J & G Knowles & Associates Pty Ltd v Owners Corporation RP12247 [2014] VCAT 98 | Case summary

J & G Knowles & Associates Pty Ltd v Owners Corporation RP12247 [2014] VCAT 98 | Case summary | Zoe

[9]

Knox Retirement Village ('the village') is situated at 460-466 Burwood Highway, Wantirna South. It consists of the land described in Plan of Subdivision 12247 ('the plan of subdivision'): 231 lots and common property. The first respondent, Owners Corporation RP 12247 ('the owners corporation'), affects the land described in the plan of subdivision. By virtue of provisions of the Subdivision Act 1988, the owners corporation is the registered proprietor of the common property but holds it as nominees for the lot owners,[1] who are the beneficial owners of the common property in whom it is vested as tenants in common in shares proportional to their lot entitlement.[2]
The applicant J & G Knowles and Associates Pty Ltd ('J&G Knowles') is the owner of 26 lots described in the plan of subdivision, numbered 301 to 326 (inclusive). The 26 lots are within a building called Knowles Lodge, which is presently unoccupied and in poor condition. Part of the common property is also within the building. It is the common property delineated as such on sheet 13 of the plan of subdivision. Sheet 13 also delineates the 26 lots.
J&G Knowles wishes to redevelop and refurbish Knowles Lodge. The proposed redevelopment entails the alteration of the plan of subdivision so that all of the land within the building - the 26 lots and the part of the common property delineated on sheet 13 of the plan of subdivision - becomes a single lot, to be described as Lot B. The contemplated alteration, if achieved, would involve ownership of that part of the common property passing from the owners corporation (as legal owner) and all the lot owners in the village (the beneficial owners) to J&G Knowles.
J&G Knowles attempted to have the lot owners, as the members of the owners corporation, resolve to approve the alteration to the plan of subdivision. Under s 32 of the Subdivision Act a unanimous resolution of members is required before an owners corporation can proceed to take action that would have the effect of altering a plan of subdivision. On 24 May 2013 a special general meeting of members was held and a motion for approval of the alteration was put. The motion was carried but not unanimously.
This proceeding is J&G Knowles' application under s 34D of the Subdivision Act for an order consenting, on behalf of members who did not consent, to the action proposed in the motion. If such an order is made it is to be treated as a vote by those non-consenting members in favour of the proposed motion, so that the unanimous resolution is achieved.
J&G Knowles is a member of the Knowles group of companies. Until 27 February 2007 another of the companies in the group[3] owned all the land in the village, except for Knowles Lodge. On that date a contract of sale of the village, except for Knowles Lodge, was completed. The sale was to Knox Village Pty Ltd, which is an interested party in the proceeding. Knox Village Pty Ltd is one of the Stockland group of companies. The terms of the sale imposed upon Knox Village Pty Ltd a contractual obligation to vote in favour of the motion that was put to the owners corporation's members on 24 May 2013. It did vote in favour.
Knox Village Pty Ltd owns 179 lots within the village. They are occupied by residents of the village under service agreements to which Knox Village Pty Ltd and those residents are parties.
The second respondent Knox Village Services Association Inc ('KVSA') is the owners corporation manager. In effect, it manages the village. It owns one lot in the village. Situated on that lot is a building which used to be nurses' accommodation. Although there was no evidence of its present use I have assumed that the building is now KVSA's administrative headquarters. KVSA is also a party to the service agreements whereby services are provided to the residents of buildings on lots owned by Knox Village Pty Ltd.
Ownership of the 231 lots within the village is as follows:

[19]

Knowles Lodge is a double storey building erected in 1982. When built it consisted of 26 apartment style rooms. It was described by J&G Knowles' personnel as a 'hostel'. Until it closed in 2007 it provided an intermediate level of accommodation for retired persons who were unable to live totally independently in their own units. That intermediate level of accommodation is described as 'assisted living'. Common property within Knowles Lodge included hallways, staircases, a lounge room, dining areas, a lift, a main kitchen, a laundry and a hairdressing salon.
The evidence at the hearing was that the Knowles Lodge assisted-living hostel operated independently, to a large degree, from the rest of the village. Whilst Knowles Lodge contained common property that as a matter of law residents of the village were entitled to use, in practice only the Knowles Lodge residents used it. Other residents in the village had little occasion to use it unless, for instance, they were visiting friends in the hostel.
As to management of the common property, whilst KVSA was the owners corporation manager there was, from time to time, another entity[5] which operated the Knowles Lodge hostel, hired staff, engaged contractors and generally met the needs of its residents. So for practical purposes that entity managed Knowles Lodge and KVSA managed the rest of the village.
Arcare Pty Ltd ('Arcare') is another company within the Knowles group. In 2006 Arcare opened a residential aged care facility in a building on land that adjoins the village. A residential aged care facility equates to a nursing home and suits persons who are non-ambulant or who otherwise need more care than an assisted living facility like Knowles Lodge provided.
To endeavour to meet what appeared to be a growing demand for residential aged care and a lessening demand for an assisted living facility, J&G Knowles decided to turn Knowles Lodge into a residential aged care facility. It obtained a planning permit for that purpose in 2005.
J&G Knowles closed Knowles Lodge on 30 September 2007. It has been vacant ever since. Soon after the closure J&G Knowles began to dismantle some of the fixtures and fittings, in preparation for a renovation. No maintenance has been carried out on the building since the date of closure.
J&G Knowles wishes to refurbish Knowles Lodge, at its own cost, so that it becomes an aged care facility with 29 rooms for residents. It wishes to conduct that facility in conjunction with the Arcare facility; for example, it proposes that meals, laundry and linen be delivered from Arcare to Knowles Lodge by means of electrically operated buggy-type vehicles.
Michael Randall Humphries, Arcare's Director of Development, swore an affidavit on 23 October 2013 which became his evidence in chief and was received as an exhibit.[6] In that evidence Mr Humphries explained why J&G Knowles regarded the proposed alteration of the plan of subdivision, so that the presently existing 26 lots and common property within the Knowles Lodge building become a single lot that Knowles owns and controls, as essential to the intended development of the residential aged care facility. In paragraphs 9-14 of his affidavit Mr Humphries stated:
1. In order to be able to run as a Residential Aged Care Service (RACS) and gain access to subsidies for aged care places, the facility must meet Commonwealth Department of Social Services (DSS) (formerly the Department of Health and Ageing) benchmarks to obtain accreditation and certification. The benchmarks reflect the requirements of the Aged Care Act 1997 and associated Principles, including the Quality of Care Principles 1997, the User Rights Principles 1997 and the Charter of residents' rights and responsibilities contained in Schedule 1 of the User Rights Principles.
2. The accreditation of the facility relates to the aged care services that must be provided as a minimum. Certification refers to certification of the building, so it relates to the requirements in terms of the built form of a facility. For example, the assessment takes into account safety issues such as fire compartmentation and egress provisions, and space and privacy requirements such as the number of residents per room and access to showers and toilets.
3. The proposed refurbishment of Knowles Lodge, including the merging of part of the common property with the 26 existing lots, is necessary for the building to be accredited and certified as a RACS. The User Principles require that a resident have security of tenure of their place in an aged care facility. A resident's right to security of tenure and continuity of care would be severely impacted if it were possible for J&G Knowles to sell off individual titles to third parties. There is also the need for the physical security of residents, protection of residents rights to personal privacy, and provision of access to clinical needs. These matters would be compromised if areas of common property within the building were open to all residents of the subdivision, including residents of the Know Retirement Village.
4. Further, the current configuration of Knowles Lodge as a Hostel is problematic in terms of RACS accreditation in a number of ways. For example, the elevator is too small to fit a fall-out chair used to move non-ambulant residents from their room to the dining, lounge or activity areas, some areas are non-compliant in terms of corridor widths and water and electricity services are required to be on group metering rather than individual metering.
Graeme James Noble, a builder, gave evidence of the present state of the Knowles Lodge building. He inspected it on 6 September 2013. He verified a written report dated 14 October 2013 which became his evidence in chief and was received as an exhibit. His report included numerous photographs. Mr Noble's opinion was that the building in its current state is unfit for use and unsafe, and requires very extensive repair. Electrical wiring is hanging out of ceilings and walls. Signs have been placed warning of the need for caution because of live wires. There is cracking in parts of the brickwork. Rain has entered through broken roof tiles and has damaged the building. Some internal walls have been demolished. Floor coverings have been removed. The lift is old and ought to be replaced.
Mr Noble referred to a pergola which he said was at risk of collapse and had been fenced off so that it could not be entered. The pergola is not within the Knowles Lodge building. It has been erected on common property. However, any repair of the building would have to include the demolition of the pergola.
The cost of repair of Knowles Lodge, according to Mr Noble's estimate, is $254,095.00, of which $36,238.00 would be for repairing the roof areas, $25,500.00 for repairing brickwork and $65,000.00 for replacing the lift.

[24]

Thirdly, a schedule of lot entitlement and lot liability for the proposed Lot B showed that they would be the same as for the total for the 26 existing Lots 301 to 326, that is to say, 2600 units out of 23,100 total for lots in the plan of subdivision.
It was common ground during the hearing that the plan, if registered, would define the boundaries between Lot B and the common property as the median of the walls and upper-storey ceiling of the Knowles Lodge building. The plan of subdivision presently defines boundaries between lots and common property in the same way. Thus the exterior half of the walls, and the roof cavity, and the roof itself, would remain as part of the common property, as they are at present.
When Knox City Council granted to J&G Knowles a planning permit No 20056115 on 19 December 2005 the Council endorsed plans of the proposed refurbishment of Knowles Lodge ('the building plans'). There is some inconsistency now between the building plans and the Hansen plan. The building plans for the proposed refurbishment of the ground floor include a 'proposed (new) lounge', a 'proposed (new) terrace' and a 'proposed (new) entry porch'. The building plans for the refurbishment of the first floor include another 'proposed (new) terrace'. All of those proposed features would be on land which the Hansen plan has remaining as common property. The evidence of the J&G Knowles witnesses Mr Gee and Mr Humphries was that J&G Knowles would omit those features from the proposed refurbishment, and would apply for approval of amendment to the building plans accordingly, unless the owners corporation agreed to those features being able to remain in the proposal. Their evidence, supported by the evidence of the planning consultant Sarah Emons to which I shall refer below, was that it is unlikely that there would be any difficulty in having the amendment approved. Even with the omission of those features the proposed refurbishment will impinge upon common property which is the roof, the roof cavity, the top half of the ceiling and the exterior half of the walls that envelop the building. Mr Gee's evidence was that J&G Knowles would nevertheless bear the whole of the cost of refurbishment itself.

[68]

The respondents submitted that J&G Knowles was obliged to prove that the members by the owners corporation had been given 14 days' notice of the special general meeting; that it had failed to prove that; and that as a consequence it had failed to prove that a resolution made at the meeting was valid.
I have to acknowledge that during the hearing I had thought that this issue did not have the importance that the parties were placing upon it in their submissions, and said so. I had thought that the important question was whether consent should be given on behalf of members who had not consented to an action that the majority had decided to take, irrespective of whether or not the decision had been made at a properly convened meeting. I now realise that I had lost sight of the terms of s 32(4) which equate the making of an order, consenting on behalf of any non-consenting members, to 'a vote by the member'. The word 'vote' implies a vote upon a motion at a meeting of members (or by ballot). If a meeting had been held in circumstances that meant that no resolution passed at it was valid, the 'vote' would be ineffective and the resolution, even if regarded as a unanimous resolution, would still be invalid. So I now think that Counsel for the parties were right to give the issue the prominence that they did.
There is a principle that if all shareholder-members of a company are present together in a meeting, and signify their assent to a transaction which is within the powers of the company to transact, their decision will be effective, as if a resolution to that effect had been passed at a properly constituted meeting.[14] The principle applies in a case where requirements as to notice of a meeting had not been observed.[15]
It is tempting to apply that principle to this case, but it is not possible. It is tempting because all members of the owners corporation, except one, were present or were represented at the meeting and, as their votes showed, had every chance to argue against the motion and to exercise their voting rights. It is not possible, however, for two reasons. First, the very absence of one member, Ms Storey, from the meeting appears to take the case beyond the scope of the principle. Secondly, those members who were present or were represented at the meeting did not all signify their assent at the time. Although success for J&G Knowles in this proceeding will mean that those members will be regarded as having cast an assenting vote at the meeting, it is artificial to say that they thereby signified their assent during the meeting. The issue of whether proper notice was given therefore has to be addressed.
Nevertheless, I do not accept that J&G Knowles has an onus of proving the adequacy of the notice of meeting, as the respondents submitted. Section 34D of the Subdivision Act does not require that the applicant for an order under that section should prove that a meeting of members has been properly convened to resolve upon a proposed action. It does require proof of a consent of more than half of the membership and implies (by the use of the word 'vote' in s 34D(4)) that the consent has been expressed in a resolution which has not been unanimous because some members have refused to consent. In my opinion, the respondents have the onus of proving their allegations that inadequate notice of meeting has been given,[16] and that as a consequence the resolution, even if made unanimous by a Tribunal order, is invalid. He who alleges must prove.
As I have stated in paragraphs 36 and 37 above, on 9 May 2013 Mr Moore, an authorised attorney for Knox Village Pty Ltd, gave copies of the notice of meeting to Ms Maskiell, an employee of KVSA with management responsibilities, and asked her to put them in residents' post-boxes, and himself posted copies of the notice of meeting to J&G Knowles and to Knox Village Pty Ltd.
There was no evidence of whether Ms Maskiell put the notices in residents' post-boxes on the same day, 9 May 2013, as she received them from Mr Moore. From the fact that all lot-owning residents (except Ms Storey), or one of each lot-owning resident couple, attended the special general meeting on 24 May 2013 I infer that all received notices and that they received them because Ms Maskiell had placed them in post-boxes as Mr Moore had requested; but as to the date of placing, and the date of receipt, there was no direct evidence.
A question arises as to what amounts to the giving of a notice under s 76 of the Owners Corporations Act and when the giving occurs.
The answer in the respondents' submission was that notice is not given until received by the member to whom it was addressed. In my opinion that answer is not correct, for several reasons. First, as the footnote to the section states, the Electronic Transactions (Victoria) Act 2000 permits a notice of special general meeting to be given electronically; if the notice is given electronically the time of receipt at the addressee's designated electronic address is (unless otherwise agreed between the originator of the electronic communication and the addressee) the time when the electronic communication is capable of being received by the addressee, that is to say, when it reaches the electronic address (the addressee's email in-box),[17] not the time that the addressee reads it. Secondly, if the answer were correct an anomaly would arise if a notice of special general meeting and a notice given under Part 10 (to the second of which the deeming rule referred to in paragraph 42 above would apply) were sent by post in the same envelope; the notices might have to be regarded as having been given on different dates. Thirdly, in the case of a notice left in a post-box, a member who knew or suspected it had been left there but wanted to sabotage the meeting could do so by deliberately not collecting it from the post-box.
On the other hand one cannot answer the question either by saying that in all cases notice is given as soon as the giver directs it to the member. In the case of a notice of special general meeting and a notice under Part 10 sent together by post in the same envelope, there would be the same anomaly to which I referred in the previous paragraph. In my opinion a notice of special general meeting given by post is not necessarily given on the date of posting; it is given on either the date on which the addressee would receive it in the ordinary course of post, or the date on which the addressee actually receives it, whichever is the earlier.
As for the notices that (so I have inferred from the evidence) were left in the post-boxes of lot-owning members, one possible answer is that a notice was given as soon as it was left in a post-box. Another possible answer is that notice was given at a time when a member could reasonably have been expected to clear his or her post-box; there was no evidence from which I could decide when that time would be. For reasons stated above I would reject the proposition that a notice was not given until the member to whom it was addressed actually collected it from the post-box. But I am able to rule upon the respondents' submission without attempting to choose between the two possible answers.
The only evidence as to when and how J&G Knowles was given notice of the special general meeting was the evidence of Mr Moore as to his posting of the notice to J&G Knowles' registered office on 9 May 2013. It is conceivable that J&G Knowles had notice of the meeting on or before 9 May 2013, because one may readily infer that the meeting was convened at its instigation; but there was no evidence that it was given notice otherwise than by Mr Moore's posting of the notice. The notice sent by post was not given on 9 May 2013. It was given on a later date. It is not possible to say what that later date was. There was no evidence as to when it would have been received in the ordinary course of post. The evidence of when J&G Knowles actually received it was not conclusive. A letter that accompanied the notice bore a date stamp of 14 May 2013. Mr Gee gave evidence that the letter had been forwarded by J&G Knowles' accountant, whose address was the registered office, to J&G Knowles' principal place of business, but was unable to say whether the date stamp had been put on the letter at the accountant's office or at the principal place of business. The only finding open on the evidence is that J&G Knowles was not given 14 clear days' notice of the special general meeting.
The notice to KVSA was given on 9 May 2013 because Ms Maskiell received a bundle of notices on that day including KVSA's notice. KVSA was given 14 clear days' notice of the special general meeting.
The notice to Knox Village Pty Ltd was given on 9 May 2013 because its authorised attorney Mr Moore had the bundle of notices on that day. Although Mr Moore posted a notice to Knox Village Pty Ltd on that day, it had been given the notice before it was posted. Knox Village Pty Ltd was given 14 clear days' notice of the special general meeting.
Notices to each of the lot-owning residents were left in their post-boxes, so I have found by way of inference from Mr Moore's evidence. It is conceivable that each notice was given on 9 May 2013, either because it was left in a post-box on that day, or because the resident to whom it was addressed collected it on that day, or because it would have been reasonable to expect the resident to collect it on that day. I repeat that there was no evidence of any of those matters. If it was given on 9 May 2013, the resident was given 14 clear days' notice of the special general meeting.
The respondents have the onus of proving that notices left in post-boxes were given later than 9 May 2013. The respondents did not give evidence. From the evidence of Mr Moore the conclusion is open that the notices were left in post-boxes on 9 May 2013, even though there was no evidence that that was the day that Ms Maskiell left them there. There was no other relevant evidence. The respondents have not discharged the onus of proving that insufficient notice of the meeting was given to them.
The outcome is that only one of the notices - the notice addressed to J&G Knowles - has been proved to have been given on a date later than 9 May 2013, so that 14 clear days' notice of the special general meeting was not given to that member, J&G Knowles.
J&G Knowles is not complaining about not having been given proper notice of the meeting. On the contrary, it is relying upon a resolution made at the meeting and asking the Tribunal to make an order that would turn it into a unanimous resolution. Although the failure to give proper notice of a meeting to a member who complains about the failure can have the effect of invalidating the meeting and invalidating the resolution purportedly passed at the meeting, I was not referred to any case, and I have found none, that would support what seems to me to be an illogical proposition: that a member who received notice of a meeting but seeks to invalidate it can rely upon the failure to give proper notice of the meeting to another member who not only attended the meeting but also supported the very resolution that the first member wishes to have declared invalid.
So I do not accept the submission that the resolution made, although not unanimously, at the special general meeting on 24 May 2013 was invalid because 14 days' notice had not been given to members.

[72]

J&G Knowles contends that the resolution was one for the disposal of the fee simple in part of the common property, which is the action described in s 32(a) of the Subdivision Act. The respondents submitted that it was not. It did not appear to be in dispute that the resolution was for one or more of the actions described in s 32, for alteration of the plan of subdivision in accordance with the Hansen plan would alter the boundaries of common property, being land affected by the owners corporation (s 32(c)), would reduce the numbers of lots within the Knowles Lodge area from 26 to one and so would reduce the number of lots affected by the owners corporation (s 32(d)), and by creating a new Lot B instead of lots 301 to 326 would create new lots (s 32(e)). But whether the resolution was for an action described in s 32(a), disposal of part of the common property, was a matter of dispute.
The respondents pointed out that the resolution did not expressly state that the owners corporation was authorised to dispose of anything or consented to dispose of anything. It merely stated that the owners corporation consented to the alteration of the plan of subdivision in accordance with the Hansen plan. It implied that the owners corporation consented to the lodging of the Hansen plan for registration, for that is how an alteration to the plan of subdivision would be achieved. But the registration of the Hansen plan alone would not produce a disposal of any of the common property. The lodging of the Hansen plan would need to be accompanied by, or preceded by, the lodging of an instrument of transfer from the owners corporation to J&G Knowles of that part of the common property which Lot B on the Hansen plan included, before any disposal of that part of the common property could occur. Alteration of the plan of subdivision in accordance with the Hansen plan would not 'result in the transfer ...', as the terms of the resolution put it. Only an instrument of transfer would achieve that result. There was no such instrument of transfer, nor had the owners corporation expressly resolved to execute one. Without one, the resolution to alter the plan of subdivision was futile, the respondents submitted, and the Tribunal should not consent on behalf of the non-consenting members to an exercise in futility.
J&G Knowles submitted that the proposed resolution should be construed in accordance with the following guidelines:
- (i) A resolution of members records the intention of the owners corporation. It is necessary to discern what that intention was.
- (ii) It is wrong to treat the construction of a resolution of members as strictly as one would treat the construction of a statute.[18]
- (iii) In construing the resolution, attention should be given to its apparent purpose rather than to what the resolution states, rightly or wrongly, is its effect.
- (iv) As long as an intention can be discerned to 'do' an action described in s 32, there is no need for a resolution of members to spell out all the practical steps that would be necessary for the intention to be carried into effect.
- (v) The written words of the resolution must be considered in the context of the extrinsic evidence of surrounding circumstances.
- (vi) 'The real question is, would a reasonable person in the shoes of a member of the owners corporation have known they [sic] were voting on a resolution to transfer the fee simple in common property to the Applicant?'[19]
I accept those submissions made on behalf of J&G Knowles, and construe the resolution accordingly.
It is true, as the respondents submitted, that the terms of the resolution did not have the members expressly resolving to dispose of common property, by way of transfer or otherwise. But the resolution did mention the idea of a transfer of the fee simple to J&G Knowles, even though it wrongly stated that an alteration in accordance with the Hansen plan 'will result in' such a transfer. Moreover, the notice of meeting that the members who attended the meeting had received not only set out the text of the proposed resolution but also was accompanied by a copy of the Hansen plan. The notations to the Hansen plan described a purpose of creating a new Lot B by consolidating existing lots 301-326 and transferring part of the common property. In my opinion, a reasonable person in the shoes of a member, armed with the text of the proposed resolution and the copy of the Hansen plan, would have known that the purpose of the resolution was the same as the purpose described on the Hansen plan, and would have known that he or she was being asked to vote on a motion to approve the transfer of part of the common property to J&G Knowles, as well as to approve the lodging of the Hansen plan for registration.
J&G Knowles submitted that there were other pieces of extrinsic evidence that should lead one to the same conclusion as I have just expressed. One was the minutes of the special general meeting. The minutes were not tendered as evidence, so I do not think that I can have regard to their contents. Even if I could, there was no evidence of when those minutes were created, and I doubt they are properly part of the surrounding circumstances in the context of which the resolution could be construed. The other was the history of the earlier proposal to acquire a greater area of common property to which I referred in paragraphs 24 to 28 above; the fact that residents knew that that earlier proposal involved a transfer of common property meant, it was submitted, that a reasonable person standing in the shoes of a member at the meeting of 24 May 2013 would know that the current proposal also involved a transfer of common property to J&G Knowles. I do not think that that history of the earlier proposal assists. There was no evidence that the lot-owning residents to whom the earlier proposal was made in 2010 were the same as the lot-owning residents to whom the current proposal was made in 2013.
The respondents had another submission that was based upon the way that the resolution had been expressed. The submission was that the resolution contained two significant mis-statements, likely to confuse members who were asked to vote upon it, and that the Tribunal should not give its consent, on behalf of non-consenting members, to a resolution that contained mis-statements, and confusing mis-statements at that. The first mis-statement was that alteration of the plan of subdivision 'will result in' the transfer of anything. The second mis-statement was that the Hansen plan had to do with a transfer of 'that part of the common property within the building envelope of Lots 301 to 326 (Knowles Lodge Common Property)'. It was a mis-statement because the building envelope included the external half of the walls of Knowles Lodge, the external half of the ceiling of the top storey and the roof cavity above the ceiling, yet the Hansen plan showed them as common property which was not going to be consolidated into Lot B; at the very least, if not a mis-statement, that statement was likely to confuse members as to what common property was going to be transferred.
I agree that the first mis-statement was made, but do not agree that there was a second mis-statement as alleged.
The expression 'the building envelope' is not a term of art. Mr McKenzie, in his opening of his clients' defence to the application made immediately after Mr Pane's opening, treated the expression as if it meant the same as the entire Knowles Lodge building, that is to say, the whole of the walls and the whole of the roof and everything within the walls and below the roof. In my opinion it does not mean that. The proposed resolution on which members voted on 24 May 2013 did not define the expression, but yields its meaning when one reads the proposed resolution together with the Hansen plan and has regard to the way that the Hansen plan defines the boundaries of the new Lot B. The ordinary meaning of 'envelope' is an object that envelops or contains something. What the Hansen plan shows as being enveloped or contained is Lot B: the interior halves of the walls and of the upper floor ceiling, the spaces within the Knowles Lodge building which are presently common property and delineated as such on sheet 13 of the plan of subdivision, plus the 26 existing lots. What the Hansen plan shows as doing the enveloping is the exterior halves of the walls and of the upper floor ceiling, because they are beyond the boundaries of the new Lot B.
So when I use the term 'building envelope' below, I mean -as I consider that the resolution itself meant - Lot B on the Hansen plan: the interior halves of the walls and the upper floor ceiling and the area that they would contain, namely, the spaces within the Knowles Lodge building which are presently common property and delineated as such on sheet 13 of the plan of subdivision, plus lots 301 to 326.
It is true, as Mr McKenzie pointed out, that the expert witnesses who gave evidence for J&G Knowles tended at times to be giving evidence about likely benefits and disadvantages from action proposed not in the Hansen plan but instead in the building plans. I shall discuss the expert evidence below. Moreover, because upon registration of the Hansen plan there will still be common property within the Knowles Lodge building but outside the building envelope, it may well be that J&G Knowles will have practical difficulty in performing the refurbishment that it desires to perform unless it has the owners corporation's consent to its performing it insofar as it affects the walls and the roof. But none of those matters is presently to the point. The resolution did not contain any mis-statement of what was to be transferred.
In my opinion the possibility of the members having been confused or unclear as to what 'the building envelope' meant is of no importance. Perhaps they thought that the proposed alteration would affect more common property than it does. But the respondents voted against the motion anyway. Knox Village Pty Ltd was bound contractually to vote for it anyway. Of course J&G Knowles would have voted for it anyway.
The proper construction of the resolution is that it was one of consent to:

[85]

As to the social disadvantages from the proposed action to the non-consenting members of the owners corporation, Ms Emons' opinion was that they would be minimal. The transfer of the common property within the building envelope would mean that residents of the village who were not living in Knowles Lodge, once it became an aged care facility, would no longer have a right of access to that common property, but since 2007 it had not been something that they had been able physically to access. There was potential for additional traffic and parking difficulties for village residents from the new aged care use, but those and other amenity impacts arising from the proposed aged care use 'would have been given due consideration through the planning permit process' when the City of Knox in 2005 granted a permit for the use of the land as a low care residential facility, without including any amenity-related conditions on the permit. During that process, the proposed development would have been advertised and any resident who wished to object could have done so.
Mr McKenzie put to Ms Emons during his cross-examination of her a matter that had importance for the submission he made that the expert witnesses had 'addressed the wrong question'. They had assumed, he submitted, that the Hansen plan and the building plans[22] were consistent and that what was proposed to be transferred was all common property in the Knowles Lodge building (including the external halves of the walls, the roof cavity and the roof) and some of the common property outside the building (the proposed new terraces, lounge and entry porch). The consequence was, he submitted, that they were expressing opinions about benefits and disadvantages with respect to proposed action as set out in the building plans, not proposed action as set out in the Hansen plan; it was only that latter proposed action that was relevant.
Ms Emons conceded that she had made such an assumption. Her evidence during re-examination, however, was that she considered that there would be no difficulty in obtaining a 'secondary consent' from Knox City Council to minor amendments to the building plans so that they omitted the proposed new terraces, lounge and entry porch.
Mr McKenzie put to Ms Emons various putative disadvantages to the non-consenting residents. I list them, and Ms Emons' responses to them.

[89]

Despite some features of Ms Emons' evidence that detracted slightly from its value, she was an impressive witness. On the basis of her evidence and other evidence, especially the evidence of Mr Humphries, I am satisfied that the social benefits to the subdivision as a whole from the proposed action are likely to be greater than the social disadvantages from it to the non-consenting residents.
The first detracting feature was that Ms Emons over-stated the benefit of 'ageing in place', in my opinion. As a matter of law J&G Knowles could not give priority of placement in the new aged care facility to existing residents of the village. Mr Humphries conceded that that was so. No doubt the provision of a new aged care facility will be of benefit to the community generally, but that is not the point. The point is whether it will benefit the subdivision - the existing residents - in particular. So far as 'ageing in place' is concerned, I doubt that it will. However, I have readily been persuaded by her opinions as to the benefits of enhanced residential amenity and improved safety and security.
The other detracting features were these. There was the wrong assumption that the Hansen plan matched the building plans. Her point about a refurbished building being a vantage point for effective surveillance was not a particularly good one; she conceded that there were other presently existing vantage points. At first sight her evidence appeared to have placed too much faith in what Knox City Council had done or would have done, in her opinion; but I accept that, as she swore, she was giving her own expert opinion, independently of the permit application outcome, that the potential disadvantages to residents from the proposed action were minimal.
In its final written submission J&G Knowles attempted to rely upon a report from GTAS Consultants, as to traffic and other matters, that apparently had been submitted to Knox City Council when J&G Knowles applied for the planning permit. The report was amongst the documentation filed in the proceeding but the author of the report was not called as a witness, the respondents had no opportunity to test the report, and there had been no indication before the final address was given that J&G Knowles intended to rely on it. I have had no regard to it.
I am satisfied that the social benefits to the subdivision as a whole from the proposed action are likely to be greater than any disadvantage to the non-consenting residents from the proposed action. An empty, derelict, unsightly building that can attract anti-social behaviour which threatens the safety and security of all residents in the village would be turned into an occupied, secure building. Construction works are likely to cause temporary inconvenience to residents, and the presence of additional personnel and traffic within the village may occasionally present minor inconvenience to residents, but those factors are outweighed by the likely benefits from the presence of the new aged care facility. The loss of the theoretical right of access to what is presently common property within the Knowles Lodge building is not a matter of any practical social significance; Knowles Lodge in the past had operated virtually independently from the rest of the village, and other village residents rarely had had cause to exercise that theoretical right of access.

[95]

Nevertheless, because there is a liability in theory at present upon all members of the owners corporation in respect of common property within Knowles Lodge, the subsuming of some of the common property into the new Lot B would remove that liability from all members and turn it into a liability that J&G Knowles would have in its capacity as the owner of Lot B, not as a beneficial owner of common property as a tenant in common. Thus the theoretical liability of all members of the owners corporation for fees for the maintenance, etc, of common property would reduce because there would be less common property. That is an economic benefit to the subdivision as a whole from the proposed action of alteration of the plan of subdivision and transfer of common property.
J&G Knowles has expressed a willingness to bear the whole cost of the refurbishment of Knowles Lodge, which Mr Noble has estimated at $254,095.00. In my opinion, the operation of the benefit principle to which I referred in paragraph 102 would mean that if the owners corporation were to set fees for the cost of the refurbishment of the common property within Knowles Lodge the incidence of those fees ought to fall upon J&G Knowles only. So I consider that J&G Knowles' bearing of the whole cost of refurbishment will not confer an economic benefit upon the subdivision as a whole.
The valuer Mr Kinnaird prepared his expert opinion following his inspection of the village on 11 October 2013. Mr Kinnaird identified two economic benefits to the subdivision as a whole from the proposed action. The first was that "$254,095 of building defects will be rectified at no cost to the residents". The second was that because of the subsuming of some of the common property within Knowles Lodge into Lot B "owners corporation costs in theory should be reduced for residents of the village". By dividing the $254,095.00 figure by the number of lots he arrived at a figure of $1100.00 per lot and discounted it by 50% to reflect the chance that a theoretical obligation upon lot owners to contribute towards the rectification costs would not be enforced. After applying the discount he calculated the economic benefit as $750.00 per lot.
For reasons given above, I do not agree that the first benefit that Mr Kinnaird identified would be a likely benefit to the subdivision as a whole, but I do agree that the second benefit that he identified would be. Because he inappropriately, in my opinion, based his calculation upon the refurbishment cost I am not prepared to accept his estimate of the benefit at $750.00 per lot. I accept that there is a likely economic benefit to the subdivision as a whole from the proposed action but its value would be considerably less than $750.00 per lot.
Mr Kinnaird identified in his report three likely disadvantages from the proposed action to the lot owners who had not consented to it. They were:

[97]

An "intangible loss of property right" for lot owners would result from the proposed transfer and elimination of common property.
That first identified disadvantage is not a likely disadvantage to any non-consenting lot owner from the proposed action, as Mr Kinnaird eventually recognised in his evidence. The proposed action is to be in accordance with the Hansen plan. It does not include the proposed new terraces. The building plans do, but the Hansen plan does not. Mr Kinnaird's written report showed that he understood that distinction, but by identifying the supposed disadvantage he seemed to ignore it momentarily. To that extent, as Mr McKenzie put it, he addressed the wrong question. Once, however, in his evidence he addressed the right question - the effect of the alteration of the plan of subdivision and the disposal of common property within Knowles Lodge to J&G Knowles - and was asked to consider the effect of the building plans if the proposed new terrace were omitted, his evidence was that the owner of lot 159 would suffer no greater economic disadvantage from the implementation of the Hansen plan than would the owner of any other lot outside Knowles Lodge. I accept that evidence.
The second identified disadvantage, related to traffic and parking, was a possible slight depression in the value of each of the lots in the subdivision, outside Knowles Lodge, as a consequence of the proposed presence of up to 29 new residents in Knowles Lodge, their visitors, and staff for Knowles Lodge, and the additional vehicular traffic and demand for parking space that that presence would create. I accept that that would be a likely, but not great, economic disadvantage to the non-consenting lot owners from the proposed action.
To my mind, by far the most important of the identified likely economic disadvantages was the third: that there would be a reduction in the area of common property of which the owners corporation is the legal owner and its members, the lot owners, are the beneficial owners as tenants in common.
Mr McKenzie put to Mr Kinnaird that there were other economic disadvantages, arising from the disruption from building activity during the refurbishment process and the village residents' loss of the right of access they possess to the common property presently within Knowles Lodge. Mr Kinnaird considered that they would probably be only a minor concern for any prospective purchaser of a lot within the village and so would have little effect on the value of any lot. I accept his evidence in that regard. The loss of the "intangible property right", as Mr Kinnaird put it, in the common property proposed to be transferred is much more significant than the loss of the theoretical right of access to that common property. The evidence established that the residents of the village outside Knowles Lodge had rarely exercised that right of access before 2007, when Knowles Lodge closed, and had not been able to exercise it since Knowles Lodge closed.
Quantification of the loss of the "intangible property right" is a difficult task. Mr Kinnaird considered that it was not feasible to put a valuation upon the very common property that was proposed to be transferred, because the proposed transfer was a most unusual transaction and there were no comparable sales to assist one in preparing such a valuation. Instead, in Mr Kinnaird's opinion, the correct methodology to use in valuing the loss of the property right was to assess the added value to each lot from the beneficial ownership of the common property as it presently existed.
Mr Kinnaird considered evidence of recent sales of residential units on lots within the village. From the evidence that he described in his report it seems to me that one can say the average value of lots within the village was $300,000.00 per unit.
Mr Kinnaird assumed, correctly in my opinion, that the exposure of lot owners in the village to owners corporation fees would not increase as a result of there being a facility which would house 29 residents, compared to the former 26 residents within Knowles Lodge when it was an assisted-living facility. He assumed that there would be little extra wear and tear on gardens or other common areas.
Having considered the value of the lots generally, Mr Kinnaird postulated that the notional amount by which each lot owner's property right in the common property within Knowles Lodge enhanced the value of a lot was $1,000.00.[29] He went on to say, however, that for each non-consenting lot owner that amount for the lot in question should be halved. To understand why he said that, it is necessary to have regard to part of the evidence of Mr Moore and to another assertion of fact that Mr Kinnaird made in his report.
In paragraph 9 of his affidavit sworn on 29 October 2013, Mr Moore stated:

[101]

So it was because of the asserted fact that a non-consenting lot owner would eventually, upon sale under a repurchase agreement, receive only 50% of any gain in value that Mr Kinnaird halved the notional value of $1,000.00 per unit that comes from beneficial ownership of the common property in question.
No repurchase agreement was put into evidence. The only evidence of the asserted fact was Mr Kinnaird's hearsay evidence about it. In determining this proceeding I am not bound by the rules of evidence.[30] Mr McKenzie did not challenge the asserted fact or submit that I should have no regard to it. So I accept the hearsay evidence, and accept that Mr Kinnaird's notional value should be reduced by half for the reason that he gave.
Mr Kinnaird took the exercise further. He noted that the cost of refurbishing Knowles Lodge had been estimated at $254,095.00. He said that it was uncertain whether the owners of lots in the village could be required to contribute towards that cost. If they could be required to contribute, their potential liability was $1,100.00 per lot. To take account of the uncertainty one should discount the potential liability by half, so that it became $550.00 per lot.
Mr Kinnaird valued the likely economic benefit to each lot owner in the village at $750.00 per lot. This was more than the value he finally reached of $550.00 for the likely economic disadvantage to each non-consenting lot owner. So he concluded that the likely economic benefits to the subdivision as a whole from the proposed action were greater than the economic disadvantages to the owners who did not consent to the proposed action.
I do not accept the last step in the exercise which I described in paragraph 120. For reasons that I have given in paragraph 102, I consider that the application of the benefit principle means that it is most unlikely that the owners corporation could require any lot owner other than J&G Knowles itself to contribute towards the cost of the refurbishment. I do not accept that a discounting is necessary. In my opinion the exercise ought to have stopped at the point where a notional value of $550.00 was put on each lot owned by a member of the owners corporation who has not consented to the proposed action.
If matters were to rest there, I would not be satisfied that the likely economic benefits to the subdivision as a whole from the proposed action are greater than the likely economic disadvantages from it to the non-consenting members. Matters do not rest there, however.
So far the comparison of likely economic benefits and disadvantages has proceeded upon the basis that the lot owners would lose their "intangible property right" without being compensated financially for it. But that need not necessarily be the basis. The motion put forward for unanimous resolution did not propose that J&G Knowles should pay the owners corporation a price for the transfer of the common property within the building envelope, nor did it propose that J&G Knowles should not have to pay a price for it. The motion was silent on the matter. From the way in which the hearing before me was conducted on their behalf I have inferred, although there was no evidence about any reason, that an important reason why the non-consenting members of the owners corporation either voted against the motion or withheld their consent to it was that they believed that J&G Knowles was trying to expropriate common property by a transfer of it to itself without having to pay anything in return.
If J&G Knowles could be required to pay to the owners corporation a sum that was equivalent to the value of the common property within the building envelope in return for the transfer of common property which is part of the proposed action, I would conclude that the likely economic benefits to the subdivision as a whole from the proposed action would be greater than the likely disadvantages from the proposed action to those members of the owners corporation who have not consented to it. That is because I would conclude that the particular economic disadvantage from the loss of the "intangible property right" had been neutralised by a requirement to pay the value of that right to the owners corporation, so that the likely economic benefits from the proposed action would prevail.

[102]

I have the power to make any order in this proceeding subject to any condition that I think fit.[31] I may exercise that power so long as the exercise of it does not amount to changing the non-unanimous resolution into a consent to something different from what was resolved.
As I am satisfied that, upon the inclusion of such conditions in my order, the likely economic or social benefits from the proposed action of alteration of the plan of subdivision and transfer of common property within the building envelope are greater than the likely economic or social disadvantages from the proposed action to the non-consenting lot owners. I propose to make an order consenting on their behalf to the proposed action but to make such an order subject to conditions that J&G Knowles must pay to the owners corporation the value of that common property and that any instrument of transfer of that common property must express the amount payable as the consideration for the transfer. The inclusion of conditions of that kind does not affect or differ from the resolution itself, which was silent as to whether there should or should not be such a payment or such a consideration expressed for the transfer.
The propriety of there being such conditions was argued during the hearing. Mr Pane submitted that I could and should include such conditions in an order if I concluded that they were necessary. Mr McKenzie, with expressed reluctance, conceded that I could.
Ideally, to bring finality to the proceeding, I should make a finding as to the value of the common property within the building envelope and express the conditions accordingly. I have concluded, however, that the evidence does not enable me to do that.
In his report Mr Kinnaird correctly observed that it was not his task to value the common property within the building envelope; rather, one of his tasks was to assess the likely economic disadvantages to the lot owners who have not consented to the proposed action, and he went about that task by assessing the amount by which the common property within the building envelope added to the value of each non-consenting owner's lot. He did not attempt to value the common property within the building envelope, and considered that it would have been impracticable and inappropriate to have done so. While it is possible to perform an exercise of extrapolating from Mr Kinnaird's estimates a total added value for all the lots in the subdivision, that exercise is not in my opinion a satisfactory basis for arriving at a value when Mr Kinnaird himself has not undertaken that exercise.
Peter Hay, of Hay Property Group, did value the common property within the building envelope at the request of the solicitors for KVSA.[32] Those same solicitors are acting for all of the respondents to this proceeding except the owners corporation itself. In his report dated 19 May 2011 Mr Hay valued that common property at $65,475.00.
During his evidence Mr Gee said that he was content for J&G Knowles to pay that amount, $65,475.00, in return for a transfer of the common property within the building envelope. In his final address Mr Pane said that I could draw comfort from that figure when formulating any condition to which my order was subject. But for several reasons I consider that it would be wrong for me to take up any implied invitation to identify that figure as a sum which ought to be paid in return for a transfer. First, the only way in which Mr Hay's report was in evidence was as an exhibit to the affidavit of Mr Gee; J&G Knowles did not call Mr Hay as a witness or give any notice to the respondents that it would rely upon his report as expert evidence. Secondly, Mr Kinnaird, the expert witness upon whom J&G Knowles relied, opined that Mr Hay's methodology was wrong.[33] Thirdly, Mr Hay's report is nearly three years old. Finally, Mr McKenzie for the respondents' far from adopting Mr Hay's report, said that his clients contended that the common property within the building envelope was worth much more than $65,475.00; they may well be right.
All that I have done, in the proposed order which follows these reasons, is to specify conditions that J&G Knowles must pay to the owners corporation such amounts for the value of the common property within the building envelope as J&G Knowles and a numerical majority of the respondents agree upon or, failing agreement, is determined by the Tribunal, and that any instrument of transfer of common property lodged by J&G Knowles for registration must express that amount as the consideration for the transfer.
I shall give the parties the opportunity of addressing me on the form of the conditions, and on the form of the order generally, before I make a final order.

[103]

The "lease". Exhibited to the affidavit of Mr Moore was a copy of what purported to be a lease dated 21 April 1998 of the common property which is now described in the plan of subdivision. The lessors were named as the three bodies corporate which were the predecessors of the owners corporation. The lessees were named as KVSA and another company which is now deregistered.[34] The lease was expressed to be for a term of 99 years at a rent of $1.00 per year. It purported to have been executed by the parties to it. Mr Moore's evidence was that the copy was amongst the Stockland Group's records and that he believed that J&G Knowles had provided the copy, but he did not know whether an original of the document existed.
The copy document recited that at general meetings of the bodies corporate there had been unanimous resolutions authorising them to grant such a lease. Under the law as it then was,[35] a body corporate could validly grant a lease of common property only if a special resolution of its members authorised it to do so. In the recital, however, the date of the general meetings was left blank. There was no evidence of whether those meetings had ever been held or whether special resolutions had been made at them. Apart from Mr Moore's evidence as described above there was no evidence whatsoever about such a lease, if it ever existed or now exists.
If a lease in those terms was validly created in 1998 and is still in force, it would be significant. It would mean that if J&G Knowles were to take a transfer of the part of the common property which is within the building envelope it would have to take it subject to the lease. A right of exclusive possession of that common property in KVSA under that lease could be fatal to J&G Knowles' proposed redevelopment of Knowles Lodge because if KVSA were to exercise that right the building would not be secure enough for use as an aged care facility. I would have to consider whether the very existence of the lease was a reason for exercising a discretion to refuse J&G Knowles' application for an order under s 34D of the Subdivision Act.
The conduct of the parties before 2007, whereby J&G Knowles apparently operated an assisted-living hostel within Knowles Lodge as if it had a right to exclusive possession and whereby KVSA did not appear to have asserted any right to possession of common property as a tenant, is hard to reconcile with the existence of such a lease, and suggests that it is likely that no such lease was ever validly and effectively made. At all events there has been no evidence that such a lease was ever validly made and is still in existence. So I regard the exhibited document as being of no significance.
Other Inconsistencies in Plans. Apart from the inclusion in the building plans of proposed new terraces and a proposed new lounge, for which the Hansen plan has made no provision, there are other minor inconsistencies between the building plans, the Hansen plan and the plan of subdivision. Mr McKenzie put these to Mr Kinnaird during his cross-examination. The plan of subdivision shows a small notch or indentation next to the south-west corner of lot 309; the area notched or indented is not part of the common property within Knowles Lodge. The Hansen plan appears to show it as an entrance but treats it as being part of the common property; so do the building plans, which do not appear to provide for an entrance in that area. The plan of subdivision includes in lot 323 what appears to be a balcony area, and so do the building plans, but the Hansen plan appears to have excluded that area from the building envelope. Because of evidence of Ms Emons and of Mr Humphries to which I have already referred, I consider that it is likely that any practical problem that these inconsistencies create could be overcome by approved amendments to the building plans.
Discretion. Satisfied though I am of all the things of which s 34D of the Subdivision Act requires me to be satisfied before I may grant J&G Knowles' application and make an order consenting to the proposed action on behalf of non-consenting members of the owners corporation, I am not obliged to grant the application and make the order. I have a discretion to refuse to do so.
This is not a case where an applicant has failed to achieve a unanimous resolution because members have been apathetic about voting, or because there has been a simple failure to vote, or because there has been isolated and unmeritorious opposition to the motion. It is a case where numerous members of an owners corporation - virtually a whole class of members - have expressed strong and well-reasoned opposition. In such a case I think that the Tribunal ought to be more cautious in the exercise of its discretion than it might need to be in the different cases that I have mentioned. I have endeavoured to employ an appropriate degree of caution.
Mr McKenzie submitted that I should exercise the discretion adversely to J&G Knowles because otherwise I would be sanctioning an expropriation of property without compensation. The conditions subject to which I shall be making the order mean that there is not going to be expropriation without compensation. There are no other matters which would cause me to exercise a discretion adversely to J&G Knowles.
The Respondents' Costs. Although there is a general rule that parties to a Tribunal proceeding should bear their own costs,[36] I may make an order that one party pay another party's costs if satisfied that it is fair to do so, having regard to any matter I consider relevant.[37]
Unusually, in view of the fact that J&G Knowles has succeeded in the proceeding, I propose to order that it pay the respondents' costs of the proceeding, for the following reasons.

J & G Knowles & Associates Pty Ltd v Owners Corporation RP12247

At a glance

Court

Decision date

Source

Judgment (147 paragraphs)

J & G Knowles & Associates Pty Ltd v Owners Corporation RP12247 (Owners Coporations) [2014] VCAT 98 (5 February 2014)

Parties

Legislation Cited (8)

Cases Cited (2)