Hahndorf Golf Club Inc v John Nitschke Nominees P/L No. Scciv-03-737

HAHNDORF GOLF CLUB INC v JOHN NITSCHKE NOMINEES PROPRIETARY LTD
[2003] SASC 286
OLSSON AUJ
Introduction

These proceedings were originally instituted by what was, in form, a construction summons. However, as they proceeded towards trial, the scope of relief sought was, with leave of a judge, broadened to include a claim by the defendant for rectification. By direction, separate points of claim for rectification were filed. Due to the urgency of the matter, much of the relevant evidentiary material was placed before me in agreed documentary form. Limited oral evidence was adduced as to certain issues in the proceedings.
Relevant narrative facts
The plaintiff is an incorporated body and the registered proprietor of an estate in fee simple in almost 50 hectares of land situated at Balhannah Road, Hahndorf. This was originally portion of a larger area of land purchased by the grandfather of the deponent John Victor Nitschke in the early 1900’s. On the death of the grandfather in about 1948 or 1949, the lastmentioned area of land passed in equal shares to Victor Werner Nitschke and his brother Max Nitschke.
Victor died in 1967, having originally established a nine hole golf course on portion of the land. It was managed by the plaintiff, of which he was a member. The golf course was expanded into an 18-hole golf course in about the mid-1970s.
Following the death of Victor, his moiety interest in the land devolved upon his three children.
What is now Lot 22 (to the north of the golf course) and the golf course itself were ultimately transferred into the names of the defendant (a company controlled by John Victor Nitschke), Peter Nitschke Nominees Pty Ltd (a company controlled by his brother Peter) and his sister Marie Jonson. The other moiety interest was eventually held by Max Nitschke Nominees Pty Ltd.
Lot 21 (to the east) was ultimately held by Marie Jonson, the defendant and Max Nitschke Nominees Pty Ltd in various proportions.
I will collectively refer to the defendant, the two other companies and Marie Jonson as "the Nitschke group".
In about 1978 the plaintiff sought a formal lease of the golf course from the then registered owners, as it desired to build the clubhouse on it, at significant cost. Following negotiations in that regard, a lease dated 1 January 1979 was duly consummated and registered. At that time, the land was surveyed and a new, separate title issued in respect of the area occupied by the plaintiff. That land is the whole of the land the subject of Certificate of Title Register Book Volume 4184 Folio 97 ("the leased land"). The lease granted was lease registered No 4852349. It was for a term of 10 years commencing on 1 January 1979. I shall refer to the lease as "the subject lease".
By virtue of clause III (10) (c) of the subject lease the plaintiff was given an option to purchase the leased land in accordance with a form of agreement for sale and purchase annexed to that document.
Following the issue of the new title, various members of the Nitschke group remained the registered proprietors of the land abutting the golf course land on its northern and eastern boundaries.
Is common ground that, on a date that does not clearly emerge, but was probably in the early 1990’s, the plaintiff duly exercised its option to purchase the leased land.
Lengthy negotiations then ensued with regard to a number of issues, including the purchase price to be paid.
The parties executed a written agreement dated 31 January 1994 ("the contract"), whereby the lessors of the leased land agreed to sell it to the plaintiff for a total consideration of $880,000. The contract, as actually entered into, was not in fact in the form of the annexure to the subject lease. Additionally, the land sold was subject to some variation of surveyed boundaries. It was the whole of the land currently encompassed by Certificate of Title Register Book Volume 5274 Folio 541 ("the golf course land"). The contract was based on the standard Law Society of South Australia format, but it contained a series of quite complex special conditions. At the time of the negotiations for and execution of the contract the vendors and the plaintiff, as purchaser, were both represented and advised by solicitors respectively retained by them.
It is unnecessary, for present purposes, to recite all of the special conditions attaching to the contract. Settlement was, in any event, to abide the approval of a plan of division incorporating the new boundaries for the golf course, certain land and water supply rights were reserved to the Nitschke group, and two memoranda of encumbrance were to be registered. One of these, related to the water rights, is not relevant for present purposes. There was also to be a first right of refusal in the Nitschke group to repurchase the land, as referred to in clause 8 of the special conditions.
That clause was couched in the following terms:
"In consideration of the Vendor agreeing to sell the said Land to the Purchaser the Purchaser agrees with the Vendor that if at any time the Purchaser is desirous of disposing of its estate in fee simple in the said Land or any portion of it the Vendor will have the right of first refusal to purchase the said Land subject to the following covenants terms and conditions:
8.1The Purchaser will give notice in writing to the Vendor of the Purchaser's intention to dispose of the said Land or any part of it (‘first sale notice’) and the first sale notice will constitute an offer by the Purchaser to sell the whole of the said Land to the Vendor. The first sale notice will specify the consideration required by the Purchaser from the Vendor from the purchase by the Vendor of the Purchaser’s interest in the said Land and the terms and conditions upon which the said Land will be sold to the Vendor. The consideration and terms and conditions will not in any respect whatsoever constitute the imposition of any more onerous obligations and duties upon the Vendor or require the Vendor to pay any greater sum for the said Land than the Purchaser would impose or require from a purchaser other than the Vendor.
8.2The Vendor may within 30 days after the service of the first sale notice give notice in writing to the Purchaser of the Vendor's acceptance or rejection of the Purchaser's offer to sell. If the Vendor serves a notice of acceptance on the Purchaser (‘first purchase notice’) there will be deemed to be a binding contract (‘first Contract’) for the sale by the Purchaser and the purchase by the Vendor of the Purchaser's interest in the said Land for the consideration stated in the first sale notice incorporating the provisions of the Law Society of South Australia Contract for Sale and Purchase of Land and the further terms and conditions set out in Special Condition 8.5.
8.3If the Vendor does not within 30 days after service of the first sale notice give to the Purchaser the first purchase notice as required by Special Condition 8.2 the Purchaser may negotiate the sale of the said Land to a third party unrelated to the Purchaser (‘unrelated third party’). If an offer to purchase the said Land has been submitted to the Purchaser by an unrelated third party the Purchaser will give notice in writing to the Vendor of the Purchaser's intention to dispose of the said Land ("second sale notice") and the second sale notice will:
8.3.1constitute an offer by the Purchaser to sell the whole of the said Land to the Vendor,
8.3.2have attached to it a copy of any terms of sale or sale contract offered to or by and/or accepted by the unrelated third party (‘third party offer’),
8.3.3specify the consideration required by the Purchaser from the Vendor and the terms and conditions upon which the said Land will be sold to the Vendor which consideration and terms and conditions will not in any respect whatsoever constitute the imposition of any more onerous obligations and duties upon the Vendor or require the Vendor to pay any greater sum for the said Land than set out in the third party offer.
8.4The Vendor may within 30 days after service of the second sale notice give notice in writing to the Purchaser of the Vendor's acceptance or rejection of the Purchaser's offer to sell. If the Vendor serves a notice of acceptance on the Purchaser ("second purchase notice") there will be deemed to be a binding contract ("second Contract") for the sale by the Purchaser and the purchase by the Vendor of the Purchaser's interest in the said Land for the consideration stated in the second sale notice incorporating the provisions of the Law Society of South Australia Contract for Sale and Purchase of Land and the further terms and conditions set out in Special Condition 8.5.
8.5The further terms and conditions to be incorporated in the first Contract or the second Contract (as the case may be) are:
8.5.1 settlement will be effected on or before the expiration of 60 days following receipt by the Purchaser of the first purchase notice or the second purchase notice (as the case may be);
8.5.2 a deposit equal to 5 % of the purchase price will be paid by the Vendor to the Purchaser within 48 hours of the service of the first purchase notice or the second purchase notice (as the case may be) upon the Purchaser;
8.5.3 the balance of the purchase price will be paid at settlement;
8.5.4all rents rates taxes insurance and other outgoings and incomings will be adjusted to the date of settlement;
8.5.5the Vendor will deliver to the Purchaser a Memorandum of Transfer in registrable form and the Purchaser will execute the Memorandum of Transfer and deliver it to the Vendor at settlement upon payment of the balance of the purchase price in full;
8.5.6the said Land will in all respects be at the risk of the Vendor as and from the date of execution of the first Contract or the second Contract (as the case may be);
8.5.7settlement will take place at the Land Titles Office at Adelaide or such other place as may be mutually agreed between the Purchaser and the Vendor;
8.5.8if the Vendor defaults in payment of the balance of the purchase price or any part thereof or in the due compliance with the terms and conditions of the first Contract or the second Contract (as the case may be) the Vendor will pay to the Purchaser interest on so much of the balance of the purchase price as remains unpaid at the rate of interest 2% per annum greater than the annual rate of interest charged from time to time by the Commonwealth Bank of Australia on overdraft accounts of less than $100,000 computed from the date upon which the payment or payments fell due until payment is made in full.
8.6The Vendor may charge the said Land with the rights and interests granted to the Vendor under and by virtue of the terms of this Special Condition 8 by registering in its favour as the next document immediately after the Memorandum of Encumbrance referred to in Special Condition 7.2 a memorandum of encumbrance in such form as may be required by the Vendor and the Registrar General (‘encumbrance’).
8.7If the Vendor refuses neglects or otherwise fails to give notice in writing to the Purchaser within the relevant period specified in Special Condition 8.4 or the Vendor notifies the Purchaser of its rejection of the offer to sell contained in the second sale notice the Purchaser may thereafter sell the said Land to a party other than the Vendor for a consideration and upon terms and conditions that are no more favourable to a party other than the Vendor than those set out in the second sale notice.
8.8In this Special Condition 8 ‘Vendor’ means the person and each of the companies set out in Item S1 of the Schedule and
8.8.1 the spouse children and remoter issue of that person;
8.8.2any shareholder in or director of the companies as at the date of this agreement; and
8.8.3any company, trust or other legal entity in which at least one share or other interest (whether present or contingent) is owned or held by any other persons or companies previously referred to in this Special Condition 8.8
PROVIDED THAT the Vendor will cause the Purchaser to be advised in writing each time there is a change in the group of persons and companies constituting ‘Vendor’.
8.9If the whole of Lot 21 and Lot 22 is sold to a person who does not fall within the definition of ‘Vendor’ provided by Special Condition 8.8 on settlement of the sale by the Vendor of the last portion of Lot 21 or Lot 22 (as the case may be) this right of first refusal will lapse and the Vendor will produce for registration a discharge of the encumbrance."
I infer from the material before me that the contract was duly carried into effect. As appears from the copy Land Titles Office Register Search before me and Exhibit P2, the relevant land is currently that comprised in Volume 5274 Folio 541, which shows the plaintiff as the registered proprietor of the golf course land. The land was transferred to the plaintiff on 24 August 1994. There are two encumbrances registered on the title, namely Nos 7779124 and 7779125.
The documentation before me reveals that the plaintiff duly executed memorandum of encumbrance registered No 7779125 ("the encumbrance") in favour of the Nitschke group on or about 17 August 1994. That memorandum of encumbrance, inter alia, contained covenants that, in many respects, were substantially in the terms referred to in the contract. However, there were some differences.
The first of these relates to the description of land in relation to which a future sale by the Nitschke group is postulated. Clause 8.9 of the contract stipulates that, if "the whole of Lot 21 and Lot 22" is sold to a person other than those defined in clause 8.8 as comprising "the Vendor", then the first right of refusal is to lapse and the encumbrance is to be discharged. Clause 3.2.8 of encumbrance is to the same effect, save that it refers to "the Land", which is elsewhere defined as Lot 20 in the relevant deposited plan, being portion of the land comprised in Certificates of Title Register Book Volume 5134 Folios 124 and 947. This appears to be an obvious error, as it is the golf course itself that comprises allotment 20 and the encumbrance is clearly intended to confer rights on the Nitschke group as the owners of land adjacent to it. Hence the defendant’s application for rectification.
Moreover, clause 4 of the encumbrance contains a covenant not envisaged by the contract. It provides that the plaintiff may not sell the golf course land, or any portion of it, without first obtaining from the transferee a binding encumbrance in favour of the Nitschke group. The actual clause is expressed as follows:
"4. The Encumbrancer shall not sell or agree to sell or transfer the estate or interest of the Encumbrancer in the Land or any portion thereof without obtaining from the purchaser or transferee of the Land or portion thereof the subject of the sale or transfer a binding agreement to execute and lodge for registration under the provisions of the Real Property Act 1886 (as amended) as the first document immediately after the registration of the Memorandum of Transfer in respect of the Land or portion thereof the subject of the sale or transfer a Memorandum of Encumbrance in favour of the Encumbrancee or its nominee containing the same or substantially similar covenants and other stipulations as are herein contained with the substitution of:
4.1    the name address and description of the purchaser or transferee of the Land or such portion thereof subject to the sale or transfer as Encumbrancer;
4.2    a description of the Land or such portion thereof subject to the sale or transfer in a form required for registration;
4.3    such further or other consequential amendments as may be required for registration;
and the Encumbrancer shall ensure that such Memorandum of Encumbrance is lodged for registration and is registered as soon as practicable."
The evidence does not clearly indicate how this provision came to be in the document and the plaintiff seems at a loss to explain its presence. It appears to reflect a similar type of clause in the water rights encumbrance. In his affidavit sworn on 30 July 2003 the witness Nitschke made the bald statement that the solicitors representing the Nitschke group were instructed to draft the contract and the encumbrance in such a manner as to ensure that the plaintiff could not dispose of its interest in the land without first obtaining a subsequent purchaser's consent to be bound by the terms of the encumbrance. This is the only positive evidence on the topic and, if correct, was not carried into effect. The relevant provision appears in the encumbrance but is not referred to in the contract. This general topic was not pursued with either Dr Trafford-Walker or Mr Nitschke in the course of their oral evidence.
It is useful, at this point, to return to the content of encumbrance for the purpose of setting out, in analytical detail, the core scheme of the rights sought to be conferred by it.
For present purposes the key elements may be summarised thus:
(1) The encumbrance was expressed to operate indefinitely.
(2)It enjoined the plaintiff and other persons claiming through it not to sell "the Land" "or any portion of it" unless the conditions hereafter referred to were satisfied.
["Land" was defined as meaning the whole of the golf club land. This is to be contrasted with the definition "Adjacent Land", which attached to the land immediately to the north and east of it, that was, at the time, vested in the Nitschke group, as earlier recited].
(3)In the event that the plaintiff desired to dispose of the Land or any portion of it, then it was required to give to the encumbrancees a written notice of its intention to do so (a " first sale notice").
(4)The giving of such a notice constituted an offer to sell the whole of the Land to the encumbrancees (apparently even if the plaintiff only desired to dispose of portion of it).
(5)The first sale notice was required to specify the consideration required and the proposed terms and conditions of sale. Consideration and terms and conditions were not, in any respect, to “constitute the imposition of any more onerous obligations and duties upon the Encumbrancee or require the Encumbrancee to pay any greater sum for the Land than the Encumbrancer would impose or require from an Encumbrancer [sic] other than the Encumbrancee”.
(6)The Encumbrancees were entitled, within 30 days after service of the first sale notice, to give notice in writing of acceptance or rejection of the plaintiff's offer to sell.
(7)If no such notice was given, the plaintiff was entitled to “negotiate the sale of the Land to a third party unrelated to the Encumbrancer [sic]” (‘unrelated third party’)”.
(8)Clause 3.2.3 of the encumbrance then goes on to stipulate that "If an offer to purchase the Land has been submitted to the Encumbrancer by an unrelated third party the Encumbrancer will give notice in writing to the Encumbrancee of the Encumbrancer’s intention to dispose of the Land (‘second sale notice’)”.
(9)A second sale notice was also to constitute an offer by the plaintiff to sell the whole of “the Land” to the Encumbrancee. It had to have attached to it “a copy of any terms of sale or sale contract offered to or by and/or accepted by the unrelated third party (‘third party offer’)”. It was also required to "specify the consideration required by the Encumbrancer from the Encumbrancee and the terms and conditions upon which the Land will be sold to the Encumbrancee which consideration and terms and conditions will not in any respect whatsoever constitute the imposition of any more onerous obligations and duties upon the Encumbrancee or require the Encumbrancee to pay any greater sum for the Land than set out in the third party offer".
(10)As in the case of the first sale notice, the Encumbrancee was entitled to accept or reject the offer within 30 days of service of the second sale notice.
(11)If the Encumbrancee either rejected the offer or failed to respond to the second sale notice within the 30 day period the plaintiff was entitled to sell "the Land" to a party other than the Encumbrancee for a consideration and upon terms and conditions that were no more favourable to a party other than the Encumbrancee than those set out in the second sale notice.

For the purposes of the scheme the word "Encumbrancee", as employed in the instrument, was defined as including not only the person and the companies referred to in the definition of the word, but also the spouse, children and remoter issue of that person; any shareholder in or director of the companies as at the date of the encumbrance; and any company, trust or other legal entity in which at least one share or other interest (whether present or contingent) was owned or held by any of the persons or companies previously referred to.
It must be said that, in general, the encumbrance is poorly drafted. Counsel pointed to a number of anomalies in it, in addition to the aspects already specifically mentioned. By way of example:
(1)    Clause 3.2.1, related to the giving of the first sale notice, refers to the non imposition of obligations and duties more onerous upon the Encumbrancee or any requirement for the payment by the Encumbrancee to pay any greater sum for "the Land" than the Encumbrancer "would impose or require from an Encumbrancer other than the Encumbrancee". This does not make sense. It should presumably advert to the imposing or requiring from a purchaser.
(2)    Clause 3.2.7 extends the meaning of "Encumbrancee" to include a potentially wide range of persons not party to the document. Given that the "Encumbrancee" executing the document is under an obligation to notify changes in the composition of the group, as and when they occur, the obligations of the plaintiff are not expressly limited to notified persons or parties. It has no way of ascertaining, with certainty, the composition of the group at any given point in time. It appears that, in fact, no notices have ever been given as required and thus, from a practical point of view, it is well nigh impossible to determine how to comply with the notice provisions contained in clause 12.
(3)    Clause 3.2.3 refers to a third party unrelated to "the Encumbrancer". This is clearly an error and, presumably, is intended to be a reference to "the Encumbrancee", in the extended sense of that expression.
(4)    Clause 12 speaks of giving notices by sending them to "such other party at its address first hereinabove appearing". Having regard to the extended definition of "Encumbrancee" this begs the question as to what address or addresses is or are to be utilised for the purposes of the first sale notice and the second sale notice.
(5)    Clause 3.2.8, contrary to the provisions of the contract, stipulates that it is only if the whole of "the Land" is sold to an unrelated third party that the encumbrance lapses. Moreover, in any event, Clause 3.2.8 is difficult to reconcile with Clause 4, which appears to require, in all cases, that all sales must be accompanied by the execution of what is, in effect, a replacement encumbrance by the incoming new owner of either the Land or any portion of it.
(6)    Clause 3.2.6 presents particular problems of construction. Read literally, it has the effect that, even if the second sale notice is the product of a proposed sale of portion only of the Land to an unrelated third party, a failure of the Encumbrancee to respond to or accept it within the time stipulated leads to the consequence that the plaintiff is authorised to sell the whole of the golf course land only.
(7)    Clause 5 erroneously refers to clause 6, whereas the relevant clause is clause 4. As Mr WJN Wells, senior counsel for the plaintiff, pointed out, this is a strong indicator that the encumbrance was drafted taking the water rights encumbrance as its drafting base, because, in that encumbrance, a correct reference would have been to clause 6.
It appears that, in recent times, as a consequence of falling membership and rising costs, the plaintiff encountered some financial difficulties. It obtained increased mortgage accommodation from the ANZ bank and developed a business plan which, inter alia, envisaged the sale of the golf course land by the plaintiff to a developer ("Kinsmen"). This plan reserved to the plaintiff a licence to continue to maintain and use a golf club on that land, given that it was to be incorporated into a residential development scheme.
To that end the plaintiff entered into a conditional contract for sale with Kinsmen on 25 February 2003 ("the redevelopment contract"). Under that contract Kinsmen is to build a motel complex of some 40 residential units on a community title basis, in addition to upgrading the clubhouse and golf course. The redevelopment contract is subject to the discharge of encumbrance by 31 August 2003.
On 31 July 2002 (i.e. before the entry by the plaintiff into the redevelopment contract) what purported to be a first sale notice addressed to all encumbrancees was, inter alia, duly served by the plaintiff on Mellor Olsson, the solicitors for the defendant.
That notice was addressed to the Nitschke group and, in its operative terms, was expressed as under:
"1     The Encumbrancer offers to sell the land for the amount of $710,000 subject to certain conditions beneficial to the Encumbrancer namely:
1.1    That the purchaser (Encumbrancee) will renovate and develop the clubhouse to the extent of $250,000 within 12 months of the transfer and grant the Encumbrancer non exclusive rights but priority rights to the use of and enjoyment thereof for the purposes of club meetings for a period of 10 years;
1.2    That the encumbrancer be entitled to priority use of the course on Tuesday mornings, Wednesday mornings, Sunday mornings and Saturdays for a period of 10 years for club competitions and that members pay $500 plus increases of no more than CPI annually per annum for access and licence rights as members.
1.3    Cause a roadway and entry to the golf course to be improved to the extent of expenditure of $176,000 and purchase plant and equipment of the club for $50,000 subject to valuation.
1.4    Upgrade and spend to capital works $250,000 to the golf course within 12 months of the transfer and a further $250,000 of capital works to the course over the next 4 years thereafter for improvements to the golf course.
1.5    That the purchaser covenant to maintain the existing 18 hole golf course to its current ACR rating for the period of the licence in 1.2 above.
2The terms and for the consideration detailed herein shall be capable of acceptance and the terms being continuing obligations shall be recorded by encumbrance and this Notice, if accepted, is conditional on approval of the members of the Encumbrancer in special meeting and in accordance with its Constitution.
3Encumbrance 777125 shall be removed upon sale in accordance clause 3.2.8 of the encumbrance."
The evidence is not really definitive as to what transpired immediately following the service of the first sale notice. Clearly there were various discussions and negotiations as between the plaintiff and the witness Nitschke.
According to the affidavit of the witness Nitschke sworn on 7 August 2003 he first became aware of a proposed development proposal involving Kinsmen and the possibility of erecting 40 residential units around the clubhouse in about September 2002.
It is to be noted that, by that time, the first sale notice period had expired without formal response, by way of acceptance or rejection, from the defendant to the plaintiff.
By letter dated 4 October 2002, written by the solicitors for the defendant to the solicitors for the plaintiff, it was asserted that, for reasons expressed by it, the first sale notice did not constitute a valid first sale notice as envisaged by either the contract or the encumbrance. The point was taken that the first sale notice was not based upon the terms related to the Kinsmen proposal. It was also argued that each of the proposed 40 units would be the subject of a community title and that the grant of each such title may well, in itself, "trigger the operation of the right of first refusal".
On 8 April 2003, what was titled as a second notice of intention to sell was served on all encumbrancees c/- the solicitors for the defendant. Mellor Olsson responded, by letter dated 8 May 2003, that they only acted for the defendant company and its principal shareholders and that they had no instructions to act for the other encumbrancees. They maintained their previous assertion that the earlier document did not constitute a valid first notice.
This notice, inter alia, recited the service of the first notice and a lack of response in accordance with the provisions of Clause 3.2.3 of the encumbrance. Its operative terms were as follows:
"1. The Encumbrancer offers to sell the land to the Encumbrancee upon the terms and conditions, and for the consideration, set out in the draft proposed contract attached hereto and marked ‘B’ (the offer).
[The contract had annexed to it a copy of the redevelopment contract entered into between Kinsmen and the plaintiff on 25 February 2003.]
2.Insofar as the third party contract is subject to conditions in favour of the purchaser not included in the offer (being the conditions set out in clauses 3.1.3 to 3.1.7 (inclusive) of the Special Conditions) it is the intention of the Encumbrancer, and a further term of the offer, that the Encumbrancee have the benefit of such of those conditions as it nominates when accepting the offer, and that if the Encumbrancee so nominates, those conditions together with clause 3.2 of the Special Conditions will then also form part of the accepted offer.
3.Insofar as the third party contract imposes upon the purchaser development obligations not included in the offer (being clauses 5.1, 5.5 and 5.6 of the Special Conditions) it is the intention of the Encumbrancer, and a further term of the offer, that the Encumbrancee be at liberty to carry out such of those developments as it nominates when accepting the offer, and that if the the Encumbrancee so nominates, the right to undertake the nominated developments will form part of the accepted offer.
4.The third party contract is subject to terms of confidentiality not included in the offer (Clause 14, Special Conditions). It is the intention of the Encumbrancer, and a further term of the offer, that the Encumbrancee be at liberty to include that clause by nomination when accepting the offer and that if the Encumbrancee so nominates that clause will form part of the accepted offer."
On or about 12 June 2003 the plaintiff caused yet a third notice of intention to sell to be served on the defendant. This was, in its operative portion, substantially the same as the second notice and was said to have been served without prejudice to the plaintiff's right to argue that the first and second notices already referred to were valid and effectual notices under the contract and encumbrance. It was obviously served, ex abundante cautela, having regard to the criticisms earlier advanced on behalf of the defendant and on the footing that, if the first sale notice dated 31 July 2002 be considered invalid, the second notice at least constituted a first sale notice for the purposes of encumbrance.
The defendant has not elected to avail itself of the rights purporting to have been conferred on it by any of the three notices to which I have referred.
The affidavit sworn by Dr Lawrence Trafford-Walker on 13 June 2003 reveals the following situation concerning the encumbrancees other than the defendant:
(1)    Peter Nitschke Nominees Pty Ltd was de-registered on 18 February 2002;
(2)    The encumbrancee Marie Jonson notified the plaintiff by letter dated 2 May 2003 that she has no interest in the relevant land or encumbrance. She duly executed a discharge of her interest as encumbrancee, by instrument dated 2 June 2003; and
(3)    Max Nitschke Nominees Pty Ltd also notified the plaintiff that it had no interest in the relevant land or encumbrance. It also duly executed a discharge of its interest as encumbrancee.
By order dated 22 July 2003 Perry J joined the Australian Securities and Investments Commission (ASIC) as a defendant, by reason of its statutory right to any interest that the former Peter Nitschke Nominees Pty Ltd might have as encumbrancee under the encumbrance. He also directed service of copies of all relevant documents filed in these proceedings on ASIC.
It is to be noted from Exhibit P2 that the encumbrancees Peter Nitschke Nominees Pty Ltd, Marie Jonson and Max Nitschke Nominees Pty Ltd all disposed of their respective interests in the relevant land adjacent to the golf course land.
In relation to that on the northern side, Peter Nitschke Nominees Pty Ltd and Marie Jonson transferred their respective interests to the defendant on 12 April 2000. Max Nitschke Nominees Pty Ltd transferred its interest to John Victor Nitschke on 6 August 2001.
The land to the east of the golf course land was the subject of a transfer by Marie Jonson of her interest to the defendant on 12 April 2000. Max Nitschke Nominees Pty Ltd transferred its interest to John Victor Nitschke on 6 August 2001.
ASIC did not file any notice of address for service or seek to be represented at trial. It did however write to the solicitors for the plaintiff on 6 August 2003 indicating that it would abide by any order made by the Court in these proceedings. I infer from the copy correspondence filed that ASIC is prepared to facilitate the discharge of encumbrance in relation to the former Peter Nitschke Nominees Pty Ltd and does not seek to claim any benefit under it.
It follows that the only residual conflict that exists is as between the plaintiff and the defendant company.
In support of its case the plaintiff has put before me the opinion of an expert valuer (Mr Smithson) to the effect that the presence and enforcement of a covenant of the nature contained in clause 4 of the encumbrance would have a very adverse effect on the sale of the golf course land and of portions of it, because of the difficulties of resale and procurement of mortgage finance. He proffered the view, for detailed reasons expressed in his report and elaborated upon in his oral evidence, that a prudent developer would be unlikely to undertake a residential development of the golf course land with the encumbrance in place.
Mr PA McNamara, senior counsel for the defendant, sought to challenge his views in cross examination, inter alia, putting to him examples of sales of property subject to other, varying types of encumbrance. I use that the word in its broadest, non-technical, sense.
He also put it to the witness that the units in the Holdfast Shores development had been sold at auction “off plan”, in circumstances in which the sale was, in effect, contingent on the building actually taking place.
Mr Smithson acknowledged the examples put to him, but said that they were quite different scenarios. What singled the present encumbrance out as being unique was the combination of the need for a two stage offering process and the perpetual nature of the requirement. This would, in his opinion, render the proposition most unattractive both to a developer and potential unit purchasers, because of the fact that such a situation would be unappealing to both of them and, more importantly, to mortgage financiers. Moreover, any unit purchasers (particularly those who were investors) would look to the prospects of future capital growth, which was likely to be inhibited by the presence of the encumbrance.
The defendant called its own expert, Mr McArdle, to refute Mr Smithson's opinions. This witness disagreed with Mr Smithson and contended that mortgage finance ought not to present a significant problem for either the developer or purchasers of units. He considered that the existence of the encumbrance would not result in a substantial diminution in any sale price.
I see no point in traversing his evidence in fine detail. Suffice to say that I found it far from compelling.
Indeed, at the conclusion of that evidence, I was left with a profound impression that this witness did not have a clear appreciation of the full nature and practical effect of the provisions of the encumbrance. He tended to approach his evidence on the simplistic basis that this was a straightforward 30 day first right of refusal clause that, in administrative terms, would give rise to little difficulty in its implementation. Nor did he appear to appreciate its potential impact on any later attempt to sell individual units, by way of contrast with the whole of the land.
Although he expressed confidence in his ability to find likely financiers who would be unfazed by the presence of the encumbrance, it was apparent to me that such persons as he approached were not informed of the actual detailed provisions of it and simply told of the existence of a first right of refusal in what appears to have been no more than very generic terms. Indeed it seems obvious that, in the case of two persons spoken to, the conversations were quite brief and almost casual. There was no really definitive discussion of the proposal.
Of considerable significance for present purposes is the fact that, in the course of cross examination, McArdle was constrained to concede that, when he approached an experienced banker and asked his opinion concerning a situation such as that with which we are now concerned (albeit in generic terms), that person indicated that he would not entertain primary (or "senior debt") financing because, in his view, the presence of the encumbrance would render it difficult, if not impossible, for "end user" prospective purchasers of units to raise mortgage finance. Retail financiers would, in the view of the banker, not regard such a situation with favour.
On balance, I have no hesitation in preferring Mr Smithson's evidence. I agree with him that the examples relied on by Mr McArdle are simply not comparable. The restrictions imposed by the encumbrance are both onerous in their administration and unusual. As a matter of plain common sense they would be unappealing to potential developers, unit purchasers and financiers alike.
Whilst one must, of course, make due allowance for any self-interest on his part, the evidence of the witness Young (who is an executive director of Kinsmen) provides strong support for that of Mr Smithson.
The former is a person highly experienced in major land developments and the financing of them. He said that, based on his experience, he would expect to encounter difficulties in arranging both what he described as "senior debt" (ie primary development mortgage finance) and also reselling units with the encumbrance in place. This witness spoke with the voice of experience in terms which, in my view, once again had the ring and appeal of plain common sense. It directly echoed the sentiments that had been expressed by the banker to whom Mr McArdle had recourse, as above recited.
It must be said that both Smithson and Young were most impressive witnesses. I accept their evidence, so far as it is relevant for present purposes, as being far more convincing than that of Mr McArdle.
Interrelationship between the contract and the encumbrance
The encumbrance was an instrument executed only by the plaintiff. By virtue of s 57 of the Real Property Act 1886 (SA) it has the effect of, and is deemed and taken to be, a deed duly executed by that party. Its purpose was, of course, to carry into effect the terms of the contract and to confer on the nominated encumbrancees the rights and benefits to which they were entitled pursuant to it. The contract was the primary document and evidenced the agreement come to between the relevant parties. The encumbrance was executed some six months after the execution of the contract. I agree with the submission of Mr McNamara QC that the encumbrance did not, and could not, operate as a separate contract between the plaintiff and the encumbrancees, as the latter were never parties to it. It merely operated to confer benefits upon them.

It is beyond dispute that the encumbrance, in the form in which it was presented by the solicitors for the Nitschke group, was not a direct reflection of the obligations of the plaintiff pursuant to clause 8 of the contract. Whilst it did encapsulate the scheme of that clause it also ranged significantly beyond it, insofar as the content of clause 4 of the encumbrance is not required by or provided for in clause 8 of the contract.
I have earlier pointed out that there is no explanation as to how clause 4 came to be included in the encumbrance beyond the bald statement by the witness Nitschke that he told his solicitors to insert such a provision. On the evidence as it stands I agree with Mr McNamara QC that the explanation for its presence more probably than not lies in the terms of clause 8.6 of the contract. That clause stipulated that the vendor was entitled to charge the land with the rights and interests granted to the vendor under and by virtue of the terms of clause 8 by registering in its favour a memorandum of encumbrance "in such form as may be required by the Vendor and the Registrar General…". Given that the witness Nitschke said that he insisted on a provision such as that to be found in clause 4 of the encumbrance and that, at the time, both parties were represented by separate solicitors, the only logical conclusion is that this was part of the form "required" by the defendant and was acquiesced in at the time by the plaintiff. I so find.
Rectification or construction?
Quite apart from the vexed question of the presence of clause 4 in the encumbrance, it is beyond question that such instrument is the product of very sloppy draftmanship to the point that, in various respects, it does not faithfully and accurately reproduce clause 8 of the contract.
I have earlier recited the specific claim by the defendant for rectification of clause 3.2.8 of the encumbrance to align it with the provisions of clause 8.9 of the contract, which it was plainly intended to replicate. The wording presently appearing in it does not make sense and it is beyond question that the phrase "the Land" appearing in the first line should have read "the Adjacent Land".
But, as I have already indicated, this error does not stand alone.
Clause 3.2.1 refers, in the last line, to the imposition of obligations and duties on an "Encumbrancer" whereas this should be a reference to a purchaser in conformity with the corresponding provision found in clause 8.1 of the contract.
Clause 3.2.3 refers to a third party unrelated to the "Encumbrancer", which is actually in conformity with the text of clause 8.3 of the contract. However, this appears to be a mistake in both documents and should presumably refer to the "Encumbrancee".
Clause 5 of the encumbrance has no counterpart in the contract and, in any event, is meaningless by reason of its reference to clause 6. Presumably it is intended to refer to clause 4.
These are simply illustrative of the problems that arise. I do not think that they give rise to a need for a formal order of rectification and, in any event, I agree with Mr Wells QC that it would be inappropriate to rectify portion of a document without rectifying all of it, where necessary.
This is a situation that clearly attracts the approach of the Privy Council in Watson and Another v Phipps (1986) 60 ALJR 1 at 3. As their Lordships there pointed out, the function of a court of construction is to ascertain what the parties meant by the words that they used in the context in question and to attempt to avoid an absurd or inconsistent end result. I propose to adopt such a course in the instant case. The intention of the parties in the above instances is obvious and the document ought to be construed accordingly.
However, some of the other problems arising from the content of the encumbrance are not so simply resolved.
Is the encumbrance enforceable?
Putting to one side the construction issues there are several fundamental questions that must be addressed in relation to the scheme and expression of the encumbrance.
Are the terms of the encumbrance so unworkable as to be void for uncertainty?
The plaintiff asserts that the answer to this question must be in the affirmative. In support of its contention it directs attention to the combined impact of several aspects of the instrument.
First, it invites attention to the practical impact of the provisions of clause 3.2.7.
It will be recalled that this clause stipulates that, throughout clause 3.2 of the encumbrance the word "Encumbrancee" means the person and each of the companies set out in the panel titled "ENCUMBRANCEE" on the first page of the encumbrance [that is to say, the Nitschke group] and also:
(1)    the spouse, children and remoter issue of that person;
(2)    any shareholder in or director of the companies as at the date of the encumbrance; and
(3)    any company, trust or other legal entity in which at least one share or other interest (whether present or contingent) is owned or held by any of the persons or companies previously referred to.
[It is to be noted that the proviso to this clause does no more than impose an obligation on the Nitschke group to advise the plaintiff in writing each time there is a change in the group of persons and companies constituting the "Encumbrancee". It does not make the extent of the application of the definition contingent on that notification. As has been seen, no notifications have ever been given pursuant to the proviso. In practical terms, the extent of parties comprising the Encumbrancee is unknown to the plaintiff.]
But a moment's reflection immediately reveals the practical problems inherent in this definition. It is simply impossible for the plaintiff, as Encumbrancer, to know, at any given point in time, the precise composition of the group entitled to the benefit of the encumbrance or to be able to give any relevant notices under it, absent a faithful discharge by the Nitschke group of its obligation of notification. Moreover, the persons said to be entitled to rights as Encumbrancees are not a closed group, and the effect of including "remoter issue" could well give rise to the situation that clause 3.2 operates in virtual perpetuity.
In the course of his submissions Mr McNamara QC sought to brush this problem to one side by saying that none of the persons involved in the extended definition (which is also contained in the contract) ever gave any consideration for the rights vested in them, nor was there any privity of contract between them and the plaintiff. He contended that, for those reasons, they could not enforce or take advantage of the covenants in the encumbrance, notwithstanding that it operated as a deed. He invited me simply to ignore the extended definition as being of "absolutely no effect" and to view the document and the contract from which it arose as simply operating between the plaintiff and the Nitschke group.
He went on to submit that, if this view was not to be upheld, then resort should be had to clause 9 of the encumbrance. This stipulates that, if any term covenant condition or provision of the instrument is or is held to be invalid void or unenforceable, it shall be severed from the document and the remainder of the terms covenants conditions and provisions of it are to remain in full force and effect.
In my opinion clause 9 cannot be resorted to in the manner embraced by Mr McNamara QC. The plain fact is, as was rendered abundantly clear by the evidence of Mr Nitschke, that clause 3.2.7 was inserted as an integral part of the overall scheme propounded by the Nitschke group to ensure that the encumbrance would continue to operate in virtual perpetuity so as to prevent a sale and development of the golf club land. It is simply not possible to pluck this element out of the overall scheme without destroying the inherent concept of it.
Nor, in my view, is it possible simply to ignore the content of clause 3.2.7 as being of no effect whatsoever. Quite apart from being a key feature of the restrictions sought to be imposed upon the plaintiff, the parties concerned are not before the court, have not had an opportunity of being heard, and I am by no means satisfied that it is the situation that, because there is no privity of contract or consideration between them and the plaintiff, they cannot avail themselves of rights conferred by deed, as suggested by Mr McNamara QC.
As to this the law is, I consider, accurately stated in paragraph 2-860 of the Australian Contract Law Reporter, where the learned author makes the point that, historically, the law has differentiated between a deed that expresses itself to have been made between two or more parties (a so-called deed "inter partes") and one that does not expresses itself thus (i.e. a deed poll or, more rarely, an indenture that does not actually name two or more parties as parties to it).
The original general rule of the common law was that only a person who had been named as a party to a deed inter partes could take action to enforce any covenant contained in it and intended to benefit that party. By way of contrast a person named in a deed not inter partes or otherwise sufficiently identified could enforce a provision intended to benefit that person.
As appears from the judgment of Lord Upjohn in Beswick v Beswick (1968) AC 58 at 104-105 and that of Denning LJ (as he then was) in Drive Yourself Hire Car (London) Ltd v Strutt (1954) 1 QB 250 at 273, the old common law rules were altered by the passage of s 5 of the Real Property Act 1845 (UK). This abolished the technical rule about indentures, so far as land was concerned. It enabled a person to take the benefit of a covenant over or respecting land, although not named as a party to the indenture. What now expresses itself as s 34 of the Law of Property Act 1936 (SA) merely continues that situation to the present day.
The lastmentioned judgment of Denning LJ is interesting for its description of the distinction between a deed inter partes and one that is not. His Lordship, having recited that there was an inflexible rule that no one could sue on indenture inter partes unless he was named as a party to it, had this to say:
"… that rule was strictly confined to indentures made between parties, that is, indentures which specifically named the parties to it in a formal way, as by saying ‘This indenture made between John Doe of the one part and Richard Roe of the other part’: Chitty, Ibid, at p 3. The rule never applied to a deed poll or to indenture which was not expressed to be made between parties. The result was that if the indenture did not specifically name the parties in a formal fashion, but started off simply by saying that ‘This Indenture witnesseth that John Doe and Richard Roe have agreed as follows,’ stating their agreement and followed by their signatures, then the common law allow the third party to sue on a covenant contained therein which was made expressly for his benefit."
Against that background, the content of clause 3.2.7 of the encumbrance simply cannot be put to one side as lightly, as Mr McNamara QC would have me do.
The second major difficulty that arises under the encumbrance stems from the fact that, on the one hand, the instrument appears to contemplate the possibility of a sale by the plaintiff of either the whole of the golf course land or some portion of it. This is apparent by a reference in clause 3.2.1 to an intention "to dispose of the Land or any part of it" and the reference in clause 4 prohibiting a sale of "the Land or any portion thereof".
However, the provisions of clause 3.2 are so drafted that is simply not possible to achieve such a result. For example, on the giving of a first sale notice the plaintiff is required to offer the whole of "the Land" to the Nitschke group and, upon a failure of the Nitschke group to accept it, the plaintiff is entitled to negotiate a sale to an unrelated third party. Even if the negotiation is sought to be limited to portion of the land only, then a second sale notice must also offer the whole of "the Land" to the Nitschke group on terms no more onerous than the proposed sale to the unrelated third party. In terms of the encumbrance if the Nitschke group fails to avail itself of the offer arising from the second sale notice, the sole right of the plaintiff is to sell "the Land" (i.e. the whole of the golf course land) to the unrelated third party.
It is at once to be seen that the document is a contradiction in terms, in that, although it clearly contemplates the sale of portion of the golf course land, the machinery provisions effectively deny the practical possibility of such a sale.
Further, even if it was possible to seek to sell portion of the property, then the plaintiff would be in the position that, because it had to offer the whole of "the Land" to the Nitschke group pursuant to each notice of sale, it would be left in a dilemma as to what to say in the relevant notice of sale, so as to ensure that what was proposed was not more onerous than the terms and conditions sought to be imposed on a proposed third party purchaser.
In the course of his submissions Mr McNamara QC recognised these difficulties and accepted that, on the one hand, the encumbrance clearly contemplated the possibility of sale of portion of the relevant land, but that it was so drafted in the machinery provisions as to refer only to disposals of "the Land". He argued that there was nothing inappropriate, on the giving of a first sale notice, to require an offer of the whole of the land to the Nitschke group. That was, he said, consistent with the whole scheme of the contract and the encumbrance. He then sought to argue that when, in relation to the second sale notice, the draftsman referred to an offer being made by an unrelated third party to purchase "the Land", that should be construed as meaning whatever land was the subject matter of the third party offer.
In my opinion such contention is untenable. The key phrase "the Land" is used consistently throughout the subclauses of clause 3.2 in a manner that simply does not permit the type of construction suggested by Mr McNamara QC. Indeed, it seems that, because of the use of the phrase throughout clause 3.2.3 it is not possible, conformably with the machinery provisions of the clause, for the plaintiff to offer portion of the land only for sale to an unrelated third party.
If I am incorrect in my interpretation of the encumbrance and there is no impediment to a sale of a portion of the golf course land, yet another problem arises. Suppose there is a sale of portion of that property and the plaintiff thereafter desired to sell the balance or some other portion of it. An impossible situation would then arise by virtue of the fact that the plaintiff would, pursuant to the terms of the encumbrance, be required to offer “the Land” (i.e. the whole of the golf course land) to the defendant, yet would not be in a position to do so, because it would no longer own all of it.
In the result, it seems to me that Mr Wells QC is on sound ground when he contends that the scheme sought to be established by clause 3 of the encumbrance is patently unworkable and could not be made to operate satisfactorily without the commission of major surgery on the scheme of the instrument.
As Barwick CJ said in The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1967-1968) 118 CLR 429 at 437 a narrow or pedantic approach to the construction of documents is inappropriate, particularly in the case of commercial arrangements. The modern authorities illustrate the fact that the courts will generally attempt to uphold commercial type documents despite a lack of clarity, provided that a commonsense approach to them can resolve apparent uncertainties relating to performance. (See, for example, Meehan v Jones and Others (1982) 149 CLR 571, Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd) (1982) 149 CLR 600).
However, in the instant case, the problems that arise are such that it is simply not possible to resolve them by a process of construction. The drafting of the document is such as to render the machinery aspects of it so unworkable that it must be held that the encumbrance is void for uncertainty. As in the case of rectification it is not the function of the court to redraft the document for the parties (Cf Pukallus v Cameron (1982) 180 CLR 447 at 452). The instrument simply cannot be rendered workable, absent a major revision of its provisions.
Do the provisions of the encumbrance constitute an unlawful restraint on alienation?
I have already demonstrated that, as drafted, the encumbrance effectively prohibits any possibility of a sale by the plaintiff of portion of the golf course land. From a practical point of view it also has the effect that it would be virtually impossible to sell the golf course land or any portion of it by auction.
In so far as it remains possible for the plaintiff, upon due compliance with the provisions of clause 3 of the encumbrance, to sell the golf course land as a totality to an unrelated third party, in the event that the Nitschke group does not elect to purchase in pursuance of either the first sale notice or the second sale notice, it may only do so on the footing that a similar encumbrance is procured from a potential purchaser in conformity with clause 4.
Quite apart from the delay involved in traversing the processes contemplated by clause 3 it seems to me that the inevitable consequence of such a situation must be a diminution in the market value of the golf course land or any portion of it that may properly be sold. I have already indicated my acceptance of the evidence of Mr Smithson, which strongly supports such a conclusion. It is, in my view, quite unrealistic to suppose that the situation arising under the encumbrance will do other than, in serious degree, adversely affect any potential sale at the instance of the plaintiff. Indeed, the evidence before me suggests that, as a matter of commercial reality, it may well have the practical effect of rendering the golf course land well nigh unsaleable.
Do these features evidence any unlawful restraint on alienation of the subject land?
In addressing that question it is first necessary to turn attention to the relevant legal principles involved.
I take, as my commencement point, a consideration of the case of In re Rosher. Rosher v Rosher (1884) 2 ChD 801. In the course of his judgment in that case Pearson J discussed the well settled principle that where a condition is imposed upon a devise of real estate that has the effect of substantially taking away the whole power of alienation, then that condition is void. As Pearson J said – “a condition which is repugnant to a gift is a void condition”. (See also Needham J in Reuthlinger v McDonald and Others (1976) 1 NSWLR 88 at 96). So it was, in the case of Rosher, that a devise to the testator's son which required him, should he desire to sell the estate during the lifetime of the widow, to first offer it to her at a price about 1/5 of its true value, was held to constitute a restraint on alienation that was void.
In the course of its decision in Hall v Busst (1960) 104 CLR 206, the High Court held that the common law principle relating to restraint on alienation was applicable not only to devises, but also contractual covenants or bonds not to alienate. That case concerned a contract for sale of land which contained a restraint by covenant on the alienation of the land by the purchaser without the consent of the vendors. The covenant purported to confer on the vendor what was tantamount to an option of re-purchase at the original sale price plus the value of additions and improvements to the property since the date of sale. It was expressed to operate indefinitely.
Dixon CJ held that the covenant really amounted to a total restraint on alienation and was, accordingly, void. The other judges forming the majority of the court agreed that the restraint in question was void, but expressed no opinion as to whether it amounted to a total restraint on alienation. Their approach seems to have been directed more towards the general nature of the restraint and that it infringed the principle that private property should be fully alienable.

The decision of the High Court in Nullagine Investments Pty Ltd v The Western Australian Club Inc (1993) 177 CLR 635, reaffirmed the principle enunciated in Hall v Busst. The judges discussed the effect of a covenant for pre-emption, but there was a considerable divergence of views on the facts of the case. Brennan J considered that the essential basis of the principle was founded in public policy. There was a unanimity of view that a covenant which necessarily resulted in a sale at under value would offend the principle. In Nullagine it is noteworthy that Toohey J, at least by inference, recognised that it was appropriate, in cases involving pre-emption, to lead evidence to establish that a right may well have the effect of bringing about a sale at under value.
Another case that illustrates the invalidity of a condition giving rise to a potential sale at under value is to be found in the decision of Kneipp J in Saliba v Saliba (1976) Qd R 205.
In his article "Restraints on Alienation" reported in volume 33 of the Law Quarterly Review (1917) at 236, Mr Sweet proffered the opinion that a restraint on alienation may be good if it is imposed not for the purpose of making property inalienable, but in order to effect an object which is itself lawful. One illustration that he gave was of rights of pre-emption and options to purchase. That view was accepted by Kelly SPJ in Re Permanent Trustee Nominees (Canberra) Ltd (1989) 1 Qd R 314 at 316. However, it seems to me that such a proposition cannot be sustained on an unqualified basis.
I take McCawley CJ, in his decision in Grayson v Grayson (1922) St R Qd 155 to accept the proposition that a restraint on alienation need not be absolute to be void. It is, rather, a question of whether the relevant condition takes away the whole power of alienation substantially. This accords with what fell from Pearson J in Rosher. The case of Attwater v Attwater (1853) 18 Beav 330 (which concerned a covenant against selling land other than to prescribed classes of persons) is an example of a partial restraint held void. As Fullagar J illustrated in Hall v Busst, what is involved is essentially a question of degree. This is the view expressed by Gummow J in Caboche v Ramsay (1993) 119 ALR 215 at 232 and appears to me to reflect the basis of reasoning in a number of the published authorities.
I do not ignore what appears to have been the contrary view expressed in Allstate Prospecting Pty Ltd v Posgold Mines Ltd and Others (Zeeman J, SC Tas 27 April 1995, unreported), but even he accepts the proposition expressed by McCawley CJ in Grayson that a restraint on alienation whereby property might not be disposed of except to particular persons can amount to an unlawful restraint on alienation. This is so if it is restricted within limits so narrow as to constitute a substantial taking away, not of the whole power of alienation, but of a valuable portion of it, subjecting it to fetters which inevitably, by limiting the market, diminish the ordinary selling value of the land, and which might, in fact, destroy all opportunity of selling.
In my opinion the evidence in this case unequivocally establishes that the impugned covenants necessarily have the practical effect of taking away, substantially, the power of alienation by the plaintiff of the golf course land. They do so by effectively preventing a sale of it other than as a totality and by subjecting it to fetters that, by their practical effect of limiting a potential market or rendering the property unattractive to potential buyers, would, at best, inevitably result in a sale at under market value and may well produce the consequence that a commercial development of the property is impractical. A further fetter arises from the practical inability to sell by auction.
It follows that the restraint sought to be imposed by the encumbrance, having regard to its terms, is void.
Did the plaintiff, in any event, comply with and satisfy the notice requirements of the encumbrance?
The findings already made by me are sufficient to dispose of the issues in these proceedings. However, lest it be considered that I am in error as to those findings, it is desirable that I indicate my conclusions with regard to the procedure that was in fact adopted by the plaintiff in purported compliance with the provisions of clause 3 of the encumbrance.
Mr McNamara QC sought to impugn the first sale notice on two grounds.
First, he said that the notice was bad because the plaintiff had already exhibited a willingness to sell to Kinsmen and the terms and conditions set out in the notice were not the same as those related to the prior negotiations with Kinsmen. In particular, the arrangements proposed with Kinsmen were conditional upon development approval, whereas the offer to the Nitschke group was for an unconditional contract requiring them to undertake relevant development. The proposal was therefore more onerous than that related to the Kinsmen negotiations.
Second, he argued that the content of the notice was such that it was no more than a proposal for "an agreement to agree". This was because the various conditions set out in the notice related to expenditure of moneys on the property did no more than identify the amounts to be spent and did not sufficiently stipulate the precise works required.
In my opinion neither of these criticisms is of substance.
As emerges from exhibit D2, the plaintiff had been in negotiation with Kinsmen from a time prior to 17 May 2002. The exhibit in question is a letter of that date written by Kinsmen to the plaintiff that evidences an outline proposal for the development of the golf club land that, if acceptable, would lead to simple heads of agreement setting out a consensus between the parties, to be followed by a formal agreement that fully evidenced any concluded arrangement ultimately arrived at. It is quite evident from the letter that there were numerous contingencies still to be addressed.
There is no evidence that, as at 31 July 2002, the date of the first sale notice, any concluded arrangement had, in fact, been arrived at between the plaintiff and Kinsmen. Indeed, the evidence indicates that it was not until 25 February 2003 that a firm contract was entered into between those parties.
On that basis the factual assertion underpinning Mr McNamara's contention is simply not made out. But even if his factual assertion was correct then, as I read the encumbrance, it is an irrelevant consideration.
Clause 3.2.1 of the encumbrance stipulates that a first sale notice is to be given of "the Encumbrancer's intention to dispose of the land or any part of it…". In the event of the formation of such an intention the plaintiff may serve a first sale notice constituting an offer to sell the whole of "the Land" to the Encumbrancee. That notice is to specify the consideration required and the terms and conditions upon which the plaintiff is prepared to sell "the Land" to the Encumbrancee. The consideration and terms and conditions are not to constitute the imposition of any more onerous obligations and duties or require the payment of any greater sum for the relevant property than the plaintiff would, at that time, impose on or require from a purchaser other than the Encumbrancee.
It is apparent that the clause does not necessarily envisage that, at that point, there is in fact any concluded contingent arrangement to sell to a third party. All that is required is an appropriate written offer that, having regard to the attitude of the plaintiff at the time (i.e. the formation of a concluded intention to dispose of the relevant property), is consistent with what the plaintiff would require of a third party. It may well be that, at that stage, there have not even been any third party negotiations at all.
There is no evidence to suggest that what is set out in the first notice of sale is inconsistent with what the plaintiff would have required at that time. Negotiations between it and Kinsmen had not been finalised.
As to the second criticism I do not accept the proposition that the notice is no more than a proposal for an agreement to agree. Whilst it is true that the precise details of the desired developments are not set out in definitive terms the proposal is clearly that the Encumbrancee shall spend the various amounts stipulated on capital improvements to the property of the broad nature indicated, to the satisfaction of the plaintiff. I consider that this is a sufficient compliance with the requirements of the encumbrance. (Cf Powell and Berry v Jones and Jones [1968] SASR 394).
I therefore hold that the first sale notice was validly given by the plaintiff to the defendant in conformity with clause 3.2.1 of the encumbrance.
As to the second and third sale notices Mr McNamara QC sought to impugn them on the footing that, first, they discriminated against the Encumbrancee on the basis that a five percent deposit was required from it, but not required from Kinsmen; and, second, that the Kinsmen contract had the effect of deferring its obligation to settle until it had finance, whereas the facility of the contract being subject to finance was not offered to the Encumbrancee.
It seems to me that these criticisms need to be examined in the context of the express terms of the encumbrance itself. The encumbrance does not require that the terms of the proposed contract with an unrelated third party must be identical with those set out in a second sale notice in relation to the Encumbrancee. The requirement is that those in the second sale notice may not be more onerous (that is to say, more burdensome) than those in the proposed contract.
It is to be noted that the encumbrance itself stipulates that, upon acceptance of a second sale notice, certain terms are to be attached to the transaction and these include payment of a five percent deposit. Is therefore obvious that, in considering whether or not a proposal imposes more onerous terms of sale, the focus of the requirement is on the primary sale price and conditions attaching to it, rather than the mode of payment. I fail to see that the inclusion of a condition that is stipulated by the encumbrance itself can be said to be more onerous than that imposed in the proposed contract with Kinsmen.
Bearing in mind Mr Nitschke's evidence that he would have no difficulty in raising the necessary finance to complete a transaction of the nature of that the subject of the Kinsmen contract, it is difficult to see how it could be said that the failure to include a clause that the proposed sale was to be subject to finance was more burdensome on him than in the case of Kinsmen. It is to be noted that Mr Young did not anticipate any problem in financing the development proposal and that the reference in the contract with Kinsmen to "Financial Close" was really one related to timing rather than a stipulation that the contract was to be subject to finance. In other words what was in issue was the method by which the transaction was to be taken forward in financial terms, rather than the ability to raise finance. This being so, I also fail to see that it can fairly be said that what was being put to the Encumbrancee was more burdensome than that arising under the contract for the proposed sale to Kinsmen.
In the circumstances I am of opinion that the notices served by the plaintiff on the defendant constituted a sufficient compliance with the requirements of clause 3 of the encumbrance, even if that instrument was binding on the plaintiff.
In the course of his submissions, Mr Wells QC advanced the proposition that, even if it be considered that any of the notices of sale fell short of the requirements of clause 3 of the encumbrance, in some respect, then such a situation fell to be examined in light of the evidence of the witness Nitschke. This was to the effect that the defendant was implacably opposed to the proposed development.
I agree with Mr Wells QC that, although the witness ultimately expressed the view that he might well have accepted an offer made in a properly formulated notice, such evidence was far from convincing, because the witness went on to say that, in effect, in the event of an acceptance by him, he would do all in his power to catalyse a refusal of necessary development consent, so as to make the proposed development fail.
Quite apart from the fact that such action would probably be in breach of Mr Nitschke's obligations to act in good faith under any relevant contract, I am satisfied that Mr Wells QC is correct in his assertion that any offers to sell to the defendant on the basis of the Kinsmen proposal would be exercises in futility, given Mr Nitschke's expressed attitude.
Mr Wells QC may well be on sound ground when he asserts that, in those circumstances, any attempt by the defendant to seek discretionary injunctive relief against the plaintiff for failure to comply with clause 3 of the encumbrance, may well be doomed to failure. (See Spry, Equitable Remedies, Sixth Edition, at 493 et seq). However, having regard to my above findings, it is unnecessary to come to a concluded view on that question or to make a final ruling as to the admissibility of the evidence relevant to that topic. Moreover, it is one thing that the defendant may not be able to procure discretionary injunctive relief. This does not automatically lead to the conclusion that, on that basis alone, the plaintiff has established an entitlement to discharge of the encumbrance, having regard to its terms.
Mr Wells QC also sought to call in aid the provisions of s 27 of the Law of Property Act 1936 (SA). All that need be said in that regard is that such an issue was not enlivened in any of the documentation filed in the proceedings and it is far too late to seek to ventilate it, for the first time, at the virtual conclusion of the trial.
Conclusion
For the reasons expressed and having regard to my findings as set out above, I conclude that there is, in the circumstances, no impediment to the consummation of the contract with Kinsmen and that, in particular, the combined provisions of clauses 3 and 4 of the encumbrance are void as constituting an unlawful restraint on alienation.
I will hear counsel as to the precise form of order that ought to be made, bearing in mind those findings.

[2003] SASC 286

26 August 2003