Farleigh Investments Pty Ltd v Reefking Pty Ltd - [2002] WASC 115

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: FARLEIGH INVESTMENTS PTY LTD & ANOR -v- REEFKING PTY LTD [2002] WASC 115

CORAM: McKECHNIE J

HEARD: 18 APRIL 2002

DELIVERED : 16 MAY 2002

FILE NO/S: CIV 2952 of 2001

BETWEEN: FARLEIGH INVESTMENTS PTY LTD (ACN 069 480 048)
DELRON CLEANING PTY LTD (ACN 008 806 004)
Plaintiffs
AND
REEFKING PTY LTD (ACN 069 836 513)
Defendant

Catchwords:

Town planning - Lease of two lots - Whether illegal and void - Contract - Severance - Whether portion of lease can be severed - Whether lease then lawful

Legislation:

Town Planning & Development Act 1928 (WA), s 20(1)(a)

Result:

Declaration lease unlawful
Declaration for severance

Category: A

Representation:

Counsel:

Plaintiffs: Mr C G Colvin SC & Mr M G Pendlebury
Defendant: Mr M G Murphy

Solicitors:

Plaintiffs: Clayton Utz
Defendant: Clairs Keeley

Case(s) referred to in judgment(s):

Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101
Carney v Herbert (1985) 59 ALJR 41
Electric Acceptance Pty Ltd v Doug Thorley Caravans (Aust) Pty Ltd [1981] VR 799
Firmin v Gray & Co Pty Ltd [1985] 1 Qd R 160
Glentham Pty Ltd v City of Perth [1986] WAR 205
Lombardo v Development Underwriting Pty Ltd [1971] WAR 188
South Western Mineral Water Company Ltd v Ashmore [1967] 1 WLR 1110
Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391
Wilson International Pty Ltd v International House Pty Ltd (1983) WAR 234

Case(s) also cited:

Ailion v Spiekermann & Ors (1976) 1 Ch 158
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
Brown v Heffer (1967) 116 CLR 344
Chan v Cresdon Pty Ltd (1989) 168 CLR 242
Durham & Sunderland Railway Co v Walker [1842] 2 QB 940
Federal Commissioner of Taxation v Smorgon (1977) 16 ALR 721
Friends' Provident Life Office v British Railways Board [1996] 1 All ER 336
Fullerton Nominees Pty Ltd v Darmago t/as Western Refrigeration 74 [2000] WASCA 4
Harold Elliott v H Elliott (Builders) Ltd [1948] 1 Ch 452
Humphries & Anor v The Proprietors "Surfers Palms North" Group Titles Plan 1955 (1993-94) 179 CLR 597
Langley v Foster (1906) 4 CLR 167
Mann, Crossman & Paulin Ltd v The Registry of the Land Registry [1918] 1 Ch 202
O F Gamble Pty Ltd v Whitemore Pty Ltd (1990) 2 WAR 327
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
Riches v Nigel Satterley Pty Ltd [1974] WAR 187
Roach v Bickle (1915) 20 CLR 663
Whitemore Pty Ltd v O F Gamble Pty Ltd (1991) 6 WAR 110
Whitlock v Brew (1968) 118 CLR 445

McKECHNIE J:

Introduction

This is an action for a declaration that upon its proper construction a lease made between Reefking Pty Ltd and Farleigh Investments Pty Ltd, dated 31 August 1998, in respect of premises situated at 198 Brisbane Street Northbridge, was entered into in contravention of the Town Planning and Development Act 1928 (WA) s 20(1)(a) and is therefore void for illegality.
The issue involves interpretation of s 20(1)(a) and the construction of a lease between the parties. In the event that the lease is found to be in breach of s 20(1)(a), the defendant seeks an order severing portion of the lease.

Background

On 31 August 1998, Reefking Pty Ltd, as lessor, entered into a lease with Farleigh Investments Pty Ltd, as lessee, for the lease of land at 198 Brisbane Street, Northbridge. At that time there was constructed on the premises a two-storey hotel occupying approximately half of the land facing primarily onto Brisbane Street, Northbridge. It was known as the Northbridge Hotel.
On 30 August 1999, Farleigh Investments Pty Ltd assigned its interest in the lease to Delron Cleaning Pty Ltd, the second named plaintiff. Nothing turns on this assignment. It will be convenient to refer hereafter to the plaintiffs together as the lessee and to the defendant as the lessor. The declaration sought by the lessee if granted will enable it to avoid the lease.
It is common ground that approval from the Western Australian Planning Commission for the lease has never been obtained.

The lease

The lease is for the existing hotel building, and surrounds, to the lessee. The lease contemplates the lessor will construct extensions consisting of a basement carpark, three levels of single room apartments and on the fourth level, 3 penthouse apartments. The lessor would occupy one of the units, Penthouse 402, and one car bay, when the additions were completed. When the units were fully constructed the rent would increase.
With this broad outline, I now turn to relevant express terms within the lease.
It commences with "Definitions":
"'Building' means the building or buildings now or at any time after the date of the execution of this lease erected on the Land of which the Leased Premises forms part and which operates as a commercial building and includes all structures, buildings and other improvements now or at any time after the date of execution of this lease on, or forming part of that building and all plant, machinery, fittings and equipment in that building.
…
'Leased Premises' means the premises described in Item 2 of the Schedule together with fixtures, fittings, plant, machinery and equipment of the Lessor forming part of, or annexed or affixed to, those premises."
Schedule, Item 2, more particularly describes the "Leased Premises" as follows:
"The whole of the Land including the fixture, fittings, plant and equipment and the Lessor's Chattels except for one two bedroom unit (the 'Lessor's Unit') and one car bay to be constructed by the Lessor as part of the Alterations and Additions and identified on the plans and specifications referred to in item 14 of the Schedule as Penthouse 402."
The "Option Term" Schedule Item 6, provides for three option periods extending for 15 years beyond the 5-year term of the lease to make a total of 20 years.
Clause 1.4 – "Severance":
"If any part of this lease is or becomes void, voidable or unenforceable, this lease is to be read and construed as if that part had been severed from this lease so that all parts not void, voidable or unenforceable remain in full force and effect and unaffected by that severance."
By the operative part of the lease, cl 2.1 "Lease" the lessor leased the leased premises to the lessee reserving access to and from the lessor's unit Penthouse 402, and one car bay.
Clause 12 – "Alterations and Additions":
"(a)after the Commencement Date, the Lessor shall as soon as is reasonably possible commence to construct the Alterations and Addition (sic) and agree to complete the Alterations and Additions on or before 31 December 1999 and on completion of the Alterations and Additions the Land will be subdivided pursuant to the provisions of the Strata Titles Act.
(b)during the Alterations and Additions referred to in paragraph (a) hereof, the Lessor or its builder or other contractors and agents shall be entitled to possession of the construction site identified on the plan attached hereto and to access parts of the existing hotel so as to connect the Alterations and Additions to the existing hotel and the Lessor agrees to cause as little inconvenience to the Lessee as is reasonably possible in the circumstances …
…
(d)upon completion of the Alterations and Additions, the Lessor may (subject to the Lessee's first right of refusal detailed in item 12 B of the Schedule) sell the lots created by strata plan relating to the Land provided that the Lessor reserves to itself a head lease of all the lots sold for a period not less than the balance of the Term (but subject to and acknowledging this lease) and any purchaser and mortgagee of the lots acknowledges this lease and the rights of the Lessee hereunder …"
Item 12A. of the Schedule to the lease provided for the lessor's first right of refusal if the lessee wished to sell the business and assign the lease and the lessee's right of refusal if the lessor wished to sell any part of the land.
Item 12D. provided for the lessor's right to compel the lessee to exercise the option.

The alterations and additions: Chronology of dealings with Council

There are minor differences between the detail in the facts in the affidavit put forward on behalf of the lessee and the facts put forward on behalf of the lessor. I do not regard the differences as particularly material for present purposes.
A chronology is provided in the Minutes of the Town of Vincent at the ordinary meeting of council of 18 January 2000. In brief, the site history is as follows:
25 March 1996 – Council approved an application for renovations and additions to the existing hotel. The plans depicted a four storey addition plus penthouses. Approval was subject to a number of conditions including the height being reduced by one storey.
28 March 1996 – Planning approval issued.
24 October 1997 – Amended plans received.
5 January 1998 – Council received further amended plans.
9 February 1998 – Council resolved that the applicant be advised that the amended plans dated 5 January 1998 do not comply with condition 1 of the planning approval of 28 March 1996 and required a height reduction by a minimum of 2.9 metres.
9 June 1998 – Council resolved that it receives the amended plans stamp dated 14 May 1998 and inserted new clauses including:
(i)the applicant be advised that the plans dated 14 May 1998 are considered to comply with condition (i) of the planning approval issued 28 March 1996 subject to certain conditions.
On 20 January 1999 the Town of Vincent issued a building licence to Stonewall Constructions in relation to the alterations and additions.
Work commenced on the alterations and additions in January 1999.
According to Mr Jackson whose affidavit (sworn 21 February 2002) on behalf of the lessor, was received in evidence:
"3.During construction it was necessary to make a number of alterations to the proposed plans to comply with requirements of the Fire Brigade Board and other authorities as is usual in developments of this nature and to respond to objections raised by members of the local community.
4.On 18 November 1999 I met with Council representatives and community members at the hotel and the outcome of that meeting is reflected in the letter upon the Town of Vincent to me which letter is dated 18 October 1999…"
That letter detailed variations to the approved drawings which represented non‑compliance with the Approval to Commence Development following which the letter said:
"The issues noted above must be resolved prior to the first occupation of the additions and alterations to the Hotel, which it is understood are now nearing completion."
The council meeting of 18 January 2000 noted that the completed building does not accord with the Approval to Commence Development. Council noted that:
"… When viewed in component form, the completed unauthorised works do not detrimentally affect the surrounding locality. Further, the unauthorised works do not contravene Town Planning Scheme No 1. …"
The council resolved in essence to approve the unauthorised works subject to condition.
The final approval for the alterations and additions was granted on 18 January 2000. Although approval is not retrospective, as at the date of the hearing of this matter the building had been constructed pursuant to an approval granted by a local government.

The Town Planning and Development Act

Section 20 appears in Pt III which is entitled "Alienated land."
The headnote to s 20 reads "Plans of subdivision to be approved". Section 20 deals with a range of situations not relevant to the present matter. Excising them, the relevant portion of s 20(1)(a) reads:
" … a person shall not, without the approval of the Commission, lease land for any term exceeding 10 years, including any option to extend or renew the term or lease land for terms in the aggregate exceeding 10 years, including any option to renew or extend the terms unless the land is dealt with by way of such lease as a lot or lots. …"
There is an exception within s 20(1)(d). The exception is achieved by the device of removing from the definition of "land" "the whole or portion of a leased building where":
"(i)the building was constructed pursuant to an approval granted by local government …; and
(ii)… the leasing … does not relate to any land other than that building or portion and is for a term or period (including any option to renew or extend the same) not exceeding 21 years."
Section 20B Savings of certain agreements, provides that if a lease has been entered into without the approval of the Commission then it does not contravene s 20(1)(a) if it was entered into subject to the approval of the Commission (s 20B(1)(b)) and an application for approval is made within a period of 3 months after the agreement (s 20B(1)(c)). In that event nothing in s 20(1) renders the agreement illegal or void by reason only that the agreement was entered into before the approval of the Commission to the subdivision was obtained.
Section 27 Offences provides that any person who contravenes or fails to comply with s 20(1) is guilty of an offence.
In Wilson International Pty Ltd v International House Pty Ltd (1983) WAR 234 Smith J held at 253:
"… the legislative intent was to stamp with illegality and to render void an agreement in contravention of s 20(1)(a) unless such agreement is in terms which bring the agreement within the saving provisions of s 20B."
Subject to s 20B, approval must be given before the agreement is made: Glentham Pty Ltd v City of Perth [1986] WAR 205.

The contentions of the parties

The lessee argues that the lease was in respect of a part of a lot, namely the whole of the land, except Penthouse 402 and one car bay when constructed. Section 20(1)(d)(i) relates to buildings that were constructed at the time the parties create the interest in land. This is made clear because s 20(1)(d)(i) refers to an existing building that "was constructed" pursuant to an approval granted by a local government. The lessee submits therefore that, as a matter of grammar, the language used does not encompass a building to be constructed pursuant to an approval. It is argued that the grammatical meaning is reinforced by the purpose of the statute which is to ensure that land is not cut up into lots without approval of a subdivision by the planning authorities: Lombardo v Development Underwriting Pty Ltd [1971] WAR 188.
The purpose of s 20(1)(d) is to exclude from the scrutiny of the planning authorities those short or medium term leases of the whole or a portion of the building that was constructed pursuant to an approval granted by a local government when there is no good reason for such scrutiny.
This is said to be supported by Hansard on 13 October 1982 at p 3759 in the Second Reading Speech of the Town Planning and Development Amendment Bill the Minister for Urban Development and Town Planning said:
"The Act is amended to remove the application of this provision to leases and licences for the whole or portion of a building providing that the term of the lease does not exceed 21 years, including options; that the building was constructed pursuant to a local authority approval; and that the lease or licence does not relate to any land other than a building or portion thereof."
While there may be no good planning reason for scrutinising leases of existing buildings, the same cannot be said for a building which has not yet been constructed, in part, because it is not possible to determine whether it had been constructed pursuant to an approval granted by a local government.
The lessor's response is that the invalidation of a contract by statute is a serious and far‑reaching matter and statutes should not be construed as having that effect unless such an intention is clear from its terms: Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101 at 129‑130.
The lessee contends that the lease was a lease for the whole of the lot, except for Penthouse 402, and one car bay, to be constructed by Reefking as part of the additions and alterations.
The lessor argues that insofar as the instrument operated as a present demise of the existing hotel and land up to the completion of construction, that dealt with the hotel and land as one lot in that regard the entering into of the instrument did not infringe s 20(1)(a). The intriguing argument is that in relation to future premises no equitable lease arises until the premises are constructed so if there is a prohibition in s 20(1)(a) it would operate at the point of completion of construction. At that point the instrument would operate as an agreement to lease the new premises which would be susceptible to an order for specific performance requiring the owner to execute a legal lease.
There would be no infringement of s 20(1)(a) however, it is submitted, at the point at which such equitable lease arose if the building was constructed pursuant to an approval granted by a local government and the agreement for lease provided the term not exceeding 21 years.
In this case, local government approval has been given and the agreement was only for 20 years. Alternatively, it is argued that there would be no lease in contravention of s 20(1)(a) because the lease by the lessor would have been in respect of one lot only. The potential for subdivision would not arise by reason of the lessor's lease but by the lessee's performance of the executive agreement to surrender or assign the relevant portion of the building.
It is necessary to first examine exactly what was conveyed in the lease at the date of execution. As at that date there stood on the land an existing building. It was proposed in due course to erect a new building.
The lease was for the whole of the land in Certificate of Title Volume 1937 Folio 598, except for one two bedroom unit, Penthouse 402 and one car bay, to be constructed necessarily.
That part of the land excluded from the definition of "leased premises" did not exist at the time of the lease. There were plans which, if carried into effect, would mean that, in the future, such a piece of land would exist.
When the plans were carried out, there would be two lots over the land. One, the greater portion, would comprise the "leased premises". The other would comprise Penthouse 402 and one car bay which the lessor did not alienate from itself.
Thus the land in the future would be divided into two lots.
I am unable to read the expression "was constructed" in s 20(1)(d)(i) as operating in the future.
"Was" is the first and third person singular past indicative of "be".
"Constructed" is the past tense of "construct".
The words of the s 20(1)(d)(i) are unambiguous and require approval of an already constructed building not one to be approved in the future.
This also accords with the policy and purpose of the Act. Under s 20(1)(a), prior approval of the Commission is required before subdivision. In respect of a building to be constructed one cannot know at the time of the lease whether it will comply with an approval granted by a local government.
When the conduct is possibly unlawful, certainty is required. Commonsense and policy support the plain grammatical meaning.
Although I was taken by counsel to passages from Hansard, I have not found it necessary to have resort to them in my reasoning process.
The lessor's submission that what happened in the lease is that there was a lease of one lot with an independent covenant by the lessee to surrender or assign a portion of the estate.
There are two answers to this submission. As I construe the lease, there is no such covenant. No assignment by the lessee is necessary because Penthouse 402 and one car bay do not form part of the defined "leased premises". Secondly, if I am wrong in my construction of the lease, then it is an agreement to lease in the future in relation to Penthouse 402 and one car bay and thus is also caught by s 20(1): Wilson International Pty Ltd v International House Pty Ltd.
The lessor argues that the agreement would operate so as to create an equitable lease at the time the building was constructed. So any prohibition would operate when the building was constructed at which time of course it would be a building which was constructed pursuant to an approval granted by a local government.

However, this argument is contrary to the actual lease which is clearly a lease at law of the premises, including the portion of the premises when they are constructed. The annual rent automatically increases a month after a certificate of occupancy is issued and rises again thereafter.
I conclude that the lease is in breach of s 20(1)(a) and therefore illegal and void.

Severance

The lessor argues that I should sever the offending portion of the lease. The offending portion is the reservation of Penthouse 402 and one car bay. The lessor expressly disavows the resulting unlawful aspect of the instrument and does not seek to rely on it.
The lessee's argument in essence is that s 20(1)(a) operates to make the whole of the agreement illegal and void so that there is nothing to sever. The entire agreement falls away.
Clause 1.4 of "Severance" reflects the intention of the parties
The lease is illegal and void because of one portion which is for the lessor's benefit and which he disavows. If that portion is severed the lease will not be in breach of s 20(1)(a) because there will be no subdivision of the land.
Penthouse 402 and one car bay comprise a very small part of the premises. Severance would increase the lessee's premises with no extra rent although its obligations would also extend. It would not materially change the character of the contract.
Plainly, it would be just if the lease can be severed in the manner suggested by the lessor. This would also accord with the intention of the parties as discerned by cl 1.4. The question is whether the law will allow severance in these circumstances.

Severance: Relevant principles

In Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391 The respondent deposited gold and gems in a safe with the appellant to hold in safe custody. At the time it was illegal to deposit gold but not gems. Later the appellant did not return the articles deposited.
The High Court held that the terms of the bailment required the appellant to hold the gold along with the gems in the safe in safe custody until such time as the respondent required them to be redelivered to him (at 410-411):
"So far as the gold was concerned, the performance of that agreement would, and in fact it did, contravene the regulations but it does not follow that the bailment of the gems and of the safe was tainted by illegality. If the terms of the bailment relating to the gold were severable from those relating to the gems and the safe the bailment of the latter chattels would be lawful. The test of severability was stated by Jordan CJ in McFarlane v Daniell (1938) 38 SR (NSW) 337 'If the elimination of the invalid promises changes the extent only but not the kind of contract, the valid promises are severable: Putsman v Taylor [1927] 1 KB 637, at pp 640, 641'.":
In Electric Acceptance Pty Ltd v Doug Thorley Caravans (Aust) Pty Ltd [1981] VR 799, Brooking J conducted an extensive review of the authorities relating to contracts illegal by statute and severance. I have derived considerable assistance from this case and its analysis of Thomas Brown v Fazal Deen and the other cases to which the Judge referred.
After the review of authorities, Brooking J concluded at 819:
"… I proceed upon the basis that the criminality of the present contract is no bar to its severance and address myself to the question whether it should be severed. It is not for me to consider the question whether criminality will always prevent severance in the light of the other authorities, and in the light of principle."
I respectfully adapt that passage to the task before me.
Brooking J continued at 819:
"The tests of severability are the same whether the provision is on the one hand illegal or void on the ground of conflict with public policy or on the other hand void for uncertainty: Brew v Whitlock (No 2), [1967] VR 803, at pp 806, 812-3; cf. Beneficial Finance Corporation Ltd v Conway (No 2), [1971] VR 594, at p 605.
The High Court in the Fazal Deen Case approved the test laid down in McFarlane v Daniell (1938), 38 SR (NSW) 337: 'If the elimination of the invalid promises changes the extent only but not the kind of the contract the valid promises are severable: Putsman v Taylor, [1927] 1 KB 637, at pp 640, 641'.
The sentence cited by the High Court appears in the following context in ((1938) 38 SR (NSW) 337 at p 345): 'When valid promises supported by legal consideration are associated with, but separate in form from, invalid promises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature: Horwood v Millar's Timber & Trading Co Ltd [1917] 1 KB 305, at 315. If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable: Putsman v Taylor, [1927] 1 KB 637, at pp 640‑1. If the substantial promises were all illegal or void, merely ancillary promises would be inseverable.'"
Brooking J then stated the test as follows:
"The Full Court in Brew v Whitlock (No 2), [1967] VR 803, at pp 811‑3, after referring to McFarland v Daniell (1938), 38 SR (NSW) 337 and the Fazal Deen Case (1962), 108 CLR 391, laid down as a test of severability, as regards both uncertain provisions and provisions illegal or void by reason of public policy, whether the invalid promise is so material and important a promise in the whole bargain that there should be inferred an intention not to make a contract which would operate without it, but to make a contract which is conditional upon the operation of that promise. The Court was of opinion that the other test (whether the invalid promise must be treated as forming with the valid promises an indivisible whole which cannot be taken to pieces without altering its nature, and whether the elimination of the invalid promise would alter the kind of the contract) came to the same thing."
In Firmin v Gray & Co Pty Ltd [1985] 1 Qd R 160 the plaintiffs agreed to sell certain shares in a company to the defendant. By cl 22 of the agreement, the defendant would arrange for the company to give the plaintiff a mortgage over its property so as to secure part of the amount to be paid. This clause was in breach of the Companies Act 1961, s 67.
At trial the trial Judge relied on a statement in "Chitty on Contracts", 24th ed, par 1049 as follows:
"Where all the terms of a contract are illegal or against public policy or where the whole contract is prohibited by statute, clearly no action can be brought by the guilty party on the contract; but sometimes, although parts of the contract are unenforceable for such reasons, other parts, where they stand alone, would be unobjectionable. The question then arises whether the unobjectionable may be enforced and the objectionable disregarded or 'severed'."
At 164 Andrews SPJ cited this passage with approval:
"His Honour held, in my respectful view correctly, that the offending part of cl 22 of the contract was not the whole or main consideration for the enforcement of the contract relied upon by the respondents; that it was severable because there is no ground of public policy which would be abused by the severance and that it might be effected without altering the nature of the contract between the parties."
At 166, Andrews SPJ said:
"Questions of severance, which involve interpretation of the contract, are similar whether the illegality arises from considerations of public policy in accordance with the common law view on these matters or is related to a prohibition by statute. True it is, as asserted by the appellant, that interdependent terms of a contract may not be severed (Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432). However 'interdependent' here relates to terms which do go to the heart of a contract. The provision in cl 22 which is complained of by the appellant is an ancillary term performance of which is not insisted upon by the respondents. With or without it the appellant gains everything that it is entitled to under the contract. "
McPherson J held at 175:
"It may, therefore, be accepted that a party to an illegal contract has the right, and perhaps even the duty, to repudiate it and to refuse to be bound by its terms. That, however, is not the end of the matter because, as I have already said, the contract here was not itself an illegal agreement. The only illegal agreement is to be found in the relevant provisions of cl 22. Hence, if the vendors were entitled to insist, as they purported to do, upon performance of the contract apart from those provisions, the purchaser would not have been justified in repudiating the entire transaction. It may be that, by insisting upon performance of the whole contract, a party in the position of the vendors in the present case may demonstrate an apparently unalterable intention to require that the illegal part of the contract also be performed. But, by analogy with cases in which a contracting party maintains an incorrect view of the proper interpretation of a contractual provision (cf Green v Sommerville (1979) 141 CLR 594, 601, 611; Wooder Investments Development Ltd v Wimpey Corporation [1980] 1 WLR 277, 283), it seems to me that nothing less than a clearly manifested determination to insist upon performance of the illegal part of the agreement will suffice to justify repudiation by the other party on the grounds of illegality. At least this is so in a case like the present, where the illegal agreement in cl 22 forms only a subsidiary part of what is an otherwise lawful contract for the sale of shares."
In South Western Mineral Water Company Ltd v Ashmore [1967] 1 WLR 1110 a similar issue arose before Cross J. At 1120 Cross J said:
"I cannot take the view and do not take the view that the fact that the granting of this debenture would be a criminal offence by Solent made the whole of this agreement absolutely null and void so that the courts will not allow anybody to rely on any of its provisions … The position was this, I think, that if the company were prepared to waive the obligation of Solent to provide the debenture and were prepared to complete the transaction on the footing that they merely had the personal undertaking of Mr Ashmore to pay the £36,500 over eight years with 8 per cent interest secured only by the £9,000 securities and without any charge on the assets taken over by Solent they were at liberty to enforce the contract on that basis."
In Carney v Herbert (1985) 59 ALJR 41, a similar point arose this time in the Privy Council. At 43 Lord Brightman delivering the judgment of their Lordships said:
"Questions of severability are often difficult. There are no set rules which will decide all cases. As was said by Kitto J in Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432 at 438:
'Tests for deciding questions of severability that have been formulated as useful in particular cases are not always satisfactory for cases of other kinds. To some extent each case must depend on its own circumstances, and in particular on the nature of the illegality'."
Lord Brightman then reviewed the authorities before concluding at 47:
"Subject to a caveat that it is undesirable, if not impossible, to lay down any principles which will cover all problems in this field, their Lordships venture to suggest that, as a general rule, where parties enter into a lawful contract of, for example, sale and purchase, and there is an ancillary provision which is illegal but exists for the exclusive benefit of the plaintiff, the court may and probably will, if the justice of the case so requires, and there is no public policy objection, permit the plaintiff if he so wishes to enforce the contract without the illegal provisions."

Conclusion on severance

The reservation to the lessor of Penthouse 402 and one car bay is very much ancillary to the main contract to lease the Hotel Northbridge in contemplation of the Hotel Northbridge redevelopment. The lessor wishes to waive a clause which is entirely for its benefit. Waiver will not materially affect the contract for lease in any practical manner other than slightly increasing the area of property which the lessee will hold without any increase in rental payments.
Public policy does not require the whole of the lease to be struck down. Without the Penthouse 402 and one car bay provision, there is no breach of s 20(1)(a). Applying the principles derived from the cases I have set out, I conclude that it is just and sensible to sever the offending portion of the lease so as to make the balance of the lease conform with s 20(1)(a).

Orders

1.Upon its proper construction the lease made between Reefking Pty Ltd and Farleigh Investments Pty Ltd dated 31 August 1998 in respect of premises situated at 198 Brisbane Street, Northbridge and being more particularly described as Lot 100 on Diagram 82815 being the whole of the land in Certificate of Title Volume 1937, Folio 598, was entered into in contravention of the Town Planning and Development Act 1928 (WA), s 20(1)(a).
2.Upon severance of:
(i)all the words appearing after the words "lessor's chattels" in item 2 of the schedule;
(ii)the whole of item 4 of the schedule;
the lease is not void for illegality.