Commonwealth of Australia v Antonia Giorgio Pty Ltd

Re: THE COMMONWEALTH OF AUSTRALIA
And: ANTONIO GIORGIO PTY. LIMITED
No. ACT G20 of 1986
Contract

COURT

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Fisher J.
Gallop J.
Neaves J.

CATCHWORDS

Contract - option to renew for further fixed term agreement for the removal of sand, gravel and water-worn rock during a period of 15 years - Purported exercise of option - Requirement of six months' notice - Whether notice must be given six months before expiration of original term - Whether condition precedent to exercise of option fulfilled - Waiver - Estoppel.

Contract - Estoppel - Representation by silence - Whether duty to speak - Whether representation relied upon.

HEARING

CANBERRA

#DATE 12:8:1986

Counsel for the appellant : Mr N.A. Hemmings Q.C. and Mr I.A. Curlewis

Solicitor for the appellant : Australian Government Solicitor

Counsel for the respondent : Mr F.X. Costigan Q.C. and Mr P.L. Dodson

Solicitors for the respondent : Gallens

ORDER

1. The judgment of the Supreme Court of the Australian Capital Territory given on 11 April 1986 be set aside and in lieu thereof it be ordered that judgment in the action be entered for the defendant, with costs.

2. The respondent pay the costs of the appellant of the appeal to this Court.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The basic question for determination upon this appeal from a judgment of the Supreme Court of the Australian Capital Territory given on 11 April 1986 is whether, by reason of the events to be referred to, there is a subsisting contractual relationship between the Commonwealth of Australia ("the appellant") and Antonio Giorgio Pty. Limited ("the respondent") whereby the respondent has until a date in 1999 the exclusive right to remove sand, gravel and water-worn rock from certain land in the Australian Capital Territory.

The question arises in this way. An agreement in writing dated 28 October 1969 was made between the respondent and one Philip Cyrus Retallack who was then the owner in fee simple of certain land in the Australian Capital Territory being Portions 1 and 13 in the Parish of Urayarra, County of Cowley (now known as Block 31 Coree). In consideration of the payment by the respondent of certain royalties, Mr Retallack granted to the respondent the exclusive right to remove sand, gravel and water-worn rock from part of that land, which included part of the bed of the Murrumbidgee River, during the period of 15 years computed from 1 November 1969 on the terms and conditions set out in the agreement. In the agreement the expression "the Licensor" referred to Mr Retallack, his heirs, administrators, transferees, successors and assigns and the expression "the Licensee" referred to the respondent, its successors and assigns.
Clause 11 of the agreement provided:

"11. Nothing herein contained shall be deemed to give the Licensee any exclusive or non-exclusive possession of the land, nor create nor be construed as conferring upon the Licensee any interest in the said land or any part thereof, nor shall anything in this Agreement create or be construed as creating the relationship of principal and agent between the Licensee and the Licensor."

Clauses 8 and 18 were in the following terms:

"8. The Licensee will at its own expense maintain the said land in a clean and tidy condition at all times to the satisfaction of the Department of the Interior, and take all necessary steps to prevent erosion of the said land, and to comply with the provisions of the Conservation of the Soil Ordinance 1947 (as amended from time to time) and the Regulations made thereunder, and comply with any directions given to it by officers of the Department of the Interior."

"18. The Licensee upon paying the royalty hereby reserved and observing the covenants and conditions herein contained shall have the right by giving six months notice in writing to the Licensor of its intention, to exercise the right to renew this Agreement for a further term of Fifteen years upon the same terms and conditions as are herein contained, save and except this present covenant for renewal, and at a current market royalty for similar material."

In November 1973 Mr Retallack sold to the appellant the whole of his land including the area the subject of the agreement dated 28 October 1969. It is admitted on the pleadings that in or about 1974 it was agreed between the appellant and the respondent that, in consideration of the respondent paying to the appellant royalties on the conditions set out in the agreement dated 28 October 1969, the appellant would permit and licence the respondent to remove sand, gravel and water-worn rock from the area the subject of that agreement upon the terms and conditions set forth therein.
Prior to the sale of the land to the appellant the respondent had removed material pursuant to the agreement dated 28 October 1969 and had paid royalties to Mr Retallack. After the sale, the respondent continued to remove material from the land and paid royalties to the appellant in respect of material removed up to 31 January 1986.
In the proceedings which it commenced in the Supreme Court of the Australian Capital Territory the respondent asserted that, having paid the royalties reserved and having observed the covenants and conditions contained in the agreement dated 28 October 1969, it exercised the right conferred upon it by clause 18 of that agreement to renew the agreement for a further term of 15 years. That right was said to have been exercised by a letter dated 8 May 1984 addressed by the respondent's solicitors to the appellant. The letter reads:

"We desire to confirm that we act for the above Company and desire to draw your attention to the fact that the term of the agreement between our client Company and the former owner Mr Philip Cyrus Retallack is due to expire on the 30 October 1984.

One of the terms of that agreement with Mr Retallack was that our client Company would have an option for renewal of the agreement for a further term of fifteen (15) years upon the same terms and conditions as were contained in the agreement between the parties dated the 28 October 1969.

We shall be obliged if you could let us know whether you are prepared to grant our client Company such option period and if so on what terms and conditions."

The respondent further asserted that the appellant had acquiesced in the right of the respondent to exercise the right of renewal, had waived any right that it might have had (which right was denied) to object to the letter as giving the requisite notice and was estopped from denying its force and effect.

To those assertions the appellant made the following answers. It denied that the respondent had validly exercised the right of renewal, relying both on the form of the notice and on conduct of the respondent alleged to constitute a breach of its obligations under clause 8 of the agreement dated 28 October 1969. It denied that there had been any waiver of its rights and that it was estopped from denying the force and effect of the notice.
The learned primary judge found that there had been a failure by the respondent, in breach of clause 8 of the agreement, to take the steps necessary to prevent erosion of the land. That finding related to erosion which had occurred at the sides of an access road and on the margins of an area on the uphill side of a bay which had been excavated from a hill for use as a stockpile area. His Honour found that the erosion had taken place on the area of land in respect of which the right to remove material had been granted. There was ample evidence to support the finding that erosion had occurred and that finding was not challenged by the respondent on the hearing of the appeal. It was, however, argued for the respondent that the primary judge had misconstrued clause 8 of the agreement. It was submitted that, on the proper construction of the clause, the requirement that the respondent "take all necessary steps to prevent erosion of the said land" placed no further or other obligation on the respondent than an obligation to comply with any direction given by the appropriate Minister under sub-s.4(1) of the Soil Conservation Ordinance 1960 (A.C.T.). It was further submitted, and it is common ground, that no such direction was given.
Sub-section 4(1) of the Ordinance provides:

"(1) Where the Minister is satisfied that a person who occupies, or has an estate or interest in, land has failed to take the action that the Minister considers necessary to prevent or arrest soil erosion on that or other land, the Minister may, by order under his hand, direct the person -

(a) to adopt, or to refrain from adopting or continuing to adopt, with respect to that land, any method of using or dealing with that land specified in the order;

(b) to take on that land such other action to prevent or arrest soil erosion on that or other land as is specified in the order; or

(c) to bear the whole or a part of the expense reasonably incurred by another person in taking any action specified in the order, being an action that the other person is, or could be, required, by order under this section, to take."

That Ordinance repealed the Conservation of Soil Ordinance 1947 (A.C.T.) to which reference is made in clause 8 of the agreement.

We are unable to accept the respondent's submission. The obvious purpose of the relevant words in clause 8 of the agreement requiring the respondent to take all necessary steps to protect the land from erosion was to give a measure of protection to Mr Retallack against his land being destroyed or damaged by erosion as a result of the exercise by the respondent of the right conferred by the agreement to remove material from the land. There is nothing in the language used to suggest that Mr Retallack was content to confine the measure of protection to that which might derive from the exercise by the Minister of the powers conferred upon him by sub-s.4(1) of the Ordinance to which reference has been made. Indeed, the express requirement in clause 8 that the respondent comply with the provisions of the Conservation of Soil Ordinance 1947 (A.C.T.) as amended from time to time and the regulations made thereunder indicates quite clearly that the preceding requirement was not intended to have the limited operation which the submission of the respondent would ascribe to it. If it were to be read as so circumscribed, the express reference to the Ordinance and the regulations would be otiose. A further reason for concluding that the clause was not intended to be confined as suggested is that, if so construed, it might well have no operation as, in the light of clause 11 of the agreement, it may be doubted whether the respondent was a person who occupied, or had an estate or interest in, land so as to make it amenable to a direction under sub-s.4(1) of the Ordinance.
There was evidence before the Supreme Court that, as a result of the respondent's operations, erosion had taken place on an island in the river bed bounded in part by a channel subject to intermittent flooding. However, the primary judge expressed himself as not being satisfied that there had been a failure to take the necessary steps to prevent erosion on the island as, in his Honour's view, the agreement envisaged the complete removal of the island by the respondent and had placed no restriction on the method of extraction of material from the site or, in particular, from the island. The appellant contended, and advanced reasons to support the contention, that his Honour had erred in failing to find that there had been a breach of clause 8 of the agreement in relation to the respondent's activities in removing material from the island. The appellant's contention may well be correct but, in the light of the conclusions to which we have come, it is unnecessary to discuss it further.
The next question that arises is whether, by reason of the respondent's breach of clause 8 of the agreement, it had failed to fulfil a condition precedent to the exercise of the right of renewal conferred by clause 18. Related to this issue is the question whether the appellant is to be taken, by its conduct, to have waived fulfilment by the respondent of that condition precedent and the further question whether the appellant is estopped from relying on such breach.
Having regard to the agreement as a whole and the intention of the parties to be gathered from its language, we are left in no doubt that, upon the proper construction of clause 18, compliance with clause 8 of the agreement was a condition precedent to the exercise by the respondent of the right to renew. The language of clause 18 is, we think, capable of no other meaning.
Counsel for the appellant submitted that the primary judge had erred in finding that the appellant had waived performance of the condition that the respondent take all necessary steps to prevent erosion of the land. He relied upon the decision of the Supreme Court of New South Wales in Gilbert J. McCaul (Aust.) Pty. Ltd. v. Pitt Club Ltd. (1959) 59 SR (NSW) 122. In that case a tenant had sought specific performance of a clause in a lease conferring an option to renew. During the currency of the original lease there had been frequent failures to pay rent punctually but the lessor had raised no objection to such irregularity in payment. Dealing with an argument that the condition in the clause of the lease relating to renewal regarding the due and punctual payment of rent was a condition in the lessor's favour and that it had waived performance of it, the Court at pp.123-4 said:

"In the present case the lessor irrevocably offered to grant a lease. Its offer prescribed the time and manner for acceptance. Only by performing the conditions prescribed could it be accepted and result in an agreement for a lease. A purported acceptance without performance of the prescribed conditions would not and could not be an acceptance of the offer. It would in reality be a counter offer by the original offeree requiring acceptance by the original offeror if an agreement were to result. If a conditional offer is made and the offeree without performing the condition purports to accept it, that is to say makes a counter offer and that counter offer is accepted, it is a loose although not uncommon use of language to say that the original offeror has waived performance of the condition which was prescribed by his offer as being the manner of accepting it. In contemplation of law the original offeror has done no such thing. What he has done is to accept a counter-offer and in the result an agreement is made but it is not an agreement consisting of the original offer and an acceptance of that offer."

The primary judge expressed the opinion that that case ought to be distinguished by reason of the difference in the nature of the breaches which had occurred in that case and the nature of the breach relied upon by the appellant in the instant case. His Honour said:

"The breaches there referred to were breaches which commonly occur in the relationship between landlord and tenant. Waiver of them during the currency of the appropriate lease has for long been construed as not affecting the right of the landlord to rely upon such a breach as a failure to comply with a condition precedent to the grant of an extension of the lease under an option clause."

After referring to Greville v. Parker (1910) AC 335, West County Cleaners (Falmouth), Ltd. v. Saly (1966) 3 All ER 210 and Reed v. Sheehan (1982) 39 ALR 257 per Fox J. at pp 264-5, his Honour continued:

"The letter dated 25 June 1969 from the Department of the Interior, Land Administration Branch, to Mr Retallack and clause 8 of the agreement show that the parties were at all relevant times over a period of not less than 15 years mindful of the problems that erosion might cause. The plaintiff (respondent) and Mr Retallack expected that the Commonwealth could at any time during the agreement deal with any such problem as was of concern to it by the intervention of a soil conservation officer acting in a general supervisory capacity. The Commonwealth's position in this regard must have been at least as strong when it became party to the agreement in November 1973. That it took no action over such a long period when the parties must reasonably have expected that it would do so by its officers had they thought it necessary shows, I think, that there was a waiver by the Commonwealth of its rights concerning the taking of necessary steps by the plaintiff to prevent erosion."

The letter dated 25 June 1969 to which his Honour referred, and which his Honour was satisfied had come to the notice of the respondent at the time the agreement dated 28 October 1969 was executed, was in the following terms:

"I refer to the application by Mr Newell and yourself concerning extraction of bedding sand from the Murrumbidgee River at Portions 1 and 13 Parish of Urayarra, (Holding 98 Coree).

The Department has no objection to your proposal. However, to avoid increasing the turbidity of the river, and to prevent any possible soil erosion, it would be appreciated if the operation could be carried out under the general supervision of a soil conservation officer."

Although Gilbert J. McCaul (Aust.) Pty. Ltd. v. Pitt Club Ltd. (supra) was a case of an option for the renewal of a lease, the principle to which that decision gives effect must be the same in a case such as the present where the option is for the renewal of a licence. It may well be, as Fox J. said in Reed v. Sheehan (1982) 39 ALR 257 at pp 264-5, that the language of a clause such as clause 18 of the agreement here in question is not to be construed in its strictest sense so that the condition is complied with if, at the time when the right of renewal is exercised, the breach has been remedied. However, on the facts of this case, so to construe clause 18 will not avail the respondent as at no time has it attempted to remedy the breach of the agreement found by the primary judge to have occurred.
It should also be mentioned that, if the letter of 8 May 1984 is properly to be construed as a counter offer, such counter offer was never accepted by the appellant. By letter dated 26 July 1984 the appellant informed the respondent's solicitors that it was under no obligation to grant a renewal of the licence but would "consider the grant of a new lease, subject to planning and environmental approval". The respondent subsequently applied for such a lease but no lease was granted, the respondent being informed by letter dated 14 October 1985 that:

"On both technical and planning grounds sand and gravel extraction in the Murrumbidgee River is an unacceptable use."

By the same letter, the respondent was given one month's notice to vacate the site.

The respondent's contention that the appellant was estopped from relying upon the breach of clause 8 as rendering ineffective the notice purporting to renew the agreement is based upon a representation by silence. The primary judge found that the appellant's knowledge that erosion had occurred derived from the recreational activities of Dr Bryan Pratt who, at the time he gave evidence, held the office of Assistant Secretary, Land Management Branch of the A.C.T. Parks and Conservation Service in the Department of Territories. Dr Pratt's evidence was that over a period of many years he had walked along that part of the Murrumbidgee River corridor which includes the site of the respondent's activities and had observed erosion of the soil in and about the access road since late 1979. His Honour found that, although the appellant was aware of the matters which constituted the breach of condition precedent to the exercise of the option to renew, it did not at any stage direct the respondent's attention to the breach.
To found an estoppel, a representation must be clear: it must be such as will be reasonably understood in a particular way by the person to whom it is addressed. The representation, however, need not be express: it may be implied by the words used or be adduced from either failure to speak where there is a duty to speak or from conduct: see Legione v. Hateley (1983) 152 CLR 406 per Mason and Deane JJ. at pp 435-9. But, a person will not be estopped from departing from an assumption or representation "unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted" (Thompson v. Palmer (1933) 49 CLR 507 per Dixon J. (as he then was) at p 547).
The basis of the alleged estoppel is silence on the part of the appellant. But, before silence can amount to a representation it must be shown that there was a duty on the party concerned to speak up. In the present case it must be shown that the appellant was under a duty to bring to the notice of the respondent the continuing breach of clause 8 of the agreement. The respondent seeks to find that duty in the provisions of sub-s.4(1) of the Soil Conservation Ordinance 1960 (A.C.T.) the text of which is set out above.
The primary judge was unable to find, and we respectfully agree with him, any relevant duty in the appellant arising from the provisions of the Ordinance. What sub-s.4(1) of the Ordinance does is to confer power on the relevant Minister to take action where there is a failure to take such steps as he considers necessary to prevent or arrest soil erosion. Any duty which the provision creates in the Minister is a duty owed to the Crown: it is not a duty owed to the person responsible for the failure to take appropriate remedial action in relation to the eroded land. But, with due respect to the primary judge, we are unable to agree that such duty arose from the circumstance that the appellant, following its purchase from Mr Retallack, "became effectively the licensor under the agreement". That circumstance, taken by itself or in combination with the letter dated 25 June 1969 to which reference has already been made, is in our opinion not sufficient to found the necessary duty.
Even if, contrary to the view we have expressed, the conclusion is reached that the appellant by its silence represented to the respondent that it would not rely, for the purpose of clause 18, upon the breach of clause 8, there is no evidence that the respondent relied upon that representation and, in consequence, placed itself in a position of material disadvantage.
There is yet another ground upon which the appellant is, in our opinion, entitled to succeed, a ground depending upon the terms of the notice dated 8 May 1984. There is much to be said for the view that the language of the notice was not apt to exercise the right of renewal in that it was cast in the form of a request to the appellant to inform the respondent whether it was "prepared to grant .... such option period and if so on what terms and conditions". But, be that as it may, the notice failed to comply with the requirements of clause 18 in that it was given on 8 May 1984, that is to say, less than six months before the expiration of the term of the agreement on 30 October 1984.
For the respondent it was submitted that, on its proper construction, clause 18 required only that the notice of intention to exercise the right of renewal be given prior to the expiration of the period of 15 years during which the agreement was current. It was argued that there was no requirement that the period of six months' notice should fall completely within the period of the licence and that to read the clause as imposing such a requirement would be to introduce a new term into the agreement without any sufficient warrant for doing so. Counsel relied on Trustees Executors and Agency Co. Ltd. v. Peters (1959) 102 CLR 537. That case, however, turned on its own peculiar facts. It concerned the exercise of an option to purchase and, as the Court held, the express provision which had been made as to its exercise made no reference and had no specific relation to the continuance of the landlord and tenant relationship which had existed in respect of part of the land. The decision in that case provides no support for the respondent's contention.
In our opinion the respondent's submission should be rejected. We think it is abundantly clear from the language of clause 18 that what Mr Retallack and the respondent as parties to the agreement intended was that the licensor should be given notice at least six months before the expiration of the period of the licence that the respondent as licensee intended to exercise its right to renew for a further period of 15 years commencing contemporaneously with the termination of the original period. To construe the clause in the manner contended for by the respondent would, in the event that the notice of intention to renew was given at or close to the end of the original period of 15 years, have the result that the right to remove material from the land would terminate on 30 October 1984 and again become operative from the date six months after the giving of the notice. A construction which permits such a hiatus is inconsistent with the element of continuity between the original and the further term which is implicit in the notion of renewal to which clause 18 is directed: Associated Minerals Pty. Ltd. v. N.S.W. Rutile Mining Co. Pty. Ltd. (1961) 35 ALJR 296 at p 298. Such a construction should not be adopted unless the language is compelling. In our opinion, it cannot reasonably be thought that such a result would have been in the contemplation of the parties when the agreement was negotiated.
As the requisite period of notice was not given, there was no effective exercise of the right of renewal. The respondent did not seek relief from the consequences of its failure to serve the notice within time. If such relief had been sought, it is extremely doubtful if, in the circumstances, a court would have had jurisdiction to grant such relief (Samuel Properties (Developments) Ltd. v. Hayek (1972) 1 WLR 1296 at pp 1303-1307).
An alternative argument was put on behalf of the appellant on the premise that the purported exercise of the option to renew was effective. The argument asserted that the renewed agreement had been brought to an end pursuant to a clause (clause 2A) which, in terms, provided that the agreement was to become void and of no effect in the event of the Department of the Interior or any other competent authority refusing or rescinding permission to remove sand, gravel and water-worn rock from the land. In view of the conclusion to which we have come that the option to renew was not effectively exercised, it is unnecessary to consider this alternative argument.
For the reasons we have given the judgment of the Supreme Court should be set aside. In lieu thereof it should be ordered that there be judgment in the action for the defendant, with costs. The respondent should pay the costs of the appellant of the appeal to this Court.

[1986] FCA 346

12 AUGUST 1986