Hardy v Wardy

[2001] NSWSC 180

Reported Decision: (2001) 10 BPR 18,577
(2001) NSW Conv R 55-986

New South Wales

Supreme Court

CITATION:	HARDY & ANOR v WARDY [2001] NSWSC 180 revised - 3/10/2001
CURRENT JURISDICTION:	EQUITY
FILE NUMBER(S):	SC 3936 of 2001
HEARING DATE(S):	6, 7 & 8 March 2001
JUDGMENT DATE:	21 March 2001
PARTIES :	Gavan Hardy - Plaintiff Motor Direct Pty Ltd - Second Plaintiff Edmond Wardy - Defendant
JUDGMENT OF:	Bryson J at 1

COUNSEL :	R. Kaye; P. Braham - Plaintiffs D. Cassidy QC; E. Olsson - Defendant
SOLICITORS:	Mallesons Stephen Jaques - Plaintiffs John Ajaka - Defendant
CATCHWORDS:	OPTION TO PURCHASE - VENDOR and PURCHASER - Option to purchase in lease - claim for specific performance on exercise of option was resisted on (1) general denial of delivery of notice of exercise of option - found as a fact that it was delivered (2) contention that on true construction the lease and option related to the building only and not the land on which it stood, and the notice of exercise claiming to purchase the land was ineffective - held that the lease and option related to building and land (3) illegality of agreement to sell unsubdivided land - held that s.327 of LGAct 1919 did not apply as it was repealed before exercise of option and in any event did not make agreement to sell illegal see subs.327(3) (4) claim that documents delivered departed in their terms from requirements for exercise of option - held that intention was clear, departures were insubstantial and there was no repudiatory intention. Order for specific performance subject to obtaining subdivision approval.
LEGISLATION CITED:	Conveyancing Act 1919, s.54A, s.170, Div.3 of Pt.23 Local Government Act, 1919-1958 Environmental Planning and Assessment Act 1979 Environmental Plannning and Assessment (Amendment) Act 1997
CASES CITED:	Wheeldon v. Burrows (1879) 12 ChD 31 Wilcox v. Richardson (1997) 43 NSWLR 4 Pejovic v. Malinic (1960) 60 SR NSW 184 Butts v. O’Dwyer (1952) 87 CLR 267 Ballas v. Theophilos [No. 2] (1957) 98 CLR 193 Prudential Assurance v. Health Minders (1987) 9 NSWLR 673 DTR Nominees Pty Ltd v. Mona Homes Pty Ltd (1978) 138 CLR 423 Della Imports Pty Ltd v. Birkenhead Investments Pty Ltd (1987) NSW ConR 55358 Quadling v. Robinson & Anor (1976) 137 CLR 192 Cavallari v. Premier Refrigeration Co. Pty Ltd (1952) 85 CLR 20 Re Lehrer and the Real Property Act (1961) 61 SR NSW 365
DECISION:	Order for specific performance

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON J.

WEDNESDAY 21 MARCH 2001

3936/2000 GAVAN HARDY & ANOR v. EDMOND WARDY

JUDGMENT

1   HIS HONOUR: The plaintiffs sue for specific performance of an alleged agreement for sale of land arising on exercise of an option to purchase in a lease.

2   The first plaintiff Mr Hardy is the lessee in lease 2147878C dated 12 July 1995 for a term of seven years commencing on 12 July 1995 and terminating on 11 July 2002. The lease contains an option to renew for seven years, and an option to purchase set out in cl.25. The second plaintiff Motor Direct Pty Ltd was nominated by Mr Hardy as the purchaser. Mr Hardy gives his first name as Gavan in his affidavit and Summons, but in the lease it is “Gavin”.

3   The property was described in the lease by typing in the description in a box on the lease form. These printed words were in the margin beside the box:

“PROPERTY LEASED
Show no more than 20 References to Title.
Specify the part or premises if appropriate.”

The material typed in was:
“1/81844
Two storey building being warehouse and offices known
as 76 Mitchel Road, Alexandria”

The material typed in could be thought of as indicating a part, or premises, or as both. The description does not use the word “premises”.

4   Mr Wardy the defendant was the lessor. He then was and still is the registered proprietor of the land in folio identifier 1/81844, and there were and are two buildings erected on that land, a large two-storey warehouse and offices at No. 76 Mitchell Road, and a one-storey building at 74 Mitchell Road, separately occupied by a Smash Repair business. The two buildings are illustrated in photographs in Exhibit B and appear to have abutting walls. It is quite clear from the terms of the negotiations leading to the lease and the conduct of the parties that it was intended at the time that the lease relate only to the building at 76 Mitchell Road. This was not in dispute. The terms of a document are not the only evidence which may be relied on to identify the property with which it was intended to deal. It does not clearly appear on the face of the lease that the property leased was part only of the land in the Certificate of Title, so it may not have appeared to the Registrar General that registration of a lease for a term of seven years might raise some question of the operation of the statute law relating to subdivision.

5   Mr Hardy still is the lessee under the lease and conducts business as antique, fine art and general auctioneers there. Mr Wardy is still the lessor.

6   The lease contains an option of renewal in cl.19 and Schedule Item 10. It also contains an option of purchase in cl.25:

25. The Lessee or his nominee shall have the right to purchase the subject premises at anytime prior to the expiration of five (5) years from the date of commencement of the lease for the sum of $1,250,000.00. The terms & conditions of the contract of purchase, shall be the standard contract relevant at the time of exercise of the option to purchase.

The first sentence in cl.25 is typewritten and the second is handwritten.

7   Clause 1(c)(iv) provides:

‘PREMISES’ includes the land and improvements hereby demised and all improvements at anytime and from time to time erected or standing upon the land and all fixtures and fittings thereon;

8   The terms of cl.25 show clearly the position of this option to purchase in the standing controversy relating to the nature of options to purchase; the words used indicate that the parties to the lease did not intend then and there to enter into a contract for sale of land subject to fulfilment by Mr Hardy of some condition such as giving a formal notice; the words used show that the parties intended that Mr Hardy should have a right to purchase, not that there should be a purchase forthwith, and that a purchase was something which could happen at a later time. The first sentence confers a right to purchase at some time in the future, and is reinforced by the second sentence which adopts the terms and conditions of the standard contract relevant at the time of exercise. Any contract of purchase would come into existence when Mr Hardy exercised his right to purchase, and no contract of purchase would exist before then. These considerations have some importance because there were changes in the statute law relating to sales of unsubdivided land between the grant of the lease and the alleged exercise of the right to purchase.

9 As the lease leaves the mode of exercise of the right to purchase unstated it operated as a standing offer to sell by Mr Wardy, and Mr Hardy was entitled to exercise the right to purchase by accepting the offer under the general law relating to contract formation. All that was necessary was to communicate his acceptance of the standing offer. For the contract arising on acceptance to be enforceable it was necessary that there should be a note or memorandum in writing and signed by or on behalf of Mr Hardy, in accordance with s.54A of the Conveyancing Act 1919. Unless Mr Hardy gave Mr Wardy a note or memorandum in writing of the agreement to purchase, the agreement to purchase would not be enforceable by Mr Wardy and in consequence would not be enforceable in equity by Mr Hardy. Whether or not it was essential that the note or memorandum be delivered within the time for acceptance in cl.25 is not important, as the mode of acceptance which Mr Hardy alleges was delivery of a written notice, and he claims that this happened within time.

10   Clause 17 of the lease relates to delivery of notices and it is in these terms:

NOTICES :
Any notice or other documents or writing required to be served delivered or given hereunder may be served delivered or given in any manner mentioned in Section 170, Conveyancing Act, 1919 as amended and in addition thereto may be served delivered or given to the lessee by enclosing the same in a properly stamped envelope addressed to the lessee of the premises and placed in a recepticle provided for that purpose by the postal authority for the time being and any such notice or other document or writing shall when served delivered or given by post be deemed to have been served delivered or given at the time when the same would normally be delivered in the ordinary course of the post.

11 This operates with s.170 of the Conveyancing Act which is in these terms:

170. Regulations respecting notices

(1) Any notice required or authorised by this Act to be served shall be in writing, and shall be sufficiently served:
(a) if delivered personally,
(b) if left at or sent by post to the last known residential or business address in or out of New South Wales of the person to be served,
(b1) in the case of a mortgagor in possession or a lessee, if left at or sent by post to any occupied house or building comprised in the mortgage or lease,
(b2) in the case of a mining lease, if left at or sent by post to the office of the mine,
(c) if delivered to the facilities of a document exchange of which the person on whom it is to be served is a member, or
(d) in such manner as the Court may direct.


(1A) In the case of service by delivery to the facilities of a document exchange, the notice is, unless the contrary is proved, to be taken to have been served on the second business day following the day of delivery of the notice to those facilities.

(2) Any notice required or authorised by this Act to be served on a lessee or mortgagor shall, if served otherwise than by post, be sufficient although addressed to the lessee or mortgagor by that designation only, without the name of the lessee or mortgagor, or generally to the persons interested, without any name, and notwithstanding that any person to be affected by the notice is absent, under disability, unborn, or unascertained.

(2A) The provisions of this section extend to notices required to be served by any instrument affecting property (including any dealing under the Real Property Act 1900 ) executed, made or coming into operation after the commencement of the Conveyancing (Amendment) Act 1930 , unless a contrary intention appears in the instrument or dealing or in the Real Property Act 1900 .

(3) This section does not apply to notices served in proceedings in any court.

(4) This section applies only if and so far as a contrary intention is not expressed in any instrument, and shall have effect subject to the provisions of such instrument.

(5) In this section, "business day" means any day except Saturday or Sunday or a day that is a public or bank holiday throughout the State.

12 Section 170 operates for various kinds of notices but the section does not extend to exercises of options. Clause 17 authorises giving notices in writing by any manner mentioned in s.170, whether or not s.170 would otherwise apply. When the two are taken together cl.17 authorises giving written notices in the manner set out in para.(b) of subs.170(1) that is:-

(b) if left at the last known residential or business address … of the person to be served …

The lease does not give an address for Mr Wardy or indicate any way of giving him notices or communicating with him, other than under cl.17. In July 2000 his residential address was and had long been his house at 8 Milroy Avenue, Kensington, where he still lives. Delivering a notice in accordance with s.170 is an available and appropriate way of communicating an acceptance and forming a contract under cl.25. It is not a prescribed or essential means of exercising the option; but it is a sufficient means. In my opinion this means of giving notice may be adopted for an exercise of the option to purchase, and is effective if adopted.

13 It was conceded at the hearing that if the Court found the factual issue about the manner in which service was effected in favour of the plaintiffs then there was service in accordance with s.170 of the Conveyancing Act. The issue was whether in fact delivery happened as the plaintiffs alleged.

14   The plaintiffs’ case is that notice of exercise of the option was given to the defendant by delivering a bundle of papers to the defendant’s house a little after 9pm on Tuesday 11 July 2000. The evidence of Mrs Donna Duggan, who is an in-house solicitor employed by the second plaintiff Motor Direct Pty Ltd, is that she went to the defendant’s house in the company of Mr Craig Malouf and Ms Kim Malouf, who are directors of Motor Direct. She went to the front door of the premises with Mr Craig Malouf and knocked several times on the front door over a period of approximately ten minutes. Nobody answered the front door. There were lights on inside the premises and she could smell cooking odours from inside the premises. In a second affidavit she added some circumstances including that as well as knocking she rang the door bell.

15   Her evidence was that at about 9:10pm she placed the envelope containing the documents under the front door. When she gave additional circumstances her evidence showed that the door she referred to was a steel security door, that there was very little space under the security door and it was difficult to place the envelope under the door, and that she managed to get about one third to one half of the envelope under it and left the envelope jammed under the security door. She returned to the premises at about 12:15am on 12 July 2000, that is a little after three hours later, went up the steps and saw the envelope still jammed under the door as she had left it. She again returned at around 4:00pm on 12 July 2000 and saw the same thing. Her evidence is directly corroborated by the evidence of Mr Craig Douglas Malouf who was present with her when she went to the front door and gave evidence of knocking on the front door several times and there being no answer, and signs of occupation: there were lights on inside and cooking odours could be smelt. He said that he saw Mrs Duggan had some difficulty getting the envelope under the door and that she jammed it about some 60mm to 70mm under the door.

16   Mrs Duggan’s evidence was further corroborated in other ways. Less directly it was corroborated by the evidence of Ms Kim Malouf who was present with them but did not leave the car and cannot have had a complete view of the events in which the envelope was placed under the door. Mr Sullivan, a solicitor who is an associate of the firm which acted for Motor Direct and still does, gave evidence that about 9 pm that evening he received a telephone call on his mobile telephone from Mrs Duggan when she reported to him that she had served the documents and could not get the envelope entirely under the door. She also told Mr Sullivan that someone was at home. Mr Ian Raymond Malouf, who was the Managing Director of Motor Direct, gave evidence that about 9:30pm he rang the telephone number of the defendant’s house; Mrs Duggan was present with him when he made the call. A woman answered the telephone and he told her “We have served some documents by leaving them under the front door for your husband.” There was no response.

17   Other circumstances support finding that it is likely that the event of delivery of the documents happened, and that it happened on the evening of 11 July 2000. A number of acts of preparation for the exercise of the option were proved. Mr Gavan Hardy telephoned Mr Wardy on Monday 10 July 2000 and had a conversation in which he told Mr Wardy that he was exercising the option; he reminded Mr Wardy of the agreement to buy the building and told him that he was exercising the option and that Mr Wardy needed to speak to his solicitor. This conversation was not disputed. Mrs Duggan prepared a written notice of exercise of option for Mr Hardy to sign; although the document bears date 10 July, Mr Hardy actually signed it on 11 July when he was in the midst of conducting an auction. Mrs Duggan and Mr Craig Malouf attended Motor Direct’s solicitors’ offices on 11 July and gave instructions for the preparation of documents for the exercise of the option; they took the document signed by Mr Hardy with them. As well, arrangements were made to obtain bank cheques from the Commonwealth Bank; one cheque was for $125,000 which was 10 percent of the option exercise price and another bank cheque was for $1,125,000 which was the balance; the cheques bear date 11 July 2000. Mr Sullivan’s evidence shows that he received instructions, prepared the documents, and then in the evening delivered them to Mrs Duggan. Mr Sullivan’s evidence also was that in the evening of 11 July he telephoned Mr Wardy and in a conversation told him “I am ringing to let you know we’re going to serve documents relating to the exercise of the option tonight at your house. I act for Motor Direct. This is just a courtesy call to let you know what is happening.” Mr Wardy said “I don’t know anything about it.”

18   The defendant’s answer to this part of the case was a general denial that the documents were delivered to his house on 11 July. His evidence was that he found the documents two days later, about half way down the steps to his front door. The defendant gave evidence that he was in the house on that evening, with other family members, but they were watching television and did not hear any knocking or ringing of the bell. He denied that Mr Sullivan telephoned him that evening. It was his position that he did not know that anyone intended to deliver documents to him at his house that evening. He did not dispute Mr Hardy’s evidence that Mr Hardy had told him the previous day that he was going to exercise the option. Mr Wardy’s evidence was corroborated by evidence of his wife Mrs Hassiba Wardy, who denied hearing sounds at the front door and denied receiving a telephone call such as Mr Ian Malouf says he made at about 9.30 p.m; she says in evidence that she was busy with the children. The defendant’s position was further corroborated by the evidence of Mr John Wardy one of his adult sons. Mr John Wardy’s evidence was that he arrived at his father’s house at about 8.30 p.m that evening and had his evening meal there, eating in the television room where his father, step-mother and their children were watching television. The children watched a video. He spoke with his father for an hour or two and during the time he was there he did not hear the door bell ring or hear anyone knocking the door, nor see anyone at or near the front door. He also gave evidence that he did not see any papers or envelopes at or near the inside door that evening. On the evening of the following day 12 July he made a search on the verandah in the letter box and around the garden and could not see anything.

19   The witnesses on behalf of the plaintiffs were challenged and cross-examined with vigour on the claim that the documents were delivered on the evening of 11 July. This included close examination and challenge on details of the structure of the front door and security door, and the expert evidence of an engineer on details relating to the arrangement and dimensions of the wooden front door, the security door and the feasibility of placing or jamming papers under the security door. The doors and the area near them were illustrated by a body of photographs. This material satisfied me that it was possible, with difficulty, to jam a bundle of papers such as those Mrs Duggan claims that she delivered part way under the security door; indeed one of the photographs illustrates that much the same exercise was actually carried out when the position was being tested. The defendant, his wife and his son were also challenged in cross-examination. Mr and Mrs Wardy had some difficulties with English and gave their evidence partly, in her case largely by interpretation, and this made it difficult for me to gauge their responses in evidence or to form any impression based on demeanour on which I could rely.

20   The strength of the evidence adduced by the plaintiffs of the delivery of the documents, in the manner and at the time shown by Mrs Duggan’s evidence, is altogether overwhelming and greatly outweighs the force of the evidence and considerations put forward by the defendant. Notwithstanding the attacks in cross-examination, I regard the evidence of Mrs Duggan, Mr Craig Malouf and Mrs Kim Malouf as reliable, and I have regard to the corroborating material including the evidence of Mr Sullivan and Mr Ian Malouf, the acts of preparation and the dates on the bank cheques. It is very unlikely that the acts of preparation were not carried through by delivering the documents. It is further significant to some degree that the defendant was forewarned by Mr Hardy the previous day that the option was being exercised. I do not regard as important the evidence which examined in detail, with fine dimensions, the feasibility of placing documents under the security door; I am satisfied that it was feasible to jam the bundle of papers part way under the security door and more detailed findings about the event would be superfluous. In my view the balance of probabilities greatly, indeed overwhelmingly favours acceptance of Mrs Duggan’s evidence and the plaintiffs’ case on this issue.

21   Mr Cassimatis, who was the solicitor for Mr Wardy at the time when the lease was entered into and in some later business, gave evidence. Although he was taken in evidence to other subjects the principal effect of his evidence is that it established that although Mr Cassimatis was told on 11 July of the proposed exercise of the option, he had no current instructions from Mr Wardy relating to the lease or the option and he had no authority to receive any notice of exercise of the option, and he did not pass on the information to Mr Wardy before 12 July. It was not contended on behalf of the plaintiffs that any communication to Mr Cassimatis was an exercise of the option.

22   One of the principal positions taken on behalf of the defendant in defence to the proceedings was that, although the notice of exercise of option and the accompanying documents made a claim on behalf of the plaintiffs to purchase the building at 76 Mitchell Road Alexandria and the land on which it stood, that was more than the plaintiffs were entitled to purchase, and the notice of exercise did not relate to the correct subject matter and was ineffective. In the Points of Defence it was pleaded to the effect that the option was not validly exercised because “(i) the option did not relate to the land, but only the buildings which stood upon the land.” Set out earlier is the description of the property leased in the opening words of the lease and the words of cl.25 including their reference to a right to purchase “the subject premises”, “premises” being a defined expression. In counsel’s written submissions it was said “There was no reference to the land on which the building was erected” and the written submissions referred to the description in the lease, and contended that there was no reference in the lease to the land on which the building was erected, and that there was no secondary description such as “part of folio identifier 1/81844.” The written submission also said “The description of the property to be sold in the option clause in the lease was simply ‘the subject premises’. This can only mean the property the subject of the lease. This was the building, excluding the land. What the lessor was entitled to buy was the building, not the land on which it was erected.”

23   It was also contended that there was an obvious reason why the lease did not extend to the land, and that was that if it extended to the land, a lease for more than five years in 1995 required council approval of subdivision and the parties did not want to go to the trouble and expense of getting this. It was also contended that “If it were a lease of a building only, Council approval was not required: Re Lehrer and the Real Property Act (1961) 61 SR NSW 365 …”

24   Although ordinarily a document including a lease must be understood from the words of the document, a well-established exception is that evidence is admissible to establish what was the common intention of the parties with respect to the subject matter with which the document was to deal; and evidence would be admissible to establish that the parties had a common intention with respect to whether the lease should extend only to the building and not to the land on which it stood. Mr Cassimatis who, acting on behalf of the defendant as lessor, prepared the lease, was asked at t.58:

“Q. Why did you adopt that form of words?”

He answered:
“A. Actually talking about leasing the premises and could not describe because it was the building known as 76 Mitchell road is on one block of land together with other building known as 74 Mitchell, Mr Hardy was going to lease that part of the property.”

25   After an interruption he continued.

“A. I had to describe the actual lease premises and that is how I described them. That is the main reason. There was also in the back of my mind we were only leasing premises not leasing land, wasn’t used to lease the land.”

26   That is to say, Mr Cassimatis spoke of the distinction between the building and the land as something in the back of his mind when drafting. His evidence did not show any communication between himself and Mr Jassy, solicitor who then acted for Mr Hardy, which might establish that there was a shared understanding that the words in the lease referred to the building only as the premises leased. Mr Jassy did not give evidence.

27   Mr Hardy gave some evidence bearing on the terms of negotiations which led to the lease, principally between himself and Mr Rodrigues the agent representing Mr Wardy. Mr Hardy was told that subdivision was being carried out and was shown building materials which were to be used to close up windows so as, he was told, to meet a condition of the subdivision; and he was told that Mr Wardy was having the work undertaken and was getting quotes from builders. Mr Hardy, who had no knowledge of any technical matters relating to obtaining subdivision approval or registering plans, thought that he had dealt with the subject and was not aware that any further step was outstanding to bring about subdivision. Mr Hardy was certainly not told anything which brought to his mind the concept that he was to obtain a lease of the building as distinct from the building in the land on which it stood; his evidence was that until it was brought to his mind shortly before the trial he had never encountered such a concept. I readily accept that this is correct.

28   There is then no substantial evidence of any communications between the parties which could establish that the words of the lease identifying the subject matter are to be understood in the light of any common understanding of the parties not expressed or not fully expressed in it.

29   Mr Wardy’s counsel also relied on what counsel said was a practice of drawing up leases so as to lease a building and not the land on which the building stands in order to obtain registration of a lease for a period longer than five years without subdivision. There is a reference in the evidence to some such practice. I learnt of this with surprise, as although litigation relating to dealings in property including leases is everyday business in the Equity Division I had never encountered any practice in which the law relating to subdivisions was approached in this way. Although the concept of creating a leasehold interest in a room, an office, an apartment or some other described part of a building is often encountered, it was unknown to me that attempts were ever made to lease a whole building without leasing the land on which it stands. Without the instruction afforded by counsel’s submissions about registering long leases without subdivision plans I would not have been able to see why anyone ever would attempt to do such a thing.

30   In a combative exchange of correspondence the plaintiffs’ solicitors said in their letter of 29 August 2000 to Mr Ajaka, solicitor representing Mr Wardy “In so far as you have suggested that the lease was solely a lease of a building and not of land, that suggestion singularly fails to take into account the definition of the demised premises contained in clause 1(c)(iv). It also ignores the accepted conveyancing practice of facilitating registration of a lease of land in these circumstances by noting on the front page a formal description of this kind. With respect, whether or not the Registrar-General may have acted inappropriately in registering the lease will not determine the proper characterisation of the premises the subject of the option. That must be determined by reference to the clear description of the leased premises in clause 1(c)(iv)”

31   Defendant’s counsel contended that the reference to “accepted conveyancing practice” in this passage recognised the existence of the practice he contended for. To my reading however the passage contains no recognition of a practice of adopting any particular kind of description so as to bring about registration of a long lease without formal subdivision.

32   Miss Margaret Hole, a solicitor of expertise in conveyancing business, whose considerable experience includes legal appointments and consultancy in the Land Titles Office, was asked in evidence (t.50) whether there was any practice of leasing buildings as distinct from land so as to avoid the requirement of the registration of subdivision. Her answer (t.51) was: A. In my view as far as the Registrar General is concerned in the practice of the office and practice of anyone dealing with the office a lease was either of premises or of land. If it was of land for a term in excess of five years and not described by a single lot, it was a subdivision. If it was a premises, then that did not apply.”

33   On the evidence in this case it should not and could not be found that there was a practice in which parties chose to lease premises in the sense of a whole building and not to lease the land on which the building stood so as to achieve registration without subdivision approval.

34   The terms of the lease contain no support for the view that there was a lease of the building as distinguished from the land on which the building stood. If as Miss Hole’s evidence suggests the Registrar-General’s treatment of a long lease was affected by describing the subject of the lease as “premises”, this lease did not use that word in the description. The words in the box “Property Leased” open by identifying the property leased by reference to the certificate of title, which relates to the land and whatever may be built on it. The description goes on, when the printed words call on the draftsman to “specify the part or premises if appropriate” to describe part of the land in that certificate of title, that is, the property at 76 Mitchell Road, and this description when taken with knowledge of what actually stands on the land indicates the warehouse and offices at 76 Mitchell Road and not the other structure at 74 Mitchell Road. Nowhere in the lease is there any provision which could express the concept that while the building is being leased, the land on which it stands is being retained. The provisions of cl.25 are strongly indicative that “the subject premises” and what the lease and option dealt with was everything that the lessor owned, land, premises, buildings and so forth. It is extremely improbable that parties would intend to sell the building but not the land on which it stood, for a large sum of money, and they could only be understood so to have intended if they expressed themselves with great clarity. Using the word “premises” in cl.25 attracted the defined meaning in cl.1(c)(iv) and its inclusion of land and improvements.

35   Consideration in modern times of what, to my mind is the difficult concept of a freehold or long leasehold title to a building as distinct from the land on which it stands appears to be traceable to the judgment of Jacobs J in Re Lehrer & Ors and the Real Property Act 1900 (1961) 61 SR (NSW) 365, in which Jacobs J considered four stated cases arising out of lodgment of long leases for registration without plans of subdivision. His Honour saw the question whether the leases effected subdivision within the meaning of the Local Government Act 1919 as turning on this question (at 368) “The question to be determined is whether a part of a building or the airspace taken up by that part of a building is, distinctly from the soil upon which the building rests, ‘land’ within the meaning of the Local Government Act, 1919-1958, or more particularly within the meaning of that word as used in the definition of subdivision contained in that Act.” At 369 Jacobs J recognised that there can be “… a good conveyance or transfer in fee simple of airspace or of the upper floor of a building. It would appear that the possibility of such a fee has long been stated in English law. ‘A man may have an inheritance in an upper chamber though the lower buildings and soil be in another’ (Coke on Littleton: Sheppard’s Touchstone 206). It appears that there could be a feoffment of such a part of a building; thus the part of a building could be regarded as a tenement and hereditament at common law and could be dealt with in the same manner as could the actual soil upon which the building rested. There have not been many occasions upon which this question has been dealt with directly in the cases, but the little authority that there is appears to be all the one way. As I have said, the parties to these proceedings have not disputed that authority, and, that being so, it does not fall to me to travel further in a consideration of this question, which is fraught with so many practical, if not legal, difficulties.”

36 His Honour’s extensive consideration led him to the view that the word “land” in the Local Government Act (at 371) was not to be read so as to include a portion of a building; his Honour said “It seems only applicable to surface land.”. It seems to be a corollary of this conclusion that a subdivision of land to which the provisions of the Local Government Act relating to subdivision and provisions which required registration of a plan of subdivision did not extend to dealings in airspace or upper chambers or upper floors; it would seem to follow that parties were free to deal with airspace and upper floors or upper chambers, although to my reading Jacobs J did not expressly say that that was so, and he did refer to the power of the Registrar General to require lodgment of plans, whether or not subdivision plans were required by law. Jacobs J reviewed the kind of considerations which might move the Registrar General to require a plan (at 375).

37   Legislation authorising registration of strata plans overtook the economic need to resort to close consideration of the matters addressed in Re Lehrer. Jacobs J recognised the conceptual possibility of a leasehold or indeed a freehold estate in airspace or an upper floor or upper chamber, and that concept may be extended (although it was not extended by Jacobs J) to the concept of a leasehold or freehold of all the space containing an entire building separate from the freehold of the underlying land. As a concept, yes: but before it could be understood that parties intended to do something so strange, remarkable and impractical, their intention to do so would have to be indicated clearly. Whether the law would accept the apparent logic of extending the concept of an entire building seems to me to be open to doubt. A rule of property law which accepts that there can be an estate in a part of a building which is supported by other parts of the building would be extended to a point where it was distorted if it were applied to the entire building, and the classic authorities cited by Jacobs J spoke of an upper chamber on the one hand and the lower buildings and soil on the other. Littleton, Coke and Sheppard do not in terms support such an extension, and considerations of practicality are adverse to it.

38   Observations of Jacobs J in Re Lehrer could not reasonably form the basis of a practice in which a lease for a period in excess of five years was treated as being outside the provisions of the law relating to the subdivisions if it was expressed to be a lease of premises and was not expressed to be a lease of land. “Premises” is not a clear or unequivocal expression by which to signify an intention to lease an upper chamber or airspace while not leasing the land on which a building stood.

39   Where parts of a building such as an apartment or a shop are leased the grant of a leasehold interest carries with it implied obligations which supplement the express grant and make it effective. In this connection defendant’s counsel referred me to Wheeldon v. Burrows (1879) 12 ChD 31 and Wilcox v. Richardson (1997) 43 NSWLR 4. In concept reasoning of this kind could show that a lease of an entire building separate from the land on which the building stood could create implied obligations for support, and for that matter a conveyance of a freehold interest in a building separate from the land on which it stood might create similar implied obligations. However this does nothing to make it any easier to see, in the absence of altogether clear expressions of intention, that such an unusual and strange interest was brought into existence. In this case my view is that the terms of the lease indicate clearly that the parties intended to lease, and to grant an option to purchase the land and the building on the land.

40   The Points of Defence raise the further defence that the option to purchase was not valid or not validly exercised for this reason: “(ii) If the option did extend to the land it was illegal and void because it effected an unlawful subdivision contrary to s.327(2) and (3) in Part XII of the Local Government Act 1919; Local Government (Consequential Provisions) Act 1993, Schd.1."

41   Exhibit F is the file of the South Sydney City Council relating to a subdivision application made on 18 April 1995 by Clement and Reid Pty Ltd surveyors on behalf of and with the consent of the defendant. The work was described in the application as “subdivision of Lot 1 into two lots along the face of the old wall of the brick warehouse.” The description went on to refer to the current separate occupations and it was said that the brick building (meaning No. 76 Mitchell Road) was at least 30 years old. Dealing with the environmental impact the application said “The proposal is to legitimise an existing situation” and went on to describe the separate occupation and the lack of impact of the proposed subdivision. The application was accompanied by a sketch plan, which was not in registrable form, prepared by the surveyors and showing the dimensions of the proposed lot and indicating that the boundary between them was “face of wall”.

42 The Council dealt with the application as an application for development consent under the Environmental Planning and Assessment Act 1979, not as an application for approval of subdivision under the Local Government Act 1919. Council gave a consent dated 19 May 1995 to the subdivision, subject to a condition requiring building work, under a building application with plans and specifications which Council would assess as a building application; the building work was “… to ensure that the buildings on the two lots are separated in accordance with the requirements of the Local Government (Approvals) Regulation …”. The development consent has now lapsed, and no building application, plans and specifications have been lodged. No application for subdivision approval under the Local Government Act was lodged while that Act remained in force, and there has been no application for subdivision approval since.

43   In Pejovic v. Malinic (1960) 60 SR NSW 184 Walsh J (with whom K.W. Street CJ concurred) dealt (at 186 and following) with a submission that an agreement for sale of land for carrying out which a subdivision was necessary, was illegal and void because consent was not obtained to a subdivision. Walsh J said (at 187 ): “If the foregoing statutory provisions had not included sub-s.(3) of s.327, it seems to me that the Court would have been bound to hold that the contract itself was prohibited by the Act and was, therefore, void.” With respect it seems to me that this opinion is open to further consideration having regard to more recent High Court authority dealing with illegality of contracts, and also to consideration in detail of the definition of “subdivision” and similar expressions in s.4 of the Local Government Act 1919. The definition extends to agreements but only to agreements rendering different parts of land immediately available for separate occupation or disposition; where an agreement for sale looks forward to later stages including completion and transfer before the purchaser is to be entitled to occupation I would respectfully say that it is doubtful whether the prohibitions in s.323 and subs.327(2) apply to the agreement. However further consideration is probably superfluous in view of the protection given by subs.327(3) against the impact of illegality on contracts. Walsh J referred to the operation of the subsection at 187-188 and said to the effect that the case fell within the same category as cases “… in which it is proper for the Court to mould its decree so that the contract shall be performed if, but only if, the requirements of the Act are fulfilled.”

44   In my opinion this defence is answered directly and completely by the provisions of subs.327(3) which states in terms the intention of the legislature with respect to the manner in which s.327 is to operate on contracts. Subsection (3) has the effect that an agreement to sell land, to carry out which a subdivision would be required, is not illegal, but is conditional on or in the words of the subsection “shall be deemed to be made subject to” approval by Council being obtained. A contractual obligation of the vendor to do all things reasonably necessary to obtain approval and give the transaction efficacy is clearly to be implied: see Butts v. O’Dwyer (1952) 87 CLR 267 at 280. If the agreement which exercise of the option is to create is not illegal, an option to purchase which if exercised will create such an agreement is not illegal. The same result follows from subs.327(3) for the lease; it is not illegal or void, and takes effect subject to the condition stated in the subsection.

45 Part XII of the Local Government Act continued in effect until 1 July 1998 when it was repealed by s.7 of the Environmental Planning and Assessment (Amendment) Act 1997. Any operation which the Local Government Act 1919 could be supposed to have on an agreement or on an option, including the condition imported by subs.327(3), could only operate when and if the option to purchase was exercised; by 11 July 2000, s.327 had been repealed. Provisions of the Local Government Act including s.327 could in my opinion have no operation on the agreement for sale of land arising on exercise of the option in July 2000, after their repeal.

46 Under the statutory regime which had taken effect by July 2000 subdivision of land was brought within the regime for control of development under the Environmental Planning and Assessment Act 1979. “Development” was defined in s.4 and included subdivision of land. “Subdivision of Land” was defined in s.4B. General provisions relating to control of development were capable of extending to subdivision of land, which could be dealt with by Environmental Planning Instruments. Part 4A dealt with certification of development and provided in s.109C(1)(d) for the issue of a subdivision certificate, defined as “a certificate that authorises the registration of a plan of subdivision under Div.3 of Pt.23 of the Conveyancing Act 1919.” Section 109J related to restriction on issue of subdivision certificates and prescribed matters at which a certifying authority must be satisfied if the subdivision certificate was to be issued. The matters of which a certifying authority must be satisfied include matters of compliance with development controls which affect the subdivision.

47 Whether development by subdivision as defined is controlled under the Environmental Planning and Assessment Act 1979 depends upon the terms of the Environmental Planning Instrument applicable to the land. See ss76, 76A and 76B. It appears that endorsement or production of a subdivision certificate on a plan is necessary if a plan is to be in registrable form for the purposes of Pt.23, Div.3 of the Conveyancing Act 1919; see subs.195F(2)(a). Registration of a plan enables registration of a conveyance or transfer by reference to the plan: see s.195I, but contravention of Pt.23 Div.3 does not invalidate instruments: see s.195J. The Registrar General has discretionary power under s.23F of the Conveyancing Act 1919 the effect of which is that it is impracticable to transfer land otherwise than in accordance with a deposited plan.

48   Subdivision will be unlawful if it is not carried out in accordance with control of development under an Environmental Planning Instrument. Whether or not it is unlawful depends upon proof that a relevant Environmental Planning Instrument contain some provision which renders it unlawful. If subdivision is altogether forbidden an agreement to subdivide may be affected by illegality, but if the relevant Environmental Planning Instrument allows the subdivision to be consented to there would in my opinion be no reason why an agreement to carry out the subdivision would be illegal.

49   Entering into a contract carrying of which requires a subdivision, or a contract to carry out any other development, cannot itself be seen as development and in my opinion is not affected by any question of illegality. Counsel were unable to refer me to any statutory provision which could be thought to prohibit or make illegal any such agreement, and in my understanding there is none.

50   A further defence was: “(iii) the option was expressed by the lease to be exercised, ‘on the terms and conditions of the standard contract relevant to the exercise of the option’. This expression is insufficiently certain to be given meaning; alternatively [a form of contract] which was issued with the purported exercise of the option could not, on a proper construction, be said to be a standard contract;”.

51   The evidence of Ms Hole established clearly that a standard form of contract did exist and could be applied to the sale in question; the standard form is the contract for sale of land - 2000 Edition which was used by Mr Sullivan in drafting his documents.

52   The bundle of documents delivered by Ms Duggan included the notice of exercise signed by Mr Hardy in these words:

10 July 2000
Edmond Wardy
C/- Peter J Cassimatis & Co.
Solicitors
PO Box 56
KINGSFORD NSW 2032
Dear Sir,
OPTION TO PURCHASE, CT 1/81844, LEASE 2148787C
I, Gavan Hardy, pursuant to clause 25 of lease 2147878C dated 12 July 1995 between myself as the lessee and Edmond Wardy as the lessor in respect of the premises at the corner of Mitchell and Fountain Roads, Alexandria CT 1/81844 (“the premises”) hereby exercise the right to purchase the premises and nominate Motor Direct Pty Ltd (ACN 089 388 045) as the purchaser.
Yours faithfully,
GAVAN HARDY

53   The manner in which the option was to be exercised is shown by observations of Dixon CJ in Ballas v. Theophilos[No. 2] (1957) 98 CLR 193 at 196: “Clearly enough, however, it was the business of the plaintiff to exercise the option. The clause contains no express provision saying how he is to do it and any definitive communication of an election would suffice. But it was necessary that the communication should express clearly and unequivocally the fact that the surviving partner, the plaintiff, then and there elected to acquire the deceased’s interest upon the terms of the clause.”. The applicable principles were restated in Prudential Assurance v. Health Minders (1987) 9 NSWLR 673: see Kirby P at 677 and McHugh JA at 683-684. What is required then is a clear and unequivocal expression of an intention to exercise a right to purchase; Mr Hardy’s notice was clear and unequivocal. This is not a case where the terms in which the option is granted require some special or technical form to be followed in the manner of exercising the option with the result that an attempted exercise of the option might fail even though the intention to exercise has been clearly and unequivocally communicated.

54   Also in the bundle was a letter to Mr Wardy from Messrs Malleson Stephen Jacques solicitors on behalf of Motor Direct the second plaintiff. The letter enclosed two executed copies of a contract for sale in the form prepared by Mr Sullivan, a copy of Mr Hardy’s nomination, a bank cheque in favour of Mr Wardy for $125,000, a copy of a bank cheque in favour of Mr Wardy for $1,125,000 and a form of transfer of the land from Mr Wardy to Motor Direct.

55   The form of contract and the transfer did not refer to Mr Hardy as a party. The forms of contract and the transfer were already executed under the common seal of Motor Direct.

56   The notice of exercise was signed by Mr Hardy. The proffer of a contract was not made by him and the forms of contract were not his documents. They are not incorporated or referred to in his notice of exercise which was the only document in the bundle which emanated from Mr Hardy. In short simple language it did everything which Mr Hardy could or should do to exercise the option and nominate Motor Direct. He was under no contractual requirement to proffer, at the time of the exercise of the option, a deposit, a form of contract or a transfer. Messrs Malleson Stephen Jacques’ letter and the documents enclosed with it were steps by Motor Direct towards carrying out the agreement for purchase arising on the delivery of Mr Hardy’s notice of exercise of option. As indications of readiness, willingness and ability to complete they had considerable force, particularly the proffer of a bank cheque for 10 percent and the showing of another bank cheque for the balance; but these were not necessary steps because the contractual times for paying a deposit, signing a contract, paying the balance of purchase money and obtaining a transfer were yet to arrive. The forms of contract and their exact compliance with cl.25 were not essential for the due exercise of the option. Those documents might have been important if in some way it had been indicated that the exercise of the option was taking place on some basis which related it only to the enclosed documents, or if there had been some statement or assertion that the enclosed documents were the only form in which the plaintiffs were prepared to carry the transaction forward; but there was no such statement and the conduct of the plaintiffs did not show that either.

57   In fact, there were minor departures in the proffered forms of contract from the standard form. A new clause 30 was added and it does not appear in the standard form. Clause 30 provided that cl.28.1 was deleted. Clause 28.1 provided “This clause applies only if some of the land is described as a lot in an unregistered plan.” There was no such description, the description adopted on the first page of the contract appropriately followed, fairly closely, the description in the lease which did not refer to a lot or an unregistered plan, and the deletion of cl.28.1 produced no practical result. Then cl.30.3 provided that cll.28.2 and 28.6 were to apply to the plan of subdivision; this too was a departure as without cl.30.3 cll.28.2 to 28.6 would not have applied. Clause 30.2 provided for completion to be conditional on registration at the cost of the vendor of a subdivision plan; this too was a departure from the standard form which contained no corresponding provision. It was not a departure of substance, because what was stated in cl.30.2 spelt out implied obligations to which the vendor would have been subject if there had been no cl.30.2. Clause 30.2 is a statement of the obvious. Clause 30.4 barred waiver without the written agreement of both parties; this too probably expressed an implied provision. Clause 29 was struck out; this was a departure from the standard form but not a substantial departure because cl.29.1 provided “This clause applies only if a provision says this contract or completion is conditional on an event” and no provision of the standard conditions said to that effect. The additional cl.30 did introduce a condition, so that it would make cl.29 operate whereas without the addition it did not.

58   That is to say, the documents proffered did not strictly comply with cl.25, but as the occasion had not arisen for preparation of a contract, which in the ordinary course of conveyancing business it was for the vendor to do, and as the option was effectually exercised by another document, the departures had no effect. As there were no departures of substance from what the obligations of the parties would have been under documents which complied with cl.25, the proffer of these forms of contract had no repudiatory effect.

59   In my view, a person receiving the bundle of documents and giving a reasonable reading to Mr Hardy’s notice of exercise could have no doubt about his intention to exercise the option to purchase, and the forms of contract, which it was not necessary to proffer at that stage, but did not exactly conform with what in due course would be required, did not disturb what the reasonable reader would understand from Mr Hardy’s notice.

60   The proffer of forms of contract was testimony of the readiness, willingness and ability of the plaintiffs particularly Motor Direct to carry out and complete the agreement for purchase of the land. The most eloquent demonstration of readiness, willingness and ability was actual availability, even on 11 July, of all the purchase money required, in the form of bank cheques. In the circumstances it is not surprising that a lack of readiness, willingness and ability was not put forward among the matters relied on by the defendant’s counsel.

61   There is a considerable gulf between putting forward a document which does not correctly express the parties’ agreement, or one which asserts a wrong view of the meaning of a contract, and repudiating the contract; see DTR Nominees Pty Ltd v. Mona Homes Pty Ltd (1978) 138 CLR 423 at 431-432 (Stephen Mason & Jacobs JJ). There is no expression in the letter from Motor Direct’s solicitors to Mr Wardy or in the accompanying documents that willingness to proceed was limited to the basis put forward, and there was no indication that consideration of some other view of what the contract should be was closed off. The discrepancies between the standard form and the documents put forward are slight indeed; and putting them forward affirmed rather than repudiated willingness to proceed with the transaction on a proper basis.

62   A purported notice of exercise of option which in some way departs from the terms of the option is a recurring source of judicial consideration. Counsel referred me to the decision of McLelland J in Della Imports Pty Ltd v. Birkenhead Investments Pty Ltd (1987) NSW ConR 55358 including the passage at 57232-3 and the citation from the judgment of Gibbs J in Quadling v. Robinson & Anor (1976) 137 CLR 192 at 201. In this case there was no attempt to vary the terms on which the option could be exercised; the notice of exercise was altogether unequivocal and the accompanying letter and contract were not part of it. Further, although the contract did depart from the appropriate terms, the departure was not substantial and would not correctly be understood as an attempt to vary the terms of the option.

63   Defendant’s counsel submitted that a notice of exercise of option which set out an erroneous understanding of the terms of the option and purported to exercise the option as so understood would fail and relied on Cavallari v. Premier Refrigeration Co. Pty Ltd (1952) 85 CLR 20. In my view Mr Hardy’s notice of exercise is not open to doubts of the kind which were considered in that case.

64   An order for specific performance should not be made in unqualified terms because it is not wholly within the defendant’s control to subdivide the land so as to be able to transfer No. 76 Mitchell Road and the land on which it stands. That can only be carried out if he applies to the South Sydney Council and obtains its consent. Although the matter was not proved in detail I do not doubt that the Environmental Planning Instruments applicable to the land require development consent for subdivision. The order for specific performance should require the defendant to apply for consent, and the Court should, if necessary, supervise and control in detail the manner in which the application is made.

65   I will give the parties an opportunity to consider and make submissions on the form of the order.

66   The Draft Order is:

(1) Declarations and orders as in Claims 1, 2 and 4 of the Summons filed on 12 September 2000.

(2) Order that the agreement be specifically performed under the control and direction of the Court.

(3) Reserve to each party liberty to apply for directions

(a) settling the form of contract

(b) regulating the subdivision of the land and any necessary plan,
works, applications registrations and other matters relating
thereto.

(c) otherwise regulating specific performance of the contract.

Last Modified: 10/08/2001