercise the Court's discretion against a termination order. I make the following orders: (1) In these Orders:

a) "the new deposited plan" means and refers to the deposited plan No 1069049 and accompanying instrument under s.88B of the Conveyancing Act 1919 a true copy of which is annexed to the Amended Summons and marked 'A'.

(2) Order pursuant to s.70(1) of the Community Land Development Act 1989 that the Community Scheme relating to Community Plan DP270212 be terminated, such order to take effect three (3) weeks from the date of the making of this Order, or upon such other date as the Court may, upon application by the parties, substitute.

(3) Direct pursuant to s.70(3) of the said Act that the Plaintiffs forthwith lodge the new deposited plan for registration.

(4) Note the undertaking of the Plaintiffs by their Counsel that they will pay all moneys, obtain all consents and do all things that may be necessary to obtain registration of the new deposited plan.

(5) Order that upon registration of the new deposited plan lots 2 to 10, as listed in the first column of the First Schedule to the Amended Summons, will vest in the registered proprietor whose name appears in the corresponding line in the second column of the First Schedule SUBJECT TO the estate or interest, if any, as Mortgagee or Chargee of the said lot, of the person noted in the third column on the said line pursuant to the Mortgage or Charge identified or referred to in the fourth column on the said line.

(6) Order that upon registration of the new deposited plan lot 1 will vest in the registered proprietors whose name appears in column 1 of the Second Schedule to the Amended Summons as tenants in common in the shares listed in the corresponding line of the second column of the Second Schedule SUBJECT TO the estate or interest, if any as Mortgagee or Chargee of the said lot, of the person noted in the third column in the said corresponding line, pursuant to the Mortgage or Charge identified or referred to in the fourth column on the said line.

a) that the corporation known as "Community Association DP270212" be wound up;

b) that Raymond Tolcher of Lawler Partners be appointed as liquidator to administer the termination of the Community Association.

a) that the Second to Fifth Plaintiffs supply to the liquidator such information as he may reasonably require for the purpose of ascertaining the assets and liabilities of the Community Association;

b) that the liquidator take control of the books and records of the Community Association and of all property of the Community Association (excluding the land within the Community Parcel);

e) that the liquidator apply the assets of the Community Association in payment of his proper and reasonable remuneration and expenses, subject thereto in discharge of its liabilities and subject thereto by distributing the same to the Second to Fifth Plaintiffs in shares proportional to the unit entitlements of their lots in the Community Plan;

f) subject to Order 6, that the liquidator have the power to sell the assets of the Community Association and the other powers provided in s.477 of the Corporations Act 2001 (Cth);

g) that after the winding up the liquidator shall file an affidavit containing:

i) a statement of the assets and liabilities of the Community Association as at the date of this Order;

ii) an account of all receipts and payments by the liquidator in the winding up of the Community Association;

iii) a statement that the winding up of the affairs of the Community Association has been completed.

(9) Note the undertaking to the Court of the Second to Fifth Plaintiffs by their Counsel that if the liquidator does not otherwise have sufficient funds to discharge the liabilities of the Community Association or to pay the liquidator his or her proper or reasonable remuneration and expenses, the said Plaintiffs shall contribute such amounts in shares proportional to the unit entitlements of their lots in the Community Plan.

(10) Grant liberty to the Plaintiffs, the Defendants, the liquidator or any other interested person to apply for an order varying Order 2 an orders adding to or varying or discharging any of the above directions.

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. - oOo -

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