Picton Power Lines v Wollondilly Shire Council

[1994] HCATrans 107

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
              Sydney           No S93 of 1994

B e t w e e n -

PICTON POWER LINES PTY LIMITED

Applicant

and

WOLLONDILLY SHIRE COUNCIL

Respondent

Application for special leave
  to appeal

MASON CJ
GAUDRON J
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 18 NOVEMBER 1994, AT 11.17 AM

Copyright in the High Court of Australia

MR P.E. KING:   If the Court pleases, I appear in this matter with MR J.E. ARMFIELD, for the applicant.  (instructed by Mulally Mylott)

MR A.T. McINNES, QC:   If the Court pleases, I appear with my learned friend, MR F.P. DONOHOE, for the respondent.  (instructed by Caldwell Martin & Cox)

MASON CJ:   Mr King.

MR KING:   Your Honours, in Blackstone’s Commentaries it is stated that one of the three basal rights of citizens under a system of municipal law is the right to own private property.  Justice Isaacs in a case of The Commonwealth v New South Wales identified the absolute right of alienation by divisor inter vivos as one of the two core concepts inherent in an estate in fee simple.  It is for these reasons, Your Honours, that the courts have not allowed issues of form to stultify what is the doctrine invalidating restraints upon alienation, nor has it sanctioned any device to achieve an effective restraint indirectly such as a fixed low price or a fine upon transfer.

In Hall v Busst this Court struck down contractual constraints and in Re Leahy the Court held void as a constraint upon alienation and the court orders, made some 15 years before, by the Chief Judge in Equity in a family provision Act matter.

Since fewer restraints on alienation were swept away by Quia Emptores in 1290, re-enacted in New South Wales in section 36 of the Imperial Acts Application Act 1969, the courts have consistently applied a doctrine in favour of the free alienability of land, a doctrine inherent in the rule against perpetuities, in the rules barring estates tail, in the rules invalidating restraints upon anticipation and protective trusts.

It is fair to say, Your Honours, in the 700 years of the administration of the law, it has never been held until the Court of Appeal decision in this case that incidents of a personal contract for sale of land fall right outside the doctrne.

GAUDRON J:   That is not exactly what they held, is it, Mr King?  What they held was that there was an option, a contractual option which - - -

MR KING:   At page 30, Your Honour, line 15.  That is precisely what His Honour did hold.  His Honour said:

Restraints of this kind, arising as incidents of a personal contract for the sale or other disposition of land stand right outside any legal doctrine which invalidates contractual restraints on alienation.

GAUDRON J:   Yes, but it is of a particular kind where they are necessarily comprehended in, in this case, an option to sell, a contract to resell in certain events.

MR KING:   The restraints of this kind that His Honour was referring to there, the express restraints in paragraph (a) which Your Honour will find back at pages 26 and 27 in the covenant - - -

GAUDRON J:   You could in any event, could you not, simply put paragraph (a) aside in this case and the position would be no different from that in which your client now finds itself.

MR KING:   With respect, no, Your Honour, because what His Honour also held was that the doctrine did not apply to the provision for the compulsory repurchase of the land upon breach which is in (b), and that was as much a restraint as (a), as His Honour Justice Young held at first instance.

Perhaps if I can put it this way, Your Honours, there is a defective reasoning in relation to logic and also an error of law.  As to logic, the express restraints in (a) are not ancillary to or protective as His Honour held at (b) because they arose immediately upon sale to Picton in 1985.  Yet the covenant to resell, the compulsory repurchase covenant did not arise until five years later.  That illustrates that the express restraints in (a) could never have been ancillary to the covenant to resell in (b) as His Honour said at page 30.

The point can be made another way.  Assume, for example, that the compulsory repurchase contract did not exist at all.  It was void for a penalty, yet the restraints in (a) would have work to do.  They would be just like the restraining clause (3) in Hall v Busst independent of the repurchase contract in (b). 

But the error of law which His Honour made, with respect, was to conclude that the express and implied restraints in the covenant - and this comes to Your Honour’s point - merely correspond to what the law would otherwise have implied into the personal contract.  But that, with respect, is a conclusion contrary to the wider principle that the law will not imply into any contract a term, the performance of which would be inequitable or unreasonable and, in particular, to a requirement to commit an unlawful act or to comply with an otherwise unlawful undertaking.  I merely refer, in that regard, to what the Chief Justice said in Codelfa’s case.

The point can be made another way.  In Bahr v Nicolay there was a contract for sale from Mr and Mrs Bahr to Nicolay in 1980 with a repurchase arrangement in 1983 at an increased price.  It was not suggested by any of the judges in that case, in particular, at pages 629 and 647, that there was any express or implied restraints - in particular, implied restrains - of the kind contended for and held by His Honour in this case.  That was because Mr Nicolay had the freedom to sell the land independently of the consent of Mr and Mrs Bahr even though he had agreed to sell it to them in three years time, or resell it to them.  That was because, Their Honours held, at pages 629 and 647 in that case, that the rule in Hall v Busst prevented any such implication.

So, it can be concluded from Bahr v Nicolay itself that had there been express restraints of the type that we find in covenant (a) here or implied restraints of the type - - -

GAUDRON J:   Can I just take you back to page 629 in Bahr v Nicolay and the quotation there from Hall v Busst and that is:

to impose a total contractual restraint upon alienation -

that is the difference you have got to deal with in this case.  It was not a total restraint.

MR KING:   With respect, it was, Your Honour.  Here, Picton could not sell.  It could not lease.  This is His Honour’s interpretation of the clause.  It could not assign, it could not create a trust.

GAUDRON J:   Until it did certain things.

MR KING:   Until it built the land and used them as industrial premises.

GAUDRON J:   Which it was to do within a fixed time period.

MR KING:   That is right.  But, Your Honour, the question as to whether this was a covenant limited in time or not does not relate to the issue as to whether it is total.  As Justice Pearson in Re Rosher held, a covenant that is restrained upon alienation is still void even though it is for a limited period.  In the American cases it has been held that a covenant for one day, so long as it is a total restraint as it is here, is void.  Your Honours, the point would have been good in Bahr v Nicolay had any such provision of that type been in existence.

Your Honours, the question that His Honour found unnecessary to decide, which I must briefly address, is whether the covenant in this case discloses restraints upon alienation.  I will need to refer, if Your Honours please, to Justice Young’s judgment at page 2 because in that judgment His Honour sets out the full terms of the covenant.  Unfortunately, Justice Handley did not do so.  In particular, His Honour did not set out the last clause in the covenant at page 2, lines 34 to 38.

Your Honours, adopting the American terminology in the second reading statement, paragraph (a) disclosed a disabling restraint and paragraph (b) an unreasonable pre‑emptive provision having the effect of a disabling restraint or, in the words of Sheppard’s Touchstone, a circumvention of the law effectually prohibiting the alienation.

If I can just deal briefly with paragraph (a).  It is, in the words of Chief Justice Dixon in Hall v Busst, total, a matter with which Justice Handley was inclined to agree at page 28 of the application book, it is indefinite and it is independent, although the latter two requirements are not necessary for invalidity to which I will shortly refer.

It is total, Your Honour, the restraints in (a), because it prevents Picton, immediately after registration as proprietor, from transferring by lease, trust, assignment, mortgage or otherwise, any estate prior to compliance with erection of approved premises and unless used as such.  It is more Draconian than the clause, clause (3) in Hall v Busst, because there, at least, Mrs Hall could have sold with the consent of Mr Busst.  Here, Picton cannot even raise money on the land to achieve the business object of erecting approved premises.  That conclusion, alone, in my respectful submission, is sufficient to render (a) void.

But it is also indefinite in the sense used by His Honour Chief Justice Dixon at 214 point 8 in Hall v Busst and that the last sentence in the clause which I have just taken Your Honours to confers upon Wollondilly and its successor in title - it is not personal, it is to be successor in title - the power to extend the time for compliance, a power which it exercised in this case.  Here there was a covenant to do something within two years.  By agreement, the parties extended it to four and then by unilateral decision, the Council extended it to five and closed the gate upon any further request for extension, notwithstanding the exigencies of the company.

Your Honours, even if the clause be not indefinite, yet, as I have mentioned earlier Justice Pearson, in a very learned judgment in Re Rosher’s case, showed that the extent of the period of the restraint is irrelevant.  What is relevant is the fact that it is a total restraint as this, I submit, clearly is.  But as to the requirement of it being independent, that is not, with respect, an additional requirement of invalidity. 

As Justice Fullagar pointed out in Hall v Busst that was not a matter that concerned him.  It was only referred to by Chief Justice Dixon because, as His Honour held, clause 4 in that case was void for uncertainty and a question arose in his mind whether clause 3 was also void and whether it was independent of 4 and fell with it or not.  His Honour held that it did not fall with 4 so he had to look at the question because it was independent of 3.  It was not a separate requirement of invalidity.

Your Honours, as to paragraph (b) in the covenant, it discloses an invariable and indefinite requirement to resell at a fixed price in circumstances creating an unlawful restraint.  It was a provision calculated to force Picton to erect the premises in the permitted time and having the effect of rendering the land inalienable during the ownership of Picton until that purpose had been achieved.  It was in the nature of a condition subsequent to the estate granted, a club or restraint upon its alienation either from 1 December 1990, as Justice Handley held, or from February 1985 as my friend put in his submissions, which is an even more Draconian result.

The practical reason that the land was inalienable whilst subject to the compulsory repurchase agreement in (b) is that no purchaser would agree to buy the land on terms worse than or even the same as those to which Picton was subject for to do so - and, indeed, from Picton’s point of view, it could not sell and would not sell to Wollondilly, the Council, because to do so, the land having trebled in value in the meantime, would have meant that it forfeited something like $75,000.

Your Honours, that point is made good by what Justice Fullagar said in Hall v Busst.  That was the very ground upon which His Honour proceeded in that case, as did Justice Pearson in Re Rosher’s case, and the point could be made even by reference to Bahr v Nicolay, assuming, for example, that there was a resale price put on the land by Mr and Mrs Bahr at $32,000, which is the original price, less the conveyancing expenses.  Nicolay would not be able to resell whether or not there were any express restraints which indicates how the fixed price in those circumstances acts as a restraint or constraint upon.....or planning ability.

Your Honours, the special features of this case are several.  Firstly, it is one of general application.  The facts are not in dispute and the questions of law of importance are tight.  As legal history shows, there is always, and perhaps more so with the great powers exercised by some large property developers and public authorities, a temptation for conveyancers to create what is, in effect, new estates in land, conferring rights of covenants after sale over the land of others.  But that way, as one judge has said, a new form of vassalage lies.  In my respectful submission, the Court would be - - -

MASON CJ:   Who said that?

MR KING:   Justice Chitty in one case last century, Your Honour, and also in the Restraint of Trade case to which I will take Your Honour in a moment.

MASON CJ:   I would not worry.  I was just curious to ascertain who was the author of the modern concept of vassalage.

MR KING:   What His Honour was referring to in the restraint of trade situation was an apprentice who had been put under restraint in relation to his activities and the judge in that case said - - -

MASON CJ:   It hardly seems an analogous situation.

McHUGH J:   It is a bit different from this particular case.

MR KING:   Perhaps so, Your Honour, but that is the whole purpose of estates - the doctrine of estates, at least it was until they were freed of the sorts of restraints that were exhibited in this case of - - -

McHUGH J:   If you want to go back to the 19th century, perhaps what Sir George Jessell said in Printing and Numerical Company v Sampson about the public interest in people adhering to their contracts would be more appropriate.

MR KING:   Your Honour, the point is that if the conflict in this case is between property and contract, the direction that the courts are taking is to ensure that the whole doctrine of freedom of contract is not limited.

McHUGH J:   But land is more and more being dealt with just as a chattel.

MR KING:   It is a marketable commodity, Your Honour, and the problem here is it was made unmarketable.  My client could not do anything with it as from the date it was sold.  It was the best example of Indian giving one could think of, particularly on the construction that my friend gives it at page 5 of his submission.  But, Your Honours, there is one other point, if I can just make it on this:  as Mr Macquarie’s affidavit shows on the question of public importance, these covenants are used widely.  There are problems with them.  The question is clearly one of public importance.

As for Hall v Busst, it is now 35 years since that decision was decided.  There has been dissatisfaction, as it were, expressed by some of the academics and others, including Justice Handley in some comments made, regarding the effect of that decision.  It was a bare majority.  The judges were split.  Justice Menzies had agreed with Justice Fullagar and Chief Justice Dixon, without giving any reasons, one or the other.

So,Your Honours, it is for that - - -

MASON CJ:   You want to attack Hall v Busst, do you?

MR KING:   No, Your Honour, not at all.  But this is a convenient opportunity to put the decision on a more modern footing, on a contemporary and reasoned basis.

MASON CJ:   How are we going to do that?

MR KING:   Your Honours, if I can just conclude by handing to Your Honours a decision of the Irish courts, a recent decision which adopts some of the reasoning in the American authorities which illustrates a much more reasoned and rational approach in dealing with the doctrine.  The passage that I wish to refer to is that marked in the judgment of Justice O’Hanlon relating to what Professor Wylie said.  There is a similarity, although - a basis for reference to the restraint of trade doctrine in the sense that one could take into account the interests of the parties and the interest of the public. 

In this case what His Honour did, with respect, in overturning the decision of Justice Young, was to simply say the doctrine had no application.  If there was a more reasoned basis for examining the public interest of the counsel and the public interest behind the doctrine as suggested in those passages to which I have referred, the doctrine could be placed on a more contemporary and reasoned footing.

MASON CJ:   With all due respect to the Irish judge, he does not seem to come up with any clear statement of principle that enunciates the precise criterion.

MR KING:   It is the citation from the passage in Professor Wylie’s book, Your Honour.  That reflects the reasoning in the secondary reading statement in the United States where a similar approach has been taken.

MASON CJ:   But if you were going to make the balance that Professor Wylie makes, I would have thought the result would be against you, in other words, one would be taking into account and giving very considerable weight to the public interest that supports a council’s decision to make land available provided the grantee carries out an obligation to use the land in a particular way and put a building on it that will promote its use for a public purpose.

MR KING:   Just so, Your Honour, but His Honour did not consider it in that context.  His Honour simply said the doctrine does not apply, end of story.  It is only a case of freedom of contract.

MASON CJ:   I follow that, that it was not considered in relation to that aspect of balancing public interests and public policy, but what I am saying to you is if you look at it in that perspective, it seems to me that the decision is inevitably one that would be taken against you.

MR KING:   With respect, no, Your Honour, because of the balancing process that has to be taken into account.  But even if Your Honour be correct, then the difficulty for the law in its expression in the future is that that process of reasoning cannot take place.  The rights of private citizens to not have their land tied up by public authorities or large private

developers with covenants of this type and restraints upon their alienation and rights as user of the land just is not dealt with.  Conveyancers merely have to frame their restraints in the form of a covenant protecting some other right, and that is the end of the story.

So, even if Your Honour be correct, with respect, it is still an important question, a question of real public importance to determine the way in which the doctrine applies in the future because there is little doubt that His Honour took the view that it was simply a problem of freedom of contract, end of story.

MASON CJ:   Well, I think that is the end of your story, Mr King.

MR KING:   It is, Your Honour.  I hope I have not laboured the Court for too long.

MASON CJ:   No, only for a minute.  The Court need not trouble you, Mr McInnes.

The Court is not persuaded that the proposed appeal enjoys sufficient prospects of success to warrant the grant of special leave.  The application is therefore refused.

MR MCINNES:   I would ask for an order for costs, Your Honour.

MASON CJ:   You do not oppose that, Mr King?

MR KING:   No, Your Honour.

MASON CJ:   The application is refused with costs.

AT 11.40 AM THE MATTER WAS ADJOURNED SINE DIE