Whitsunday Shire Council v Laguna Australia Airport P/L & Anor

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - ILLEGAL AND VOID CONTRACTS - CONTRACTS ILLEGAL BY STATUTE - GENERAL PRINCIPLES - where deed entered into between applicant council and respondent company for sale of council's interest in a parcel of land operated as an airport - where the land was a reserve and held by the applicant as trustee under the Land Act 1994 - where applicant unable to obtain ministerial approval for sale - where applicant sought declaration that the deed did not constitute a binding contract to dispose of any interest in the airport - whether the contract was enforceable - whether the Act expressly or impliedly prohibited the making of the contract - whether the contract was severable

Acts Interpretation Act 1954, s 36

Land Act 1994, s 33, 34, 44, 46, 51, 53, 54, 55, 57, 59, Sch 6

Carney v Herbert [1985] AC 301, cited

Cudgen Rutile (No 2) Pty Ltd v Chalk [1975] AC 520, cited

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

Holman v Johnson [1775] EngR 58; (1775) 1 Cowp 341, cited

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

Juniper Pty Ltd v Grausom [1984] 1 Qd R 144, cited

McFarlane v Daniell [1938] NSWStRp 20; (1938) 38 SR (NSW) 337, cited

Roach v Bickle [1915] HCA 80; (1915) 20 CLR 663, applied

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

Yango Pastoral Company Pty Limited v First Chicago Australia Limited [1978] HCA 42; (1978) 139 CLR 410, applied

D J S Jackson QC, with M J Burns, for the applicant

A J H Morris QC, with M J Liddy, for the respondents

[1] The applicant Whitsunday Shire Council seeks a declaration that a deed entered into between it and the respondents dated 21 February 2001 does not constitute a binding contract to dispose of any interest in a parcel of land located approximately 10 kilometres south of Proserpine on which the applicant operates the Whitsunday Airport. Alternatively, the applicant seeks a declaration that the applicant was not as at 21 February 2001 and is not presently authorised to dispose of the Land. The Land is a reserve and is held by the applicant as trustee under the Land Act 1994 ("the Act"). The business of operating the airport however, is not carried on by the applicant in its capacity as trustee.

[2] The grounds upon which the declarations are sought are that on a proper construction of the Deed and of a letter of 27 April 2001:

(a) No concluded agreement was reached by the applicant and the first respondent to dispose of any interest in the Land; and

(b) In the alternative, the terms of any such agreement were uncertain.

The uncertainty ground was abandoned on the hearing as was reliance on the doctrine of mistake.

The relief sought and the grounds relied on by the first respondent

[3] The first respondent seeks a declaration that there is a binding contract for the sale of the applicant's interest in the Land. It accepts that the interest to be sold and purchased is the applicant's interest as trustee of the subject reserve. Other claims for declaratory relief were abandoned.

(a) The Deed constitutes a binding agreement for the sale "of the entirety of the Airport including the Land";

(b) When called upon to do so, if the applicant is then capable of transferring the Land, it must do so;

(c) The Deed contemplates that settlement may take place within 10 years and whether or not the applicant is capable of fulfilling its contractual obligations arises at the due date for settlement and not before;

(d) The fact that the applicant is currently unable to fulfil its contractual obligations does not give rise to an entitlement on its part to terminate the Deed;

(e) If the applicant cannot then transfer the Land, it will be in breach of the Deed and liable for damages; and

(f) The reference in clause 6.3.2(e) of the Deed to Ministerial "Approval" of the subject transfer should be construed broadly. So construed it is capable of extending to the exercise of ministerial power under s 51 of the Act to remove the applicant as trustee of the subject land and replace it with the respondent.

[5] The Deed recites that the applicant wishes to sell "its interest in [the Whitsunday Airport] and LAA [the first respondent] is desirous of purchasing [the applicant's] interest in" the Airport.

[6] The Airport is defined in clause 1 of the Deed as:

"(i) The lands described as balance of lot 50 on HR808298, reserve no. 286, Parish Bonaventura and situated at Lascelle's Avenue, Gunyarra;

(ii) All improvements on those lands owned by [the applicant];

(iii) The airport business conducted by [the applicant] on those lands."

[7] Recital (n) contains an acknowledgment by the parties that "there are other approvals required from the State Government before [the applicant] can dispose of its interest in the ... Airport to LAA including approval from the Minister under the Local Government Act and that it is beyond [the applicant's] ability to guarantee that those approvals will be obtained".

"[The applicant] offers to sell to LAA the whole of its interest in [the] Airport at market value assessed in accordance with clause 7 of this Deed."

"Contract

The parties agree to enter into a contract on or before the 30th of April 2001 for LAA to purchase [the] Airport from [the applicant] in accordance with [the applicant's] offer subject to LAA:-

(a) conducting and being satisfied as the results of all enquiries ordinarily undertaken by a prudent purchaser conducting due diligence of the asset proposed to be purchased; and

(b) receiving the approval of its Board to proceed with the purchase by entering into contractual documentation."

[10] Clause 6.3.1 requires the contract for sale to be in the standard form of contract approved by the Real Estate Institute of Queensland and for the price to be "the assessed market value" of the Land. Such market value is to be determined by a valuer appointed by agreement and, failing agreement, by the President for the time being of the Australian Property Institute. The date at which the Land is to be valued is "on or before 30 April 2001".[1]

[11] Clause 6.3.2(e) provides that completion of the Contract is conditional upon the applicant "obtaining approval from the Minister ... to the proposed transfer of Council's leasehold interest in the [land] to LAA, the Minister under the Local Government Act and any other necessary approvals required by law to sell the airport to LAA". (Emphasis supplied)

"The term of this Deed will be for a period of 10 years unless otherwise agreed ..."

[13] The respondent carried out the due diligence inquiries referred to in clause 6.2. On 24 April 2001 its solicitors wrote to the applicant advising that the respondent had conducted and was satisfied "as to the results of all due diligence inquiries". The letter advised also that the respondent's Board had approved the entering into of "contractual documentation".

[14] The respondent, by its solicitors, in a further letter dated 27 April 2001, formally accepted the applicant's offer in clause 6.1 of the Deed to sell "the whole of its interest in Proserpine/Whitsunday Airport at the market value assessed pursuant to clause 7 of the Deed dated 21st of February 2001". It is common ground that an agreement for the sale and purchase of the Land then came into existence. For convenience, that agreement will be referred to as "the Contract", but, normally, it will not be necessary to distinguish between the Contract and the Deed.

[15] The applicant wrote to the Minister for Natural Resources on 27 February 2001 setting out the background to the Deed and the applicant's reasons for entering into it. The letter notified the Minister that the applicant will be required to seek the Minister's approval "for the transfer of the perpetual lease of the reserve where the Council airport is located".

[16] The Minister responded to the letter on 15 March 2001 advising that the airport was a reserve for which the applicant was a trustee and thus had no "ownership or a suitable tenure for sale". The Minister advised that the applicant did have the right, subject to Ministerial consent, to negotiate a Trustee Lease. In a letter of 6 April 2001, before the respondent's acceptance of the offer contained in the Deed, the applicant advised the respondent's solicitors in writing that the applicant's due diligence had identified the applicant's interest in the airport as "a trustee of a reserve for landing ground for aircraft purposes, Reserve 286 Parish of Bonaventura over Lot 50 on HR 808298".

[17] The parties then set about attempting to negotiate the terms of a "trustee lease" which could be submitted to the Minister for approval. The protracted negotiations failed to result in a concluded agreement.

[18] At the date of the Deed and thereafter, the applicant held the Land as trustee, within the meaning of s 44 of the Act, having been appointed trustee under the Land Act 1962. The Land was, and is, a reserve for the purposes of a landing ground for aircraft. The Minister has the power to remove the applicant and appoint another trustee in its stead under s 51 of the Act.

[19] Under s 33 of the Act, the Minister, by Gazette notice, may revoke all or part of a reserve if it is no longer needed for a community purpose or if the Minister is satisfied a different tenure would be appropriate for the purpose for which the land is used. Under that section, if the Governor in Council has issued a lease over a reserve, the lease must be surrendered or resumed before the reserve is revoked. If the reserve is revoked, the land becomes unallocated State land and all appointments of trustees and trustee leases are cancelled from the day the revocation is notified in the gazette.[2] If improvements on the land are not removed within the time stipulated by the Minister, they become the property of the State.[3]

[20] The functions of a trustee under the Act include the management of the trust land consistent with achieving the purpose of the trust.[4] A trustee of trust land under the Act is not authorised to dispose of the trust land.[5] By virtue of Schedule 6 of the Act and s 36 of the Acts Interpretation Act 1954 the restriction on the disposition of trust land extends to any interest in the land. A trustee may surrender all or part of the trust land with the Minister's written approval. When the land is surrendered, it may be dealt with as unallocated State land.[6]

[21] A trustee of trust land may lease the land or part of it with the approval of the Minister who may impose conditions for the granting of the approval.[7] Any such approval may be granted only if the lease would be consistent with the purpose for which the land was reserved in trust and would facilitate or enhance such purpose.[8]

[22] The applicant, by virtue of sections 53 and 54 of the Act, had no power to dispose of the Land. Equally, it had no power or right to dispose of its interest as trustee.

[23] Having regard to the trustee's functions and responsibilities discussed earlier, any sale of any interest in the Land by the applicant trustee was inconsistent with its statutory duties. On the face of things, any obligation on the part of the applicant to transfer its interest as trustee in the reserve is unenforceable. Such a transfer would be in breach of trust and in breach of statutory obligations and any transferee would be participating in and benefiting from such breach.

[24] The respondent seeks to meet these difficulties by two contentions. The first relies on clause 8 of the Deed which provides that the term of the Deed is 10 years. It is argued that no transfer will take effect until completion which may be some years away. By the time of completion, it is argued, circumstances may have changed to render the contemplated transfer lawful.

[25] But for reasons which will be given shortly, the sale and transfer contemplated by the Deed are contrary to statute and will remain so until the Act is relevantly amended. Mr Morris QC, who led Mr Liddy of the respondent, pointed to no authority for the proposition that a contract which, on the face of it, was unenforceable as being contrary to statute could, at the behest of one of the parties, be maintained in existence against the prospect that the law would be changed to remove the applicable statutory prohibition.

[26] It is unnecessary for present purposes to consider the questions of whether the Deed should be considered "void" rather than merely "unenforceable" or whether, if "unenforceable" rather than "void", an amendment of the Act may render the Deed no longer unenforceable. The fact of the matter is that the Deed, as it stands, is contrary to law.

[27] Whether an Act expressly or impliedly prohibits the making of a contract is a matter of construction.[9] In Yango Pastoral Company Pty Ltd v First Chicago Australia Limited, Mason J, referring to earlier decisions canvassing questions of illegality, said:[10]

"These cases do no more than demonstrate that the question whether a statute prohibits contracts is always a question of construction turning on the particular provisions, the scope and purpose of the statute. They also indicate some of the considerations which will influence the court's decision on the question of construction."

[28] Section 54 does not expressly prohibit the sale of trust land by a trustee. It provides that the trustee is "not authorised to dispose of the trust land". In my view, it is implicit in those words that the disposition of the trust land is prohibited. That conclusion to my mind is inescapable when regard is had to the fact that the land in question is not merely Crown Land (which cannot be disposed of even by the Executive Government unless in accordance with Statute) but land set aside in trust for a particular public purpose by Order in Council.

[29] Mr Jackson QC, who appeared for the applicant, relied on the following passage from the joint reasons of Isaacs and Gavan Duffy JJ in Roach v Bickle:[11]

"Where a Statute prohibits a transaction either expressly or by implication, no such transaction can be validly created.

The law which forbids its existence cannot consistently recognize it as ever having any binding force. Its existence in fact may be recognized for the purpose of punishing those who disobey the law, but the parties who are both transgressors cannot assert any right under it. It is lifeless from the beginning."

[30] That pronouncement requires qualification as appears from the following passage from the reasons of Gibbs ACJ in Yango Pastoral Company:[12]

"It is often said that a contract expressly or impliedly prohibited by statute is void and unenforceable. That statement is true as a general rule, but for complete accuracy it needs qualification, because it is possible for a statute in terms to prohibit a contract and yet to provide, expressly or impliedly, that the contract will be valid and enforceable. However, cases are likely to be rare in which a statute prohibits a contract but nevertheless reveals an intention that it shall be valid and enforceable, and in most cases it is sufficient to say, as has been said in many cases of authority, that the test is whether the contract is prohibited by the statute. ...

The question whether a statute, on its proper construction, intends to vitiate a contract made in breach of its provisions, is one which must be determined in accordance with the ordinary principles that govern the construction of statutes. 'The determining factor is the true effect and meaning of the statute' (St John Shipping Corporation v Joseph Rank Ltd (1957) 1 QB 267, at p 286 )."

[31] One significant indicator of whether a statute intends to vitiate or render a contract in breach of its provisions unenforceable is whether it has as its object, or one of its objects, the protection of the public.[13]

[32] There is a strong element of public protection in the provisions of the Act under consideration. They are aimed at the preservation and due administration of Crown lands for the benefit of the public. They are enacted against the background of a long established principle that the Crown cannot contract for the disposal of any interest in Crown lands "unless under and in accordance with power to that effect conferred by statute".[14] When regard is had also to the creation by the Act of a statutory trust in respect of trust land, the duties imposed on trustees and the Minister's role in the selection and appointment of trustees, it is difficult to resist the conclusion that the Act renders unenforceable contracts purporting to dispose of interests in trust land.

[33] In relation to argument based on the possibility of a change in the law, Mr Jackson relies on observations of Derrington J in Juniper Pty Ltd v Grausom[15] to the effect that if a contract is unenforceable when entered into as being contrary to statute, the taint of illegality will not be removed by a later change in the law. In support of the proposition his Honour referred to the observation of Lord Mansfield in Holman v Johnson[16] that:

"No court will lend its aid to a man who founds his cause of action upon an ... illegal act."

[34] In that regard, Derrington J referred also to Dressy Frocks Pty Ltd v Bock.[17] In my view, the presumption of continuance also has some application in these circumstances. As a general proposition, parties to a contract must be entitled to have contractual rights determined on the basis of existing laws without having to speculate on the possibility of legislative change.

[35] The respondent's second argument was to the effect that the Deed was capable of being performed lawfully through the mechanism of the applicant resigning as trustee and the Minister appointing the respondent in its stead. In that regard it is said that there was no evidence to suggest that the respondent was in any way unsuitable to act as trustee or that the respondent might not be an entity which the Minister would regard as unsuitable to appoint as trustee. Addressing this argument, Mr Morris said:

"So, we say there is a legal mechanism - and I accept again it may not be approval stricto sensu but there is a legal mechanism by which the Minister can take steps which would have the effect of approving the transfer proposed in the parties' contract and there is no reason in the world to suppose that that will not be achieved by the time that settlement comes to be effected."

[36] It was argued that the requirements of clause 6.3.2(e) which made the completion of the contract "conditional upon [the applicant] obtaining approval of the Minister ... to the proposed transfer of the Council's leasehold interest" could be effected by this means. It was common ground that "leasehold interest" was a misnomer and that the relevant interest was the applicant's legal interest as trustee in the reserve.

[37] These arguments must be rejected. The Contract makes provision for a sale and purchase of the applicant's interest in the reserve as trustee. A commercial price for that interest, fixed by valuation, is to be paid. The contract required to be entered into pursuant to clause 6.3.1 is to have incorporated in it provisions under which the subject interest will be transferred in exchange for the payment of the agreed consideration. The parties have not agreed to a process under which the applicant is to resign as trustee and be replaced with the respondent under s 50. Under s 50 a trustee may resign of its own volition but the appointment of a new trustee is entirely at the discretion of the Minister. The Contract makes no provision for the procuring of such appointment, let alone the resignation, or as to what is to transpire if the Minister cannot be procured to appoint the respondent as trustee.

[38] But even if the respondent's contentions in this regard were correct, the Contract would be prohibited by the Act. Section 54 prevents dispositions, not merely transfers. "Disposition" is a broad term covering all forms of alienation of property.[18] The mechanism under consideration would amount to a disposition of the subject interest.

[39] The vendor is a trustee acting beyond power in attempting to dispose of its interest in the trust land[19] and is acting inconsistently with its duties under s 46 of the Act. Whether the transaction is one of sale and purchase as contemplated by the Deed or a disposition effected by a mechanism under s 50, the applicant would be seeking to benefit from its trust in disregard of its obligations as trustee. The Court would not lend its aid to the enforcement of any such transaction.

[40] It is the case also that the Ministerial consents contemplated by clause 6.3.2(e) cannot be given lawfully. The Act makes no provision for the Minister charged with the Act's administration (or any other minister) to approve dealings in trust land which are not in accordance with the Act. The applicant, recognising that the approvals required by clause 6.3.2(e) cannot be obtained, has not sought them. This, however, does not prevent the applicant from relying on the provision. Mr Morris QC conceded, quite properly, that a contracting party, in order to rely on a condition such as clause 6.3.2, if it is incapable of fulfilment, is not required to attempt to procure the impossible. It follows from the foregoing that the applicant was (and is) entitled to rely on clause 6.3.2(e) to bring the Contract to an end, if its other arguments did not succeed.

[41] In its pleadings the applicant alleged that consents under the clause were unobtainable but it did not plead or argue an alternative case that if the Contract was not unenforceable or uncertain (as originally contended) it had been terminated in reliance on clause 6.3.2(e). That, no doubt, was because the applicant gave no notice of termination in reliance on the clause. The existence of the clause and the rights flowing from it however, invest these proceedings with something of an academic air. If I am wrong in my conclusions as to unenforceability, there appears to me to be no reason why the applicant could not rely on clause 6.3.2(e) to bring the Contract to an end.

[42] Clause 11.1 of the Deed provides that in the event that any provision of the Deed is "invalid, illegal or unenforceable" and cannot be read down, it "shall be deemed to be void and severable and the remaining provisions" of the Deed will not be in any way affected or impaired.

[43] In reliance on this clause the respondent argues that if the agreement to sell the applicant's interest as trustee in the reserve is unenforceable, clause 1(i) of the definition of "Proserpine/Whitsunday Airport" can be severed leaving the Contract to apply to paragraphs (ii) and (iii) of the definition which relate improvements on the Land and "the airport business".

[44] The classic test of severance was expounded by Jordan CJ in the following passage from his reasons in McFarlane v Daniell[20] approved by the High Court in Thomas Brown & Sons Ltd v Fazal Deen[21] and by the Privy Council in Carney v Herbert:[22]

"When valid promises supported by legal consideration are associated with, but separate in form from, invalid promises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature... If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable."

[45] As McHugh J observed though in Humphries v Proprietors "Surfers Palms North" GroupTitles Plan 1955,[23] the above test is not exclusive and the "test of severability is a flexible one".

[46] Mr Jackson identified the provisions of the Contract which provided for one price for all assets to be determined by a valuer as an obstacle to severance. Mr Morris, in turn, referred to the statement by McHugh J in Humphries that "the mere fact that a lump sum payment is provided in consideration of the performance of a range of duties, some of which are unenforceable, is not of itself a bar to severance".[24]

[47] But even if one accepts that a valuation can be conducted in respect of those assets which can be assigned lawfully, the severance of one part of the sale property from the rest would produce a contract containing substantially different obligations and consequences from those contemplated by the Contract. The intention of the parties, ascertained objectively as it must be, could not have been that the Land be assigned separately from the improvements thereon. Whilst the applicant remains trustee it has an obligation to "manage the trust land consistent with achieving the purpose of the trust".[25] Moreover, one of the applicant's functions is to protect and maintain improvements on the trust land.[26] Under s 52 of the Act the applicant is obliged to "take all action necessary for the maintenance and management of the" Land.

[48] The parting by the applicant with improvements to the Land and the loss of or diminution in its capacity to manage the Land and "protect and maintain the improvements" is hardly consistent with the above objectives. Any fixtures which are part of the Land are caught by the provisions of the Act implicitly prohibiting the applicant from disposing of trust land. Additionally, if the Land is not able to be transferred, the applicant would be under no obligation to permit the business or the improvements to be used on or in relation to the Land. The improvements, assuming that they were capable of separate disposition, would be valueless or greatly reduced in value. The value of the business would be greatly reduced also. Each of the items comprising the property to be sold are purchased are inextricably interconnected and severance is impossible.

• it will be declared that any agreement constituted by a document executed as a deed by the applicant and the respondent on 21 February 2001 and a letter from Messrs S R Wallace & Wallace to the applicant dated 27 April 2001 is unenforceable by either respondent against the applicant; and

• It will be ordered that:

(a) The first respondent's counterclaim be dismissed; and

(b) That the first respondent pay the applicant's costs of and incidental to the proceedings including reserved costs, if any, to be assessed on the standard basis.

[2] Land Act 1994, s 34.

[3] Land Act 1994, s 34(2) and (3).

[4] Land Act 1994, s 46(1).

[5] Land Act 1994, s 54.

[6] Land Act 1994, s 55.

[7] Land Act 1994, s 57.

[8] Land Act 1994, s 59.

[9] Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; (1978) 139 CLR 410, per Gibbs ACJ at 413-414 and Mason J at 423, 425.

[11] [1915] HCA 80; (1915) 20 CLR 663 at 671.

[12] At 413. See also Yango Pastoral Company at 423 per Mason J and Chappuis v Filo (1990) 19 NSWLR 490 at 501.

[14] Cudgen Rutile (No 2) Pty Ltd v Chalk (PC) [1975] AC 520 at 533.

[15] [1984] 1 Qd R 144 at 155, 156.

[16] [1775] EngR 58; (1775) 1 Cowp 341 at 343.

[17] (1951) 51 SR (NSW) 390 at 393.

[18] Australian Trade Commission v Film Funding and Management Pty Ltd [1989] FCA 188; (1989) 87 ALR 49 at 67.

[19] s 54.

[20] [1938] NSWStRp 20; (1938) 38 SR (NSW) 337.

[21] [1962] HCA 59; (1962) 108 CLR 391 at 411.

[22] [1985] AC 301 at 310, 311.

[23] [1994] HCA 21; (1994) 179 CLR 597 at 619.