Mary Erling v The Owners Strata Plan No. 8891

CATCHWORDS : Home and Commercial Units - Strata Titles - Application to terminate strata scheme - Appropriate principles - Borsky v Proprietors Strata Plan No 19833 (1986) 7 NSWLR 84 applied - Strata Titles Act 1973, s 51

LEGISLATION CITED : Conveyancing Act 1919 Strata Schemes (Freehold Development) Act 1973

Borsky v Proprietors Strata Plan No 19833 (1986) 7 NSWLR 84 CASES CITED : Custom Credit Corporation Ltd, Re Application of (1975) 2 BPR 9108 Pritpro Pty Ltd v Willoughby Municipal Council, Supreme Court of New South Wales, Young J, 18 March 1986, BC8601177, unreported

Mary Erling (Plaintiff) The Owners Strata Plan No. 8891 (First Defendant) Ellen Mary Nichols (Second Defendant) PARTIES : Mazen Bteddini (Third Defendant) National Australia Bank (Fourth Defendant) Gosford City Council (Fifth Defendant) Registrar General (Sixth Defendant)

COUNSEL : Mr SF Hughes (Plaintiff) Ms A Smith (First Defendant)

SOLICITORS : Patrick McHugh & Co (Plaintiff) Grace Lawyers (First Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

Tuesday 27 July 2010 ex tempore Revised 28 July 2010

2009/00290588-1 Mary Erling v The Owners Strata Plan No. 8891 JUDGMENT 1 There is before the Court an application for orders to be made pursuant to s 51(4) of the Strata Schemes (Freehold Development) Act 1973, that the strata scheme relating to Strata Plan No 8891 be terminated, such order to take effect on the date these orders are made. Section 51 is in the following terms: 5.1 Termination of Strata Scheme (1) An application to the Supreme Court for an order under subsection (4) may be made by:

(a) any proprietor of a lot the subject of the strata scheme concerned;

(a1) where any such lot is subject to a mortgage or covenant charge - the mortgagee or covenant chargee, or

(1A) An application for an order under subsection (4) may be made by an authority having the benefit of a positive covenant only when the authority applied under section 881 of the Conveyancing Act 1919 for an order that the land the subject of the strata scheme concerned be transferred to the authority.

(2) Notice of an application under subsection (1) shall be served, in accordance with the rules of Court, on:

(a) every person referred to in subsection (1), other than the applicant,

(d) such other person (including creditors of the body corporate) as the Supreme Court may direct.

(3) The applicant and any person referred to in subsection (2) (whether or not he has been served with a notice of the application) shall be entitled to appear and be heard on the hearing of the application.

(4) The Supreme Court may, on an application made under subsection (1), make an order terminating the strata scheme concerned.

(5) An order made under subsection (4) shall take effect: (a) except as provided in paragraph (b), on such day as may be specified in the order, or

(b) where it is made pursuant to an application made under section 32 which, under section 32 (7) or under sections 32 (7) and 50 (8), is treated as an application for an order under this section, pursuant to an application under subsection (1) in relation to a proposed resumption of all the lots and all the common property the subject of a strata scheme or pursuant to an application authorised by section 35, on the day on which the resumption referred to in the order takes effect.

(6) An order made under subsection (4) shall include directions for or with respect to the following matters: (a) the sale or disposition of any property of the body corporate,

(b) the discharge of the liabilities of the body corporate,

(b1) the termination of any development scheme that relates to the parcel and the cancellation of the strata development contract concerned,

(b2) the termination or amendment of any strata management statement that relates to the parcel or the amendment of any other strata management statement that relates to the building concerned,

(c) the persons liable to contribute moneys required for the discharge of the liabilities of the body corporate and the proportionate liability of each such person,

(d) the distribution of the assets of the body corporate and the proportionate entitlement of each person under that distribution,

(e) the administration, powers, authorities, duties and functions of the body corporate,

(f) the voting power at meetings of the body corporate of persons referred to in paragraph (c) or (d),

(g) any matter in respect of which it is, in the opinion of the Supreme Court, just and equitable, in the circumstances of the case, to make provision in the order, and

(h) the winding up of the body corporate (including the appointment, powers, authorities, duties and functions of any person to carry out the winding up).

(7) Upon an order under this section taking effect: (a) the estate or interest of the former proprietors in that part of the former parcel which consisted of common property vested in the body corporate as agent for the former proprietors vests in the body corporate as principal, subject only to any estate or interest recorded in the folio of the Register, or on any registered lease or registered sub-lease, evidencing the estate or interest of the body corporate in that common property or in the relevant folio of the Register created under section 22 (1),

(b) the estates or interests of every person in that part of the former parcel which did not consist of common property vest in the body corporate as principal, subject only to any estate or interest recorded in: (i) the folio of the Register evidencing the estate or interest of the body corporate in the common property comprised in that former parcel, or (ii) the relevant folio of the Register created under section 22 (1), to the extent that the estate or interest so recorded was capable of affecting any former lot,

(c) the persons who, immediately the order took effect, were proprietors of lots the subject of the strata scheme concerned cease to be proprietors of lots the subject of that scheme, and

(d) the persons whose estates or interests are divested by paragraph (b) have instead such rights and liabilities as are conferred or imposed upon them by the order. (8) The provisions of an order made under this section shall have effect notwithstanding any provision of this Act, other than this section.

(9) An order made under subsection (4) shall have effect according to its tenor.

(10) Where the Supreme Court is of the opinion that an order should not be made under subsection (4): (a) it may, upon application made by any person entitled to appear and be heard on the hearing of the application made under subsection (1) or of its own motion, direct that the application be treated as an application for an order under section 50, and

(b) where it makes such a direction: (i) the application the subject of the direction shall be deemed to be an application made under section 50 by a person entitled to make the application, and

(ii) the applicant under subsection (1), as well as any other person entitled to appear and be heard under section 50, is entitled to appear and be heard on the hearing of the application. (11) The costs of any proceedings under this section: (a) pursuant to an application made under section 32 which, under section 32 (7) or under sections 32 (7) and 50 (8), is treated as an application for an order under this section, or

(b) pursuant to an application under subsection (1) in relation to a proposed resumption of all the lots and all the common property the subject of a strata scheme, shall be payable by the resuming authority, unless the Supreme Court otherwise orders. (12) The Supreme Court may, from time to time, vary any order made under subsection (4) on the application of any person who was entitled to appear and be heard on the hearing of the application for that order. 2 The plaintiff is the owner of lots 1, 2 and 5 SP 8891 situated at Gosford. The first defendant represented by Ms A Smith, a solicitor with Grace Lawyers, represents the Owners Corporation and neither consents nor opposes the instant application. 3 The evidence adduced before the Court has been as follows:

i. Affidavits by the plaintiff dated 4 September 2009, and 14 September 2009,

ii. An affidavit by Mr McGill sworn on 28 April 2009,

iii. An affidavit by Mr David Kettle sworn on 28 April 2010,

iv. Affidavits made by Mr Patrick John McHugh on 10 May 2010, on 26 July 2010 and on 19 July 2010. 4 The plaintiff has at commencement sought an order that the Court amend the further amended summons to substitute as the second defendant, the New South Wales Trustee and Guardian as the executor for the estate of the Late Helen Mary Nicholls. The Court makes that order. 5 The Court has been assisted in its approach to the application by a number of judgments which are invaluable in chronicling the care with which applications such as the present require to be handled:

i. A judgment of Justice McLelland in Borsky v Proprietors Strata Plan No 19833 (1986) 7 NSWLR 84; ii. A judgment of Justice Young in Pritpro Pty Ltd v Willoughby Municipal Council (18 March 1986, unreported).

iii. A judgment of Justice Wootten in Custom Credit Corporation Ltd, Re Application of (1975) 2 BPR 9108. 6 Among the important points made by McLelland J in Borsky are the following: i. "Ordinarily the Court should appoint some appropriately qualified and disinterested person, such as a registered liquidator, to carry out the winding up of the body corporate": at 85.

ii. "It is important to note in applications under s 51 that by virtue of s 51(7) one effect of an order terminating a strata scheme is to vest in the body corporate the whole of the land to which the scheme relates subject only to registered estates or interests and, thus, to divest and effectively terminate unregistered estates or interests. The Court has power, by the order, to confer on, inter alia, persons with unregistered estates or interests in lots in the strata scheme rights in lieu of the estates or interests so divested and terminated. It is possible and would, in many cases … be desirable to make an order in general terms for the reinstatement of any unregistered estates or interests but where … it is proposed to demolish the building, this may not be sufficient to protect the rights of those persons whose estates or interests are dependent upon the existence of the present structure, such as a lessee or chargee of a particular lot in the strata plan. The Court might have to consider whether to direct that notice of the application be served on such persons. Normally, therefore, evidence should be put before the Court in an application of this kind as to the existence, or otherwise, of any unregistered estates or interests in relation to every lot in the strata scheme. This would include evidence dealing with statutory charges for rates, water rates and land tax and unregistered leases or tenancies and unregistered mortgages. It might often be thought desirable to have evidence of a search in the Land Titles Office for any caveat or unregistered dealing lodged there": at 85-86. 7 In general terms but without being exhaustive the evidence before the Court which justifies the making of the orders now sought includes the following significant matters:

i. The basis of the application before the Court is that there are two costings as to the likely costs of repairing the units in question which are dilapidated.

ii. Both costings were prepared by Izzad Consulting Engineers. The first costing is for complete rectification. The costs of complete rectification as at 2006 were estimated at $803,000 or $1.1 million to complete, demolish and rebuild the townhouses.

iii. The second scope of work prepared in October 2008 was for the minimum amount of work necessary to make the premises fit for habitation. The costs including exigencies for contingencies would be $302,500.

iv. The Owners' Corporation in question is in a slightly unique position. By a chain of appointments going back to March 2006 by the CTTT the ultimate situation is that CSTM Strata has the power to perform the functions of the Owners' Corporation. Two meetings were held in relation to the two quotes in question, the first in October 2006 resolved not to proceed with either the $803,000 or $1.1 million options, the second in March 2009 resolved to proceed with the $302,500 option. That was in the face of the opposition of the plaintiff who owns three out of the five units in question.

v. Pursuant to the terms of the CTTT orders, CSTM Strata had all of the voting rights and thought that it was best to proceed with the second quote.

vi. In summary, the plaintiff's valuation evidence makes clear that it would make no commercial sense to proceed with any of the repair options. The value, in Mr McGill's view, is that the combined value of the five units fully repaired is about $960,000, the partially repaired value in his view is about $840,000. When the costs of repairs for both of those options are subtracted, the only sensible course appears to be to sell the premises as what is colloquially described as a knockdown at a gross value of $625,000.

vii. There is clearly a history apparent from the affidavit evidence of continuing disagreement between various owners and that is a further factor in favour of the course proposed by the plaintiff. 8 The plaintiff has closely followed, to the extent relevant, the format of the orders made by McLelland J in Borsky and the Court is satisfied that the orders which the plaintiff has put forward are appropriate to be made. 9 The plaintiff has furnished to the Court a consent to act as liquidators by Messrs Paul Desmond Sweeney and Timothy Paul Kisch of S V Partners Pty Limited, level 6, 135 King Street, Sydney, official liquidators. The form of the document furnished to the Court will remain with the Court papers. 10 The Court grants leave to the plaintiff within the next seven days, or as soon as practicable, to file in Court the original of the document which the Court has now taken in the circumstances which obtain.

Orders 11 The Court makes orders in terms of paragraphs 1 to 11 inclusive of the short minutes of order which I initial and date 27 July 2010.

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