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[2003] NSWSC 851
plaintiff. Declarations and specific performance ordered: Global holds the land subject to HBL's equitable interest under the agreement for a new 11-year lease and is ordered to grant that lease; Global...
HBL operated Penrose Quarry under a registered lease from AMES. In September 1999 AMES and HBL agreed different terms for a renewal and, rather than a strict exercise of the option, created a new agreement for an 11-year lease beginning 10 November 2000. AMES transferred the land to Global before the new lease was executed. The Court held that, on the evidence, Global either authorised or acquiesced in assurances that the transfer would not affect HBL's position and repeatedly treated the arrangements as binding; accordingly HBL had an equitable interest enforceable against Global. Using s 118, the fraud/acknowledgement exception to Torrens indefeasibility, proprietary estoppel and estoppel by convention, the court ordered Global to specifically perform the agreement for lease, restrained Global from terminating HBL's occupation, dismissed Global's cross-claim, and directed quantification of royalties overpaid to Global (paras 23-36, 52-69, 94-116, 139-158, 201-208).
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2 cited instruments linked from this judgment.
Heggies Bulkhaul Ltd (HBL) had been operating the Penrose Quarry under a registered lease granted by Australian Machinery Equipment Sales Pty Ltd (AMES). That lease (registered lease No 691505) ran for five years from November 1995 and contained three 11‑year options to renew (para 1). In September 1999 a short series of letters between AMES (through its officer Mr Kekatos) and HBL (through Mr Breeze) produced departures from the option clause: AMES purported to permit early exercise, agreed that the first year’s royalty would not be increased, and accepted replacement of the 12.5% royalty fraction in the rent‑review formula with 11% “effective from this date forth” (paras 16-22, 190-193). HBL wrote at various points as if it had exercised the option; AMES wrote as if it accepted. On 8 December 1999 AMES executed transfers of the freehold/reversion to Global; the transfer was registered on 2 May 2000 (para 38).
HBL asserted that the September correspondence produced an enforceable agreement for a new 11‑year lease commencing 10 November 2000, and sought declarations and specific performance against Global. Global argued the correspondence did not validly exercise the option and, in any event, as registered proprietor it was not bound by an unregistered agreement; Global also cross-claimed alleging numerous breaches by HBL (royalty shortfalls, unauthorised works, failure to insure, failure to provide statements, weighbridge irregularities, etc.) and claimed rights to re‑enter and damages (paras 2‑6, 5).
After protracted hearings, including an appointment of a court expert under Part 39 to resolve tonnage/royalty questions, Austin J concluded that the correspondence of 20 September 1999 produced a new agreement for a lease (not a valid exercise of the option), and that HBL’s equitable interest under that agreement was enforceable against Global. The judge reached that result by holding (1) s 118 of the Conveyancing Act could operate to bind successors in title in many cases; (2) s 42 of the Real Property Act sets the Torrens priority rules and overrides s 118 where inconsistent (Leros); and (3) crucially, on the facts Global either authorised or acquiesced in assurances (especially the letter of 16 December 1999) and repeatedly acted as if the AMES/HBL arrangements applied post-transfer. That conduct supplied the equitable foundation – express/constructive trust or fraud/acknowledgement, proprietary estoppel and estoppel by convention – to permit specific performance of the agreement for lease against Global (paras 23-36, 50-69, 75-116, 139-157). Global’s cross-claim largely failed, and HBL was entitled to recover overpayments properly attributable to Global (paras 201-208).
There are three linked legal threads in Austin J’s reasoning.
Contractual characterization of the September correspondence (paras 23-33).
The court analysed whether the Sept 1999 exchange was (a) a valid exercise of the option as drafted in the registered lease, or (b) a conditional exercise which in legal effect was a counter‑offer producing a new agreement. The judge applied established contract principles (including the notion that an option prescribes the manner and conditions of acceptance) and concluded that where HBL required an amendment to the option terms (notably the royalty percentage) the transaction was better characterised as a new agreement for a lease resulting from offer and acceptance, not exercise of the original option (paras 23-33). Key legal point: a purported exercise which changes the option’s prescribed terms is a counter‑offer (paras 24-27).
Whether a successor registered proprietor (Global) can be bound by obligations made by the original lessor (s 118 v s 42) (paras 41-83, 75-83).
Section 118 annexes certain lessor obligations to the reversion and can permit enforcement by a lessee against successors in title. But the Torrens system (Real Property Act s 42) contains an express priority regime and indefeasibility that can override s 118 (High Court in Leros). Austin J read the authorities to mean that s 118 can bind successors where it does not conflict with the priority rules; where it would produce inconsistency with s 42, s 42 prevails (paras 75-83). Thus, HBL’s 11‑year equitable interest would ordinarily be defeated by registration, because s 42 protects registered proprietors against unregistered interests for terms exceeding three years, absent fraud or an applicable exception (paras 78-89).
Equity: acknowledgements, estoppel and the fraud/repudiation exception (paras 94-116, 139-157).
Because the facts showed Global (or its controllers) authorised or acquiesced in representations (the 16 December 1999 letter) and thereafter acted in ways that repeatedly treated the AMES/HBL arrangements as operative (letters, demands, acceptance of royalties, consent to assignment on the basis of an existing lease, notices premised on a renewed lease), the judge concluded that Global was either bound by an express/constructive trust or had engaged in conduct amounting to fraud for the purposes of s 42 should it attempt to deny the unregistered interest. Independently, proprietary estoppel and estoppel by convention were made out because HBL acted to its detriment on a reasonable expectation created/encouraged by Global, and the parties had operated on a common assumed state of affairs which it would be unconscionable for Global to repudiate (paras 110-116, 139-157). Those equitable doctrines provided independent bases to enforce the agreement for lease against Global.
On those combined statutory and equitable bases the court ordered specific performance and declarations, restrained Global from terminating HBL's occupation pending grant of the lease, dismissed Global’s cross-claim, and required quantification of royalty overpayments recoverable from Global (paras 201-210, 206-207).
Before this decision the legal landscape contained three competing strands:
Austin J’s judgment performs two calibrations. First, he confirms that s 118 remains operative and can attach to obligations arising by agreement under hand (drawing on Weg Motors and Walsh v Lonsdale) and to arrangements varying payment terms; but he affirms that s 42 overrides s 118 where they would produce inconsistent priorities (para 75). Second, he emphasises that the equitable armoury (fraud/acknowledgement, proprietary estoppel, estoppel by convention) continues to produce exceptions to indefeasibility where a registered proprietor’s conduct creates or acknowledges rights which the registered proprietor later seeks to defeat (paras 94-116, 139-157). In practical terms the decision underlines that a registered proprietor cannot simply rely on the register where its own antecedent undertakings or subsequent conduct generated equities that induced the tenant’s reliance.
The decision also criticises Chaisumdet (which had allowed s 118 to displace s 42 in a closely-related factual setting) and aligns with the High Court’s Leros analysis (paras 90-94, 75).
Para 26: "…a lessee purports to exercise an option subject to a condition… the lessee's notice… must in reality be a counter-offer…"
Plain English: If the tenant says 'I accept, but only if you change this term', that is not acceptance, it's a new offer to be accepted or rejected.
Para 50: "Section 118… annexes the lessor's obligation to 'the reversionary estate immediately expectant on the term granted by the lease'."
Plain English: The statutory covenant can attach to the estate that becomes owner of the land when the lease ends, not just to the lessor's temporary interest during the lease.
Para 75: "…the High Court has held… the indefeasibility provisions of the Torrens system… set up special rules for priority…and override the general rule created by s 118."
Plain English: The Torrens register's rules about who has priority beat the older s 118 rule where they conflict.
Para 112-114: discussion of the 16 December 1999 letter and ensuing inference of an undertaking/express trust and that repudiation could be fraudulent for s 42.
Plain English: AMES' written assurances about the transfer and HBL's consent meant the new owner (Global) could not later pretend those assurances never mattered; if it tried, equity would treat that as dishonest and impose obligations.
Para 146: "I am persuaded that HBL has made out the ingredients of proprietary estoppel… HBL therefore has an equity against Global…"
Plain English: Because HBL acted on Global's assurances to its detriment, equity requires Global to honour the promise and the court can order the new lease.
The judgment is most directly engaged by fact patterns with these features:
If those facts are present, Austin J’s analysis supports an application of s 118 in combination with equitable doctrines (estoppel, fraud/acknowledgement, constructive trust) to bind a registered proprietor to an unregistered agreement for lease.
Because the judgment synthesises statutory interpretation and equitable doctrine, later courts will typically do two things when facing similar disputes:
Practitioners should therefore expect that where a transferee is a genuine purchaser with no relevant undertakings and genuinely takes with notice only, Austin J’s path will not be available: the register will usually prevail unless stronger equitable facts exist.
Limits of s 118 post-Leros: Austin J reads s 118 broadly but accepts s 42 overrides where inconsistent. The precise outer boundaries of obligations that s 118 will bind (personal covenants v those creating equitable proprietary interests) remain fact-sensitive and may require further appellate refinement (paras 70-76).
Degree of conduct needed for the fraud exception: Austin J applied Bahr v Nicolay reasoning to infer fraud/constructive trust from the 16 December 1999 letter and later repudiation (paras 112-116). The extent to which lesser forms of post‑registration acquiescence suffice to create constructive trusts or to satisfy the fraud exception to s 42 will continue to be litigated.
Interplay between estoppel species and conventional registration mechanics: The judgment applies estoppel by convention and proprietary estoppel to similar effect. Future cases will need to refine when estoppel by convention (usually weaker, injunctive) supports an order for specific performance of a lease, and when proprietary estoppel (stronger) does.
Quantification of restitutionary claims post-transfer: Austin J directed quantification of royalties recoverable from Global and provisionally selected 16 December 1999 as the cut-off for Global liability (para 207). Courts will need to articulate precise tests for allocating pre‑ and post-transfer payments when both AMES and Global received sums and the arrangements were informal/unregistered.
Application to more arm's-length transfers: This case involved overlapping control and familial relationships between AMES and Global. How the decision applies where the transferee is genuinely independent, even if it receives assurances from the transferor, may turn on whether the transferee authorised or properly acquiesced in undertakings at the time of transfer.
Practical lesson for lawyers and compliance officers: where an owner seeks to transfer Torrens land while having made undertakings to tenants, ensure undertakings are documented, recorded or the transferee expressly assumes them; conversely, tenants should secure their rights by registration or clear contemporaneous deeds or insist on recorded caveats and written undertakings at transfer to avoid the hard evidential task of proving equitable exceptions after the event.
CITATION : Heggies Bulkhaul v Global Minerals Australia [2003] NSWSC 851 HEARING DATE(S) : 10/12/01, 11/12/01, 12/12/01, 13/12/01, 14/12/01, 22/04/02, 24/04/02, 02/05/02, 06/05/02, 25/06/03, 26/06/03, 27/06/03, 01/07/03 JUDGMENT DATE : 19 September 2003 JURISDICTION: Equity Division JUDGMENT OF : Austin J DECISION : Specific performance and declarations granted; cross-claim dismissed.
CATCHWORDS : REAL PROPERTY - leaseholds - when lessor's obligations run with the reversionary estate under s 118 - meaning of reversionary estate - scope of s 118 - relationship of s 118 with indefeasibility rules - whether registered proprieter holds land subject to equitable tenant's interest LEGISLATION CITED : Conveyancing Act 1919 (NSW) ss 6, 116, 117, 118, 122, 127 Real Property Act 1900 (NSW) s 40, 42, 53 Alcova Holdings Pty Limited v Pandarlo Pty Ltd (1988) 15 NSWLR 53 Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] 1 QB 84 Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 Bahr v Nicolay (No 2) (1988) 164 CLR 604 Barnes v City of London Real Property Co [1918] 2 Ch 18 Barry v Heider (1914) 19 CLR 197 Batiste v Lenin [2002] NSWSC 233 Bickford v Parson (1848) 5 CB 920 Bigazzi v Brandigo Pty Ltd (1981) 2 BPR 9341 Blane v Francis [1920] 2 KB 1 6 Breams Property Investment Co Ltd v Stroulger [1948] 2 KB 1 Breskvar v Wall (1971) 126 CLR 376 Burnside Sub-branch RSSILA Inc v Burnside Memorial Bowling Club Inc (1990) 58 SASR 324 Caboche v Ramsay (1993) 1 119 ALR 215 Chaisumdet v Ming On Trading Pty Ltd (1990) NSW ConvR para 55-518 Cole v Kelly [1917] 1 KB 252 Commonwealth v Verwayen (1990) 170 CLR 394 Con-Stan Industries Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226 Dabbs v Seaman (1925) 36 CLR 538 Davies v Town Properties Investment Corpn Ltd [1903] 1 Ch 797 Dillwyn v Llewelyn (1862) 4 De GF & J 517 Dockrill v Cavanagh (1944) 45 SR(NSW) 78 Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 Foran v Wight (1989) 168 CLR 385 Frazer v Walker [1967] 1 AC 569 Friedman v Barrett [1962] Qd R 498 Fuller v Happy Shopper Markets Ltd [2001] 1 WLR 1681 Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Limited (1959) 59 SR 122 Giumelli v Giumelli (1998) 196 CLR 101 Greer v Kettle [1938] AC 156 CASES CITED : Hayes v Gunbola Pty Ltd (1986) 4 BPR 9247 Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd [2002] NSWSC 410 Hilton Hotels (Aust) Pty Ltd v Sunrise Resources (Aust) Pty Ltd (2000) 9BPR 97,811 Junghenn v Wood (1958) 58 SR(NSW) 327 Kenneth Allison Ltd v AE Limehouse & Co [1992] 2 AC 105 Lee v Ferno Holdings Pty Ltd (1993) 33 NSWLR 404. Leros Proprietary Limited v Terara Proprietary Limited (1992) 174 CLR 407 Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491 Mercantile Credits Ltd v The Shell Company of Australia Ltd (1976) 136 CLR 326 Mills v Stokman (1967) 116 CLR 61 Noyes v Klein (1984) 3 BPR 97,178 Ory & Ory v Betamore (1993) 60 SASR 393 Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562 Platt v Ong [1972] VR 197 Plimmer v Wellington Corporation (1984) 9 App Cas 699 Ramsden v Dyson (1866) LR 1 HL 129 Re Hunter's Lease [1942] Ch 124 Republic of India v India Steamship Co Ltd [1998] AC 878 Riches v Hogben [1985] 2 Qd R 292 Rickett v Green [1910] 1 KB 253 Riseda Nominees Pty Ltd v St Vincent's Hospital (Melbourne) Ltd [1998] 2 VR 70 Rye v Purcell [1926] 1KB 446 Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 Snowlong Pty Limited v Choe (1991) 23 NSWLR 198 Standen v Christmas (1847) 10 QB 135 Stieper v Deviot Pty Ltd (1977) 2 BPR 9602 Thomson v Cross [1954] VLR 635 Walsh v Lonsdale (1982) 21 Ch D 9 Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 Wedd v Porter [1916] 2 KB 91 Weg Motors Ltd v Hales [1961] Ch 76 Wykes v Samilk Pty Ltd [1998] Aust Contract R 90-097 PARTIES : Heggies Bulkhaul Limited (P, XD) Global Minerals Australia Pty Limited (D, XC) FILE NUMBER(S) : SC 2810/01 COUNSEL : A. J. Meagher SC with J. D. Smith (P) D. H. Murr SC with D. P. Robinson (D) SOLICITORS : Pricewaterhouse Coopers Legal (P) Williams Oates Lawyers (D)
IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION
2810/2001 HEGGIES BULKHAUL LIMITED v GLOBAL MINERALS AUSTRALIA PTY LIMITED JUDGMENT 1 HIS HONOUR: Heggies Bulkhaul Ltd ("HBL") is in possession of and currently operates a gravel and sand mining facility known as Penrose Quarry on land held under the Real Property Act 1900 (NSW) by Global Minerals Australia Pty Ltd ("Global"). The land comprises lots 1, 2, 3, 4 and 5 in Deposited Plan No 253462. HBL was in possession of the quarry under a registered lease No 691505 ("the old lease") for a term of five years terminating on 9 November 2000. The old lease contained three options to renew for periods of 11 years each. The lessor was Australian Machinery Equipment Sales Pty Ltd ("AMES"), but it transferred the land to Global by memoranda of transfer dated 8 December 1999, registered on 2 May 2000. 2 By its fourth further amended summons filed on 25 June 2003, HBL seeks relief of four kinds. First, it seeks declaratory orders as to the existence of, and an order for specific performance of, an agreement for a new lease of the quarry for a further term of 11 years commencing on 10 November 2000 on substantially the same terms as the old lease (subject to minor variations specified in the summons). It does so on two alternative grounds: first, it contends that an agreement for a new lease arose because it validly exercised the first option to renew under the old lease; secondly, it argues that in fact there was an agreement for a new lease made on or about 20 September 1999. In either event, HBL contends that it has an equitable interest as lessee under an agreement for a new lease, although a new registered lease has not been granted to it. 3 Secondly, HBL seeks declarations that Global is not entitled to re-enter the land or terminate the agreement for the new lease or its equitable interest as lessee under that agreement. Specifically, it contends (contrary to the allegations of Global) that it is not in breach of any obligations under the old lease or the agreement for a new lease with respect to: (a) the payment of royalties due during the term of the old lease; (b) the payment of royalties due during the term of the agreement for a new lease; (c) its obligations to restore or rehabilitate the land under the agreement for a new lease; (d) any conditions of consent relating to the use of the quarry. 4 Thirdly, in the event that it is found to have breached any of its obligations under the old lease or the agreement for a new lease, HBL seeks to be relieved from forfeiture. Fourthly, HBL seeks to recover the sum of $295,778.73. 5 Global has made a cross-claim, but on the final day of the hearing, 1 July 2003, some of the relief it previously sought was abandoned. The cross-claim current at the time of the final hearing was the amended cross-claim filed on 17 May 2002. Global there sought a declaration that the purported exercise of the option by HBL was invalid; and also declaratory relief and other orders on the ground that if the agreement for a new lease were otherwise enforceable against it, HBL breached the terms of the agreement, and that as a result of these breaches Global was entitled to re-enter the property and to recover damages. The breaches alleged in the cross-claim were: (i) failure to carry out restoration and rehabilitation work, as particularised; (ii) failure to pay royalties in the sum of $1 million accrued during the period 11 November 1995 to 1 May 2002; (iii) carrying out unauthorised works, principally in relation to Area 10; (iv) failure to provide various notices and consents, by the Environment Protection Agency and the Department of Mineral Resources of New South Wales; (v) failure to take out and maintain public liability insurance for at least $10 million, and to provide evidence of renewal of a public liability policy; (vi) failure to provide monthly sales statements; (vii) failure to maintain the weighbridge and keep it in accurate working condition; (viii) failure to indemnify Global in respect of GST payable on royalty payments since 1 November 2000; (ix) refusing Global's agent entry upon the land for inspection. 6 The summons and cross-claim raised nine issues, which I articulated at the beginning of the hearing in December 2001:
The estoppel evidence 120 In my opinion the estoppel evidence, to which I shall now turn, shows that from December 1999 until 1 July 2003, Global has engaged in a course of conduct, the overall effect of which is that it has consistently and routinely recognised that the arrangements between it and HBL are no different from the arrangements that previously existed between AMES and HBL. 121 Thus, on 21 August 2000 Mr Kekatos wrote on behalf of Global to HBL concerning royalty payments and rates for periods extending beyond 10 November 2000, that is, beyond the expiration of the existing lease. The letter referred to the agreed reduction of the percentage royalty rate to 11% and specifically referred to the letter that Mr Kekatos wrote on behalf of AMES on 20 September 1999 as "our letter", effectively equating Global with AMES. 122 On 30 October 2000 Mr Stafford on behalf of Global wrote to HBL enclosing a page of calculations showing the dollar amount said to be due to Global for the period November 1999 to November 2000, which included a reference to "new royalty lease", and extended back to a time prior to the execution of the transfers of the land in favour of Global. The letter acknowledged the existence of the "holiday tonnes" arrangement. 123 On 1 November 2000 Mr Kekatos on behalf of Global wrote to HBL referring to a meeting on 31 October in relation to royalty payments, and proposing an interim arrangement for a monthly royalty based on a rate derived from the average selling price for the period to 11 November 1999. The letter assumed that a review would take place by reference to the "terms of the lease". 124 After the old lease expired on 9 November 2000, HBL continued in possession of the quarry and paid Global monthly royalty payments up to and including July 2001. Proceedings were commenced in May 2001. On 15 August 2001 interlocutory orders were made by Hamilton J upon HBL undertaking to pay a royalty amount into court. The orders were subsequently varied. Dr Ferrier, the expert appointed under Part 39 of the Rules, gave evidence showing that royalties were paid, or paid into court, up to April 2002. 125 When, in early 2001, HBL proposed to sell the Penrose Quarry business and therefore to assign its interest in the lease, it approached Global for consent to the assignment. By letter dated 14 March 2001, Mrs Kekatos on behalf of Global wrote to HBL saying: "I am instructed on behalf of the Board of Directors to advise that the company has no objection to the proposed assignment of the lease provided that your company complies with the requirements specified in Clause 4.09.2 of the lease and further meets all its obligations due pursuant to the lease up to the date of assignment." 126 This letter proceeded on the basis that there was, in March 2001, a lease (or in equitable interest to be granted a lease) to be assigned, and that Global was the lessor in respect of that lease. 127 A similar assumption can be found in correspondence between the solicitors for HBL and Global concerning preparation of a new lease following the "exercise of the option to renew". The correspondence ran from 3 April 2001 to 27 April 2001. In their letter of the latter date, the solicitors for Global wrote to HBL's solicitors conveying their instruction that HBL was in default of various provisions of the lease, and that pending satisfactory resolution of those matters, their instructions were not to provide an engrossed lease to HBL. The assumption appears to have been that there was an existing lease in respect of which Global might wish to assert its legal entitlements. On 17 May 2001 HBL's solicitors wrote to Global's solicitors asserting that HBL was entitled to have a new lease engrossed because Global was estopped from denying that there was an agreement for lease or that HBL had validly exercised its option to renew. 128 During the period from April to July 2001, Global made various demands upon HBL upon the basis that HBL was in possession on the terms of the renewed lease. It made claims for shortfalls in royalty payments. On 24 April and 4 July 2001 it gave notices with respect to alleged breaches of the lease relating to restoration or rehabilitation of the land and compliance with conditions of consent, under s 129 of the Conveyancing Act, asserting an entitlement to re-enter and forfeit the lease in the event of failure to comply with those notices. Another notice in similar form was given on 7 December 2001. 129 Since December 2000 HBL has undertaken work and incurred expense in relation to its occupation of the quarry on the basis that was obliged to do so pursuant to the terms of the renewed lease. I infer that it acted on this basis because of the agreement of September 1999, its consent to the transfer of the land to Global, the fact that it had remained in occupation and had paid and continued to pay royalties, and the fact that Global proceeded on the same basis. 130 For example, between December 2000 and June 2001 HBL constructed a pipeline from area 10 to the washing plant at a cost of $250,000. It attended meetings with the Council concerning compliance with planning and environmental requirements. It attended to various environmental issues including the installation of erosion and sedimentation control systems. In addition to these matters, counsel for HBL prepared a detailed submission headed "detriment evidence", providing particulars of activities HBL claimed it had undertaken on the basis that it was entitled to a renewal of the lease, subject only to the issues that had been raised as to breach. It is unnecessary for me to set out that detailed evidence here, although having considered it, my view is that it amply reinforces the proposition emerging from the evidence I have described, that HBL has conducted its affairs, by expending effort, money and otherwise, on the basis that it was entitled to a renewal of the lease. 131 At no stage before the last day of the hearing on 1 July 2003 did Global seek to distinguish its position from the position of AMES by relying on absence of privity and its indefeasible title. Instead, the emphasis of Global's defence and cross-claim has been to assert, in great detail, breaches of the provisions of the lease in respect of matters occurring before and after registration of the transfer of the land in its favour. The written submissions prepared on behalf of Global for the purposes of the hearing prior to 1 July 2003 gave no hint that Global would seek to deny HBL's entitlement to a renewed lease in reliance on lack of privity and its registered title. 132 Counsel for Global contended that the estoppel evidence established only a mutual recognition of HBL's entitlement to continue to occupy under the old lease and then, on and after 10 November 2000, to occupy under a tenancy at will. There is, as counsel submitted, an important distinction between a case where the parties expect the lease to come into existence, and a case where the parties regard themselves as already bound to grant and take a lease. But in my opinion the evidence as a whole brings this case squarely into the latter category. The letter of 16 December 1999 implies that the transfer to Global was assumed not to have affected HBL's position as tenant under the old lease and under the agreement that had been made only months earlier. Within the estoppel evidence, there are specific acknowledgements that the holiday tonnes and 11% arrangements affected Global. Mrs Kekatos' letter of 14 March 2001 was expressed in terms of consent to the assignment of an existing lease rather than merely consent to a new tenant under a proposed lease not yet granted. Global's s 129 notices were drawn on the basis that there was a continuing lease for a term after 9 November 2000. The cross-claim also implied that HBL was in occupation under something more than a tenancy at will. I therefore reject the submission made on behalf of Global.
Is it too late for Global to rely on the estoppel grounds? 133 Although counsel for HBL indicated in his final submissions that he might wish to make submissions about estoppel depending upon how Global presented its case in final submissions, and estoppel was asserted by HBL's solicitors in correspondence as early as 17 May 2001, the estoppel grounds were only fully articulated in HBL's submissions in reply on the final hearing day. This was undoubtedly because it was only on the final hearing day that Global sought to rely on its registered title and to contend that it was not a party to the variations to the payment obligations under the old lease, or to the agreement for a new lease. 134 Global contends that HBL cannot now claim an estoppel of any kind, because · the claim to that effect was not identified in any of the four versions of HBL's summons; · HBL has adduced no evidence relating to it from any of its directors or officers; · consequently, Global has been denied the opportunity to cross-examine on this issue; and · Global has also been denied the opportunity to adduce evidence in its own case on this issue. 135 I disagree with Global's submissions. HBL did not file a statement of claim (something which, in retrospect, would have been a wise step). The relief it seeks, declaratory relief and specific performance in respect of the agreement for a new lease, is relief sought against Global rather than the counterparty to the agreement, AMES, but there is no indication in the summons of the basis upon which HBL claims to be entitled to that relief as against Global. Counsel for Global said that as a matter of practice, if HBL wished to rely upon any form of estoppel it should have sought a declaration in terms specifically articulating that ground. In my opinion it is strictly open to HBL to make any submissions that demonstrate its entitlement to the relief it sought in the summons, even though it now contends that its entitlement derives from estoppel and the orders sought in the summons do not suggest any such contention. 136 More importantly, however, the occasion to rely upon estoppel arguments arose only on the last of the hearing, as I have said. Before that time it appeared from Global's cross-claim and the correspondence that is in evidence that Global's case did not rely on absence of privity and the indefeasibility of its title to the land, but on a multitude of breaches of the old lease before and after it took title, and of the new agreement for lease after November 2000. Indeed, the cross-claim implies, in substance, that Global proceeded on the basis that it was entitled to assert breaches of the lease against HBL, and therefore that it was itself bound by the terms of a lease. In my opinion it does not lie with Global, having conducted its case on an entirely different basis until last day of a hearing that took place over a very extended period of time, now to assert that it is too late for HBL to raise an issue that needed to be raised only in response to Global's last-minute argument. 137 I accept, of course, that it was always necessary for HBL to prove its entitlement to relief against an entity other than the one with whom its arrangements were made. Indeed, counsel for HBL invoked s 118 in his principal submission, before the issues of privity and indefeasibility of title were raised by Global. But it was not unreasonable, in view of all of the evidence, for HBL to proceed on the basis that the point about the different entities would not be taken against it at the hearing. 138 As to HBL's failure to call its directors or officers to prove the ingredients of estoppel, and the consequent denial to Global of the opportunity to cross-examine on this issue, the answer is that HBL puts its case now on the basis of the evidence already before the Court, and in particular, in reliance on correspondence and other documentary evidence. That is also the answer to Global's complaint that it has not had the opportunity to adduce its own evidence in reply to the estoppel argument. The case has been conducted on the basis of voluminous and apparently comprehensive documentary evidence, and Global has not suggested that there is any document not already in evidence that it would have sought to put into evidence if the estoppel argument had been raised earlier. Proprietary estoppel 139 In Ramsden v Dyson (1866) LR 1 HL 129, Lord Kingsdown said (at 170): "The rule of law applicable to the case appears to me to be this: If a man, under a verbal agreement with the landlord for a certain interest in land, or what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest, takes possession of such land, with the consent of the landlord, and upon the face of such promise or expectation, with knowledge of the landlord, and without any objection by him, lays out money upon the land, a court equity will compel the landlord to give effect to such promise or expectation." 140 While his Lordship's observations were in a dissenting speech, it is accepted that his dissent was with respect to the facts rather than the law: see Plimmer v Wellington Corporation (1984) 9 App Cas 699, at 713. His statement of principle has become a leading formulation of what is sometimes called proprietary estoppel or estoppel by acquiescence, although some recent observations in the High Court suggest that it should be treated as merely an instance of a broader, overarching principle of estoppel by conduct: Commonwealth v Verwayen (1990) 170 CLR 394, at 410-411 per Mason CJ and at 440 per Deane J. 141 The doctrine of proprietary estoppel is capable of being used to complete an otherwise imperfect gift: Dillwyn v Llewelyn (1862) 4 De GF & J 517 [45 ER 1285]. It has been considered or applied often in Australian cases: for example, Riches v Hogben [1985] 2 Qd R 292, Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387, Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466, Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582, Commonwealth v Verwayen (1990) 170 CLR 394, Giumelli v Giumelli (1998) 196 CLR 101 and Wykes v Samilk Pty Ltd [1998] Aust Contract R 90-097. In my opinion, while the later cases expand the scope of equitable estoppel (including proprietary estoppel) in some ways, none of them casts any doubt on Lord Kingsdown's statement as an accurate account of the law applicable to facts of the kind envisaged by his Lordship. 142 In this case the evidence shows that HBL has remained in possession of the quarry from the time it was transferred to Global until the final days of the hearing, under an expectation that was created by Global when it authorised AMES' letter of 16 December 1999, and that was encouraged by Global by its conduct (the estoppel evidence) after it took transfers of the land, the explanation being that HBL would have a new lease on the terms agreed between it and AMES. Without objection by Global, HBL laid out money on the land and otherwise expended effort in performance of its assumed obligations as lessee in the period from 10 November 2000 to July 2001, upon the face of that expectation. 143 Lord Kingsdown's statement applies on the basis of my finding that Global authorised the letter of 16 December 1999, but it would also apply if Global did not authorised the letter but acquiesced in the manner shown by the estoppel evidence. The application of Lord Kingsdown's statement means that a court of equity will compel Global to give effect to the expectation, now that it has unconscionably purported to resile, if that is the appropriate remedial response to address the unconscionability. 144 In Burnside Sub-branch RSSILA Inc v Burnside Memorial Bowling Club Inc (1990) 58 SASR 324, Jacobs, Cox and Matheson JJ found that on the facts before them, both parties acted on a mistaken assumption that they had entered into agreements that bound them both (at 345). Then they said (at 346): "We have already referred to the passages in the judgments from Verwayen that would apply the doctrine of estoppel, including estoppel by acquiescence, to a case in which the mistake was a mistake of law. There is a question whether such an estoppel can arise where the party to be estopped shared the other party's mistaken view, that is, did not knowingly stand by in the sense that the landowner knowingly stood by in Ramsden v Dyson ." 145 It was unnecessary for the Court to resolve that question because, on the facts, the estopped party was aware of the informality of the agreements in circumstances where it would be unconscionable for it to deny their binding effect. In the present case, Global shared with HBL would a common assumption that it was bound to honour the arrangements of September 1999 by granting HBL a new lease, subject to questions of repudiation for breach. But in this case, as in the Burnside Memorial case, it cannot be said that Global did no more than share a mistaken assumption about HBL's rights. Mr Kekatos and Mr Stafford were well aware that Global was not party to the arrangements of September 1999. It was open to them to insist that if there was to be a new lease after the transfer of the land to Global, it should be negotiated by a fresh agreement between HBL and Global. It was open to them to require HBL to vacate the premises upon the expiration of the old lease unless HBL entered into a new lease in a timely fashion. They chose to proceed in another fashion, by asserting breaches of lease entitling Global to repudiate. For the purposes of the doctrine of proprietary estoppel, this is therefore not a case of a mere common but mistaken assumption about rights. 146 I am persuaded that HBL has made out the ingredients of proprietary estoppel as against Global, whether or not (as I have found) Global authorised the letter of 16 December 1999. HBL therefore has an equity against Global which it may assert by appropriate remedial relief. There can be little doubt that in the present circumstances, the appropriate relief is to require Global to make good the expectation created by its conduct, by compelling it to grant HBL a new lease on the terms agreed by AMES. Estoppel by convention 147 Estoppel by convention is a species of common law estoppel, described in traditional terms by Spencer Bower and Turner, Estoppel by Representation (3rd ed, 1977, p 157) as founded on an agreed statement of facts the truth of which is assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter. In Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] 1 QB 84 the English Court of Appeal held that there was an estoppel by convention where the parties to a loan guarantee which wrongly identified the loan, subsequently acted and organised their affairs on the incorrect assumption that the guarantee covered the loan. As Lord Goff of Chieveley observed in Kenneth Allison Ltd v AE Limehouse & Co [1992] 2 AC 105, at 127, the Amalgamated Investment case applied estoppel by convention to a situation, rather different from the one described by Spencer Bower, where "both parties proceed on the basis of a common, but mistaken, assumption as to the legal effect of a certain transaction between them, and in consequence one party is so influenced by the conduct of the other that it would be unconscionable for the latter to take advantage of the former's error". 148 Subsequent English cases have followed the Amalgamated Investment case, although it is thought that in English law the formulation of principle by Lord Denning MR (at 122) may not accurately represent English law: see R Derham, "Estoppel by Convention - Part 1", (1997) 71 ALJ 860, at 865. Whatever formulation may be precisely correct in England, it is now plain (contrary to Spencer Bower's formulation) that the estoppel may arise where the common assumption of the parties is an assumption about the effect of the law, rather than an assumption of fact: Kenneth Allison Ltd v AE Limehouse & Co, at 127 per Lord Goff of Chieveley; Republic of India v India Steamship Co Ltd [1998] AC 878, at 913. 149 It appeared for a time that Australian law diverged from English law in this latter respect. In Con-Stan Industries Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226, it was alleged that an estoppel by convention had arisen because a business relationship between an insured, a broker and an insurer was conducted on the assumption, incorrect in law, that the broker alone was liable to the insurer for the premium. Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ said (at 244): "Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted upon by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying." 150 Their Honours held that the doctrine of estoppel by convention had no application to the facts for two reasons: "First, there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship: Dabbs v Seaman (1925) 36 CLR 538 at 549. In the absence of proof of custom, there is no evidence that the parties adopted the alleged assumption. Secondly, just as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact: Greer v Kettle [1938] AC 156 at 170; Spencer Bower & Turner, Estoppel by Representation (1977) 3rd ed, p 167-8. The state of affairs relied on by Con-Stan is that the parties conducted their business relationship on the basis that the broker was alone liable to the insurer for the premiums. That is clearly an assumption as to the legal effect of their conduct, and not an assumption of fact. The submission with respect to estoppel accordingly fails." 151 Australian law has developed since the Con-Stan case, particularly in the context of estoppel by representation. As Gummow J observed in Caboche v Ramsay (1993) 1 119 ALR 215, at 238, the statement in Con-Stan that estoppel by representation requires a representation of fact must be read subject to the later observations by various members of the Court in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, at 415-6, 432, 452 and 458; Foran v Wight (1989) 168 CLR 385, at 435 and 457; and Commonwealth v Verwayen (1990) 170 CLR 394, at 413, 445 and 501. Those observations are to the effect that there is no longer a distinction between representations as to law and as to fact in the field of estoppel by representation. If that is the position regarding estoppel by representation, it would be odd if the position were different regarding estoppel by convention, when they are co-species of estoppel in pais (Caboche, at 236) and are equally candidates to be subsumed into the "one over-arching doctrine of estoppel" of which Mason CJ (170 CLR at 410) and Deane J (at 444-5) spoke in Verwayen. 152 Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 was decided just after Con-Stan, and Samuels JA (with whom Kirby P agreed, McHugh JA dissenting) discussed it in detail (at 185ff). He said that the second basis of decision was an obiter dictum, although he was bound to pay it the very greatest respect and attention. After carefully analysing cases referred to in the Con-Stan judgment, he concluded (188) that those authorities were consistent with the view that conventional estoppel applies where the assumed state of affairs is as to legal effect. Noting that the High Court had not disagreed with the Amalgamated Investment case, where the assumption turned upon the legal effect of the guarantee, he concluded that the High Court's dictum was intended to have a limited effect (at 188), and to apply only to assumptions about general propositions of law. 153 The reasoning of Samuels JA has subsequently been criticised (the criticisms are summarised by Derham, op cit, p 866). Nevertheless his approach was followed by Hodgson CJ in Eq (as his Honour then was), who considered the issue after the three more recent High Court cases, in Hilton Hotels (Aust) Pty Ltd v Sunrise Resources (Aust) Pty Ltd (2000) 9BPR 97,811. Hodgson CJ in Eq said (at [71]): "There is a statement in Con-Stan Industries v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226 that, 'just as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact'. However, this statement was obiter, and in any event should not in my opinion be taken as applying to assumptions as to private rights or the legal effect of particular agreements as distinct from assumptions as to the general law: see Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 185-9 per Samuels JA, with whom Kirby P agreed; cf Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 415-16, 435, 452, 457; Commonwealth v Verwayen (1990) 170 CLR 394 at 500; and Lee v Ferno Holdings Pty Ltd (1993) 33 NSWLR 404." 154 After considering these authorities, the authors of Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed, 2002, by RP Meagher, JD Heydon and MJ Leeming, 540) conclude that it is now clear that the doctrine extends to assumptions of law. It is at least clear to me that no other view is open in this State at first instance. 155 There is room to doubt whether the common assumption of the three entities in the present case should be classified as including an assumption of law. In Riseda Nominees Pty Ltd v St Vincent's Hospital (Melbourne) Ltd [1998] 2 VR 70, Callaway JA observed (at 77) that an assumption as to the existence of private legal rights may be regarded as an assumption of "facts" for the purposes of conventional estoppel. Earlier, in Noyes v Klein (1984) 3 BPR 97,178, Kearney J found that there was a conventional estoppel in a case where the assumed fact was as to the existence of a binding lease agreement between landlord and tenant. However it seems to me that the assumption in the present case, while not an assumption about the general law, was nevertheless an assumption about the legal effect, with respect to Global, of arrangements that had been made between HBL and AMES. But that is not now an obstacle to applying the doctrine of estoppel by convention. 156 The estoppel evidence, when considered together with the evidence of the AMES/Global relationship and the letter of 16 December 1999, establishes that HBL, AMES and Global have, at all times since execution of the instruments of transfer of 8 December 1999, conducted their relations with one another on the basis of an assumed state of affairs. The assumed state of affairs is that Global is bound by the variations to the payment obligations agreed between HBL and AMES, and by the arrangements for a new lease made in September 1999 - in other words, that Global came to occupy the same position vis-a-vis HBL, and had the same rights and obligations in that respect, as AMES had before the transfer. 157 In my opinion the evidence brings the present case within the doctrine of estoppel by convention, both with respect to the arrangements for variation of the payment obligations, and with respect to the arrangements for the new lease. Therefore Global is estopped against HBL from questioning the truth of that assumed state of affairs. 158 Consequently estoppel by convention provides a basis, additional to s 118, for HBL to require Global to adhere to the variation of payment arrangements agreed between it and AMES. Whereas under s 118 it is entitled to an order for, in effect, specific performance of the agreement to vary the old lease in these ways, the estoppel may entitle it to nothing more than an injunction to restrain Global from acting inconsistently with the assumed state of affairs. But the distinction in remedial outcomes may have no practical significance. 159 The position regarding its obligation to grant a new lease is somewhat different. HBL has established an entitlement to an order for specific performance of the agreement by Global, on two grounds: first, a combination of the principles set out in Bahr v Nicolay (No 2) and s 118; and second, proprietary estoppel. Although estoppel by convention is also available, the weaker injunctive relief to which it naturally leads seems insufficient to vindicate HBL's rights. So estoppel by convention is best seen as a "fallback" ground, as regards the obligation to grant a new lease. Did HBL fail to pay royalties due under the old lease or the agreement for a new lease?
160 When the final hearing commenced in December 2001, there were many issues between the parties with respect to the payment of royalties. HBL sought declarations that Global was not entitled to re-enter the land or terminate the old lease or the new lease agreement on grounds of any alleged failure by it to pay royalties to Global under the leases. HBL also contended that it had overpaid royalties by a substantial amount. On the other hand Global sought declarations that HBL had breached the lease from 1 December 1996 to date, both by failing to keep proper records in certain respects, and by failing to pay $1 million for royalties payable under the lease. Global also contended that it was an implied term of the lease that HBL was liable to Global for any Minerals removed from the land but not accurately weighed at the weighbridge. It sought declarations that HBL unlawfully removed Minerals from the land without its consent and that this conduct constituted a repudiation of the lease. A focus of attention in the latter respect was the clay sold by HBL to Wingecarribee Shire Council in 2000 and 2001. 161 Allegations about the "clay" issue and other claimed discrepancies in weighbridge dockets led eventually to my appointment of a court expert under Part 39 of the Supreme Court Rules. The expert, Dr Ferrier, reported in December 2002. His task was to provide his opinion on a list of matters with respect to the period from 10 November 1995 to 30 April 2002, relating to tonnage of material extracted and passing over the weighbridge and the average sale prices of that material, the amounts charged by HBL, and royalty payments by HBL. Dr Ferrier reported on these matters to the extent that he was able to do so, and on stated assumptions, he expressed his opinion as to the annual underpayment or overpayment of royalties for that period. 162 He found that the overall underpayment or overpayment depended upon the resolution of four matters, which he understood to be in dispute between the parties, which he expressed as follows: (a) whether royalties were payable in respect of sand that had been imported from the Joannou Quarry and resold from the Penrose Quarry; (b) whether royalties were payable on the sale of clay or fill; (c) whether further royalties became payable after 250,000 tonnes or 350,000 tonnes for the 34-month period 12 January 1998 to 13 November 2000 (the "holiday tonnes" issue); and (d) whether further royalties were payable at the rate of 11% or 12.5% from 20 September 1999. 163 Noting that there were 16 possible combinations of these four variables, he prepared a "royalty model" summarising his opinion of the overpayment or underpayment for each possible combination of the four variables. Scenario 1 assumed that no royalty was payable in respect of sand imported from the Joannou Quarry or in respect of clay, that "holiday tonnes" should be allowed to HBL, and that the royalty rate from 20 September 1999 should be reduced to 11%. On those assumptions, there was in Dr Ferrier's opinion an overpayment of $295,778.73 by HBL during the period from 10 November 1995 to 30 April 2002. Dr Ferrier then worked through the remaining 15 scenarios, finishing with scenario 16, in which royalties were payable on the Joannou sand and clay, no holiday tonnage was allowed, and there was no reduction in the 12.5% royalty rate. That produced a net underpayment for the period of $121,472.61. I should note that the first 10 scenarios produced overpayments of royalties for the period, though each subsequent scenario produced a figure less than scenario 1, and the last six scenarios produced underpayments, the highest being in scenario 16. 164 Dr Ferrier's royalty model was prepared on the assumption, reflecting the questions put to him by the Court as settled between the parties to the proceeding, that amounts owing by or to the lessor could be netted off over the whole of the period from November 1995 to April 2002, notwithstanding the change in the identity of the registered proprietor on 2 May 2000. 165 As to whether material extracted from the Penrose Quarry might not have passed over the weighbridge, Dr Ferrier reported that it was apparent during his review of the internal controls in place at the Penrose Quarry that it would be quite possible for material to be taken without going over the weighbridge. However, he said, during the course of his review he did not become aware of any information that would confirm that any material was sold or given away by HBL that did not pass over the weighbridge. 166 When the final component of the hearing began, in light of Dr Ferrier's report, counsel for HBL handed me some full and detailed written submissions, prepared on the assumption that all issues between the parties about the payment of royalties were still in play. However, in his final submissions, on the last hearing day, counsel for Global abandoned many of the contentions that had been made by his client at earlier stages of the hearing. On the question of HBL's alleged failure to pay royalties, Global abandoned its contention about the Joannou sand, but maintained its position with respect to the "clay" issue, the "holiday tonnes" issue and the question whether the royalty payment rate had been reduced to 11% as from 20 September 1999. It added the contention that HBL was not entitled to net off the positions of Global and AMES as if they were one entity. 167 In summary, the only remaining royalty issues are: (a) Was there an arrangement, binding on Global, that royalties would not be payable on the clay sold to Wingecarribee Shire Council? (b) Was there an arrangement, binding on Global, that the Standard Quantity of Minerals, after which Further Royalties would be payable, was increased from 250,000 tonnes to 350,000 tonnes in the period of 34 months from 13 January 1998 to 13 November 2000? (c) Did the agreement to alter the Further Royalty rate, payable under clause 3.04(b), from 12.5% to 11% take effect on 20 September 1999 or only in the renewed lease from 10 November 2000? (d) Was HBL entitled to deduct from payments due to Global the amount of overpayments to AMES? Royalties on "clay" 168 Global contended that the material removed from the quarry and sold to Wingecarribee Shire Council, often referred to in evidence as "clay", was a Mineral for the purposes of the definition in clause 1.06 of the lease. Wayne Stafford gave evidence on behalf of Global that the material was in fact decomposed basalt (basalt being expressly mentioned in the definition). Mr Rankin gave evidence on behalf of HBL that royalties were not paid on the material because it was not a "Mineral" under the lease. Then in final submissions HBL accepted that the clay was a Mineral for the purpose of the lease. In the last analysis, the issue whether the "clay" was a Mineral as defined does not matter, because I am satisfied on the balance of probabilities that there was an agreement between AMES and Global, respectively, and HBL, under which HBL was at liberty to sell this material to the Council without paying royalties under the lease. 169 HBL relied on the evidence of Brenda Egan, Keith Dunbier and Narlissa Briggs, as well as documentary evidence. 170 Ms Egan was the group credit manager of HBL. She gave evidence that early in 2000, she received a telephone call from Wayne Stafford in which he made a number of complaints about rates, something that was not uncommon for him to do. She went to Mr Breeze, then the managing director of HBL, and they both spoke to Mr Stafford on a conference call (although she said in cross-examination that she was not in the room for the whole conversation). During the conversation, Mr Stafford said: "We've got a new job with the Council to cap one of its tips. This is great because we can get rid of the clay to get to the basalt and I'll get commission on it." 171 Ms Egan said that the question of royalties on the clay was raised, and although she could not recall whether it was Mr Breeze or Mr Stafford who spoke, she recalled that the words spoken were to the effect, "royalty will not be paid on this job." She recalled that there was no disagreement with this statement. 172 Mr Dunbier was manager of the Penrose Quarry for HBL until August 2000. He dealt extensively with Wayne Stafford, whom he regarded as having the day-to-day control of the quarry. He gave evidence that in about March 2000 he put forward a spreadsheet proposal for the extraction of the clay and its supply to the Council, with the assistance of Mr Stafford. The proposal involved purchase of an excavator and payment of a royalty of $1 to the lessor. Mr Breeze rejected the proposal, and then subsequently the extraction of the clay went ahead, using one of the quarry's existing machines. Mr Dunbier expressed the opinion that Wayne Stafford was aware at all times that the clay was being excavated and sold to the Council. 173 He said that on the morning of 22 April 2002, he received a telephone call from Mr Stafford, and they had a conversation to the following effect: Mr Stafford: "Do you remember that material we sold to the Council in 2000?" Mr Dunbier: "Yeah, didn't you agree to waive your rights to royalty on that?" Mr Stafford: "I agreed to no such thing." 174 Ms Briggs was employed by HBL as a trainee manager at the Penrose Quarry from 2000 to March 2001. Early in 2000 Wayne Stafford trained her in management matters. She was involved in the delivery of clay to the Council, and she identified various documents created in connection with that work. The documents included a purchase order from the Council dated 2 March 2000 for the supply and delivery of "clay"; a job master form which she created on 13 September 2000 for internal processing by HBL; a report she prepared for Mr Stafford analysing the Penrose Quarry product sold in the calendar year 2000, including an entry for "clay"; a weekly production report for Mr Stafford which summarised tonnes sold and hours worked; and a daily tonnage summary, prepared on a weekly basis for Mr Breeze, copied to Mr Stafford, identifying tonnage of clay. Some of these reports were prepared and given to Mr Stafford after 2 May 2000, when Global became registered proprietor of the quarry. 175 Wayne Stafford gave evidence denying that there was any arrangement under which royalties would not be paid on material sold to the Council. He said he thought royalties were being paid on that material, which he said was always referred to as "decomposed basalt". 176 In my opinion the evidence of HBL's witnesses is to be preferred to the evidence given by Wayne Stafford, to the extent of the inconsistencies. His evidence that the material was always referred to as "decomposed basalt" was specifically contradicted by Ms Briggs, who took instructions directly from him, and was inconsistent with the documents identified by Ms Briggs, including reports provided to Mr Stafford. Eventually Mr Stafford accepted under cross-examination that the material was referred to as "clay" in HBL's records as well as in documents prepared by Mr Stafford himself. 177 Mr Stafford's evidence that he thought royalties were being paid on clay was contradicted by other evidence. First, it was contradicted by Ms Egan's evidence of the telephone conference of Mr Breeze, Wayne Stafford and herself early in 2000. Global attacked Ms Egan's evidence because it was evidence of only part of a conversation. In my opinion Ms Egan gave clear and truthful evidence, to which she adhered consistently in cross-examination. The fact that she was not able to recall the whole of the conversation did not, in my view, undermine the evidence she gave about the parts she remembered. Her evidence was to the effect that during the telephone conference, it came to be understood between Mr Breeze (who is no longer the managing director of HBL)and Mr Stafford that there would be no royalty paid on the material supplied to the Council. I do not regard the absence of evidence directly from Mr Breeze as an impediment to my finding that the conversation took place as deposed to by Ms Egan, given the strength of her evidence. 178 Secondly, Mr Stafford's evidence was contradicted by Mr Dunbier's evidence of his telephone conversation with Mr Stafford on the morning of 22 April 2002, from which it appears that, at least by 22 April 2002, Mr Stafford was aware of HBL's position with respect to the clay. Mr Stafford denied Mr Dunbier's version of that conversation, but I prefer Mr Dunbier's evidence because of the weaknesses in Mr Stafford's evidence. 179 Thirdly, it was contradicted by Mr Dunbier's evidence that he prepared the spreadsheet proposal early in 2000 with assistance from Mr Stafford, to the extent that Mr Dunbier's evidence suggests that Mr Stafford was involved in the process of negotiation with the Council. 180 Fourthly, it was contradicted by an e-mail dated 21 November 2000 from Mr Rankin to Mr Stafford. In that e-mail, Mr Rankin provided Mr Stafford with tonnage figures to challenge Mr Stafford's claim to payment of additional royalties. The figures provided by Mr Rankin included figures for clay. Mr Stafford conceded in cross-examination that the difference between his calculation and the figures in the e-mail could be explained by the absence of royalties on materials supplied to the Council. 181 My conclusion is that an agreement was reached between Mr Breeze on behalf of HBL and Mr Stafford early in 2000, according to which royalties would not be charged on the material supplied to the Council. Mr Stafford was at that time in a position to bind AMES, still the registered proprietor of the quarry, because he was a director and was actively involved in the management of AMES. In my opinion the agreement made in early 2000 was intended to be, and was, binding upon AMES. 182 Mr Stafford also had day-to-day management of the business of Global, and was in a position to bind it to the agreement. Global was at that time the unregistered transferee of the land. In my opinion, when Mr Stafford agreed with Mr Breeze on the telephone that royalties would not be charged on materials supplied to the Council, he did so on behalf of both the registered proprietor and transferor of the land, and on behalf of the unregistered transferee. Any doubt about whether Global was bound by the arrangement is removed by consideration of the documentary evidence, from which it was clear that Mr Stafford, in his position of manager of the business of Global, received reports after 2 May 2000 which made it clear that HBL was continuing to extract and supply clay to the Council. Having made the arrangement with Mr Breeze early in the year 2000, Mr Stafford must have realised that if clay was still being supplied to the Council, the extraction was occurring on the same basis. 183 My conclusion is that neither AMES nor Global is entitled to royalties in respect of the clay extracted from the quarry and sold to the Council. Increase in the Standard Quantity to 350,000 tonnes ("holiday tonnes") 184 The lease provided that HBL was to pay royalties comprising the Minimum Royalty and the Further Royalty. The Minimum Royalty was payable in respect of amounts of Minerals up to the Standard Quantity. The lease defined the Standard Quantity as 250,000 tonnes. 185 On 29 May 1998 AMES wrote to HBL, expressing its willingness "to help HBL with a goodwill gesture to help finance the Penrose upgrade". The letter set out an agreement under which HBL would go ahead with the proposed upgrade, and: "Provide [sic] that HBL continues to pay all Royalties due and payable in accordance with clause 3.1 of the lease of 13th November 1995, then AMES will for a period of 34 months, or up to 13 November 2000, not require HBL to pay excess royalties to the amount of 350,000 tonnes. Any tonnes above 350,000 tonnes will be treated as excess royalty and be paid in accordance with the lease." 186 The letter set out some conditions, which are no longer relevant. It was signed by Wayne and Garry Stafford as directors of AMES, and countersigned by Max Dunbier and Terry Fordham as directors of HBL. 187 On 8 July 1998 Mr Breeze on behalf of HBL wrote to Mr Kekatos confirming that the "renegotiated royalty arrangement dated 29 May 1998" had been tabled at an HBL board meeting, the minutes of which recorded the changes in the royalty arrangement between 250,000 and 350,000 tonnes. On 18 July 1998 Mr Kekatos wrote to Mr Breeze confirming that the agreement set out in the letters of 29 May and 8 July 1998 was not conditional as stated in the letter of 29 May, and consequently "the agreement may be treated in all respects as a variation of the terms of the royalty agreement being registered number 0691505 and therefore in all respects the royalty agreement as now varied represents the basis of your companies [sic] use and occupation of the Penrose Quarry". On 31 August 1998 Mr Breeze wrote to AMES on behalf of HBL stating that the details set out in the letter of 18 July were acceptable to HBL. There was no registered variation of the old lease. 188 Global submitted that these arrangements constituted an agreement between HBL and AMES, which was operative for the period of 34 months from 13 January 1998 to 13 November 2000; but on 2 May 2000 Global became the registered proprietor of the land and was not subject to the contractual variation contained in the letter. According to Global's submission, it was entitled to disregard the holiday tonnes arrangement and seek payment of the Further Royalty for Minerals extracted in excess of 250,000 tonnes. 189 In my opinion Global's submission fails for two reasons, earlier discussed: namely, the contractual obligation by AMES not to seek payment of the Further Royalty up to 350,000 tonnes is enforceable by HBL against Global under s 118; and there is an estoppel by convention operating against Global to prevent it from relying on the terms of the original lease that were varied by the agreement. Commencing date for increased Further Royalty rate 190 The first mention in correspondence of the agreement to alter the percentage royalty rate from 12.5% to 11% was in HBL's letter to AMES dated 20 September 1999. That letter confirmed the details of an agreement in two parts. The first part was the agreement to waive clause 8.01 to permit early notice of exercise of the first option. The second part was the agreement to alter the percentage royalty rate. 191 Global submitted that the terms of HBL's letter suggested an intention that the amended rate would take effect in the renewed lease. I disagree. Although HBL's letter does not stipulate that the alteration of the percentage royalty rate was to commence immediately, that is a natural construction of the letter, given that the other part of the agreement commenced on that day. There is nothing commercially irrational in such an arrangement. HBL was agreeing to give early notice of exercise of the option at the specific request of AMES and to suit AMES' circumstances, and in such a case it would not be surprising that the party agreeing to the concession would expect to receive an immediate benefit in return. 192 In my opinion, the matter is put beyond doubt by the terms of the letter of confirmation written by Mr Kekatos on behalf of AMES to Mr Breeze of HBL on the same day, 20 September 1999. The letter confirmed that AMES agreed to the amendment of clause 3.04(b) by replacement of 12.5% with 11% "effective from this date forth". The quoted words are crystal clear. They have the effect that at the next Review Date (apparently 10 November 1999), when the percentage rate was to be employed, the rate to be used was 11% rather than 12.5%. Once again there was no registered variation of the old lease. 193 In its submissions Global drew attention to some additional words of the AMES letter, namely the words "provided that your company continues to observe all the terms and conditions of the lease from the date hereof including the continuing obligation to pay the royalty reserved in accordance with the lease". Global submitted that this proviso could not apply to a single act (namely the amendment of the current lease) that was to take effect immediately. Again, I disagree. The proviso, if effective, may have allowed AMES to insist upon the greater percentage rate as a kind of penalty rate in the event of non-compliance by HBL with the terms of the lease, but there is nothing in the proviso that would render it inconsistent with the new percentage royalty rate becoming operative forthwith. 194 Global also reiterated, in this context, its submissions that the higher rate of 12.5% should apply as from registration of the transfer in its favour on 2 May 2000, because on that date it took the land subject to the registered lease but not subject to any contractual variation of it. Once again, I disagree with that submission on the grounds relating to s 118 and estoppel by convention. Overpayments to AMES 195 Global submitted that it was entitled, after it became registered proprietor on 2 May 2000, to royalties on all Minerals in respect of which payments accrued after that date, without any deduction or set-off of royalties (if any) overpaid by HBL to AMES. It drew attention to clause 4.01.1 of the lease, according to which HBL covenanted to "pay the Royalties on the days and in the manner aforesaid clear of all deductions except such as by the law the Lessee is compelled to make notwithstanding agreement to the contrary." 196 Global submitted that the words "clear of all deductions" operate to prevent HBL from deducting or setting off any overpayments to AMES. It referred to Batiste v Lenin [2002] NSWSC 233, where Bryson J construed the words "without deductions" literally, and submitted that the words "clear of all deductions" should be construed in the same fashion. An appeal from Bryson J's judgment was unanimously dismissed by the Court of Appeal: [2002] NSWCA 316. 197 In developing this submission, Global made the following points: (i) overpayments are not rent, since "rent is a sum issuing out of the land demised payable by the lessee to the lessor for the right to occupy that land and all that went with it and use it for the purpose for which it was demised" ( Junghenn v Wood (1958) 58 SR(NSW) 327, at 330); (ii) at common law overpayments of rent cannot be set off against arrears of rent ( Fuller v Happy Shopper Markets Ltd [2001] 1 WLR 1681, at 1689 and 1691); (iii) overpaid rent does not run with the lease but is a personal claim by a tenant against the former landlord ( Ory & Ory v Betamore (1993) 60 SASR 393, at 405-406). 198 As I understood his submissions, counsel for HBL conceded this point. He said: "In relation to the question of principle, we accept that in order to recover over-payments of rent from Global, we have to identify over-payments made to Global because we are not suing upon any covenant. It is, in effect, a restitutionary claim." 199 As he was instructed to do, Dr Ferrier made calculations for the whole period from 10 November 1995 to 30 April 2002 as if the lessor were a single entity. In light of HBL's concession, it will be necessary to separate the calculations for scenario 1 so as to identify that part of the total figure representing overpayments to Global. Is Global entitled to re-enter the land and determine HBL's interest in the agreement, and to claim damages? 200 Global submitted that HBL is in occupation of the Penrose Quarry as a tenant at will under s 127 of the Conveyancing Act, on the terms of the expired lease, apart from the terms relating to duration of the lease and others unsuitable to an implied holding over tenancy (citing Redfern & Cassidy, Australian Tenancy Practice & Precedents, vol 1, [3065]). It submitted that a right of re-entry (for example, for non-payment of rent) is unsuited to a tenancy at will determinable on a month's notice, and a term giving such a right would not be implied into such a tenancy: Bigazzi v Brandigo Pty Ltd (1981) 2 BPR 9341. Accordingly, Global submitted, it is in a position to terminate the tenancy at will without needing to have recourse to a right of re-entry, simply by giving the one month's notice required under s 127. The question whether HBL is entitled to relief against forfeiture does not arise, according to Global's analysis. 201 I agree that if one were to consider only the strict position at law, disregarding the agreement for a new lease, HBL would be in occupation of Quarry as a tenant at will, determinable under s 127 of the Conveyancing Act on one month's notice. My view, however, is that Global is under an equitable obligation, reinforced by s 118, to perform the agreement for a new lease entered into between HBL and AMES on 20 September 1999. HBL is in occupation under the agreement for a new lease, and is to be treated as if it had the tenancy that would be conferred upon it by performance of the agreement, under the rule in Walsh v Lonsdale. Global should be ordered to perform the agreement and should be restrained from exercising its legal right to determine the tenancy. 202 The evidence does not establish any entitlement on the part of Global to resist specific performance of the agreement on the ground that HBL is in breach of any of the obligations that the new lease would impose on it. In final submissions, Global did not contend for any breach of the terms of the old lease or the new agreement for lease, or of any other tenancy, except by non-payment of the full amount of royalties alleged to be due to it. I have decided against each of the submissions made by Global on this subject. Therefore there is no breach available to Global. If so, is HBL entitled to relief against forfeiture? 203 The issue of relief against forfeiture was addressed comprehensively by HBL in written submissions, before the extent of Global's concessions on allegations of breach I came evident. I was taken in some detail to the principles governing relief against forfeiture, set out in such cases as Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562; Platt v Ong [1972] VR 197; Stieper v Deviot Pty Ltd (1977) 2 BPR 9602; and Hayes v Gunbola Pty Ltd (1986) 4 BPR 9247. 204 In view of Global's concessions with respect to breaches and my decision under the last heading, the question of relief against forfeiture does not now arise. In final submissions counsel for Global, after submitting that the issue of relief against forfeiture did not arise, said: "I will make this express concession that if your Honour were against us as to the nature of the tenancy and held that it was a tenancy in respect of which forfeiture were appropriate, then there is nothing in the facts of this case which would provide your Honour with a basis for refusing to exercise your discretion in favour of granting relief against forfeiture." 205 Nevertheless, it is appropriate to observe, in case the matter goes further, that if Global had succeeded in establishing that it was entitled to recover additional payments from HBL because of the "clay" issue, or its ability to escape the arrangements made by AMES with respect to holiday tonnes and the reduced percentage royalty rate, or because it could resist any deduction of overpayments to AMES, HBL's breach would not be of a kind that would lead the Court to deny relief against forfeiture, assuming HBL were to tender the amount found to be owing to Global. Specifically, the evidence would not support any finding that any such breaches were wilful. Although, as Hope J remarked in the Pioneer Quarries case (at 9572), a lessee is not entitled to relief against forfeiture as of right, and the Court has a discretion in the matter, re-entry is regarded as security for the payment of rent, and if the landlord is able to obtain payment of his rent, relief to the tenant is refused only in very special circumstances. Is HBL entitled to recover from Global the sum of $295,778.73 [as revised in June 2003]? 206 My opinion is that HBL is entitled to recover from Global whatever amount is established as the overpayment of royalties made by HBL to Global (as opposed to AMES), according to the principles that I have adopted. My findings, coupled with concessions by Global, mean that scenario 1 of Dr Ferrier's royalty model applies and there is a net overpayment, but the amount will be less than the figure of $295,778.73, because that includes overpayments to AMES. HBL has made out its case for judgment in its favour for whatever amount is properly calculated. I shall give directions for HBL to calculate the overpayment to Global. 207 My provisional view is that overpayments made after 16 December 1999 should be treated as overpayments to Global. That was the date upon which AMES notified HBL that the quarry had been transferred to Global. But I am prepared to receive submissions at or before the next directions hearing should either party contend for a different date. Conclusions 208 HBL has made out its entitlement to declaratory orders as to the existence of the new agreement for the lease of the quarry, and that Global holds its interest as registered proprietor subject to that agreement. It is entitled to an order that Global specifically perform the agreement by granting it a new lease of the Quarry for further term of 11 years, otherwise subject to the terms and conditions of the previous lease (including the option to renew for two further terms of 11 years each), subject to the modifications that were agreed between HBL and AMES according to my findings, to the extent that they are relevant to the renewed term. Global is also entitled to the declarations it has sought to the effect that it is not in breach of any obligations under the old lease or the agreement for the new lease with respect to stated matters, and that Global is not entitled to re-enter the land or terminate the agreement for the new lease or its equitable interest as lessee under that agreement. There is no occasion to make any order by way of relief against forfeiture, but an order should be made restraining Global from terminating HBL's tenancy or occupation of the quarry pending the grant of the new lease. 209 Global's cross-claim has failed, except on the technical point that there was no valid exercise of the option to renew the lease, there being instead a valid new agreement for lease. The appropriate course is for the cross-claim to be dismissed. 210 HBL has succeeded in establishing an entitlement to recover overpayments from Global, but the amount of the overpayments is still to be quantified. I shall direct HBL to prepare and submit to Global and my associate a document setting out the amount for which it claims to be entitled to enter judgment against Global in respect of overpayment of royalties, and I shall stand the proceedings over for subsequent directions. I shall direct HBL to bring in short minutes of the other orders for consideration on that later occasion. I shall also hear the submissions of the parties with respect to costs. I shall consider, at the directions hearing, whether it will be necessary to find another hearing day to deal with these various matters.
Last Modified: 10/03/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Heggies Bulkhaul
Global Minerals Australia
(1988) 15 NSWLR 53
(1989) 16 NSWLR 582
(1988) 164 CLR 604
(1914) 19 CLR 197
(1971) 126 CLR 376
(1990) 58 SASR 324
(1990) 170 CLR 394
(1986) 160 CLR 226
(1925) 36 CLR 538
(1986) 6 NSWLR 175
(1989) 168 CLR 385
(1998) 196 CLR 101
(1993) 33 NSWLR 404
(1992) 174 CLR 407
(1976) 136 CLR 326
(1967) 116 CLR 61
(1993) 60 SASR 393
(1988) 13 NSWLR 466
(1991) 23 NSWLR 198
(1988) 164 CLR 387
Declarations and specific performance ordered: Global holds the land subject to HBL's equitable interest under the agreement for a new 11-year lease and is ordered to grant that lease; Global restrained from terminating HBL's occupation; Global's cross-claim dismissed; HBL to quantify recoverable overpaid royalties from Global and return for directions on judgment and costs (paras 201-210, 206-208).