Vacation Club Ltd v A G G Properties Pty Ltd

Summary of the salient evidence

1. The Club was incorporated in May 1978. The Club originally took possession of the Property as lessee from Broadway Developments Pty Ltd (which was the developer of the Property) under a registered lease for 99 years commencing on 21 May 1979. It seems the Club began operating the Resort from the Property sometime in 1980.
2. The Property contains 24 fully self-contained two-bedroom apartments and one manager's self-contained three-bedroom apartment surrounded by two hectares of landscaped gardens. The Club apparently offers several recreational activities and facilities on the Resort including barbeque areas, a sauna, lawn bowls, squash and tennis courts, a heated pool, spa, nine hole mini golf, a children's swimming pool and a clubroom. These facilities and services are managed by another company called Classic Leisure Pty Ltd under a Resort Management and Services Agreement with the Club.
3. The second plaintiff deposes in his affidavit sworn on 14 June 2019 that over time, Broadway Developments Pty Ltd began to sell its title and interest in the Property to the Club's members such that the Club members are now the lessors of the Property to the Club under the registered lease, as successors in title to Broadway Developments Pty Ltd. (I note that it seems that Broadway Developments Pty Ltd has been deregistered since August 1996). The second plaintiff gives two examples of agreements that illustrate this process.
4. The first agreement is dated sometime in 1981. It is between the Club, Broadway Developments Pty Ltd and certain individual purchasers. The agreement provides that the purchasers pay $4,200 in consideration for 1/1,248th undivided share of the Property. There are certain terms and conditions to the agreement. Those terms and conditions include clls 2, 3 and 6. Those clauses relevantly provide: 2. LEASE TO THE CLUB: The Purchaser acknowledges that the property is subject to the 99 year renewable registered lease to the Club, and that his right to occupy and use the property derives from his membership of the Club, and that the Club will charge its members annual ownership costs for the operation of the vacation resort. 3. CLUB MEMBERSHIP: Vacation Club Ltd agrees that upon the Purchaser making an application for membership and paying the appropriate entrance fee, it will upon his registration as a Proprietor, accept and register the Purchaser as a member of the Club in accordance with the Articles of Association. … 6. PARTITION: By entering into this Agreement, the Purchaser for himself and for his successors in title, waives his rights of partition under Section 66G of the Conveyancing Act, 1919 for the State of New South Wales in respect of the land and its improvements.
5. The second agreement is dated sometime in 1983. It is also for the sale of 1/1,248th undivided share of the Property. It is in a similar form to the first agreement and contains similar terms. In that agreement, clls 1, 2 and 5 correspond with and are worded similarly to clls 2, 3 and 6 respectively in the first agreement (with the notable exception that in cl 5 the purchaser agrees to waive not only rights of partition but also rights for the appointment of trustees for sale of the Property).
6. There are no more recent examples of contracts for the sale of an undivided share in the Property in evidence. However, I infer that contracts entered into by purchasers after 1983 contained similar clauses to the effect of clls 1, 2 and 5 in the second example above.
7. The second plaintiff deposes that from the Club's inception and until around November 2008, new members were asked to retain their certificates of title upon becoming registered proprietors of the Property. A letter dated 15 April 1985 from the solicitors then acting for the Club to a new purchaser advised that purchaser to "keep your Certificate of Title and the Contract for Sale in safe custody in a safe or with your Solicitor or with your Bank".
8. The Club adopted a Constitution in September 2003 (which replaced the previous Memorandum and Articles of Association). The Constitution was relevantly amended in November 2008. A new cl 13 was inserted into the Constitution as part of those amendments. That clause relevantly provides: 13) Commencing on 14th November, 2008 all applications for membership shall be lodged with the Club or the Manager in the form prescribed by the Board from time to time together with: The original Certificate of Title or such replacement instrument of title issued from the NSW Department of Lands; A Deed of Escrow in the format prescribed by the Board from time to time; allowing the Club's solicitor or other Trustee as determined by the Board from time to time to hold the relevant Certificate of Title and Irrevocable Power of Attorney referred to in Sub-Clause 13.(c) in safe custody on the Club's behalf. An Irrevocable Power of Attorney in favour of the Club signed by all Part Owner(s) of the fractional interest in the site in the format prescribed by the Board from time to time and registerable with the NSW Department of Lands. The Power of Attorney shall authorise the Club to sell the fractional interest of the Part Owner(s), or otherwise act for the Part Owner(s) or Member(s) as the case may be, in the event of: … ii) The Club resolving pursuant to a special resolution passed at a duly constituted general meeting called for that purpose: A. To grant a new lease or an extension of the present lease to the Club on such terms and conditions as contained in the special resolution; or B. To sell the Resort and setting a minimum price and such other conditions as contained in the special resolution and nominating the Club as agent for these purposes. … If the relevant Certificate of Title is held by a mortgagee pursuant to a registered mortgage (where the registration date precedes the adoption of Clause 13): the obligation of a member to lodge such Certificate of Title is deferred until the expiration of 14 days from the date of release of such Mortgage (the deferral period); the new member must lodge such Certificate of Title together with the Deed of Escrow and Irrevocable Power of Attorney required by Clause 13 on or before the date of expiration of the deferral period.
9. A new cl 77 was also inserted into the Constitution. That clause relevantly provides: 77) Service of Notices a) A notice may be given by the Club to a member, or in the case of joint part-owners to the member whose name stands first in the Register, personally, by leaving it at the members registered address or by sending it by prepaid post or facsimile transmission addressed to the member's registered address or by sending it to the electronic (email) address (if any) nominated by the member. All notices sent by prepaid post to persons whose registered address is not in Australia may be sent by airmail or some other way that ensures that it will be received quickly. b) The "notice" for the purpose of this Clause shall include all documents and legal process (including any court proceedings) touching on the member's rights, participation and obligations in the Club's activities and including but not limited to the member's liability for annual levies or contributions, special levies or any moneys which may be owing by the member to the Club and other related matters such as the member's part-ownership of the land on which the Club's activities are conducted and all matters incidental to such part-ownership such as recourse to such land for execution for unpaid fees dues and levies. Service of such notice in the manner specified in Clause 84 shall be deemed sufficient for all such purposes. c) Any notice sent by post is deemed to have been served at the expiration of 48 hours after the envelope containing the notice is posted and, in proving service, it is sufficient to prove that the envelope containing the notice was properly addressed and posted. Any notice served on a member personally or left at the member's registered address is deemed to have been served when delivered. Any notice served on a Member by facsimile transmission is deemed to have been served when the transmission is sent. A facsimile is deemed to be duly sent when the Club's facsimile system or the facsimile system of a duly appointed agent or solicitor of the Club generates a message confirming successful transmission of the total number of pages of the notice to the addressee. Any notice served on a member by electronic means is deemed to have been served when the electronic message is sent. d) A notice delivered or sent by post to the registered address of a member pursuant to this Clause or posted pursuant to Clause 84 is (notwithstanding that the member is then dead and whether or not the Club has notice of the member's death) deemed to have been duly served, whether held solely or jointly with other person by the member, until some other person is registered in the member's place as the part owner or joint part owner and the service is for all purposes deemed to be sufficient service of the notice or document on the member's heirs, executors or administrator and all persons (if any) jointly interest with the member.
10. The second plaintiff deposes that following the insertion of cl 13 into the Constitution, the Club (through its managing agent, Classic Leisure Pty Ltd) retained all Certificates of Title in respect of new memberships. At the time the Summons was filed, Classic Leisure Pty Ltd was in possession of 506 of the total 1,248 issued Certificates of Title on behalf of the Club.
11. As noted above, the Club resolved at an extraordinary general meeting of members on 10 November 2018 to sell the Property and seek ancillary orders under s 138 of the Real Property Act. A resolution was also passed for the winding up of the Club pursuant to s 461 of the Corporations Act. Six resolutions were passed to give effect to this process, all of which were carried by at least 85% of votes cast. The second plaintiff deposes that the reason for the decision to sell the Property was largely due to the financial difficulties created by longstanding defaults of certain Club members in paying levies owing to the Club. According to the second plaintiff, the failure of a significant number of Club members to pay their levies made it increasingly difficult for the Club to cover its overheads and maintenance costs.
12. Since the commencement of the proceedings, solicitors acting for the Club have written to those Club members for whom the Club does not currently possess the Certificate of Title. The content of those letters included a request to those members to return their Certificates of Title to the Club so that the Club could effect the sale of the Property. Some but not all of the recipients of these letters have returned their Certificates of Title to the Club in response to such letters.
13. As at 19 September 2019, the Club, though Classic Leisure Pty Ltd or the Club's solicitors, is in possession of 981 Certificates of Title. This leaves a total of 267 Certificates of Title unaccounted for.
14. None of the sub-folios of the Property appear to be encumbered by any interest or mortgage. However, three of the sub-folios are subject to five caveats lodged in 2007 and 2010 by a single caveator, Ms Po King Chan, who claims in respect of each sub-folio an interest or estate in the nature of a constructive or resulting trust which is said to arise as a result of "contributions made directly or indirectly by [Ms Chan] to the property".

Service

1. As referred to above, there are 492 defendants in the proceedings. With some exceptions, these defendants are all members of the Club. In these circumstances, the Club seeks to invoke cl 77 of the Club's Constitution to assist in the service of documents, including the service of legal processes. It will be recalled that notices served under that clause may include: all documents and legal process (including any court proceedings) touching on the member's rights, participation and obligations in the Club's activities…and other related matters such as the member's part-ownership of the land on which the Club's activities are conducted and all matters incidental to such part-ownership…
2. The evidence indicates that the plaintiffs served the defendants (as then identified in the Summons filed on 20 June 2019) by prepaid post, enclosing a covering letter, a copy of the Summons and a copy of the affidavit sworn by the second plaintiff on 14 June 2019. Those letters were mailed to the addresses maintained in the Club's membership register for each of the various defendants on 22 and 29 July 2019.
3. On 30 August 2019, the Court granted leave to the plaintiffs to file in Court an Amended Summons with an amended list of defendants. The Court then made directions for the service of the Amended Summons upon those listed on the amended list of defendants. The evidence indicates that service was effected in accordance with the direction.
4. Rule 10.6 of the Uniform Civil Procedure Rules 2005 (NSW) is relevant for present purposes. That rule provides: (1) In any proceedings, any document (including originating process) may be served by one party on another (whether in New South Wales or elsewhere) in accordance with any agreement, acknowledgment or undertaking by which the party to be served is bound. … (2) Service in accordance with subrule (1) is taken for all purposes (including for the purposes of any rule requiring personal service) to constitute sufficient service.
5. As between a company and its members, s 140(1) of the Corporations Act deems that a company's constitution has statutory force as an agreement between those parties. That section recognises that a company's constitution regulates the relations of members amongst themselves and with the company (see Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 at 410). In relation to the rights of members of a company, those who subscribe to become a member of a company must be taken to agree to observe all covenants and terms imposed by the company's constitution, at least insofar as it affects them in their capacity as members.
6. There cannot be any doubt that the reference to "legal process (including any court proceedings)" in cl 77 is intended to include the service of judicial processes (see discussion in Bindaree Beef Pty Limited v Chinatex (Australia) Pty Ltd [2018] NSWSC 1499 at [25]-[32]). The clause is expressed to be limited to the service of notices in relation to subject matter that affects the Club's members in their capacity as members of the company. However, there can be no real dispute that rights with respect to the Property are an integral aspect of those members' rights. I am satisfied that service by way of prepaid post was effective in respect of those Club members recorded in the Club's register.
7. I turn now to those defendants who have interests in the Property but are not members of the Club. There are eight defendants that fall within this category. The evidence indicates that four of these defendants have been personally served by process servers on various dates. The Court is satisfied that these defendants have been properly served and are aware of the proceedings. This leaves four defendants. One defendant, Ms Erika Pope, indicated to the Club by letter dated 8 April 2018 that she does not claim any interest or share in the Property and requests that she be "discharged" from ownership and responsibility. Two of these defendants, Ms Patricia Tennant and Mr William John Nolan, are unable to be located despite efforts by the plaintiffs. The former may have died but no searches for probate or death notices have yielded any relevant information. The remaining defendant, Mrs Margaret Jean Cruickshank (nee Morrison), appears to have died in Victoria in August 2014. Probate of Ms Cruickshank's will was granted in December 2014, although it is not clear to whom the grant was made. An affidavit of the process server who attempted to serve Mrs Cruickshank on 10 September 2019 records a conversation with a person who was a neighbour of Mrs Cruickshank's when she resided at her last recorded address in Bowral, New South Wales. The process server deposed that the neighbour said words to the effect that Mrs Cruickshank's daughter sold the Bowral property and then moved to Campbelltown.
8. I refer, if only for completeness, to the evidence of service insofar as it relates to the caveator, Ms Chan (who is not named as a defendant in the Amended Summons). The evidence shows that on 9 September 2019 the solicitors for the Club sent written notice of the present proceedings to the addresses for service stated on Ms Chan's caveats. The content of those letters included an invitation to Ms Chan to attend the next directions hearing on 13 September 2019. Notices were also sent to the registered proprietors of the shares over which Ms Chan claims to be entitled to an interest. On 12 September 2019, a representative of Abrams Turner Whelan Lawyers, which is located at the address for service on three of Ms Chan's caveats, informed the solicitors for the Club that they have not acted for Ms Chan since around 2008, but that they would post the written notice and the attachments to her. On 17 September 2019, a solicitor acting for the Club contacted by telephone Ms Viji Thadsan of Viji Thadsan Solicitors, which firm is recorded as an address for service on two of Ms Chan's caveats. The solicitor was informed by Ms Thadsan that she has not acted for Ms Chan for a long time.

Orders for the appointment of trustees

1. The evidence clearly establishes that the plaintiffs are co-owners of the Property together with the defendants. It is well established that once co-ownership is established, a co-owner of property within the meaning of s 66G of the Conveyancing Act is entitled to orders for the appointment of trustees for sale "almost as of right" unless it would be inequitable to allow the application (see Ferella v Official Trustee in Bankruptcy [2015] NSWCA 411 at [38], citing Tory v Tory [2007] NSWSC 1078 at [42]). The Court accordingly has only a limited discretion to decline relief under s 66G.
2. This Court has on several occasions held that an inconsistent proprietary right or contractual or fiduciary obligation would be a good defence to an application for relief under s 66G (Stephens v Debney (1959) 60 SR (NSW) 468 at 470; Callahan v O'Neill [2002] NSWSC 877 at [58]; Chalhoub v Chalhoub [2005] NSWSC 572 at [59]; Matsen v Matsen [2008] NSWSC 135 at [56]-[62]; Capolingua v Da Silva [2016] NSWSC 1212 at [56]).
3. It might be suggested that cl 5 in the 1983 agreement is an inconsistent contractual obligation. In its terms, the co-owner purchaser (including their successors in title) "waives" their right to seek orders for the appointment of trustees for sale or for partition. The same might be said of provisions to similar effect contained in later agreements.
4. A co-owner opposing the appointment of trustees for sale has the onus of dissuading the Court from ordering a trust for sale (Woodson (Sales) Pty Limited v Woodson (Australia) Pty Limited (1996) 7 BPR 14,685 at 14,701). No defendant has appeared to oppose the relief sought by the plaintiffs, including by relying upon the terms of cl 5 (or clauses to like effect) to dissuade the Court from making the orders sought by the plaintiffs.
5. Even if such arguments were raised they would not in my view provide a good reason to exercise the discretion to decline the appointment of trustees for sale. The evident purpose of cl 5 is to restrict the right of an individual co-owner to seek orders for the appointment of trustees for sale under s 66G. Clause 5 must be read in conjunction with the other clauses contained in the 1983 agreement, including clls 2 and 3. Those clauses plainly envisage that at least some and perhaps all of the co-owners of the Property will become members of the Club. It is contemplated that the rights of co-owners will be regulated, at least to some extent, by the constitutional rules of the Club as applicable from time to time. That is to say, in accordance with the co-owners' rights under the Club's Constitution (and previously the Memorandum and Articles of Association).
6. The resolutions passed at the extraordinary general meeting of members on 10 November 2018 appointed Mr Dawes and the third plaintiff (and later, by resolution of the Club's board, the second plaintiff in place of Mr Dawes) to apply for the appointment of trustees for the sale of the Property. In these circumstances, the application is not made by a co-owner seeking to take advantage of an individual right as co-owner to seek the appointment of trustees to sell the Property. Rather, the application is made by the second and third plaintiffs in their capacity as duly authorised representatives of the Club seeking to carry out the wishes of the Club members as a whole. In my opinion, cl 5 (or a clause to like effect) provides no basis to withhold relief under s 66G.
7. I can discern no other possible arguments against the appointment of trustees for sale in this case. In circumstances where the vast majority of co-owners are members of the Club, and the members have voted overwhelmingly in favour of a sale of the Property, I do not think that any co-owner who is not a Club member (presumably having chosen not to seek membership) would be in a position to resist the application. As noted earlier, a small number of co-owners who are not Club members have not been served. Nevertheless, in the circumstances I have described, I am satisfied that it is appropriate for the application to be determined in the absence of these co-owners.
8. Accordingly, the Court will make orders for the appointment of trustees for sale of the Property.

Section 138 of the Real Property Act

1. This leaves the question of whether the Court should make ancillary orders to facilitate the sale process pursuant to s 138 of the Real Property Act. That section relevantly provides: (1) A court may, in proceedings for the recovery of any land, estate or interest from the person registered as proprietor of the land, make ancillary orders of the kind set out in subsection (3), if the court is of the opinion that the circumstances of the case require any such order to be made. (2) A court may, in proceedings for the possession or production of a certificate of title or in proceedings in which the court makes a determination as to an estate or interest in land, make ancillary orders of the kind set out in subsection (3), if the court is of the opinion that the certificate of title has not been, or is not likely to be, produced by a person for the purposes of the registration of a dealing affecting the land concerned. (3) A court may order the Registrar-General to do one or more of the following: (a) cancel or amend a folio of the Register, (b) cancel, amend or make a recording in a folio of the Register, (c) create a new folio of the Register, (c1) create a new edition of a computer folio, (d) issue a new certificate of title. … (4) The Registrar-General must give effect to any such order. (5) A court that makes an order under this section may order that a person deliver a certificate of title or other instrument to the Registrar-General for the purpose of giving effect to any such order.
2. The plaintiffs principally seek orders under s 138(3). As noted above, the plaintiffs seek orders for the cancellation of the sub-folios, the creation of a new consolidated folio, and the issue of the new Certificate of Title for that folio recording the trustees as the registered proprietor. The plaintiffs also seek orders under s 138(2) for the production of the missing Certificates of Title from the defendants who have not yet produced them.
3. Counsel for the plaintiffs submitted that the Court's power to make the orders they seek under s 138(3) is enlivened if the Court is "of the opinion that the circumstances of the case require any such order to be made" (see s 138(1)). Counsel then referred to a number of circumstances established by the evidence from which it was submitted the Court could be satisfied that such orders should be made. These include: 1. the fact that 267 Certificates of Title are still missing despite the best efforts of Club to recover them; 2. the fact that the Club cannot locate all the Club members so as to be able to request or require them to produce their Certificate of Titles for the purposes of the sale of the Property; and 3. that as a practical matter, a single Certificate of Title would be needed for the trustees to sell the Property. It was put that it would be highly impractical for the trustees to have to sell the Property with all the existing sub-folios and Certificates of Title.
4. Counsel referred to the decision of McDougall J in Prentice v Registrar General (2014) 17 BPR 33,231; [2014] NSWSC 1060 at [8] as lending support for the contention that the Court need only be satisfied that the circumstances of the case require an order to be made under s 138(3).
5. I do not think that is correct. In my opinion, there is no freestanding power for the Court to make orders under s 138(3) without the Court being satisfied that the requirements set out in ss 138(1) or (2) have been met (Sahab Holdings Pty Ltd v Registrar-General (2011) 15 BPR 29,627; [2011] NSWCA 395 at [129]). Section 138(1) provides that the Court can make any of the orders in s 138(3) in proceedings for "the recovery of any land, estate or interest from the person registered as proprietor of the land". Section 138(2) provides that the Court can make ancillary orders of the kind set out in s 138(3) in proceedings for "the possession or production of a certificate of title or in proceedings in which the court makes a determination as to an estate or interest in land". These provisions call for a characterisation of the proceedings in which the Court is asked to make orders of the kind set out in s 138(3).
6. The proceedings cannot be characterised as involving the "recovery of any land, estate or interest from the person registered as proprietor of the land" (see Sahab Holdings Pty Ltd v Registrar-General (supra) at [97]-[100]). The requirements of s 138(1) are thus not met.
7. However, it seems to me that the requirements of s 138(2) are met. As noted earlier, the Amended Summons seeks orders for the production of the Certificates of Title that are still missing. It has been held by this Court on a number of occasions that the insertion of such relief in an originating process is sufficient to enliven the Court's power under s 138(2) to make the kinds of orders set out in s 138(3) provided that the Court is satisfied that the certificate of title has not been, or is not likely to be, produced by a person for the purposes of the registration of a dealing affecting the land concerned (see, for example, Botterill v Botterill (2000) 10 BPR 18,787; [2000] NSWSC 1152 at [2]-[3]; Arrow Custodians Pty Ltd v Pine Forests of Australia Pty Ltd (2006) 18 BPR 35,209; [2006] NSWSC 341 at [37]; Crocombe v Pine Forests of Australia Pty Ltd (No 3) (2007) 13 BPR 24,241; [2007] NSWSC 217 at [6]; McVeigh v Whitelaw [2005] NSWSC 1112 at [9]-[10]; Woodgate as trustee in bankruptcy of Geoffrey Leonard Hadley v Registrar-General [2012] NSWSC 1640 at [9]-[12]; but see the observations of the Court of Appeal in City of Canada Bay Council v F & D Bonaccorso Pty Ltd (2007) 71 NSWLR 424; [2007] NSWCA 351 at [96]).
8. The Court is satisfied on the evidence before it that the outstanding Certificates of Title have not been, and are not likely to be, produced by those defendants who have yet to produce their Certificates of Title to the Club. The evidence indicates that the Club has exhausted all reasonable enquiries it is able to make to retrieve the missing Certificates of Title.
9. I should add that, on my reading of Prentice v Registrar General (supra), McDougall J clearly referred (at [8]) to the need for a party seeking one or more of the orders set out in s 138(3) to claim substantive relief which would fall within the kinds of proceedings envisaged by ss 138(1) and (2). It is true that his Honour subsequently declined to make an order under s 138(2), and appears to make orders under s 138(3) in isolation. However, his Honour was plainly of the view (at [12]-[13]) that the jurisdictional precondition under s 138(2) was satisfied because the relevant certificate of title was not likely to be produced.
10. Accordingly, the Court is satisfied that the plaintiffs have made out an appropriate basis for the making of ancillary orders of the kind set out in s 138(3). The Court will order that the existing sub-folios in respect of the Property be cancelled, and that a new consolidated folio be issued. The Court will also order that the Registrar-General issue a new Certificate of Title for the consolidated folio recording the names of the appointed trustees for sale.
11. Finally, I note that the plaintiffs did not press the Court to make an order compelling the defendants to produce the outstanding Certificates of Title, as sought in the Amended Summons. Counsel submitted that such an order might lack utility (referring to Prentice v Registrar General (supra) at [14]) as the evidence shows that the Club has exhausted its attempts to have the defendants return such Certificates of Title for the process of facilitating the sale of the Property. I think this is correct. In my view, an order compelling the defendants to produce the outstanding Certificates of Title would be futile in the circumstances and would no doubt add unnecessary cost and expense to the sale process.

Schedule A (241 KB, pdf) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 October 2019