El-Shahawy v Owners Corporation 1 Plan No. PS606836R [2023] VSC 597, Daly AsJ.

This is the first case covered by the Blog concerning a retirement village.  The owners corporation was held to have a caveatable interest based on proprietary estoppel in the community centre which had remained vested in the developer.  This case also confirms that an undertaking as to damages is not usually required by a caveator resisting removal under the Transfer of Land Act s. 90(3).  The facts were –

• A developer obtained a planning permit to subdivide land and to construct 60 units on individual lots, a community centre with outdoor recreation facilities, and carparking, for the purposes of establishing an Over 55 Residential Community.  The permit was extended to permit completion of works by July 2025.
• Subdivision occurred and 42 units were completed and sold to incoming residents who became registered proprietors of individual lots. The marketing material used by the developer included: “Community Centre owned and controlled by Residents”.
• A master plan for a staged subdivision was registered. The developer added to the common property at each stage of the subdivision until stage 13.
• The community centre, completed in 2016, was managed by the first defendant which also managed the common property.
• In 2020, while still the registered proprietor of four unsold “super lots” and the lot improved by the community centre (together “the land”), the developer went into liquidation. The liquidators were subsequently appointed as receivers of the land.
• On 8 November 2021, the solicitors for the liquidators wrote to the former solicitors for the owners corporation stating inter alia that: the liquidators were negotiating with a prospective purchaser who, the writer understood, intended to complete the development; such completion and the transfer of the community centre to the owners corporation was initially designed to be completed by way of registration of a plan of subdivision, but, as the subdivision permit had lapsed, such transfer was impossible without new permits; it was anticipated that any subsequent plans and permits obtained by that purchaser would include the likely outcome of the community centre lot vesting in the owners corporation by registration of a plan of subdivision.
• On 15 February 2022, the liquidators entered into a contract to sell the land to the first plaintiff which nominated the second plaintiff as purchaser. The section 32 statement stated:

“The community centre is deemed to be an Owners Corporation asset and no determinations have been received (to 31-10-2021).  Legal action is still an option to pusue [sic] ownership change if this assest [sic] is not transferred to common property upon any future settlement of [the subject lot].”

• Between the date of execution of the contract and 10 March 2022: the manager of the owners corporation told the first plaintiff that the residents considered that they had paid for the community centre as part of their purchase and believed that it should be transferred to common property; at a meeting between the first plaintiff and a group of residents, including committee members of the owners corporation, the first plaintiff said that the second plaintiff would lease the community centre to the owners corporation on particular terms, and he was subsequently told that on a show of hands a majority of those present favoured accepting his proposal; the first plaintiff’s solicitors wrote to the manager stating inter alia that the first plaintiff intended to nominate a corporate entity to take a transfer which would lease the community centre to the owners corporation; there was no reply to the letter and the first plaintiff paid the deposit; on 10 March 2022 the members of the owners corporation voted to reject the first plaintiff’s offer.
• On 27 July 2022, shortly before settlement of the contract of sale, the owners corporation caveated over the community centre lot prohibiting all dealings and claiming a ‘freehold estate’ on the grounds of an ‘implied, resulting or constructive trust’.
• The first plaintiff and the liquidators entered into a supplementary deed providing for the transfer of the super lots to the second plaintiff, leaving the developer as registered proprietor of the subject lot.
• In September 2022 the owners corporation issued a Supreme Court proceeding seeking leave to commence a proceeding against the developer. In October 2022 a VCAT application was issued seeking an order under s. 169J of the Owners Corporation Act 2006 to give the chairperson of the owners corporation committee retrospective leave to commence the Supreme Court leave application on behalf of the owners corporation.  Both applications for leave remained undetermined.  The affidavits filed in both leave applications included a draft Statement of Claim pleading that –
  • between August 2006 and November 2021 the developer represented to the owners corporation and residents that it would construct a community centre on the community centre lot for the benefit of residents and transfer the title of this lot to the owners corporation;
  • the developer constructed the community centre in 2016;
  • the owners corporation and the residents reasonably believed and/or expected that the owners corporation would acquire the fee simple title to this lot, and the developer knew and/or intended that this belief exist and that the owners corporation and the residents would act in reliance upon it;
  • from 8 October 2009, the owners corporation and the residents reasonably acted to their detriment, being the amount paid by purchasers for their lots and the payment by the owners corporation of all the community centre’s costs and expenses, and changed their position in reliance upon the representations and such expectation and belief;
  • if this lot was not transferred to the owners corporation it would thereby suffer loss, the value of residents’ lots would diminish, non transfer would accordingly be unconscionable, and an order for transfer was accordingly sought.
• The first plaintiff applied under s. 90(3) of the Transfer of Land Act to remove the caveat.
• The first plaintiff deposed inter alia: to the anticipated cost of completion of works required by the planning permit to the community centre lot; that the owners corporation neither had funds for this nor intended to levy them; that the building works proposed would increase the value of existing lots; that the only relevant representation he knew of when he signed the contract was that contained in the section 32 statement and that before then he had no means of knowledge of the residents’ claims; if the development was not completed in accordance with the planning permit he may not receive occupancy or subdivision permits.
• The material relied on by the defendant was in substance supportive of the allegations in the draft Statement of Claim. It included: that when the community centre was completed the developer could not “sign it over” because it was mortgaged to a bank but that nonetheless the developer gave the residents exclusive control over it; the owners corporation had for the last six years spent a considerable sum on the community centre in the expectation of obtaining title.

The Subdivision Act provided –

An owners corporation could “purchase or otherwise obtain land” if its members so unanimously resolved (s. 32(b));

Under s. 32D VCAT could grant a wide range of applications relating to plans of subdivision on the application of a member of or an owners corporation including for orders under: s. 32D(1)(a) requiring or authorising the owners corporation to do any of the things set out in s. 32; s. 32D(1)(b) consenting on behalf of a member of an owners corporation to the doing by the owners corporation of any of the things set out in s. 32.  Section 34D(3) provided that VCAT must not make an order on an application under subsection (1)(b) “unless satisfied that –

(c) the member has … refused consent to the proposed action and— (i) the member owns … more than half of the total lot entitlement; and (ii) all other members of the owners corporation consent to the proposed action; and (iii) the purpose for which the action is to be taken is likely to bring economic or social benefits to the subdivision as a whole greater than any economic or social disadvantages to the member or the group of members who did not consent to the action.”

Section 37 provided –

“37(1) A staged subdivision is a scheme for the subdivision of land in stages.

(2) If a planning scheme or permit authorises a staged subdivision, that staged subdivision may be done— … (b) by using the procedure set out in subsections (3) to (10).

(3) If a planning scheme or permit authorises a staged subdivision and the procedure in this section is used— (a) a master plan must be … lodged for registration …; and … (c) a plan for the second or a subsequent stage may …(i) create additional lots …; (ii) in relation to the land in that stage, create … common property …;

(5) A plan for a second or a subsequent stage may be submitted for certification and lodged for registration … and, if an owners corporation is created on the master plan or a plan for an earlier stage, the unanimous resolution of the owners corporation is not required for any change made to that plan by a plan for a subsequent stage.”

 

Daly AsJ. dismissed the application, holding –

1. As to the contention that without the consent of the second plaintiff the owners corporation could not rely upon s. 34D of the Subdivision Act to authorise it to pursue the leave application –
   1. it was at least arguable that VCAT’s powers under ss. 34D(1)(a) and (b) were alternative and cumulative, such that the power under s. 34D(1)(a) was not subject to the limitations contained in s. 34D(3); [63]
   2. in any event it was not apparent, having regard to s. 32D(3)(c)(iii), that any application by the owners corporation under s. 34D(1)(b) was bound to fail (whereby VCAT would not authorise the owners corporation suing to compel the developer to vest the community centre lot in the owners corporation). [64]-[65]

Accordingly the court was not confident that there were insuperable obstacles to the owners corporation making good or even bringing its claim for a proprietary interest in the community centre lot, because of failure to comply with s. 32(b) or to obtain an order under s. 34D. [56(a)], [58], [62]

2. Further, by reason of the Subdivision Act s. 37(5), any additional common property, conferred on the owners corporation by any plan registered upon the completion of a stage of subdivision after the registration of the plan creating the owners corporation, could be accepted without the unanimous resolution of the owners corporation.  However, it was possible that a proceeding to compel a developer to register a plan to give effect to a master plan (designating the community centre lot as common property) fell within s. 32(b) as an action to “otherwise obtain land” and so required a unanimous resolution.  But absent previous judicial authority, it was unnecessary for the court to reach a concluded view upon this and so to conclude that the relevant provisions of the Subdivision Act were an impassable barrier to the owners corporation’s claim. [68]-[69]
3. Although the draft Statement of Claim was problematical in focusing on representations to and detriment suffered by residents who were neither named as plaintiffs in that document nor caveators, it was unnecessary for the court to determine whether the owners corporation would probably succeed on such claims as articulated. There was evidence of negotiations between the developer and the owners corporation in late 2016 showing that it was the developer’s intention to transfer the community centre lot to the owners corporation and of it in reliance assuming the costs of running the centre. [55], [70]-[71]
4. Whether any claim by the owners corporation for an interest in the property would be defeated by delay or acquiescence, or whether any equitable interest held by it would by its inaction be postponed to that of the plaintiffs’ as purchasers, was quintessentially for trial. Any delay may be attributable to the assurances of the developer and liquidators, and the show of hands at the residents’ meeting could not reasonably be relied upon as amounting to acquiescence. [73]-[75]
5. Accordingly the caveator had established a prima facie case of an equitable interest in the community centre lot on the basis of a proprietary estoppel. [55], [76]
6. The balance of convenience overwhelmingly favoured maintenance of the caveat primarily because, notwithstanding doubt about whether the owners corporation could undertake the works required by the planning permit, removal of the caveat would render its claim futile. [77]
7. Maintenance of the caveat would not be subject to any conditions. There was no requirement or even a usual practice for an undertaking as to damages to be given. [44], [78]

 

Philip H. Barton

          Owen Dixon Chambers West

Tuesday, April 16, 2024