Taluja v Shree Shirdi Sai Sansthan Sydney Limited

1. [1]

   McCOLL JA: I agree with Sackville AJA’s reasons and the orders his Honour proposes.

2. [2]

   LEEMING JA: I do not express a view on the question of whether Dr Taluja requires leave to appeal. I agree with Sackville AJA, for the reasons he has given that, if leave to appeal is required, it should be granted. I also agree with the other orders Sackville AJA proposes and with his Honour’s reasons for those orders.

3. [3]

   SACKVILLE AJA: The appellant (Dr Taluja) appeals or, if leave to appeal is required, seeks leave to appeal from a decision of a judge of the Equity Division (Sackar J). The dispute between Dr Taluja and the respondent (Sansthan) stems from a document styled “Lease” executed on or about 5 August 2003. Although the document was prepared by a solicitor, it is extremely poorly drafted and is replete with ambiguities and errors.

4. [4]

   At all material times, Dr Taluja has been the registered proprietor of land located at 416-420 Liverpool Road, Strathfield in Sydney (Property). The Property comprises two lots, to which I shall refer as Lot 4 and Lot 100, respectively.

5. [5]

   Sansthan is a company limited by guarantee and was incorporated on 9 March 1999. The primary object of the company is to promote the teachings of Shirdi Sai Baba (Baba), who died in 1918. Baba is regarded by his devotees (of whom there are apparently many in various countries) as a saint. Sansthan is the trustee of the Shree Shirdi Sai Sansthan Sydney Charitable Foundation.

6. [6]

   The Lease is expressed to be between Dr Taluja as Lessor and Sansthan as Lessee. The Lease grants Sansthan a lease for a term of 30 years over a portion of the Property comprising an area of 800 m2, but does not identify the precise area which the Lessee is entitled to occupy. The Lease also grants Sansthan an option to purchase the land subject to the Lease, in circumstances and on terms set out in the Lease.

7. [7]

   The present proceedings were commenced by Sansthan in October 2011. Sansthan sought a declaration that a notice given by Dr Taluja on 6 November 2009 purporting to terminate the Lease was invalid. Sansthan also sought a declaration that it had validly exercised the option to purchase the leasehold land. In addition to declaratory relief, Sansthan sought consequential relief, including an order for specific performance of the agreement constituted by its exercise of the option to purchase.

8. [8]

   Dr Taluja defended Sansthan’s claim on the ground that the Lease was void for uncertainty or, alternatively, that it had been frustrated. She also filed an amended cross-claim seeking rectification of the Lease and other orders.

9. [9]

   Not surprisingly, having regard to the poor drafting of the Lease, many issues were debated in the Equity Division proceedings. The primary Judge dealt with the issues in two judgments.

10. [10]

    In the first judgment, [1] his Honour held that Sansthan had validly exercised the option to purchase the leasehold land and that it was entitled to an order for specific performance. In the second judgment, [2] the primary Judge held that the option to purchase, on its proper construction, entitled Sansthan, upon exercise of the option, to the grant of an easement conferring a right to use parts of the Property retained by Dr Taluja (Retained Land). His Honour rejected Dr Taluja’s contention that the “right of use” referred to in the option to purchase merely entitled Sansthan to obtain a licence over the Retained Land.

11. [11]

    In support of her appeal Dr Taluja now relies on only two contentions. She says that his Honour erred in concluding that:

Background Facts

1. [12]

   Three heritage buildings are located on the Property. Brundah Hall, a two storey, nine room building plus annexes, stands on Lot 4, the smaller of the two Lots. Brundah Hall includes dining rooms and a kitchen and has an area of about 538 m2.

2. [13]

   Leigh College Hall, a former Methodist Theological College, is on Lot 100. It has an area of about 1,536 m2. A smaller freestanding building known as the E Vickery Memorial Chapel (Chapel) is also located on Lot 100. The Chapel has an area of about 85 m2.

3. [14]

   A location plan prepared by a planning expert who gave evidence at the trial shows the location of the three buildings on Lot 4 (the smaller lot to the west) and Lot 100 (the larger lot to the east):

4. [15]

   Dr Taluja purchased the Property in 1993. Thereafter she and her family resided in Brundah Hall. Dr Taluja conducted her medical practice from a separate wing of Leigh College Hall. It appears that since about 2003 Leigh College Hall has been leased to a school, apparently on the basis that Dr Taluja can continue to conduct her medical practice from the separate wing.

5. [16]

   From about 1998, a small number of devotees of Baba started holding prayer meetings at the Chapel. The devotees paid Dr Taluja a small weekly amount to enable them to have access to the Chapel each Sunday. Over time the number of devotees increased considerably and in June 2001 a statue of Baba was installed in the Chapel. By June 2001, the Chapel was open to devotees every day between 10:00 am and 11:00 am and in the evenings.

6. [17]

   On 28 June 2003, Dr Taluja wrote a letter to Mr Tolani, a director of Sansthan. In the letter, Dr Taluja said that she was in urgent need of funds. She estimated the value of the Chapel to be as much as $1,400,000. Dr Taluja proposed that if she received $700,000, her needs would be satisfied. She said that she was prepared “to donate half”, presumably meaning half of the value attributed by her to the Chapel.

7. [18]

   The letter apparently prompted negotiations between Dr Taluja and Mr Tolani with a view to Sansthan taking a lease of the Chapel. The negotiations ultimately resulted in execution of the Lease.

8. [19]

   The Lease is in the form required for a lease of land under the Real Property Act 1990 (NSW) (Real Property Act). It is, however, common ground that the Lease is not in registrable form because, among other things, the land subject to the Lease is not precisely defined. Therefore the Lease could not have been effective to create a lease at law for a term of thirty years, but if specifically enforceable, would be effective to create such a lease in equity. [3]

9. [20]

   The “Property leased” is described in the Lease as follows:

10. [21]

    Annexure B comprises a plan of subdivision prepared in February 1998 showing Lots 4 and 100 and other lots included in the subdivision. The plan has a very small area crudely marked with a rectangle. The handwritten words “Memorial Chapel” are endorsed on the plan next to the mark, but the plan has no hatched area. The position of the rectangle suggests that the Chapel is located on Lot 100 close to Liverpool Road. In fact the Chapel is located on Lot 100 some distance to the south-west of the point marked on the plan, further away from Liverpool Road and separated from that road, as the plan indicates, by the driveway from Hill Street.

11. [22]

    The cover sheet to the Lease states that the term of the lease is 30 years commencing on 5 August 2003, with the Lessee having an option to renew for a further term of 30 years as set out in cl 2 of Annexure A to the Lease. The cover sheet also states that the Lease includes an option to purchase set out in cl 12 of Annexure A and incorporates the provisions set out in Annexure A.

12. [23]

    Annexure A includes the following provisions relevant to the appeal:

13. [24]

    There is no dispute that Sansthan paid amounts totalling $250,000 to Dr Taluja as contemplated by cl 8 of Annexure A.

14. [25]

    Sansthan purported to execute the option to purchase contained in Annexure A by a notice dated 13 September 2006. As I have noted, on 6 November 2009 Dr Taluja purported to terminate the Lease.

15. [26]

    As the primary Judge observed, the parties have been more or less in dispute since 2006. It is fair to say that the parties have not shown any particular urgency in resolving their dispute.

16. [27]

    The primary Judge concluded that the Lease is not void for uncertainty. He also held that Sansthan was entitled to an order for specific performance. On this basis, he invited the parties to bring in short minutes of order giving effect to his reasons for judgment.

The Judgments Under Appeal

1. [28]

   The primary Judge rejected Dr Taluja’s argument that the Lease is void for uncertainty for the following reasons: [4]

2. [29]

   The parties were unable to agree on short minutes of order because of a dispute as to whether the term “right of use” in cl 12.3 of Annexure A is to be construed as granting an easement (rather than a licence) to Sansthan. The primary Judge listed the matter for further argument on this issue.

3. [30]

   Sansthan submitted to the primary Judge that the right of use, like the “Right of Way” created by cl 12.3 (as to which there was no dispute), should be construed to create an easement in its favour. It would follow from this submission that the area subject to the Lease is the dominant tenement and the Retained Land is the servient tenement. Sansthan argued that if the right of use is to be effective, it must be capable of being registered as an interest on the title Retained Land, so as to bind not only Dr Taluja but her successors in title.

4. [31]

   Dr Taluja submitted that cl 12.3 is intended merely to grant a contractual licence. This would allow Sansthan to continue to use the Retained Land as it had prior to its exercise of the option, but not to acquire a proprietary interest in the Retained Land.

5. [32]

   The primary Judge preferred the construction proposed by Sansthan: [5]

6. [33]

   The primary Judge did not make orders in the Easement Judgment, which was delivered on 21 August 2015. It appears that, following delivery of judgment, the parties filed consent short minutes of order. Orders in conformity with the short minutes were duly made by his Honour in chambers on 27 August 2015.

7. [34]

   The orders made by the primary Judge are as follows:

8. [35]

   It will be seen that these orders leave important issues unresolved. For example Order 3(iii) does not identify the location of the proposed right of way and does not specify who is entitled to use the right of way or for what purposes. Order 3(iv) does not specify the precise areas of the Retained Land that are subject to the “right of use”. This is a significant matter as the definition of “Common Areas” in the Lease does not identify the location of “parking areas in front and back of the Land” or provide a precise description of “the area of the Whole Property in front of the Land”. Nor does Order 3(iv) state who is entitled to exercise the right of use or the restrictions, if any, that apply to an exercise of the right over the Retained Land.

9. [36]

   The failure to address these matters may be attributable to the fact that the dimensions of the land to be transferred to Sansthan upon exercise of the option to purchase had not been ascertained at the time the Orders were made. Nevertheless, it is clear that in the absence of agreement between the parties, a number of issues remain to be resolved concerning the “right of use”. I return to this question later.

10. [37]

    There is no stay in force pending the outcome of this appeal. However, it appears that no steps have been taken to implement the Orders made by the primary Judge. His Honour noted that Sansthan “has remained in possession of the relevant property” [6] and that is apparently still the position.

Submissions

1. [38]

   Mr Smark SC, who appeared for Dr Taluja, did not dispute that, as the primary Judge held, courts strive to construe commercial agreements so as to ensure that they are valid. He submitted, however, that the absence of any hatching on the plan in Annexure A is fatal to the validity of the Lease.

2. [39]

   Mr Smark contended that cl 9 of Annexure A imposes an obligation on Dr Taluja to prepare a “final plan” only if the Lease annexes a plan showing the approximate dimensions and location of the leasehold land. He submitted that the parties could not have intended that the boundaries of the leasehold land would simply be selected by Dr Taluja without the guidance provided by an approximate plan.

3. [40]

   According to Mr Smark, cl 10 of Annexure A carries the matter no further. In order for there to be a “disagreement arising in connection with the plan” within cl 10.1, there must first be a plan showing the approximate location of the leasehold land, as contemplated by the description of the “Property leased” on the cover page of the Lease. In the absence of such a plan there cannot be a divergence between the approximate plan and the “final plan” prepared by Dr Taluja and therefore there cannot be a disagreement of the kind that enlivens cl 10.1 of Annexure A and that provision cannot be invoked. In short, the parties had failed to reach a final and concluded agreement on an essential term of a lease, namely identification of the leasehold land.

4. [41]

   Mr Murr SC, who appeared with Mr Einstein for Sansthan, submitted that the inclusion of hatching on the plan in Annexure B, although contemplated by the Lease, is not essential to the validity of the Lease. Clause 9 obliges Dr Taluja to prepare the final plan, regardless of whether a plan with hatching is annexed to the Lease. The Lease contains sufficient indications to enable the plan to be prepared. If there is a disagreement between the parties as to the final plan, cl 10.1 creates a procedure for the disagreement to be resolved.

5. [42]

   Mr Smark submitted that the primary Judge should have construed the right of use conferred by cl 12.3 of Annexure A as a continuation of the licence conferred by cl 13. This construction, so he argued, recognised that the Lease can be terminated in accordance with cl 11 of Annexure A and that, upon termination, the licence conferred by cl 13 also ceases.

6. [43]

   Mr Smark said that it would be surprising if the parties had agreed to an arrangement which would allow a purchaser of the leasehold land from Sansthan (after Sansthan had become the proprietor) to enforce the right of use over the Retained Land. He pointed out that the purchaser might be an adherent of a different religion or association, yet if cl 12.3 creates an easement Dr Taluja would be bound in effect to allow the purchasers (and their successors in title) to use parts of her residence to support their own practices.

7. [44]

   Mr Murr essentially supported the reasoning of the primary Judge in concluding that cl 12.3 creates an easement over the Retained Land.

Reasoning

1. [45]

   The parties disagreed as to whether the Orders made by the primary Judge were interlocutory or final. Sansthan contended that although the declaration in Order 1, considered in isolation, finally determined the parties’ rights in relation to the exercise of the option to purchase, the Orders as a whole were interlocutory and thus Dr Taluja requires leave to appeal. [7] Mr Murr contended that the order for specific performance did not finally dispose of the rights of the parties because specific performance of the agreement remained under the control of the court. He relied on the judgment of the High Court in Computer Edge Pty Ltd v Apple Computer Inc [8] for the proposition that where a judgment includes both final and interlocutory orders, the judgment as a whole is interlocutory as it does not finally determine all the rights of the parties at issue in the proceedings.

2. [46]

   Dr Taluja submitted that since the declaration was a final order, an appeal lay as of right notwithstanding that some ancillary matters might need to be resolved.

3. [47]

   I think that the better view is that the Orders as a whole were interlocutory, either because the reasoning in Computer Edge applies or because the declaration should be seen as a “declaration of a matter along the way to reaching the final situation”. [9] It is to be borne in mind that the Orders reserved for further consideration Sansthan’s entitlement to damages, not merely the assessment of damages. [10]

4. [48]

   It is not necessary to express a final view on this question. Mr Murr did not dispute that if leave to appeal is acquired, the Court should grant leave. Given the importance of the issues to the parties and the risk of injustice to Dr Taluja if leave is refused I consider that, to the extent necessary, the Court should grant leave to appeal.

5. [49]

   Dr Taluja’s written submissions said that the validity of the Lease turned on whether “a contract arose between the parties in circumstances where [the Lease] did not identify the land the subject of that contract”. The submissions later identified the relevant question to be whether the Lease was “sufficiently certain as to subject matter”.

6. [50]

   It is trite law that an agreement that does not amount to a concluded bargain does not create an enforceable contract. [11] An agreement is incomplete if the parties have not agreed on a term which is essential as a matter of law to the creation of a valid and enforceable contract. [12] A lease of land, in order to be valid, must describe the demised premises in a manner that is certain or enables the boundaries to be identified and ascertained with certainty. [13]

7. [51]

   A lease satisfies the requirement that the demised land must be identified or identifiable if the lease provides for a third party, or even one of the parties to the lease, to determine the precise boundaries of the land. The general principle is that a contract, including a lease, is not invalid because an essential term remains to be determined, provided that the determination does not depend on further agreement between the parties. The High Court applied this principle in deciding that an agreement for the sale of land which contemplated the execution of a further agreement containing such other conditions as the vendor’s solicitors might “reasonably require” was binding on the parties. [14] Similarly, an agreement for a lease was held to be binding where it was “in terms and to contain such special clauses as the Landlord may require”. [15]

8. [52]

   There is a separate principle that a court is reluctant to conclude that an agreement intended to be binding in the parties is void because it is too uncertain. [16] For this reason, courts are astute to construe an agreement in a manner that preserves its validity as a contract. [17] Courts are particularly reluctant to hold that an essential provision in a contract is void for uncertainty where it has been partly performed and is therefore no longer executory. [18]

9. [53]

   Although the parties used the language of “uncertainty” in their submissions, I do not think that the issue in this case is whether the Lease is too uncertain to constitute an enforceable contract. It is more accurate to identify the issue as whether the parties have agreed on a term of the Lease that identifies the leasehold land with precision that enables the leasehold land to be so identified without further agreement between the parties. [19] If so, the Lease is valid and enforceable. If not, the parties have not agreed on a term that is essential to the creation of a valid lease.

10. [54]

    However the issue is to be characterised, Mr Smark and Mr Murr were at one in accepting that the court will strive to adopt an interpretation of the Lease that preserves its validity.

11. [55]

    The difficulty in the present case arises because the “hatched area” referred to in the definition of “Property leased” is omitted from the plan reproduced in Annexure B to the Lease. Despite the omission, and the imprecise identification of the location of the Chapel on the plan, the terms of the Lease make it clear that the leasehold land is to have the following characteristics:

12. [56]

    Clause 9 reaffirms that the total area of the leasehold land is 800 m2. The clause then says that the “Plan”, by which is clearly meant to be the plan in Annexure B, is “only … approximate”:

13. [57]

    Clause 9 states that a “final plan” shall be prepared by Dr Taluja within a reasonable time. This language strongly suggests that Dr Taluja is under an obligation to prepare a plan. Clause 9 does not say that Dr Taluja’s obligation is conditional on the plan in Annexure B including a hatched area. Nor did Mr Smark suggest that Dr Taluja would have any particular difficulty in complying with the obligation, even without the benefit of hatching on the annexed plan. The Lease contemplates that the “final plan” is to be prepared by Dr Taluja in conformity with the parameters set by the terms of the Lease.

14. [58]

    It is true that cl 9 is drafted on the assumption that the plan in Annexure B incorporates a hatched area showing the approximate boundaries of the leasehold land. But that fact does not demonstrate that Dr Taluja is relieved of the express obligation to prepare a “final plan” if the hatching happens to be omitted from the plan in Annexure B. The process contemplated by cl 9, upon which the validity of the Lease depends, is perfectly workable without a hatched plan being included in the Lease. In the absence of language making Dr Taluja’s obligation conditional on the existence of hatching on the Annexure B plan, in my opinion there is no good reason to construe cl 9 as imposing such a condition.

15. [59]

    Independently of the principle that courts strive to uphold the validity of contracts, I would construe cl 9 of the Lease as requiring Dr Taluja to prepare a “final plan” within a reasonable time, regardless of the absence of hatching on the plan in Annexure B. This conclusion seems to me to be irresistible once the principle that courts strive to construe agreements so as to preserve validity is taken into account.

16. [60]

    Clause 10.1 of the Lease establishes a mechanism for resolving any disagreement that arises “in connection with the Plan”. Mr Smark and Mr Murr agreed that in view of the inconsistencies in the drafting of the Lease, no significance can be attached to the capitalisation of the initial letter of “Plan” in cl 10.1. In these circumstances, the natural reading of cl 10.1 is that if there is a disagreement in relation to the “final plan” prepared by Dr Taluja (which on any view is not necessarily a truly final plan) the disagreement is to be referred to an expert for final determination. That the expert is to be appointed by the President of the Institute of Surveyors indicates that the expert’s principal focus will be on ensuring that the area of the leasehold land is precisely 800 m2. However, there is no reason why the expert should be precluded from determining other issues that necessarily arise in determining the precise dimensions of the leasehold land, taking Dr Taluja’s “final plan” as the starting point.

17. [61]

    For these reasons I conclude that the Lease establishes the mechanism that enables the location and dimensions of the leasehold land to be ascertained without further agreement between the parties. The Lease is therefore valid and his Honour was correct to conclude, in the absence of any other challenge, that Sansthan validly exercised the option to purchase in November 2009.

18. [62]

    There is a degree of artificiality about the way in which the issue concerning the correct classification of the “right of use” in cl 12.3 of Annexure A was presented in this Court. The nature of the “right of use” arose for consideration by the primary Judge in the context of the dispute between the parties as to the form of orders required to give effect to the Primary Judgment. Presumably because the issue arose after delivery of the Primary Judgment, the question was not fully debated before his Honour. In particular, no argument was put to his Honour that the “right of use” was incapable of being classified as an easement. Understandably, his Honour dealt briefly in the Easement Judgment with the construction arguments put to him.

19. [63]

    The notice of appeal challenges his Honour’s holding that cl 12.3 is intended to create an easement and contends that his Honour should have held that the right in question is merely a contractual licence. The notice of appeal does not challenge the implicit determination by the primary Judge that the right of use provided for in cl 12.3 is capable of constituting an easement.

20. [64]

    Clause 12.3 refers to a “right of use over the Common Areas … other than the Brundah Hall Dining Room”. There is no further elaboration of the nature of the permitted use over each of the Common Areas; the persons entitled to exercise the right of use; or the precise parts of the Retained Land affected by the right of use.

21. [65]

    The definition of “Common Areas” in Annexure A of the Lease gives rise to a host of issues. What were “the parking areas in front of” the leasehold land at the time the Lease was executed? [20] What is meant by “the area of the Whole Property in front of” the leasehold land? Is it intended that the right to use the garden is to be capable of exercise by all devotees who attend the Chapel? If so, does the right of use extend beyond enjoying the garden and include conducting outdoor meetings or gatherings? [21] What limits, if any, are there on the right to use the “area of the whole Property in front of the leasehold land? [22] Does the right of use of parts of the Retained Land expand in scope if Sansthan constructs buildings on the leasehold land as permitted by cl 14 of Annexure A, thereby perhaps allowing many hundreds of devotees to participate in ceremonies at the same time?

22. [66]

    A further difficulty, not adverted to by the parties, is created by s 88(1) of the Conveyancing Act 1919 (NSW) (Conveyancing Act), which states that:

23. [67]

    Since the Lease is not in registrable form and is not executed as a deed it would seem not to be an “instrument” for the purposes of s 88(1) of the Conveyancing Act. [23] But if cl 12.3 of Annexure A is intended to confer a right in the nature of an easement once Sansthan exercises its option to purchase, it must have been contemplated that the right of use would be incorporated in an instrument capable of registration under the Real Property Act. Apart from the other issues I have referred to, it is hard to see how the right of use could be incorporated in a registrable instrument that complies with s 88(1) of the Conveyancing Act, unless the instrument identifies more precisely the land burdened by each element of the right of use. [24] It is not clear how that could be done without further agreement between the parties. [25]

24. [68]

    Although Dr Taluja did not submit in this Court that the right of use conferred by cl 12.3 is incapable of being classified as an easement, Mr Smark did submit that the uncertain scope and possible issues as the enforceability of the right against Dr Taluja’s successors in title militate against classifying the right as an easement. In my view, this submission has considerable force. The submission receives support from the apparent width of the right of use conferred by cl 12.3. It is difficult to accept that the right was intended to enure for the benefit of Sansthan’s successors in title (who, as Mr Smark pointed out, might be adherents of a different religion). It is also difficult to accept that it was intended to bind Dr Taluja’s successors in title, given that an easement co-extensive with the right of use would impose very extensive and burdensome constraints on the Retained Land. [26] While relations between Dr Taluja and Sansthan (and its principals) obviously have soured, the Lease was executed at a time when Dr Taluja was a supporter of adherents of Baba. [27]

25. [69]

    Clause 12.3 should be construed to create a licence in favour of Sansthan similar in scope (but not necessarily identical) to the licence created by cl 13. A plausible reason for including the right of use in cl 12.3 is to avoid the possibility that the existing licence might be terminated on Sansthan’s exercise of the option to purchase or as a result of unilateral action by Dr Taluja. Whether and in what circumstances the licence created by cl 12.3 can be terminated is not a matter arising in these proceedings.

26. [70]

    For these reasons I conclude that the primary Judge erred in including in the orders for specific performance of the option to purchase an order requiring the creation of an easement of use over the Common Areas of the Retained Land.

Orders

1. [71]

   The following orders should be made:

2. [72]

   The major issue in the appeal was whether the Lease and therefore the Option was valid. Sansthan has succeeded on that issue, but Dr Taluja has succeeded on the subsidiary issue concerning the “right of use”. In my view Dr Taluja should pay 50 per cent of Sansthan’s costs of the appeal, including the costs of the application for leave to appeal.