3 BESANKO J This is an appeal from declarations and orders made by an acting Judge of this Court. The plaintiff in the action was the Hahndorf Golf Club Inc ("Hahndorf") and the defendants were John Nitschke Nominees Pty Ltd ("Nitschke") and the Australian Securities and Investments Commission ("ASIC"). Mr John Nitschke is a director of Nitschke. ASIC took no part in the trial and indicated that it would abide by any order made by the court in the action. It took no part in the appeal.

4 Hahndorf issued what was in effect a construction summons and filed supporting affidavits. Nitschke filed affidavits in response. In the course of the interlocutory steps in the action, Nitschke filed Points of Claim for Rectification and Hahndorf filed a Defence and Counterclaim to the Points of Claim for Rectification.

5 At the conclusion of the hearing before the Judge, he made certain declarations and orders. Nitschke appeals to this Court against those declarations and orders. Hahndorf has filed a Notice of Alternative Contentions saying that one aspect of the Judge's declarations and orders may be upheld on other grounds.

7 Hahndorf is an incorporated body, and it is the registered proprietor of an estate in fee simple in almost fifty hectares of land situated at Balhannah Road, Hahndorf. The land is comprised and described in Certificate of Title Register Book Volume 5217 Folio 508. I will refer to this land as "the subject land". There is an eighteen-hole golf course, clubhouse and other improvements on the subject land.

8 The subject land was originally part of a larger area of land which was purchased by the grandfather of Mr John Nitschke in the early 1900s. Mr John Nitschke's grandfather died in about 1948 or 1949, and the larger area of land passed in equal shares to Mr Victor Nitschke and his brother, Mr Max Nitschke.

9 Mr Victor Nitschke established a nine-hole golf course on part of the larger area of land, and it was managed by Hahndorf. Mr Victor Nitschke was a member of Hahndorf. Mr Victor Nitschke died in 1967 and his moiety interest in the larger area of land devolved upon his three children. In the mid 1970s, the golf course was expanded and became an eighteen-hole golf course. Subject to some alterations to the boundaries which occurred later, a moiety interest in the subject land and land to the north of the subject land, which is now Lot 22, was transferred into the names of Nitschke, Peter Nitschke Nominees Pty Ltd (a company controlled by Mr Peter Nitschke) and Mr Nitschke's sister, Ms Marie Jonson. The other moiety interest was eventually held by Max Nitschke Nominees Pty Ltd. Land to the east of the subject land, which is now Lot 21, was ultimately held by Ms Jonson, Nitschke and Max Nitschke Nominees Pty Ltd in various proportions.

10 In about 1978, Hahndorf wished to build a clubhouse on the land at a significant cost. Hahndorf sought a formal lease of the land from the registered owners at that time. Following negotiations, a lease dated 1 January 1979 was executed and registered. At that time, the subject land was surveyed and a new and separate certificate of title was issued in respect of the land. The subject land at that time was the whole of the land comprised and described in Certificate of Title Register Book Volume 4184 Folio 97. The lease was for a period of 10 years commencing on 1 January 1979. By virtue of clause III(10)(c) of the lease, Hahndorf was given an option to purchase the subject land in accordance with a form of agreement for sale and purchase annexed to the document.

11 Various members of the Nitschke family remained the registered proprietors of the land abutting the subject land on its northern and eastern boundaries (ie., Lots 21 and 22).

12 At some time probably in the early 1990s, Hahndorf duly exercised its option to purchase the subject land. There were then lengthy negotiations with respect to a number of issues, including the purchase price to be paid.

13 On 31 January 1994 Ms Jonson, Peter Nitschke Nominees Pty Ltd, Nitschke and Max Nitschke Nominees Pty Ltd, as vendors, and Hahndorf, as purchaser, executed a contract for the sale and purchase of the subject land. Hahndorf agreed to purchase the subject land for a consideration of $880,000. There was a need for some variation of the surveyed boundaries. As I have said, the subject land is presently the whole of the land comprised and described in Certificate of Title Register Book Volume 5274 Folio 541.

14 Both the vendors and the purchaser were represented by solicitors during the course of the negotiations which led to the execution of the contract for sale and purchase. I will refer to the contract for sale and purchase dated 31 January 1994 as "the contract".

15 There were a number of special conditions in the contract. The relevant special condition for the purposes of this case is number 8. It provides as follows:

"8. RIGHT OF FIRST REFUSAL

In consideration of the Vendor agreeing to sell the said Land to the Purchaser the Purchaser agrees with the Vendor that if at any time the Purchaser is desirous of disposing of its estate in fee simple in the said Land or any portion of it the Vendor will have the right of first refusal to purchase the said Land subject to the following covenants terms and conditions:

8.1 The Purchaser will give notice in writing to the Vendor of the Purchaser's intention to dispose of the said Land or any part of it ("first sale notice") and the first sale notice will constitute an offer by the Purchaser to sell the whole of the said Land to the Vendor. The first sale notice will specify the consideration required by the Purchaser from the Vendor from the purchase by the Vendor of the Purchaser's interest in the said Land and the terms and conditions upon which the said Land will be sold to the Vendor. The consideration and terms and conditions will not in any respect whatsoever constitute the imposition of any more onerous obligations and duties upon the Vendor or require the Vendor to pay any greater sum for the said Land than the Purchaser would impose or require from a purchaser other than the Vendor.

8.2 The Vendor may within 30 days after the service of the first sale notice give notice in writing to the Purchaser of the Vendor's acceptance or rejection of the Purchaser's offer to sell. If the Vendor serves a notice of acceptance on the Purchaser ("first purchase notice") there will be deemed to be a binding contract ("first Contract") for the sale by the Purchaser and the purchase by the Vendor of the Purchaser's interest in the said Land for the consideration stated in the first sale notice incorporating the provisions of the Law Society of South Australia Contract for Sale and Purchase of Land and the further terms and conditions set out in Special Condition 8.5.

8.3 If the Vendor does not within 30 days after service of the first sale notice give to the Purchaser the first purchase notice as required by Special Condition 8.2 the Purchaser may negotiate the sale of the said Land to a third party unrelated to the Purchaser ("unrelated third party"). If an offer to purchase the said Land has been submitted to the Purchaser by an unrelated third party the Purchaser will give notice in writing to the Vendor of the Purchaser's intention to dispose of the said Land ("second sale notice") and the second sale notice will:

8.3.1 constitute an offer by the Purchaser to sell the whole of the said Land to the Vendor,

8.3.2 have attached to it a copy of any terms of sale or sale contract offered to or by and/or accepted by the unrelated third party ("third party offer"),

8.3.3 specify the consideration required by the Purchaser from the Vendor and the terms and conditions upon which the said Land will be sold to the Vendor which consideration and terms and conditions will not in any respect whatsoever constitute the imposition of any more onerous obligations and duties upon the Vendor or require the Vendor to pay any greater sum for the said Land than set out in the third party offer.

8.4 The Vendor may within 30 days after service of the second sale notice give notice in writing to the Purchaser of the Vendor's acceptance or rejection of the Purchaser's offer to sell. If the Vendor serves a notice of acceptance on the Purchaser ("second purchase notice") there will be deemed to be a binding contract ("second Contract") for the sale by the Purchaser and the purchase by the Vendor of the Purchaser's interest in the said Land for the consideration stated in the second sale notice incorporating the provisions of the Law Society of South Australia Contract for Sale and Purchase of Land and the further terms and conditions set out in Special Condition 8.5.

8.5 The further terms and conditions to be incorporated in the first Contract or the second Contract (as the case may be) are:

8.5.1 settlement will be effected on or before the expiration of 60 days following receipt by the Purchaser of the first purchase notice or the second purchase notice (as the case may be);

8.5.2 a deposit equal to 5% of the purchase price will be paid by the Vendor to the Purchaser within 48 hours of the service of the first purchase notice or the second purchase notice (as the case may be) upon the Purchaser;

8.5.3 the balance of the purchase price will be paid at settlement;

8.5.4 all rents rates taxes insurance and other outgoings and incomings will be adjusted to the date of settlement;

8.5.5 the Vendor will deliver to the Purchaser a Memorandum of Transfer in registrable form and the Purchaser will execute the Memorandum of Transfer and deliver it to the Vendor at settlement upon payment of the balance of the purchase price in full;

8.5.6 the said Land will in all respects be at the risk of the Vendor as and from the date of execution of the first Contract or the second Contract (as the case may be);

8.5.7 settlement will take place at the Lands Titles Office at Adelaide or at such other place as may be mutually agreed between the Purchaser and the Vendor;

8.5.8 if the Vendor defaults in payment of the balance of the purchase price or any part thereof or in the due compliance with the terms and conditions of the first Contract or the second Contract (as the case may be) the Vendor will pay to the Purchaser interest on so much of the balance of the purchase price as remains unpaid at the rate of interest 2% per annum greater than the annual rate of interest charged from time to time by the Commonwealth Bank of Australia on overdraft accounts of less than $100,000 computed from the date upon which the payment or payments fell due until payment is made in full.

8.6 The Vendor may charge the said Land with the rights and interests granted to the Vendor under and by virtue of the terms of this Special Condition 8 by registering in its favour as the next document immediately after the Memorandum of Encumbrance referred to in Special condition 7.2 a memorandum of encumbrance in such form as may be required by the Vendor and the Registrar General ("encumbrance").

8.7 If the Vendor refuses neglects or otherwise fails to give notice in writing to the Purchaser within the relevant period specified in Special Condition 8.4 or the Vendor notifies the Purchaser of its rejection of the offer to sell contained in the second sale notice the Purchaser may thereafter sell the said Land to a party other than the Vendor for a consideration and upon terms and conditions that are no more favourable to a party other than the Vendor than those set out in the second sale notice.

8.8 In this Special Condition 8 "Vendor" means the person and each of the companies set out in Item S1 of the Schedule and

8.8.1 the spouse children and remoter issue of that person;

8.8.2 any shareholder in or director of the companies as at the date of this agreement; and

8.8.3 any company, trust or other legal entity in which at least one share or other interest (whether present or contingent) is owned or held by any of the persons or companies previously referred to in this Special Condition 8.8.

PROVIDED THAT the Vendor will cause the Purchaser to be advised in writing each time there is a change to the group of persons and companies constituting "Vendor".

8.9 If the whole of Lot 21 and Lot 22 is sold to a person who does not fall within the definition of "Vendor" provided by Special Condition 8.8 on settlement of the sale by the Vendor of the last portion of Lot 21 or Lot 22 (as the case may be) this right of first refusal will lapse and the Vendor will produce for registration a discharge of the encumbrance."

16 Settlement took place in accordance with the contract, and the subject land was transferred to Hahndorf on 24 August 1994. There were two encumbrances registered on the title for the subject land, and they are numbered 7779124 and 7779125 respectively. For the purposes of this case, the relevant encumbrance is Memorandum of Encumbrance Registered No 7779125 which was executed on 17 August 1994. I will refer to this as "the encumbrance". The encumbrance is in the form required by the provisions of the Real Property Act 1886 (SA) ("RPA"). The encumbrancer is Hahndorf, together with its successors and permitted assigns, and the encumbrancee is Ms Jonson, Peter Nitschke Nominees Pty Ltd, Nitschke and Max Nitschke Nominees together with her and their respective executors, administrators, successors and assigns. Ms Jonson and the three Nitschke companies are shown on the title for the subject land as the registered proprietors of the encumbrance. The relevant parts of the encumbrance are as follows:

"The Encumbrancer desiring to render the land above described for the purposes of securing to and for the benefit of the Encumbrancee the payment of the sum of money and the performance and observance of the covenants on the part of the Encumbrancer hereinafter contained DOES HEREBY ENCUMBER THE ESTATE AND INTEREST IN THE LAND ABOVE DESCRIBED FOR THE BENEFIT OF THE ENCUMBRANCEE SUBJECT TO THE ENCUMBRANCES AND OTHER INTERESTS AS SHOWN HEREON ("Land") with the payment (if demanded) of the yearly rent charge of 10 cents payable on the 30th day of June each year commencing on the 30th day of June next ensuing after the execution hereof PROVIDED HOWEVER that if throughout the year immediately preceding the due date for payment of such yearly rent charge the Encumbrancer shall not have committed suffered allowed or permitted any breach of and shall have otherwise duly performed an observed all of the covenants contained in clause 3 hereof then in lieu of the sum of 10 cents which would otherwise have been payable (if demanded) there shall be payable (if demanded) the sum of 5 cents to the intent that the Encumbrancee shall hold the said yearly rent charge in fee simple and with the performance and observance of the covenants by the Encumbrancer contained or implied herein AND the Encumbrancer for itself and its successors in title hereby covenants with the Encumbrancee and each and every registered proprietor for the time being of each and every one and each and every part of the allotments into which the land comprised in Allotments 1 and 2 Filed Plan 17160 Hundred of Onkaparinga comprised in Certificates of Title Register Book Volume 5071 Folios 707 and 708, Allotment 22 in DP 39485 being portion of the land comprised in Certificates of Title Register Book Volume 5134 Folio 947 and Allotment 21 in DP 39485 being portion of the land comprised in Certificates of Title Register Book Volume 4375 Folios 70 and 71 (together "Adjacent Land") is now or hereafter divided and all successive owners, assignees, executors, administrators and transferees thereof as follows:

1. The Encumbrancer will pay to the Encumbrancee the said sum of TEN CENTS (10¢) (if demanded) or the said sum of FIVE CENTS (5¢) (if demanded) (as the case may be) on the 30th day of June next and on each and every 30th day of June thereafter.

2. Nothing herein contained for or in respect of payment of the said yearly rent charge shall in any way affect or prejudice the rights of the Encumbrancee to an injunction to prevent or restrain any breach of any of the covenants hereinafter contained or to damages for such breach.

3. 3.1 In this Encumbrance, unless the contrary intention appears the expression "Land" means Lot 20 in Deposited Plan No 39485 being portion of the land comprised in Certificates of Title Register Book Volume 5134 Folios 124 and 947.

3.2 During the continuance of this Encumbrance the Encumbrancer its agents or assigns and other persons claiming through the Encumbrancer shall not sell the Land or any portion of it unless the following conditions are satisfied:

3.2.1 The Encumbrancer will give notice in writing to the Encumbrancee of the Encumbrancer's intention to dispose of the Land or any part of it ("first sale notice") and the first sale notice will constitute an offer by the Encumbrancer to sell the whole of the Land to the Encumbrancee. The first sale notice will specify the consideration required by the Encumbrancer from the Encumbrancee from the purchase by the Encumbrancee of the Encumbrancer's interest in the Land and the terms and conditions upon which the Land will be sold to the Encumbrancee. The consideration and terms and conditions will not in any respect whatsoever constitute the imposition of any more onerous obligations and duties upon the Encumbrancee or require the Encumbrancee to pay any greater sum for the Land than the Encumbrancer would impose or require from an Encumbrancer other then (sic) the Encumbrancee.

3.2.2 The Encumbrancee may within 30 days after service of the first sale notice give notice in writing to the Encumbrancer of the Encumbrancee's acceptance or rejection of the Encumbrancer's offer to sell. If the Encumbrancee serves a notice of acceptance on the Encumbrancer ("first purchase notice") there will be deemed to be a binding contract ("first Contract") for the sale by the Encumbrancer and the purchase by the Encumbrancee of the Encumbrancer's interest in the Land for the consideration stated in the first sale notice incorporating the provisions of the Law Society of South Australia contract for Sale and Purchaser of Land and the further terms and conditions set out in subclause 3.2.5.

3.2.3 If the Encumbrancee does not within 30 days after service of the first sale notice give to the Encumbrancer the first purchase notice as required by subclause 3.2.2 the Encumbrancer may negotiate the sale of the Land to a third party unrelated to the Encumbrancer ("unrelated third party"). If an offer to purchase the Land has been submitted to the Encumbrancer by an unrelated third party the Encumbrancer will give notice in writing to the Encumbrancee of the Encumbrancer's intention to dispose of the Land ("second sale notice") and the second sale notice will:

3.2.3.1 constitute an offer by the Encumbrancer to sell the whole of the Land to the Encumbrancee,

3.2.3.2 have attached to it a copy of any terms of sale or sale contract offered to or by and/or accepted by the unrelated third party ("third party offer"),

3.2.3.3 specify the consideration required by the Encumbrancer from the Encumbrancee and the terms and conditions upon which the Land will be sold to the Encumbrancee which consideration and terms and conditions will not in any respect whatsoever constitute the imposition of any more onerous obligations and duties upon the Encumbrancee or require the Encumbrancee to pay any greater sum for the Land than set out in the third party offer.

3.2.4 The Encumbrancee may within 30 days after service of the second sale notice give notice in writing to the Encumbrancer of the Encumbrancee's acceptance or rejection of the Encumbrancer's offer to sell. If the Encumbrancee serves a notice of acceptance on the Encumbrancer ("second purchase notice") there will be deemed to be a binding contract ("second Contract") for the sale by the Encumbrancer and the purchase by the Encumbrancee of the Encumbrancer's interest in the Land for the consideration stated in the second sale notice incorporating the provisions of the Law Society of South Australia Contract for Sale and Purchaser of Land and the further terms and conditions set out in subclause 3.2.5.

3.2.5 The further terms and conditions to be incorporated in the first Contract or the second Contract (as the case may be) are:

3.2.5.1 settlement will be effected on or before the expiration of 60 days following receipt by the Encumbrancer of the first purchase notice or the second purchase notice (as the case may be);

3.2.5.2 a deposit equal to 5% of the purchase price will be paid by the Encumbrancee to the Encumbrancer within 48 hours of the service of the first purchase notice or the second purchase notice (as the case may be) upon the Encumbrancer;

3.2.5.3 the balance of the purchase price will be paid at settlement;

3.2.5.4 all rents rates taxes insurance and other outgoings and incomings will be adjusted to the date of settlement;

3.2.5.5 the Encumbrancee will deliver to the Encumbrancer a Memorandum of Transfer in registerable form and the Encumbrancer will execute the Memorandum of Transfer and deliver it to the Encumbrancee at settlement upon payment of the balance of the purchase price in full;

3.2.5.6 the Land will in all respects be at the risk of the Encumbrancee as and from the date of execution of the first contract or the second Contract (as the case may be);

3.2.5.7 settlement will take place at the Lands Titles Office at Adelaide or at such other place as may be mutually agreed between the Encumbrancer and the Encumbrancee;

3.2.5.8 If the Encumbrancer defaults in payment of the balance of the purchase price or any part thereof or in the due compliance with the terms and conditions of the first Contract or the second Contract (as the case may be) the Encumbrancee will pay to the Encumbrancer interest on so much of the balance of the purchase price as remains unpaid at the rate of interest 2% per annum greater than the annual rate of interest charged from time to time by the Commonwealth Bank of Australia on overdraft accounts of less than $100,000 computed from the date upon which the payment or payments fell due until payment is made in full.

3.2.6 If the Encumbrancee refuses neglects or otherwise fails to give notice in writing to the Encumbrancer within the relevant period specified in subclause 3.2.4 or the Encumbrancee notifies the Encumbrancer of its rejection of the offer to sell contained in the second sale notice the Encumbrancer may thereafter sell the Land to a party other than the Encumbrancee for a consideration and upon terms and conditions that are no more favourable to a party other than the Encumbrancer than those set out in the second sale notice.

3.2.7 In this clause 3.2 "Encumbrancee" means the person and each of the companies set out in the panel titled "ENCUMBRANCEE" on the first page of this Encumbrance and:

3.2.7.1 the spouse children and remoter issue of that person;

3.2.7.2 any shareholder in or director of the companies as at the date of this Encumbrance; and

3.2.7.3 any company, trust or other legal entity in which at least one share or other interest (whether present or contingent) is owned or held by any of the persons or companies previously referred to in this subclause 3.2.7

PROVIDED THAT the Encumbrancee will cause the Encumbrancer to be advised in writing each time there is a change in the group of persons and companies constituting "Encumbrancee".

3.2.8 If the whole of the Land is sold to a person who does not fall within the definition of "Encumbrancee" provided by subclause 3.2.7 on settlement of the sale by the Encumbrancee of the last portion of the Land this right of first refusal will lapse and the Encumbrancee will produce for registration a discharge of this Encumbrance.

4. The Encumbrancer shall not sell or agree to sell or transfer the estate or interest of the Encumbrancer in the Land or any portion thereof without obtaining from the purchaser or transferee of the Land or portion thereof the subject of the sale or transfer a binding agreement to execute and lodge for registration under the provisions of the Real Property Act 1886 (as amended) as the first document immediately after the registration of the Memorandum of Transfer in respect of the Land or portion thereof the subject of the sale or transfer a Memorandum of Encumbrance in favour of the Encumbrancee or its nominee containing the same or substantially similar covenants and other stipulations as are herein contained with the substitution of:

4.1 the name address and description of the purchaser or transferee of the Land or such portion thereof subject to the sale or transfer as Encumbrancer;

4.2 a description of the Land or such portion thereof subject to the sale or transfer in a form required for registration;

4.3 such further or other consequential amendments as may be required for registration;

and the Encumbrancer shall ensure that such Memorandum of Encumbrance is lodged for registration and is registered as soon as practicable.

5. Upon the Encumbrancer both ceasing to be registered as the proprietor of the whole of the Land and causing clause 6 hereof to be complied with in respect of the Land, or, upon the Encumbrancer ceasing to be registered as the proprietor of any portion of the Land and causing clause 6 hereof to be complied with in respect of that portion, the Encumbrancer shall be released and discharged from the obligation to observe and perform the provisions contained in clauses 1 and 3 hereof in so far as the provisions of such clauses relate to or affect the whole of the Land or any portion thereof (as the case may be) provided however that the Encumbrancer shall remain liable to use its best endeavours from time to time at the request and cost in all things of the Encumbrancee to secure compliance with the provisions contained in clauses 1 and 3 hereof by all the Encumbrancer's assigns and successors in title hereafter acquiring an estate or interest in the whole of the Land or any portion thereof.

6. Any waiver by the Encumbrance of any breach of any one or more of the covenants conditions restrictions or stipulations herein contained shall not be nor be construed to be a waiver of any subsequent or other breach of the same or any other covenant condition restriction or stipulation herein contained, nor shall any failure on the part of the Encumbrancee to require to exact full and complete compliance with any of the covenants conditions restrictions or stipulations herein contained be construed as in any manner changing the terms hereof or as preventing the Encumbrancee from enforcing the full provisions hereof.

...

9. If any term covenant condition or provision of this Encumbrance is or is held by a court of competent jurisdiction to be invalid void or unenforceable same shall be severed herefrom and the remainder of such terms covenants conditions and provisions shall remain in full force and effect and shall in no way be affected impaired or invalidated thereby."

17 The Judge noted that there were some differences between condition 8 of the contract and what were clearly intended to be the corresponding provisions of the encumbrance. First, condition 8.9 of the contract refers to the sale of the whole of Lot 21 and 22 to a person who does not fall within the definition of "vendor" (Ms Jonson, Peter Nitschke Nominees Pty Ltd, Nitschke and Max Nitschke Nominees Pty Ltd and what I will call the extended class of vendor/encumbrancee identified in clauses 8.8.1 - 8.8.3 of the contract), whereas clause 3.2.8 of the encumbrance refers to the sale of the Land (ie., the subject land) to a person who does not fall within the definition of encumbrancee. The Judge thought that this was an obvious error in the encumbrance and that clause 3.2.8 should refer to Lots 21 and 22. The correction of this error in the encumbrance was the subject of Nitschke's claim for rectification. Secondly, the Judge said that clause 4 of the encumbrance contains a provision not envisaged by the contract. The Judge said that the evidence did not clearly indicate how this provision came to be in the encumbrance, and that Hahndorf seemed at a loss to explain its presence. The Judge said that there was some evidence from Mr John Nitschke on the topic, but the general topic was not pursued in the oral evidence of the witnesses who might have given evidence on the topic.

18 The Judge also noted what he called a number of anomalies in the encumbrance and, in some cases, the contract. The Judge thought a number of these anomalies were obvious errors which could be treated as such as a matter of construction. It is unnecessary to mention the anomalies identified by the Judge because his conclusions as to the anomalies were not the subject of challenge on the appeal.

19 In its affidavit material, Hahndorf said that as a consequence of falling membership and rising costs it had encountered financial difficulties in recent times. The subject land is subject to a mortgage held by the Australia and New Zealand Banking Group Limited ("the ANZ"), and Hahndorf obtained increased mortgage accommodation from the ANZ. Hahndorf developed a business plan which involved, among other things, the sale of the subject land by Hahndorf to a developer, Kinsmen Developments Pty Ltd ("Kinsmen"), which would develop the subject land by building a residential development in and around the golf course. The Judge found that the plan reserved to Hahndorf a licence to continue to maintain and use a golf club on the subject land, and that the club was to be incorporated into a residential development scheme. Hahndorf entered into a conditional contract for sale with Kinsmen on 25 February 2003. I will refer to this contract as "the Kinsmen contract". The Judge found that under the Kinsmen contract, Kinsmen is to build a motel complex of some 40 residential units on a community title basis and to upgrade the clubhouse and golf course. The Judge found that the Kinsmen contract is subject to the discharge of the encumbrance by 31 August 2003.

20 The Judge found that on 31 July 2002 Hahndorf duly served on Mellor Olsson, the solicitors for Nitschke, what purported to be a first sale notice addressed to the registered proprietors of the encumbrance. As I understood it, no point is taken about whether the solicitors were also acting for the registered proprietors of the encumbrance other than Nitschke. The first sale notice is entitled "Notice of Intention to Sell to Encumbrancee" and is addressed to Ms Jonson, Peter Nitschke Nominees Pty Ltd, Nitschke and Max Nitschke Nominees Pty Ltd. The relevant part of the notice is as follows:

"1. The Encumbrancer offers to sell the land for the amount of $710,000 subject to certain conditions beneficial to the Encumbrancer namely:

1.1 That the purchaser (Encumbrancee) will renovate and develop the clubhouse to the extent of $250,000 within 12 months of transfer and grant the Encumbrancer non exclusive rights but priority rights to the use of and enjoyment thereof for the purposes of club meetings for a period of 10 years;

1.2 That the encumbrancer be entitled to priority use of the course on Tuesday mornings, Wednesday mornings, Sunday mornings, Saturdays for a period of 10 years for club competitions and that members pay $500 plus increases of no more than CPI annually per annum for access and licence rights as members.

1.3 Cause a roadway and entry to the golf course to be improved to the extent of expenditure of $176,000 and purchase plant and equipment of the club for $50,000 subject to valuation.

1.4 Upgrade and spend to capital works $250,000 to the golf course within 12 months of the transfer and a further $250,000 of capital works to the course over the next 4 years thereafter for improvements to the golf course.

1.5 That the purchaser covenant to maintain the existing 18 hold golf course to its current ACR rating for the period of the licence in 1.2 above.

2. The terms and for the consideration detailed herein shall be capable of acceptance and the terms being continuing obligations shall be recorded by encumbrance and this Notice if accepted is conditional on approval of the members of the Encumbrancer in special meeting and in accordance with its Constitution.

3. Encumbrance 777125 shall be removed upon sale in accordance clause 3.2.8 of the encumbrance."

21 The Judge found that the evidence was not clear as to what transpired immediately following the service of the first sale notice. The Judge found that there were various discussions and negotiations between Hahndorf and Mr John Nitschke. The Judge referred to the evidence of Mr John Nitschke to the effect that he first became aware of a proposed development proposal involving Kinsmen and the possibility of erecting 40 residential units around the clubhouse in about September 2002. The Judge found that by that time the period specified in the first sale notice had expired without formal response, by way of acceptance or rejection, from Nitschke to Hahndorf. The Judge found that in a letter dated 4 October 2002 the solicitors for Nitschke advised the solicitors for Hahndorf that for the reasons set out in the letter, the first sale notice did not constitute a valid first sale notice as envisaged by either the contract or the encumbrance. The point was taken that the first sale notice did not contain the terms related to the Kinsmen proposal. It was also argued that each of the proposed 40 units would be the subject of community title, and that the grant of each title may well in itself (to quote from the letter) "trigger the operation of the right of first refusal". The Judge found that on 8 April 2003 Hahndorf served on Ms Jonson, Peter Nitschke Nominees Pty Ltd, Nitschke and Max Nitschke Nominees Pty Ltd a document entitled "Second Notice of Intention to Sell to Encumbrancee". This notice, among other things, referred to the service of the first notice and the lack of response to the notice in accordance with the provisions of clause 3.2.3 of the encumbrance. The notice stated that Hahndorf had executed a conditional contract for the sale of the subject land to Kinsmen subject to the terms of the encumbrance, and a copy of the contract with Kinsmen was annexed to the notice. The relevant part of the notice is as follows:

"1. The Encumbrancer offers to sell the land to the Encumbrancee upon the terms and conditions, and for the consideration, set out in the draft proposed contract attached hereto and marked "B" (the offer).

2. Insofar as the third party contract is subject to conditions in favour of the purchaser not included in the offer (being the conditions set out in clauses 3.1.3 to 3.1.7 (inclusive) of the Special Conditions) it is the intention of the Encumbrancer, and a further term of the offer, that the Encumbrancee have the benefit of such of those conditions as it nominates when accepting the offer, and that if the Encumbrancee so nominates, those conditions together with clause 3.2 of the Special Conditions will then also form part of the accepted offer.

3. Insofar as the third party contract imposes upon the purchaser development obligations not included in the offer (being clauses 5.1, 5.5 and 5.6 of the Special Conditions) it is the intention of the Encumbrancer, and a further term of the offer, that the Encumbrancee be at liberty to carry out such of those developments as it nominates when accepting the offer, and that if the Encumbrancee so nominates, the right to undertake the nominated developments will form part of the accepted offer.

4. The third party contract is subject to terms of confidentiality not included in the offer (Clause 14, Special Conditions). It is the intention of the Encumbrancer, and a further term of the offer, that the Encumbrancee be at liberty to include that clause by nomination when accepting the offer and that if the Encumbrancee so nominates that clause will form part of the accepted offer."

22 The Judge found that on or about 12 June 2003 Hahndorf caused a third document entitled "Notice of Intention to Sell to Encumbrancee" to be served on Nitschke. The Judge found that in its operative portion the third notice was substantially the same as the second notice, and that the notice was said to have been served without prejudice to Hahndorf's right to argue that the first and second notices were valid and effective notices under the contract and encumbrance. The Judge found that the third notice was served by Hahndorf out of an abundance of caution having regard to criticisms earlier advanced on behalf of Nitschke, and on the footing that, if the first sale notice dated 31 July 2002 was invalid, the second notice at least constituted a first sale notice for the purposes of the encumbrance, and the third notice constituted a second sale notice for the purposes of the encumbrance.

23 The Judge found that Nitschke had not elected to avail itself of the rights purportedly conferred on it by the three sale notices.

24 The Judge noted that Peter Nitschke Nominees Pty Ltd was de-registered on 18 February 2002. He noted that on 22 July 2003, a Judge of this Court made an order joining ASIC as a defendant by reason of a statutory right to any interest that the former Peter Nitschke Nominees Pty Ltd might have as encumbrancee under the encumbrance. The Judge also directed service of copies of all relevant documents filed in the action on ASIC. The Judge noted that Ms Jonson notified Hahndorf by letter dated 2 May 2003 that she had no interest in the relevant land or encumbrance, and that she duly executed a discharge of her interest as encumbrancee by instrument dated 2 June 2003. The Judge noted that Max Nitschke Nominees Pty Ltd also notified Hahndorf that it had no interest in the relevant land or encumbrance, and that it had also executed a discharge of its interest as encumbrancee. The Judge noted from the Certificates of Title tendered in evidence that Peter Nitschke Nominees Pty Ltd, Ms Jonson and Max Nitschke Nominees Pty Ltd had all disposed of their respective interests in Lots 21 and 22. In relation to Lot 22, Ms Jonson and Peter Nitschke Nominees Pty Ltd transferred their respective interests to Nitschke on 12 April 2000, and Max Nitschke Nominees Pty Ltd transferred its interest to Mr John Nitschke on 6 August 2001. In relation to Lot 21, Ms Jonson transferred her interest in that land to Nitschke on 12 April 2000, and Max Nitschke Nominees Pty Ltd transferred its interest to Mr John Nitschke on 6 August 2001.

25 ASIC did not file a notice of address for service, or seek to be represented at trial. The Judge noted that ASIC did write to the solicitors for Hahndorf on 6 August 2003 indicating that it would abide by any order made by the Court in the action. As I have said, ASIC took no part in the trial or the appeal.

26 The Judge noted that as at the date of trial the only (to use his words) "residual conflict" that existed was as between Hahndorf and Nitschke.

27 The Judge heard evidence from a number of witnesses. He heard evidence from Dr Lawrence Trafford-Walker, who is currently the president of Hahndorf, and from Mr John Nitschke. He did not make any findings suggesting that he rejected the evidence of either witness.

28 The Judge also heard evidence from Mr Alexander Smithson who is a qualified valuer and who was called by Hahndorf. Mr Smithson produced a report which became an exhibit in the action. In his report, Mr Smithson expressed certain views as to the effect of clauses 3 and 4 of the encumbrance on the possible sale of the subject land. Mr Smithson was cross-examined by counsel for Nitschke. Hahndorf also called Mr Harold Young as a witness. Mr Young is the executive director of Kinsmen and he swore an affidavit which became an exhibit in the action. In his affidavit, Mr Young also expressed certain views as to the effects of clauses 3 and 4 of the encumbrance on the possible sale of the subject land. Mr Young was cross-examined by counsel for Nitschke.

29 Nitschke called Mr David McArdle as a witness. Mr McArdle is a qualified valuer. In a report which became an exhibit in the action, Mr McArdle commented on the opinions of Mr Smithson and Mr Young, and expressed his own opinions as to the effects of clauses 3 and 4 of the encumbrance on the possible sale of the property. Mr McArdle was cross-examined by counsel for Hahndorf.

30 For the reasons which he gave and to which I will need to return, the Judge preferred the evidence of Mr Smithson to that of Mr McArdle. The Judge said that both Mr Smithson and Mr Young were impressive witnesses, and that he accepted their evidence, so far as it was relevant to the issues in the action, as being far more convincing than that of Mr McArdle.

The Important Findings of the Judge and his Reasons

31 At trial, there were four main issues. First, Hahndorf asserted that clause 3 of the encumbrance was uncertain, and therefore void. Secondly, Hahndorf asserted that clauses 3 and 4 of the encumbrance were an unlawful restraint on the alienation of the subject land, and therefore void. Thirdly, Hahndorf asserted that clause 4 of the encumbrance did not represent the intention of the parties as evidenced by the contract, and that an order for rectification should be made deleting the clause from the encumbrance. Fourthly, Nitschke asserted that the various sale notices served by Hahndorf did not comply with the provisions of the encumbrance and were therefore ineffective and invalid.

32 I start with the issue of uncertainty. Clause 3 contains a first right of refusal. The clause contains various provisions which the Judge described as "machinery" provisions. The Judge held that these provisions were unworkable, and that it was not possible to resolve the difficulties which he identified by a process of construction. The Judge held that the scheme could not be made to operate properly without, as he put it, "the commission of major surgery on the scheme of the instrument". The Judge held that the machinery provisions were so unworkable that the encumbrance was void for uncertainty. Strictly, it seems to me that, subject to questions of severance, it is only clause 3 that is void for uncertainty, and I think the Judge recognised that when he came to make his declarations and orders. I say that because his declarations and orders recognise the validity of that part of the encumbrance which imposes the rent charge.

33 In reaching his conclusion that clause 3 was void for uncertainty, the Judge identified two major difficulties with the machinery provisions in clause 3. The first difficulty arose by reason of the extended definition of "Encumbrancee" in clause 3.2.7. In addition to the registered proprietors of the encumbrance, in other words, those shown in the relevant panel as the encumbrancees, there is a class of persons or entities who are encumbrancees for the purpose of clause 3.2. That class of persons or entities is identified in clauses 3.2.7.1 - 3.2.7.3, and they are entitled to the benefit of the obligations imposed on Hahndorf by clause 3.2. The Judge said that the proviso in clause 3.2.7 did not make the extent of the application of the definition contingent on the notification referred to in the proviso. The Judge said that there were practical problems inherent in the definition. It would be impossible for Hahndorf to know at any given point in time the precise group entitled to the benefit of the encumbrance, or to be able to give the relevant notices under it unless the encumbrancee gave the notice referred to in the proviso. The Judge said that the persons entitled to rights as encumbrancees were not a closed group, and a possible effect of the reference to "remoter issue" was to give rise to a situation whereby clause 3.2 operated (to use the Judge's words) "in virtual perpetuity".

34 The Judge appears to have taken the view that Hahndorf would not know at any given point in time the precise composition of the class comprising the encumbrancee, and that this meant that clause 3.2.7 (and therefore clause 3.2) was void for uncertainty. Although he did not say so, I assume he reached this conclusion not because of any ambiguity about the meaning of the words in clause 3.2.7 for I do not think there is any, nor merely because Hahndorf without inquiry may be uncertain about the composition of the class comprising the encumbrancee, but rather because this aspect of the encumbrance is incomplete in that there is no mechanism whereby Hahndorf is advised of, and will know, the composition of the class comprising the encumbrancee.

35 The Judge rejected an argument that the extended definition of encumbrancee could be ignored because none of the persons or entities within the extended definition have any rights under the encumbrance. It was argued by Nitschke that this conclusion followed from the fact that such persons gave no consideration for the covenants in the encumbrance, nor was there any privity of contract between them and Hahndorf. The Judge said that he was not satisfied that the persons within the extended definition did not have rights under the encumbrance, although it seems to me that he did not reach a conclusion on the point. It is not clear whether the Judge characterised the encumbrance as a deed inter partes or as some other type of deed, such as a deed poll. If it is not a deed inter partes, a third party may sue on a covenant expressly made for his or her benefit. If it is a deed inter partes, there was, as the Judge noted, a general rule of the common law that only a person who had been named as a party to the deed could take action to enforce any covenant contained in it and intended to benefit that party. The Judge said that the old common law rules were abolished by s 34 of the Law of Property Act 1936 (SA) ("LPA"). That section relevantly provides:

"(1) A person may take an immediate or other interest in land or other property, or the benefit of any condition, right of entry, covenant, or agreement over or respecting land or other property, although he is not named as a party to the conveyance or other instrument."

36 The Judge said that the effect of s 34 was that it enabled a person to take the benefit of a covenant over or respecting land, although he or she is not named as a party to the indenture.

37 The Judge rejected an argument that clause 3.2.7 could be severed from the other provisions of the encumbrance. The Judge referred to clause 9 of the encumbrance, but said that it was not possible to remove the extended definition of encumbrancee without destroying what he described as the inherent concept of the whole scheme. In reaching that conclusion, the Judge placed some reliance on evidence of Mr Nitschke to the effect that clause 3.2.7 was inserted as an integral part of the scheme put forward by the vendors to the contract.

38 The second difficulty with the machinery provisions in clause 3 which was identified by the Judge relates to the question of whether the sale of a part of the subject land is possible under those provisions. The Judge said that the encumbrance clearly envisaged the sale by Hahndorf of the whole or a part of the land. In that regard, he referred to clauses 3.2.1 and 4. The Judge said that in the first sale notice and the second sale notice Hahndorf must offer the whole of the subject land to the encumbrancee. If the encumbrancee rejects the offer to sell contained in the second sale notice, the only right Hahndorf may then exercise (said the Judge) is the right to sell the whole of the subject land to a third party. That follows, said the Judge, from the fact that clause 3.2.6 uses the term "the Land" and the definition of that term in clause 3.1.

39 The Judge rejected an argument advanced by Nitschke that although the first sale notice must constitute an offer to sell the whole of the subject land, the relevant provisions of clause 3 should be read so that the second sale notice may constitute an offer to sell part of the subject land (assuming the unrelated third party offer is an offer to purchase only part of the subject land) and if not accepted by the encumbrancee, Hahndorf was at liberty to sell that part of the subject land which was the subject of the third party offer. The Judge said the term "the Land" was used consistently throughout clause 3 of the encumbrance to mean the whole of the subject land, and that it was simply not possible to construe the clause in the way suggested by Nitschke.

40 It seems to me that the Judge took the view that the encumbrance clearly envisaged a sale of part of the subject land by Hahndorf, and yet there are no machinery provisions in the encumbrance which allow for that to occur. Such reasoning is to the effect that uncertainty arises because of incompleteness, rather than because particular words in clause 3 are ambiguous or vague. The Judge did not identify any particular words, phrases or provisions which he said were ambiguous or vague in the relevant sense.

41 The Judge said that even if it was possible in some way for Hahndorf to sell part of the subject land after giving a second sale notice to the encumbrancee, two further difficulties arose. The first arose on the assumption that in the second sale notice Hahndorf must offer the whole of the subject land to the encumbrancee. On that assumption, it would not be possible to know if the offer to the encumbrancee to sell the whole of the subject land involved "the imposition of any more onerous obligations and duties upon the Encumbrancee or require the Encumbrancee to pay any greater sum for the Land than set out in the third party offer", which is an offer to purchase only part of the subject land. The second difficulty identified by the Judge, on the assumption that the sale of part of the subject land was possible, arose if Hahndorf sold part of the subject land and then later wished to sell the balance or part of the balance. The Judge said that at that point Hahndorf would not be in a position to offer the whole of the subject land to the encumbrancee as required by the encumbrance.

42 On the issue of uncertainty, the Judge reached the following conclusion:

"The drafting of the document is such as to render the machinery aspects of it so unworkable that it must be held that the encumbrance is void for uncertainty."

43 I turn now to the issue of an unlawful restraint upon alienation. Subject to one matter, the Judge considered whether the effect of the obligations in clauses 3 and 4 of the encumbrance was to constitute an unlawful restraint on alienation separately from the issue of uncertainty. The one matter was that in considering the issue of an unlawful restraint upon alienation, the Judge proceeded on the basis that under clause 3 of the encumbrance Hahndorf could not sell part of the subject land to a third party.

44 As I have said, the Judge accepted the evidence of Mr Smithson and Mr Young, and he concluded that it would be "virtually impossible" for Hahndorf to sell the subject land or part of it by auction. The Judge also said that carrying out the process in clause 3 would cause delay. The Judge concluded that an inevitable consequence of the effect of clauses 3 and 4 of the encumbrance was that there would be a diminution in the market value of the subject land or any part of it which may properly be sold. The effect of clauses 3 and 4 was that (as the Judge put it) to a serious degree any potential sale of the subject land would be adversely affected. The Judge went so far as to find that the evidence supported the conclusion that as a matter of commercial reality "it may well have the practical effect of rendering the golf course land well nigh unsaleable".

45 Having reached those conclusions on the facts, the Judge turned to consider the legal principles relevant to the doctrine of an unlawful restraint on alienation. The Judge noted the decision of the High Court in Hall v Busst [1960] HCA 84; (1960) 104 CLR 206, and said that that case was authority for the proposition that the common law principle making restraints on alienation void applied not only to devises, but also to contractual covenants or bonds not to alienate. The Judge referred to the decision of the High Court in Nullagine Investments Pty Ltd v The Western Australian Club Inc [1993] HCA 45; (1993) 177 CLR 635 and said the decision reaffirmed the principle enunciated in Hall v Busst (supra). The Judge noted with apparent approval the view of Brennan CJ that the basis of the common law principle was public policy. The Judge said that there was a unanimity of view in Nullagine Investments Pty Ltd v The Western Australian Club Inc (supra) that a covenant which necessarily resulted in a sale at an undervalue would offend the principle. He said that, at least by inference, Toohey J recognised that in cases involving pre-emption it was appropriate to lead evidence to establish that a right may well have the effect of bringing about a sale at an undervalue.

46 The Judge considered other authorities and noted that a partial restraint on alienation may be void. The Judge said that the issue was one of degree, and was whether the relevant condition takes away the whole power of alienation substantially. The Judge also formulated the test in terms of whether the restriction constituted "a substantial taking away, not of the whole power of alienation, but of a valuable portion of it, subjecting it to fetters which inevitably, by limiting the market, diminish the ordinary selling value of the land, and which might, in fact, destroy all opportunity of selling".

47 The Judge then identified three reasons why clauses 3 and 4 of the encumbrance had the practical effect of taking away, substantially, the power of alienation by Hahndorf of the subject land. First, the subject land could not be sold other than as a whole. Secondly, the fetters imposed by clauses 3 and 4 of the encumbrance limit the potential market and make it unattractive to potential buyers. The Judge said that this would inevitably result in a sale at under market value, and may have the consequence that commercial development of the subject land is impractical. Thirdly, there is a further fetter in that there is a practical inability to sell the subject land by auction.

48 For these reasons, the Judge held that the restraint imposed by the encumbrance was void.

49 I turn now to the issue of rectification. It seems to me the Judge rejected Hahndorf's argument that an order for rectification should be made deleting clause 4 of the encumbrance. He did not expressly say so, but that is the effect of his findings. He referred to the fact that there was little or no evidence as to how clause 4 came to be included in the encumbrance. In addressing that issue, the Judge referred to condition 8.6 of the contract and said:

"... the only logical conclusion is that this was part of the form 'required' by the defendant and was acquiesced in at the time by the plaintiff."

50 I turn now to the issue of the validity of sale notices. In view of his earlier conclusion that clauses 3 and 4 of the encumbrance were void, it was not necessary for the Judge to consider whether the sale notices were valid in the sense of whether they complied with the provisions of the encumbrance. However, he did so in case his earlier conclusions were wrong.

51 The Judge held that the first sale notice was valid. The Judge rejected the two grounds upon which Nitschke submitted that the notice was invalid. The Judge rejected the submission that, having regard to the correspondence with Kinsmen, the offer to Nitschke in the first sale notice involved the imposition of more onerous obligations and duties upon Nitschke than Hahndorf would impose or require from another purchaser. In particular, it was submitted that it was clear that any sale to Kinsmen would be subject to the obtaining of development approval, whereas the offer to Nitschke was not subject to such a condition. The Judge found that at the time of the first sale notice there was no concluded agreement between Hahndorf and Kinsmen. The Judge found that it was not until 25 February 2003 that a firm contract was entered into between those parties. The Judge reached the conclusion that there was no evidence to suggest that what was set out in the first sale notice was inconsistent with what Hahndorf would have required at the time.

52 The Judge rejected the submission that the proposal in the first sale notice was no more than a proposal for an agreement to agree. The Judge considered that it was clear enough that the proposal was that Nitschke would spend the various amounts stipulated on capital improvements to the subject land of the broad nature indicated to the satisfaction of Hahndorf, and that that was sufficient compliance with the requirements of the encumbrance.

53 The Judge held that the second sale notice and the third notice were valid. The Judge rejected the two grounds upon which Nitschke submitted that the notices were invalid. The Judge rejected the submission that the requirement that Nitschke pay a deposit of five per cent of the purchase price meant that the offer to it involved the imposition of more onerous obligations and duties than were set out in the Kinsmen contract. The Judge noted that the encumbrance did not require the terms and conditions to be identical, rather that they be no more onerous. He also noted that the terms of the encumbrance itself required the payment of a five per cent deposit (see clause 3.2.5.2). Therefore, he said, the focus of the stipulation that terms and conditions be no more onerous was on "the primary sale price and conditions attaching to it, rather than the mode of payment". The Judge said that he could not see how a condition required by the encumbrance itself could be more onerous than that imposed in the proposed contract with Kinsmen. The Judge also rejected the submission that the terms and conditions of the offer to Nitschke were more onerous than the terms and conditions in the Kinsmen contract because the Kinsmen contract was subject to finance. He did so for two reasons. First, he referred to Mr John Nitschke's evidence that he would have no difficulty raising finance and said that in those circumstances, the offer to Nitschke was not in fact more burdensome than the Kinsmen offer. Secondly, he referred to evidence of Mr Young of Kinsmen to the effect that the reference to "Financial Close" in the offer "was really one related to timing rather than a stipulation that the contract was subject to finance".

54 The declarations and orders which were made by the Judge are as follows:

"THE COURT DECLARES that:

1. Clause 3 of the Encumbrance No 7779125 dated 17 August 1994 ("the Encumbrance") is void and unenforceable.

2. Clause 4 of the Encumbrance is void and unenforceable.

3. The plaintiff is under no obligation to comply or further comply with the covenants contained in the Encumbrance before proceeding to completion of the contract for sale and purchase to Kinsmen Developments Pty Ltd dated 25 February 2003.

4. The plaintiff is entitled to sell Allotment 20, being the whole of the land comprised in Certificate of Title Register Book Volume 5274 Folio 541, to Kinsmen Developments Pty Ltd, free of the covenants contained in Clauses 3 and 4 of the Encumbrance.

5. Upon payment into Court by the plaintiff of the moneys hereinafter specified the land comprised in Certificate of Title Register Book Volume 5274 Folio 541 is freed and discharged from Encumbrance No 7779125 and from the principal interest and other charges secured by the said Encumbrance [section 27(2) Law of Property Act 1936 (SA)].

THE COURT ORDERS that:

6. The Inter Partes Summons dated 13 June 2003 is amended to include an application under section 27 of the Law of Property Act 1936 (SA).

7. The plaintiff pay into Court the principal sum of $100.00 (together with the amount of $10.00 to meet the contingencies of further costs expenses and interest and any other contingency in respect of the Encumbrance between the plaintiff as Encumbrancer and the defendants as Encumbrancees).

8. Upon payment into court by the plaintiff of the moneys hereinbefore specified in discharge of the plaintiff's liability for rent charges pursuant to clause 1 of the Encumbrance (for which the receipt of the Registrar of the Supreme Court shall be sufficient evidence), the Registrar General of the Lands Titles Registry Office make an entry on Certificate of Title Register Book Volume 5274 Folio 541 effecting the removal or cancellation of the Encumbrance registered thereon.

9. The first defendant pay to the plaintiff its costs of action to be taxed in default of agreement.

10. This declaration and order be stayed in its operation as to paragraphs 5, 6, 7 and 8 herein until 5.00 pm on 12 September 2003 for the purpose of enabling the defendant, if so advised, to institute an appeal in relation to the declarations and orders made, or any of them.

11. Further consideration of the question of a continuing stay be adjourned for consideration by the Chamber Judge on 12 September 2003.

12. The parties have liberty to apply as to moneys paid into Court and generally."

55 It is well established that courts strive to uphold the reasonable expectations of parties who believed they had a contract (Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2; (1932) 147 LT 503). It is also well established that there is a distinction between uncertainty of meaning which is resolved by a process of construction and absence of meaning. In Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429, Barwick CJ said (at 436 - 437) (footnote references omitted):

"But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin's words in this connexion in Hillas & Co. Ltd. v. Arcos Ltd. ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright's words in Scammell (G.) & Nephew Ltd. v. Ouston is not 'so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention', the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved."

56 The first major ground upon which the Judge held that clause 3 was void for uncertainty was that clause 3.2.7 created uncertainty as to the persons who fall within the definition of encumbrancee. I disagree with the Judge's conclusion on this issue. I think the proviso in clause 3.2.7 of the encumbrance means that there are no persons within the extended class identified in clauses 3.2.7.1 to 3.2.7.3 inclusive for the purposes of the obligations in clause 3.2 unless and until the registered proprietors of the encumbrance give advice in writing to Hahndorf of persons falling within the extended definition. In other words, I would construe the proviso as meaning that advice in writing is a condition precedent to the operation of the extended definition. In my opinion, that is the proper construction having regard to the fact that it is a proviso, that it is expressed in mandatory terms and the difficulties created by any other interpretation of clause 3.2.7. I have not overlooked the fact that there were no doubt persons within the extended definition of encumbrancee at the time the encumbrance was executed, and that the proviso refers to a "change" in the group of persons and companies constituting the encumbrancee. I would interpret the proviso broadly so that a change for the purposes of the proviso is the inclusion of any person other than the registered proprietors of the encumbrance, but even if that interpretation is wrong, the persons within the extended definition at the time the encumbrance was executed were clearly capable of being identified at that time.

57 This conclusion makes it unnecessary for me to consider whether those persons falling within the extended definition of encumbrancee are able to enforce their rights by legal action if necessary, and whether, if void for uncertainty, clause 3.2.7 can be severed from the rest of the encumbrance. However, in case I am wrong, and because those issues were the subject of detailed submissions from the parties, I will deal with them.

58 The issue of whether those persons falling within the extended definition of encumbrancee are able to enforce the rights conferred by clause 3.2, by legal action if necessary, is by no means straightforward. It is convenient to begin a consideration of the issue by noting some aspects of the encumbrance. The encumbrance has been executed by Hahndorf. It has not been executed by any other party. In the panel on the first page of the encumbrance, the encumbrancee is defined to be Ms Jonson, Peter Nitschke Nominees Pty Ltd, Nitschke and Max Nitschke Nominees Pty Ltd. As I have said, those parties are shown on the certificate of title for the subject land as the registered proprietors of the encumbrance. The covenants are expressed to be between Hahndorf for itself and its successors in title and the encumbrancees (ie., the registered proprietors of the encumbrance) and each and every registered proprietor for the time being of the adjacent land (ie., Lots 21 and 22) and all successive owners, assignees, executors, administrators and transferees thereof. The extended definition of encumbrancee only applies for the purposes of clause 3.2 of the encumbrance. For the purpose of the other clauses in the encumbrance, the registered proprietors of the encumbrance are the encumbrancee.

59 Section 57 of the RPA provides that when registered every instrument, "shall have the effect of and be deemed and taken to be a deed duly executed by the parties who have signed the same". The encumbrance is registered and accordingly is taken to be a deed.

60 I do not think those persons who fall within the extended definition of encumbrancee by virtue of clause 3.2.7 are parties to the encumbrance, and therefore, parties to the deed which the encumbrance is taken to be. They are not registered proprietors of the encumbrance, they are not entitled to enforce the rent charge and they are within the definition of encumbrancee only for the purposes of one clause (ie., clause 3.2).

61 At common law, in the case of a deed inter partes, a person in whose favour a convenant is made can only enforce the covenant by action if he or she is a party to the deed. This rule did not apply outside the case of a deed inter partes, and it did not apply, for example, to a deed poll. In the case of other deeds, a person could enforce a covenant made for his or her benefit (Norton on Deeds, 2nd ed (1928) at 28 - 29). In Beswick v Beswick [1967] UKHL 2; [1968] AC 58, Lord Upjohn referred to the above principles as "some very ancient law relating to indentures inter partes" and described the common law rule in the following terms (at 102):

"The rule was that a grantee or covenantee, though named as such in an indenture under seal expressed to be made inter partes, could not take an immediate interest as grantee nor the benefits of a covenant as covenantee unless named as a party to the indenture."

62 Lord Upjohn then went on to consider the effect of s 56(1) of Law of Property Act 1925 (UK) which, for all intents and purposes, is in the same terms as s 34(1) of the LPA. His Lordship said (at 106):

"Section 56, like its predecessors, was only intended to sweep away the old common law rule that in an indenture inter partes the covenantee must be named as a party to the indenture to take the benefit of an immediate grant or the benefit of a covenant; it intended no more."

63 Lord Upjohn referred to his view as the narrow view of the effect of s 56(1). He cited with approval the following observations of Simonds J (as he then was) in White v Bijou Mansions [1937] Ch 610 (at 625):

"Just as under section 5 of the Act of 1845 only that person could call it in aid who, although not a party, was a grantee or covenantee, so under section 56 of this Act only that person can call it in aid who, although not named as a party to the conveyance or other instrument, purports to grant something or with which some agreement or covenant is purported to be made."

64 Lord Upjohn also referred to a similar view expressed by Wynn-Parry J in In re Miller's Agreement; Uniacke v Attorney-General [1947] Ch 615.

65 Earlier, in Drive Yourself Hire Co (London) Ltd v Strutt [1954] 1 QB 250 Denning LJ took a different approach. He considered that s 56(1) had a wider effect than simply abolishing an old rule about deeds inter partes. He said that it meant also that one could go back to what he described as the old common law whereby a third party could sue on a contract made expressly for his benefit.

66 If I may say, there is a useful review of the English authorities by Neuberger J in Amsprop Trading Ltd v Harris Distribution Ltd [1997] 1 WLR 1025 at 1029 - 1033. Neuberger J considered that the proper effect of s 56 is set out in the following passage in Megarry and Wade, The Law of Real Property, 5th ed (1984) at 763:

"The true aim of section 56 seems to be not to allow the third party to sue on a contract merely because it is made for his benefit; the contract must purport to be made with him. Just as, under the first part of the section, a person cannot benefit by conveyance unless it purports to be made to him (as grantee), so he cannot benefit by a covenant which does not purport to be made with him (as covenantee)."

67 As far as I am aware the proper scope and effect of s 34(1) of the LPA has not been the subject of consideration by this Court. A section in similar terms (s 11(1) of the Property Law Act 1969 (WA)) was considered by the High Court in Jones v Bartlett (2000) 205 CLR 166. However, there was an important difference in the legislation under consideration in that case in that there was also a provision whereby, subject to certain qualifications, a person not named in a contract could enforce in his own name a term purporting to confer a benefit directly on him (s 11(2)). There is no equivalent to s 11(2) of the Property Law Act (WA) 1969 in s 34 of the LPA. Because of that difference I do not propose to go through the reasons for judgment of each of the Justices in any detail. I think that it is sufficient to say the following. Gleeson CJ (at [39]) did not need to consider the proper scope and effect of s 11(1) having regard to his view of the facts. Gaudron J took the narrow view of s 11(1), but in doing so, appears to have been heavily influenced by the presence of s 11(2). McHugh J (at [99]) and Gummow and Hayne JJ (at [140 - 147]) did not express a concluded view, although Gummow and Hayne JJ referred to authorities in favour of the narrow view without adverse comment. Kirby J did not need to consider the point (at [224]), nor did Callinan J (at [271]).

68 Section 34(1) of the LPA is based on s 56(1) of the Law of Property Act 1925 (UK). In my respectful opinion, the reasons for taking a narrow view of the scope of the section as stated by Lord Upjohn in Beswick v Beswick (supra) (at 102 -107) are correct, and that is the approach which I would take. It follows that if the encumbrance is a deed inter partes, the persons falling within the extended definition of encumbrancee can only enforce the covenants in clause 3.2 if those covenants are made with them. I think the same rule applies even if the deed is not a deed inter partes. In referring to the common law rule, the learned authors of Norton on Deeds (supra) at 29, state (citation of authorities omitted):

"The rule never applied except to deed inter partes; a deed poll could always be sued on by any person with whom the covenant was made, and an indenture not inter partes is for this purpose a deed poll:"

69 It follows that it is unnecessary for me to consider the interesting question of whether the encumbrance is to be considered a deed inter partes, deed poll or other form of deed. With respect to that issue, I refer without comment to Chelsea and Walham Green Building Society v Armstrong [1951] Ch 853.

70 The critical question is whether the covenant in clause 3.2 of the encumbrance was made with those persons falling within the extended definition of encumbrancee. I do not think that it can be said that the covenants in clause 3.2 are made with those persons falling within the extended definition of encumbrance. I have reached that view for two reasons. First, that part of the encumbrance which states that Hahndorf covenants with the encumbrancee clearly uses encumbrancee in the narrow sense of the registered proprietors of the encumbrance. Secondly, no person or entity is identified by name in clause 3.2.7, and indeed, some of the persons and entities may not come into existence until well after the date upon which the encumbrance was executed.

71 For these reasons, I do not think the persons falling within the extended definition of encumbrancee can enforce by legal action if necessary, the covenants in clause 3.2 of the encumbrance.

72 I turn now to consider the question of severance. Again, I make the point that I only do so on the assumption that my earlier conclusion that clause 3.2.7 (and therefore clause 3.2) is not void for uncertainty is wrong.

73 Clause 9 of the Encumbrance provides that void or unenforceable terms, covenants, conditions and provisions should be severed leaving the other terms, covenants, conditions and provisions free to operate according to their terms. I make the point at this stage that I think clause 9 applies if clause 3.2, in particular clause 3.2.7, is void and unenforceable, and that it is not restricted in its operation to a case where a whole term, covenant, condition or provision is void and unenforceable.

74 I think that, as was the case in Attwood v Lamont [1920] 3 KB 571, it may be assumed that clause 9 does not authorise the type of severance which would "... alter entirely the scope and intention of the agreement" (per Lord Sterndale MR at 580).

75 In Rentokil Pty Ltd v Lee [1995] SASC 5318; (1995) 66 SASR 301, Doyle CJ said (at 306):

"It is well established by the cases that if part of an agreement is invalid or unenforceable, that part may, under certain circumstances, be severed from the balance of the agreement or disregarded. In considering this issue the court is not concerned with the construction of the particular provision. I have already expressed my views on the proper construction of the relevant provisions. The court in considering severance is concerned with the question of whether, properly construed, the relevant agreement should be permitted to operate as between the parties with some part of its apparent or intended operation not being given effect. But while the courts have said on many occasions that they will not rewrite the contract for the parties, in order to create a valid restraint from an invalid restraint, the question is again ultimately one of intention. The question is whether, construing the contract as a whole, it may be concluded on an objective basis that the parties intended the relevant provision to have the reduced operation if it could not have its full operation."

76 In addition, the Chief Justice cited with approval the words of Taylor J in Brooks v Burns Philp Trustee Co Ltd [1969] HCA 4; (1969) 121 CLR 432 at 442:

"But the problem of severability is the same in either case; fundamentally the question is one of intention to be gathered from the instrument itself: Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 and Whitlock v Brew [1968] HCA 71; (1968) 118 CLR 445."

77 In considering the question of severance the Judge referred to evidence of Mr Nitschke to the effect that (as the Judge put it),

"... clause 3.2.7 was inserted as an integral part of the whole scheme propounded by the Nitschke group to ensure that the encumbrance would continue to operate in virtual perpetuity so as to prevent a sale and development of the golf club land."

78 In my respectful opinion, the Judge erred in relying on Mr Nitschke's evidence to reach the conclusion that severance was not possible. The intention of the parties is to be ascertained objectively from the terms of their agreement (ie., the contract and the encumbrance), and not by reference to oral evidence from one or more of the parties as to what they intended. That proposition is well established and is confirmed by the Chief Justice in the passage set out above.

79 In my opinion, the objective intention of the parties was that severance of clause 3.2.7 was to take place in the event that was void and unenforceable. If clause 3.2.7 is severed, a workable agreement is left and the severance of that clause does not alter the scope and intention of the agreement. It might alter the extent of the obligation, but it does not alter the nature of the obligation.

80 In my opinion, clause 3.2.7 of the encumbrance is not void for uncertainty, and therefore clause 3 is not for this reason void for uncertainty. Even if clause 3.2.7 is void for uncertainty, I think that clause can be severed from the rest of clause 3 of the encumbrance.

81 I turn now to the second major ground upon which the Judge held that clause 3 was void for uncertainty. The Judge said that the encumbrance clearly contemplated the sale of a part of the subject land by Hahndorf, and yet clause 3 did not contain machinery provisions which enabled the sale of part of the subject land to take place. Nitschke did not challenge the proposition that the encumbrance contemplated the sale of a part of the subject land by Hahndorf. It did challenge the proposition that clause 3 did not contain machinery provisions which enabled that to take place. It put two alternative arguments which it said overcome the difficulties identified by the Judge. Both arguments rely to some extent on the provisions of Part 19AB of the RPA, and it is convenient to start with an examination of the provisions in that Part. For the purposes of considering Hahndorf' submissions, I can confine my analysis to Part 19AB of the RPA, and a separate analysis of the provisions of the Community Titles Act 1996 (SA) or the Strata Titles Act 1988 (SA) is not required.

82 In this State, the division of an allotment requires development approval under the Development Act 1993 (SA) because it is within the definition of "development" under s 4 of the Act. If and when a development approval is obtained it is followed by a certificate granted by the Development Assessment Commission under s 51 of the Development Act. That is not the end of the process because an application must then be made by the registered proprietor of the land to the Registrar-General under s 223LD of the RPA. Section 223LB contains a prohibition on the unlawful division of land, that is to say, the disposal of land, or an estate or interest in land which does not constitute the whole of an allotment or of a number of allotments. For the purposes of the present argument it is not necessary to set out the precise terms of the prohibition. It is sufficient to say that the prohibition does not apply to a contract to grant, sell, transfer, convey, mortgage or encumber an estate or interest in land providing the conditions in s 223LB(5) are met. That subsection provides as follows:

"(5) This section does not affect the validity of a contract to grant, sell, transfer, convey, mortgage or encumber an estate or interest in land if--

(a) a division of land--

(i) under this Part; or

(ii) by strata plan under the Strata Titles Act 1988 or by community plan under the Community Titles Act 1996,

is contemplated by the parties to the contract; and

(b) the contract could, if the land were divided as contemplated by the parties, be carried into effect in conformity with this section; and

(c) the contract provides that the grant, transfer, conveyance, mortgage or encumbrance of estates or interests in land pursuant to the contract will not have effect until the plan of division, strata plan, or community plan contemplated by the parties has been deposited in the Lands Titles Registration Office by the Registrar-General."

"(1) Where it appears from the Register Book that--

(a) the deposit of a plan of division in the Lands Titles Registration Office will affect the estate or interest of a person in the land to be divided or in any other land; or

(b) a person, apart from the registered proprietor or a person referred to in paragraph (a), has, or claims, an estate or interest in the land to be divided,

the application for division must be endorsed with a certificate signed by the persons referred to in paragraphs (a) and (b) certifying that they have consented to the deposit of the plan."

84 Counsel for Nitschke submitted that as the registered proprietor of the encumbrance, Nitschke's consent to any application for division would be required, and I did not understand counsel for Hahndorf to dispute that proposition.

85 Part 19AB provides that the Registrar-General may deposit an application for the division of land in the Lands Titles Registration Office and that when that is done, the act of deposit has certain legal consequences. Those consequences are specified in s 223LE which relevantly provides:

"(2) Subject to subsection (3), where a plan of division or the application for division states that an estate or interest in land is vested in a person, deposit of the plan in the Lands Titles Registration Office operates to vest the estate or interest in that person to the extent to which it is not already vested in him or her.

(3) An estate in fee simple will vest in a person under subsection (2) only if--

(a) the person was, immediately before the plan of division was deposited in the Lands Titles Registration Office, the proprietor of an estate or interest in some part, or the whole, of the land, shown on the plan of division; or

(b) the person is an agent or instrumentality of the Crown or the Commonwealth Crown or is entitled to acquire the land compulsorily under an Act or law of the State or the Commonwealth."

86 Regulation 12 of the Real Property (Land Division) Regulations 1995 provides that on depositing a plan of division in the Lands Titles Registration Office, the Registrar-General must issue a separate certificate of title for each allotment created by the plan.

87 Nitschke argued that the effect of these provisions was that a part of the subject land (the whole of which presently constitutes an allotment) could not be transferred to Nitschke or a third party purchaser unless the process of division had been undertaken and the relevant part of the subject land was a separate allotment. This process would involve the recording of the encumbrance on each new certificate of title. However, Nitschke submitted that the encumbrance as recorded on each new certificate of title would not be in identical terms to the existing encumbrance in that the land in the encumbrance would be defined as the land comprised and described in the particular certificate of title rather than the whole of the subject land. Hahndorf submitted that this was not the case and that the encumbrance would be in identical terms to the existing encumbrance, that is to say, it would refer to the whole of the subject land. Hahndorf said that its contention was supported by the provisions of the RPA, and in particular, ss 51C and 77.

88 Before deciding that issue, it is convenient to outline precisely how Nitschke seeks to call in aid the provisions of the RPA to overcome the difficulties identified by the Judge.

89 Nitschke's first argument is that clause 3 should be read so that a part of the subject land was included within its provisions. Nitschke submitted that clause 3.1 of the encumbrance defines the "Land" as Lot 20 unless a contrary intention appears. Nitschke submitted that a contrary intention appears in various subclauses of clause 3, because the sale of part of the subject land by Hahndorf is clearly contemplated having regard to the terms of the encumbrance. More particularly, Nitschke submitted that clause 3 should be read as if:

(1) In clause 3.2.3 (fifth line) the words "or any portion of it" appeared after the words, "the Land".

(2) In clauses 3.2.3 (seventh line and eleventh line), 3.2.3.1 (second line), 3.2.3.3 (fourth line and twelfth line), 3.2.3.4 (eleventh line) and clause 3.2.6 (seventh line) the words 'the Land" should be read as "that Land".

90 Nitschke does not put its argument in terms of an order for rectification, but rather in terms of the proper construction of the encumbrance in order to avoid an absurd result.

91 The circumstances in which a court, as a matter of construction, will depart from the grammatical and ordinary sense of words used were discussed by the Privy Council in Watson v Phipps (1986) 60 ALJR 1. Lord Brightman said (at 3):

"The function of a court of construction is to ascertain what the parties meant by the words which they have used. For this purpose the grammatical and ordinary sense of the words is to be adhered to, unless they lead to some absurdity or to some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified so as to avoid that absurdity or inconsistency, but no further: see the speech of Lord Wensleydale in Grey v Pearson [1857] EngR 335; (1857) 6 HLC 61 at 106, repeated by Lord Blackburn in Caledonian Railway Co v North British Railway Co (1881) 6 App Cas 114 at 131."

92 Although the grammatical and ordinary sense of the words used may not produce an absurdity, I think the grammatical and ordinary sense of the words used does lead to repugnance or inconsistency with the rest of the encumbrance. Clearly, as the Judge found, the encumbrance envisages the sale of part of the subject land. In those circumstances, the words I have previously identified should be read or construed in the manner put forward by Nitschke.

93 That conclusion does not overcome all of the difficulties identified by the Judge. He identified two further difficulties that arose even if the sale of part of the subject land was possible. First, he said a difficulty arose in carrying out the comparison contemplated by clause 3.2.1. In other words, assume Hahndorf wishes to sell part of the subject land. It must offer the whole of the subject land to Nitschke and the offer to Nitschke must, speaking generally, be no more onerous than a contract with a third party. How can such a comparison be carried out? I do not think there is a difficulty in carrying out such a comparison. At the first sale notice stage, there may or may not be negotiations with a third party, or negotiations which have resulted in the identification of reasonably precise terms. It is always open to Hahndorf to obtain a valuation of the whole of the subject land and to identify a usual or standard set of conditions. Any difficulty thereafter may in fact be Nitschke's difficulty in that it must show that the offer put to it is more onerous than what would be put to a third party.

The second difficulty identified by the Judge is not so easily resolved, and it is in relation to this difficulty that Nitschke seeks to rely on those provisions of the RPA which I have previously identified. The difficulty arises in this way. Assume Hahndorf has sold part of the subject land. It then wishes to sell the balance held by it, or part of the balance. It is common ground that in the first sale notice Hahndorf must offer the whole of the land to Nitschke. Is the whole of the land the balance of the land then held by Nitschke, or is it the whole of the subject land bearing in mind that Nitschke no longer holds the whole of the subject land? The Judge thought that the correct interpretation was the whole of the subject land must be offered and that that gave rise to an impossibility, and therefore uncertainty. Nitschke submitted that the initial sale by Hahndorf could only take place after a division of the subject land under Part 19AB of the RPA, and that new certificates of title would be issued, one for the part sold by Nitschke and the other for the balance retained by Nitschke. That proposition is correct and it was not disputed by Hahndorf. The important question for present purposes is whether the encumbrance over the balance of the land held by Hahndorf would impose the clause 3 obligations only in relation to the balance of the land held by Hahndorf, or in relation to the whole of the subject land. As I have said, Hahndorf referred to ss 51C and 77 of the RPA. Those sections provide:

"51C. (1) Where title to land is registered under this Division, the Registrar-General must issue a certificate of title to the proprietor of the land setting out the proprietor's estate or interest in the land and the encumbrances, liens or other interests (if any) to which the estate or interest is subject.

(2) The Registrar-General may cancel the certificate of title currently issued under subsection (1) and issue a new certificate in its place--

(a) when registering any dealing with the registered proprietor's estate or interest in the land or when registering any other dealing that affects the registered proprietor's estate or interest in the land; or

(b) if, in the Registrar-General's opinion, any entry, endorsement or notation, should be made on the title.

(3) Notwithstanding subsection (1) the Registrar-General may withhold the issue of a certificate of title if in his or her opinion proper reasons exist for doing so."

"77. The Registrar-General shall record on every certificate issued by him, and in such manner as to preserve their respective priorities, memorials of all subsisting mortgages, leases, and encumbrances, and of any dower or rent-charge to which the land may be subject; and if such certificate be issued to a minor or to a person otherwise under disability, he shall record thereon the age of such minor or the nature of the disability so far as known to him."

94 In my opinion, these sections do not provide a clear answer to the problem. The Court was not referred to any authority on the point. In those circumstances, I think I am entitled to have regard to the intention of the parties as revealed by the terms of the contract and the encumbrance, and how the point would be resolved in the event of a dispute between them. I think the intention of the parties was that upon sale of part of the subject land, Hahndorf was to be released from the obligations in clause 3 in relation to the part sold. That makes clause 3 work in the case of the sale of a part of the subject land, and was clearly the intention of the parties when one has regard to clauses 4 and 5 of the encumbrance. Even if, as I have concluded, clause 4 is an unlawful restraint on alienation, and because of that, I should ignore clause 4, I think that I can have regard to those parts of clause 5 which do not refer to clause 4 to confirm that conclusion.

95 I accept Nitschke's argument that the encumbrance over the balance of the land held by Nitschke would impose the clause 3 obligations only in relation to that land, and in those circumstances the difficulty identified by the Judge does not arise. I should add in fairness to the Judge, that I do not think the argument based on Part 19AB of the RPA was developed before him. Counsel for Nitschke said that the Judge was referred to certain sections in Part 19AB, but it is clear from the fact that he did not refer to Part 19AB that the argument was not developed before him.

96 In my opinion, clause 3 is not incomplete and therefore void for uncertainty because it does not contain provisions dealing with the sale of part of the subject land.

97 It is unnecessary for me to deal with Nitschke's alternative submission. However, I mention the submission for the sake of completeness. Nitschke submitted that assuming the Court could not, as a matter of construction, read the words identified in Nitschke's first submission in the manner set out above (paragraph 89), any problems with a sale of part of the subject land could be overcome if Hahndorf divided the subject land before embarking on the process in clause 3. Nitschke submitted that a division of the subject land would not activate the process in clause 3, and that after the division each new certificate of title would be subject to an encumbrance which related only to that certificate of title. There is force in the submission in view of my conclusion about the operation of the provisions in Part 19AB of the RPA, but I do not propose to decide the point in circumstances in which it is unnecessary to do so.

98 In my opinion, clause 3 of the encumbrance is not void for uncertainty

99 The Judge held that clauses 3 and 4 constituted an unlawful restraint on the alienation of the subject land. The doctrine that certain types of restraint upon the alienation of property are unlawful and void is a common law doctrine which has been explained and developed in the cases. The boundaries of the doctrine are not clear. For example, there are decisions in relation to certain types of restriction in which it is said that the particular type of restriction simply does not fall within the scope of the doctrine, and other decisions in which it is said that the restriction is prima facie within the scope of the doctrine, but not unlawful if it is imposed for the protection of a valid collateral object. There also appears to be some uncertainty as to the extent to which evidence may be received to establish that the restriction in fact constitutes an unlawful restraint on alienation.

100 It is convenient to start a consideration of this issue by examining the relevant legal principles. There are a large number of cases in this area, but it is unnecessary to refer to all of them. It will be sufficient if I examine the more important cases in terms of the issues in this case.

101 It is convenient to start with the oft cited decision of Pearson J in In re Rosher; Rosher v Rosher [1884] UKLawRpCh 141; (1884) 26 Ch D 801. The case concerned a devise of all the testator's real property to his son. The devise was subject to a condition that if the son wished to sell the real property or any part thereof during the lifetime of the testator's wife, then the wife should have the option to purchase the same for three thousand pounds. There was also a similar option in favour of the testator's wife if the son sought to let the real property or any part thereof. The case came before the Chancery Division as a special case stated by consent for the opinion of the Court. The case stated provided that the value of the real property at the date of the will and at the date of the testator's death was in the order of fifteen thousand pounds. Pearson J made it clear that he decided the case on the basis that a condition requiring a person desiring to sell to offer the real property at one-fifth of its value was an absolute restraint against sale during the life of the widow, or put another way, equivalent to a restraint upon selling at all. Pearson J referred to various exceptions to the common law doctrine. The fact that the condition only operated for a limited time (ie., during the lifetime of the widow) was not within one of the recognised exceptions. His Lordship refused to extend the existing exceptions, and he held that the condition was void. His Lordship reached a similar conclusion in relation to the option to let.

102 The leading Australian authority on unlawful restraints on the alienation of property is Hall v Busst (supra). Under a contract of sale and purchase the appellant agreed to purchase land from the respondent. Some days after the contract was executed, the parties executed an indenture. Under the indenture the appellant/purchaser was the Grantor and the respondent/vendor was the Grantee. For the purposes of the case, the material parts of the indenture provided as follows:

"3. The Grantor shall not at any time transfer assign set over or lease any part of the said lands (other than by way of mortgage to a banking institution) without the consent in writing of the Grantee first obtained. 4. For the purpose of obtaining the consent of the Grantee in the preceding clause mentioned the Grantor shall give to the Grantee one calendar month's notice in writing of her intention to so deal with the said fee simple or any part thereof and during the currency of that notice the Grantor Doth Hereby Give and Grant to the Grantee the first option of purchasing the said fee simple and all improvements thereon on the terms and conditions herein contained. 5. The purchase price relating to such option shall be the sum of Three thousand one hundred and fifty-seven pounds four shillings (£3157 4s. 0d.) to which shall be added the value of all additions and improvements to the said property since date of purchase by the Grantor (such value to be taken as at date of exercise of this option) and from which shall be subtracted the value of all deficiencies of chattel property and a reasonable sum to cover depreciation of all buildings and other property on the land. 6. This option shall remain open for exercise by the Grantee at all times for a period of one month from the date of giving of the notice by the Grantor of her intention to deal with the said fee simple and this option may be exercised by the Grantee by giving notice to the Grantor or leaving such notice for her at the office of Messrs. J.J. Bell & Bell Solicitors of Tully or their successors in office."

103 There was an issue in the case as to whether clause 5 sufficiently identified the purchase price, but that issue is not relevant for present purposes. The relevant issue was whether clause 3 of the indenture constituted an unlawful restraint on alienation. All members of the Court took the view that the common law doctrine of unlawful restraint on alienation applied not only to a condition attached as a condition subsequent to an estate, but also to a bond or covenant or contract purporting to impose a total contractual restraint upon alienation. Dixon CJ said (at 217 - 218):

"The question whether a bond or covenant or contract purporting to impose a total contractual restraint upon alienation is void does not seem to be settled. A condition doing so attached as a condition subsequent to the estate is of course void. The invalidity may be put on the ground of repugnancy to the grant or upon public policy or for that matter it may conceivably be attributed to an indirect effect of Quia Emptores. That is immaterial, for it is a known rule that the condition is void. But with contractual restraints there is no fetter upon alienation which does more than sound in damages, that is, unless a doctrine of equity intervenes to make it bind the land.

...

The ground for denying the validity of a contractual restriction upon alienation is that it is a principle of the law that private property should be fully alienable. See per Jessel M.R. in In re Ridley; Buckton v. Hay and Sweet (1917) 33 L.Q.R. 236, Cruise, 2 Dig. P. 6, in effect expresses a view that a contractual restriction upon the alienation of an absolute estate if unqualified should be considered void and this seems to accord with modern views of policy. Cruise, after referring to the supposed distinction between a condition and a covenant or contract, says this: 'This doctrine appears extremely questionable, as it offers an obvious mode of restraining a person from those rights over an estate which the common law gives him; consequently of frustrating the common law, as fully as if a condition of this kind were allowed to be inserted in a conveyance of land; and in some cases it appears not to have been allowed.' Indeed it is impossible to doubt that a fetter on alienation may be imposed by covenant which is as effective over a very long period of time to prevent alienation of land as a condition subsequent would have been had it been valid. I think therefore that cl. 3 should be considered void as an independent restraint on alienation. So far as cl. 4 relates to consent it clearly falls with cl. 3."

104 There was a difference of opinion between the various members of the Court as to whether clause 3 was a free standing provision or was linked to clauses 4, 5 and 6. In other words, was clause 3 a free standing provision so that alienation was prohibited without the Grantee's consent irrespective of the fact that the Grantor had given notice under clause 4 and the Grantee had declined to exercise the option, or was it linked with clauses 4, 5 and 6 so that the Grantor was free to alienate without the Grantee's consent once he had given notice under clause 4 and the Grantee had declined to exercise the option?

105 Dixon CJ and Menzies J held that clause 3 was a freestanding provision and that it was void because it was an unlawful restraint on alienation. It was a total restraint on alienation. Fullaghar J held that the clause was not a free standing provision, but he nevertheless held that it was an unlawful restraint on alienation. He did so because it was of indefinite duration and the Grantor could only deal with the land after offering it to the Grantee at a fixed price. He noted that at the time the Grantor wished to alienate the land it may be worth a great deal more than the fixed price plus or minus the items mentioned in clause 5.

106 Windeyer J held that the clause was not a free standing provision, but said that if he had construed it as a free standing provision then he would have held that it constituted an unlawful restraint on alienation. Kitto J held that clause 3 was not a free standing provision and declined to express an opinion on whether, construed as a free standing provision, it constituted an unlawful restraint on alienation. Kitto and Windeyer JJ did not think that any of the clauses in the indenture constituted an unlawful restraint on alienation.

107 Hall v Busst (supra) is authority for the proposition that the doctrine of unlawful restraints on alienation applies to restraints in bonds, contracts or by way of covenants and that a total restraint on alienation falls within the doctrine. Even if Menzies J (at 235 - 236) is to be taken to have also agreed with the reasons of Fullagar J, Hall v Busst (supra) is not authority either way on the question of whether a partial restraint on alienation in a contract falls within the doctrine.

108 The other decision of the High Court which touches on the common law doctrine is Nullagine Investments Pty Ltd v The Western Australian Club Inc (supra). Two tenants in common in equal shares of land entered into an agreement containing a clause (cl 4(b)) which provided that neither would dispose of its interest without first offering it to the other. The clause also provided that no alienation was to take place unless the proposed purchaser entered into a similar deed of covenant. One of the parties sought an order for the sale of the land and the distribution of the net proceeds of sale in equal shares under the partition and sale provisions of the Property Law Act 1969 (WA). In joint reasons for judgment, a majority of the High Court (Deane, Dawson and Gaudron JJ) concluded that as a matter of construction, clause 4 of the agreement did not preclude the application under the partition and sale provisions.

109 Brennan J (as he then was) held that that part of clause 4(b) which prohibited the alienation of one co-owner's interest unless the proposed purchaser entered into a similar deed of covenant was contrary to the policy of the Partition Acts. His Honour referred to Hall v Busst (supra) and said (at 649 - 650):

"In this country a court may hold invalid restraints on alienation imposed not only by conditions annexed to a gift or grant of an estate in land but also by covenants and agreements. But the grounds on which a condition subsequent to the gift or grant of an estate of freehold may be held invalid are not necessarily the same as the grounds on which invalidity strikes a covenant or agreement in an instrument which does not itself give or grant the estate the alienation of which is restrained. In the former case, as Dixon CJ said in Hall v Busst, '[t]he invalidity may be put on the ground of repugnancy to the grant or upon public policy or for that matter it may conceivably be attributed to an indirect effect of Quia Emptores'. In the latter case, the only basis for holding the covenant or agreement invalid is public policy."

110 Toohey J considered whether clause 4(b), and in particular the requirement that a proposed purchaser assume the duties and obligations in the sub-clause, was an unlawful restraint on alienation. He noted that a restriction on the grant of special leave prevented the appellant from arguing that it was because the requirement would depress the price that might otherwise be obtained for the land on the open market. He said (at 673):

"The remaining question is whether the existence of cl. 4(b), in particular the requirement that any purchaser of an interest in the land assume the duties and obligations contained in the sub-clause, constitutes of itself a restraint on alienation such that it brings down the whole of the sub-clause. It is at this point that the condition attached to the grant of special leave to appeal becomes important. To the extent that Nullagine might wish to argue that the existence of this requirement depressed the price which it would otherwise get for its interest in the land on the open market and to the extent that this proposition required the production of evidence to substantiate it, the restriction in the grant would preclude Nullagine from arguing that proposition. In other words, to succeed on this point Nullagine must demonstrate that the requirement of itself constitutes a restraint on alienation which renders nugatory the whole of cl. 4(b)."

111 Toohey J then examined whether the requirement of itself constituted an unlawful restraint on alienation and decided that it did not. His reasoning is encapsulated in the following passage (at 674):

"However, there is a danger of inflating the proviso beyond its true significance. As between Nullagine and the Club, the right of pre-emption does not in truth constitute a restraint on alienation. If the right is exercised, the co-owner wishing to sell receives one half of the value of the land. If the right is not exercised, the co-owner wishing to sell may do so. The requirement that any purchaser assume the duties and obligations in cl. 4(b) does no more than put the purchaser in the position of an original co-owner. That is, as between the purchaser and the remaining co-owner there is a right of pre-emption which operates to the benefit of both co-owners. It ensures that if the right is exercised, the co-owner wishing to sell will receive half the value of the land, which may be more than the value of a co-owner's interest. If the right is not exercised, the co-owner wishing to sell may do so on the open market or may invoke the jurisdiction of the Supreme Court and seek an order for sale. All that the proviso does is place any purchaser in the position of an original co-owner. That does not constitute a restraint on alienation of a co-owner's interest."

112 I make the following observations in relation to Nullagine Investments Pty Ltd v The Western Australian Club Inc. (supra). First, with respect, I do not think the Judge was right to say that there was unanimity of view that a covenant which necessarily resulted in a sale at an under value would offend the doctrine. I do not understand the majority (Deane, Dawson and Gaudron JJ) to say that. Secondly, Brennan J puts the doctrine on the ground of public policy insofar as it applies to restraints by covenants or agreements. Thirdly, Toohey J does seem to suggest that evidence might be called to prove that an alleged restraint will have the effect of depressing the price for the land in the open market and be unlawful on that ground.

113 In Reuthlinger v MacDonald [1967] 1 NSWLR 88, Needham J discussed the common law doctrine in the context of a contractual restraint. His Honour said that Hall v Busst (supra) goes no further than saying that a contractual restriction on alienation which provides that land may not be alienated without the consent of another party is void, and it cannot be used to invalidate any less contractual restriction. I agree. I mention in passing that I respectfully disagree with his Honour that Fullagar J in Hall v Busst (supra) construed clause 3 as a free standing provision in the sense I have explained above. His Honour also said that a restraint on alienation which was imposed for the protection of a valid collateral object was not invalid. I must say that on my reading of the cases, however attractive it may be, such an exception or qualification to the doctrine is not well established, other than perhaps, in New South Wales. In Caboche & Bond v Ramsay [1993] FCA 611; (1993) 119 ALR 215, Gummow J (at 232) took the view that Needham J had said that in the case of contractual restraints the question was one of degree and Gummow J appeared to agree with that proposition. In Allstate Prospecting Pty Ltd v Posgold Mines Ltd and Ors, (Unreported Supreme Court of Tasmania, Zeeman J, 27 April 1995) Zeeman J took a different view of the effect of Needham J's remarks.

114 In that case, Zeeman J cited the following passage from Grayson v Grayson [1922] St R Qd 155 in which McCawley CJ formulated the test in the case of a partial restraint in a devise of land in the following terms (at 163):

"I think that in this case, when the area and locality of the lands devised are considered in conjunction with the limited number of persons to whom it may be sold and the duration of the restriction, the power to alienate must be regarded as restricted within limits so narrow as to constitute a substantial taking away, not of the whole power of alienation, but of a valuable portion of it, subjecting it to fetters which inevitably, by limiting the market, diminish the ordinary selling value of the land, and which might, in fact, destroy all opportunity of selling."

"I adopt that as correctly stating the relevant principle. That same principle is capable of being applied to a restriction which imposes a substantial limitation on the price which may be obtained upon the sale of the relevant property. The question is whether restrictions as to the persons to whom property may be disposed of, as to the price at which it may be sold or otherwise limiting but not prohibiting alienation amount to unlawful restraints on alienation where those restrictions are imposed by contract. To my mind, the reasoning in Reuthlinger v MacDonald (supra) convincingly suggests that the answer to that question should be in the negative. Reference might also be had to Wollondilly Shire Council v Picton Power Lines Pty Ltd (1994) 33 NSWLR 551 and Elton v Cavill [No 2] (1994) 34 NSWLR 289."

116 In Wollondilly Shire Council v Picton Power Lines Pty Ltd (1994) 33 NSWLR 551, Handley JA (with whom Clarke JA and Meagher JA agreed) said (at 555):

"It cannot be doubted that any contract for sale or option or right of pre-emption binds the grantor not to alienate the land to a third party in a manner which would be inconsistent with the rights of the purchaser or grantee. This negative stipulation, if not expressed, is necessarily implied: see Woodroffe v Box [1954] HCA 22; (1954) 92 CLR 245 especially at 257-259, Oliver v Oliver [1958] HCA 28; (1958) 99 CLR 20 and Bahr v Nicolay [No 2] [1988] HCA 16; (1988) 164 CLR 604 at 629, 647. Restraints of this kind, arising as incidents of a personal contract for the sale or other disposition of land stand right outside any legal doctrine which invalidates contractual restraints on alienation."

117 In Elton v Cavill [No 2] (1994) 34 NSWLR 289, Young J (at 294 -301) discussed at length the doctrine of unlawful restraint upon alienation in the case of a contractual restraint and said (at 300):

"It seems that, putting all these matters together, Mr Sweet's view has been accepted not only by strong academic writers, but also by judges whose reputations in the property law field are most enviable. Furthermore, there is a growing tendency to limit the effect that ghosts of old property law rules, rules which were worked out for a completely different social system in a different age, should have upon the use of property in Australia at the current day. Whilst it is clear from Hall v Busst that the rule against alienation of property still applies, authorities such as Wollondilly in the Court of Appeal show that it may be relatively easily held inapplicable where other parts of the common law now effectively cover the field.

Thus in my view the collateral purpose rule should be held to be part of the law of this State and it should be held that there is a legitimate interest in a co-owner in having a veto over who should be an owner of other undivided shares in the same property to justify a restraint on alienation which is for the purpose of securing a proper collateral benefit.

However, as Mr Rushton points out, even if the purpose test is accepted, the court needs to consider whether there are any invalid or illegitimate collateral objects which the restraint in question is also likely to protect or achieve."

118 As I read his reasons for judgment, Young J concluded that the restraint was void because it also protected or achieved invalid or illegitimate collateral objects which could not be severed.

119 In the case of a grant or devise, a total restraint on alienation is void on the basis of repugnancy or public policy or possibly the indirect effect of Quia Emptores. Many years ago, Professor Glanville Williams argued persuasively that repugnancy could not be the real basis for the doctrine (The Doctrine of Repugnancy - I: Conditions in Gifts (1943) 59 LQR 343). The doctrine will also lead to the striking down of a partial restraint on alienation in a grant or devise. It is very difficult to reconcile all the cases that deal with the striking down of partial restraints in a grant or devise (see the discussion in Professor Glanville Williams' article referred to above; Mr C Sweet, Restraints on Alienation I (1917) 33 LQR 236 and Restraints on Alienation II (1917) 33 LQR 342).

120 The common law doctrine also applies in the case of restraints by way of bond, covenant or contract. The reason for the application of the doctrine in this area is the public policy consideration that private property should be fully alienable. Of course, there are many restrictions on the full alienability of private property which are upheld by the courts. Furthermore, there is an important countervailing public policy consideration, and that is the consideration that parties who freely negotiate an agreement should be bound by the terms of the agreement. In my opinion, there is a great deal to be said for confining the operation of the common law doctrine within narrow limits insofar as it applies to restraints imposed by bond, covenant or contract. This result could be achieved either by holding that certain restraints are not caught by the doctrine, or by developing the exception of a lawful collateral object (see the discussion in Mr Sweet's first article referred to above).

121 Having said that, it would appear to be established by the authorities that a right of first refusal will attract the operation of the doctrine in certain circumstances. Relevant factors will be the scope of the initial prohibition, whether the right exists for a limited period or indefinitely, whether the grantor of the right must extract a similar promise from subsequent purchasers and whether the right is to be exercised by reference to a fixed price.

122 I turn now to apply these principles to the facts in this case. I have identified the matters the Judge relied upon in reaching his conclusion that there was an unlawful restraint. I will deal with each of these matters in turn. The Judge relied on the fact that the subject land could only be disposed of as a whole. For the reasons I have already given, I disagree with that conclusion and the right of first refusal is not an unlawful restraint on alienation on this ground. The Judge relied on the fact that the right of first refusal would mean that there was a "practical inability" to sell the subject land by auction. I doubt whether the evidence of Mr Smithson went this far, but in any event, it seems to me to be a factor of relatively little consequence. There are many quite legitimate restrictions which would mean that it would be difficult, or even very difficult, to sell by auction.

123 The Judge also relied on what he saw as the complicated machinery provisions in clause 3 and the fact that there would be delay in carrying out of the process in clause 3. I disagree with the Judge's conclusion. Clause 3 might lay down a more complicated procedure than other rights of first refusal, but I do not think it has any of the features which might otherwise lead to the invalidity of a right of first refusal. The right of first refusal only arises if Hahndorf wishes to sell the subject land, and it does not arise in the case of other dealings in the subject land. It does not continue in perpetuity because it comes to an end when the encumbrancees cease to own Lots 21 and 22. The right of first refusal is not exercisable at a fixed price which may be below the market value of the subject land. In my opinion, clause 3 of the encumbrance does not constitute an unlawful restraint on alienation.

124 That leaves for consideration clause 4 of the encumbrance. It was this clause which was the focus of the expert evidence called at the trial. Counsel for Nitschke submitted that the Judge made three errors in relation to the expert evidence. First, he submitted that the Judge erred in admitting the evidence and that the Judge should have decided the issue simply by reference to the terms of the encumbrance. There is something to be said for not receiving evidence on the issue in that it would narrow the scope of the inquiry and make the boundaries of the doctrine easier to discern. Furthermore, as a matter of principle, there would be a great deal to be said for Nitschke's submission if the basis for the doctrine insofar as it applies to bonds, covenants or contracts is repugnancy. However, as I have said the basis for the application of the doctrine in this area appears to be public policy, and that basis suggests that evidence should be received. Authority as far as it goes suggests that evidence may be received. I refer to In re Rosher; Rosher v Rosher (supra), In re Cockerill; Mackaness v Percival [1929] 2 Ch 131 and Nullagine Investments Pty Ltd v Western Australian Club Inc (supra) per Toohey J at 673. For these reasons, I think evidence may be called on the issue of the effect in the market of a particular restraint, and that the Judge did not err in admitting the evidence.

125 Secondly, counsel for Nitschke submitted that the Judge erred in acting on the evidence of Mr Smithson because it was directed to the position as at the date of trial and not to the position as at the date on which the encumbrance was executed. Counsel submitted, assuming his first submission failed, that the only relevant evidence was evidence directed to the position as at the date on which the encumbrance was executed. I agree that a restraint does not become valid or invalid depending upon market conditions, and that the validity of a covenant or contractual provision is to be judged as at the time the relevant document was executed. That is the position in the case of the common law doctrine of restraint of trade (J D Heydon, The Restraint of Trade Doctrine 2nd ed (1999) (at 37 - 41) and there is every reason to think that the position should be the same in the case of the doctrine of an unlawful restraint on alienation. It is true that Mr Smithson appears to have made an assumption about the highest and best use of the subject land, and that his evidence appears to have been directed to the position at the time of his report and his evidence. However, having regard to his evidence and the other evidence directed to this issue, I think it may be inferred that at the time the encumbrance was entered into, the likely purchaser, or one of the class of likely purchasers, was the person identified by Mr Smithson, namely, a developer looking to undertake a residential development on the subject land.

126 Thirdly, Nitschke submitted that the opinions of Mr Smithson did not support the conclusion that clause 4 is an unlawful restraint on alienation. I did not understand Nitschke to submit that the Judge erred in preferring the evidence of Mr Smithson and, to a lesser degree that of Mr Young, to that of Mr McArdle. In any event, having read the evidence of the three witnesses, I think the Judge was entitled to prefer the evidence of Mr Smithson.

127 Mr Smithson said that it was unlikely there would be a purchaser of the subject land as a "going concern" unless as a longer term development opportunity. Mr Smithson said that most non metropolitan golf courses have difficulty operating on significantly better than a break-even basis and purchasers of such assets generally seek to undertake residential development around the facility. At best, a developer would apply a substantial discount to the price he or she was prepared to pay for the subject land, and at worst, a developer would not purchase the subject land because of the encumbrance. Other potential purchasers are likely to be purchasers of individual residential apartments, and they were unlikely to purchase apartments in the development with the encumbrances in place. Mr Smithson said that this was due to the likely ongoing problems of selling the properties in the future and realising the same level of capital gain as could be anticipated from unencumbered properties. As far as a non-residential use was concerned, Mr Smithson said that should there be such a purchaser in the market, the issues which are likely to frustrate a sale for a residential use may have a similar effect on a non-residential use. In my opinion, Mr Smithson's evidence supports the conclusion that as at the time the encumbrance was executed, and thereafter, clause 4 had the effect that any sale of the subject land by Hahndorf would be at a substantial discount. On the authorities that is sufficient to lead to the conclusion that clause 4 is an unlawful restraint on the alienation of the subject land.

128 In conclusion, the effect of clause 3 is that Hahndorf, if it wishes to sell the subject land, must first offer it to Nitschke who is under no obligation to purchase it. For the reasons I have given that is not an unlawful restraint on alienation. The effect of clause 4 in light of the evidence of Mr Smithson is that if Nitschke chooses not to purchase the subject land, Hahndorf may thereafter sell the subject land but will do so at a substantial discount to the market value of the subject land because Hahndorf must extract a similar undertaking from the purchaser. In my opinion, the Judge was right to hold that that is an unlawful restraint on alienation. Clause 4 is void and unenforceable.

Rectification by deleting Clause 4 of the Encumbrance

129 My conclusion that clause 4 is void and unenforceable because it is an unlawful restraint on alienation makes it unnecessary for me to deal with this argument which has been raised by Hahndorf in a Notice of Alternative Contentions. However, I do so for the sake of completeness and in case there is a further appeal.

130 Nitschke submitted that it was not open to Hahndorf to raise this point by a Notice of Alternative Contentions because Hahndorf was in fact seeking a different order than the orders made by the Judge rather than seeking to uphold the Judge's decision and orders on other grounds. Nitschke submitted that Hahndorf could only raise the point in a Notice of Cross Appeal. There is a great deal of force in Nitschke's contention. There is a clear difference between an order that clause 4 of the encumbrance is void and unenforceable and an order that the encumbrance be rectified by the deletion of clause 4. However, I would not wish to decide the issue on a procedural ground. Even now, Hahndorf could seek an extension of time within which to file a Notice of Cross Appeal and it is difficult to see how Nitschke could establish any prejudice if an extension of time was granted.

131 The Judge considered that clause 4 was part of the "form" required by Nitschke within the terms of clause 8.6 of the contract and was acquiesced in at the time by Hahndorf.

132 Hahndorf bears the onus of establishing that clause 4 was included in the encumbrance by mistake. Hahndorf failed to adduce evidence that clause 4 was included into the encumbrance by mistake and without such evidence its claim for rectification must fail.

133 The first sale notice given under clause 3.2.1 is to constitute an offer by Hahndorf to sell the whole of the subject land to the encumbrancee. It is to specify the consideration for the purchase and the terms and conditions upon which the subject land will be sold. The consideration and the terms and conditions are not in any respect whatsoever to constitute the imposition of any more onerous obligations and duties upon the encumbrancee or require it to pay any greater sum for the subject land than Hahndorf would impose or require from a purchaser other than the encumbrancee. Hahndorf's offer must be one which is capable of acceptance or rejection by the encumbrancee and there is no provision for the making of a counter-offer. If the offer is accepted, clause 3.2.2 provides that there is deemed to be a binding contract for sale and purchase for the consideration stated in the first sale notice and incorporating the provisions of the Law Society of South Australia Contract for Sale and Purchase and the terms and conditions set out in clause 3.2.5 of the encumbrance. Although it is not expressly stated in clause 3.2.2, the contract is also to include the terms and conditions set out in the first sale notice.

134 Nitschke submitted that the first sale notice did not comply with the provisions of the encumbrance in two respects.

135 First, the terms and conditions set out in the notice given by Hahndorf must be sufficiently certain to constitute terms and conditions of a contract because if the offer in the notice is accepted by the encumbrancee, there is deemed to be a binding contract. Nitschke submitted that the terms and conditions were not sufficiently certain to constitute the terms and conditions of a binding contract. I agree that the terms and conditions in the first sale notice must be sufficiently certain to constitute the terms and conditions of a binding contract, and the question in this case is whether the terms and conditions set out in the first sale notice were sufficiently certain.

136 Clause 1.1 of the notice requires the encumbrancee to renovate and develop the clubhouse on the subject land to the extent of $250,000 within 12 months of the transfer. The nature of the renovations and developments to be carried out are not specified in the notice. Hahndorf seeks to overcome this apparent difficulty by arguing that the obligation on the encumbrancee is to finance the development, and that any interest of the encumbrancee in the nature of the developments is dealt with by reading into the clause such renovations and developments "as reasonably required by Hahndorf". Hahndorf said that such an implication is well justified and in that regard it referred to Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 and Byrne v Australian Airlines Ltd (1995) 185 CLR 410, at 422 and 441.

137 I do not agree that clause 1.1 does not require the encumbrancee to carry out the renovations and developments to the clubhouse to the extent of $250,000. The clause provides that the encumbrancee will carry out the renovations and developments. If the encumbrancee accepts the offer in the first sale notice, it will become the owner of the subject land and all the improvements thereon including the clubhouse. Hahndorf will have a licence to use the clubhouse on certain occasions for a period of 10 years. The encumbrancee has a significant commercial interest in the nature of the renovations and developments to the clubhouse.

138 The Judge referred to the decision of Bray CJ in Powell and Berry v Jones and Jones [1968] SASR 394. In that case Bray CJ had to determine if a clause in the following terms was void for uncertainty:

"Agreement for Tenancy or Lease to be in terms and to contain such special clauses as the Landlord may require to be prepared by R W Swan & Co Pty Ltd at the cost of the Tenants and signed when ready."

139 After identifying various classes of cases in which courts have held contractual provisions void for uncertainty, Bray CJ said (at 402):

"As to the third class, if one party is not really bound to perform at all, then there is no contract (Taylor v. Brewer; per Vaughan Williams L.J. in Loftus v. Roberts), at least so long as it is purely executory. I should think there was no consideration in such a case. But a contract may be perfectly good which leaves one of the parties a wide election as to the mode of performance. In May and Butcher v. The King, Lord Dunedin went so far as to say in reference to a contract of sale that 'it is a perfectly good contract to say that the price is to be settled by the buyer'. Here the learned authors of the second edition of Salmond and Williams on Contract (1945) think he went too far (p. 193 note (h)). However that may be, all that the present case leaves to the option of the respondents or their advisers is the choice of the terms and special clauses of the formal agreement, which in my view means such terms and special clauses as are not inconsistent with the express provisions of the document of the 4th February (Christison v. Warren). Indeed, in that case the learned Judge held that the extra terms to be included in the formal document must be reasonable as well and this may well be so, at least in the sense that the courts would refuse in any decree of specific performance to compel the other party to execute a formal document containing unreasonable terms (Plunkett v. Dease), but no such point arises here."

140 I think that if it is appropriate to read into clause 1.1 words such as "as reasonably required by Hahndorf", then the reasoning of Bray CJ can be applied and clause 1.1 is not void for uncertainty. However, it seems to me that the important question here is the prior question of whether it is appropriate to read such words into the clause. On balance, I am not satisfied that it is having regard to the fact that the encumbrancee will be the owner of the clubhouse after purchase and Hahndorf will have an interest in it of a limited nature. Clause 1.1 of the first sale notice is not a term or condition which complies with the requirements of the encumbrance.

141 Clause 1.3 provides that the encumbrancee is to cause a roadway and entry to the golfcourse to be improved to the extent of expenditure of $176,000. Nitschke's complaint about this term was withdrawn in written submissions filed by leave after the hearing of the appeal. Clause 1.3 also provides that the encumbrancee is to purchase plant and equipment of Hahndorf for $50,000 subject to valuation. Nitschke submitted that this term or condition is too vague because the plant and equipment to be purchased is not identified. Hahndorf seeks to overcome this apparent difficulty by arguing that the clause is for the benefit of Nitschke, and that there should be read into the clause a qualification that it is to be such plant and equipment as Nitschke may require for use in the clubhouse or on the golf course. I am not convinced that this is appropriate bearing in mind that the obligation is to buy plant and equipment of a specified value (ie., $50,000). In my opinion, in this respect clause 1.3 is not a term or condition which complies with the requirements of the encumbrance.

142 Clause 1.4 of the first sale notice requires the encumbrancee to upgrade and spend to capital works $250,000 to the golf course within 12 months of the transfer, and a further $250,000 of capital works to the golf course over the next four years thereafter for improvements to the golf course. Nitschke submitted that the capital works are not identified and could be as diverse as dams, buildings or sheds. Hahndorf sought to overcome this apparent difficulty by advancing the same arguments it advanced in relation to clause 1.1. For the same reasons I gave in relation to clause 1.1, I reject Hahndorf's contentions. In my opinion, clause 1.4 is not a term or condition which complies with the requirements of the encumbrance.

143 Secondly, Nitschke submitted that the first sale notice did not comply with the requirements of the encumbrance because the terms and conditions of the offer constituted the imposition of more onerous obligations and duties than Hahndorf would impose on another purchaser. The terms and conditions offered to Nitschke are those contained in the first sale notice and those contained in clause 3.2.5 of the encumbrance and those contained in The Law Society of South Australia Contract for the Sale and Purchase of Land. It must be remembered that at the point at which the first sale notice is given no contract will have been concluded with a third party because to have concluded a contract with a third party would be a breach of the covenants in the encumbrance. By the time the first sale notice was served, Hahndorf had been negotiating with Kinsmen for some time. Three letters were put in evidence which contained details of a proposed sale of the subject land to Kinsmen. There were two letters from Kinsmen to Hahndorf dated 17 May 2002 and 20 June 2002 respectively, and one from Hahndorf to Kinsmen dated 13 June 2002. The Judge seems to have taken the view that because there was no concluded contract with Kinsmen, the details of the negotiations with Kinsmen should be ignored. He said that either party could still change its mind. It is true that either party could still change its mind. However, depending on how far the negotiations had progressed, I do not think it is right to ignore the contents of negotiations with a third party in determining the obligations and duties Hahndorf would impose or require from another purchaser. The negotiations might be strong evidence relevant to that issue. In fact, I note that the terms and conditions in clauses 1.1 - 1.3 of the first sale notice largely reflect the terms and conditions referred to in the course of Hahndorf's negotiations with Kinsmen. Furthermore, the letter from Kinsmen dated 17 May 2002 states that it was agreed in principle subject to a number of conditions that a contract involving certain terms and conditions would be entered into. The first limb of Nitschke's argument under this head was that it is clear from the negotiations between Hahndorf and Kinsmen that Kinsmen would not be obliged to proceed with settlement under a contract if all relevant approvals, including approvals under the Development Act 1993 and the RPA, were not obtained. I agree that that is a proper inference to draw from the correspondence which sets out the negotiations. Nitschke submitted that by contrast, it would be required to settle and carry out those works referred to in the first sale notice which did not constitute development irrespective of whether or not development approval had been obtained. It would also be required to maintain the course to the requisite standard (clause 1.5 of the first sale notice) and purchase plant and equipment (clause 1.3). Hahndorf sought to meet this argument by submitting that the provisions of the Law Society of South Australia Contract for the Sale and Purchase of Land would be part of any contract between Nitschke and Hahndorf. Nitschke did not dispute that proposition. Hahndorf submitted that by reason of clause 18 of the Law Society Contract, the contract would be subject to the obtaining of all consents necessary to avoid a situation whereby performance of the contract contravened any Act including the Development Act 1993. Clause 18 in the Law Society Contract which was in fact annexed to the second sale notice provides:

"CONSENTS

18. (1) If this agreement or the performance of this agreement would otherwise contravene the provisions of the Real Property Act, 1886 or any other Act, this agreement is subject to the obtaining of all consents and to the deposit of all plans required by law to be obtained or deposited by either party, whether or not such consents are mentioned in Item 19.

(2) Without limiting the generality of the sub-clause (1), this agreement is subject to -

(a) the approval in writing of the relevant planning authority pursuant to the Strata Titles Act, 1988, or

(b) the Development Assessment Commission issuing a certificate under section 51 of the Development Act, 1993 or any other consent necessary under the provisions of that Act being given, and

(c) the deposit of a plan of division or a strata plan or plan of Community Division pursuant to the Community Titles Act, 1996

where it is necessary by virtue of the provisions of any of the Acts referred to in this clause to obtain the approval, certificate or consent or to deposit the plan.

(3) The grant, transfer, conveyance, mortgage or encumbrance of any estate or interest in the Land pursuant to this agreement shall not have effect until the plan of division or the strata plan contemplated by the parties has been deposited if the grant, sale, transfer, conveyance, mortgage or encumbrance thereof would otherwise contravene the provisions of the Real Property Act, 1886.

(4) The parties shall use their best endeavours to obtain all such consents and to procure the deposit of all such plans as are required by Item 19 to be obtained or procured and all such other consents as they may be required to obtain under this clause and to have any such plan of division or strata plan deposited.

(5) If default is made by either party in carrying out any of his or her obligations under this clause, the provisions of clause 20 shall apply.

(6) (a) Subject to sub-clause (8), if all the consents referred to in this clause are not obtained or if any such plan is not deposited within the period or respective periods specified in Item 19, or if no period is specified in Item 19, within one calendar month from the date of this agreement, either party, upon giving 14 days' notice in writing to the other, may determine this agreement.

(b) This agreement shall determine immediately upon the expiration of such notice, unless the consents are obtained or the plan is deposited in the meantime.

(7) (a) Except where otherwise provided in this agreement, upon the determination of this agreement under sub-clause (6), all moneys paid by the Purchaser under this agreement shall be refunded,

(b) the Vendor shall be liable to pay to the Purchaser the amount of any moneys paid by the Purchaser to the Deposit Holder if -

(i) the Deposit Holder to whom the moneys were paid is the agent of the Vendor, and

(ii) the Deposit Holder does not refund the money within 14 days of the receipt by the Deposit Holder of notice that this agreement has been determined, and

(c) except as provided in paragraph (b), neither party shall have any recourse against the other consequent upon the determination of this agreement under this clause.

(8) If any consent mentioned in this clause is not obtained or any plan mentioned in this clause is not deposited due to the failure of the party required by Item 19 to obtain the consent or to procure the deposit of the plan, then the party who is in default shall not be entitled to determine this agreement under sub-clause (6); any such determination, by the party who is not in default shall not prejudice any other rights or remedies which that party may have against the other party.

(9) In this clause, 'consent' includes approval, certificate or other permission or authorisation and 'deposited' means deposited in the Lands Titles Registration Office by the Registrar-General."

144 Nitschke submitted that this clause related only to the division of land and to development only to the extent that it involved the division of land.

145 It would seem that clause 18 is directed primarily to a situation in which a contract involves the sale of a piece of land which does not constitute an allotment, and that it is designed to fulfil the requirements of s 223LB(5) of the RPA. In most cases, insofar as a purchaser wishes to carry out development on the land to be purchased that will be of no concern to the vendor. The purchaser will either seek a special condition making the contract subject to the obtaining of development approval or he will not. Despite these considerations I think the words of clause 18 are wide enough to cover the need to obtain development approval for development other than the division of land. I refer in particular to the reference in clause 18(1) to the performance of the agreement otherwise contravening the RPA or any other Act (my emphasis). For these reasons I reject the first limb of Nitschke's argument under this head.

146 The second limb of Nitschke's argument under this head was that the terms and conditions in the offer to it were more onerous, because it was required to purchase plant and equipment to the value of $50,000 whereas it was envisaged that Kinsmen would be under no such obligation. The correspondence between Hahndorf and Kinsmen contains the following:

"9. BMS [Belair Management Services Limited] will wish to purchase any existing equipment that they need at market price but surplus machinery can be disposed of by the Club."

147 On a fair reading of the correspondence, it is clear that Kinsmen was not to be under a similar obligation to that put to Nitschke in the first sale notice, but rather what was proposed was that BMS would have the right to purchase any existing equipment which it needed. On the face of it, there is an obligation on Nitschke which is more onerous than Hahndorf would require from Kinsmen. Hahndorf submitted that the matter needed to be approached broadly, and that the requirement in the encumbrance was not that Nitschke be offered identical or equal terms. Hahndorf submitted that the obligation to buy plant and equipment was more than outweighed by the contemplated obligation on Kinsmen to build a residential development comprising 40 units. I do not accept Hahndorf's argument. It is true that the relevant clause does not provide that identical terms must be offered. However, clause 3.2.1 relevantly provides that the "terms and conditions will not in any respect whatsoever constitute the imposition of any more onerous obligations and duties". I emphasise the words, "in any respect whatsoever". In respect of plant and equipment, the obligation imposed on Nitschke was more onerous than the obligation Hahndorf would impose on a person other than Nitschke.

148 Nitschke also submitted that the negotiations between Hahndorf and Kinsmen envisaged a lease of the golf course and clubhouse to BMS which company would then be responsible for the marketing, management and maintenance of the upgraded course and clubhouse. Under this proposal it was said that Kinsmen would receive payments of rent. In the offer to Nitschke set out in the first sale notice there was no proposal whereby Nitschke would receive payments of rent. I fail to see how this leads to a conclusion that the terms and conditions imposed on Nitschke are more onerous in the relevant sense. There is no obligation on Nitschke not to lease the golf course and clubhouse. Nitschke also submitted that whereas in the first sale notice Nitschke was to be under an obligation to spend a further $250,000 towards capital works to the golf course over four years (clause 1.4), the negotiations between Hahndorf and Kinsmen envisaged an obligation on BMS, not Kinsmen, to spend "a further $250,000". I am not prepared to draw the conclusion from the correspondence that the obligation to spend "a further $250,000" was to be imposed on BMS and not Kinsmen.

149 In summary, in my opinion, the first sale notice did not comply with the requirements of the encumbrance in two respects. First, clauses 1.1, 1.3 and 1.4 of the first sale notice are terms and conditions which are not sufficiently certain. Secondly, in relation to the obligation on Nitschke to purchase plant and equipment of Hahndorf for $50,000 subject to valuation that obligation is more onerous than Hahndorf would impose or require from a purchaser other than Nitschke.

150 Hahndorf submitted that if this Court reached the conclusion that the first sale notice did not comply with the requirements of the encumbrance, it was nevertheless open to the Court to find that the notice dated 8 April 2003 complied with the requirements for a first sale notice, and the notice dated 12 June 2003 complied with the requirements for a second sale notice. Nitschke submitted that if the first sale notice did not comply, Hahndorf by negotiating the sale of the subject land was in breach of the obligation not to sell the subject land without having remedied the breach and was not entitled to serve a second sale notice. It is unnecessary for me to deal with this submission because, for the reasons I am about to give, the second sale notice and the third notice did not comply with the provisions of the encumbrance relating to a second sale notice (clauses 3.2.3.3 and 3.2.6), and for the same reasons the notice dated 8 April 2003 did not comply with the requirements of the encumbrance in relation to a first sale notice (clause 3.2.1). In other words, for the reasons set out in the section which follows, the notice dated 8 April 2003 did not comply with the provisions of the encumbrance relating to a first sale notice because the terms and conditions of the offer in the notice constituted the imposition of more onerous obligations and duties than Hahndorf would impose on another purchaser (clause 3.2.1).

2. The Second Sale Notice and the Third Notice

151 The terms and conditions in the second sale notice and the third notice must "not in any respect whatsoever constitute the imposition of any more onerous obligations and duties upon the Encumbrance ... than set out in the third party offer" (clause 3.2.3.3). Clause 3.2.6 should also be noted. That provides that if Hahndorf's offer to sell to Nitschke is rejected, Hahndorf may sell to a third party but on terms and conditions that are not more favourable than those set out in the second sale notice. Nitschke submitted that in two respects the terms and conditions in the second sale notice and the third notice involved the imposition of more onerous obligations than those contained in the Kinsmen contract.

152 First, under the Kinsmen contract there was no obligation on Kinsmen to pay a deposit, whereas by reason of clause 3.2.5.2, and the terms of the offer, Nitschke was obliged (had it accepted the offer) to pay a deposit equal to 5% of the purchase price. That was a more onerous term or condition. There are a number of possible interpretations of the clauses relevant to this issue. The first is that the terms and conditions in clause 3.2.5 will always form part of any contract between encumbrancer and encumbrancee. They are not to be taken into account in assessing whether the offer to Nitschke involves more onerous obligation and duties because they are specified by the encumbrance itself and need not be included in the second sale notice. That was the approach adopted by the Judge. A second approach is to say that they are taken into account in making the relevant assessment. They deal with important matters such as the fact that settlement must be effected within 60 days, and if they are left out of account this would represent a significant exception to the protection provided to the encumbrancee by the requirement in clause 3.2.3.3. If this interpretation is adopted, then the third party offer must contain terms and conditions similar to those in clause 3.2.5. A third approach is to say that the terms and conditions set out in clause 3.2.5 are included in the relevant assessment, but that Hahndorf may offer different terms on the relevant subjects by including such different terms in the second sale notice. In other words, the time of settlement, for example, can be altered by including a different term on that subject in the second sale notice. In my opinion, this is the interpretation which should be adopted. It provides the protection to the encumbrancee envisaged by the encumbrance. The matters in clause 3.2.5 are important matters and it would represent a significant exception to the requirement in clause 3.2.3.3 to hold that they stand outside that requirement. Equally, it is important that there be flexibility in terms of Hahndorf's negotiations with a third party.

153 In this case, the second sale notice and the third notice required the payment of a five per cent deposit by Nitschke in terms, (subject to a slight timing difference) similar to clause 3.2.5.2. The Kinsmen contract did not involve the payment of a deposit by Kinsmen. In my opinion, it was open to Hahndorf to negotiate a contract with Kinsmen which did not involve the payment of a deposit, but if it did so, it should not put an offer to Nitschke which involved the payment of a deposit. As I have said before, I agree with Hahndorf that the requirement does not mean that the terms and conditions must be identical. At the same time, I do not think differences between the offers are to be ignored unless they are substantial or significant. The assessment of whether the terms and conditions constitute the imposition of more onerous obligations and duties is to be approached in a practical way and bearing in mind that the words of the encumbrance are that the "terms and conditions will not in any respect whatsoever" be more onerous. My interpretation of the clause means there will probably need to be a fairly close correspondence between the offer in the second sale notice and the third party offer. I reject Hahndorf's argument that one can put Kinsmen's obligation to build a residential development involving 40 units in the scales and weigh it up against Nitschke's obligation to pay a deposit. They are completely different obligations and the words of the clause ("in any respect whatsoever") negate the suggestion that such a broad assessment is what is envisaged by the clause. In any event, such a broad assessment would be difficult to carry out.

154 In my opinion in relation to the deposit, the terms and conditions of the offer to Nitschke constitute the imposition of more onerous obligations and duties upon Nitschke than are set out in the Kinsmen contract, and in that respect the second sale notice and the third notice do not comply with the provisions of the encumbrance.

155 Nitschke also submitted that the offer to it involves more onerous terms and conditions because it is bound to settle irrespective of whether it has finance whereas the Kinsmen contract is subject to Kinsmen obtaining finance. Nitschke refers to the fact that in the special conditions in the Kinsmen contract the following appears:

"4. Settlement Day

Settlement will take place on a date to be notified by the Vendor which will be not less than 10 business days after the later of the date of Financial Close.

'Financial Close' means the Purchaser being provided with funding that will enable it to complete the purchase of the Land and undertake the Development on terms and conditions acceptable to the Purchaser."

156 As I understood Nitschke's submission, it was that the effect of these provisions was that Kinsmen could defer settlement to a time convenient to it, or indeed, indefinitely.

157 Mr Young gave evidence that the reference to "Financial Close" was really one related to timing, rather than a stipulation that the contract was to be subject to finance. In my respectful opinion, the Judge erred in relying on evidence of Mr Young. The assessment referred to in clause 3.2.3.3 is not to be made by reference to what one of the parties thinks a contract means, but by an objective comparison of the third party offer and the offer made to Nitschke.

158 The Judge also relied on Mr Nitschke's evidence that he would have no difficulty in raising the necessary finance, and the Judge concluded that in view of that fact "it is difficult to see how it could be said that the failure to include a clause that the proposed sale was to be subject to finance was more burdensome on him than in the case of Kinsmen". Again in my respectful opinion, the Judge erred in having regard to that evidence because the relevant assessment is to be made by an objective comparison of the two offers. There is nothing in the clause to suggest that in making the assessment, the Judge is to have regard to whether in the particular circumstances of the case and at a particular time, the effect of a term or condition on the encumbrancee is that it is or is not more onerous.

159 I think the submission made by Nitschke is correct in respect of the obtaining of finance, and the settlement date, and that the terms and conditions of the offer to Nitschke constitute the imposition of more onerous obligations and duties upon Nitschke than are set out in the Kinsmen contract. In this respect also the second sale notice and the third notice do not comply with the provisions of the encumbrance.

160 For the reasons I have given, I have reached the following conclusions:

1. Clause 3 of the encumbrance is valid and enforceable. It is not void for uncertainty, or because it constitutes an unlawful restraint on alienation.

2. Clause 4 is void because it constitutes an unlawful restraint on alienation.

3. The three sale notices dated 31 July 2002, 8 April 2003, 12 June 2003, respectively, do not comply with the requirements of the encumbrance.

161 I would hear the parties as to the appropriate orders in light of these conclusions and on the question of costs.