Equuscorp Pty Ltd & Anor v Antonopoulos [2008] VSCA 179

Court of Appeal (Vic)|2008-09-16|Before: BUCHANAN and DODDS-STREETON JJA and OSBORN AJA

Landlord and tenant - Afforestation scheme - Seven leases of the same land for a combined period of 25 years - Unenforceable as a breach of the Local Government Act 1919 (NSW) - Leases void for uncertainty - Boundaries of the demised land not identified - Tenants not estopped.

1 This appeal concerns the question whether leases entered into as vehicles to obtain taxation deductions for the participants in an afforestation scheme were enforceable when the underlying enterprise failed.

2 In June 1990 the respondent, with a number of other persons, invested in a scheme promoted by Seymour Softwoods Ltd ('Seymour Softwoods') entitling him to participate in the profits that might arise from harvesting pine trees on a plantation near Tumbarumba in New South Wales and to obtain tax deductions in respect of sums he contributed to the scheme.

3 The scheme was offered to the public pursuant to a prospectus registered under the companies legislation. The second named appellant granted the respondent seven separate leases of the same two hectares of land for a combined period of 25 years. Six of the leases were for a term of four years and the final lease was for a term of one year.[1] The rent was $150 per hectare per annum for the first year and was adjusted thereafter according to increases in the Consumer Price Index. The multiplicity of leases represented an attempt to avoid the provisions of the Local Government Act 1919 of New South Wales ('the Act'), which forbade the subdivision of land save in accordance with the Act, but excepted a lease for a term of five years or less.

4 The respondent also entered into two contracts with Seymour Softwoods. The first contract required the respondent to pay $4,600 per hectare of the leased land and Seymour Softwoods agreed to establish a pine plantation on the land. The second contract provided for maintenance and insurance of the trees. It was contemplated in the prospectus that income would result from thinning and finally clear felling of the trees at the end of the last lease.

5 A trust was established to administer the scheme. The trustee represented the investors, received payments from the investors and the proceeds of felling trees, paid the expenses of establishing and maintaining the plantation and was to pay the profits to the investors.

6 The trust deed provided for pooling the net profits of the plantation and distributing the net profits rateably among the investors.

7 The scheme failed. Seymour Softwoods became insolvent and in 1993 ceased maintaining the plantation. In December 1994 the trustee dismissed Seymour Softwoods as manager. In October 1995 the trust was wound up. There was a succession of assignments of the rights of the lessor under the leases. Eventually the first named appellant ('Equus') became lessor.

8 The investors refused to pay rent to Equus, which led Equus to treat them as having repudiated the leases. Equus entered into a new lease of the plantation and sued the investors in the Supreme Court for arrears of rent to the date when the repudiation was said to have been accepted and damages for loss of bargain. This proceeding was the first to come to trial.

9 The trial judge held that the leases were to be considered together and constituted an agreement for a lease or leases for a period exceeding five years. As no steps had been taken to subdivide the land according to the provisions of the Act, the leases were unenforceable. His Honour held that the respondent was not estopped from contending that the leases were rendered unenforceable by the provisions of the Act. The trial judge also held the leases were void for uncertainty in that the description of the land did not enable the boundaries of the demised land to be clearly identified. Again, his Honour rejected a contention that the respondent was estopped from denying that the lease identified the land demised to him with sufficient certainty.

10 Equus has appealed to this Court from the trial judge's decision.

11 The subdivision issue depended upon the following provisions of the Act. Section 4 of the Act contained a definition of 'subdivision' as follows:

"Subdivision", "subdivide", and similar expressions mean and refer to dividing land into parts, whether the dividing is:

(b) by any agreement dealing or instrument inter vivos (other than a lease for a period that, including any period for which the lease could be renewed by the exercise of an option, does not exceed five years) rendering different parts thereof immediately available for separate occupation or disposition ...

The section defined 'lease' as including an agreement for a lease.

12 Section 323(1) of the Act prohibited subdivision except in accordance with the Act, which required approval of the subdivision by the local council and registration of a plan of subdivision.

(3) Nothing in this section shall be deemed to render any agreement to sell, let or otherwise dispose of any land illegal or void by reason merely that it is entered into before an application in respect of the subdivision has been approved by the council, but the agreement shall be deemed to be made subject to such approval being obtained.

14 Counsel for Equus contended that each of the seven leases took effect as an independent instrument and did not make the land 'immediately available for separate occupation or disposition' until the expiration of the preceding lease in the series. The trial judge erred, so it was said, by failing to recognise that the leases after the first lease did not render the land 'immediately available' for separate occupation, for none of those leases operated as an immediate demise of the land.

15 In fact, the combined operation of the leases, which all took effect as agreements when made, was to grant the respondent an immediate right to separate occupation of the land and a right to continue in occupation for 25 years. It is beside the point that six of the leases did not confer an immediate right of occupation on the date on which each of them was executed unless it is impermissible to have regard to all the agreements made at the same time between the same parties. In my view it was appropriate to have regard to the whole transaction. The language of the definition of 'subdivision', in speaking of 'any agreement dealing or instrument inter vivos' and defining lease to include agreement for lease, was clearly designed to cast a wide net and embrace commercial reality. Here the commercial reality was to grant the respondent an enforceable right to occupation of land for a period of 25 years.[2] In any event, the individual leases were immediately available for disposition.[3]

16 The parties to the leases treated the leases as interdependent and conferring a right to continuous occupation. The leases themselves were expressed to be interdependent. For example, each lease provided that if the lessor re-entered and determined any prior lease, the later lease would 'automatically determine', and the rent was initially to be calculated by having regard to the rent payable 'in respect of the lease granted by the Lessor to the Grower in respect of the land which terminated on the day prior to the Commencement Date.' The purpose of the transaction into which the respondent entered was to provide him with a long term investment tied to exploitation of the same piece of land for a period of 25 years.

17 Counsel for Equus submitted that the trial judge erred in holding that s 327(3) of the Act rendered the leases unenforceable. It was submitted that non-fulfilment of the condition imposed by the provision did not mean there were no antecedent legal rights and remedies. It was pointed out that the respondent did pay rent and claimed tax deductions. According to Equus, the respondent repudiated the agreement before fulfilment of the condition.

18 I disagree. The condition imposed by s 327(3) was plainly a condition of performance.[4] The construction and effect of the provision does not depend upon whether the respondent paid rent or claimed tax deductions. When the respondent was said to have repudiated the agreement, the condition imposed by the Act had remained unfulfilled for a period of six years. Equus and its predecessors were required to fulfil the condition within a reasonable time and failed to do so.[5]

19 It was further submitted on behalf of Equus that the Act was not concerned with the rights of parties to a contract inter se or the creation of rights in personam. In my opinion the Act introduced the statutory condition to the performance of the agreement, a condition which applied to all the rights created by the agreement, not merely to the ability of owners of an interest in land to deal with the land.

20 Finally, it was submitted that the respondent was bound to pay for his use and occupation of the land in an amount equivalent to the rent reserved under the lease. The decision of this Court in Ovidio Carrideo Nominees Pty Ltd v The Dog Depot Pty Ltd[6] was relied on.

21 In that case the tenant had paid rent for a period for which it was not liable to do so by reason of the provisions of s 8 of the Retail Tenancies Reform Act 1998. The appeal concerned the landlord's defence to a claim by the tenant for money had and received, a restitutionary claim as distinct from a claim founded on contract or tort or a claim for equitable relief. The basis of the decision denying the tenant restitution was that the landlord had a good defence of consideration, being a 'matter or circumstance which showed that the receipt or retention of the payment was not unjust.'[7] The consideration was the use and occupation of the premises given to the tenant in return for the payments made.

22 That is not this case. In the present case Equus did not raise use and occupation of the land by the respondent as a competing equity. The bulk of the claim made by Equus was a claim in damages for loss of a bargain and otherwise was a claim for arrears of rent.

23 The estoppel pleaded by Equus to overcome the subdivision defence was that the respondent was estopped from resiling from a mutual assumption that the leases 'would be valid and enforceable and did not require subdivision under the Act.'

24 The trial judge decided that the claimed estoppel was unavailable as it was contrary to the social policy underlying the Act's prohibition of unauthorised subdivisions. His Honour distinguished the decision of the New South Wales Court of Appeal in Silovi Pty Ltd v Barbaro[8]. In that case land was leased to a husband and wife for a period of ten years to enable them to grow a crop of palm trees. No steps were taken to subdivide the land in accordance with the provisions of the Act. The lessees occupied the land and incurred considerable expenditure clearing it, installing an irrigation system and planting the palm trees. Silovi Pty Ltd, the occupier of adjoining land, knew of the lease and the expenditure by the lessees. The lessors sold the land to Silovi Pty Ltd, which declared that it did not intend to be bound by the lease. The lessees brought proceedings and claimed that Silovi Pty Ltd was estopped from denying that they were entitled to occupy the land.

25 The trial judge held that the estoppel had been established and fashioned a remedy that avoided the prohibition against unregistered subdivisions by a declaration that the lessors were entitled to a licence to enter upon the leased land. The decision was upheld on appeal. Priestley JA, with whom the other members of the Court agreed, said that orders enforcing the equities in the case could be made if they were framed so that there was no breach of the provisions of the Act. He continued:

The effect of the orders is not to render the relevant parts of the land immediately available for separate occupation (which because of the definition of "subdivision" already referred to might well be contrary to the section) but to ensure to the plaintiffs access to the land and their Cocos palms which does not preclude the owners from occupation of the land, and is not inconsistent with the usual idea of licences, that is, permitting the use of land by the licensee simultaneously with the continuing occupation of the owner.[9]

26 His Honour distinguished that case, saying that the remedy allowing access to the land while the owner was in occupation was inconsistent with a lease granting exclusive possession to the respondent and that the estoppel in that case was a proprietary, rather than a conventional estoppel.

27 In this Court counsel for Equus, relying upon the decision in Silovi Pty Ltd v Barbaro, submitted that the relief sought by the lessor in the present case did not contravene the Act. Equus did not seek an order which gave effect to or allowed a subdivision, but only advanced a money claim. The money claim, however, was based upon the existence of a lease. The money Equus claimed was the price of granting the respondent exclusive possession of the land, not anything less, such as a licence, and the estoppel claimed was one which depended upon a mutual assumption that the leases were valid and enforceable.

28 The Court in Silovi Pty Ltd v Barbaro did not stay to investigate the question whether an estoppel lay in the face of the statute.[10] That question depends upon the nature of the statutory provision, its purpose and the social policy behind it. The test was expressed by Viscount Radcliffe in Kok Hoong v Leong Kheong Kwong Mines Ltd. He said:

In their Lordships' opinion a more direct test to apply in any case such as the present, where the laws of money lending or monetary security are involved, is to ask whether the law that confronts the estoppel can be seen to represent a social policy to which the Court must give effect in the interests of the public generally or some section of the public, despite any rules of evidences between themselves that the parties may have created by their conduct or otherwise.[11]

29 In the present case I am of the opinion that the nature of the estoppel alleged by Equus did run directly counter to the social policy behind the provisions of the Act concerned with subdivisions. The social policy promoted by the Act was to ensure that a subdivision of land into separate lots was only to occur when a local authority had determined it was appropriate having regard to the matters set out in s 331(1A) of the Act, which included the size and shape of each lot, the length of road frontage, the means of access to each lot, the drainage of the land, whether the land was subject to flooding, whether the land was subject to subsidence or slip and the amount of land to be provided as a public reserve. In my opinion it does fly in the face of that policy to permit the lessor of land to recover rent or monies representing lost rent from a person in consideration of granting him exclusive possession of the land.

30 The estoppel pleaded in this case did not nullify or limit a statutory protection afforded to the respondent but it did recognise and sought to enforce obligations dependent upon a subdivision otherwise than in accordance with the Act. Equus contended that a pine plantation was not the sort of land use that was within the contemplation of the Act. In my view the use to which subdivided land is put is not to the point. The Act was aimed at informal subdivisions of the type achieved by the leases granted to the respondent.

31 Equus relied upon the evidence given by the shire clerk to the effect that the Tumbarumba Shire Council did not regard the Act as applicable and did not want a subdivision of the land in accordance with the Act. I consider the views of the shire clerk and the Council irrelevant to the question whether the provisions of the Act applied to a subdivision effected by the leases granted to the respondent.

32 The defence of uncertainty was based upon the contention that the leases did not contain a sufficient description of the boundaries of the land to enable it to be located with the requisite precision for an enforceable lease.

33 The lease identified the subject matter of the demise as 'All that land delineated and coloured green on the plan ... annexed hereto but nevertheless being an area of 2.00 hectares and being part of the plantation.' In 1992 the description of the demised land was altered. A notice was sent to the respondent stating:

As a result of surveying the final planted areas we have amended the location of your plantation allotments. The original allotment was from the topographical chart and did not allow for variation such as steep grades or rocky areas which cannot be planted. After planting, a final survey is conducted which reallocates all allotments on to planted areas.

The respondent accepted the change. A plan was enclosed with the notice, depicting 548 lots bounded on one side by a river and intersected by a creek.

34 The parties led evidence as to the extent to which the demised land could be identified. A forester called by the respondent said that, as the plan did not contain bearings at any reference point, measurements of the lot or the whole of one or more sides of the plantation or an accurate scale, he was only able to locate the boundaries of the lot to within plus or minus 100 metres. He did so by using materials such as aerial photographs, topographic maps, readings from a global positioning device and digital data of the measurements of the title boundaries. Equus called the surveyor who prepared the plan sent to the respondent. He said that he created the lots with a computer program based upon the boundary measurements and earlier calculations. He acknowledged that the plan was not sufficiently accurate to enable the subdivision to be approved and said that he contemplated the preparation of a more accurate plan following the making of a final survey. He conceded that another surveyor could not locate the lot solely by reference to the plan.

35 The trial judge found that it was not possible for the respondent, or a surveyor or other expert engaged by him, to locate the lot demised to him by reference only to a description of the land contained in the plan sent to the respondent in 1992. His Honour held that it was not sufficient that a surveyor could ascertain the whereabouts of the lot by reference to material outside the lease and further surveying work. The lease was uncertain if the boundaries of the land were not capable of being ascertained by reference to the description in the lease.

36 Equus contended that it was permissible to rely upon material extrinsic to the lease to resolve uncertainty. His Honour, however, held that the only extrinsic evidence to which the Court could have regard was evidence which established matters known to the parties at the time the contract was made.[12] The extrinsic material relied upon by Equus, said his Honour, sought to add to the leases to give certainty where there was none, rather than establishing the knowledge and intention of the parties at the time of the contract.

37 On appeal, Equus conceded that the description of the boundaries of the lot in the lease was imprecise, but contended that the parties accepted when the leases were granted that the lot could not be precisely identified and that they had in mind 'a right of such a nature that approximation as to position was sufficient.'[13] The argument was based upon the willingness of the respondent to participate in the pooling arrangements of the scheme. Once the pooling of expenses and income ceased, however, and Equus sought to enforce the payment of rent for exclusive possession of the land, the precise identification of the land became critical. The lease was required to identify precisely the land which the respondent was entitled to occupy to the exclusion of Equus and the rest of the world.

38 It was also contended that the trial judge erred in holding that the description of the land in the lease was required to be sufficient of and by itself. It was submitted that the requirement of certainty was met if the description in the lease was unambiguous and enabled the land to be ascertained by further work by reference to that description. In my opinion it is one thing to identify land by applying a description found in a lease to the known facts and quite another to perform further surveying work and consult materials known only to the lessor for the purpose of working out afresh the boundaries of the land. The latter is not a legitimate means of resolving uncertainty in the terms of a lease.

39 Equus contended that the parties shared a common assumption that the leases 'would be valid or enforceable'. It was submitted that by reason of the pooling arrangements upon which the scheme was based, neither Equus nor the respondent was concerned to identify the boundaries of the demised land. The respondent paid rent and claimed tax deductions and would have participated in any profits without the need to precisely locate his land. The trial judge found that there was no such common assumption. This conclusion was criticised by counsel for Equus on the basis that the trial judge was required to confine his enquiry as to the existence of a common assumption to the time the lease was made, when it was contemplated that the pooling arrangements would operate satisfactorily.

40 I do not think that the fact that the respondent was not concerned to identify the boundaries of his land while the pooling arrangements were in operation, or it was contemplated that they would operate, establishes a comprehensive assumption on his part that the leases were valid and enforceable, an assumption which operated in the circumstances in which the parties found themselves when the pooling arrangements collapsed. Equus sought to enforce obligations which depended upon precise identification of the boundaries of the land. In addition to breach of the covenant to pay rent, Equus alleged that the respondent was in breach of covenants to destroy and keep down rabbits, other vermin, thistles and noxious weed 'on the leased land', to use and manage 'the leased land' in a proper business like and reputable manner and to keep any and all fences on 'the leased land' in good and substantial repair. Those obligations were in existence from the outset.

41 The trial judge also concluded that there was nothing unjust or unconscientious in the respondent relying upon the uncertainty in the leases as a ground for refusing to perform them further. It was only after the collapse of the afforestation scheme, which was due to Seymour Softwoods failing to maintain the plantation, that the respondent sought to avoid the leases on the basis that the land leased to him was not identified. At the time it was sought to enforce the obligations

on the part of the respondent, there was no contractor to maintain the plantation, there was no trust under which thinning and clear felling proceeds could be pooled, and it was impossible for the respondent to precisely identify the boundaries of his lot to enable him either to maintain the trees on his land or to take advantage of the right which he was given under the lease to clear fell his lot. In my opinion it could not be said that it was unjust for the respondent to rely upon the fact that Equus could not identify the land the subject matter of the lease.

42 It appears that the common assumption advanced by Equus was no more than a recognition by the parties to the leases that while the overall scheme operated in the manner contemplated at the outset, there was no need to identify the land leased to each investor. In my view that assumption was too slight a basis for constructing a position from which the respondent could not in conscience resile when the entire scheme collapsed.

43 For the foregoing reasons I am of the opinion that the appeal should be dismissed.

44 I have had the advantage of reading in draft the reasons prepared by Buchanan JA. I agree with the disposition proposed by his Honour for the reasons he gives.

45 I have also had the advantage of reading in draft the reasons of Buchanan JA. I agree with the disposition proposed by his Honour for the reasons he gives, but would add the following with respect to the construction of the relevant provisions of the Local Government Act 1919 of New South Wales ('the Act').

46 First, as the trial judge observed, the obvious legislative intent of the provisions is to prevent parties in the relationship of landlord and tenant, from

entering into an arrangement under which the lessee is entitled to occupation of a part of land for a continuous period exceeding five years, without subdividing the land in accordance with the Act.

47 Secondly, the construction which Buchanan JA advances is entirely reasonable in its general consequences. The effect is not to prohibit lease arrangements of the

type in issue, but simply to render them subject to regulation by council approval. Conversely, the construction for which the appellant contends would allow, in effect, the long term division of land into separate occupancies, without any consideration of the consequences affecting the public interest, by reference to the factors specified in the Act[14].

[1] Leases were employed because the availability of tax deductions depended, inter alia, upon each investor having an interest in an identifiable area of land.

[2] The definition itself contemplated that an option was not to be seen as a separate 'agreement dealing or instrument inter vivos'.

[3] Registrar-General v Lee (1998) 19 NSWLR 246 at 242 (Kirby P) and 265 (Meagher JA).

[4] Compare Hopkins v Seymour Softwoods Ltd [1998] 1419 FCA; BC 9805965 at p 13.

[5] See Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537.

[10] See Overmyer Industrial Brokers Pty Ltd v Campbells Cash & Carry Pty Ltd [2003] NSWCA 305, [52]-[56] (Young CJ in Equity).

[12] Prenn v Simmonds [1971] 1 WLR 1381, 1303 (Lord Wilberforce); DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423, 429 (Stephen, Jacobs and Mason JJ).

[13] Claude Neon Ltd v Melbourne and Metropolitan Board of Works (1969) 43 ALJR 69, 71 (Kitto J).

Local Government Act 1919

Retail Tenancies Reform Act 1998

Local Government Act 1919

Retail Tenancies Reform Act 1998

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