MACKINLAY -v- DERRY DEW PTY LTD [2014] WASCA 24

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2014] WASCA 24
Court:	THE COURT OF APPEAL (WA)
Case No:	CACV:12/2013	Heard:	3 OCTOBER 2013
Coram:	PULLIN JA BUSS JA NEWNES JA	Delivered:	3/02/14
No of pages:	45	Judgment Part:	1 of 1
Result:	Appeal dismissed
Category:	A
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Parties:	ALISTAIR ROBERT MACKINLAY DERRY DEW PTY LTD
Catchwords:	Contract Illegal and void contracts Effect of illegality or invalidity Severance Whether lease with options to renew of part of a lot for more than 21 years Town Planning and Development Act 1928 (WA) (repealed) s 20(1)(a) Whether severance of options to renew possible Solicitors Breach of retainer Damages Causation
Legislation:	Town Planning and Development Act 1928 (WA) (repealed), s 20(1)(a), s 20(1)(d), s 20(1)(da), s 20B
Case References:	A v Hayden [1984] HCA 67; (1984) 156 CLR 532 Bennett v Minister for Community Welfare [1992] HCA 27; (1992) 176 CLR 408 Brew v Whitlock (No 2) [1967] VR 803 Brooks v Burns Philp Trustee Co Ltd [1969] HCA 4; (1969) 121 CLR 432 Carney v Herbert [1985] AC 301 Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 Debonair Nominees Pty Ltd v J & K Berry Nominees Pty Ltd [2000] SASC 244; (2000) 77 SASR 261 DJE Constructions Pty Ltd v Maddocks [1982] 1 NSWLR 5 Dressy Frocks Pty Ltd v Bock (1951) 51 SR (NSW) 390 Electric Acceptance Pty Ltd v Doug Thorley Caravans (Aust) Pty Ltd [1981] VR 799 Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498 Farleigh Investments Pty Ltd v Reefking Pty Ltd [2002] WASC 115 Firmin v Gray & Co Pty Ltd [1985] 1 Qd R 160 Fitzgerald v Penn [1954] HCA 74; (1954) 91 CLR 268 Gerraty v McGavin [1914] HCA 23; (1914) 18 CLR 152 Glentham Pty Ltd v City of Perth [1986] WAR 205 Hislop v Spurr [1983] WAR 180 Holman v Johnson (1775) 1 Cowp 341; 98 ER 1120 Humphries v The Proprietors 'Surfers Palms North' Group Titles Plan 1955 [1994] HCA 21; (1994) 179 CLR 597 Langley v Foster [1906] HCA 28; (1906) 4 CLR 167 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60 Lombardo v Development Underwriting (WA) Pty Ltd [1971] WAR 188 March v Stramare (E&MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506 Marks v Jolly (1938) 38 SR (NSW) 351 Mason, Herring and Brooks v Harris [1921] 1 KB 653 McCourt v Cranston [2012] WASCA 60 McFarlane v Daniell (1938) 38 SR (NSW) 337 Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1 Miller v Miller [2011] HCA 9; (2011) 242 CLR 446 Mobbs v Kain [2009] NSWCA 301; (2009) 54 MVR 179 Montreal Trust Co v Canadian National Railway Co [1939] AC 613 Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 Pilbrow v Vestry of the Parish of St Leonard, Shoreditch [1895] 1 QB 433 Re Ferguson; Ex parte E N Thorne & Co Pty Ltd (in liq) (1969) 14 FLR 311 Roach v Bickle [1915] HCA 80; (1915) 20 CLR 663 Roads and Traffic Authority v Royal [2008] HCA 19; (2008) 82 ALJR 870 Shevill v The Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 South Western Mineral Water Company Ltd v Ashmore [1967] 1 WLR 1110 SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516 Stone James & Co v Investment Holdings Pty Ltd [1987] WAR 363 The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 Thomas Brown & Sons Ltd v Fazal Deen [1962] HCA 59; (1962) 108 CLR 391 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; (2009) 74 NSWLR 618 Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604 Whitlock v Brew [1968] HCA 71; (1968) 118 CLR 445 Wilson International Pty Ltd v International House Pty Ltd [1983] WAR 243

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : MACKINLAY -v- DERRY DEW PTY LTD [2014] WASCA 24 CORAM : PULLIN JA

BUSS JA

NEWNES JA

HEARD : 3 OCTOBER 2013 DELIVERED : 3 FEBRUARY 2014 FILE NO/S : CACV 12 of 2013 BETWEEN : ALISTAIR ROBERT MACKINLAY

Appellant

AND

DERRY DEW PTY LTD

Respondent

ON APPEAL FROM:

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Coram : EATON DCJ

Citation : DERRY DEW PTY LTD -v- MACKINLAY [No 2] [2013] WADC 9

File No : CIV 2968 of 2008

Catchwords:

Contract - Illegal and void contracts - Effect of illegality or invalidity - Severance - Whether lease with options to renew of part of a lot for more than 21 years - Town Planning and Development Act 1928 (WA) (repealed) s 20(1)(a) - Whether severance of options to renew possible

Solicitors - Breach of retainer - Damages - Causation

Legislation:

Town Planning and Development Act 1928 (WA) (repealed), s 20(1)(a), s 20(1)(d), s 20(1)(da), s 20B

Result:

Appeal dismissed

Category: A

Representation:

Counsel:

Appellant : Mr J A Thomson SC & Mr N M Beech

Respondent : Mr G D Cobby

Solicitors:

Appellant : King & Wood Mallesons

Respondent : Arns & Associates

Case(s) referred to in judgment(s):

A v Hayden [1984] HCA 67; (1984) 156 CLR 532
Bennett v Minister for Community Welfare [1992] HCA 27; (1992) 176 CLR 408
Brew v Whitlock (No 2) [1967] VR 803
Brooks v Burns Philp Trustee Co Ltd [1969] HCA 4; (1969) 121 CLR 432
Carney v Herbert [1985] AC 301
Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232
Debonair Nominees Pty Ltd v J & K Berry Nominees Pty Ltd [2000] SASC 244; (2000) 77 SASR 261
DJE Constructions Pty Ltd v Maddocks [1982] 1 NSWLR 5
Dressy Frocks Pty Ltd v Bock (1951) 51 SR (NSW) 390
Electric Acceptance Pty Ltd v Doug Thorley Caravans (Aust) Pty Ltd [1981] VR 799
Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498
Farleigh Investments Pty Ltd v Reefking Pty Ltd [2002] WASC 115
Firmin v Gray & Co Pty Ltd [1985] 1 Qd R 160
Fitzgerald v Penn [1954] HCA 74; (1954) 91 CLR 268
Gerraty v McGavin [1914] HCA 23; (1914) 18 CLR 152
Glentham Pty Ltd v City of Perth [1986] WAR 205
Hislop v Spurr [1983] WAR 180
Holman v Johnson (1775) 1 Cowp 341; 98 ER 1120
Humphries v The Proprietors 'Surfers Palms North' Group Titles Plan 1955 [1994] HCA 21; (1994) 179 CLR 597
Langley v Foster [1906] HCA 28; (1906) 4 CLR 167
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623
Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60
Lombardo v Development Underwriting (WA) Pty Ltd [1971] WAR 188
March v Stramare (E&MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506
Marks v Jolly (1938) 38 SR (NSW) 351
Mason, Herring and Brooks v Harris [1921] 1 KB 653
McCourt v Cranston [2012] WASCA 60
McFarlane v Daniell (1938) 38 SR (NSW) 337
Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1
Miller v Miller [2011] HCA 9; (2011) 242 CLR 446
Mobbs v Kain [2009] NSWCA 301; (2009) 54 MVR 179
Montreal Trust Co v Canadian National Railway Co [1939] AC 613
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Pilbrow v Vestry of the Parish of St Leonard, Shoreditch [1895] 1 QB 433
Re Ferguson; Ex parte E N Thorne & Co Pty Ltd (in liq) (1969) 14 FLR 311
Roach v Bickle [1915] HCA 80; (1915) 20 CLR 663
Roads and Traffic Authority v Royal [2008] HCA 19; (2008) 82 ALJR 870
Shevill v The Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620
South Western Mineral Water Company Ltd v Ashmore [1967] 1 WLR 1110
SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516
Stone James & Co v Investment Holdings Pty Ltd [1987] WAR 363
The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17
Thomas Brown & Sons Ltd v Fazal Deen [1962] HCA 59; (1962) 108 CLR 391
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; (2009) 74 NSWLR 618
Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604
Whitlock v Brew [1968] HCA 71; (1968) 118 CLR 445
Wilson International Pty Ltd v International House Pty Ltd [1983] WAR 243

TABLE OF CONTENTS

PULLIN JA: 6
The Vellios/Cancon lease 6
The respondent's contract to purchase the Forrestfield Tavern business 8
The respondent instructs the appellant 8
The assignment and variation of the Lease 9
The respondent proceeds to settlement 10
Subsequent disputes 10
The respondent's claim against the appellant 11
Provisions of the TPD Act 12
The issues at trial 14
The trial judge's reasons 15
Grounds of appeal 16
Ground 1 18
Ground 2 19
Ground 3 20
Ground 4 23
Conclusion 23

BUSS JA: 23
The grounds of appeal 25
Grounds 1 and 2 27
Ground 3: the critical issue 27
Ground 3: s 20(1)(a) and other relevant provisions of the Act 27
Ground 3: the proper construction and effect of s 20(1)(a) of the Act 29
Ground 3: the Lease: s 20(1)(a) of the Act 30
Ground 3: the Deed: s 20(1)(a) of the Act 31
Ground 3: contracts unenforceable for statutory illegality where the formation of the contract is expressly or impliedly prohibited: general principles 32
Ground 3: contracts unenforceable for statutory illegality where the formation of the contract is expressly or impliedly prohibited: the doctrine of severance 33
Ground 3: its merits 39
Ground 3: the decision in Farleigh Investments Pty Ltd v Reefking Pty Ltd 41
Ground 4 41
Conclusion 45

NEWNES JA: 45
1 PULLIN JA: This is an appeal against a judgment of Eaton DCJ in the District Court of Western Australia awarding damages against the appellant. The trial judge found that the appellant, a principal of a law firm, through the omission of one of his employed solicitors, breached his general law duty owed to the respondent by failing to advise the respondent that a lease, resulting from a deed of assignment and variation of lease prepared by that solicitor, which lease was associated with the purchase of a business, was void because it contravened s 20(1)(a) of the Town Planning and Development Act 1928 (WA) (TPD Act).

2 The question in this appeal is whether the trial judge was correct to find that the lease was void and, if so, whether the lease should be severed so as to save the lease. There is also an issue about causation in relation to damages.

3 The respondent is the trustee of the Haslett Family Trust. The shareholders and the directors of the respondent are Mr Alan Haslett and his wife. In early 2003, Mr Haslett decided that he would like to purchase a business known as the Forrestfield Tavern. The Forrestfield Tavern business was conducted in a building which was located on land at 40 Cumberland Road, Forrestfield. The building and related facilities occupied only about 20% of the land. Most of the rest of the land was covered by bush. The land was owned by Mr Naoumis Vellios.

4 At the time that Mr Haslett decided to purchase the business, it was being run by Cancon Pty Ltd (Cancon) and it held a lease from Mr Vellios.

The Vellios/Cancon lease

5 By an instrument in writing dated 6 March 1998, Mr Vellios leased the Forrestfield Tavern for 20 years to Cancon (Lease). The Lease, on its face, was prepared employing a form which would have been appropriate for the lease of a shop in a shopping centre occupied by many tenants. This was evident from a number of clauses. Even the leasing clause revealed this. It read:

In consideration of the Rent hereby reserved … the Lessor, being registered or entitled to be registered as a proprietor of an estate in fee simple in the Land HEREBY LEASES to the Lessee ALL THOSE PREMISES described in Item 1 of the Schedule hereto including all the Lessor's fixtures, fittings and appurtenances located on the Leased Premises including, without limitation, those chattels listed under the heading of Chattels in Item 1 of the Schedule hereto ('the Leased Premises') together with the right of the Lessee, its agents, servants, employees and customers in common with the Lessor's other tenants to use the Common Areas TO BE HELD by the Lessee at the Rent and for the Term and subject to the following terms, covenants and conditions (GAB 55).

6 There were no 'other tenants' and therefore no 'common areas'. Other clauses that would have been appropriate for a lease of a shop in a shopping centre included cl 6.2, which provided, in effect, that the lessee should pay a proportion of rates and taxes calculated by reference to the area the leased premises bore as a proportion to the total lettable area.

7 However, the fact that the wrong form was used does not alter the task of this court in construing the Lease. It was pleaded by the appellant in his defence and admitted by the respondent in reply that both parties to the Lease knew that the only premises upon the land was the Forrestfield Tavern, and that there was no strata plan registered in respect of the land. The parties also knew that the business to be conducted by the lessee was the business of the Forrestfield Tavern, which was to be conducted from the only premises on the land.

8 The leasing clause, it may be observed, referred to the lessor as the proprietor of an estate in fee simple in the 'Land'. 'Land' was defined in cl 2.1.2 of the Lease as meaning 'all that piece of land described in Item 2 of the Schedule'. Item 2 in the schedule described the 'Land' as being:

Lot 1 the subject of the Diagram 75240 together with the right to enter upon portion of Lot 2 on Diagram 75242 marked 'A' on the said map hereon for the purposes of exercising certain rights as set out in Transfer E25143 and being the whole of the land comprised in Certificate of Title Volume 1830 Folio 643 (GAB 99).

9 The leasing clause recorded not a lease of the 'Land', but of the 'Premises' described in item 1 of the schedule, together with fixtures, fittings and appurtenances (all of which were collectively described as 'the Leased Premises'). The 'Premises' described in item 1 of the schedule against the words 'Leased Premises' read '[t]he Forrestfield Tavern situated at 40 Cumberland Road Forrestfield in the State of Western Australia'. Other clauses throughout the Lease referred to, and distinguished between, the 'Land' and the 'Leased Premises'.

10 There were some special conditions to the Lease whereby the lessor granted approval to the lessee to build an outside wall in respect to a proposed beer garden on the 'Leased Premises', such work to be approved by the local authority and the liquor licensing division (cl 16.21(iii)). There was also a grant by the lessor to the lessee of a 'sufficient area of land to accommodate six parking bays as so determined by the Local Authority and Liquor Licensing Division' (cl 16.21(v)).

The respondent's contract to purchase the Forrestfield Tavern business

11 By a contract dated 20 December 2003, Mr Haslett and his wife, as the then trustees of the Haslett Family Trust, agreed to purchase from Cancon the goodwill of the Forrestfield Tavern business as well as its business name, plant, furniture, fixtures, fittings, chattels, stock in trade and other assets for $230,000, plus stock at valuation. The contract allocated $170,000 to the goodwill of the business and $60,000 to plant and equipment. Stock in trade was specified at $20,000 over and above the purchase price.

12 The contract was conditional upon the purchaser receiving written approval from the landlord or managing agent to an assignment of the Lease and on the landlord granting an option or options to extend the Lease for, in effect, a further 10 years. There was also a finance clause. The application for finance was made and was successful.

13 Mr Haslett gave undisputed evidence that it was important to him that the contract be conditional upon a grant of 10 years worth of options because he planned to work in the business for at least 10 years and then sell it with a long lease.

14 After the contract was entered into, Mr Vellios orally agreed to an assignment of the Lease by Cancon to the respondent with two five year options to extend the existing term of the Lease.

The respondent instructs the appellant

15 Instructions were given by Mr Haslett to the appellant to prepare a document giving effect to that agreement. By letter dated 6 January 2004, a solicitor employed by the appellant wrote to Mr Haslett confirming instructions to draft a deed of assignment and variation of lease of the Forrestfield Tavern. The letter confirmed that the appellant had been supplied with the Lease, and that the appellant had reviewed the Lease for the purpose of preparing the deed of assignment and variation. The letter recorded that the appellant was to be given two options to renew the term for five years each.

The assignment and variation of the Lease

16 The appellant prepared a document entitled 'Deed of Assignment and Variation', and it was executed by the respondent, Mr Haslett and his wife, Cancon and Mr Vellios (Deed). Clause 2.1 of the Deed provided that:

In consideration of:

(a) the Lessor's consent; and

(b) the Assignee's agreements in this Assignment,

the Assignor assigns the Lease free from Encumbrances to the Assignee for the residue of the Term together with the benefit of the Options subject to the performance by the Assignee of the Lessee's Obligations (except to the extent, if any, that they are modified by this Assignment as set out in Item 7) (GAB 132).

17 By recitals at the beginning of the Deed under the heading 'Background', it was stated that:

By the Lease, the Lessor leased the Leased Premises for the Term together with the benefit of the Options (GAB 130).

18 'Options' was defined as 'the options of renewal' described in item 5. Item 5 correctly stated that, in the Lease, there were no options.

19 In cl 1.1 of the Deed, 'Leased Premises' was defined as meaning the premises described in item 3. Item 3 to the Deed read:

The Forrestfield Tavern situated at 40 Cumberland Road

Forrestfield

, in the State of Western Australia being Lot 1 on Diagram 75240 together with the right to enter upon portion of Lot 2 on Diagram 75240 marked 'A' on the said map for the purpose of exercising certain rights as set out in Transfer E25143 and being the whole of the land comprised in Certificate of Title Volume 1830 Folio 643.

20 Item 7 in the schedule to the Deed varied provisions in the Lease relating to rent, rent reviews, repair obligations and the beer garden. It was item 7C which contained the new clause to vary the Lease by conferring on the lessee an option to renew the term of the Lease for a period of five years commencing from the day following the end of the term and a further option to renew the renewed term for a further five years.

The respondent proceeds to settlement

21 Settlement occurred on 24 March 2004; the respondent paid the purchase price for the business and the respondent took over management of the Forrestfield Tavern.

Subsequent disputes

22 It was not long before there were disagreements between Mr Haslett and Mr Vellios as to a range of matters. As a result, Mr Haslett sought legal advice. On 16 June 2005, Mrs Joanne Matich of Matich & Associates, solicitors acting on behalf of the respondent, wrote to Mr Vellios raising various matters for consideration, including a contention that the 'Leased Premises' was the Forrestfield Tavern, and that the 'Premises' the subject of the Lease did not include the whole of the lot of land on which the Forrestfield Tavern stood.

23 By letter dated 14 November 2005, Mr Steven Cole of Allens Arthur Robinson, solicitors acting on behalf of Mr Vellios, wrote to Ms Matich advising that the lease documentation, 'in the form of the original Lease and the Deed of Assignment and Variation', was 'less than perfect', and that an outcome of negotiations could lead to the redocumentation of the lease arrangement. Attached to the letter was a document entitled 'Memorandum of Comments and Observations'. The document recorded the respondent's assertion that the 'Leased Premises' was only for a part of the land on which the Forrestfield Tavern was located, and added that 'the options of renewal in terms of the Deed … are void as being contrary to section 20(1) of the Town Planning and Development Act, it being understood that no requisite approval in terms of that legislation was obtained prior to the options being granted'.

24 In February 2006, another solicitor was acting for Mr Vellios. This was Mr Gavan Kelly of Wojtowicz Kelly Legal. He wrote to Ms Matich by letter dated 1 March 2006, stating that the 'Lease is void in light of the provisions of section 20 of the Town Planning and Development Act as consent has not been first obtained pursuant to the provisions of the Act'. According to Mr Kelly, there were two courses available, the first being that the respondent vacate the premises and bring an action against the appellant for damages, and the second being the possible negotiation of a new lease with Mr Vellios.

25 Thereafter, there were some negotiations with a view to agreeing the terms of a new lease, but those negotiations were unsuccessful.

26 The respondent then sought counsel's opinion, following which, on or about 31 March 2006, the respondent gave Mr Vellios one month's written notice of termination pursuant to s 72 of the Property Law Act 1969 (WA), which provides for the termination of periodic tenancies by the giving of such notice. No issue was raised in this appeal about the proposition that if the Lease, as varied by the Deed, was void, then the respondent only had a periodic tenancy determinable on one month's notice. Following the service of the notice, Ms Matich, acting for the respondent, sent a letter dated 3 April 2006 to Mr Vellios' solicitor saying:

This action has been forced upon our client as a consequence not only of your client's failure to enter into any meaningful discussions in relation to the Lease, but also a complete failure on the part of your client to undertake Lessor's works (GAB 186).

27 She went on to say that her client was prepared to offer Mr Vellios one final opportunity to consider his position. Mr Vellios rejected that offer.

The respondent's claim against the appellant

28 On 24 November 2008, the respondent arranged for the issue of a writ of summons against the appellant.

29 The respondent pleaded, and it was common ground, that the appellant owed the respondent a duty to exercise the care and skill to be expected of a reasonably competent solicitor in performing his duties pursuant to the retainer, and that the appellant owed a duty to give advice reasonably necessary to protect the respondent's interests in the transaction to assign and vary the Lease.

30 The respondent pleaded that the appellant breached those duties and particularised its allegations of negligence by asserting that the appellant had failed to advise the respondent that the Deed was illegal, void and of no effect; had failed to advise the respondent of the steps required to be taken in order to comply with the provisions of the TPD Act; and had failed to prepare a variation and assignment of lease that was not illegal or void or of no effect.

31 The respondent pleaded that the Deed contravened s 20(1) of the TPD Act. The appellant denied that the Deed contravened the TPD Act and pleaded that the Deed dealt with the whole land the subject matter of the Lease as a defined portion of land and, in consequence, no approval of the Western Australian Planning Commission (Commission) was required. The appellant therefore denied that the Deed was illegal, void and of no effect.

32 The respondent pleaded that by reason of the appellant's alleged negligence, the respondent suffered loss and damage.

33 The respondent particularised its loss and damage as follows:

(a) Loss of value of business - $230,000

(b) Loan establishment fee - $2,000.70

(d) Stamp duty - $2,346.50

(e) Wasted expenses - $65,979.57

34 To understand the issue about the alleged invalidity of the Deed, it is necessary to set out the relevant provisions of the TPD Act, which were in force at all material times.

Provisions of the TPD Act

35 Section 20 of the TPD Act dealt with a range of situations, some of which were not relevant to the present matter. Section 20(1)(a) was relevant to this dispute and read:

[A] person shall not, without the approval of the Commission … lease … land for any term exceeding 10 years including any option to extend or renew the term or period, or lease … land for terms in the aggregate exceeding 10 years, including any option to renew or extend the terms or periods … unless the land is dealt with by way of such lease … as a lot or lots …

36 There was an exception to this prohibition within s 20(1)(d). The exception was achieved by providing that the definition of 'land' did not include 'the whole or a portion of a leased building where':

(i) the building was constructed pursuant to an approval granted by a local government …; and

(ii) subject to paragraph (da), the leasing … does not relate to any land other than that building or portion and is for a term or period (including any option to renew or extend the same) not exceeding 21 years.

37 Section 20(1)(da) read:

A reference in paragraph (d) to the whole or a portion of a building includes a reference to any area outside that whole or portion, which area is -

(i) the subject of the same lease …; and

(ii) used for the purpose of ingress to or egress from that whole or portion, advertising, parking vehicles, storing goods, loading or unloading goods or passengers or for any other purpose necessary or desirable for the convenient occupation of that whole or portion.

38 Counsel for the appellant contended that when the Lease was entered into by Mr Vellios and Cancon, there was no contravention of s 20(1)(a) of the TPD Act, either because the Lease was a lease of the whole of a lot of land or, alternatively, if the Lease was a lease of only part of a lot of land, then, although it was for a term longer than 10 years, it was not void by reason of the combined effect of s 20(1)(d) and s 20(1)(da) of the TPD Act.

39 Section 27 provided that any person who contravened or failed to comply with s 20(1) was guilty of an offence.

Section 2 of the TPD Act defined a 'lot' to mean, inter alia:

[A] defined portion of land depicted on a plan or diagram publicly exhibited in the public office of the Department of Land Administration, or deposited in the Department within the meaning of the

Transfer of Land Act 1893

or Registry of Deeds and for which a separate Crown grant, certificate of Crown land title, qualified certificate of Crown land title, or certificate of title has been or can be issued …

40 'Land', relevantly described in item 2 of the schedule to the Lease as '[l]ot 1 the subject of Diagram 75240 …' which corresponded to 40 Cumberland Road, Forrestfield, was a 'lot' within the meaning of that definition.

41 If there was a contravention of s 20(1)(a), the person who committed the offence was the lessor. However, there is authority in this State which holds that the legislative intent was to render illegal and void an agreement in contravention of s 20(1)(a) unless such agreement is in terms which bring the agreement within the saving provisions of s 20B: see Wilson International Pty Ltd v International House Pty Ltd [1983] WAR 243, 253 and the cases gathered together by Brinsden J in Stone James & Co v Investment Holdings Pty Ltd [1987] WAR 363, 379. The parties accept that this is a correct statement of the law.

The issues at trial

42 The respondent contended that the Deed contravened s 20(1)(a) of the TPD Act because it provided for a lease of a portion of a lot of land for a term exceeding 21 years without the approval of the Commission. The Lease, as varied by the Deed, could not be saved by s 20(1)(d) read with s 20(1)(da) and was therefore void. The respondent also contended that the appellant was negligent in failing to advise the respondent that the Lease was void, and if there had been no such failure, then the respondent would not have proceeded to purchase the Forrestfield Tavern business. The respondent claimed that it had suffered loss by paying out money at settlement for a business which had no real value.

43 The action was defended at trial by the appellant, inter alia, on the following bases:

(a) properly construed, the Lease was a lease of the whole of the land on which the Forrestfield Tavern was located, rather than just a lease of the Forrestfield Tavern buildings;

(b) in the alternative, the terms of the Deed varied the Lease so that the assigned Lease was, properly construed, a lease of the whole of the land on which the Forrestfield Tavern was located;

(c) even if the Lease and the Deed only related to part of a lot of land, being the Forrestfield Tavern buildings and its curtilage, the options to extend the assigned Lease were severable, and, on the authority of a decision of McKechnie J in Farleigh Investments Pty Ltd v Reefking Pty Ltd [2002] WASC 115, s 20(1)(a) of the TPD Act only applied to make the options void, not the whole lease; and

(d) the respondent caused its own loss by giving the termination notice and vacating the premises when this had not been required by Mr Vellios.

44 The trial judge held against the appellant on each of the above issues.

45 There was also an issue about damages, but the finding against the appellant on that issue is not the subject of any ground of appeal.

The trial judge's reasons

46 The trial judge concluded that the Lease was a lease of a portion of a lot of land, being the portion occupied by the Forrestfield Tavern, and not a lease of the whole of a lot of land. The trial judge rejected the appellant's submission that the Deed made it clear that the 'new lease which it brought into effect between the lessor and the [respondent] was of the whole of the lot of land' [69].

47 The appellant submitted in the alternative that the options provision was severable because of cl 16.15 of the Lease, which read as follows:

To the extent that any one or any more of the provisions herein contained is prohibited by any applicable law including without limitation the

Trade Practices Act 1974

(as amended) and/or the

Retail Shops Act

such provisions and each of them shall to such extent be ineffective without invalidating or modifying the remaining provisions hereof which shall continue in full force and effect as if the provisions so prohibited had not been included herein as from the date hereof (GAB 41).

48 That submission was rejected by the trial judge. The trial judge's conclusion on that point was not challenged because counsel for the appellant acknowledged correctly that cl 16.15 of the Lease only operated to allow the severance of prohibited 'provisions' in the otherwise valid Lease, whereas s 20(1)(a) of the TPD Act did not make 'provisions' of a lease void, but made the lease as a whole void.

49 The appellant's argument on appeal was that the trial judge erred in concluding that, pursuant to common law principles, the options provision in item 7C to the schedule in the Deed could not be severed. The trial judge referred to SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516, where Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ cited with approval what was said by Jordan CJ in McFarlane v Daniell (1938) 38 SR (NSW) 337, namely:

It is difficult to see how, in principle, a legal promise associated with an illegal promise can ever be enforceable unless it is supported solely by a separate consideration so exclusively attributable to it that there are in substance two independent contracts and not one composite contract (346).

The trial judge then concluded at [82] that there was no separate consideration exclusively attributable to the grant of the options.

50 The appellant referred to Farleigh Investments and submitted that this authority supported the claim for severance. The trial judge, without expressly saying so, appears to have distinguished Farleigh Investments on the facts.

51 As to the issue of causation, the trial judge found that the loss claimed was caused by the appellant's negligence. His Honour rejected the appellant's submission that the respondent 'caused its own damage by giving the termination notice'. His Honour held that that submission was not sustainable because the damage had already been done. His Honour said that the respondent had suffered a considerable loss from the moment it executed the Deed because it 'purchased the business of the Forrestfield Tavern and took possession of it under the misapprehension that it had a valuable asset, namely a profitable business and certainty of tenure until 2028 assuming the exercise of the options to renew' [101].

Grounds of appeal

52 The grounds of appeal read as follows:

(a) Ground 1: the trial judge erred in law in construing the Lease to be a lease of a portion of a lot of land, and should have held that the Lease should be construed as a lease of the whole of a lot of land.

(b) Ground 2: further or alternatively, the trial judge erred in law by:

(i) construing the Deed as only assigning the Lease in relation to that portion of the lot of land occupied by the Forrestfield Tavern; and

(ii) consequently holding that the Lease, as assigned by the Deed, was void as contrary to s 20(1)(a) of the TPD Act.

The trial judge should have held that the Deed assigned, or alternatively assigned and varied, the Lease so that the respondent was the lessee of the whole of a lot of land, and the Lease as assigned, or alternatively as assigned and varied, did not contravene s 20(1)(a) of the TPD Act.

(c) Ground 3: alternatively to grounds 1 and 2, if the Lease only related to the portion of a lot of land which was occupied by the Forrestfield Tavern, the trial judge erred in law by:

(i) holding that the options to extend the Lease contained in item 7C of the schedule to the Deed could not be severed from the Deed; and

(ii) holding that the Lease, as assigned by the Deed, was entirely void by reason of it being contrary to s 20(1)(a) of the TPD Act.

The trial judge should have held that item 7C of the schedule to the Deed could be severed and that subject to such severance, the Lease, as assigned by the Deed, was not contrary to s 20(1)(a) of the TPD Act.

(d) Ground 4: the trial judge erred in fact and in law in holding that the act of the respondent in serving a notice of termination was caused by the appellant's failure to properly advise the respondent as to the efficacy of the Deed. The trial judge should have held that:

(i) Mr Vellios had not threatened the respondent with eviction, but instead had offered the respondent a new lease for 12 years;

(ii) the termination notice was given by the respondent with the intention, and for the purpose, of compelling Mr Vellios to renegotiate the Lease;

(iii) the failure of the appellant to advise the respondent as to the efficacy of the Deed was not the cause of the respondent giving the termination notice;

(iv) consequently, the failure of the appellant to advise as to the efficacy of the Deed was not the cause of the respondent suffering loss and damage from losing its business at the Forrestfield Tavern; and

(v) the cause of the respondent's loss was its own action in giving the termination notice.

53 Grounds 1 and 2 depend upon determining the proper construction of the Lease and of the Deed. Construction of those documents involves ascertaining what a reasonable person would have understood the parties to those documents to mean. The subjective beliefs and understandings of the parties about their rights and liabilities are irrelevant. What the parties mean is to be determined by the language in which the parties express their agreement: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40] and Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 [22].

54 Surrounding circumstances known to the parties when the instrument was executed will only be relevant if there is ambiguity in the instrument: Toll (FGCT) [40]; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604 [3]; McCourt v Cranston [2012] WASCA 60 [14] - [23].

Ground 1

55 The parties to the Lease were Mr Vellios and Cancon. The appellant submitted that the Lease should be construed as providing that the whole of the land was subject to the Lease. There were three reasons offered in support of this submission. They were that:

(a) 'Leased Premises' was defined as '[t]he Forrestfield Tavern situated at 40 Cumberland Road Forrestfield in the State of Western Australia' and that definition could not be construed as referring to 'part' of the land at 40 Cumberland Road;

(b) although the schedule to the Lease distinguished between 'Leased Premises' and 'Land', this did not indicate that those terms related to different areas of land. The appellant submitted that certain obligations in the Lease related to the buildings, and therefore needed to be expressed by reference to the 'Leased Premises'. Reference was made by way of example to cl 7, which related to the lessee's obligation to care for and maintain the 'Leased Premises'; and

(c) the Lease contained special conditions in cl 16.21. These referred to, inter alia, the proposed beer garden and six parking bays. The appellant submitted that because the areas for the proposed beer garden and parking bays were not defined and were dependent upon approvals from authorities, it meant that the parties did not intend, by the language in the Lease, to lease only the existing Forrestfield Tavern buildings, and that the Lease could not have been intended to operate to convey a leased interest in respect of further undefined and uncertain areas, such as a proposed beer garden and parking bays.

56 Those submissions must be rejected. As to the first point, the description of the 'Leased Premises' identifies the Forrestfield Tavern as the 'Leased Premises', and the reference to 40 Cumberland Road, Forrestfield was merely a description of where and on what land the Forrestfield Tavern was situated.

57 As to the second point, the fact that certain obligations in the Lease related specifically to the buildings is not a point in favour of the appellant's argument. It is, in fact, a point against the appellant's contention that the whole of the lot of land was leased. The example given regarding cl 7 reveals that the lessee's obligation to care and maintain related only to the 'Leased Premises', ie, the Forrestfield Tavern, and not to the care and maintenance of the whole lot of land.

58 Finally, the third point has no merit because a lease of the 'Forrestfield Tavern' included the curtilage, that being sufficient of the lot on which the Forrestfield Tavern was located to allow the premises to be used as a tavern: Hislop v Spurr [1983] WAR 180, 183 (Kennedy J); Pilbrow v Vestry of the Parish of St Leonard, Shoreditch [1895] 1 QB 433, 446 (Rigby LJ).

59 The leasing clause in the Lease, read with the definition of 'Leased Premises' and 'Land', unambiguously meant that the parties intended that only the part of the lot on which the Forrestfield Tavern premises was located was leased. The parties did not intend that there should be a lease of the whole of the lot. The trial judge did not err in reaching that conclusion.

60 Ground 1 must be dismissed.

Ground 2

61 As to the Deed, it worked an assignment of the Lease and varied its terms so that the Lease, as varied, then governed the relations between Mr Vellios and the respondent. In its varied form, the Lease was for a term plus options totalling more than 21 years. This is so whether one has regard to the original term of 20 years plus the options, or the term commencing on the date of the assignment (there remained about 14 years of the original term) plus the options.

62 The appellant submitted that the trial judge erred in his construction of the Deed. He submitted that the terms of the Deed varied the Lease, so that as between Mr Vellios and the respondent, what was leased was the whole of the lot of land, and not just part of the lot. The appellant stressed that the definition of 'Leased Premises' in the Deed differed from the definition in the Lease. The appellant pointed, in particular, to the fact that whereas the 'Leased Premises' was described in the Lease as '[t]he Forrestfield Tavern situated at 40 Cumberland Road Forrestfield', the Deed added to that description the description of the land as it appeared in the title, which included the words 'the whole of the land comprised in Certificate of Title Volume 1830 Folio 643'.

63 The trial judge did not err. The Deed unambiguously assigned the Lease and recited that the subject of the Lease was the Forrestfield Tavern. The change to the description of the place where the Forrestfield Tavern was situated (described now as being situated on 40 Cumberland Road followed by a description of the title to that land) did not alter the fact that the Lease, as assigned and varied, was a Lease with options relating to the Forrestfield Tavern and not to the whole of the lot of land.

64 Another point which the appellant relied upon was that, 'once again', the lessee was given permission to create a beer garden and that this was to be 'within the Premises'. The appellant's submission was that this showed that the parties considered that the 'Premises' extended beyond the existing Forrestfield Tavern buildings. That is not so because, as already mentioned, the 'Forrestfield Tavern' necessarily consisted of the building and its curtilage. The curtilage included sufficient of the surrounding land for the beer garden and parking bays.

65 Ground 2 must be dismissed.

Ground 3

66 As already mentioned, reliance is not now placed on cl 16.15 of the Lease.

67 The appellant contended that:

The question is whether s 20(1)(a) makes the whole of the assigned lease invalid, or whether the options for extension may be severed and only these are struck down by operation of section 20(1)(a) [of the TPD Act] (WAB 18 - 19).

68 The appellant submitted that severance of the options applying common law principles would require the deletion of the options provision in item 7C of the schedule to the Deed. The appellant contended that if the options provision is severed, it does 'not change the nature of the Assigned Lease' and that, as a result, the options provision is capable of severance. The appellant's reference to there being no change to the 'nature' of the assigned Lease is an acceptance that, applying common law principles, severance will only be permitted if severance does not change the kind of contract between the parties: Thomas Brown & Sons Ltd v Fazal Deen [1962] HCA 59; (1962) 108 CLR 391, 411, citing Jordan CJ in McFarlane v Daniell.

69 The submission failed to address an anterior question which has to be confronted. The power of the court to order severance (which is not a power controlled by a settled and stable set of rules - see SST Consulting Services [42]) may be exercised in cases where a contract, otherwise legal, contains a provision in contravention of a statute, providing the statute, properly construed, permits severance. See, for example, the legislation referred to in the SST Consulting Services case. In that case, the contract only contravened the Act by reason of the inclusion of a prohibited provision and nothing in the legislation prohibited severance of the prohibited provision [33].

70 In this case, what s 20(1)(a) of the TPD Act does is to make the grant of a lease of a part of a lot for a term (meaning the initial term of a lease plus any options to extend) longer than specified and without requisite approval, illegal. According to the authorities in this State which were not challenged on this appeal, such a lease is illegal and void for contravening s 20(1)(a) of the TPD Act.

71 The court cannot, therefore, adjust the lease by 'severing' portions to the point where the Lease no longer contravenes s 20(1)(a). The Lease as varied is not partially illegal and void. It is the entire Lease, not just a provision in the Lease, which is void. In those circumstances, severance is not possible: see A v Hayden [1984] HCA 67; (1984) 156 CLR 532, 557 (Mason J). See also Seddon N, Bigwood R & Ellinghaus M, Cheshire & Fifoot Law of Contract (10th ed, 2012) [18.41] which says:

If a contract is only partially illegal, the law may enforce it to the extent to which the illegal part can be severed.

72 In Chitty on Contracts (24th ed) [1049], referred to in Firmin v Gray & Co Pty Ltd [1985] 1 Qd R 160, 164, the authors said:

Where all the terms of a contract are illegal or against public policy or where the whole contract is prohibited by statute, clearly no action can be brought by the guilty party on the contract …

73 This was followed by a statement that where parts of a contract are unenforceable and other parts would be unobjectionable, the question then arises as to whether severance is possible. The question does not arise here because, as already mentioned, this is a case where the grant of a lease was illegal and void and not a case where the statute makes part of the lease illegal and void, leaving other parts unobjectionable.

74 The appellant, however, pointed to Farleigh Investments. There, McKechnie J, having concluded that a lease was in breach of s 20(1)(a) of the TPD Act and therefore illegal and void, permitted severance by allowing the lessor to waive a clause which was the provision which made the lease a lease for part of the land. His Honour concluded that public policy did not require the whole of the lease to be struck down.

75 This conclusion was reached despite the lessee's argument that s 20(1)(a) of the TPD Act operated to make the whole of the agreement illegal and void so there was nothing to sever [65]. McKechnie J considered Thomas Brown v Fazal Deen; Electric Acceptance Pty Ltd v Doug Thorley Caravans (Aust) Pty Ltd [1981] VR 799; Firman v Gray; South Western Mineral Water Company Ltd v Ashmore [1967] 1 WLR 1110 and Carney v Herbert [1985] AC 301, and appears to have drawn from those authorities the proposition that even if the whole of a contract is illegal and void, that, nevertheless, severance was possible. With respect to his Honour, the passages quoted from the authorities to which reference was made all support the contrary conclusion, namely that where the whole contract is illegal and void, severance is not possible. His Honour referred to the passage in Chitty on Contracts referred to above and to the reasons of Andrews SPJ in Firman v Gray. That case concerned not the illegality of a whole contract, but merely a particular clause, and Andrews SPJ held that the offending part of the clause was ancillary to the main contract and not of such seriousness as to strike down the whole contract (170). Likewise, McPherson J held that the whole contract was not made illegal, and that distinct and lawful promises may be enforceable even if other promises forming part of the same contract are illegal (177, 181). Also, in Electric Acceptance v Doug Thorley, the whole contract was not made illegal and void by a statute; rather there was an illegal promise which was 'so material and important a promise in the whole bargain that there should be inferred an intention not to make a contract which would operate without it' (821). Likewise, in Thomas Brown v Fazal Deen, there were valid and invalid promises in the contract, and in Carney v Herbert, in the passage of Lord Brightman cited by McKechnie J, his Lordship referred to the case of parties entering into a 'lawful contract' where there was 'an ancillary provision' which was illegal.

76 In Electric Acceptance, Brooking J made the point that 'courts will not make a new contract for the parties … by rewriting the existing contract …' (817). In effect, what McKechnie J did was to rewrite the contract between the parties.

77 As a result, I would respectfully disagree with McKechnie J's conclusion that severance is possible to save a lease which contravenes s 20(1)(a) of the TPD Act and which is therefore illegal and void.

78 In any event, even if that conclusion is wrong and severance was possible, then the appellant's submission that in this case the nature of the Lease would not be changed if the options provision was severed cannot be accepted. The Deed involved an assignment of the Lease and the creation of the right in the respondent to extend the term of the varied Lease for a further 10 years. To sever the options provision would be to change the kind of contract recorded in the varied Lease from a lease plus options to a lease with no options. That would dramatically alter the respondent's right to secure possession until 2028 to a right to secure possession only until 2018. In addition, it is impossible to detect any separate consideration for the options. There were not 'in substance two independent contracts' (to quote Jordan CJ in McFarlane v Daniell).

79 Ground 3 must be dismissed.

Ground 4

80 The appellant contended that the cause of the respondent's loss was its own action in giving a termination notice and that the loss was not caused by the failure of the appellant to advise as to the efficacy of the Deed. That submission must be rejected. Because of the appellant's failure to advise that the Lease, as assigned and varied, was void, the respondent proceeded to settlement and paid the purchase price which had been agreed to be paid believing that it had an assignment of a valid lease which still had 14 years to run, with two options to extend for a further five years each. Instead of gaining a business with that lease and those option rights, the respondent gained nothing more than occupancy of the Forrestfield Tavern under a periodic tenancy. Ground 4 must be dismissed.

Conclusion

81 The appeal should be dismissed.

82 BUSS JA: In or about January or February 2004, the respondent purchased from Cancon Pty Ltd (Cancon) a business known as the Forrestfield Tavern. The business was carried on from a building on land at 40 Cumberland Road, Forrestfield. The building and related facilities occupied about 20% of the land. Bush covered most of the balance of the land.

83 Cancon leased the Forrestfield Tavern pursuant to a lease agreement dated 6 March 1998 (the Lease) between the owner of the land, Naoumis Vellios, as lessor, Cancon as lessee and Timothy and Maryanne Robinson as guarantors. The Lease was for a term of 20 years commencing on 3 March 1998. There were no options to renew.

84 It was a term of the agreement for the respondent's purchase of the business that Mr Vellios agree to an assignment of the Lease to the respondent with specified variations. The variations included the grant of either one option to renew for 10 years or two options to renew for five years each.

85 In about February 2004, the respondent retained the appellant, a solicitor, to prepare a deed of assignment and variation of lease (the Deed) in connection with its purchase of the business. Pursuant to the retainer, a solicitor employed by the appellant prepared the Deed. In or about March 2004, the Deed was executed by the respondent, Cancon, Mr Vellios and Alan and Pamela Haslett as guarantors. The Deed assigned the Lease from Cancon to the respondent. The Deed also varied some of the provisions of the Lease. The variations included the grant by Mr Vellios to the respondent of two options to renew for five years each.

86 The effect of the Deed was that if both options to renew were exercised then the Lease as renewed would not expire until 2 March 2028; that is, about 24 years after the date of the assignment from Cancon to the respondent.

87 On 24 March 2004 (after the execution of the Deed), settlement of the sale and purchase of the Forrestfield Tavern business occurred.

88 In November 2005, a solicitor acting for Mr Vellios asserted to the respondent's then solicitor that the options to renew were 'void as being contrary to Section 20(1) of the Town Planning and Development Act, it being understood that no requisite approval in the terms of that legislation was obtained prior to the options being granted'.

89 Subsequently, there were negotiations between Mr Vellios and the respondent with a view to agreeing on the terms of a new lease. The negotiations failed.

90 On 3 April 2006, in reliance on counsel's opinion, the respondent gave Mr Vellios one month's written notice of termination pursuant to s 72 of the Property Law Act 1969 (WA). Section 72(1) provides, relevantly, that 'a periodic tenancy or a tenancy of uncertain duration may be terminated by one month's written notice by either party thereto to the other expiring at any time whether at the end of a rent period or not'.

91 In 2008, the respondent as plaintiff brought an action in the District Court against the appellant as defendant. The respondent claimed damages for alleged negligence by the appellant's employed solicitor in connection with the performance of the retainer. In particular, the respondent alleged that:

(a) the Deed was illegal and void in that it contravened s 20(1)(a) of the

Town Planning and Development Act 1928

(WA) (repealed) (the Act);

(b) the appellant, by his employed solicitor, was negligent, relevantly, in failing to advise the respondent that the Deed was illegal and void and in failing to advise the respondent on the steps required to comply with s 20(1)(a) of the Act; and

(c) by reason of the appellant's negligence, the respondent had been required to vacate the leased premises and had suffered loss and damage.

92 The action was tried before Eaton DCJ. His Honour entered judgment for the respondent on its claim in the sum of $264,347.20 and interest.

93 The appellant appeals against the judgment.

The grounds of appeal

94 The appellant relies on four grounds of appeal. They read:

(b) Ground 2: further or alternatively, the trial judge erred in law by:

(i) construing the Deed as only assigning the Lease in relation to that portion of the lot of land occupied by the Forrestfield Tavern; and

(ii) consequently holding that the Lease, as assigned by the Deed, was void as contrary to s 20(1)(a) of the Act.

(c) Ground 3: alternatively to grounds 1 and 2, if the Lease only related to the portion of a lot of land which was occupied by the Forrestfield Tavern, the trial judge erred in law by:

(i) holding that the options to extend the Lease contained in item 7C of the schedule to the Deed could not be severed from the Deed; and

(ii) holding that the Lease, as assigned by the Deed, was entirely void by reason of it being contrary to s 20(1)(a) of the Act.

(i) Mr Vellios had not threatened the respondent with eviction, but instead had offered the respondent a new lease for 12 years;

(ii) the termination notice was given by the respondent with the intention, and for the purpose, of compelling Mr Vellios to renegotiate the Lease;

(iii) the failure of the appellant to advise the respondent as to the efficacy of the Deed was not the cause of the respondent giving the termination notice;

(v) the cause of the respondent's loss was its own action in giving the termination notice.

Grounds 1 and 2

95 I agree with Pullin JA, generally for the reasons he gives, that grounds 1 and 2 fail.

Ground 3: the critical issue

96 The critical issue raised by ground 3 is whether, by virtue of s 20(1)(a) of the Act, the whole of the Lease, as assigned and varied under the Deed, is illegal and void or whether the options to renew may be severed so that, by virtue of s 20(1)(a), only the options are struck down.

Ground 3: s 20(1)(a) and other relevant provisions of the Act

97 The relevant provisions of the Act when the Deed was executed were as follows.

98 Section 20(1)(a) of the Act provided:

Subject ... to this section and to section 20B, a person shall not, without the approval of the Commission, lay out, grant or convey a street, road or way, or either lease or grant a licence to use or occupy land for any term exceeding 10 years including any option to extend or renew the term or period, or lease and grant a licence to use or occupy land for terms in the aggregate exceeding 10 years, including any option to renew or extend the terms or periods, or sell land or grant any option of purchase of land, unless the land is dealt with by way of such lease, licence, sale or option of purchase as a lot or lots, or subdivide any lot, or amalgamate any lot with any other lot whether within the same district or otherwise; ...

99 Section 20(1)(d) and (da) read:

(d) In subsection (1)(a)

'land'

, in relation to the leasing or the granting of a licence to use or occupy or, where applicable, the leasing and the granting of such a licence, does not include the whole or a portion of a building where -

(i) the building was constructed pursuant to an approval granted by a local government under the

Local Government (Miscellaneous Provisions) Act 1960

or an Act repealed by that Act; and

(ii) subject to paragraph (da), the leasing or the granting of a licence does not relate to any land other than that building or portion, and is for a term or period (including any option to renew or extend the same) not exceeding 21 years.

(da) A reference in paragraph (d) to the whole or a portion of a building includes a reference to any area outside that whole or portion, which area is -

(i) the subject of the same lease or licence to use or occupy as that whole or portion or of a lease or licence to use or occupy entered into or granted by the lessor of, or grantor of a licence to use or occupy, that whole or portion; and

100 It is unnecessary to refer to the other provisions of s 20.

101 The term 'lot' was defined in s 2(1) of the Act to mean, amongst other things, a defined portion of land:

depicted on a plan or diagram publicly exhibited in the public office of the Department of Land Administration, or deposited in the Department within the meaning of the

Transfer of Land Act 1893

or Registry of Deeds and for which a separate Crown grant, certificate of Crown land title, qualified certificate of Crown land title, or certificate of title has been or can be issued.

102 Section 20B of the Act provided:

(1) Where an agreement to sell or to grant an option to purchase, or to lease or grant or lease and grant a licence to use or occupy any portion of a lot has been entered into without the approval of the Commission to the subdivision of the land comprising that lot having been first obtained, as required by section 20(1), the agreement shall be deemed not to have been entered into in contravention of that subsection, if -

(a) the agreement is made after coming into operation of the

Town Planning and Development Act Amendment Act 1967

;

(b) the agreement is entered into subject to the approval of the Commission to the subdivision of the land being obtained; and

(c) an application for the approval of the Commission to the subdivision is made within a period of 3 months after the date of the agreement,

and nothing in that subsection renders the agreement illegal or void by reason only that the agreement was entered into before the approval of the Commission to the subdivision was obtained.

(2) Without prejudice to the operation of section 20(1)(b), the agreement referred to in subsection (1) has no effect, unless and until the Commission gives its approval to the subdivision so referred to, within a period of 6 months after the date of the agreement or within such further period as is stipulated in that agreement, or in a subsequent agreement, in writing made by all the parties to the first-mentioned agreement, or when the subsequent agreement is made after the death of any of those parties, by the surviving party or parties and the legal personal representative of any deceased party.

103 By s 27(1) of the Act:

Any person who contravenes or fails to comply with section 20(1) is guilty of an offence.

Penalty: $50 000, and a daily penalty of $5 000.

Ground 3: the proper construction and effect of s 20(1)(a) of the Act

104 The prohibition in s 20(1)(a) of the Act is, relevantly, directed to the would-be lessor. It is the would-be lessor who shall not, without the approval of the Commission, 'lease … land for any term exceeding 10 years including any option to extend or renew the term' or 'lease … land for terms in the aggregate exceeding 10 years, including any option to renew or extend the terms' unless the land is dealt with by way of such lease 'as a lot or lots'. Subject to s 20B of the Act, the approval must be obtained before the agreement to lease is made. See Glentham Pty Ltd v City of Perth [1986] WAR 205, 207 (Burt CJ).

105 An option to renew or extend the term of a lease confers on the lessee a right to require the lessor to grant a new lease. See Gerraty v McGavin [1914] HCA 23; (1914) 18 CLR 152, 163 - 164 (Isaacs J).

106 Subject to the other provisions of s 20 and to s 20B of the Act, if a transaction within the prohibition in s 20(1)(a) of the Act is entered into without the prior approval of the Commission, the transaction is 'illegal, void and unenforceable': Stone James & Co v Investment Holdings Pty Ltd [1987] WAR 363, 366 (Burt CJ, Olney J agreeing). See also Wilson International Pty Ltd v International House Pty Ltd [1983] WAR 243, 253 (Smith J); Stone James & Co (379 - 381) (Brinsden J).

107 So, on the authority of Stones James & Co, if a would-be lessor grants a lease and an option or options to extend or renew for terms in the aggregate exceeding 10 years, in contravention of s 20(1)(a) of the Act, the lease and the option or options to renew or extend will be 'illegal, void and unenforceable' (366).

108 References to a transaction, and its associated civil rights and liabilities, being 'illegal, void and unenforceable' require some care. See Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498 [94] (Gummow & Bell JJ). As Windeyer J noted in Brooks v Burns Philp Trustee Co Ltd [1969] HCA 4; (1969) 121 CLR 432:

The words used do not matter if the actual legal result they are used to express be not in doubt or debate. But it has always seemed to me likely to lead to error, in matters such as this, to adopt first one of the familiar legal adjectives - 'illegal', 'void', 'unenforceable', 'ineffectual', 'nugatory' - and then having given an act a label, to deduce from that its results in law. That is to invert the order of inquiry, and by so doing to beg the question, and allow linguistics to determine legal rights. That need not happen if words be used, as Hobbes said that by wise men they should be, only as counters to reckon with; but reckoning becomes difficult if the values of counters are not constant (458).

Ground 3: the Lease: s 20(1)(a) of the Act

109 The Lease was for a term of 20 years commencing on 3 March 1998 and expiring on 2 March 2018.

110 Generally for the reasons given by Pullin JA in relation to grounds 1 and 2 of the appeal, the Lease, and the Lease as varied by the Deed, was a lease of part of a 'lot' as defined in s 2(1) of the Act.

111 It was not asserted, however, on the pleadings, at the trial or in the appeal that the Lease, when granted, infringed the prohibition in s 20(1)(a) of the Act.

112 The Lease was not prohibited by s 20(1)(a) because the exception in s 20(1)(d) and (da) applied.Ground 3: the Deed: s 20(1)(a) of the Act

113 The critical issue between the parties at the trial was whether the Deed evidenced or recorded a transaction which infringed s 20(1)(a) of the Act.

114 An assignment of a lease does not create a new lease. See Mason, Herring and Brooks v Harris [1921] 1 KB 653, 655 (Shearman J). An assignment has the effect of transferring the lease to the assignee who becomes the lessee of the premises. See Debonair Nominees Pty Ltd v J & K Berry Nominees Pty Ltd [2000] SASC 244; (2000) 77 SASR 261 [21] (Mullighan J).

115 When the Deed was executed the balance of the term created by the Lease was about 14 years. This balance was assigned under the Deed by Cancon to the respondent. In the Deed Mr Vellios granted the respondent two options to renew for five years each. The Deed therefore evidenced or recorded a lease for terms in the aggregate of about 24 years, including the options to renew, within s 20(1)(a).

116 The making of the Deed infringed s 20(1)(a) in that by the Deed Mr Vellios, as the lessor or would-be lessor, leased the Forrestfield Tavern premises (being part of a 'lot' as defined in s 2(1) of the Act) to the respondent for terms in the aggregate exceeding 10 years, including the options to renew, within s 20(1)(a), in circumstances where:

(a) the Commission had not given its approval to the granting of the options;

(b) the Deed was not entered into subject to the approval of the Commission being obtained in accordance with s 20B; and

(c) none of the exceptions in s 20 to the prohibition in s 20(1)(a) applied: in particular, the aggregate terms of about 24 years exceeded the 21-year limit stipulated in the exception in s 20(1)(d) and (da).

117 The making of the Deed would not have infringed s 20(1)(a) if it had merely assigned the Lease. As I have mentioned, the Lease was not prohibited by s 20(1)(a) because the exception in s 20(1)(d) and (da) applied. The Lease was not illegal, void or unenforceable. The mere assignment of the balance of the term of the Lease under the Deed would not, of itself, have altered that status.

Ground 3: contracts unenforceable for statutory illegality where the formation of the contract is expressly or impliedly prohibited: general principles

118 The ordinary principles of contract apply to leases, even though a lease also involves the grant of an estate or interest in land. See Shevill v The Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620, 625 - 627 (Gibbs CJ, Murphy J substantially agreeing & Brennan J agreeing); The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17, 29 - 31 (Mason J, Wilson & Deane JJ agreeing generally & Dawson J agreeing); Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623, 641 - 645 (Brennan J).

119 A contract may be unenforceable for statutory illegality where:

(a) the statute expressly prohibits, absolutely or conditionally, the making of the contract or the doing of an act essential to its formation;

(b) the statute impliedly prohibits the making of the contract (for example, where the contract is to perform an act the performance of which is prohibited by the statute); or

(c) the statute does not expressly or impliedly prohibit the contract, but the courts treat the contract as unenforceable because it is associated with or furthers illegal purposes.

See Miller v Miller [2011] HCA 9; (2011) 242 CLR 446 [26] (French CJ, Gummow, Hayne, Crennan, Kiefel & Bell JJ); Equuscorp [23] (French CJ, Crennan & Kiefel JJ).

120 Where a statute prohibits a transaction, expressly or impliedly, no such transaction can be validly created. A contract evidencing or recording the transaction is unenforceable because the law cannot, as a matter of policy, recognise the existence of a transaction which Parliament has forbidden. In general, none of the parties to the contract can assert any rights under it. There is, however, an exception to the general rule where the parties were not in paridelicto. See Holman v Johnson (1775) 1 Cowp 341, 343; 98 ER 1120, 1121 (Lord Mansfield); Roach v Bickle [1915] HCA 80; (1915) 20 CLR 663, 671 (Isaacs & Gavan Duffy JJ); Marks v Jolly (1938) 38 SR (NSW) 351, 357 - 358 (Jordan CJ, Stephen & Bavin JJ agreeing); Montreal Trust Co v Canadian National Railway Co [1939] AC 613, 625 - 627 (Lord Russell of Killowen, delivering the advice of the Privy Council); Dressy Frocks Pty Ltd v Bock (1951) 51 SR (NSW) 390, 393 (Street CJ), 398 - 400 (Herron J); Re Ferguson; Ex parte E N Thorne & Co Pty Ltd (in liq) (1969) 14 FLR 311, 315 - 317 (Gibbs J).

Ground 3: contracts unenforceable for statutory illegality where the formation of the contract is expressly or impliedly prohibited: the doctrine of severance

121 However, the weight of authority supports the proposition that where proceedings are brought to enforce a contract that is illegal and void because a statute expressly or impliedly prohibits a transaction embodied in the contract, the doctrine of severance may be invoked if the transaction involves distinct promises or engagements, some of which are legal and some of which are illegal. Statutory illegality renders a contract void and unenforceable only to the extent that the contract cannot be severed.

122 It is well established that issues concerning severance are often difficult and there is not a single set of rules which will decide all cases. The test of severability is flexible. Each case depends, to some extent, on its own circumstances, including in particular on the nature of the illegality. See Brooks (438) (Kitto J); Carney v Herbert [1985] AC 301, 309 (Lord Brightman, delivering the advice of the Privy Council); Humphries v The Proprietors 'Surfers Palms North' Group Titles Plan 1955 [1994] HCA 21; (1994) 179 CLR 597, 619 (McHugh J); SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516 [41] - [43] (Gleeson CJ, Gummow, Hayne, Heydon & Crennan JJ).

123 In Langley v Foster [1906] HCA 28; (1906) 4 CLR 167, the respondent held three parcels of conditionally purchased land and one parcel of conditionally leased land. He entered into an agreement to lease the four parcels of land to the appellant including his right to cut and remove timber and his right to construct a tramway across the lands for the removal of timber. The appellant brought a suit for specific performance of the agreement. The primary judge held that s 98 of the Crown Lands Act 1884 (NSW) prohibited a sublease of the conditionally leased land for purposes other than grazing purposes. His Honour decided that the agreement to lease was not severable because the agreement was for the sublease of four parcels at a certain rent and if the agreement was illegal as to one parcel then it was invalid as to the whole of the lands. The High Court allowed the appeal and ordered specific performance of the agreement.

124 Griffith CJ was of the view that s 98 of the Crown Lands Act did not render the grant of the sublease unlawful in the sense that it was prohibited (177 - 178). His Honour then said:

But assuming that the agreement is unlawful in the sense that it is prohibited, it does not follow that the [appellant] is not entitled to some relief, as was pointed out by the Privy Council in

Bank of Australasia v Breillat

(6 Moo PCC, 152, at p 201), on appeal from the Supreme Court of New South Wales. 'From

Pigot's Case

(6 Rep, 26) to the latest authorities, it has always been held that, when there are contained in the same instrument distinct engagements by which a party binds himself to do certain acts, some of which are legal, and some illegal, at common law, the performance of those which are legal may be enforced, though the performance of those which are illegal cannot.' It makes no difference, in my opinion, whether the illegality is by common law or by Statute. Assuming, therefore, that this stipulation, in so far as it relates to the conditional lease, was illegal, that is no reason why its performance as to the conditional purchases should not be enforced (178).

125 In Langley, Barton J (184) and O'Connor J (195) agreed in substance with Griffith CJ's views on this issue.

126 In McFarlane v Daniell (1938) 38 SR (NSW) 337, the appellant sued the respondent to recover a sum of money owing for salary and otherwise under a contract of employment of the appellant as an actor in the production of cinematograph films. The respondent raised a number of defences to the action including that the appellant could recover nothing because part of the consideration for the respondent's promise to pay a salary was a promise by the appellant to observe certain stipulations alleged to be a grossly unreasonable restraint of trade.

127 Jordan CJ (Davidson & Owen JJ agreeing) considered whether severance is available where some of the promises made by a party to a contract are illegal or void and other promises made by that party are valid. His Honour said:

When valid promises supported by legal consideration are associated with, but separate in form from, invalid promises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature:

Horwood v Millar's Timber & Trading Co Ltd

([1917] 1 KB 305 at 315). If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable:

Putsman v Taylor

([1927] 1 KB 637 at 640 - 1). If the substantial promises were all illegal or void, merely ancillary promises would be inseverable (345).

128 A little later, Jordan CJ said:

129 His Honour then elaborated:

The exact scope and limits of the doctrine that a legal promise associated with, but severable from, an illegal promise is capable of enforcement, are not clear. It can hardly be imagined that a Court would enforce a promise, however inherently valid and however severable, if contained in a contract one of the terms of which provided for assassination. In some of the authorities relied on for the proposition the invalid promises were not illegal but merely void. However this may be, it is at least well established that, as a general rule, a promise (not itself capable of further subdivision) is unenforceable if it is to do an act or acts all or any of which is illegal, and that a promise to do a lawful act is unenforceable if all or any part of the consideration for the promise is illegal. Thus, as a general rule, if a group of promises is supported by an inseverable consideration all or part of which is illegal, none of the promises is enforceable:

Lake View and Star Ltd v Cominelli

([1937] AC 653 at 664). If, according to the terms of a contract, a party cannot be called upon to pay money except upon the performance by the other party of the whole consideration, then if any part of the consideration is illegal the money cannot be recovered:

Hopkins v Prescott

(4 CB 578 at 595-6) (346).

130 In Thomas Brown & Sons Ltd v Fazal Deen [1962] HCA 59; (1962) 108 CLR 391, in 1943 the plaintiff deposited gold and gems in a safe with the defendant for safe custody. At the time, reg 14 of the National Security (Exchange Control) Regulations (Cth) required every person having gold in his possession or control to deliver it to the Commonwealth Bank within one month after it had come into his possession or control. In 1959 the plaintiff demanded the return of the gold and gems and the safe. They were not returned. In 1960 the plaintiff issued proceedings against the defendant claiming the return of the goods or their value and damages for their detention, or alternatively damages for breach of the contract of bailment and conversion. The primary judge found for the plaintiff on the claim in detinue. On appeal by the defendant, the High Court held that the terms of the bailment relating to the gold were severable from those relating to the gems and the safe. Kitto, Windeyer and Owen JJ approved and applied the test of severability stated by Jordan CJ in McFarlane (411). Their Honours held, applying Jordan CJ's test, that it was clear the plaintiff's rights of action in respect of the gems and the safe 'would not be answered by a defence of illegality based upon a breach of the National Security (Exchange Control) Regulations since the contractual obligation upon [the defendant] as to the return of the plaintiff's property on demand applied to every part of the property deposited whether demanded together with the rest of it or separately' (411).

131 In DJE Constructions Pty Ltd v Maddocks [1982] 1 NSWLR 5, the respondent commenced proceedings against the appellant for rectification of the appellant's share register by the entry of his name as the holder of 5,998 shares. There was an agreement between the respondent and the appellant for the respondent to acquire the shares for another person, Alan Logan. The appellant gave financial assistance for a subscription of these shares, in breach of s 67 of the Companies Act 1961 (NSW). The financial assistance was a term of the contract to acquire the shares. It represented the means by which Mr Logan was to pay for them. The Court of Appeal of New South Wales held that the term of the agreement for payment by this means was not severable.

132 Samuels JA said:

It is arguable that a contractual term cannot be severed if it involves the doing of an act which is contra bonos mores or illegal at common law (

Bennett v Bennett

[1952] 1 KB 249, at pp 252, 253) or by statute (

Hopkins v Prescott

(1847) 4 CB 578, at p 596; 136 ER 634, at p 641) and the company's loan to Mr Logan amounted to a criminal offence under s 67(3) punishable by imprisonment. It appears, however, that this limitation cannot stand with the decision of the High Court in

Thomas Brown & Sons Ltd v Fazal Deen

(1962) 108 CLR 391 (21).

133 His Honour then formulated the critical question in the appeal, namely 'whether the allotment depends wholly or substantially upon an illegal consideration, that is, upon the company's loan to Mr Logan. If it does then it is void … ' (21). His Honour concluded that the allotment was dependent upon the loan, and the illegality of the loan 'infected the whole of the contract' (21). He elaborated that 'the loan by the company was indeed the consideration for the allotment; it was the prop which sustained the transaction and cannot be removed without destroying the whole contract' (21). In the result, the loan could not be severed from the other provisions of the agreement and the whole contract was illegal and void.

134 In DJE Constructions, Street CJ agreed with the orders proposed by Samuels JA (13). However, the reasoning of the Chief Justice was at least in one respect materially different. His Honour said:

Whilst the doctrine of severance can be applied in proceedings brought in the context of a contract illegal and void by reason of an infringement of a statutory provision (

Thomas Brown and Sons Ltd v Fazal Deen

), I know of no case in which it has been applied in a claim for the actual enforcement of such a contract. The principles relating to severability were developed in connection with contractual clauses void for uncertainty and for restraint of trade, and not in cases involving contracts

illegal

and void (10). (original emphasis).

135 A detailed review of the authorities on the doctrine of severance in the context of illegal contracts was undertaken in Electric Acceptance Pty Ltd v Doug Thorley Caravans (Aust) Pty Ltd [1981] VR 799, 812 - 819 (Brooking J) and in Firmin v Gray & Co Pty Ltd [1985] 1 Qd R 160, 166 - 172 (Andrews SPJ), 174 - 181 (McPherson J). Electric Acceptance involved a hire purchase agreement which could not be performed without the commission of a criminal offence. Firmin involved an agreement for the sale and purchase of shares which included a provision in breach of s 67 of the Companies Act 1961 (Qld).

136 In Firmin, Andrews SPJ said 'the fairest and most practical approach, making all deference to public interest is [sic] as expressed by Jordan CJ in McFarlane … which places significance upon the part played in a contract of the provision under consideration; whether it is ancillary or whether it goes to the heart of the contract' (170). McPherson J applied the test of severability enunciated by Jordan CJ in McFarlane, and concluded in relation to the provision which breached s 67 of the Companies Act:

The result, in my opinion, is that the contract may be enforced by the vendors without reference to the relevant provisions of cl 22, which represent a distinct and independent promise or engagement the elimination of which will not alter the contract for sale of shares in kind or, from the purchaser's point of view, alter it even in extent (180).

137 Carney was concerned with the right of a transferee of shares, under a contract for the purchase of the shares, to avoid paying for them on the ground that the contract involved illegal acts, namely, the giving by a holding company and its subsidiary of financial assistance in connection with a purchase of shares in the holding company, contrary to s 67 of the Companies Act 1961 (NSW).

138 The Privy Council cited and agreed with the observations of Jordan CJ in McFarlane in relation to severance (310 - 311). Their Lordships then said:

There are therefore two matters to be considered where a contract contains an illegal term, first, whether as a matter of construction the lawful part of the contract can be severed from the unlawful part, thus enabling the plaintiff to sue on a promise unaffected by any illegality; secondly, whether, despite severability, there is a bar to enforceability arising out of the nature of the illegality (311).

139 The Privy Council referred to the reasoning of Street CJ and Samuels JA in DJE Constructions. Their Lordships considered the approach of Samuels JA was correct (314).

140 It has been held that, in deciding whether a contract or part of a contract is severable from some provision void for uncertainty, the question depends upon the intention of the parties to be ascertained from the instrument as a whole. See Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60, 72 (Knox CJ); Whitlock v Brew [1968] HCA 71; (1968) 118 CLR 445, 457 (Kitto J), 461 - 462 (Taylor, Menzies & Owen JJ); United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; (2009) 74 NSWLR 618 [90] - [95] (Allsop P, Ipp & Macfarlan JJA agreeing).

141 In Brew v Whitlock (No 2) [1967] VR 803, the Full Court of the Supreme Court of Victoria considered whether a contractual provision that was void for uncertainty could be severed. The court noted that, in the main, the principles governing severability had been discussed in relation to 'the illegality of contractual provisions or their avoidance on the ground of conflict with public policy' (806). Winneke CJ, Little and Gowans JJ then said:

But in spite of the submission that the tests of severability are different in such cases from those applicable in cases of uncertain provisions, we have been unable to be satisfied as to why that should be so (806).

Goodwill	$170,000.00
Loan establishment fee	$2,000.70
Plant and equipment	$15,000.00
Stamp duty	$2,346.50
Wasted expenses	$25,000.00
Interest charges	$50,000.00
Total	$264,347.20

Mackinlay v Derry Dew Pty Ltd

[2014] WASCA 24

3 FEBRUARY 2014

MACKINLAY -v- DERRY DEW PTY LTD [2014] WASCA 24