Decision Date: July 20, 2012
Link: Case Summary Document
Citation: [2012] NSWSC 818 (Supreme Court of New South Wales, White J)

Summary:

The NSW Rifle Association Inc (NSWRA) is an incorporated association which has existed in some form since 1860. This dispute concerned the use by the NSWRA of a rifle range on Commonwealth land at Malabar Headland in New South Wales. The NSWRA used the land, called the ANZAC rifle range, under a licence agreement with the Commonwealth dating from 2000. The Commonwealth government proposed to transfer the land to the State of New South Wales as a national park.

The first question in these proceedings was whether the Commonwealth was entitled to evict the NSWRA from the rifle range and associated buildings. If not, the second question was whether the Commonwealth could in any event transfer part of the Malabar Headland, known as lot 2, to the State of New South Wales for use as a national park. Most of lot 2 is a safety template (an area used as a buffer zone for safety reasons) for the rifle range. The NSWRA said that if lot 2 was transferred, it would be unable to use the rifle range, contrary to what it claimed are the rights granted by the licence.

The use of the disputed land has a complicated history. The land was first used by the NSWRA from 1968 under a permissive occupancy. The buildings were built with Commonwealth grants. In 1986, the then Commonwealth government resolved to sell the land, giving a notice of termination of the permissive occupancy in March 1986. A court challenge to this notice resulted in a declaration of its invalidity. The court indicated that about three years notice would be appropriate.

In 1990, the then Commonwealth government gave valid notice to terminate the permissive occupancy in 1993. On 22 July 1994 Bryson J gave judgment for the Commonwealth for possession of the land. An appeal to the Court of Appeal was dismissed on 15 August 1997. In the meantime there had been a change of government. Notwithstanding that the Commonwealth had been found to be entitled to possession of the rifle range, it did not seek to enforce that remedy.

The LNP government took a different view as to how the interests of rifle shooters should be accommodated with the preferred uses for the headland, and proposed the building of a completely new rifle range at Holdsworthy Army Base, to be ready in 2001. The NSWRA and the Commonwealth negotiated a deed of licence (dated 15 March 2000) for the NSWRA’s continued occupation of the ANZAC Rifle Range at Malabar Headland until the new site became available. The new site has never been made available.

The deed described the Commonwealth as the owner of the land and the NSWRA as the user. The NSWRA was required to pay an annual licence fee of $24,363 per annum which was adjusted for changes to the Consumer Price Index. His Honour pointed out that the licence effected a significant change to the legal relationship between the NSWRA and the Commonwealth. Subject to one, and possibly two, qualifications, the NSWRA was entitled to continue to occupy the buildings and to use the designated firing ranges until at least 2001 and in any event, until the Commonwealth gave a notice to the effect that the Holsworthy range, or a comparable range nominated by it, was available for the NSWRA’s use. One qualification to the licence was that the Commonwealth was entitled to terminate the licence if the NSWRA was in default (as defined). This had not occurred. Rather, the Commonwealth submitted that there was a second qualification to be found in the licence, that the Commonwealth was entitled to terminate the licence in the public interest.

This case had definite political implications. The Malabar Headland is in the Commonwealth electorate of Kingsford Smith. The local member is the Honourable Mr Peter Garrett MP. He has consistently campaigned for the Malabar Headland to be transferred to the State of New South Wales for use as a national park and for public open space.

Prior to October 2011 there was no indication from the Commonwealth that transfer of the Malabar Headland would proceed otherwise than by first relocating the NSWRA to a comparable range. As late as 28 September 2011, the First Secretary of the Property and Construction Division of the Commonwealth Department of Finance and Deregulation advised the treasurer of the NSWRA and others that the NSWRA would remain on Malabar Headland until a suitable alternative site was available for its relocation. This however, changed on 7 October 2011, when a termination notice was issued giving three months notice. This notice, which was patently void and of no effect, given the terms of the licence, and the previous case law relating to the site, was withdrawn on 25 May 2012.

However, on 25 January 2012, the Commonwealth reviewed its strategy, and issued a remedy notice to the NSWRA. This notice related to a clause in the licence deed which required the NSWRA to maintain the buildings on the site in good repair. It also referred to the presence of hazardous materials on the site. The notice was received by the solicitors for the NSWRA on 31 January 2012. The NSWRA claimed that there was no breach relating to the buildings, and even if there were, the notice received on 31 January was void and of no effect.

A second remedy notice was served by the Commonwealth on 2 April 2012. This notice referred to the management of asbestos on the site. A third remedy notice, served on 9 May 2012, referred to the fire safety management on the site. Prior to the service of these remedy notices the Commonwealth had made no complaint about NSWRA’s compliance with the relevant clause (clause 6.2) of the licence.

The NSWRA’s principal contention in this case was that the Commonwealth was under a duty to act reasonably and in good faith in the exercise of its power under the licence to specify a time for the remedying of the alleged breaches. It submitted that in requiring the alleged breaches to be remedied in 14 or 16 days the Commonwealth did not act reasonably and in good faith. The Commonwealth admitted that it would not have been possible for the NSWRA to carry out all the work required by each remedy notice within the times specified.

The NSWRA also submitted that the remedy notices were issued as part of a political campaign to evict the NSWRA from the range, in order to satisfy a political promise made by Mr Garrett, in circumstances where the Commonwealth was unwilling to fund the NSWRA’s relocation to a suitable alternative location. The NSWRA also sought relief against forfeiture if it were found that the termination of the licence was effective.

On 18 May 2012, the NSWRA became aware that a Bill had been introduced into the Commonwealth parliament, the Malabar Headland Protection Bill 2012 (Cth). The Bill set a date for transfer of the land to New South Wales: 31 July 2012. The NSWRA sought an injunction to prevent the transfer.

The NSWRA submitted that the transfer of Lot 2 to the State of New South Wales would have the effect that the Commonwealth could no longer fulfil its contractual duty to make the land available for use by its members as a rifle range. The Commonwealth admitted that the transfer of that part of Lot 2 that constituted the safety template would have the consequence that the NSWRA and its members would no longer be permitted to undertake rifle and pistol shooting on the range unless the conditions relating to the range were varied, or the NSWRA constructed further barriers to prevent projectiles leaving the range.

The Commonwealth relied on the doctrine of executive necessity – that the Crown, when contracting in one capacity, cannot fetter a power it has in another capacity, whether under statute or prerogative, that is to be exercised in the public interest. However, His Honour said that the issue raised in this case was whether a contract entered into by the Commonwealth as land owner could be terminated at will or on reasonable notice (even if this is contrary to the express terms of the contract), or whether terms that might otherwise be implied could not be implied because the Commonwealth had changed its policy in relation to the licence granted in 2000 to the NSWRA. His Honour held that no decision cited had gone so far in its findings.

The Commonwealth submitted that whether or not it was entitled to terminate the licence for breach, it was not bound to continue the licence for the defined term, because it now considered it to be in the public interest that the land should be used as a national park and not as a rifle range. Counsel for the Commonwealth accepted that on the Commonwealth’s contentions, its assessment of what is in the public interest and whether there had been a change of public policy were unexaminable.

His Honour was unimpressed with this argument, saying at [97], [100]–[101] and [105]–[106]:

In my view, the doctrine of executive necessity has no role to play in the present case. The deed of licence did not fetter the exercise of a future duty or discretion by the Crown. It was a contract by which the Crown acted in what was then perceived to be the public interest in reconciling the competing demands for use of the Malabar Headland. It was a present exercise of the Commonwealth’s power as owner of the land, not the fettering of a future exercise of a duty or discretion.

….

The power (not discretion) the Commonwealth exercised in entering into the deed of licence was not an exercise of the prerogative…. It was the exercise of the Crown’s power as owner of the land. In that respect, the Crown had the same capacity and stood in the same position as any other person. …. By asserting the alleged right to terminate the licence at will or on reasonable notice, or by asserting that the licence is not binding on it, or that terms should not be implied that would otherwise be implied, the Commonwealth is not seeking to exercise a power or discretion in a different capacity from that in which it contracted….

….

The Commonwealth is not entitled to terminate the licence either at will or on reasonable notice. The licence is for a defined term, that is, until 14 days after the giving of a Relocation Notice. It would be contrary to that express term for the licence to be terminated by the Commonwealth either at will or on reasonable notice. There was no dispute that even though at law a mere licence to occupy the land would be terminable at will, even in breach of contract…in an appropriate case equity would restrain the licensor from revoking the licence in breach of contract…. By its cross-claim in the 2012 proceeding the Commonwealth purported to terminate the licence. Counsel for the Commonwealth said that that was not done by way of termination for breach, but pursuant to the asserted power to bring the licence to an end because there had been a change of public policy. That purported termination should be restrained unless the Commonwealth is entitled to terminate the licence because the NSWRA is in default.

On the issue of reasonableness and good faith, the Commonwealth submitted that if a term of reasonableness and good faith might otherwise be implied in the exercise of the Commonwealth’s power to fix a period of time for the remedying of the alleged breaches, there could be no such implication where the Government was acting in what it considered to be the public interest to bring the licence to an end.

The NSWRA alleged that the Commonwealth had given notice under the relevant clause (clause 10.1(b)) for an extraneous purpose and unreasonably. His Honour was firm that there was an implied term of reasonableness and good faith (at [107]–[108]):

The mere fact that the Government has changed its policy and now considers that the Malabar Headland should be made available as a national park, irrespective of whether or not the Rifle Association can be relocated to another rifle range, is not a reason for qualifying any term that would otherwise be implied. The fact that the contract is with the Government does not displace an obligation of good faith and reasonableness. If anything, that is a factor in favour of the implication of the term.

Moreover, His Honour held that the term of reasonableness and good faith could be implied on any of the available bases raised by the NSWRA – by law, by construction, under equity (by analogy to equitable restraint on exercise of power for improper purpose) and by ad hoc implication. He said (at [139]–[140]):

To imply a term that the Commonwealth act in good faith and reasonably in exercising its power under clause 10.1(b) is not to subordinate its legitimate interest to that of the NSWRA. As the purpose of the clause is to provide an opportunity for the NSWRA to remedy a breach, the Commonwealth does not have a legitimate interest in using the contractual power unreasonably by requiring the remedying of breaches that are of no genuine concern, within a timeframe it knows could not be met. For these reasons the Commonwealth was required to act reasonably and in good faith in exercising its powers under clause 10.1(b) if the NSWRA were in breach of the licence.

His Honour held that all three remedy notices were invalid, as was the purported exercise of executive power (at [218]):

The Commonwealth is not entitled to terminate the licence unless it gives a valid notice in respect of a breach or breaches of the licence that is not remedied after the Commonwealth, acting reasonably, gives a notice under clause 10.1(b) and such a notice is not complied with. The purported termination of the licence by the Commonwealth’s cross-claim based on the asserted executive discretion is also ineffective. There should be declarations accordingly and an injunction restraining the Commonwealth from purporting to terminate the licence by reason of the Rifle Association’s non-compliance with any of the Remedy Notices and from its seeking to give effect to the purported termination of the licence in its cross-claim.

Therefore, there was no basis for termination of the licence. Even though his decision meant that relief against forfeiture was not required, His Honour dealt with the issue. The NSWRA was a licensee without exclusive possession of the land. However, it had been held in a number of cases that the court had jurisdiction to relieve against the forfeiture of contractual licences entitling a licensee to occupy land. On this point, His Honour said (at [233], [234] and [235]):

As the NSWRA does not have a proprietary interest, but seeks relief from forfeiture of its contractual right of possession, and as I am dealing with the claim for relief against forfeiture on the assumption (contrary to my earlier findings) that the NSWRA’s contractual right could be terminated, I think that the NSWRA must establish that it would be unconscientious for the Commonwealth to exercise its contractual right of termination…. In my view, the Commonwealth’s conduct does make it against conscience for it to rely on the non-compliance with the remedy notices as the basis for terminating the licence.

In Tanwar Enterprises v Cauchi, … conduct by the terminating party that contributed to the breach, such as by lulling the opposite party into a belief that the terms of the contract would not be strictly enforced, could make it unconscientious for the terminating party to exercise its legal rights…. In the present case, the Commonwealth contributed to the breaches that led to the issue of remedy notices.

On the proposed transfer of the land in Lot 2 to the State of New South Wales, His Honour held that to do so would be an anticipatory breach of the licence by the Commonwealth, even in the event the Malabar Headland Protection Bill 2012 (Cth) became law. This was because the Bill did not effect the actual transfer, but related to the use and management of the land after a transfer (at [264]–[266]):

If the Bill becomes law, and if Lot 2 is transferred to New South Wales, then Lot 2 must be used as a national park. But the Bill (if it became law) would not have any operation on the anterior question whether the Commonwealth is entitled to transfer Lot 2 to New South Wales if, as a result, the NSWRA could not use the Licensed Range for rifle shooting. The Bill applies only to land once it has been transferred. It is silent as to whether the Commonwealth is entitled to transfer the land to New South Wales consistently with its contractual obligations. If the Bill becomes law it would not destroy the contract between the NSWRA and the Commonwealth. The NSWRA is entitled to an injunction to restrain the Commonwealth from transferring the land because that is an anticipatory breach of contract. For the reasons given earlier, the so-called doctrine of executive necessity does not relieve the Commonwealth from its contractual obligations. For these reasons the NSWRA is entitled to an injunction to restrain the Commonwealth from transferring Lot 2, unless such a transfer can be effected in a way that continues to secure the NSWRA’s right to use the Licensed Range as a rifle range, which includes its use of the danger zone or safety template on Lot 2.

Thus, the NSWRA was successful in all aspects of its application.

The case may be viewed at: http://www.austlii.edu.au/au/cases/nsw/NSWSC/2012/818.html

(See casenote 2.10.8 above, for an application to alter the costs order in this decision.)

Implications of this case

One of the bases for ejecting the NSWRA from the land in this case was a form of executive power, called the doctrine of executive necessity. This doctrine holds that the executive cannot by representation or promise disable itself from, or hinder itself in, performing a statutory duty or exercising a statutory discretion to be performed or exercised in the public interest, by binding itself not to perform the duty or exercise the discretion in a particular way in advance of the actual performance of the duty or exercise of the power. It was submitted for the Commonwealth in this case that where the Crown exercises its common law powers as an owner of land by entering into a contract in respect of the future use of that land, it cannot disable itself from deciding in the future that in the public interest the land should be used in a different way – in this case as a national park.

But His Honour in this case could see no reason for finding such an expansive view of the doctrine of executive necessity. Indeed, he held that it did not apply at all. The power (not discretion) the Commonwealth exercised in entering into the deed of licence with the NSWRA was not an exercise of the prerogative in its usual sense. It was the exercise of the Crown’s power as owner of the land. In that respect, the Crown had the same capacity and stood in the same position as any other person – it was just a contract, and ordinary contractual principles applied.

By asserting the alleged right to terminate the licence at will or on reasonable notice, or by asserting that the licence was not binding on it, or that terms should not be implied that would otherwise be implied, the Commonwealth was not seeking to exercise a power or discretion in a different capacity from that in which it contracted in the first place. Its submissions were comprehensively rejected.

Another important point in the case was the implied contractual term of reasonableness and good faith which His Honour said the Commonwealth could not deny in exercising its contractual powers.