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[2024] ACTCA 16
mixed. The appeal was dismissed. Each party was ordered to pay its own costs of the appeal. The cross-appeal was dismissed. Qursa was ordered to pay Block 27’s costs of the cross-appeal, with no order as to...
The sublease did not match the Crown lease: it required consent for transfers and allowed termination for breach, despite the Crown lease’s plan to keep parking rights connected to the adjoining unit. The Court held that a general promise to observe the Crown lease did not rewrite the conflicting sublease terms, and equity could not insert the missing transfer provisions. But Block 27 also could not obtain the equitable relief it sought. It had inherited the continuing Crown lease non-compliance, and the Court considered that granting relief would undermine the public planning purpose of the lease. Qursa’s argument that the Territory held the parking obligations on trust also failed. Both appeals were dismissed.
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2,561 words · generated 08/10/2026
The dispute concerned four car parking spaces in a multi-storey car park in Dickson. The Crown lease over the car park required parking spaces to be made available to lessees of units in an adjoining building, including the lessee of Unit 1. The appeal focused on the mismatch between that Crown lease and the sublease granted over Unit 1’s four spaces.
8 cited instruments linked from this judgment.
The Crown lease required a sublease to run for the relevant term and included provisions linking the right to the parking spaces with ownership of the corresponding unit. In particular, clause 3(n)(i) restricted transfers to a person who became lessee of the relevant unit, and clause 3(n)(ii) required the sublessee to transfer its interest to an incoming lessee of that unit. Clause 3(o)(i) prohibited the sublease being terminated by mutual agreement. The Court read these provisions in the context of the Crown lease’s purpose of maintaining a parking entitlement for the adjoining units ([49]-[53]).
The actual sublease, granted to Takeshi by Dickson Developments in 1999, differed in significant ways. Clause 4 permitted termination, at the lessor’s absolute discretion, for breach of any provision. Clause 18.1(a) restricted transfers and clause 18.1(b) required the lessee to obtain the lessor’s consent before transferring to a person who became Crown lessee of the relevant unit. Those clauses did not simply reproduce the Crown lease’s transfer mechanism ([22], [25], [28]).
Garaton later became Crown lessee and sold the Crown lease to Block 27. The sale completed in October 2020, but a caveat delayed registration of the transfer until 6 April 2022. The Court proceeded on the basis that, between completion and registration, Garaton held the land as bare trustee for Block 27 (12, [96]). In 2021, Takeshi sold Unit 1 to Qursa and obtained Garaton’s consent to transfer the sublease. It did not obtain Block 27’s consent. Block 27 later lodged a caveat and issued a termination notice, asserting that Takeshi had transferred or parted with its interest without the required consent (12-(m)).
At first instance, the primary judge treated the sublease as if it included the transfer provisions required by the Crown lease. He reasoned that clause 18.3(g), under which the sublessor promised to observe the covenants and provisions of the Crown lease, enabled that result. The Court of Appeal held that this construction was wrong, but still dismissed Block 27’s appeal because it refused the equitable relief Block 27 sought. Qursa’s cross-appeal, which included an argument that the Territory held the Crown lease benefits on trust for unit lessees, was also dismissed ([7], [134]).
The Court began with the sublease itself. Clause 18.3(g) was a promise that the sublessor would observe the Crown lease. The question was whether that promise incorporated Crown lease requirements even where they conflicted with express sublease terms. The Court held it did not. In the Crown lease, the obligation to observe its covenants was intended to operate within a sublease that already complied with the Crown lease requirements. It was not drafted as a mechanism to repair every omission or inconsistency in a sublease ([69]-[71]).
The text and structure of the sublease supported the same reading. Clause 18.3(g) appeared in a list of additional covenants. The transfer restrictions and consent requirement were also in clause 18. The Court considered it unlikely that clause 18.3(g), without clear language, was intended to override the specific transfer provisions alongside it. This interpretation gave each term a reasonable sphere of operation ([72]).
The Court also considered the broader legal context. It observed that the legislature had not enacted a general rule requiring subleases to be read down to conform with Crown leases, or specifying that conflicting sublease terms should be displaced. It discussed statutory controls over subleases, but did not treat them as a basis for rewriting this sublease. In particular, the potential significance of s 88 of the Land Titles Act 1925 (ACT) was not decided because it had not been argued and did not specify the consequences of breach ([73]-[74]).
That conclusion defeated the primary judge’s use of Walsh v Lonsdale. The Court explained that the principle applies where an agreement for a lease is capable of specific performance. Here, the sublessee could not obtain specific performance of the Crown lease requirements through clause 18.3(g), because that clause did not require the missing provisions to be included. The sublessee was not a party to the Crown lease. So equity could not treat the disputed terms as already included ([75]-[79]).
The Court then addressed the consequence for Block 27. The Crown lease required a complying sublease. Because the actual sublease contained inconsistent provisions, the obligation to grant a complying sublease remained uncompleted. Block 27 acquired the Crown lease subject to its terms and the liabilities of the previous registered proprietor. The fact that Block 27 had not drafted the original sublease did not improve its position as successor to the Crown lease ([55]-[56]).
That finding did not produce the remedy Block 27 sought. Block 27 relied on equitable rights arising from Garaton’s conduct while it held the Crown lease on bare trust. Garaton consented to Takeshi’s transfer without Block 27’s consent, and the shared directorships meant Takeshi knew of the asserted fiduciary breach. But the consent mechanism itself existed because the sublease had failed to comply with the Crown lease. Block 27 sought to rely on that mechanism and on the consequences of Garaton’s consent, while remaining responsible as current Crown lessee for the continuing non-compliance ([96]-[103]).
The Court treated clean hands as a discretionary defence, not as a mechanical rule. It identified the required “immediate and necessary” connection between the conduct and the equitable claim ([95]). It also recognised the argument that members of the Cheung family, through their involvement with the earlier companies, had helped create the problem. But the Court considered the continuing obligations of the Crown lease and its public planning function. Granting relief would risk legitimising non-compliance with the lease and undermining the parking arrangements it was designed to secure ([106]-[109]). The Court therefore refused relief, although its reasoning differed from the primary judge’s.
The judgment applies established principles of contractual interpretation and equity to a particular kind of ACT land arrangement. On contract construction, it restates the objective approach: a reasonable person’s understanding is assessed by reference to the text, surrounding circumstances known to the parties and transaction purpose ([66]-[68]). It then applies that approach to the particular wording and structure of this sublease. The decision does not establish that a promise to comply with a Crown lease can never incorporate its terms. Its holding is narrower: this clause did not incorporate terms that conflicted with specific terms elsewhere in this sublease ([69]-[75]).
The judgment also clarifies the limits of the equitable maxim that equity regards as done what ought to have been done. The Court did not treat the maxim as a general power to correct a flawed contract. It linked the Walsh v Lonsdale principle to an agreement capable of specific performance and concluded that this sublessee had no such right to obtain the missing terms ([76]-[79]). The reasoning is consistent with the cited caution that equity should not make a contract different from the one the parties made ([78]-[79]).
On Crown leases, the Court emphasised the interaction between private law and public planning purposes. It treated the lease as more than an ordinary commercial lease because Crown leases form part of the ACT’s land planning and development system. The Court considered the need to give effect to that context while still applying private law principles ([46]-[47], [68]). It also concluded that obligations in this Crown lease could remain unfulfilled through successive proprietors, so a successor could not rely on its predecessor having made the original drafting error ([55]-[56]).
On clean hands, the Court stressed that the maxim is not itself a complete rule that automatically bars any claimant who has engaged in wrongdoing. The court must identify the equitable interest claimed, assess the required connection, and consider whether refusing relief is appropriate. The judgment’s specific application depended on the inherited and ongoing breach and the planning purpose of this Crown lease ([89]-[95], [102]-[109]).
Finally, the judgment considers when a contractual obligation benefiting third parties may be held on trust. It applies the approach discussed in Hobart International Airport Pty Ltd v Clarence City Council: benefit to a third party alone does not establish a trust. The contractual and surrounding relationship must support the conclusion that the obligee holds and administers the obligation on the third party’s behalf ([128]-[130]). Here the Court found that the planning and statutory setting pointed instead to the Territory administering and enforcing the lease in its capacity as lessor and public authority.
At [50], the Court explains that the Crown lease’s provisions aimed to keep the parking space and the corresponding unit connected. In plain English, the parking right was not intended to be a freely transferable asset separate from the relevant unit.
At [51], the Court says that, given the lease’s purpose and detailed requirements, it necessarily implied that the sublease could not be terminated for breach. The Court also regarded a termination clause as inconsistent with the prohibition on mutual termination when the provisions were read together. This reasoning concerns the requirements of the Crown lease; it does not mean the Court rewrote the actual sublease.
At [69], the Court states that clause 18.3(g) could not be read as overriding the specific inconsistent terms of the sublease. In plain English, a general promise to observe another document did not automatically cancel express terms in the document containing that promise.
At [75], the Court concludes that clause 18.3(g) did not let the sublessee demand a different sublease containing the Crown lease’s missing terms. This was central to rejecting the primary judge’s application of Walsh v Lonsdale.
At [95], the Court states the connection required for clean hands: the conduct said to be wrongful must have an “immediate and necessary” connection with the equitable claim. The maxim was not applied simply because the Court disapproved of Block 27’s position.
At [109], the Court explains why it refused relief: the public interest in compliance with Crown leases and their planning purposes weighed against an order that would legitimise ongoing non-compliance. This is the decisive equitable aspect of the appeal.
At [129], the Court rejects an inference that the Territory intended to take on enforceable trustee duties for the benefit of the adjoining unit lessees. In plain English, the fact that the lease was designed to benefit those lessees did not, by itself, make the Territory their trustee.
The decision is most directly relevant where a Crown lease requires a sublease or transfer on prescribed terms, but the instrument actually granted contains inconsistent express provisions. A similar issue may arise where a general promise to comply with a head lease is said to import specific terms that were omitted from a sublease. The case directs attention to the wording and structure of both instruments and cautions against treating a general compliance covenant as automatically overriding specific clauses ([69]-[75]).
It is also relevant where a later proprietor seeks equitable relief based on a predecessor’s conduct, while the relevant Crown lease obligation remains unfulfilled. The Court treated the obligation as continuing because the sublease granted did not comply with the required terms, and held that the successor acquired the lease subject to its terms and liabilities ([55]-[56], [98]-[103]).
The clean hands analysis may be relevant where a claimant’s equitable remedy depends on a mechanism or interest created by its own continuing non-compliance, particularly where the relief could frustrate the public purpose of a Crown lease. The decision does not make public interest a standalone answer in every case; it considered the specific parking purpose, the continuing breach, the connection to the relief sought, and whether the problem could be remedied by imposing conditions ([102]-[109]).
The trust analysis may matter where a public authority’s lease creates specific benefits for third parties and those parties seek to enforce the obligations directly in equity. Under this judgment, the existence of a benefit is not enough. The terms and context must support an intention that the authority hold and administer the contractual obligation on behalf of the beneficiaries ([128]-[130]).
The supplied judgment is dated 31 May 2024 and contains no account of later cases applying, distinguishing or criticising its reasoning. Later treatment therefore cannot be established from the judgment text supplied here.
Within the judgment itself, the Court drew on earlier authorities rather than identifying any later treatment of its own decision. It used Toll and Woodside for contractual interpretation ([66]-[67]); explained Walsh v Lonsdale and the related High Court decisions on equitable leases ([76]); and applied the clean hands principles discussed in Black Uhlans, Kation and other authorities ([90]-[95]). Its third-party trust analysis drew on Hobart International Airport ([128]-[130]). These are authorities considered by the Court, not later judicial treatment of Block 27.
For research or practice purposes, any claim about subsequent appellate consideration, application or limitation of Block 27 would require checking later judgments beyond the material provided. This deep dive does not infer that later treatment exists or that the case has been followed.
The Court expressly left open the potential role of s 88 of the Land Titles Act 1925 (ACT). It noted that the section gives a qualified power to a registered lessee to grant a sublease, subject to provisions in the lease affecting that power. The parties had not argued whether it constrained the sublease here or what the consequences of breach would be ([74]). That statutory question should not be treated as decided by this appeal.
The Court also observed that Parliament had not enacted a general provision requiring a sublease to be read down to conform with a Crown lease, while discussing other statutory controls ([73]). The judgment does not determine how a different statutory scheme, or a clear express statutory consequence for inconsistency, would affect the construction of a sublease.
The clean hands ruling depended on the Court’s view that the ongoing Crown lease breach could not be remedied by a condition attached to relief, and that granting relief would undermine the Crown lease’s planning purpose ([108]-[109]). The judgment leaves room for different outcomes where the connection between wrongdoing and the claim is weaker, the breach has ended, or a condition can address the problem. It expressly recognises that equitable relief is discretionary and that wrongdoing does not invariably require complete refusal of relief ([89]-[91]).
The Court did not decide what steps the Territory might take to enforce the Crown lease, or whether a unit lessee could pursue another form of remedy against a relevant party. The Territory was not a party, and the Court rejected the trust argument without needing to address the joinder issue further ([127], [131]). It described the Territory’s governmental obligations of proper administration as distinct from trustee duties, but did not determine a claim seeking enforcement of those governmental obligations ([129]).
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Source: the ACT Courts (www.courts.act.gov.au). Converted to plain text by ZoeLaw. Not the official version.
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY COURT OF APPEAL
Case Title: Block 27 Pty Ltd v Qursa Pty Ltd Citation: [2024] ACTCA 16 Hearing Date: 15 February 2024 Decision Date: 31 May 2024 Before: Mossop, Baker and McWilliam JJ Decision: 1. The appeal is dismissed. 2. Each party is to pay its own costs of the appeal. 3. The cross-appeal is dismissed. 4. The first respondent is to pay the appellant’s costs of the cross-appeal and there is no order as to costs of the cross-appeal between the first and second respondents. Catchwords: REAL PROPERTY – CROWN LEASES – Covenants – Crown lease imposed obligation on Crown lessee to sublease or transfer car parking spaces in premises to lessees of units in adjoining premises – Crown lease contained covenants which specified terms required in sublease – sublease did not comply with specified terms – provision in sublease requiring sublessor to comply with covenants in Crown lease – whether sublease could be interpreted as incorporating requirements of Crown lease even where inconsistent with terms of sublease – it could not EQUITY – GENERAL PRINCIPLES AND MAXIMS OF EQUITY – Equity regards as done what ought to have been done – terms required by a Crown lease not incorporated into sublease – sublease contained clause providing sublessor must observe covenants and provisions of Crown lease – whether clause broad enough to incorporate provisions from Crown lease not in sublease where terms to be incorporated were contrary to various clauses of sublease – it was not – therefore equitable maxim could not operate so as to allow requirements of Crown lease to be treated as in incorporated in sublease EQUITY – GENERAL PRINCIPLES AND MAXIMS OF EQUITY – Equitable defences – “unclean hands” – where Crown lease transferred to new proprietor – where previous proprietor failed to fulfil obligation to grant complying sublease – whether new proprietor subject to obligation – whether continued failure to fulfil obligation considered wrongdoing for the purposes of the equitable maxim – held that new proprietor acquired the Crown lease subject to the terms of the Crown lease and the liabilities of the previous registered proprietor – held that continued failure to fulfil obligation considered to be wrongdoing and broader public interest in upholding Crown lease purpose – equitable relief refused CONTRACT – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – Third party benefit trust – obligation in Crown lease implements planning scheme that benefits third parties – whether Territory is a trustee of the benefit of those obligations – whether beneficiaries of those obligations may sue for the enforcement of those obligations even though not a party to the Crown lease – no intention to make the Territory a trustee – no third party benefit trust established Legislation Cited: Australian Capital Territory (Planning and Land Management) Act 1988 (Cth), s 29 Australian Capital Territory (Self-Government) Act 1988 (Cth), s 36 Land (Planning and Environment) Act 1991 (ACT), s 175 Land Titles Act 1925 (ACT), ss 77(2), 88, 88B Planning Act 2023 (ACT), ss 276, 284 Planning and Development Act 2007 (ACT), s 247 Real Property Act 1925 (ACT) Seat of Government (Administration) Act 1910 (Cth), s 9 Cases Cited: Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140 Black Uhlans Incorporated v New South Wales Crime Commission & Ors [2002] NSWSC 1060; 12 BPR 22,421 Brisbane City Council v Attorney-General (Qld) [1979] AC 411 Chan v Cresdon Pty Ltd (1989) 168 CLR 242 Clarkson Williams Partners Pty Ltd v Vaughan (No 2) [2016] ACTCA 8 Corin v Patton (1990) 169 CLR 540 De Beers Consolidated Mines Ltd v British South Africa Company [1912] AC 52 Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184 Electricity Generation Corp v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 GJ v AS (No 4) [2017] ACTCA 7 Harmer v Armstrong [1934] Ch 65 Hobart International Airport Pty Ltd v Clarence City Council [2022] HCA 5; 96 ALJR 234 Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (In liq) [2009] NSWCA 145; 257 ALR 336 Kettles & Gas Appliances Ltd v Anthony Hordern & Sons Ltd (1934) 35 SR (NSW) 108 Manderson v Smith [2021] VSCA 359 Mayfair Trading Co Pty Ltd v Dreyer (1958) 101 CLR 428 Meyers v Casey (1913) 17 CLR 90 Nelson v Nelson (1995) 184 CLR 538 New South Wales Diary Corporation v Murray Goulbourn Co- Operative Company Limited (1990) 171 CLR 363 Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641 Parkview Qld Pty Ltd v Commonwealth Bank of Australia [2013] NSWCA 422; 11 ASTLR 19 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 Spencer’s Case (1583) 5 Co Rep 16a; 77 ER 72 Springrange Pty Ltd v Australian Capital Territory [2010] ACTCA 17; 174 ACTR 15 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 Walsh v Lonsdale (1882) 21 Ch D 9 Westfield Management Ltd v Perpetual Trustee Company Ltd [2007] HCA 45; 233 CLR 528 Texts Cited: D Mossop, The Constitution of the Australian Capital Territory (Federation Press, 2021) Parties: Block 27 Pty Ltd (Appellant) Qursa Pty Ltd (First Respondent) Takeshi Pty Ltd (Second Respondent) Registrar-General of the Australian Capital Territory (Third Respondent) Representation: Counsel M Pesman SC with W Buckland (Appellant) R Arthur (First Respondent) M Walsh SC with J Larkings (Second Respondent) Solicitors Moulis Legal (Appellant) Capital Lawyers (First Respondent) Gil-Jones Barker (Second Respondent) File Number: ACTCA 24 of 2023 Decision Under Appeal: Court/Tribunal: ACT Supreme Court Before: Curtin AJ Date of Decision: 7 June 2023 Case Title: Block 27 Pty Ltd v Qursa Pty Ltd Citation: [2023] ACTSC 139 THE COURT: Introduction
This case relates to four car parking spaces in a multi-storey car park in Dickson in the Australian Capital Territory. It requires the consideration of the intersection between leases, equitable remedies, and the statutory planning regime in the Territory.
The appellant in these proceedings, Block 27 Pty Ltd (Block 27), is the current holder of a Crown lease over the said car park. The dispute between the parties centres around whether Block 27 was entitled to terminate a sublease of those four car parking spaces held by the second respondent, Takeshi Pty Ltd (Takeshi), in circumstances where the sublease was transferred to the first respondent Qursa Pty Ltd (Qursa) without seeking Block 27’s consent. The transfer from Takeshi to Qursa has not been able to be registered because of a caveat lodged by Block 27 which asserts that the sublease has been terminated by Block 27.
The case at first instance was brought by Block 27 in equity because at the time the alleged breach of the sublease occurred, although Block 27 had paid for the Crown lease, it was not yet the registered title holder of that lease.
As will be explained in setting out the decision below, the breach alleged by Block 27 arose out of conduct by the corporate vendor of the Crown lease, Garaton Pty Ltd (Garaton) (since deregistered). Block 27 alleged that, having been fully paid for the land, Garaton had a fiduciary duty to preserve the interest in the land until title to the Crown lease could be transferred to Block 27. Takeshi sought Garaton’s consent to the transfer of the sublease but did not seek the consent of Block 27 as the incoming owner of the Crown lease. In granting consent to the transfer, Garaton did not preserve Block 27’s interest.
Block 27 further alleged that Takeshi knew about that breach by virtue of the common directors between Takeshi and Garaton.
The issues on this appeal involve considering whether the primary judge misconstrued the contractual provisions in the relevant leases, and misapplied equitable principles in relation to those leases.
For the reasons that follow, error in the construction of the contract has been established, but the case in equity does not succeed for discretionary reasons.
Factual background
It will be apparent from the above that there are two leases involved in this case. The first is a Crown lease over land which is required to be used as a car park (Block 27 Section 32 Division of Dickson). The second is a sublease granted by the Crown lessee over four car parking spaces within the car park the subject of the Crown lease.
Under the Crown lease, the entitlement to use the four car parking spaces is tied, in a way which will be explained later in these reasons, to the ownership of a unit in an adjoining building on Block 22 Section 32 Division of Dickson (the Adjoining Premises). This arrangement was put in place as a result of agreements made between the Territory and the developer at the time when the parcels of land were created and developed in the mid-1990s.
In 1996, the original Crown lessee was Dickson Developments Pty Ltd (Dickson Developments). The Crown lease was transferred to Garaton in 2001. It was then sold to Block 27 in 2020 and the memorandum of transfer was lodged. However, because there was a caveat lodged by a third party over the Crown lease, the memorandum of transfer was not able to be registered at the time and was only able to be registered in 2022.
So far as the sublease is concerned, that was originally granted to the second respondent in the appeal, Takeshi. It was then transferred to the first respondent, Qursa, in 2021, after the Crown lease had been sold by Garaton to Block 27, but before the memorandum of transfer had been registered.
The relevant chronology that was found by the primary judge was as follows. (a) 19 December 1996: Crown lease granted to Dickson Developments. (b) 8 July 1999: Sublease granted by Dickson Developments to Takeshi (registered on 25 January 2000 with the commencement date of the sublease backdated to 19 December 1996). (c) 8 May 2001: Dickson Developments transferred the Crown lease to Garaton. (d) 25 August 2020: Garaton entered a contract for sale of the Crown lease over the car park to Block 27. (e) 1 October 2020: The sale from Garaton to Block 27 was completed and the full purchase price was paid. (f) Sometime between 12 October and 10 November 2020: The memorandum of transfer transferring title to the Crown lease over the car park from Garaton to Block 27 was lodged for registration, but a caveat by a third party over the Crown lease prevented its registration until 6 April 2022. As a result, Garaton held the land as a bare trustee for Block 27 in the intervening period. (g) 25 August 2020 to March 2022: The directors of Garaton and Takeshi were identical, namely Loretta Cheung and Stephen Cheung. (h) 29 March 2021: Takeshi entered into an agreement to sell Unit 1 in the Adjoining Premises to Qursa, which sale was completed on 31 March 2021. (This date appears to be inconsistent with the date of 4 June 2021 given on the Land Titles Office transfer form, but nothing turns on this discrepancy.) (i) Sometime between March and June 2021: Takeshi sought consent from Garaton for the transfer of the sublease from it to Qursa, and that consent was given. No consent was sought from, nor given by, Block 27 for the transfer. (j) 7 June 2021: Qursa lodged the memorandum of transfer in relation to the sublease for registration. (k) 21 March 2022: Garaton was voluntarily deregistered. (l) 6 April 2022: The memorandum of transfer transferring the title to the Crown lease over the car park from Garaton to Block 27 was registered. Block 27 lodged a caveat to prevent the registration of the memorandum of transfer transferring the sublease from Takeshi to Qursa. (m) 9 May 2022: Block 27 issued a termination notice to Takeshi, asserting a breach of the sublease because (a) Takeshi had transferred, assigned or parted with possession of its right title or interest in the sublease; and (b) Takeshi had failed to obtain consent from the sublessor to the transfer of its right title or interest in the sublease. (n) 9 June 2022: Block 27 commenced proceedings against Qursa, Takeshi and the Registrar-General. (o) 4 April 2023: Qursa’s solicitors wrote to the ACT Government Solicitor providing notice of the proceedings and stating their view that the lessor under the Crown lease may be a necessary party, given the apparent breach of the Crown lease. (p) 21 April 2023: The ACT Government Solicitor indicated that the Territory did not intend to join the proceedings.
The Crown lease and the sublease
The Crown lease
The Crown lease was granted by the Australian Capital Territory Executive on behalf of the Commonwealth of Australia to Dickson Developments. The identity of the lessor reflected the operation of s 29 of the Australian Capital Territory (Planning and Land Management) Act 1988 (Cth). The land the subject of the Crown lease was identified as Block 27 Section 32 Division of Dickson. The term of the Crown lease was identified as 99 years and the land was to be: … used by the Lessee for the purpose set forth in subclause (a) of Clause 3 of this lease only YIELDING AND PAYING THEREFOR rent in the amount and in the manner and at the times hereinafter provided and UPON AND SUBJECT TO the covenants conditions and agreements hereinafter contained.
Clause 1 was an interpretation provision. This included the definition of “Adjoining Premises” which meant the premises comprised in the Crown leases of Blocks 19, 20 and 22 Section 32 Division of Dickson. It also indicated that “Lessee” included, in the case of a corporation, its successors and assigns.
Clause 2 was a covenant by the Crown lessee to pay rent of five cents per annum if and when demanded.
Clause 3 contained further covenants by the Crown lessee, including the purpose clause and provisions requiring car parking spaces to be provided for the Adjoining Premises. The purpose clause of the Crown lease (cl 3(a)) provided:
PURPOSE (a) To use the said land only for the purpose of a multi level carparking structure which shall provide a minimum of three hundred and twenty five carparking spaces;
CARPARKING (l) That the Lessee shall grant a sublease of or transfer to the lessee under each lease of each unit created in registered Units Plan 1491 and any subsequent Units Plan (hereinafter called “the Units Plan”) in respect of the building erected on Block 22 Section 32 Dickson the number of carparking spaces in the carpark set opposite the units in the following table: Unit 1 4 carparking spaces Unit 2 2 carparking spaces Unit 3 7 carparking spaces Unit 4 2 carparking spaces Unit 5 3 carparking spaces Unit 6 4 carparking spaces Unit 7 8 carparking spaces Unit 8 3 carparking spaces Unit 9 21 carparking spaces The reference to each unit in the table is a reference to the unit which bears the same numeral in the Units Plan; (m) The subleases granted pursuant to subclause (l) (“the subleases”) shall be for a term equivalent to the term of the leases granted under the Unit Titles Act 1970 less one day; (n) The subleases shall contain the following covenants on the part of the sublessee: (i) The sublessee shall not transfer assign mortgage sublet or share or part with the possession of or grant any licence whatsoever in respect of any of the sublessee’s right title or interest in this sublease other than to a person who becomes a lessee of (Unit in the Units Plan as the case may be); (ii) The sublessee must transfer all of the sublessee’s right title and interest in this sublease to any person who becomes the lessee of (Unit in the Units Plan as the case may be); (iii) The sublessee shall pay to the sublessor rent at the rate of five cents per annum if and when demanded payable within one month of the date of any demand made by the sublessor relating thereto and served on the sublessee; (iv) The sublessee shall not make any alteration or addition to or damage in any other way any part of the carpark; (o) The sublease shall contain the following mutual covenant by the sublessee and the sublessor; (i) The sublessee and the sublessor shall not terminate this sublease by mutual agreement; (p) The sublease shall contain the following covenants by the sublessor: (i) The sublessor shall maintain and keep in good and substantial repair to the satisfaction of the Australian Capital Territory the structure and fixtures and fittings of the carpark and all electrical wires water sewerage and gas pipes of the carpark; (ii) The sublessor shall maintain full and free access to the carparking spaces the subject of this sublease at all times of every day for the full term of this sublease; (iii) The sublessor shall not seek payment of any moneys from the sublessee for any reason or in respect of any matter whatsoever except for the failure of the sublessee to keep the carparking spaces free from oil and grease and in respect of moneys for which the sublessor may become liable and the liability for which arises from the wilful default or the negligence of the sublessee; (iv) The sublessor shall for the full term of this sublease pay all charges for electricity oil gas water telephone and all other electronic services and any other charge for any service provided to or in respect of the carpark; (v) The sublessor shall pay all costs of preparation execution stamping and registration and all fees and stamp duty in respect of the sublease; (vi) The sublessor shall at all times comply with all laws relevant to the carpark its ownership by the sublessor and the interest of the sublessee pursuant to this sublease; (vii) The sublessor shall at all times observe the covenants and provisions of the Crown Lease of the carpark; (viii) The sublessor shall at all times insure the carpark against damage or destruction from any cause for its full replacement value with a reputable insurance company and shall provide evidence of the currency of such insurance when requested to do so by the sublessee; (q) If transfers are effected pursuant to subclause (l) (“the transfers”) the transfers shall contain the following covenants on the part of the transferee: (i) The transferee must transfer all of the Transferee’s right title and interest in the land hereby transferred to any person who becomes a lessee of (unit in the Units Plan as the case may be); (ii) The transferee must not transfer any of the transferee’s right title and interest in (unit in the Units Plan as the case may be) other than in accordance with covenant (i) of this clause; (iii) The transferee shall pay to the transferor the sum of One Dollar as consideration for the transfer if and when demanded by the transferor and payable within one month of the date of any demand made by the transferor relating thereto and served on the transferee; (iv) The transferee shall not make any alteration or addition to or damage in any other way any part of the carpark; (v) The transferee shall maintain and keep in good and substantial repair to the satisfaction of the Australian Capital Territory the lessees fixtures and fittings; (vi) The transferee shall pay his proportion of all charges for electricity oil gas water telephone and other electronic services and any other charge for any services provided to or in respect of the carpark. The transferee’s proportion of the charges shall be the same proportion as the floor area of the carparking spaces transferred bears to the total area of the carpark; (vii) The transferee shall pay all costs associated with the transfer including stamping and registration; (viii) The transferee shall at all times insure the transferred carparking spaces against damage or destruction from any cause for its full replacement value with a reputable insurance company; The transferee further covenants to execute all or any agreement or document reasonably required by the transferor to give effect to the covenants referred to in subclauses (i) to (viii) of this clause. These covenants shall not merge upon the transfer of the carparking spaces from the transferor to the transferee or from the transferee to any subsequent transferee. (r) That the Lessee shall sublease to the Territory one hundred and eighty six carparking spaces within the carpark for use by the occupants of Blocks 19 and 20 Section 32 Dickson in accordance with the deed of agreement between the parties dated nineteenth day of December One thousand nine hundred and ninety six;
ACCESS TO (s) That the Lessee shall at all times permit the lessees of the CARPARK Adjoining Premises persons authorised by the lessees of the Adjoining Premises and persons visiting the Adjoining Premises to pass and repass with or without vehicles as may be necessary for all purposes connected with carparking but not for any other purposes whatsoever across the land;
ACCESS FOR (t) That the Lessee shall permit access at all times for vehicles SERVICE VEHICLES to service Block 22 Section 32 Dickson from the access driveway to the satisfaction of the Territory;
The sublease
On 8 July 1999, a sublease of the four car parking spaces associated with Unit 1 in the Adjoining Premises was granted by Dickson Developments to Takeshi for a period of 99 years less one day commencing on 19 December 1996. Consistent with the terms of the Crown lease, the annual rent was five cents per annum if and when demanded and the purpose was “Carpark only”. In some respects, the sublease closely followed the terms required by the Crown lease but in other respects it did not.
Clause 4 related to termination of the sublease. It provided: 4. TERMINATION This Lease terminates (without any right of the Lessee to claim compensation or to make any other claim against the Lessor) on the earlier of: (a) the expiration of the Term; or (b) at the Lessor’s absolute discretion, upon breach of any provision in this Lease by the Lessee.
The sublease then contained, in cls 5-12, provisions dealing with payment of rent, location of vehicles, maintenance of the parking area, dealing with vehicles in the parking area, directions about use of the parking area, nuisance, risk, indemnity and release.
Clause 13 of the sublease addressed removal of vehicles upon termination of the sublease. Clause 14 dealt with taxes, duties, costs, and expenses incurred by the sublessor. Clause 15 addressed what would happen if the sublessor wished to achieve a unit title subdivision of the land. Clause 16 excluded implied covenants under the Real Property Act 1925 (ACT) (now the Land Titles Act 1925 (ACT)). Clause 17 required the sublessor to give quiet enjoyment.
Clause 18, which is of significance for the present case, provided as follows: 18. ADDITIONAL COVENANTS 18.1 (a) Subject to clause 18.1(b), the Lessee shall not transfer assign mortgage sublet or share or part with the possession of or grant any licence whatsoever in respect of any of the Lessee’s right title or interest in this Lease; (b) The Lessee must at its cost procure consent from the Lessor to transfer all of its right title and interest in this Lease to any person who becomes the Crown Lessee of the Unit. (c) The Lessee shall not make any alteration or addition to or damage in any other way any part of the Building. 18.2 The Lessee and the Lessor shall not terminate this Lease by mutual agreement; 18.3 (a) The Lessor shall maintain and keep in good and substantial repair to the satisfaction of the Australian Capital Territory the structure and fixtures and fittings of the Building and all electrical wires water sewerage and gas pipes of the Building; (b) The Lessor shall maintain full and free access to the Parking Area at all times of every day for the full term of this Lease; (c) The Lessor shall not seek payment of any moneys from the Lessee for any reason or in respect of any matter whatsoever except for: (i) the failure of the Lessee to keep the Parking Area free from oil and grease; and (ii) moneys for which the Lessor may become liable and the liability for which arises from the wilful default or the negligence of the Lessee. (d) The Lessor shall for the full term of this Lease pay all charges for electricity oil gas water telephone and all other electronic services and any other charge for any service provided to or in respect of the Building; (e) The Lessor shall pay all costs of preparation execution stamping and registration and all fees and stamp duty in respect of the Lease; (f) The Lessor shall at all times comply with all laws relevant to the Building its ownership by the Lessor and the interest of the Lessee pursuant to this Lease; (g) The Lessor shall at all times observe the covenants and provisions of the Crown Lease; (h) The Lessor shall at all times insure the Building against damage or destruction from any cause for its full replacement value with a reputable insurance company and shall provide evidence of the currency of such insurance when requested to do so by the Lessee.
Relationship between terms of the Crown lease and sublease
Provision Crown lease Sublease Term 3(m) 3, sch item 6.1 but subject to termination under cl 4 No transfer 3(n)(i) 18.1(a) but the terms differ Obligation to transfer 3(n)(ii) 18.1(b) but the terms differ Rent 3(n)(iii) 5, sch item 6.5 Alterations 3(n)(iv) 18.1(c) Not terminate by mutual 3(o)(i) 18.2 agreement Repair 3(p)(i) 18.3(a) Full and free access 3(p)(ii) 18.3(b) No payment except for wilful 3(p)(iii) 18.3(c) default or negligence Sublessor to pay charges 3(p)(iv) 18.3(d) Sublessor to pay for sublease 3(p)(v) 18.3(e) Sublessor to comply with laws 3(p)(vi) 18.3(f) Sublessor to comply with 3(p)(vii) 18.3(g) Crown lease Sublessor to insure 3(p)(viii) 18.3(h)
The decision below
The primary judge made orders and published his reasons on 7 June 2023: Block 27 Pty Ltd v Qursa Pty Ltd [2023] ACTSC 139 (J). The relevant parts of the reasons of the primary judge are referred to below.
The primary judge set out or summarised the provisions of the Crown lease and the sublease and described the history of the transfers of the Crown lease and of the sublease which have been summarised above: J [5]-[43].
The primary judge identified the pleaded cases of the parties: J [44]-[64]. Block 27 contended that, in the period 1 October 2020 until 6 April 2022, Garaton held the land under a bare trust in favour of Block 27. That was because Garaton was a fully paid vendor. Block 27 contended that Garaton had an obligation to preserve the interest in the land until title to the Crown lease could be transferred to it. It contended that Garaton breached its duty by consenting to the transfer of the sublease. It contended that Takeshi had breached the sublease by failing to obtain the consent of Block 27 to the transfer and had further breached the sublease by parting with possession of the subleased premises.
Takeshi denied that the clause requiring consent under the sublease was enforceable in circumstances where it was not a requirement of a provision of the Crown lease and was inconsistent with the Crown lease. It submitted that it had standing to enforce or otherwise rely upon the Crown lease because the sublease contained cl 18.3(g), which said that the sublessor (Block 27) would observe the covenants in the Crown lease. It denied that Block 27 was entitled to terminate the sublease in those circumstances.
Block 27 denied that Takeshi had standing to rely upon the terms of the Crown lease and submitted that the obligation to grant a sublease was a one-off obligation that had been complied with in 2000 by the registration of the sublease and had no further operation. It denied that the requirement for consent was unenforceable. It asserted that Takeshi was estopped from claiming that it was not bound by the requirement to obtain the consent of Block 27 where it had agreed to that term by signing the sublease. The primary judge noted that the claim of estoppel was abandoned in final submissions: J [56].
Qursa contended that the disputed terms of the sublease permitting termination and requiring consent were invalid because they did not conform to the requirements of the Crown lease. The primary judge noted that Qursa sought declarations to that effect but had not filed a counterclaim seeking that relief: J [59]. The primary judge noted that Qursa submitted that it had standing to argue invalidity because cls 3(l)-(q) of the Crown lease were held on trust by the Territory for the lessees of Unit 1 and, as beneficiary of that trust, Qursa was entitled to enforce the covenants. Alternatively, it submitted it had a beneficial interest in the sublease and hence a special interest in the proper construction of the Crown lease: J [61].
The source of the problem
At the core of the dispute presently before the court is the inconsistency between the requirements of the Crown lease and the terms of the sublease. As noted earlier, the sublease contains a termination provision as well as a condition requiring consent to any transfer or assignment of the sublease by the sublessee. Those features provide a mechanism by which the sublessor can legally or practically bring an end to the sublease.
It is clear that such a situation was not intended by the Crown lease. The Crown lease sought to ensure that, for its duration, there was an entitlement to car parking spaces associated with the various units in the Adjoining Premises, including the unit at the centre of the dispute, Unit 1. The requirements for the sublease, as set out in the Crown lease, precluded any termination of the sublease by mutual agreement (cl 3(o)(i)) and contain an obligation upon the sublessee to transfer the sublease to any incoming lessee of the corresponding unit (cl 3(n)(ii)).
The Territory Executive, being the Crown lessor, has not been joined as a party to the proceedings and there is no evidence that it has taken any steps to enforce the requirements of the Crown lease. In those circumstances, the question underlying the legal issues that arose before the primary judge was: “Whose problem is it?” Is it Block 27’s problem, because the sublease that was granted by its predecessor in title did not comply with the requirements of the Crown lease? Or is it Takeshi’s or Qursa’s, problem because they are stuck with the terms of the sublease notwithstanding that it is inconsistent with the Crown lease?
The parties have each advanced arguments which seek to advance their respective interests. Block 27 placed reliance upon its entitlement under the sublease and denied any inconsistency with the Crown lease. It relied upon the fact that, at the time of the grant of the sublease by Dickson Developments to Takeshi, those companies had overlapping directors so that the source of Takeshi’s subsequent problem was conduct for which its directors, or some of them, were responsible.
Given that Qursa was the owner of Unit 1 in the Adjoining Premises, Takeshi and Qursa placed reliance upon the terms of the Crown lease, sought to construe the sublease in a manner that made it consistent with the Crown lease, and sought to enforce the terms of the Crown lease. However, Takeshi and Qursa did not join the Territory as a party to the proceedings.
The context for the resolution of the issues
The legal questions that arise must be resolved in a context which recognises the role of Crown leases in land planning and development in the Territory. The leasehold system of land tenure is an entrenched part of the framework of self-government: Seat of Government (Administration) Act 1910 (Cth), s 9; Australian Capital Territory (Planning and Land Management) Act, s 29(3). Land development controlled through the instrument of Crown leases granted by the Commonwealth has a long history in the Territory, going back to shortly after Federation: see The Constitution of the Australian Capital Territory (Federation Press, 2021) at 12-14.
Since the advent of self-government, the Territory Executive established by s 36 of the Australian Capital Territory (Self-Government) Act 1988 (Cth) has been responsible, “on behalf of the Commonwealth”, for the “management of Territory land” and given power to “grant … and administer” estates in land: Australian Capital Territory (Planning and Land Management) Act, s 29(1). At the time self-government was established (1989), at the time when the Crown lease in the present case was granted (1996) and currently, Crown leases were (and are) of fundamental importance to the Territory government and the land planning and development system for at least the following reasons: they dictate the timing and pattern of the subdivision of land, they provide a means by which detailed planning arrangements may be implemented in the public interest, and they allow the capturing of taxes upon the increasing value of land as a result of changes in the terms of the leases. Those features of Crown leases were reflected in the Territory statutes governing land planning and development at the time the Crown lease in question was granted and maintained since then: Land (Planning and Environment) Act 1991 (ACT) (repealed); Planning and Development Act 2007 (ACT) (repealed); Planning Act 2023 (ACT). Notwithstanding that a private law concept, that of the leasehold interest, has been adopted as the foundation for land planning and development in the Territory, it is important to recognise the public policy that is implemented through that device. That means that while legal issues arising from land disputes must be resolved by reference to the private law principles applicable to leaseholds, that must occur in a context which recognises the public policy aspects of their use in the Territory as land planning and development devices. Some recognition must therefore be given to the fact that, because of their public policy function, they are distinct from leases between a private landlord and tenant.
The correct interpretation of the Crown lease and the sublease
The Crown lease required either the transfer of the car parking spaces or, alternatively, a sublease of those spaces.
If what occurred was a transfer of the car parking spaces, then the terms of the Crown lease indicated that the intention was that the transferred spaces be held by the person who was the lessee of the corresponding unit in the units plan for the Adjoining Premises as set out in the table in cl 3(l). That is made clear by the requirements of the covenants on the part of the transferee: Crown lease cls 3(q)(i) and (ii), and the fact that they would not merge upon completion of the transfer or any subsequent transfer: see the concluding words of cl 3(q).
If the car parking spaces are to be provided to the relevant unit in the Adjoining Premises by way of sublease, then the same position applies. The clear intention of the Crown lease is that the sublease would continue for the whole of the duration of the Crown lease (up to a maximum of 99 years less one day). It is for that reason that: (a) there is a prohibition on transfer etc to anyone other than a person who is a lessee of the relevant unit: cl 3(n)(i); (b) there is an obligation on the sublessee to transfer the sublessee’s interest to a person who becomes the lessee of the relevant unit: cl 3(n)(ii); (c) there is only nominal rent payable: cl 3(n)(iii); (d) there is a prohibition on the sublessor seeking money for anything related to the sublease other than in narrowly defined circumstances: cl 3(p)(iii); and (e) there is a prohibition on terminating the sublease by mutual agreement: cl 3(o)(i).
Given the purpose of the sublease as disclosed by these provisions, and the absence of any reference to termination for breach in the detailed description of the contents of the sublease, it is a necessary implication from the terms of the Crown lease that the sublease may not be terminable for breach. Alternatively, or as an additional matter pointing to the necessity of the implication, a provision permitting termination for breach would be inconsistent with the prohibition on termination by mutual agreement in cl 3(o)(i), when that provision is read in the context of the balance of cls 3(l)-(t). In other words, mutual agreement to a clause which permits unilateral termination of the agreement in the future would be contrary to the requirement that there be no termination by mutual agreement.
Senior counsel for Block 27 submitted that interpreting the Crown lease so that it precluded termination of the sublease for breach would not be a reasonable interpretation. He posited, as an example, a sublessee who chose to establish a “meth lab” in the car parking space and submitted that it must be the case that a sublessor would be entitled to have a termination provision which addressed such a circumstance. That submission cannot be accepted. The clear purpose of the sublease is to ensure an enduring connection between the occupation of the relevant unit and the use of the car parking space. If the car parking space had been transferred, then the capacity of the Crown lessee to enforce conditions of use would be limited to enforcement of the covenants set out in cl 3(q) by injunction or a claim for damages. So too if the alternative mechanism of a sublease was adopted. Even if the sublessor could not terminate the sublease and retake possession, it would be entitled to obtain an injunction to restrain the breach of the sublease and, if appropriate, damages. Given the nature of the use and the covenants required to be included in the sublease by cls 3(n)-(p) of the Crown lease, an inability to terminate the sublease, as distinct from the exercise of other legal remedies in relation to a breach of the covenants in the Crown lease, is not an unreasonable or impractical result. Rather, it is a result consistent with the planning goal reflected in the Crown lease.
Grounds of appeal
Ground (a)
Ground (a) is as follows: His Honour erred by concluding that he should read the sublease under consideration in this matter as if it contained clauses 3(n)(i) and (ii) of the Crown lease. [65], [115]
This ground arises out of the primary judge’s reasoning (J [65]-[67] and [96]-[115]) that the sublease ought to be interpreted as though cls 3(n)(i) and (ii) of the Crown lease were present in it. Those were the provisions that had the effect of prohibiting the sublessee from transferring the rights under the sublease to anyone other than a lessee of Unit 1 in the Adjoining Premises and the obligation on the sublessee to transfer the rights under the sublease to that person. His Honour treated the parties’ contractual rights as if the sublease contained provisions to that effect and that conclusion had consequences for the provision requiring consent to any transfer of the sublease.
The chain of reasoning adopted by the primary judge may be summarised as follows: (a) Clause 18.3(g) involved an agreement that the sublessor would, at all times, observe the covenants and provisions of the Crown lease. (b) That obligation picked up the obligation in cl 3(n)(i) and (ii) which required the sublease to contain the specified terms. (c) The sublease did not contain the specified terms. (d) Takeshi was entitled to seek specific performance of cl 18.3(g) through the granting of a sublease which included the terms specified in cls 3(n)(i) and (ii). (e) The existence of the obligation in cl 18.3(g) indicated that there were things to be done after execution of the sublease and hence execution of the sublease without cls 3(n)(i) and (ii) was not fatal to a claim for specific performance. (f) Further, the Crown lessor would have a specifically enforceable right to enforce the obligation to insert those terms in the sublease and “it would be inconsistent to say that the sublessee could not obtain the same relief as the Crown lessor when seeking specific performance of the same obligation”: J [106].
His Honour then referred (at [108]-[114]) to the principle in Walsh v Lonsdale (1882) 21 Ch D 9 and the discussion of that principle in Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 and Chan v Cresdon Pty Ltd (1989) 168 CLR 242.
He concluded (at [115]): “The result is that I should treat the parties’ contractual rights as if the sublease was as it should have been, namely, that it contained the terms specified in clauses 3(n)(i) and (ii) of the Crown Lease”.
Submissions
Block 27 contends that this involved a misapplication of the equitable maxim “Equity regards as done that which ought to have been done”. That is essentially for three reasons: (a) First, it was said to be based on a reading of cl 18.3(g) which was too broad. Block 27 submitted that the clause only applied to those promises and covenants which were expressed to continue for the term of the Crown lease. (b) Second, it was submitted that in order for the maxim to apply, it must be an agreement of which specific performance would be decreed. (c) Third, Block 27 submitted that the maxim did not permit the court to rewrite contracts.
Takeshi and Qursa sought to support the reasoning adopted by the primary judge.
Consideration and decision
Block 27 is correct to start with the primary judge’s interpretation of cl 18.3(g). That is because his Honour’s interpretation of that clause is the essential means by which it could be argued that Takeshi had a right to specific performance that would compel the inclusion of cls 3(n)(i) and (ii). In the absence of cl 18.3(g) it could not be contended that Takeshi would have a right to specific performance of the Crown lease, to which it was not a party. It was only through the interpretation of cl 18.3(g) as picking up, in effect, all the obligations in the Crown lease, that gave rise to the potential for Takeshi to enforce an obligation that arose by virtue of that Crown lease (and such relief was sought by way of defence).
The basic approach to interpretation of contracts is well-known and articulated in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40]: The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
The primary judge adopted what was said in Electricity Generation Corp v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at [35] to the same effect: J [80]. He recognised that the capacity to rely upon extrinsic materials was, in the case of instruments registrable under a Torrens title system, limited by the principle outlined in Westfield Management Ltd v Perpetual Trustee Company Ltd [2007] HCA 45; 233 CLR 528 and as explained in Springrange Pty Ltd v Australian Capital Territory [2010] ACTCA 17; 174 ACTR 15: J [81]. In the present case it was uncontroversial that regard could be had to the terms of the Crown lease in interpreting the sublease, as both were on the land titles register and the sublease made reference to the terms of the Crown lease: J [70]-[79].
To the principles articulated by the primary judge, we would add that which appears to be implicit in the approach that he took, namely, that so far as the Crown lease is concerned, it is not merely a commercial lease. Rather, it is a lease which has a planning and governmental purpose and must be interpreted with that in mind.
The question then is: Can cl 18.3(g) be interpreted, in the context of the sublease as a whole, as picking up and incorporating the terms required by the Crown lease, even where those terms are, on their face, inconsistent with the specific terms of the sublease? Properly construed, cl 18.3(g) cannot be given that effect. Even if the Crown lease and the sublease were to be effectively read as one instrument, cl 18.3(g) cannot be read as a dominant clause which overrides the specific provisions of the sublease to the extent that those specific provisions are inconsistent with the requirements of the Crown lease (as to which see Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140 at 151-152).
Ground (b)
Ground (b) is as follows: His Honour was in error by concluding that clause 18.1(a) and (b) should be construed as meaning that consent could never be withheld converting it to a notice clause or in the alternative that clause 18.1(a) and (b) should be ignored. [67], [132], [138], [141], [142], [143]
This ground is a derivative of Ground (a). Block 27 submitted that the sublease should not have been interpreted as including cls 3(n)(i) and (ii) of the Crown lease. It submitted that, in the absence of the equitable maxim, there was no basis for the clauses of the written sublease to be interpreted based upon clauses in the Crown lease.
Because of the success of Ground (a), this ground is also made out. In summary, because the sublease cannot be interpreted as incorporating cls 3(n)(i) and (ii), there is no basis for reading down or ignoring the obligations in cl 18.1(a) and (b). Even though those clauses were inconsistent with the obligations under the Crown lease, they were clearly included in the sublease and, as the reasons given in relation to Ground (a) indicate, there is no proper basis for reading those obligations down or out of the sublease.
This ground of appeal is made out.
Ground (c)
Ground (c) is as follows: His Honour erred in holding that if the reasons which he had given were not correct, he would decline relief because equity would not assist a wrongdoer. [68]
This ground is based upon the trial judge’s alternative finding (J [68]) that he would have refused relief in the exercise of his discretion as a result of the application of the maxim “equity will not assist a wrongdoer”. The application of that equitable maxim is to be distinguished from cases, not limited to equitable claims, involving statutory illegality: Nelson v Nelson (1995) 184 CLR 538 (Nelson) at 550-551, 608.
Block 27 points out that the reasons for the primary judge’s conclusion were not explained by the primary judge and says that there are three reasons why the conclusion was incorrect: (a) Clause 3(n) was not an ongoing obligation. (b) Block 27 was not a wrongdoer as it was never called upon to grant or withhold consent. (c) The equitable maxim does not apply in the present circumstances because the conduct, being entry into the sublease in terms which the primary judge thought were inconsistent with the Crown lease, was not engaged in by Block 27, but rather by its predecessor in title.
We accept that his Honour’s reasons did not explain why he considered that Block 27 was a wrongdoer. They did not go beyond stating that the equitable maxim applied.
The starting point is that an equitable maxim is not, of itself, a specific rule or principle of law. It is a summary statement of a broad theme which underlies equitable concepts and principles: Corin v Patton (1990) 169 CLR 540 at 557. Without more, it may be wrong to simply invoke a maxim as a basis for a legal conclusion: see Parkview Qld Pty Ltd v Commonwealth Bank of Australia [2013] NSWCA 422; 11 ASTLR 19 at [119] per Leeming JA.
That is particularly the case with the application of the present maxim under consideration. As will be explained, it is not any and all wrongdoing that attracts the operation of the maxim. Moreover, there are cases where a litigant who has been involved in disentitling conduct has ultimately not been deprived of a remedy. It does not always follow that establishing wrongdoing on the part of a plaintiff disentitles a plaintiff from equitable relief, as equitable relief is always discretionary, as explained by Campbell J in Black Uhlans Incorporated v New South Wales Crime Commission & Ors [2002] NSWSC 1060; 12 BPR 22,421 (Black Uhlans) at [181] and Hodgson JA in Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (In liq) [2009] NSWCA 145; 257 ALR 336 (Kation) at [28]. For example, a court in equity may form the view that any disentitling conduct did not have a relationship to the matter in dispute sufficient to give rise to the discretion to refuse relief or, alternatively, a court may form the view that it was appropriate to impose conditions on the grant of relief, rather than refuse relief altogether.
Ground (d) and (e)
Grounds (d) and (e) are as follows: (d) His Honour was in error by concluding that Takeshi had a right per clause 18.3(g) to seek specific performance of clause 18.3(g) against the plaintiff to grant Takeshi a sublease which included the terms specified in clauses 3(n)(i) and (ii). [101]-[105] Particulars (i) Neither specific performance nor rectification were pleaded. (ii) Clause 18.3(g) of the sublease does not require the sublease to be re-granted or rectified so as to include subclauses 3(n)(i) and (ii) of the Crown lease into the sublease. (e) His Honour was in error in concluding: (i) that the execution of the sublease in the terms it does contain does not amount to acceptance of a sublease without clauses 3(n)(i) and (ii); [105] and (ii) that the Crown lessor would have a right to specific performance because it did not consent to the omission of the terms specified in clause 3(n)(i) and (ii); [106], [137] as neither of these matters had been pleaded; and further: (iii) that even if the Crown lessor did have a right to seek specific performance, it was incorrect to conclude that the sublessee had a right to the same relief. [107]
Block 27 submitted that the primary judge erred in construing the obligation in cl 18.3(g) as applying to all the clauses of the Crown lease. It submitted that it was “clear nonsense” to suggest that Takeshi or another sublessee could institute a suit for specific performance to compel the transfer of car parking spaces to it under cl 3(l). That was said to illustrate the effect of a broad interpretation of cl 18.3(g). Block 27 submitted that cl 18.3(g) only applied to provisions of the Crown lease with ongoing operation, cl 3(n) not being such a clause.
For the reasons given in relation to Ground (a) as to the interpretation of cl 18.3(g), this ground of appeal is made out. Takeshi, as sublessee, was not entitled to seek to have terms incorporated into the sublease which would then turn it into a sublease that complied with the obligations under the Crown lease, because cl 18.3(g) did not have the effect of requiring that to occur and Takeshi was not a party to the Crown lease.
Ground (g)
Ground (g) was as follows: His Honour was in error in concluding that Garaton, the preceding Crown lessee, was not in breach of trust when it consented to the transfer of the sublease to Qursa Pty Ltd. [153-4]
This ground follows upon the grounds relating to the interpretation of the terms of the sublease. Because those grounds would have been successful, this ground would have also succeeded. In short, given the requirement for consent under the sublease, Garaton was in breach of trust by consenting to the transfer to Qursa. However, success on this ground is subject to the refusal of relief for the reasons given in relation to Ground (c).
Cross-appeal
Qursa cross-appealed from the decision of the primary judge. Before the primary judge, it had contended that it had standing to argue that cls 4(b) and 18 of the sublease were invalid because they did not conform to what was required by the Crown lease and that, by relying upon those provisions, Block 27 was in breach of the Crown lease. It contended that it had standing to put these submissions because cls 3(l)-(q) of the Crown lease were held by the Territory on trust for the lessees of Unit 1, being the persons for whose benefit the Territory obtained those covenants. As a beneficiary of that trust, Qursa claimed to be entitled to enforce those covenants: J [57]-[60].
In its cross-appeal, Qursa asserts that the primary judge erred in failing to decide whether or not it was the beneficiary of a trust entitling it to enforce the obligations imposed by the Crown lease, failing to decide whether it had standing to seek a declaration, and failing to make the orders that it sought.
The reason that Qursa would benefit from the success of the cross-appeal is because it would then obtain a sublease in terms consistent with the Crown lease. That would be more favourable than the outcome achieved before the primary judge, which had left Qursa with a sublease which required consent for its transfer and contained a broad provision permitting its termination by the sublessor.
Submissions
Qursa referred to the passages in Hobart International Airport Pty Ltd v Clarence City Council [2022] HCA 5; 96 ALJR 234 in which Gageler and Gleeson JJ and Edelman and Steward JJ discussed the circumstances in which a third party benefit trust of contractual obligations may exist. It submitted that in order to find an intention to create a trust in clear contractual language, the use of the word “trust” was not essential. Rather, an intention to create a trust may arise from an objective manifestation of that intention drawn from the terms and purpose of the contract.
Qursa pointed to the following features of the arrangements in the present case: (a) all car parking generated by the development was required to be accommodated in a structured car park; (b) the obligation of the Crown lessee to either transfer or sublease allocated car parking spaces; and (c) the obligation upon the Crown lessee of the Adjoining Premises to require that lessees of units accept the transfer or sublease.
It submitted that there can be no doubt that the intention of the Territory was to ensure that every lessee of a unit in the Adjoining Premises and their successors for the duration of the Crown lease would have available to them allocated car parking spaces with “no strings attached”.
It pointed to Brisbane City Council v Attorney-General (Qld) [1979] AC 411 at 421-422 as providing an example of a case in which a local government authority was constituted as trustee of a showground and recreation area.
It submitted that, in the present case, the longevity of the arrangements required by the Crown lease and the potentially high number of entities who would be involved over time, made the imposition of a trust with the Territory as the trustee an appropriate mechanism for ensuring the intention of the Crown lease is achieved.
So far as the failure to join the Territory as a party to the proceedings would amount to a procedural obstacle to the granting of relief, Qursa submitted that there were exceptions to the rule which would otherwise require the joinder of the trustee. It referred, in particular, to the decision in Harmer v Armstrong [1934] Ch 65 as an example of such a case. It submitted that the circumstances were such that this was not a case in which the trustee needed to be before the court and, in any event, that in circumstances where the Territory had been notified of the proceedings and did not wish to be involved, “for all relevant purposes, that is tantamount to the trustee being before the Court”.
Block 27 raised a number of issues as to the form of the orders sought but made two substantive points in response to the claim that a trust existed: (a) there was and is no relevant trust of which the Territory could be trustee; and (b) even if there was, the Territory was a necessary party to the proceedings if that claim was to be made.
Consideration and decision
The primary judge observed in his reasons that insofar as Qursa had sought declarations to the effect that cls 4(b) and 18 were invalid and orders requiring a new sublease to be granted to Qursa, no counterclaim had been filed seeking that relief: J [59]. It appears from the transcript of the proceedings before the primary judge, that the reason that the primary judge did not address the claim that Qursa was the beneficiary of a trust of which the Territory was trustee was because, in light of the conclusions that he reached, it was not necessary to do so. Because he had found in favour of Takeshi, and Qursa had not filed any counterclaim, there was no basis for making an order which went beyond the dismissal of the claim by Block 27.
It is sufficient, in order to dispose of the cross-appeal, to determine the substance of the claim made by Qursa, namely, whether or not the Territory held in trust the benefit of the obligations created by the Crown lease and identified by Qursa.
The concept of a trust for a contractual obligation that is for the benefit of a third party was considered and discussed in Hobart International Airport Pty Ltd v Clarence City Council. The basic principle was stated in the judgment of Gageler and Gleeson JJ at [59]: In Wilson v Darling Island Stevedoring and Lighterage Co Ltd, in a passage to which attention was drawn in Bahr v Nicolay [No 2] and in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd, it was pointed out that a person not party to a contract for whose benefit a contractual obligation has been entered into can enforce the contractual obligation in equity, in a proceeding to which the contractual obligor and contractual obligee are joined, if an intention to hold the obligation on trust for the person can be imputed to the contractual obligee. Subsequently, in Korda v Australian Executor Trustees (SA) Ltd, it was explained that "where parties to a contract have refrained from contractual use of the terminology of trust, an intention to create a trust will be imputed to them only if, and to the extent that, a trust is the legal mechanism which is appropriate to give legal effect to the relationship ... between a party and a third party, as established or acknowledged by the express or implied terms of the contract". The inquiry into whether a trust of the contractual obligation is the mechanism appropriate to give effect to the relationship between the contracting party and a third party established or acknowledged by the terms of the contract does not turn simply on whether the contractual obligation was entered into or operates for the benefit of the third party but on whether the relationship between the contractual obligee and the third party is such that the contractual obligee holds the custody and administration of the contractual obligation on behalf of the third party so as to be accountable to the third party for that custody and administration. (Footnotes omitted) (See also, to similar effect, Edelman and Steward JJ at [125], [127].)
Costs
Orders
I certify that the preceding one hundred and thirty-four [134] numbered paragraphs are a true copy of the Reasons for Judgment of the Court. Associate: Date: 31 May 2024
Block 27 Pty Ltd
Qursa Pty Ltd [2024] ACTCA 16
(1930) 43 CLR 140
(1989) 168 CLR 242
(1990) 169 CLR 540
(1958) 101 CLR 428
(1913) 17 CLR 90
(1995) 184 CLR 538
(1990) 171 CLR 363
(1993) 29 NSWLR 641
(1985) 157 CLR 17
The appeal was dismissed. Each party was ordered to pay its own costs of the appeal. The cross-appeal was dismissed. Qursa was ordered to pay Block 27’s costs of the cross-appeal, with no order as to costs between Qursa and Takeshi on the cross-appeal.
The transfers of the Crown lease and sublease, and the overlapping directorships of the companies involved are illustrated in the following diagram:
Clause 19 related to the giving of notice for the purposes of the sublease.
The primary judge (at J [65]-[68]) summarised the conclusions that he reached as follows: (a) He interpreted the Crown lease by reference to the equitable maxim that equity regards as done what ought to have been done. (b) Given that the sublease ought to have contained the terms set out in cls 3(n)(i) and (ii) of the Crown lease, he treated the sublease as if it included those provisions: J [65]. (c) Those provisions were inconsistent with cls 18.1(a) and (b) of the sublease which required consent to be obtained. He then construed cls 18.1(a) and (b) as having a narrower operation which did not permit consent to be withheld, converting them to, in effect, a notice provision: J [66]-[67]. (d) Alternatively, he said that if they were construed to mean that consent may be withheld, then they would be inconsistent with cls 3(n)(i) and (ii) of the Crown lease and, to the extent of that inconsistency, should be ignored: J [67]. (e) In case this approach was wrong, the primary judge said (at [68]): I nevertheless would have declined relief to [Block 27] because clauses 18.1(a) and (b) are inconsistent with [Block 27’s] obligations under the Crown Lease … and equity will not assist a wrongdoer.
These conclusions were explained in more detail subsequently in the primary judge’s reasons: J [69]-[148].
His Honour then proceeded to deal with the consequences of the interpretation that he had adopted. Block 27 argued that Garaton had held the land under a bare trust in its favour as a result of Garaton being a fully paid vendor. Neither defendant argued to the contrary. The primary judge was prepared to assume that Garaton was a bare trustee without deciding the point himself: J [151]. In those circumstances, he said that it could not be disputed that Garaton would owe fiduciary duties to Block 27.
However, his conclusion that cl 18.1(b) was merely a notice provision meant that there was no breach of trust or fiduciary duty by Garaton: J [154]. The mere receipt of notice did not detrimentally affect the trust property and hence there was no breach of trust or breach of fiduciary duty. Similarly, Garaton did not “deal” with the trust property merely by the receipt of notice: J [155]. Finally, he found that there was no act that Garaton had done in relation to which there had been a conflict between its own interests and its duty to Block 27. That was because it was merely the passive recipient of the notice: J [157].
His Honour concluded that Takeshi was not in breach of the terms of the sublease and, in fact, had an obligation to transfer the sublease to Qursa. Therefore, the termination notice from Block 27 was invalid because there was no breach of the sublease: J [158].
As a consequence, the primary judge ordered that the proceedings be dismissed, the caveat be removed and that Block 27 pay Takeshi’s and Qursa’s costs of the proceedings: J [160].
So too with the insertion of a requirement that the sublessee’s interest can only be transferred etc with the consent of the sublessor. If that carries with it a capacity to refuse consent to a transfer, then it is inconsistent with the requirements of the Crown lease. Specifically, it is inconsistent with the combined effect of cls 3(n)(i) and (ii), which require the sublessee to transfer its interest to any incoming lessee of the relevant unit and prohibits the transfer of its interest to anyone else. The compulsion upon the sublessee to transfer its interest to an incoming lessee of the relevant unit, when understood having regard to the purpose of the sublease arrangement provided for by the Crown lease, is necessarily inconsistent with the existence of a discretion on the part of the sublessor to refuse consent to a transfer.
It may have been intended in the drafting of the sublease that the requirement for the sublessor’s consent was an additional check, for the sublessor to ensure that any transfer of the car parking spaces was only to an incoming lessee of the relevant unit of the Adjoining Premises and not to an unrelated person. However, words limiting the sublessor’s ability to refuse consent to only that basis are missing and that brings about the inconsistency.
Block 27 submitted that the obligation to either transfer or sublease the relevant car parking spaces to the lessees of the relevant units was completed by the grant of the sublease in 1999 and its registration in January 2000. It submitted that this obligation had no continuing operation. That would be correct if the sublease that was granted was one which complied with the obligation in the Crown lease. It appears to be on that basis that the primary judge accepted the submission that it was a one-off obligation: J [86]-[90]. However, the obligation in the Crown lease is not satisfied if the sublease that is granted fails to comply with the terms of the Crown lease.
The obligation in cl 3(l) was to either sublease or transfer the car parking spaces. If the Crown lessee proceeded by way of sublease, then the sublease needed to comply with cls 3(l)-(p). Because of the two respects in which the sublease does not comply with the requirements of those clauses, the obligation to grant a (complying) sublease remains uncompleted. Block 27, in taking a transfer of the Crown lease from Garaton, has acquired that Crown lease subject to the terms of the Crown lease and the liabilities of the previous registered proprietor: Land Titles Act, s 77(2); Spencer’s Case (1583) 5 Co Rep 16a at 17b; 77 ER 72 at 75. Therefore, the position at law of Block 27 as the sublessor is not improved by the fact that it was not the entity that entered into the Crown lease or that purported to comply with the obligation under the Crown lease by entering into the sublease.
As pointed out in the table above, cl 18.3(g) gives effect to the requirement in cl 3(p)(vii) that “[t]he sublessor shall at all times observe the covenants and provisions of the Crown Lease”. That requirement of the Crown lease was intended to operate in the context of a sublease which complied with the requirements of the Crown lease. The effect of such a provision in a complying sublease would be to ensure that the basic obligations of the Crown lessee, including those in cls 3(a)-(k) and (s)-(t), were complied with.
Those obligations provided the basic framework for the use of the land as a functioning car park, which was the obvious commercial context for the sublease. It was not a dominant clause designed to ensure that the sublease itself met all the requirements set out in cls 3(l)-(r). Rather, it was a subsidiary obligation intended to operate in the context of a complying sublease. (It is unnecessary, for present purposes, to determine whether, so far as the sublease to the lessee of Unit 1 was concerned, it picked up the obligations of the Crown lessee to grant complying subleases to the lessees of the other specified units in the Adjoining Premises.) When cl 18.3(g) is understood as a product of the terms of the Crown lease, it has that subsidiary rather than dominant role.
The same result is reached when regard is had only to the terms of the sublease itself. Clause 18.3(g) appears in a miscellaneous list of additional covenants in cl 18.3. That tends against an interpretation of it as a dominant clause that may require the reading down of other clauses of the sublease. Also within cl 18 is the prohibition upon the sublessee transferring the sublease and requiring the sublessor’s consent to any such transfer: cls 18.1(a)-(b). The incorporation of these obligations in the same clause of the sublease tends against an interpretation that would have cl 18.3(g) require the substantial reading down of cl 18.1. Rather, by giving cl 18.3(g) a confined interpretation each could be given a reasonable sphere of operation.
It is only if the sublease is interpreted by reference to a requirement to ensure that it complies with the terms of the Crown lease that a more radical reading down of the terms could be justified. The Territory legislature has not enacted a provision which requires that any sublease be read down so as to be consistent with the terms of the relevant Crown lease. The legislature has provided a requirement for consent from the Territory planning authority which gives power to the authority to control the grant of subleases of land (as distinct from subleases of buildings or part of them), but such power is not clearly directed to ensuring compliance with the terms of a Crown lease: Land Titles Act, s 88B, Planning Act, s 284. The legislature has also enacted a limited provision relating to the purpose for which land is used: Land (Planning and Environment) Act, s 175; Planning and Development Act, s 247; Planning Act, s 276. Had there been a statutory provision requiring subleases to be consistent with Crown leases and determining the consequences of any inconsistency, then there may have been a legislative foundation for a robust reading down of the provisions of the sublease in order to achieve compliance with the terms of the Crown lease. In the absence of such a provision, although compliance with the Crown lease may be considered, in general terms, to be part of the purpose of the parties to the sublease, the weight that may be given to that purpose when it conflicts with the actual language used in the sublease, is much reduced.
A possible qualification to what has just been said arises from s 88 of the Land Titles Act, which provides a qualified power to a registered lessee to grant a sublease. The power is made “subject to any provisions in his or her lease … affecting his or her right to do so”. However, whether such a power provides a qualification on the capacity to grant a sublease inconsistent with the terms of a Crown lease and what the consequences of any non-compliance would be, were not matters that were argued before the primary judge or on the appeal. On any view of the provision, it does not specify the consequences of any breach of its terms (contrast with Planning Act, s 284(8)). In those circumstances, it would not be appropriate to hold that s 88 provided a foundation for reading down the terms of the sublease in the manner performed by the primary judge, even if other remedies for breach of the section may be available.
For these reasons, we accept the submission made on behalf of Block 27 that the primary judge erred by giving too extensive an operation to cl 18.3(g). Clause 18.3(g) did not impose an obligation on the sublessor to comply with the terms of the Crown lease which were inconsistent with the terms of the sublease itself. Rather, it required the sublessor to comply with its other obligations under the Crown lease. It therefore did not provide a vehicle by which the sublessee could insist upon the grant of a different sublease to that which was in fact entered into so as to obtain a sublease which complied with the obligations of the sublessor under the Crown lease.
This conclusion is fatal to the application of the principle in Walsh v Lonsdale. The principle in Walsh v Lonsdale, as articulated in Progressive Mailing House at 26 and Chan v Cresdon at 250, is that, where there is an agreement for a lease that is capable of specific performance, the relationship of the parties in equity will be considered to be landlord and tenant. That has the effect that an unregistered lease, although ineffective to create a legal lease until registration, is effective to bring into existence an equitable lease on those terms on the footing that equity regards as done what ought to have been done.
Once cl 18.3(g) is interpreted as not being a dominant clause requiring the sublease to incorporate all the provisions required by the Crown lease, even where those provisions are inconsistent with the other terms of the sublease, there is no basis upon which Takeshi, as sublessee, could obtain specific performance of the obligation to grant a sublease in the terms required by the Crown lease. That is because the source of that obligation is in the Crown lease and Takeshi is not a party to that lease. As a consequence, it could never be entitled to specific performance.
For completeness, we will deal with the final argument made by Block 27 on this ground, which was that the operation of the principle in Walsh v Lonsdale could not be used to rewrite the terms of the sublease entered into by parties. That was based upon the decision in De Beers Consolidated Mines Ltd v British South Africa Company [1912] AC 52. The decision of Lord Atkinson in that case (at 65) required that the equitable maxim that in equity everything should be taken to be done which ought to have been done cannot, in its application to contracts, be permitted to “make for the parties contracts different from those they have made for themselves”. As his Lordship recognised, this required that close consideration be given to precisely what the parties had contracted to do.
In this case, the principle in Walsh v Lonsdale could not apply to alter the contractual terms of the sublease. If, on the one hand, the effect of cl 18.3(g) was, indeed, to require the incorporation into the sublease of all those terms required by the Crown lease, then the application of the principle in Walsh v Lonsdale would not have the effect of rewriting the terms of the sublease because the additional terms would simply be incorporated as a product of cl 18.3(g) properly interpreted. On the other hand, given that cl 18.3(g) did not have that broader effect, the principle in Walsh v Lonsdale did not require any additional terms to be read into the sublease because they were not additional terms which, by operation of cl 18.3(g), ought to have been included in the first place. Hence, no question of distorting the bargain made by the parties arises.
For these reasons, this ground of appeal is made out.
However, as Block 27 was obliged to rely upon equitable principles in order to seek relief, it remains necessary to consider whether to exercise the court’s discretion to grant equitable relief. Accordingly, Block 27’s arguments dealing with the maxim employed by the primary judge have been addressed as part of that consideration.
The statement that equity will not assist a wrongdoer is a short-hand reference to the maxim that “they who come to Equity must come with clean hands”. It constitutes a defence to an equitable claim to deprive the plaintiff of an equitable remedy to which he or she would otherwise be entitled: Black Uhlans at [158]-[159], cited in GJ v AS (No 4) [2017] ACTCA 7 at [112].
The circumstances in which the maxim applies have been summarised by Campbell J in Black Uhlans at [157]-[185]. They have since been oft cited and were expressly adopted in Kation at [148] per Basten JA. As explained in Black Uhlans at [159]-[160]: [159] The unclean hands maxim requires the Court to look at the conduct of the litigant who seeks the assistance of equity, rather than the conduct of the defendant. Further, it is conduct which the litigant who seeks the assistance of equity has engaged in in the past which is required to be looked at. In this way it differs from the maxim that he who seeks equity must do equity, which looks at the conduct which a litigant who seeks the assistance of equity undertakes to engage in in the future. [160] Some examples of the circumstances in which the maxim has been the basis on which a case has been decided illustrate the breadth of application of the maxim. … Unclean hands can be a ground for refusing relief against forfeiture of a lease: Litvinoff v Kent (1918) TLR 298; Gill v Lewis [1956] 2 QB 1 … Where the plaintiff and the defendant are both bound by restrictive covenants arising under a common building scheme, and the plaintiff is in serious breach of the covenant, unclean hands provides a basis on which the plaintiff cannot obtain an injunction to require the defendant to observe the restrictive covenant: Goddard v Midland Railway Co (1891) 8 TLR 126.
Those paragraphs were also recently adopted at appellate level in Manderson v Smith [2021] VSCA 359 at [66]. It can be seen that the maxim is directed to preventing a party from taking advantage of their own wrong.
In order for the maxim to apply, there must be an “immediate and necessary” connection between the conduct said to make the claimant’s hands unclean and the equity claimed: Dering v Earl of Winchelsea (1787) 1 Cox 318 at 319-320; 29 ER 1184 at 1185; Meyers v Casey (1913) 17 CLR 90 at 123.
When a court applies the unclean hands maxim, it is necessary first to identify what is the equity which, absent “unclean hands” or wrongdoing, the court would be prepared to uphold: Black Uhlans at [184]. Here, but for the fact that Block 27 was seeking to enforce terms of the sublease which arose from a breach of the Crown lease, the position it adopted and its entitlement to relief would be made out. Garaton had breached its obligation as a trustee by granting consent to a dealing with the property without the consent of the beneficial owner. At the time of granting consent, the directors of Garaton and Takeshi were the same. As a result, Takeshi was necessarily aware that the consent which was granted by Garaton was granted in breach of its fiduciary obligations.
The relief sought by Block 27 to remedy that breach involved orders ensuring the consent granted by Garaton in breach of its fiduciary duty was not effective and then injunctive relief to restrain the transfer of the sublease which resulted from the breach of that fiduciary duty. Block 27 also sought a declaration that the sublease had been validly terminated. Accepting that a declaration of right is not of itself an equitable remedy (Mayfair Trading Co Pty Ltd v Dreyer (1958) 101 CLR 428 at 450-451) it was sought in aid of the remainder of the remedies sought, which were equitable in nature. In the absence of the breach of the Crown lease, Block 27 had the right to this relief.
Having identified the equity sued for, the court assesses the conduct in question. For the reasons given above, the sublease granted to Takeshi by Dickson Developments as the original Crown lessee, was a sublease which did not comply with the obligations in the Crown lease because: (a) it included a requirement for consent to the transfer of the sublease, and (b) it contained a termination provision.
As stated at [56] above, that non-compliance with the Crown lease carried through to the successors to the Crown lease, being Garaton and Block 27. Having had the Crown lease transferred to it and become the registered proprietor of the Crown lease, Block 27 was in the same position as the previous registered proprietor, namely Garaton, which, in turn, was in the same position as the original registered proprietor, Dickson Developments. In other words, Block 27 remained in breach of the obligation under the Crown lease to enter into a sublease that complied with the terms of the Crown lease.
This is not a case where it may be said that Block 27’s hands were washed by the wrongdoing ceasing well before the conduct giving rise to the suit. Block 27 is a “wrongdoer”, not only because it remains in breach of the obligation to grant a sublease that complies with the terms of the Crown lease to the lessee of Unit 1, but because it exercised powers against the sublessee under the sublease which were inconsistent with its obligations under the Crown lease.
Turning to evaluate the connection between the wrong and the equity claimed, so far as the law was concerned, Takeshi had sought consent from the registered sublessor, Garaton, and, having obtained that consent, sought to have the memorandum of transfer registered. In order to obtain the equitable relief that it sought, namely, the rescission of the grant of consent, Block 27 needed to rely upon Takeshi’s knowledge that Garaton was acting in breach of its fiduciary duty by giving consent to the transfer of the sublease. The other relief that it sought was consequent upon that occurring.
However, the requirement for consent, and the potential for it to be refused, only arose because of the failure on the part of Block 27’s predecessors in title to grant a sublease in terms consistent with the Crown lease. The interest that equity was asked to protect was “brought into existence” by the failure to comply with the requirements of the Crown lease: Meyers v Casey at 124. Accordingly, so far as the breach of fiduciary duty by Garaton is concerned, that breach had an “immediate and necessary” connection to the breach of the Crown lease, for which Block 27 is responsible, notwithstanding that it did not initiate the breach.
The matters raised by Block 27 (see [87] above) do not provide an answer to the proposition that it is a “wrongdoer”: (a) Although cl 3(n) was a one-off obligation, it was never complied with because the sublease was not consistent with the requirements of the Crown lease. (b) The fact that Block 27 was never called upon to grant or withhold consent cannot be exculpatory when it seeks to insist upon the requirement for consent and asserts a right to terminate the sublease on the basis that consent was not obtained. (c) The fact that the sublease was entered into by Block 27’s predecessors in title does not mean that Block 27 is not in default of its obligations under the Crown lease. It inherited the benefits and burdens of its predecessors in title. That includes the subsisting breach of its obligations under the Crown lease.
That the harm of Block 27’s wrong affects not only Takeshi and Qursa, but the public interest more generally, does not preclude the denial of relief. A well-known example of a case where the harm was only to the public generally and not to the defendant and yet relief was refused is Kettles & Gas Appliances Ltd v Anthony Hordern & Sons Ltd (1934) 35 SR (NSW) 108. In that case, a plaintiff whose only remedy in relation to non-fraudulent passing off was equitable was denied relief, not because of any wrong done to the defendant by the plaintiff, but because the plaintiff had deceived the public in the labelling of its own product and hence did not have clean hands.
In the present case, the whole of the relief sought by Block 27 was ultimately dependent upon enforcement of Garaton’s equitable obligations as they were known to Takeshi. That is because any claim by Block 27 of an entitlement to terminate the sublease was dependent upon Garaton’s consent not being effective to permit Takeshi to transfer or part with possession of its sublease. Because relief was ultimately dependent upon the enforcement of equitable obligations, refusal of relief is properly based upon the application of the defence that those who come to equity must come with clean hands.
Block 27 quite properly points out that, by reason of the overlapping directorships between Dickson Developments, Garaton, and Takeshi, the entry into the sublease in the terms that it was in was a result of the conduct of members of the Cheung family who are now seeking to avoid the consequences of their own decisions by asserting inconsistency with the Crown lease. In those circumstances, Block 27 submits that the court should not characterise it as a wrongdoer when it is the directors of Takeshi, or members of their family, that previously controlled both Garaton and Dickson Developments, who created the problem in the first place.
There is certainly merit in this submission. However, the consideration of whether to exercise the discretion to grant equitable relief is more nuanced. While pointing to another’s wrong may be necessary to ground a basis for equitable relief, it may nevertheless remain insufficient to warrant the exercise of the discretion to grant the relief sought where the context includes not only the inherited inconsistency between leases which lies with Block 27 as successive sublessor, but the leasing context itself. Further, in the consideration of whether to exercise the discretion to grant equitable relief, matters of public policy may be relevant: see for example, New South Wales Diary Corporation v Murray Goulbourn Co-Operative Company Limited (1990) 171 CLR 363, at 409; Black Uhlans at [183]. Here, the context includes the fundamental role of Crown leases in the land planning and development in the Territory. It must also be considered in light of the obvious planning purpose demonstrated by the terms of the Crown lease to ensure that the lessees of the units in the Adjoining Premises, including the lessees of Unit 1, retained car parking entitlements in the car park. To grant the relief sought by Block 27 would be to undermine that obvious purpose and have the practical effect of legitimising non-compliance with the Crown lease and would thereby circumvent the processes that would be required if it was to be varied to regularise the current circumstances.
In circumstances where it is not possible to remedy the wrongdoing by fashioning a condition to overcome the consequences, that constitutes a proper basis to refuse relief notwithstanding the breach by Garaton of its fiduciary obligation and the knowledge (by reason of its overlapping directorships) of Takeshi of that breach: Nelson at [50]. In cases where a clean hands defence applies, the law frequently regards as a just outcome that “[t]he cards are simply left to lie where they have fallen”: Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641 per Gleeson CJ at 649-50.
In our view, notwithstanding the earlier involvement of the directors or members of their family in creating the problem, the court should not grant relief where to do so would legitimise an ongoing breach of the Crown lease. We therefore consider that the broader public interest in compliance with the terms of Crown leases, and the planning goals that they seek to achieve, means that it is appropriate to refuse relief to Block 27.
As we have agreed with the alternative conclusion of the primary judge, albeit for different reasons, Ground (c) is not established.
The Crown lease does not use the language of a trust. Instead, it imposes obligations upon the Crown lessee in a manner consistent with the role of Crown leases as a significant component of the land planning and development system in the Territory. While, because of their public purpose, Crown leases will indirectly confer benefits on both adjoining leaseholders and the public at large, the Crown lease in the present case is much more specific. It can be accepted that it goes further than most in imposing obligations upon the Crown lessee which are for the benefit of an identified class of persons. However, when considered by reference to the public planning purpose of Crown leases in the Territory, it cannot be inferred that there was an intention to create a trust of which the Territory was the trustee. It is significant that the Crown lease does not use the terminology of a trust. It cannot be inferred that the Territory intended to subject itself to the duties of a trustee, enforceable in a court administering equity, to enforce the requirements of the Crown lease for the benefit of the lessees of the units in the Adjoining Premises. Rather, when understood in the planning context described earlier and having regard to the terms of the relevant statute at the time of the grant of the Crown lease, the Land (Planning and Environment) Act, the more appropriate inference to draw would be that the Territory intended to address the enforcement of the Crown lease in the same way that it addressed the enforcement of other Crown leases, namely, by the means of the private law remedies available to it as a lessor, as well as those powers available to it under the Act. While that meant that it would not be bound by the obligations of a trustee able to be enforced by a court administering equity, it would still be bound by the governmental obligations of proper administration of leasehold estate under s 29(1)(b) of the Australian Capital Territory (Planning and Land Management) Act. That involves an obligation to administer the Crown lease having regard to its particular terms, taking into account the benefits to other persons created by those terms, and the public interest in proper and consistent application of the planning laws. Those obligations are distinct from the fiduciary obligations of a trustee and enforceable by different means.
There was no error on the part of the primary judge, having reached the conclusion that he did, in failing to address the additional matters identified in Qursa’s defence (but not a counterclaim) which raised the possibility of a third party benefit trust. Had his Honour been obliged to consider that issue, he would have been compelled to reject the submission that the Territory was the trustee of a trust of the benefit of the provisions of the Crown lease.
In those circumstances it is unnecessary to address further the fact that the Territory had not been joined as a party to the proceedings.
For these reasons the cross-appeal must be dismissed.