15 December 2005
Michael Wilson & Anor v Meudon Pty Ltd & Anor
Judgment
1 HANDLEY JA: In this appeal I have had the considerable benefit of reading the reasons for judgment of Bryson JA and Hodgson JA in draft. Subject to the clarification in the reasons of Hodgson JA I agree with the reasons of Bryson JA and the orders he has proposed but will add some additional reasons of my own.
2 The first respondent (the company) is a home unit company that owns the residential flat building at 13 Onslow Avenue, Elizabeth Bay. The appellants are the holders of the shares designated in Article 6 of its Articles as group number 17 which, under that article, confer the right to occupy unit 17. This is the highest unit on one side of the seventh floor situated under an area designated "roof garden for penthouse" and a small area of common property. The penthouse is located above other parts of the seventh floor.
3 The group 1 holder has the right, under Article 6, to occupy the penthouse and to have the exclusive use of the roof garden. The company proposes to permit him to build over part of that garden, above unit 17, without the consent of the appellants as the group 17 shareholders. The appellants claim that the group 17 shares comprise a separate class and that the action proposed by the company and the group 1 shareholder would vary their rights as the holder of those shares.
4 I agree with Bryson JA that the group 17 shareholders have rights in respect of the area designated "roof garden for penthouse" which the company and the group 1 shareholder threaten to infringe, and that the group 17 shareholders are entitled to equitable protection against such infringement.
5 The rights of the group 17 shareholders flow from the proper construction of Article 6, read with the plan referred to. Their right to occupy unit 17 is a right to occupy the space on the seventh floor of the building designated on the plan located under the roof garden shown on the plan. If the group 17 shareholders have the right to insist on the space above their unit remaining a roof garden their claim to equitable protection will not depend on the Court's assessment of the value or importance of that right. There are nevertheless reasons for thinking that the right is of substantial benefit to the group 17 shareholders and adds appreciably to the value of their shares.
6 This construction of Article 6 is supported by cases dealing with the sale of land by reference to a plan showing the proposed development of the area. In Shepperd v Ryde Corporation (1952) 85 CLR 1 the High Court considered the effect of a contract for the sale of land by reference to a project identified in a plan. The joint judgment of four of the Judges stated at 12-13:
"The plan records in diagrammatic form the features of the project of which the subdivision into lots is only a part. When a prospective purchaser was invited to buy a lot with a home erected upon it, it was upon the footing of the project, the existence and effectiveness of which was, as it appears to us, an assumption from which the transaction was intended to proceed. The allocation of an individual lot to the purchaser, his acceptance of the allocation and the execution of a contract for the purchase of that lot necessarily supposed the prior formulation of Housing Project No 4 as the foundation of the transaction. Unless the main features of the project were fixed, it would be meaningless. It is, we think, a reasonable construction of the Council's action in putting forward the project as the basis upon which the intending purchaser could proceed, if it is treated as amounting to or involving an undertaking or promise by the Council to him that they would adhere to and maintain the project, if he would become a purchaser of a lot …".
7 The joint judgment continued at 17-18:
"But the cardinal question is the meaning and effect of the description, in the contract, of the allotment of land sold as part of the vendor's Housing Project No 4 and being allotment No 85 … The reference to the project makes it both legitimate and necessary to resort to evidence to ascertain what is the project and what are its constituent parts or features … The evidence before us as to the nature and identity of Ryde Council Housing Scheme No 4 is restricted to the plan … once the plan is scrutinized, enough appears to show that the project is a planned development of a housing area according to an entire design with parks reserved as an amenity for the common advantage of the purchasers. For the protection of the purchasers against the destruction of the amenities or diversion of the advantages nothing will suffice short of an obligation to use the land only as parks …".
8 In Tarval Pty Ltd v Stevens (1990) NSW ConvR 55-552 this Court applied the decision in Shepperd v Ryde Corporation to a contract for the sale off the plan of a strata unit in a building described in the contract as an apartment building, a flat building, and a home unit building of 68 home units on 18 residential levels. A copy of the draft strata plan showing such a building was annexed to the contract. The vendor changed the lower 10 residential floors to commercial offices, and the purchaser rescinded. In my judgment, which was concurred in by Clarke and Meagher JJA, I said at 59-080:
"The approach in Shepperd v Ryde Corporation … dealing, as it did, with implications from economical language in the contract where the relevant plan was not annexed in my view require the description in Annexure A and the plan, Annexure D, in the present case to be given contractual force. Thus it was, in my opinion, part of the contractual description of the home unit contracted to be sold to the Silvas that it would be a home unit in a wholly residential building."
9 Likewise, in my judgment, the description of unit 17 by reference to the plan as being situated below a roof garden for the penthouse, must also be given contractual force as part of the rights conferred by Article 6 on the group 17 shareholders. The roof garden formed part of the amenity of unit 17 and the group 17 shareholders were entitled to equitable protection, to borrow the language of the High Court in Shepperd's case, "against the destruction of the amenity or diversion of the advantages". The orders proposed by Bryson JA should be made.
10 HODGSON JA: I agree with the orders proposed by Bryson JA and, subject to what I say below, substantially with his reasons. I also agree with the judgment of Handley JA.
11 I agree with Bryson JA that the area marked "Roof Garden for Penthouse" does not form part of the home unit identified as the Penthouse, any more than the areas marked "This Part Used only by Units 5 and 6" or the like form part of those home units; and that the right to the use of these areas arises from the words themselves appearing on a plan adopted by the Articles.
12 I also agree that each group of shares associated with a home unit constitutes a different class of shares within the meaning of Article 54 of the Company's Articles of Association, and that Crumpton v. Morrine Hall Pty. Limited [1965] NSWR 240 is to be preferred to Reid House Pty. Limited v. Beneke (1986) 5 ACLC 451, for the reasons given by Bryson JA.
13 However, in my opinion, Bryson JA has stated too widely what are "the rights attached to any class" that may be varied only as provided by Article 54. In my opinion, the relevant rights are the exclusive right to use and enjoy the identified home unit, and rights constitutive of that right. The exclusive right to use and enjoy the identified home unit includes, in my opinion, the right to use the home unit with the characteristics indicated by the plan, including its situation indicated on the relevant plan in a building of the character indicated by the relevant plan. In my opinion, that right will be varied by alterations to the building, even if they are not alterations to the home unit itself, if those alterations materially alter the characteristics of the home unit as indicated by the plan, for example by altering its situation in the building or the character of the building; but that right will not, in my opinion, be varied by alterations to the building or to the rights of other unit holders that do not affect the right to use the home unit in question by materially altering the unit's characteristics.
14 Thus, in my opinion, it would alter the characteristics of a home unit, and thereby vary the rights to attach to the class of shares associated with the unit, if (for example) all other floors in the building were altered from home units to commercial premises, or if lift access to the floor of the home unit as shown on the plan was taken away. On the other hand, in my opinion, it would not alter the characteristics of the home unit, and thereby vary the rights attached to the class of shares associated with it, if there was merely a re-arrangement of the layout of units on other floors, that did not impact either on the character of the building or the unit's situation within it; or if the lift was merely modified or replaced.
15 Turning to the present case, in my opinion to erect another unit on top of a unit that presently has no unit above it would materially alter the characteristics of the former unit, by materially altering its situation in the building; and in that way, it would vary the right to use and occupy that home unit. For that reason, I agree with Bryson JA that implementation of the proposal under consideration in this case would vary the rights attached to the class of shares owned by the appellants.
16 BRYSON JA: Meudon is a seven-storey residential building in Onslow Avenue, Elizabeth Bay, New South Wales. The building is said to have been built about 1929, and its appearance and style bear this out. Since 1969 it has been owned by Meudon Pty Ltd, the first defendant in the Equity Division and the first respondent on appeal. I refer to Meudon Pty Ltd as the Company. The Company's constitution is in appropriate form for what are commonly but not accurately referred to as Company Title Home Units. The constitutions of such companies are not standardised, and careful regard has to be paid to the terms of the Company's constitution itself. Unfortunately the statutory regime for strata title home units, with its provisions for the resolution of disputes and relative standardisation of the terms of holdings has not been used. Companies legislation is principally based on and appropriate to a Joint Stock Company, a commercial venture in which a number of people contribute to a fund or other stock with which their company trades. Companies legislation is not primarily adapted or well adapted to an enterprise in which the Company's assets are made available to members for their own use, a situation closer to other statutory schemes for regulating corporations such as Co-operative Societies.
17 When Company Title Home Units were relatively new various reasons were expressed for doubting the effectiveness of the scheme. The view that Articles of Association which enable home unit companies to make home units available for use by shareholders conflict with statutory provisions which require maintenance of capital and forbid unauthorised distributions was expressed in Jenkins v Harbourview Courts Ltd [1966] NZLR 1. If this in truth was a difficulty it has been overcome by legislation, ss.123(13) and (14) of the Companies (NSW) Code and now s.258B(1) of the Corporations Act 2001 (Cth). In Magill v Santina Pty Ltd [1983] 1 NSWLR 517; (1983) 8 ACLR 289; (1983) 1 ACLC 1108; (1983) NSW ConvR 55-137 Mahoney JA noted (528-529) several grounds on which the validity of company title rights had in the past been called into question; none of these difficulties has been established to be correct. The effectiveness of creation of contractual rights of occupation by Articles of a company has come to be accepted. Decisions which recognise that rights of occupation in a home unit company may validly be given by Articles of Association to a member include Fischer v Easthaven Ltd (1963) 80WN (NSW) 1155; Crumpton v Morrine Hall Pty Ltd [1965] NSWR 240; (1965) 82 WN (PT 1) (NSW) 456; Magill v Santina Pty Ltd and Brentwood Village Ltd v Corporate Affairs Commission (NSW) (1983) 1 ACLC 1006; (1983) 8 ACLR 93 at 95-96 (McLelland J).
18 After decades of experience some generalisations about Company Title Home Units can now be ventured. One is that Articles of Association like Article 6 of Meudon Pty Ltd create contractual licences, not leases: I deal with this further in an excursus. Another should, in my opinion, be that the shares related to each Home Unit are a class of shares, and that rights under them are entrenched against alterations unless the holders of those shares participate. Later I give reasons for this. Generalisations are no more than they are, and the Constitution of each Home Unit company must be considered separately.
19 Meudon Pty Ltd was formed on 29 January 1969 under the Companies Act 1961 (NSW) and acquisition of the building was the first of its objects. The capital of the Company when formed was $330,000 - clause 4 of the Memorandum of Association. Article 6 provided for the owners for the time being of groups of shares to use home units and created 18 groups of shares. Article 6 was first amended by a Special Resolution passed at an Extraordinary General Meeting on 10 December 1973. The additional passage to which I give emphasis was inserted by the first amendment.
6. The owner or owners for the time being of each group of shares whose serial numbers appear in the third column hereunder shall be entitled to the exclusive right subject to these Articles to use and enjoy the home unit the number of which appears opposite such serial numbers respectively in the fourth column hereunder and such home unit shall be available subject to these Articles for his or her or their exclusive use and enjoyment within the area shown by such number on the plan hereunto attached and marked "A" prepared by Messrs. Craig and Rhodes, Surveyors, dated the 22nd day of August, 1972 in the building known as "Meudon" erected upon ALL THAT piece or parcel of land situate at Onslow Avenue, Potts Point in the City of Sydney Parish of Alexandria County of Cumberland being Lot B in plan annexed to instrument of transfer No. C 13442 and part of Lots 7 & 8 of the third subdivision of the Elizabeth Bay Estate together with the right to use in common with all others similarly entitled to pathways entrance halls elevators stairs and passageways in the building and in rooms in common use.
Group No. of Serial Numbers Home Unit
No. Shares No.