ADC Buildings Pty Ltd v Barana Properties (No 1) Pty Ltd [2005] HCATrans 964 (18 November 2005)

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ADC Buildings Pty Ltd v Barana Properties (No 1) Pty Ltd [2005] HCATrans 964 (18 November 2005)

Last Updated: 24 November 2005

[2005] HCATrans 964

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S369 of 2005

B e t w e e n -

ADC BUILDINGS PTY LIMITED

Applicant

and

BARANA PROPERTIES (NO 1) PTY LIMITED

Respondent

Application for special leave to appeal

GLEESON CJ
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 18 NOVEMBER 2005, AT 11.14 AM

Copyright in the High Court of Australia

MR M.J. LEEMING: May it please the Court, I appear for the applicant. (instructed by Speed & Stracey)

MR B.W. WALKER, SC: May it please the Court, I appear with my learned friend, MR R.C. SCRUBY, for the respondent. (instructed by Kemp Strang)

GLEESON CJ: Yes, Mr Leeming.

MR LEEMING: As your Honours know, this application presents a short question of construction of considerable importance to the parties and, as you will have seen from the affidavits in the application book, of some broader importance as well. Can I expose the question of construction immediately. The clauses are set out at pages 30 and 31 of the application book, clauses D and C of the lease as varied. At line 34 clause D in the rent review provisions imposes a rate of 8 per cent of the value of the land. That term is defined in clause C and it is on clause C that the whole of the reasoning in the courts below turns.

There are seven things to say about clause C. The first sentence requires there to be a hypothetical sale of the fee simple of the land subject to the lease with the improvements, apart from land improvements, taken away. What is important though is the second sentence. That begins with the words, “Despite anything in the preceding sentence”, words of priority. So that what follows must, where inconsistent, override what is in the first sentence.

Then what follows are these mandatory words, “it will be assumed” in determining the capital sum. So that the approach that this clause requires to be taken in the exercise conducted pursuant to clauses C and D is have a look at the fee simple of this land on some hypothetical sale with the building taken away but impose these nominated assumptions. Let me get to the assumptions immediately. In (a) and (b) the first thing to note is that the words “may be used” are invoked. They are words that come back because they are at the fulcrum of the case as decided below, as my learned friend pitches his submissions.

Secondly, all of the words in (a) and (b) have regard, in my submission, to events that are actually occurring here and now as at the date of the rent review on the premises:

may be used or may be continued to be used, for any purpose for which it is or was being used, or for which it could be used, at the relevant Review Date –

All of those words point to a factual inquiry as to what in fact is happening on the premises at the time the review is taking place. Of course, the thing that may not be occurring as at that time is the very basis upon which the valuer has conducted his valuation, namely a residential use rather than a commercial use which was all that was permitted. In paragraph (b) the same point is made by reinforcement:

such improvements may be continued or made on the land . . . to continue to be so used -

Again, the point that follows is that attention needs to be given in conducting this hypothetical valuation exercise to actual conduct on the lease. In the light of those words, given the precedence of the given by the words “Despite anything in the preceding sentence”, one comes to the critical words upon which my learned friend relies:

but nothing in this clause prevents regard being had . . . to any other purpose for which the land may be used on the assumption that such improvements . . . had not been made –

That clause is dispositive of the litigation in the courts below and it is pitched in the respondent’s summary of argument as dispositive of this application. I agree. It is the critical clause.

Necessary to the decision in the court below and necessary to my learned friend’s argument today is that those words “may be used” in that clause have a completely different meaning from the identical words used in paragraph (a). In paragraph (a) they require an examination of what is permitted and what is forbidden on the premises at the time the rent review clause is taking place. In the proviso it is necessary to the judgment of the court below – and I will take your Honours to that immediately – and to my learned friend’s argument here that they mean the opposite of what they say. They include something which was forbidden as at the time of that hypothetical inquiry.

GLEESON CJ: Forbidden by what?

MR LEEMING: Forbidden by the terms of the lease. Can I take your Honours immediately to what, in my submission, is the jump in the reasoning process in the court below in the paragraph that grapples with this. It is paragraph 43 which your Honours will find at page 41 of the application book. In that paragraph the court has set out the relevant extracts of those provisions in paragraph 42. I am bound to say there is nothing objectionable at all about the first sentence of 43 which accurately restates the proviso, namely that:

nothing in the clause prevents regard being had to any other purpose for which the land might be used on the assumption that the building had not been constructed.

Then, in my respectful submission, there is a jump. The assumption is that the building had not been constructed, but from that the court reasons that:

the valuer can take into account any potential legitimate use of the land (that is, legitimate under the town planning legislation –

that is the point your Honour the Chief Justice raises. The assumption that goes into this clause is simply, “Don’t have the building on the premises”. That is an assumption that has a very strong tie to the provisions of this very unusual lease because this long-term lease between the parties expressly dealt with the destruction and rebuilding of those premises.

Can I take your Honours to that. In the applicant’s other material your Honours will find the original lease before it was varied on page 3, clause 4. This is one of the original clauses that was not varied when the new provisions were substituted in. Your Honours will see in clause 4(a) “That the Lessee shall have the right and the Board shall have the right to require” demolition and rebuilding of the structures on this land. That right is expanded in paragraphs (b) and (c) below.

So that it is not altogether surprising that when in this lease reference is had to assuming that those improvements have not been made, that is something that the lease itself contemplated happening in fact twice over the long-term period of the lease. In other words, it is not necessarily divorced from the reality of what was there occurring. As your Honours know – and it can be seen on page 8 of the same bundle – a term of the grant of possession to my client under this long-term lease in clause 16 was that those premises shall be used solely for office, vehicle parking and letting as commercial offices, not residential property.

The question in a nutshell which is a very short one, and probably the presentation of the argument on appeal except for one thing I will come to and will not take much longer than the presentation I have made to your Honours today – is whether those words “may be used” in the proviso permit regard to be ignored of that restriction on use on premises. For the reasons I have already observed, we say there is at least a plausible persuasive argument to that effect. It is an argument that has not been taken into account at all in the reasons of the courts below because – and this is what is put at the forefront of the submissions against me today – all the parties did, it is said, was incorporate into the terms of the lease section 6A of the Valuation of Land Act and all of that learning ought be imported in the construction of this term.

The first answer to that is that it does not resolve the textual difficulties to which I have attempted to point, but the second answer to it, if I may say so, is this. It is perfectly clear, as his Honour the trial judge made out, that 6A was inserted, retrospectively as it happens, into the Valuation of Land Act in order to prevent the anomaly of existing use rights not being taken into account when conducting these valuations because you would have circumstances where a very valuable use was being conducted on a property that increased the value of the land. It was prohibited by statute except by virtue of the existing use rights and there was an anomaly if the valuation failed to have regard to the actuality of the use that had been occurring on the site and which was protected by statute.

That is what drove 6A and, as your Honours can see, that is a legislative regard to the actuality of what was occurring on the land. The same reference to actuality was remarked by this Court much more recently of course in Maurici. The point of valuation is not to shut one’s eyes to the reality of what is happening. When one does, one gets at the commercial level the rather unusual result that has occurred both at first instance and in the Court of Appeal in this case. It would be clear that the early authorities that led to the retrospective introduction of 6A, in my submission, are supportive of the construction which we would seek to advance.

Those are the reasons I would wish to advance in support of a grant of special leave.

GLEESON CJ: Thank you, Mr Leeming. Yes, Mr Walker.

MR WALKER: If your Honours go back to page 30 where the relevant term is commenced to be put out, though my friend has not said so, it must be that his interpretation is as follows, namely that the fee simple is one burdened by the lease. He certainly says that the valuation process is one burdened by a lease restriction on use. It cannot be burdened by just a use restriction on the lease and otherwise free of any leasehold estate, yet, for the reasons put in both courts below, this valuation of what is called the value of the land to have a flat percentage rate as the rental equivalent cannot possibly be interpreted as the fee simple encumbered by whatever leases, mortgages or the like would have an effect on the price to be paid or offered by someone who would be so encumbered in their enjoyment of the fee simple.

Rather, as one would expect, this is the unencumbered fee simple being valued on a conventional basis where the first references (a) and (b), foot of 30, top of 31, particularly in (a), are designed to ensure that what in this State are called existing use rights will not be lost as a market value of the land, they being, to pick up my learned friend’s approach, a realistic aspect of the market’s response to land, particularly in a built-up area, where planning notoriously has changed from time to time. It is thus that there is no tail wagging the dog but rather a return to the notion of an unencumbered fee simple with another realistic component added that you find in the proviso and the use made by us in successful argument below about the proviso, to adopt the label my friend has given to the last words of the first part of clause C.

Your Honours will see there that one returns to the assumption which is at the heart of this valuation of something which does not exist, namely the land without its improvements. At the heart of that is the notion that there is something called “any other purpose”. The word “other” must apply so as to contrast with the purposes previously noted in (a) and (b) and it is a purpose for which the land may be used on what I will call the cleared or vacant assumption. It actually says:

on the assumption that such improvements, if any, other than Land improvements had not been made –

That is a use other than those that my friend has accurately described in (a) and (b) as encompassing everything that the lease permits or requires. It is something other than that and it is on an assumption that there is not an office building there at all.

Furthermore, it is the fee simple being valued, that is the perception of the markets to that being on offer, not to that being on offer with the lease, from which it follows the assumption is no actual office building. The clear basis or premise is no lease that requires it to be used only as an office building. We then have left only, as the courts below have held, consistently with the use of these words in other and obviously related contexts, that that means of course limited only by the planning law, not the private law set up by the lease whose existence is ignored for this purpose.

When your Honours see what land improvements are because they are part of the assumption, they include of course for redevelopment the all-important item (d) one finds at page 31, line 30, “excavation”. So you have a city site excavated with the local planning regime permitting multistorey residential accommodation, the lease which is the only instrument my learned friend relies on to limit it to an office building being as a matter of basic premise of the exercise not an encumbrance on that fee simple being offered to the market and you have the notion of “any other purpose” apart from those for which it is being used or may be used under the lease as a purpose to which the valuer is to have regard when assessing the response of the market to the offer of that fee simple.

For those reasons, in our submission, this is a case where plainly the result below was right and for that reason alone there should be no grant of special leave. The other reasons against the grant of special leave your Honours have read rehearsed in the exchange of written submissions and they come to this. There is no transcendent point raising any matter of general principle. The only general doctrines of law that are being invoked by my learned friend and those implicitly are of course the everyday tools of the interpretation of written instruments, whether one calls it the law of contract or talks about the law of instruments concerning the creation and regulation of estates of land will not matter for present purposes. Nothing is suggested by my learned friend as suggestive of anything by way of qualification, refinement or refreshment intended to be accomplished in the High Court in relation to any of those doctrines.

It therefore would behove my learned friend to show that there is some exemplary error of a kind that may mislead other courts in the Court of Appeal either in its self-direction as to those principles or in how they are applied, and neither has been identified. In our submission, this is therefore an application for special leave which is nothing other than an attempt to have a second appeal on matters that have already been the subject of two unsuccessful hearings. May it please the Court.

GLEESON CJ: Yes, Mr Leeming.

MR LEEMING: May I say two things. First of all, it is no answer, in my respectful submission, to accept as I do that fee simple means the unencumbered fee simple. To put that submission is, in my submission, to make the same error as detected in the courts below, that is, not to have regard to the dispositive and precedence-accorded words of the assumptions according to which the valuation of that fee simple must be conducted. In other words, one starts with the unencumbered fee simple – no dispute between us about that – but then when valuing what would be the outcome of the hypothetical sale, one must impose the assumptions set out in the second sentence of the clause. So that it is no answer at all, in my submission, to point to the well-recognised meaning of fee simple in these circumstances as the unencumbered fee simple.

The only other argument, the second point that I wish to make in reply, that my learned friend put against the construction submissions that I had advanced was pointing to the words “to any other purpose for which the land may be used”. I accept of course those words ought be afforded weight on the construction which I am advancing. In my submission, they are. To take the facts quite different from the present facts, suppose my client’s landlord had permitted, which it has not, residential use of the premises but that use was not in fact occurring. That would be exactly the sort of purpose which would give those words work to do. So that the
argument put against me, but on my construction those words have no work at all to do, is falsified by that example. If it please the Court.

GLEESON CJ: We think there are insufficient reasons to doubt the correctness of the decision of the primary judge in the Court of Appeal in this matter to warrant a grant of special leave to appeal and the application is dismissed with costs.

AT 11.33 AM THE MATTER WAS CONCLUDED