Monnock v Pittwater Council [2003] NSWLEC 151 | Case summary

The argument 9 Although the Court is reluctant to impose a restrictive covenant which merely re-states or reinforces conditions of a development consent which runs with the land, nevertheless it is well established that the council has the power to impose a condition requiring the creation of a restrictive covenant (NTL Australia v Willoughby Council [2000] NSWLEC 244, unreported and Fortunate Investments Pty Ltd v North Sydney Council 114 LGERA 1 at 4). 10 Section 88E(2) of the Conveyancing Act 1914 ("the Conveyancing Act"), pursuant to which the restriction sought to be imposed by condition D1 would be created, relevantly provides as follows:- 88E Regulation of use of land not held by a prescribed authority … (2) A prescribed authority may, in accordance with this section, impose restrictions on the use of or impose public positive covenants on any land not vested in the authority, so that the restriction or public positive covenant is enforceable by the authority whether or not the benefit of the restriction or public positive covenant is annexed to other land. … 11 It is the council's position that as a matter of construction cl 21F of the LEP relevantly prohibits the subdivision of each of the dwellings forming part of the approved dual occupancy development and therefore condition D1 is claimed to be clearly a condition that "relates to a matter referred to in s 79C(1) of relevance to the development the subject of the consent" within the meaning of s 80(1)(a) of the EP&A Act, namely the LEP itself, and in particular, cl 21F thereof. 12 One thing that must be noticed at the outset in considering the effect of cl 21F is that it is a direction to the council not to grant consent "for a subdivision which creates separate allotments for each of the two dwellings resulting from dual occupancy development". 13 Accordingly, it pre-supposes that an application is made to the council for subdivision in the manner outlined, namely "which creates separate allotments". 14 The applicant argues that contrary to the respondent's submission, cl 21F of the LEP does not prohibit disposition of each of the dwellings forming part of the approved dual occupancy development but rather that it prohibits the separate disposition of separate allotments resulting from dual occupancy development. This argument depends upon construing cl 21F so that it can only operate in respect of separate allotments of land thereby proscribing the grant of a consent to a subdivision creates separate allotments for each of the two dwellings resulting from the dual occupancy development. 15 The council makes a conflicting submission that although the allocation of shares may not create any interest in the land the allocation may effect a "separate disposition of part of the land and/or building". It is difficult to understand how there can be a separate disposition of land where no interest in the land is created. The argument appears to be based upon the wide definition of subdivision contained in s 4B of the EP&A Act, particularly s 4B(1)(b) where there is reference to any agreement or instrument rendering different parts of the land available for separate occupation, use or disposition. That raises the question of whether the issue or transfer of shares with special rights attached in regard to separate occupation of defined parts of land or a building is, for the purposes of cl 21F, "a subdivision which creates separate allotments". 16 Condition D1 as presently framed confuses the distinction between the notions of ownership of land and the ownership of shares. It is trite law that the ownership of shares in a company which owns land does not lead to an interest in the land. The legal interest of the holder of the shares is in the shares and the rights attached thereto, not in the assets of the company. 17 When cl 21F was inserted in the LEP on 9 February 1996 it is clear from its terms that the purpose was to proscribe subdivision which creates separate allotments for each of the two dwellings resulting from dual occupancy development carried out in accordance with Div 3A of the LEP. 18 Any difficulty that arises out of the words in brackets in the definition of "dual occupancy development" in the LEP or the prospect that a subdivision in accordance with the definition in s 4B of the EP&A Act that occurs on the grant of consent to a dual occupancy development does not arise in the present case because the dual occupancy development has already been approved on a single parcel of land. 19 In Masterton Homes Pty Limited v Pittwater Council [2003] NSWLEC 44, unreported Bignold J had cause to consider the validity of a condition similar to condition D1 in the present case which also relied upon the provisions of cl 21F. His Honour concluded that the particular intended company title arrangement proposed in that case fell within the scope of the statutory definition of subdivision applicable to the operation of the LEP and in particular of cl 21F. This, he said, is because the company title arrangement will relevantly render the dual occupancy development "obviously adapted for separate…disposition" within the meaning of the statutory definition in s 4B of the EP&A Act. He supported his conclusions in [25] as follows:- This conclusion is particularly supported by the terms and context of cl 21F of the LEP. Since it is obvious that by its very nature and by definition a " dual occupancy development ' (such as that approved by the grant of development consent in the present case) itself divides the land upon which the dual-occupancy development is developed into two parts (each of the two dwellings and their respective curtilages) " that after the division, would be obviously adapted for separate occupation or use ' within the meaning of the statutory definition of " subdivision ", it is clear that the reference to " subdivision " in cl 21F of the LEP is confined to a reference to the division of the land into two parts " that after the division would be obviously adapted for separate disposition " (my emphasis). The clear intention of the prohibition on subdivision wrought by cl 21F of the LEP is to preclude the " separate disposition " of the two parts of land comprised of each of the two dwellings and their respective curtilages. The fact that the " two parts " have already been created by the carrying out of the " attached dual occupancy " development does not prevent the definition of " subdivision " from operating in respect of the " separate disposition " of those parts, by virtue of the " company title " arrangement. In this respect, it is not to the point that the issue and transfer of shares in the " company title " arrangement does not itself, physically divide the land into two parts, since it is only by virtue of that arrangement that the " two parts " can relevantly be separately disposed of: see the Conveyancing Act , s 23F . 20 His Honour went on to hold that cl 21F of the LEP relevantly prohibits the separate disposition of each of the dwellings forming part of the approved dual occupancy development. 21 I am unable to find in His Honour's outline of the competing arguments in Masterton, or the reasons for judgment, any express reference or consideration to the effect of the critical phrase in 21F, namely "subdivision which creates separate allotments". In my opinion, these words are critical to the determination of the issues in this case. They confine the definition of subdivision in s 4B to those circumstances where the subdivision of land actually creates separate allotments rather than a mere division into two or more parts that after the division would be obviously adapted for separate occupation, use or disposition. Furthermore, I cannot be satisfied that an allocation or acquisition of shares with specific rights attached to them necessarily have the effect of a division of the land into two or more parts. 22 In Personal Design Projects Pty Ltd v Hornsby Shire Council (Bignold J, NSWLEC, 15 March 1991, unreported), His Honour considered the meaning of the words "an allotment of land" where used in cl 8 of the Sydney Regional Environmental Plan No. 12 - Dual Occupancy ("REP 12"). In his opinion, the expression as it appeared in cl 8 referred to an identifiable piece or parcel of land. He cited authority emphasising the necessity for there to be specificity in the definition of the limits of the area of land which forms the parcel. His Honour had regard to the judgment in Ku-ring-gai Municipal Council v Kuttner (1980) 41 LGERA 1 which he noted elucidated the importance of the use of the word "separate" in the expression "separate parcel of land" which was under consideration in that case. 23 The question in Kuttner was whether a dwelling had been erected on a parcel of land which was in existence as a separate parcel of land at a relevant date. Because improvements extended across the boundary of two adjoining lots, Hope JA and Hutley JA, with whom Samuels JA agreed, found that the individual lots had thereby been deprived of "any separateness". Accordingly, a mere descriptive division is not sufficient. 24 Clause 8 of REP 12 was also considered by me in S & I Investments Pty Ltd v Pittwater Municipal Council (Talbot J, NSWLEC, 13 October 1993, unreported). In that case I determined that although the development of dual occupancy cannot be carried out until there is a separate allotment of land created in accordance with the plans lodged with the council, it did not follow that the application for consent for the dual occupancy cannot be considered and then determined, subject to conditions which required the separate allotment to be created. 25 Different considerations arose in Jelbart and Ors v Hume Shire Council (Talbot J, NSWLEC, 28 November 1997, unreported) where cl 15 of the Hume Local Environmental Plan No. 8 ("LEP 8") provided that a person may with the consent of the council erect a dwelling house only if the land is an allotment created on the appointed day and was an allotment upon which a dwelling house could have been erected in accordance with a planning instrument in force at the time of the subdivision. Recognising the practical approach taken by Bignold J in Personal Design Project and by me in S & I Investments I held that the same indulgence was not available in the circumstances because cl 15 of LEP 8 made specific reference to the creation of the allotment before the appointed day. A formal subdivision was required to be in existence at the relevant date. 26 In Demihale Pty Ltd v Ku-ring-gai Municipal Council [2002] NSWLEC 178, unreported the Chief Judge considered the effect of cl 17 in State Environmental Planning Policy No. 53 - Metropolitan Residential Development ("SEPP 53"), which allowed development that results in two dwellings being located on the one allotment of land. Her Honour adopted a construction which defines "allotment of land" in the more general sense rather than confining the expression to an allotment created upon registration of a plan of subdivision. In her opinion, an "allotment of land" for the purpose of SEPP 53 may properly be regarded as in existence despite not having been through the formal process of registration of an approved plan of subdivision. 27 Irrespective of the view taken about the meaning of allotment, it is clear nevertheless that an allotment comes into existence when there is a physical division of land and is capable of separate identification, although not necessarily in every case, by the registration of a formal plan of subdivision. 28 Clause 21F was inserted into the LEP on 9 February 1996 by Pittwater Local Environmental Plan 1993 (Amendment No. 11) ("LEP (Amendment 11)"). The expressed aim of the LEP was to prohibit the subdivision of dual occupancy development in Pittwater. 29 I agree with Bignold J where, in the above quoted passage from the judgment in Masterton, he recognises that the real nature of a dual occupancy development itself divides the land upon which the dual occupancy development is to occur insofar as he says that following development the two parts comprising each of the two dwellings and the respective curtilages would be "obviously adapted for separate occupation". But it is not clear to me that following the creation of the dual occupancy development the separate parts of the land would be obviously adapted for separate disposition. For the reasons already explained which rely upon a distinction between an interest in shares and an interest in the land held by the company as owner, the issue or transfer of shares with special rights attached relating to occupancy of the individual dwellings, in my opinion, does not facilitate a "disposition" of the separate parts of the land. 30 I agree with Bignold J that cl 21F of the LEP effectively and relevantly prohibits a separate disposition of each of the dwellings being comprised in the separate allotment created by the approved dual occupancy development. 31 However, I am unable to agree with His Honour that s 23F of the Conveyancing Act assists with the conclusion that by virtue of the "company title" arrangement, the "two parts" can relevantly be disposed of. Accordingly, I am not able to conclude that the company arrangement on its own or the dealing in the shares amounts to a disposition of an interest in the land or any part thereof which would further subdivide the land. 32 I am not bound to follow the decision of Justice Bignold. However, it is clear that His Honour came to a definite decision after hearing submissions by parties who were represented by senior members of the profession, including Queen's Counsel. The actual hearing before Bignold J went for one day but written submissions were subsequently provided. His reasons are fully explained and set out. As a matter of judicial comity, I am at least encouraged to follow it because His Honour's decision has a direct bearing on the manner in which the council has been conducting its affairs in relation to the approval of dual occupancy development. Furthermore, although I may not be prepared to go so far as His Honour by construing the application of cl 21F to justify the specific control envisaged by condition D1, nevertheless, subject to the reservations I express below, the constraint upon the use of shares in a company as a means of controlling the manner in which rights of occupancy are controlled is sufficiently akin to the stated aim of LEP (Amendment 11), namely to proscribe the subdivision of dual occupancy development to arguably support the validity of a condition to that effect. 33 However, it does not necessarily follow that by accepting the reasoning of Bignold J in Masterton in this way I must come to the same conclusion as His Honour did, namely that the condition, in this case condition D1, is not ultra vires. 34 His Honour's reasons do not ultimately address the legal practicalities of the concept of assignment of ownership of a dwelling based on the ownership of company shares to which the terms of condition D1 are specifically directed. 35 The covenant contemplated by the condition envisages that ownership of the individual dwelling can be assigned by the transfer of shares. For the reasons already given, the transfer of shares in the company owning the land does not affect a transfer of title to the land. Accordingly, the covenant seeks to constrain a transaction which does not have the legal consequence attributed to it by the words of the condition. In the circumstances it is unenforceable. It has no legal force or effect because it does not and cannot achieve any purpose. It being for no identifiable purpose it must be outside the statutory authority of s 80A as not relating to any matter referred to in s 79C(1) of the EP&A Act. 36 This finding is consistent with the arguments propounded by Mr Simpkins on behalf of the applicant and, to some extent, the submission made by Mr Galasso on behalf of the council. 37 The preliminary point of law as filed by the applicant is determined in the affirmative.

Monnock v Pittwater Council

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