LAWS 205 W11L 15 - Lecture note 11 PDF

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LAWS 205 W11L 15.5.17 Alienability is the fundamental property right: -An estate in land is seen as comprising a ‘bundle of rights’ -Sometimes, thus bundle of rights is referred to as the ‘incidents’ of the estate -Some of these rights are so fundamental that their removal destroys the property basis of the estate -Rights in the bundle may be disaggregated and dealt with without causing the property held by the estate owner to disintegrate altogether:  Eg. the right to possession – may be leased out for a term of years Alienability – An essential element -The right to alienate property to a third party is seen as so intrinsic to the proprietary interest of the owner that to remove it or even restrict it, absolutely or temporarily, would be inimical to the nature of property itself -Originally, at common law, estates in land were inalienable. The owner could not sell or transfer them and they passed to lawful heirs according to the common law rules of inheritance, and in default they escheated to the Crown -Following the old English statute of Quia Emptores 1290, land held in grant from the Crown was freely assignable to third parties. It could then be sold, given away or devised by will to persons other than the lawful heirs -Since then, the common law courts have swung the other way, holding that alienability is so fundamental to land interests that any attempt to remove or restrict it will be struck down A Void Restraint on Alienation -A condition or covenant which has the effect of restraining the right of an owner of land to alienate their estate or interest is treated as ‘repugnant’ to the very nature of the estate or interest: it is wrong to free men to restrain the free alienation of their property -This could be translated to: private property should be freely alienable -This is regarded as a principle of reason, a matter of public policy which enables property owners to create other rights over their land and thus facilitates economic activity Two ways to restrain the right to alienate: i. A condition or covenant that purports to prevent the owner from dealing with their land either absolutely or temporarily ii. Creation of a future interest that has the effect of suspending the owner’s power to deal with the land for an unreasonably long period of time into the future Hall v Busst (1960) FACTS: -A purchaser bought an island -The contract with the vendor purported to prohibit P from transferring, assigning or leasing any part of the island without V’s consent -P sold the island to a third party without V’s consent and gave possession to the third party -V sued P for damages for breach of contract ISSUE: -Was the term a condition or covenant? JUDGEMENT:

-Dixon CJ found that the restraint was contractual, imposed by contract only, and was thus a covenant and not a condition on the estate itself. [A condition on an estate would be a transfer to P of the estate subject to a condition in the transfer itself that the estate would revert to V if P breached the condition. P would therefore have the fee simple estate subject to a condition subsequent, with V retaining an interest in fee simple in reversion on default.] -Per Dixon CJ: o The condition does not bind the third party alienee, because the third party is not party to the contract o The question whether a merely contractual restriction on the alienor’s right to alienate the estate was a void restraint on alienation was hitherto an open question o It was a void restraint, because while it did not bind the third party purchaser after breach, it did bind P and her “estate” until the alienation occurred o A condition attached as a condition subsequent to the estate is void o The invalidity is able to be put as “repugnancy to the grant”, or on the grounds of public policy o With a contractual restraint, there is no repugnancy to the grant as there is no fetter upon alienation which does more than sound in damages o It is a principle of law that private property should be freely alienable. Thus, the contractual restraint should also be considered void on the grounds of public policy o A fetter on alienation by contract can be just as effective in restraining alienation and should therefore be treated as invalid -Common law: land should be freely alienable, and this is part of the essential right you acquire when you obtain an estate in land John Nitschke Nominees Pty Ltd v Hahndorf Golf Club Inc [2004] -Besanko J referred to a competing public policy of the common law, namely freedom of contract, and decided that there were grounds to hold that a partial contractual restraint on alienation was not invalid -He distinguished Hall v Busst:  It decided that a total contractual restraint fell within the doctrine,  But that was not authority either way on the question of whether a partial restraint in a contract falls within the doctrine Wollondilly Shire Council v Picton Power Lines Pty Ltd (1994) -NSWCA considered an obligation in a contract imposed on a purchaser in a sale of land contract, to re-sell the land to the vendor at the same price if industrial premises were not erected within two years  Hall v Busst was distinguished – the restraint on sale in Hall v Busst was unlimited as to time and circumstance (absolute restraint)  HERE, the restriction was only partial because it involved a term stating that the land would not be transferred prior to the building being constructed and a provision that if the building was not completed within 2 years, the land would be sold back to the vendor at the original price

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The Court considered there was a wide field for the operation for rights of repurchase, options and rights of first refusal (pre-emption), where appropriate qualifications as to time and circumstances are included o (There is nothing impermissible about someone selling land and reserving on the vendor’s part an option to re-purchase) o These kind of rights fall short of definite prohibitions of alienation -Compare Hall v Busst: a negative stipulation with a forfeiture provision on default (not a repurchase), but the restraint is unlimited in duration though limited only slightly to the circumstance of sales without vendor’s consent Exception: not total restraint (buy back) Noon v Bondi Beach Astra Retirement Village Pty Ltd [2010] -NSWCA examined whether a contract of sale of a retirement unit which entitled a service company to buy back the unit for the original purchase price, as adjusted, amounted to a restraint on alienation  [NB: this is a common provision in a retirement village purchase contract, and protects management’s right to control who occupies the village and occupiers’ liability to contribute to retirement village expenses through fees] Held: The buyback arrangement did not offend the rule against restraint on alienation.  The restraint was not total  The Noon’s appreciated that the buyback provision enabled them to receive a considerable discount on the price and assured them a purchaser for the unit at the end.  The doctrine should not be allowed to expand beyond total restraints, to invalidate proper commercial arrangements, when the doctrine had its origins in absolute prohibitions in transfers Found the opposite Bondi Beach Astra Retirement Village Pty Ltd v Gora [2011] -A differently constituted NSWCA found the opposite, where the restrictions on alienation in a contract for the sale of a retirement village unit:  Related to virtually all kinds of disposition of the unit  Continued in perpetuity  Were in practice highly likely to permit a sale to only one person (or its nominee)  Would result in a price well below market value -The court decided a commercial agreement that offended public policy had to be decided as a matter of substance, not of form Restrictions on the assignment of debts and other contractual rights -A debt or other right under a contract is an asset, that is capable of being assigned  It is called a ‘chose in action’ [‘thing in action’], because the right is a right to sue someone to enforce the obligation -A chose in action may be assigned in equity by a simple agreement to assign  Eg. In a lease you will likely have a covenant to pay rent, but it can be assigned to be paid by a third party -The agreements bind the parties to it, but does not affect the legal relations between the original parties to the contract

-Therefore, to enforce a chose in action that has been assigned only in equity, the assignee of the debt must join the assignor to the action as a defendant (if the assignor won’t agree to join the plaintiff), or sue in the assignor’s name as plaintiff (usually with a side-agreement to indemnify the assignor for the legal costs of the proceeding) -A chose in action may also be assigned at law, under s 134 of the Property Law Act 1958, which requires:  An assignment in writing; and  Notice of the assignment to be given to the debtor -Following a legal assignment under s 134, the assignor may sue the debtor on the contractual right in the assignor’s own name as plaintiff without joining the assignee Restraint on right to assign contracts -Many contracts have a clause prohibiting one or more parties from assigning their interest without the consent of the other party o Much like the restriction in Hall v Busst, this is not limited in time or circumstances -In Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007), the HCA held: o Questions about applying the doctrine against restraint on alienation that applies in relation to interests in land do not arise when dealing with provisions regulating the rights to assign contractual benefits o Restraints on alienation are not void when entered into in relation to assignments of choses in action Nullargine Investments Pty Ltd v Western Australian Club Inc (1993) FACTS: -Two tenants in common owned equal shares in land -A co-ownership agreement included a clause that a co-owner would not dispose of its interest without first offering it to the other. -A further clause restricted any sale unless the purchaser entered into a similar deed containing the same clause. ISSUE: -Whether the deed prohibited a sale of the whole freehold estate by operation of the legislative right to apply for an order for sale: JUDGEMENT: -The majority held that a sale pursuant to those legislative provisions (s 228 PLA) were not subject to the restriction, and that the prohibition on sale applied just to the separate shares held by each owner Elton v Cavill (No. 2) (1994) FACTS: -Co-owners of a home unit within a residential community entered into a deed with a covenant: o “No transfer without the consent of the other owners” o Note: the covenant was contractual, and thus enforceable (if at all) by owners party to the deed, even after they ceased to be owners -Cavill sold a unit without Eltons’ consent ISSUE: -Was this a constraint on the alienability of the property? JUDGEMENT:  Per Young CJ:  The ghosts of old property rules developed for a different age in a different country should be restricted within a contemporary Australian environment.

 The rule should be that where there is a legitimate (“proper”) collateral purpose to restrict an alienation of property by commercial agreement, the restraint should not be held to be void. A co-ownership agreement may serve the valid purpose of allowing other co-owners to have a right of veto on reasonable grounds over who should be the owner of other shares.  The collateral purpose rule is limited, however, where there are invalid or illegitimate collateral objects which the restraint is also likely to protect or achieve. Valid and invalid collateral purposes need to be balanced against each other to determine whether the restraint should be struck down as contrary to public policy.  Here, the restraint was not limited to vetoing sales of shares on reasonable grounds. It also promoted an invalid collateral purpose by giving other coowners effectively a means of forcing a sale to them, or dictating the price or terms of the sale.  It was in substance a true restraint on alienation and was thus void. Note: -Look at the right granted, look at the commercial purpose it aims to achieve, and look to other collateral purposes that go beyond these commercial interest -If they do, it becomes a more traditional restraint on alienation and will be declared void -If it is necessary for the legitimate commercial purpose, then it will not be void Application in leases and mortgages -Mortgages typically contain a clause that the mortgagor (borrower) must not sell or mortgage the land to anyone else without the mortgagee’s consent. -Leases also typically provide that the tenant will not assign, sub-let or mortgage the tenant’s interest in the premises without the landlord’s consent. -There are here legitimate collateral purposes:  The protection of the mortgagee’s security  The protection of the landlord’s reversionary interest -Samantha Hepburn suggests (at [6.7]) that  Such restraints should be subject to the proviso that consent is not to be unreasonably withheld  If they go beyond the reasonable protection of the mortgagee’s or landlord’s interest, they may be struck down as an invalid restraint upon alienation. [This view must be considered controversial. There are many decisions that uphold and apply a clause in a lease entitling the landlord to refuse consent to an assignment by the tenant in the landlord’s absolute discretion, so long as the landlord does not act capriciously or arbitrarily.]...