Plaintiff v Defendant

"In 1906 this role was highlighted by Carlo Catani, who redesigned the foreshore along the lines of a Mediterranean resort. In 1912 the entertainment entrepreneurs of the Greater J D Williams Co. opened Luna Park. For decades the American Phillips brothers ran it, along with the Palais de Danse next door. From 1915, they screened moving pictures at the Palais Theatre, which was destroyed by fire ... in 1926."

4 By this time the management of the land on which the Theatre stood was the responsibility of an authority called the St Kilda Shore Committee. The Committee had links of some kind, and was in some way answerable to, the State government.

5 From the ashes of the former cinema there arose a building which quickly took and then retained a prominent place in Melbourne mythology. It is big. It is built of masonry and mortar. On any view, it was and is affixed or annexed to the land. Removal would be equivalent to demolition. But it was built to last. An agreement between those who built it and the owners of the land on which it was built might alter its status. It is, subject to any such agreement, part of the freehold.

6 As befits a building of its eminence, the new Palais Theatre has its own entry in The Encyclopaedia of Melbourne. The author of the entry, Frank Van Straten, noted that, when it opened on 11 November 1927, it accommodated nearly 3,000 patrons on two vast levels. It thus had, and perhaps retains, the largest seating capacity of any conventional theatre in Australia. It also attracted some of the greatest artists to appear on an Australian stage - among them Harry Belafonte, Eartha Kitt, Gracie Fields, Shirley Bassey, Bette Midler and Peter Allen. To these may be added Joan Sutherland who, in 1979, performed at the Palais in the Australian Opera's production of "The Merry Widow". As the Encyclopaedia also records:

"The Australian Elizabethan Opera Company appeared at the Palais in 1960. The Theatre hosted many further seasons of opera, as well as classical ballet, folk and ethnic dance companies, musical and concert presentations."

7 The construction costs of a theatre of the size and significance of the Palais are considerable. Something of the order of [sterling]160,000 was poured into this project. An idea of the magnitude of such expenditure may be gained by comparing that sum with the cost at that time of a St Kilda home. In November 1927, a "triple-fronted modern brick attic villa with 8 rooms and a tennis court" in East St Kilda was advertised in the Melbourne "Argus" newspaper at [sterling]3,650, and an "almost new modern brick bungalow with 7 big rooms" a "stone's throw" from Marine Parade cost [sterling]2,100.[2]

8 Although it stands on Crown land, the Theatre was constructed at the expense of neither the St Kilda Shore Committee nor the Government. The very considerable cost of construction was borne by the then occupier of the land, a company named Palais Pictures Pty Ltd (later renamed Palais Theatre Pty Ltd) which was incorporated in May 1927. It had as its first object:

"To acquire from Herman Frank Phillips a grant of the right to the permissive occupancy of the land at The Esplanade St Kilda in the State of Victoria and known as Palais Pictures the permissive occupancy of which land was granted to the said Herman Frank Phillips by the Committee of Management of the St Kilda foreshore on 8 April 1926 and to enter into a covenant with the said Herman Frank Phillips to erect on the said land such buildings and improvements as the directors of the company shall consider necessary or expedient or convenient for all or any of the purposes of the company."

9 The terms of the permissive occupancy were an important part of the debate before me, and in the Tribunal. They are set out in a document dated 19 April 1926. By that document, the St Kilda Shore Committee granted to Mr Phillips "permissive occupancy" of that portion of the "recreation reserve ... formerly occupied by the entertainment known as the Palais Pictures for the purpose of building a moving picture theatre or dancing hall and any other amusements which shall be first approved of in writing by the St Kilda Shore Committee."[3] The period of occupancy was 21 years; but "[t]o afford the opportunity of building operations being completed before the said term of 21 years begins ... the permitted occupancy will commence from the first day of October 1927 or alternatively from the date of opening of the moving picture theatre or dancing hall, whichever date first occurs."

10 Clause 5 of the permissive occupancy agreement provided that Mr Phillips should not proceed to erect any building or fixture that had not been first sanctioned in writing by the Committee. Moreover, "when the plan or specifications of any proposed work has been approved by the ... Committee no alterations omissions or additions shall be made in carrying out the work unless the St Kilda Shore Committee shall consent to the same in writing." By the same clause, all buildings were to "be ornamented and painted in colours approved by the ... Committee."

11 Other clauses further restricted Mr Phillips' liberty to do what he would with his Theatre. He could not permit anything to be done inside it "which the ... Committee may by notice in writing prohibit for any reason in its absolute discretion."[4] Nor could he display anything intended to advertise the business conducted in the building unless that display fell within the boundaries of whatever the Committee was pleased to accept as being in good taste.[5] Access to the Theatre had to be given to any member of the police in uniform and any member or officer of the Committee for so long as was necessary to enable that person to ascertain whether Mr Phillips was doing that which the permissive occupancy agreement required him to do.[6] A failure to pay the occupancy fee (called in the agreement a "contribution to the maintenance fund of the ... Committee") for 21 days after becoming due would entitle the Committee to re-enter the land "and thereupon the said term of 21 years shall absolutely determine."[7]

12 Those, then, were some of the terms to which Palais Pictures Pty Ltd became a party when the Committee accepted an assignment from Mr Herman Phillips to the company. They are not necessarily compatible with full ownership of the Theatre.

13 The business of the company, and that of its predecessor (Mr Phillips himself), was of course show business; and the facility from which that business was in the future to be conducted was the new theatre. By its arrangements with Mr Phillips, the company was obliged to construct that facility. For the reasons already given, it was from the first designed to be annexed to the land. But there is a "general maxim of the law that what is annexed to the land becomes part of the land",[8] although what constitutes annexation will depend on, amongst other things, the object sought to be obtained. In this case, one of the objects of the permissive occupancy agreement was to ensure that the occupier, being also the builder, would recoup the amount expended in the erection of the building. Another was to ensure that, unless the occupier removed the Theatre, it would revert to the owner of the land. In other words, whatever the interest that the occupier had in the Theatre, that interest could not - if that building remained after the last term of permissive occupancy came to an end - outlast the occupier's right of possession.

14 The permissive occupancy agreement went at least some way to meeting concerns of this kind. On the one hand, at the end or sooner determination of the period of 21 years for which the agreement allowed, the company was to "quietly and peaceably deliver up to the ... Committee the land of which permissive occupancy is ... granted."[9] On the other hand, two years before the expiration of the term, an auction would be held at which the right to a fresh permissive occupancy would be sold, with the successful purchaser (if that was not the company) being required to make to it "a separate additional payment for the value of the improvements."[10] Provision was made for the calculation of that value and its payment "to the outgoing tenants".[11] Failing the "reletting of the site from the date of expiry of this permissive occupancy", the company could if it wished on such expiry, and for a month afterwards, remove any building it might construct on the land.[12]

15 The permissive occupancy agreement doubtless gave the occupier an interest in the fabric of the Palais Theatre. In my opinion, however, if it gave the occupier any interest in the land at all, that interest was at most that of a lessee. Nor, if it existed, did it extend beyond the period of occupancy.

16 Mr Phillips himself appears to have been of much the same view. By letter dated 24 January 1933, he wrote on behalf of the company to the Under Secretary for Lands. Having observed that the Theatre was a permanent improvement, he expressed the wish to purchase the land on which it was built because "it was desirable that this large investment should be on freehold land."

17 The offer to purchase was not taken up by the Crown. Instead, a further period of permissive occupancy was in 1946 granted to the company, in substantially the same terms as those agreed in 1927. In particular, the company's interest in the fabric of the Theatre was similarly protected, while its interest in the land (if any) was not enlarged. Again the period of occupancy was 21 years, which on this occasion commenced in 1948 and was therefore due to expire in 1969.

18 The permissive occupancy did not, however, run its allotted course. By letter dated 25 May 1955 and addressed to the Department of Lands, the company's solicitors, Arthur Robinson & Co, questioned the power of the St Kilda Shore Committee to enter into agreements of that kind. The letter itself has been destroyed, but its thrust may be gleaned from the reaction of the Department when confronted by the solicitors' doubts. In a memorandum from the Secretary for Lands to his then Minister, the Secretary (Mr Crawford) noted that the relevant regulations conferred on the Committee power only to issue permits for the temporary occupation of sites within Crown land that had been reserved for particular purposes. Mr Crawford continued:

"I consider it would be difficult to maintain that the granting of rights of occupation to companies for commercial purposes (involving the erection of buildings and structures costing many thousands of pounds) for periods aggregating over 50 years can reasonably be regarded as 'permits for temporary occupation.' "

19 The Department's reaction to the initiative of Arthur Robinson & Co was on further display when, on 12 July 1955, the Secretary for Lands wrote to the Chairman of the St Kilda Shore Committee. The relevant portions of that letter read as follows:

"I desire to inform you that representations have recently been made to this Department by Messrs Arthur Robinson & Co, solicitors to ... Palais Pictures Pty Ltd ... regarding the tenure of [the site occupied by it on the St Kilda Foreshore Reserve]. As [this Reserve] has been placed under the control of your Committee of Management, it follows that this matter should be placed before it.

The burden of the representations is that there are legal doubts of the validity of the permissive occupancies ... seeing that [these] do grant exclusive occupancy to private interests for the purpose of carrying on entertainment business for private profit or for a long period of years, and this is open to grave doubt as being not authorised by the Reserve Regulations ...

These representations made it quite clear that [Palais Pictures has] no disagreement with the Committee ...

...

As the departmental view supports the representations now made ... it is considered that the best course to pursue would be for action to be taken with the view to this Department issuing appropriate leases to [the company]."

20 There is no evidence, at least none of which I am aware, to suggest that Arthur Robinson & Co were concerned about whether or not, pursuant to the terms of the permissive occupancy agreement, their client held "property" or rights of "ownership" in the Palais Theatre. Nor does it appear that the terms of the agreement - pursuant to which the client's interest in the building was governed - were in any way unsatisfactory. Indeed, the concern was not that the terms of the agreement were inappropriate, but that the agreement was susceptible to a challenge to its validity - a challenge which, if successful, would deprive those who operated the Theatre of the benefits to be derived from the agreement.

21 Arthur Robinson & Co having revealed the existence of the problem, the Department saw the solution as a change in the status of the land. Under the scheme proposed by the Department, the land which on 29 February 1884 had been announced as permanently reserved for public recreation would become unreserved Crown land, following which, under s.125 of the Land Act 1928, a lease could be granted to Palais Pictures Pty Ltd for amusement and recreation purposes. Legislation would be needed to effect this because, as things then stood, the Reserve was permanent.

22 The legislation was forthcoming. The Revocation and Excision of Crown Reservations Act 1955 received the Royal Assent on 29 November that year. It applied not only to the land on which the Palais Theatre stood, but also to many other parcels of permanently reserved land in other parts of the State. It provided that, by Order in Council, particular reservations - including those of the St Kilda triangle - might be revoked; and s.2(2)(c) stated that, upon revocation, "the said land should become and be unalienated land of the Crown freed and discharged from all trusts, encumbrances, reservations, limitations and restrictions whatsoever and from every estate or interest therein."

23 So it was that, on 1 February 1956, the revocation of the reservation of the land on which the Palais Theatre is built was approved by the Governor in Council. Notice of the resultant revocation, and of the Order in Council by which it was effected, was published in the Government Gazette a week later, on 8 February. As I understand the evidence available to me, it does not contain any hint of opposition or protest from either Arthur Robinson & Co or their client.

24 In the meantime, the parties had been discussing the terms of the lease which would follow. By 14 August, agreement had been reached. Accordingly, a lease was executed on or shortly after that day. It provided for a term of 50 years commencing on 1 April 1956. Because it was a lease rather than a permissive occupancy, because it was for 50 years rather than 21, and because it was issued in the name of Her Majesty rather than that of the St Kilda Shore Committee, it allayed the concerns raised by the solicitors in their letter of 25 May 1955. There is no suggestion in any evidence available to me that the lease was not the outcome of arms' length negotiations resulting in mutual agreement. Indeed, at a meeting held on 31 January 1956 between Mr Wesley Ince of Arthur Robinson & Co, Mr Curwen of Palais Pictures Pty Ltd and Mr Bult of the Department, it was agreed that the lease would contain the terms included in the standard form of Crown lease, modified to reflect the lessee's interest in the improvements. In a note of the meeting, Mr Bult recorded that "[s]ome minor amendments of the general conditions were suggested by Mr Ince and I advised him that these could be submitted for consideration when the draft lease was forwarded for perusal."

25 There was one noteworthy difference between the lease and the permissive occupancy agreements which preceded it. The Crown lease that was the product of the 1955/56 negotiations had no provision similar to that of clause 19 of the permissive occupancy agreements. In other words, it contained no provision for the holding of an auction at which the right to a new lease would be sold, with the successful purchaser (if that was not the then lessee) being required to make to the then lessee "a separate additional payment for the value of the improvements." On the other hand, it did permit the lessee:

"upon or at any time prior to the expiration or sooner determination of the ... term ... to take down and remove from the ... land all buildings erections extensions and improvements now or hereafter built erected constructed or made by the lessee on the demised premises doing as little injury as may be to the demised premises by the removal and making good such injury as may unavoidably be done."[13]

26 Subject to this clause, the lessee was required by clause 2(l) of the lease to yield up the "demised premises" in good order and condition at the expiration or sooner determination of the term. There was no similar requirement in relation to the improvements - that is, to the Theatre itself. Indeed, in the standard form of Crown lease adopted on this occasion, the words "together with all buildings ... thereon" were struck through. The reason, it seems to me, is clear: while the lessee retained the right to remove those improvements before the termination of the lease, any requirement to yield them up to the lessor would be inconsistent with that right. By like reasoning, while the lessee retained the right to remove, so the risk that the Theatre might suffer damage or destruction from fire or other peril fell on that party. For this reason, the lessor's standard requirement that the lessee insure was deleted from the form of lease adopted on this occasion, although the standard form - with some additional variations - was otherwise employed.

27 Thus the lease of 14 August 1956 recognised that which flowed from the fact that the Palais Theatre had been constructed by and at the expense of the then permissive occupier of the relevant portion of the St Kilda triangle. Recognition was also accorded by the length of the term - 50 years from 1 April 1956. Given that that term commenced 29 years and four months after the Theatre was opened, those who operated it were given until 31 March 2006 - or 79 years and four months - in which to recoup the original cost of construction. An additional factor was that the rent charged to the lessee was calculated on the unimproved value of the land. Thus the lessee was not charged rent calculated on the value of improvements which it, and not the lessor, had effected.

28 In 1961, a small parcel of land was added to the leasehold. The parties took the opportunity to execute a fresh lease, but one which in all relevant respects was the same as that of 1956. As before, the term ended on 31 March 2006. Some months later, in July 1962, the company changed its name from Palais Pictures Pty Ltd to Palais Theatre Pty Ltd.

29 Notwithstanding the terms of the lease, the lessee's right to remove the improvements "upon or at any time prior to the expiration or sooner determination of the ... term" has been affected by the Theatre's status as an historic building. On 19 March 1981, the National Trust of Australia (Victoria) conferred upon the Palais Theatre the honour of being a "Recorded Building". Then, on 20 August 1982, the inclusion of the Palais Theatre on the Register of Historic Government Buildings was published in the Government Gazette. It was then made subject to the Historic Buildings Act 1981, and subsequently to the Heritage Act 1995. As a result, its fabric is untouchable unless the appropriate approvals are obtained. The practical reality is that this legislation has nullified the contractual rights given by clause 3(e) of the lease.

30 In or about May 1985, the plaintiff entered into a contract with Palais Theatre Pty Ltd. to acquire all its right title and interest in the Crown lease "and the improvements erected thereon": in other words, the company's entire interest in the Theatre.

31 Settlement was to take place on or before 1 November 1985. The Minister's consent to the assignment, necessary before it could be given effect, was granted on 24 October. Before that, as the Deputy President found, the plaintiff's solicitors had on 8 July applied for a certificate from the Historic Buildings Council. This issued on 21 August. It recorded that the Palais Theatre, being on the Register of Government Buildings, was a designated building for the purposes of the Historic Buildings Act 1981. It was with this knowledge that the plaintiff on 1 November 1985 settled its purchase of the interest held by Palais Theatre Pty Ltd in the Crown lease of 14 August 1956.

32 The plaintiff claims that the interest it thus acquired entitles it, in the events that have happened, to a continuing interest in the Theatre. This is so, the plaintiff maintains, despite the fact that the 50 year term expired on 31 March last year and despite the service upon it in December 2004 of a notice to quit. That notice is ineffective, according to the plaintiff, because its rights of ownership of the Theatre must prevail over any rights the Crown might have in the land.

33 It is on this basis that the plaintiff has refused to surrender possession to the lessor. On 23 December 2005, the Crown as applicant commenced proceedings in the Tribunal. It sought possession, damages, interest and costs. The plaintiff (respondent) counterclaimed for what the Deputy President described as a "lengthy menu of relief" which included a declaration entitling the plaintiff to remain in possession of the site as lessee until 10 August 2042.

34 The Tribunal delivered its judgment on 15 November 2006. The claim by the Crown for possession succeeded, and the issues of damages, interest and costs reserved. The counterclaim was dismissed. The judgment, which was in my respectful opinion thorough and careful, occupied some 48 pages. The Deputy President nevertheless acknowledged that he had not dealt with every issue argued before him. He said, at [80]:

"Both parties filed numerous outlines of submissions and several volumes of authorities consisting of case law and texts. During the course of the hearing numerous additional cases and texts were handed up. Needless to say many of the arguments pursued at great length and in great detail canvassed issues which arose only upon a particular set of permutations and combinations. This was true of perhaps most of the matters which were argued. To attempt to summarise the entirety of the cases put by the parties and adjudicate upon every issue which was the subject of submissions would extend these reasons beyond reasonable bounds and unreasonably delay their delivery."

35 My experience, and my reaction to it, has much in common with that of the Deputy President. The plaintiff having sought leave to appeal, the hearing of that application commenced before me on Monday 19 March, and ran into the sixth day. Many points were taken by both sides, both before the Tribunal and on this application for leave to appeal. Written submissions amounting in all to hundreds of pages were put forward for me to digest, together with a court book of 8 volumes. Five hundred and fifty pages of transcript were generated.

36 The representatives of both parties were of course intent on putting the strongest possible case for their client, and on meeting each argument propounded by the opposition. The danger in such a situation is that the arguments may suffer somewhat from concentrating on the trees rather than the wood. At all events, my judgment follows a different structure from that adopted by the submissions and by the Tribunal.

37 A summary of my position is that the relationship was governed by the lease of August 1956. The parties to it intended that their interests in the Theatre and in the land on which it stood be recorded in the instrument by which the lease was brought into existence. It made provision for the protection of the interest of the lessee in the Theatre during the period of the lessee's occupancy. Thereafter, it made provision for the protection of the rights of the Crown in the land, including any improvements then on it. In my opinion, its terms provide the answers to the questions raised by the application for leave.

38 One argument relied upon by the plaintiff may be dismissed without further ado. It relied upon the proposition that Palais de Danse Pty Ltd, a related company to Palais Theatre Pty Ltd, is entitled to a lease over the adjoining land on which the Palais de Danse is constructed; that that lease does not expire until 10 August 2042; and that the Crown agreed to grant a like term to the lessee of the land on which the Theatre is built. But, in a judgement delivered on 17 April 2007, I held that the claim by Palais de Danse could not be sustained. The plaintiff's own claim on this issue being entirely derivative, it must also fail. In coming to that conclusion, I bear in mind the plaintiff's contention that it had a freestanding right to a new lease, expiring in 2024. But the Tribunal held that, on the facts, that contention could not be made out. This finding is not challenged.

39 Another claim put forward by the plaintiff is that its predecessor as lessee was on, and during the period preceding, 1 February 1956, denied natural justice by the State, acting through the Department and the Governor in Council. The Tribunal rejected that claim. The plaintiff seeks leave to appeal against the rejection. In my opinion, however, the Tribunal was correct. Leave should therefore be refused

40 The starting point for the argument put by the plaintiff is that, by the Order in Council of 1 February 1956, the State compulsorily acquired the interest of Palais Pictures Pty Ltd as owner of the Palais Theatre. It effected this acquisition by means of s.2(2)(c) of the Revocation and Excision of Crown Reservations Act 1955, which not only restored the land to its status as unalienated Crown land, but in the process freed it from every other estate or interest in it. Because the Palais Theatre was and is part of the "land" as defined in the Acts Interpretation Act 1928 (by s.16 of which the expression "land" includes buildings erected on the land) and because the company's interest in the Theatre was therefore an interest in the land, the Revocation Act had the result that the land was no longer encumbered by it. Accordingly, it could be ignored by the State.

41 This is doubtless true. Even as the Revocation Act was emancipating the land on which the Theatre stood, however, the parties were negotiating the terms pursuant to which the company's interest in the building would be at least partially restored to it. Not only was the company afforded a hearing, and thus natural justice, in this process (which, after all, the company itself put in train) but the result was that for which the company contended - or at least was content to accept.

42 What the company received as a result of the negotiations was the certainty of a leasehold interest in the land. What it had under its previous permissive occupancy was perhaps, but probably was not, a similar interest - but an interest which, on any view, was founded upon a grant of doubtful validity. Thus, at the instance of Palais Theatre Pty Ltd, doubt was replaced by certainty. Moreover, the company also had conferred on it by the lease an interest of quiet enjoyment in the fabric of the Theatre itself; and this was an interest at least comparable to, and probably stronger than, that which it previously enjoyed under the permissive occupancy, but which the 1 February Order in Council had extinguished, or at least put in jeopardy.

43 For its part, the Crown by the lease gave explicit recognition to the interest of the lessee in the leasehold of the land. This is something which, under the permissive occupancy, it did not necessarily concede.

44 For these reasons, there is in my opinion no basis for the plaintiff's allegation that Palais Pictures Pty Ltd was denied natural justice.

45 The plaintiff places much importance on the proposition that it "owns", and its predecessors in title "owned" the Palais Theatre. This ownership, it submits, was first conferred by the permissive occupancy agreements. The plaintiff suggests that it is difficult to identify any incident of ownership which those agreements did not reserve to Palais Pictures Pty Ltd. So much may be conceded, with two important qualifications. First, the Palais Theatre is a very substantial building, firmly affixed to its foundations in the soil of the leasehold. Secondly, it does not own that soil. The Crown does. Hence the provisions in the permissive occupancy agreements for the removal of the Theatre (or, rather, the materials from which it was constructed) by the occupier before the period of occupation came to an end.

46 Hence, too, the argument for the Crown. It, as owner of the land, asserts ownership also of the Theatre. The building, it argues, is a permanent improvement and therefore also annexed to the land. By operation of an important principle of property law (quicquid plantatur solo, solo cedit - "whatever is fixed to the soil belongs to the soil") it is accordingly an integral part of that which is owned by the owner of the land. It also follows, the Crown contends, that the ownership of the latter necessarily carries with it the ownership of the former.

47 Although both parties have engaged in a search for the true owner of the Palais Theatre, that search - while in one sense valid - is in my opinion essentially a distraction. Ownership may be absolute, or it may be restricted. So, too, general property is that which every absolute owner has, while special property is something less than absolute. Thus, there can be no more than a qualified ownership or property in animals ferae naturae. In the case of the Palais Theatre, ownership was restricted by the fact that the freehold of the land on which it stood belonged to an entity that was not the entity which operated, and claimed to own, the building.

48 The real question is whether the interest which the plaintiff undoubtedly had in the building survived the expiration of the lease. It is the extent of that interest, and how it is to be reconciled with the equally undoubted, and undoubtedly continuing, interest of the Crown in right of the State of Victoria as lessor and owner of the land, that is the real issue.

49 Here the plaintiff submits not only that Palais Pictures Pty Ltd owned the Theatre from the beginning of its existence, but also that (contrary to its earlier submission about the effect of the Revocation and Excision of Crown Reservations Act 1955) it continued its ownership until 1985, when its interest was acquired by the plaintiff. Subject to that change, the ownership of the Theatre remained uninterrupted (or interrupted only momentarily, in 1956) by any alteration in the position effected by the 1955 Act. In general, I agree. In my opinion, however, for the reasons given when I examined the claim that a breach of natural justice had occurred following that enactment, the interest in the Theatre of those operating it from time to time is defined and described in the permissive occupancy agreements and, subsequently, the Crown lease. The Revocation Act of 1955 is, on that issue, irrelevant.

50 The parameters of the debate may be outlined another way. The plaintiff submits that ownership in the Theatre continued unchanged from the time it was assigned to Palais Pictures Pty Ltd from Mr Phillips, in 1927 or thereabouts, through 1955 and subsequent years until the plaintiff acquired the leasehold interest of the company (by now renamed Palais Theatre Pty Ltd) and, with it, ownership of the Theatre itself. I have no real difficulty with this. I differ only in that in my opinion the question of the ownership of (or property in) the Theatre must be subsumed by the two questions which seem to me to be relevant: first, what interest is held in it now; and, secondly, by which party. But the answers to those questions are to be found in the terms of the Crown lease.

51 The concept of ownership has a degree of fluidity. Because this is so, it does not concern me that the plaintiff referred to itself as the owner of the Palais Theatre, and was in turn referred to similarly by its lessor and others. The epithet was appropriate. The plaintiff was the owner of the Theatre, although the rights attached to that ownership were restricted by the circumstance that it did not extend to the land on which the building was constructed. The plaintiff itself implicitly recognised the limitation when, by letter dated 23 May 1989 to the Minister for Conservation, Forests and Lands, it sought to acquire the freehold from the Crown. The letter referred to the large expenditure required to maintain and update the Theatre, and continued:

"Yet this expenditure cannot be justified with the existing leasehold tenure because the returns will be of a longer term, high risk nature only acceptable if the freehold is held by Tymbook Pty Ltd."

52 Mr Phillips had previously made the same points when, by letter dated 24 January 1933, he informed the Under Secretary for Lands that:

"In view of the fact that the Palais Theatre now erected upon the site mentioned above is a permanent improvement, I desire to submit an offer to purchase this land outright. ... [F]or purely business reasons it is desirable that this large investment should be on freehold land."

53 It is clear from this correspondence that both Mr Phillips and the plaintiff recognised that their interest in the Theatre was limited. Indeed, by this correspondence they implicitly recognised that, upon the expiration of the permissive occupancy or (as the case may be) the lease, their interest in the Theatre would cease, or at least be restricted to whatever remained of the right of removal (together with, in the case of the permissive occupancy, the right to be paid the value of the building should another party succeed to that occupancy).

54 The draft notice of appeal in this case posits several questions of law. One is whether the Deputy President was correct in holding that the permissive occupancy agreements did not vest ownership of the Palais Theatre in Mr Phillips or Palais Pictures Pty Ltd. Another is whether he was correct in holding that clause 3(e) of the lease did not have the effect that the Theatre was and is owned by the plaintiff. For the reasons I have given, however, the question of ownership is not to the point. The Deputy President was in my opinion mistaken in pursuing the argument as he did, but correct in holding that both Palais Pictures Pty Ltd and the plaintiff had an interest in that structure - albeit an interest limited by the terms of the agreements pursuant to which it was occupied.[14]

55 Much time was spent, and much learning exhibited, in a discussion about estoppel. The plaintiff complained that the Tribunal did not consider its claim that the State is estopped from denying that Tymbook is the owner of the Theatre. The State submits that the Tribunal did deal with this issue, and rejected the plaintiff's arguments about it. In my opinion, the entire controversy is pointless. If the Crown acknowledged that the plaintiff "owned" the Theatre, it was doing no more than acknowledging that the plaintiff had an interest in that building, and that that interest had at least some of the attributes of ownership. The Crown never gave the plaintiff reason to believe that the Crown would not on the determination of the lease assume to itself all the rights which the Crown enjoyed as owner of the land. Nor did the Crown ever give the plaintiff reason to believe that the plaintiff's interest in the Theatre extended beyond the end of its leasehold interest in that land. It was the plaintiff which adopted for itself whatever extended meaning it now places on the concept of ownership.

56 Argument was advanced on behalf of the plaintiff before the Deputy President that s.48 of the Landlord and Tenant Act 1915 (and later s.28(2) of the Landlord and Tenant Act 1958) gave Mr Phillips and his assignee, Palais Pictures Pty Ltd, a statutory entitlement to remove the building so long as he or it remained in possession, as well as vesting property in the building in them. The State argued that the provision did not bind the Crown, and even if it did, it would only have applied to the Theatre (a) were it constructed during the term of a lease, and (b) if that lease were the lease of 1956. Given that the Theatre was constructed during a permissive occupancy, the conditions for the application of the section are absent.

57 Section 28(2) provides:

"(2) If any tenant holding lands by virtue of any lease or agreement executed or made after the twenty-fourth day of September One thousand nine hundred and seven at his own cost and expense erects any building either detached or otherwise or erects or puts in any building fence engine machinery or fixtures for any purpose whatever (which are not erected or put in in pursuance of some obligation in that behalf) then, unless there is a provision to the contrary in the lease or agreement constituting the tenancy, all such buildings fences engines machinery or fixtures shall be the property of the tenant and shall be removable by him during his tenancy or during such further period of possession by him as he holds the premises but not afterwards; notwithstanding the same consist of separate buildings or that the same or any part thereof may be built in or permanently fixed to the soil; so as the tenant making any such removal does not in anywise injure the land or buildings belonging to the landlord or otherwise puts the same in like plight and condition or in as good plight and condition as the same were in before the erection of anything so removed." (My emphasis.)

58 In my opinion, this provision is consistent with the terms of the lease. By clause 3(e), the lessee was permitted to remove the Theatre upon or at any time before the expiration or sooner determination of the lease. Although different words are employed, it seems to me that the lease says precisely that which the section also says. It was thus recognised by the lease itself that (in the terms of the section) the Theatre "shall be removable by him [i.e. the lessee] during his tenancy or during such further period of possession by him as he holds the premises but not afterwards". This, it seems to me, is a consequence, if not the consequence, that the section sees as flowing from the fact that the improvements, having been erected at the cost of the tenant "shall" (to quote again from the legislation) "be the property of the tenant". Similarly, it is the right to remove the Theatre - which right is conferred by this Crown lease on the plaintiff - that is recognition of the fact that the Theatre was the "property" of the plaintiff (which was, in other words, also its "owner").

59 By enacting s.28(2), the Parliament has recognized that the concept of "property" or "ownership" does not have a fixed meaning, but rather has a degree of flexibility which allows it to be moulded to meet the particular circumstances of the particular case. It is also to be noted that the legislature saw no conflict between the notion that the tenant has property in improvements effected by the tenant, while at the same time restricting the tenant's right of removal to the period of "his tenancy or during such further period of possession by him as he holds the premises but not afterwards". (My emphasis). I likewise see no contradiction in the lease conferring ownership of the Theatre on the plaintiff while at the same time restricting the consequential right of removal so that it may only be exercised "upon or at any time prior to the expiration or sooner determination of the ... term".

60 It is I think necessarily to be implied into both the legislation and the lease that, if the improvements are not removed within the specified time, they will revert to the lessor. Such is consistent with the common law and with common sense. There cannot be a separation of ownership of the land and ownership of the improvements - not, at least, in the absence of an agreement by which the occupancy of the latter is governed. Such an agreement is of course extant while a relevant lease is extant. When the term of the lease comes to an end, either another agreement follows or the improvements must revert to the landowner. In this case, there is no new agreement, express or implied, on which the plaintiff can rely.

61 Any argument that the lease in this case contained implied terms allowing the lessee to remain in possession after 31 March 2006 must in the light of such cases as Codelfa Construction Pty Ltd v State Rail Authority of NSW[15] be dismissed. No conceivable terms would pass the applicable tests.

62 I reject the plaintiff's submission that the section gives it the right to remove the Theatre at any time that the plaintiff remains in physical possession, whether rightful or not. Where the section uses the words "or during such further period of possession by him as he holds the premises", it is in my opinion referring to a holding to which the lessor has agreed, or at least in which the lessor has acquiesced. Thus, an improvement effected during the term of a lease could be removed during any successive period of renewal.

63 The above is, of course, subject to the effect of heritage legislation. In this case, such legislation rendered nugatory any right to remove given to the plaintiff by the lease.

64 The Deputy President concluded that, even if it bound the Crown, s.28(2) did not operate to reserve a proprietary interest in the building to the plaintiff. He was also of the view that, because the Theatre was not constructed during a period when the tenant was "holding lands by virtue of any lease", but rather during a period of permissive occupancy, the section did not operate to confer any relevant interest.[16] He did not consider it necessary to decide whether that section bound the Crown.

65 For my part, I do not consider it necessary to decide whether or not the Deputy President was correct. For the reasons I have given, it seems to me that, even if s.28(2) binds the Crown, and otherwise operates on interests in the Theatre, it adds nothing to the rights that the plaintiff had under the lease. And those rights did not extend to a right to remove the Theatre after the lease has determined.

66 There was in 1956 a standard form of Crown lease. It was used in this case, but modified to ensure that the lessee would have the right to remove the Theatre. True, it might not - would not - be possible to remove the Theatre without demolishing it first. But, by the nature of the building, that must have been recognised from the outset. The recognition did not result in the exclusion from either the permissive occupancy agreements or the lease of the clause conferring the right.

67 The standard form of Crown lease did not, in 1956, allow the lessee to remove improvements, whether as entire structures or, after demolition, in pieces. On the contrary, it required the lessee at the determination of the term to surrender to the Crown all improvements in good order and condition.

68 The plaintiff submitted, in argument before me, that the modifications made in this case to the standard form of lease should be read having legitimate regard to the standard (unmodified) terms that had been struck from the lease as agreed. And, for my part, I accept that, for the purpose of ensuring that implications which might otherwise have been drawn are seen in their proper context, the court may have regard to words that have been deleted. The logic is simple enough. It is that, when viewed in the light of the deliberate deletions, it might become apparent that the implication in question should be put aside as not reflecting the contractual intention of the parties. In Codelfa Construction Pty Ltd v State Rail Authority of NSW[17] Mason J said:

"If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting?"

69 In this case (so the plaintiff's argument continued) when the lease as modified is read in the context of the deletions from the standard form, any implication that on 1 April 2006 ownership of the Theatre passed to the Crown can be seen to lack any foundation. And this is so whether or not the Theatre had then been removed.

70 The plaintiff's reasoning cannot, in my opinion, assist it in the circumstances of this case. This is not a case in which the parties have refused to include in the contract a provision which would give effect to their presumed intention. It is a case in which the presumed intention of the parties is clear, and is consistent with the deliberate deletion of the excluded words. If the Theatre remains on the land at the end of the term of the lease, it reverts to the Crown. It, being annexed to the land, is part of the demised premises which, as the lease requires, must at the expiration of the term be yielded up in good order and condition.

71 Nor do I accept that the lease has been frustrated by the inability of the plaintiff to remove the Theatre. The plaintiff purchased the interest of Palais Theatre Pty Ltd in the knowledge that it was subject to heritage legislation. It accepted the risk, just as the hirer of the neon sign accepted the risk in Scanlon's New Neon Ltd v Tooheys Ltd[18], a case which in my opinion is applicable here, and is binding on me. What is more, the plaintiff and its predecessor enjoyed occupation of the building for the full term of the demise. The intervention of the heritage legislation does not amount to a frustration of the lease.

72 Finally, the plaintiff asserts that it had and has a legitimate expectation of a further term. This expectation is not based on any representation from or by the State. Every approach by the plaintiff to purchase the land or extend its leasehold interest in it was met by a negative response from the lessor. Rather, the plaintiff asserts that its expectation was properly based upon its interest in (or, as the plaintiff puts it, ownership of) the Theatre. Because it enjoyed that interest, so it was entitled to expect that it would be continued beyond 31 March 2006. At the least, the plaintiff argues, it was and is entitled to a hearing before being required to surrender possession.

73 In one sense, the plaintiff has been afforded a hearing. It submitted a tender for the redevelopment of the St Kilda triangle. As I understand it, that submission was considered by the State, but not viewed with sufficient favour to warrant the plaintiff being included amongst the preferred tenderers.

74 It is true, however, that the plaintiff has not been heard on whether it should be granted a fresh lease. In my opinion, it is not entitled to such a hearing. The mere fact that a predecessor in title paid for the cost of construction of the Theatre does not confer that right. Nor does the fact that, were it not for the heritage constraints, Tymbook would be entitled to demolish the building and retain the materials thus recovered. If it were otherwise, the result would create inroads into the law of contract that would create great uncertainty.

75 Even if I am wrong about the above, the right to a hearing would arise if at all only were the Crown minded to deny the plaintiff's application for a fresh lease on the basis of adverse facts alleged against it. That is not the position here. The refusal of the Crown to accede to the plaintiff's request to purchase the land, and to any request it may have made for a fresh lease, was a matter of executive policy.[19] The State plans to redevelop the St Kilda triangle. The plaintiff sought to become a party to this redevelopment, and tendered accordingly. It was not successful.

76 For these reasons, leave to appeal must be refused.

[1] Cambridge University Press, 2005.

[2] Melbourne "Argus" Monday 14 November 1927, p.8.

[3] Recital to the Permissive Occupancy Agreement.

[4] Permissive Occupancy Agreement, clause 7.

[5] Ibid, clause 8

[6] Ibid, clause 9.

[7] Ibid, clause 13.

[8] Holland v Hodgson L.R. 7 C.P. 328 at 334, per Blackburn J.

[9] Permissive Occupancy Agreement, clause 12.

[10] Ibid, clause 16.

[11] Ibid, clause 18.

[12] Ibid, clause 19.

[13] Crown lease, 14 August 1956, clause 3(e).

[14] VCAT Reasons para. [141].

[15] [1982] HCA 24; (1982) 149 CLR 337.

[16] VCAT reasons para. [126]

[17] [1982] HCA 24; (1982) 149 CLR 337 at 352-353.

[18] [1943] HCA 43; (1943) 67 CLR 169.

[19] Attorney General (NSW) v Quin (1993) 170 CLR 1; State of Queensland v Litz [1993] 1 Qd. R. 343.