Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia
[2008] WASCA 107
•8 MAY 2008
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: ROSEBRIDGE NOMINEES PTY LTD -v- COMMONWEALTH BANK OF AUSTRALIA [2008] WASCA 107
CORAM: STEYTLER P
BUSS JA
HEARD: 7 MARCH 2008
DELIVERED : 8 MAY 2008
FILE NO/S: CACV 117 of 2007
BETWEEN: ROSEBRIDGE NOMINEES PTY LTD
Appellant
AND
COMMONWEALTH BANK OF AUSTRALIA
First RespondentCORRS CHAMBERS WESTGARTH
Second RespondentWFB PTY LTD
Third Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :MASTER SANDERSON
Citation :ROSEBRIDGE NOMINEES PTY LTD -v- COMMONWEALTH BANK OF AUSTRALIA - EX TEMPORE JUDGMENT DELIVERED 4 DECEMBER 2006
File No :CIV 1235 of 1999
Catchwords:
Property law - Lease - Meaning of 'option to renew' within s 20 Town Planning and Development Act 1928 (WA) - Whether includes case where 'option' dependent on grantor's unfettered discretion
Legislation:
Town Planning and Development Act 1928 (WA), s 20
Result:
Leave to appeal granted
Appeal allowed
Category: A
Representation:
Counsel:
Appellant: Mr D H Solomon
First Respondent : Mr C G Colvin SC
Second Respondent : Mr C G Colvin SC
Third Respondent : Mr C G Colvin SC
Solicitors:
Appellant: Solomon Brothers
First Respondent : Christensen Vaughan
Second Respondent : McCallum Donovan Sweeney
Third Respondent : Jackson McDonald
Case(s) referred to in judgment(s):
Caltex Properties Ltd (in liq) v Love (Unreported, WASC, Library No 970237, 14 May 1997)
Cobanov v Cobanov [2002] WASC 257
Commissioner of Taxation v Guy (1996) 67 FCR 68
Gamer's Motor Centre Pty Ltd v Natwest Australia Pty Ltd (1985) 3 NSWLR 475
Griffith v Pelton [1958] Ch 205
Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57
Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326
Palamore Pty Ltd v Clode (Unreported, WASC, Library No 980599, 16 October 1998)
Pritchard v Briggs [1980] Ch 338
Spiro v Glencrown Properties Ltd [1991] Ch 537
Whitemore Pty Ltd v O F Gamble Pty Ltd (1991) 6 WAR 110
STEYTLER P: This appeal concerns the meaning of the words 'option to renew' in s 20(1)(d)(ii) of the Town Planning and Development Act 1928 (WA) (Act).
On 4 May 1988 the owner of a building in Fremantle (lessor) leased to the appellant part of that building (first lease) for use as a night club. The part of the building so leased comprised the first and second floors of the building and part of the ground floor. The lease was for a term of 12 years from 1 June 1988.
By an undated deed stamped 5 December 1990 (deed), the lessor granted to the appellant a new lease (second lease). By the second lease the appellant leased the same property as it had leased under the first lease plus an additional part of the ground floor. The second lease was on the terms of the first lease as varied by the deed. One of the variations effected by the deed was that the date of termination of the lease was extended from 31 May 2000 (12 years from 1 June 1988) to 31 May 2011 (cl 2(a) of the schedule to the deed).
In April 1995 the appellant and its business partners sought finance to build a new night club in Northbridge. The third respondent, WFB Pty Ltd (WFB), is a finance broker. It was engaged to secure the necessary funding. In December 1995 or January 1996 the first respondent (bank) agreed to advance over $5.5 million to the appellant and its partners. This was to be secured by an equitable mortgage over the second lease.
After the appellant had expended money and signed construction contracts in respect of the new night club, WFB told it that, if the approval of the Western Australian Planning Commission (the Commission) had not been obtained before the deed was executed, the second lease was in breach of s 20 of the Act and was consequently illegal and void. The Commission's approval to the terms of the second lease had not been obtained.
The appellant alleges, amongst other things, that it was told that the bank would not provide the agreed finance unless it entered into a lease that was approved by the Commission. It also alleges that all three respondents told it that the second lease was illegal and void under s 20 of the Act. It contends that, relying upon this advice, it entered into a new lease of the leased property on terms similar to the second lease, save that a 15% cap on rent increases (cl 11 of the second lease) was removed. This resulted in increased rent payments.
The appellant claims, amongst other things, that it has subsequently discovered that it was wrongly advised by the respondents and that the Commission's approval to the second lease was not required. It brought an action for damages against the three respondents asserting, amongst other things, that representations made by them concerning the illegality of the second lease were negligently made.
On 23 October 2006, Master Sanderson ordered that the question whether the second lease was illegal and void under s 20 of the Act should be tried as a preliminary issue. The preliminary issue was heard on 4 December 2006. On that day the Master delivered ex tempore reasons. He found that the Commission's approval of the second lease had been required under s 20 of the Act and, because it had not been obtained, the lease was illegal and void. The appellant appeals against that decision.
At the material time, s 20 of the Act relevantly provided that:
(1)(a) Subject to section 68 of the Environmental Protection Act 1986, to this section and to section 20B, a person shall not, without the approval of the Commission … 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 …
…
(d)In subsection (1)(a) 'land', in relation to the leasing or the granting of a licence to use or occupy … does not include the whole or a portion of a building where ‑
…
(ii) … 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.
Section 68 of the Environmental Protection Act 1986 (WA) is not presently relevant. Section 20B of the Act provides, amongst other things, that, where an agreement to lease any portion of a lot has been entered into without the approval of the Commission as required by s 20(1), the agreement will be deemed not to have been entered into in contravention of that subsection if stipulated criteria are met. The preliminary issue assumes (without deciding) that these criteria had not been met. It also assumes (without deciding) that s 20(1)(d) is applicable and that that section exempts the appellant from the operation of s 20(1)(a) unless the second lease is for a term, including any option to renew or extend, exceeding 21 years.
The question whether s 20(1)(a) applies to the second lease arises because of the terms of cl 14 of the second lease. So far as it is relevant, that clause reads as follows:
14.It is hereby acknowledged by the Lessor and the Lessee that the Lessor may, during the term, desire to redevelop part of the building including that part of the demised premises outlined in green on the said sketch plan ('the green area'). When the Lessor desires to proceed with the redevelopment then the following conditions shall apply:
(1)The Lessor shall give notice in writing to the Lessee of his desire to redevelop part of the building including the green area ('the Lessor's notice') and the Lessor shall nominate in this notice the architect appointed by the Lessor to design, document and inspect and provide full architectural service for the redevelopment ('the Architect').
(2)Subject to sub‑clause 3 of this clause and subject to the Lessee complying with the design for the development of the building by the Architect (or such design amended and as approved by the Lessor) and the Lessee complying with the standards and quality of workmanship and materials for the redevelopment as required by the Architect, then the Lessor shall consent to the redevelopment of the green area by the Lessee and at the cost of the Lessee …
…
(8)If the Lessee carries out such redevelopment, the Lessor shall grant to the Lessee an option of renewal of the term hereof for a further term of 3 years at such rental for the first twelve months as shall be agreed and in default of agreement at such rental as shall be determined in accordance with Clause 11 hereof …
(9)The Lessee may elect by notice in writing to the Lessor within a period of 30 days after service of the Lessor's notice upon the Lessee, not to carry out such redevelopment in which case the Lease of the green area shall cease and determine at the expiration of 14 days after giving notice thereof to the Lessor, and the Lessee shall thereupon deliver up possession of the green area to the Lessor …
(10)If the Lessee fails to give any notice of election to the Lessor within the said 30 day period, then the Lessee shall be deemed to have elected not to carry out such redevelopment and the Lease of the green area shall cease and determine at the expiration of a further 14 days and the Lessee shall thereupon deliver up possession of the green area to the Lessor.
…
It is common cause between the parties that, absent any extension of the term of the second lease for a further period of 3 years pursuant to cl 14, the term of the lease would not exceed 21 years, but that, if the term was extended by the period of 3 years, it would do so. The Master held that cl 14(8) of the second lease granted an 'option to renew' within the meaning of that phrase in s 20(1)(d)(ii) of the Act, with the result that, because the approval of the Commission was not obtained, the second lease was illegal and void. The appellant contends that the Master erred in this conclusion and that he should have found that cl 14(8) did not amount to an 'option to renew' for the purposes of s 20(1)(d)(ii) and consequently that the term of the lease did not exceed 21 years. A second contention raised by the grounds of appeal was not pursued.
The parties agree that the lessor is not obliged to redevelop any part of the leased property. That is apparent from use of the word 'may' in the second line of cl 14. Clause 14(8) only requires it to grant the option of renewal if the redevelopment is carried out. Consequently, the grant or otherwise of the 'option of renewal' referred to in cl 14(8) is subject to the discretion of the lessor. That discretion is unfettered, save that, if the redevelopment is carried out, the lessor must grant the option to the appellant. The question upon which this appeal turns is whether cl 14(8) creates an 'option to renew' within the meaning of that phrase in s 20(1)(d)(ii).
The phrase 'option to renew' and the word 'option' are not defined in the Act or in other applicable legislation. Those words must consequently be given their ordinary and natural meaning, having regard for the context in which they appear. If the ordinary and natural meaning of the words used covers a range of meanings, a construction that would promote the purpose or object underlying the Act, (whether or not expressly stated) must be preferred to one that would not promote that purpose or object: s 18 of the Interpretation Act 1984 (WA). The construction to be given to the words used must also take into account (so far as this may be done consistently with s 18 of the Interpretation Act) the legal as well as the 'ordinary' use as to which they have been put: Gamer's Motor Centre Pty Ltd v Natwest Australia Pty Ltd (1985) 3 NSWLR 475, 483 (Priestley JA).
The Shorter Oxford English Dictionary (3rd ed) defines 'option' as meaning, amongst other things, 'A thing that is or may be chosen'; and 'the privilege (acquired on some consideration) of executing or relinquishing, as one may choose, within a specified period a commercial transaction on terms now fixed'. Those definitions correspond with the legal use to which the word 'option' has been put.
For example, in Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57, 76, Gibbs J said, of an option to purchase, that it 'is not an agreement which gives one of the parties [the grantor] the right to perform it or not as he chooses; it gives the grantee the right, if he performs the stipulated conditions, to become the purchaser'. In Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326, 338, Barwick CJ referred to Laybutt, with approval, in the context of an option to renew which, he said, was 'comparable in relevant respects' to an option to purchase. Both cases were applied by Malcolm CJ in Whitemore Pty Ltd v O F Gamble Pty Ltd (1991) 6 WAR 110, 116 ‑ 117.
Whitemore concerned a covenant by the lessor to grant the lessee a new lease for a further term of 8 years, conditional upon the giving of prior notice and there being no outstanding breach or non‑observance of the lessee's covenants. Malcolm CJ said (116):
The option gives the lessee the right, if he performs the stipulated conditions, to become the lessee under a new lease for the further term. This applies to the option or right of renewal the same reasoning that led Gibbs J to conclude that the option to purchase in Laybutt … constituted a conditional contract to sell the land …
He went on to say (117):
In my opinion, the right or option of renewal in the present case constituted a conditional agreement to grant a new lease at the expiration of the current term. Upon compliance with the conditions, the lessee would be entitled to occupy the premises for the further term under the new lease which the lessor was bound to grant. The lessor was irrevocably bound subject only to the contingency that the conditions were complied with.
Similarly, in Spiro v Glencrown Properties Ltd [1991] Ch 537, 543, Hoffmann J said that '[t]he fact that the option binds the vendor contingently to convey was the reason why an option agreement was held to fall within section 40 of the Law of Property Act 1925 [(UK)]'. (See also Commissioner of Taxation v Guy (1996) 67 FCR 68, 76 (Full Federal Court); Griffith v Pelton [1958] Ch 205, 225 (English Court of Appeal).)
It consequently seems to me that the ordinary and natural meaning of the word 'option', consistently with the legal use to which that word has traditionally been put, does not comprehend a case in which the grantee's right to choose to do something depends upon the grantor's unfettered discretion to choose to do something else. In such a case, the grantor would not be bound to do anything unless and until he or she chose to do whatever is required to trigger the grant of the option.
That construction seems to me to be consistent with the purpose of the Act. Its purpose, so far as it is relevant to s 20, is to regulate planning, especially planning over a long period. Section 20 is particularly aimed at preventing what amounts, in effect, to unauthorised subdivision by creating interests of the kind described in s 20(1)(a) in part of a lot for a term in excess of 10 years or, where s 20(1)(d)(ii) applies, for a term in excess of 21 years. The achievement of that purpose does not require that the Commission's approval be obtained in respect of every agreement that might, depending upon the unfettered discretion of a lessor, result in the use or occupation of part of a lot or building for more than 10 years or 21 years as the case may be. A construction of that kind would be inimical to the efficient administration of the Commission.
It is important to bear in mind, in this respect, that s 20(1)(a), read with s 20(1)(d)(ii) does not prevent grants of consecutive leases, without the Commission's approval, that together will entitle the lessor to occupy only the whole or part of a building for a term of more than 21 years. The legislation consequently prevents the creation of an existing legal right, whether contingent or otherwise, to occupation for a term longer than that specified.
A similar construction has been given to s 20(1) in the case of licences. In Caltex Properties Ltd (in liq) v Love (Unreported, WASC, Library No 970237, 14 May 1997), Parker J considered whether a licence for an indefinite period of time offended s 20. He concluded that it did not, as the ordinary meaning of 'term' is a period of time having definite limits. He said that there was nothing in s 20 to suggest that it applied to the grant of a licence that 'could possibly' exceed 10 years. He considered that a construction of this kind would yield absurd results, as many bare licences are of indefinite duration and the approval of the Commission could not possibly be required for all of them.
In Palamore Pty Ltd v Clode (Unreported, WASC, Library No 980599, 16 October 1998), Caltex was applied to a leasehold interest. In that case the parties were tenants in common of undivided half shares of a property. By deed, each granted to the other a right of 'exclusive use, occupation and control' of half of the property. Each party had a house on that part of the property of which he or she had a right of exclusive possession. The deed was expressed to have effect until such time, if ever, as formal subdivision was approved. Murray J held that the deed operated 'by the creation of mutual tenancies'. In the absence of any indicia of a periodic tenancy, a tenancy at will was implied. Subject to some act or process of termination, the lease appeared to continue indefinitely. Notwithstanding this, Murray J held that the deed did not infringe s 20(1)(a) of the Act. He cited Caltex with approval and said that the policy of s 20(1)(a) was to regulate transactions 'by way of lease or licence where there is a degree of relative permanency, exceeding the period of 10 years, which the transaction can be seen to assure at the outset, subject only to earlier determination under the terms of the lease or licence'. He said that a right to exclusive possession terminable at any time or upon reasonable notice could not be described as having that permanency. (See also Cobanov v Cobanov [2002] WASC 257.)
As I understood the submissions of counsel for the respondents, the respondents concede that, if the lessor had in this case reserved to itself an unfettered discretion whether or not to grant an extension of the term of the second lease, there would have been no option to renew within the meaning of s 20(1)(d)(ii). However, he contends that cl 14 amounts to a conditional contract in the sense that, if the lessor should decide to redevelop, the lessor is bound, subject to satisfaction of the stipulated conditions, to grant the option to extend the term. He argues that cl 14 is consequently analogous to the grant of an option that is conditional on some action by a third party. He gives, as an example, an option to purchase that is subject to planning approval being granted for the lot.
With respect, I can see no relevant distinction between a case in which the lessor reserves to itself an unfettered discretion to grant an extension of the term of a lease and one in which the lessor is bound to grant an extension only if it does some other act at its unfettered discretion. The relevant distinction, for the purposes of s 20(1)(d)(ii), is between a case in which the lessor is irrevocably bound to grant the extension (whether or not that obligation is conditional upon the lessee complying with specified conditions), and one in which the lessor is not so bound.
The position under cl 14(8) of the second lease is, in some respects, analogous to the grant of a right of pre-emption. In Pritchard v Briggs [1980] Ch 338, 418, Templeman LJ said, of such a right:
Rights of option and rights of pre-emption share one feature in common: each prescribes circumstances in which the relationship between the owner of the property which is the subject of the right and the holder of the right will become the relationship of vendor and purchaser. In the case of an option, the evolution of the relationship of vendor and purchaser may depend on the fulfilment of certain specified conditions and will depend on the volition of the option holder. If the option applies to land, the grant of the option creates a contingent equitable interest which, if registered as an estate contract, is binding on successors in title of the grantor and takes priority from the date of its registration. In the case of a right of pre-emption, the evolution of the relationship of vendor and purchaser depends on the grantor, of his own volition, choosing to fulfil certain specified conditions and thus converting the pre-emption into an option. The grant of the right of pre-emption creates a mere spes which the grantor of the right may either frustrate by choosing not to fulfil the necessary conditions or may convert into an option and thus into an equitable interest by fulfilling the conditions. An equitable interest thus created is protected by prior registration of the right of pre-emption as an estate contract but takes its priority from the date when the right of pre-emption becomes exercisable and the right is converted into an option and the equitable interest is then created. The holder of a right of pre-emption is in much the same position as a beneficiary under a will of a testator who is still alive, save that the holder of the right of pre-emption must hope for some future positive action by the grantor which will elevate his hope into an interest.
(See also Goff LJ 388 ‑ 389 and Stephenson LJ 422 ‑ 423.)
Although an option to renew, for the purposes of s 20(1)(a) or (d)(ii), might not have to amount to the grant of an equitable interest in land, it does have to amount to a right that is given to the lessee, whether conditionally or not. There is no relevant right if the 'right' is exercisable in circumstances that depend upon the unfettered discretion of the lessor.
It follows that cl 14 did not create an option to renew for the purposes of s 20(1)(d)(ii) of the Act. I would grant leave to appeal, allow
the appeal, set aside the orders of the Master and declare that the second lease was not in breach of that section.
BUSS JA: I agree with the President.
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