Elidock Pty Ltd v N B Stone & Associates Pty Ltd

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 233, 249B First Home Owner Grant Act 2000, s 12

Baulkham Hills SC v Mekol Pty Ltd (1970) 92 WN (NSW) 553 Hammersley Iron Pty Ltd v Roberts (1995) 14 WAR 28 Harris v McKenzie (1987) 9 NSWLR 139 Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 Mekol Pty Ltd v Baulkham Hills SC [1971] 2 NSWLR 54 CASES CITED : Poland v Earl Cadogan [1980] 3 All ER 544 Poowong SC v Gillen [1907] VLR 37 Re Chief Commissioner of State Revenue and Ferrington (2004) 57 ATR 170; [2004] NSWADTAP 41 Re Gibbons [1920] 1 Ch 372 Sharp v Dawes (1876) 2 QBD 26 (CA) Tittman v Traill (1957) 74 WN (NSW) 284

Elidock Pty Ltd (P) PARTIES : N B Stone & Associates Pty Ltd (D1) Jacques Skyver (D2)

M Painter and F Berglund (P) COUNSEL : J A Jobson (D1) J Knackstredt (D2)

Herbert Geer (P) SOLICITORS : Remington & Co (D1) Grahame Jackson & Associates (D2)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4192/08 - ELIDOCK PTY LTD v N B STONE & ASSOCIATES PTY LTD JUDGMENT 1 HIS HONOUR: These proceedings are ostensibly brought by the plaintiff to establish the legitimate use that can be made of its property being the Pelican Marina on Lake Macquarie. However, it is clear that at least one purpose of the litigation is aimed against the defendants who occupy Units 7 and 5 respectively at the museum. 2 The plaintiff operates the marina which is occupied subject to two leases. First, a lease between it and the State of New South Wales, and secondly, a lease between it and the Pelican Flat Recreation Reserve Trust. 3 The development came about after a development consent granted by the Council of the City of Lake Macquarie between 30 July 1996 and March 1998. 4 The plaintiff is a company which has various classes of shareholders. The company itself is the trustee of the Pelican Marina Unit Trust and operates its business in accordance with its duty as trustee. Milburn Heights Pty Ltd (which appears itself to be a trustee for a trust known as the Cran Family Trust) and Daniel and Leanne Desplat (who appear to be trustees for another trust called the Big Bird Family Trust) are the owners of the ordinary shares in the plaintiff. Its directors are Peter and Jill Cran and Daniel and Leanne Desplat. The first defendant is the owner of five F class shares; the second defendant is the owner of five E class shares. 5 The Crans and the Desplats have only been in control of the plaintiff since 12 May 2005. 6 The history of the enterprise before then is set out in the affidavit of Mr Rodgers and in summary is as follows. 7 The plaintiff company was incorporated in September 1995 and shortly thereafter, the Pelican Marina Unit Trust was set up, with the plaintiff being its trustee. 8 In January/February 2004, at a time when Mr Rodgers was the sole director of the plaintiff and the sole trustee for the Pelican Marina Unit Trust, resolutions were purportedly passed authorising the issue of units in the Pelican Marina Unit Trust for $629,000 for each unit. The unit holders and shareholders (in actual fact Mr Rodgers) "met" and amended the articles of association so that the holders of E and F class shares would have exclusive rights to occupy Units 5 and 7 of the Pelican Marina respectively. 9 Five E and five F class shares were then allotted to Jacques Skyver, the second defendant, and N B Stone & Associates Pty Ltd, the first defendant, respectively. 10 Although no arguments were put to me on the issue, I have doubts as to the validity of the purported resolutions inserting into the articles of association the new articles 19.1 and 19.2. 11 At common law there cannot be a meeting of one; see eg Sharp v Dawes (1876) 2 QBD 26 (CA). 12 The current Corporations Act 2001 (Cth) s 249B(1) allows a one person company to pass a resolution by making a record and signing it. This was the law when Mr Rodgers pretended to hold a meeting of himself, particularly on 13 February 2004. 13 Section 249B does not abrogate the common law rule. 14 The articles of association do not alter the common law rule. 15 It must follow that there is doubt as to the efficacy of the resolutions. 16 On 12 May 2005, the Crans and Desplats purchased the marina and in June 2005 became directors. 17 On 6 June 2005, formal transfers of shares and resignation of Mr Rodgers as a director took place and there was also a deed between the trustee of the Cran Family Trust and N B Stone & Associates Pty Ltd as to the first defendant's rights of occupation. 18 The proceedings came on before me on 16 October 2008. Ms M Painter and Ms F Berglund appeared for the plaintiff, Mr J Jobson for the first defendant and Mr J Knackstredt for the second defendant. 19 I should now turn to the title documents. 20 The head lease was granted by the State of New South Wales to Neville James on 2 October 1992 for a term of 25 years ending on 1 October 2017. It is registered E889614Y. Mr Knackstredt says that there is no evidence that that lease was ever assigned to the plaintiff, but that evidentiary defect, if it be one, was cured by the tender of PX03 which shows the transfer from Mr James to the plaintiff. 21 Clause 30 of the head lease provides that the lease confers on the holder the right to occupy and use the premises for the purpose specified in column 2 of item 36 of schedule 1 and not otherwise. That column reads: "Marina, marina facilities, shops, restaurant and caretaker's residence". 22 Clause 54 provides that the holder may effect any improvements specified in column 2 of item 40 of schedule 1 provided that they are effected in accordance with plans and specifications referred to in column 2 of item 41 of that schedule. Item 40 of the schedule reads: "Marina berths and associated buildings".

Item 41 reads: "As specified in Development Application No 91/0204 as determined by Lake Macquarie City Council". 23 I am not too sure what development consent 91/0204 covered. It would seem that the marina was actually built under the authority of development approval 96/00244. 24 It would seem that the building that was erected contains on the first floor what are now known as Units 5, 6 and 7. However, sheet 23 of 28 of the plan indicates that part of this area now part of Unit 7 is being used for "marine office" and a corner room as "caretaker bedsitter". 25 It would seem in actual fact Units 5, 6 and 7 have been used, at least from time to time, for residential purposes. 26 In 2004, a proposed resolution of a "meeting" of the plaintiff company at which time Mr Rodgers was its sole shareholder and director, amended the articles of association by deleting the then article 19 and substituting an article 19.1 which provided that any member being the holder of an E class share should have no rights to vote or for dividends or to participate in surplus assets or profits on a winding up, but would have "the right to occupy the premises known as 'Unit 5' in the marina together with the use of one boat mooring berth suitable for a boat of up to 25 feet in length to be nominated by the company, the use of one carparking space to be allocated by the company, and the exclusive use of the garage in common with the holders from time to time of the F class shares in the company." 27 A similar alteration was made to include a new article 19.2 that conferred rights on the holder of an F class share which were the same as those of the E class share save that the specified unit for the right to occupy was Unit 7. 28 In Tittman v Traill (1957) 74 WN (NSW) 284, Walsh J determined that a clause in articles of association of a home unit company conferring on the holder of a block of shares the right to occupy a particular flat conferred no proprietary right on the holder of the shares but merely a contractual right against the company. His Honour continued by saying it may well be that once the shareholder went into possession and paid a fee to the company, a relationship of landlord and tenant might then be brought about, but the provision of the articles themselves did not do so. That case has been followed on many occasions since. Accordingly, the rights, if any, that are conferred by the articles of association are merely contractual as against the company and unless there was some operative estoppel, would not be any defence to ejectment proceedings. 29 The plaintiff wants a declaration that any right of occupancy held by the holders of the E and F class shares, does not include a right to reside in either Unit 5 or Unit 7 as a domicile. Other orders and declarations are also sought. The first defendant has filed a cross-claim seeking a declaration that because the conduct of the affairs of the plaintiff company are discriminatory against it, it should be ordered under s 233(1)(d) of the Corporations Act to purchase the F class shares held by the first cross-claimant. 30 The plaintiff's submissions put by Ms Painter are fairly simple. She says that during the period 13 February 2004 to March 2005, renovations were undertaken to Units 5 and 7 which included the construction in each unit of bedrooms and kitchen and bathroom facilities, and that after at least March 2005, each of such units were used for residential purposes by the respective defendant. Those renovations were not approved by the relevant consent authority, the continued occupation of those units would put the plaintiff in jeopardy of its lease being forfeited and makes its property virtually unsaleable. Accordingly, the orders it seeks should be made. 31 Mr Jobson says:

(1) there has been acquiescence in allowing the use and occupation over a number of years. In this respect knowledge of the director Mr Rodgers was knowledge of the company and has never ceased to be knowledge of the company;

(2) there has also been acquiescence by the plaintiff in that it itself has used Unit 6 for residential purposes;

(3) the officers of the first defendant do not reside in Unit 7, they only occasionally stay there and that is not prohibited; and

(4) the permitted use of the marina includes a right of casual residence. 32 Mr Knackstredt put:

(2) that there was a common law estoppel operative against the plaintiff from obtaining the orders it seeks;

(3) that the lease from the Crown does not contain the limitations contended for by the plaintiff;

(4) "occupy" in the current article 19 connotes residential use;

(5) the plaintiff should not be given the present order because the whole marina does not comply with the lease;

(7) equitable estoppels can be relied on by the second defendant to defeat the plaintiff's claim;

(8) the second defendant occupies, if he occupies at all, as caretaker, and this is a permitted use. 33 Thus a key issue in the proceedings is what was covered by the word "occupy". I was handed pages from dictionaries. On the one hand I was informed that the Macquarie Dictionary gives as its primary meaning of "occupied" as "to take up space, time etc" and its fifth meaning was "to be resident or established in a place as its tenant". 34 The Oxford Dictionary gives as its primary meaning "to take possession of, take for one's own use, seize" and its third use "to take up, use up, fill space or time". 35 One must look at the word "occupy" in its context. 36 In Hammersley Iron Pty Ltd v Roberts (1995) 14 WAR 28, Commissioner Wheeler QC as her Honour then was, said at 33, that as shown in Poland v Earl Cadogan [1980] 3 All ER 544: "[t]he discussion in that case demonstrates that the meaning of the word 'occupy' is not fixed, but is context dependent." 37 Poland's case was one where a tenant who was occupying a house as his residence had by statute the right to acquire the freehold. Poland sought to assert that right, but the owner of the freehold contested whether he was occupying the house as his residence. 38 At 550, Eveleigh LJ said that "occupy as his residence" was not the equivalent of "lives and resides". He quoted Lord Sterndale MR in Re Gibbons [1920] 1 Ch 372 at 379 where his Lordship had held that there was a real difference between reside and occupy. Eveleigh LJ said a person may occupy premises as his residence even though he is absent for a long period so long as he keeps the property ready for habitation whenever he pleases to go into it. 39 Here we see that the word "occupy" is conjoined with use, clause 30 saying: "right to occupy and use the premises". When the schedule is looked at, one can see the right is to use as a marina … and caretaker's residence. 40 "Use and occupation" is a well known phrase in landlord and tenant law. As Foa on Landlord and Tenant (7th ed) says at p 393, an action by a property owner for use and occupation by the defendant of its property lay at common law. Ordinarily, if a person enters on to land with the intention of using the property as a tenant, that person is said to use and occupy the land (see p 395). However, that's not quite the point involved in the present case. 41 In Poowong SC v Gillen [1907] VLR 37, Hood J had to consider whether a person who had built a house without any authority on Crown land was liable to pay rates. The question was whether the land was unoccupied land, the property of His Majesty. Hood J held that it was not unoccupied Crown land, that title had nothing to do with it. He said that if a house is vacant and is maintained so that it is ready for habitation whenever its owner pleases, the owner is an occupier even though he might not reside in it one day in a year. Whilst a tramp who squats for a day or so in a house is not to be considered in occupation, if a person is living on land for a continuous period then that person may be held to be in occupation. 42 The question of occupation has been discussed from time to time by the NSW Administrative Decisions Tribunal in cases involving the right to receive a grant under the First Home Owner Grant Act 2000. Section 12(1) of that Act requires an applicant for a first home owner grant to occupy the home to which the application relates as the applicant's principal place of residence within 12 months. Questions as to what is meant by "occupied" arise. 43 One of the most recent decisions is that in Re Chief Commissioner of State Revenue and Ferrington (2004) 57 ATR 170; [2004] NSWADTAP 41. At 176 [23] and following the tribunal discusses the meaning of the word "occupy". It specifically refers to the decision of Hardie J in Baulkham Hills SC v Mekol Pty Ltd (1970) 92 WN (NSW) 553 at 557 (affirmed by the Court of Appeal as Mekol Pty Ltd v Baulkham Hills SC [1971] 2 NSWLR 54). 44 In the Mekol case the court was concerned about who were the "occupants" of retail premises for the purpose of deciding what provisions should be made for parking. The argument was put to the judge that "occupants" meant owners or tenants and perhaps their licensees. However, his Honour said at 558 that the: "[s]ection refers to vehicles likely to be used by the legal occupiers, whether owners or tenants and also those used by persons who work in the subject premises, so long as their presence on the premises has some element of regularity and continuity and permanence. … persons who visit the premises for short periods only as customers of a retail store or clients of a business conducted in the subject building do not come within the sub-clause." 45 Harris v McKenzie (1987) 9 NSWLR 139, another case referred to by the tribunal, involved the question as to whether a university college occupied premises. The Court of Appeal held that it did, Kirby P saying at 147: "'Occupier' normally means the person who has the immediate supervision and control of premises and the power of permitting or prohibiting the entry of other persons." 46 Again it can be seen that a person who has the right to occupy and a person who has the right to reside are not necessarily the same. 47 I believe it follows from this line of thinking that occupation does not necessarily imply residence at all and so I reject Mr Knackstredt's submission to the contrary. 48 I also reject the proposition that a person who does not live continuously in a flat ceases to reside in the flat. Here, the facts clearly show that the first defendant has fitted out its unit ready for habitation at any time and that the fact of residence has occurred more than on the odd occasion and accordingly, there has been occupation as a residence. I do not consider that the way in which the word "occupy" has been dealt with in the authorities allows one to distinguish between casual residence and permanent residence, though as Wood J has said, a couple of days' squatting would not amount to residence. 49 Under the head lease the permitted use was marina, marina facilities, shops, restaurants and caretaker's residence. None of these encompasses residence as a domicile save and except "caretaker's residence". Indeed, the fact that "caretaker's residence" is included of itself indicates that other residence is not included in the permitted use. 50 There is no doubt that as the only possible caretaker can be Mr Skyver, the second defendant, that there can be no entitlement to residence for the first defendant. 51 As far as Mr Skyver is concerned, his affidavit notes that he has acted as caretaker since December 2002. 52 I take notice of the fact that on the 1996 plan, provision is made for a caretaker's bedsitter with bathroom facilities but no kitchen facilities which occupies part only of the space now occupied by Unit 7. The area occupied by Mr and Mrs Skyver is far more extensive than this and is in Unit 5, not Unit 7. The evidence is that they turned the sail maker's loft as it was previously known, into a unit with two bedrooms, two bathrooms and a study which cost them approximately $120,000. In addition, they paid the plaintiff, then controlled by Mr Rodgers, a further $350,000 for the shares which entitled them the right to occupy Unit 5. 53 However, I do not consider that this is fatal to the second defendant's claim. It is the head lease that one looks at to see the purpose for which under that lease the premises can be used, not the council's plan. Under the head lease, part of the leased premises can be used for a caretaker's residence and there is no specification as to what part. Although the head lease requires the improvements to be erected as specified in development application 91/0204, there is no evidence before the court as to what that is, whether it was the same or similar to 96/1828 which is in evidence, or was otherwise. Furthermore, this court generally has no jurisdiction to consider whether a declaration or injunction should be made in respect of occupation which is contrary to a town planning law. 54 Accordingly, at this point were it not for equitable defences and the defence of lack of utility, a declaration should be made that the right of exclusive occupancy of Unit 5 granted by the articles of association of the plaintiff do not create a right to reside in that unit as a domicile except as a caretaker's residence, and a similar declaration should be made in respect of Unit 7, leaving out the words "except as … residence". 55 A declaration of right is not an equitable order and so equitable defences do not apply. Accordingly, strictly speaking, I need not consider defences such as acquiescence and delay. However, declarations are not made unless they are of some utility. The defendants argue that there is no utility in making any declaration. Again, where there are equitable defences against granting an injunction, unless there is a claim of damages before the court (which there is not in the instant case), it would not be proper to make a declaration. 56 Accordingly, I need to examine the pleas of acquiescence. As I have mentioned, the plaintiff has been in the hands of its present proprietors only since May 2005. However, it is the same legal entity as has existed for many years including from 2002 when the agreement was made with Mr Skyver and he paid $350,000 to the company then controlled by Mr Rodgers. Occupation of Unit 5 has taken place openly since the end of 2002, and Mr Rodgers must have known, he also being a director of the plaintiff, of the occupation of Unit 7. Thus, the occupation of both units as residences has been known for six years and it is only now that the plaintiff is taking action. 57 In addition, Unit 6 was, up until recently, being used as a residence by persons associated with the owners of the shares in the plaintiff. That has now ceased. However, Mr Knackstredt says that the damage has been done, the lease is liable to forfeiture for breach of condition, and any other occupation by his client of Unit 5 does not increase the plaintiff's exposure to forfeiture one whit. 58 I cannot accept this submission. First, whilst the occupation of Unit 6 may technically have worked to forfeiture, that forfeiture may well have been waived, or if it wasn't, then as it is now no longer current, the tenant may well be able to avoid the landlord re-entering because of it. However, the breach in conjunction with Units 5 or 7 would be a continuing breach which would cause the mesne landlord more trouble. 59 So far as the first defendant is concerned, I do not consider that it is conscionable to uphold the plea of acquiescence. The first defendant sold the shares in the company which owned the marina to the present proprietors for over a million dollars. At that stage it was occupied by both defendants. Moreover, collateral deeds were entered into recognising the occupation of the defendants and the new proprietors of the shares were made to promise not to disturb that occupation. 60 As far as the first defendant is concerned, there was nothing in the conduct of the plaintiff which caused the first defendant to alter its position in reasonable reliance on the plaintiff's acceptance of the status quo (see Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221). Indeed, the deeds referring to occupation themselves show this is so. As the parties to the deeds are the proprietors of the shares in the plaintiff and not the plaintiff itself, those deeds are actually irrelevant for the question of liability in the present case, but they are in evidence. 61 So far as the second defendant is concerned, the position is a little different. Mr Skyver paid his money in good faith to the plaintiff then controlled by Mr Rodgers. He has occupied the premises for the last six years. He has spent money on the faith of the promise made that he could occupy. It seems to me that I should not make any injunction against him. However, the declaration that I have forecast earlier is appropriate. 62 So far as the first defendant is concerned, the declaration that I have indicated above is appropriate and I cannot see any operative equitable defence which would prevent the appropriate injunction being granted. As I have indicated earlier, the deeds made in respect of occupation are not deeds to which the plaintiff is a party. 63 That only leaves the cross-claim. The first defendant says that if the orders sought by the plaintiff were to be made, then the conduct of the plaintiff would be unfairly prejudicial or unfairly discriminatory against it, and it should have an order pursuant to s 233(1)(d) of the Corporations Act that the cross-defendant/plaintiff purchase its F class shares. 64 This aspect of the case was not strongly argued before me. However, the problem for the cross-claimant/first defendant is that it must demonstrate as a precondition of the court making any order, that conduct of the plaintiff company is unfairly prejudicial to or unfairly discriminatory against it. It says that that is so because under the articles of association it holds rights of occupation and it considered to the knowledge of the directors (namely Mr Rodgers himself) that the right of occupation included a right of residence and now the first defendant is being forced to abandon this. 65 However, the plaintiff needs to defend itself and its shareholders generally from possible forfeiture of the lease and the actions which have made that forfeiture possible are actions of the persons who now control the first defendant. The mere fact that the action is taken to undo the damage caused by the previous proprietors, does not seem to me to qualify as conduct of the plaintiff company's affairs which is prejudicial to the first defendant. 66 After all, if persons for whom the defendant was responsible kicked a football through the window of common property, and the plaintiff company sued for damages, it might well be said that there was discriminatory conduct in that the plaintiff company was only suing one shareholder. However, it would not amount to unfairly discriminatory conduct as it was people in the defendant's camp who had caused the problem. I do not consider that it has been shown that the plaintiff's conduct in seeking to terminate the rights of occupation is unfairly prejudicial or discriminatory. 67 However, as I say, the point was only faintly argued and I would be minded to consider the matter in greater depth if an application were made by the first defendant for me to do that, and I considered it appropriate to do so after hearing the plaintiff on, of course, terms as to costs. 68 However, at present I am minded to dismiss the cross-claim. 69 The second defendant did seek to file a cross-claim, but at the hearing I ruled that it was out of order and I should dismiss it without prejudice to a second action being commenced. 70 I will, at this stage, simply publish these reasons and stand the matter over for short minutes to be brought in by the plaintiff. I will provisionally fix the time for the short minutes to be brought in at 9.30am on Thursday 11 December 2008. However, if this time is unsuitable to counsel, an alternative time may be arranged with my Associate provided she is contacted the week before.

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