Cobai Pty Ltd v The Commissioner of Land Tax
[1999] QLC 57
•31 May 1999
|
BRISBANE
31 May 1999
Re: Appeal against Assessment No 185076 for
Land Tax on land owned at midnight on
30 June 1996.
(A98-36).
Cobai Pty Ltd
v.
The Commissioner of Land Tax
D E C I S I O N
This is an appeal by Cobai Pty Ltd against the assessment of land tax by the Commissioner of Land Tax on land which the Commissioner alleges was owned by it at midnight on 30 June 1996. Cobai denies that it was the owner of that land.
Background:
The background to this appeal was largely provided by the parties’ statement of agreed facts and documents and the evidence of Mr Peter Nash, a director of the appellant company.
Cobai Pty Ltd is a company incorporated in Queensland, with its registered office in Brisbane. At all material times it was acting as trustee of the JJ Trust and in its capacity as trustee, Cobai was the registered proprietor of 12 lots of land (the subject lots) situated at Robina North.
Between 11 March 1996 and 17 May 1996, Cobai (acting as trustee) entered into twelve separate joint venture agreements with Burns Constructions Pty Ltd (the builder) to construct residences on the subject lands. Each of the joint venture agreements is headed “Joint Venture Agreement to Construct a Residence” and in each of them the appellant company is called “Cobai” and Burns Constructions Pty Ltd is called the “Builder”. Clause 1(a) states:
“In consideration of the payment of the bond and the mutual benefits of the parties, Cobai and the Builder agree to enter into a Joint Venture for the purpose of constructing a single unit residence on the property and selling the property so improved.”
In accordance with clause 1(b), the residence is to be erected within four months from the date of the joint venture agreement in accordance with the covenants contained in two annexures. The sub-clause continues:
“…and reference to the word ‘Purchaser’ in such Annexures shall be read as reference to the ‘Builder’. ”
Clause 1(c) sets out how the proceeds of the sale of the improved property are to be distributed. Cobai was to receive from the proceeds of sale (after payment of sales expenses) not less than the value of the property as set forth in the agreement, less Cobai’s legal expenses. The builder was to receive the balance of the sale proceeds.
The builder was responsible for the proper construction of the residence and any claims by the buyer of it for any defects (clause 1(d)). Clause 1(e) states that “The sale of the improved property will be effected by the parties at a price mutually agreed upon or failing agreement as nominated by the Builder provided that such price nominated by the Builder shall be in excess of the total of the amounts set forth in Clauses 11(d)(i), (ii), (iii) and (iv).”
Clause 2(a) provides for a bond to be paid by the builder to Bowdens Solicitors as stakeholder and to be retained until the date of completion of the sale of the property, “when the bond (or so much thereof as may remain) shall be accounted to the Builder”. The bond was to be held by way of security against the builder discharging its obligations (clause 2(b)) and clause 2(c) provides that:
“The stakeholder shall retain the bond until completion or earlier determination of this Agreement whereupon the stakeholder shall apply the bond in the manner and to the parties entitled thereto pursuant to this Agreement”.
Clause 3 states that possession of the property is given by Cobai and taken by the builder on the date of the joint venture agreement.
The builder agreed to comply with the procedures and conditions set forth in the two annexures in respect of the development of the property and the construction of the residence (unless waived or varied by Cobai) (clause 4). Prior to entering upon the property, the builder at his cost, was to effect a “contractors all risks” insurance policy and public liability insurance in the joint names of Cobai and the builder (clause 5).
The builder agreed (clause 6) that the construction of the residence would be completed prior to a specified date (four months from the date of the joint venture agreement in each case), and arrange (clause 11(a)) for the sale of the property and all improvements thereon prior to a “cut-off date” 17 weeks from the date of the joint venture agreement in each case.
Clause 11(b) states that “Cobai warrants that it is the registered proprietor of the property and Cobai and the Builder agree to enter into Cobai’s then standard form of Contract of sale for Joint Venture homes for the sale of the improved property and to sign and complete all such other documents and to do all such acts as may be necessary to complete such sale.”
Clause 11(c) states as follows:“If the Builder is unable to obtain a sale of The Project by the ‘cut-off date’ shown in Item H of the Schedule, there shall on that day come into being a contract for the sale and purchase of The Project between Cobai as Vendor and the Builder as Purchaser on the following basis:
(i)the terms and conditions contained in Cobai’s then standard contract for sale of unimproved land shall apply save and except that the Builder shall be responsible for all rates and outgoings in relation to the site from the date hereof and the Builder shall be responsible for all costs incurred or to be incurred by Cobai of or incidental to the said contract;
(ii)the bond or so much thereof as shall then be available after any monies payable to Cobai hereunder have been deducted shall constitute the deposit payable by the Builder to Cobai;
(iii)the date for completion shall be fourteen (14) days after the ‘cut-off date’ shown in Item H of the Schedule hereto;
(iv)the sale price shall be the total of the value of the property specified in Item I of the Schedule hereto; and
(v)upon completion of the sale, the provisions of subclause (e) of this clause shall be of no effect and all monies received by Cobai from the Builder shall be for its sole use and benefit. ”
Clause 11(d) provides that the proceeds of any sale of the project were to be received by Cobai on behalf of the joint venture and accounted for by:
· First, paying the rates “or other monies due to any authority or party in respect of the property or payable by the parties hereto in respect of this Joint Venture from the date of possession”.
· Second, paying to Cobai all amounts due and payable to it by the builder under the joint venture agreement.
· Third, paying to Cobai the amount specified in the joint venture agreement as the value of the property.
· Fourth, paying the selling commission and other amounts payable to the selling agent.
· Fifth, paying the builder the remaining balance thereof.
Any shortfall was to be suffered by the builder (clause 11(b)).
On 21 April 1998, the respondent Commissioner of Land Tax issued an amended assessment of Land Tax (Assessment No 185076) in respect of the land owned at midnight on 30 June 1996, to the trustee JJ Trust. This amended assessment assessed the trustee for land tax in respect of the twelve subject lots. On 13 May 1998, the appellant company as trustee of the JJ Trust, lodged an objection against the amended assessment of land tax.
By letter dated 7 August 1998, the respondent advised the appellant that its objection was disallowed. In explaining the reasons for that decision, the respondent advised the appellant as follows: The assessment was based on the notion that property, the subject of the various joint venture agreements, was owned by Cobai. In terms of section 3B(1) of the Land Tax Act, the estate of freehold in possession was with Cobai. Although the builder had been granted “possession” of the property in terms of the agreement, the agreement was not an agreement for sale. Clause 11(c) of the agreement does not constitute an agreement for sale, since that agreement does not come into existence until a number of conditions precedent are met. Even if clause 11(c) was an agreement for sale within section 3B(3), the possession that the builder had was not delivered pursuant to that agreement.
The letter further explained that Cobai was as the owner, entitled to the rents and profits of the land and had received the rents and profits as part of the joint venture agreement. The fact that they were later distributed according to the joint venture agreement did not alter the result. Although the builder may be responsible for the payment of land tax under a private arrangement entered into by the parties, the Land Tax Act placed the responsibility upon the “owner” of the property.
On 27 August 1998, the appellant filed a notice of appeal against the amended assessment of land tax stating the following grounds:“1. The appellant was not the owner of the above land at 30 June 1996.
2.The appellant is not liable to be assessed for land tax in respect of the above
land.”
Mr Peter Nash, a director of the appellant company, gave evidence that Cobai had acquired approximately 16 hectares of land in the Robina North, (or Merrimac), area of the Gold Coast, which it subdivided into 212 lots.
He said that the appellant company intended developing approximately 65% of the lots, by which I understood him to mean that the appellant would construct houses on those lots and market them as developed properties. I assume that the remaining 35% would be sold as vacant lots, because Mr Nash later mentioned that Cobai had a contract for the sale of vacant land.
In about March 1996, he was approached by Mr Gerry Burns of Burns Constructions Pty Ltd, wanting to acquire some of the lots. Burns required joint venture agreements and ultimately entered into such agreements in respect of 39 lots. The agreements were drawn up by Burns’ legal advisers.
Mr Nash explained that Cobai usually sold land by a “normal contract that Cobai had produced with annexures and covenants”. The special conditions (Annexure A to the joint venture agreement) were the same as contained in the appellant’s normal contract, with certain clauses intentionally deleted for the purpose of the joint venture agreement.
Except for one lot (Lot 168) which was sold to a purchaser as vacant land, all lots were sold improved with residences. However, on two occasions (Lots 93 and 98) the builder failed to sell a lot prior to the cut-off date. However, the appellant did not enforce clause 11(c) of the joint venture agreement, but in each case granted an extension of time to allow the builder to find a purchaser.
Mr Nash explained that the appellant company extended time on those two occasions because the market in 1996 was what he described as “very quiet” and as Burns was the “buyer” of approximately 20% of the appellant’s stock, “you tend to be sympathetic”.
Mr Nash explained that there were advantages in being locked into joint ventures with Burns, rather than selling lots in the usual manner: first, Cobai signed the contract with the end buyer, which enabled it to ensure that Burns sold at a price as agreed to; second, Cobai was able to compare Burns’ price for house and land with its own price for house and land, which information may not have been available if Burns had simply purchased the land and proceeded to the final contract for house and land on its own; third, Cobai was able to ensure that the purchaser had agreed to the covenants relating to the standard of development etc; fourth, Cobai was able to exercise “a good measure of control” over the size, finish and quality of the completed house and land package; fifth, the cut-off date of 17 weeks was very much in Cobai’s favour compared with the time allowed for builders’ terms of between six and nine months on most REIQ contracts.
Mr Nash emphasised that it was very important for Cobai to ensure that development complied with the covenant in each case. As project manager, he was on site all the time and was able to observe progress. Despite the clause in the annexure requiring plans and specifications to be submitted to the vendor, apart from certain “trial runs”, as he called them, Cobai did not require Burns to submit plans for approval. It relied upon the covenant and Mr Nash’s supervision of the estate overall.
The Legislative Provisions:
The Land Tax Act 1915 (the Act) provides that land tax is payable by every owner of land on the taxable value of the land owned by the owner and not exempt from taxation under the Act (section 11). Land tax is charged on land owned at midnight on 30 June immediately preceding the financial year in which the tax is levied (section 12).
“Owner” is defined to include every person who is entitled to the land for an estate of freehold in possession, or who is entitled to the rents and profits from the land, or who is taken to be the owner under the Act (section 3B(1)). A person receiving the rents and profits of the land is taken to be the owner, even though that person has made some disposition of the land (section 3B(2)).
If an agreement has been made for the sale of the land, whether or not completed by conveyance, the seller is taken to be the owner until possession of the land is delivered to the buyer, and the buyer is taken to be the owner as soon as the buyer obtains possession of the land (section 3B(3)). However, the fact that a person is taken to be the owner of land under section 3B(2) or (3) does not exclude someone else from being the owner (section 3B(4)).
A trustee is assessed as if the land of which he or she is trustee was owned by one person (section 26A).
The Issue:
The question in this case is whether as at midnight on 30 June 1996 the appellant was the owner of the twelve subject lots pursuant to section 3B of the Act. The parties agreed that Cobai (as trustee of the JJ Trust) was the registered proprietor of the lots in fee simple. The principal issue was whether or not Cobai remained in possession of the lots.
The Case for the Appellant
Mr Cronin, counsel for the appellant, contended that Cobai was not the owner in terms of section 3B of the Act, having contracted to sell the land to, and granted possession to the builder in each case, prior to 30 June 1996. If the builder was unable to sell the improved property by the cut-off date, it was obliged to complete the purchase of the land within 14 days. However, the contractual terms came into existence on the date of the joint venture agreement. It was an agreement for the sale of the property to the builder, the completion of which was postponed until 14 days after the cut-off date, thereby enabling the builder to construct the residence and to sell the property to a third party in the meantime. Furthermore, the builder was liable for all rates and outgoings on the property from the date of the joint venture agreement. On the sale of the improved property, the vendor took the selling price (value) set out in the agreement and the builder took the rest. It was legally impossible for a contract of sale to come into being on the cut-off date because there was already a binding commitment by the builder to buy the property from the date on which the builder signed the joint venture agreement. Performance was postponed until 14 days after the cut-off date.
The contract with the condition subsequent arose on the execution of the joint venture agreement and possession was given pursuant to that contract. The sale was postponed to enable the builder to find a buyer for the improved land. It was always an essential feature of the bargain that the builder was able to buy the land and that the vendor have a binding commitment to sell it to the builder or to some other buyer found by the builder. Possession was given to the builder to enable it to construct a house and to find a buyer. The joint venture agreement was therefore an agreement made for the sale of land in terms of section 3B(3) of the Act.
In essence, the appellant’s case was that each joint venture agreement amounted to a contract of sale of the property to the builder which the builder was required to complete within 14 days of cut-off date. The only way he could be relieved of that obligation was if he arranged for a third party to buy it prior to the cut-off date.
The Case for the Respondent
Mr Alexander, counsel for the respondent, advanced the following argument:
The joint venture agreement is expressed to be a joint venture for the purpose of constructing a single unit residence on the property and selling the property so improved and that Cobai receive from the proceeds of sale (after payment of sales expenses) not less than the value of the property set out in the schedule to the agreement, less Cobai’s legal expenses, and the builder received the balance of the proceeds of sale.
Upon execution of the joint venture agreement, the builder did not become entitled in equity to an estate in fee simple in the lot, in possession or otherwise. The appellant remained in possession of the fee simple, as trustee, until after 30 June 1996, i.e. until settlement of the contract for the sale of the lots, either to a third party or in default, to the builder. Alternatively, at least until such contract came into being, or alternatively became unconditional on the cut-off date.A distinction may be drawn between the temporary physical possession and/or occupation of land by a building contractor and the occupation of land for rating or land tax purposes. The possession in clause 3 given by the appellant and taken by the builder, appears to contemplate that the builder could enter into physical occupation prior to the cut-off date. That was only a licence to use and occupy for the purpose of constructing a house and arranging for its sale. The appellant retained the right to exercise proper supervision and control to ensure that a high class of design and construction was maintained. The rates and taxes were payable out of the gross proceeds of sale, not the builder’s share.
Even if the builder obtained possession prior to the cut-off date, because of the condition precedent, such “possession” was not obtained and delivered by the parties as “buyer” and “seller”, but as builder and developer, or joint venturers.
The Intention of the Parties to the Joint Venture Agreement:
This case depends upon the construction of the joint venture agreements and whether each one amounts to an agreement for the sale of land from the date of each agreement, or whether the sale of land occurs only by the operation of Clause 11(c), if the builder is unable to obtain a sale of the project by the cut-off date.
Certainly, the joint venture agreements have some of the elements of contracts for the sale of the lots to the builder. If Item I of the schedule is regarded as the sale price of each vacant lot, if the bond is regarded as a deposit, if the date of sale is regarded as deferred until the cut-off date and, most importantly, as the parties have stated that possession has been given and taken, then it would be possible to construe each joint venture agreement in such a manner. But was that the intention of the parties?
The general rules of construction are set out in Chitty on Contracts, 25th Edition, at paragraph 765. The cardinal presumption is that the parties have intended what they have said, so that their words must be construed as they stand. The meaning of the document must be sought in the document itself. The intention of the parties must be ascertained from the whole of the agreement and greater regard is to be had to the clear intention of the parties than to any particular words which they may have used in the expression of their intent.
In the subject case, the parties expressly agree in each joint venture agreement to enter into a joint venture for the purpose of constructing a single unit residence on the property and selling the property as so improved. They state that it is the essence of the joint venture that the appellant receive from the proceeds of the sale (after payment of sales expenses) not less than the value of the property set forth in Item I of the schedule, less the appellant’s legal expenses and the builder receive the balance of the sale proceeds.
Prima facie, that would not appear to be a sale of the vacant land to the builder, but an agreement for a joint venture to construct a residence on the land owned by the appellant and sell the improved property, with arrangements for the distribution of the proceeds.
The builder was obliged to endeavour to complete construction of the residence and related works within four months and to arrange for the sale of the property as improved to a third party by the cut-off date. When the builder had arranged for such a sale, the appellant and the builder agreed to enter into the appellant’s “then standard form of Contract for the sale of Joint Venture homes” for the sale of the improved property. The completed contract was signed by the purchaser and by the appellant as “vendor” and by the third party as “purchaser”. The builder did not sign as vendor, but as “builder”.
However, the parties also provided for the situation of where the builder was unable to arrange a sale of what they called “the project” by the cut-off date, agreeing that on that day a contract came into being for the sale of the project, between the appellant as vendor and the builder as purchaser. The terms and conditions of the contract were to be those contained in the appellant’s standard form contract for the sale of improved land, but the builder was to be responsible for all the rates and outgoings in relation to the site from the date of the joint venture agreement. The bond was to constitute the deposit and the date for completion was to be 14 days after the cut-off date. The sale price was to be the value of the property as specified in Item I of the schedule.
From the words used by the parties it would seem that it was their intention that there was no contract for the sale of the land from the appellant to the builder from the outset and it was only if the builder failed to arrange a sale of the project to a third party by the cut-off date that a contract for a sale of the land came into being between them.
However, against that construction, the appellant raised two arguments. First, the appellant had given “possession” of the property and the builder had taken “possession”, on the date of the joint venture agreement and therefore the builder was taken to be the owner of the land under section 3B(3) of the Act. Second, clause 11(c) of the joint venture agreement was not a condition precedent to the formation of a contract, but was a condition precedent to the performance of the contract.
Was the Builder in Possession as at the Relevant Date?
Clause 3 of the joint venture agreement states that possession of the property is given by the appellant and taken by the builder on the date of that agreement. However, the question is in what sense has possession been given and taken? Did the parties contemplate that the builder had taken possession as purchaser of the land or simply physical possession or occupation as builder in order to construct a residence? If possession is given in the latter sense, it is merely a licence to occupy the land and do what is necessary to construct the residence.
Both Mr Cronin and Mr Alexander referred to a number of cases in advancing their respective arguments. These cases provide an indication of how provisions similar to section 3B(3)(a) and (b) have been interpreted by various Courts. The cases referred to included those discussed below.
In Spinks v. Commissioner of Land Tax [1963] QWN 37, the Full Court of the Supreme Court of Queensland considered the liability for land tax of a vendor who had given possession to purchasers of land following payment of deposits but before the registration of the survey plans and completion of the transfers. In respect of each of those lots the purchasers were granted immediate possession and undertook certain works on the lands. The Court held that the vendor ceased to be the owner for the purpose of land tax as soon as he gave possession to the purchasers.
The High Court of Australia considered provisions similar to those presently under consideration in Highlands Ltd v. The Deputy Federal Commissioner of Taxes for South Australia (1931) 47 CLR 191. In that case the appellant had entered into a contract for the purchase of land in February 1925. The appellant subdivided the land and entered into numerous contracts for sales of allotments, but none of the sub-purchasers were persons to whom possession had been delivered. The land was at the date of contract in occupation of a person who had held as tenant but whose tenancy was terminated on or before 1 June 1925, and thereafter used the land for grazing as licensee and not as occupier. The sole question was whether the appellant at the relevant date for land tax purposes, was in possession of the land. On the facts of that case it was held that certain acts that the appellant performed were evidence that it had possession within the meaning of the relevant Act. Rich J at page 197 said that the appellant did quite a number of things upon the land which, although of ambiguous import, were capable of being construed as acts of possession. “The correspondence between the parties … makes it abundantly clear that the purchasers conceived that they were being put into possession …”. He continued at page 198, “I see no reason to doubt that they were allowed de facto control by the vendor, and intended to exercise it; and this appears to me to amount to obtaining possession within the meaning of sec. 37”.
Starke J at page 199 said that “possession” in the section was “de facto possession referable to the agreement for the sale of land”. Dixon J at page 201 said, “This appears to me to mean possession as purchaser obtained in intended execution of the agreement of sale, performance of which may, of course, be affected by agreed variations of its terms and by waiver, including the acceptance of substituted times and modes of performance”.
In Cam & Sons Pty Ltd v. Commissioner of Land Tax (1964-1965) 112 CLR 139, the High Court considered a case where the appellant subdivided a large area of land and contracted to sell to purchasers under instalment contracts of sale. The purchasers had not entered into physical possession and the land remained vacant, it was not occupied or used by anyone. However, the special conditions contained an attornment clause under which the purchaser attorned tenant to the vendor at a monthly rent equal to the monthly instalments, which rent was to be accepted in satisfaction of interest and the balance of the purchase money. The High Court held that possession was as a purchaser referable to the agreement for sale of the land. It was possession as a purchaser obtained in intended execution of the agreement of sale, not as a tenant.
In Commissioner of Land Tax (NSW) v. Mannors of Mossman Pty Ltd (1994) 29 ATR 269, the respondent was the proprietor of land on which a retirement village was erected. Between November 1987 and December 1988, the respondent entered into agreements for the sale of units to 31 purchasers. By 31 December 1988, the 31 purchasers had moved into their units. The contracts of sale provided for the vendor and purchaser to enter into a licence agreement which entitled the purchaser to occupy the unit pending registration of the strata plan and issue of the certificate of title. The licence continued until completion, or recision or determination of the contract of sale, neither party having had the right to terminate the licence at will or on a specified period of notice.
The appellant contended that the licence agreement did not confer any estate or interest upon the purchaser so that possession conferred was not exclusive possession. The appellant argued that prior to completion the purchaser of the units had a mere personal right to occupation of the units pursuant to the licence agreement until completion, where it changed to a right of possession to the exclusion of the respondent.
The New South Wales Court of Appeal held that the contract of sale contemplated the giving of early possession and imposed conditions if that occurred. Once the notice was given, the licence agreement entered into and the purchaser had gone into occupation, the purchaser had obtained possession as purchaser. The licence served a similar function to the attornment clause in Cam’s case and provided a means whereby the vendor could recover possession if the purchaser defaulted.
The Court referred to the New Zealand case of Yule v. Commissioner of Taxes [1918] NZLR 890. In that case the appellant had demised land under a seven-year lease expiring on 14 November 1917. The lease contained a covenant for the compulsory purchase of the freehold by the lessee at the expiration of the term. The lessee entered into possession and was in possession at the taxing date. The question was whether the lessee was the deemed owner because he had obtained possession of the land.
Hosking J said at page 896, “The parties entered into an agreement for sale and purchase (the purchaser going into possession) to be completed at a long-postponed date, and agreed that the intermediate period should be governed by the special incidents imposed by the lease. But the purchaser who had entered into the unqualified obligation to buy is nonetheless a purchaser.”
These cases indicate that the person held to be in possession was in possession in the character of purchaser, not in some other capacity. In my opinion, in the present case, as at midnight on 30 June 1996, the builder was in possession as a builder and would not come into possession in the character of purchaser until the cut-off date, if at all. That is what distinguishes those cases from the present case. It is clear that the parties to the joint venture agreement did not contemplate the builder becoming a purchaser unless, under clause 11(c) it was unsuccessful in finding a purchaser for the project. Only when it had failed to do so by the cut-off date did the builder come into possession in the character of purchaser.
Was Clause 11(c) a Condition Precedent?
The appellant conceded that the joint venture agreement stated that if the builder was unable to obtain a sale of the property by the cut-off date, “… there shall on that date come into being a contract for the sale and purchase of the project”. But, Mr Cronin submitted that there was always a binding commitment by the builder to buy the property from the date the builder signed the agreement, the performance of that commitment being postponed until 14 days after the cut-off date. He conceded that if the condition was a condition precedent to the formation of a contract, then there would be no contract until the event in question occurred and either party may resile before the occurrence of that event. However, he argued that the condition was a condition subsequent to the formation of the contract, but a condition precedent to its performance.
On the other hand, Mr Alexander argued that the correct construction depends on the terms of the contract and the express terms were that the parties intended that no contract of sale should come into existence between the appellant and the builder until the cut-off date.
In Masters v. Cameron (1954) 91 CLR 353, the respondent agreed in a document dated 6 December 1951, to sell a property to the appellant “subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions”. The appellants paid the sum of £1,750 to the vendor’s agent. The question was whether the document was a binding contract.
The High Court found that the document did not constitute a binding contract and that the sum of £1,750 was paid to the agent on terms requiring that if a formal contract should be executed the amount should be applied and treated as a deposit for the purchase, otherwise it should be returned to the appellants. The Court said at page 360:“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any one of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.”
The Court went on to say that the third class is a condition precedent. Classes 1 and 2 are conditions subsequent; they are conditions precedent to the performance, but they are conditions subsequent to the formation of the contract.
In Aberfoyle Plantations Ltd v. Cheng [1960] AC 115, a conditional agreement for the sale of a rubber estate from the appellant to the respondent depended upon the renewal of seven expired leases. Clause 4 stated that the purchase was conditional on the vendor obtaining a renewal of the seven leases and if the vendor was unable to fulfil this condition, the agreement was to be null and void and the vendor was to refund the purchaser the deposits already made. Clause 9 stipulated that completion was to take place on or before April 30 1956 and that on the purchaser paying the balance of the purchase price, the vendor would as soon as possible thereafter execute a transfer of the property to the purchaser. The condition not having been fulfilled by the date for completion and the extension by the purchaser to 31 May 1956, the purchaser brought an action against the vendor claiming return of deposits paid.
In delivering the judgment of the Privy Council, Lord Jenkins set out the following general principles at pages 124/125:“(i) Where a conditional contract of sale fixes a date for the completion of the sale, then the condition must be fulfilled by that date; (ii) where a conditional contract of sale fixes no date for completion of the sale, then the condition must be fulfilled within a reasonable time; (iii)_ where a conditional contract of sale fixes (whether specifically or by reference to a date fixed for completion) the date by which the condition is to be fulfilled, then the date so fixed must be strictly adhered to, and the time allowed is not to be extended by reference to equitable principles. ”
However, he then he went on to say at page 126, that until the condition was fulfilled there was no contract of sale to be completed.
Some of Lord Jenkins’ observations have been doubted by the High Court of Australia. In Perri v. Coolangatta Investments Pty Ltd (1982) 149 CLR 537, the High Court considered a matter involving a contract for the sale of land which was made on 7 April 1978, with no fixed time for completion. A special condition provided that the contract was subject to the purchasers completing the sale of other property. On 17 July 1978, the vendor gave notice requiring the purchasers to complete by 8 August 1978. They did not do so and on 10 August 1978, the vendor gave them notice rescinding the contract. On 29 September 1978, he sued them claiming a declaration that the contract had terminated on or about 10 August 1978. The purchasers did not complete the sale of the other property until 13 June 1979. They cross-claimed for specific performance.
The High Court held that the special condition made the completion of the sale of the purchasers’ property a condition on which their obligation to complete the purchase depended, and the special condition obliged the purchasers to complete the sale of their property within a reasonable time.
However, Gibbs CJ at page 542, doubted the correctness of Lord Jenkins’ observations in Aberfoyle Plantations, that where a contract of sale was expressed to be conditional on the vendor obtaining a renewal of certain leases, the condition was one on whose fulfilment the formation of a binding contract of sale depended. Gibbs CJ thought that the condition was one on which the performance of the relevant obligations under the contract depended, rather than a condition precedent to the formation of a contract.
Mason J also had doubts and he set out what Mr Cronin has described as the “classic statement” at page 551:
“This divergence in approach calls for some discussion of the nature of conditions generally and of the characteristics of special condition 6 in particular. There is an obvious difference between the condition which is precedent to the formation or existence of a contract and the condition which is precedent to the obligation of a party to perform his part of the contract and is subsequent in the sense that it entitles the party to terminate the contract on non-fulfilment. In the first category the transaction creates no rights enforceable by the parties unless and until the condition is fulfilled. In the second category there is a binding contract which creates rights capable of enforcement, though the obligation of a party, or perhaps of both parties, to perform depends on fulfilment of the condition and non-fulfilment entitles him to terminate.
Conditions precedent within the first category may produce different consequences. In most cases, but perhaps not in all, a party may be able to withdraw from the transaction before fulfilment of the condition.”
Then Mason J went on to say at page 552:
“Generally speaking the court will tend to favour that construction which leads to the conclusion that a particular stipulation is a condition precedent to performance as against that which leads to the conclusion that the stipulation is a condition precedent to the formation or existence of a contract. In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion. ”
Wilson J also had doubts. He said at page 557 that he had difficulty in assigning the decision in Aberfoyle Plantations to the very limited category of cases dealing with conditions precedent to the formation of a contract. He thought that when Lord Jenkins spoke of a condition precedent, he was speaking of the condition in that case as precedent to the coming into existence of a binding contract of sale.
Where does that leave clause 11(c) in the present case?
The appellant contends that the words of the clause do not represent the real intention of the parties and that the joint venture agreement is an agreement for the sale of land, but it provides for disbursement of the proceeds of the sale in the event that the builder is able to sell to a third party prior to the cut-off date.
On the other hand, the respondent contends that the correct construction in the present case is to be gleaned from the express terms of the joint venture agreement where the parties have clearly intended that no contract of sale should come into existence between the appellant and the builder until the cut-off date.
Although the observations of the Privy Council in Aberfoyle Plantations have been doubted in Perri v. Coolangatta Investments, it was not suggested that it is incorrect to say that there could be cases where there was a condition precedent to a contract becoming binding.
In my opinion, the parties’ words in the agreement mean what they say. When the agreement is read as a whole, it seems to me that it is a joint venture for the purpose of constructing a residence on the land and selling the property as improved to someone else and then sharing in the proceeds. It is only if the property was not sold by the cut-off date that the default provision comes into operation and a contract comes into being for the sale of the project, with the appellant as vendor and the builder as purchaser.
It was not really envisaged from the outset that the joint venture was a sale from the appellant to the builder. What was envisaged was a sale of the improved property to a third party. It was only in the event that the builder could not arrange such a sale that provision was made for the sale of the land to the builder. If that should happen, all the terms and conditions of the contract which came into being on the cut-off date are contained in the body of the joint agreement.
Mr Nash gave evidence that the appellant company entered into joint agreements in respect of 39 lots with the builder. In only two cases was the builder not able to arrange a sale of the property by the cut-off date. In those cases, for commercial reasons, the appellant extended the time and the builder was able to successfully arrange sales. In not one of the 39 joint ventures was clause 11(c) invoked.
Entitlement to Receive the Rents and Profits from the Land:
The appellant raised one other argument in relation to this matter. Section 3B(1)(a)(ii) of the Act provides that the owner of land includes every person entitled to receive, or who has received, the rent and profits from the land. Mr Cronin submitted that the appellant was not at the relevant time, in receipt of or entitled to receive the rents and profits from the land. He argued that in the agreement for the disbursement of the proceeds of the sale to a third party, the appellant was entitled only to the value of land set out in the schedule while the builder was entitled to the balance, after expenses had been met. In that sense, it was the builder who was entitled to the rents and profits from the land from the date of the joint venture agreement.
On the other hand, Mr Alexander submitted that nothing was expressed in the joint venture agreement about who was entitled to receive rents and profits from the land, presumably because none were contemplated. The joint venture conferred on the builder a share of the proceeds from the sale of the land, not a share of the profits from the land. The profit was not from the land, but from the sale and disposal of the land. The builder did not receive, nor was it entitled to receive, the profits from the land but from the joint venture agreement itself. These were not profits from the land.
In my opinion, the builder was not entitled to the rents and profits from the land. Any profits that he received came from the joint venture agreement itself, not from the land.
Conclusion:
For the reasons set out above, I am of the opinion that the respondent Commissioner was correct in assessing the appellant company for land tax on the twelve subject lands as at midnight on 30 June 1996. Therefore, the appeal must fail.
Costs:
The provisions of section 28(2) of the Act are framed in mandatory terms and I have no discretion with regard to the award of costs. In this case the respondent has been successful and is therefore entitled to costs.
Orders:
(i)The appeal is dismissed.
(ii)I order that the appellant pay the respondent’s costs of and incidental to this appeal. The amount of such costs shall be ascertained and fixed by the costs taxing officer of the Supreme Court at Brisbane in accordance with the provisions of section 41(9) of the Land Act 1962.
(JJ Trickett)
President of the Land Court
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