Nullagine Investments Pty Ltd v WA Club Inc

177 CLR 635
116 ALR 26

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(Judgment by: Brennan J)

Between: Nullagine Investments Pty Ltd
And: WA Club Inc

Court:

Judges:
Brennan JDeane J
Dawson J
Toohey J
Gaudron J

Subject References:
Real Property

Hearing date: 14-15 October 1992
Judgment date: 26 August 1993

Canberra (heard in Perth)

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Judgment by:
Brennan J

The circumstances out of which this appeal arises are stated in other judgments. The result of the appeal turns on the operation and effect of cl.4(b) of a deed dated 1 October 1976 between the respondent ("the Club") and a group of companies ("the Nullagine group") of which the appellant ("Nullagine") was one, governing the terms on which the Club and the Nullagine group should occupy premises at 18 The Esplanade, Perth ("the Property"). This deed ("the occupation deed") was executed in consequence of a sale agreement made between the Club and Nullagine on the same day. By the sale agreement, the Club sold and Nullagine purchased one undivided half share in the Property together with certain other assets for a price of $751,600. It appears to be common ground that the Club and Nullagine each became the registered proprietor of an estate in fee simple as tenant in common of the Property.

Nullagine sought from the Supreme Court of Western Australia an order under s 126(1) of the Property Law Act 1969 (WA) that the Property be sold and the proceeds of the sale be divided between the Club and Nullagine. Section 126(1) reads as follows:

"Where in an action for partition the party or parties interested, individually or collectively, to the extent of a half share or upwards in the land to which the action relates request the Court to direct a sale of the land and a distribution of the proceeds, instead of a division of the land between or among the parties interested, the Court shall, unless it sees good reason to the contrary, direct a sale accordingly." The Club defended the proceedings on the ground that the making of an order under s 126(1) was precluded by cl.4(b) of the occupation deed. I must set out cl.4(b) in order to divide it into parts for ease of reference:

"The parties hereto MUTUALLY COVENANT AND AGREE as follows:

(Pt 1) Neither party shall sell, transfer assign or otherwise dispose of its share or interest in the Land and the fixed improvements thereon unless as a condition precedent thereto it first offers its share and interest in the Land to the other of them at such price as may be mutually agreed

(Pt 2) and in default of agreement at a price equal to FIFTY per cent of the value of the Land at that date such value shall be determined by arbitration under the provisions of the Arbitration Act 1895 PROVIDED THAT the arbitrators shall be three members of the Australian Institute of Valuers nominated by the President for the time being of such Institute and upon such terms as may be mutually agreed and in default of agreement within 28 days of the determination of the purchase price then the purchase price shall be paid by a deposit of TEN per cent of the purchase price within 28 days of such determination and the balance shall be paid 120 days after such determination against delivery of possession and a registrable transfer of the interest in the Land to the transferee.

(Pt 3) If the offer to sell is not accepted within 28 days of the determination of the purchase price as aforesaid then the party desiring to sell or transfer its interest in the Land shall be at liberty within twelve months from the original offer to sell to the other party (to sell, transfer assign or otherwise dispose of) ^[F1] its interest in the Land to any other person at such price and upon such terms as it shall see fit without making a further offer to the other party pursuant to the terms of this clause

(Pt 4) PROVIDED HOWEVER no party shall sell, transfer assign or otherwise dispose of its interest in the Land unless its proposed successor in title enters into a deed of covenant with the other party for the time being to be bound by and comply with the terms and conditions herein contained as amended from time to time and subject thereto such successor shall be entitled to all the benefits but subject to all the duties and obligations created and imposed by this deed in substitution for his or its predecessor

(Pt 5) PROVIDED FURTHER neither party shall sell or dispose of its interest in the Land for a period of three years from the first day of October One thousand nine hundred and seventy six."

The first question is whether the first four parts of cl.4(b) are effective after the expiry of the 10-year period during which the occupation deed provides for Nullagine and the Club to occupy separate parts of the Property. Obviously Pt 5 of cl.4(b) is not. The validity of Pt 5 may be questioned but, even if it be valid, it has expired. It is unnecessary to refer to it further. The terms of Pts 1 to 4 are such that those parts could have effect for so long as the Property is held by the Club and Nullagine or their respective successors in title as tenants in common. It is clear that other covenants in the occupation deed are intended to operate at least for so long as the Club and Nullagine remain tenants in common of the Property. All of the succeeding sub-clauses of cl.4 (that is, sub-clauses (c), (d), (e), (f), (g), (h) and (i)) and cl.5 are covenants which are intended to have effect so long as the tenancy in common remains. Indeed, the purpose of cl.4(b) itself seems to be the preservation of the tenancy in common unless it is terminated by one co-tenant buying out the other. The purpose of the occupation deed, stated in recital (e), is to evidence "the terms and conditions upon which (the parties) shall mutually use and occupy the Land and the fixed improvements thereon upon Nullagine entering into possession of the Land and the fixed improvements thereon pursuant to the terms of the said agreement for sale". The period during which the occupation deed remains in effect is thus declared to be the period during which the Club and Nullagine will "use and occupy the Land", that is to say, the period during which they remain as tenants in common. That period is to be contrasted with the period of 10 years prescribed by cl.1 as the period of exclusive occupancy of different parts of the building by the Club and by the Nullagine group.

In my opinion, cl.4(b) is intended to have effect for so long as the Club and Nullagine remain as tenants in common of the Property and, having regard to Pt 4, it is intended to have effect thereafter as a covenant between either the Club or Nullagine and any successors in title of the other of them, so long as the Property should be held by tenants in common. The temporal limitation affecting the occupancy provisions in cl.1 of the deed does not place a temporal limitation on the provisions in cl.4(b) relating to disposition of title.

That being so, it is necessary to consider the operation of the covenant in the first part of cl.4(b). It will assist analysis to identify the "share or interest in the Land" to which the Club and Nullagine are respectively entitled. The share or interest which a tenant in common has in land is an "undivided" share, that is to say, "a distinct share in property which has not yet been divided among the co-tenants". ^[F2] A division of the property is repugnant to the nature of a tenancy in common, ^[F3] for it is an essential characteristic of a tenancy in common that each of the tenants has the right to occupy the whole of the property in common with the others. Like joint tenants, tenants in common have a unity of possession; unlike joint tenants, they need not have a unity of interest, nor a unity of title, nor need there be a unity in the time when the interests of the co-owners vest. Each tenant in common has a separate and individual title to the property, limited according to the estate or term granted to or acquired by the tenant. ^[F4] Thus one tenant in common may be seised of an estate in fee simple, another seised of an estate for life, while a third may be a tenant for a term of years, each of their interests being separately acquired at different times. There is no right of survivorship among tenants in common. ^[F5] And thus, at common law, a tenant in common who wished to sell his interest in land was constrained to sell subject to the right of any co-tenant to remain in possession of the whole of the land. The vendor could neither seek a division of the land among the co-tenants nor compel the other co-tenants to join in a sale of the land. In 1539 and in 1540, the first statutes ^[F6] were enacted to authorize the issuing of writs of partition. These statutes were the forerunners of s 126(1).

Presently it will be necessary to consider the effect of that provision, but for the moment it is sufficient to note that the right to seek partition is a right conferred by statute on a tenant in common: it is not a common law incident of a tenancy in common. ^[F7]

The first part of cl.4(b) restrains each of the Club and Nullagine from disposing of its share or interest in the Property without first offering that share or interest to the other. This part of the clause does not, of course, say anything about a sale of the Property for neither of the tenants in common can sell the entirety: each can sell only its own separate share. The shares of tenants in common are not carved out of, or engrafted onto, some notional tenure of an estate in fee simple in the land amenable to sale by, or on the application of, one tenant. Nor are tenants in common equitable owners of land capable of compelling a sale of the legal title by a bare legal owner. The rights of ownership are exhausted by the shares of two tenants in common, each seised of and holding on his own behalf an estate in fee simple in a one half share in a parcel of land. ^[F8] If tenants in common concur in a sale of a parcel of land to a third party, each must convey his own share to the purchaser who takes a single estate in fee simple in the whole of the land. ^[F9] Or one tenant in common may take a conveyance of the shares of the other co-tenants and acquire sole ownership of the land. But, if tenants in common do not concur in one or other of these courses, the only way in which one of them can secure a sale of the land is by applying for an order for sale under statute - in Western Australia under s 126(1).

A tenant in common who is entitled to a half share or upwards and who applies to the Court for relief under a statute in the form of s 126(1) has a right to either an order for partition or an order for sale. ^[F10] The Court's discretion to order partition rather than sale is confined by the statutory direction that sale is the remedy to be afforded to a co-tenant entitled to a half share or upwards "unless (the Court) sees good reason to the contrary". ^[F11] There may be a wider discretion to deny a remedy reposed in courts exercising a jurisdiction under statutes which permit the appointment of trustees for the sale of land held by co-tenants ^[F12] but, under the Property Law Act, Nullagine has a statutory right to a remedy unless the exercise of that right can be and has been bargained away by Pt 1 of cl.4(b). That remedy is an order for sale of the Property and a division of the proceeds unless the Court sees good reason why the remedy should be partition. Here, the Property is unsuited to partition.

The right to apply for an order under s 126(1) is a statutory right. A statutory right is capable of being bargained away provided the right is conferred solely for the benefit of the party abandoning the right and the bargain is otherwise consistent with the policy of the statute. ^[F13] Halsbury's Laws of England (1st ed.) ^[F14] asserts that the "right to partition may be lost by agreement between the parties for disposal of the property in a different manner". Peck v. Cardwell; ^[F15] Dale v. Hamilton; ^[F16] Redwood v. Redwood ^[F17] and Dimsdale v. Robertson ^[F18] are cited as supporting authorities. Nullagine challenges the proposition in Halsbury and seeks to restrict the application of the principle to be derived from the cases cited to land which is partnership property. Although the supporting cases with the exception of Peck v. Cardwell related to land which was partnership property, those cases do not depend on partnership law. Thus in Peck v. Cardwell the agreement which the Court held to preclude the making of a partition order ^[F19] was a joint venture agreement for the development, subdivision and sale of land ^[F20] under which each tenant in common during the currency of the scheme retained his respective share beneficially subject to a right of pre-emption granted to the other co-tenants. However, the cases cited in support of Halsbury's proposition all arose from agreements which provided for a sale of the land, not from agreements governing the sale of a share in the land. The distinction, as we shall see, is of importance. Agreements for the sale of land held by tenants in common are manifestly inconsistent with the exercise of a right to apply for an order for partition or for a sale on terms other than those contained in the parties' agreement: partition or sale under court order would preclude performance of an antecedent agreement by all tenants in common for the sale of the entirety.

Here, there is no agreement governing the sale of the Property. To the contrary, the provisions of cl.4(b) are calculated to protect a party wishing to retain its share in the Property. Therefore, the questions are whether Nullagine and the Club impliedly covenanted with each other not to exercise the right to apply for partition or sale of the Property and, if they did so covenant, whether the covenant is valid.

Part 1 of cl.4(b) expressly prohibits either party from disposing of "its share or interest" in the Property unless it has first offered to sell that share or interest to the other on the terms contained in cl.4(b). The mutual right of pre-emption conferred by cl.4(b) would necessarily imply, even in the absence of the express prohibition, a negative covenant not to dispose of the covenantor's share or interest without giving the covenantee an opportunity to refuse to buy: Manchester Ship Canal Company v. Manchester Racecourse Company. ^[F21] The position is stated clearly by Street J in Mackay v. Wilson: ^[F22]

"(A)n agreement to give 'the first refusal' or 'a right of pre-emption' confers no immediate right upon the prospective purchaser. It imposes a negative obligation on the possible vendor requiring him to refrain from selling the land to any other person without giving to the holder of the right of first refusal the opportunity of purchasing in preference to any other buyer."

An exercise by Nullagine of the statutory right to apply for and to obtain an order for sale of the Property would not only prevent Nullagine from performing its promise to allow the Club a right of pre-emption - and be inconsistent with Nullagine's covenant on that account ^[F23] - it would require Nullagine to breach the express prohibition against transferring its share. That is because completion of a sale of the Property would require a conveyance of Nullagine's share or interest to the purchaser. ^[F24] I would reject Nullagine's argument that an agreement conferring on one tenant in common a right of pre-emption on the sale of a co-tenant's share does not impliedly preclude an exercise of a right to apply for and thus to obtain an order for sale of the land of which the co-tenants are seised. ^[F25] If that argument were correct, one co-tenant, having promised the other co-tenant (in this case, the party from whom the former purchased its half-share) that it would not dispose of its share without giving the other an opportunity to become the sole owner of the land, could at any time have the land sold on the open market. The agreement to allow the other party a right of pre-emption would be worthless.

Of course, an agreement giving a right of pre-emption must be sufficiently certain in its terms to be the basis of an enforceable contract of sale, else the apparent right of pre-emption will fail. ^[F26] In this case, the mutual covenants to allow the co-tenant a right of pre-emption are sufficiently certain in their terms to be effective, for Pt 2 supplies the standard by reference to which the price is to be fixed and the mechanism for fixing it ^[F27] as well as the terms of sale. The price at which the selling co-tenant is to offer its share to the other co-tenant is, in default of agreement, to be fixed at "the value of the Land" determined by arbitration. In argument there seemed to be an assumption that the arbitrated price would be less than market value but that assumption is without textual support. ^[F28]

It follows that Pts 1 and 2 of cl.4(b), considered by themselves, are valid. Further, if Pt 3, severed from Pt 4, is taken together with Pts 1 and 2, no invalidity appears. Part 3, taken by itself and in the circumstances to which it applies, simply confers on the offeror party a right to sell its share on the open market on whatever terms it can get. If Pts 1, 2 and 3 are severed from Pt 4, they create a valid right of pre-emption in the offeree, imposing no restraint on alienation of the offeror's share once the offeree refuses the offer. ^[F29] Once an offer to sell the covenantor's share is made in conformity with Pt 1 but is not accepted, the covenant not to sell that share to a third party expires. Nor would Pts 1, 2 and 3 purport to deny to the offeror its statutory right under s 126(1) to apply for an order by which the shares of both parties would be sold and the profits divided between them, provided the offeree has not accepted the offer within the time limited by cl.4(b). But Pt 4 makes it clear that the parties intended that the offeror should not be at liberty to bring the tenancy in common to an end by applying for an order for sale under s 126(1). If it sells its share, it must sell on terms that the purchaser bargains away the statutory right to apply for an order for sale of the Property under s 126(1) and undertakes to obtain the same covenant from any successive purchasers. The purpose and effect of Pt 4 is to ensure that a tenant in common who wishes to retain its share in the Property cannot be forced to dispose of that share by an order for sale of the Property under s 126(1). If a co-tenant purports to bargain away its right to dispose of its share on sale under s 126(1), is the bargain void either because it is an invalid restraint on alienation or because it is contrary to the policy of s 126(1)?

In this country a court may hold invalid restraints on alienation imposed not only by conditions annexed to a gift or grant of an estate in land but also by covenants and agreements. ^[F30] But the grounds on which a condition subsequent to the gift or grant of an estate of freehold may be held invalid are not necessarily the same as the grounds on which invalidity strikes a covenant or agreement in an instrument which does not itself give or grant the estate the alienation of which is restrained. In the former case, as Dixon CJ said in Hall v. Busst, ^[F31] "(t)he invalidity may be put on the ground of repugnancy to the grant or upon public policy or for that matter it may conceivably be attributed to an indirect effect of Quia Emptores". In the latter case, the only basis for holding the covenant or agreement invalid is public policy. How does public policy view a covenant by a tenant in common interested to the extent of one-half in a parcel of land not to apply for an order for sale?

In Hall v. Busst, ^[F32] Dixon CJ stated the ground for denying the validity of a contractual restriction upon alienation to be "a principle of the law that private property should be fully alienable". A covenant not to apply for an order for sale under s 126(1) does not affect the common law capacity of a tenant in common to alienate his share, but it precludes a tenant in common from realizing his share by sale of the land in which he holds the share. Unless tenants in common agree to terminate the co-tenancy (either by purchase of shares, sale of the land or partition) such a covenant would maintain the land as the subject of a continuing co-tenancy. But does such a covenant offend public policy?

The purpose of the first Partition Act in 1539 ^[F33] and of every subsequent Partition Act was the provision of a remedy for one co-tenant who, in the event of a dispute with another co-tenant, was without an adequate remedy to protect his share or interest in the land. The remedy of sale was first provided for by The Partition Act 1868 (UK). ^[F34] Both remedies terminate the co-ownership of land. The consequence of an order for either partition or sale is the termination of the existing co-ownership and the passing of full title to an owner who, without requiring the concurrence of a co-owner, can occupy and use the land as he sees fit or determine its further disposition. Sometimes this is effected by partition of the parcel of land, sometimes by purchase by continuing co-owners of the share or interest of a retiring co-owner, ^[F35] sometimes by sale of the entirety either to a third party or to one or more of the co-owners. However the consequence is effected, the remedies afforded by the Partition Acts to a co-owner of land terminate the co-ownership and break any deadlock affecting its occupation and use or its disposition. That being the effect of the modern Partition Acts, their purpose can be stated. The purpose of such Acts is to provide a statutory mechanism for terminating the co-ownership of land when the co-owners fail themselves to agree on the manner in which the co-ownership shall be terminated. By affording the remedies provided by the Partition Acts, the legislature has facilitated the alienability of the land itself and alienability of land is a policy which the law supports except where inalienability is required for the protection of a disadvantaged class. ^[F36] Co-owners having the capacity to deal with their respective shares or interests are at liberty to agree the terms on which the land will be disposed of or the terms on which the shares or interests of one or more co-owners will be acquired by another or others or the manner in which the land in co-ownership shall be divided. When a term bargaining away the statutory right to apply for an order for partition or sale is part of an agreement which itself provides for the termination of the tenancy in common, the bargain is consistent with the policy of the Partition Acts. Thus joint venture or partnership agreements which govern the development and sale of land or otherwise provide for its disposition when the joint venture or partnership is wound up may validly exclude, expressly or impliedly, the right of a co-owner to apply for an order for partition or sale. ^[F37] Similarly, the right to apply may be excluded by the terms of a grant of an option or right of pre-emption over the share or interest of a co-owner. But where there is no agreement between or among co-owners which provides for the termination of the co-ownership or where an agreement between or among co-owners would prevent the termination of the co-ownership, it would be contrary to the policy of the Partition Acts to deny the remedies they afford. To deny those remedies would be to leave the land in the hands of the co-owners who may be unable or unwilling to agree on its management and use and who have made no agreement for its disposition. ^[F38] To leave the land in that situation is wholly inconsistent with the policy of facilitating alienability which, in my opinion, is one of the chief purposes of the Partition Acts.

In the United States, public policy results in a somewhat different application of the Partition Acts, namely, that the remedies of partition and sale should not be bargained away for a period longer than that fixed by the rule against perpetuities. In Roberts v Jones ^[F39] the agreement between the two tenants in common was relevantly indistinguishable in effect from cl.4(b). They conferred on each other mutual rights of pre-emption and required any third party purchaser to "be willing to purchase subject to the obligations of the agreement". Ronan J, speaking for the Court, said: ^[F40]

"The agreement unduly restricts the alienation of the property for an unreasonable length of time. Accordingly, it does not come within the general rule that an agreement postponing partition for a reasonable time will bar partition, ... and as the operation of the agreement may result in restricting the alienation of the property for years, contingent in substance upon a sale being made with the consent of both parties, the agreement imposing such a restraint upon the alienation of an estate in fee simple for a period beyond that fixed by the rule against perpetuities is contrary to public policy and cannot be enforced."

Such a rule, though supportable as an instance of a general rule against restraints on alienation, fastens on the perpetuity period as the yardstick of unreasonableness. ^[F41] But I would place the rule on the basis that one of the purposes of the Partition Acts is to provide for the termination of co-ownership of land where the co-owners are unable to provide for it or have failed to do so. The remedies afforded by the Partition Acts are created to serve that purpose in the public interest as well as in the interests of the co-owners. On that basis, the co-owners are incapable of bargaining away their right to apply for an order for partition or sale except where the bargain is made as part of an agreement which itself provides for the termination of the co-ownership.

I would therefore hold that Pt 4 of cl.4(b) is void and that Nullagine, provided it has complied with its obligations under Pts 1 and 2, is at liberty to apply for and to obtain an order for sale under s 126(1). Nullagine, without the restriction purportedly imposed by Pt 4 of cl.4(b), may, if it wishes, sell its share on the open market. Part 4 is clearly severable from Pts 1 and 2. It may be severable from Pt 3 but it is immaterial whether Pt 3 falls with Pt 4 or not. Parts 3 and 4 relate to a covenantor's right to sell its share after a covenantee's failure to buy and, if Pts 3 and 4 are construed as a single covenant so that both parts fall, the covenantor's common law right to sell its share on the open market and its statutory right to apply for and to obtain an order for sale under s 126(1) are left untrammelled.

However, Nullagine has not made an offer of its share to the Club in accordance with Pts 1 and 2 of cl.4(b). The discussions between Nullagine and the Club about Nullagine's sale of its share failed to produce an agreement. To satisfy cl.4(b), the price of any offer must therefore be determined by arbitration in accordance with Pt 2. If the price is so determined and Nullagine offers its share to the Club at that price and on terms agreed or on the terms contained in Pt 2 and if the offer is not accepted within the time prescribed by Pt 3, Nullagine may either sell its share on the open market without the restriction prescribed by Pt 4 or it may proceed with its application for an order for sale under s 126(1).

I would therefore dismiss the appeal generally but I would vary the Full Court's order of 30 March 1992. In lieu of par.3 of that order, I would substitute an order in the terms following:

(a)

Declare that the plaintiff may not dispose of its share or interest in the land at 18 The Esplanade, Perth, held by the plaintiff and the defendant as tenants in common unless it first offers its share or interest to the defendant in conformity with cl.4(b) of the Occupation Deed and the defendant within the time thereby limited does not accept the offer.

(b)

The plaintiff's claim be stayed until it has made an offer in accordance with the preceding sub-paragraph and the defendant has failed to accept that offer within the time therein mentioned.