Kitching and Anor v Phillips and Ors

[2011] HCATrans 335

[2011] HCATrans 335

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P5 of 2011

B e t w e e n -

JOHN JAMES KITCHING AND PAULINE KITCHING

Applicants

and

KELVIN KEITH PHILLIPS AND SHARON NELLIE PHILLIPS

First Respondents

LIONEL ALFRED GEORGE HODGSON AND EVELYN JUNE HODGSON

Second Respondents

Application for special leave to appeal

HAYNE J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 9 DECEMBER 2011, AT 12.02 PM

Copyright in the High Court of Australia

MR J.R. LUDLOW:   May it please the Court, I appear for the applicants.  There is no appearance for the first respondents.  (instructed by the applicants)

MR M.J. HAWKINS:   May it please the Court, I appear for the second respondents.  (instructed by Julienne Penny & Associates)

HAYNE J:   Yes, Mr Ludlow.

MR LUDLOW:   Your Honours, we would submit that there are two very notable features about this application.  One of them is that very little of the application is being actively opposed, even by the second respondents, and much of the opposition relies upon arguments that were not accepted in the courts below, or not put in the courts below. 

The other notable feature about this application, in our submission, is that the developer, and its successors entitle the respondents, have benefited from the fact that the developer failed to comply with condition 7 of subdivision approval.  If there had been compliance, the developer would have become a holder of leasehold over Lot 81, rather than remaining as the freehold titleholder.  By failing to comply with the condition according to the reasoning in the courts below, the developer ended up remaining as holder of freehold and owing no obligations at all to anyone.  We would say that that is a remarkable result, and one that ought to be reconsidered.

Your Honours, in our submission, the six grounds on which we are seeking special leave to appeal fall into three categories.  The first category is grounds 1 and 2.  Ground 1 makes an uncontested allegation of denial of procedural fairness by the Court of Appeal in respect of what the Court of Appeal described as the “subdivision term”, and we also make an uncontested allegation that the Court of Appeal’s reasoning relying upon that alleged subdivision term was faulty.

In our submission, the two most important points to make about the alleged subdivision term are these.  The first is that if the Court of Appeal is right in saying that the contract ceased to exist because there was subdivision without compliance with condition 7, then by the time the transfer was handed over to us and registered by us on the title, there was no longer any contract in existence to prevent the operation of an implied term by non‑derogation from grant.

Now, if that is right, then the implication by non‑derogation from grant cannot have been prevented by the subdivision term or any other term of the contract and we explained to the trial judge and to the Court of Appeal that we consider that to be our strongest argument in support of an implied term.

KIEFEL J:   But do you not have to have a contract to imply a term into?

MR LUDLOW:   With respect, your Honour, the non‑derogation from grant principle operates even in respect of a voluntary transfer.  The principle is that if you are granting an interest in land, even if it is voluntary, you cannot derogate from that grant.  We say in this case that they were granting to us a kennel lot in a kennel lot’s estate, where there was no public ‑ ‑ ‑

KIEFEL J:   But there was no grant directly to your clients.  The contract provided for a mechanism by which lot owners might be able to use Lot 81, namely by the transfer of that lot to the council, and then the grant of a lease to the developer who was, by some means, to make it available as something approaching public open space, although this is all put in rather ephemeral terms in the brochure and in what was said.  But there was no grant to your clients.

MR LUDLOW:   Your Honour, we were granted Lot 61 adjacent to Lot 81, that was the grant.

KIEFEL J:   Well, you took the title to it.

MR LUDLOW:   We took the title to Lot 61, it was granted to us as a kennel lot, and we say that it would be derogating ‑ ‑ ‑

HAYNE J:   You say as a kennel lot.  Where do we find that in the contract?

MR LUDLOW:   It is the contract for the sale of Lot 61, your Honour. 

HAYNE J:   Yes, I understand that, but you add to it this description “as a kennel lot”. 

MR LUDLOW:   Yes.

HAYNE J:   Where do we find that in the contract?

MR LUDLOW:   It was a kennel lot because it was designated as such in the zoning applicable to the land, that that was in evidence as well.  All of the lots in the subdivision were kennel lots other than Lot 81.  That was the only exception.  In our submission, the relevant grant was the grant of Lot 61, our kennel lot, and it would have been derogating from that grant not to give us a right of access to Lot 81.

Now, there has been some comment on the possible reason for condition 7, the condition relating to the transfer and lease back.  We say that that was not and could not be a means of granting to us what the trial judge held in an unchallenged finding was intended to be given to us, and that was an unrestricted right of access to Lot 81, the other lot, the respondent’s lot.  We say that that cannot be so because a lease is not an unrestricted right of access to non‑parties to the lease. 

At the very least, to be unrestricted it would need to be a perpetual right and a lease can only be for a defined term, a set period.  On top of that, the most that we could possibly have if a lease were granted was access to the leasehold, not to the freehold.  The only way we could have a grant of access to the freehold on an unrestricted basis, unrestricted in terms of time and in terms of security of tenure, was by an easement.  We say that on the basis of the trial judge’s findings that we were intended to have that right, that that is the way it was to be granted to us and that the transfer to us of Lot 61 necessarily involved an implied grant of an easement in those terms. 

Now, we say that if the contract had ceased to exist as the Court of Appeal thought it had ceased to exist, by the time that Lot 61 was transferred to us there was nothing in the contract that could possibly have prevented the implication of that term by non‑derogation from the grant of Lot 61 to us. 

Your Honours, we also say that the contract terms could also not prevent us from relying upon an easement by estoppel and that is because the equitable principles of estoppel must be regarded as trumping any common law principles relating to the enforcement of contracts. 

In respect of that we say that the Court of Appeal’s reasoning is inconsistent with the reasoning of the New South Wales Court of Appeal in the recent case of Saleh v Romanous in which the New South Wales Court of Appeal held unanimously that the equitable principle of estoppel trumps any terms of a contract that might be to the contrary.  So we say that at least in respect of those two of our five arguments, the Court of Appeal’s reasoning is simply not right and that is not contested by our opponents, they are not contending to the contrary.

KIEFEL J:   Did not the Court of Appeal hold that in relation to a claim for the recognition of an easement in equity that the respondents were in the position of bona fide purchasers for value without notice of your claim?

MR LUDLOW:   Your Honour, the second respondents, the ones represented today, did not plead any such defence and for that reason I did not cross‑examine them in respect of that non‑issue.  So far as the first respondents are concerned, they did plead purchaser for value without notice but the question that was litigated at trial was whether they had constructive notice rather than actual notice and the courts below made no finding in relation to that issue.  So we have not failed in relation to the actual issue that was raised by the first respondents and the second respondents did not raise the issue at all.

KIEFEL J:   I suppose in the way in which the Court of Appeal dealt with it, it was not necessary for it to deal with that issue in any detail because of the view it took about the implied term and the other issues.

MR LUDLOW:   That is correct, your Honour, yes.  We would, nevertheless, ask this Court to deal with the issue on the basis that it raises a number of important questions including the question as to who bears the burden of proof on the question of purchaser for value without notice. 

Your Honours, can I now move to deal with the second category, grounds 2.3, 2.4 and 2.5.  They relate to the extent to which the Court of Appeal relied upon the case of Westfield Management in rejecting our arguments about priority as between an easement holder and a subsequent purchaser.  It may be accepted that there is a general principle in the Torrens system of title by registration, that is, freehold title by registration rather than registration of freehold title.  However, there is no uniform approach Australia‑wide in relation to easements. 

In New South Wales, which is the jurisdiction from which the Westfield Case came, there is a principle subject to very limited exceptions of easements by registration but in Western Australia and Victoria which has similarly worded legislation to ours, the position is the opposite.  In those two jurisdictions, at least, you can have an easement enforceable against a subsequent purchaser even if it is not registered.

For that reason, we say, that at least in those jurisdictions extrinsic evidence is admissible to assist someone who is contending that they have the benefit of an easement.  We say that Westfield Management, which is a case on a differently worded statute in another jurisdiction, is not a case that ought to be relied upon against that submission.

In relation to that we rely, in part, upon recent academic commentary.  There is an article by Professor Burns in the Bond Law Review and also an article by Professor Weir in which he indicates that the Westfield Case has created some uncertainty even in New South Wales and has been doubted as a correct statement of the law in New Zealand. 

So, in our submission, it is far from clear that Westfield is an answer to our submissions in this case and, therefore, it is appropriate that this Court consider the extent to which Westfield applies, if at all, to jurisdictions outside New South Wales and, in particular, the jurisdictions of Western Australia and Victoria.

Another problem with the Court of Appeal’s reasoning is that there is an inconsistency at the heart of it.  On the one hand, it is relying upon evidence that was not registered on the title, namely, the terms of the contract, the transfer was registered but not the contract, in rejecting our arguments.  On the other hand, the Court of Appeal is saying in reliance upon Westfield Management that extrinsic evidence is not admissible.

Now, those two arguments cannot both be right.  At least one of them must be wrong and we say that both of them are wrong.  At the very least neither of them is an answer to our submissions based upon non‑derogation of grant of our lot and equitable easement based upon estoppel.

The issue raised by proposed ground 4 relates to whether the nature of the right that was to be conferred to us by our propounded easements was so broad that it is too broad to be a right conferred by an easement.  We say that the rights are no broader than the rights conferred on the easement holders in Re Ellenborough Park and we say that to reject our arguments in relation to that issue, the Court would have to disagree with Re Ellenborough Park and we say that that raises an important question of its own.

We also submit that the Court ought to consider the view of the law propounded obiter by Lord Scott of Foscote in the recent British case of Moncrieff v Jamieson.  That case came from Scotland.  Lord Scott of Foscote indicated that he felt that the test should be slightly different from that propounded in the cases that have been decided to date.

There is also a third category of grounds.  That category is the single ground 6 relating to assessment of damages.  The respondents have never tried to defend the trial judge’s reasoning in relation to that.  What they say now is simply that there was not enough evidence to justify an award of damages. 

We say that this is a case where there was an inherent difficulty in obtaining any such evidence and the difficulty was this.  The cases indicate that where you have been deprived of access to an asset for a particular period of time the normal way of assessing the value of the loss is to look at what it would have cost to hire that asset.  The problem is that you cannot sell rights under an easement independently of the freehold rights to the

dominant tenement.  If you cannot sell them there is a real question as to whether you can hire them separately in a way that would yield a particular hiring value.

So one of the questions raised by that ground is whether it is even possible to hire and thus set a value for the hire of the easement independently of the dominant tenement and that is a reason why special leave should be granted in relation to that ground.  Your Honours, unless you have any further questions, those are my submissions in support of the application.

HAYNE J:   Thank you, Mr Ludlow.  We will not trouble you, Mr Hawkins.

The applicants purchased land in a proposed subdivision, lot 61, in December 1988 and became the registered proprietors of that land in November 1989.  The approval for the subdivision contained a condition that the lot which abutted the applicants’ land, lot 81, was to be transferred by the developer to the local authority which would lease it back to the developer.  The developer intended to make the land available for the use of landowners in the subdivision, in particular, for the exercise and training of dogs. 

The applicants’ written contract for purchase made no mention of any land being available as public open space or of any rights of access to lot 81.  The condition of the subdivision was never fulfilled and the developer was deregistered as a company. 

The first respondents purchased lot 81 in 2001 and the second respondents purchased a lot subdivided from lot 81 in 2005.  None of the respondents had notice of the claim later made by the applicants to an easement over lot 81. 

A judge of the Supreme Court of Western Australia held that the circumstances of the applicants’ purchase did not permit the implication of a term that the applicants’ have unrestricted access to lot 81 and an equitable easement did not arise by way of estoppel.  The Court of Appeal dismissed the applicants’ appeal. 

No reason is shown to doubt the conclusions reached by the courts below.  Special leave is refused with costs.

AT 12.19 PM THE MATTER WAS CONCLUDED