Houghton and ANOR v Immer (No 155) Pty Limited and ANOR S1/1998 [1998] HCATrans 273 (7 August 1998)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S1 of 1998

B e t w e e n -

WAYNE LAWRENCE HOUGHTON and GLENCORA PTY LIMITED

Applicants

and

IMMER (NO 155) PTY LIMITED

First Respondent

THE PROPRIETORS - STRATA PLAN NO 803

Second Respondent

Application for special leave to appeal

GLEESON CJ

GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 7 AUGUST 1998, AT 11.22 AM

Copyright in the High Court of Australia

MR R.C. McDOUGALL, QC: May it please the Court, I appear with my learned friend, MR M.A. ASHHURST, of counsel, for the applicants. (instructed by David Le Page)

MR C.J. BIRCH: May it please the Court, I appear for the first respondent. (instructed by Angus Begg)

GLEESON CJ: Yes, Mr McDougall.

MR McDOUGALL: Your Honours, the essential points in this case which we say warrant the grant of special leave are, when one analyses the judgment in the Court of Appeal which we say is wrong, two.

GLEESON CJ: Can I interrupt you to say that the Court has been informed that the second respondent does not wish to be represented at the hearing of this application and will submit to any order save as to costs.

MR McDOUGALL: Thank you, your Honour. Your Honours will know that the proceedings concerned a property in Riley Street, East Sydney, whereof the first respondent was originally the owner of one lot and the applicants were the owners of four lots. The applicants sought to resubdivide their lots and the air space above the roof into new lots. The question was whether the resulting improvements in so far as they involved land that was partly the applicants and partly air space above the roof became common property or whether, as the second respondent, the body corporate had resolved, they were to vest in the applicants.

In the Court of Appeal, Mr Justice Handley, who gave the only judgment analysed the matter - and the relevant part of his reasons really commences at page 57 - said the improvements which the applicants erected on and above the roof became part of the common property by virtue of the common law doctrine of affixation. This was automatic, as he put it at page 58, towards the bottom of the page, line 50, and:

could not be prevented by any declaration of a contrary intention.

Accordingly, his Honour said, the antecedent resolution of the body corporate to authorise the applicants to carry out the work and to retain the resulting improvements was invalid. It was not available as a contract to transfer an interest in or as a charge or lien over the property that would be created and it was not authorised by section 58(7) of the Strata Titles Act. And that was the third step in his Honour's reasoning.

Fourthly, his Honour said, that because what was dealt with by that resolution was not simply unimproved airspace but valuable property, being the improvements erected by the plaintiffs, and applicants now, to improve that airspace - I should have said the defendants at first instance - it must have been valuable and could not "have been worth only $1", and finally, he said, that although the resolution which would have had the effect of revesting title to the improvements in the applicants was formally valid as a matter of power under the Strata Titles Act, it was voidable in equity because it was a fraud on the minority or a fraud on the statutory power.

Now, that reasoning has, as its key step, the concept or the notion that the improvements which the applicants constructed and which, on no view, they intended to vest beneficially in the body corporate, became part of a common property automatically and despite a declaration of common intention by virtue of the doctrine of affixation.

GAUDRON J: This is an issue that really arose for the first time in the Court of Appeal, is it not?

MR McDOUGALL: It did, your Honour, yes.

GAUDRON J: And the case was conducted on a different basis at first instance.

MR McDOUGALL: It was.

GAUDRON J: In a sense, your application for special leave would move this case off on another basis again, would it not?

MR McDOUGALL: We would seek to bring it back to its proper basis.

GAUDRON J: You may be seeking to bring it back to its proper basis but was not the time to do that at first instance? What I am really putting to you is this case has gone off in so many different directions, how can it now be said to be a suitable vehicle for the elucidation of any point of principle and how, indeed, could this Court deal with it given the way in which it has proceeded thus far?

MR McDOUGALL: The reason that we needed to appeal from the decision at first instance was that the trial judge misconceived the proper construction of the legislation. His reason for deciding the case against us was that the ultimate resolution of the body corporate to transfer to the applicants title to the lots resulting from the resubdivision was void because it was not authorised by the Act. He was wrong in that the Court of Appeal so held and no one now challenges it.

GAUDRON J: You do not dispute though that it was voidable, do you?

MR McDOUGALL: We do not dispute it now, no.

GAUDRON J: But you say it is too late, in a sense, do you?

MR McDOUGALL: In a sense we do but in a - - -

GAUDRON J: If you accept that it is voidable, you do not dispute that in equity the respondent to this application is entitled to some relief?

MR McDOUGALL: The respondent is entitled to some relief. What is the nature and quantum of relief would be a matter to be decided - - -

GAUDRON J: So that, in essence, that is all that this case is about now?

MR McDOUGALL: No. This case is now about the error of principle which underlies and underpins the reasoning of the Court of Appeal. If we succeed in our challenge to that, there is a question which I acknowledge this Court would not deal with as to what flows from it and that is how it would get back on its proper path by a return to a court of first instance, if I can adopt the words that your Honour used earlier.

GAUDRON J: Yes, I see that but that is a very circuitous route for what is essentially a question only of remedy at the end of the day.

MR McDOUGALL: It is a circuitous route but, with respect, it is a very important principle.

GAUDRON J: And one rather has the feeling that it arises because of the way in which relief was resisted at first instance.

MR McDOUGALL: No, it arises because of the way in which the Court of Appeal, in a matter that had not been agitated in argument, decided on grounds different to those at first instance to uphold the grant of relief. Had we succeeded at first instance on the question of power and had we succeeded as the Court of Appeal held we should have on the question of valuation, this case would not be here. Both the errors made by the trial judge were corrected by the Court of Appeal but the basis on which that court upheld the grant of relief against us was, as I have said before, the annexation, if I can call it that, of the doctrine of affixation.

Now, if we are permitted to challenge that and we succeed in the challenge, there must be a further hearing, I accept that, but that is not the first time that the - - -

GAUDRON J: Directed to what, the calculation of equitable damages?

MR McDOUGALL: Directed to a calculation on the proper basis of what, if any, compensation the respondent is entitled to. We should make it quite clear - - -

GAUDRON J: Then you did not concede entitlement to any compensation at first instance, did you?

MR McDOUGALL: Nominal compensation only, yes. At first instance we took the view that the doctrine of fraud on the minority was unavailable.

GAUDRON J: And you did not make any concession as to the availability of relief in the Court of Appeal either, did you?

MR McDOUGALL: No. Your Honours, the reason why Justice Handley, and through him the Court of Appeal, said that the respondent was entitled to more than nominal damages was because he said the applicants took not just unimproved airspace which, by hypothesis or extrapolation, could be seen to be of nominal value only, but because - - -

GAUDRON J: You assert that.

MR McDOUGALL: We assert that.

GAUDRON J: And I would have thought that was by no means obvious.

MR McDOUGALL: Acting Justice Cowdroy at first instance held that it was valuable and Justice Handley held that his Honour's reasoning leading to that conclusion was wrong. It was only because Justice Handley found that what we took was not unimproved airspace but the very improvements that we had erected which became the body corporate through affixation that he found there was substantial, as opposed to nominal, compensation payable.

So, we say if that error is corrected, then the residual point in the case, if there is one, is simply where we said we started, that there was taken something only of nominal value.

GAUDRON J: Yes. Well, as I said, I would not have thought that was self-evident and even if there be an error in the reasoning process that led to a contrary result, it does not follow that the contrary result is wrong.

MR McDOUGALL: No. We accept that if we show, as it were, a notional or a nominal error that the result is correct, then this application must fail. But we say that what your Honour is putting overlooks the fact, with respect, that the only basis of upholding a finding that we took something valuable, now that the error perpetrated at first instance has been reversed, is the basis which Justice Handley adopted, namely, that it rooted in affixation, and if that - - -

GAUDRON J: It may be the person that you really deprived of property, of value, was the body corporate and that really one has to look at what would be a proper distribution of profit from the body corporate to the members.

MR McDOUGALL: The only person that we deprived of property, if we deprived of property, was the body corporate. The question is whether what we deprived the body corporate of, was valuable. That was always the way the case was put below.

GAUDRON J: A block of land is valuable even if it is vacant land.

MR McDOUGALL: Yes. A block of airspace, which requires ownership of the subjacent strata may not be valuable without control of that stratum. But that is to rehearse the valuation dispute which is not raised by our application.

GAUDRON J: But which lies at the heart of this matter, in essence.

MR McDOUGALL: If the matter can have two hearts, it was one of them. I suppose if dinosaurs can have two brains, court cases can have two hearts. Your Honours, the point is not, with respect, how one goes about the valuation exercise but whether, given that there were only two bases advanced by the courts below for finding that property of value was taken, one of those bases was that adopted by the trial judge which was held to be incorrect by the Court of Appeal, and the other of which was that adopted by the Court of Appeal which we say is wrong in principle, there remains anything, assuming that special leave is granted and the appeal succeeds, in our path and we say there is nothing because there is no other factual or jurisprudential basis for upholding the award of real as opposed to nominal damages. That is why we say an attack on the reasoning of Justice Handley does not leave the case at large but knocks out the only remaining prop for the substantive award in favour of the respondents.

GAUDRON J: It might take you back to the relief that was sought at first instance, namely a declaration that all of this was void and your clients have nothing, only rights as against the body corporate. Well, it may. I mean, on one view of the matter you may end up much worse than as at present.

MR McDOUGALL: It may go back to that.

GAUDRON J: If it turns out that that is the only - if one starts from the premise that it is voidable, as you concede, that at this stage the sensible thing ought to be to declare it void and leave you to such remedies as you can pursue elsewhere which, I dare say, is not an outcome you would relish.

MR McDOUGALL: It is not but that which was sought to be declared void was the resolution of the body corporate to transfer for $1 the resulting interest in the new lots to the applicants. That process has been upheld in the Court of Appeal so that there is nothing relevant to declare void.

GAUDRON J: Well, if the matter got here there might be larger issues.

MR McDOUGALL: That would need to be agitated by a contentious position, if I can put it that way, and no such argument has been flagged by the respondent in its outline. That is not to say that the respondent, having heard what has just put to me, will not adopt that position but it would involve the respondent being given leave to argue - - -

GAUDRON J: No, you do not need leave to argue on notice of a contention, do you?

MR McDOUGALL: I am sorry, it would involve the respondent needing to adopt the position on the construction of the legislation which was firmly rejected by Justice Handley.

GAUDRON J: Not necessarily. One just has to go to the position that the resolution is voidable for fraud on the power and in the absence of any more appropriate remedy, and very much you dispute the appropriateness of the remedy granted, declare it is void.

MR McDOUGALL: With respect, the only basis which was advanced for saying that it was a fraud on the power was that the property which was taken was wroth more than a $1.

GAUDRON J: Well, clearly, commonsense would suggest it is.

MR McDOUGALL: Your Honour says that - - -

GAUDRON J: Commonsense would suggest that if there is an airspace, with someone else's consent, even with your own consent, can have erected on it or through it, I suppose, a dwelling, that it has a value that is other than nominal, particularly in the inner part of the City of Sydney. I mean, surely, we are not going to argue that, are we?

MR McDOUGALL: We are not going to argue it here because it forms no part of the issues in this Court.

GAUDRON J: No, but that is the argument you have put hitherto and you wish to have the matter dealt with so that you can repeat it.

MR McDOUGALL: No. Not only is it an argument that we put hitherto, it is an argument on which we have no succeeded hitherto because, as I said before, there were two props, two bases, for finding that we took something of value. One was that the unimproved airspace itself was valuable. That was the trial judge's finding. That was reversed in the Court of Appeal. The other was Justice Handley - - -

GAUDRON J: I do not know that that is right. The reasoning was not adopted.

MR McDOUGALL: The reasoning was said to have flowed from the misreading of the evidence. Let us be quite plain about that, with respect, your Honour. The other prop or basis was the notion that we took not unimproved airspace but developed structural space, being that which we ourselves had developed and that, we say, is wrong for the reason that we sought to articulate in our grounds, namely, that it involves a misuse of the concept of affixation. If that is knocked out, then there is no remaining basis for arguing that we took something of value. And if we took nothing of value, there is no other basis for arguing fraud on the minority because the conceptual basis for that was always that that which we took was worth substantially more than $1. That is why, with respect, we are not at risk if we succeed. That is why we wished, as it were, to challenge the point.

GAUDRON J: You wish to argue four times around, I guess, that the airspace was not worth more than $1.

MR McDOUGALL: No, we wish to argue that the reasoning in the Court of Appeal which led to the proposition that we took something of value was wrong. If that is upheld then the case comes to an end because there is no other basis advanced for finding fraud on the minority.

Now, your Honours, the reason why we say, as it were, the adoption of the concept of affixation was wrong is simply because his Honour referred to it as an automatic process irrespective of intention and yet it is established in this Court by the North Shore Gas Co Case, to which we refer in our submissions, firstly, that the doctrine of affixation operates to determine the rights of the proprietor of land to that which is affixed to it and, secondly, that it operates by way of a presumption which is rebuttable. Our argument is or would be that his Honour, in holding that it applied automatically, simply overlooked the evidence that the parties themselves, by the resolution of May 1995, had indicated the clearest of possible intentions that the resulting improvement should vest not in the body corporate but in the applicants, evidence, we say, of a contrary intention for the purposes of the doctrine of affixation, even if that resolution was otherwise ineffective purely as an exercise of statutory power.

We also raise, by way of challenge - and I see I have got to the 20 minute point - the reasoning of his Honour which rejected section 58(7) of the legislation as a basis for upholding the challenge to the resolution and we would say that what his Honour said failed to take account of the alternative head of power availed of under section 58(2). If your Honours please.

GLEESON CJ: The Court is of the view that given the basis on which the case was conducted at first instance and in the Court of Appeal it is not a suitable vehicle for the resolution of any issue appropriate for the grant of special leave and the application is refused.

Can you resist an order for costs, McDougall?

MR DOUGALL: No, your Honour.

GLEESON CJ: The applicants are to pay the costs of the respondent.

We will adjourn for a couple of minutes to reconstitute.

AT 11.44 AM THE MATTER WAS CONCLUDED