Beaton V Mc Divitt AND Another† PDF

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SUPREME COURT

162

BEATON

V

McDIVITT

AND

[(1987) 13

A

ANOTHER †

Court of Appeal: Kirby P, Mahoney and McHugh JJA 17 December 1986; 14 October 1987 Contract — Consideration — What amounts to — Quid pro quo required — Not satisfied by conditional gift promise acted on to detriment.

B

Contract — Frustration — Operation on express assumption proving false — Operation only where contractual duty to co-operate exhausted. On appeal from a decision of Young J in which he found that an informal relationship between the owners of land and a person permitted to occupy and work part of their land on a promise that he could have part of the land on a contemplated rezoning and subdivision which had not eventuated was one of contract based on a finding that consideration therefor arose from a detriment suffered upon a promise already made and a further finding that the contract was unenforceable because it had been terminated by frustration,

C

Held: (1) For a contract to be enforceable at law consideration must be found in the form of a price in return for the exchange of the relevant promise or a quid pro quo. (166D, 168C, 170E, 175B-G, 180F, 181G, 182D) Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424, followed. Decision of Young J in Beaton v McDivitt (1985) 13 NSWLR 134, reversed on this ground.

D

Dumaresq v Robertson [No 4] (1861) 2 Legge 1387; Forsyth v Linton (1893) 14 LR (NSW) (L) 233 and New South Wales Trotting Club Ltd v Glebe Municipal Council (1937) 37 SR (NSW) 288; 54 WN 77, not followed. (Per McHugh JA) The jurisprudential basis of cases such as Dillwyn v Llewelyn (1862) 4 De G F & J 517; 45 ER 1285; [1861-73] All ER Rep 384, is not contractual but based on the principle that equity will not allow a person to insist upon his strict rights when it is unconscionable for him to do so. (182E)

E

(2) (McHugh JA dissenting) The appeal should be dismissed: (a) (By Kirby P) because, applying the test above, no contract had been proved; (170C) (b) (By Mahoney JA) because, although a contract had been proved on the test above, it had been terminated by frustration. (177C) The doctrine of frustration may operate at law notwithstanding that the parties have contracted on an expressed assumption which in the event proves false. (177A)

F

Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143 and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, considered. (c) (Per McHugh JA dissenting) Although a contract had been proved by applying the test above it could not be terminated by frustration until the promisor had, under his contractual duty to co-operate, done everything necessary to enable the benefit of the contract to be secured. (184F-G, 185G) Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, applied. † [EDITORIAL NOTE: An application for special leave to appeal to the High Court has been refused.]

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NSWLR]

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BEATON v McDIVITT

Decision of Young J in Beaton v McDivitt (1985) 13 NSWLR 134, affirmed for different reasons. Note: A Digest — CONTRACT [75], [131] CASES CITED

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The following cases are cited in the judgments: Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424; affirmed (1955) 93 CLR 546. Barker's Estate, Re; Jones v Bygott (1875) 44 LJ Ch 487. Beaton v McDivitt (1985) 13 NSWLR 134. Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143. Brown v Heffer (1967) 116 CLR 344. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. Chalmers v Pardoe [1963] 1 WLR 677; [1963] 3 All ER 552. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107; [1558-1774] All ER Rep 1. Combe v Combe [1951] 2 KB 215. Commonwealth of Australia v A E Goodwin Ltd [1962] SR (NSW) 315; (1961) 78 WN (NSW) 1166; [1961] NSWR 1080. Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460. Coulton v Holcombe (1986) 162 CLR 1. Currie v Misa (1875) LR 10 Exch 153. Dillwyn v Llewelyn (1862) 4 De G F & J 517; 45 ER 1285; [1861-73] All ER Rep 384. Dumaresq v Robertson [No 4] (1861) 2 Legge 1387. Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co, Ltd [1915] AC 847. E R Ives Investment Ltd v High [1967] 2 QB 379. Eagleson v Public Trustee [1922] NZLR 1054. Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218. Errington v Errington [1952] 1 KB 290. Forsyth v Linton (1893) 14 LR (NSW) (L) 233. Kennedy v Vercoe (1960) 105 CLR 521. New South Wales Trotting Club Ltd v Glebe Municipal Council (1937) 37 SR (NSW) 288; 54 WN (NSW) 77. Olsson v Dyson (1969) 120 CLR 365. Pillans and Rose v Van Mierop and Hopkins (1765) 3 Burr 1664; 97 ER 1035. Placer Development Ltd v The Commonwealth (1969) 121 CLR 353. R v Clarke (1927) 40 CLR 227. Ramsden v Dyson (1866) LR 1 HL 129. Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596. Thomas v Thomas (1842) 2 QB 851; 114 ER 330. Vinden v Vinden [1982] 1 NSWLR 618. Ward v Kirkland [1967] Ch 194. The following additional cases were cited in argument: Canadian Pacific Railway Co v The King [1931] AC 414. Plimmer v Mayor, Councillors, and Citizens of the City of Wellington (1884) 9 App Cas 699.

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APPEAL This was an appeal from a decision of Young J viz Beaton v McDivitt (1985) 13 NSWLR 134.

A

P S Hastings, for the appellant. T F Bathurst, for the respondents. Cur adv vult

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14 October 1987 KIRBY P. This appeal requires examination of the doctrine of consideration in the modern law of contract and attention to the principles of equity which restrain a proprietor of land from insisting on his legal rights where it would be unconscionable for him to do so.

C An unusual arrangement for occupation: The respondents are the registered proprietors, as joint tenants, of an area of Real Property Act land at Pacific Palms near Forster, New South Wales. In January 1985, the appellant commenced proceedings in the Equity Division against them. By his summons, the appellant sought orders restraining the respondents from demolishing or interfering with a building which he had erected on part of the land or interfering with his access to and quiet enjoyment of that part. The summons came before Young J who dismissed it and instead gave relief to the respondents on a cross-claim which they had filed: see Beaton v McDivitt (1985) 13 NSWLR 134. By that crossclaim, the respondents sought an order that the appellant be restrained from entering the land. Young J suspended the implementation of the lastmentioned order for sufficient time to permit the appellant to remove certain of his property from the land. The appellant has appealed. There was no significant dispute about the central facts concerning the arrangement between the parties. The dispute has concerned the legal classification of those facts and whether, as properly classified, the appellant has any right to relief from the Court in respect of the land in dispute. In July 1977, the appellant with his wife and children were residing as tenants on a rented property in Whoota, some 300 kilometres north of Sydney. He was having difficulties with his landlord. A mutual friend of the parties (Mr Les Brasington), who also resided at Pacific Palms, introduced the appellant to the respondents. During the course of a convivial meeting an arrangement was made which the courts now classify for legal purposes. According to the version of the conversation which was accepted by Young J, this arrangement was as follows. The first respondent (Mr McDivitt) informed the appellant that he owned a 25 acre lot of land at Pacific Palms. He believed that he was faced with the prospect that the Great Lakes Shire Council would alter the zoning of the land. This would result in an increase in the applicable rates. That prospect concerned the respondents. They were not using all of the 25 acres. Accordingly, they had decided to cut up the lot into four blocks. They would keep three blocks for themselves and their two sons. As to the fourth block, Mr McDivitt said that they would like

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NSWLR]

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BEATON v McDIVITT (Kirby P)

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to find someone who was interested in a form of cultivation known as “permaculture” to work the block. When the council rezoned the land (expected to be in about two years time) the respondents would give title to that block to the person so selected. Responding to this “offer” to enter upon and work the subject block and, hoping upon rezoning, to receive title to it, the appellant said that he would consider the proposal. Nothing further passed between the parties until about 26 December 1977. By this time the difficulties which the appellant was having with his landlord had come to a head. He had to find an alternative place for his family to live. He went to the respondents to inquire whether their “offer” made at the previous meeting, was still open. Young J accepted that a conversation then ensued by which Mr McDivitt indicated that the offer was indeed still open and the appellant that he would “accept” that “offer”. Several days after this “acceptance”, on 31 December 1977, at a New Year's Eve gathering a further significant conversation took place between the appellant and Mr McDivitt. The appellant offered to pay the rates for the block of land which he would be occupying. Mr McDivitt refused to accept this proposal. He said that he preferred instead that the appellant should help to maintain a private stretch of road which ran from the lot next to the property and bisected the land owned by the respondents. The appellant agreed to do this. On 9 January 1978, Mr McDivitt contacted a local operator to clear a new access road to the block of land which the appellant agreed to work in the terms of this arrangement. The appellant and his family shifted their residence to the block of land in April 1978. At first they lived in a tent. Over the following two years they constructed, substantially out of rock, a form of residence. In these endeavours they were assisted by Mr McDivitt. Building was completed in October 1980. For the appellant and his family this was their home. In accordance with the arrangement made with the appellants they lived in it rent free. They set about the cultivation of part of the land assigned to them using the “permaculture” method of horticulture. Young J admitted evidence as to what this system involved. It seems that it envisages an agricultural ecosystem which integrates various types of plants within a coherent agricultural environment. The appellant's endeavours to create a permanent system of this kind were rather unsuccessful. One of the problems was apparently the poor quality of the soil. His Honour found that the appellant devoted work to the block in an effort to create the necessary environment but that this work did not amount to much. It did not encompass the whole of the land. Nevertheless, the appellant certainly cleared part of the land around the rock building used as his home. He planted between 50 and 100 trees. He and his family continued to live and work on the land for several years after entering upon it in April 1978. Falling out between the parties: The relations between the parties were harmonious until an exchange took place between them on 28 May 1982. The appellant had made an arrangement to hold a Tai Chi seminar at his home. Mr McDivitt, hearing of this, confronted the appellant, making it known that he considered that he had a right to be consulted before strangers were allowed to come onto the property. The appellant disputed that right which clearly inferred that the

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appellant was on the land by the grace of the respondents and not as of right. The incident passed. But it signalled the beginning of a deterioration in the relationship between the parties which has resulted in this litigation. That deterioration came to a head in August 1984. Officers of the council inspected the rock building constructed, without council approval, on the land. The council immediately notified the respondents (as registered proprietors of the land) that the building did not meet minimum council requirements. The council ordered its demolition. On 13 September 1984, the respondents informed the appellant of their intention to demolish the building. They asked the appellant to leave it. The appellant refused. There was an exchange of letters between solicitors. The respondents barred the private road to prevent access by the appellant and his family to their home. It was in these circumstances that the present proceedings commenced.

A

B

Judgment at first instant: As argued before Young J, the appellant framed his case principally in C terms of proprietary estoppel. His Honour rejected this classification of the facts. Instead he held that the case had to be considered in terms of the law of contract. Young J analysed the so-called “old” and “modern” doctrines of consideration necessary for a contract which the law would enforce. Under the “old” doctrine, a detriment suffered upon a promise already made was sufficient consideration to sustain an enforceable contract: see Coggs v Bernard (1703) D 2 Ld Raym 909; 92 ER 107; [1558-1774] All ER Rep 1. However, the “modern” doctrine of consideration, applicable in Australia, requires that, for a contract to be enforceable by law, the detriment suffered must be the price for the exchange of the relevant promises: Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424. His Honour concluded, nonetheless, that the “old” doctrine of consideration had survived, at least in a restricted area of operation where a “conditional gift promise” had been E made and the promisee had relied upon that promise to his detriment. In such a case Young J concluded that the law would hold that the promisee had given ex post facto consideration for the promise. This exception to the “quid pro quo” theory of consideration was traced by his Honour to Dillwyn v Llewelyn (1862) 4 De G F & J 517; 45 ER 1285; [1861-73] All ER Rep 384. It derived some support in this State from decisions such as Dumaresq v Robertson [No 4] (1861) 2 Legge 1387; Forsyth v Linton (1893) 14 LR F (NSW) (L) 233; New South Wales Trotting Club Ltd v Glebe Municipal Council (1937) 37 SR (NSW) 288; 54 WN (NSW) 77. Applying this exception to the ordinary doctrine of consideration, Young J concluded that a binding contract had been made between the appellant and the respondents as a result of the conversations between them culminating in that of 26 December 1977. His Honour described the terms of the contract thus (at 152): “ the defendants [McDivitts] promised the plaintiff [Beaton] that G upon subdivision (which was anticipated to be within the legal competence of the defendants within a period of two years or so), the plaintiff would be given the fee simple in lot B and until such time, he had a licence to work the property and to remove the fruits of his working. It was also envisaged by the parties that the plaintiff might live

NSWLR]

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BEATON v McDIVITT (Kirby P)

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on lot B. Although it was not an initial part of the agreement, it was recognised by New Year's Eve, 1977, that the plaintiff would assist in maintaining the road up to [lot B].” Having so concluded, Young J then proceeded to deal with the consequential submissions of the parties. He rejected the respondents' defence that the contract involved illegality. That submission was grounded upon the requirement of the Crown Lands Consolidation Act 1913 (NSW), s 272, which requires the consent of the Minister to any transfer of an interest in the respondents' land: cf Chalmers v Pardoe [1963] 1 WLR 677; [1963] 3 All ER 552. He also rejected the defence based on the Conveyancing Act 1919 (NSW), s 54A. The respondents had argued that any “contract” involved a disposition of an interest in land which was unenforceable at law, there being no relevant compliance with the formalities laid down by that section. Young J held that the contract was enforceable in equity because there had been part performance of the contract inter alia by the appellant's action in going onto and working the land. Finally, Young J rejected the respondents' argument that the appellant, by failing to upkeep the stretch of private road had, in effect, repudiated the contract. Nevertheless, his Honour concluded that the contract, which he had found, had been frustrated. The parties had contemplated that there would be rezoning of the respondent's property within two years. In fact, seven years had passed. No such rezoning had occurred. Nor was it imminent. Nothing had been done in the meantime. In these circumstances, the contemplated situation, when the “offer” had been “accepted” in December 1977, was radically or fundamentally different from the situation in fact at the commencement of the suit in January 1985. Accordingly the contract was unenforceable both in law and equity. The respondents having terminated the licence of the appellant to be on the block by letter of 21 September 1985, the respondents were entitled to the relief they sought on their cross-claim, there being no other basis in equity to offer the appellant relief. Numerous issues were raised by the notice of appeal. However, in oral argument before the Court, the grounds of appeal were significantly reduced and altered. As has been stated, the appellant did not seek to challenge Young J's findings that relief was not available upon the basis of the law of estoppel. Essentially, the appellant, accepting his Honour's findings that a contract had been made which the law would enforce, challenged his conclusion that such contract had been frustrated. He asked for specific performance of the contract. Counsel for the respondents, on the other hand, did not seek to rely upon the reasons given by Young J for his finding that the contract had been made but frustrated. The reason for taking this course is sufficiently explained in the judgment of McHugh JA. Instead, the respondents sought to rely upon alternative arguments for reaching the same conclusion. By notice of contention the respondents urged that his Honour's orders should be upheld on the ground that there was no contract formed between the parties. Alternatively, they argued that, if there was a contract, it had been frustrated. Finally, the respondents urged that the conversation of December 1977 created no equity in favour of the appellant or that, in the circumstances, equity would provide no relief of the kind which the appellant sought.

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The “contract” between the parties: It is convenient to start with the alleged contract. The appellant said that the conversation between Mr McDivitt and him in July 1977 amounted to an offer to convey title to the relevant block of land in the event of a rezoning and in the meantime the appellant could come and work the land. This “offer” was accepted on 26 December 1977. The “consideration” for the contract was said to be the appellant's promise to maintain the private road, which promise he gave on New Year's Eve 1977. The respondents urged that there was a total lack of consideration flowing from the appellant for any promise made by the respondents to convey title to the block of land upon rezoning. In these circumstances the proper ...