Bankstown Trotting Recreational Club Ltd v Chisholm

Case •

[2016] NSWCA 274

•

05 October 2016

No judgment structure available for this case.

Court of Appeal


Supreme Court


New South Wales

  • Amendment notes
Medium Neutral Citation: Bankstown Trotting Recreational Club Ltd v Chisholm [2016] NSWCA 274
Hearing dates:31 March, 1 April 2016
Decision date: 05 October 2016
Before: Bathurst CJ at [1];
Beazley P at [2];
Sackville AJA at [130]
Decision:

(1)   Appeal dismissed;

 (2)   The appellant to pay the first, second and third respondents’ costs of the appeal.
Catchwords:

REAL PROPERTY – leasehold – implied covenants & principle of non-derogation of grant – lease granted by local council as registered proprietor of land – local council subsequently approved subdivision and creation of easement burdening leased land – whether landlord local council had derogated from the rights granted under the lease

 

ENVIRONMENT AND PLANNING – suspension of laws and regulatory instruments by environmental planning instruments and development consents – Environmental Planning and Assessment Act 1979 (NSW), s 28 – local environment plan providing for non-application of covenants, agreements or similar instruments purporting to restrict or prohibit the carrying out of development – development consent imposing requirement for “onsite” parking – whether lease conferring entitlement to exclusive possession constitutes covenant or agreement purporting to restrict or prohibit the carrying out of development

 

CONTRACT – licence agreement for use of certain land for car parking – obligation of licencee to pay annual licence fee – provision for “a fair and reasonable sum considering all relevant circumstances” to be determined by agreement or arbitration – agreement by parties for determination to be made by primary judge – whether error demonstrated in treatment of expert evidence

  APPEALS – principles of appellate review – assessment of licence fee – matter of estimation and not precise mathematical calculation – whether error established in primary judge’s assessment
Legislation Cited: Bankstown Local Environment Plan 2001
Conveyancing Act 1919 (NSW)
Environmental Planning and Assessment Act 1979 (NSW)
Local Government Act 1919 (NSW)
Local Government Act 1993 (NSW)
Trade Practices Act 1974 (Cth)
Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited: Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1
Birmingham Dudley and District Banking Company v Ross (1888) 38 Ch D 295
Browne v Flower [1911] 1 Ch 219
Commissioner of Taxation (Cth) v St Helens Farm (ACT) Pty Ltd [1981] HCA 4; 146 CLR 336
Email Ltd v Robert Bray (Langwarrin) Pty Ltd [1984] VR 16
Harmer v Jumbil (Nigeria) Tin Areas Ltd [1921] 1 Ch 200
Hillpalm Pty Ltd v Heaven’s Door Pty Ltd [2002] NSWCA 301
Jobson v The Owners – Strata Plan No 66870 [2015] NSWSC 776
MMAL Rental Pty Ltd v Bruning [2004] NSWCA 451; 63 NSWLR 167
Nordern v Blueport Enterprises Ltd [1996] 3 NZLR 450
O’Keefe v Williams [1910] HCA 40; 11 CLR 171
Palmer v Fletcher (1662) 1 Lev 122; 83 ER 329
Project Blue Moon Pty Ltd v Fairway Trading Pty Ltd [2000] FCA 127
TX Australia Pty Ltd v Broadcast Australia Pty Ltd [2012] NSWSC 4
Wheeldon v Burrows (1879) 12 Ch D 31
Texts Cited: Butt, Peter, Land Law, 6th Ed
Halsbury’s Laws of Australia
Category:Principal judgment
Parties: Bankstown Trotting Recreational Club Ltd (Appellant)
Robert Clive Chisholm as trustee for the Bankstown Harness Racing and Agricultural Society (First Respondent)
William Edwin Ellis as trustee for the Bankstown Harness Racing and Agricultural Society (Second Respondent)
Ernest Errichello as trustee for the Bankstown Harness Racing and Agricultural Society (Third Respondent)
Bankstown City Council (Fourth Respondent)
Representation:

Counsel:
N Cotman SC; I Coleman SC (Appellant)
C Birch SC; J Drummond (First, Second and Third Respondents)
D Pritchard SC; A Macauley; F Salama (Fourth Respondent)

  Solicitors:
Stephen Doyle & Associates (Appellant)
Thurlow Fisher Lawyers (First, Second and Third Respondents)
Marsdens Law Group (Fourth Respondent)
File Number(s):2015/00208276
 Decision under appeal 
Court or tribunal:
Supreme Court
Jurisdiction:
Equity
Citation:
[2015] NSWSC 597
Date of Decision:
20 May 2015
Before:
Darke J
File Number(s):
2012/196534

Headnote

[This headnote is not to be read as part of the judgment]

In 1953, Bankstown City Council (the Council) leased land known as the Bankstown Showground to the Bankstown Harness Racing & Agricultural Society (the Society). The term of the arrangement was extended on various occasions, most relevantly, by a deed executed in 1985 (the 1985 Deed), under which the Society’s lease was to expire on 1 April 2031. These arrangements entitled the Society to exclusively use part of Lots 1 and 3, and Lots 4 to 13 inclusive, and part of Lots 14 to 26 inclusive, in DP11028.

In 1961, the Society granted a “sub-licence” to the Bankstown Trotting Recreational Club Ltd (the Club) in respect of a portion of the Showground land, namely Lots 12 and 13. The purpose of the sub-licence was to permit the Club to erect premises to be used as a recreational club. The term of this arrangement was also extended on various occasions, with an ultimate expiry date of 1 April 2031.

By a deed dated 30 October 1987 (the 1987 Deed), the Society granted a further licence to the Club in respect of an area of the Showground land adjacent to the land already licenced by the Club. This arrangement gave the Club a non-exclusive entitlement to use the area so licenced for the purposes of car parking. The 1987 Deed made provision for the Club to pay an annual licence fee, in a sum which was fixed for the first five years and was to be a “fair and reasonable sum considering all the relevant circumstances” determined by agreement or arbitration thereafter.

Commencing in late 2002, discussions took place between the Society and the Club concerning the possibility of the Club purchasing, from the Council, the portion of the Showground land upon which its club house was built, being Lots 12 and 13, together with an area along the western wall of the club house. The Society gave consent to the sale upon the condition that its rights under the 1985 lease from the Council and its entitlements to the licence fee under the 1987 Deed would not be affected.

The proposed sale required a subdivision of the Showground land, and the creation of a new Lot 100. In order to ensure compliance with a development consent applicable to the operation of the Club, which imposed a requirement for onsite parking, it was suggested that car park access be secured on the title of Lot 100.

In 2009, a plan of subdivision was registered, creating Lot 100, along with a s 88B instrument creating an easement for parking in favour of Lot 100 and burdening the car parking area of the Showground land. The contract for sale was then completed.

A dispute arose as to whether the Club was obliged to continue payment of the annual licence fee to the Society for use of the car parking area. On 29 June 2015, Darke J in the Equity Division of the Supreme Court declared that the 1987 Deed remained in force and binding, and that the Club was estopped from contending that the operation of that deed had been altered by the sale of Lot 100 and the creation of the easement for parking. His Honour assessed the annual licence fees payable from 1 May 2010 onwards, and ordered the Council to do all acts and execute all documents necessary to release the easement.

The principal issues for determination on the appeal were as follows:

(i)   whether, by operation of the Environmental Planning and Assessment Act 1979 (NSW), s 28 and the Bankstown Local Environment Plan 2001, cl 7, the terms of any relevant development consent prevailed over or modified the effect of the 1985 Deed;

(ii)   whether, in any event, the relief granted by his Honour was excessive or unnecessary given the extent of the Society’s rights in respect of the Showground land;

(iii)   whether his Honour erred in his assessment of the annual licence fee

Beazley P (Bathurst CJ and Sackville AJA agreeing):

In relation to (i):

(1)   Absent a particular term or condition purporting to restrict or prohibit development, an agreement granting a leasehold interest in land does not of itself constitute a covenant, agreement or similar instrument purporting to restrict or prohibit development for the purposes of the Environmental Planning and Assessment Act 1979 (NSW), s 28 and the Bankstown Local Environment Plan 2001, cl 7. There was no such term or condition in the 1985 Deed. [69]-[73]

In relation to (ii):

(2)   It is well established that a grantor must not derogate from grant. The principle of non-derogation from grant operates such that a lessor may not take away the means of enjoying that which has been granted. [82]-[83]

Palmer v Fletcher (1662) 1 Lev 122; 83 ER 329; Wheeldon v Burrows (1879) 12 Ch D 31 at 49; Birmingham Dudley and District Banking Company v Ross (1888) 38 Ch D 295 at 312.

(3)   The principle of non-derogation from grant, in relation to leasehold interests, is appropriately conceptualised as an implied covenant or agreement by the lessor not to do anything to disturb or derogate from the lessee’s entitlements under the lease. The scope of this covenant will always depend on the scope and terms of the relevant grant. [84]-[89]

O’Keefe v Williams [1910] HCA 40; 11 CLR 171 at 191-192, 211; Browne v Flower [1911] 1 Ch 219 at 22; Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1 at 10; Nordern v Blueport Enterprises Ltd [1996] 3 NZLR 450 at 455; Project Blue Moon Pty Ltd v Fairway Trading Pty Ltd [2000] FCA 127 at [11]; Harmer v Jumbil (Nigeria) Tin Areas Ltd [1921] 1 Ch 200 at 226.

(4)   The grant by a lessor of an interest in land, such as an easement for parking burdening the leased land and contrary to the lessee’s entitlement to exclusive use of that land, will constitute a derogation from grant. [90]-[92]

In relation to (iii):

(5)   The role of an appellate court in reviewing questions of assessment is a limited one, such questions being a matter of estimation and not precise calculation. An appellate court will not be justified in substituting its own opinion unless satisfied the court below acted on a wrong principle of law or the assessment was entirely erroneous. [108]

Commissioner of Taxation (Cth) v St Helens Farm (ACT) Pty Ltd [1981] HCA 4; 146 CLR 336 at 381.

Judgment

  1. BATHURST CJ: I have had the advantage of reading the judgment of Beazley P in draft. I agree with the orders her Honour proposes and with her Honour’s reasons.

  2. BEAZLEY P: This is an appeal from orders and declarations made by Darke J in the Equity Division of the Supreme Court on 29 June 2015 concerning an area of land known as the Bankstown Showground: Chisholm v The Bankstown Trotting Recreational Club Ltd [2015] NSWSC 597.

  3. Darke J found that in creating an easement benefitting certain land owned by the appellant, the Bankstown Trotting Recreational Club Ltd (the Club), and burdening certain land in which the Bankstown Harness Racing & Agricultural Society (the Society) was interested, the fourth respondent, Bankstown City Council (the Council), had derogated from the rights it had granted to the Society under a deed executed in 1985 (the 1985 Deed). His Honour ordered both the Council and the Club to do all acts and execute all documents as were necessary to remove the easement.

  4. Darke J also found that both the Club and the Council engaged in misleading or deceptive conduct contrary of the Trade Practices Act 1974 (Cth), s 52, in relation to the preservation of the Society’s rights to a licence fee under a deed executed in 1987 (the 1987 Deed), which his Honour found remained enforceable. His Honour, at the request of the parties, assessed the licence fee payable rather than requiring that that matter be the subject of arbitration pursuant to the terms of the 1987 Deed.

  5. The declarations and orders made by his Honour were, relevantly, as follows:

“1.   Declares that the Deed entered into on 30 October 1987 (‘the 1987 Deed’) between the Bankstown Harness Racing and Agricultural Society (‘the Society’) and the Bankstown Trotting Recreational Club Limited (‘the Club’) remains in force and binding upon the parties;

2.   Declares that the Club is estopped from contending that by reason of the sale of Lot 100 in Deposited Plan 1135000 to it by Bankstown City Council (‘the Council’) and/or the grant of the easement for parking to it by the Council over Lots 1 to 9, and Lots 101 and 102 of DP 11028, the legal effect of the 1987 Deed has been altered, or that any sums that would otherwise be due have been reduced or extinguished;

3.   Declares that the Annual Licence Fee to be paid by the Club to the Society, pursuant to the 1987 Deed for the period from 1 May 2010 to 31 October 2012 (excluding the N.H. Truer Memorial Sponsorship) is $187,080.00 plus GST;

4.   Declares that in respect of the period from 1 November 2012 to 31 October 2017 the Annual Licence Fee under the 1987 Deed (aside from the component for race sponsorship) is $180,000.00 plus GST;

5.   Orders that the Bankstown City Council (‘the Council’) do all acts and execute all documents as are necessary to release the easement reference DP 1135000 from the land described in Certificate of Title reference 101/1135000;

6.   Orders that simultaneously with order 5, the Club do all acts and execute all documents as are necessary to remove easement reference DP 1135000 from the subject land;

….”

  1. The details of the respective arrangements effected through various deeds between the parties are discussed in detail below.

  2. Although the Club’s amended notice of appeal identified some 31 grounds of appeal, as the appeal was argued, three principal questions emerged:

  1. First, whether by operation of the Environmental Planning and Assessment Act 1979 (NSW) (the EPA Act), s 28, and the Bankstown Local Environment Plan 2001 (the LEP), cl 7, the terms of any development consent prevailed over, or modified the effect of, the 1985 Deed;

  2. Secondly, whether, in any event, the relief granted was excessive or unnecessary given the extent of the Society’s rights in respect of the Showground land under various deeds that had been entered into by the parties. An aspect of this issue was whether the creation of the easement derogated from the Society’s interests under the 1985 Deed;

  3. Thirdly, whether his Honour erred in his assessment of the annual licence fee for the five year period commencing 1 November 2012.

  1. The Club also contended that his Honour erred in determining the amount of licence fees payable by the Club to the Society in the period prior to 2012 and in the further period 2012-2017.

  2. The Club did not challenge the validity of the 1987 Deed. Nor did it challenge the declaration that it was estopped from contending that, by reason of the sale of Lot 100 or the grant of the easement, the legal effect of the 1987 Deed had been altered or that any sums due under that Deed had been reduced or extinguished.

  3. The first issue in particular and the second issue were not strictly in contention in the Court below. However, whilst objecting to the Club raising different arguments on the appeal, senior counsel for the Society nonetheless responded to the arguments.

Background facts

  1. The Bankstown Showground, or the Bankstown City Paceway, as it is also known, comprises an area of land in Bankstown containing a trotting track, a grandstand, a club house and various associated facilities (the Showground land). Prior to March 2009, the Council was the registered proprietor of the entirety of the Showground land. So far as is necessary to understand these reasons, the Showground land, as described by Darke J, at [2], was comprised:

“… Initially, … of 26 lots in Deposited Plan 11028. Later, following a sub-division, it consisted of 13 lots in Deposited Plan 11028 (on the Eldridge Road side) and 12 lots in Deposited Plan 1096486 (on the Milperra Road side).”

  1. Over many years, the Council, the Society and the Club had entered into various deeds relating to the occupation of the Showground land.

Agreements as between the Council and the Society

  1. By a deed dated 15 September 1953 (the 1953 Deed), the Council granted to the Society a “licence”, for a term of 20 years, with an option of renewal for a further 20 years, to exclusively use part of Lots 1 and 3 and Lots 4 to 13 inclusive and part of Lots 14 to 26 inclusive in DP11028 of the Showground land for certain specified purposes. The 1953 Deed provided for the payment of an annual fee and made the Society’s rights subject to the Council having a right of entry and general control of the Show ground land pursuant to cl 19 of Ordinance No 48 of the Local Government Act 1919 (NSW).

  2. By a deed dated 18 March 1963 (the 1963 Deed), the Council extended the period of the Society’s licence to a total period of 45 years from 1 April 1953 so as to provide for an expiry date of 1 April 1998. The term was extended to 1 April 2031 by a further deed between the Council and the Society dated 1 September 1972 (the 1972 Deed).

Agreements as between the Council, the Society and the Club

  1. On 15 November 1961, a deed was entered into between the Council, the Society and the Club. Under this deed, the Society, with the consent of the Council, granted the Club a “sub-licence” in respect of a portion of the Showground land, namely, Lots 12 and 13 in DP11028 for a period of 12 years with an option for a further 20 years. The purpose of the sub-licence was to permit the Club to erect premises to be used as a recreational club (the club house).

  2. By further deeds dated 7 June 1965, 29 March 1973 and 27 July 1977 entered into between the Council, the Society and the Club, the term of the Club’s sub-licence was extended. Ultimately, the sub-licence had an expiry date of 1 April 2031, being the same date as the expiry of the Society’s licence under the 1972 Deed. However, the sub-licence came to an end when the Club subsequently acquired the newly created Lot 100 from the Council following a subdivision of Lots 10-13 in DP11028 to create Lots 100, 101 and 102 in DP113500. The creation of Lot 100 and the Club’s acquisition of it is examined in detail below.

  3. By the 1985 Deed between the Council, the Society and the Club, the Council granted to the Society a lease of the same land subject of the licence first granted to the Society pursuant to the 1953 Deed, until 1 April 2031, on the existing terms and conditions of the 1953, 1963 and 1972 Deeds, but subject to the terms of a Ministerial approval (which was duly granted). The primary judge, by the first Declaration, declared that the 1985 Deed remained in force and was binding on the parties. The relevant terms of the 1985 Deed are referred to below.

  4. There was no issue on the appeal that the deeds between the Council and the Society, culminating in the 1985 Deed, operated so as to grant to the Society an interest in land.

Agreements as between the Society and the Club

  1. On 30 October 1987, the 1987 Deed was entered into between the Society and the Club. By this deed, the Society granted to the Club a non-exclusive licence of a portion of land adjacent to the land already subject of the sub-licence to the Club, for the purposes of car parking. The licence granted by the 1987 Deed was in respect of Lots 1, 2, 3, 4, 5, 6, 7, 8 and 9, and part of Lot 10 and was described in the Deed to “henceforth form part of the Sub-Licence”, first granted to the Club by the 15 November 1961 Deed.

  2. The 1987 Deed also provided for the Society to consent to the undertaking of certain improvements to the Club premises, for Club advertising on the trotting track infield; and certain guaranteed viewing rights from the Club premises. By cl 6 of the 1987 Deed, the Society guaranteed certain rights of free entry to its leased land to Club members.

  3. Clause 7 of the 1987 Deed concerned the annual licence fee payable by the Club to the Society. For five years from the date of execution, the Club was required to pay $150,000 per annum quarterly in arrears, as well as an amount of $50,000 per annum in sponsorship of a race selected or created by the Society. Thereafter, and until the expiry of the licence, the annual licence fee payable was subject to review, with “a fair and reasonable sum considering all the relevant circumstances” to be determined by negotiation between the Club and the Society: cl 8. If agreement could not be reached prior to three months from the expiration of the relevant five year period, provision was made for the licence fee to be determined by an arbitrator: cl 8.

  1. In the years following the execution of the 1987 Deed, various agreements were reached as to the annual licence fee. For the five year period commencing 1 November 1992, the agreed fee was $165,000, not including the $50,000 sponsorship fee. This was increased to $187,080 for the five year period commencing 1 November 1997. For the three year period commencing 1 November 2002, the annual licence fee was agreed at $187,080 plus GST. The same annual licence fee was paid until about May 2010, when payments ceased. The Club rejected a request by the Society for the annual licence fee to be raised to $224,496 plus GST for the period from 1 November 2005 to 31 October 2010.

The Club’s 1992 Development Consent

  1. On 16 April 1992, the Council granted Development Consent to the Club to carry out “internal alterations and additions to auditorium and poker machine areas subject to specified conditions”. Insofar as is relevant to the present matter, condition (b) required that provision be made for a minimum of 677 car parking spaces, with a requirement that a total of 545 spaces were to be constructed immediately and the Council reserving the right to require car parking up to 677 spaces should the 545 spaces prove inadequate.

  2. On 31 July 2006, condition (a) was modified so as to require, inter alia, provision of a parking study. Condition (b) was also amended so as to reduce the required number of car parking spaces to a minimum of 361. It will be convenient, however, to refer to the consent, as modified, as the 1992 development consent.

The Club’s acquisition of Lot 100 and the impugned easement

  1. In late 2002, discussions took place between the Society and the Club concerning the possibility of the Club purchasing a portion of the Showground land from the Council, comprising the area upon which its club house was built, being Lots 12 and 13, together with an area extending 50 m from the western wall of the club house. Subsequently, it was agreed that the 50 m extension be reduced to 35 m.

  2. The Society was willing to give its consent to the purchase upon the condition that its rights under the 1985 lease from Council and its entitlements to the payment of the licence fee by the Club under the 1987 Deed would not be altered. These concerns were expressed in a joint letter of the Society and the Club to the Council, dated 30 June 2003, as follows:

“It is important to the viability of this Club and its future that some security of tenure of the land occurs. It is the ongoing success of the Club which will play a big part in the ongoing success of the Harness Racing [Society] as a major sponsor and source of significant revenue for the rent. The consent of all parties would be required, and the Harness Racing Society would want to ensure that such a purchase and the cessation of the sublease would not affect the validity of the main lease, or the terms of the lease. This is the most critical issue for them.”

  1. The rent referred to was the licence fee paid under the 1987 agreement, a large portion of which accounted for car parking, and which had been outlined to the Council in an earlier paragraph of the letter. The reference to the sublease was a reference to the sub-licence to the Club referred to at [15]-[16] above.

  2. On 14 April 2004, the Council wrote to both the Society and the Club, indicating that on the advice it had obtained, there was no impediment in the 1987 Deed to the land being sold, but that the proposed sale would require the consent of the Society and appropriate reclassification and rezoning.

  3. On 29 July 2004, the Society wrote to the Council stating that a motion had been passed at its extraordinary general meeting for the sale to proceed. The Society stated that its consent was conditional on the sale not affecting its lease with the Council, save as to the area the subject of the sale. The records of the extraordinary general meeting were made available to the Council, and on the evidence of the Council’s General Manager, it was the Council’s understanding that the Society’s consent was conditional on there being no change to the lease as between the Council and the Society, nor to the licence between the Society and the Club in respect of the car parking area.

  4. Thereafter, negotiations proceeded between the Council and the Club concerning the proposed purchase of Lots 12 and 13. The report of the Council’s General Manager noted that the existing car park used by the Club, pursuant to the licence with the Society, contained 406 spaces

  5. On 23 March 2007, the Council’s Group Manager of Strategy and Governance wrote to the President of the Club outlining the proposal that would be put to the Council for decision. That proposal contained six conditions, including a requirement for the continued leasing of the area already used by the Club as a car park, insofar as that area fell outside the land the subject of the sale.

  6. At a board meeting of the Club on 28 March 2007, a resolution was passed to the effect that the board had examined the six conditions and endorsed the proposed purchase subject to Council approval. A letter to the same effect was sent to the Council advising of the resolution.

  7. On 24 April 2007, the Council resolved to approve the proposed sale, subject to the six conditions previously outlined to the Club, together with three additional conditions. The General Manager of the Council wrote to both the Society and the Club on 30 April 2007 advising it had approved the proposal. Thereafter, the Council commenced the process of reclassifying the land subject of the sale under the Local Government Act 1993 (NSW) from “community land” to “operational land”.

  8. The proposed sale required a subdivision of part of Council’s land. However, the proposed subdivision had the effect that the Club’s car parking spaces required under its 1992 development consent would be located “off-site” in the sense that Lot 100, which had been previously owned by the Council together with the car park land, would now be in separate ownership.

  9. To ensure compliance with the Club’s development consent, it was suggested that it would be necessary that access to the car park be secured on the title of Lot 100. One proposal to achieve this was by way of a restriction on the title. Mr Woodward, a Council officer dealing with the matter on behalf of the Council, explained in his affidavit evidence that by this, he meant an instrument under s 88B of the Conveyancing Act 1919 (NSW) and that he regarded an easement as another means of securing compliance with the development consent.

  10. At the time that Mr Woodward advanced this proposal, he was not aware of the various arrangements between Council and the Society and the Society and the Club.

  11. A draft plan and s 88B easement were prepared, providing for the new Lot 100, and for that lot to have the benefit of an easement for parking over the remainder of the lots that were subject of the 1985 lease and the sub-licence to the Club under the 1987 Deed. The terms of the proposed easement required the proprietor of the lots burdened to permit the area to be used for parking, and the proprietor of the lot benefited was to be responsible for the maintenance, upkeep and ongoing expense of the existing car parking facilities. The Council was named as the authority having the power to release, vary or modify the easement.

  12. On 11 March 2009, the Plan of Subdivision of Lots 10-13 in DP 11028 was registered so as to create Lots 100, 101 and 102 in DP1135000. On the same date, a s 88B instrument was registered creating an easement for parking in favour of Lot 100 in DP1135000 over land including Lots 1-9 in DP11028 and Lots 101and 102 in DP113500, that is, over the car park area to the west of the club house that was the subject of the 1987 Deed whereby the Society granted a non-exclusive licence of the car park area to the Club.

  13. The contract for sale for the purchase was completed on 30 March 2009.

Other relevant matters

  1. According to the minutes of a meeting between the Society and the Club held on 4 November 2009, the Club’s President reaffirmed the Club’s “commitment to continue rent money for the car park”. However, the last payment of the licence fee by the Club to the Society was made on 31 October 2010.

  2. On 21 September 2010, the Society wrote to the Council requesting removal of the easement. This request was declined by letter dated 20 October 2010. However, the Council indicated that the intent of the Council resolution in favour of the sale had been that the 1987 Deed would remain on foot.

Summary of arrangements relating to the Showground land

  1. In summary, the effect of these various arrangements was as follows. Pursuant to the 1953, 1965 and 1983 Deeds, the Society had a licence of the Showground land, which included part of Lots 1 and 3 and Lots 4-13 and part of Lots 14-26 in DP11028. Pursuant to the 1985 Deed, the Society’s rights in relation to the Showground land were described as a “lease” which was granted on substantially the same terms and conditions as those in the 1953, 1965 and 1973 Deeds, including a confirmation of the expiry date of 1 April 2031.

  2. By the 1961 Deed, the Society, with the consent of the Council, granted to the Club a sub-licence in respect of Lots 12 and 13, upon which a clubhouse had been built by the Club.

  3. By the 1987 Deed, the Society granted the Club a further sub-licence in respect of the car park area, viz, Lots 1, 2, 3, 4, 5, 6, 7, 8 and 9, and part of Lot 10. By the terms of the 1987 Deed, the sub-licences of Lots 12 and 13 and Lots 1-9 and part of Lot 10 were treated as part of the one sub-licence. Clause 7 provided for the payment of a licence fee to the Society.

  4. By cl 2 of the 1987 Deed, the Society agreed to consent to the Club’s current plans to carry out further improvements to the club house and facilities. This, in effect, was the consent to the 1992 development application, in respect of which the Development Consent required onsite parking.

  5. In order to facilitate the Club’s purchase of the land upon which the club house was situated, Lots 10-13 in DP11028 were subdivided so as to create new Lots 100, 101 and 102 in DP1135000. Further, an easement was created benefitting Lot 100 and burdening the Showground land that was still leased to the Society by the Council pursuant to the 1985 Deed and its predecessor deeds.

Section 28 of the EPA Act and cl 7 of the LEP

  1. Section 28 of the EPA Act provides as follows

“(1)   In this section, regulatory instrument means any Act (other than this Act), rule, regulation, by-law, ordinance, proclamation, agreement, covenant or instrument by or under whatever authority made.

(2)   For the purpose of enabling development to be carried out in accordance with an environmental planning instrument or in accordance with a consent granted under this Act, an environmental planning instrument may provide that, to the extent necessary to serve that purpose, a regulatory instrument specified in that environmental planning instrument shall not apply to any such development or shall apply subject to the modifications specified in that environmental planning instrument.”

  1. Clause 7 of the LEP provided, relevantly:

“For the purpose of enabling development to be carried out in accordance with this plan (as in force at the time the development is carried out) or in accordance with a consent granted under the Act, the operation of any covenant, agreement or similar instrument that purports to restrict or prohibit the carrying out of development on land to which this plan applies, to the extent necessary to serve the purpose, does not apply to any such development.”

Submissions

  1. Before the primary judge, an argument had been advanced that the 1987 Deed had been brought to an end by frustration because the Society no longer had the right to make an effective grant of a sub-licence to the Club. This was said to be because the Club required the easement for parking in order to remain compliant with the 1992 development consent, by which it remained bound. It followed on this argument that the combined effect of s 28, cl 7 and the terms of the 1992 development consent were such that the 1987 Deed no longer applied to the development.

  2. The primary judge, at [96], rejected the argument of the Club based on frustration. Rather than restricting development, the primary judge was of the opinion, at [97], that the 1987 Deed facilitated the development by giving the Club various rights, including the right to use the car park, albeit in return for a fee. His Honour noted the apparent acceptance by the Club that there would be no restriction on the Club’s continued use of the car park unless the Society asserted that it was entitled to prevent the Club from doing so, an assertion that his Honour understood was not made by the Society.

  3. On the appeal, the Club’s argument focussed on the rights conferred on the Society by 1985 Deed, rather than on the sub-licence it had been granted under the 1987 Deed. This re-focus was necessary given the Club’s acceptance of his Honour’s finding as to the validity of the 1987 Deed and his further finding that the Club was estopped from contending that the legal effect of the 1987 Deed was affected by reason of the Club’s acquisition of Lot 100 or by the grant of the easement for parking.

  4. The Club submitted that the effect of s 28 was to make a planning instrument operate in derogation of private agreements such that the planning instrument would prevail. That meant, in this case, that by operation of s 28 of the EPA Act, in conjunction with cl 7 of the LEP, the 1992 development consent prevailed over the rights of the Society under the 1985 Deed, to the extent that its terms and in particular the right under the 1985 Deed to exclusive possession, were inconsistent with the 1992 development consent requiring the Club to provide onsite car parking.

  5. The Club acknowledged, and indeed it was part of its argument, that the consequence was that if s 28 and cl 7 applied in a given case, those provisions operated to modify a person’s interest in land. There is clear authority for that proposition: see Jobson v The Owners – Strata Plan No 66870 [2015] NSWSC 776 at [75] per Darke J and the authorities cited therein.

  6. The Club submitted that the effect of s 28 and cl 7 in this case was that the rights of the Society deriving from the various deeds entered into with the Council, culminating in the lease granted by the 1985 Deed and which gave the Society exclusive possession including of the car park area, were rendered inoperative to the extent that they were inconsistent with the 1992 development consent.

  7. As part of the background to this argument, the Club submitted that that the 1992 development consent did not operate in personam so as to bind only the applicant for the development consent. Rather, the development consent ran with the land. The basis of this submission was not the subject of any elaboration. However, its import was that any land upon which the club house stood, which, following the subdivision, was Lot 100, was affected by all that attached to the development consent including the condition as to parking.

  8. It was then submitted that the easement for parking reflected the same rights that had been “granted” by the development consent. It followed, according to the Club’s argument, that the Society could not prevent development being undertaken in accordance with the 1992 development consent by insisting that it had rights of exclusive possession of the car park land pursuant to the 1985 Deed.

  9. The Club relied upon the decision of Darke J in Jobson as explaining the manner in which s 28 operates. In that case, the State of New South Wales had leased certain land which included a marina. The lessee transferred its leasehold interest to the Owners of SP 66870 (the Owners Corporation). The lease of the marina area later became part of the Owner’s Corporation property, pursuant to the provisions of certain Strata Scheme legislation. Twenty marina berths were sublet to the plaintiffs in the proceedings, who complained that the Owners Corporation was in breach of clauses of the sub-lease relating to their exclusive use of a number of car parking spaces.

  10. The question arose in Jobson as to whether provisions in the sub-lease constituted a “covenant, agreement or similar instrument imposing a restriction on the carrying out of [a] development” within the meaning of a clause of the relevant local environmental plan. The Owners Corporation contended that the clauses of the sub-lease relating to the car parking spaces were inconsistent with the terms of a development consent which required that all of the relevant car parking spaces be permanently available for use by all users of the residential, commercial and marina developments.

  11. The sequence in which various events occurred in Jobson was as follows. The initial lease of the marina was entered into by the State on 30 June 2000. Development consent for the construction of the strata plan development was given on 20 February 2002. It was a term of the development consent that the relevant car parking spaces were to be available for use by all users of the residential and commercial lots and the marina developments on the site. The relevant Strata Plans were registered in May 2002. The lease was transferred to the Owners Corporation on 21 June 2002. No date is given in the judgment as to the date of the sub-leases, although they appear to have been in existence from about the time of the initial lease.

  12. Darke J held at [74] that, on the proper construction of the development consent, the car parking spaces were to be permanently available for use by all users of the residential and commercial lots and the marina developments. His Honour concluded that the exclusive use provisions of the sub-lease were thus inconsistent with that condition of the development consent. At [77], his Honour held that the enforcement of the relevant provision of the sub-lease would operate to prevent the intended operation of the development consent, and would thus limit or inhibit the carrying out of the development in accordance with the consent. His Honour thus refused to enforce the provisions.

  13. The Club relied on this reasoning to support its contention that under the 1992 development consent it was entitled to use the car park land, such that the easement in favour of Lot 100 did not provide any greater rights, or otherwise derogate from the Society’s lease.

  14. The Club’s argument was that pursuant to s 28(2) and cl 7, the rights of the Society under the 1985 Deed were abrogated, or at least modified to the extent required to give primacy to the terms of the 1992 development consent and, in particular, to the requirement for onsite car parking.

  15. The Society submitted that the Club’s argument based on s 28 failed at the outset because the section requires the identification of a regulatory instrument that restricts development. The relevant regulatory instrument was identified by the Club as the 1985 Deed. The relevant development consent was the 1992 consent.

  16. The Society acknowledged that if a covenant contained an express prohibition, such as a prohibition on a certain type of development, for example, a factory, or upon the height of an adjoining building, the covenant, to that extent, would fall within the purview of s 28 and cl 7 if development consent was given for that type of building or for a height greater than the covenant. In line with this acknowledgement, there was effectively no dispute that the effect of s 28, in combination with cl 7, was that it would trump particular provisions of, relevantly for present purposes, a lease, if the effect of any provision of the lease restricted or prohibited development the subject of a consent.

  17. The Society submitted, however, that those provisions had no operation where there was nothing in the impugned instrument that had a relevant restrictive effect. The Society submitted that the Club had not been able to point to any provision of the 1985 Deed that purported to restrict or prohibit the carrying out of the development to which consent had been given. Rather, the only aspect of the 1985 Deed that the Club relied upon was the right to exclusive possession.

  1. The Society submitted that the mere ownership of rights under a lease, such as the right to exclusive possession, could not constitute a restriction or prohibition on development such as to be caught by the terms of s 28 and cl 7. It pointed out that if the Club’s argument was correct, it would mean that if a party needed to resort to the property of a third party who was not concerned in or with the development, in order to carry out development pursuant to the terms of a development consent, the refusal of the third party to make its property available would amount to a restriction with the consequence that, to that extent, the third party’s property rights would be invalidated.

  2. The Society also adopted the observation of the Chief Justice at the oral hearing that s 28 and cl 7 do not have continuous operation in respect of a development. Rather, they are directed to that part of the process where development was to be carried out.

  3. The Council effectively agreed with the submissions of the Society.

Whether the 1985 Deed restricted the carrying out of a development in accordance with the 1992 development consent

  1. The 1992 development consent required that provision be made for onsite car parking. There was no condition in the development consent requiring the Club to licence, or to pay or not to pay, for the use of any particular land so as to comply with the car parking conditions. Rather, it was a matter for the Club to determine how it was to achieve compliance with that condition. In fact, the Club was able to do so because it already had in place the licence granted under the 1987 Deed, which accommodated car parking onsite. Whilst the Club had used the car park land under various deeds commencing with the deed dated 15 November 1961 (see [15]-[19] above), the effect of the 1987 Deed was to regularise, as between the Society and the Club, the terms on which the Club was entitled to do so, including by the payment of a fee.

  2. Accordingly, I would reject the Club’s contention that pursuant to s 28 and cl 7, the lease granted to the Society by the 1985 Deed was rendered inoperative, or was invalidated in any respect, and its further contention that the Club had the right under the 1992 development consent to use the car park land regardless of the Society’s rights under the 1985 Deed.

  3. It follows, therefore, that the Society’s submission should be accepted. There was no term of the 1985 Deed that purported to restrict or prohibit the carrying out of any development. Rather, the 1985 Deed granted to the Society a leasehold interest in the land, subject to Ministerial approval and conditions of re-entry and control in favour of the Council, should there be breach, a failure to obtain relevant licences, or non-use for the purpose of conducting harness racing. There was also the provision for the payment of a licence fee and a race sponsorship fee. There were no restrictions or prohibitions in the deed that affected the terms of the 1992 development consent.

  4. To that extent, this case is different from Jobson in which the terms of the sub-leases providing for rights of exclusive parking were inconsistent with, and operated to prevent the intended operation of, the terms of the development consent providing that the car parking spaces be available for use by all users of the development.

  5. My conclusion that there was no restriction or prohibition in the 1985 Deed on the carrying out of the 1992 development consent including the condition in relation to onsite parking determines, adversely to the Club, this aspect of the Club’s appeal. Accordingly, the question as to the proper construction of s 28 and cl 7 does not arise for consideration. Given that the application of the legislative provisions to the 1985 Deed was not fully argued in the court below, if at all, and does not arise from the finding I have made, their construction and operation is better left to a case where they are directly in issue.

Extent of relief granted by the primary judge and derogation from grant

  1. The Club next contended that the orders made by Darke J requiring the Council and the Club to take all necessary steps to remove the easement provided relief to the Society that was more extensive than was necessary. This was so in circumstances where the Society’s interest in the land only extended until 2031, whereas the Club, or any registered proprietor of the newly created Lot 100, would continue to have the benefit of the easement unless released by the Council. The Club posited, in support of this submission, an argument that if a mortgagee of Lot 100 sold the land, the Society’s rights to the payment of a licence fee from the Club under the 1987 Deed would come to an end in any event.

  2. The Club made two principal submissions in support of its argument that the relief granted was more than the minimum relief required. First, it submitted that in circumstances where, pursuant to the Court’s orders and declarations, the Club was estopped from denying that it was bound by the 1987 Deed, that was a sufficient remedy to protect the Society’s interests and accordingly, the easement should remain on title. Secondly, the Club submitted that the Society had, pursuant to the 1987 Deed, already granted to the Club the rights that were conferred by the easement, that is, the right to car parking. It was integral to this submission that the 1992 development consent ran with the land. It was not asserted that a development consent creates an interest in land.

  3. It is convenient to deal with this last submission at this stage, so as to put it in context.

  4. It may be accepted that a development consent, and any conditions imposed, continue to govern the use that may be made of land until such time as some other consent is given, regardless of the ownership of the land at any particular time. This was made clear in Hillpalm Pty Ltd v Heaven’s Door Pty Ltd [2002] NSWCA 301, where it was confirmed that any transferee of a lot which had the benefit of a condition may enforce that condition: see Meagher JA at [13] and cases cited therein.

  5. Conversely, as Hodgson JA pointed out at [19], a person who makes use of land to which a development consent applies without complying with the conditions of that consent, will be in breach of the Act and may be subject to orders to rectify the breach. Thus, in this case, any owner of Lot 100 intending to use the Club land in accordance with the 1992 development consent must comply with the conditions of that consent, including the conditions as to onsite parking. Accordingly, the Club’s submission that the consent ‘runs with the land’ does not, of itself, advance its case.

  6. The Club’s submission on this issue was also an aspect of the Club’s submission that, contrary to his Honour’s finding at [193], the grant of the easement did not involve any derogation from the Council’s grant to the Society of an interest in land under the 1985 Deed. That question is dealt with below.

  7. The Society and the Council submitted that the Club’s contention, that the relief granted was more than was necessary to protect the Society’s interests, was flawed for two reasons. First, it assumed the Club would remain the owner of Lot 100 until 2031, the date of expiry of the 1985 and the 1987 Deeds. As the estoppel only bound the Club in personam, should the Club divest itself of ownership of the land, the estoppel would no longer operate to protect the Society’s rights to licence fees under the 1987 Deed. Secondly, it assumed that the Club would never be in breach of the 1987 Deed so as to give the Society the right to terminate it. Should that occur, the Society’s position would be the same as if the Club sold Lot 100.

  8. It followed on these submissions that his Honour’s orders were appropriate in the circumstances and did not provide excessive relief to the Society. The Society also contended that the relief granted by his Honour was pursuant to s 87 of the Trade Practices Act in respect of its misleading or deceptive conduct claim and the relief granted was a reasonable exercise of his Honour’s discretion.

Non-derogation from grant

  1. The principle of non-derogation from grant is long established: see, for example, Palmer v Fletcher (1662) 1 Lev 122; 83 ER 329. In Wheeldon v Burrows (1879) 12 Ch D 31 at 49, Thesiger LJ referred to the “maxim which is as well established by authority as it is consonant to reason and common sense … that a grantor shall not derogate from his grant”.

  2. The application of this maxim in relation to leasehold interests has also long been recognised: see, for example, Birmingham Dudley and District Banking Company v Ross (1888) 38 Ch D 295 at 312. Halsbury’s Laws of Australia, at [245-1185], states that it is first necessary to construe the terms of the lease. Once the terms are established, the principle of no derogation operates as a rule of law so that the lessor may not “take away the means of enjoying what has been given”.

  3. The operation of the maxim in respect of leasehold interests has been conceptualised in terms of an implied covenant of non-derogation on the part of the lessor in favour of the lessee. For example, Professor Butt, in the 6th Edition of Land Law at 322-323, provides the following explanation:

“This implied covenant is an application to the area of landlord and tenant of the general property and conveyancing law principle that a grantor must not derogate from the grant. Having given something with one hand, a grantor is not with the other to take away the means of enjoying it. In the present context, the landlord must not do or allow on the leased premises, or on other land under the landlord’s control, anything that is inconsistent with the purposes for which the premises are leased, unless the parties have expressly or impliedly agreed otherwise.” (citations omitted)

  1. This approach accords with the reasoning of the High Court in O’Keefe v Williams [1910] HCA 40; 11 CLR 171. That case concerned the purported grant of certain annual leases in derogation from the rights under certain occupation licences previously granted under the Crown Lands Act 1884 (NSW) and Crown Lands Act 1895 (NSW). Griffith CJ, Barton and Isaacs JJ, Higgins J dissenting, held that the Crown had breached an implied agreement not to derogate from the rights under the occupation licences, that breach sounding in damages. Griffith CJ explained the implied covenant of non-derogation in the follow terms, at 191-192:

“Every contract between subject and subject involves an obligation, implied if not expressed, that neither party shall do anything to destroy the efficiency of the bargain which he has made. The implied covenant or agreement for quiet enjoyment in the case of a demise of land is merely an instance of the application of this rule …

In my opinion, when one man is put in possession of land by another, full effect cannot be given to the intention of the parties without implying an obligation that the lessor shall neither disturb the possession himself nor authorize its disturbance by others.”

  1. To like effect, Isaacs J made the following observations, at 211:

“Now was or was not the act of re-letting the land, and thereby authorizing Malone to enter and take possession and exercise all the rights attached by the Statute to an annual lease, an act in derogation of the previous grant to O’'Keefe?

According to the principle laid down by Bowen L.J. in The Moorcock it was, because an exclusive right of possession connotes that the grantor will not attempt to interfere with it … Every exclusive licence or right imports a negative, and the person who confers it impliedly enters into a negative undertaking to do nothing to contravene it.”

  1. Though noting that the “precise limits of the non-derogation principle are unclear”, Professor Butt suggests that “[t]he scope of the covenant not to derogate is defined by the purpose for which the premises are leased”: Land Law, 6th Ed, 323. In Browne v Flower [1911] 1 Ch 219 at 226, Parker J spoke of the covenant of non-derogation as requiring that the grantor not “render the land granted or demised unfit or materially less fit for the particular purpose for which the grant or demise was made”. In the same vein, McPherson JA in Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1 expressed the view, at 10, that the law does not insist on practical frustration of the purpose of the lease in order to establish a breach of the lessor’s implied obligation. However, as Ellas J suggested in Nordern v Blueport Enterprises Ltd [1996] 3 NZLR 450 at 455, “[m]ere interference with convenience or amenities such as privacy or tranquillity … will not be sufficient to constitute a derogation from the grant”.

  2. It follows from the conceptualisation of the non-derogation principle in terms of an implied covenant that the operation of the non-derogation principle will always depend on the scope and terms of the relevant grant. Thus, the Full Court of the Federal Court observed in Project Blue Moon Pty Ltd v Fairway Trading Pty Ltd [2000] FCA 127 at [11]:

“Central to the extent of a lessor's obligation not to derogate from the grant is the ambit of the grant. The grant may reserve to the lessor the right to derogate, or may qualify or restrict the lessor's prima facie obligation not to derogate … Myers v Catterson illustrates the obvious proposition that whether in a particular case a grantor has derogated from the grant depends on the extent of the grant. Where the conduct of which the grantee complains is excluded from the grant or is reserved to the grantor, there will be no derogation.”

  1. This is the same point as was made in Halsbury to which reference has already been made, and, in slightly different way, by Younger LJ in Harmer v Jumbil (Nigeria) Tin Areas Ltd [1921] 1 Ch 200 at 226:

“The rule is clear but the difficulty is, as always, in its application. For the obligation laid upon the grantor is not unqualified. If it were, that which was imposed in the interest of fair dealing might, in unscrupulous hands, become a justification for oppression, or an instrument of extortion. The obligation therefore must in every case be construed fairly, even strictly, if not narrowly. It must be such as, in view of the surrounding circumstances, was within the reasonable contemplation of the parties at the time when the transaction was entered into, and was at that time within the grantor's power to fulfil. But so limited, the obligation imposed may, I think, be infinitely varied in kind, regard being had to the paramount purpose to serve which it is imposed.”

  1. In the present case, the Club accepted that, notwithstanding the use of the terminology “licence” in the Deeds prior to the 1985 Deed, the Council had granted to the Society an interest in land, whereby the Society had the right to exclusive possession of the land on the terms and for the period specified. Subsequently, the Society sub-licenced part of the land to the Club with the Council’s consent. The sub-licence was expressed to be personal to the Club and, apart from its contractual operation as between the Society and the Club, did not otherwise impinge upon, qualify or make conditional the right to exclusive possession of the land granted by the Council to the Society.

  2. The grant of an easement in favour of Lot 100 burdening the car park land derogated from the Society’s interest in the land, as it created an interest in land that was contrary to the Society’s exclusive use of the land pursuant to the terms of the lease. The matter is well illustrated by the argument advanced by the Society, namely, should the Club relinquish its ownership of Lot 100 for any reason, an incoming owner would have the benefit of the easement for car parking, thus derogating from the Society’s rights to exclusive use of the land until 2031 under the 1985 Deed.

  3. I consider, therefore, that there was no error in the primary judge’s finding that the easement involved a derogation from grant or in his order requiring the Council to take such steps as were necessary to release the easement.

The annual licence fee

  1. Clause 7(a) of the 1987 Deed provided for payment by the Club of an annual licence fee of $150,000 per annum fixed for a period of five years. Clause 8 provided that, for each succeeding five year period, the licence fee was to be “a fair and reasonable sum considering all relevant circumstances at the time”, to be determined by agreement or, should agreement not be reached, by an arbitrator. Licence fee increases were mutually agreed between the parties from time to time. The fee, as at May 2010, was $187,080 plus GST. The fee did not include the sum of $50,000 payable annually pursuant to cl 7(b) by way of sponsorship of the M H Treuer Memorial Race which was held yearly.

  2. The primary judge held that the Club was liable to pay a licence fee for the period from 1 November 2012 onwards. The parties had agreed that if the Club was liable to pay the licence fee, the amount could be fixed by the Court, rather than by appointing an arbitrator. His Honour accordingly embarked on that process. The Club however contended on the appeal that the primary judge erred in the amount determined as a “fair and reasonable sum”.

  3. His Honour observed, at [144], that a “fair and reasonable sum” is a different and broader concept from “market value” or “fair market value”: see MMAL Rental Pty Ltd v Bruning [2004] NSWCA 451; 63 NSWLR 167. His Honour noted, at [146], that the issue between the parties was the value to be attributed to the right conferred upon the Club to use the car parking area.

  4. Expert valuation evidence was adduced by both parties. His Honour, at [147]-[158], concluded that there were limitations in the approach taken by both valuers.

  5. His Honour’s criticism of each, and his determination of the licence fee, is best found at [162], where he stated:

“In my opinion, the approach taken by Mr Brady, which is confined to transactions involving land zoned Private Recreation or similar, is theoretically valid but suffers from the fact that the transactions relied upon either concern land that is markedly different in character or size from the subject land, or involve particular elements that may make the transaction unusual (e.g. purchase for speculative purposes, or related party transaction) or difficult to assess. Despite his adherence to the same zoning as the subject land, I consider that, in this case, the analysis of transactions undertaken by Mr Brady is less likely to reflect the reality than that undertaken by Mr Rhodes. I also note that, as was the case with Mr Rhodes, Mr Brady’s process of reasoning is somewhat opaque. In the light of the Pickles Auctions leases, and even treating the zoning of that land as equivalent to Industrial, I am unable to accept Mr Brady’s conclusion that the annual rental rate is $5.625/m². I regard that figure as far too low. In my view it would be appropriate to adopt an annual rental rate (before adjustments) of about $14/m².”

  1. The reference in this paragraph to the “Pickles Auctions leases” is a reference to the leasing of four contiguous parcels of land approximately 500 m from the Showground. The Pickles Auctions leases concerned land zoned “Special Uses – Aerodrome Purposes”, under which zoning the conduct of car auctions was a permitted use. The four lots were leased respectively at $16.14, $13.53, $14.26 and $7.21 per square metre, the last value reflecting the position of that lot being closest to the end of the runway and thus suitable only for car parking. The other lots had what was described as “substantial” buildings on them.

  2. His Honour assessed the area of the car park land the subject of the 1987 Deed to be 13,877 m2. That figure did not include an area of 843 m2 used as a horse thoroughfare in the middle of the car park area. Nor, I understand, did it include the land on which the Clubhouse was built and which became Lot 100. In this regard, the Club did not contend that the area of land determined by his Honour as the area upon which the assessment was to be based, was erroneous.

  1. His Honour also made adjustments to take into account various factors including the obligation on the Club under the 1987 Deed to maintain the car park area, and a small deduction to take into account the shared use of the car park by the Society. This resulted in a determination of an annual rental of $180,000 for the five year period from 1 November 2012. His Honour also took into account the value of the rights granted under the 1987 Deed of free entry to members to view races and to attend events and for the right to advertise. His Honour considered that those rights had little continuing value and ascribed only a nominal amount to them.

The Club’s submissions

  1. The Club submitted that the primary judge erred in point of principle in two respects. First, it contended that his Honour erred in accepting the approach of Mr Rhodes, the Society’s valuer. Mr Rhodes had based his valuation on properties with different zoning to the Showground land, which was zoned “Private Recreation” and, in particular, properties with industrial zoning. The Club pointed out that the Council would not permit a rezoning until 2031.

  2. In support of its first contention, the Club’s principal challenge to his Honour’s reasoning process was his reliance on the Pickles Auctions leases. The Club’s criticism was that his Honour had taken a value proximate to the average of the three higher figures, to which reference is made in [98], whereas the more comparable figure was the figure for the lot that was suitable for use as car parking only and which attracted the lowest value.

  3. Secondly, the Club submitted that his Honour erred in failing to take into account that benefits previously enjoyed by the Club, such as free entrance to its members on race days and for functions and the like had been withdrawn in 2011. It is to be noted that his Honour stated that these rights had been little used, not that they had been withdrawn. However, nothing would appear to turn on this difference.

  4. The Club contended that these rights had a value which had been reflected in the licence fee that had previously been mutually agreed between the Club and the Society and that any licence fee struck for the period after that needed to be reduced accordingly. The Club also submitted that his Honour should have made more substantial adjustments to the gross square metre value at which he had assessed the licence fee. In particular, the Club submitted that his Honour should have made a greater adjustment for the Club’s obligation to repair under the terms of the sub-licence and for the fact of shared use of the car parking area.

The Society’s submissions on the licence fees

  1. The Society submitted that there was no error in the primary judge's approach to the determination of the licence fee and that his Honour had, in effect, adopted an approach advanced by the Club’s valuer, Mr Brady, in the joint report. That approach was based upon a “deprival value concept”, which, in essence, determined value according to the value to the Club of its rights under the 1987 Deed. Under that approach, Mr Brady examined the extent to which the Club was better off because it had access to the car park, and the amount the Club would be prepared to pay to lease the car park if it did not already have access to it.

  2. It needs to be noted that Mr Brady, in the joint report, based his assessment on a view of the Club’s needs as requiring 133 car spaces, as he was unaware of the condition of the development consent requiring 361 car spaces. Leaving that aside for the moment, on that approach, Mr Brady applied a rate of $15 per square metre. Mr Brady then made a number of adjustments, including a reduction of 50 per cent for shared use. The resulting licence fee calculated by Mr Brady was $45,429 per annum, net of GST and statutory outgoings. That figure reflected Mr Brady’s misunderstanding of the area of the car park. That error may be disregarded, as the relevant figure for present purposes is the rental value of the land per square metre.

  3. The Society submitted that the figure of $15 per square metre, arrived at by Mr Brady, was not so dissimilar from the figure of $14 per square metre adopted by his Honour before making adjustments. The Society further submitted that the deduction for shared use made by his Honour was not shown to be in error on a “fair and reasonable” approach, given that, on the evidence, the shared use rarely resulted in a shortfall in the availability of parking for the Club’s use. The Society further submitted that his Honour made appropriate adjustments for the Club’s obligation to maintain the car park. In this regard, there seemed to be no dispute between the two valuers that it was appropriate for such an adjustment to be made. His Honour’s adjustment was based on figures that had been adduced in evidence.

Consideration

  1. The role of an appellate court in reviewing questions of valuation is a limited one. As Mason J made clear in Commissioner of Taxation (Cth) v St Helens Farm (ACT) Pty Ltd [1981] HCA 4; 146 CLR 336 at 381:

“[O]n a question of valuation an appellate tribunal is not justified in substituting its own opinion for that of the court below unless it is satisfied that the court below acted on a wrong principle of law or that its valuation was entirely erroneous. As with the assessment of damages, especially in personal injury cases, the valuation of property by a court has many of the characteristics of a discretionary judgment. Valuation is a matter of estimation, not of precise mathematical calculation. It certainly involves the making of a value judgment in the metaphorical as well as the literal sense.” (citations omitted)

  1. The Court was directed to a number of authorities relating to the valuation and determination of rental rates, and in particular, the relevance of market value where the relevant inquiry is couched in terms of reasonableness. Given the principles of review just stated, and the differences in text and circumstance in those cases, they need only be considered briefly.

  2. The Full Court of the Supreme Court of Victoria in Email Ltd v Robert Bray (Langwarrin) Pty Ltd [1984] VR 16 considered a rent review clause also framed by reference to ‘reasonable rent’. The Full Court noted, at 21, that there was “no warrant for construing ‘reasonable rental’ as ‘market rental’”, and expressed the view that “reasonable rental” meant “a rental which is reasonable in the light of all the relevant circumstances”.

  3. This Court considered an option to acquire shares at a ‘fair market value’ in MMAL Rental Pty Ltd v Bruning [2004] NSWCA 451; 63 NSWLR 167. Spigelman CJ commenced his analysis of the meaning of that term with the following observations as to the wider term “fair value” at [52]:

“There are a number of contractual, statutory and accounting standards contexts in which the administration of justice must determine the ‘fair value’ of property. The meaning of that formulation will vary with the context. In some contexts the formulation refers to what is just or equitable in all the circumstances. In such a case the scope of the relevant considerations which may be taken into account by the requisite decision-maker, whether an arbitrator or a judge, is wide.”

  1. His Honour went on to reject the application of that wide approach to the language there in question, that of “fair market value”.

  2. In TX Australia Pty Ltd v Broadcast Australia Pty Ltd [2012] NSWSC 4, Brereton J gave consideration to a contractual provision for the determination of a “reasonable fee” for access to and use of certain broadcast transmission towers. His Honour rejected, at [60], an argument that the expert nominated to determine the fee could do so on the basis of the monopolist position of the party entitled to payment of the fee. In so doing, his Honour expressed the following views:

“In this case, ‘reasonable’ does work similar to that attributed to ‘fair’ by Spigelman CJ in MMAL v Bruning, suggesting that the valuation should proceed on the assumption, which may be contrary to the facts of the particular relationship, that there is no impediment to or constraint on the process of bargaining, arising from the characteristics of a particular vendor or purchaser.”

  1. Although it is apparent that his Honour, in general terms, had regard to the Pickles Auction lease figures, he did so in a ‘broad way’, in circumstances where the experts were unable to adduce evidence of directly comparable leasing figures, particularly because any land that was zoned “Private Recreation” was, as his Honour observed at [162], markedly different in character or size from the Showground land or because the figures concerned transactions of a different character, such as a purchase for speculative purposes. My view is reinforced by the fact that the Club's own valuer derived a value not dissimilar to that determined by his Honour.

  2. It follows, in my opinion, notwithstanding the initial attractiveness of the Club’s argument that his Honour had apparently erred in failing to take into account, or failing to sufficiently take into account, the more comparable leasing figure for the lot of the Pickles Auction site proximate to the runway, I am satisfied that there was no error in his Honour’s determination of a “fair and reasonable licence fee”.

  3. His Honour accepted the reasonableness of a downward adjustment in respect of the Club’s obligation to repair. The Club had submitted that an appropriate adjustment was $20,000 per annum. That amount, as his Honour noted at [164], was based on Mr Brady’s assessment of an assumed capital cost of $825,000, depreciated at a per annum rate of 2.5 per cent, implying that contributions of just over $20,000 should be made annually to a sinking fund.

  4. His Honour also noted, at [166], that the Club had spent approximately $400,000 to seal the car park area in the 1990s, that being a condition of the development consent. In this regard, cl 2(f) of the 1987 Deed provided that the Club would bear the cost of compliance with conditions imposed in relation to any improvements it wanted to make. His Honour observed that there was no evidence before him that the Club would be likely to reseal the area. The only other evidence before his Honour was that the Club spent approximately $11,000 per year on maintaining the car park and gardens and landscaping.

  5. Accepting that some deduction was warranted, his Honour considered that an amount of $15,000 was reasonable. Given the nature of the assessment task that his Honour was undertaking and the $20,000 figure suggested by the Club, there was no error of principle in this assessment.

  6. Mr Brady had also included in his valuation a downwards adjustment of $17,383, based on 50 per cent of assumed operating costs, which included a sum of $10,000 per annum as the depreciated cost of the $400,000 spent sealing the car park in the 1990s. Mr Brady’s rationale for this adjustment was that the Club only had shared use of the car parking area.

  7. By contrast, Mr Rhodes did not consider there should be any discount for the non-exclusive use of the car parking area because both the Club and the Society were able to use the land to the full extent that each required.

  8. His Honour, at [167], considered that a small deduction only should be made for the fact that the Club did not have exclusive use of the car parking area. His Honour observed that the evidence showed that the shared use rarely caused inconvenience to the Club or its members. Accordingly, his Honour made a small deduction of $5,000 for this factor.

  9. Again, in circumstances where his Honour took into account the evidence adduced by both parties and considered the bases upon which the parties’ respective valuers had ascribed a particular value to the adjustment to be made, no error of principle has been demonstrated in his determination.

  10. Finally, on the question of the adjustment, if any, that ought to be made for the fact that the Club no longer enjoyed benefits of free entry for members to events and for free advertising, his Honour, at [170], observed that those rights were still available but little used. For that reason, his Honour ascribed little value to them, as has already been stated. Again, no error of principle has been demonstrated.

  11. The Club also contended that his Honour erred in failing to take into account, in the assessment of the fair and reasonable licence fee, the sum of $50,000 to be paid by the Club to the Society pursuant to cl 7(b) of the 1987 Deed. The Club submitted, in its reply submissions, that whether the sum of $50,000 was payable in respect of the race sponsorship was a question of construction of cl 7. As I understand the point being made, it was that as a matter of construction of cl 7 as a whole, the sponsorship amount in cl 7(b) was part of the calculation of the amount payable under cl 7(a), and was not an additional amount that was to be paid.

  12. The Society submitted that this contention was outside the controversy litigated between the parties before the primary judge. The Society submitted that at first instance, there was no dispute regarding the obligation to pay the sponsorship sum in respect of the M H Treuer Memorial Race, and that, as his Honour observed at [145], the parties accepted that the appropriate sum for the sponsorship remained at $50,000 and that the controversy between the parties concerned the appropriate rate in relation to the other component of the Annual Licence Fee in cl 7(a).

  13. Clause 7 provided that in consideration for the rights and benefits conferred by the 1987 Deed, the Club agreed to pay an annual licence fee comprised of two components. First, in accordance with cl 7(a) a per annum amount which, as at the date of the Deed was $150,000, as indicated earlier in these reasons, and which was subsequently adjusted. Secondly, in accordance with cl 7(b), the amount of $50,000 per annum sponsorship for the M H Treuer Memorial Race. The two clauses are joined by the conjunction “and”. In my opinion, leaving aside whether there was any issue as to the payment of the sponsorship monies before the primary judge, on the clear construction of cl 7, the sponsorship payment was in addition to the licence fee payable under cl 7(a). Accordingly, I would reject this aspect of the Club’s argument.

  14. In summary, therefore, I would reject those aspects of the Club’s appeal that challenge his Honour's determination of the fair and reasonable licence fee for the period from 1 November 2012.

Costs

  1. A question arose in the course of the appeal as to whether the Club, if not successful on the appeal, should be liable for the costs of the Council. The Council was properly joined as a party to the appeal. However, the true contradictor was the Society. On the face of it, it would appear that the Council could, in the circumstances, have filed a submitting appearance. In the circumstances, I do not propose to make an order for costs in the Council’s favour. Should the Council wish to claim costs, it may make an application under the Uniform Civil Procedure Rules 2005 (NSW), r 36.16(3A).

  2. The orders I propose are:

(1)   Appeal dismissed;

(2)   The appellant to pay the first, second and third respondents’ costs of the appeal.

  1. SACKVILLE AJA: I agree with Beazley P.

**********

Amendments

05 October 2016 - Coversheet, date of judgment corrected

Decision last updated: 05 October 2016

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