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The road to VCAT - recent changes to co-ownership law

Feature Articles

Cite as: (2006) 80(9) LIJ, p. 36

VCAT is now the sole forum for particular litigation matters between co-owners of land or goods

By Mark Mulvany

VCAT is now the sole forum for particular litigation matters between co-owners of land or goods.
By Mark Mulvany

Important changes have been made to the law relating to the co-ownership of land and goods in Victoria by the Property (Co-ownership) Act 2005 (the Act).[1] Section 5 of the Act has amended the Property Law Act 1958 by substituting a new Part IV for the previous one. The sections referred to below are the sections that appear in the new Part IV.

General overview

The Act sets out to make the Victorian Civil and Administrative Tribunal (VCAT) the sole forum for the litigation of certain matters between co-owners. It also alters the nature of co-ownership by creating new statutory rights for a co-owner of land or goods to obtain orders from VCAT for compensation or accounting from other co-owners on fairness grounds. Under the Act, co-owners will have the right to apply to VCAT to bring their co-ownership of land or goods to an end.

“Co-owner” is defined in s222 of the Act as:

“ ... a person who has an interest in land or goods with one or more other persons as –

(a) joint tenants; or

(b) tenants in common;”.

In the same section, “goods” is widely defined to mean:

“(a) chattels personal; or

(b) fixtures severable from land”

but the definition specifically excludes “things in action” or “money”.

Applications for sale or division

A co-owner of land or goods has the right to apply to VCAT for an order for the sale of the land or goods and division of the sale proceeds or physical division of the land or goods or a combination of sale and physical division: s225. This is in Division 2 “Sale and Division” of the new Part IV.

This means that proceedings in the courts that were previously described as “partition proceedings” will be brought at VCAT. Some of the jurisdictional implications of this are considered below.

VCAT will have a discretion to order physical division of the land or goods instead of a sale, or to order a combination of physical division and a sale – although the policy of the Act is similar to that of the former law in that a sale and division of the sale proceeds must be ordered unless VCAT considers that it would be “more just and fair” to grant other relief: s229.

There are indications in the Act that the discretion conferred on VCAT will be somewhat wider than the narrow discretion formerly applying to partition applications in the courts.[2] In the exercise of its discretionary powers, VCAT must consider matters that include whether a co-owner has any particular links with or attachment to the land or goods, the use being made of the land or goods, the practicality of dividing the land or goods, and whether the land or goods are unique or have a special value to one or more of the co-owners: s229.

The language the Act uses in conferring discre-tion on VCAT is wide. Section 228(1) provides that on an application for sale or division, it “may make any order it thinks fit to ensure that a just and fair sale or division of land or goods occurs”.

It will not be easy to appeal against the exercise of such a discretion because legal error will be difficult if not impossible to demonstrate.

Notice of the application must be given to the holder of a “security interest” in the land or goods: s225(3). All co-owners are parties to an application for sale or division: s226.

Accounting and compensation between co-owners

What is particularly significant about the legislation is that one co-owner will now be entitled to obtain from VCAT an order for an accounting or compensation from another co-owner, or the other co-owners, to a much greater extent than a co-owner could previously have obtained.[3] A co-owner in a specified share can now have the share of the sale proceeds increased or decreased on fairness grounds.

The discretionary power vested in VCAT by the Act in relation to accounting and compensation is also very wide. This amounts to a very significant change in the law of co-ownership and, indeed, the law of property itself.

The two most significant provisions are ss233 and 234. Note that these sections are in different divisions of the new Part IV. Section 233 applies when there is an application under the sale or division provisions referred to above. It is in the new Division 2 of the new Part IV. Section 234 allows an application to be made, whether or not there is an application for sale or division. It is in Division 3 “Accounting” of the new Part IV.

From the wording of s233, it seems that the power to order an accounting or compensation on an application for sale or division will extend to matters such as improvements, maintenance, insurance, rates, contributions to mortgage repayments, contributions to purchase money and to instalments or other outgoings for which all of the co-owners are liable. Orders can be made in cases of damage caused by the unreasonable use by a co-owner of the land or goods.

The range of matters in respect of which an order for an accounting or compensation can be made under s233 does not seem to be explicitly confined. Clearly an item would have to have a nexus with the land or goods. With some kinds of costs or expenses, however, there is an implied requirement that they have been “reasonably incurred” or that money paid was “reasonably spent”.

A co-owner who has been out of occupation of land may even be able to obtain “an amount equivalent to rent” from a co-owner who has been in occupation of the land.

Section 234 can be relied on by a co-owner to obtain an accounting from another co-owner who has “received more than the share of rent or other payments from a third party in respect of the land or goods” than the co-owner should have received: s234B.

General comments on the changes

The consequence of the changes is that any co-owner of land or goods will be at risk of having his or her share in the land or goods decreased by an order from VCAT on discretionary “fairness” grounds.

There will now be wide scope for co-owners to seek to have VCAT make detailed factual inquiries as to matters occurring throughout the period of the co-ownership.

Practitioners may now need to educate their clients on how they should conduct themselves towards other co-owners during the period of the co-ownership. They will also have to identify situations in which a co-owner might have a claim for an accounting or compensation against a co-owner under the legislation.

A prudent co-owner may now have to ensure that he or she contributes his or her full share of the cost of the upkeep of land. Failure to do so might result in a reduction in the amount he or she will ultimately receive on the later sale of the land.

It will now be important for a co-owner to keep the best possible record of any expenditure the co-owner makes in relation to rates, insurance, maintenance or other items. There is a significant danger that a co-owner who has no documentary record of the expenditure will be disadvantaged if unable to prove the expenditure years after it was incurred. Improvements should be recorded and documented. Receipts should be retained. Photographs should be taken.

A co-owner will now have to exercise a level of vigilance with respect to the activities of other co-owners of the land. If another co-owner with “deep pockets” proceeds to effect improvements on the land at his or her sole expense, there will be a risk that the co-owner with “deep pockets” will later seek an accounting from the sale proceeds for the cost of the improvements.

The Act does not in terms require consultation between co-owners. However, a lack of consultation between them concerning such matters as improvements could have a bearing on any later assessment by VCAT of the reasonableness of their conduct.

Jurisdictional issues

A transitional section in the Act provides that cases that have been brought in the Supreme and County Courts before the commencement of the new Part IV will be dealt with under the former law: s234I.

Section 234C is the critical provision where the jurisdictional issues are concerned. It provides in sub-s(1) as follows:

“Subject to this section, the Supreme Court and the County Court do not have jurisdiction to hear an application under this Part”.

It is clear from sub-s(2) that the jurisdiction of the Supreme and County Courts will not be affected in matters relating to “domestic partner” claims under Part IX of the Property Law Act 1958, partnership disputes where the legal relation is truly that of partnership as defined in the Partnership Act 1958 and testator’s family maintenance claims. Sub-s(3) provides that VCAT does not have jurisdiction to hear an application of a kind referred to in sub-s(2).

There are some very limited exceptions that may allow a judge to hear a claim brought in a court instead of to VCAT: see sub-ss(4) and (5) of s234C.

Section 234D “Powers of courts” states:

“Without limiting any powers of a court to make any order, in any proceeding in relation to the co-ownership of land or goods, a court may make any order which VCAT could make under this Part”.

The Act also contemplates that a party who has the right to make application to the Family Court or to bring a “domestic partner” claim will be able to have a matter adjourned at VCAT in order to proceed with such other claim: s227.

Since the Act only applies to a claim for relief by a co-owner of land or goods of the kinds referred to in the Act, the above definition of “co-owner” may be important to the resolution of jurisdictional issues.

Joint venture disputes are not specifically reserved to the courts by the jurisdictional provisions. This may mean that joint venture litigation concerning co-owned land or goods will now have to be brought at VCAT. Claims based on constructive or resulting trusts may also give rise to uncertainty under the jurisdictional provisions of the Act. Perhaps jurisdiction will depend on the factual matrix for the particular claim, rather than the general classification into which the case may fit. It may be that claims based on estoppel, where the court must determine the nature and extent of the interest of a claimant in land on equitable principles, will fall outside the Act.

The jurisdiction conferred on VCAT may be found to include the right to adjudicate on a range of issues that go to whether a particular set of facts does or does not fall within its jurisdiction.

In a recent early decision under the Act, a senior member of VCAT made orders that severed a joint tenancy of land, ordered a sale, and appointed a trustee for the purposes of the sale under s231.[4] The applicant was extremely ill, having had a double lung transplant, and wished to avoid having his interest pass to the other party, with whom he had been in a relationship, by survivorship. The land was described in the application as a “jointly owned (ex de facto) property”. As far as the sale proceeds were concerned, the member ordered that, apart from an allowance of $7200 in favour of the applicant for the cost of re-stumping that had been borne by him alone, equal division of the net proceeds be made.

No jurisdictional issues seem to have been argued in this decision. The matter was unopposed because the respondent had decided not to take part in the hearing. The interesting feature of the case is that VCAT exercised jurisdiction under the Act in the context of a former relationship. One might infer that neither party had expressed any intention to bring a domestic partner claim.

My own view is that the legislation has not clearly defined the jurisdictional demarcation between the courts and VCAT for all situations. Section 234C will need to be carefully studied before any decision as to forum can be made in an individual case. Hopefully, the interpretation of s234C in the courts and at VCAT will give guidance to practitioners concerning the selection of the appropriate forum for a given case.

“Contracting out”

One interesting issue is whether it will be possible for co-owners to “contract out” of the jurisdiction conferred on VCAT under the Act by making their own agreement to govern their future rights concerning land or goods.[5] There is no express prohibition on contracting out in the Act, but that may not conclude the issue.

Whether or not the new jurisdiction can be validly excluded by agreement, it would certainly be prudent for co-owners to spell out in advance their intentions concerning co-owned property in some kind of written instrument. If they do so, VCAT might be inclined to exercise its discretion in accordance with their arrangements or their wishes as evidenced by their agreement.

Conclusion

The statutory changes significantly alter the rights and remedies applicable to the co-ownership of both land and goods. Property rights previously thought of as absolute are now subject to a possible retrospective adjustment in a range of circumstances on grounds of general fairness, according to the acts or omissions of co-owners. Events that were of little significance before the enactment of the changes may now assume considerable importance. Co-owners will have to respect the interests of other co-owners.

No doubt a body of decisions of VCAT will emerge that will set proper standards for the conduct of co-owners towards other co-owners.


MARK MULVANY is a member of the Victorian Bar, working widely in civil litigation and property law.


[1] Act No 71/2005, assented to on 25 October 2005 and on 17 January 2006 proclaimed to commence on 1 February 2006. Note: This article is only intended to be a general introduction to the Act and for the purposes of any particular case it should not be treated as a substitute for a careful reading of the Act itself.

[2] “Partition is a right, however inconvenient ... ” per Higgins J in Bray v Bray (1926) 38 CLR 542.

[3] A useful discussion on the limited rights of co-owners may be found at (1995) 69 ALJ 316.

[4] O’Byrne v Gillett (Real Property) [2006] VCAT 1053, Snr Member D Cremean, 6 June 2006.

[5] See Nullagine Investments v Western Australian Club Inc (1993) 67 ALJR 739 and the note at (1993) 67 ALJ 954.

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