White v Betalli & 1 Or

Strata Schemes Management Act 1996 (NSW) Strata Schemes (Freehold Development) Act 1973 (NSW) LEGISLATION CITED : Real Property Act 1900 (NSW) Strata Titles Act 1973 (NSW) Interpretation Act 1987 (NSW)

Sydney Diagnostic Services Pty Ltd v Hamlena Pty Ltd (1991) 5 BPR 11,432 Hamlena Pty Ltd v Sydney Endoscopy Centre Pty Ltd (1990) 5 BPR 11,436 Bapson Pty Ltd v Puyeti Pty Ltd (1990) NSW Title Cases 80-002 Salerno v Proprietors of Strata Plan 42724 (1997) 8 BPR 15,457 CASES CITED : Regis Towers Real Estate Pty Ltd v Kin Fung (2001) NSW Conv R 55-960 Regis Towers Real Estate Pty Ltd v CSS Holdings Pty Ltd [2001] NSWSC 139 North Wind Pty Ltd v Proprietors - Strata Plan 3143 [1981] 2 NSWLR 809 Young v The Owners - Strata Plan 3529 (2001) 54 NSWLR 60 Gosper v Sawyer (1985) 160 CLR 548 Nelson v Nelson (1995) 184 CLR 538

Lynda Margaret White PARTIES : v Christopher Nadir Betalli & 1 Or

COUNSEL : Plaintiff: R Tregenza Defendants: P Gray SC & P Koroknay

SOLICITORS : Plaintiff: Andreones Pty Ltd Defendants: David Le Page

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4772/05 Lynda Margaret White v Christopher Nadir Betalli & Anor JUDGMENT 1 HIS HONOUR: This dispute between neighbours raises the question whether a by-law of a strata scheme of subdivision can create a right in favour of the owner of one lot to use or occupy part of another lot. Background 2 Strata plan SP 67662 was registered on 11 April 2002 by a Mr and Mrs Thompson. The strata plan divided land then known as lot 36 in DP 215533 at Marina Crescent, Gymea Bay, into two strata lots. The plaintiff owns lot 2 in SP 67662. The defendants own lot 1. A house is constructed on each lot. 3 The two lots lie between Marina Crescent to the west and Port Hacking to the east. The northern boundary of both lots abuts a reserve. Lot 1 is the higher lot, with street frontage to Marina Crescent. It lies to the west of lot 2. Lot 2 is the lower lot, with frontage to Crown land at mean high watermark and thence to the water. There is a right of footway in favour of lot 1 to the rear, or eastern end, of lot 2. The rear of lot 2 is steeply sloping ground. From its boundary at mean high watermark there is a strip of Crown land. This was formerly grassed and is now partially landscaped. On this land there is a seawall dividing the land and the water at Port Hacking. 4 The strata plan adopted residential model by-laws 1-19, plus two special by-laws, 20 and 21. These by-laws were said to be made under s 52 of the Strata Schemes Management Act 1996 (NSW). The present dispute concerns by-law 20. It provides: " The registered proprietors for the time being of lot 1 shall have the right to store small watercraft within the area denoted (A) on the sketch annexed to this instrument. " 5 The area denoted "A" abuts the Crown land at mean high watermark at its eastern end. This boundary is irregular in shape. The northern boundary of the area marked "A" coincides with the boundary of lot 2 and extends four metres. The western boundary of the area is three metres long. Its southern boundary is over four metres long, reflecting the irregular eastern boundary. A copy of a survey sketch of the area is attached to these reasons. All of the area denoted "A" on the sketch annexed to the by-law is on lot 2. 6 The owner of lot 1 has access to the watercraft storage area via the right of footway. At the eastern end of lot 2, the right of footway extends across the whole of the lot, except for a boatshed which is on the south-eastern corner of the lot. This boatshed belongs to lot 2, save for a portion of it which encroaches onto Crown land below the mean high watermark. That portion of the boatshed is common property. By-law 21 provides that the portion of the boatshed that extends beyond the mean high watermark is for the exclusive use, and is to be maintained by, the registered proprietor of lot 2. 7 The purpose of the right of footway and of by-law 20 is plain. The purpose is to give the owners of lot 1 access to the water at Port Hacking, and a space on which to store a small boat near the water. 8 Lot 2 is known as 2 Marina Crescent, Gymea Bay. The plaintiff bought this property on or about 13 April 2002. Lot 1 is known as 2A Marina Crescent. This land was initially bought in or about August 2002 by a Mr and Mrs Dedda. On or about 31 March 2004, the defendants exchanged contracts to purchase lot 1 from Mr and Mrs Dedda. They moved into the property on 29 June 2004. 9 After they moved in, the first defendant, Mr Betalli, put a 3.5 metre boat and trailer in the watercraft storage area. The trailer was connected to a sapling by a winch. The plaintiff and her husband objected to this, pointing out that there was no right to store a trailer. The plaintiff also complained that the boat and trailer extended outside the storage area and were not stored safely. On 16 July 2004, the solicitors for the plaintiff, Benetatos White, wrote to Mr Betalli. They contended that the boat then stored on lot 2 was not a small watercraft but a medium sized boat. They demanded that the defendant remove the boat, the trailer and the winch. Benetatos White also stated that the plaintiff had no issue with the storage of small watercraft by Mr Betalli in accordance with the terms of by-law 20. 10 After receiving this letter, Mr Betalli asked the plaintiff if she would have any objection to an inflatable boat being put in the watercraft storage area. She said she did not, provided the boat fitted in the designated area, was safe, and did not cause damage. 11 Following this conversation, Mr Betalli purchased an inflatable boat. 12 On 8 August 2004, the boat and trailer then being stored in the watercraft storage area were removed. In about late August 2004, the inflatable boat was put in the watercraft storage area and secured to a tree. The plaintiff's husband helped with this. 13 It might have been hoped that this would be the end of the issue. However, that was not the case. 14 In December 2004, the plaintiff advised Mr Betalli that she had received a letter from the Department of Lands indicating that the by-law for the storage of the boat was invalid, because it was on her property and not common property. She advised him that she proposed to call an annual general meeting of the body corporate so that the by-law could be removed. On 27 January 2005, she convened that meeting. The meeting was held on 12 February 2005. However, the resolution to repeal by-law 20 on the ground of its not being valid was not passed. The defendants voted against that resolution. 15 A mediation was held on 5 May 2005, but it failed to resolve the dispute. 16 On the weekend of 4 and 5 June 2005, without prior notice, the plaintiff caused a retaining wall to be constructed in the watercraft storage area. At or about this time, she also caused steps to be built extending down to the water's edge. These were wooden steps which joined up with existing concrete steps. However, the steps also extended into the watercraft storage area. Associated with these works, the plaintiff carried out landscaping work, involving the construction of an earth bank on which native plants were planted, and which appears then to have been covered with wood chips. This work was done partly on the watercraft storage area and partly on the Crown land. 17 The result of these works is that the area which can physically be used for the storage of watercraft has been substantially reduced. Before the work was carried out, the watercraft storage area was about fifteen square metres. It was a grassed area which extended at its southern edge to the bottom concrete step. At its eastern edge, which was the boundary of lot 2, there was an earth and grass bank which led over the grassed strip of Crown land to the seawall. After the work was carried out, the effective area for storing a boat was effectively the area within the retaining walls. These walls were about 0.6 metres high and were positioned well inside the watercraft storage area. They extended about 0.7 metres into the adjacent reserve so that the practical storage space extended into the reserve and outside the boundary of lot 2. Within the confines of lot 2, the area now physically available for the storage of a boat is limited to an area of about four metres by two metres. 18 The construction of the retaining wall and steps, and the landscaping, has made it more difficult for a boat to be taken down to the water from the watercraft storage area. A boat now has to be lifted over the retaining wall and across the garden which has a steeper incline than existed previously as a result of the earth fill which has been put on the site. The plaintiff said in evidence that there has been no change in the incline, but I do not accept this evidence. The change is apparent from the photographs. 19 Mr Betalli continued to store the inflatable boat in the watercraft storage area until November 2005. After the construction of the retaining wall and the steps in June 2005, it was difficult to drag the boat over the retaining wall and down to the water and back again without assistance. In November 2005, he replaced that boat with a 3.5 metre aluminium boat because the inflatable had a deflated keel and floor. 20 In these proceedings, the plaintiff claims a declaration that by-law 20 was ultra vires and of no force or effect. She seeks an order restraining the defendants from storing watercraft on lot 2. 21 The defendants have filed a cross-claim. They seek a declaration that the by-law is valid and consequential relief. Amongst the consequential relief sought is an order that the plaintiff be required to remove the wooden steps and retaining wall constructed in the watercraft storage area, and restore that area to its former condition. 22 The principal issue is whether the by-law is valid. If not, a question also arises whether the plaintiff is estopped from preventing the defendants from storing a boat in the watercraft storage area on the basis of representations made by the plaintiff and her solicitor in July 2004 that she had no objection to a small boat being stored in that area, and no objection to an inflatable boat being stored there, provided it could be stored within the designated area. Mr Betalli says he relied upon these representations in purchasing an inflatable boat to be stored on the land. Validity of By-Law 20 23 The by-law is expressed to be made under s 52 of the Strata Schemes Management Act. It is common ground that that section provided no authority for the by-law. Section 52 provides that an owners corporation may make by-laws to which Div 4 of Part 5 of Chapter 2 applies if certain conditions are satisfied. The by-laws to which that Division applies are by-laws conferring on the owner of a lot, or owners of several lots, specified in the by-law, a right of exclusive use or enjoyment of common property, or special privileges in respect of common property. 24 By-law 20 was not made by the owners corporation. Nor did it relate to the use of common property. 25 However, the by-law is not invalid for stating the wrong source of authority for its being made. The question is whether authority to make by-law is to be found elsewhere. Submissions 26 The defendants' counsel submitted that such authority is to be found in subs 43(1). Section 43 provides: " 43 What can by-laws provide for?

(1) By-laws may be made in relation to any of the following: safety and security measures details of any common property of which the use is restricted

behaviour architectural and landscaping guidelines to be observed by lot owners

matters appropriate to the type of strata scheme concerned. (2) Subsection (1) does not limit the matters for which by-laws may be made. (3) The regulations may prescribe model by-laws which may be adopted as the by-laws for a strata scheme. (4) A by-law has no force or effect to the extent that it is inconsistent with this or any other Act or law. " 27 The defendants submit that by-law 20 is appropriate for the type of strata scheme concerned. They submit that it is legitimate to have regard to the particular features of the strata scheme concerned in determining whether it makes provision for matters appropriate to the type of strata scheme concerned. Where the strata scheme involves a subdivision of a block of land abutting the water into two residential lots, they submit that it is appropriate to confer on the owner of the upper lot the right to store a boat on the other lot near the water. They also point out that subs 43(1) is not an exhaustive statement of the matters for which by-laws may be made (subs 43(2)). 28 Counsel for the plaintiff did not take issue with the proposition that it could be desirable in such a development for the owner of the upper lot to have the right to store a boat near the water. He noted that the by-laws do not obtain validity from the fact of their being registered (Strata Schemes (Freehold Development) Act 1973 (NSW), s 8(4D)). He submitted that although such a right could be conferred by an easement, it could never be appropriate for by-laws to provide that the owner of one lot in a strata scheme should have the right to use the land in another lot. This, it was said, was inconsistent with the principles governing schemes of strata subdivision. Counsel for the plaintiff acknowledged, as he had to, that there was nothing inconsistent with those principles in one lot being subject to restrictions on the use to which it could be put, with those restrictions operating for the benefit of other lots in the subdivision. However, he submitted that the grant of a right to use part of a lot stood in a different position from a restriction on user. 29 Counsel for the plaintiff acknowledged that there was no express provision that a by-law could not be made giving a right of use to one lot or lots over another lot or lots, except during the "initial period" (subsection 50(1)). Counsel submitted that this was because any such provision was inconsistent with the nature and effect, or the scheme, of the Strata Schemes Management Act. The scheme of the Act was said to be one "… for the governance of the common property and the facilitation of the lot owners and occupiers using those lots in harmony such that the owners and occupiers may best enjoy their property rights". It was said to be so obvious as not to need demonstration that an owners corporation, and by inference a developer on the initial registration of the by-laws, could not make a by-law giving one lot owner such a right which would interfere with the property rights of another lot owner. Counsel raised the spectre that an owners corporation, by special resolution, might grant to the owner of one lot in an apartment block the right to use the kitchen or other space in another lot, thereby taking away the right of one lot owner to have exclusive enjoyment and possession of his or her lot, without that lot owner's consent. 30 Counsel for the plaintiff also submitted that the last of the matters specified in subs 43(1) for which by-laws can make provision is not matters appropriate to the particular strata scheme concerned, but only those appropriate to the type of strata scheme concerned. Counsel submitted that the relevant types of strata scheme provided by the Strata Schemes Management Act were freehold schemes, leasehold schemes, and large schemes. He submitted that the only matters authorised by the last part of subs 43(1) were matters appropriate to the features of the scheme which made it a scheme of such a type, that is, a freehold scheme, a leasehold scheme, or a large scheme. 31 Although not advanced by counsel for the plaintiff in his submissions, if this chain of reasoning were followed, another possibility would be that the concluding words of subs 43(1) only authorise by-laws being made in relation to matters appropriate to the types of scheme for which model by-laws are made under clause 23 and Schedule 1 of the Strata Schemes Management Regulation 2005 (NSW): e.g. a residential strata scheme, a commercial strata scheme, a retirement village, or an industrial complex. On this argument, by-laws would only be authorised under the last part of s 43(1) if they made provisions appropriate for all strata schemes of that type. 32 Counsel for the plaintiff also referred to s 43(4) of the Strata Schemes Management Act. Counsel submitted that the by-law was invalid because it was inconsistent with s 42 of the Real Property Act 1900 (NSW). He submitted that the by-law purported to create a novel form of property right in favour of the owner from time to time of lot 1, to which lot 2 was subject. He submitted that it would be inconsistent with s 42 of the Real Property Act for lot 2 to be subject to that burden where the estate or interest in favour of lot 1 was not recorded on the folio of lot 2. He submitted that it was not so recorded. Power to Make By-Laws on Registration of the Strata Plan 33 No section of the Strata Schemes Management Act expressly confers power on the owner of land which is to be subdivided by a strata scheme of subdivision to make by-laws. Prior to 1 July 1997, the effect of s 58 of the Strata Titles Act 1973 (NSW) (now renamed the Strata Schemes (Freehold Development) Act) was that the by-laws set forth in Schedule 1 to that Act applied in respect of each strata scheme until modified by special resolution of the body corporate. Section 41 of the Strata Schemes Management Act provides that in relation to strata schemes coming into existence after 1 July 1997: " 41 What by-laws apply to new strata schemes? … (2) The by-laws in force for a strata scheme are the by-laws adopted by or lodged with the strata plan registered by the Registrar-General for the strata scheme, as in force at the date of lodgment, subject to any amendment, repeal or addition recorded by the Registrar-General under section 48. " 34 Subsection 8(4C) of the Strata Schemes (Freehold Development) Act provides: "8 Registration of strata plans

… (4C) If a strata plan indicates that by-laws other than the model by-laws prescribed by the regulations made under the Strata Schemes Management Act 1996 are proposed to be adopted for the strata scheme, the plan must be accompanied by the by-laws specified. The by-laws must be in the form approved under the Real Property Act 1900 and must have been signed by the persons required to have signed the strata plan under section 16 (1). "

35 The persons who are required to have signed the by-laws are the registered proprietor of the land comprised in the strata plan and every mortgagee, chargee or covenant chargee under a mortgage, charge or covenant charge recorded in the folio of the Register kept under the Real Property Act relating to the land (s 16(1) of the Strata Schemes (Freehold Development) Act). 36 Subsection 43(1) of the Strata Schemes Management Act sets out matters in respect of which by-laws may be made. It is clear from s 43(2) that this is not an exhaustive statement of those matters. For example, all of the matters which may be the subject of by-laws made by an owners corporation can be included in the original by-laws, but without the restrictions which apply only to an owners corporation. Thus an original by-law could confer on a lot owner the right to occupy common property exclusively (as does by-law 21) (ss 51-56). 37 In my view, the only limitations on the power of the owner of land being subdivided by a strata scheme of subdivision after 1 July 1997 to make by-laws are:

(a) the need for the consent of mortgagees and other holders of security under ss 8(4C) and 16 of the Strata Schemes (Freehold Development) Act ;

(b) the express restrictions and prohibitions in s 49 of the Strata Schemes Management Act ;

(c) the need to avoid inconsistency with any Act or law; and

(d) that the provision is made for a proper purpose and fairly falls within the concept of a by-law, that is, the regulation of the rights and responsibilities of lot owners, occupiers, or the owners corporation, in respect of the lots, or the lots and common property, for the strata scheme. 38 The subject matter of by-law 20, that is, the provision of a storage area for small watercraft for the benefit of the upper lot, is an appropriate matter to be regulated by a by-law. In my view, whether or not the by-law is authorised under s 43(1) of the Strata Schemes Management Act as a by-law "in relation to … matters appropriate to the type of strata scheme concerned", it will be valid, provided it is not inconsistent with s 49, or any other Act or law. 39 I do not consider that s 43(1) should be construed narrowly. Whilst the phrase "matters appropriate to the type of strata scheme concerned" in s 43(1) indicates that the matters are to be appropriate to a class or kind of scheme, having features in common with other schemes of the same class or kind, there is no reason to fix the relevant common feature at a high degree of generality: e.g. "residential", or "industrial", or "large", or "freehold". The present strata scheme could be classified as a residential scheme of a type, being a subdivision of land next to water into a small number of residential lots and common property. The storage of boats belonging to the occupier of any lot in such a subdivision is a matter appropriate to that type of scheme. 40 Accordingly, unless the by-law is inconsistent with any other provision of the Strata Schemes Management Act, or any other Act or law, I consider that it is authorised by the Strata Schemes Management Act, either because it is authorised by subs 43(1), or, if not, because that subsection is not an exhaustive statement of the power of the original owners to make by-laws to accompany the registration of the strata plan and the by-law is otherwise within the scope and object of the Act. 41 Regard may be had to the second reading speech of the New South Wales Minister for Fair Trading on the introduction of the Bill which became the Strata Schemes Management Act (Interpretation Act 1987 (NSW), s 34(2)(f)). In introducing the Bill, the Minister said: " … one of the major initiatives in this Bill is to allow more flexibility in the use of by-laws, and to encourage the adoption of by-laws more appropriate to the nature of individual strata schemes. Too often in the past, bodies corporate simply accepted the by-laws included in the legislation without giving any thought to how well they fitted their scheme. … … there will now be a range of models from which by-laws can be selected depending upon the type of scheme involved. Six models are to be available and these will relate to the special aspects of residential schemes, mixed use schemes, commercial retail schemes, industrial schemes, hotels-resorts and retirement villages. The models will be in the regulations. The contents of the models will reflect the types of matters which need to be addressed in the various types of strata developments. A strata scheme will not be able to be registered unless one of the models or alternative custom designed by-laws are selected. … I am hoping that there will be a more conscious effort made by developers to tailor by-laws to fit individual circumstances. There is a great opportunity for some innovation and I believe that it will be of great benefit to people if they could buy into a strata scheme where the by-laws reflected particular aspects of that scheme's approach to day-to-day issues. The model by-laws would ensure there is a range of selection available, … However, there will still be room for further refinement where a strata scheme wants to make variations of the models. … " (NSW Legislative Assembly, Parliamentary Debates (Hansard), No 254, 13 November 1996 at 5921).

This confirms my view as to the meaning of the legislation. 42 There is no reason to think that the power of the original owner to make by-laws which accompany the strata plan on its registration should be any narrower than the power of the owners corporation to make by-laws. To the contrary, one would expect the power of an owners corporation to make by-laws to be more circumscribed, because people who buy lots in a strata scheme on the basis of the original by-laws know what rights and obligations are conferred or imposed by those by-laws. If, therefore, it would be competent for an owners corporation, acting under s 47 of the Strata Schemes Management Act, to make a by-law which conferred a right in respect of one lot and imposed a correlative obligation in respect of another lot, there would be no reason that the original owner could not do so when making the original by-laws. 43 Section 47 of the Strata Schemes Management Act provides: " 47 Can an owners corporation add to or amend the by-laws?

An owners corporation, in accordance with a special resolution, may, for the purpose of the control, management, administration, use or enjoyment of the lots or the lots and common property for the strata scheme, make by-laws adding to, amending or repealing the by-laws for the strata scheme." 44 By-laws frequently interfere with the rights of property of an owner of a lot. In Sydney Diagnostic Services Pty Ltd v Hamlena Pty Ltd (1991) 5 BPR 11,432, the Court of Appeal upheld the validity of a by-law which prohibited a proprietor or occupier of a lot from engaging in any enterprise other than the practice of medicine, but excluding the practice of pathology. It was held that the power in s 58(2) of the Strata Titles Act enabling by-laws to be made for the purpose of, inter alia, the use of lots, extended to regulating what activities could and could not be conducted on each lot. The Court (at 11,443 and 11,434) rejected the argument that subs 58(2) of the Strata Titles Act (the predecessor to s 47 of the Strata Schemes Management Act) only permitted the making of "non-discriminating by-laws" which equally affected all lots. 45 As by-laws may be made which substantially interfere with the right of an owner of a lot to use the lot, it is hard to see why it should be contrary to the "scheme" of the Strata Schemes Management Act for a by-law to confer on one lot owner the right to use part of another lot. It may be that if such a by-law were made by the owners corporation, it could lead to injustice. As the Court of Appeal said of the same argument in Sydney Diagnostic Services v Hamlena, the remedy against such an injustice may be found in two quarters. One is that an owners corporation can only exercise the power to make a by-law for proper purposes. The second is to be found in the power of an adjudicator to make orders revoking an amendment to a by-law made by an owners corporation pursuant to s 157 of the Strata Schemes Management Act, or orders declaring a by-law made by an owners corporation to be invalid pursuant to s 159 of the Act. 46 No question of such an injustice arises in relation to the original by-laws which accompany the registration of the strata plan, as a person who buys a lot in the strata scheme is on notice of the rights and obligations created and imposed. In the present case, the consequence of the by-law being invalid would be a windfall to the plaintiff, who bought her property knowing that her use of it was subject to the rights of the owner from time to time of lot 2 to use the watercraft storage area, and a corresponding detriment upon the defendants who bought their land in the expectation of being able to enforce the rights provided by the by-law. 47 Section 50 of the Strata Schemes Management Act imposes restrictions on by-laws which may be made by an owners corporation during the "initial period". That is the period commencing when the owners corporation was constituted and ending on the day on which there are owners of lots, other than the original owner, whose unit entitlements are at least one-third of the aggregate of the unit entitlement. Subsection 50(1) provides: "50 Restrictions on by-laws during initial period (1) An owners corporation must not, during the initial period, make, amend or repeal a by-law in such a manner that a right is conferred or an obligation is imposed on one or more, but not all, owners or in respect of one or more, but not all, lots. " 48 The implication from subs 50(1) is that after the initial period, an owners corporation may make a by-law in such a manner that a right is conferred or an obligation is imposed on one or more, but not all, owners, or in respect of one or more, but not all, lots, if the by-law is otherwise authorised by s 47. It is hard to see why that implication would not extend to authorising an owners corporation making a by-law under s 47 that conferred a right in respect of one lot and imposed a correlative obligation in respect of another lot. 49 Section 49 of the Strata Schemes Management Act is headed "Restrictions on by-laws". It imposes restrictions on by-laws, whether made by an owners corporation or adopted on registration of the strata plan. Section 49 provides: " 49 Restrictions on by-laws

(1) By-law cannot prevent dealing relating to lot No by-law is capable of operating to prohibit or restrict the devolution of a lot or a transfer, lease, mortgage, or other dealing relating to a lot. (2) By-law resulting from order cannot be changed If an order made under Chapter 5 has effect as if its terms were a by-law, that by-law is not capable of being amended or repealed except by a by-law made in accordance with a unanimous resolution and, in the case of a strata leasehold scheme, with the consent of the lessor of the scheme. (3) By-law cannot restrict children A by-law for a residential strata scheme has no force or effect to the extent to which it purports to prohibit or restrict persons under 18 years of age occupying a lot. This subsection does not apply to a by-law for a strata scheme for a retirement village or housing exclusively for aged persons. (4) By-law cannot prevent keeping of guide dog A by-law has no force or effect to the extent to which it purports to prohibit or restrict the keeping on a lot of a dog used as a guide or hearing dog by an owner or occupier of the lot or the use of a dog as a guide or hearing dog on a lot or common property. "

50 An implication can be drawn from s 49 that, but for the restrictions provided for in that section, a by-law could be made which would have the effect of doing any of the things which that section prohibits. In Hamlena Pty Ltd v Sydney Endoscopy Centre Pty Ltd (1990) 5 BPR 11,436, Young J (as his Honour then was) said (at 11,440) of the then s 58(6) of the Strata Titles Act, being the predecessor to s 49(1) of the Strata Schemes Management Act, that: " Section 58(6) prevents a by-law being made which would restrict the devolution of a lot. This subsection seems to me to envisage the possibility that were it not for its existence, there would be power within s58 to pass a by-law limiting the right to assign a lot. " 51 If, but for s 49(1), a by-law could validly restrict the transfer or lease of a lot, there cannot be anything intrinsically wrong in a by-law interfering with the property rights of an owner in fee simple of a lot. 52 The next question is whether by-law 20 is inconsistent with any provision of the Strata Schemes Management Act or any other Act or law. During the defendants' submissions, the question was raised whether by-law 20 was inconsistent with s 49(1)(a) of the Strata Schemes Management Act by restricting the right of the owner of lot 2 to grant an easement in favour of any third party in relation to the land identified as the watercraft storage area. 53 However, the by-law is not inconsistent with subs 49(1). The first reason is that subs 49(1) only limits the operation of a by-law. It does not strike at the validity of a by-law. That is to say, by-law 20 may not be capable of preventing the owner of lot 2 from granting an easement over the watercraft storage area in favour of a third party. That does not mean that the by-law is invalid. Rather, it is not capable of having that operation. No such dealing is contemplated. Even if it were contemplated, as the area in question is also subject to the right of footway, it would not be possible for such an easement to be granted without the consent of the defendants. 54 Subsection 49(1) has been construed narrowly. In one sense, a by-law which restricts the user of the lot, restricts the right of the lot owner to deal with the lot. Most by-laws, including the by-laws in schedule 1 to the Strata Schemes Management Act, include restrictions on the use of a lot. For example, by-law 16 in schedule 1 provides that an occupier of a lot must not keep any animal on the lot without the approval in writing of the owners corporation. This by-law restricts the right of a lot owner to grant a lease permitting the lessee to keep animals on the lot. It could not be said that it is on that account invalid. The cases show that a mere restriction on use of a lot which might limit the number of potential transferees or lessees of a lot does not amount to a restriction on dealing so as to contravene subs 49(1) (Bapson Pty Ltd v Puyeti Pty Ltd (1990) NSW Title Cases 60,054; Sydney Diagnostic Services Pty Ltd v Hamlena Pty Ltd; Salerno v Proprietors of Strata Plan 42724 (1997) 8 BPR 15,457 at 15,458-15,459; Regis Towers Real Estate Pty Ltd v Kin Fung (2001) NSW Conv R 55-960 at [22], and compare Regis Towers Real Estate Pty Ltd v CSS Holdings Pty Ltd [2001] NSWSC 139 at [21].) It is not necessary to consider further the question of whether or when a by-law which restricts the use of a lot may be a restriction on dealing. Whatever may be the limits of subs 49(1), they do not affect the validity, as distinct from the possible operation, of by-law 20. 55 Subsection 7(3) of the Strata Schemes (Freehold Development) Act provides that: " 7 Subdivision

(3) The provisions of section 88B of the Conveyancing Act 1919 apply to a strata plan and a strata plan of subdivision in the same way as they apply to a plan referred to in that section relating to land under the provisions of the Real Property Act 1900 , except in so far as that section authorises the creation or release of easements, or the creation of restrictions on the use of land or positive covenants burdening or benefiting land not under those provisions. " 56 Section 88B of the Conveyancing Act provides, amongst other things, for the creation of easements, profits a prendre, restrictions on use of land, or positive covenants, on the registration of a plan of subdivision. Such interests can be created by registration of a strata plan, except in so far as they benefit or burden land not under the Real Property Act. It does not follow that this is the only means by which interests in the nature of easements or restrictive covenants burdening and benefiting lots in a strata scheme of subdivision can be created. If that were the position, it would not be possible for by-laws (which are separate from but must accompany the strata plan on registration) to create restrictions on the use of lots. Yet it is clear from schedule 1 to the Strata Schemes Management Act and ss 43(1) and 47 of the Strata Schemes Management Act that that is permissible. 57 The remaining question is whether by-law 20 is invalid because it is inconsistent with s 42 of the Real Property Act. That section relevantly provides: " 42(1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except: … "

There follow five exceptions, none of which is relevant to the present case. 58 The defendants submitted that by-law 15 did not create an estate or interest in land in favour of the owners of lot 1 over lot 2. Rather, they submitted that the by-law only operated as a deed or contract between the owners and any mortgagee of lots 1 and 2, or any lessee or occupier of those lots (Strata Schemes Management Act, s 44; North Wind Pty Ltd v Proprietors - Strata Plan 3143 [1981] 2 NSWLR 809 at 813-814). In North Wind Pty Ltd v Proprietors - Strata Plan 3143, the issue was whether the Supreme Court had jurisdiction to entertain a claim to restrain a party from encroaching on the air space of part of the common property over which the plaintiff had the exclusive use and enjoyment. The defendants' submission was that the Court had no jurisdiction because the plaintiff's right to exclusive use and enjoyment of the common property was a novel right created by statute which could only be enforced by the remedy provided by the statute. The remedy provided by the statute was recourse to the Strata Titles Commissioner or a Strata Titles Board. Rath J said (at 812): " Thus if the right conferred by the by-law in the present case is a novel right, in the sense of the principle stated by Lord Tenterden [in Doe d Bishop of Rochester v Bridges (1831) 1 B & Ad 847 at 859; 109 ER 1001 at 1006], then prima facie the remedy provided by the Strata Titles Act would be exclusive. But if the right created is designated as a right known to the common law then it seems to me that the principle of Mallinson's case (1920) 28 CLR 66 is to be applied, and the right is enforceable in the ordinary way in the ordinary courts, unless there is some provision to the contrary in the Act ." 59 His Honour held that by reason of s 58(5) of the Strata Titles Act (which was the predecessor of s 44 of the Strata Schemes Management Act), the by-laws had contractual effect. Accordingly, the Supreme Court had jurisdiction to deal with the claim although, in the circumstances of the case, his Honour declined to exercise the jurisdiction. In North Wind Pty Ltd v Proprietors - Strata Plan 3143, the plaintiff also submitted that the by-law created an interest in land, and accordingly submitted that the Supreme Court had jurisdiction to entertain the case on the grounds that the right involved was in the nature of a leasehold interest, and thus was a right known to the common law. As to that submission, his Honour said (at 814): " Counsel could not place the right in any known category of real property interests, and I think that there is no such category, for the reason that the right is not an interest in land in any sense known at common law. The right is not defined directly by reference to some right existing apart from the statute, and whatever incidents it has are to be found in the statute itself. " 60 It does not follow that all rights created by all by-laws are merely contractual and cannot create proprietary interests. Nor, in North Wind Pty Ltd v Proprietors - Strata Plan 3143, did Rath J say that the novel right created by the by-law was not a proprietary right. Rather, his Honour held that the right created by the by-law was not an interest in land "in any sense known at common law". That is to say, the right created was a novel right whose incidents were to be found in the statute itself. 61 In Young v The Owners - Strata Plan No. 3529 (2001) 54 NSWLR 60, Santow J (as his Honour then was) considered the nature of the rights of a lot owner who had the exclusive use of common property. Section 20 of the Strata Schemes (Freehold Development) Act provides that the estate or interest of a body corporate in common property is held by it as agent for the proprietors of the lots of the strata scheme in shares proportional to their unit entitlement. His Honour held (at [14]) that by reason of that provision, the plaintiffs had a proprietary right in the common property as they were entitled beneficially as tenants in common to the common property. His Honour continued: " [15] It is true that the rights which flow from the estate or interest in the common property so held are delineated by the by-laws. These define the nature of its use and enjoyment, any constraints upon it and any conditions applicable such as payment for maintenance and the like. That flows from the statutory scheme under the companion legislation namely the Strata Schemes Management Act to which I now turn. The relevant rights nonetheless remain proprietary in nature, though their detailed articulation stems from the by-laws.

[17] The first defendant sought to argue that rights the subject of such exclusive use or special privilege by-laws operated merely in contract, citing North Wind Pty Ltd v Proprietors - Strata Plan 3143 [1981] 2 NSWLR 809 at 813-814 and s 44 of the Strata Schemes Management Act whereby owners corporation and owners are bound to comply with by-laws.

[18] As I have explained I do not accept that the proper characterisation of the legal nature of the plaintiffs' right in the common property is to equate it merely to the contractual right of a lot-holder entitled to exclusive use of common property. That is the position discussed in North Wind and addressed by s 44 of the Act. It is true that s 44 renders the by-laws binding upon the owners corporation and the owners (as well as upon any mortgagee or covenant chargee in possession or lessee or occupier). But that does not, of itself, override the proprietary character of the estate or interest held in common property through the body corporate as agent for the relevant proprietors. " 62 The fact that rights conferred by by-laws have contractual effect does not mean that they cannot also have a proprietary effect. Rath J did not hold to the contrary. Nor did Santow J hold that contractual rights of a lot holder enjoyed pursuant to s 44 of the Strata Schemes Management Act could not also create a proprietary interest. It was unnecessary for his Honour to consider that question further as the plaintiffs had a proprietary right as beneficial owners of a share of the common property held by the body corporate as their agent. It is axiomatic that a contract in relation to property can give one party a proprietary estate or interest in the property of the other contracting party (Gosper v Sawyer (1985) 160 CLR 548 at 568-569; Nelson v Nelson (1995) 184 CLR 538 at 556). 63 Given that the right to use the watercraft storage area is enforceable by the proprietor from time to time of lot 1, and is enforceable against the proprietor from time to time of lot 2, it necessarily follows that it purports to create an estate or interest in the proprietor of lot 1 enforceable against the proprietor of lot 2. 64 It follows that the plaintiff's contention that the by-law is inconsistent with s 42 of the Real Property Act cannot be dismissed on the ground that the by-law merely has contractual effect. 65 The plaintiff's estate in lot 2 is therefore subject to such other estates, and to such entries, as are recorded in the folio to her lot. Section 32(1)(c) of the Real Property Act authorises the Registrar-General to record on a folio: " 'such particulars, as the Registrar-General thinks fit, of (i) other estates or interest, if any, affecting the land; and (ii) other information, if any, that relates to the land or any estate or interest therein and is included in that record pursuant to this or any other Act (including an Act of the Parliament of the Commonwealth) or an instrument made under any such Act.'"

These particulars are recorded in the Second Schedule to the relevant folio of the Register (F Ticehurst, Land Titles Office Practice (NSW) , 'Folios of the Register', Lawbook Co, 2005 at [205.600]). 66 The Second Schedule to the folio for lot 2 contains the entry "Interest recorded on registered folio CP/SP67662". The Second Schedule for the folio of the common property, folio CP/SP67662, contains three notifications as follows: " 1. Reservations and conditions in the Crown grant(s) 2. Attention is directed to the strata scheme by-laws filed with the strata plan 3. Deed 280488 land excludes minerals. " 67 The purpose of the Second Schedule is to record interests or reservations which affect the title to the land. The entry directing attention to the strata scheme by-laws filed with the strata plan is a record made on the folio CP/SP67662 of interests created by the by-laws. It follows that the interest created in favour of the registered proprietors from time to time of lot 1 over lot 2 pursuant to by-law 20 is recorded on the folio to lot 2 and is the subject of the entry on the folio to lot 2. Therefore, there is no relevant inconsistency between the by-law and the Register. 68 Even if the interest created by by-law 20 was not recorded on the folio to lot 2, or was not the subject of an entry on that folio, it would not follow that by-law 20 was ultra vires, that is, made without power. It would not follow from the omission of the Registrar-General to record that interest on the folio to lot 2 that the by-law was inconsistent with s 42 of the Real Property Act, and therefore invalid because of subs 43(4) of the Strata Schemes Management Act. Rather, the question would be whether the plaintiff held her land free of the interest created by the by-law which was not recorded on, or the subject of an entry on, the folio to lot 2. The question would then arise whether the statutory contract under s 44 of the Strata Schemes Management Act provides an exception to indefeasibility in the same way as personal rights arising from a contract between the registered proprietor and a person claiming an interest in land under a contract with the registered proprietor are enforceable, notwithstanding s 42. This matter was not argued, and need not be decided, having regard to my conclusion that the interest created by the by-law is recorded in, or is the subject of an entry upon, the folio to lot 2. 69 For these reasons, I conclude that by-law 20 is valid and binds the plaintiff. Estoppel 70 It follows that it is unnecessary to determine the defendants' alternative claim to be entitled to store their boat on the subject area by reason of the plaintiff being estopped from departing from her representations that the defendants could use the watercraft storage area to store a boat, provided the boat was a small watercraft which fitted within the storage area and did not cause damage. In case the matter goes further, I will venture the following observations. 71 I accept Mr Betalli's evidence that he purchased the inflatable boat because of the representation made to him by the plaintiff that he could store such a boat in the area. Mr Betalli assumed that the plaintiff would allow him to store the boat in the watercraft storage area. It is true that he also acted in the belief that he had the right to do so under the by-law. However, if, contrary to my view, he was mistaken in that belief, he nonetheless was encouraged to buy a boat to which the plaintiff indicated she did not object, with a view to storing it in that area. The plaintiff induced him to adopt the assumption or expectation that he would be allowed by her to store the boat in that area. It is clear that he assumed or expected that the plaintiff would allow him to do so indefinitely. The letter from the plaintiff's solicitors of 16 July 2004 made it clear that that was the plaintiff's position. Mr Betalli acted in reliance on that assumption by buying a boat. The plaintiff knew that he would do so. 72 However, in my view, his purchase of the boat would not occasion him such a detriment if his assumption or expectation that he would be able to store a boat in the watercraft storage area was not fulfilled, that he should have an irrevocable licence to store any small boat in the watercraft storage area. He stored the inflatable boat in the storage area until November 2005, but then moved it because its floor and keel were deflated. The detriment which he suffered as a result of reliance upon the plaintiff's representations was the expenditure of money on a boat which he no longer intends to use. In those circumstances, the plaintiff's actions will not continue to occasion relevant detriment to the defendant if his assumption or expectation as to his right to use the watercraft storage area is not fulfilled. I do not think that, in those circumstances, conscientious conduct on the part of the plaintiff would require her to adhere to the representation which she made, at least if she offered monetary compensation for any loss occasioned by the purchase of the inflatable boat. 73 However, it is unnecessary to decide this question as I am of the view that the by-law is valid. Restoration of the Watercraft Storage Area 74 The retaining wall, the steps, and the landscaping of the watercraft storage area all substantially interfere with the defendants' ability to use the watercraft storage area. There is no evidence that the work done was necessary for some other purpose, although I can assume that the construction of the steps improved access for the plaintiff to the boatshed on the south-eastern corner of lot 2. However, she was not entitled to carry out that work, without the defendants' consent, so as to substantially interfere with the defendants' right to use the watercraft storage area. No submission was made that it would cause hardship for her to remove the offending works and restore the watercraft storage area to the condition in which it was before the work was done. By carrying out that work, the plaintiff breached her covenant created by s 44(1) of the Strata Schemes Management Act to observe and perform all the provisions of the by-laws. She breached the defendants' right to store small watercraft in the whole of the area denoted "A" on the sketch. No reason was advanced as to why she should not be ordered to remove the works which interfered with that right and restore the area to its condition before the works were carried out. Orders 75 For these reasons, I make the following orders and declarations:

1. Order that the summons be dismissed;
2. Declare that by-law 20 of strata plan no. 67662 is valid and enforceable.
3. Declare that the cross-claimants and the registered proprietors from time to time of lot 1 of strata plan no. 67662 are entitled to store small watercraft within the area denoted "A" on the sketch which forms part of the instrument setting out the terms of by-law 20 which was registered on 11 April 2002 ("the watercraft storage area").
4. Declare that lot 2 in strata plan no. 67662 is affected by, and subject to, the right of the cross-claimants, or the registered proprietors from time to time of lot 1, to store small watercraft within the watercraft storage area.
5. Declare that the construction by the first cross-defendant, her employees or agents, of wooden steps and a retaining wall within the watercraft storage area, and the carrying out of landscaping work within the watercraft storage area, constituted a breach of by-law 20.
6. Order that within 28 days from the date of this order, the first cross-defendant remove the wooden steps and the retaining wall which were constructed within the watercraft storage area and restore the watercraft storage area to its former condition.
7. Order that the first cross-defendant, by herself, her employees or agents, be restrained from preventing or impeding the cross-claimants from storing small watercraft within the watercraft storage area.
8. Order that the plaintiff pay the defendants' costs of the proceedings including the cross-claim.
9. These orders may be entered forthwith.

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