Eastern Health v MIA Victoria Pty Ltd

IN THE SUPREME COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

No. 2011 of 2008

EASTERN HEALTH (ABN 68 223 819 017)	Plaintiff
and
MIA VICTORIA PTY LTD	Defendant

AND BETWEEN:
MIA VICTORIA PTY LTD (ACN 080 845 594)	Plaintiff by Counterclaim
and
EASTERN HEALTH (ABN 68 223 819 017)	Defendant by Counterclaim

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JUDGE:	JUDD J
WHERE HELD:	Melbourne
DATE OF HEARING:	20-22 January 2009
DATE OF JUDGMENT:	7 April 2009
CASE MAY BE CITED AS:	Eastern Health v MIA Victoria Pty Ltd
MEDIUM NEUTRAL CITATION:	[2009] VSC 105

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CONTRACT – Agreement to lease land reserved under s 4 of the Crown Land (Reserves) Act 1978 – Option to renew – Whether agreement void – Statutory construction – Crown Land (Reserves) Act ss 4, 8(1) 15, 17 and 17D.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr. M. Derham QC Mr. A.P. Rodbard-Bean	Health Legal
For the Defendant	Mr. N. O’Bryan SC Mr. G.A. Hardy	Heinz & Partners

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HIS HONOUR:

Introduction

This proceeding is a dispute over the validity and enforceability of an agreement made between Inner and Eastern Health Care Network and the defendant, MIA Victoria Pty Ltd made in about late February or early March 1999, for the installation of a magnetic resonance imaging (“MRI”) machine at the Box Hill Hospital. The agreement is constituted by a lengthy and detailed document entitled Heads of Agreement.[1] The parties agreed to be bound by its terms.
[1]The full terms of the Heads of Agreement are set out in the Annexure.

The Heads of Agreement has two schedules. Schedule 1 contains the terms of a lease agreement and Schedule 2, the terms of an agreement for the provision of services. Under the lease agreement, the Network purported to grant a lease of defined premises within the hospital to the defendant. Under the services agreement the defendant agreed to provide imaging, nuclear medicine and other radiology services from the premises. The plaintiff is the successor in law to the Network.

It is common ground that the hospital, and thus the premises, are located on Crown land temporarily reserved under s 4 of the Crown Land (Reserves) Act 1978.[2] Section 8(1) of the Reserves Act prohibits a lease of the land unless authorised under the Reserves Act or another Act. No such authorisation was sought or obtained.
[2]Reserve Number 5705 on 4 separate occasions being; 4 acres 28 perches on 9 October 1945, 2 roods 4 perches on 15 November 1949, 2 rood 4 perches on 13 September 1955 and 1 rood 14 perches on 12 July 1955.

The plaintiff seeks a declaration that the lease purportedly granted under the agreement is void and the related services agreement unenforceable against it. It contends that the agreements are inseparable, so that the services agreement falls with the lease agreement.

The defendant acknowledges that the Heads of Agreement was incapable of granting a valid lease in the absence of Ministerial approval, but seeks to uphold the validity of the Heads of Agreement, including an option for renewal, which it contends forms part of each agreement, for a further term of 10 years, to expire on 14 May 2019. The defendant seeks an order requiring the plaintiff to seek Ministerial approval, pursuant to s 17D of the Reserves Act, for the grant of a lease in terms of Schedule 1 of the Heads of Agreement.

The defendant’s case extends beyond declarations of validity and orders for specific performance. The defendant alleges an estoppel, precluding the plaintiff from denying the defendant’s lawful possession of the premises or asserting that the services agreement is unenforceable. The defendant also counterclaims for damages for breach of contract and pursuant to the Trade Practices Act1974 (Cth) and the Fair Trading Act1999 (Vic).

This is the trial of preliminary issues under rule 47.04 of the Rules of Court. Before the commencement of the trial, the parties agreed upon six questions which, if answered by the Court, may dispose of the proceeding. I was persuaded that there is utility in that course and ordered that the following questions be determined prior to trial:

Question 1: Are the Heads of Agreement referred to in paragraph 5 of the Statement of Claim (“the Agreement”), either in part or in whole a legally enforceable agreement between the parties?
Question 2: If yes to question 1, is it an implied term of the Agreement that the defendant will have all necessary access to, and the use of, the Land for so long as the Agreement remains on foot?
Question 3: If yes to question 1, is it an implied term of the Agreement that the plaintiff is obliged to take all reasonable steps to procure a valid and enforceable lease consistent with the terms of the Agreement, including by making application to the Minister under s.17D of the Reserves Act?
Question 4: If yes to question 1, does the Agreement include valid and enforceable options in favour of the defendant to extend the term of the Lease Agreement provided for in Schedule 1 and/or the MRI Services Agreement provided for in Schedule 2, in each case for a further term of 10 years?
Question 5: If yes to question 4, has the MRI Services Agreement been extended for the further term of 10 years commencing on 15 May 2009?
Question 6: If yes to question 5, is MIA entitled to enter and remain upon the Land for the purposes of providing the MRI Services to the Plaintiff, and to service its own patients, pursuant to the Agreement for a further term of 10 years commencing on 15 May 2009?

In order to better define the issues to be resolved, when answering the preliminary questions, the defendant sought leave to file a further amended defence confined to those issues. I granted the defendant leave for that limited purpose.

The evidence relevant to the preliminary questions is not controversial. As might be expected the issues can be resolved by reference to the documents, although both parties rely to some extent upon the evidence of various witnesses advanced in the form of witness statements, which, after objections and some consequential modification, were tendered as the evidence of the witness. They provide background and colour to the documents.

Background

The plaintiff is a public health service under the Health Services Act 1988. It was incorporated on 1 July 2000. Certain hospital and other properties, previously under the supervision and control of the Network, were transferred to the plaintiff. One such property was the hospital at Box Hill. The plaintiff was appointed as the committee of management of the hospital land under s 14(2) of the Reserves Act to manage the hospital site.

By 1998 magnetic resonance imaging was recognised as the best form of medical imaging available. MRI machines had been installed at the Peter MacCallum Cancer Institute, the Alfred Hospital and St Vincent’s Hospital. The machines were expensive, costing well over $1 million. The hospital was anxious to obtain access to a machine but did not have funding. Under the Heads of Agreement the plaintiff gained access to a machine on the hospital premises.

Prior to the new relationship created under the Heads of Agreement, the hospital and the defendant’s professional staff had enjoyed a longstanding and cordial relationship. The defendant was previously known as Victorian Imaging Group Pty Ltd, which was, in substance, an entity incorporating a partnership of radiologists. The partnership had carried on business under the name Victorian Imaging Group.

The relationship between the hospital and the partnership commenced in about 1985, when the hospital engaged the partnership to provide radiology and related services to in-patients. The services were initially provided from premises about 400 metres from hospital grounds. It was generally recognised that the movement of patients to and from the service premises exposed them to an unacceptable health risk. In order to eliminate that risk, in the early 1990s hospital representatives asked the partnership to consider providing radiology services from within the hospital premises. The parties reached agreement which was recorded in a written agreement dated 1 December 1993, under which the partners were permitted to conduct their private radiology practice from the hospital premises, provided they did not adversely affect the hospital’s capacity to gain access to the services for its patients.

The 1993 agreement was to continue for a term of five years. The partners were given an option to renew for a further term of five years. The option was to be exercised by notice in writing given within six months before the end of the initial term. The 1993 agreement did not expressly provide for any right of occupation at the hospital. For reasons I have expressed below, the committee of management had the authority to provide informal rights of entry and occupation to service providers, including the defendant, providing medical and other services to hospital patients. The plaintiff did not suggest that the defendants right of occupation for the purpose of providing hospital services, implicit in the 1993 agreement, was prohibited under the Reserves Act.

The 1993 agreement was varied in 1995. In 1998, at the end of the initial term, the contract was renewed, by a deed of renewal, for a further five years until 30 June 2003. The deed of renewal was made between the individual partners, Victorian Imaging Group Pty Ltd and the Network.

The services provided under the 1993 agreement were described in the Heads of Agreement as Additional Services and were to continue to be governed by the earlier agreements. Clause 5.1 of the Heads of Agreement provided that all existing rights of the defendant to occupy the hospital premises under the earlier agreements ceased.

On 3 May 1998 Dr Meikle, a director of the defendant, wrote to Professor Rasa, Chief Executive Officer of the hospital, proposing an arrangement under which the defendant would install and operate a machine at the hospital. There followed negotiations between officers of the plaintiff and the defendant which resulted in the execution of the Heads of Agreement in late February or early March 1999.

The occupancy arrangements may well have continued as they had under the 1993 contract. The plaintiff was obviously content with the defendant’s right to have access to and occupy part of the hospital to perform those services. It is only because the parties agreed, under the Heads of Agreement, that the informal right of access under the 1993 contract, would be replaced by a lease, that the plaintiff now has the opportunity to advance its case for invalidity under the Reserves Act.

In order to install and operate the MRI machine and its other radiology equipment the defendant was required to undertake building works at the hospital at its own expense. When entering into the Heads of Agreement the plaintiff knew that the defendant would incur very substantial expense in connection with works and for the purchase and installation of equipment.

Construction work began on the new radiology suite in about February 1999, prior to execution of the Heads of Agreement. The works were completed on about 18 May 1999 at a cost to the defendant of about $450,000. The total cost to the defendant of the building works, relocation of equipment and the new MRI machine exceeded $2 million.

It is possible that the representatives of the hospital involved in the preparation and execution of the Heads of Agreement were not aware of the implications of the Reserves Act to the proposed lease. That would be surprising, however, as the hospital had engaged solicitors to advise it in relation to the agreement. In any event, in late 1999 Professor Rasa was aware that the Reserves Act governed the leasing of hospital land to third parties. He asked Silvio Tiziani, the clinical support services manager at the hospital, to look into the matter. It is not entirely clear what if any action was taken as a consequence.

Mr Tiziani said that he had become aware of issues concerning the Reserves Act in a conversation with the plaintiff’s solicitors in about October 1999. He was told that Ministerial approval would be required for the lease. As a consequence, the plaintiff sought advice from the Department of Natural Resources and Energy about the procedure for Ministerial approval. Trevor Ratcliffe from the department responded by email on 6 October 1999, attaching a copy of the department’s standard lease. His email continued:

The lease process has two approval steps. The first is the approval by the Minister (or delegate) for the Network to grant a lease for a particular purpose. When this is requested it would be helpful to submit a draft lease for comment.
When approval to the grant and purpose has been obtained and stamp duty needs to be assessed and paid. The executed lease is the (sic) submitted again for the Minister (or delegate) to approve its terms and conditions.
Both approvals can be done at the one time but if the Department has any comments which need to be reflected in the lease it can be difficult. Although it seems burdensome, the two separate approvals are probably the better way to go.

The Heads of Agreement contemplated the preparation of a formal lease and services agreement by the plaintiff’s solicitors. Work on the preparation of more detailed formal agreements commenced, but did not advance after early 2000. An issue arose between the plaintiff and defendant concerning the plaintiff’s right to terminate the services agreement at the end of 10 years. The plaintiff sought the right to refuse renewal of the services agreement if it was dissatisfied with performance by the defendant under the agreement. What the plaintiff sought, in my opinion, was a variation to the Heads of Agreement.

Dr Tracy Lee Batten was appointed Chief Executive Officer of the plaintiff in January 2004. She was told that the requirements of the Reserves Act had not been observed in relation to the Heads of Agreement. Notwithstanding the advice, she regarded the MRI Services as an essential part of the radiology services available to the hospital. She did not then seek to challenge the defendant’s right to occupy the premises. Dr Batten considered that it was vital that these services continued to be provided with minimal disruption in the event of change of provider.

Such was the hospital’s need and the relationship between the parties that on 13 July 2006 the plaintiff and defendant entered into an agreement by which the services agreement was varied by amending the fees payable by the hospital for scanning services. The new agreement was to commence on and from 1 March 2005. Clause 2.1 provided:

Subject only to the variations in this agreement, and other alternations (if any) it may be necessary to make the Heads of Agreement consistent with this agreement, Heads of Agreement remains in full force and effect and will be read and construed and be enforceable as (if) the terms of this agreement were inserted by way of additional substitution (as the case may be).[3]

[3]Emphasis added.

The amending agreement, signed on behalf of the plaintiff by the Chief Executive Officer and witnessed by the General Manager, Claire Douglas, was made by the plaintiff in the belief that there could not exist a valid lease without Ministerial approval and in the knowledge that the lease had not been submitted to the Minister for approval.

The preparation of a formal lease once again became an issue in about July 2005. At that time the plaintiff proposed a lease expiring in 2009. The plaintiff proposed, presumably as some sort of compromise, that a lease be prepared and submitted to the Minister for approval, but without any option for renewal. Negotiations continued until about August 2007 when it became apparent that the plaintiff would not submit a lease to the Minister containing an option for renewal.

By notice in writing dated 3 September 2007 the defendant purported to exercise an option to renew the lease for 10 years. On 16 January 2008 the defendant’s solicitor wrote to the plaintiff enclosing a separate notice purporting to exercise an option to renew the services agreement for 10 years. The plaintiff does not dispute that if the defendant had a valid option to renew, it has exercised that right.

In January 2008 the plaintiff published a document calling for tenders for the provision of medical imaging services. The tender provisions included the following:

The successful tender may be required to enter into leases with Eastern Health in respect of the occupation of the premises at Box Hill Hospital, Maroondah Hospital and the Angliss Hospital. Such leases will be subject to the approval of the relevant Minister.

The plaintiff does not object to the defendant remaining in occupation of the premises until the conclusion of the initial term ending on 14 May 2009. The plaintiff does not suggest that the defendant is not performing its obligations under the Heads of Agreement. There is no complaint about the quality of the services being provided by the defendant. There is no suggestion that the defendant’s use of the premises is detrimental to the purpose for which the land is reserved. The plaintiff alleges that the defendant’s use of the premises is for hospital purposes, which is the purpose of the reservation.

Heads of Agreement

It is common ground that the Heads of Agreement constitutes the agreement between the plaintiff and defendant. The terms of the agreement and schedules require close analysis. The Heads of Agreement was executed after extensive negotiation. It was prepared by the plaintiff’s solicitors. Clause 6 expressly provided that it would constitute a binding agreement.

The parties agreed, and recorded in the Heads of Agreement, that it would be replaced by a more detailed lease and services agreement, also to be prepared by the plaintiff’s solicitors. The more formal lease was to reflect the terms and conditions contained in Schedule 1 … with such additions and modifications only as are reasonably necessary to give commercial effect to the lease and as are reasonably acceptable to (the defendant).[4] Identical obligations were imposed in relation to the services agreement, requiring conformity with Schedule 2 and only permitting modifications reasonably necessary and reasonably acceptable to the defendant.[5]
[4]Heads of Agreement cl 1.2. Emphasis added.
[5]Heads of Agreement cl 2.2.

The parties contemplated the possibility that they would not agree on the terms of the more formal lease and services agreement. If formal agreements were not executed for any reason, the Heads of Agreement was to continue to operate and, even if such formal agreements were executed, the Heads of Agreement would prevail in the event of inconsistency.

The initial term of the lease was to commence on 27 January 1999 and continue for 10 years from completion of the works or 15 May 1999, whichever was the earlier. Practical completion occurred on 18 May 1999. Accordingly, the term of the lease is due to expire on 14 May 2009, subject to renewal.

The duration of the services agreement was obviously intended to coincide with the duration of the lease. Some disconformity was possible, although unlikely. There are corresponding provisions in Schedule 1 and Schedule 2 enabling the plaintiff to terminate both agreements in the event of a breach of one.

The agreement contained extensive dispute resolution provisions designed to overcome disagreement about the terms of the formal lease and services agreement. It does not appear as if those provisions were ever invoked.

Under the Heads of Agreement the defendant agreed to occupy the premises for the purpose of providing the MRI Services and the Additional Services. The existing right of occupation was to be replaced by a lease. The intention of the parties was that all services would be provided from one location. To achieve that objective the defendant was required to remove equipment from other parts of the hospital and relocate the equipment into the new premises.

Schedule 1 contained the detailed terms and conditions of the lease. The plaintiff does not contend that the terms and conditions are uncertain or incomplete save for the absence of detail relating to the Further Term of 10 years. The plaintiff makes the same limited complaint about the terms of the service agreement recorded in Schedule 2, which are said to be incomplete only in respect of the further term of 10 years.

Reserves Act

The Reserves Act was enacted as part of a legislative scheme designed to update and simplify the law relating to Crown lands. A major concept of the Reserves Act, as explained by the Minister for Lands in his second reading speech, was the modification and expansion of the list of purposes for which land might be reserved to suit modern day conditions and the simplification of administrative requirements. Substantial parts of the Land Act 1958 were deleted and replaced by new provisions in the Reserves Act.

Section 4(1) of the Reserves Act invested the executive government with a general power to reserve land for public purposes. A reservation might be temporary or permanent. A temporary reservation might be revoked, provided an Order was published in the Government Gazette 14 days before revocation[6]. Some permanent reservations might also be revoked.[7] Section 4 relevantly provides:
[6]Reserves Act s 10.
[7]Reserves Act s 11.

Power to reserve Crown land for public purposes
(1)The Governor in Council may by Order published in the Government Gazette reserve by a general or particular description either temporarily or permanently any Crown lands which in his opinion are required for any public purposes and without affecting the generality of the foregoing for any or any combination of the following—
…
(zc)hospitals and institutions or services for any other purposes administered by the Minister administering the Health Services Act 1988 or conducted by committees registered under the Hospitals and Charities Act 1958;

Section 8 of the Reserves Act did not attract any elaboration in the second reading speech, although it employed a new formulation of words designed to prohibit unauthorised dealings with Crown land. Section 8 prohibited the sale, lease or licensing of reserved lands. It provided:

Any land which has been reserved either temporarily or permanently under section 4 shall not (except as authorized by this or any other Act) be sold leased or licensed unless the reservation thereof has been revoked and any purported sale lease or licence of such land shall be absolutely void as well against Her Majesty as all other persons whomsoever.

Under ss 18 to 22 of the Land Act 1958, as it existed prior to the enactment of the Reserves Act, a variety of expressions were used to prohibit and to express the consequences of unauthorised dealings. Under s 18, every conveyance or alienation of land permanently reserved from sale was absolutely void as well against Her Majesty as all other persons whomsoever. Where land was temporarily reserved from sale or from being leased or licensed, s 19 provided that the same shall not be sold or leased nor shall a licence be granted in respect thereof ... Section 20 provided that land reserved for water reserves shall not be alienated in fee simple … and every conveyance and alienation of such land shall be absolutely void as well against Her Majesty as all other persons whomsoever.

Section 8 of the Reserves Act did not distinguish between temporary and permanent reservations. It contained a prohibition on unauthorised sale, lease or licence in terms similar to s 19 of the Land Act1958, coupled with a declaration of invalidity in similar terms to that found in ss 18 and 20 in the event of a conveyance or alienation.

Sections 8(2), (3) and (4) were inserted into the Reserves Act in 1993, by s 3 of the Land (Crown Grants and Reserves) Act 1993. Section 5 of the 1993 Act contained a provision entitled Supreme Court – Limitation of jurisdiction which stated:

It is the intention of this section to alter or vary section 85 of the Constitution Act 1975 to the extent necessary to ensure that
(a)The amendments made by this Act to the Crown Land (Reserves) Act 1978 and the Land Act 1958 prevail over any inconsistent rule of the common law; and
(b)Without limiting paragraph (a), those amendments have effect despite the decision of the Supreme Court in The Major, Councillors and Citizens of the City of Richmond v. Her Majesty’s Attorney General for the State of Victoria (Proceeding No. 6345 of 1990)

The sub-sections inserted in s 8 by the 1993 Act provide:

(2)An Act other than this Act (whether passed before or after the commencement of this subsection) must be taken to authorise the sale, leasing or licensing of land reserved temporarily or permanently under section 4 only if it expressly, and not merely by implication, authorises the sale, leasing or licensing of—
(a) that particular land; or
(b)any class or description or Crown land or reserved land that includes that land; or

(c) Crown land or reserved land generally.
(3)For the purposes of subsection (2)(b) and (c) an Act which authorises the sale, leasing or licensing of land, without expressly referring to Crown land or reserved land, must not be taken to authorise the sale, leasing or licensing of Crown land or reserved land.
(4)This section has effect despite any Act or rule of law to the contrary, including any rule of the common law.

Section 14(2) of the Reserves Act permits the Minister to appoint a committee of management to any temporarily or permanently reserved land. The Network had been appointed committee of management until the plaintiffs appointment in 2001. Under s 15 the committee of management shall manage improve maintain and control the land for the purposes for which it is reserved …

Section 17 formed part of the Reserves Act, first enacted in 1978, authorised the committees of management to deal with reserved land certified by the Governor in Council, in limited circumstances. No Ministerial approval was required. Section 17(2) provides:

Notwithstanding anything in this Act but subject to any regulations made under section 13 relating to the land concerned the trustees or committee of management of any land certified under subsection (1)—
(a)may grant licences to enter and use any portion of such land or any building thereon for any purpose consistent with the purpose of the reservation of the land for a period not exceeding three years;
(b)may enter into agreements to operate services and facilities consistent with the purpose of the reservation for a period not exceeding three years; and
(c)may enter into tenancy agreements with persons to erect buildings and other structures for any purpose consistent with the purpose of the reservation and any such agreement—
(i)shall provide that all buildings and structures shall become the property of the committee;
(ii)shall be for a specific term which shall not exceed three years;
(iii)shall be subject to termination at any time by direction of the Minister; and
(iv)may provide that the committee requires the tenant to undertake the removal of the building and the clearing of the site to the satisfaction of the committee on the expiry or determination of the agreement.

The plaintiff submitted that prior to amendments made to the Reserves Act in 1984, s 17 covered the field of circumstances in which a committee of management was authorised to confer upon a third party a right to enter or occupy reserved land. In my opinion that is an unduly narrow interpretation of s. 17. A committee of management is authorised under s. 15 to enter into agreements or arrangements with third parties permitting them to enter upon and occupy reserved land provided that their use is for the purpose of the reservation and provided there is no sale, or grant of a lease or licence. Thus, the plaintiff could lawfully have permitted the defendant to enter and occupy the premises for hospital purposes.

The purpose of s 17 is to enable a committee of management to permit non–conforming uses, provided they are for a purpose consistent with the purpose of the reservation and then only in the prescribed circumstances. For example, a committee managing land reserved for the conservation of areas of natural interest or beauty may grant a licence or enter into an agreement facilitating the provision of services to campers and other visitors. There are many such examples where the proposed use is not the same as the purpose for which the land is reserved, but is consistent with that purpose.

The powers of a committee of management were modified by the Crown Land (Reserves)(Amendment) Act 1984, which inserted ss 17A, 17B, 17C, 17D and 17E into the Reserves Act. The defendant relied upon s 17D as enabling the plaintiff to seek Ministerial approval of the lease. The plaintiff submitted that s 17D had no application to the present circumstances. It submitted that the heading made it plain that the provision was to apply only to leases for purposes other than those for which the land is reserved. As the use under the lease was for a hospital purpose it was for the very purpose for which the land was reserved. The plaintiff also submitted that any approval by the Minister must precede the lease. As the lease was purportedly granted under the Heads of Agreement, it submitted that approval could not now be sought or obtained.

Reading the Bill a second time, the Minister for Housing said of the proposed amendments:

Its purpose is to amend the Crown Land (Reserves) Act 1978 to extend the purposes for which reserved land may be leased, licensed or used and to rectify deficiencies in the appointment of certain trustees and committees of management.
The first amendment provides authority for the issue of licences over reserved land for purposes other than those for which the land is reserved.
Section 17 of the principal Act empowers trustees or a committee of reserved land, other than land reserved for the protection of the coastline, to grant licences to use any portion of the reserved land or any building thereon for any purpose consistent with the purpose of the reservation for a period not exceeding three years.
The amendment will enable existing tenancies of reserved Crown land for purposes other than that of the reservation to be placed on a proper legal basis. At present there are a great many ad hoc arrangements between committees of management and tenants which have no legal basis and, therefore, confer neither protection for the tenant nor firm authority for the committee.
…
The Bill also extends the powers in respect of the leasing of reserved Crown land by inserting new provisions to enable leasing for periods of up to 21 years by the managing bodies or, where no management body exists, by the Minister for any purpose approved by the Minister. This is achieved by inserting new section 17B [enacted as 17D] in the principal Act.
Although the principal Act provides for leasing of reserved land for specific purposes, there are many existing tenancies granted without legal authority by managing bodies of reserves for purposes such as recreational facilities, caravan parks, boat hiring businesses and restaurants. Examples of such occupancies are those where bowling clubs have long been established on general public purposes reserves. This amendment will enable those occupations to be placed on a legal and proper business basis.
…
Both foregoing amendments will enable existing occupations to be converted to legal tenures and any proposed future use of reserves for purposes other than that of the reservation, if considered desirable by the Minister can be formalized by the granting of a tenure. The amendments provide greater flexibility in the management of reserves.

The heading to s. 17A is – Continuation of uses of reserved land for purposes other than those for which it is reserved – licences and agreements. Where land reserved under s 4 was used or occupied immediately before the commencement of the Amendment Act, for a purpose not consistent with the purpose of the reservation, a committee of management was authorised to:
…
(d)grant a licence to the person or body to enter and use that portion of the land or that building for a period not exceeding three years;
(e)enter into an agreement with the person or body to operate the service or facility on the land for a period not exceeding three years; or
(f)enter into a tenancy agreement with the person or body who erected the building or structure -
as the case requires, for the purpose so approved.
The heading to s 17B is Licences for purposes other than those for which land is reserved. Section 17B authorised a committee of management, with the approval of the Minister, to grant licences and enter into operating agreements and tenancy agreements of the kind mentioned in s 17 for any purpose. No certification by the Governor in Council was required, as for s 17, but the authority of the Minister to give approval is constrained by s 17B(3), which limits the scope of approval to cases where there were special reasons making the grant or agreement appropriate. Approval could only be given where the intended use was not detrimental to the purpose for which the land and adjacent land was reserved. There were other limitations on Ministerial approval. The evident purpose of this provision was to overcome pre‑existing administrative restrictions and ensure that the non‑conforming use was approved by the Minister.

The heading to s 17C is Continuation of uses of land for purposes other than those for which it is reserved – leases. Section 17C of the Reserves Act was designed to facilitate the continued use of land reserved under s 4 but which had been habitually used for a purpose other than the purpose for which it was reserved.

The heading to s 17D is – Leases for purposes other than those for which land is reserved. Section 17D(1) provides:

Notwithstanding anything in this Act and notwithstanding any regulations made under section 13 relating to the land concerned but subject to subsection (4) the trustees or committee of management of any land reserved under section 4 may, with the approval in writing of the Minister (given in accordance with subsection (3)), grant leases of any part of the reserved land for any purpose so approved by the Minister, and where there are no trustees or committee of management of any land reserved under section 4, the Minister may grant leases of any part of the reserved land for any purpose.[8]

[8]Emphasis added.

There are limitations, set out in s 17D(2), upon the land to which s 17D(1) applies, although those limitations have no application in the present circumstances. Under s 17D(3), Ministerial approval of a lease is prohibited unless the Minister is satisfied that the purpose for which the lease is to be granted is not substantially detrimental to the use and enjoyment of adjacent reserved land or detrimental to the purpose for which the land was reserved. A lease must be for a term not exceeding 21 years and meet certain other conditions. Section 17D (3) and (4) provide:

(3) The Minister must not give approval under subsection (1) unless—
(a)in the case of land referred to in subsection (2)(a)(ii) he or she states in the approval that there are special reasons which make granting the lease reasonable and appropriate in the particular circumstances and that to do this will not be substantially detrimental to the use and enjoyment of any adjacent land reserved under this Act; or
(b)in the case of any other land, he or she is satisfied that the purpose for which the lease is to be granted is not detrimental to the purpose for which the land is reserved.

(4) A lease granted under subsection (1) or under section 17C—
(a)shall be for a specific term not exceeding 21 years;
(b)shall provide that any buildings or structures erected pursuant to the lease shall become the property of the trustees or committee of management, or (where there are no trustees or committee of management of the land) of the Crown;
(c)shall be subject to such covenants, exceptions, reservations and conditions as are determined by the trustees or committee of management and approved by the Minister, or where there are no trustees or committee of management, as are determined by the Minister.

It is not suggested by the plaintiff that, if s 17D is applicable, there are circumstances which preclude Ministerial approval by reason of some detriment to the use and enjoyment of adjacent land or the purpose for which the land is reserved. On the contrary, the plaintiff’s case is that the use of the premises by the defendant is for the very purpose of the reservation.

Incomplete agreement

It is convenient to first consider the plaintiff’s challenge to the completeness of the Heads of Agreement before turning to questions of validity and the opportunity for approval of the lease under the Reserves Act. If the defendant does not have an option for renewal there is no further issue between the parties, because the plaintiff is willing to permit the defendant to remain in occupation until 14 May 2009.

The plaintiff’s allegation, that the Heads of Agreement is incomplete in material respects, may be distilled to the contention that the nature of the services provided by the defendant at the hospital are such as to require a high degree of particularity in the Heads of Agreement to define the circumstances in which any option for a further term may be exercised. The plaintiff particularised its allegation, by reference to the failure of the parties to address the following matters in connection with the renewal provisions:

(a)Whether the exercise of the right or option was unilateral to one party or the other;
(b)Whether the exercise of the right or the option was subject to mutual agreement, in part or in whole, or capable of rejection or partial rejection by the other party;
(c)How the right or the option to defer the term was exercisable;
(d)Whether there were preconditions to the exercise of the right or the option;
(e)By which date the right or the option was to be exercised;
(f)Upon the exercise or acceptance of the right or the option, what if, any, agreement thereby arose between the parties;
(g)What were the operative terms of the new agreement and whether the terms of the new agreement were unilaterally binding upon the party;
(h)What fee for MRI services was payable under the terms of the agreement that arose upon the due exercise of the right or the option;
(i)What rent was payable under terms of the agreement that arose upon the due exercise of the right or the option;
(j)What, if any, part of the new agreement, such as the fees payable for provision of MRI services (clause 7 of the services agreement) or the review of fees (clause 8 of the services agreement) was subject to further agreement or negotiation.

The modern approach by the Courts to the problem of incompleteness and uncertainty in contractual dealings is sympathetic to the lack of precision often found in commercial documents.

The reality of commercial dealings, where fluidity and adjustment rather than precise documentation are the working methods of business people, has now made its mark on the law. It is generally recognised that a Court should do all in its power to uphold the arrangement that the parties have made, even if it is defective. The cases are now unusual, though nevertheless still found, where a Court will declare a contract void for uncertainty. The Courts use their interpretive powers to make sense of difficult or ambiguous language and, at times, are prepared to resort to the implied term to fill a gap.[9]

[9]Contract: General Principles edited by J.L.R. Davis, The Laws of Australia, Thompson Law Book Co para. [7.1.1340]; see also [7.1.1.350].

The plaintiff submitted that the reference to one further term of 10 years in Schedule 1 and Schedule 2 did not make it clear whether an option exists at all and, if so, which party was the beneficiary. In that sense there is an obvious absence of defining words. The defendant submitted, however, that the words were obviously intended to confer upon the defendant, which had made a substantial investment in the premises, security of tenure and an opportunity to recover its investment. In support of its submission, the defendant relied upon antecedent negotiations and subsequent conduct in the preparation of draft leases that were never executed. Such conduct does not, in my view, fall within that which is admissible to “fill a gap” in an agreement.[10]
[10]Cf W. & J. Sharp v Thompson (1915) 20 CLR 137; Kell v Harris (1915) 15 SR (NSW) 473.

While the subjective belief or understanding of the parties must be put to one side, the Court is entitled to examine the whole of the agreement and enquire what a reasonable person would understand by the language. In Toll (FGCT) Pty Ltd v Alphapharm Pty Limited[11], the High Court said:

This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.[12]

[11](2004) 219 CLR 165, at 179; Emphasis added.

[12]Emphasis added.

Salient features of the transaction and surrounding circumstances known to the parties, include the fact that the defendant was to make a substantial investment to modify the premises to accommodate the machine and its other equipment, and to purchase and install the MRI machine. The defendant was required to give up any right of occupation previously enjoyed under the 1993 agreement, as varied and renewed. It was to secure its right to occupation through the new lease agreement. The defendant was required to remove its equipment from other parts of the hospital and install that equipment in the new premises.

In my opinion a reasonable person would have understood the expression Further Term, followed by the words One further term of 10 years, in the lease agreement as conferring upon the lessee (the defendant) the option to renew the lease for one further term of 10 years. Such a construction is consistent with the continuity of obligations imposed on the defendant under the lease during the further term.[13] In the absence of a tenant’s entitlement to a further term, there is no purpose in making mention of the period of the further term in the context of the tenant’s obligations during such a period.
[13]Schedule 1 cl 6 Rent; cl 18 Insurance.

The same absence of defining words is found in Schedule 2. Viewed independently, the services agreement may not have some of the characteristics of the lease agreement which might cause a reasonable person to conclude that the parties intended that there be an option exercisable by the service provider. The lease agreement imposed onerous obligations upon the defendant as lessee, whereas it might be said that the services agreement was for the defendant’s benefit, providing a source of revenue, while exposing the plaintiff to the risk of a service relationship that may prove unsatisfactory for some reason other than for breach. Much depends upon when the analysis takes place. For example, it is clear that when the formal lease was under negotiation, in and after the year 2000, the plaintiff sought the right to control any extension of the arrangements beyond 10 years.

In my view the time to undertake the analysis is at the time the agreement was made. At that time the Network was anxious to obtain access to a MRI machine and reached a binding agreement with the defendant on terms under which it could achieve its objective. The lease agreement and the services agreement formed part of an inseparable bundle of rights and obligations. While a service agreement without an express right of occupation may be commercially viable, a binding lease, within hospital premises but without a services agreement, may not.

The connection between and interdependency of the lease agreement and the services agreement is also reflected in the fact that the two agreements form part of the Heads of Agreement. The recitals to the Heads of Agreement express the consideration for the grant of the lease as being the defendant’s agreement to provide the MRI Services. It was commercially important to the plaintiff to bind the defendant to the provision of services for the duration of the lease.

There are other connecting factors between the two agreements, including the breach provisions which make a breach of one agreement a breach of the other. The agreements were obviously intended to commence and end together even though it is possible, although unlikely, that some minor disconformity might have occurred.

The plaintiff submitted that the lease agreement and services agreement were so interconnected that it would not be possible to sever one from the other in the event that the lease agreement is void. The defendant, on the other hand, submitted that the services agreement could stand alone, unsupported by the grant of a valid lease.

It is plainly possible to envisage circumstances in which the defendant may continue to provide the services in the absence of a grant of a lease. Many of the services were provided in the absence of a lease prior to 1999 and have been provided since then and continue to be provided, without the grant of a lease. The use of the land by the defendant is for hospital purposes and thus for the purpose of the reservation. No lease is necessary to permit occupation by the defendant for the purpose of providing its services.

In my opinion the right of occupation under the lease agreement and services agreement were intended by the parties to fully compliment each other. No doubt the defendant sought the additional security of the grant of a valid lease. That did not occur. But it was the intention of the parties that the defendant’s right of occupation, when providing the MRI Services and Additional Services, was to be governed by the terms of the lease agreement, rather than some less formal arrangement.

The connection between and interdependency of the lease agreement and the services agreement mentioned above has the consequence that the benefit to the defendant of the further term under the lease agreement cannot have been intended by the parties as susceptible to frustration by an option under the services agreement in favour of the plaintiff. The benefit of the further term under the lease agreement could only be enjoyed by the defendant if it could provide the MRI Services and Additional Services from the premises.

Thus, the intended symmetry of the lease agreement and services agreement could only be preserved if the term of each agreement was to be extended, if at all, together. The Further Term in Schedule 2 was, in my view, intended to provide the defendant with a corresponding option for renewal under the services agreement. In my opinion a reasonable bystander would have understood that the further term under the services agreement must follow and compliment the further term under the lease. There was effectively only one option.

Having decided that there was one option in favour of the defendant, the next question is when must it be exercised. The fact that the defendant has already purported to exercise the options does not answer the complaint made by the plaintiff that in the circumstances of this case precision was required as to the time at which the option must be exercised so as to permit the plaintiff to adapt to changed circumstances if necessary. The defendant submitted that at common law an option for a further term is exercisable by a tenant at any time whilst the relationship continues, even during any period of over-holding.[14]
[14]Woodfall, Landlord and Tennant 27^th Edition p 977, para 2086; Associated Minerals Pty Ltd v HSW Rutile Mining Co Pty ltd (1961) 35 ALJR 296.

The absence of a defined period might be explained by an assumption that it would be dealt with in the more formal agreement; or by the lack of formality in the pre‑existing occupancy arrangements under which the defendant provided services from the hospital premises; or the prior history of the parties’ ability to work together. These factors, or some of them, may have converged to eliminate any perceived risk of prejudice to the plaintiff if advance notice of renewal was not given and explain the absence of a defined period. But in the end, the basis of the plaintiff’s allegation of inconvenience and prejudice, threatened by the absence of a defined period of notice, does not support the conclusion that, in the absence of such a period, the Heads of Agreement was incomplete and unenforceable. A defined period of notice was not regarded by the parties as necessary when preparing the Heads of Agreement. The Heads of Agreement was prepared by experienced solicitors acting on behalf of the plaintiff.

Uncertainty for the plaintiff, in the period leading up to the end of the initial term, is only one of a number of business risks associated with the relationship, requiring management like any other business risks that might arise in connection with the administration of the agreements. Inconvenience or risk of prejudice to a party in the management of a business risk, is no basis to strike down a term as important as an option for renewal, on the grounds of incompleteness, particularly where the risk was not considered important enough to deal with at the time the binding agreement was made.

The other grounds relied upon by the plaintiff to contend that the renewal provisions were incomplete also lack substance. Upon renewal of the term of both the lease and services agreements, the terms of agreement would continue, as they had in the past, although with no opportunity for a further extension. The plaintiff’s complaints about the absence of definition of operative terms, rent, fee arrangements and other matters mentioned in its particulars, will be no more vague or uncertain than the terms under which the agreement had been performed during the initial term.

It follows that I do not consider the provisions in the lease agreement or services agreement, concerning the further term, to be so incomplete or uncertain as to deny to the defendant a right to exercise an option to renew the agreements for one further term, if the lease agreement is otherwise valid and enforceable.

Validity

The plaintiff submitted that the Heads of Agreement comprise one inseparable agreement which must fail as a whole if, by reason of s 8(1) of the Reserves Act, the lease agreement is invalid. The defendant submitted that s 8(1) does not strike down agreements, but is confined in its operation to prohibit and invalidate grants, conveyances and other transactions that confer proprietary interests on third parties in reserved land, unless authorised under the Act or another Act.

The defendant accepted that the Heads of Agreement did not have the effect of granting a lease, but submitted that the lease agreement was nevertheless binding and that it was the presumed intention of the parties that the plaintiff do all that was reasonable on its part to obtain the Minister’s consent under s 17D of the Reserves Act. The plaintiff submitted that s 17D did not apply to the lease agreement under the Heads of Agreement; but even if it did, any application for approval must predate the agreement.

Section 8(1) of the Reserves Act

While I accept the plaintiff’s submission that the Reserves Act covers the field in relation to the circumstances in which a lease may be granted over reserved land, s 8(1) of the Reserves Act does not go so far as to prohibit that which is not a sale, lease or licence. Where a sale is concerned, s 8(1) prohibits the conveyance or alienation. In the case of a lease, it prohibits the grant, which involves the alienation of land and the creation of a proprietary interest. In the case of a licence it prohibits the grant, which also creates a proprietary interest in the land. Section 8 does not, however, prohibit agreements to lease or agreements to sell or agreements to licence.

The distinction between the conveyance, the grant or creation of a proprietary interest on the one hand and the creation, by an instrument of a contractual right on the other, is well understood. That very distinction underscored the decision of the High Court in Butts v O’Dwyer[15] and is reflected in the language of the Reserves Act.
[15](1952) 87 CLR 267.

In Butts v O’Dwyer, Butts agreed in writing to lease to O’Dwyer a parcel of land comprised in a Crown grant, coupled with an option to purchase at the expiration of the lease. O’Dwyer duly exercised the option. Section 272 of the Crown Lands ConsolidationAct 1913 (NSW) required Ministerial consent to the lease or sale of the land. Consent had never been obtained. Butts’ executors claimed that the lease was void and illegal having been effected without the consent of the Minister. It was held that under s 272, the parties may enter into an instrument of transfer that would not become effective until Ministerial consent had been obtained. There was an implied condition that the transferor would do all things reasonable on his part to obtain Ministerial consent.

The plaintiff submitted that Butts v O’Dwyer should be distinguished because the language employed in s 8(1) of the Reserves Act expressly prohibited the very thing done by the Heads of Agreement namely, the purported grant of a lease. It submitted that if there was any doubt about the prohibition extending to the Heads of Agreement, the words, purported … lease … of such land includes an agreement to lease.

Section 8(1) of the Reserves Act has two parts. The first part constitutes the prohibition on a sale, lease or licence. The second part invalidates that which may have been done in contravention of the prohibition. It is useful, in this context, to reflect again on ss 18 to 20 of the Land Act 1958, as it existed prior to the enactment of the Reserves Act, resulting in the consequential repeal of those sections. That which was absolutely void was every conveyance or alienation not authorised under the reservation or other circumstance prescribed in that Act. If a conveyance or alienation is absolutely void, there is no valid or enforceable conveyance or alienation. There is no more than a purported conveyance or alienation.

In my opinion, the second part of s 8(1) of the Reserves Act expresses, perhaps in more elegant language, the same concept as found in ss 18 to 20 of the Land Act 1958. Insofar as there has been an unauthorised conveyance, alienation or grant, it is entirely ineffective. The declaration of invalidity, just as for the prohibition, strikes at the transaction purporting to alienate reserved land. It strikes at the conveyance, the grant and thus the creation of an unauthorised proprietary right or interest. In my opinion the word purported means alleged or ostensible, in the sense that the sale, lease or licence was not effective.

The language employed in s 272(1) of the Crown Lands ConsolidationAct, and its purpose, is not, in my opinion, materially different to that employed in s 8(1) of the Reserves Act and its purpose. Section 272(1) provided that holdings to which the section applied shall respectively not be transferable … except in prescribed circumstances. Sub-section (2) provided that an application for permission to transfer may be made to the Minister. The transfer was invalid in the absence of Ministerial consent. There was a prohibition coupled with a declaration of invalidity.

Taylor J, delivering a separate judgment, held that by entering into the agreement the parties had not acted in contravention of any statutory prohibition. His Honour distinguished between dealings and instruments. He said:[16]

Accordingly, there is no effective dealing unless and until the transfer has been made executed and lodged in accordance with regulations. There is nothing in s. 272 (2) to forbid the making of an agreement to lease; what is required by that sub-section is that applications shall be made for the Minister's permission before transfers are effected. And this is followed by the provision that if a transfer is effected without the Minister's consent, it shall not be valid. As I have already said, this sub-section strikes at dealings and not at instruments. There would be no point in providing that the Minister's consent should be obtained before an instrument is executed when the instrument itself is quite ineffective, without compliance with s. 261 (2), to transfer any interest in the land and, equally, there would be no point in providing that an instrument which, alone, is ineffective to transfer any interest should not be valid. The view which I have expressed is, I think, the natural consequence of the language of the sub-section prescribing as it does that transfers shall not be effected without the consent of the Minister, or if effected without that consent shall not be valid. A not dissimilar view of the meaning of the sub-section appears to have been entertained by Harvey J. in Egan v. Ross (1) . In that case his Honour was concerned with the provisions of s. 274 (2) of the Crown Lands Consolidation Act 1913 and appears to have taken the view that that section was concerned with dealings and not with instruments. It is true that that sub-section required that applications for permission "to transfer or otherwise deal with any holding" should be made to the Minister, but in my view there is no real difference between the language of the two sub-sections.

The distinction between a memorandum of agreement and the transaction, highlighted by Taylor J in his judgment, is fundamental to the reasoning in the joint judgment.[17]

[16]Ibid at pp 287-8.

[17]Ibid at pp 279-280.

If a purported grant under an agreement is invalid, there is no need to invalidate the agreement, and the Reserves Act does not do so. In order to seek approval of the Minister for the grant, practicality requires the prior definition of that which is to be approved. This will often be achieved by the preparation of a lease agreement as in the present case. But practice and practicality aside, the legislature must be taken to have intended to avoid a prohibition on agreements of the kind entered into between the plaintiff and defendant. Parliament must be taken to have been aware of the decision of the High Court in Butts v O’Dwyer. Moreover, the concept of agreement is employed in the Reserves Act in contradistinction to expressions such as sale, lease and licence, which connote conveyance, alienation and the creation of proprietary rights and interests in land. It follows, in my opinion, that the Heads of Agreement, and the lease agreement forming part of it, is not prohibited by s 8(1) of the Reserves Act.

Can the lease agreement be enforced?

The fact that the Heads of Agreement failed to effect the grant of the lease to the defendant does not leave it without any force or effect. The Heads of Agreement remains a binding agreement. In Butts v O’Dwyer the High Court, in the joint judgment, held:[18]

But the memorandum of lease is not an executory agreement to grant a document in the form of a lease. It evidences a concluded agreement and apart from s 272 only requires registration under the Real Property Act in order to operate as a memorandum of lease under its provisions. If the plaintiff is entitled to any specific relief, it should be directed to the specific enforcement against the appellants of any promise express or implied on their part to do all such acts and execute all such documents as may be reasonable and proper to remove any obstacles preventing the plaintiff from becoming the registered proprietor of the memorandum of lease under the provisions of the Real Property Act.

Taylor J said:[19]
… the memorandum of transfer in its present form should, I think, be regarded as evidencing an agreement to grant a lease and properly the subject of a suit for equitable relief. Perhaps it may be more accurate to say that the memorandum, in those circumstances, is binding between the parties and, subject to the consent of the Minister being obtained, confers upon the respondent ‘an equitable claim or right to the land recognised by the law’.

[18]Ibid at 279.

[19]Ibid at 286.

The unique circumstances of this case leaves open two possible courses for the defendant. Its primary submission is that the Heads of Agreement imposes an implied obligation on the plaintiff to do all that is reasonable on its part to obtain Ministerial approval to the grant. The defendant relied on s 17D of the Reserves Act. The defendant also had a fall back position. It relied upon the Heads of Agreement as providing a right of occupation, in the absence of a grant, to enable it to provide the services for the further term under the services agreement.

Does s 17D of the Reserves Act apply?

The plaintiff’s submission that s 17D had no application to the lease depends upon giving paramountcy to the heading – Leases for purposes other than those for which land is reserved. The plaintiff submitted that, as the use of the land under the lease agreement was for the purpose for which the land was reserved, s 17D had no application. It submitted that s 17D did not authorise the grant of a lease for the same use as the reservation.

In my view the heading merely assumes the circumstance in which the section might be invoked. The heading does not form part of the Reserves Act by reason of the operation of s 36(2)(a) and (3) of the Interpretation of Legislation Act. Instead, the plaintiff relied upon s 36(4) which provides:

Nothing in subsection (3) shall be construed as preventing in the interpretation of a provision of an Act or subordinate instrument, the consideration pursuant to section 35(b) of any marginal note, footnote, endnote or heading not forming part of that Act or subordinate instrument.

Section 35 provides:
Principles of and aids to interpretation
In the interpretation of a provision of an Act or subordinate instrument—
(a)a construction that would promote the purpose or object underlying the Act or subordinate instrument (whether or not that purpose or object is expressly stated in the Act or subordinate instrument) shall be preferred to a construction that would not promote that purpose or object; and
(b)consideration may be given to any matter or document that is relevant including but not limited to—
(i)all indications provided by the Act or subordinate instrument as printed by authority, including punctuation;
(ii)reports of proceedings in any House of the Parliament;
(iii)explanatory memoranda or other documents laid before or otherwise presented to any House of the Parliament; and
(iv)reports of Royal Commissions, Parliamentary Committees, Law Reform Commissioners and Commissions, Boards of Inquiry or other similar bodies.

Under s 17D, Ministerial approval may be given for the grant of leases of any part of the reserved land for any purpose approved by the Minister[20]. In my opinion the operative words are unambiguous, extending the power to grant a lease of reserved land on the terms authorised, subject to the qualifications imposed, whether or not the use is one for the purpose for which the land is reserved. Thus, in the absence of some disqualifying circumstance under s 17D(3) and subject to s 17D(4), the Minister may have approved the grant by the plaintiff to the defendant of a lease of the premises on the terms set out in Schedule 1. Nothing was advanced to suggest that such a grant would be detrimental to the purpose of which the land is reserved or to adjacent land.
[20]Emphasis added.

The Reserves Act imposes at least two forms of regulation on the way in which reserved land may be dealt with or employed by a committee of management. Section 8(1) provides an overriding control, prohibiting certain dealings which amount to an alienation of Crown land without express statutory approval. Approval is available under s 17 to 17F or in another Act. But those provisions do not purport to prescribe the only circumstances in which a committee of management may permit a right of entry or occupation or a right to do something on reserved land. They are designed to facilitate the extended use of reserved land. They enable a committee of management to employ the land for a purpose other than the purpose for which the land was reserved.

Where the intended use is for the purpose, no further authorisation is required than is found in s 15 of the Reserves Act, unless the committee proposes to do that which is expressly prohibited by s. 8 (1). It was the grant of the lease, prohibited under s 8(1), that required express authorisation.

In the present case the committee of management could have, as it had in the past, permitted the defendant to provide hospital services, to be performed in hospital premises, without in any way breaching s 8 of the Reserves Act. The parties agreed, however, on the grant of a lease. Such a grant would have the effect of alienating Crown land. Alienation of reserved Crown land is the very thing s 8(1) of the Reserves Act is designed to regulate. Section 17D is one of a series of provisions, commencing with s 17, authorising non conforming uses and the grant of leases and licences otherwise prohibited under s 8(1).

To confine the scope of s 17D to the grant of a lease for a purpose other than the purpose for which the land is reserved does nothing to promote the purpose or object underlying the Reserves Act. It would be curious if the Minister were authorised to approve the grant of a lease of hospital land for a quarry (subject of course to s 17D(3) and (4)) but not a lease of part of the hospital land for a hospital purpose. Section 17D is a provision which authorises leases of up to 21 years for any purpose, subject to conditions designed to protect the integrity of the purpose for which the land is reserved and of adjacent land.

Is it too late to seek Ministerial approval?

The defendant sought to call in aid numerous examples of the plaintiff having entered into lease agreements with other parties and in respect of other hospitals to support a submission that it was common practice for the plaintiff to enter into such agreements before seeking Ministerial approval. That submission was designed to meet the plaintiff’s contention that Ministerial approval must precede the grant of a lease. The plaintiff’s submission, as far as it goes, is no doubt correct. In the absence of approval there can be no grant, but that does not prevent the making of an agreement to lease which predates approval.

In Butts v O’Dwyer the High Court held that the relevant provisions of the Crown Lands ConsolidationAct meant that an application for Ministerial consent may be made after the instrument had been given and that upon obtaining consent the transfer was valid, subject to registration, to pass legal estate or interest.[21] The Court continued:[22]

In other words the parties may enter into a transfer subject to a condition that it is not to become effective unless the Minister's consent has been obtained. Prima facie this would import an obligation on the part of the person giving the transfer to do all that was reasonable on his part to the end that the Minister's consent might be obtained. Such a condition could be either express or implied. There is in the present case no express condition as in Roach v Bickle⁽¹⁾, but we think that such a condition should be implied. It has been held in cases too numerous to mention both before and after the classic statement of Bowen LJ in the case of The Moorcock⁽²⁾ that the law raises an implication from the presumed intention of the parties where it is necessary to do so in order to give to the transaction such efficacy as both parties must have intended that it should have. Similar implications were raised under other sections of the Crown Lands Consolidation Act in Duncan v Mell⁽³⁾ and Egan v Ross⁽⁴⁾. Section 272 does not limit the time within which the application for the Minister's consent must be made and, in the absence of such a limitation, there is no reason why the application should not be made at any time before it is too late for his consent to make the transfer effective.[23]

[21](1952) 87 CLR 267, 279 per Dixon CJ, Williams, Webb and Kitto JJ.

[22]Ibid at 279-280.

[23]Citations omitted.

Once the distinction between instruments and transactions or between agreements and grants is understood and accepted, the timing issue raised by the plaintiff evaporates. There can be no grant without approval but there may be, and often is, an anterior agreement. While past practice and procedure does not assist in the interpretation of s 17D of the Reserves Act, it reflects another very practical reason why the Act does not contain a prohibition upon parties entering into agreements or creating instruments in relation to reserved land pending approval by the Minister.

It is not too late to seek and obtain Ministerial approval. I would imply an obligation, imposed on the plaintiff, of the kind expressed and applied by the High Court in Butts v O’Dwyer. The defendant is entitled to specific performance of the obligation requiring the plaintiff to do all that is reasonable on its part to obtain Ministerial approval of the lease agreement in order to perfect the grant.

The defendant’s fall back position was not fully argued and it may be unnecessary to decide whether the defendant has a contractual right of occupation in the absence of a grant approved by the Minister. I am, however, persuaded that the defendant does have such a right. The right is consistent with the reasoning in Butts v O’Dwyer. The nature of the right was also recognised in Palmdale Insurance Ltd v Sprenger.[24] In that case the Full Court of the Supreme Court of Queensland, applying Butts v O’Dwyer, held that a lease requiring ministerial consent did not operate as a demise in the absence of consent, although it was a concluded bargain, defeasible on the refusal of consent. Entry into possession and payment of the rent created a tenancy upon the terms of the lease in all respects save for the duration of the term.
[24](1988) 1 Qd R 414.

In the present case there are distinguishing features which, in my view, include the agreed duration as a term of the occupancy. First, occupation by the defendant did not require the grant of a lease to be lawful. The plaintiff, as the committee of management, was not prevented by the Reserves Act from reaching agreement with contracting parties, such as specialist practitioners, cleaning services, catering services or other essential services for the operation of a hospital, providing a right of entry and occupation without any need to alienate Crown land for that purpose. While the lease agreement purported to constitute a grant it was, in that respect, ineffective to create the demise.

Second, the lease agreement and services agreement are part of a connected package of rights and obligations. The invalidity of the grant does not disturb the agreement between the parties. The parties agreed that the defendant would have an option to renew its right of occupation (the lease agreement) and the services agreement for a further 10 years. The defendant has exercised the option.

In the circumstances of this case the plaintiff should not be permitted to sidestep its obligation to provide the defendant with a right to enter and occupy the premises to provide the hospital services, on the basis that any such right is conditional up on a valid grant or demise. I am firmly of the view that the plaintiff cannot escape its contractual liability to provide the defendant with a right to enter and occupy the premises to facilitate performance by it of its obligations under the Heads of Agreement. The terms of occupation are found in the Heads of Agreement.

Conclusion

For reasons given above I would answer each of the questions as follows:

Question 1: Yes. The Heads of Agreement, including Schedule 1 and Schedule 2, were and remain a legally enforceable agreement between the parties, but include an implied term that the plaintiff is required to do all that is reasonable on its part to obtain Ministerial consent to the grant of the lease on terms consistent with Schedule 1, with such additions or modifications only as are reasonably necessary to give commercial effect to the lease and as are reasonably acceptable to the defendant. The lease agreement and services agreement contain an option, exercisable by the defendant, for renewal for one further term of 10 years.
Question 2: No. The implication of the term is unnecessary. The defendant’s right of access to and use of the premises arises under the Heads of Agreement and any grant approved by the Minister.
Question 3: Yes.
Question 4: Yes.
Question 5: Yes.
Question 6: Yes.

---

Annexure
HEADS OF AGREEMENT dated  1999
BETWEEN:       INNER & EASTERN HEALTH CARE NETWORK
  A statutory corporation under the Health Services Act 1988
  of Level 3, 174 Victoria Parade, East Melbourne, Victoria
(“Network”)

AND:               VICTORIAN IMAGING GROUP PTY LTD (ACN 080 845 594)
  The Registered Office of which is situated at 810 Princes Highway
  Springvale, Victoria
  (“VIG”)
RECITALS
A.The network manages and operates the Box Hill Hospital located at Nelson Road, Box Hill Victoria (“Hospital”)

B. The Network has agreed to grant a lease (“Lease”) to VIG of an area within the Hospital (“Premises”), within which area VIG shall construct, install and operate a facility from which it will conduct magnetic resonance imaging (“MRI”) services, nuclear medicine services and other radiology services.

C.In consideration of the grant by the Network of the Lease, VIG has agreed that it shall provide the Network with MRI services (“MRI Services”) on the terms and conditions contained in these Heads of Agreement.
D.The provision by VIG of the nuclear medicine services and other radiology services (“Additional Services”) from the Premises shall continue to be governed by the terms and conditions of a services agreement entered into between the legal entity then known as Box Hill Hospital (to the assets and liabilities of which, the Network is the statutory successor in title, pursuant to the Health Services Act 1988 of Victoria) (“BHH”) and the partners then carrying on business as partners under the business name “Victorian Imaging Group” (“Partners”) on 1 December 1993, which agreement has been varied, renewed and assigned as hereinafter set out.
E.The parties have entered into these Heads of Agreement on the basis that as soon as reasonably practicable they intend to enter into more detailed agreements in relation to each of the Lease and the provision of the MRI Services.
OPERATIVE PART

1. LEASE

1.1The Network hereby grants the Lease to VIG on the terms and conditions contained in Schedule 1 to this agreement.

1.2The parties agree that as soon as reasonably practicable after the execution of these Heads of Agreement, they shall execute a form of Lease (“Lease Agreement”) to be drafted by Purves Clarke Richards, Solicitors of Level 4, 121 William Street, Melbourne, Victoria which Lease Agreement shall reflect the terms and conditions contained in Schedule 1 to these Heads of Agreement, with such additions and modifications only as are reasonably necessary to give commercial effect to the Lease and as are reasonably acceptable to VIG.

2. PROVISION OF MRI SERVICES

2.1VIG hereby agrees that it shall provide the Network with the MRI Services on the terms and conditions contained in Schedule 2 to these Heads of Agreement.
2.2The parties agree that as soon as reasonably practicable after the execution of these Heads of Agreement, they shall execute an agreement (“MRI Services Agreement”) to be drafted by the said Purves Clarke Richards, which MRI Services Agreement shall reflect the terms and conditions contained in Schedule 2 to these Heads of Agreement, with such additions and modification only as are reasonably necessary to give commercial effect to the MRI Services Agreement and as are reasonably acceptable to VIG.

3. DISPUTE RESOLUTION

3.1In the event of a dispute between the parties in respect of these Heads of Agreement (including in respect of the form of the Lease Agreement or the MRI Services Agreement) (“Dispute”), either party may serve written notice on the other party indicating that such dispute has arisen and the nature of the Dispute (“Dispute Notice”).
3.2Upon service of a Dispute Notice in accordance with Clause 3.1, a representative of each of the parties shall meet within 5 business days after service of the Dispute Notice to attempt to resolve the Dispute, with the intent that the parties wish to retain a long term relationship and wish to enter into the Lease Agreement and the MRI Services Agreement.
3.3If the representative of each of the parties is unable to resolve the Dispute, either party may refer the Dispute to an expert agreed by the parties or, failing agreement by the parties, within a period of 3 business days, by an expert appointed by the chairperson for the time being of the Victorian Lawyers RPA Ltd (“Expert”).
3.4The Expert shall be appointed as an expert, not as an arbitrator, and the decision of the Expert shall be final and binding on the parties.
3.5No proceedings in respect of a Dispute may be commenced in any court or tribunal until the preceding provisions of this clause have been followed in full.
3.6The parties agree that each shall bear their own costs in respect of the determination by the Expert under this clause, save that each party shall contribute equally to the Expert’s costs.

4. COSTS

The parties agree that they shall bear their own costs of negotiating and preparing these Heads of Agreement, save that VIG shall bear all stamp duty payable in respect of these Heads of Agreement.
5. EXISTING NUCLEAR MEDICAL SERVICES AND OTHER RADIOLOGY SERVICES

5.1The parties acknowledge that on completion to the satisfaction of the Network of the installation in the Premises of the nuclear medicine equipment and radiology equipment and all related equipment necessary for the provision of the Additional Services all existing rights of VIG to occupy any other part or parts of the Hospital (other than the Premises) for the purposes of providing the Additional Services shall henceforth cease and be of no further effect and apart from any antecedent breach in respect of the arrangements governing such rights the obligation of the parties pursuant to such arrangements shall also henceforth cease and be of no further effect PROVIDING HOWEVER that the provision by VIG of the Additional Services from the Premises shall continue to be governed by the terms and conditions of a services agreement entered into between BHH and the Partners on 1 December 1993, varied, renewed and assigned as follows:

(a)varied by way of a Variation Agreement between BHH and the Partners, dated 9 January 1995;
(b)renewed and varied by way of Deed of Renewal between the Network, the Partners and VIG, executed in or about December 1998; and
(c)the Partners rights, entitlements, obligations and liabilities under the said Deed of Renewal were assigned to VIG by way of the said Deed of Renewal.

5.2In order to install the same in the Premises, VIG at its sole expense shall remove the nuclear medicine equipment, the radiology equipment and all related equipment from any part or parts of the Hospital (other than the Premises) in which such equipment is currently installed and make good any damage in doing so.

6. LEGAL EFFECT OF THESE HEADS OF AGREEMENT

Notwithstanding Clauses 1.2 and 2.2 hereof, these Heads of Agreement shall have full force and effect to the extent to which:-
6.1either or both of the Lease Agreement or the MRI Services Agreement are not for any reason executed; or
6.2if executed, the Lease Agreement or the MRI Services Agreement do not for any reason supersede any of the provisions hereof.

Schedule 1 of the agreement contains the terms and conditions of the lease as agreed between the parties.

SCHEDULE 1
LEASE
1.Premises: That part of the Hospital as is hatched red on the plan attached as Annexure A.

2.Commencement Date: 27 January 1999.

3.Rent Commencement
Date: Completion of the Works referred to in paragraph 19 of this Schedule 1 or 15 May 1999, whichever is the earlier date.

4.Term of Lease: From the Commencement Date until a date being 10 years from the Rent Commencement Date.

5.Further Term: One term of 10 years.

6.Rent: $18,900 per annum for the first three years of the Term and thereafter to be reviewed by negotiation to such rental that is fair and reasonable in all the circumstances (subject to it not being less than the previous year’s rent), but in the event of any dispute to be determined by an expert in accordance with Clause 3 of the Heads of Agreement.
Review of rental to take place at the expiration of each period of three years during the initial term; at the commencement of the Further Term; and at the expiration of each period of three years from the commencement of the Further Term.
The rent following any review is not to be less than the previous year’s annual rent.

7.Use: The provision of the MRI Services and the Additional Services.

8.Outgoings: The Network to be responsible for payment of all rates and taxes and operating expenses in respect of the Hospital.

9.Equipment: VIG will be allowed to install, use and operate:
MRI Unit
Nuclear medicine equipment
Radiology equipment
All other equipment belonging to VIG and related to the provision of the MRI Services and the Additional Services.

10.Cleaning: VIG to be responsible for cleaning the Premises at its sole expense

11.Services: Rent payable by VIG is inclusive of all electricity, telephone, gas, water and any other services connected to the Premises. If VIG installs a dedicated telephone service to the Premises, VIG will be responsible for its installation and ongoing cost.
12.Legal Costs and
Stamp Duty: The Network to be responsible for the costs of preparation of the Lease Agreement but VIG to pay all stamp duty in respect of the Lease (and the Lease Agreement).

13.Repair and Maintenance: VIG to be responsible for the repair and maintenance of the Premises and the Equipment, at its sole expense.

14.Statutory Obligations:               VIG to comply with all statutory requirements (including all occupational health and safety requirements) and obtain all necessary licences, permits or consents in respect of its use and occupation of the Premises.
15.Access:  VIG to have access to the Premises 24 hours a day, 7 days a week.
16.Removal and Make Good:        At the expiration or earlier termination of the Lease VIG to remove at its sole expense the Equipment but not the Works (referred to in item 19) and make good any damage to the Premises.
17.Assignment and
Sub-letting:  Not without the consent of the Network which consent will not be unreasonably withheld.

18.Insurance: During the Term and the Further Term VIG to effect at its sole cost public liability insurance for $10 million or such other amount as the Network may reasonably require.
During the Works VIG shall effect construction risk insurance for such amount as the Network may reasonably require.
19.Installation of
Equipment: All Works for converting the Premises to facilitate installation, and the installation, of the Equipment, and related equipment to be effected by VIG in a proper and workmanlike manner, in accordance with all necessary approvals, to the satisfaction of the Network and the Network’s consultants acting reasonably, and at the expense of VIG, by no later than 15 May 1999. Property in all parts of the Works other than the Equipment to vest in the Lessor.

20.MRI Services Agreement: The Lease to be subject to the ongoing observance by VIG of its obligations under the MRI Services Agreement. Any breach of the MRI Services Agreement by VIG to constitute a breach of the Lease by VIG.

21.Guarantee: VIG to provide a bank guarantee for 3 months’ rent. The amount of the guarantee is to be reviewed to the equivalent of three months’ rent at each rent review.

22.Disputes: Disputes are to be resolved through expert determination in accordance with Clause 3 of these Heads of Agreement.

23.Signage: All signage for the Premises must be first approved by the Network who must not unreasonably withhold such approval.

Schedule 2 of the agreement contains the terms and conditions of the services to be provided by the defendant.

SCHEDULE 2
MRI SERVICES AGREEMENT
1.MRI Services: The provision of the MRI Services, and the provision of all equipment necessary for the provision of the MRI Services, by VIG at the Premises.

2.Commencement Date: On completion to the satisfaction of the Network of the MRI unit and all other equipment necessary for the use of the MRI unit in the Premises, but no later than 15 May 1999.

3.Premises: The Premises referred to in paragraph 1 of Schedule 1.

4.Term of MRI Services

Agreement: 10 years.
5.Further Term: One further term of 10 years.

6.MRI Services provided to: All patients referred to VIG by the Network, including in-patients and out-patients, private and public patients.
7.Fee for provision of the
MRI Services: The Network will pay VIG fees only in respect of public in-patients and public out-patients of the Network. In respect of such patients, the following fee structure shall apply, and remain fixed, until the third anniversary of the Commencement Date:
Public in-patients: a flat-fee of $475.00 (being the Commonwealth Medical Benefit Schedule Fee) (the Network to be billed by VIG).

Public out-patients: VIG to bill the patient through Medicare: however, VIG may bill the Network for a flat fee of $50.00 (being the current difference between the Commonwealth Medical Benefit Schedule Fee and the Medicare Rebate) in addition to any amount recovered through Medicare.

8.Review of Fees Prior to the third anniversary of the Commencement Date, the parties shall review the fee structure contained at item 7 of this schedule with a view to determining and agreeing upon a new structure that reflects changes in market forces, patient requirements, the cost of providing the MRI Services, changes to government funding and rebates (including Medicare) and all other relevant factors.
As part of this review, the parties shall also agree on the duration of the new fee structure and shall provide for subsequent review of that structure at the end of the said duration.
Disputes are to be resolved through expert determination in accordance with Clause 3 of these Heads of Agreement.

9.Support Services: All Nursing, Administrative and Cleaning Support Services and other services provided by the Network at the request of VIG in supporting the provision of the MRI Services at the Premises, shall be paid for by VIG at rates determined by the Network annually, provided that those services are a reasonable reflection of costs.
10.Consumables & other
Items: All consumable items provided to VIG by the Network at the request of VIG for use in VIG’s provision of the MRI Services shall be paid for by VIG at an amount equivalent to the Network’s cost in respect of such items.

Other items provided by the Network to VIG in VIG’s provision of the MRI Services shall be paid for by VIG at rates determined by the Network from time to time, provided that those rates are reasonable.

Notwithstanding the foregoing, the Network will bear the cost of the supply of non-ferrous trolleys, IV pole and stand, and a non-ferrous pulseoxymeter with fibre optic cable and sensor.

11.Training: VIG is to permit Network staff reasonable access to the Premises as is reasonably required by the Network upon the provision of adequate notice, for the purposes of enabling such staff to acquire knowledge and an understanding of the MRI facility and the manner in which that facility is operated. VIG shall also provide such staff with all reasonable assistance, guidance, demonstrations and, where appropriate, practical experience, necessary to assist such staff in acquiring the said knowledge and understanding.

12.Staff: VIG is responsible for ensuring that there are adequate staff at the Premises to provide the MRI Services in an efficient and appropriate manner.
Medical staff in attendance at the Premises are to be first approved by the Network, unless otherwise agreed.

13.Hours of operation: VIG’s hours of operation should ensure appropriate throughput of both in-patients and out-patients. VIG will endeavour to maintain the MRI unit in optimal operating condition, but there will be no liability on behalf of VIG for any failure to provide 100% patient access to the facilities for reasons beyond VIG’s control, providing that VIG in such circumstances arranges equivalent access for the Network’s patients at an alternative MRI facility.

14.Other services: VIG may use the MRI unit and related facilities and the Premises to provide the MRI Services to its own patients or to patients referred to VIG from other sources. This must not adversely affect VIG’s ability to provide the MRI Services to the Network. VIG may charge such fees as it determines to its own patients and patients referred from sources other than the Network.
15.Repairs and
maintenance: VIG is to be responsible for the repair and maintenance of the MRI unit and related facilities and the Premises and VIG shall bear all costs and expenses related thereto. VIG is also to indemnify the Network in respect of such costs and expenses.

16.Costs and stamp
duty: The Network to be responsible for the costs of preparation of the MRI Services Agreement, but VIG to pay any stamp duty in respect of the MRI Services Agreement.

17.Insurance: VIG to maintain adequate professional indemnity insurance, to the reasonable satisfaction of the Network. VIG must provide evidence of such insurance at regular intervals.

18.Indemnity:  VIG must indemnify the Network in respect of any cost, expense, claim or liability to the Network arising out of:
·     VIG’s provision of the MRI Services at the Premises or to any patients of the Network; and
·     The installation, presence and use of the MRI unit and related facilities at the Premises
unless same has been caused by the Network’s actions, omissions or negligence.

19.    Lease (and Lease
Agreement):  The MRI Services Agreement is subject to the ongoing observance by VIG of its obligations under the Lease (and the Lease Agreement) referred to in Clause 1 of the Heads of Agreement. Any breach by VIG of the Lease (and the Lease Agreement) to constitute a breach by VIG of the MRI Services Agreement.
20. Disputes:  Disputes are to be resolved through expert determination in accordance with Clause 3 of these Heads of Agreement.

[2009] VSC 105

7 April 2009