Nullagine Investments Pty Ltd v Western Australian Club Inc

Nullagine Investments Pty Ltd v Western Australian Club Inc - [1993] HCA 45 - HCA 1976 case summary — Zoe

[24]

The first question is whether the first four parts of cl. 4(b) are effective after the expiry of the ten-year period during which the occupation deed provides for Nullagine and the Club to occupy separate parts of the Property. Obviously Pt 5 of cl. 4(b) is not. The validity of Pt 5 may be questioned but, even if it be valid, it has expired. It is unnecessary to refer to it further. The terms of Pts 1-4 are such that those parts could have effect for so long as the Property is held by the Club and Nullagine or their respective successors in title as tenants in common. It is clear that other covenants in the occupation deed are intended to operate at least for so long as the Club and Nullagine remain tenants in common of the Property. All of the succeeding sub-clauses of cl. 4 (that is, sub-clauses (c), (d), (e), (f), (g), (h) and (i)) and cl. 5 are covenants which are intended to have effect so long as the tenancy in common remains. Indeed, the purpose of cl. 4(b) itself seems to be the preservation of the tenancy in common unless it is terminated by one co-tenant buying out the other. The purpose of the occupation deed, stated in recital (e), is to evidence "the terms and conditions upon which [the parties] shall mutually use and occupy the Land and the fixed improvements thereon upon Nullagine entering into possession of the Land and the fixed improvements thereon pursuant to the terms of the said agreement for sale". The period during which the occupation deed remains in effect is thus declared to be the period during which the Club and Nullagine will "use and occupy the Land", that is to say, the period during which they remain as tenants in common. That period is to be contrasted with the period of ten years prescribed by cl. 1 as the period of exclusive occupancy of different parts of the building by the Club and by the Nullagine group. In my opinion, cl. 4(b) is intended to have effect for so long as the Club and Nullagine remain as tenants in common of the Property and, having regard to Pt 4, it is intended to have effect thereafter as a covenant between either the Club or Nullagine and any successors in title of the other of them, so long as the Property should be held by tenants in common. The temporal limitation affecting the occupancy provisions in cl. 1 of the deed does not place a temporal limitation on the provisions in cl. 4(b) relating to disposition of title. 1. The words in brackets are supplied: see the prohibition in Pt 1.

[25]

That being so, it is necessary to consider the operation of the covenant in the first part of cl. 4(b). It will assist analysis to identify the "share or interest in the Land" to which the Club and Nullagine are respectively entitled. The share or interest which a tenant in common has in land is an "undivided" share, that is to say, "a distinct share in property which has not yet been divided among the co-tenants" [2] . A division of the property is repugnant to the nature of a tenancy in common [3] , for it is an essential characteristic of a tenancy in common that each of the tenants has the right to occupy the whole of the property in common with the others. Like joint tenants, tenants in common have a unity of possession; unlike joint tenants, they need not have a unity of interest, nor a unity of title, nor need there be a unity in the time when the interests of the co-owners vest. Each tenant in common has a separate and individual title to the property, limited according to the estate or term granted to or acquired by the tenant [4] . Thus one tenant in common may be seised of an estate in fee simple, another seised of an estate for life, while a third may be a tenant for a term of years, each of their interests being separately acquired at different times. There is no right of survivorship among tenants in common [5] . And thus, at common law, a tenant in common who wished to sell his interest in land was constrained to sell subject to the right of any co-tenant to remain in possession of the whole of the land. The vendor could neither seek a division of the land among the co-tenants nor compel the other co-tenants to join in a sale of the land. In 1539 and in 1540, the first statutes [6] were enacted to authorize the issuing of writs of partition. These statutes were the forerunners of s. 126(1). Presently it will be necessary to consider the effect of that provision, but for the moment it is sufficient to note that the right to seek partition is a right conferred by statute on a tenant in common: it is not a common law incident of a tenancy in common [7] .

[31]

The right to apply for an order under s. 126(1) is a statutory right. A statutory right is capable of being bargained away provided the right is conferred solely for the benefit of the party abandoning the right and the bargain is otherwise consistent with the policy of the statute. [13] . Halsbury's Laws of England [14] asserts that the "right to partition may be lost by agreement between the parties for disposal of the property in a different manner". Peck v. Cardwell [15] ; Dale v. Hamilton [16] ; Redwood v. Redwood [17] and Dimsdale v. Robertson [18] are cited as supporting authorities. Nullagine challenges the proposition in Halsbury and seeks to restrict the application of the principle to be derived from the cases cited to land which is partnership property. Although the supporting cases with the exception of Peck v. Cardwell related to land which was partnership property, those cases do not depend on partnership law. Thus in Peck v. Cardwell the agreement which the Court held to preclude the making of a partition order [19] was a joint venture agreement for the development, subdivision and sale of land [20] under which each tenant in common during the currency of the scheme retained his respective share beneficially subject to a right of pre-emption granted to the other co-tenants. However, the cases cited in support of Halsbury 's proposition all arose from agreements which provided for a sale of the land, not from agreements governing the sale of a share in the land. The distinction, as we shall see, is of importance. Agreements for the sale of land held by tenants in common are manifestly inconsistent with the exercise of a right to apply for an order for partition or for a sale on terms other than those contained in the parties' agreement: partition or sale under court order would preclude performance of an antecedent agreement by all tenants in common for the sale of the entirety. Here, there is no agreement governing the sale of the Property. To the contrary, the provisions of cl. 4(b) are calculated to protect a party wishing to retain its share in the Property. Therefore, the questions are whether Nullagine and the Club impliedly covenanted with each other not to exercise the right to apply for partition or sale of the Property and, if they did so covenant, whether the covenant is valid.

[34]

[A]n agreement to give "the first refusal" or "a right of pre-emption" confers no immediate right upon the prospective purchaser. It imposes a negative obligation on the possible vendor requiring him to refrain from selling the land to any other person without giving to the holder of the right of first refusal the opportunity of purchasing in preference to any other buyer. An exercise by Nullagine of the statutory right to apply for and to obtain an order for sale of the Property would not only prevent Nullagine from performing its promise to allow the Club a right of pre-emption - and be inconsistent with Nullagine's covenant on that account [23] - it would require Nullagine to breach the express prohibition against transferring its share. That is because completion of a sale of the Property would require a conveyance of Nullagine's share or interest to the purchaser [24] . I would reject Nullagine's argument that an agreement conferring on one tenant in common a right of pre-emption on the sale of a co-tenant's share does not impliedly preclude an exercise of a right to apply for and thus to obtain an order for sale of the land of which the co-tenants are seised [25] . If that argument were correct, one co-tenant, having promised the other co-tenant (in this case, the party from whom the former purchased its half share) that it would not dispose of its share without giving the other an opportunity to become the sole owner of the land, could at any time have the land sold on the open market. The agreement to allow the other party a right of pre-emption would be worthless. 1. [1901] 2 Ch. 37, at p. 51; and see Woodroffe v. Box (1954), 92 C.L.R. 245, at pp. 256-258. 2. (1947) 47 S.R. (N.S.W.) 315, at p. 325; see also Woodroffe v. Box (1954), 92 C.L.R., at p. 254; Pritchard v. Briggs , [1980] Ch. 338, at pp. 389-390. 3. O'Keefe v. Williams (1910), 11 C.L.R. 171, at p. 191, per Griffith C.J.; Secured Income Real Estate (Australia) Ltd. v. St. Martins Investments Pty. Ltd. (1979), 144 C.L.R. 596, at p. 607, per Mason J. An apposite example of the principle is Tramontano v. Catalano (1965), 260 N.Y.S. 2d 269 where a right of pre-emption was held to defeat an action for partition and sale "because partition would result in a sale to a third party and would thus, by indirection, emasculate the protection against sales to outsiders which the agreement was intended to provide". 4. Decrees in equity for partition (Halsbury's Laws of England, 1st ed. (1912), vol. 21, par. 1566n; Miller v. Warmington (1820), 1 Jac. & W. 484, at p. 493 [37 E.R. 452, at p. 456]) and orders for sale (Prideaux's Precedents in Conveyancing, op. cit., pp. 325, 326) are carried out by conveyance of the shares of the co-tenants. In the case of conveyance on sale, the shares merge in the hands of the conveyee. 5. American authority has held that partition is denied "where the agreement between the co-tenants provided, in substance, that if a co-tenant desired to sell, he must offer the property to the other co-tenants": Habeeb, "Contractual Provisions as Affecting Right to Judicial Partition", American Law Reports, vol. 37 (3d) 962, at p. 1006.

[42]

The purpose of the first Partition Act in 1539 [33] and of every subsequent Partition Act was the provision of a remedy for one co-tenant who, in the event of a dispute with another co-tenant, was without an adequate remedy to protect his share or interest in the land. The remedy of sale was first provided for by The Partition Act 1868 UK [34] . Both remedies terminate the co-ownership of land. The consequence of an order for either partition or sale is the termination of the existing co-ownership and the passing of full title to an owner who, without requiring the concurrence of a co-owner, can occupy and use the land as he sees fit or determine its further disposition. Sometimes this is effected by partition of the parcel of land, sometimes by purchase by continuing co-owners of the share or interest of a retiring co-owner [35] , sometimes by sale of the entirety either to a third party or to one or more of the co-owners. However the consequence is effected, the remedies afforded by the Partition Acts to a co-owner of land terminate the co-ownership and break any deadlock affecting its occupation and use or its disposition. That being the effect of the modern Partition Acts, their purpose can be stated. The purpose of such Acts is to provide a statutory mechanism for terminating the co-ownership of land when the co-owners fail themselves to agree on the manner in which the co-ownership shall be terminated. By affording the remedies provided by the Partition Acts, the legislature has facilitated the alienability of the land itself and alienability of land is a policy which the law supports except where inalienability is required for the protection of a disadvantaged class [36] . Co-owners having the capacity to deal with their respective shares or interests are at liberty to agree the terms on which the land will be disposed of or the terms on which the shares or interests of one or more co-owners will be acquired by another or others or the manner in which the land in co-ownership shall be divided. When a term bargaining away the statutory right to apply for an order for partition or sale is part of an agreement which itself provides for the termination of the tenancy in common, the bargain is consistent with the policy of the Partition Acts. Thus joint venture or partnership agreements which govern the development and sale of land or otherwise provide for its disposition when the joint venture or partnership is wound up may validly exclude, expressly or impliedly, the right of a co-owner to apply for an order for partition or sale [37] . Similarly, the right to apply may be excluded by the terms of a grant of an option or right of pre-emption over the share or interest of a co-owner. But where there is no agreement between or among co-owners which provides for the termination of the co-ownership or where an agreement between or among co-owners would prevent the termination of the co-ownership, it would be contrary to the policy of the Partition Acts to deny the remedies they afford. To deny those remedies would be to leave the land in the hands of the co-owners who may be unable or unwilling to agree on its management and use and who have made no agreement for its disposition [38] . To leave the land in that situation is wholly inconsistent with the policy of facilitating alienability which, in my opinion, is one of the chief purposes of the Partition Acts.

[54]

The Deed is structured as a bipartite instrument between the Club of "the one part" and the six companies constituting the Nullagine Group of "the other part". The Deed makes clear that those six companies were parties to it both jointly and severally in that it expressly states that they are therein "separately and collectively called "The Nullagine Group" ". The prima facie effect of that is that the Club's covenants were for the joint and several benefit of the six companies of the Nullagine Group and the covenants by those six companies were both joint and several. The introductory words of the various covenants contained in cl. 4 of the Deed are: "The parties hereto Mutually Covenant and Agree as follows." In the Full Court, Malcolm C.J. expressed the view that the phrase "the parties" in that provision referred only to the Club and Nullagine. We respectfully disagree with his Honour's conclusion in that regard. The phrase, in our view, clearly encompasses both Nullagine and the five associated Companies which were all parties to the Deed. It is true that direct performance of some of the covenants in cl. 4 on the part of the Nullagine Group would necessarily be by Nullagine since that company alone was the owner of a share or interest in the Land or a party to the lease of the car park. There is, however, nothing unusual in a number of associated companies which are parties to a deed in the same interests all joining in a covenant which is intended to be directly performed by one only of them. Indeed, it would be extraordinary if it were intended that breach on the Nullagine Group side of the covenants contained in cl. 4, no matter how serious, should be a breach by Nullagine alone leaving the other five companies unexposed. In that regard, it is significant that the five associated Companies were all required to become guaranteeing parties to the contemporaneous Sale Agreement pursuant to which Nullagine acquired its interest in the Land. Moreover, cl. 4 of the Deed contains a number of specific references to "the Nullagine Group" in contrast to specific references to "Nullagine" in four places (cl. 4(a), (d)(iv), (g)(iii), and (i)) where it was intended to refer to that company alone. On the other hand, the fact that Nullagine was the only company of the Nullagine Group with a share or interest in the land means that the phrase "[n]either party" in the body of cl. 4 should be construed as a reference to the Club and Nullagine alone. In the result, cl. 4(b) comprises a covenant by the six companies of the Nullagine Group that Nullagine will not dispose of "its share or interest" without first offering it to the Club and a covenant by the Club with those six companies that it will not dispose of "its share or interest" without first offering it to Nullagine.

[58]

As a matter of both law and language, there is a clear distinction between the individual "interest or share" owned by one of two or more tenants in common of a freehold estate in land and the freehold estate itself. While the theory of our land law is that the radical title of the Crown lies between the physical land and a freehold estate in it, the ownership of the freehold estate has long been, for almost all practical purposes, the equivalent of full ownership of the land. As a result, the freehold estate is, as a matter of legal and popular language, commonly treated as the land itself [43] . On the other hand, the distinct "interest or share" of one of two or more tenants in common of a freehold estate cannot, on any approach, be equated with the land itself. Indeed, an essential feature of the "interest or share" of a tenant in common, and a condition precedent of its existence or survival, is that the tenant in common does not own the freehold estate and is unable alone to deal with "the land" [44] . It is that very distinction between the "interest or share" of a joint tenant or tenant in common and the freehold estate which underlies the enactment of the long series of partition statutes directed towards facilitating or enabling a joint tenant or tenant in common to obtain an effective order for the partition or sale of the land itself. For more than four centuries, the words of such statutes have consistently observed the distinction between the "part", "portion", "share" or "interest" of the joint tenant or the tenant in common and the "land" itself in the sense of the estate in fee in it [45] . Indeed, the common law writ of partition [46] , which underlay proceedings for partition, "operated by the judgment of a Court of Law, and delivering up possession in pursuance of it; which concluded all the parties to it" [47] . The writ itself effected partition of the freehold without any need for the parties to execute a conveyance of their share or interest in the land. A consequence of the abolition of the writ of partition and equity's acquisition of exclusive jurisdiction in partition proceedings was that orders for partition necessarily acquired an in personam character: the decree for partition itself only vested equitable rights and directed "the execution of mutual conveyances by the parties to effect a transfer of the legal estate" [48] . Nonetheless, the individual conveyances executed pursuant to such an order are properly to be seen as no more than the means adopted by equity to carry into effect its decree that the freehold itself be partitioned. And that is also the case where, in a partition suit, equity decrees sale as an alternative to partition. Where sale is decreed, the single conveyance in fee simple [49] by the tenants in common or joint tenants pursuant to a court order does not involve the sale or disposition of the individual share or interest of the individual tenant. The court order directing the sale of "the land" is an order for the sale of the fee simple in the whole of the land [50] . It follows that the conveyance in such a case extinguishes the share or interest of the individual tenant and effects the sale or disposition of the freehold itself. Indeed, there is strong support for the view that the making of the order for sale extinguishes the equitable interests of the co-tenants in the land itself even before a sale is effected [51] .

[60]

Once one takes account of the clear distinction between a sale or other disposition "by" an individual tenant in common of "its share or interest in the land" and the sale (or partition) of the Land (ie a freehold estate), it becomes reasonably plain that cl. 4(b) is simply not directed to the sale or disposition of the Land itself. What cl. 4(b) is directed to is a separate sale by one of the two tenants in common of its distinct share or interest. Indeed, that is all that the procedure required by cl. 4(b) allows in a case which falls within its terms. That means that, if the reference in cl. 4(b) to a sale or other disposition "by" one tenant in common of "its share or interest in the Land" were construed as extending to a sale or partition of the freehold, cl. 4(b) would purport to preclude completely, for so long as the tenancy in common persists, any sale or partition of the Land itself. On that construction, the clause would, unless waived or rescinded, preclude even a sale of the unrestricted freehold by joint action of the Club and Nullagine. The most that it would permit would be an offer by each of the Club and Nullagine of its "share or interest" to the other followed by a sale by each of its share or interest to a purchaser who went through the probably pointless exercise of entering into the "deed of covenant" which cl. 4(b) requires. It is true that, if both the Club and Nullagine wished jointly to sell the Land itself, the requirements of cl. 4(b) could be rescinded by a new agreement or waived. Nonetheless, the ordinary principles of construction of instruments scarcely favour a loose and expansive construction of the words of a clause restricting the ordinary rights of a tenant in common on the basis that the somewhat bizarre consequences of that construction could be avoided by a waiver or rescission of the clause. In that regard, it is relevant to note that, in the event of a falling out between Nullagine and one of its five associated Companies, it would, on such a construction of cl. 4(b), be arguable that the associated company, being a party to the Deed and severally entitled to a performance by the Club of its covenants, could insist upon compliance by the Club with cl. 4(b) and thereby preclude its requirements being waived or rescinded by Nullagine and the Club even long after the expiry of the period of ten years during which it was intended that the associated company would have an interest in the occupancy of the premises.

[62]

The conclusion that the actual words of cl. 4(b) of the Deed do not apply to an application by Nullagine or the Club under s. 126 of the Property Law Act for an order for the partition or sale of the Land does not, however, suffice to dispose of the appeal. The question arises whether the Deed imposes some implied restriction or obligation on the parties in relation to such an application. The basis of any implication of such a restriction or obligation would be the "general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract" [2] . It can be argued that the protection which cl. 4(b) was intended to provide to the Club or the Nullagine Group in the event that either Nullagine or the Club wished to dispose of its share or interest would be seriously undermined if Nullagine and the Club each remained free to apply at any time to a court for an order for sale. That argument derives support from the fact that cl. 4(b) apparently contemplates that a purchaser of the share or interest of one of the tenants in common would step into the shoes of either the Club or the Nullagine Group under the Deed since cl. 4(b) expressly provides that, after execution of the "deed of covenant" which it required, the purchaser "shall be entitled to all the benefits but subject to all the duties and obligations created and imposed by this deed in substitution for his or its predecessor". On the other hand, it is at least arguable that it is impossible to discern in cl. 4(b) any underlying purpose beyond that of preventing one of the two tenants in common from selling its share or interest to a third party without first giving to the other party the opportunity of purchasing, at a fair market valuation, the first party's share or interest in the Land. If cl. 4(b) were intended to achieve no more than that, there would be no need for the implication of a term precluding or restricting an application for an order for partition or sale since the other party, being "interested to the extent of a half share", would almost certainly be able to ensure that an order for sale, and not partition, was made with the result that it would have the opportunity to purchase at market value [3] . Ultimately, however, it is unnecessary to determine whether some term should be implied in the provisions of the Deed which would have the effect of restricting an application to the Supreme Court by Nullagine for an order for sale of the Land. The reason why that is so is that the operation of any such implied term would, in our view, plainly be restricted to the period of ten years during which the Deed was intended to govern the use and occupation by the Club and the Nullagine Group of the building erected on the Land. As recital (e) makes clear, that was the primary purpose of the Deed. As indicated by the requirement in cl. 4(b) that a purchaser of the Club's or Nullagine's share or interest enter "into a deed of covenant to be bound by and comply with the terms and conditions" therein, cl. 4(b) itself was largely concerned with protecting the position of the parties to the Deed during the agreed period of operation of its main provisions. In that context, it is not, in our view, open to imply a term which would preclude or restrict an application to the Supreme Court for an order for the sale of the Land after the expiry of the period during which it had been agreed that the terms of the Deed governing the use and occupation of the building would operate.

[74]

Neither party shall sell, transfer assign or otherwise dispose of its share or interest in the Land and the fixed improvements thereon unless as a condition precedent thereto it first offers its share and interest in the Land to the other of them at such price as may be mutually agreed and in default of agreement at a price equal to Fifty per cent of the value of the Land at that date such value shall be determined by arbitration under the provisions of the Arbitration Act 1895 Provided That the arbitrators shall be three members of the Australian Institute of Valuers nominated by the President for the time being of such Institute and upon such terms as may be mutually agreed and in default of agreement within 28 days of the determination of the purchase price then the purchase price shall be paid by a deposit of Ten per cent of the purchase price within 28 days of such determination and the balance shall be paid 120 days after such determination against delivery of possession and a registrable transfer of the interest in the Land to the transferee. If the offer to sell is not accepted within 28 days of the determination of the purchase price as aforesaid then the party desiring to sell or transfer its interest in the Land shall be at liberty within twelve months from the original offer to sell to the other party its interest in the Land to sell to any other person at such price and upon such terms as it shall see fit without making a further offer to the other party pursuant to the terms of this clause Provided However no party shall sell, transfer assign or otherwise dispose of its interest in the Land unless its proposed successor in title enters into a deed of covenant with the other party for the time being to be bound by and comply with the terms and conditions herein contained as amended from time to time and subject thereto such successor shall be entitled to all the benefits but subject to all the duties and obligations created and imposed by this deed in substitution for his or its predecessor Provided Further neither party shall sell or dispose of its interest in the Land for a period of three years from the first day of October One thousand nine hundred and seventy six.

[104]

By reason of cl. 4(b) a co-owner wishing to sell its interest must first offer that interest to the other co-owner. If the parties cannot agree on a price for that interest, the price is fixed at fifty per cent of the value of the land, that value to be determined by arbitration. That means no more and no less than the value of the land and improvements as they then stand, unaffected by anything else in the contractual relationship between the co-owners. The co-owner to whom the offer is made is not bound to buy at the price determined by arbitration but has twenty-eight days from the determination of the price in which to do so. If the offer is not accepted within the period of twenty-eight days, the co-owner wishing to sell may, within twelve months from the original offer to sell to the other party, sell its interest on the open market without making a further offer to the other co-owner. By implication, if no sale takes place within twelve months, the co-owner may not sell its interest thereafter without first offering that interest again to the other co-owner, thereby setting in train the procedure of the sub-clause. There is however a restriction on the right to sell on the open market, namely, that any purchaser must agree to be bound by and to comply with "the terms and conditions herein contained". Effectively this means those terms and conditions that survived the termination of the rights of occupation provided for in cl. 1(A). As a consequence any purchaser of the co-interest may in turn only sell that interest in accordance with the requirements of cl. 4(b). That means going through the procedure of first offering the interest to the other co-owner as already described. The absolute prohibition against sale with which cl. 4(b) concludes is finite in time, expiring after a period of three years from 1 October 1976. That period of time had long since expired when the events giving rise to the litigation occurred and the prohibition has no further operation.

At a glance

Court

Decision date

Before

Source

Judgment (123 paragraphs)

Parties