Court of Appeal (WA)|2014-02-03|Before: Pullin JA

MACKINLAY -v- DERRY DEW PTY LTD [2014] WASCA 24 (3 February 2014)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : MACKINLAY -v- DERRY DEW PTY LTD [2014] WASCA 24

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : DERRY DEW PTY LTD -v- MACKINLAY [No 2] [2013] WADC 9

Contract - Illegal and void contracts - Effect of illegality or invalidity - Severance - Whether lease with options to renew of part of a lot for more than 21 years - Town Planning and Development Act 1928 (WA) (repealed) s 20(1)(a) - Whether severance of options to renew possible

Solicitors - Breach of retainer - Damages - Causation

Bennett v Minister for Community Welfare [1992] HCA 27; (1992) 176 CLR 408

Brew v Whitlock (No 2) [1967] VicRp 102; [1967] VR 803

Brooks v Burns Philp Trustee Co Ltd [1969] HCA 4; (1969) 121 CLR 432

Carney v Herbert [1985] AC 301

Debonair Nominees Pty Ltd v J & K Berry Nominees Pty Ltd [2000] SASC 244; (2000) 77 SASR 261

DJE Constructions Pty Ltd v Maddocks [1982] 1 NSWLR 5

Dressy Frocks Pty Ltd v Bock (1951) 51 SR (NSW) 390

Electric Acceptance Pty Ltd v Doug Thorley Caravans (Aust) Pty Ltd [1981] VicRp 77; [1981] VR 799

Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498

Farleigh Investments Pty Ltd v Reefking Pty Ltd [2002] WASC 115

Firmin v Gray & Co Pty Ltd [1985] 1 Qd R 160

Fitzgerald v Penn [1954] HCA 74; (1954) 91 CLR 268

Gerraty v McGavin [1914] HCA 23; (1914) 18 CLR 152

Glentham Pty Ltd v City of Perth [1986] WAR 205

Hislop v Spurr [1983] WAR 180

Humphries v The Proprietors 'Surfers Palms North' Group Titles Plan 1955 [1994] HCA 21; (1994) 179 CLR 597

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623

Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60

Lombardo v Development Underwriting (WA) Pty Ltd [1971] WAR 188

March v Stramare (E&MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506

Mason, Herring and Brooks v Harris [1921] 1 KB 653

McCourt v Cranston [2012] WASCA 60

Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1

Montreal Trust Co v Canadian National Railway Co [1939] AC 613

Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451

Pilbrow v Vestry of the Parish of St Leonard, Shoreditch [1895] 1 QB 433

Re Ferguson; Ex parte E N Thorne & Co Pty Ltd (in liq) (1969) 14 FLR 311

Roads and Traffic Authority v Royal [2008] HCA 19; (2008) 82 ALJR 870

Shevill v The Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620

South Western Mineral Water Company Ltd v Ashmore [1967] 1 WLR 1110

SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516

Stone James & Co v Investment Holdings Pty Ltd [1987] WAR 363

The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17

Thomas Brown & Sons Ltd v Fazal Deen [1962] HCA 59; (1962) 108 CLR 391

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; (2009) 74 NSWLR 618

Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604

Wilson International Pty Ltd v International House Pty Ltd [1983] WAR 243

1 PULLIN JA: This is an appeal against a judgment of Eaton DCJ in the District Court of Western Australia awarding damages against the appellant. The trial judge found that the appellant, a principal of a law firm, through the omission of one of his employed solicitors, breached his general law duty owed to the respondent by failing to advise the respondent that a lease, resulting from a deed of assignment and variation of lease prepared by that solicitor, which lease was associated with the purchase of a business, was void because it contravened s 20(1)(a) of the Town Planning and Development Act 1928 (WA) (TPD Act).

2 The question in this appeal is whether the trial judge was correct to find that the lease was void and, if so, whether the lease should be severed so as to save the lease. There is also an issue about causation in relation to damages.

3 The respondent is the trustee of the Haslett Family Trust. The shareholders and the directors of the respondent are Mr Alan Haslett and his wife. In early 2003, Mr Haslett decided that he would like to purchase a business known as the Forrestfield Tavern. The Forrestfield Tavern business was conducted in a building which was located on land at 40 Cumberland Road, Forrestfield. The building and related facilities occupied only about 20% of the land. Most of the rest of the land was covered by bush. The land was owned by Mr Naoumis Vellios.

4 At the time that Mr Haslett decided to purchase the business, it was being run by Cancon Pty Ltd (Cancon) and it held a lease from Mr Vellios.

5 By an instrument in writing dated 6 March 1998, Mr Vellios leased the Forrestfield Tavern for 20 years to Cancon (Lease). The Lease, on its face, was prepared employing a form which would have been appropriate for the lease of a shop in a shopping centre occupied by many tenants. This was evident from a number of clauses. Even the leasing clause revealed this. It read:

In consideration of the Rent hereby reserved ... the Lessor, being registered or entitled to be registered as a proprietor of an estate in fee simple in the Land HEREBY LEASES to the Lessee ALL THOSE PREMISES described in Item 1 of the Schedule hereto including all the Lessor's fixtures, fittings and appurtenances located on the Leased Premises including, without limitation, those chattels listed under the heading of Chattels in Item 1 of the Schedule hereto ('the Leased Premises') together with the right of the Lessee, its agents, servants, employees and customers in common with the Lessor's other tenants to use the Common Areas TO BE HELD by the Lessee at the Rent and for the Term and subject to the following terms, covenants and conditions (GAB 55).

6 There were no 'other tenants' and therefore no 'common areas'. Other clauses that would have been appropriate for a lease of a shop in a shopping centre included cl 6.2, which provided, in effect, that the lessee should pay a proportion of rates and taxes calculated by reference to the area the leased premises bore as a proportion to the total lettable area.

7 However, the fact that the wrong form was used does not alter the task of this court in construing the Lease. It was pleaded by the appellant in his defence and admitted by the respondent in reply that both parties to the Lease knew that the only premises upon the land was the Forrestfield Tavern, and that there was no strata plan registered in respect of the land. The parties also knew that the business to be conducted by the lessee was the business of the Forrestfield Tavern, which was to be conducted from the only premises on the land.

8 The leasing clause, it may be observed, referred to the lessor as the proprietor of an estate in fee simple in the 'Land'. 'Land' was defined in cl 2.1.2 of the Lease as meaning 'all that piece of land described in Item 2 of the Schedule'. Item 2 in the schedule described the 'Land' as being:

Lot 1 the subject of the Diagram 75240 together with the right to enter upon portion of Lot 2 on Diagram 75242 marked 'A' on the said map hereon for the purposes of exercising certain rights as set out in Transfer E25143 and being the whole of the land comprised in Certificate of Title Volume 1830 Folio 643 (GAB 99).

9 The leasing clause recorded not a lease of the 'Land', but of the 'Premises' described in item 1 of the schedule, together with fixtures, fittings and appurtenances (all of which were collectively described as 'the Leased Premises'). The 'Premises' described in item 1 of the schedule against the words 'Leased Premises' read '[t]he Forrestfield Tavern situated at 40 Cumberland Road Forrestfield in the State of Western Australia'. Other clauses throughout the Lease referred to, and distinguished between, the 'Land' and the 'Leased Premises'.

10 There were some special conditions to the Lease whereby the lessor granted approval to the lessee to build an outside wall in respect to a proposed beer garden on the 'Leased Premises', such work to be approved by the local authority and the liquor licensing division (cl 16.21(iii)). There was also a grant by the lessor to the lessee of a 'sufficient area of land to accommodate six parking bays as so determined by the Local Authority and Liquor Licensing Division' (cl 16.21(v)).

The respondent's contract to purchase the Forrestfield Tavern business

11 By a contract dated 20 December 2003, Mr Haslett and his wife, as the then trustees of the Haslett Family Trust, agreed to purchase from Cancon the goodwill of the Forrestfield Tavern business as well as its business name, plant, furniture, fixtures, fittings, chattels, stock in trade and other assets for $230,000, plus stock at valuation. The contract allocated $170,000 to the goodwill of the business and $60,000 to plant and equipment. Stock in trade was specified at $20,000 over and above the purchase price.

12 The contract was conditional upon the purchaser receiving written approval from the landlord or managing agent to an assignment of the Lease and on the landlord granting an option or options to extend the Lease for, in effect, a further 10 years. There was also a finance clause. The application for finance was made and was successful.

13 Mr Haslett gave undisputed evidence that it was important to him that the contract be conditional upon a grant of 10 years worth of options because he planned to work in the business for at least 10 years and then sell it with a long lease.

14 After the contract was entered into, Mr Vellios orally agreed to an assignment of the Lease by Cancon to the respondent with two five year options to extend the existing term of the Lease.

15 Instructions were given by Mr Haslett to the appellant to prepare a document giving effect to that agreement. By letter dated 6 January 2004, a solicitor employed by the appellant wrote to Mr Haslett confirming instructions to draft a deed of assignment and variation of lease of the Forrestfield Tavern. The letter confirmed that the appellant had been supplied with the Lease, and that the appellant had reviewed the Lease for the purpose of preparing the deed of assignment and variation. The letter recorded that the appellant was to be given two options to renew the term for five years each.

16 The appellant prepared a document entitled 'Deed of Assignment and Variation', and it was executed by the respondent, Mr Haslett and his wife, Cancon and Mr Vellios (Deed). Clause 2.1 of the Deed provided that:

In consideration of:

(a) the Lessor's consent; and

(b) the Assignee's agreements in this Assignment,

the Assignor assigns the Lease free from Encumbrances to the Assignee for the residue of the Term together with the benefit of the Options subject to the performance by the Assignee of the Lessee's Obligations (except to the extent, if any, that they are modified by this Assignment as set out in Item 7) (GAB 132).

17 By recitals at the beginning of the Deed under the heading 'Background', it was stated that:

By the Lease, the Lessor leased the Leased Premises for the Term together with the benefit of the Options (GAB 130).

18 'Options' was defined as 'the options of renewal' described in item 5. Item 5 correctly stated that, in the Lease, there were no options.

19 In cl 1.1 of the Deed, 'Leased Premises' was defined as meaning the premises described in item 3. Item 3 to the Deed read:

The Forrestfield Tavern situated at 40 Cumberland Road FORRESTFIELD, in the State of Western Australia being Lot 1 on Diagram 75240 together with the right to enter upon portion of Lot 2 on Diagram 75240 marked 'A' on the said map for the purpose of exercising certain rights as set out in Transfer E25143 and being the whole of the land comprised in Certificate of Title Volume 1830 Folio 643.

20 Item 7 in the schedule to the Deed varied provisions in the Lease relating to rent, rent reviews, repair obligations and the beer garden. It was item 7C which contained the new clause to vary the Lease by conferring on the lessee an option to renew the term of the Lease for a period of five years commencing from the day following the end of the term and a further option to renew the renewed term for a further five years.

21 Settlement occurred on 24 March 2004; the respondent paid the purchase price for the business and the respondent took over management of the Forrestfield Tavern.

22 It was not long before there were disagreements between Mr Haslett and Mr Vellios as to a range of matters. As a result, Mr Haslett sought legal advice. On 16 June 2005, Mrs Joanne Matich of Matich & Associates, solicitors acting on behalf of the respondent, wrote to Mr Vellios raising various matters for consideration, including a contention that the 'Leased Premises' was the Forrestfield Tavern, and that the 'Premises' the subject of the Lease did not include the whole of the lot of land on which the Forrestfield Tavern stood.

23 By letter dated 14 November 2005, Mr Steven Cole of Allens Arthur Robinson, solicitors acting on behalf of Mr Vellios, wrote to Ms Matich advising that the lease documentation, 'in the form of the original Lease and the Deed of Assignment and Variation', was 'less than perfect', and that an outcome of negotiations could lead to the redocumentation of the lease arrangement. Attached to the letter was a document entitled 'Memorandum of Comments and Observations'. The document recorded the respondent's assertion that the 'Leased Premises' was only for a part of the land on which the Forrestfield Tavern was located, and added that 'the options of renewal in terms of the Deed ... are void as being contrary to section 20(1) of the Town Planning and Development Act, it being understood that no requisite approval in terms of that legislation was obtained prior to the options being granted'.

24 In February 2006, another solicitor was acting for Mr Vellios. This was Mr Gavan Kelly of Wojtowicz Kelly Legal. He wrote to Ms Matich by letter dated 1 March 2006, stating that the 'Lease is void in light of the provisions of section 20 of the Town Planning and Development Act as consent has not been first obtained pursuant to the provisions of the Act'. According to Mr Kelly, there were two courses available, the first being that the respondent vacate the premises and bring an action against the appellant for damages, and the second being the possible negotiation of a new lease with Mr Vellios.

25 Thereafter, there were some negotiations with a view to agreeing the terms of a new lease, but those negotiations were unsuccessful.

26 The respondent then sought counsel's opinion, following which, on or about 31 March 2006, the respondent gave Mr Vellios one month's written notice of termination pursuant to s 72 of the Property Law Act 1969 (WA), which provides for the termination of periodic tenancies by the giving of such notice. No issue was raised in this appeal about the proposition that if the Lease, as varied by the Deed, was void, then the respondent only had a periodic tenancy determinable on one month's notice. Following the service of the notice, Ms Matich, acting for the respondent, sent a letter dated 3 April 2006 to Mr Vellios' solicitor saying:

This action has been forced upon our client as a consequence not only of your client's failure to enter into any meaningful discussions in relation to the Lease, but also a complete failure on the part of your client to undertake Lessor's works (GAB 186).

27 She went on to say that her client was prepared to offer Mr Vellios one final opportunity to consider his position. Mr Vellios rejected that offer.

The respondent's claim against the appellant

28 On 24 November 2008, the respondent arranged for the issue of a writ of summons against the appellant.

29 The respondent pleaded, and it was common ground, that the appellant owed the respondent a duty to exercise the care and skill to be expected of a reasonably competent solicitor in performing his duties pursuant to the retainer, and that the appellant owed a duty to give advice reasonably necessary to protect the respondent's interests in the transaction to assign and vary the Lease.

30 The respondent pleaded that the appellant breached those duties and particularised its allegations of negligence by asserting that the appellant had failed to advise the respondent that the Deed was illegal, void and of no effect; had failed to advise the respondent of the steps required to be taken in order to comply with the provisions of the TPD Act; and had failed to prepare a variation and assignment of lease that was not illegal or void or of no effect.

31 The respondent pleaded that the Deed contravened s 20(1) of the TPD Act. The appellant denied that the Deed contravened the TPD Act and pleaded that the Deed dealt with the whole land the subject matter of the Lease as a defined portion of land and, in consequence, no approval of the Western Australian Planning Commission (Commission) was required. The appellant therefore denied that the Deed was illegal, void and of no effect.

32 The respondent pleaded that by reason of the appellant's alleged negligence, the respondent suffered loss and damage.

33 The respondent particularised its loss and damage as follows:

34 To understand the issue about the alleged invalidity of the Deed, it is necessary to set out the relevant provisions of the TPD Act, which were in force at all material times.

35 Section 20 of the TPD Act dealt with a range of situations, some of which were not relevant to the present matter. Section 20(1)(a) was relevant to this dispute and read:

[A] person shall not, without the approval of the Commission ... lease ... land for any term exceeding 10 years including any option to extend or renew the term or period, or lease ... land for terms in the aggregate exceeding 10 years, including any option to renew or extend the terms or periods ... unless the land is dealt with by way of such lease ... as a lot or lots ...

36 There was an exception to this prohibition within s 20(1)(d). The exception was achieved by providing that the definition of 'land' did not include 'the whole or a portion of a leased building where':

(i) the building was constructed pursuant to an approval granted by a local government ...; and

(ii) subject to paragraph (da), the leasing ... does not relate to any land other than that building or portion and is for a term or period (including any option to renew or extend the same) not exceeding 21 years.

A reference in paragraph (d) to the whole or a portion of a building includes a reference to any area outside that whole or portion, which area is -

(i) the subject of the same lease ...; and

(ii) used for the purpose of ingress to or egress from that whole or portion, advertising, parking vehicles, storing goods, loading or unloading goods or passengers or for any other purpose necessary or desirable for the convenient occupation of that whole or portion.

38 Counsel for the appellant contended that when the Lease was entered into by Mr Vellios and Cancon, there was no contravention of s 20(1)(a) of the TPD Act, either because the Lease was a lease of the whole of a lot of land or, alternatively, if the Lease was a lease of only part of a lot of land, then, although it was for a term longer than 10 years, it was not void by reason of the combined effect of s 20(1)(d) and s 20(1)(da) of the TPD Act.

39 Section 27 provided that any person who contravened or failed to comply with s 20(1) was guilty of an offence.

Section 2 of the TPD Act defined a 'lot' to mean, inter alia:

[A] defined portion of land depicted on a plan or diagram publicly exhibited in the public office of the Department of Land Administration, or deposited in the Department within the meaning of the Transfer of Land Act 1893 or Registry of Deeds and for which a separate Crown grant, certificate of Crown land title, qualified certificate of Crown land title, or certificate of title has been or can be issued ...

40 'Land', relevantly described in item 2 of the schedule to the Lease as '[l]ot 1 the subject of Diagram 75240 ...' which corresponded to 40 Cumberland Road, Forrestfield, was a 'lot' within the meaning of that definition.

41 If there was a contravention of s 20(1)(a), the person who committed the offence was the lessor. However, there is authority in this State which holds that the legislative intent was to render illegal and void an agreement in contravention of s 20(1)(a) unless such agreement is in terms which bring the agreement within the saving provisions of s 20B: see Wilson International Pty Ltd v International House Pty Ltd [1983] WAR 243, 253 and the cases gathered together by Brinsden J in Stone James & Co v Investment Holdings Pty Ltd [1987] WAR 363, 379. The parties accept that this is a correct statement of the law.

42 The respondent contended that the Deed contravened s 20(1)(a) of the TPD Act because it provided for a lease of a portion of a lot of land for a term exceeding 21 years without the approval of the Commission. The Lease, as varied by the Deed, could not be saved by s 20(1)(d) read with s 20(1)(da) and was therefore void. The respondent also contended that the appellant was negligent in failing to advise the respondent that the Lease was void, and if there had been no such failure, then the respondent would not have proceeded to purchase the Forrestfield Tavern business. The respondent claimed that it had suffered loss by paying out money at settlement for a business which had no real value.

43 The action was defended at trial by the appellant, inter alia, on the following bases:

(a) properly construed, the Lease was a lease of the whole of the land on which the Forrestfield Tavern was located, rather than just a lease of the Forrestfield Tavern buildings;

(b) in the alternative, the terms of the Deed varied the Lease so that the assigned Lease was, properly construed, a lease of the whole of the land on which the Forrestfield Tavern was located;

(c) even if the Lease and the Deed only related to part of a lot of land, being the Forrestfield Tavern buildings and its curtilage, the options to extend the assigned Lease were severable, and, on the authority of a decision of McKechnie J in Farleigh Investments Pty Ltd v Reefking Pty Ltd [2002] WASC 115, s 20(1)(a) of the TPD Act only applied to make the options void, not the whole lease; and

(d) the respondent caused its own loss by giving the termination notice and vacating the premises when this had not been required by Mr Vellios.

44 The trial judge held against the appellant on each of the above issues.

45 There was also an issue about damages, but the finding against the appellant on that issue is not the subject of any ground of appeal.

46 The trial judge concluded that the Lease was a lease of a portion of a lot of land, being the portion occupied by the Forrestfield Tavern, and not a lease of the whole of a lot of land. The trial judge rejected the appellant's submission that the Deed made it clear that the 'new lease which it brought into effect between the lessor and the [respondent] was of the whole of the lot of land' [69].

47 The appellant submitted in the alternative that the options provision was severable because of cl 16.15 of the Lease, which read as follows:

To the extent that any one or any more of the provisions herein contained is prohibited by any applicable law including without limitation the Trade Practices Act 1974 (as amended) and/or the Retail Shops Act such provisions and each of them shall to such extent be ineffective without invalidating or modifying the remaining provisions hereof which shall continue in full force and effect as if the provisions so prohibited had not been included herein as from the date hereof (GAB 41).

48 That submission was rejected by the trial judge. The trial judge's conclusion on that point was not challenged because counsel for the appellant acknowledged correctly that cl 16.15 of the Lease only operated to allow the severance of prohibited 'provisions' in the otherwise valid Lease, whereas s 20(1)(a) of the TPD Act did not make 'provisions' of a lease void, but made the lease as a whole void.

49 The appellant's argument on appeal was that the trial judge erred in concluding that, pursuant to common law principles, the options provision in item 7C to the schedule in the Deed could not be severed. The trial judge referred to SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516, where Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ cited with approval what was said by Jordan CJ in McFarlane v Daniell [1938] NSWStRp 20; (1938) 38 SR (NSW) 337, namely:

It is difficult to see how, in principle, a legal promise associated with an illegal promise can ever be enforceable unless it is supported solely by a separate consideration so exclusively attributable to it that there are in substance two independent contracts and not one composite contract (346).

The trial judge then concluded at [82] that there was no separate consideration exclusively attributable to the grant of the options.

50 The appellant referred to Farleigh Investments and submitted that this authority supported the claim for severance. The trial judge, without expressly saying so, appears to have distinguished Farleigh Investments on the facts.

51 As to the issue of causation, the trial judge found that the loss claimed was caused by the appellant's negligence. His Honour rejected the appellant's submission that the respondent 'caused its own damage by giving the termination notice'. His Honour held that that submission was not sustainable because the damage had already been done. His Honour said that the respondent had suffered a considerable loss from the moment it executed the Deed because it 'purchased the business of the Forrestfield Tavern and took possession of it under the misapprehension that it had a valuable asset, namely a profitable business and certainty of tenure until 2028 assuming the exercise of the options to renew' [101].

(a) Ground 1: the trial judge erred in law in construing the Lease to be a lease of a portion of a lot of land, and should have held that the Lease should be construed as a lease of the whole of a lot of land.

(b) Ground 2: further or alternatively, the trial judge erred in law by:

(i) construing the Deed as only assigning the Lease in relation to that portion of the lot of land occupied by the Forrestfield Tavern; and

(ii) consequently holding that the Lease, as assigned by the Deed, was void as contrary to s 20(1)(a) of the TPD Act.

The trial judge should have held that the Deed assigned, or alternatively assigned and varied, the Lease so that the respondent was the lessee of the whole of a lot of land, and the Lease as assigned, or alternatively as assigned and varied, did not contravene s 20(1)(a) of the TPD Act.

(c) Ground 3: alternatively to grounds 1 and 2, if the Lease only related to the portion of a lot of land which was occupied by the Forrestfield Tavern, the trial judge erred in law by:

(i) holding that the options to extend the Lease contained in item 7C of the schedule to the Deed could not be severed from the Deed; and

(ii) holding that the Lease, as assigned by the Deed, was entirely void by reason of it being contrary to s 20(1)(a) of the TPD Act.

The trial judge should have held that item 7C of the schedule to the Deed could be severed and that subject to such severance, the Lease, as assigned by the Deed, was not contrary to s 20(1)(a) of the TPD Act.

(d) Ground 4: the trial judge erred in fact and in law in holding that the act of the respondent in serving a notice of termination was caused by the appellant's failure to properly advise the respondent as to the efficacy of the Deed. The trial judge should have held that:

(i) Mr Vellios had not threatened the respondent with eviction, but instead had offered the respondent a new lease for 12 years;

(ii) the termination notice was given by the respondent with the intention, and for the purpose, of compelling Mr Vellios to renegotiate the Lease;

(iii) the failure of the appellant to advise the respondent as to the efficacy of the Deed was not the cause of the respondent giving the termination notice;

(iv) consequently, the failure of the appellant to advise as to the efficacy of the Deed was not the cause of the respondent suffering loss and damage from losing its business at the Forrestfield Tavern; and

(v) the cause of the respondent's loss was its own action in giving the termination notice.

53 Grounds 1 and 2 depend upon determining the proper construction of the Lease and of the Deed. Construction of those documents involves ascertaining what a reasonable person would have understood the parties to those documents to mean. The subjective beliefs and understandings of the parties about their rights and liabilities are irrelevant. What the parties mean is to be determined by the language in which the parties express their agreement: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40] and Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 [22].

54 Surrounding circumstances known to the parties when the instrument was executed will only be relevant if there is ambiguity in the instrument: Toll (FGCT) [40]; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604 [3]; McCourt v Cranston [2012] WASCA 60 [14] - [23].

55 The parties to the Lease were Mr Vellios and Cancon. The appellant submitted that the Lease should be construed as providing that the whole of the land was subject to the Lease. There were three reasons offered in support of this submission. They were that:

(a) 'Leased Premises' was defined as '[t]he Forrestfield Tavern situated at 40 Cumberland Road Forrestfield in the State of Western Australia' and that definition could not be construed as referring to 'part' of the land at 40 Cumberland Road;

(b) although the schedule to the Lease distinguished between 'Leased Premises' and 'Land', this did not indicate that those terms related to different areas of land. The appellant submitted that certain obligations in the Lease related to the buildings, and therefore needed to be expressed by reference to the 'Leased Premises'. Reference was made by way of example to cl 7, which related to the lessee's obligation to care for and maintain the 'Leased Premises'; and

(c) the Lease contained special conditions in cl 16.21. These referred to, inter alia, the proposed beer garden and six parking bays. The appellant submitted that because the areas for the proposed beer garden and parking bays were not defined and were dependent upon approvals from authorities, it meant that the parties did not intend, by the language in the Lease, to lease only the existing Forrestfield Tavern buildings, and that the Lease could not have been intended to operate to convey a leased interest in respect of further undefined and uncertain areas, such as a proposed beer garden and parking bays.

56 Those submissions must be rejected. As to the first point, the description of the 'Leased Premises' identifies the Forrestfield Tavern as the 'Leased Premises', and the reference to 40 Cumberland Road, Forrestfield was merely a description of where and on what land the Forrestfield Tavern was situated.

57 As to the second point, the fact that certain obligations in the Lease related specifically to the buildings is not a point in favour of the appellant's argument. It is, in fact, a point against the appellant's contention that the whole of the lot of land was leased. The example given regarding cl 7 reveals that the lessee's obligation to care and maintain related only to the 'Leased Premises', ie, the Forrestfield Tavern, and not to the care and maintenance of the whole lot of land.

58 Finally, the third point has no merit because a lease of the 'Forrestfield Tavern' included the curtilage, that being sufficient of the lot on which the Forrestfield Tavern was located to allow the premises to be used as a tavern: Hislop v Spurr [1983] WAR 180, 183 (Kennedy J); Pilbrow v Vestry of the Parish of St Leonard, Shoreditch [1895] 1 QB 433, 446 (Rigby LJ).

59 The leasing clause in the Lease, read with the definition of 'Leased Premises' and 'Land', unambiguously meant that the parties intended that only the part of the lot on which the Forrestfield Tavern premises was located was leased. The parties did not intend that there should be a lease of the whole of the lot. The trial judge did not err in reaching that conclusion.

61 As to the Deed, it worked an assignment of the Lease and varied its terms so that the Lease, as varied, then governed the relations between Mr Vellios and the respondent. In its varied form, the Lease was for a term plus options totalling more than 21 years. This is so whether one has regard to the original term of 20 years plus the options, or the term commencing on the date of the assignment (there remained about 14 years of the original term) plus the options.

62 The appellant submitted that the trial judge erred in his construction of the Deed. He submitted that the terms of the Deed varied the Lease, so that as between Mr Vellios and the respondent, what was leased was the whole of the lot of land, and not just part of the lot. The appellant stressed that the definition of 'Leased Premises' in the Deed differed from the definition in the Lease. The appellant pointed, in particular, to the fact that whereas the 'Leased Premises' was described in the Lease as '[t]he Forrestfield Tavern situated at 40 Cumberland Road Forrestfield', the Deed added to that description the description of the land as it appeared in the title, which included the words 'the whole of the land comprised in Certificate of Title Volume 1830 Folio 643'.

63 The trial judge did not err. The Deed unambiguously assigned the Lease and recited that the subject of the Lease was the Forrestfield Tavern. The change to the description of the place where the Forrestfield Tavern was situated (described now as being situated on 40 Cumberland Road followed by a description of the title to that land) did not alter the fact that the Lease, as assigned and varied, was a Lease with options relating to the Forrestfield Tavern and not to the whole of the lot of land.

64 Another point which the appellant relied upon was that, 'once again', the lessee was given permission to create a beer garden and that this was to be 'within the Premises'. The appellant's submission was that this showed that the parties considered that the 'Premises' extended beyond the existing Forrestfield Tavern buildings. That is not so because, as already mentioned, the 'Forrestfield Tavern' necessarily consisted of the building and its curtilage. The curtilage included sufficient of the surrounding land for the beer garden and parking bays.

66 As already mentioned, reliance is not now placed on cl 16.15 of the Lease.

The question is whether s 20(1)(a) makes the whole of the assigned lease invalid, or whether the options for extension may be severed and only these are struck down by operation of section 20(1)(a) [of the TPD Act] (WAB 18 - 19).

68 The appellant submitted that severance of the options applying common law principles would require the deletion of the options provision in item 7C of the schedule to the Deed. The appellant contended that if the options provision is severed, it does 'not change the nature of the Assigned Lease' and that, as a result, the options provision is capable of severance. The appellant's reference to there being no change to the 'nature' of the assigned Lease is an acceptance that, applying common law principles, severance will only be permitted if severance does not change the kind of contract between the parties: Thomas Brown & Sons Ltd v Fazal Deen [1962] HCA 59; (1962) 108 CLR 391, 411, citing Jordan CJ in McFarlane v Daniell.

69 The submission failed to address an anterior question which has to be confronted. The power of the court to order severance (which is not a power controlled by a settled and stable set of rules - see SST Consulting Services [42]) may be exercised in cases where a contract, otherwise legal, contains a provision in contravention of a statute, providing the statute, properly construed, permits severance. See, for example, the legislation referred to in the SST Consulting Services case. In that case, the contract only contravened the Act by reason of the inclusion of a prohibited provision and nothing in the legislation prohibited severance of the prohibited provision [33].

70 In this case, what s 20(1)(a) of the TPD Act does is to make the grant of a lease of a part of a lot for a term (meaning the initial term of a lease plus any options to extend) longer than specified and without requisite approval, illegal. According to the authorities in this State which were not challenged on this appeal, such a lease is illegal and void for contravening s 20(1)(a) of the TPD Act.

71 The court cannot, therefore, adjust the lease by 'severing' portions to the point where the Lease no longer contravenes s 20(1)(a). The Lease as varied is not partially illegal and void. It is the entire Lease, not just a provision in the Lease, which is void. In those circumstances, severance is not possible: see A v Hayden [1984] HCA 67; (1984) 156 CLR 532, 557 (Mason J). See also Seddon N, Bigwood R & Ellinghaus M, Cheshire & Fifoot Law of Contract (10th ed, 2012) [18.41] which says:

If a contract is only partially illegal, the law may enforce it to the extent to which the illegal part can be severed.

72 In Chitty on Contracts (24th ed) [1049], referred to in Firmin v Gray & Co Pty Ltd [1985] 1 Qd R 160, 164, the authors said:

Where all the terms of a contract are illegal or against public policy or where the whole contract is prohibited by statute, clearly no action can be brought by the guilty party on the contract ...

73 This was followed by a statement that where parts of a contract are unenforceable and other parts would be unobjectionable, the question then arises as to whether severance is possible. The question does not arise here because, as already mentioned, this is a case where the grant of a lease was illegal and void and not a case where the statute makes part of the lease illegal and void, leaving other parts unobjectionable.

74 The appellant, however, pointed to Farleigh Investments. There, McKechnie J, having concluded that a lease was in breach of s 20(1)(a) of the TPD Act and therefore illegal and void, permitted severance by allowing the lessor to waive a clause which was the provision which made the lease a lease for part of the land. His Honour concluded that public policy did not require the whole of the lease to be struck down.

75 This conclusion was reached despite the lessee's argument that s 20(1)(a) of the TPD Act operated to make the whole of the agreement illegal and void so there was nothing to sever [65]. McKechnie J considered Thomas Brown v Fazal Deen; Electric Acceptance Pty Ltd v Doug Thorley Caravans (Aust) Pty Ltd [1981] VicRp 77; [1981] VR 799; Firman v Gray; South Western Mineral Water Company Ltd v Ashmore [1967] 1 WLR 1110 and Carney v Herbert [1985] AC 301, and appears to have drawn from those authorities the proposition that even if the whole of a contract is illegal and void, that, nevertheless, severance was possible. With respect to his Honour, the passages quoted from the authorities to which reference was made all support the contrary conclusion, namely that where the whole contract is illegal and void, severance is not possible. His Honour referred to the passage in Chitty on Contracts referred to above and to the reasons of Andrews SPJ in Firman v Gray. That case concerned not the illegality of a whole contract, but merely a particular clause, and Andrews SPJ held that the offending part of the clause was ancillary to the main contract and not of such seriousness as to strike down the whole contract (170). Likewise, McPherson J held that the whole contract was not made illegal, and that distinct and lawful promises may be enforceable even if other promises forming part of the same contract are illegal (177, 181). Also, in Electric Acceptance v Doug Thorley, the whole contract was not made illegal and void by a statute; rather there was an illegal promise which was 'so material and important a promise in the whole bargain that there should be inferred an intention not to make a contract which would operate without it' (821). Likewise, in Thomas Brown v Fazal Deen, there were valid and invalid promises in the contract, and in Carney v Herbert, in the passage of Lord Brightman cited by McKechnie J, his Lordship referred to the case of parties entering into a 'lawful contract' where there was 'an ancillary provision' which was illegal.

76 In Electric Acceptance, Brooking J made the point that 'courts will not make a new contract for the parties ... by rewriting the existing contract ...' (817). In effect, what McKechnie J did was to rewrite the contract between the parties.

77 As a result, I would respectfully disagree with McKechnie J's conclusion that severance is possible to save a lease which contravenes s 20(1)(a) of the TPD Act and which is therefore illegal and void.

78 In any event, even if that conclusion is wrong and severance was possible, then the appellant's submission that in this case the nature of the Lease would not be changed if the options provision was severed cannot be accepted. The Deed involved an assignment of the Lease and the creation of the right in the respondent to extend the term of the varied Lease for a further 10 years. To sever the options provision would be to change the kind of contract recorded in the varied Lease from a lease plus options to a lease with no options. That would dramatically alter the respondent's right to secure possession until 2028 to a right to secure possession only until 2018. In addition, it is impossible to detect any separate consideration for the options. There were not 'in substance two independent contracts' (to quote Jordan CJ in McFarlane v Daniell).

80 The appellant contended that the cause of the respondent's loss was its own action in giving a termination notice and that the loss was not caused by the failure of the appellant to advise as to the efficacy of the Deed. That submission must be rejected. Because of the appellant's failure to advise that the Lease, as assigned and varied, was void, the respondent proceeded to settlement and paid the purchase price which had been agreed to be paid believing that it had an assignment of a valid lease which still had 14 years to run, with two options to extend for a further five years each. Instead of gaining a business with that lease and those option rights, the respondent gained nothing more than occupancy of the Forrestfield Tavern under a periodic tenancy. Ground 4 must be dismissed.

82 BUSS JA: In or about January or February 2004, the respondent purchased from Cancon Pty Ltd (Cancon) a business known as the Forrestfield Tavern. The business was carried on from a building on land at 40 Cumberland Road, Forrestfield. The building and related facilities occupied about 20% of the land. Bush covered most of the balance of the land.

83 Cancon leased the Forrestfield Tavern pursuant to a lease agreement dated 6 March 1998 (the Lease) between the owner of the land, Naoumis Vellios, as lessor, Cancon as lessee and Timothy and Maryanne Robinson as guarantors. The Lease was for a term of 20 years commencing on 3 March 1998. There were no options to renew.

84 It was a term of the agreement for the respondent's purchase of the business that Mr Vellios agree to an assignment of the Lease to the respondent with specified variations. The variations included the grant of either one option to renew for 10 years or two options to renew for five years each.

85 In about February 2004, the respondent retained the appellant, a solicitor, to prepare a deed of assignment and variation of lease (the Deed) in connection with its purchase of the business. Pursuant to the retainer, a solicitor employed by the appellant prepared the Deed. In or about March 2004, the Deed was executed by the respondent, Cancon, Mr Vellios and Alan and Pamela Haslett as guarantors. The Deed assigned the Lease from Cancon to the respondent. The Deed also varied some of the provisions of the Lease. The variations included the grant by Mr Vellios to the respondent of two options to renew for five years each.

86 The effect of the Deed was that if both options to renew were exercised then the Lease as renewed would not expire until 2 March 2028; that is, about 24 years after the date of the assignment from Cancon to the respondent.

87 On 24 March 2004 (after the execution of the Deed), settlement of the sale and purchase of the Forrestfield Tavern business occurred.

88 In November 2005, a solicitor acting for Mr Vellios asserted to the respondent's then solicitor that the options to renew were 'void as being contrary to Section 20(1) of the Town Planning and Development Act, it being understood that no requisite approval in the terms of that legislation was obtained prior to the options being granted'.

89 Subsequently, there were negotiations between Mr Vellios and the respondent with a view to agreeing on the terms of a new lease. The negotiations failed.

90 On 3 April 2006, in reliance on counsel's opinion, the respondent gave Mr Vellios one month's written notice of termination pursuant to s 72 of the Property Law Act 1969 (WA). Section 72(1) provides, relevantly, that 'a periodic tenancy or a tenancy of uncertain duration may be terminated by one month's written notice by either party thereto to the other expiring at any time whether at the end of a rent period or not'.

91 In 2008, the respondent as plaintiff brought an action in the District Court against the appellant as defendant. The respondent claimed damages for alleged negligence by the appellant's employed solicitor in connection with the performance of the retainer. In particular, the respondent alleged that:

(a) the Deed was illegal and void in that it contravened s 20(1)(a) of the Town Planning and Development Act 1928 (WA) (repealed) (the Act);

(b) the appellant, by his employed solicitor, was negligent, relevantly, in failing to advise the respondent that the Deed was illegal and void and in failing to advise the respondent on the steps required to comply with s 20(1)(a) of the Act; and

(c) by reason of the appellant's negligence, the respondent had been required to vacate the leased premises and had suffered loss and damage.

92 The action was tried before Eaton DCJ. His Honour entered judgment for the respondent on its claim in the sum of $264,347.20 and interest.

94 The appellant relies on four grounds of appeal. They read:

(b) Ground 2: further or alternatively, the trial judge erred in law by:

(i) construing the Deed as only assigning the Lease in relation to that portion of the lot of land occupied by the Forrestfield Tavern; and

(ii) consequently holding that the Lease, as assigned by the Deed, was void as contrary to s 20(1)(a) of the Act.

(c) Ground 3: alternatively to grounds 1 and 2, if the Lease only related to the portion of a lot of land which was occupied by the Forrestfield Tavern, the trial judge erred in law by:

(i) holding that the options to extend the Lease contained in item 7C of the schedule to the Deed could not be severed from the Deed; and

(ii) holding that the Lease, as assigned by the Deed, was entirely void by reason of it being contrary to s 20(1)(a) of the Act.

(i) Mr Vellios had not threatened the respondent with eviction, but instead had offered the respondent a new lease for 12 years;

(ii) the termination notice was given by the respondent with the intention, and for the purpose, of compelling Mr Vellios to renegotiate the Lease;

(iii) the failure of the appellant to advise the respondent as to the efficacy of the Deed was not the cause of the respondent giving the termination notice;

MACKINLAY -v- DERRY DEW PTY LTD [2014] WASCA 24 (3 February 2014)

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MACKINLAY -v- DERRY DEW PTY LTD [2014] WASCA 24 (3 February 2014)

Legislation Cited (7)

Cases Cited (28)