O'Neill v O'Connell

72 CLR 101

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(Judgment by: Latham CJ)

O'Neill
v.O'Connell

Court:

Judge:
Latham CJ

Judgment date: 24 October 1945

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Judgment by:
Latham CJ

Cause removed to the High Court under the Judiciary Act 1903-1940 by reason of a question arising as to the limits inter se of the constitutional powers of the Commonwealth and the States.

By his will the late Jerome O'Connell, who died on 26th October 1944, gave devised and bequeathed all his property to his trustees upon trust to sell, call in and convert into money and to stand possessed of the proceeds upon the trusts declared in the will. A codicil contained the following provisions:

"(1)

I direct that my executors shall offer my business known as the Busy Store to the said Daniel O'Neill for purchase by him at a valuation to be agreed upon by accountants appointed one by my executors and one by him and in default of agreement by an umpire the purchase to be made within twelve months of my death. My executors may allow time for payment of the price;

(2)

I give to the said Daniel O'Neill an option to purchase the freehold of the premises of the said business at £6,500 for which my executors may allow terms the option to be exercised within twelve months of my death."

On 24th August 1945 the plaintiff Daniel Francis O'Neill signed and on 25th August posted to the executors of the will the following letter:

"Take notice that I hereby exercise my option of the freehold of the premises of the "Busy Store" at Shepparton for the price of six thousand five hundred pounds which option was conferred on me by the terms of the will and codicil of the above-named deceased."

Thus O'Neill exercised the option given by the second provision (as to the land) but not that given by the first provision (as to the business).

The National Security (Economic Organization) Regulations, Statutory Rules 1942 No. 76 as amended, provide in reg. 6 (1):

" 6. (1) Except as provided by this Part, a person shall not, without the consent in writing of the Treasurer

(a)

purchase any land;

(b)

take an option for the purchase of any land;

(c)

take any lease of land;

(d)

take a transfer or assignment of any lease of land; or (e) otherwise acquire any land. "

An application was made for the consent of the Treasurer to the purchase of the land by O'Neill. A valuation of the land as at 10th February 1942 was forwarded in pursuance of reg. 6 (7) (a). The Treasurer refused his consent upon the ground that the price of £6,500 exceeded a fair and reasonable value as at 10th February 1942. The plaintiff contends that the Regulations do not apply to the exercise of such an option as this and alternatively that the Regulations are invalid for various reasons. One argument upon which the plaintiff relies to support the last-mentioned contention is that even if the Regulations were valid up to the date of the surrender of Japan (2nd September 1945) they thereafter by reason of the cessation of hostilities with and surrender of both Germany and Japan became no longer supportable under the defence power. Accordingly on 16th October 1945 the plaintiff gave another notice to the executors exercising the option in respect of the land upon which the Busy Store is situated.

The matter before the Court is an originating summons in which the questions as amended are as follows:

" (1)

Is the notice dated 24th August 1945 or the notice dated 16th October 1945 delivered to the executors an effective exercise of the option to purchase the freehold of the business known as the Busy Store Shepparton under the terms of the codicil of the deceased dated 15th October 1944?

(2)

Is the option to purchase the said freehold mentioned in the said codicil conditional on the purchase by Daniel O'Neill of the business known as the Busy Store?

(3)

Does the notice dated 24th August 1945 or the notice dated 16th October 1945 delivered to the executors confer upon the plaintiff an enforceable right to receive a transfer of the freehold of the testator's business premises upon the terms contained in the codicil of the deceased? "

Question No. (2) should be answered "No." No argument to the contrary was addressed to the Court.

The plaintiff has exercised his option in accordance with the terms of the will. He has communicated to the executors within the time specified in the will his intention to exercise the right given to him by the will in respect of the land. It is argued that the provision of the will amounts to a conditional gift of the land, the condition having been fulfilled by the intimation to the executors of the exercise of the option. No contract, it is said, was made between the parties by the exercise of the option, but a condition attached to a gift was thereby satisfied, the result being that the gift became absolute, so that the executors are bound, by reason of the terms of the will, and not by reason of any contract, to transfer the land to the optionee, as in the case of any devise. It is further argued for the plaintiff alternatively that if the exercise of the option made a contract between the optionee and executors, such a contract is not a purchase of land, but only an agreement to purchase land, and that it is not an acquisition of the land, but only an agreement for the acquisition of land. It is contended that upon these grounds the Regulations do not apply to the transaction. The plaintiff also relies upon reg. 10, which is in the following terms:

" 10. (1)

Where any transaction is entered into in contravention of this Part or of Part VI of these Regulations, or where any condition to which the transaction is subject is not complied with, the transaction shall not thereby be invalidated, and the rights, powers and remedies of any person thereunder shall be the same as if these Regulations had not been made.

(2)

Nothing in this regulation shall affect the liability of any person to any penalty in respect of any contravention of these Regulations. "

This regulation, it is argued, preserves all civil rights arising from a transaction, even though the transaction may constitute a breach of the Regulations. It is argued, therefore, that as between the parties, the optionee and the executors, the option has been effectively exercised, even if the optionee is (or both the optionee and the executors are) liable to penalties under the Regulations.

On the other hand it is contended for the executors that the option provision in the will was not a conditional gift of the land; that if the exercise of the option brought about a contract of purchase, there was a purchase, or at least an acquisition, of land within the meaning of the Regulations; that such a transaction is prohibited by the Regulations, and is therefore illegal and ineffective; and that reg. 10 applies only to past and completed transactions, or alternatively (if no contract was made) has no application to an unaccepted offer. It is also argued for the defendants that the "exercise of the option" was not the acceptance of an offer which the executors must be regarded as having made, but, on the other hand, was the making of an offer to the executors which they have not in fact accepted, so that no contract (or transaction) has resulted.

A distinction should be drawn between an option to purchase given inter vivos for value and an option given by will. Options of the first class are binding contracts. Varying opinions have been expressed upon the question whether such an option agreement vests an equitable interest in the property in the optionee before it is exercised: See Goldsbrough, Mort & Co. Ltd. v. Quinn ^[F1] , where Griffith ^[F2] . O'Connor J. was not definite on this point. Isaacs ^[F3]

See comment made by Isaacs J. in Carter v. Hyde ^[F4] . See also Commissioner of Taxes (Q.) v. Camphin ^[F5] ; Trustees Executors & Agency Co. Ltd. v. Federal Commissioner of Taxation ^[F6] . In Halsbury's Laws of England, 2nd ed., vol. 6, at p. 109, and vol. 20, at p. 65, the references to the creation of an equitable interest in property over which an option may be exercised refer to the exercise of the option, and not to the mere existence of the option agreement.

There are statements that options given for value are themselves property in a sense which is not very precisely defined: In re Cousins; Alexander v. Cross^[F7] , where an option which was held to be personal to the optionee, exercisable by him only, and not assignable, was nevertheless, because it was of value, said to be property "in one sense." See, further, Carter v. Hyde^[F8] ; Re Busby; Busby v. Busby^[F9] .

But an option given by a will is very different in legal character from an option arising under a contract. Such an option is plainly not a contract. It is unilateral. It is not an offer made by the testator during his lifetime capable of acceptance after his death so as to become a contract under which the testator can be held to have become liable.

An option to purchase given by will is distinct from a gift to a devisee or legatee conditional upon the payment of money (In re Sykes^[F10] ), though it may obviously be difficult in particular cases to apply the distinction. It was said, or at least suggested, by Lord Dunedin in Wright v. Morgan^[F11] , that an option given by will created a vested interest (apparently in the property to which the option applied) which was assignable unless there was something in the nature of the interest, or in the words of the document creating the interest, contradicting the nature of assignability. But his Lordship went on to say that really the option amounted only to "a right to enter into a contract." The suggestion that the mere existence of the option in the will created a vested interest was criticised in Skelton v. Younghouse^[F12] , where Viscount Maugham L.C. expressly reserved his opinion upon the question whether an option to purchase in a will created a vested interest before it was exercised, and pointed out that Lord Dunedin's observation was in the nature of an obiter dictum and that the point was not argued in Wright v. Morgan^[F13] .

The matter is by no means free from doubt, but I am of opinion that an option by will to purchase property does not in itself and independently of its exercise give an equitable interest in that property, whether or not the right of the optionee can properly be described as itself being property. The true position is, I suggest, that, if the option is exercised, and if in a proper course of administration the executors are in a position to make and do make a contract of sale to the optionee, the optionee will then under the contract obtain an equitable interest in the property in respect of which the option is given.

It would appear to be easy to hold that an option of purchase given by a will is an offer which by acceptance becomes a contract, but there are difficulties in this apparently simple view. As already stated, there is in such a case no contract between the testator and the optionee. If the exercise of such an option makes a contract of purchase binding upon the executors, then the executors become personally bound to sell the land or other property to the optionee at the price and on the conditions stated in the will. But the executors are entitled to sell the property of the deceased for the purpose of paying debts. They may quite properly, and perhaps necessarily, sell for this purpose the property over which the will has given the option. Such a sale would not necessarily destroy the value of the option for, after payment of debts, there might be a sufficient surplus in the estate to give the optionee the difference between the amount at which he was entitled to purchase and the amount realized by the sale (In re Cant's Estate^[F14] ). But it may be that, after the sale of the subject matter of the option for the satisfaction of creditors, there will be no beneficial surplus in the estate which can be used in whole or in part to meet the option. It must be the case that the executors are protected in pursuing an ordinary course of administration, and, therefore, in paying creditors before regarding the claims of any persons claiming under the will. Thus, in my opinion, it cannot be held that where an option to purchase is given under a will the person to whom it is given can, by exercising the option, bind the executors (independently of and possibly against their will) by a contract under which they are compellable to sell to him at the price and upon the conditions specified in the will.

The position has been worked out in two cases in which the question of the nature of the rights created by an option given by will was raised very neatly. In Given v. Massey^[F15] the will of the testator provided that his trustees should sell and convert his property and that L. should have the option of purchasing certain land at the price of £1,400, the option to be declared in writing within three months after his death. The will contained a direction to the trustees on payment of the said sum to assure the land to the said L. It was contended that L. took as devisee, and therefore that he took the land subject to the incumbrances thereon as provided by Locke King's Act. It was held, however, that the testator meant that all his property should be sold, and that if L. chose he and no-one else should be the purchaser of the land. Porter M.R. said:

"On the language of this will, it is clear that the testator meant that Loughrey was to be a purchaser, and nothing else a favoured purchaser no doubt, but still a purchaser. The element of bounty does enter into the matter; but the bounty conferred is the right to become a purchaser on advantageous terms, and not a devisee of the estate" ^[F16] .

Accordingly, Locke King's Act had no application to the case, as the optionee was not a devisee. His right was a right to become a purchaser of the land and, accordingly, he took the land free from incumbrances.

This case was followed and applied in In re Wilson; Wilson v. Wilson^[F17] . In that case also the testator devised and bequeathed his residuary real and personal estate to trustees upon trust for sale and conversion, and the will contained a direction that the trustees should allow his son the option of purchasing two houses forming part of his real estate for the sum of £450 within a specified time. Warrington J. followed and applied Given v. Massey^[F18] . He read the direction to the trustees with respect to the option in connection with the trust for sale and conversion and held that it meant that the trustees, having a power to sell to anyone they pleased, were bound in the first place to offer the property to the son. The learned judge said:

"If he desires to have it and if he exercises his option, in my opinion he elects to become a purchaser and must be taken to have made an offer to the trustees which they are bound to accept and must be taken to have accepted" ^[F19] .

I apply these principles to the present case. The executors are directed by the will to sell and convert all the property of the testator. O'Neill, however, is to be a favoured purchaser of certain land. The executors are bound to offer it to him at the fixed price, but (I add) only if they can do so in a proper course of administration. If the property is worth more than £6,500, and if, in order to pay debts, it was sold for a greater sum, such a sale would be quite proper. But in that case O'Neill, if he exercised the option, would be entitled to receive the value of the option so far as moneys were available to pay that value; that is, testamentary expenses and debts would be paid first, and the rights of beneficiaries would be adjusted inter se.

The result is that I agree with the opinion expressed by Gavan Duffy J. in the Supreme Court that the effect of the option given to O'Neill is that the trustees are bound by the will to offer the land to him at a price of £6,500 but, in my opinion, subject to the requirements of the due administration of the estate by the executors. The position is not altered in substance if the view is taken that the trustees are bound to accept (subject to the same qualification) an offer made by O'Neill instead of being bound to make an offer to him.

No such offer, however, has been made by the executors, because they adopt the position that the acceptance of such an offer would result in the purchase of the land by O'Neill, and that such a purchase would be illegal without the consent of the Treasurer and would subject them to penalties. The offer made by O'Neill (if his exercise of the option is so considered) has not been accepted by the executors. A court will not direct the executors to pursue a course of action (in either making or accepting an offer) which would make them aid and abet O'Neill in the commission of an offence. Regulation 6, it is true, deals with the purchase of land, and does not refer to the sale of land. But the vendor of land must be regarded as a person aiding and abetting the purchaser when a question of a criminal offence in relation to the transaction of purchase arises (Fairburn v. Evans^[F20] ). Thus the executors would be guilty of an offence under the National Security Act 1939-1943 by virtue of the application of the Crimes Act 1914-1941, s. 5, if they made the offer of the land to O'Neill and he accepted it, or if they accepted what is regarded as an offer made by him.

But it is argued that a contract to purchase land is not a purchase of land within the meaning of the Regulations. The contention means that there is no purchase of land unless the contract to purchase is completed by conveyance or transfer. In my opinion this construction should not be adopted. It is an ordinary use of language to say that a man purchases land when he agrees to buy it. This opinion is supported by George v. Greater Adelaide Land Development Co. Ltd.^[F21] , where the Court considered a provision making it unlawful to sell land except in accordance with the provisions of an Act. Knox^[F22] . See also per Isaacs^[F23] and Starke^[F24]

"Selling, in the case of land, includes the making of agreements for its conveyance in consideration of a price in money."

I am therefore of opinion that an offence against the Regulations would be committed if the trustees agreed to sell the land to O'Neill, whether the sale resulted from the acceptance by the trustees of an offer made by O'Neill, or from the acceptance by O'Neill of an offer made by the trustees. A court would not order the trustees to enter upon, or declare that they were bound to enter upon, a transaction which would involve an offence against the law.

Upon this view it is unnecessary for me to consider the provisions of reg. 6 (1) (e) relating to acquisition of land otherwise than in the particular manner stated in the preceding provisions.

It is now necessary to consider reg. 10, which provides that where any transaction is entered into in contravention of the Part of the Regulations containing reg. 6 the transaction shall not thereby be invalidated "and the rights, powers and remedies of any person thereunder shall be the same as if these Regulations had not been made." This is a remarkable regulation, but I am unable to see any escape from the contention that it means what it says, namely, that breach of the Regulations shall not invalidate a transaction or affect in any way the rights and remedies of any person under a transaction. I am unable to construe the words "a transaction entered into" as limited to transactions which are completed and closed. A contract of sale is a transaction within the meaning of the regulation, even though it is not completed by conveyance or transfer. But if the analysis of the transaction which I have above made is sound there is, up to the present, no transaction between the parties. Upon the view which I have expressed, what is described as the exercise of the option by O'Neill is not an acceptance of an offer so as to make a contract. It can be no more than the making of an offer to the trustees. Apart from the Regulations, the trustees would be bound either to accept the offer, or to make to O'Neill the same offer, which he could accept. But the making of an offer by O'Neill is not a transaction between him and the trustees and the trustees have made no offer to him. Thus reg. 10 has, I think, no application to the present case and the position remains that to require the trustees now to make an offer to O'Neill would be to direct them to join in the commission of an offence against the Regulations.

Upon this view it is not necessary for me to consider the effect of reg. 10B, which relates to the duty of officers concerned with the registration of land titles. I am inclined to agree with the contention for the plaintiff that it has no further effect than to make it lawful to withhold registration until evidence is produced to the officer, but it is not necessary to decide this question.

It is further contended for the plaintiff that the Regulations are invalid because they are beyond the defence power of the Commonwealth.

I see no reason to vary the views upon this matter which I expressed in Shrimpton v. The Commonwealth^[F25] . The fixing of prices for land appears to me to stand on the same footing as the fixing of prices for commodities: See Victorian Chamber of Manufactures v. The Commonwealth (Prices Regulations)^[F26] . The decision in Shrimpton's Case^[F27] is not a decision of a majority of the Court in favour of the validity of the Regulations, but it is not a decision to the contrary, and I am therefore at liberty, sitting as a single judge, to adhere to the view which I there expressed.

The plaintiff, however, has relied upon a particular contention that the control of dispositions which are made by will and are in the nature of bounty cannot fall within the defence power and that the Regulations should be read down so as to exclude such control. In my opinion it is immaterial for the purposes of the economic organization which it is the purpose of the Regulations to bring about whether a purchase of land arises from benevolence expressed in a will, or is a sale at a price which the parties regard as an undervalue, or is the result of a hard-driven bargain. The substance of the transaction as a purchase of land is, from an economic point of view, the same in each case. Gifts by will where no consideration is given are excluded from the scope of the Regulations under reg. 8 (f), but there is no express exclusion of a contract of purchase because it is brought about or invited or authorized by the terms of a will, and in my opinion there is no reason for construing the Regulations in such a way as to imply any such exclusion.

It is further argued that the cessation of hostilities in the war and the acts of surrender of Germany and Japan have the effect of contracting the extent of the defence power, just as the outbreak of war had the effect of expanding it. I agree with this statement as a general proposition. A good illustration is afforded by the blackout regulations, to which reference was made in argument. It would be quite impossible to justify under the Federal defence power the retention of these regulations when all the fighting had ceased and the danger of fighting in Australia had disappeared.

The question is whether the facts of cessation of hostilities and surrender in themselves, apart from any other considerations, are sufficient to bring about the effect claimed. Though the cessation of hostilities may in effect guillotine some exercises of the war power, it is necessary to draw distinctions. Some war powers must, in the necessity of the case, be continued for a period after the cessation of hostilities. The prosecution of the war referred to in the National Security Act 1939-1943 cannot yet be said to have come to an end. The immediate removal of all Commonwealth economic regulation under the defence power would result in economic, and possibly in social, chaos. The Court is not bound to shut its eyes to practical considerations of this character. The defence power (legislative and executive) includes a power to prepare for war as well as to wage war, and it also includes, in my opinion, some power to control readjustment after war towards a return to conditions of peace. It will not be easy to draw the line in particular cases, because questions of degree will inevitably arise. In the present case, however, the question arises within a few months of the cessation of hostilities, when large Australian forces are still abroad upon military service, when the return of servicemen and women to civilian occupations has only just begun, when the whole world is painfully seeking a return to some hitherto undefined more "normal" condition of life, and when the economic instability and uncertainty directly associated with the war is still a preoccupation of all governments. These circumstances are facts which, in my opinion, are sufficient to support the continuance, at least for the present, of the economic controls contained in the Economic Organization Regulations as a valid exercise of the defence power of the Commonwealth. I refer to Roche v. Kronheimer^[F28] , where the court upheld under the defence power the validity of the Treaty of Peace Act 1919 and Regulations made thereunder to give effect to the terms of the treaty of peace made at the conclusion of the war of 1914-1918 so as to "wind up" after the war.

In my opinion the Regulations were valid when enacted, and their validity is not affected by the facts that hostilities have ceased and that Germany and Japan have surrendered. There are cases pending before the Full Court in which the effect of the conclusion of hostilities will be considered in relation to certain National Security Regulations. I would have preferred to postpone my decision until the Full Court had decided these cases, but I give my decision at once because the plaintiff has pressed for an immediate decision. I answer the questions in the originating summons in the following way:

Question 1: No.

Question 2: No.

Question 3: No. Costs of plaintiff and defendants out of the estate; those of the executors as between solicitor and client; certify for counsel in the Supreme Court.

An application for a mandamus already made and refused by me was renewed by Mr. Ashkanasy on behalf of the plaintiff as prosecutor. The application, after I had refused it, was again made to the Full Court under the Appeal Rules, s. 1, rule 7. The Full Court, however, made no order. I refused the application for a mandamus to the Treasurer to consent to the contract of purchase of the land by O'Neill for £6,500. The Court cannot, in my opinion, in effect substitute itself for the Treasurer. I also refused the application for mandamus to the Treasurer to consider and determine the application for his consent. The evidence, in my opinion, showed that the application had been considered and determined in accordance with law and I was not of opinion that in taking into account the value of the land as at 10th February 1942 the Treasurer had taken extraneous matters into consideration. I therefore refused the application as renewed to me. As the applicant may desire to obtain a decision from the Full Court on the matter, I extend the time for making an application to the Full Court for one month from the present date. The application for a mandamus was made ex parte and there will be no order as to costs.

From this decision the plaintiff appealed to the Full Court of the High Court. When the appeal came on for hearing the Court was constituted by three justices only; it was decided that the question of the validity of the National Security (Economic Organization) Regulations should not be argued at that stage but that, if it became necessary to determine that question, the Court should be reconstituted. The Commonwealth, which had applied for leave to intervene, then withdrew its application.

Appeal allowed. The answers "No" in the order of 24th October 1945 to questions numbered 1 and 3 in the originating summons herein set aside and instead thereof the questions are answered (1) Yes: the notice of 24th August 1945; (3) Yes. Costs of all parties appearing on this appeal to be paid out of the estate of Jerome O'Connell, those of his executors as between solicitor and client.