New South Wales Supreme Court CITATION : The Glebe District Hockey Club Inc v New South Wales Harness Racing Club Limited [2001] NSWSC 401 revised - 17/05/2001 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 4599/99 HEARING DATE(S) : 08/05/01 JUDGMENT DATE : 8 May 2001 PARTIES : The Glebe District Hockey Club Inc (Plaintiff/Respondent ) New South Wales Harness Racing Club Limited (ACN 000 002 666) (Defendant/Appellant) JUDGMENT OF : Santow J COUNSEL : L J W Aitken (Defendant/Appellant) R G McHugh (Plaintiff/Respondent) SOLICITORS : Clayton Utz (Defendant/Appellant) Deacons (Plaintiff/Respondent) CATCHWORDS : CONVEYANCING — CONTRACT — PROCEDURE — Agreement for lease — 23 year lease — Party not yet in occupation — Strike out application — Could not be said to be "clearly demonstrated" specific performance could not lie — Clause entitling lessor to force relocation where conditions satisfied not sufficient to convert lease to licence or necessarily preclude specific performance — Specific performance of licence where damages not adequate remedy may be possible. Chinese Cultural Club Limited v Oswelt Pty Ltd (No 2) (BC9201423, NSWSC Young J, 11 December 1992, unreported) Composite Buyers Ltd v Soong & Anor (1995) 38 NSWLR 286 Coulls v Bagot's Executor and Trustee Co Limited (1967) 119 CLR 460 CASES CITED : General Steel Industries Inc. v Commissioner of Railways (1964) 112 CLR 125 NSW Harness Racing v Glebe District Hockey Club & Ors (NSWSC (No. 1855/01), Simos J, 22 March 2001, unreported) Verrall v Great Yarmouth BC [1980] 1 All ER 839 Walsh v Lonsdale (1882) 21 Ch D 9 DECISION : The appeal fails. REVISED — 17 May, 2001 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY SANTOW J No. 4599/99 The Glebe District Hockey Club Inc Plaintiff/Respondent New South Wales Harness Racing Club Limited (ACN 000 002 666) Defendant/Appellant JUDGMENT — ex tempore 8 May 2001 INTRODUCTION 1 This is an appeal from a decision of Master Macready brought by the Appellant/Defendant in which he declined to strike out the Respondent/Plaintiff's Statement of Claim. 2 The Respondent/Plaintiff's (the Hockey Club's) statement of claim seeks the following relief: (a) rectification of clauses of an Agreement for Lease and of the Lease itself; (b) specific performance of the Agreement for Lease; (c) damages for breach of the Agreement for Lease and the Lease. 3 The Statement of Claim is also sought to be amended by adding an additional head of damage. Such amendment is not material for present purposes. SALIENT FACTS 4 In broad terms, what has happened is that the Plaintiff/Respondent is a Hockey Club which entered into an agreement for lease with the Defendant/Appellant which is a Harness Racing Club. Each Club is in incorporated form. That agreement was entered into on 7 July 1995 and annexes a lease. 5 There is nothing to indicate that the agreement for lease and annexed lease are uncertain in their operation. The lease is expressed to enure for a period of twenty-two years with the commencement of the lease dealt with in clause 6 of the agreement for lease. There is an option for a further 22 years; see clause 8. 6 The matter of principal relevance concerns whether clause 11 in the agreement for lease, quoted below, read in context with the later clause 21 and the annexed lease as a whole has the effect that there is either no lease at all but a mere licence "clearly demonstrated" to be incapable of specific performance, or else a lease terminable in effect on three months' notice and again clearly demonstrated to be incapable of specific performance. Such clear demonstration (of no cause of action) is the necessary pre-condition for striking out a statement of claim and imposes a heavy onus; see 14 below. It is contended by the Defendant/Appellant that the lease here is essentially equivalent to the kind of lease dealt with in the Chinese Cultural Club Limited v Oswelt Pty Ltd (No 2) BC9201423, an unreported decision of Young J denying specific performance. To be compared is clause 11 which reads as follows: "11. If at a date during the operation of this Lease Agreement or during the option period the Lessor desires to resume exclusive occupation of the hockey field and/or the clubhouse and/or other areas of the lease or of the licence the Lessor shall provide three (3) months written notice to the Lessee and shall provide an equivalent lease area of comparable standard with the same standard of improvements that are in existence at the time of the relocation notice ("the relocation"). This lease agreement shall apply to such new lease area. Should such a relocation be required the Lessor shall use its best endeavours to relocate the Lessee within the Municipality of Leichhardt Council. However, if no appropriate site is available within such Municipality the Lessor shall use its best endeavours to effect such relocation within the boundaries of an adjoining Municipality. Such relocation away from the site and premises of the Lessor shall be subject to the approval of the Lessee and such consent shall not be unreasonably withheld." 7 Relevantly, I should note at this point the affidavit of Harry Joseph Wark of 2 April 2001. At paras 17 to 34 he states that the facilities provided by the lease were unique in the local area there being, according to that evidence, no comparable hockey field available. That evidence was, naturally enough, not put to proof in the present application and can be accepted for present purposes. 8 Clause 21 of the lease is in the following terms. "21. (i) The Lessee shall not impede the rights of the Lessor of possession and control of the area related to this agreement. (ii) The Lessor and Lessee hereby agree and declare as follows: (a) As outlined above, should the need arise the Lessor may require that the Lessee to be relocated; (b) Without prejudice to the general right of the Lessor to enter upon and control the lease area the Lessor or its agent or any other person authorised by it may at any time and from time to time inspect the lease area and all matters or things thereon for the purposes of ascertaining whether all or any of the provisions of this lease is or are being faithfully kept, observed and performed and the Lessee shall forthwith remedy any breach thereof upon being required so to do." 9 I do not need to concern myself with the other provisions of the lease beyond noting that there are distinct obligations in relation to what are called "licence areas". That is significant because it indicates that the draftsperson was conscious of the distinction between a lease and a licence, as was noted by Simos J in hearing the related caveat removal proceedings in NSW Harness Racing v Glebe District Hockey Club & Ors (NSWSC (No. 1855/01), Simos J, 22 March 2001, unreported). 10 Simos J was dealing with an earlier phase of the litigation between the parties where he concluded that the lessee did not have a caveatable interest. It is not suggested that any issue estoppel here arises. Rather the Defendant/Appellant simply relies on the reasoning of Simos J in reaching the conclusion he did. 11 Simos J did not determine that there was no lease but a mere licence. Rather it appears he determined to the contrary. But he did then conclude that the proper way of considering the question of an interest in property was by judging matters after the three months notice was given under clause 11. Under clause 11 the lessor has the right to give three months' written notice to the lessee of the lessor's desire "to resume exclusive possession of the hockey field …" It then goes on to say that "after which time the lessee would not be entitled to seek any relief from the court which would give it any rights in respect of the land". 12 That consideration, coupled with the reasoning of Hodgson J in Composite Buyers Ltd v Soong & Anor (1995) 38 NSWLR 286, was held by Simos J as "sufficient to justify the conclusion that [the lessee] does not under the agreement for lease including the form of lease have an interest in land capable of supporting a caveat". Thus Simos J's reasoning can be taken to be that clause 11, coupled with the fact that there was merely an agreement for lease, was insufficient for even an equitable interest in land to arise, in contrast to the position in Composite Buyers Limited (supra). I have with respect some difficulty with that reasoning which Simos J explained was to resolve a particularly difficult problem evidently arising in the duty list at short notice. It appears to proceed with an initial recognition of the existence of an agreement for lease, but which is then disregarded or said not to give rise to any interest in property, even equitable. This is evidently because one looks to the position after notice was given under clause 11. That leads to the result on that reasoning that one then no longer has an interest in property or, conceivably, one is deemed never to have had one. I deal later with clause 11 and its effect as I see it. 13 The present proceedings focus upon the Statement of Claim brought by the Plaintiff/Respondent on 1 November 1999, seeking a number of remedies including rectification but particularly relevant here, specific performance. 14 While there is as yet no transcription of the ex tempore judgment of Master Macready, it appears that its reasoning turned upon well settled principles applicable to strike out applications. These impose a heavy onus of "clearly demonstrating" that the Statement of Claim fails to disclose a cause of action; see General Steel Industries Inc. v Commissioner of Railways (1964) 112 CLR 125 at 129. There Barwick CJ emphasised: "the need for exceptional caution in exercising the power" of summary dismissal. Thus, 'once it appears that there is a real question to be determined whether of fact or law ', the court must permit the plaintiff's case to proceed (112 CLR at 130)" [emphasis added] 15 The Master then fastened on the discretionary aspects of the nature of specific performance in concluding that the strike out application failed. RESOLUTION OF ISSUES BEFORE ME 16 Unlike when the matter was argued before Simos J, I have had the benefit of extensive written and oral argument. This has exhaustively dealt with the legal question to be resolved, namely, whether there was "clearly demonstrated" that the Statement of Claim failed to disclose a cause of action in seeking specific performance of the agreement for lease. 17 Ultimately the question turns upon the effect of clause 11 to which I have earlier made reference. This is in the contractual context of an agreement for lease containing the intended lease, in circumstances where the lease itself has never been performed. 18 Were there no clause 11, there would be no doubt that, on the well-settled principles applicable to agreements to grant a lease, the twenty-two year lease, the subject of the agreement to grant a lease, would be capable of specific enforcement; see the discussion in Butt "Land Law" (LBC, 1996) at 291 — 296. There is a helpful explanation of how equity would intervene in the case of an agreement for lease. I quote: "Pending execution of the formal lease, equity would by injunction restrain the landowner from acting in a manner inconsistent with the obligations imposed by the agreement.177 Indeed, equity went further. It was held in 1882 in the English case of Walsh v Lonsdale 178 that there was no need for any actual order for specific performance of the agreement to grant the lease. It was sufficient that the parties were entitled to obtain such an order. Before the English Judicature Acts 1873-1875, a landlord wanting to exercise a common law remedy (such as recovering rent) under an agreement for a lease would have to go first to the Court of Chancery for an order decreeing execution of a legal lease, and then pursue the common law remedy in a court of common law.179 But since the Judicature Acts in England, and now in all Australian States, in a court exercising concurrent jurisdiction,180 where the circumstances are such that the court would order specific performance of the agreement to grant a lease, then the parties are treated as between themselves as if a formal lease had been executed.181 Even without an actual order for specific performance, they are treated as having the rights and obligations available under a legal lease.182 So the landlord has the same rights as if a legal lease had been granted, and the tenant is protected in t he same way as if a legal lease had been granted.183' 177 Dockrill v Cavanagh (1944) 45 SR(NSW) 78 at 83; Todburn Pty Ltd v Taormina International Pty Ltd (1990) 3 BPR 11,173 at 11,174. 178 (1882) 21 Ch D 9 at 14-15. See generally, Gardner, "Equity, Estate Contracts and the Judicature Acts: Walsh v Lonsdale Revisited" (1987) 1 Oxford Jn of Leg Studies 60; Sparkes, "Walsh v Lonsdale: The Non-Fusion Fallacy" 1988) 8 Oxford Jn of Leg Studies 351. 179 See the discussion in Chan v Cresdon Pty Ltd (1989) 64 ALJR 111 at 115-116. 180 See [734], [735]. 181 Swain v Ayres (1888) 21 QBD 289 at 293 182 Walsh v Lonsdale (1882) 21 Ch D 9 at 14-15; Noyes v Klein (1984) 3 BPR 9216; Manchester Brewery Co v Coombs [1901] 2 Ch 608 at 617-618; Chan v Cresdon Pty Ltd (1989) 64 ALJR 111 at 115-116, where the position pre-Judicature Acts is contrasted. Cf Meagher, Gummow and Lehane, Equity, paras 235-245 183 York House Pty Ltd v Federal Commissioner of Taxation (1930) 43 CLR 427 at 436. Butt goes on to explain that while specific performance may lie, it remains a discretionary remedy. But it must be remembered that this is a strike out application, where it suffices if there is an arguable case for a favourable exercise of discretion. 19 The Plaintiff/Respondent contended that the effect of clause 11 was not simply to convert the "lease" into either a mere licence, or a lease effectively terminable at will on three months' notice. I agree with those contentions. He also contended that it is simply not true to say that a mere licence could never be the subject of specific performance. He cites Verrall v Great Yarmouth BC [1980] 1 All ER 839. In that case Denning MR (at 844), Rosskill LJ (at 847) and Cumming-Bruce LJ (at 848) held that equity would grant an injunction or decree specific performance in respect of a licence in appropriate circumstances where damages was not an adequate remedy. The court observed that the decree could issue where there was a wrongful repudiation of the licence, even before the licensee entered into possession. 20 Counsel for the Defendant/Appellant attempted to distinguish that case as one where equity was merely enforcing a transient licence such as the hire of a hall for a day. But I would not accept that distinction. Nor the proposition said to follow, that a licence, if such there be here, would never be capable of specific performance, remembering this must be a matter of "clear demonstration" in a strike out application. A licence for 23 years leading on a clause 11 relocation to a lease elsewhere without (as I construe it) itself containing a further relocation clause), could be capable of specific performance where damages was not an adequate remedy. As Windeyer J observed in Coulls v Bagot's Executor and Trustee Co Limited (1967) 119 CLR 460 at 503, the fundamental issue is whether damages will "satisfy the demands of justice". For that reason, "[t]here is no reason today for limiting by particular categories, rather than by general principle, the cases in which orders for specific performance will be made. 21 It is moreover clear from clause 11 that the lessor does not have an absolute and unfettered right to resume exclusive occupation of the hockey field, merely upon giving three months' written notice. There is still a further positive obligation first to provide "an equivalent lease area of comparable standard". This is so, though there be at this point no improvements to which the further clause 11 "requirement" of the same standard of improvements could apply. Moreover the place of relocation is to be found "by best endeavours" within the Municipality of Leichhardt Council but if unsuccessful, then the lessor's obligation is "to use its best endeavours" to effect such relocation within the boundaries of an adjoining Municipality. 22 It is significant that the pre-condition upon the lessor's right to resume exclusive occupation is therefore to provide as an absolute obligation a comparable standard for that equivalent lease area. But only "best endeavours" are called for when it comes to the actual area in or outside Leichhardt. That contrast underlines the fact that clause 11 contemplates those best endeavours may be unsuccessful. That would leave the lessor with no legal alternative, if it has failed to provide "the equivalent lease area of comparable standard", to continuing unterminated the existing lease for its twenty-two year duration unless on a later occasion able to satisfy that condition of clause 11 in the meantime. 23 There is thus a lease, not a licence. It is terminable only upon satisfying certain conditions in clause 11, themselves dependant upon the lessors' efforts which may succeed or fail. That is far from a lease terminable on three month's notice, as the Defendant/Appellant presented it. The position is distinguishable from that before Young J in the Chinese Cultural Club Limited (supra). In that case he was dealing with a situation where a person was in exclusive possession of premises, provisionally with a view to an intended agreement for lease on Masters v Cameron principles, such that the relationship between the parties was, as Young J characterised it, one merely of a tenancy at will. 24 Here the lease arises in different circumstances. Moreover, it could not be said that it is "clearly demonstrated" that damages are an adequate remedy. Nor is it "clearly demonstrated" that equity's intervention would be a farce, simply inviting a three month's notice or further notice, though that was the position found in Chinese Cultural Club. 25 Accordingly, I conclude that clause 11 does not take the case outside the principles recognised by the rule in Walsh v Lonsdale referred to earlier in Butt (supra), with the consequence that it has not been clearly demonstrated that specific performance would not lie. 26 Finally, I should add that even were the relevant agreement such as to give rise to a licence rather than a lease, applying the heavy onus of the General Steel test, it would not follow that the Master was in error in concluding that the Defendant/Appellant had failed to "clearly demonstrate" that specific performance could not lie. CONCLUSION 27 The Defendant/Appellant's appeal fails. COSTS 28 While it has been impressed upon me that costs should be the Plaintiff's costs in the cause, in all the circumstances I consider that costs should follow the event. Accordingly I order that 1. The Defendant/Appellant's appeal be dismissed. 2. The Defendant/Appellant pay the Plaintiff/Respondent's costs. ********** Last Modified: 05/18/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.