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[2009] QCA 229
respondent. Appeal dismissed. The appellant was ordered to pay each respondent’s costs of the appeal ([151]).
HIE could require consent before the sub-lease was assigned, but the statute required that consent not be unreasonably withheld. HIE made consent conditional on Northaust accepting a broad set of rules that would give HIE substantial control over matters such as building, traffic and who could remain on the island. Those controls went well beyond the rights and obligations in the sub-lease. Because HIE insisted on them under a general policy rather than for a reason specific to Northaust, the Court upheld the finding that its refusal was unreasonable and dismissed the appeal.
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Hamilton Island Enterprises Limited (HIE) held a Perpetual Country Lease over Hamilton Island and had granted a sub-lease of about 2.26 hectares to George Harrison in 1984. The lease was long-term: the original term was about 94 years, with an option to renew for a further 99 years ([1]). After Mr Harrison died, the sub-lease passed to trustees of his estate. HIE granted the trustees a replacement sub-lease in November 2007, with a term ending on 31 March 2078 and a further 99-year renewal option ([2]).
In January 2008, the trustees agreed to sell the property to Northaust Leisure Pty Ltd for $8.5 million. The sale depended on HIE consenting to assignment of the sub-lease ([4]). Clause 1.1(g) required HIE’s consent, but said that consent was not to be arbitrarily or capriciously withheld in specified circumstances. Separately, s 121(1)(a)(i) of the Property Law Act 1974 (Qld) deemed the covenant to be subject to a requirement that consent not be unreasonably withheld ([3], [20]).
HIE offered consent only if Northaust executed a deed agreeing to comply with HIE’s Building and Siting Guidelines, Tree Preservation Policy and Rules and Regulations. Those documents addressed matters including development, vegetation, road use and conduct on the island ([4]). Northaust would not accept the deed in that form. The trustees proposed amendments removing the disputed obligations, which HIE rejected ([5]).
The trustees brought proceedings. The trial judge declared that HIE’s withholding of consent was unreasonable under s 121 and that the trustees could assign without HIE’s consent ([6]). The assignment subsequently occurred, with Ministerial consent, and was registered. HIE appealed, seeking to reverse the declarations and an order requiring Northaust to reconvey the sub-lease ([6]-[7]). The Court of Appeal dismissed the appeal and ordered HIE to pay each respondent’s costs ([151]).
Fraser JA gave the principal reasons. Chesterman JA agreed, and Wilson J agreed with both the proposed orders and Fraser JA’s reasons ([152]-[153]).
The Court treated the statutory question as whether HIE’s refusal of consent to this assignment was reasonable. Fraser JA said that s 121 required attention to the reasonableness of the lessor’s refusal in the particular case, and that the ultimate assessment was a question of fact ([146]). It was not enough that HIE could identify general benefits in regulating the island or that its rules might assist management.
The deed’s legal effect mattered. HIE argued that the trial judge had overstated the difference between its regulations and the sub-lease, and that HIE did not intend to override sub-lessees’ rights. The Court rejected reliance on an uncommunicated understanding. The question was what the deed’s words would convey objectively to a reasonable person with the relevant background knowledge ([23]). On that reading, the Rules allowed HIE to remove persons, including persons connected with a corporate sub-lessee, for breaching the Rules even where the conduct was not a breach of the sub-lease ([26]-[30]). That sat uneasily with the sub-lease’s covenant for quiet enjoyment ([32]).
The development controls also went beyond the sub-lease. HIE’s rules required written HIE consent to development, and the Building Guidelines gave HIE a role in approving building plans ([39]-[43]). By contrast, the 2007 sub-lease contained no requirement to obtain HIE’s approval for repairs, alterations or construction. Its relevant restriction was use of the land for a single private residence ([49]-[51]). The Court concluded that work consistent with that use was not prohibited merely because HIE’s regulations would require its permission ([55]-[58]).
The traffic provisions supplied another example of the difference. The sub-lease gave road access and addressed use of motor vehicles, while the Rules included permits, vehicle requirements and a demerit system, among other controls ([34]-[38]). The Court considered these and other provisions as part of the cumulative burden of the deed, not in isolation.
The deed also applied to the regulations “as are in force from time to time”, and the Rules reserved HIE’s right to amend them ([76]-[80]). The Court did not accept HIE’s proposed limitation that future changes could not be unreasonable. The text contained no such limitation, and the existing regime itself was broad ([79]-[80]).
Most importantly, HIE’s correspondence showed that the condition reflected a general policy: HIE said it would make no exceptions and would consent only on the deed’s terms ([118]-[132]). The Court found that the refusal was not in fact based on Northaust’s personal characteristics ([138]). The reasoning therefore distinguished a refusal directed to a particular assignee’s relevant circumstances from an across-the-board demand that every assignee accept new obligations.
Fraser JA concluded that HIE sought to obtain a substantially more advantageous contractual position than the sub-lease provided. The proposed regime would substantially erode the sub-lessee’s rights, and HIE demanded it regardless of the assignee’s characteristics ([147]-[148]). The statutory refusal was therefore unreasonable, even if HIE believed the rules served good management of the island ([149]).
The judgment applies the statutory rule in s 121(1)(a)(i) of the Property Law Act 1974 (Qld): where a lease restricts assignment without consent, the statute implies that consent is not to be unreasonably withheld ([20]). The decision does not replace that rule with a categorical prohibition on additional conditions. Rather, it illustrates how the reasonableness question was answered on this record.
The trial judge had relied on authorities concerning the connection between a landlord’s reasons and the landlord-tenant relationship, while recognising that circumstances may justify regard to proprietary, financial or management interests beyond the immediate premises ([9]-[14]). Fraser JA accepted the trial judge’s analysis and emphasised the factual character of the inquiry ([145]-[146]). The cases discussed in the judgment were used to inform that assessment, not to establish that every new condition is invalid.
The judgment’s approach to contract construction also mattered. It applied the objective method of construing the proposed deed and sub-lease, rather than treating HIE’s private understanding as controlling ([23]). The judgment further treated the nature of the instrument as significant: a long-term, assignable lease may pass to parties who have little or no knowledge of earlier arrangements. That consideration weighed against allowing the 1984 agreement to qualify the 2007 sub-lease where the latter did not refer to the former ([64]-[74]).
The supplied judgment does not describe a prior state of Queensland law in which s 121 had a different meaning, nor does it announce a statutory amendment. Its contribution, on the facts before it, is an applied example: a lessor’s broad management objectives did not make reasonable a blanket condition that substantially altered the rights attaching to an assignable lease. The Court expressly accepted that a lessor’s interests and management concerns can be relevant, but held that they did not justify HIE’s particular insistence ([143], [149]).
Accordingly, the “after” position that can safely be drawn from this judgment is limited. It confirms the need to assess the particular refusal, the actual terms demanded, their relationship to the existing lease, and the reasons for imposing them. It does not establish that a lessor can never require an assignee to accept conditions, or that every control affecting a tenant’s use is unreasonable.
At [23], Fraser JA stated: “One party’s uncommunicated, subjective understanding about the effect of a contract is irrelevant to its legal meaning.” In plain English, HIE’s later explanation of what it thought the Rules meant could not determine the legal effect of the deed it had asked Northaust to sign.
At [26], the Court said the Rules empowered HIE to remove a corporate sub-lessee’s officers, employees and guests for breaching Rules even if their conduct did not breach the sub-lease. This identified a practical intrusion into the security and use of the leasehold, rather than a merely administrative difference.
At [50], Fraser JA observed that the sub-lease “contains no requirement” to obtain HIE’s approval for repairs, alterations or construction. The point was not that the sub-lessee had unlimited freedom under all laws or restrictions. It was that HIE’s proposed contractual approval regime was not in the sub-lease itself.
At [146], the Court said the statute required attention to “the reasonableness of the lessor’s refusal of consent to the particular assignment.” In plain English, the statutory question was not answered solely by whether HIE’s general rules were sensible. The Court examined why HIE refused consent to Northaust on this transaction.
At [148], Fraser JA said HIE sought to put in place “an entirely new and very extensive contractual regime” outside the sub-lease’s contemplation. This summarised the difference between preserving the existing bargain and making assignment conditional on accepting substantial new obligations.
The decision is especially relevant, as an illustration rather than a formula, where a lease requires the lessor’s consent to assignment and the governing statute provides that consent is not to be unreasonably withheld. The central features here were that the demanded deed imposed obligations absent from the lease, the obligations materially affected use and enjoyment of the land, and the lessor applied the condition as a general policy regardless of the proposed assignee ([146]-[149]).
The extent and subject matter of the new obligations mattered. The Court examined whether the new regime altered rights concerning quiet enjoyment, access, traffic, and development ([24]-[58]). A condition that merely addresses a particular, evidenced concern about a proposed assignee may present a different factual question from a demand that all assignees accept a broad set of new rules. Fraser JA did not decide every possible case of that kind; the decision turned on the record and HIE’s stated approach ([118]-[132], [147]).
The case also indicates the importance of the operative documents. The comparison was between the actual 2007 sub-lease and the deed HIE insisted upon, read objectively. The Court did not treat HIE’s private intention as a substitute for the deed’s language ([23]-[24]). It also declined to let the earlier 1984 agreement control the later lease where the later instrument did not refer to it and future assignees might not know of it ([64]-[74]).
Finally, the appeal discussion is relevant where a party seeks to rely on factual propositions not pleaded or litigated at trial. HIE’s contention about general community adherence to the regulations was unavailable as a new appellate case because it could have been met by evidence at trial ([95]-[101]). By contrast, some arguments about Northaust’s characteristics were held to have been within the issues litigated, although the evidence ultimately did not show that they had caused HIE’s refusal ([114]-[117], [138]).
The supplied judgment contains no later judicial history and no citations to subsequent decisions treating Boss & Ors v Hamilton Island Enterprises Ltd [2009] QCA 229. On the material provided, it is not possible to say whether later courts have followed, distinguished or limited it.
Within this judgment, Fraser JA relied on earlier authorities for contract construction, lease principles, the treatment of proposed assignees and appellate limits on new arguments. For example, Maggbury Pty Ltd v Hafele Australia Pty Ltd was cited in support of objective contractual meaning ([23]); Westfield Management Limited v Perpetual Trustee Company Limited informed the discussion of long-term instruments and extrinsic material ([67]); and Whisprun Pty Ltd v Dixon and Coulton v Holcombe were cited on the new-case-on-appeal point ([100]). The judgment’s account of those authorities is limited to the propositions for which it cites them.
The case itself should therefore be read as a Court of Appeal decision applying s 121 to a specific lease, a particular proposed deed and HIE’s evidence and correspondence. Any assessment of later treatment would require later judgments not included in the provided source.
The decision leaves open how a court would assess a lessor’s condition that is narrower, objectively connected to a particular assignee, or designed to address a specific risk. Fraser JA’s conclusion depended on HIE imposing a regime of substantial breadth as a general policy, not on a finding that every additional covenant is unreasonable ([147]-[149]).
The Court did not decide whether HIE’s refusal was arbitrary or capricious under clause 1.1(g), because the statutory question under s 121 was sufficient to resolve the appeal ([21]). It also did not need to decide whether an appeal, if successful, could have resulted in an order requiring reconveyance ([150]).
The judgment’s construction of the 2007 sub-lease is tied to its text. The Court held that the lease did not incorporate the 1984 agreement, and that the earlier construction approval provision was not apt to govern later work ([64]-[74]). A differently drafted lease that expressly incorporated an earlier agreement, or expressly required approval for future development, would raise a different construction question.
The decision also leaves questions about the operation of particular rules where their text differs, where a rule is expressly limited to visitors or licensees, or where the relevant lease itself authorises the control. The Court rejected HIE’s proposed narrow reading of its Rules because it was not open on their language ([26]-[30]). The result may therefore turn on the precise drafting of both the lease and the proposed condition.
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Source: Queensland Judgments (Supreme Court Library Queensland) (www.queenslandjudgments.com.au). Converted to plain text by ZoeLaw. Not the official version.
SUPREME COURT OF QUEENSLAND
CITATION: Boss & Ors v Hamilton Island Enterprises Ltd [2009] QCA 229
PARTIES: HAMILTON ISLAND ENTERPRISES LIMITED (appellant) v LESLIE JOSEF BOSS (first respondent) DEBORAH ANN OWEN (second respondent) NORTHAUST LEISURE PTY LTD (third respondent)
FILE NO/S: Appeal No 12951 of 2008 / Appeal No 13093 of 2008 / SC No 4035 of 2008
DIVISION: Court of Appeal
PROCEEDING: General Civil Appeal
ORIGINATING COURT: Supreme Court at Brisbane
DELIVERED ON: 11 August 2009
DELIVERED AT: Brisbane
HEARING DATE: 16 April 2009
JUDGES: Fraser and Chesterman JJA and Wilson J / Separate reasons for judgment of each member of the Court, each concurring as to the orders made
ORDERS: Appeal dismissed****Appellant to pay each respondent’s costs of the appeal
CATCHWORDS: LANDLORD AND TENANT – COVENANTS – NOT TO ASSIGN OR SUBLET – LESSOR’S CONSENT – NOT TO BE UNREASONABLY WITHHELD ETC – where owners of a property on Hamilton Island contracted to sell the property to the third respondent – where sale was subject to the appellant consenting to the assignment of the relevant sub-lease in relation to the land – where a clause in the sub-lease stated that such consent was not to be ‘arbitrarily or capriciously’ withheld – where appellant would consent only on the condition that the third respondent sign a deed of consent binding it to the appellant’s various regulations – where regulations contained, inter alia, clauses whereby the appellant controlled the entry of persons, traffic and building and development on the island – where third respondent refused to be bound by these regulations and the appellant refused to consent to the assignment – whether the appellant’s regulations eroded the rights conveyed by the sub-lease – whether the appellant considered the individual characteristics of the third respondent in refusing consent – whether the appellant’s insistence upon its regulations was reasonable – whether the appellant’s withholding of consent was unreasonable under s 121 Property Law Act 1974 (Qld) / APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – POINTS AND OBJECTIONS NOT TAKEN BELOW – where appellant argued that it did have regard to certain characteristics of the third respondent in deciding whether it would consent to the assignment – where appellant argued that the Hamilton Island community generally adhered to the regulations – where third respondent argued that these points were not run at trial and are not available on the pleadings – whether the appellant could rely on these points in the appeal / LANDLORD AND TENANT – LEASES AND TENANCY AGREEMENTS – CONSTRUCTION AND INTERPRETATION – where appellant sought to rely in part on an agreement for lease made between the appellant and the previous sub-lessee of the land in question – whether this previous agreement for lease was relevant to the construction of the subsequent sub-lease / Property Law Act 1974 (Qld), s 105(1)(b), s 121 / Allmere Pty Ltd v Burbank Trading Pty Ltd [2008] VSC 139, cited / Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36, cited / Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019, cited / Burns Philp Hardware Pty Ltd v Howard Chia Ltd (1987) 8 NSWLR 642, cited / Cathedral Place Pty Ltd v Hyatt of Australia Ltd [2003] VSC 385, cited / Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24, cited / Coulton v Holcombe (1986) 162 CLR 1; [1986] HCA 33, cited / Doherty v Allman & Dowden (1878) 3 App Cas 709, cited / Haberecht v Chapman (1992) 10 BPR 19,063, cited / Hyman v Rose [1912] AC 623*,* cited / Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, cited / Louis Vuitton New Zealand Ltd v Princes Wharf Property Fund Ltd [2005] ANZ ConvR 245, cited / Maggbury P/L v Hafele Aust P/L (2001) 210 CLR 181; [2001] HCA 70, applied / Mills v Cannon Brewery Company Ltd [1920] 2 Ch 38, cited / Mount Eden Land Ltd v Straudley Investments Ltd (1996) 74 P & CR 306, cited / Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35, cited / Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2009] NSWSC 17, cited / Premier Rinks Ltd v Amalgamated Cinematographics Theatres Ltd [1912] WN 157, cited / Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436; [2002] HCA 5, cited / Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; [1979] HCA 51, cited / Tamsco Ltd v Franklins Ltd [2001] NSWSC 1205, cited / Toll (FGCT) P/L v Alphapharm P/L (2004) 219 CLR 165; [2004] HCA 52, cited / Treloar v Bigge (1874) LR 9 Ex 151, cited / Westfield Management Limited v Perpetual Trustee Company Limited (2007) 233 CLR 528; [2007] HCA 45, cited / Whisprun Pty Ltd v Dixon (2003) 200 ALR 447; [2003] HCA 48, cited
COUNSEL: J D McKenna SC, with G Sheahan, for the appellant / R Bain QC, with D Grigg, for the first and second respondents / B O'Donnell SC for the third respondent
SOLICITORS: Gadens Lawyers for the appellant / Piper Alderman for the first and second respondents / de Vere Lawyers for the third respondent
FRASER JA: The appellant ("HIE") holds a Perpetual Country Lease over the whole of Hamilton Island. In 1984 HIE contracted to grant and it granted to Mr George Harrison a sub-lease of 2.26 hectares of that land. The term of the sub-lease was some 94 years, with an option in the sub-lessee to renew the term for a further 99 years. Mr Harrison built a large and expensive house on his land, which was at a desirable water-front location on the island. After his death in 2001 the sub-lease was assigned to the trustees of his estate, the first respondents.
That sub-lease was subsequently replaced by one granted by HIE to the trustees in November 2007 on substantially the same terms but with a slight adjustment to the boundaries. The term of this sub-lease is nearly 70 years, running from 12 September 2007 until 31 March 2078. It also contains an option to renew the term for a further period of 99 years.
Clause 1.1(g) of the sub-lease provides that it is assignable with the consent of HIE, such consent not to be arbitrarily or capriciously withheld in the case of an assignment to a respectable person who is acceptable to the Minister for Lands, entitled to hold the sub-lease, and financially sound. The effect of s 121(1)(a)(i) of the Property Law Act 1974 (Qld) is that HIE’s consent to an assignment of the sub-lease is not to be unreasonably withheld.
On 11 January 2008 the trustees contracted to sell the property for $8.5 million to the third respondent ("Northaust"), a company controlled by Mr George Adams. The sale was subject to HIE’s consent to the assignment of the sub-lease. HIE consented to the proposed assignment upon conditions. The contentious condition is that Northaust first execute a deed which would bind it to comply with an extensive set of regulations promulgated by HIE to govern the conduct of residents and others present on the island. Those provisions comprised what HIE called the "Building and Siting Guidelines" ("the Building Guidelines"), "Tree Preservation Policy", and "Hamilton Island Rules and Regulations" ("the Rules"). I will refer to all of these provisions by the compendious term “HIE’s regulations”.
Many proprietors of apartments and houses on the island had covenanted to comply with HIE’s regulations but neither Mr Harrison nor the trustees had done so. Northaust was not prepared to bind itself to comply with the regulations. The trustees’ solicitor tendered an amended form of deed which omitted the covenants requiring compliance with HIE’s regulations and sought HIE’s consent to the assignment. HIE rejected the trustees' amendments to its deed. It refused to consent to the assignment unless Northaust executed HIE’s form of deed.
In proceedings brought by the trustees in the Trial Division, the trial judge declared that HIE's withholding of its consent to the assignment was unreasonable within the meaning of s 121(1) of the 1974 (Qld) and that the trustees were entitled to assign the sub-lease to Northaust without HIE's consent. Subsequently the trustees did assign the lease. The Minister consented to the transfer and it has since been registered under the 1994 (Qld).
The trial judge’s reasons
"a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease…"
The trial judge held that in particular cases it may be reasonable for a landlord to consider the impact of a proposed assignment upon the landlord's proprietary or financial interest apart from the landlord's interest under the lease,4 and that in particular cases a landlord might withhold consent on the basis of a use which the proposed assignee intends to make of the premises even though that use is not forbidden by the lease or the law.5 As an example, the trial judge cited6 Young CJ in Eq’s conclusion in Tamsco Ltd v Franklins Ltd7 that the landlord was reasonable to consider the effect of the proposed assignee not being an "anchor tenant" upon "the good of the [landlord's] shopping centre and [its] tenants."
The trial judge said:8
"In the present case there is a sufficient connection with the subject matter of the lease. HIE’s concern is largely with the potential for the demised premises to be used in a way which it regards as disadvantageous to its interests. In particular, it is concerned that the land could be built upon or cleared in ways which could detract from the enjoyment of other land of which HIE is either a landlord or is in possession. To some extent the same applies to HIE’s concern to have the lessee bound by the Rules. That connection exists although the landlord’s concern is with the impact of a use of the demised premises upon other property."
"Secondly, in any case where the requirements of the first principle are met, the question whether the landlord’s conduct was reasonable or unreasonable will be one of fact to be decided by the tribunal of fact. There are many reported cases. In some the landlord’s withholding of consent has been held to be reasonable (as, for example, in Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547 and Bickel v Duke of Westminster [1977] QB 517), in others unreasonable (as, for example, in Bates v Donaldson [1896] 2 QB 241, Re Gibbs & Houlder Brothers & Co Ltd’s Lease [1925] Ch 575 and the International Drilling case [1986] Ch 513). These cases are of illustrative value. But in each the decision rested on the facts of the particular case and care must be taken not to elevate a decision made on the facts of a particular case into a principle of law."
"landlords were entitled to consider the effect which the transactions might have upon their ability in the future to let satisfactorily the different parts of their property."
After accepting that HIE's regulations might be regarded by a person in its position as reasonable,14 the trial judge referred to authority for the propositions that a landlord was not entitled to refuse consent for the purpose of acquiring a commercial benefit by replacing the lease with alternative contractual arrangements more advantageous to the landlord, even though that would be in accordance with good estate management,15 and that a landlord was not entitled to insist upon further terms which would change "the character" of the lease.16
In holding that HIE’s withholding of consent was unreasonable the trial judge concluded that:
(a) HIE’s Building Guidelines and Tree Preservation Policy would impose obligations upon the sub-lessee which had the potential to substantially affect what the sub-lessee could do with the land, including requiring any building or further development to be only as HIE permitted. Those obligations were “well outside the contract” in the sub-lease.17
(b) HIE’s Rules were also well outside the terms of the sub-lease. They would permit HIE to “very seriously erode the sub-lessee's right of quiet enjoyment, by permitting HIE to refuse entry to persons or to have them removed from the island."18
(c) HIE did not seek to impose those new terms for reasons personal to Northaust, but in implementation of its general policy of requiring intended assignees to bind themselves to HIE’s regulations whenever its consent to assignment was sought.19
(d) It might be that in a particular case a landlord might reasonably refuse consent except on such a condition; but in a case where the proposed new terms could affect the substance of the tenant's position, and where those new terms were not sought to be imposed for reasons personal to a particular assignee, the landlord's refusal to consent except upon those terms would rarely be reasonable.20
(e) HIE sought to deprive the sub-lease of its assignability by insisting that every intended assignee first agree to vary the terms in a way that substantially affected the enjoyment of the land.21
[16] HIE mounted extensive challenges to those conclusions and to the trial judge's ultimate finding that HIE’s withholding of consent was unreasonable. I will discuss those challenges after I have considered the trustees’ argument that on the uncontentious facts and the proper construction of clause 1.1(g) of the sub-lease HIE was not entitled to withhold its consent to the assignment.
The trustees’ construction of clause 1.1(g) of the sub-lease
[17] Clause 1.1(g) of the sub-lease is in the following terms:
"The Sub-Lessee hereby covenants and agrees with the Sub-Lessor:
…
(g)(i) not to assign this Sub-Lease to any person or corporation whatever without first obtaining the written consents of both the Minister administering the Land Act 1994 and the Sub-Lessor PROVIDED THAT the Sub-Lessor’s approval shall not be arbitrarily or capriciously withheld in the case of an assignment to a person or persons or corporation who is or are acceptable to the Minister administering the Land Act 1994 and entitled to hold the Sub-Lease and who is or are financially sound and respectable (the onus of proving which shall be upon the Sub-Lessee) and who shall execute a Power of Attorney in the terms of Clause 7 hereof and a covenant to be prepared by the Sub-Lessor’s Solicitors to be bound by the terms of this sub-lease as if he were the Sub-Lessee herein named but no premium or fine shall be payable in respect of any such assignment. [emphasis in original]"
[18] The trustees argued that paragraph 1.1(g)(i) allows HIE to entertain the refusal of an assignment only by reference to the financial soundness or respectability of the intended assignee. HIE conceded that Northaust was financially sound and it does not challenge the trial judge’s finding that it was a “respectable” assignee within the meaning of the clause.
[19] No authority was cited which supports the trustees’ construction of the clause. It does not expressly limit to financial soundness or respectability the considerations which are relevant to the question whether the lessor’s withholding of approval is arbitrary or capricious. Nor, in my opinion, is that implicit. The natural meaning of the provision is that even where, as here, the proposed assignee is acceptable to the Minister, financially sound and respectable, and executes the power of attorney and covenant described in the clause, the sub-lessor is entitled to withhold approval, provided that its withholding is not arbitrary or capricious. The trial judge was right to reject this argument.22
Section 121 of the Property Law Act 1974 (Qld)
[20] Section 121 of the Property Law Act 1974 (Qld ) provides, so far as is presently relevant, that:
"(1) In all leases whether made before or after the commencement of this Act, containing a covenant, condition, or agreement against assigning, underletting, charging or parting with the possession of premises leased or any part of the premises, without licence or consent, such covenant, condition, or agreement shall –
(a) despite any express provision to the contrary, be deemed to be subject –
(i) to a proviso to the effect that the licence or consent is not to be unreasonably withheld, but this proviso does not preclude the right of the lessor to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with the licence or consent."
[21] It is not necessary to decide whether, as the trustees argued, HIE's refusal of consent was arbitrary and capricious in terms of clause 1.1(g) of the sub-lease. For reasons to which I now turn, I have concluded that the trial judge was correct in finding that HIE’s withholding of consent was ineffective because it was unreasonable under s 121 of the Property Law Act 1974 (Qld).
The effect of HIE’s regulations
[22] HIE’s argument relied substantially upon its contention that the trial judge significantly overstated the degree to which HIE’s regulations would impose burdens additional to those imposed by the sub-lease. In addition to arguments about the proper construction of its regulations, HIE argued that the issues about the breadth of the regulations were false issues because HIE has never contended that its regulations (other than its Building Guidelines) override a sub-lessee’s right of quiet enjoyment under any sub-lease. When the issues were raised at trial HIE disavowed any such construction of its regulations.
[23] I cannot accept this argument. What is in issue is the legal effect of the contract upon which HIE insisted as a condition of consenting to the assignment. HIE did not argue that, before it refused to consent otherwise than on the terms of the contract it proposed, it had conveyed to the trustees or Northaust what HIE contended was its own understanding of the effect of its regulations. One party’s uncommunicated, subjective understanding about the effect of a contract is irrelevant to its legal meaning: the interpretation of a written contract involves the ascertainment of the meaning which its language would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contract.23 If, on the necessary objective analysis, HIE acted unreasonably in withholding consent, then the trustees acquired the right to assign the sub-lease without breaching their covenant not to assign without HIE’s consent.24
[24] For reasons to which I now turn, in my respectful opinion the trial judge was correct in concluding that HIE's regulations would impose obligations upon the sub-lessee which substantially eroded the rights under the sub-lease, including by requiring that any building or further development be only as HIE permitted and by permitting HIE to refuse entry to the sub-lessees’ invitees or to have them removed from the island.
HIE’s right to exclude Northaust’s officers, employees and invitees from the island
Effect of the Rules
[25] The trial judge referred to provisions in HIE’s Rules which gave HIE the right to exclude any person from the island, including a sub-lessee and any natural person associated with a corporate sub-lessee.25 His Honour concluded that, whilst HIE perhaps had not intended its Rules to apply to sub-lessees or their invitees, the Rules did not express that intention; whilst many other provisions in the Rules were expressed so as to apply only to HIE's employees, the relevant rules were expressed in general terms.26
[26] HIE argued that its Rules were directed only to persons who had merely a revocable licence to be present on the island. In view of the apparently unreasonable effect of the Rules as they were construed by the trial judge, the construction proposed by HIE should be preferred if it is open on the language of the proposed contract.27 I have concluded that it is not open. The unambiguous effect of the Rules is to empower HIE to remove from the island a corporate sub-lessee’s officers, employees, and guests who breach any of the Rules, even though the conduct in question does not also constitute a breach of the sub-lease.
[27] Clause 1.3 of the Rules provides, under the heading "Effective Rules and Regulations" that:
"Without limiting HIE’s rights, these Regulations outline the basis upon which Persons may visit and remain on the Island. HIE may remove any Persons who breach these Rules and Regulations, and not allow them to return to the Island. HIE reserves its right to seek recompense and other action applicable for breaches of these rules and regulations."
[28] Clause 9.1 provides that if "a Person" breaches the Rules, HIE may direct that the Person leave “the Island”, and in the case of refusal to leave HIE “may remove the Person using such force as is reasonably necessary."
[29] The Rules define “Island” to mean Hamilton Island and Dent Island. "Person" is defined to mean "any person who visits the Island, for any period of time, either temporarily or permanently." It would be a very odd construction of that provision which excluded persons who temporarily or permanently reside on land sub-leased to them by HIE or the invitees of such persons. Other provisions suggest both that “Person” includes a sub-lessee and that HIE may exercise its powers in a way which affects sub-lessees’ uses of their land. For example, clause 6 provides that, a "Person who is a sub-lessee on the island" must maintain certain standards if the person "uses their residence" for holiday letting and must conform with development control guidelines set down by HIE from time to time. Similarly, clause 8.1, which provides for the issue by HIE of identification cards, applies on "commencement of residing" to "all Persons attending the island as an employee or resident." Whilst some rules are so expressed as to apply only to a restricted class of persons (such as HIE’s employees) no provision precludes the application of clause 1.3 or clause 9.1 to sub-lessees.
[30] Other provisions emphasize the intended breadth of the application of the Rules. For example, the introduction to the Rules asserts that "because of the uniqueness of the island conceptually, geographically, climatically and in other ways it is essential that HIE should and HIE does have the right to give direction regarding the operations, businesses and services conducted by all parties within or from the island”, and that “any Person” who is not willing to comply with the conditions "should not enter the island or should immediately leave the island". Similarly, clause 1.2 asserts that HIE exercises "absolute control" over the island; clause 9.2 asserts that, the "right to reside on Hamilton Island is a privilege granted by HIE as it sees fit and can be rescinded for whatsoever reason it sees fit"; clause 9.3 provides that, "HIE reserves the right to refuse admission onto the island to any Person at any time for any reason for any duration it sees fit"; and clause 9.5 provides that if a Person has been directed by HIE or HIE's chief operating officer to leave the island, "that Person is no longer permitted to move about the island except for the purposes of leaving the island."
Intrusion of the Rules upon the rights under the sub-lease
[31] As the trial judge concluded, Northaust’s agreement to be bound by those rules as a condition of obtaining an assignment of the sub-lease would very substantially qualify what otherwise would be its rights under the sub-lease.
[32] Clause 4(c) of the sub-lease contains an express covenant for quiet enjoyment which is unqualified by the burdens which HIE’s regulations would introduce:
“The Sub-Lessor hereby covenants and agrees with the Sub-Lessee as follows:
…
(c )on the Sub-Lessee performing and observing the obligations on the Sub-Lessee's part herein contained the Sub-Lessee shall peaceably hold and enjoy the Demised Land without hindrance or interruption by the Sub-Lessor or by any person or persons claiming under it until the end of the Term or such earlier termination of this Sub-Lease as is herein provided;…”
[33] Other terms of the sub-lease contemplate that the sub-lessee and other occupiers may be present upon other parts of the island. In addition to covenants about traffic which contemplate that the sub-lessee and its invitees may use roads on the island (which I discuss under the next heading), clause 9.6 of the sub-lease confers upon the sub-lessee and any lawful occupiers of the demised land the right to use those resort facilities operated by HIE which are not reserved for the exclusive use of classes of persons to whom the sub-lessee does not belong. That right is "subject to such reasonable rules and Regulations as may from time to time, be made by the Sub-Lessor, including but not limited to provision for times of use, admission and other charges”. The qualification applies only when the sub-lessee is using HIE's facilities and the content of the rules is regulated by the express requirement that they be "reasonable". There are no similar qualifications reflected in the very broad regulations which HIE sought to impose as a condition of its consent to the assignment.
Traffic control
[34] Clause 9.1(c) of the sub-lease obliges the sub-lessor to provide road access from the boundary of the demised land to the marina, foreshore, airstrip and the garbage and refuse disposal areas on the island without cost to the sub-lessee. That road access, like other specified services, is to be available for the sub-lessee's use on the terms and specified conditions, which include that the sub-lessee would pay the costs of specified services supplied to the demised land. There are extensive provisions concerning the calculation of the cost.
[35] Clause 1.1(d) of the sub-lease provides that the sub-lessee is:
"not to use or permit the use of any motor vehicle on the Demised Land or on any other part of the land comprised in the said Perpetual Country Lease without the previous written consent of the Sub-Lessor PROVIDED THAT the Sub-Lessee may without the consent of the Sub-Lessee have normal road use of such small motor vehicles the nature of which the Sub-Lessor may from time to time approve."
[36] As the trial judge observed,28 the application of the extensive provisions in HIE’s Rules which regulated the use of motor vehicles on the island and provided for "traffic infringement penalties" and a system of demerit points by which the right to drive could be suspended or permanently cancelled by HIE, was inconsistent with clause 1.1(d) of the sub-lease.
[37] That system of traffic management includes provisions in clause 3.1 of HIE’s Rules under which Northaust would not be entitled to bring a vehicle onto the island if HIE's "vehicle registration office" declined to grant it a permit "in its absolute discretion" and requiring Northaust to remove any vehicle it had on the island if HIE's vehicle registration office cancelled the necessary permit, which it could do "without assigning a reason". The Rules would impose a variety of other restrictions upon the use by Northaust or its invitees of a vehicle, including restrictions on the time during which the vehicle might be used,29 a requirement to obtain annual roadworthy certificates from HIE (in default of which the "registration office may remove any vehicle from the island"),30 the necessity for obtaining HIE's prior written approval for any colour of the vehicle other than white,31 and submission to HIE’s right to search any such vehicle.32
[38] HIE argued that concerns about HIE's regulations concerning the right to drive on the island were raised only for the first time in the judgment, but Northaust’s written submissions at the trial, which emphasised the variety of the intrusions upon the rights under the sub-lease which would flow from execution of the deed insisted upon by HIE, referred in terms to restrictions on the assignee's rights under clauses 3.1 and 3.6.3 of the Rules.33
Additional restrictions upon building and development by the sub-lessee of the demised land
Building and development restrictions in HIE’s regulations
[39] Clause 2.3 of HIE’s Rules provides that, "no Person may construct or operate a development on the Island unless the COO [the Chief Operating Officer of HIE or his/her appointed officer] or his/her delegate has given consent in writing and which has appropriate development approval from Whitsunday Regional Shire". A presently immaterial exception is made for an existing lawful use of the local utilities. Clause 4.1 of the rules prohibits damage to or removal of vegetation without the prior approval of HIE, and clause 4.2 of the rules refers to HIE's Tree Preservation Policy. Clause 6 of the rules requires that "a Person who is a sub-lessee on the island must conform with any development control guidelines set down by HIE from time to time."
[40] HIE’s Tree Preservation Policy emphasises social and environmental benefits of the retention of trees. In relation to both "the public and private domain" the document makes it plain that tree removal will be a "last resort option".34 The trial judge held35 that whilst HIE's Tree Preservation Policy is reasonable from a planning perspective, a sub-lessee's agreement to be bound by it, and by any amendment made to it by HIE, could substantially affect the use which it could make of the land.
[41] HIE's Building Guidelines are intended to provide "appropriate development controls and design criteria to assist Sub-lessees, architects and designers, builders and owner operators in achieving a high quality building development while minimising negative environmental impact on the natural environment".36 They are aimed at "maintaining a balance between environmental constraints, aesthetic qualities and development practices”37 and at ensuring that the "spectacular views and vistas" of the surrounding areas “remain unobstructed from most existing roads and tourist lookouts…"38
[42] Clause 1.4 of the Building Guidelines requires that any building plans be approved by the "HIE Design Review Service" and that HIE then submits appropriate applications for approval by the local government (the Whitsunday Regional Council).
[43] It is unnecessary to set out the text of the relevant policy and guidelines. The trial judge summarised their effect in terms which I would respectfully adopt: 39
"Under this regime then, HIE would have extensive control of any further building on this land or of regular maintenance of the present house such as repainting. Yet the guidelines make no provision for dispute resolution in this process and in particular for some independent person to review a decision of the Design Review Service not to dispense with or modify the guidelines in a particular case. From the sub-lessee’s perspective, the operation of the Building Guidelines could significantly affect the use of the land by disallowing what is not precluded by the sub-lease, by the Council’s planning scheme or any other law. That potential effect of the guidelines is no doubt a substantial explanation for Northaust’s refusal to be bound by them."
[44] HIE relied upon the trial judge’s acceptance of evidence given by a town planner to the effect that the controls in HIE's documents are "appropriate and reasonable from a town planning perspective"40 and his Honour’s further findings that HIE "undoubtedly believes that its requirements are reasonable and are in the interest of all occupants, and in particular sub-lessees, on Hamilton Island" and that the Building Guidelines "may not be much different from those which affect many developments, in which individual proprietors have covenanted not to build in certain ways or with certain materials or colours or finishes and so forth."41
[45] Those findings do not qualify the extent of the additional burden under HIE’s regulations found by the trial judge. It is notable in this respect that HIE’s Building Guidelines contain no provision which obliges HIE to act reasonably in making decisions and nor do they provide for any independent review of decisions made by HIE.
[46] HIE also argued that the local authority’s planning controls were consistent with the appellant's guidelines, but that does not diminish the additional burden which HIE's Building Guidelines and Tree Preservation Policy would impose, under which any building or further development would be only as HIE permitted.
[47] HIE did not challenge the trial judge’s summary of the very extensive effect of the building and development controls in its regulations, but it argued that the trial judge overstated the degree of difference between those controls and the rights of the sub-lessee under the sub-lease. The burden of the argument was that the sub-lease allowed the sub-lessee no rights, or only very limited rights, to do any building work on the demised land.
The effect of the sub-lease
[48] The trial judge found that, under the terms of the sub-lease, the sub-lessee was entitled to extend or replace the house built by Mr Harrison and to carry out building or development work and that the only restriction in the sub-lease was that any such work must be for the permitted use of the land as a single residence.42
[49] The relevant provisions of the sub-lease granted by HIE to the trustees in 2007 are in clause 1.1(e) and clauses 4(d) and (f):
"1.The Sub-Lessee hereby covenants and agrees with the Sub-Lessor:
1.1. . .
(e)to use the Demised Land for the purpose of a single private residence only:
PROVIDED THAT the Sub-Lessee shall be entitled to provide living quarters for household staff whether separate from or forming part of the said residence.
PROVIDED FURTHER that if the said living quarters are separate from the residence they shall be comprised in not more than one building separate from the said residence
. . .
4.The Sub-Lessor hereby covenants and agrees with the Sub-Lessee as follows:
. . .
(d)any permitted fixtures and fittings erected and supplied by the Sub-Lessee in the Building during the said term or during the term of any further Sub-Lease granted in renewal thereof shall belong to and be removable from the Building by the Sub-Lessee at any time during the continuance or at the expiration or sooner determination of the Term or of any further Sub-Lease granted in renewal thereof provided however that the Sub-Lessee shall make good all damage to the Building or any part thereof occasioned by any such removal.
. . .
(f)The improvements on the Demised land that are the property of the Sub-Lessee under [the Sub-Lease granted to Mr Harrison in 1984] remain the property of the Sub-Lessee. The Sub-Lessee's rights under clause 4(d) of [the Sub-Lease granted to Mr Harrison in 1984] remain for the term of this Sub-Lease."
[50] The sub-lease contains no requirement that the sub-lessee must obtain HIE's approval to any repair, alteration or construction of buildings on the demised land. Unlike HIE’s regulations, the sub-lease gives HIE no role in the choice of design, materials, colour scheme or location of buildings within the demised land. The only relevant restriction expressed in the sub-lease is the sub-lessee’s covenant in clause 1.1(e) that it will use the demised land for the purpose of a “single private residence only”.
[51] I accept the trustees’ and Northaust’s argument that the restriction in clause 1.1(e) does not define what buildings the sub-lessees may construct on the demised land. It only concerns the purpose of the sub-lessee’s use of that land. Provided that the purpose of any repair, alteration or extension of the existing house or the construction of any additional building is for the purpose of a single private residence, clause 1.1(e) does not preclude it. The provisos in clause 1.1(e) point in the same direction. They negate any conclusion that the provision by the sub-lessee of separate living quarters for household staff would contravene clause 1.1(e) by amounting to the use of the demised land for the purpose of multiple residences.
[52] The trial judge held that because the sub-lease contained no covenant to repair the house, the sub-lessee could alter the house provided that the alterations did not amount to "waste".43 HIE argued that the trial judge was mistaken because s 105(1)(b) of the Property Law Act 1974 (Qld) implied an obligation to repair.
[53] At common law a tenant is prevented from altering the demised premises in the absence of an express covenant if the alteration amounts to waste or if the alteration would amount to a breach of an express covenant to repair.44 The covenant to repair implied in the sub-lease by s 105(1)(b) of the Property Law Act 1974 (Qld) is that the sub-lessee will "during the continuance of the lease, keep and, at the termination of the lease, yield up the demised premises in good and tenantable repair, having regard to their condition at the commencement of the lease". Section 104(1) of the same Act prohibits the commission by the sub-lessee of "voluntary waste".
[54] Obviously the mere repair of damage to the house would not amount to a breach of the covenant to repair. Furthermore, the contractual obligation to maintain and yield up the premises and the statutory obligation not to commit voluntary waste would not be enforced by a Court in a way which prevented the sub-lessee from carrying out appropriate repairs, alterations and improvements in the demised land, thereby improving the value of the reversion.45 In Hyman v Rose,46 Earl Loreburn LC rejected an argument that a lessee with a covenant to maintain the demised premises could under no circumstances make alterations to the demised property: it is a question of fact whether such an act changes the nature of the thing demised and regard must be had to the use of the demised premises which is permissible under the lease.
[55] In this sub-lease, the permitted use does not preclude alterations or new buildings which are constructed for the purpose of using the demised the land as the sub-lessee’s private residence.
[56] Lord Coke's view was that building a new house on demised land was a waste,47 but that view has long been rejected:48
“Where property is let for a particular purpose, the reasonable new use of that property for the purpose contemplated by the letting will not amount to waste, even if the use causes damage to the property."49
[57] Clause 1(j) of the sub-lease obliges the sub-lessee "to maintain the Demised Land in a clean and tidy condition and free of all noxious weeds and pests". Contrary to another of HIE’s arguments, that says nothing about the extent to which the sub-lessee is entitled to build on the demised land during the term.
[58] I accept the submissions made for the trustees and for Northaust that the sub-lease does not prohibit the sub-lessee from repairing, maintaining, restoring or improving the existing house or constructing additional buildings, provided in each case that the work is consistent with the use of the demised land for the purpose of a single private residence.
The 1984 agreement to grant a sub-lease to Mr Harrison
[59] The trial judge acknowledged that the 1984 contract for the grant of the sub-lease to Mr Harrison contained a term whereby HIE was to approve Mr Harrison's proposed house, subject to an independent review by an architect, but concluded that it did not apply to an extension or replacement of the house or to other building or development work.50
[60] HIE argued that the trial judge was mistaken in that view. It argued that the 1984 contract influenced the proper construction of the sub-lease.51 The trustees and Northaust presented the contrary argument that the meaning of the trustees’ sub-lease was to be derived from its own terms, uninfluenced by the provisions of the earlier contract to grant the original sub-lease to Mr Harrison.
[61] By clause 1.1 of the 1984 agreement for sub-lease, the parties agreed that HIE would grant and Mr Harrison would accept a sub-lease in the form set out in the schedule, for the term commencing on the day on which settlement actually took place pursuant to clause 1.2 of the agreement and expiring on 31 March 2078, "on and subject to the covenants terms and conditions set forth in this agreement and in the sub-lease." Clause 1.2 provided that the date of settlement should be 30 days after written notice from HIE that the consent of the Minister for Lands had been granted to the sub-lease.
[62] HIE's argument focussed upon clause 2.1 of the agreement for sub-lease. It provided:
"The Sub-Lessor hereby consents to the Sub-Lessee constructing on the Demised Land a single private residence ("the building") PROVIDED THAT:-
(i)the Sub-Lessee shall obtain the Sub-lessor's written approval to the plans and specifications for the building and shall not commence construction thereof without first obtaining that approva1;
(ii)the Sub-Lessor shall not withhold approval if it is satisfied that the building will be a substantial structure of a design appropriate to the island development and that the contract cost thereof and including fixtures and fittings will be not less than $260,000.00;
(iii)Should the Sub-Lessor and the Sub-Lessee disagree on any question arising in connection with this clause then they shall accept and be bound by the decision of an arbitrator being an architect appointed by the president of the Queensland Law Society Incorporated on the application of either party, to which arbitrator both the Sub-Lessor and the Sub-Lessee will be entitled to make submissions."52
[63] HIE argued that clause 2.1 of the agreement for lease was the only provision in “the leasing documents" which authorised the construction of improvements on the demised land. It argued that the sub-lease should not be construed as allowing the sub-lessee to develop the demised land outside the constraints of clause 2.1 because that would set that provision at nought. It also argued that clause 2.1 influenced the proper construction of clause 1.1(e) of the trustees' sub-lease by making it plain that "the single private residence" was "the building" regulated by clause 2.1 of the agreement for lease.
The 1984 agreement does not affect the construction of the sub-lease
[64] It is distinctly arguable that the sub-lease is not relevantly ambiguous so that the 1984 agreement is not admissible in the construction of the sub-lease,53 but that may be put to one side. I have concluded that, on the necessary objective analysis of the language of the sub-lease read in light of the context in which it was granted, the parties did not intend that the construction of the provisions of the sub-lease should be influenced by the contract for the grant of the lease.
[65] The parties contracted for the grant of a sub-lease which was to be assignable by both parties. In view of the substantial length of the term of the sub-lease and the option, it was likely that at least the sub-lessee would in fact seek to assign the sub-lease. It was also likely that persons becoming sub-lessees or sub-lessors by assignment decades after the original grant of the sub-lease would have no knowledge, or at best an imperfect knowledge, of terms of the 1984 agreement and the commercial object of those terms. Although the parties to that agreement must be taken to have known its terms and the relevant background, reasonable parties in their position must surely also be taken to have intended that the legal effect of the sub-lease would remain constant, regardless of the very long passage of time during the term of the sub-lease and regardless of any assignment of the sub-lease or the reversion. It seems objectively unlikely in those circumstances that the parties to the agreement contemplated that an assessment of the legal rights of subsequent assignees under the sub-lease might be significantly influenced by the antecedent agreement.
[66] In Burns Philp Hardware Ltd v Howard Chia Pty Ltd,54 a question arose about the proper construction of a rent review clause in a lease for a term of 10 years with options for renewal for two further 10 year terms. Priestley JA held that, "the parties negotiating and then executing the lease never contemplated and never intended that subsequent persons dealing with the lease on behalf of the lessor, the lessee or the valuer should in the event of doubt about the meaning of the lease have recourse to any but the most obvious extrinsic circumstances in order to be able to understand it and make it work”.
[67] Gleeson CJ, Gummow, Kirby, Hayne and Heydon JJ referred to analogous considerations in the following passage in Westfield Management Limited v Perpetual Trustee Company Limited,55 a case which concerned the construction of an easement over Torrens system land:
"The third party who inspects the Register cannot be expected, consistently with the scheme of the Torrens system, to look further for extrinsic material which might establish facts or circumstances existing at the time of the creation of the registered dealing and placing the third party (or any court later seized of a dispute) in the situation of the grantee [cf Proprietors of Strata Plan 9968 v Proprietors Strata Plan No 11173 [1979] 2 NSWLR 605 at 610-612.]"
[68] In Phoenix Commercial Enterprises v City of Canada Bay Council,56 White J referred to those and other authorities for the proposition that, in the construction of a long term registered lease, "the extrinsic material to which regard may be had to resolve ambiguities is limited to evidence of the most obvious kind".
[69] Those cases illustrate the point that where the instrument which must be construed is a long term, assignable lease, that militates against the persuasive force of evidence of facts extrinsic to the lease, at least where (as here) it is predictable that a party to the lease, such as a subsequent assignee, might have no knowledge or only an imperfect knowledge of the facts (which in this case are the terms of the antecedent agreement and their commercial object).
[70] That consideration is strengthened in this case by the language of the sub-lease. Had the parties intended that the terms of the sub-lease should be qualified by the terms of the agreement for sub-lease, one would expect the sub-lease to contain a provision which at least referred to the agreement. Such a provision would suggest what is otherwise the very surprising conclusion advocated by HIE that the extent of the apparent rights of a sub-lessee by assignment to build on the demised land are affected by a contract to which that sub-lessee is not a party and of which the sub-lessee may be entirely ignorant. Not only did the sub-lease not refer to the agreement for sub-lease, clause 1.1(g) of it required, as a condition of HIE's consent to assignment by the sub-lessee, a covenant by the assignee only "to be bound by the terms of this sub-lease". That is an indication that, absent any additional covenant executed by the intending assignee, the sub-lease comprehensively spelled out the obligations which would bind the assignee.
Construction of the 1984 agreement
[71] Furthermore, the agreement for sub-lease does not purport to require any different construction of the sub-lease. The concluding words of clause 1.1 of the agreement ("on and subject to the covenants terms and conditions set forth in this Agreement and in the Sub-Lease") qualified the parties' agreement for the grant of the sub-lease. I do not construe clause 1.1 as an agreement that the sub-lease itself should be qualified by the terms of the agreement.
[72] Bearing in mind the considerations I have mentioned, I would not construe clause 2.1 of the agreement in the manner advocated for HIE. That clause provided that the sub-lessor "hereby" consents to the sub-lessee's construction of a single private residence on specified conditions. It therefore conditionally granted the intending sub-lessee a right (to build on HIE’s land) which it otherwise would not have had until after the grant of the sub-lease. The period which the parties contemplated might elapse between execution of the agreement and the grant of the sub-lease presumably depended upon their understanding of the time the Minister for Lands might take to consider whether or not to consent to the grant of the sub-lease. A possible explanation for clause 2.1 is that Mr Harrison was keen to start building his holiday house and the parties contemplated that, if the Minister declined to consent to the grant of the sub-lease, any building then left on HIE’s land would be constructed to its preferred standard and design.
[73] But the evidence does not shed light on these matters and it is also unclear whether or not Mr Harrison was required to comply with the conditions expressed in clause 2.1. It is not necessary to pursue these issues. Whatever may be the explanation for the conditions in clause 2.1 of the agreement for lease, the language of that provision was not apt to render it applicable after the grant of the sub-lease to repairs or other work on a house built under the terms of the 1984 agreement or to any other construction or development on the demised land.
[74] The degree to which HIE’s regulations would impose additional burdens upon the sub-lessee is unaffected by any provision of the agreement for lease. It depends only upon the proper construction of the terms of the sub-lease.
Conclusion
[75] I would affirm the trial judge’s finding that HIE’s Building Guidelines and Tree Preservation Policy would impose the substantial additional restriction upon the sub-lessee that any building or further development be only as HIE permitted.57
HIE’s and its successors’ rights to amend HIE’s regulations
[76] The deed which HIE required as a condition of its consent to the assignment required Northaust to covenant that it would comply with HIE’s Building Guidelines, Tree Preservation Policy and Rules "as are in force from time to time". The covenants by Northaust would inure also for the benefit of HIE’s successors. That was provided for in the deed, and the sub-lease does not qualify HIE's right of assignment. Clause 10 of HIE’s Rules then expressly reserved to HIE the right to amend its Rules from time to time.
[77] The trial judge concluded accordingly58 that Northaust was being asked to covenant to comply, not only with HIE’s regulations, but with any other rules which HIE or its successor might think fit to impose.
[78] HIE argued that its right to amend its regulations should not be construed as requiring compliance by Northaust with any future amendment, no matter how unreasonable.
[79] That argument does not find any support in the text of the Rules. Rule 10 provides simply that, "HIE reserves the right to amend the Island Rules and Regulations from time to time." I have already referred to other provisions of the Rules which encourage a very broad construction of provisions about HIE’s power to control the conduct of persons on the island. HIE’s regulations, which it seeks to impose under a contractual framework, are analogous to delegated legislation, although some provisions go beyond what one might reasonably expect to see in such legislation. It is perhaps unsurprising then that HIE would seek to bargain for itself an unqualified power to amend its regulations to meet its own perception of changing circumstances.
[80] In any event, the current, remarkably broad, regulations must be taken to be “reasonable”. The application of the same criterion would thus allow equally broad provisions to be added by amendments. Accordingly, HIE and its successors might later substantially qualify what are otherwise the sub-lessee’s rights under the sub-lease as qualified by the form of regulations current at the time of the proposed assignment.
Other regulations
[81] Northaust’s submissions identified many other provisions of HIE's Regulations which would qualify what otherwise would be the rights of the sub-lessee. For example, the right conferred by the sub-lease to let the land for holiday purposes for periods not exceeding three months (clause 1.1(h)) would be qualified by clause 6 of the Rules, under which HIE was given the right to direct that the residence cease to be used for holiday letting purposes if HIE decided to act upon a complaint by a guest of the sub-lessee that the residence was not maintained by the sub-lessee to a standard suitable for a first class residence appropriate for the standard of development on the Island and of the style and design approved by HIE.
[82] Appendix A of the Rules also sets out a long list of what are called "Offence Type – TRAFFIC", "Offence Type – FACILITIES", and "Offence Type – GREAT BARRIER REEF AIRPORT". These so-called “offences” attract a "monetary donation", by which HIE apparently means a fine payable to it. Thus, a failure to follow a "directive" of a "security officer" in relation to driving or in relation to "facilities" attracts a "monetary donation" of $80. Fines of a similar order are attracted by a variety of "offences", which include littering, smoking in an unauthorised area, and swimming after hours. Much of the conduct which attracts a "monetary donation" would not amount to an offence or a breach of the sub-lease.
The reasonableness of HIE’s conduct in insisting upon its regulations
[83] HIE argued that the trial judge gave insufficient weight to HIE’s legitimate interests in seeking to impose its regulations. It argued that its regulations were justified by the peculiar situation of the island: it is entirely private land, it has no resident police force, and the nearest police force is located a boat ride or flight away on the mainland. HIE argued that its regulations were required to preserve the safety and amenity of the island. The valuation evidence suggested that the regulations were generally beneficial to property values on the island. There was evidence that residents and investors appreciated the need for development controls in order to maintain the quality of development on the island and having regard to the island’s unique natural environment.
[84] The trial judge referred to considerations of that kind59 and concluded that:60
“[70]HIE undoubtedly believes that its requirements are reasonable and are in the interest of all occupants, and in particular sub-lessees, on Hamilton Island. The Building Guidelines may not be much different from those which affect many developments, in which individual proprietors have covenanted not to build in certain ways or with certain materials or colours or finishes and so forth. The Tree Preservation Policy, considered outside the present context and from the wider perspective of the interests of those who live on or come to the island, appears to be a reasonable initiative. For the most part the Rules could be described as reasonable in the same way, in that a person in HIE’s position having regard to its interests and those of the community upon Hamilton Island, might regard them as reasonable. ”
[85] HIE contended that the trial judge accepted that its Building Guidelines and Tree Preservation Policy were “reasonable” and that (apart from three concerns identified by the trial judge) the Rules were also “reasonable”. In fact the trial judge found that HIE believed that its requirements were reasonable and a person in HIE's position might regard them as reasonable "for the most part"; but as the trial judge also observed,61 some of HIE’s regulations are difficult to reconcile with the rights of a sub-lessee.
The “status quo”
[86] HIE’s senior counsel described the significance of the “status quo” on the island as being one of the most important issues in the case. He argued that the application of HIE’s regulations to the proposed assignee merely represented the status quo; that the evidence demonstrated that Mr Harrison, Mr and Mrs Adams, and the other residents on the island had accepted and observed HIE's regulations. HIE argued that the trial judge should have accepted that HIE reasonably regarded the preservation of the "status quo" as a matter of great importance; that a reasonable lessor might share that view; that a reasonable lessor might have sought a contractual promise from Northaust to continue the status quo and adhere to that position in the negotiations which followed, particularly because there was no other practical alternative open to the lessor; and that in these circumstances Northaust's "abject refusal" to bind itself to comply with HIE's various Rules and Regulations "heightened the need for some evidence of Northaust's agreement to adhere to the status quo".
Status quo: Did Mr Harrison acquiesce in HIE’s regulations?
[87] HIE’s argument that the status quo included Mr Harrison’s compliance with or acceptance of HIE’s regulations was based upon a very slender evidentiary foundation.
[88] HIE's employed solicitor, Mr McDonald gave evidence that Mr Harrison and his family visited the Island "on a number of occasions" although they did not live there permanently at any stage; his property was looked after by two caretakers; HIE's records "do not record" any occasion on which Mr Harrison or his family failed to comply with HIE's rules; on two occasions Mr Harrison's caretaking staff used the services of HIE's security department (2000 and 2004); one of the caretakers registered a motor vehicle (a buggy) with HIE; and HIE produced a "roadworthy report" for that buggy (in 2007). HIE did not adduce evidence as to the terms of the regulations which were current at those times, that Mr Harrison, his family or the trustees had any knowledge of the content of the regulations, or that any of them knew of the conduct of the staff upon which HIE now relies. Mr McDonald had been involved in the affairs of HIE for only two years and two months.
[89] It is a substantial leap from that evidence to the conclusion that Mr Harrison had accepted that his rights as sub-lessee to repair, alter or improve the demised land over the succeeding 200 years or so, or his right to the quiet enjoyment of the demised land and to exercise rights over other parts of the island conferred by the express terms of the sub-lease, had in some unspecified way become qualified by HIE’s extensive regulations.
[90] Apart from the tenuous nature of this evidence, it was irrelevant to any pleaded issue. HIE did not plead that, by the conduct identified by HIE Mr Harrison complied with any of HIE’s regulations, much less that by doing so Mr Harrison acquiesced in the application of those regulations or accepted that they were reasonable. HIE did not plead that any such fact was relevant to the reasonableness of its withholding of consent to the proposed assignment. Both respondents objected to this evidence at the trial. The trial judge did not rule upon the objection. I would uphold the objection.
Status quo: Was there general adherence to HIE's regulations by the Hamilton Island community?
[91] HIE's evidence was that since 1989 all new residents and visitors were under a contractual obligation to comply with the rules, but that persons who became residents before then were not all contractually obliged to do so. HIE argued that there had been such a general acceptance of adherence to HIE's regulations by all residents on the island since the community was established in 1984, and with such beneficial results to the value of residences and to the community generally, as to provide powerful evidence that HIE's insistence that an assignee comply with those regulations was reasonable.
[92] The trial judge found that,62 from a concern to maintain a standard of behaviour on the island which was likely to promote its attraction to residents, visitors and investors, HIE had formulated and published the Rules and that most sub-lessees had covenanted to comply with them. The trial judge noted that63 the parties had been unable to agree upon the precise number of sub-lessees who had agreed to be bound by the Rules and HIE’s Building Guidelines. HIE's contention was that over 500 of 860 residences had sub-leases which expressly incorporated the Rules and Guidelines and that of the remaining 337 residences, 323 were apartments for which only the HIE’s Building Guidelines applicable to apartments were incorporated. That left sub-leases of 14 lots (including the trustees’ lot) which had no terms requiring the sub-lessee to comply with the Rules and HIE’s Building Guidelines. There was evidence that Northaust was the only party who had so far refused to be bound to the terms as a condition of consent to an assignment.
[93] As to the attitude of the residents, the trial judge found64 that whilst HIE had tendered affidavits from some residents to the effect that they welcomed the Rules and whilst the trial judge shared that view, it was unlikely that it would be a universal view given the content of the rules.
[94] HIE contended that the trial judge's doubt as to the universal acceptance of its regulations was not justified by the evidence. It argued that the evidence demonstrated that the rules and regulations were observed and viewed positively by the whole island community.
[95] I accept Northaust’s argument that this case was not litigated at the trial.
[96] In response to the trustees' pleaded allegation that HIE's refusal of consent to the assignment was arbitrary, capricious, outside the relevant sub-lease clauses, and unreasonable, HIE denied that allegation "by reason of" a variety of matters which it particularised. Although one of the specified matters was that HIE "is entitled to have regard as to how Hamilton Island is advertised or promoted, namely that specific rules and guidelines, and in particular the Rules, Guidelines and Tree Preservation Policy, govern the behaviour and safety of residents and visitors and building requirements on the Island", HIE did not plead any material fact in support of its present argument that the community on Hamilton Island adhered to the various rules and guidelines to any particular extent or that they had done so for any particular period. Nor did HIE plead that in its allegation in the same paragraph of its defence that it was entitled to have regard to (amongst other things) "the investments and proprietary interests of residents and other investors in the Island who rely on the Rules, Guidelines and Tree Preservation Policy".
[97] In support of the argument that the issues were nevertheless litigated HIE pointed to three paragraphs in Mr McDonald’s affidavit. Two of those paragraphs related to the different topic of the extent to which residents had contractually bound themselves to comply with the Rules. The only arguably relevant evidence was in paragraph 44 of the affidavit, in which Mr McDonald deposed that, in the case of the 322 residences for which the sub-leases did not oblige the sub-lessees to comply with HIE’s Rules and Building Guidelines, "all of the persons living in those residences comply with the Rules and Regulations governing the day to day good order and running of Hamilton Island."
[98] Unsurprisingly, there was an objection to that paragraph. In response, HIE's senior counsel told the trial judge that the paragraph was intended to convey that those sub-lessees had "signed up to comply" and that, inconsistently with HIE’s present argument:
"It's not intended to be a statement of fact that they do in fact comply on a day-to-day basis."
[99] HIE also referred to affidavits by half a dozen residents on the island to the effect that each of those residents thought that HIE’s Rules and Guidelines were beneficial. Again, objection was taken to this evidence. In response HIE's senior counsel made it plain that the evidence was tendered only to support the proposition that "at least many investors favour the order [HIE's Rules and Guidelines]".
[100] HIE now seeks to run a new case on appeal. It is a case that might have been met by evidence. It is not open to HIE to litigate it on appeal for the first time.65 Furthermore, the evidence relied upon by HIE fell a long way short of establishing that the Hamilton Island residents universally or even generally favoured HIE's Rules and Guidelines. I would add that whilst Northaust seems to have been the only person who had refused to be bound by HIE’s Regulations as a condition of consent to an assignment, I have not found any error in the trial judge’s omission to infer that assignees who had agreed to the covenant did so because they considered it reasonable.
[101] I would affirm the trial judge’s finding that, whilst many sub-lessees would no doubt favour the imposition of many of HIE's regulations, it is unlikely that this would be a universal view.
Status quo: Were Mr and Mrs Adams already bound by HIE’s regulations?
[102] HIE contended that Northaust's refusal to be bound by HIE's regulations, including innocuous regulations, was "curious" because, as directors of Northaust, Mr and Mrs Adams were already bound to the regulations by virtue of their ownership of an apartment on the Island.
[103] Mr and Mrs Adams had taken a transfer of a sub-sub-lease of an apartment in a building on the Island. By virtue of the transfer they became subject to the sub-sub-lessee's obligations, one of which (clause l.3(a)) obliged the sub-sub-lessee to comply with rules and regulations "for the safety or care of" the apartment building. The sub-sub-lessor subsequently executed a deed by which it bound itself to comply more broadly with HIE's regulations (clause l.15). When Mr Adams was referred to the sub-sub-lessor's deed in the course of cross-examination, he agreed that it contained various covenants which bound him and his wife personally. HIE’s response to a subsequent objection established that neither Mr Adams nor Mrs Adams had executed the document and, although Mr Adams adhered to his earlier acceptance that he was bound by the document, how that occurred was never made clear. His evidence was that he had not been given a copy of the various rules and regulations and that prior to signing the contract to acquire the sub-lease in issue in this litigation he had only glanced at HIE’s Building Guidelines. The Court was not referred to any evidence to the contrary.
[104] HIE did not secure a finding that Mr and Mrs Adams had bound themselves to comply with the various rules and regulations and nor was that amongst the collection of matters which HIE pleaded in justification of its denial that its withholding of consent was unreasonable. I do not accept that the issue was raised by HIE's pleading which denied that Northaust was respectable because, "(i) [Northaust] refuses to agree to be bound by the Rules, the Guidelines and the Tree Preservation Policy, to each of which all other residents and visitors on Hamilton Island are subject …".66
[105] In the result, I am not persuaded that there is substance in HIE's argument that Mr and Mrs Adams' acceptance of HIE's Rules and Guidelines in relation to their occupation of an apartment contributed to the reasonableness of HIE's refusal to consent to the assignment unless Northaust contracted to be bound by HIE's regulations.
Did HIE take into account Northaust’s personal characteristics in refusing consent to the assignment?
[106] HIE’s argument that, contrary to the trial judge’s conclusion, HIE took into account what HIE contended was concerning conduct and intentions by Northaust, formed an important plank of its argument in the appeal.
[107] The trial judge rejected HIE's contention that Northaust was not a "respectable" assignee in terms of clause 1.1(g) of the sub-lease.67 HIE did not challenge that finding but it advanced arguments, which were not accepted by the trial judge, that it had various concerns about Northaust which it took into account, or which contributed to the reasonableness of its concerns about Northaust as an assignee.
Mr Adams’ conduct of organising building work on the demised land
[108] The trustees allowed Mr Adams into possession of the land under a written licence agreement made immediately after the contract of sale between the trustees and Northaust. The sub-lease allowed the sub-lessee to part with possession of the demised land for holiday purposes for a period not exceeding three months. Under the licence agreement Mr Adams was allowed to occupy the property for three months from 18 January 2008 for "holiday residential purposes" and as a "non-exclusive licence…for occupation by him and members of his family and their guests". The licence obliged Mr Adams to maintain the property in a good condition and state of repair.
[109] The house was not in fact occupied during the licence period. Mr and Mrs Adams continued to stay in an apartment on the island. Mr Adams' explanation for the building work he then caused to be performed on the trustees’ property was that, after some severe storms in January 2008, he saw that the roof was leaking and that the electrical services had become unsafe through the ingress of water. In the course of work done by a building contractor to assess the property and to make the electrical wiring safe, more severe problems were discovered, including a major termite infestation, other leaks, and wood rot.
[110] The trial judge found that Mr Adams did not in fact intend to use the house for holiday purposes; it was his intention to perform some building works, as the first stage of his proposed renovation and extension of the house; the extent of the work which he did went far beyond what could be sensibly required of someone renting a house for a holiday; he undertook repairs for things which had long been defective; he had some trees felled; and he changed locks in the house.68
[111] However, the emphasis in HIE's case at trial was not upon the performance of the work itself, but rather upon HIE’s contention that Mr Adams failed to obtain the necessary approvals under the Building Act 1975 (Qld) and the Building Regulation 2006 (Qld) lawfully to perform the work. The trial judge rejected that case.69 The trial judge found70 that Mr Adams asked his builder to do various things because of the appearance of water damage and that, as some things were uncovered, other problems were discovered: there was no pre-determined plan to go into the house and perform work known to require a permit which Mr Adams did not have. The trial judge concluded that there was no basis for a finding that Mr Adams deliberately flouted the building laws or that he caused the builder to do something which was unduly dangerous.71
Mr Adams’ intention to build on the land
[112] Mr Adams gave evidence that as part of restoring the property to its "former glory", Northaust proposed to construct a very large observation deck and also planned to build a garage which could house a small boat, mowers, and other equipment required for the maintenance of the five acres of garden. (That structure was described as a "boatshed").
Issues
[113] HIE argued that Mr Adams’ intention to do substantial construction work without HIE’s approval, and his conduct in concealing that and the extent of the work he had done on the land under the holiday licence from the trustees, should be taken into account in assessing the reasonableness of HIE’s withholding of consent to the assignment. HIE argued that when it refused consent to the assignment it took into account Northaust’s “discomfiting” response to its request for execution of its standard deed and concerns it had about Northaust’s respectability and intentions. It argued that it was also entitled to justify its stance by facts revealed at the trial which were “very much to the discredit of [Northaust]”.
Pleading points
[114] I do not accept Northaust’s and the trustees’ argument that HIE did not litigate its contention that these particular characteristics of Northaust justified the refusal of consent to the proposed assignment. Such a case was within the pleadings and, whilst HIE's case at trial emphasised what was said to be the reasonableness of its general policy of insisting upon compliance with its regulations as a condition of assignment, its case was not confined to that point. That is illustrated by the exchange in which the trial judge asked HIE's senior counsel whether it was part of HIE's case, that its refusal of consent was reasonable because of some particular concern about Northaust rather than a more general concern about any party who wouldn't agree to be bound by HIE’s Rules and Guidelines. HIE's senior counsel answered that it was “more” the latter. He added that at the time consent was refused HIE "didn't know precisely what he [Mr Adams] was doing" and that, had it been aware of what was revealed by the evidence at trial, "no doubt [HIE] would have voiced [its] views about that."
[115] I also do not accept the submission for Northaust that HIE sought to mount a new case on appeal seeking to justify its refusal of consent because Northaust intended to construct the boatshed without HIE's permission and concealed that intention. Although that case was not pleaded, the evidence which showed that Northaust planned to construct the boatshed, and had undertaken some work with that in mind during the period of the licence granted by the trustees, was not the subject of any objection.
The trial judge’s conclusion about Northaust’s respectability
[116] The trial judge observed72 that the only basis expressed in HIE's solicitor's correspondence for the suggestion that Northaust was not respectable was that Northaust refused to be bound by HIE’s regulations. His Honour considered the concerns about the respectability of Northaust upon which HIE now relies73 and concluded74 that the suggested illegality of the building work upon which Northaust embarked after it had contracted for the assignment of the sub-lease and Northaust's refusal to execute the deed required by HIE did not provide a substantial basis for impugning the respectability of Northaust; that Northaust’s attitude did not indicate that it would misconduct itself but, rather, that it did not wish to be bound by HIE's various regulations, particularly when they were able to be changed, unilaterally, by HIE; and that Northaust was a respectable company in the required sense.
HIE’s arguments
[117] HIE argued that a difficulty with those conclusions was that the trial judge proceeded upon the basis that HIE had no particular concerns about Northaust because it did not lead evidence to that effect. HIE identified evidence that its officers and employees did have particular concerns about Northaust starting some building work without authority from HIE and contrary to what Mr Adams must have known was the limitation in the trustees' temporary sub-lease to him of the demised land for holiday purposes for a limited period. HIE argued that the true position on the evidence was that it withheld its consent partly because of a "general practice" of obtaining the agreement of new sub-lessees to adhere to its regulations and partly because of concerns which it contends it had about Northaust's respectability and intentions as the proposed assignee.
HIE’s insistence upon the application of its inflexible policy
[118] There was, however, a powerful body of evidence that it was HIE's inflexible policy, rather than any reason personal to Northaust, which was the only justification for HIE’s insistence upon the condition that Northaust covenant to be bound by HIE’s regulations. Contrary to HIE’s argument, HIE’s solicitor’s correspondence strongly suggests that HIE did not rely upon Mr Adams’ conduct in causing building work to be performed on the house as a ground for its insistence that Northaust bind itself to observe HIE’s regulations. That is consistent with the solicitor’s evidence that the stance he took reflected HIE’s inflexible policy that anyone who wanted to take an assignment must subscribe to HIE’s regulations.
[119] On 14 January 2008 the trustees' solicitors wrote to HIE's employed solicitor seeking HIE's consent to the proposed assignment of the sub-lease. On the same day HIE's solicitor responded that its consent was subject to conditions including the execution of an enclosed deed. The solicitor wrote, "please note we will not accept any changes to this document."
[120] That response was not said to be informed by any concern about Northaust's character. HIE maintained the same stance throughout the ensuing correspondence.
[121] The deed proffered by HIE's solicitor provided that HIE consented to the assignment of the sub-lease subject to, amongst other things, the terms and conditions of the deed. HIE's solicitor subsequently sent to the trustees' solicitor an amended version of the deed. The covenants insisted upon by HIE included covenants by the assignee to the effect that it would comply with HIE’s Building Guidelines, Tree Preservation Policy, and Rules.
[122] The trustees' solicitor sent an email to HIE's solicitor on 22 February 2008 enquiring about the content of the Rules and Building Guidelines, which he noted were not referred to in the sub-lease. He asked for advice as to how those requirements represented reasonable conditions for the granting of consent to the assignment. HIE's solicitor responded on 26 February 2008 attaching copies of the documents and observing:
"I note your comments in relation to the sublease not containing reference to 'Hamilton Island Rules and Regulations' and 'Building and Siting Guidelines'. As discussed on 22 February 2008, this sublease is in a very old format and when leases of this nature are assigned, which is only a very few, HIE feel that it is opportune to insert the standard covenants upon time of assignment.
…
Both these documents are in place and all sublessee's [sic] on Hamilton Island (approximately 1200), must abide by these documents. Both documents are in place for the betterment of living, visiting and investing on Hamilton Island. They are there to ensure the amenity, quality, and standard of the island is that which you would expect from a resort of this standing.
…
As all sublessees universally abide by these documents which are in place for the betterment of Hamilton Island, we believe that they are perfectly reasonable conditions for this assignment and confirm that there will be no exceptions made."
[123] On 27 February the trustees' solicitor wrote to HIE's solicitor enquiring how it was contended that the considerations to which he had referred constituted a sufficient reason for the withholding of consent to the transfer of the sub-lease in the event that Northaust did not agree to the covenant binding it to comply with HIE’s Building Guidelines and the Rules and the Tree Preservation Policy. HIE's solicitor responded on 3 March that he was instructed by the Board of HIE to advise that a consent to the proposed assignment "will only be given by HIE on the terms set out in the Deed of Consent forwarded to you." After reiterating the view that the various regulations were "essential for the long-term protection of the amenity, environment and quality of the Island" he added that the Board would not vary from the approach and that, in light of the Board’s "firm policy" there was "no point in responding to the detailed questions raised in your letter or in engaging in any further correspondence on those issues."
[124] On 10 March HIE's solicitor wrote to Northaust's solicitor advising, amongst other things, that he had advised the trustees' solicitor that HIE's consent for the assignment of the lease "will not be provided until such time as your client executes the Deed of Consent in the form that it has been issued."
[125] On 31 March the trustees' solicitor wrote to HIE's solicitor enclosing an amended form of deed which omitted the contentious covenants and threatening proceedings if it was not executed by HIE.
[126] On 4 April HIE's solicitor wrote to the trustees' solicitor. He asserted a contravention of clause 1.1(g) constituted by Northaust's entry into possession of the property after completion of the contract but before the Minister’s consent to the assignment: that assertion was incorrect. He asserted also that HIE was not required to consider a request until further information was provided, concerning the financial soundness and respectability of the proposed assignee: this too has no enduring relevance. He argued that it was relevant for HIE to take into account the intended use of the property by Northaust, amongst other things. Relevantly he stated:
"Before HIE is in a position to give consideration to the request for consent to the assignment of the sub-lease to the proposed assignee, I request that your client provide:
…
2.Satisfactory evidence that it will comply with the Rules and Regulations of the Island concerning development, use of the property, protection of vegetation and behavioural standards."
[127] After some further correspondence, HIE's solicitor wrote to the trustees' solicitor on 10 April reiterating HIE's determination to require the execution of the deed of consent "in the terms proposed by HIE". The letter continued:
"The Board of HIE has considered the matter closely and will not abdicate its responsibilities to act in the public interest for the benefit of all stakeholders. In so doing, the Board considers that it is acting fairly, reasonably and responsibly and not for any ulterior purpose and is thus fully within its rights to withhold consent. Furthermore, the Board is concerned that Northaust's refusal to accept a Deed of Consent in the terms proposed, indicates a possible refusal by Northaust to abide by some or all of the Island's Rules and Regulations to the possible future detriment of the interests and enjoyment of other stakeholders on the Island, without HIE being in a position to remedy such a situation.
If Northaust persists with its refusal to accept such a Deed of Consent, HIE reserves the right to refuse to approve the assignment on the further grounds that Northaust is not 'respectable'. This word is defined to mean, inter alia, 'of fair social standing' and any person who deliberately refuses to abide by the rules which govern the conduct of the rest of the community, cannot be so regarded."
[128] HIE's stance that Northaust's failure to agree to bind itself to observe HIE's regulations demonstrated that Northaust was not "respectable" tended to emphasise the intractability of HIE's policy. That stance also suggested that any other consideration was irrelevant to HIE's attitude to assignment of the sub-lease.
[129] The trustees' solicitor responded by a letter dated 18 April. He rejected the assertion that the mere fact that Northaust declined to subject itself to HIE's rules was a proper basis for considering whether Northaust was "respectable", but he also sought the identification of the particular provisions which HIE contended were relevant to an assessment of such respectability.
[130] The solicitor for HIE responded by letter dated 24 April 2008, commenting, so far as is presently relevant, as follows:
"[F]or the reason explained in my letter of 10 April 2008, until Northaust agrees to execute a Deed of Consent in, or substantially in, the terms proposed by HIE, HIE does not accept that Northaust is 'respectable'."
[131] The letter enclosed a revised deed of consent which incorporated a guarantee from the directors of Northaust. HIE's solicitor advised that HIE would approve the assignment "Upon acceptance of this deed". He added that, "HIE will not retreat from this position and its obligation to act in the public interest of all stakeholders in Hamilton Island, merely because of your threats of litigation." Those remarks, read in light of HIE’s unyielding approach in its earlier correspondence, require rejection of HIE's argument that the word "substantially" earlier in the same letter should have been understood as an invitation to flag any particular regulations of concern.
[132] In summary, HIE made it perfectly clear that it insisted upon what was in fact its general policy that, regardless of the identity of the assignee, HIE would only consent to an assignment if the assignee first covenanted to be bound by HIE's regulations.
Further information about misconduct revealed to HIE at the trial
[133] HIE referred to Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd,75 in which Mason J expressed an inclination to the view that a landlord is entitled to justify refusal of consent to assignment by reliance upon a ground not taken at or about the time of refusal. HIE argued that, in a more substantial plan revealed at the trial than that of which HIE was aware when its solicitor corresponded with the trustees, Northaust, under the guise of the sham "holiday" letting of the property, caused substantial damage to the residence and caused the destruction of trees; that it did so without the consent of the trustees and in breach of the holiday licence; that this was merely a first step in a broader plan to construct a further building on the land; that Northaust withheld that from HIE; and that Northaust’s plan was to construct a sizeable boatshed on the demised land, in breach of the sub-lease.
[134] HIE's contention, to the extent that it is based upon Northaust's plan to construct a sizeable "boatshed", is circular. For the reasons I gave earlier, HIE has not established that the construction of a boatshed was prohibited by the sub-lease or, more significantly, that Northaust believed that it would breach the sub-lease. It could therefore not reflect adversely upon Northaust that it planned to build such a structure in the future, whether or not it would contravene HIE’s regulations, to which Northaust did not intend to subscribe. On the evidence, HIE had no reasonable basis for believing that this reflected adversely on Northaust.
[135] Furthermore, as the trial judge observed, HIE did not lead evidence that what was known of Northaust's conduct by the end of the trial influenced HIE's attitude to the assignment.76 HIE challenged this observation, but the evidence to which the Court was referred in that respect recorded only that individuals within HIE expressed concern about certain conduct by Northaust. The evidence did not establish that any such concern influenced or would have influenced HIE's decision to withhold consent to the assignment.
[136] HIE attributed this gap in the evidence to an exchange in the course of the trial which led it to believe the evidence was unnecessary. The passage in the record cited for this argument does not support it. HIE's senior counsel at trial told the trial judge that the evidence of a member of HIE's board whom he then proposed to call was to the effect that HIE's requirement that Northaust execute HIE's form of deed was "in conformity with a long-established policy that Hamilton Island Enterprises applied the [sic: "to"] assignments, namely, "yes, but subject to you agreeing to the various rules."" Senior counsel reiterated that it was a matter of policy for HIE's "preferred administration of the island". The trial judge discouraged HIE from calling evidence to that effect because it was not contentious. HIE's senior counsel then indicated that he would consider the trial judge's comments. Evidently HIE decided not to adduce the evidence.
[137] HIE's argument has an air of unreality about it, given that during the trial HIE's senior counsel made it perfectly clear that if Northaust executed HIE's proposed deed then HIE would consent to the assignment. In final submissions HIE's senior counsel also accepted that there was no evidence that HIE did not want the lease to be assigned to Northaust even on the conditions that HIE proposed; and he conceded that there was no evidence to support a finding that, if Northaust executed the deed, HIE would maintain its refusal to consent to the assignment. Senior counsel added that he would not go so far as to submit that it was part of HIE's case that Mr Adams' conduct reflected so poorly upon him, and in turn upon Northaust, "that he shouldn't be there at all", and he conceded that the evidence did not sustain such a finding in any event.
[138] On the evidence, HIE’s refusal of consent to the assignment was not in fact based upon any concern about the personal characteristics of Northaust. That did not form a ground for HIE’s withholding of consent and it could not reasonably have done so.
The trustees’ and Northaust’s failure to raise concerns and severance
[139] As I earlier mentioned, HIE argued that its regulations about the right to drive on the island were not raised before the trial judge mentioned them in the judgment. HIE also argued that the provisions of its regulations which empowered HIE to exclude persons from the island and empowered HIE and its successors to amend its regulations were not raised by the trustees or Northaust when the trustees sought HIE’s consent to the proposed assignment. HIE argued that had the trustees or Northaust raised concerns of this kind when the trustees were applying for HIE’s consent some accommodation might have been reached which obviated the concerns.
[140] In circumstances in which HIE made it plain that it did not propose to engage in any significant negotiation about its extensive regulations, the reasonableness of its refusal to consent is not enhanced by its subsequent assertions at the trial that it might have accommodated any concerns about the regulations.
[141] HIE also argued that if it were found to have acted reasonably in requiring Northaust to abide by some regulations, then HIE's withholding of consent should be found to be reasonable even if HIE’s insistence upon other regulations was unreasonable. The authority cited by HIE for this proposition concerned the question whether withholding of consent on one reasonable ground was sufficient even if other grounds were found to be unreasonable.77 That has no potential application when HIE insisted upon adherence to all of its regulations as a condition of consent to the assignment.
Was HIE's consent reasonably withheld?
[142] Finally, HIE challenged the trial judge’s conclusion78 that HIE’s withholding of consent was unreasonable in circumstances in which HIE sought to deprive the sub-lease of its assignability by saying that whoever was to be the assignee, that person must agree to vary the terms in a way which substantially affected the enjoyment of the land. HIE argued that there was an inherent circularity in that reasoning because the explicit prohibition against assignment meant that the lease was not properly described as "assignable" and there was no evidence that its stance had a negative effect upon the marketability of the sub-lease. The valuation evidence suggested that HIE’s regulations had a beneficial effect on property values.
[143] HIE emphasised the importance of its regulations as providing a system for the regulation of the conduct of the community of some 5,000 people on the island, including tourists, HIE employees, and permanent residents. HIE argued that the trial judge's concerns about the constraints which would be introduced by HIE’s regulations all concerned potential harm to Northaust's interests, whereas the authorities established that a lessor was entitled to determine its position primarily by reference to its own interests.
Discussion
[144] In my respectful opinion the trial judge’s conclusion that HIE’s withholding of consent was unreasonable was correct.
[145] HIE’s submission on this topic was based in large part upon its other, numerous challenges to the trial judge’s conclusions which I have rejected. For that reason, and because I respectfully accept the correctness of the trial judge’s analysis of the authorities summarised in paragraphs [9] – [15] above, I can state the remaining reasons for my conclusion quite briefly.
[146] Section 121 of the Property Law Act 1974 (Qld) requires that attention be focussed upon the reasonableness of the lessor’s refusal of consent to the particular assignment. As I earlier observed, that is ultimately a question of fact. HIE has failed to demonstrate any error in the trial judge’s finding adverse to HIE.
[147] This was a case in which, as the trial judge concluded,79 HIE sought to obtain a substantially more advantageous contractual position than that upon which it had insisted at the time of the grant. On the trial judge’s findings which I would affirm, HIE withheld its consent to the proposed assignment to Northaust by insisting upon the imposition of new terms which would substantially erode the rights conferred by the sub-lease; and HIE imposed the condition not because of any characteristic of Northaust but because HIE believed that it was in its own interests to impose the condition in all cases and regardless of any assignee’s personal characteristics.
[148] I have rejected HIE’s arguments that HIE merely sought to “uphold the status quo and to preserve the existing contractual arrangements”.80 Rather, HIE sought to put into effect an entirely new and very extensive contractual regime which was well outside the contemplation of the sub-lease. In those circumstances, what in substance would be assigned would not be the sub-lease, qualified only by covenants designed to overcome any potential disadvantage to HIE arising from the manner in which Northaust might exploit the rights granted by the sub-lease, but the sub-lease so heavily qualified as to alter the legal effect of essential rights of the sub-lessee granted by the sub-lease. I therefore agree with the trial judge’s conclusion that HIE sought to deprive the sub-lease of its assignability by insisting that every intended assignee first agree to vary the terms in a way that substantially affected the enjoyment of the land.81
[149] In those circumstances, the authorities cited by the trial judge, and many other authorities,82 plainly justified his Honour’s conclusion that HIE’s withholding of consent to the proposed assignment was unreasonable even if the withholding of consent would be in accordance with good management by HIE of the island generally.
Proposed orders
[150] In view of my conclusion that the appeal should be dismissed, the question whether the court is empowered to order a reconveyance if the appeal should be allowed does not arise.
[151] I would dismiss the appeal and I would order the appellant to pay each respondent’s costs of the appeal.
[152] CHESTERMAN JA: I agree with Fraser JA.
[153] WILSON J: I have read the reasons for judgment of Fraser JA. I respectfully agree with the orders His Honour has proposed, and with his reasons.
Boss and Owen v Hamilton Island Enterprises & Anor [2008] QSC 274. ↩
Houlder Bros & Co Ltd v Gibbs [1925] Ch 575 at 587 per Sargant LJ; Colvin v Bowen (1958) 75 WN (NSW) 262 at 264 per Walsh J; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 609-610 per Mason J; Daventry Holdings Pty Ltd v Bacalakis Hotels Pty Ltd [1986] 1 Qd R 406; International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513 at 520 per Balcombe LJ; Ashworth Frazer Ltd v Gloucester City Council [2001] 1 WLR 2180 per Lord Bingham of Cornhill; Tamsco Ltd v Franklins Ltd [2001] NSWSC 1205 at [51]-[53]; Noyes v Klein (1984) 3 BPR 9216 at 931; Chalcedony Investments Pty Ltd v Farould No 9 Pty Ltd [1988] ANZ ConvR 429 at 431, 434. ↩
International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd at 520(2). ↩
[2008] QSC 274 at [63], citing Sargeant v Macepark (Whittlebury) Ltd [2004] 4 All ER 662 at 677 per Lewison J. ↩
[2008] QSC 274 at [64], citing William Woodfall, Landlord and Tenant, (2008) at 11.148 citing Premier Confectionary (London) Company Ltd v London Commercial Sale Rooms Ltd [1933] Ch 904; Wilson v Fynn [1948] 2 All ER 40; Creery v Summersell & Flowerdew & Co Ltd [1949] Ch 751; Packaging Centre Ltd v Poland Street Estate Ltd (1961) 178 EG 189; Coopers & Lybrand Ltd v William Schwartz Construction Co Ltd (1980) 116 DLR (3d) 450 and Moss Bros Group plc v CSC Properties Ltd [1999] EGCS 47; see also Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019 at 1030 per Cumming-Bruce LJ. ↩
[2008] QSC 274 at [64]. ↩
Boss & Ors
Hamilton Island Enterprises Ltd
(1973) 129 CLR 99
(1987) 8 NSWLR 642
(1982) 149 CLR 337
(1986) 162 CLR 1
(2001) 210 CLR 181
(2004) 218 CLR 451
(2002) 76 ALJR 436
(1979) 144 CLR 596
(2004) 219 CLR 165
(2007) 233 CLR 528
(2003) 200 ALR 447
(2002) 240 CLR 45
Appeal dismissed. The appellant was ordered to pay each respondent’s costs of the appeal ([151]).
HIE appeals against the declarations made by the trial judge. It seeks an order that Northaust reconvey the sub-lease to the trustees.
The main issue in the appeal is whether the trial judge erred in concluding that HIE’s withholding of consent otherwise than upon the condition that Northaust first covenant to comply with HIE’s regulations was unreasonable. The resolution of that issue turns largely upon an analysis of the effect of HIE’s regulations as compared with the terms of the sub-lease and a consideration of HIE’s reasons for withholding consent to the assignment unless Northaust bound itself to observe those regulations. Before I address the issues in the appeal I will summarise the trial judge’s reasons.
[2001] NSWSC 1205. ↩
[2008] QSC 274 at [65]. ↩
[2008] QSC 274 at [66]. ↩
[2008] QSC 274 at [66] and [67]. ↩
[2001] 1 WLR 2180 at 2182-2183. ↩
[2008] QSC 274 at [69]. ↩
[1992] 2 Qd R 121 at 130. ↩
[2008] QSC 274 at [70]-[71]. ↩
[2008] QSC 274 at [72], citing Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019 at 1033 per Dunn LJ. ↩
[2008] QSC 274 at [73], citing Mills v Cannon Brewery Co Ltd [1920] 2 Ch 38 at 47. ↩
[2008] QSC 274 at [73]. ↩
[2008] QSC 274 at [73]. ↩
[2008] QSC 274 at [4], [72] and [75]. ↩
[2008] QSC 274 at [74]-[75]. ↩
[2008] QSC 274 at [75]. ↩
[2008] QSC 274 at [56]. ↩
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 per Gleeson CJ, Gummow and Hayne JJ citing Lord Hoffmann's first principle in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-914; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]. ↩
Treloar v Bigge (1874) LR 9 Ex 151. ↩
[2008] QSC 274 at [25]-[27]. ↩
[2008] QSC 274 at [27]. ↩
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109-110 per Gibbs J. ↩
[2008] QSC 274 at [29]. ↩
Clause 3.6.3. ↩
Clause 3.5. ↩
Clause 3.5. ↩
Clause 2.5(n). ↩
Outline of submissions for the third respondent, paragraphs 137 -138. Reference was also made to a table which was said to contrast particular clauses of HIE’s regulations with the position under the general law. ↩
Tree Preservation Policy, clause 3. ↩
[2008] QSC 274 at [39]. ↩
Building Guidelines, clause 1.2(i). ↩
Building Guidelines, clause 1.2(ii). ↩
Building Guidelines, clause 1.2(iii). ↩
[2008] QSC 274 at [36]. ↩
[2008] QSC 274 at [32]-[33]. ↩
[2008] QSC 274 at [70]. ↩
[2008] QSC 274 at [11], [14] and [73]. ↩
[2008] QSC 274 at [11], citing William Woodfall, Landord and Tenant (2008) at para 11.254. ↩
William Woodfall, Landlord and Tenant, (2008) at para 11.254. ↩
Doherty v Allman (1878) 3 App Cas 709 at 726-727, per Lord O'Hagan; William Woodfall, Landlord and Tenant, (2008) at para 13.115; AJ Bradbrook & CE Croft, Commercial Tenancy Law in Australia (1977, 2nd ed) at para 10.3. ↩
[1912] AC 623 at 632. ↩
Coke, First Institutes of the Laws of England or A Commentary Upon Littleton, 19th ed, (1832), vol 1, para 53a. ↩
William Woodfall, Landlord and Tenant, (2008) citing Jones v Chappell (1875) LR 20 Eq 539 per Jessel MR, who cited Doe d Grubb v Earl of Burlington (1833) 5 B & Ald 507; 110 ER 878. ↩
William Woodfall, Landlord and Tenant, (2008) at para 13.114, citing Manchester Bonded Warehouse Co Ltd v Carr (1880) 5 CPD 507. ↩
[2008] QSC 274 at [73]. ↩
As I mentioned earlier, the sub-lease granted to Mr Harrison in 1984 was assigned to the trustees in 2001. The relevant sub-lease is the replacement sub-lease granted to the trustees in 2007. ↩
Other clauses of the agreement required the sub-lessee to obtain the appellant's consent to the carrying out of work on the demised land concerning the supply of electricity and drainage and sewerage systems. ↩
Evidence of the background against which a contract is made is not admissible to contradict the plain meaning of the contract: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352 per Mason J (as his Honour then was); Royal Botanic Gardens & Domain Trust v South Sydney City Council (2002) 240 CLR 45 at [39] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ. ↩
(1987) 8 NSWLR 642 at 655. ↩
(2007) 233 CLR 528 at 539 [39]. ↩
[2009] NSWSC 17 at [57]. ↩
[2008] QSC 274 at [73]. ↩
[2008] QSC 274 at [28]. ↩
[2008] QSC 274 at [23]-[24], [65], [70]. ↩
[2008] QSC 274 at [70]-[71]. ↩
[2008] QSC 274 at [24]. ↩
[2008] QSC 274 at [23]. ↩
[2008] QSC 274 at [71]. ↩
[2008] QSC 274 at [24]. ↩
Whisprun Pty Ltd v Dix**on (2003) 200 ALR 447 at [51]-[52]; Coulton v Holcombe (1986) 162 CLR 1 at 7. ↩
Amended defence of the first respondent, at paragraph 10(b)(i). ↩
[2008] QSC 274 at [40]-[55]. ↩
[2008] QSC 274 at [47]-[48]. ↩
[2008] QSC 274 at [50], [54]. ↩
[2008] QSC 274 at [53]. ↩
[2008] QSC 274 at [50]-[53]. ↩
[2008] QSC 274 at [42]. ↩
[2008] QSC 274 at [40]-[50]. ↩
[2008] QSC 274 at [54]-[55]. ↩
(1979) 144 CLR 596 at 610-611. ↩
[2008] QSC 274 at [42]. ↩
Louis Vuitton New Zealand Ltd v Prince's Wharf Property Fund Ltd [2005] ANZ ConvR 245 at 254; Tamsco Ltd v Franklins Ltd [2001] NSWSC 1205 at [65]-[66]; Haberecht v Chapman (1992) 10 BPR 19,063 at 19,069. ↩
[2008] QSC 274 at [75]. ↩
[2008] QSC 274 at [72]-[73]. ↩
See Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019 at 1032-1033 per Dunn LJ (and see also per Cumming-Bruce LJ at 1031), contrasting West Layton Ltd v Ford [1979] QB 593 and Premier Confectionary (London) Company Ltd v London Commercial Sale Rooms Ltd [1933] Ch 904. ↩
[2008] QSC 274 at [75]. ↩
See, for example, Straudley Investments Ltd v Mount Eden Land (1996) 74 P&CR 306 at 310; Premier Rinks Ltd v Amalgamated Cinematograph Theatres Ltd [1912] WN 157; Mills v Cannon Brewery Company Ltd [1920] 2 Ch 38 at 47; Cathedral Place v Hyatt [2003] VSC 385 at [29], per Nettle J (as his Honour then was); Allmere v Burbank Trading [2008] VSC 139 at [228]. ↩