Commonwealth v Oldfield

[1976] HCA 17

HIGH COURT OF AUSTRALIA

McTiernan, Gibbs, Stephen, Mason and Jacobs JJ.

THE COMMONWEALTH v. OLDFIELD

(1976) 133 CLR 612

8 April 1976

Lease

Lease—Agricultural land—Improvements—Lessor entitled to withdraw land from lease—Obligation to pay to lessee value of improvements—Timber clearing, pasture improvement, provision of shade and shelter plantings—Whether improvements on or effected to the land.

Decisions

1976, April 8.
The following written judgments were delivered:-
McTIERNAN J. The question for decision is what is the meaning of the word "improvements" in cl. 2(d) of a lease of land in the Australian Capital Territory, the appellant being the lessor and the respondent the lessee of the land. Clause 2(d) reads:

"2. THE Commonwealth covenants with the lessee - (d) if any land is withdrawn from this lease pursuant to paragraph (g) of clause 3 of this lease, to pay to the lessee the value at the date of the withdrawal of all fixtures and erections on, and of all improvements on or effected by the lessee or by a prior lessee under this lease or under a prior lease of the land to, the land so withdrawn, except such fixtures, erections and improvements, if any, as are expressly excepted from the purchase by the lessee under paragraph (j) of Clause 1 of this lease and except such fixtures, erections and improvements as are removed by the lessee in pursuance of paragraph (e) of this clause, such value to be ascertained by agreement or in default of agreement by arbitration under the provisions of the laws for the time being in force in the said Territory relating to arbitration;" (at p614)

2. The word "improvements" is found in combination with the words "fixtures" and "erections" throughout the lease. None of the words "fixtures", "erections" or "improvements" is defined in the lease. To ascertain what the parties may be presumed to have intended by the combination of words "fixtures, erections and improvements", or each of them, the lease as a whole must be looked at. The combination appears in cll. 1(j), 1(m), 2(c), 2(d), 2(e), 2(f), 3(k) and 4. These read:

"1. THE lessee covenants with the Commonwealth - ... (j) to purchase from the Commonwealth for the price or sum of five hundred and seventy seven pounds fifteen shillings (in this lease called the purchase money) such of the fixtures, erections and improvements on the said land as at the commencement of the said term were the property of the Commonwealth excepting boundary fence between points Q-R-S-T-U-V-W-X-Y-Z as shown on the said plan annexed hereto. ... (m) to pay to the Commonwealth on demand any expense that may be incurred by the Commonwealth in making good any damage that may be caused to the said land through any fixture erection or improvement being removed pursuant to paragraphs (e) or (f) of Clause 2 of this lease and to pay to the Commonwealth on demand any expense that may be incurred by the Commonwealth in making good any damage that may be caused to any fixture, erection or improvement on the said land the value of which the Commonwealth is required to pay to the Lessee pursuant to paragraph (c) or paragraph (d) of Clause (2) of this lease through any fixture erection or improvement being so removed after the expiration or sooner determination of the said term referred to in the said paragraph (c) or after the date of the withdawal referred to in the said paragraph (d). ... 2. THE Commonwealth covenants with the lessee - ... (c) to pay to the lessee at the expiration or sooner determination of the said term the value at such expiration or determination, as the case may be, of all fixtures and erections on, and of all improvements on or effected by the lessee or by a prior lessee under this lease or under a prior lease of the land to, the land comprised in this lease at such expiration or determination, except such fixtures, erections and improvements, if any, as are expressly excepted from the purchase by the lessee under paragraph (j) of clause 1 of this lease and except such fixtures, erections or improvements as are removed by the lessee in pursuance of paragraph (f) of this clause, such value to be ascertained by agreement or in default of agreement by arbitration under the provisions of the laws for the time being in force in the said Territory relation to arbitration; (d) (This is quoted above.) (e) that if any land is withdrawn from this lease pursuant to paragraph (g) of clause 3 of this lease, the lessee may, but it shall not be obligatory on the lessee so to do, within seven days after the withdrawal or within such further time as the Minister may in writing allow, remove from the land so withdrawn any fixtures, erections or improvements thereon; (f) that the lessee may, but it shall not be obligatory on the lessee so to do, at any time during the said term or within seven days or such further time as the Minister may in writing allow after the expiration or sooner determination of this lease, remove from the land then comprised in this lease any fixtures, erections or improvements on the said land purchased from the Commonwealth if the purchase money payable for such fixtures, erections or improvements has been paid in full to the Commonwealth and remove from the land then comprised in this lease any other fixtures, erections or improvements; ... 3. IT IS MUTUALLY COVENANTED AND AGREED - ... (k) that if any land is withdrawn from this lease pursuant to paragraph (g) of this clause, the lessee shall not be entitled to any compensation in respect of the land withdrawn or, except as provided in paragraph (d) of clause 2 of this lease, in respect of any fixture, erection or improvement on the land withdrawn; 4. In consideration of the covenants and agreements on the part of the Commonwealth contained in paragraphs (c) and (d) of clause 2 of this lease, the lessee releases and forever discharges the Commonwealth from all liability it is or but for this release could or might have been under by virtue of anything contained in any other lease or otherwise to pay compensation except as provided in this lease for any fixture, erection or improvement which now is or at any time was on the land hereby leased." (at p616)

3. I do not think the word "improvements" is to be construed in reference to the Land Tax Assessment Act (Cth) 1910, as amended from time to time, which contains a definition of "improvements". The text of that Act is entirely disparate from the text of the present lease. See s. 3 of that Act. (at p616)

4. The parties contemplated the word "improvements" to have a meaning appropriate in the context of the various clauses quoted above. But not wider meaning than that. I think that what are called "pasture improvements" do not fall within the definition of "improvements" as contemplated by the parties in cl. 2(d). (at p616)

5. I would allow the appeal in part. (at p616)

GIBBS J. I would dismiss this appeal. I have had the advantage of reading the reasons for judgment prepared by my brother Jacobs; I agree with them and have nothing to add. (at p617)

STEPHEN J. I have had the advantage of reading the judgment prepared by Jacobs J. and agree that for the reasons there stated this appeal should be dismissed. (at p617)

2. The lease the interpretation of which is here in question is a printed form, devised by the Commonwealth for use in the case of leases of broad areas in the Australian Capital Territory. In order to express what are to be the respective rights and obligations of lessor and lessee concerning compensation for "improvements" in the event of the demised land or part of it being withdrawn by the Commonwealth during its fifty year term the lease has recourse to four sub-clauses, distributed over as many pages of the lease. (at p617)

3. Five other clauses or sub-clauses also bear more or less directly upon the meaning of "improvements" and the whole concatenation, much of it linked together by internal cross-reference, is replete with inexplicable, and seemingly random, changes of phraseology and syntactic obscurity. (at p617)

4. I have been unable, despite the best efforts of counsel, either to discover any one interpretation which produces a wholly satisfying meaning or, more importantly, to discern any reason for concluding that the meaning ascribed to the document by the learned arbitrator, whose award was subsequently upheld on appeal to a bench of three members of the Supreme Court of the Australian Capital Territory, was erroneous. (at p617)

5. I would dismiss this appeal. (at p617)

MASON J. I agree that this appeal should be dismissed for the reasons given by Jacobs J. (at p617)

JACOBS J. The only subject of this appeal is the true construction of cl. 2, sub-cl. (d), of a lease of certain lands from the appellant to the respondent dated 27th June 1958. Clause 2, sub-cl. (d), is as follows:

"2. THE Commonwealth covenants with the lessee - (d) if any land is withdrawn from this lease pursuant to paragraph (g) of clause 3 of this lease, to pay to the lessee the value at the date of the withdrawal of all fixtures and erections on, and of all improvements on or effected by the lessee or by a prior lessee under this lease or under a prior lease of the land to, the land so withdrawn, except such fixtures, erections and improvements, if any, as are expressly excepted from the purchase by the lessee under paragraph (j) of Clause 1 of this lease and except such fixtures, erections and improvements as are removed by the lessee in pursuance of paragraph (e) of this clause, such value to be ascertained by agreement or in default of agreement by arbitration under the provisions of the laws for the time being in force in the said Territory relating to arbitration". (at p618)

2. In determining the true construction of the sub-clause, two other sub-clauses need particular consideration and I shall set these out:

"1. THE lessee covenants with the Commonwealth - (j) to purchase from the Commonwealth for the price or sum of five hundred and seventy seven pounds fifteen shillings (in this lease called the purchase money) such of the fixtures, erections and improvements on the said land as at the commencement of the said term were the property of the Commonwealth excepting boundary fence between points Q-R-S-T-U-V-W-X-Y-Z as shown on the said plan annexed hereto. 2. THE Commonwealth covenants with the lessee - (e) that if any land is withdrawn from this lease pursuant to paragraph (g) of clause 3 of this lease, the lessee may, but it shall not be obligatory on the lessee so to do, within seven days after the withdrawal or within such further time as the Minister may in writing allow, remove from the land so withdrawn any fixtures, erections or improvements thereon". (at p618)

3. The questions which arise can be stated as follows: 1. Are timber treatment (viz. clearing), pasture improvement and the provision of shade and shelter plantings "improvements" within the meaning of sub-cl. 2(d)? 2. If so, are they (in particular timber treatment) "improvements on the land"? (at p618)

4. The significance of the second question is that certain timber treatment was done before the first leasing by the Commonwealth in 1917. Therefore this treatment cannot be an improvement "effected by the lessee or by a prior lessee under this lease or under a prior lease of the land to" the land. But it may be or may not be an improvement on the land depending on the true construction of the clause. (at p618)

5. In my opinion, timber treatment, pasture improvement and the provision of shade and shelter plantings are all "improvements" within the meaning of that word in the clause - and throughout the lease. There may first be noted a consistent line of authority in this country which gives the word a meaning which embraces the effect on pastoral or agricultural land of these activities. Morrison v. Federal Commissioner of Land Tax (1914) 17 CLR 498 ; Campbell v. Deputy Federal Commissioner of Land Tax (N.S.W.) (1915) 20 CLR 49 ; Fisher v. Deputy Federal Commissioner of Land Tax (N.S.W.) (1915) 20 CLR 242 ; Keogh v. Deputy Federal Commissioner of Land Tax (N.S.W.) (1915) 20 CLR 258 ; McGeoch v. Federal Commissioner of Land Tax (1929) 43 CLR 277 . These are all cases decided on the construction of the Land Tax Assessment Act 1910 (Cth) (as amended from time to time) and, moreover, in a statutory context where the tax was levied upon the unimproved value of land. That was defined as "the capital sum which the fee simple of the land might be expected to realize ... assuming that the improvements (if any) thereon or appertaining thereto and made or acquired by the owner or his predecessor in title had not been made". "Value of improvements" was defined to mean "the added value which the improvements give to the land ..." Griffith C.J. in Morrison v. Federal Commissioner of Land Tax said (1914) 17 CLR, at p 503 :

"What operations of man are improvements? When I say 'operations of man,' I think the term should be limited to what is done by the owner for the time being, that is, after the land has ceased to be Crown land. Any operation of man on land which has the effect of enhancing its value comes within the definition of 'improvement.'" (at p619)

6. It appears to me that the considerations which led the Court in these cases to give the word "improvements" a meaning which would include what is done in improvement of quality of the soil and thereby the usefulness of the land apply as much to the words of this lease as to the words of that statute. In addition there is the conjunction in this lease of the words "fixtures" and "erections" with the word "improvements". If the latter word did not include improvements of the quality of the land itself there would be few, if any, things which the word would denote. (at p619)

7. We were pressed with the submission that the cases in this Court determined before the decision of the Judicial Committee in Toohey's Ltd. v. Valuer-General (1925) AC 439 are affected by the latter decision. But McGeoch v. Federal Commissioner of Land Tax (1929) 43 CLR 277 decided otherwise. The same argument was pressed and was refuted in that case as has been pressed in this case. Toohey's Ltd. v. Valuer-General (1925) AC 439 was held to be distinguishable because it was dealing with the quite distinct point that improvement in value of land caused by extrinsic circumstances (the adherence to the site of a licence to conduct an hotel) was not an improvement proper to be valued in determining "the value of improvements on the land or appertaining thereto". There is implicit in the decision the distinction between mere improvement in value and improvement as a physical act with its physical consequences (whether or not those physical consequences are visually recognizable as the consequence of the physical act). What was said by the majority of the Court in McGeoch v. Federal Commissioner of Land Tax (1929) 43 CLR 277 in this respect is applicable to the argument presented on behalf of the Commonwealth in this case. We are concerned with the value at the relevant date of the physical consequences which enure to the land of the acts whereby the land attained a quality and usefulness additional to that which it had in its virgin state. (at p620)

8. The work done and the physical consequences being improvements, are they "improvements on the land"? Improvements to land result in improvements on that land in the relevant sense. The preposition "on" does not here mean "on the surface of the land" or the like unless the word improvement is limited to physical objects placed or constructed on or in the soil, and for the reasons which I have given I do not think that the word has that meaning. But why then does cl. 2(d) refer not only to improvements on the land but also to improvements effected by the lessee or a prior lessee under the lease or a prior lease to the land? I think that the reason appears clearly enough. If the clause had referred only to improvements on the land this could have been taken to include only improvements made by the lessee. Why, it might then be said, should a lessee be able to remove or be paid for anything else? On the other hand, if the clause had referred only to improvements effected to the land by the lessee or a prior lessee under the lease or a prior lease, it would not embrace improvements made before the first granting of a lease. But prior improvements were envisaged. See cl. 1(j). There is not intended a distinction in quality or kind between "improvements on" and "improvements to" the land. All "improvements" within the meaning of that word, once determined, are comprehended. The lessee was entitled to be paid for all improvements, whenever they were done, unless they came within the particular exceptions stated in cl. 2(d). These exceptions were fixtures, erections and improvements removed by a lessee in pursuance of cl. 2(e) and those expressly excepted from the purchase by the lessee under cl. 1(j). Clause 2(e) allows the lessee on certain conditions to remove from the land any fixtures, erections or improvements thereon. I do not read this clause as referring only to a particular kind of improvement, namely, one on or distinctly visible or palpable on the surface of the land as distinct from one to the land. So also in cl. 1(j) wherein the lessee agrees to purchase from the Commonwealth for a price stated "such of the fixtures, erections and improvements on the said land as at the commencement of the said term were the property of the Commonwealth excepting boundary fence ... as shown on the said plan annexed hereto". This must include all improvements without distinction between those on the surface of land and those to the land. Otherwise there would be a most curious result. The proposed lessee would purchase all improvements "on" the land but would be compensated under cl. 2(d) for all improvements "effected to" the land not only by him or a prior lessee under the lease but also for any "effected to" the land by a lessee under a prior lease. Time and again the lessor would pay under cl. 2(d) for improvements prior to the lease which had not been purchased under cl. 1(j). They could not be excepted under that sub-clause because on this construction they could never fall within the sub-clause. I cannot conceive that such a result was intended by the parties in the operation of these clauses. I do not think that a qualitative distinction was intended between "improvements on" and "improvements effected to" the land. (at p621)

9. I would therefore conclude that the disputed matters were wholly improvements on the land and wholly fell within cl. 2(d). I would dismiss the appeal. (at p621)

Orders

Appeal dismissed with costs.