Hamilton Island Enterprises Ltd v Croycom P/L
[1998] QSC 71
•24 April 1998
IN THE SUPREME COURT
OF QUEENSLAND
No. 1823 of 1996
[Hamilton Island Enterprises Ltd v. Croycom P/L]
BETWEEN:
HAMILTON ISLAND ENTERPRISES LIMITED
(ACN 009 946 909) Plaintiff
AND:
CROYCOM PTY LTD
(ACN 059 371 309)
DefendantREASONS FOR JUDGMENT - THOMAS J.
Delivered:24 April 1998
CATCHWORDS: CONTRACT - Lease or licence - Exclusive possession - Quiet enjoyment - General store - Grantor’s power to require concessionaire (with compensation) to move to other premises - Radaich v Smith (1959) 101 CLR 209 and Lewis v Bell (1985) 1 NSWLR 731 discussed - Whether instrument registrable under Land Act 1994, s.295(1).
Counsel:Mr C. Hampson QC for the Plaintiff
Mr S. Couper QC for the Defendant
Solicitors:Minter Ellison for the Plaintiff
McLaughlins for the Defendant
Hearing date: 2 April 1998
REASONS FOR JUDGMENT - THOMAS J.
Judgment delivered 24 April 1998
The plaintiff (“HIE”) seeks an injunction against the defendant (“Croycom”) restraining it from attempting to register a “licence agreement” under the Land Act 1994. A declaration is sought that the agreement is not an instrument capable of being registered under that Act.
Both parties before me agreed that there is only one live issue, namely whether the relevant document creates a lease or a licence. Strictly speaking the question is whether the relevant document creates an interest in land under that Act (s.295(1)), but counsel are agreed that that question must be answered “Yes” if it is a lease and “No” if it is a licence. No intermediate possibilities were suggested, so I shall deal with the matter according to the arguments presented. Counsel are also agreed that the exercise is simply one of construction, and that, apart from the fact that the relevant premises comprise a general store which occupies the ground level of a two-storey building on Hamilton Island, there are no extrinsic facts to which reference is appropriate in the construction exercise.
The relevant document is not necessarily the same as other agreements between HIE and other persons known as concessionaires who conduct businesses on Hamilton Island.
The document is quite extensive, comprising some sixty-six pages. It is described as a “licence agreement” and the relationship of the parties is described throughout as that of licensor-licensee. It is desirable that in discussing the effect of the document I refer to the parties by neutral terms such as grantor and concessionaire.
An analysis of the document reveals a bundle of contractual rights, some of which tend to support the interest conferred upon Croycom as being in the nature of a licence, and others of which tends to support the existence of features which might categorise it as a lease. The essential grant is of the right to conduct a prescribed business and the associated right “to use in conjunction with the conduct of that business the premises”. The relevant term commenced on 1 July 1996 and is to terminate on 31 December 2002, with provision for an extension to 31 December 2005.
It will now be convenient to advert to particular articles of the document and the respective submissions in relation to them.
Article 1.1 provides that the concessionaire (i.e. Croycom) will pay HIE a licence fee as specified in the schedule. That fee is essentially a prescribed annual sum (commencing at $40,000 per annum), with an additional provision which would make Croycom liable (from 1 July 2000) for an additional 4.4 percent of the gross turnover on certain goods. The relevant fees are required to be paid by equal monthly instalments in arrears. These provisions are in my view neutral, and are consistent with being part of a lease or a licence.
Articles 1.2 to 1.19 provide a somewhat unusual number of rights in favour of HIE to acquire information and records from the concessionaire and to have some say in how the business is run. They include provisions giving HIE the right to require the concessionaire to instal a point of sale system which would enable guests to charge immediately to their account with HIE any purchases due from them to the concessionaire, and requiring the concessionaire to use such a system for all transactions.
These provisions, and others throughout the document reveal a degree of interdependence between the two parties in their dealings with persons who go to Hamilton Island. These include HIE’s control over the exhibiting of advertising signs (article 3.9); acknowledgment that the business name (Hamilton Island General Store) belongs to HIE (article 3.17); obligations on the concessionaire to keep the premises open for certain periods; provision by HIE of special rates for accommodation and victualling of concessionaire’s staff; and the provision of transport by HIE free of charge by barge from Shute Harbour to the premises of the concessionaire’s goods (articles 9.6 and 9.7). There are also obligations on the concessionaire to conduct its business in a certain way, including ensuring that its staff, while on duty, wear a uniform approved by HIE.
HIE has the further right to “require the concessionaire to remove from Hamilton Island any of his employees when in the opinion of HIE, the actions attitude appearance or general behaviour of that employee is detrimental to the general image and reputation of Hamilton Island” (article 11.3). There is an obligation upon the concessionaire not to sell any merchandise which “in the opinion of HIE is of inferior quality, pornographic or in bad taste or detrimental to the general image and reputation of Hamilton Island as a holiday resort” (article 11.10). The concessionaire is further obliged to provide goods or services “at a price which is appropriate and comparable to that at which the same or similar goods or services are available at other resorts in the Whitsunday region . . .” (article 11.11).
Many of these provisions reveal a degree of control and discretion on the part of HIE that might be thought to tend more towards the grant being of personal rights and privileges rather than of an interest in the premises. Of course none of these provisions can meaningfully be discussed in isolation. They must nevertheless be examined individually in the course of attempting to look at the agreement as a whole.
Article 3.2 states:
“Right of occupation only
The Concessionaire acknowledges that it does not have an exclusive right to possession of the premises as against HIE or HIE’s agents, servants and workmen and that it has only a personal right of occupation of the terms specified in this Licence and has no interest in the land on which the premises are situated, however otherwise, it has an exclusive right of occupation. The legal right of possession and control over the premises remains vested in HIE throughout the terms of this Licence.”
This article, along with article 5.6 (below) tends to suggest that the concessionaire has no right to exclude HIE or HIE’s agents, but that “otherwise” (I assume that that is in relation to third parties) it has the exclusive right of occupation. It is of course the substance rather than legal labels which must be looked at in construing the document. For example if examination of other relevant articles reveals that HIE has retained significant rights to interfere with Croycom’s rights of occupation, then it would be difficult to say that Croycom has been given the exclusive right to possession. The present article attempts in a general way to make Croycom’s rights in this respect inferior to those of HIE.
Articles 3.5 and 3.6 state:
“Residential use
The Concessionaire shall not permit or suffer any person to reside or sleep upon the Premises and shall not permit the Premises or any part thereof to be used for residential purposes.
Premises to be kept lit
The Concessionaire shall keep the window display if applicable in the Premises fully lit, and the external lighting of the Premises switched on, from dusk until 11 p.m. every day, provided that such lighting is under the control of the Concessionaire.”
Counsel for HIE placed some reliance on article 3.5 (presumably to show an absence of absolute control by Croycom outside working hours) while counsel for Croycom referred to article 3.6 (presumably because it contains the words “control of the Concessionaire”.
In my view each of these articles is equally consistent with being a part of a lease or a licence, and neither submission is compelling.
Article 5.6 states:
“Right of HIE to inspect and repair
The Concessionaire acknowledges that it is not entitled to exclusive possession of the premises as against HIE and that HIE its agents, servants and workmen have the right with such equipment and appliances as they deem necessary at all reasonable times to have full access into, from and upon the Premises and any and every part thereof to examine the condition thereof to effect such repairs and alterations as may be necessary for their preservation and repair and for any other purpose connected with this Licence.”
Apart from the acknowledgement of absence of exclusive possession in the concessionaire as against HIE, very extensive discretionary rights of entry are expressly reserved for HIE, including “for any other purpose connected with this licence”. There is a further express power in article 8.1 that permits HIE or its agents to inspect the premises “to check the quality of products and service”.
Counsel for Croycom submitted that these articles give only a right of entry for limited purposes and that HIE’s rights in this respect are “not much stronger” than those considered in Addiscombe Garden Estates Ltd v Crabbe [1958] 1 QB 513, 524. However in my view the present articles and rights are more extensive than those referred to in Addiscombe.
Article 8.2 states:
“HIE may alter rebuild etc.
If at any time HIE should desire to rebuild or effect any addition or alteration to the building in which the Premises are located then upon giving reasonable notice to the Concessionaire HIE, its Architects, builders, workmen and employees with appliances, equipment and tools of any kind shall have the right of full and free access ingress and egress into upon and out of the building and the Premises and to strengthen repair or otherwise deal with the floors, walls, ceiling and all other structural parts of the Premises and the building and to do all such other things as may in the opinion of HIE be necessary or desirable to achieve the completion of rebuilding or construction or other purpose but that work shall be done with the least disruption to the Business as shall be practicable in the circumstances.”
This strongly favours HIE. The right is not limited to acts designed to keep in good repair or ordinary maintenance. This article would for example permit HIE, if it formed a long-term plan to convert the premises or building for another use or purpose, to insist on doing so during the current term. HIE’s rights are simply conditioned upon its “desire to rebuild or effect any addition or alteration to the building”. Counsel for Croycom referred to the requirement of reasonable notice, the fact that the entry would still need to be for a specific purpose, and HIE’s obligation to cause minimum disruption to the business. Nevertheless it confers a right on HIE to rebuild, virtually at will, during the term.
Article 9.3 states:
“Quiet Enjoyment
The Concessionaire shall have quiet enjoyment of the Premises.”
This favours Croycom’s submissions. The conferral of a right of quiet enjoyment is regarded as a very relevant factor in cases of this kind. Even so, the “quiet enjoyment” that is conferred must be read along with other specific articles which would seem to restrict it, including articles 3.2, 5.6, 8.2 and 11.12.
Article 11.12 states:
“HIE may revoke Licence
HIE may revoke the right of any person to enter the Premises or the Land and may take all necessary action to eject the person from the Premises or the Land when, in the opinion of HIE, the action, attitude, appearance or general behaviour of that person is detrimental to the general image and reputation of Hamilton Island.”
This article should be taken to refer to the ejectment by HIE of third parties as distinct from the concessionaire. The regime for termination of the concessionaire’s rights is contained in article 13. Even so, this article affords another example of a right on HIE’s part to enter the premises and asserts a right on HIE’s part to control the coming and going of third parties who would otherwise be subject simply to the invitation or licence of the occupier.
Article 12.3 prohibits any sub-licensing by the concessionaire. However as article 12.1 permits assignment of the business with the prior written consent of HIE (which is not to be arbitrarily or capriciously withheld) the net effect of article 12 might be thought to lean more towards a lease than a licence, although it could be consistent with either.
Article 12.8 gives a preemptive right to HIE to purchase the business in the event of the concessionaire wishing to sell its interest in the business. Article 12.10 prohibits the mortgage of any interest in the licence or of any plant, equipment, fixtures or fittings or chattels held on or about the premises without HIE’s consent. Such consent may be granted or withheld in HIE’s absolute discretion. Counsel for Croycom referred to the use of the words “interest in this licence” in article 12.10.2, submitting that this implies more than bare contractual rights. However I do not find that particular submission persuasive.
On the whole article 12, which deals with assignment, sub-licensing, and mortgaging on the part of the concessionaire, contains a variety of factors some of which might tend to favour that party. But standing alone they are essentially consistent with either case.
Article 13.1 provides for cancellation of the “licence” upon various events including “any breach or non-observance by the concessionaire of any of the covenants on its part . . .”. Upon any such events HIE may determine the licence by notice or exclude the concessionaire from the premises under the article, or both. Counsel for Croycom referred to the use of the word “re-entry” in article 13.1.12, observing that such a term is more commonly used in leases than contracts. That is however a matter of slight moment.
I do not find it necessary to set out or further discuss article 13 beyond observing that it is consistent with the existence of either a lease or licence.
Article 16.3 states:
“Both HIE and the Concessionaire shall take promptly all steps necessary to comply with requirements of the Stamp Duties Office and other competent authorities to enable this Licence to be stamped and registered if so required.”
Counsel for Croycom referred to the word “registered”, submitting that it implied that the parties regarded the document as a lease, and that no stamping would be required if it were a mere licence. Counsel for HIE rejoined that whatever its true characterisation, the document could be registered under the Registration of Deeds Act. It seems to me that in an arguable area of the law such as the present, a cautious conveyancer would be likely to cover the contingency that stamp duty and registration might be required. I do not think that the contemplation of the possibility of stamping and registration of the document should be regarded as a particularly influential factor in characterising its overall effect.
Article 17 states:
“ARTICLE 17 - RELOCATION OF CONCESSIONAIRE
17.1HIE by written notice, at any time and from time to time may require the Concessionaire to vacate the Premises in which the Business is conducted by the Concessionaire and to use for the conduct of the Business other premises on Hamilton Island designated by HIE.
17.2HIE shall use reasonable endeavours to provide alternative premises pursuant to Clause 17.1 which are of a size, location and standard of construction and finish equivalent as nearly as possible to the premises relocated by the Concessionaire.
17.3The Concessionaire will comply promptly with the written notice given by HIE requiring such relocation.
17.4Where the Concessionaire is relocated pursuant to 17.1 then HIE shall pay compensation to the Concessionaire for the detriment if any thereby suffered by the Concessionaire.
17.5The amount of compensation payable, if any, shall be agreed between HIE and the Concessionaire and failing such agreement shall be determined by arbitration as provided for in Clause 15.3.
17.6Any reference in this Licence to “Premises” shall mean and include such substituted premises as well as the original premises described in Schedule One hereto.
17.7In the event that HIE gives the notice and provides the premises provided in Articles 17.1 and 17.2 herein, the Concessionaire agrees to surrender its rights and obligations under this Licence conditional upon HIE entering a further Licence with the Concessionaire for the unexpired term of this Licence (such term to be determined from the date of possession of the alternative premises) and otherwise on the same terms, covenants and conditions as are herein contained.”
This goes very much against the existence of a lease. HIE is of course under an obligation to give other premises in substitution (see articles 17.1, 17.2 and 17.7) but the notion underlying these provisions is inconsistent with an enduring right to the land or premises in question during the term. Exclusive possession does not sound in money. These provisions have the qualities of a contract, not of a lease. On any view, article 17 significantly invades the concept of a demise.
Counsel for the concessionaire submitted that relocation is a concept now recognised in shop leases, referring generally to the Retail Shop Leases Act. He also submitted (without any reference to authority or standard drafts) that a lease might properly provide for relocation in the event of a fire. That may well be so, but the present article gives an open-ended right to HIE to require the concessionaire to vacate the premises and go somewhere else. The fact that there are provisions for compensation does not restore the apparently damaged character of the document as a lease.
DISCUSSION
The essence of a lease is that a person is given the right to exclusive possession of premises, that is to say the right to exclude all other persons from them (Radaich v Smith (1959) 101 CLR 209; Lewis v Bell (1985) 1 NSWLR 731). A right to occupy premises for a fixed period cannot be a tenancy if the grantor remains in general control of the property (Megarry and Wade, The Law of Real Property 5th Ed. p 633). The fact that the parties use the language of “lease” or “licence” is not permitted to override the substance of the matter but the language to which the parties have assented is not always overlooked by the courts (Lewis v Bell (above) per Mahoney JA with whom Kirby P and Samuels JA agreed, at p 737). Mahoney JA pointed out that if exclusive possession depends upon implication, an express contrary statement by the parties of their intention may operate to prevent such an implication. However once the nature of the rights can be seen to be those of exclusive possession, expressions of intention may be seen to be meaningless and irrelevant. In such a case the parties cannot “escape the legal consequences of one relationship by professing that it is another” (Radaich v Smith above at 222; Lewis v Bell above at 737).
Mahoney JA observed further:
“. . . It is, in my opinion, important in determining the nature of a transaction, to have in mind that, in the end, it is for the parties to determine what rights they will grant and accordingly what is the nature of their transaction. The parties (or the party who effectively determines the form of the transaction) may desire, eg, that the transaction does not produce the incidents of a lease and they may, to achieve that result, grant or reserve rights which are inconsistent with the grant of exclusive possession. For example, in circumstances in which it would ordinarily be expected that the rights granted would carry, by implication, the right to exclusive possession, the transaction may reserve to the grantor the right to possession or to do such things in relation to the premises as are inconsistent with the grantee having exclusive possession. And that may be done in order that the transaction be one of licence rather than of lease. If, upon its proper construction, that be the transaction into which the parties have entered, effect should, in my opinion, be given to it according to its terms.”
(Ibid at 737)
I do not think that this adds anything to the ordinary process of construction, but it is a timely warning that disregard by the courts of terms that the parties have been prepared to adopt may sometimes be taken too far. In the end one looks at the substantive rights that have been written into the instrument and is not distracted unduly by any labels that are attached.
Counsel for Croycom referred to the definition of “concessionaire” which includes its executors, administrators, successors and permitted assigns. The right of assignment (subject to consent) granted by article 12.1 is more indicative of a right of property such as that of a lease than a bundle of contractual rights, although such a factor is not decisive. He further submits, and I understand this to be his main submission, that there is a grant of a right of quiet enjoyment in article 9.3. Such a factor is a strong though not necessarily decisive indication that an agreement is a lease (Goldsworthy Mining Ltd v. Federal Commissioner of Taxation (1972-1973) 128 CLR 199, 214-215). Counsel concedes that particular provisions in the document give the grantor the right to interrupt that quiet enjoyment and to interfere with what might otherwise be seen as a right to exclusive possession of the concessionaire. He submits that a question of degree is involved. That, with respect, seems to be correct. Windeyer J observed in Radaich:
“. . . A reservation to the landlord, either by contract or statute, of a limited right of entry, as for example to view or repair, is, of course, not inconsistent with a grant of exclusive possession. Subject to such reservations, a tenant for a term or from year to year or for a life or lives can exclude his landlord as well as strangers from the demised premises. All this is long-established law: see Cole on Ejectment (1857) pp. 72, 73, 287, 458.”
(p 222) (My underlining)
The various provisions in the present document which permit the grantor to retake possession or interfere with that of the concessionaire are considerably more extensive than the reservation of a right of inspection or right to repair. Inter alia they give HIE the right to enter upon the premises to supervise the conduct of Croycom’s business, and also confer on HIE what has been described above as a virtually open-ended right to rebuild or alter the premises. The document as a whole seems more consistent with a limited right of user, namely a right of occupation subject to conditions rather than a right of exclusive possession.
Counsel for HIE referred to the extensive rights of supervision and control in relation to the carrying on of Croycom’s business. Counsel for Croycom submitted that this was not relevant to what he referred to as the “true” question, namely exclusive possession. However in my view it is not entirely irrelevant to that question, which the authorities regard as the ultimate touchstone. Indeed, under article 13.1, breach by the concessionaire of any of those provisions enlivens the default provisions. Some of the conditions concerning control of Croycom’s business are deemed to be fundamental terms. It is somewhat inconsistent with the character of a lease that the lessee’s rights should be determinable upon breach of obligations which relate to matters other than the terms of its occupation of the land. This matter is not of itself particularly influential, but is relevant to the overall picture.
Counsel for Croycom further submitted that his client had such possession as was necessary for it to run a general store between 8.30 a.m. and 9 p.m. for 364 days per year. A store-keeper, he submitted, would be expected to have possession of his shop during and beyond those hours. Considerations of this nature were regarded as important in Radaich above in leading to the conclusion that the arrangement was a lease. However in the overall pattern presented by the present case this factor is diminished by the existence of others, and I do not think that this can be regarded as dominantly as it was in Radaich.
Concisely stated, Croycom’s submissions are that the rights expressly granted to HIE are not sufficient to alter the character of the possession granted to Croycom which was intended to run the business of a general store that could not conveniently be conducted in the absence of a right to exclusive possession. However in my view the powers and rights of inclusion and control possessed by HIE contradict that submission. Additionally, the grant is only prima facie with respect to these particular premises. Article 17 entitles HIE to require Croycom to relocate during the term of the licence. An ambulatory right of occupation which creates no continuing right to any particular parcel of land can hardly be said to be a demise of a leasehold estate in land.
In my view the document fails to give to the concessionaire exclusive possession of the premises and that it cannot be regarded as conferring a leasehold interest. I hold that it does not create an interest in land in favour of Croycom within the meaning of s.295(1) of the Land Act 1994. There will be a declaration that the licence agreement is not an instrument capable of being registered under the provisions of the Land Act 1994, and an injunction will be granted in terms of para. 1 of the Notice of Motion.
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