Macquarie International Health Clinic Pty Limited v Sydney Local Health District [2021] HCATrans 127 (13 August 2021)

Last Updated: 20 August 2021

[2021] HCATrans 127

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S216 of 2020

B e t w e e n -

MACQUARIE INTERNATIONAL HEALTH CLINIC PTY LIMITED

Applicant

and

SYDNEY LOCAL HEALTH DISTRICT

Respondent

Application for special leave to appeal

GAGELER J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY AND MELBOURNE BY VIDEO CONNECTION

ON FRIDAY, 13 AUGUST 2021, AT 10.30 AM

Copyright in the High Court of Australia
MR N.C. HUTLEY, SC appears with MR S.J. PHILIPS and MR S. KANAGARATNAM for the applicant. (instructed by S Moran & Co)

MR D.L. WILLIAMS, SC appears with MR B.D. KAPLAN and MS S.A. SCOTT for the respondent. (instructed by Clayton Utz)

GAGELER J: Mr Hutley.

MR HUTLEY: Thank you, your Honour. As your Honours appreciate the application concerns claims for mesne profits on the part of a lessee concerning a lease for a hospital site and a lease for a car park.

GAGELER J: Mr Hutley, as to the hospital site, I see that if you are successful on the appeal, one of the orders you are seeking is remitter to the Equity Division of the Supreme Court.

MR HUTLEY: Yes.

GAGELER J: What are you going to be asking for there, and how long is it going to go for?

MR HUTLEY: We are going to be asking – on the assumption that your Honours have allowed the appeal, your Honours will have allowed the appeal that what has to be determined is, in effect, the market value of the hospital lease for the term of 15 years and that will have to be determined according to the inquiry as to facts as to the likelihood of that being able to take place, either on my client’s part or on the part of some third party, which was an issue in dispute between ourselves and the respondent. But his Honour did not consider it necessary to inquire into it, having regard to the assumption he made that the hospital was constructed. That was the subject of the agreement between the parties as to ground 4, that in the event that they were successful as to ground 4, the matter would be remitted for an inquiry as to the rental under that lease.

GORDON J: Is that an answer to paragraph 238, that there was no fallback position?

MR HUTLEY: There was no fallback position that the sole rent would be the rent of an unimproved site, i.e. the freehold unused. We did not run a case that if the case which they had found, namely all that one determines by way of rent is for an unimproved site of land without any regard to the terms of the lease, that there was some rental value to it. We did not run that.

We certainly ran a case, and there was a large debate about whether we could or would build the property. That was rendered irrelevant – considered irrelevant by his Honour at trial. If we are successful on the appeal it will have to go back for that inquiry to take place and that to then be factored into an assessment of the rental value over the 15 years of the hospital site.

GORDON J: So that is contrary, is it not? The thing that I am quite interested in is how does that fit with the fundamental principle of mesne profits, that you look at the defendant’s actual use of the property, being as I understand you accept, an unimproved site.

MR HUTLEY: With respect, the premise is - and we say therein lies the error. The error is what is the interest to be valued? The interest, we say, interfered with was a lease of a site.

GORDON J: That is the problem. One does not look to see what the interest is interfered with. That is not the – either the underlying rationale or purpose of mesne profits. One looks to the defendant’s actual use of the land.

MR HUTLEY: Your Honour, with respect, that is what is actual use of land when one is excluded for 15 years. We say that is a use and once there has been a use, one determines the market value of that seizure. In other words, mesne profits are not limited to the particular use which the wrongdoer chooses to make. In other words, if I excluded your Honour.....home for 15 years, but chose not to rent it, your Honour would not be denied mesne profits, being the rental value of the property. The use I would have is the exclusion of your Honour from your Honour’s home for 15 years. What we say - we were excluded for 15 years, and that was a use by the respondent, and they must pay, we say, the market value of the interference with our interest, meaning the interest under the lease.

GORDON J: Can I take you to the principles that are set out at application book 466, paragraphs 128 to 137. Which one of those is wrong ‑ ‑ ‑

MR HUTLEY: We submit, your Honour, that – yes, we submit firstly it is wrong - is the first one. We submit – take up your Honour’s observation in the Lewis Case at paragraphs 82 to 83 where your Honour referred to Inverugie and the fundamental question which was posed about taking the chair. It was not an answer to mesne profits. The person who took it put the chair in a corner and did not sit on it. If you seize and exclude from property we say that is wrong.

We say also 132 is wrong when it refers to “in its existing state” because one has asked “existing state of what?” His Honour took it to be the land only. We say the existing state is the existing state of the interest interfered with which was a leasehold. We say their Honours were – and this appears particularly when they expand on those principles later on, your Honours – if your Honours go to paragraphs 218 to 221. The fundamental error, which is really expounding on those questions, is to be seen at 220:

On its face, there should have been nothing novel about valuing and calculating rent for an unimproved parcel of land, being the Hospital Site –

We say that is precisely the wrong question. We say the right question is what is the sub-rental value of a lease which provides the rights and obligations of this lease, which has been interfered with, and that was the right question. In other words, the consequence – and the odd consequence of the Court of Appeal’s judgment is there is no difference between a mesne profits claim by a freehold owner and by a tenant, even though the rights of the tenant and the entitlements of the tenant may be much less than those of a freeholder and much more valuable in the marketplace than the property itself.

GAGELER J: Did the lease allow for any use of the property other than the building of a hospital?

MR HUTLEY: No.

GAGELER J: Is it correct that the hospital would not have been built for commercial reasons?

MR HUTLEY: No. Your Honours, that comes to the point where our learned friends have gone to the judgment of Justices Windeyer and Nicholas, one interlocutory and one final, about the attitude to building at the point of interference – original interference with the property. Now, there was a vast amount of evidence led at trial with no objection and dispute as to whether there had been a fundamental change of circumstances shortly after the seizure of the property, such that the building of the hospital became commercially viable. In fact, we have referred in our submissions in reply ‑ ‑ ‑

GORDON J: Mr Hutley, I am sorry to interrupt you, but, Justice Gageler, I think we might have lost the respondent.

GAGELER J: You are quite right. Mr Hutley, just pause for a moment, please.

MR HUTLEY: That is usually thought to be a tactical advantage, is it not?

MR WILLIAMS: I am sorry, your Honours. We have been missing in action for quite some time. I am not sure if your Honours had appreciated that.

GAGELER J: No. Mr Hutley, perhaps you need to rewind slightly.

MR HUTLEY: I am not sure – if Mr Williams could tell me where I should rewind to.

GAGELER J: Perhaps we go back to the question that I had put to you concerning the lease and whether the site was able to be used under the lease for any purpose other than the construction and operation of a hospital.

MR HUTLEY: Yes.

GAGELER J: I think you said no.

MR HUTLEY: Yes.

GAGELER J: Then I was going on to ask you about whether such a hospital would be built. As I understand from paragraph 208 of the Court of Appeal’s judgment, you made no attempt to prove at trial that the hospital would in fact have been built or operated.

MR HUTLEY: That is wrong, your Honour. With respect, that is not the position and that is not a finding by the court – can I explain to you what happened, your Honours, so it is clear. The trial judge concluded that there was no need to embark upon that inquiry and it was prepared to assume a hospital was built. We accept that that was an error in his analysis of the profits.

There was an active debate at trial between the two sides as to what my client would do and what was able to be done. My client’s position was that due to changes in circumstances very shortly after the trespass began in March 2000 the hospital became both viable and a desirable thing to occur and that was for extraneous statutory and other reasons, and he would and - and also that any person who came in and took the lease would build the hospital.

Now, that was an active matter of debate between the parties. That is why there was agreement between our side and my learned friend’s side. Ground 4 was – they got up only on ground 4 as opposed to ground 1. The matter would have to go back to trial to determine the disputed issue, namely whether there would have been a hospital built and the likelihood of that occurring. There was a vast amount of material – and your Honours will see, if your Honours go to our reply submissions ‑ ‑ ‑

GORDON J: Before you do that, Mr Hutley, though, there seems to be a fundamental problem with that premise. I had understood that your case had changed substantially during the course of the history of this litigation and ‑ ‑ ‑

MR HUTLEY: Originally - I do apologise, your Honour.

GORDON J: What do you want to say, Mr Hutley?

MR HUTLEY: I am sorry, I spoke across. I thought your Honour had finished. I do apologise.

GORDON J: So much of these sorts of issues were directed, as I understand it, both evidentiary and otherwise, to heads of damage which you abandoned, and we are left with ‑ ‑ ‑

MR HUTLEY: No.

GORDON J: You did not abandon them, because we are now only dealing with mesne profits. We are not dealing with any other head of damage.

MR HUTLEY: I accept that completely, your Honour. I take that as a predicate. But what mesne profits does, we say, as a matter of entitlement, give you a measure when property is seized is the market value of the interest seized.

GORDON J: That is a proposition for which the authorities do not support you. What they say is you are entitled to a market mark‑up – that is use of the neutral term – for the defendant’s actual use of the property in the state it was in at the time the trespass commenced and, as I understand it here, there is no dispute that what was – the stay of the property at the time the trespass commenced was an unimproved site subject to lease.

MR HUTLEY: With respect, what we say is – the proper principle is you are entitled to the market value – can I just use that – of your interest interfered with in the property for the duration of the seizure. For example, we refer to the fact that one can get mesne profits for profit à prendre. So, it is not the market value then of the property in its state. You get what might be called the rental value of the profit à prendre. We referred to March v Clarke in the appeal cases.

What we say is when there is an interference with a lease, that is a lessor or someone else excludes a lessee for an extended period of time, the use is the exclusion and the cases – the principle is that that exclusion will be compensated by the market value to get that exclusion, like the way leave cases.

We say it does not matter, to go back to the example I gave, if you exclude somebody and you choose not to operate the property, that itself is a use. You have made a choice to use the property by excluding and not allowing others to use it. That is the choice – that is your user and it does not require you to go on, for example, to go on and run the place inefficiently or it does not require you to go on and run it illegally. You do not get the benefit of – the value of an illegal use. What we say is once there is a seizure of property the market value of that seizure and exclusion is mesne profits.

GAGELER J: Mr Hutley, you say that at trial you sought to prove this market value.

MR HUTLEY: What we did, your Honour, is – there was expert evidence as to the appropriate market values, which was contested. Their Honours, in effect, because of the attitude taken by the trial judge - he assumed the hospital was built. The court held that the analysis was wrongly undertaken.

GAGELER J: How do you accept that now, as I understand it?

MR HUTLEY: I accept that that assumption was wrong.....to determine the market value of the lease over the 15 years one has to take it attendant with risks which were inherent in it. We accept that to make that sole assumption was an error. That is why we say this raises the acute question of what, when it comes to real property or an interest in real property like a lease, is use.

If you are excluded for 15 years, we say the use is the act of seizing and holding. What you get valued is the market value of that interest, i.e. what it would require, as it were, to get an assignment of the lease, not to get a lease of the property because if one thinks about it, if the property is subject to a lease, how can you get a value of the property below because it is subject to an encumbrance such as a lease.

What we say is that the Court of Appeal is wrong as a matter of principle when dealing with exclusion of a lessee that you ignore the lease,
as the Court of Appeal did, other than saying just the right to possession. What one has to determine is what would a third party pay to get an assignment of that lease for the period of the interference.

We say that is the proper analysis and the Court of Appeal has not done that. Instead they have extracted the lease completely and just dealt with it on the basis that it is an unencumbered piece of land. We say, with respect, that is the appropriate approach, and this is an important question of law and no case has ever held that you can exclude somebody from property for 15 years or any period of time and get nothing because you chose to let it lie fallow. That is the point on the first case.

Now, I heard the bell. Could I turn shortly to the car park?

GAGELER J: .....shortly.

GORDON J: One hundred per cent versus 25 per cent.

MR HUTLEY: Yes. The question here is, as in Inverugie, they said we do not care – the court does not concern itself with actual user. What one had here was a seizure of the car park, a desire as it was found, to let every space, but at a certain period of the week that success, so it was found, was not as successful as other periods of the week.

That is exactly what Inverugie said one does not inquire into. Inverugie says you find out whatever the market rate is and because you have sought to, in effect, turn it to account you pay for the market rate without inquiry as to actual user. We say his Honour applied the principles coming out of Inverugie with precision and the Court of Appeal has, in effect, created an exception. Those are our submissions, if the Court please.

GAGELER J: Thank you, Mr Hutley. Mr Williams, we do not need to call on you.

We are of the opinion that the course of the trial renders this an inappropriate vehicle for this Court to consider the principles governing the quantification of mesne profits. Special leave will be refused with costs.

AT 10.51 AM THE MATTER WAS CONCLUDED