Sydney South West Area Health Service v Macquarie International Health Clinic Pty Ltd

[2011] HCATrans 155

[2011] HCATrans 155

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S14 of 2011

B e t w e e n -

SYDNEY SOUTH WEST AREA HEALTH SERVICE

Applicant

and

MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LTD

Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 JUNE 2011, AT 11.34 AM

Copyright in the High Court of Australia

MR G.K. BURTON, SC:   May it please the Court, I appear with my learned friend, MR P.K. BRUCKNER, for the applicant.  (instructed by Bolzan & Dimitri)

MR N.C. HUTLEY, SC:   May it please the Court, I appear with my learned friends, MR R.E. DUBLER, SC, and MR A.C. HARDING, for the respondent.  (instructed by Moran & Co Solicitors)

GUMMOW J:   Yes, Mr Burton.

MR BURTON:   There is a formal matter about substituting the current form of my client.

GUMMOW J:   Yes.  There is a summons filed on 7 June.

MR BURTON:   Yes.

GUMMOW J:   Is that opposed?

MR BURTON:   No. 

GUMMOW J:   Very well.  You have the order then as indicated in that summons changing the applicant’s identification to Sydney Local Health Network.

MR BURTON:  Thank you, your Honour. May it please the Court. The four questions that we have identified in this application raise issues of development of the law and matters of correcting error, both of which are of public importance. They are of public importance, we would respectfully submit, because the provision involved section 129 of the Conveyancing Act 1919 (NSW) and its interaction with the general law, and what is required to satisfy subsection (1) is reflected Australia wide in all States and the Northern Territory. It applies as a statutory provision and that notice between private parties that is required under it to all leases from simple residential through to elaborate complex leases as part of a public private venture, such as occurred in this matter. If I could take your Honours first ‑ ‑ ‑

GUMMOW J:  In the other jurisdictions, does the statutory equivalent of section 129 contain a scheduled form, a scheduled notice?

MR BURTON:   In three of them, yes.

GUMMOW J:   Is there use of the expression “or to a similar effect”?

MR BURTON:   In two of them, yes, and the one case that deals with the Queensland provision which does not, Ex Parte Taylor, we would say, therefore, does not apply.

GUMMOW J:   You have to persuade us, do you, that the notice set out at page 478 would answer the words “similar effect”?

MR BURTON:   That is correct, your Honour, yes.  But we would respectfully submit that the primary matter is what is required as exemplified in the authorities on the meaning of “similar effect” and we would respectfully submit that after I have taken your Honour briefly to the authorities, we would say that both the learned trial judge and the Court of Appeal stated the authorities, that the learned trial judge effectively followed them, the Court of Appeal effectively eviscerated them and made them rigid and formulaic and, therefore, against the development of a modern commercial law and in the process is at grave risk of making unworkable the provisions of complex commercial leases which contain elaborate termination mechanisms.

GUMMOW J:  Yes, but complex commercial leases should at least if they are drawn very well, I would have thought, have something in them about section 129.

MR BURTON: We would respectfully submit that the clause in question, the default provision, is redolent of section 129 and following it.

GUMMOW J:   In terms, refer to the section in terms.  Anyhow, we live in more relaxed times it seems.  Can we go to page 499, paragraph 323?

MR BURTON:   Yes, your Honour.

GUMMOW J: Do you complain about the treatment there of the requirements of section 129?

MR BURTON:   We would respectfully submit that it states what the law says, but then does not follow it in the conclusions that are made in 325 to 326 and 328 and, in essence, for these reasons, that there is a clear emergence in the authorities, from Fox v Jolly through to Dally‑Watkins, and by the adoption of Aura and the Mannai test – and I can take your Honours to these – including by the Court of Appeal in Richards v Cornford in relation to a statutory notice, of a reasonable recipient test.  There were unchallenged findings of the learned trial judge at paragraphs 532 and 533 of his Honour’s reasons of 23 July 2008 which are repeated by the Court of Appeal but then not further dealt with, that the tenant was, as a matter of fact, familiar with the terms of the lease that were incorporated in the default notice, including the waiver provision which states what needs to be done to avoid a termination by re‑entry.  That is expressly referred to in the default notice.

HAYNE J:   Can I ask you by reference to pages 408 and 478 to 479 what part of the notice appearing at 478 to 479 is to similar effect to lines 50 and following on 408?

MR BURTON:   The words in paragraph 2 which are at about line 28 on page 478:

entitling, subject to Clause 16.6 of the Car Park Lease, it to terminate –

So it sets out that the landlord is entitled to terminate and refers to the provision in the default provisions, with which the tenant was found, as a matter of fact, to be familiar, that would achieve a waiver and destroy the basis for the exercise of that right of re‑entry.  We would respectfully submit that the learned trial judge went on to find, again as an unchallenged matter of fact, that the tenant was familiar by reference to its response to this notice which did not challenge the notice as defective.  It simply complained about the defaults and said we are not in default and you have no right to raise this.

The trial judge, as a matter of fact, found that the tenant understood what it had to do in response to receiving this notice and that was on the reasonable recipient test which is the test that appears to have pre‑eminence in modern commercial law for statutory and private notices to be satisfied.  That, with respect, is the first error that the Court of Appeal made.  It did not give primacy to the reasonable recipient test and it stated it, but eviscerated it by saying that looking literalistically at the notice, it did not set out in a formula what was required to be done whereas what was required to be done was set out precisely in the default provision which was referred to, your Honours.  That is what appears at clause 16.6 of the car park lease, which we have included it in our materials, but it is also at page 478 of volume 2 of the application book.

GUMMOW J:   The notice must require remedy of the breach, must it not, what is to be done to remedy the breach?

MR BURTON:   In this case, again as part of the reasonable recipient test and the findings of the learned trial judge, it was pointed to that – and this comes from Fox v Jolly where Lord Buckmaster says – if I could just read that to your Honours rather than taking your Honours to it of our white volume of extra materials at page 7 of that volume:

In many cases specification of the breach will of itself suggest the only possible remedy.

The four breaches that are identified in these notices, we respectfully submit, fall into that category and fall within the reasonable recipient test and the findings of the learned trial judge.  Failure to commence construction of the private hospital is self‑explanatory.  Failure to complete the car park is self‑explanatory, both of which the Court of Appeal and the learned trial judge found to be concurrent findings admitted and irremediable defaults, now irremediable, then admitted or found defaults.  The other two were money obligations again which are self‑explanatory. 

GUMMOW J:   Did the Court of Appeal deal with the House of Lords?

MR BURTON:   The House of Lords, yes.  The Court of Appeal set out the authority at page ‑ ‑ ‑

GUMMOW J:   With Fox v Jolly, is it at 497?

MR BURTON:   Yes.  We would respectfully submit, there is no reasoning that deals with why the cases that are referred to do not achieve an outcome on the reasonable recipient test which is in concurrence with the learned trial judge’s findings of fact that the tenant was familiar with the terms of the lease and knew about what it had to do to respond, particularly in the face of four self‑explanatory breaches where the remedy is in the breach and it was common ground that the breaches were adequately specified.

GUMMOW J:   Does Justice Hodgson then deal with this at 323 on page 499, the second sentence, “The standard of particulars or degree of specificity”, et cetera?

MR BURTON:   Yes, your Honour.  Again we would respectfully submit that this is setting out the authority, but then his Honour’s conclusions at paragraphs 325 to 326 and 328 did not follow it.  Equally, the same thing happened with the statements in the authorities to the effect that the onus is on the ‑ ‑ ‑

GUMMOW J:   Wait a minute.  You do not quibble with the statement of principle in that second sentence, do you, at 323, I would have thought:

The standard of particulars or degree of specificity depends upon the circumstances, including the nature of the covenant alleged to be breached, the tenant’s actual or constructive knowledge, and whether the landlord claims reasonable compensation.

MR BURTON:   We do not, your Honour, but it does not deal with ‑ ‑ ‑

GUMMOW J:   Well, if that is right, where does this become a case of general and public importance?

MR BURTON:   Because the standard has not been applied in a way that recognises the reasonable recipient test, which is also not mentioned in his Honour’s statements of the authorities.  There is no reference to the line of authority, which we have set out in our submissions, which deals with this.

GUMMOW J:   I am not sure the reasonable recipient would help you.  You have the actual or constructive knowledge of this particular tenant on which you rely, have you not?

MR BURTON:   It does, but it does not appear to have affected the way that the Court of Appeal in what one would have expected to have been applied.  It is not stated and the findings of fact which are applied by the learned trial judge are just simply recognised.  They are not then recognised in the reasons as having any effect.  That is the issue of public importance, we would respectfully submit, that the Court of Appeal has effectively eviscerated the flexibility for different types of leases of this test, that the test must apply across all sorts of leases, including those where the tenants are well resourced and well advised and know their obligations and know what has to be responded to.

GUMMOW J:   As was the landlord.

MR BURTON:   As was the landlord.  In that situation, the court has applied a very rigid test which has looked literalistically at the notice and has not looked at the findings of fact of the learned trial judge in construing that notice.  We would respectfully submit that that is an error that the court needs to restate what the law says with clarity at the ultimate appellate level, which has not been done in Australia and has not been done in the context of saying what role the reasonable recipient test has, and that is why it is a matter of public importance for legal development.

GUMMOW J:   Where does the reasonable recipient test – whence does it derive?

MR BURTON:   It derives from the line of authorities which we have given your Honours in item 6 and following of the extra materials; Aura Enterprises, Mannai Investment which is the House of Lords decision and, if I could take your Honours to page 33 of the materials, I could then indicate to your Honours the content of that test.  Reading from item (2) at letter G on page 35, which is at 767 of the report, and going over to page 36 of the materials, 768 of the report, and at letters B to C and at letters D to E, and this was in the context of a notice with a contractual basis.  It is then applied by the Court of Appeal in New South Wales in Richards v Cornford.  If I can take your Honours to that at page 40 of the materials at paragraph 40.  In relation to a statutory notice for a public purpose, we fall between those two, which is a notice required by statute but between private parties.

GUMMOW J:   Is that page 40?

MR BURTON:   Page 40, paragraph 40. 

GUMMOW J:   The first sentence of paragraph 40 would be inconsistent with what Lord Steyn was saying.

MR BURTON:   With what Lord Steyn ‑ ‑ ‑

GUMMOW J:   When you approach it objectively, if you look at it through the eyes of a particular party.

MR BURTON:   Because there are several levels and as we have set this out in detail in our written submissions.  Firstly, if there are admissions, which we say the learned trial judge actually made as unchallenged findings of fact, based his findings on in the response to this notice that indicates actual knowledge of what has to be done, the inquiry stops there and that appears to be satisfying the reasonable recipient test as referred to in the opening sentence of paragraph 40.  If, from the surrounding circumstances the notice and what the parties ought to have known given their character, the notice specifies sufficiently what is the breach and what has to be done to remedy it, then the reasonable recipient test is operated at its next level. 

It is the absence of consideration, we would respectfully submit, by the Court of Appeal of those findings of fact in the conjunction with, giving primacy to the reasonable recipient test that is the error and that there was a failure to recognise that and there is also a need to not only restate it, but to state it and develop the law to emphasise that as the prime matter.  It flows through to the other matters which appear in paragraph 328 of the Court of Appeal’s reasons where the Court of Appeal says – and this is at page 501 of application book 2 – that these requirements are inconsistent.  They are in the authorities ‑ ‑ ‑

GUMMOW J:   Sorry, where are you reading from?

MR BURTON:   I am reading from between numbers 20 and 30.  There is no recognition, as there is in single justice authorities, such as Justice Bryson in the Hovan’s Hotels Case, that reasonable time can be a matter of agreement between the parties and can, in fact, be given even if any time specified in the notice, which does not need to be specified in the notice under the statute, is in fact given.  Here six months was given irrespective of what the clauses say.  Indeed, there are references in each of the sub‑provisions in the default clause matters capable of remedy by fulfilling the obligation, matters capable of remedy by assigning the lease, matters not capable of remedy by certain activity such as payment of compensation.

There is an agreed time, and again that appears, with great respect, even though the authorities have been stated, to be completely ignored by the Court of Appeal in the way that the notice has been examined.  Similarly with compensation, in paragraph 325, there is a statement that compensation needs – whether or not the landlord claims compensation needs to be stated.  The authorities, we would respectfully submit, indicate, as do the words of the provision, in case compensation is required – not to be required to be stated by the landlord.  Indeed, the way the obligations in this lease work, the onus is on the tenant, which again is something recognised in the authorities.  So again it is a matter of restating what the authorities say, we would say, at the ultimate appellate level for Australia and as a matter of developing the law in relation to these matters so that it is clear that the reasonable recipient test is the primary test and encompasses these matters ‑ ‑ ‑

GUMMOW J:   Primary test?

MR BURTON:   Is the primary test under which the authorities sit, that you look at the notice from the eyes of a reasonable recipient.  If they have actual knowledge by their response to the notice, then clearly they have understood and the requirements of the statute have been fulfilled.  If they ought to have had knowledge, then you examine the notice in the light of the knowledge that they ought to have had, which includes on the unchallenged findings of fact the familiarity with the terms of the lease that have been referred to in the notice. 

Now, we would respectfully submit that the other questions raise matters of public importance at the level of development of the law.  In particular, the repudiation matter.  There is just no real consideration by the Court of Appeal of the way that the World Best decision, which this just followed, interacted with what, we would respectfully submit, should be the ratio in a previous Court of Appeal decision and seen as such.  It was wrongly called dicta.

GUMMOW J:   What is that point?

MR BURTON:   The point is that Marshall, the previous Court of Appeal decision ‑ ‑ ‑

GUMMOW J:   Do not worry about names of cases.  What in terms of principle is the point?

MR BURTON:   The Court of Appeal has said that all forms of ending a contract of general law have the same rationale and the same outcome in damages.  That is what the High Court has said in Gumland and Koompahtoo.  That has been followed in Marshall, not followed in World Best and if it has not been considered by the High Court in the application of general law to section 129, does it stand outside 129 if you have conduct which is a repudiation at general law, which the Court of Appeal said there was in relation to the commencement of the private hospital or was prepared to assume, or enough to satisfy breach of a fundamental term or the other tests for ending the general law. In addition, the Court of Appeal did not ‑ ‑ ‑

GUMMOW J:   The light is on, Mr Burton. 

MR BURTON:  Yes. If I could just finish this sentence, with your Honour’s leave. The Court of Appeal did not consider how what it said about excluding general law remedies operates in relation to section 129. It simply said repudiation was a defined event of default. The defined event of default is a matter outside of a breach or under a provision of section 129. There is just no exploration of how a notice is required in that circumstance. Again we have developed that in our written submissions, but it raises a matter of importance of general law.

GUMMOW J:   You were going to complete a sentence, Mr Burton.

MR BURTON:   May it please the Court.

GUMMOW J:   Yes, Mr Hutley.  What do you say about this last point?

MR HUTLEY:   The point simply does not arise and it is important to understand how it does not arise because the parties as agreed there is a code that all termination would be termination under the express termination provisions under the lease, therefore, any forfeiture would be a forfeiture under a condition in the lease, therefore, section 129 would apply. That was found as a matter of construction both at first instance by Justice Nicholas and by the Court of Appeal on the construction of the idiosyncratic terms of this very complex long‑term 104‑year lease. The point simply will never arise.

That is also the answer to the rent point.  My learned friend’s client lost all the construction questions, which were – they had to succeed to raise a question as to whether the moneys due and owing were rent.  Those points again were idiosyncratic construction questions under this particular lease.  I will come to the first point which was developed as last.  The third point is the point that there was a discretionary defence to an order for possession.  There are books in this country which have referred to that as a classic fusion fallacy.  This was, in effect, a writ of possession and an argument sought to be advanced that there is a discretionary defence to a writ of possession.  In our respectful submission, the point is hopeless and simply would not entertain your Honours.

That brings us to the first point. The first point is the section 129 point. It now appears to be common ground that their Honours’ statement of principle at 323 is a correct statement of principle.

GUMMOW J:   As I read the second sentence at 323, it seems inconsistent with what Lord Steyn was saying and that is then said to be correct, as I understand it.

MR HUTLEY:   Your Honour, the second sentence has to be looked at in the context of what has gone before.  What is referred to as the reasonable recipient test has been a test which, properly understood, has been implicit and expressed in relation to this area of jurisprudence for hundreds of years, or at least a hundred years, I think.  Your Honour, it appears quite clearly in the statement referred to in paragraph 314 at page 496 in the second volume of the application book where Lord Atkinson is quoted in Fox v Jolly.  It says:

Lord Atkinson was “quite willing” to accept the statement of North J, but said that it is to be borne in mind that the notice is addressed to a person who knows, or ought to know, the nature and condition of the premises, “so that a statement might be sufficient to draw his attention to the things of which the landlord complains, which might be insufficient so to do in the case of a stranger”.

That is, in effect, the reasonable recipient test, namely, when one is complaining about a leaky roof, you do not have to say the roof is on top of the building and it is on the bottom left‑hand corner two feet from this, because the reasonable recipient is thought to be the person who is the tenant and the degree of particularity which one has to address these matters to a tenant in place is affected by that person’s position, which would be different if one was dealing with a stranger.  That test is the metes and bounds of the so‑called reasonable recipient test and it has always been the law.  Obviously the Court of Appeal considered it and nothing in 323, which was in effect a summation of that which had gone before, was intended to depart from that somewhat old statement of principle. 

What happened here – and one must go here to the position with respect to the actual provisions one had. Your Honours have been taken to the notice, but the important point is also to be taken to the agreement. Your Honours will find the relevant provisions at page 394 and following of the second volume of the application book. The difficulties arose against the content of a somewhat unique clause which was obviously drafted without any regard at all to section 129. Clause 16 is at the bottom and your Honours will see in 16.1 and 16.2 a reference to “essential terms”. That is only relevant if your Honours would note that. Then 16.3 provided:

The Landlord may terminate this lease by giving the Managing Tenant notice, by re‑entry . . . if an Event of Default occurs.

Then there is 16.4 set out “Event of Default” and your Honours will see:

(a)repudiates its obligations under this lease;

(b)does not comply with an essential term –

and various other matters which constituted an event of default.  Then 16.5 it says:

The Landlord must not exercise its powers under clause 16.3 unless it first gives the Managing Tenant notice of the particular Event of Default on which the Landlord relies and the clause under this lease under which the default arises.

That was the notice that your Honours have been taken to. It was a notice which identified the event of default and the breach. Then 16.6, which is a completely different provision to a legal structure, that contemplated by section 129. It provides that:

The Landlord waives the Event of Default specified in a notice under clause 16 so that this lease continues in full force and effect as if no such Event of Default has occurred, if the Tenant:

and then there is a series of four alternatives, which says –

(a)in respect of a breach remediable by payment of money, pays the Landlord all money necessary to remedy the Event of Default within:

Then there is a slight oddity in this clause –

(i)14 days of service of that notice; or

(ii)28 days of service of that notice in any other case;

take the longest –

(b)in respect of a breach remediable other than by payment of money:

(i)gives the Landlord a written undertaking, within 28 days of the service of that notice, to remedy the Event of Default –

So if you are going to remedy, before you can remedy under this clause and get released by reason of remedy, you have to give an undertaking to remedy, an act in law which finds no reflection in section 129 of the Act. If having given such an undertaking you thereafter –

(ii)remedies it within a reasonable time having regard to the nature and extent of the breach (but in any event within 3 months of giving the undertaking); or

then you have, if the breach happens to be a breach which is remediable other than paid by money satisfied, you have successfully affected a compulsory waiver –

(c)in respect of a breach which is not remediable:

(i)pays compensation . . . 

(ii)undertakes to pay compensation . . . 

and otherwise –

(d)completes the sale and assignment . . . within 6 months ‑ ‑ ‑

GUMMOW J:   We do not need to hear you any further, Mr Hutley.  Yes, Mr Burton.

MR BURTON:  Your Honour, in relation to the general law, the provisions that you have been taken to indicate that repudiation is not made a breach. Under section 129, you have to have a right of re‑entry under a proviso in the lease for breach of a condition in the lease. Repudiation is simply made an event of default. The Court of Appeal did not even simply consider that issue when it made the interpretation decision that it did that this was a code. Even if that was a correct decision, the Court of Appeal did not go on to explore whether it still stood outside section 129 and it is that interaction between the general law. The Court of Appeal did not

consider whether making the provisions of clause 16, which is mirrored in the other provisions, could have operated as a contractual precondition to the general law remedy rather than exclusion as a code, such as in Wallace‑Smith v Thiess. 

In relation to the matter that my friend raised on the compensation and the rights to waive, waiver is the equivalent of saying that the landlord has no right or entitlement to re‑enter and that is what was referred to in the notice.  In addition, my friend illustrates, by saying this is not known to the law, the inflexibility of what the Court of Appeal has done because he is saying, and this is what we say the Court of Appeal has done in misconstruing, with respect, the authorities, that the parties cannot agree what is a reasonable time, cannot agree what is the act of remediation involved.  Unless there is anything further I can assist your Honours with.

GUMMOW J:   Thank you.

Contrary to the requirements of section 129(9) of the Conveyancing Act 1919 (NSW) the notices of default given by the applicant were not notices in the form set out in the sixth schedule to the Act or to a similar effect. No questions of general public importance arise on this application. Further, an appeal to this Court would not enjoy sufficient prospects of success to warrant a grant of special leave. Special leave is refused with costs.

We will adjourn to reconstitute.

AT 12.09 PM THE MATTER WAS CONCLUDED