Graham Geoffrey Walker and Thelma Jean Walker as Trustees for the Walker Superannuation Fund v Clough Property Claremont Pty Ltd [2011] HCATrans 91

[2011] HCATrans 91

[2011] HCATrans 091

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P52 of 2010

B e t w e e n -

GRAHAM GEOFFREY WALKER AND THELMA JEAN WALKER AS TRUSTEES FOR THE WALKER SUPERANNUATION FUND

Applicants

and

CLOUGH PROPERTY CLAREMONT PTY LTD

Respondent

Application for special leave to appeal

KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 8 APRIL 2011, AT 1.27 PM

Copyright in the High Court of Australia

MR D.H. SOLOMON:   If it please, your Honours, I appear for the applicant.  (instructed by Solomon Brothers)

MR C.J. ZELESTIS, QC:   May it please the Court, I appear with my learned friend, MR J.A. THOMSON, for the respondent.  (instructed by Corrs Chambers Westgarth)

KIEFEL J:   Yes, Mr Solomon.

MR SOLOMON:   Your Honours, this application raises important questions of construction of two sections of general application in Western Australia to the sale of land and, in particular, the sale of land which is to be subdivided. The two provisions, sections 13 and 14 of the Sale of Land Act 1970, were amended from their original form to also apply to strata titles. They originally from 1970 until 1985 excluded application to strata titles by section 12, which was repealed at that time.

The repeal of section 12 and the amendment of sections 13 and 14 to make the sections also applicable to strata title subdivisions were effected at the same time that the Strata Titles Act 1985 was passed. They were effected by a consequential provisions Act known as the Acts Amendment (Strata Titles) Act 1985, which was passed at the same time. That relevant history is referred to by his Honour the trial judge at paragraphs 62 and 63 of his judgment at page 26, where he sets out that history, and it is also referred to in the judgment of the learned Chief Justice in the Court of Appeal at paragraph 63, which is appeal paper 71 and paragraph 74.

The consequence of the making applicable of the Sale of Land Act provisions to strata title transactions at the very same time and as part of the same legislative package as the Strata Titles Act 1985, obviously has the effect that both pieces of legislation were intended to regulate sales of strata lots prior to the creation of the lots. There is in ‑ ‑ ‑

KIEFEL J:   The way in which this operates is not novel, though, having regard to legislation in other States, is it?

MR SOLOMON:   There is similar legislation, but nothing identical to this, so I have not ‑ ‑ ‑

KIEFEL J:   But they operate fairly much the same.  I mean, they have to.  There is a limited amount of ways in which one can create lots, and have legislation dealing with the protection of purchasers.  I do not think that the protection is built into the various State legislations.  It differs markedly, does it?

MR SOLOMON:   They are certainly not identical, your Honour, and I have not attempted to run this application on the basis of ‑ ‑ ‑

KIEFEL J:   On the comparative basis.

MR SOLOMON:   No.

KIEFEL J:   But I do not think the argument that you have put forward has gained any support from any of the judges who have heard the matter.

MR SOLOMON:   That is true, your Honour, although there is a different approach taken by the trial judge in the Court of Appeal to section 14. It might be convenient if I start with section 14, and the application is really made on the basis that both of these sections, in a sense, are to be construed as in the context of each other, and they perform a complementary function. Section 14, in its terms, is very clear. It contains a primary prohibition which applies where a particular type of developer is regulated, and it is not every developer who is regulated. It was one:

who has the right to sell 5 or more lots in a subdivision or a proposed subdivision –

and what was added in 1985 was –

or 2 or more lots in the case of a subdivision or proposed subdivision effected or continued under the Strata Titles Act 1985, shall not sell any of such lots that is subject to a mortgage unless the mortgage relates only to that lot and he sells the lot under a contract which provides that the consideration for the sale of the lot shall be satisfied, to the extent of any money owing under the mortgage at the date upon which the purchaser is entitled to possession or receipt of the rents and profits of the lot sold, by the purchaser assuming on and from that date the obligations of the mortgagor –

The only exception that applies under 14(3) is that a mortgage by way of a floating charge is not included in the definition of “mortgage”.  What the Chief Justice said about this section and about the mischief that this section is designed to remedy is at paragraph 89 of his reasons, which is at page 80.  His Honour said at 89 that –

For these reasons, the mischief to which s 14 is directed cannot be identified from general considerations applicable to the general run of transactions commonly undertaken. Rather, the particular mischief is to be found within the specific language of the section.

90 It is a singular feature of s 14 of the SLA that no reference is made in the section to the date upon which the purchaser becomes entitled to conveyance of title to the relevant ‘lot’. Leaving to one side the exception relating to the sale of five or more lots in a broadacre subdivision, or two or more lots in a strata subdivision to a single purchaser, all the other exceptions provided in the section focus upon the date at which the purchaser is entitled to possession or receipt of the rents and profits –

and the process that his Honour conducted to limit the operation of the prohibition in 14(1) was then to focus on the narrow scope of the exceptions.  That is apparent from paragraphs 95, 96 and 98 ‑ ‑ ‑

BELL J: Mr Solomon, if one can cut to the chase here, his Honour – with the concurrence of the two other justices – noted that the language of section 14 was not without its difficulties, at application book 79, paragraph 86. His conclusion after a careful analysis of the provision at paragraph 98 on page 83 was that the construction for which you contend:

would produce consequences that are manifestly unreasonable.

Now, it is not entirely clear to me what your response to that is.

MR SOLOMON:   What my response to that is, is this, your Honour, that the approach adopted by the Court of Appeal was wrong in the sense that it purported to limit the primary prohibition by reference to the narrowness of the exceptions.  That cannot be a correct approach to statutory construction.  It is almost of the nature of an exception that unless it is by way of clarifying that something beyond the scope of the primary prohibition is not included, that is, a declaratory type of position that an exception will not be as wide as the prohibition, the approach that was taken to limit the construction of 14(1) by reference to the exceptions is contrary to the case I have referred to in the submissions – that is Corporate Affairs Commission (SA) v Australian Central Credit Union 157 CLR 201 at 211 – where, in the judgment of four Justices of the Court, it is noted at about point 4 on that page that:

As King C.J. pointed out in the Full Court of the Supreme Court however, undue attention by courts to implications based on such exceptions is liable to lead to constructions which distort the true meaning of the relevant general substantive provisions . . . It would, in our view, be wrong to use the content of the exceptions contained in pars. (a) to (d) of s. 5(4) to attribute to the substantive words of the sub-section a wider scope than that which they bear as a matter of ordinary language.

It must also be the case that it is wrong to do that. Indeed, it is the clearer position that it is wrong to take the narrowness of exceptions as a reason for limiting the breadth of the broad general prohibition. The second thing that is entirely wrong with the approach taken by the Court of Appeal is that the phrase which is focused on - and the phrase appears three times in the section. It appears firstly in the exception in section 14(1). That is the time that is relevant is the “date upon which the purchaser is entitled to possession or receipt of the rents and profits of the lot sold”.

That is then repeated – that same phrase is repeated in the exception in paragraph 14(2)(b)(i), that again the sale has to be a sale under a contract which provides that:

a mortgage affecting the lot sold is to be discharged as to that lot before the purchaser becomes, or upon the purchaser becoming, entitled to possession or to the receipt of the rents and the profits –

Then, again in the final words at the end of section 14(2) which goes on to provide that if that contractual provision is breached, that is after the word “but”:

but where the mortgage is not discharged as to that lot before the purchaser becomes, or upon the purchaser becoming, entitled to possession or to receipt of the rents and profits -

it goes on to confer a statutory right on the buyer to rescind the contract.  The concept that the date upon which the purchaser becomes entitled to possession or receipt of rents and profits as excluding the time when there is a conveyance is, with respect to the Court of Appeal, quite wrong.  The date upon which the purchaser is entitled to possession or receipt of rents and profits may well be the date of conveyance or it may be an earlier date.  These are words of expansion, not of limitation.  The judgment of the Court of Appeal fastens only on the notion of possession.  It does not even mention what type of circumstance is contemplated as to receipt of rents and profits. 

In my reply submissions I have referred to the recent decision of the South Australian Full Court in Perpetual Trustee v Valuer-General 101 SASR 110 at 124 to 126, paragraph 56. In that passage there is considerable analysis of the notion of what is a fee simple in possession. In the third paragraph on page 125 in there it is said that:

There is substantial authority, therefore, for the proposition that the expression “an estate in fee simple in possession” ‑ ‑ ‑

KIEFEL J:   I think you can take it that we have an understanding of this concept.  Could you perhaps just identify what the point that is made in Perpetual Trustee is, as it relates to your case.

MR SOLOMON:   Yes.  The point that is made in Perpetual Trustee at the very passage I was reading is that the estate in fee simple applies where the owner is either in physical possession or is not in physical possession but is in receipt of the rents and profits.  That is the paradigm example of the best evidence of the existence of an estate in fee simple.  For the legislature to focus on the date upon which the purchaser is entitled to possession or receipt of the rents and profits is for the legislature to focus on the paradigm example of the time when the purchaser becomes entitled to an estate in fee simple in possession. 

It may also include an earlier time if, under the contract, and this is an exceptional circumstance, in an exceptional circumstance, the purchaser is entitled to physical possession before completion or is entitled to receipt of rents and profits before completion.  So that the use of the term “the date upon which the purchaser is entitled to possession or receipt of rents and profits” in the exceptions, both in 14(1) and in 14(2)(b) are not limitations which, therefore, govern the proper construction of the primary prohibition in 14(1).  They are, in fact, words of extension because they cover not only the time that the purchaser becomes entitled to conveyance ‑ ‑ ‑

KIEFEL J:   I think you might be repeating yourself at this point, Mr Solomon.

MR SOLOMON:   That is the point about section 14. We say that the prohibition in the first words of section 14(1) is clear beyond argument that where there is a ‑ ‑ ‑

BELL J:   Do you accept, Mr Solomon, that it produces manifestly unreasonable results in relation ‑ ‑ ‑

MR SOLOMON:   No, not in the slightest, your Honour, and I will tell you why because there is not the slightest difficulty in a properly advised vendor complying with section 14(2)(b). Section 14(2)(b) creates a situation which can be very easily complied with by any competent conveyancer. The section provides a mechanism for a contract to firstly provide in 14(2)(b)(i) - the contract has to provide that the mortgage is to be:

discharged as to that lot before the purchaser becomes, or upon the purchaser becoming, entitled to possession or to receipt of the rents and profits –

not a difficult provision to comply with.  It secondly has to provide that the:

deposit and all other moneys payable under the contract . . . are to be paid to –

a lawyer or a licensed real estate agent to be applied in or towards so discharging the mortgage.  As long as you have a contract which contains that provision and it is complied with there is no manifestly unreasonable operation at all and the section goes on and provides that if you have a provision in those simple terms after the word “but” at the end:

but where the mortgage is not discharged as to that lot before the purchaser becomes, or upon the purchaser becoming, entitled to possession or to receipt of the rents and profits under the contract and the purchaser of the lot under the contract is not in default –

he may terminate the contract and there is a right of rescission. So, there is no manifest inconvenience.  The only manifest inconvenience for this particular respondent is that they did not have a provision which complied with 14(2)(b).

On the question of section 13, again, what has happened has been a very limiting construction of the exceptions in section 13. My time is short, let me just say this much. The court with respect to section 13 used the reference to a lot in section 11 as governing its construction of section 13. The definition of “lot” includes at the end of the words an area which is represented “that it will constitute a lot in a proposed subdivision”. That part of the extension in the definition of “lot” is plainly there to refer to the situations under the definition of “sell”, which are wider than agreements for sell, in particular, in the definition paragraph (b) of “sell” where one may:

offer, hold oneself out or advertise as being willing, or agree to sell -

But to say that one represents an area as being an area of land where it is an agreement is not a mere representation. That becomes the subject matter of the actual agreement. That was referred to in the Chief Justice’s judgment at 34 and 35 and 59 as being a basis of construction. The second basis upon which section 13 was construed so as to broaden the exception in section 13(1)(a) to not just cover where the prohibition being where it applies shall not sell any of such lots unless:

(a)      he is the proprietor thereof -

The court correctly noted, with respect, that the proprietor means registered proprietor because of the definition – that is paragraphs 36 and 37 but reach the conclusion that all that the protection that was intended to be conferred

was limited to was ownership of the lot, simply ignored the fact that a purchaser who commits to buy land may also suffer great prejudice because the subdivision is never completed. 

They may be held up for a long period of time because it is delayed, not completed.  They have a commitment.  They cannot commit elsewhere and the very prejudice of entering into a contract of sale to buy a future lot, it is not just a matter that the owner may not have title at the date of the contract to the underlying land upon which a building is going to be built and then a subdivision made, it is the fact that they may not be able to complete which is a real risk and that has been ignored in construing the section.  If it please the Court.

KIEFEL J:   Yes, thank you, Mr Solomon.  Mr Zelestis, we will not need to hear from you.

The decision of the Court of Appeal in this matter is not attended with sufficient doubt to warrant the grant of leave.  Special leave is refused with costs.

AT 1.48 PM THE MATTER WAS CONCLUDED