Implied Terms in Licences over Land

Greg Taylor, Dr iur (Marburg, Germany), LLM (Marburg), LLB(Hons) (Adel), BA(Hons) (Adel), GCLP; Lecturer in Law, University of Adelaide

I. Introduction

This article is about the terms which may be implied into licences over land. This is admittedly an issue which arises relatively infrequently. But this only adds to the need for the question to be considered in depth: the case law resulting from those occasions on which the courts have considered the issue has tended to be rather disorganised and in need of synthesis and systematisation. Cases are decided in apparent ignorance of other similar cases on the same material. Principles accordingly fail to develop in a rational and ordered way. Implied terms in licences over land is moreover an area in which, as we shall see below, the law of torts, contract and property intersect. It is therefore very easy to approach the problem from different directions and to reach different destinations simply as a result of the angle of approach, which itself may be the result of nothing more substantial than the first thoughts of the parties involved in the case.

It is the thesis of this essay that traffic will flow most smoothly at this intersection of torts, contract and property law if the terms implied into licences over land are assimilated, as far as the nature of the subject matter allows, to the terms which are implied into leases. This, in turn, can be brought about by recognising that both leases' and licences are contracts, and that, in both cases. the law of contract provides the applicable rules for the implication of terms.

The distinction between leases and licences is, of course, a familiar one.' At the theoretical level, the distinction is clear enough: a lease does, and a licence does not, confer exclusive rights to occupy the land concerned."eases do, and licences do not, confer an interest in land4 as distinct from a mere personal permission to do an act which otherwise would have been illegal.5 As dichotomies go, this one is - or at least could be - a valuable one rather than 'little short of disgraceful to our juri~prudence'.~ It allows the law to distinguish between situations that are significantly different in fact and in effect as well as in the eyes of the law. There is a considerable difference between, for example,

1 As is well known, after years of hesitation even the doctrine of frustration has been extended to leases in recognition of their contractual nature: see the discussion in Caner JW & Harland DJ, Corztract Lu. irz Austi-alia, 3rd ed, Buttenvorths, Sydney, 1996 at 725-9. There has never been any doubt that terms might be implied into leases, as with other contracts: the covenant for quiet enjoyment is one well-known example.

2 For recent discussions of the distinction, see Butt P, 'Lease and Licence - Yet Again' (1999) 73 A~istmliarz LCIw Joi~i71uI 787: Clarke DN, 'On Distinguishing a Lease from a Licence' (1985) 2(3) Cuntei-17~7ui-y Ln~r Review 390; Duncan WD, 'Lease, Licence, Concession or Occupation Right' (1998) 19(2) Queeitsli~rzd Lcryver 50; Redfern M , Case Note, (1998) 6 Arc,~t,urlitrr~ P r o p e e LMw Jo~inzul 19 1 ; Shaw N, 'Contractualisation and the Lease-Licence Distinction' (1996) 18 Adeluide L c r b c Reviev- 213.

3 This was established by the well-known cases of Radaich 11 Sinit11 (1959) 101 CLR 209 and Street 1 , Mo7urnrfi)ril [I 9851 AC 809.

4 On the issue of whether licences can bind third parties, see Moriarty S. 'Licences and Land Law: Legal Principles and Public Policies' (1984) 100 L*IW Quurte~-ly Re~view 376 at 377, 388-397; Shaw N, n 7 at 256f; Slatter M, 'Licences: A Real Advance?' ( 1997) 5(2-3) Austruliurz Plq,ei-h h t c Jozinzal 181 at 186f.

5 A point made in Tho~izas I , S o t - d l ( 1673) Vaugh 330 at 35 1: 124 ER 1098 at 1 109, and in numerous later cases. See especially Vuilghmz I! Sl?iru of Berzallo ( 1891) 17 VLR 129.

6 This was said of the distinction between determinable limitations and conditions subsequent: Re Kiizg'~ Tru~ts (1892) LR 29 Ir 401 at 410.

Implied Terms in Licences over Land 7 79

a 99-year lease and a licence to occupy land for a few hours in order to see a play or to watch a football match.

As with most legal dichotomies, however, there are considerable tracts of uncertainty near the boundary. Admittedly most Australian residential tenancy legislation, unlike its English counterparts which have contributed so much to the debate about the conceptual difference between leases and licences, is better drawn and does not exclude licences from its provision^.^ This makes redundant one area of dispute about whether a lease or a licence has been created. But, as the continuing discussion of the issue in Australia shows, there are still plenty of contexts in which the distinction does make a difference.

The distinction between leases and licences will lose much of its remaining capacity to be a source of illogicality and inconsistency in practice, and the temptation for grantors to select whichever category seems most beneficial to them regardless of whether they really intend to confer exclusive possession or not will be greatly reduced, if the terms implied into leases and licences by the general law are assimilated to the greatest possible degree. Then it will be possible for the law to use the distinction between leases and licences principally and simply as a means of describing the obvious difference between the grant of exclusive and non-exclusive rights to occupy land. There will be no temptation to allow the consequential-rights tail to wag the exclusive-occupation dog by permitting grantors to create a lease, or a licence, simply because one or the other seems to offer more benefits to the grantor in terms of the implied terms which are associated with it.

One area in which there appears to have been a failure to harmonise the law of leases and of licences is in relation to the tenant'sllicensee's rights implied under the general law in the absence of any express terms. Indeed, the decision of Judge Newey QC, sitting as a Judge of the English High Court in Wettern Electric 11 Welslz Development ~ ~ e n c r ~ has been criticised for opening up a new distinction between leases and licences by implying into contracts for licences terms relating to the suitability of licensed premises which would not be implied into equivalent contracts for lease^.^ If the argument presented in the last paragraph is accepted, this criticism would appear to be justified. One purpose of this article, however, is to advocate an understanding of the principles applied to implied terms in contractual licences and of the decision in Wettern which harmonises as far as possible with the law of leases rather than deviating from it. This will avoid creating a further distinction between leases and licences which is unrelated to the principal purpose of that distinction: differentiating exclusive possession of land from non-exclusive possession.

It will be shown that the decision in Wettern can be understood as an instance of the obligation not to derogate from the grant. In that context, the decision does not diverge from the law of leases, but hannonises the law of licences with that of leases. There is, moreover, authority from New South Wales suggesting that a term similar to that implied in Wettern is available in respect of leases as well as licences. It will also be shown that the decision in Wetteriz, far from being an entirely new development in the law of licences, in fact builds on and continues a line of cases which permit terms to be implied into

7 Clarke DN, n 2 at 390f. See, for example, the definition of 'residential tenancy agreement' in s 3 of the Rrsiderztiril Terzu~zcie~ Act 1987 (NSW) and in s 3 of the Resiclelztiul Teimncie.\ Act 1995 (SA). Note, however, the special provisions in the South Australian Act applicable to rooming house agreements (s 103 of the Act and the Re~iderztiul Terzuncie.r (Roo~ning Hou,\es) Reg~ilatiorzs 1999) as well as the express exclusion of boarders, lodgers and holiday hoines in s 6( l)(d) & (2)(c) of the New South Wales Act and s 5(l)(b) & (c) of the South Australian Act. See further Smith RG, 'Extending the Scope of the Residerztiul Terlurtcies Act 1980 (Vic) to Include Residential Licensees' ( 1983) 13 Melholirrze Urzi~>ersity LMw Review 1. In relation to retail leases, the Retoil u~zd Collzrizerci~il Leu~rs Act 1995 (SA) covers licences as well as leases: see the definition of 'retail shop lease' in s 3. The position in Victoria would appear to be different under the definition of 'lease' in the Retuil Terzulzcie~ Refonlz Act 1998.

8 [I9831 QB 796. 9 Dawson N, 'Contractual Licences, Leases and Fitness for Purpose' (1983) 34 Nor-fileilz Irelund Legul Quamrly

349.

Greg Taylor

contractual licences over land. One of these principles has since been assimilated into the law of negligence, but others have not and remain part of the law of licences. Finally, it will be suggested that the need to systematise the terms that have been implied into licences by the courts in various situations will be met if closer attention is paid to the distinction drawn in contract law between terms implied in fact and terms implied by law. It will thus be shown that, at the intersection of property, contract and torts. traffic should be able to flow smoothly and without collisions.

II. The decision in Weftern Wettern involved the grant by the Welsh Development Agency to Wettern Electric Ltd of a licence to occupy a factory unit while Wettern's factory was being extended. That factory was itself leased from the Welsh Development Agency. Wettern was in the business of making plastic junction boxes, principally for export, and its success in this trade required the extension of its leased factory and the temporary occupation of licensed premises while the extensions were being carried out. The licence commenced on 25 June 1979 and was to last for a year. Wettern commenced occupation on that date. The factory unit was new, but owing to defects in its foundations it quickly became dangerous to its occupants. Cracks started to appear. Floors began to sink and walls began to move when hand pressure was applied to them. Clearly, Wettern had to move before the year was up. They went to another property owned by the Welsh Development Agency. They sued the agency for lost production and the expenses incurred as a result of moving and consequent disruption to their business.

Judge Newey QC, sitting as a Judge of the High Court, said that a term as to the fitness of the land for its purpose would not be implied into leases.1° On the other hand, he stated that '[nlo reported case has been cited to me in which a court has held specifically that a term as to suitability for a licensee's purposes should not be implied in a licence.'" He quoted two cases1' which will be considered below from the old law of occupier's liability which showed that terms relating to the safety of licensed land could be implied into licences. As we shall see below, there was in fact considerably more authority available to which the Judge had not been referred by counsel.

The Judge refused to regard the cases which decided that there is no implied warranty as to fitness under a lease as binding also in relation to licences. It was therefore a question of whether terms could be implied having regard to the conditions laid down in The Moorcock13 and subsequent cases. Applying without expressly citing the 'officious bystander' test,'"he Judge held:

The sole purpose of the licence was to enable the plaintiffs to have accommodation in which to carry on and expand their business while their existing factory was being enlarged. If anyone had said to the plaintiffs and the defendants' directors and executives at the time when the licence was being granted: 'Will the premises be sound and suitable for the plaintiffs' purposes?' they would assuredly have replied, 'Of course; there would be no point in the licence if that were not so'. The term was required to make the contract workable.'"

As has been pointed out, the judgment in this case has been criticised for its somewhat off-hand dismissal of the law applicable to leases, as if the two topics were completely

10 [I9831 QB 796 at 804, 808. 1 1 Note 10 at 805. 12 Fi-uizcis 1. Cockrell (1 870) LR 5 QB 501; Maclenan v Segar [19 171 2 KB 325. 13 (1889) 14PD64. 14 Reigcrte 1) Urzion Muiz~tfucturi~lg (R~rn~~hottorn) Ltd & Elton Cop Dyeirlg Co. [I9181 1 K B 592 at 605; Shirlrrw \>

Soutl~enz Fourzdr-ies Ltd (1926) El9391 2 KB 206 at 227. I5 [I9831 QB 796 at 809.

Implied Terms in Licences over Land 78 7

unrelated.16 It may be, of course, that the Judge considered the established law on leases to be something of an anomaly and was glad not to be bound by its shackles rather than anxious to harmonise the law applicable to licences with it. There is also an element of Schadenfreude involved in the discovery that a grantor, who may well have chosen a licence rather than a lease in order to minimise the grantee's rights, is bound to an implied term which would not have existed if a lease had been granted.

Certainly, however, the use of the contractual status of licences to justify the implication of terms as to fitness, coupled with a denial that the same principles are applicable to leases, sits uncomfortably with the recognition that other doctrines of contract law are applicable to leasesI7 and thus with what has been called the 'contract~alisation'~~ of leases generally. However, one might ask why an error or an anachronism perpetuated in relation to leases should be extended also to licences. If it can be shown that licences can operate efficiently and reasonably under an implied term of the nature considered in Wetteriz, it might be the law of leases that needs re-consideration rather than the decision in Wettern. In this respect, it is interesting to notice the decision of the Court of Appeal in Greene v Chelsea B.c.19 refusing to allow the tortious immunity of a lessor for defective premises to be extended to licensees because of the anomalous and unjust nature of the immunity."

There is, however. Australian authority for implying into an agreement for a lease of commerciaVlight industrial premises, and into the consequent lease itself, a term that the premises will be fit for the commercial/light-industrial purpose for which they were leased.'l Similar obligations are imposed by statute in some jurisdictions." It is only in relation to unfurnished residences that the law has traditionally been reluctant to imply a term of fitness for purpose (the purpose of habitati~n).'~ There are also examples of quite specific terms implied into leases which may be seen either as instances of the obligation not to derogate or as separate and independent terms relating to the suitability of the demised land for its p~rpose.'~ Finally, in Hart v ~inclsor," the authority usually cited for the refusal to recognise an implied obligation that the premises will be fit for the purpose for which they were leased, the Court said that 'there is no contract, still less a condition, implied by law on the demise of real property only, that it is fit for the purpose for which it is let.726 This says nothing about implication of terms into contracts not by law, but in fact - a theme which will be taken up again below.

Dawson N, n 9. Such as frustration: Nurio?zul Curriers 1) Parzulpinu (Northeni) [I98 11 AC 675. See also n 1. Shaw N, n 2. [I9541 2 QB 127 at 138. Cf. also the comments of Windeyer J on this case in Voli I* Irlgle~vood Shire Courlcil (1 963) 1 10 CLR 74 at 90f. For the Australian law in the area of leases, see now NortJlenl SuridIdu.\tirzg I, Hun-is (1997) 188 CLR 313; Wror?gs Act 1958 (Vic) s 13A; Occul?iels' Licrhility Act 1985 (WA) s 9; Wrongs Act 1936 (SA) s 17D; L r r w Refonn (Miscellutzeous Provisiorzs) Act 1955 (ACT) s 29; Redfem M, 'Nortl~ern Surzcll?lusti~zg Orzce Aguin' ( 1999) 7(3) Austruliurz Property LUM, J0un2ul 28 1. Telex (Austrubsiu) P@ Ltd v T1rornu.s Cook & Son (A~utrulusia) [I9701 2 NSWR 257 at 266f (premises used, to the knowledge of the lessor, for the business of purchase and sale of hearing aids and other audrometric equipment); A~lssie Tt-aveller v Murklea [I9981 1 Qd R 1 at 6; Advurzce Fitness C o p Ltd v Borzdi Diggers Menzor-ial arzd Sportirzg Club [1999] NSWSC 264, [89] - [94] (law 'in a relatively fluid state', now permitting implications of terms into a lease '[als a matter of contract'). Note, however, that the Full Court of the Federal Court adopted the opposite view, without however considering authority to the contrary, in Bradford House Ltcl 1) Let-oy F<rshior~ Group (1983) ATPR 40 387 at 44 552f. For an authority to the same effect from New Zealand, which is now somewhat dated, see Balcair71 Guest House Ltd 1- Weir- & Arzor [I9631 NZLR 301. See, for example, Retail urd Cornrizerciul Leases Act 1995 (SA) s 18. See, for example, Cruse v Mourzt [I9331 Ch 278. Jerzkirz.\ v Levirison (1929) 29 SR (NSW) 151 (implied term not to cut off electricity); Dikstei~z I' Karzev~hy [1947] VLR 216 at 221 (light to use lift implied given purpose of tenancy known to lessor); Dilloiz 1- Nush [I9501 VLR 293 at 301f (right to use lavatory); Kurqiur~rzi~ & Arzor- Mulltovvr~ Pty Ltd (1979) 21 SASR 381 at 390-394 (right to use lift implied either as independent tenn or as consequence of obligation not to derogate). (1843) 12 M & W 68; 152 ER 1 1 11. Note 25 at 87f. 1 122. Emphasis added.

Greg Taylor

Be that as it may, Ralph Gibson LJ in Mon-is-Tlzoinas I? Petticoat Lane ~ e n t a l s ' ~ clearly doubted the correctness of Wettern. His Lordship said:

It seems to me that, while the parties [in Wetter111 no doubt would have responded to the hypothetical question much as Judge Newey asserted that they would, because they had no reason to think that the premises were not sound and suitable, I am unable to be so confident that the defendants would have ageed that they were to be treated as warranting that the premises were sound, etc. They might well have invited the plaintiffs to inspect the premises by surveyors and form their own view.'8

This, with respect, is not convincing. In the first place, it would have been strange behaviour indeed if Wettern had sought to have the premises inspected by their own surveyors. The factory unit was new. It had been built by or on behalf of the licensors, the Welsh Development Agency. Wettern was perfectly entitled to assume that the foundations were strong enough to bear the weight of the building. Wettern was not entitled, perhaps, to assume that every imaginable part of a new building was performing perfectly, but it was entitled to assume that the building would not begin to collapse until a few hundred years had passed. Indeed, it would have been, at least in this author's view, entirely unreasonable behaviour if Wettern had sent its own experts to inspect a newly- built building which it was going to occupy for only a year and on which it was not going to place any strain for which the building had not been designed.

Secondly, there is no reason to think that the Welsh Development Agency would have responded to the question posed by the officious bystander in the manner suggested by Ralph Gibson LJ. Unless they had some knowledge about the quality of the building which they did not wish to share with the licensee (a fact which the case report gives us no reason to assume, and which, at any rate, would not have improved the merits of the case for the Agency), they would surely have responded testily to the officious bystander's question by saying that they were quite happy to guarantee that the building would not begin to fall down in the manner in which it eventually did. After all, they had no reason to suspect that it would, so why would they not guarantee the safety of the building in the manner suggested? And if, to continue the example, they had not done so, the licensees might well have demanded to be placed in a different location, one in which the Agency could be certain that the building would not start to fall down within a few months.

Morris-Thomas itself involved a licence over a bacon curing oven, measuring I I feet by 7 feet in floor area, which was used under a licence as an antique dealer's shop in what appeared to be something in the nature of a Sunday market. Morris-Thomas alleged an implied term that the oven should be fit for the sale and storage at all times of antiques and other items. There was some debate as to whether the word 'reasonably' should be inserted before 'fit','9 but the Court refused to imply any condition as to the suitability of the oven for the purpose for which it had been licensed. As May LJ pointed out, Wettern was clearly distinguishable: that case involved a new building, whereas the bacon curing oven here was over 100 years old.30 Ralph Gibson LJ, relying on the Moorcock test, held that the implied term for which Morris-Thomas contended was not necessary to give the contract business efficacy. The only restriction on the licensors was that they were not 'free to cause or to permit the premises to decay so as to render the oven useless to the [licensee]' and that it was 'likely' that the licensors 'were under an implied obligation to take reasonable care that the parts of the premises retained in their occupation were not in such condition, i.e. [sic - e.g.?] by letting in or discharging water, as to cause damage to the [licensee].'"

27 (1986) 53 P & CR 238. 28 Note 27 at 255f. Emphasis in original. 29 Note 27 at 231. 30 Note 27 at 250f. 31 Note 27 at 256.

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It seems, then, that there were some implied terms in the contract in Morris-Thomas, the chief of which prevented the licensors from rendering the premises useless to the licensees. In the context of the case, this was a sensible decision. One cannot expect a very high standard of obligation in an old building that is let for use as a Sunday market. Many people will have experience of the buildings used for such purposes; they are often in a state which is less than perfect, and that, indeed, adds to the charm of the Sunday market rather than detracting from it. It is otherwise in relation to a building that is new and is to be used for an industrial purpose.

It may be, however, that an obligation on the licensors not to allow the licensed premises to become useless for the purpose for which the licence was granted was also all that was required for the just disposal of the case in Wettern. After all, a building that is falling down and cannot be safely occupied at all is of no use whatsoever to a licensee. This sort of obligation will be considered again once the earlier cases have been discussed in which it has been held that a licence does bring with it implied obligations. As we shall now see, there were many more precedents than Judge Newey QC was aware of when he decided Wettern.

Ill. Earlier cases

I . Licences coupled witlz pro$ts a prendre The earliest precedents for implying obligations into licences are those in which the licence is coupled with a profit ci yrendre. This, of course, would not necessarily be a sufficient precedent for licences that are merely contractual, for as is well known, profits a prendre, unlike licences, are classified as interests in land." It must be said, however, that the early precedents do not expressly rely on the existence of an interest in land to support the implied term. Rather, the arguments employed are just as much arguments from the contractual nature of the licence as they are arguments from the proprietary nature of the profit.

Newt?!? ~ a r r i s o n ~ ~ involved a licence granted by a canal company to remove ice from its canal. The plaintiff alleged that the defendant was infringing an exclusive licence granted to the plaintiff. In the result, the licence was held not to be exclusive. Nevertheless, said Wood V-C, the plaintiff was not entirely without rights, for the canal company could not 'give other licences in derogation of 33 its grant to the plaintiff. The Vice-Chancellor continued:

Take the analogous case of a person covenanting to pay so much for the right of cutting a certain quantity of wood in the course of a year : the person who grants the licence could not at any moment send in a number of persons into the forest to cut down the whole wood and leave nothing for the licence to operate on.-?"

The licence is here being treated in a similar way to a lease. As with a lease, it is, says the Vice-Chancellor, not permissible for the grantor to derogate from the grant by rendering it nugatory in effect.

It should not be thought, however, that the principle on which this case is based is exclusively applicable to leases or to other contracts passing an interest in land. It is merely an instance of the obligation identified by Griffith CJ as long ago as 1910, when his Honour said:

Every contract between subject and subject involves an obligation, implied if not expressed, that neither party shall do anything to destroy the efficiency of the bargain which he has made. The

32 See Thol~zus 1- Sonell ( 1673) Vaugh 330 at 35 1 ; 124 ER 1098 at 1 109, and especially Vuughalz 11 Slzire c!f'Be~zullu (1891) 17 VLR 129.

33 (1861) 1 J & H 393; 70 ER 799. The judgment was affirmed by Lord Campbell LC: (1861) 1 LT (N.S.) 424. 34 Note 33 at 397; 801. 35 Note 33 at 397t 801.

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implied covenant or agreement for quiet enjoyment in the case of a demise of land is merely an instance of the application of this rule.36

In Newb~, it would clearly have completely destroyed the efficiency of the bargain which the canal company had made with the plaintiffs if the company had been permitted to grant licences or otherwise to dispose of the ice in its canal in a way that removed the possibility of the plaintiffs' harvesting sufficient ice under the grant to them. As the dictum of Griffith CJ shows, this has little to do with the proprietary nature of the right to harvest ice: if the licence is not exclusive, the licensee cannot be said to have property in all the ice in advance of its harvesting. Rather, the implied term is an incident of the contract that grants that interest. Accordingly, the reasoning in Newbjy is also applicable to contractual licences such as those in Wettern which grant no interest in land.

Newby was applied in Carr v Bensor~ ,~~ a case which serves to emphasise that the licence is the interest protected by implied terms such as these. Carr involved a right to dig up fire- clay from certain lands. Again it was contended that a third party to the licence was exercising rights inconsistent with the plaintiffs under the licence. It was conceded that the plaintiffs licence was not exclusive, and Wood LJ held that it was therefore permissible for the licensor to grant further licences, 'provided always that they are not so granted as to defeat the known objects of the first licensee in applying for his license.'38 It was held, however, that the licensor could not be expected to know precisely how much fire-clay the licensee might need, and accordingly the latter's only right 'was not to have the whole swept away from him in a body.'" Selwyn LJ, too, emphasised the need, if relief was to be granted, for something to have been done which was 'in derogation of the previous licence.'40

The fact that the implied obligation does not generally go beyond this basic obligation may be illustrated by the decision of the Full Court of the Supreme Court of South Australia in Kouveras r j Arzgas,-" in which there was a right to pick and sell olives on the licensee's land. Relying on the Moorcock conditions, the Court refused to imply a term that the licensee should behave properly and honestly on the defendant's property on the grounds that 'the contract was clearly capable of performance without it.'12 As in Wetter-rz, however, the Court here clearly assumed that conditions could be implied into contractual licences if the normal requirements for implying terms into contracts were satisfied. And, as in Newby, there was no suggestion that the question of implying terms arose here only because the contract also conveyed an interest beyond that of a mere licence to go on to land.

2. Licensors' liabilih, Since the decision in Ailstraliarz Safeway Stores v Znluzna,4"he common law of occupiers' liability has been entirely based on the law of negligence. An examination of the origin of the liability of contractual entrants shows, however, that the liability of occupiers who admitted others pursuant to a contractual licence was originally based on an implied term in the licence. Only with the decision in Donoghue v ~teverzsorz~ was it possible to begin to understand the liability under a contractual licence of the occupier as tortious rather than based on an implied contract; and this process was not completed until Zaluzna. (One of the problems

O'Kwfr Williui~zs ( 19 10) 1 1 CLR 17 1 at 191. See also Barwick CJ (dissenting) in Ansett Trcrnspol? lrld~lsfrie.3 I * Commo~zwealt/l ( 1977) 139 CLR 54 at 6 1. ( 1868) LR 3 Ch App 524. For a case from New Zealand. see Quink~n & Anor- I] Gray & Ors (1907) 27 NZLR 650. Note 37 at 532f. Note 37 at 534. Note 37 at 535. [I9191 SALR 98. Note 41 at 106. 1 1987) 162 CLR 479. [I9321 AC 562.

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which the High Court of Australia may have to deal with as a result of its decision in Astley v A~tstrust L t 8 is whether negligence has completely supplanted and superseded this form of contractual liability, or whether the latter is instead merely dormant and able to be awakened by a plaintiff who has been guilty of some contributory negligence.)16

Certainly liability under this heading was initially based on a term implied into the contract. Indeed, in one of the earliest cases in this area, Francis v C~ckrell,"~ Kelly CB likens the obligation of the licensor to that of someone who sells goods, an obligation which will be familiar to today's readers from its codification in the sale-of-goods legislation of the late nineteenth century. The case involved a stand from which a steeplechase could be viewed on payment of the sum of 5s. The plaintiff paid the required sum and was injured by the stand when it fell owing to its improper construction. Kelly CB held that in 'all contracts of this nature and character' there was 'an implied contract that the article or thing shall be reasonably fit for the purpose for which it is to be used and to which it is to be a~plied."~ That this was not a slip of the tongue is shown by the statement on the following page of the report that there was an implied obligation 'that the stand upon which [the defendant] supplied a seat to the plaintiff for the pecuniary consideration of 5s should be reasonably fit for the purpose for which it was supplied to him.'@ The only exception to this was for defects which were not discoverable by the exercise of reasonable diligence.

Admittedly not all the six Judges of the Exchequer Chamber in this case expressed themselves in the same way. Martin B held that the plaintiff could sue 'either in case or contract',50 while Cleasby B used language that was redolent more of negligence than of contract." On the whole, however. the case may be cited as another illustration of terms implied into contracts for licences, even if today such an implication would not, owing to the growth of the law of negligence, be required any longer.

The leading case on the liability of contractual licensors under this implied term was Macleizan v Segar," a case which was frequently cited during the transition from the contractual to tortious liability in the twentieth century. McCardie J surveyed the cases decided to that time on the topic, and, on that basis, was able to state that the licensor's liability lay squarely in contract: it was 'an implied warranty that the premises are as safe for that purpose as reasonable care and skill on the part of any one can make them.'53 Similar statements were made in several Australian cases at Supreme Court level.'%s Scrutton LJ stated in Hall v Brooklands Auto Racing C l ~ i b , ~ ~ '[tlhere must be an implied term in the contract where you simply pay your money and pass through a turnstile.'56

The High Court was, however, recognising the change in the basis of liability which

(1999) 197 CLR 1. At the time of writing, however, legislation had just been passed to eliminate the anomalies caused by this decision, or rather by the defects of the legislation on which it was based. The problem referred to in the text could. however, still be the subject of judicial decision having regard to the Lcrw. Refonn (Contributor?. Negligence urzd Apportionment of Liability) Act 2001 (SA) s 8. For a recent case discussing the state of the authorities in this area, see Abgic v Cullbur (2000) 137 NTR 1, and note especially Culirl I? GI-eutel- U1zioi1 Oguizi~utio~l ( 1991 ) 173 CLR 33 at 38 ('assume'), 41. (1870) LR 5 QB 501. Note 47 at 503. Note 47 at 504. Note 47 at 511. Note 47 at 5 14. [1917] 2 KB 325. Note 52 at 333. For example, Chafivood 1, N(~tio11u1 Speedlvriy Ltd [I9291 St R Qd 29 at 34; Key v Comrni.~ riower-jot- Ruilwuys (N.S.W.) (1941) 41 SR (NSW) 60 at 65: GI-ibhen r > Wor.ee Cururwn P~irli und Motels [1970] Qd R 420; Culrletf rv Stolbio~c [I9821 1 NSWLR 175 at 180: Momw~ki 1, Sttite Rail Ailthorig (N.S.W.) ( 1988) 14 NSWLR 371 at 381, 383. 119331 1 KB 205. Note 55 at 213.

7 86 Greg Taylor

arose from the recognition in Doizoghue v Stevenson that a contract was not necessary to found liability in negligence. Accordingly, it was no longer necessary to resort to the concept of an implied term in a contract to justify the liability of a contractual licensor; it could be based directly on tort. Thus, in Watson v ~ e o r ~ e " Williams ACJ quoted,s8 of all the six Judges who sat in Francis I? Cockrell, Martin B, who, as we have seen, based the licensor's liability on case as well as contract. Fullagar J stated that the rule as to licensors' liability under contracts:

. . .is, however, from some points of view, a curious rule. The obligation is, in legal theory, contractual, but the liability depends on a breach by somebody at some stage of a common-law duty (which may, of course, have been also itself a contractual duty) to use reasonable care. It seems clear that the rule does not impose liability in the absence of negligence. . .s9

Windeyer J took up the theme in Voli v Inglewood Shire

And where the plaintiff who suffered an injury had himself paid to go in, the liability of the owner or occupier whom he paid can be rested on breach of contract. In the early decisions it was usually so put. But Martin B said in Francis v Cockrell, 'if you choose to put it in another form, it is the duty of a person, who so holds out a building of this sort, to have it in a fit and proper state for the safe reception of persons who are admitted' (at 509). Looked at in that way the involvement of contractual elements in an action of negligence, the curiosity on which Fullagar J remarked in Wars011 v George (1953) 89 CLR 409 largely disappears. For, although in Frarlcis v Cockrell ( 1 870) LR 5 QB 184, 501 the plaintiff had himself paid to enter the grand- stand, would it have made any difference if a friend had bought his ticket for him? Should a person whose ticket was bought for him by a friend, as they went in together, be in a worse position, if they both be hurt by a collapse of the stand, than the friend who paid for them both? Surely not? Then suppose a person had taken all the places so that he might invite whom he liked, would his guests, injured when the stand collapsed, have had no right of action against those who erected it? The shadow that the requirement of privity of contract in the law of contract has cast upon the law of tort is now dispelled, or almost so. Liability in tort always depends upon proximity of relationship, not on privity of agreemente6*

Later in the judgment, his Honour dismissed the term 'implied warranty' found in nineteenth-century cases as 'characteristic of the period when the case was de~ided'~' and not to be taken as an implied statement that liability depended on privity of contract.

Martin B's view had clearly gained acceptance, and the implied term in the contractual licence had become a duty of care in negligence. Nevertheless, these cases are good illustrations of the possibilities of implication that are inherent in a contractual licence. It was the expansion of the tort of negligence, and not any contraction in the ability to imply terms into licences, that caused the shift from contractual to tortious liability in this area.

3. Cases involving residences Despite the reluctance of the Courts to imply terms in residential leases other than the two traditional covenants of quiet enjoyment and non-der~gation,~~ there have been cases in

57 ( 1953) 89 CLR 409. 58 Note 57 at 415. 59 Note 57 at 424-5. 60 (1963) 110 CLR 73. 61 Note 60 at 92-3. The question mark after 'Surely not' is in the original report, but would appear to be an error.

It is missing in the authorised report in 119631 ALR 657 at 668. Th~s passage was cited and discussed recently in Northerrz Sund1,lu~ting 1. Hurris (1997) 188 CLR 313 at 338. See also at 396.

62 Note 60 at 94. 63 But see Not-thenz S(r~zdl?lu.stitzg H~irri.5 ( 1997) 188 CLR 3 13; Wt-orzgs Act 1958 (Vic) s 14A; Ocr~upiecs' Liability

Act 1985 (WA) s 9; Wr(>rq.s Act 1936 (SA) s 17D; i.uw, Rejnnn (Mi.~c.elbtzeou.s provision^) Act 1955 (ACT) s 29; Redfern M, 'Nortl~enz S~llld/du~titzg Otzce Aguit?' ( 1999) 7 Art.\rrulitrrz Property Luw Jounltrl 28 1.

Implied Terms in Licences over Land 187

which terms have been implied into licences of residential properties.64 Such terms may be either along the same lines as those traditionally applicable to Ieases, or more novel owing to the individual circumstances pertaining to the case concerned.

Todd v ~ i c o l ~ h a s an example of the latter class. The case arose out of an invitation by the owner of a house to her relatives in Scotland to come to Adelaide in order to reside with her. This, it was held, created a contractual licence. But things did not go smoothly, and the question arose whether there were any conditions as to the behaviour of the licensees implied into the arrangement.

Mayo J held, distinguishing Kouvems, that there were such conditions, because otherwise communal life together under one roof would simply not have been possible. It was therefore a condition implied into the contract that the licensees (and also the licensor, although the remedy for a breach of this stipulation might be harder to identify) would 'behave in a reasonable and decent manner in the home',66 given that the licence 'came into being in an expectation that all would contribute to satisfactory home condition^'.^^ Mayo J expressed the same conclusion in another way:

I accept the proposition that the plaintiffs on their side, and the defendant on her side, were under duty to conduct themselves, or herself, in a sufficiently reasonable manner that the ordinary features of a home should be available to them all. Only under such conditions would life for elderly people under the same roof be possible. In the presence of persistent disruptive influences the locality ceases to be a home, it ceases to have the qualities of a home. As it is no longer a home, the licence is ended.68

This language, which sounds at first like the language of frustration, must be understood, if it is to be internally consistent and consistent with what had been said shortly before, as the language of fundamental breach of an implied term. Having fundamentally breached the condition thus implied into the licence, the licensees were ordered to vacate the property.

Supporting this conclusion are English authorities in which it has been held that a licence to enter a property in order, for example, to see a play contains in it an implied term of reasonable behaviour on the part of the licensee.69 It would also appear to be implicit in the judgment in Wnkelirzg v ~ i ~ l e ! . ~ ~ that some form of bad behaviour of a considerably more severe nature than actually occurred in that case would have constituted a breach of an implied term in the residential licence in that case, which arose in circumstances similar to those in Todd.

Todd involved a claim against the grantees of a licence, and so it was not possible to say that a covenant in the nature of quiet enjoyment in the grantees' favour had been breached. That, however, might be seen as the effect of the implied term: the grantor of the licence, because she was to continue to live in the property concerned, was entitled to quiet enjoyment of her house as against the grantees. In McMnhon & Ors 1, ~owstotz,~' it was the licensee who was claiming interference with rights granted under a contractual licence. McLelland J had no hesitation in describing the right to quiet enjoyment implicit in the licence in terms similar to those used in leases:

64 For a case in which a licence of residential property expressly included a covenant of quiet enjoyment, see R e d House Pty Lid v Beizeke & Oo ( 1987) 5 ACLC 451.

65 [I9571 SASR 72. 66 Note 65 at 88. 67 Note 65 at 88-9. 68 Note 65 at 89. 69 Cos I ? Coitlson [I 9 161 9 KB 177 at 18 1 : Wtntel- Go/-deir TI7eutre (Lo~zdo~i) Ltd I* Mille~zrliltriz Producrions Ltd

[I9481 AC 173 at 189. 70 (195 I) 51 SR (NSW) 183. See also Pcri-ker 11 Cbl-k [I9601 1 All ER 93 at 101. 71 (1958) 75 WN (NSW) 508.

188 Greg Taylor

[Tlhere should be implied in the contract of licence an implied term that the [licensor] would not revoke the licence without giving the [licensee] a reasonable notice of revocation and also an implied term that until the licence was revoked the [licensor] would not interfere with the enjoyment by the [licensee] of the rights of occupation conferred by the licence."

The stipulation about a reasonable notice of termination is also one which is regularly implied into licence^,^' and we shall encounter it again shortly.

Smitlz v Nottinglzanzshire CC,7"ecided only just over a year before Wetteriz and for some unexplained reason not cited in it, was a decision of the Court of Appeal which also involved a claim by a licensee under an implied term in a residential licence. This time the licensees were students in a hall of residence attached to a polytechnic run by the County Council. The students claimed that building works were making it impossible for them to study in peace at a time just before they were due to take their examinations. Lord Denning MR, with whom Oliver and Watkins LJJ agreed, had no hesitation in reversing the decision at first instance that the students had no remedy. While the 'case depended on the particular circumstances':

. . .it seemed clear as a matter of good sense and implication that the council should do nothing without just cause to disturb the students from getting on with their studies in their rooms in reasonable quietude.'"

It is possible to interpret the statement that the case depends on its circumstances either as a recognition that the implied term will not be implied as a matter of course into all contractual licences, or that what counts as a breach of the term will depend on the facts of the case. Here, at all events, the students clearly needed quiet time for study, and the polytechnic could hardly claim that that was a fact which surprised it. The students were entitled to the peace and quiet they needed as a result of something that looks very much like a covenant not to derogate from the grant by making the property less suitable for the known purpose of the grant.

4. Conzmercial licences and termination A final class of licences into which terms have been implied are licences for commercial purposes such as that considered in Wettern. The implied term not to terminate without giving reasonable notice which we have just encountered in residential licences can also apply here. In one well-known case, not just the implication of reasonable notice, but also the licensors' ability to revoke at all existed only because of an implied In commercial cases, an implication that termination can occur only if reasonable notice is given is implied fairly readily into contracts if it is necessary to allow each party to reap what it has sown.77

Cultex Proper-ties Ltd (in Liq) v ~ o v e ~ ~ is a recent example of a case in which it was implied into a licence that reasonable notice had to given before the licence was to be

72 Note 71 at 513. 73 See the comments of Gibbs J in Buier v Heitze~nuizrz [I9621 Qd R 192 at 202. This implication must be

distinguished from the 'packing-up period' or 'period of grace' after termination: this is not a matter of contract law at all, as is shown by Hill, 'The Termination of Bare Licences' [2001] Curnhriclge Luke Jourilril 89 at 96f.

71 Tl~e Times, 13 November 198 1 at 2 1. 75 Note 74. 76 Witlter- Gcirden Tlleutre (London) 1. Mil le tz~~i~ir~~ P ~ . O d u ~ t i ~ t l ~ [I9181 AC 173 at 19 1, 195-7. 199f. 205f. Note, too,

the suggestion of an implied obligation in the licensees to provide to the licensors the information necessary to determine what is reasonable notice: at 201. The Privy Council doubted this in Au~trzrlirrrl Blue Metul v Hughes & Of i [I9631 AC 74 at 101.

77 Austruliun Blue Metul 1. H~rghes & 01:s [I9631 AC 74 at 98f. For a case involving the implication of a term as to termination of a licence outside the area of licences over land, see Ciar!l(orcl Fitting Co & O o . v S?,dtley Vulve & Fittiilgs & Atzor (1988) 14 NSWLR 438. See also Liicke HK, ( 1973) 'Ad Hoc Implications in Written Contracts' 5 Adebirle ht. Re~ie l t . 32 at 50-54.

78 ( 1997) 95 LGERA 132 at 138.

implied Terms in Licences over Land 7 89

terminated. Here, the land was used for a bus station and a taxi business. It would clearly be very difficult to run such a business if it were to be constantly under threat of being moved at a moment's notice, and the Court's conclusion that the requirements for implying a term into the contractual licence were satisfied was therefore clearly correct.

On the other hand, the Privy Council emphasised in Austmlian Blue Metal v ~ u g h e s ' ~ that the implication requiring reasonable notice before termination is one that depends on the circumstances of each case. In that case, there was no need to imply such an obligation into a licence for mining as, on the facts, the licence was merely an ad hoc arrangement and no term as to reasonable notice had been within the contemplation of the parties at the time of its making.

The reverse situation of a Court refusing to imply a term as to termination at all - on reasonable notice or otherwise - owing to the facts of the individual case occurred in Parker & Anor v Clark & nor.^^ There, the licensors of a residential property were very elderly, did not expect to live long and had granted a licence in the hope of receiving assistance with housekeeping and their lives generally. They had expected that this assistance would be granted to them for the rest of their lives. That was not expected to be a particularly long period of time. All this was known to the other party to the contract. Accordingly, no implied term permitting termination could be implied, as that would have contradicted the parties' intentions.

Larking 1, Great Western (Nepean) Gravel Ltd (if7 liq)s' involved a positive obligation: to erect fences and a gate. It was held that these obligations too had to be performed within a reasonable time, although the contract did not expressly so provide; Dixon J applied the law of leases to the licence in this case, holding that as the obligation would have been recognised for leases, it should also be recognised for licence^.^'

The cases involving commercial licences dealt with so far have involved an implied term as to the time for doing a particular act rather than an implication of fitness for purpose as in Wettern. There is, however, one case outside the residential area which, although it did not occur in the same industrial context as Wettern, nevertheless involves fitness for purpose in the context of trade and commerce. How~ie & Anor l7 New Soutfz Wales Lawn Tennis Ground Ltd & 0rsS3 involved a licence to come on to a tennis ground in order to watch tennis matches and other entertainment. The High Court of Australia held that a series of implied terms was required in this contract, one of which related to the condition of the chairs from which the tennis was to be viewed: they were required to be maintained 'in reasonably usable condi t i~n ' ,~~ somewhat like the factory unit which was licensed to Wettern.

IV. Trade Practices Act 1974 and related statutes

Despite its considerable influence on many areas of the law of contract, it appears that the Trade Practices Act 1974 ('the Act') and related State legislation will have only a minor impact on the implication of terms in licences. This is because Division 1 of Part V (and its State equivalents) concentrates mostly on proscribing false or misleading conduct rather than on implying terms into contracts in the manner of the sale-of-goods legislation. Because it concentrates on positive conduct, it will operate, generally speaking, only in the area in which implied terms are not required. The applicability of the implied terms

79 [I9631 AC 74 at 98f. 80 [I9601 I All ER 93 at 103. For an exa~nple outside the law of licences over land. see Strrte Bunh o f New Solit11

W(11t.s .rl Cornmoi~~r.e~~ltI~ Suving~ B u d of'Au.~t,nlicr ( 1985) 6 FCR 524 at 554-557. 81 (1940) 6.1 CLR 221 at 228, 231, 237, 239. 82 Note 8 1 at 237. 83 (1956) 95 CLR 132. 84 Note 83 at 152.

Greg Taylor

located in Division 2 of Part V to licences over land has not been the subject of any judicial decision and must be considered, on the authorities that do exist, as anything but ~ertain.~"

I . Division 1 of Part V The provision most obviously applicable to contracts relating to land is s 53A. The initial words of sub-section ( I ) of that section state that 'a corporation shall not, in trade or commerce, in connexion with the sale or grant, or the possible sale or grant, of an interest in land or in connexion with the promotion by any means of the sale or grant of an interest in land', engage in certain forms of conduct which will be described in greater detail shortly.

The first question is whether licences are covered by s 53A at all. Sub-section (3) defines the crucial term used in the above extract: 'interest in land'. This term, which would not normally include licences, which, unlike leases, do not grant an interest in land, is defined as follows:

(a) a legal or equitable estate or interest in the land; (b) a right of occupancy of the land, or of a building or part of a building erected on the land, arising by virtue of the holding of shares, or by virtue of a contract to purchase shares, in an incorporated company that owns the land or building; or (c) a right, power or privilege over, or in connexion with, the land.

Clearly a contractual licence, as traditional 1 y understood, does not come within paragraph (a).86 Paragraph (b) is drafted so as to include licences - 'a right to occupy' - but is equally clearly limited to schemes in the nature of company-title units. That being

the case, the remaining question is whether licences come within paragraph (c). The words used in paragraph (c) are, on a broad interpretation of the words 'in

connexion ~ i t h ' , ~ ' perfectly capable of including licences, but also do not compel the conclusion that licences are in fact included. Any number of other rights could come within the words of that paragraph; profits d pt-erzdre are the most obvious example. Given that the drafter of sub-section (3) clearly had licences in mind in drafting paragraph (b), it may well be thought that they do not also come within paragraph (c). Otherwise, the express limitation of paragraph (b) to licences over company-title units would be otiose; expressio unius est exclusio alterius. Similarly, s 4 H of the Act expressly extends references to contracts in the Act to licences as well as to leases; this section, too, shows an awareness on the drafter's part that licences as well as leases exist, but does not affect the interpretation of any of the provisions of Division 1 of Part V, as they are not based on the existence of a contract.

However arbitrary it may seem, it is clear that the drafter(s) of the Act knew that the distinction between leases and licences existed and deliberately drafted s 53A to cover only leases and company-title licences. While the matter is not entirely free of doubt, there appears to be no case law on the issue, and unfortunately reference to Hansnrd sheds no light on the issue, it seems tolerably clear that s 53A does not cover licences except those specified in paragraph (3)(b).

At all events, the extent of protection offered by s 53A is not very great. Sub-section (1) provides, continuing from the words quoted above, that a corporation shall not:

(a) represent that the corporation has a sponsorship, approval or affiliation it does not have; (b) make a false or misleading representation concerning the nature of the interest in the land,

85 For a discussion of the drafting techniques adopted in the Act in this context, see Hjeinrrn v A I I P ~ ? & Anor (1987) ATPR 40 823 and the references cited there.

86 Note 5 . 87 In a non-statutory context, a broad interpretation of these words was adopted in Dcrrlirzgtorz Fut~cres Ltcl v Delco

A~ntr-uliu Pry Ltd ( 1986) 16 1 CLR 500 at 5 1 1.

Implied Terms in Licences over Land 797

the price payable for the land, the location of the land, the characteristics of the land, the use to which the land is capable of being put or may lawfully be put or the existence or availability of facilities associated with the land; or (c) offer gifts, prizes or other free items with the intention of not providing them or of not providing them as offered.

Even if s 53A does apply to licences other than those for company-title units, it may be questioned whether the facts in Wettern, for example, would be covered by paragraph (b) - the other paragraphs are clearly not applicable. And the reasons for doubting that s 53A could be applicable in cases such as these also apply to the other more general provisions of Division 1, such as s 52. The problem is essentially the absence of a representation.

In Wettern, for example, it would be necessary to find a false or misleading representation by the Welsh Development Agency concerning the 'use to which the land is capable of being put' or the 'existence or availability of facilities associated with the land'. Liability would thus depend on the existence of a false or misleading representation, something that, on the facts in Wettern, would be difficult to extract given that it was a common assumption of the parties, which was not the subject of any express representation, that the building involved in that case would not begin to fall down.

Admittedly it has been held that silence can be a form of conduct which is false or misleading for the purposes of the Act, even when a contract relates to land.88 In such situations, the Act imposes liability even though the common law has imposed no duty of disclosure of defects relating to the quality of the land or its fitness for purpose, as distinct from defects in title.89 Of course, misrepresentations by word or deed of the quality of land, or of its fitness for purpose. will give rise to remedies both under the general law and under the Act. But can the Act assist in Wcttern-like situations. in which a defect in the quality of the building is unknown until it appears, and in which an implied term seems the only way in which the licensee could recover under the general law? The cases9' in which the Act has been applied to silence affecting land contracts suggest that it could only assist if a statement is made which, while literally true, misleads because of the omission of some relevant qualifying fact from it. In this respect, the Act seems in truth to differ little from equity's understanding of misrepresentation in land contract^.^' And s 4(2) makes it clear that concealment will count as conduct only if it is de~iberate.~' This being the case, the Act would seem to be of little use in Wettern-like situations in which it is a common assumption rather than a misleading statement on which the plaintiff

And of course s 53A would be of no use in a case such as Todd v Nicol, in which the conduct concerned did not take place in trade or ~omrnerce.~' Section 53A, like the more general provisions of Division 1, is, as was mentioned, also restricted to conduct by

88 B m d f i d House v h r o y Fcrshiotz Gt-oup ( 1983) ATPR 40 387 at 44 550f; Her~jo bz~~esrineiits v Collins Marrickville ( 1988) 79 ALR 83 at 94f: Derrugogue Rrrmetzsky ( 1992) 39 FCR 3 1; Flail/c-h 11 Swat~t1ell ( 1993) 10 WAR 459: Skapinker D, 'Silence is Golden - Or Is It7' (1995) 69 A/r.\tlaliuii Lcrb r : Jo~tnzril 165. Cf also Kr~thowaki & Anor I , Eirrolytlx Properties Ltd & Anor (1995) 183 CLR 563 at 574-577. Firl~icuize I . New South Wale.\ Egg Cotporcrtioiz (1988) 80 ALR 486 is another case involving silence as a misrepresentation, but is usefulness is limited by the unhelpful statement of Lockhart J that whether a duty to speak exists 'depends on the facts of each case' (at 5 13).

89 See the references given in Dernugogue I > Rrtmen.dy (1992) 39 FCR 31 at 39. 90 See Note 88. 91 B~~l four & Clurke 1- Hollrtilclia Ruveiisflintpe & 01-5 ( 1978) 18 SASR 210. 92 See Miller RV, Atzrzotuted Trade Pructic.e.\ Act, 21st ed, Law Book Company, Sydney, 2000 at 50. 93 For another case which illustrates well the limits of the Act in this respect, see Bradford House I > h r o y Fashion

Group (1983) ATPR 10 387 at 44 549-52. 94 Another example is Flmzic.h 1 1 Swc~miell (1993) 10 WAR 459.

Greg Taylor

corporations. The equivalent State legislation9~s not so restricted, but it too is limited to conduct in trade or commerce, and to positive representations or other conduct rather than merely common assumptions on which all parties proceed.

Needless to say, both the Act and the equivalent State legislation will apply if an express misrepresentation is made. A common context in which this occurs is when, in negotiations for a lease or licence of a shop, the grantors make extravagant promises as to the turnover or other prospects of success which the grantees can be expected to enjoy. But such conduct will take place outside the realm of implied terms in licences.

2. Divisiorz 2 of Part V In Division 2 of Part V, which implies terms into consumer contracts, s 74(2) provides:

( 2 ) Where a corporation supplies services (other than services of a professional nature provided by a qualified architect or engineer) to a consumer in the course of a business and the consumer, expressly or by implication, makes known to the corporation any particular purpose for which the services are required or the result that he or she desires the services to achieve, there is an implied warranty that the services supplied under the contract for the supply of the services and any materials supplied in connexion with those services will be reasonably fit for that purpose or are of such a nature and quality that they might reasonably be expected to achieve that result, except where the circumstances show that the consumer does not rely, or that it is unreasonable for him or her to rely, on the corporation's skill or judgment.96

'Services' is defined by s 4(2) to include:

any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce.

There appear to be no cases considering whether licences over land can fall within this definition. The traditional understanding of licences would suggest that they do not fall within 'interests in' real property. They may, however, come within 'rights in relation to' real property. Unlike in s 53A(3), there is, in this definition, no paragraph which deals expressly and, it might be thought, exhaustively with contractual licences in a manner that confines the coverage of the definition to company-title units. The words 'rights in relation to' real property naturally extend to rights to occupy real property such as are conveyed by contractual licences. Those words are also different from those used in s 53A(3)(b), and a different meaning can accordingly be given to them. It seems that licences do fall within this definition.

However, the limitations imposed by the definition should be noticed. The licence must be granted 'in trade or commerce'. Thus, licences such as that considered in Todd would continue to be excluded. The same result would be reached by the requirement in s 74(2) that the services be provided 'in the course of a business'. On the other hand, s 74(2) also requires that the services be acquired by a 'consumer'. The effect of s 4B(l)(b) and (2)(a) of the Act is that the services need only cost $40 000 or less to satisfy the definition of 'consumer'. This could lead to the inclusion of a large number of smaller licences granted by one corporation to another. Unlike s 5 1 AC which carefully targets business-to-business unconscionability, these provisions are not carefully targeted to ensure that only consumers

95 Frrir Trading Act 1987 (NSW) s 1 5 and definition of 'merest' In s 4; Fuir Truding Act 1999 (Vic.), definition of 'services' in s 3 (not exactly equivalent; this defin~tlon 1s based on that in s 4(2) of the Comtnonwealth Act, discussed below. wh~ch appears to include licences): Fun- Trticling Act 1989 (Qld) s 40A and definition of 'interest' in s 5 and in Acts bztelprrtation Act 1954 s 36; Fuir Tivrdrr~g Act 1987 (WA) s 12(2) and definition of 'interest' in s 5; Fair Trading Act 1987 (SA) s 59; Fuir TI-uding Act 1990 (Tas) s 17; and, for the equivalent Territory legislation, see Consumrr Affair3 and Fuir Tmdirzg Act (NT) s 45; Fair Truhng At7 1992 (ACT) s 15 and definition of 'interest' in s 5.

96 Equivalent State and Teiritory provisions are F u i ~ Trcrclirzg Act 1987 (WA) s 40; Corzsurner Trcriisactio~w Act 1972 (SA) s 7 (but note the much narrower definrtion of 'services' in s 2, which clearly excludes licences over land); Co~lsurnrr Affuil-5 und Fuir T~-uding Act (NT) s 66.

Implied Terms in Licences over Land 7 93

are covered. Thus, for example, if the facts in Wetteriz arose in Australia, it might be that Judge Newey QC would have been able to find a statutory basis for his implied term of fitness for purpose in the Trade Practices Act (assuming that the Welsh Development Agency could be said to be granting licences in the course of a business)97 as well as in some States under other statutes.98 And the prospects of the plaintiff in Morris-Thomas would also seem brighter under s 74.

However, it is important not to be over-optimistic about the reach of the Act. There are a number of problems. How precisely the cost of a licence could be calculated in relation. for example, to a licence of indefinite duration, or to a licence over five years with an option to renew for a further five years and an annual licence fee of $7000 plus CPI adjustments, is not clear. Nor is it clear whether the service referred to in s 74 is merely the granting of the licence - in the language of s 4(2), the granting of the right - or whether it also includes the continuing obligation to permit the licensee to occupy the

premises. In the former case, how is the consideration for granting the licence as distinct from permitting continued occupancy to be calculated? And how are such issues in relation to leases to be resolved? Is there now a term of fitness for purpose implied into leases by statute? Would (apart from s 75) the States' residential tenancy statutes be invalid under s 109 of the Constitution to the extent that they conflict with the implied obligation imported by s 74 into residential tenancies granted in the course of a business? What of the commercial tenancy statutes? Have State statutes equivalent to s 74, enacted after residential or commercial tenancy statutes, impliedly repealed those statutes?

All this is very unsatisfactory, and suggests that the broad and sweeping terms used in the Act must not be over-stretched. It would be most unwise to assume that the square peg of licences (and leases) can be forced into the round hole of s 74. Indeed, while there is authority that purchases of land together with the provision of a loan can fall within the definition of service^',^^ Rogers CJ C0mm.D. of the Supreme Court of New South Wales has expressly reserved judgment on whether anything done under a mortgage can constitute services for the purposes of the Act, citing difficulties raised in other cases relating to the apparent width of the definition.Io0 It would be wise for Parliament to amend the definition of 'services' either so as to exclude leases and licences or so as to deal with the specific problems raised by their inclusion in a less general and vague manner.

V. The future of implied terms in licences

Leaving aside the unresolved questions about the reach of legislation, it can be appreciated that the cases decided on implied terms in licences under the general law reveal a considerably more detailed picture than Judge Newey QC was aware of in Wettern. It is also more detailed than many of the standard textbooks recogni~e.'~' What is lacking in this 'wilderness of single instances' is some degree of systematisation which could be expected if a connected series of cases on the topic had grown up over the years. Instead of that, cases are decided in isolation from one another. No doubt this is partly because - as this author has learnt - cases on implied terms in licences over land do not really

fall under any particular heading in standard works of reference or digests and are accordingly extraordinarily difficult to find.

Despite all this, it still is rather puzzling, for example, that the Court of Appeal's

97 On the liability of The Crown under the Act. see ss 2A-2C. 98 See Note 22. 99 Hetzder.~o~z Pioneer. Hoine., (No. 2 ) ( 1980) 43 FLR 276.

100 Nario~~ril Azisrr-aliu BarlX- 1, Sprozile & A~lor- ( 1989) 17 NSWLR 505 at 5 1 1. 101 Thus, Harpum RE, Wade and Megurr?; on Rec11 Pi-operry, 6th ed, Sweet & Maxwell, London, 2000 at 1048,

refers to four cases only, and Bradbrook & Croft. Co11zn1er.c-ial Tetzu~zc-y L.uw it1 Austmlia, Buttenvorths, Sydney, 1997 at 56f, to three cases, none of which is Australian.

1 94 Greg Taylor

decision in Smith 11 Nottinghamslzire C.C. was not cited to Judge Newey QC in Wettern at all, or to the Court which decided Morris-Tlzomas. Admittedly, the Snzitlz case, unlike the two others, involved a licence for non-commercial purposes. However, it might be hoped that an approach to implying terrns into licences could be developed which would be capable of consistent application to licences for various purposes. It might also be hoped that a reason for the difference in outcome between Wettern and Morris-Thomas might be identified which is more convincing than that suggested by Ralph Gibson W in the latter case. Finally, there is the need to harmonise the law of licences as far as possible with the law of leases, as was identified in the introduction.

These needs can be satisfied, it is submjtted, if closer attention is paid to the law of contract and its classification of implied terms, of which, after all, the courts are making use when they discover implied terms in licences. Contract law allows essentially for two sorts of implied terms of relevance here:'02 terms implied by law and terms implied in fact. An analysis of the terms implied into licences under these headings has been missing in the decided cases so far.'03 As will now be shown, the cases, if analysed under these headings, justify the statement that both sorts of terms are available in relation to implied licences. And an analysis of this sort will bring some order into the wilderness of single instances.

The essential difference between terms implied in fact and those implied in law is that the former are implied in order to give business efficacy to a particular contract, whereas a term is implied in law into a particular class of contracts 'based "upon more general considerations" ' '04 relating to the class of contract concerned. 'O"wo familiar examples of terms implied by law into leases are the obligation not to derogate from the grant and the covenant for quiet enj~yment.'~"hese terms tend to apply across the board, to a class of contracts, while terms implied in fact can be moulded to suit the circumstances of each individual case. Both classes of implication are made, however, in order to give effect to the intention of the parties: it is sometimes said that implications in fact give effect to their actual intentions (although not adverted to by them, but as reconstructed by a Court), whereas implications of law give effect to their presumed intentions.'07

Admittedly, the borderline between these two forms of implication can sometimes be 'very indistinct'.lo8 However, the difference, it is suggested, accounts for the different results of Wettern and Morris-Tlzomas. It will be recalled that, in the latter case, it was said that the licensor was not 'free to cause or to permit the premises to decay so as to render the oven useless to the [ l i~ensee]"~~ even though, unlike in Wettern, there was no covenant as to the fitness of the licensed premises for their purpose.

The term implied in Morris-Thomas, as we have seen, is connected with the more general obligation not to render the grant useless to the grantee which Griffith CJ pointed out as long ago as 1910.110 This obligation finds its principal expression in the obligation

102 There are, in addition, terms implied by custom or usage (Coil-S~LIII Indz~strie~ qf A~ltstralicr Pty Ltd 1. Norwich Wznterthur Insuraizce (Austruliu) Ltd & Or3 (1986) 160 CLR 226 at 2370, but such terms are unlikely to be of relevance to contractual licences except in exceptional and readily identifiable cases in which a custom or usage exists.

103 The distinction was at least mentioned in argument in the unreported case of Srnith Bro.5 Trudr & Trarzsport Tennirtal 11 Pucific. Potwl; NSWCA, 40300196, 31 July 1998, unreported, s.v. '1. Implied Term'. On the facts, however, it was not necessary to pursue the distinction further, as the licence contained an express terrn negativing the proposed implied term.

104 Codelfi~ Corz~trzrctinn PQ Ltd v Sttrte Ruil Authority of New South Wule, (1982) 149 CLR 337 at 346, quoting Lirter v Rornford Ice and Cold Stoi-uge El9571 AC 555 at 576.

105 A particularly clear statement of the difference may be found in Liicke HK, n 77 at 32. 106 See O'Keefe I' Williums (1 9 10) 1 1 CLR 17 1 at 198. 107 See the discussion in Carter JW & Harland DJ, n 1 at 210f. 108 Lucke HK, n 77 at 32. 109 See Note 31. 1 10 See Note 36.

Implied Terms in Licences over Land 7 95

not to derogate from the grant' I ' and the covenant for quiet enjoyment. (Indeed, the two are often difficult to tell apart in individual cases."' If, for example, the grantor in Morris- Thornas had set up, in the vicinity of the Sunday market, a radio playing offensively loud music or another shop emitting offensive smells and had thus deterred others from visiting the grantee's antiques shop, it would be difficult to say that only one of the two covenants had been infringed.) Both these obligations are, in leases, terms implied by law. There is no reason why the law should be any different if licences rather than leases are involved. The implied term suggested by the Court in Morris-Thonzas is accordingly an example of a term implied by law. It is an application to particular facts of the general proposition that a party to a contract must not render it useless to the other party. It is an obligation not to derogate from the grant and/or for quiet enjoyment of licensed land just like the obligation which the Court in McMahorz v Rortlstorz referred to expressly as the licensee's right to quiet enjoyment.

The additional obligation imposed in Wetterrz relating to fitness for purpose was, on the other hand, derived from the circumstances of the individual case. By this I do not mean merely that the precise content of the obligation could only be determined in the context of the individual case. The same might be said of many obligations implied by law: what will count as an act rendering the performance of a contractual licence useless to the other party will depend, of course, on the purpose of the individual licence and the nature of the land and of the activities conducted on it. In Wettem, however, it was not merely what behaviour would count as a breach of the implied term, but the existence of the implied term at all which depended on factors such as the pre-existing relationship between the parties, the use to which the licensed land was to be put, and the nature of the arrangement between the parties - that is, on factors which applied to this licence only, and not to licences generally. Therefore, the term as to fitness for purpose was a term implied in fact. (The law of sale of goods"%annot control the classification of this term, as licences over land are completely different from sales of goods.) It is significant that Judge Newey QC in Wettem referred to the Moorcock conditions, which apply to the implication of terms in fact rather than by law. Comparing the law of licences to the law of leases, it should be recalled that English authority appears to prevent only the implication in law of a term as to fitness for purpose in a lease, while Australian authority permitting implications in fact is reasonably easy to find.'14

As was suggested above, however, it might well have been sufficient if Judge Newey QC had held merely that, if the building started to fall down, there was a breach of the obligation implied by law not to allow the licensed premises to become useless for the purpose for which the licence was granted. Perhaps this would have looked a bit too much like a covenant to repair, applying, as it would have, not just at the start of the licence, but at every moment of it. But the crucial difference would have been that the premises would have had to become wholly useless before this obligation was breached. Clearly, on the facts, they had become wholly useless, given that they were no longer safe and Wettern had to evacuate them.

Another example may be given to illustrate the distinction. In Todd v Nicol, was the covenant of reasonable behaviour one which was is implied in all contracts of the same

111 In Browrze I- Flower [I9111 1 Ch 219 at 226, the obligation not to derogate was described as an obligation not to use land retained by a lessor in a way that 'would render the demised premises unfit or materially less fit to be used for the particular purpose for which the demise was made'. This is not an implied term of fitness for purpose, but an implied term not to make premises less fit than they already are. For a recent review of the authorities in this area, see Aussie Truveller 1, Mu~Weu [ I 9981 1 Qd R 1 at 8-1 0.

112 Telex (A11~trulu~icr) v T11o1iza.s Cook & Son (Au.~trrrlasirr) [I9701 2 NSWR 257 at 266; A l l ~ ~ i e Traveller Pty Lfd v Mot-kleu Pt?, Lfd [1998] 1 Qd R 1 at 8.

1 13 Cf. Sulr of' Goods Act 1896 (Qld) s 17(a) and related legislation of other States. 111 See Note 21.

7 96 Greg Taylor

class (and if so, what is the class?), or was it an ad hoc obligation which was moulded to fit the facts of the individual case? The Judge's reasons concentrate on the individual facts of the case. It was necessary to distinguish Ko~lveras on its facts. And contracts of residential licence are likely to be so varied and different that it would be unwise to say that a term for reasonable behaviour is implied into each of them. The particular circumstances of Todd (migration and co-habitation coupled with the grant of a licence) are likely to arise so infrequently that it will not be necessary to create a class of contracts corresponding to those circumstances. Furthermore, the term implied in Todcl was implied in favour of a grantor of a licence, who, in all but the peculiar family circumstances of Todd, might be expected to make use of the opportunity to make an express reservation of his or her rights when the contractual licence is granted. The term therefore appears to be implied in fact. On the other hand, the implied term for quiet enjoyment in McMahon v Rowstotz clearly is a term implied in law which equates to the similar term implied for leases in favour of the grantee.

The conclusion that the term implied in Todd was a term implied in fact requires some modification of the 'business efficacy' test for implication."~learly, the parties in Todd were not engaged in a business at all, but the law of contract recognises, of course, that non-commercial arrangements may also produce legally recognised contracts if an intention to create legal relations does truly exist. Such non-commercial contracts will be entirely excluded from the implication of terms in fact if the 'business efficacy' test is to be thought of as more than a convenient label. It is suggested that, in such non-commercial contexts, the word 'business' should simply be dropped.

Admittedly, the distinction between terms implied in fact and those implied in law has its limitations, and it can, in borderline cases, be difficult to tell whether a term is being implied into a contract in fact, or whether a new class of contract is being created into which terms are implied by law. Sometimes, however, the arbitrary or fact-based nature of any possible class of contracts will provide a clue. The obligation not to terminate without giving reasonable notice, for example, is either a term implied in fact or a term implied by law into contracts of some such class as 'not ad hoc (such as the contract considered in Austmliaiz Blue Metal) and requiring the ability to reap what has been sown'. This is a most unlikely class of contracts. Furthermore, the obligation was rejected as part of the contract in Australian Blzte Metal for reasons which were closely related to the circumstances of the contract itself rather than to any class into which it might fall. It can therefore be said that the implication considered there must be one of fact. This has the further advantage of permitting additional exceptions or qualifications to be made as further contracts come to the notice of the Courts.

A good illustration of a distinction between terms implied in fact and by law is the vague intuition of the Court of Appeal in Morris-Thonzas that there was a generic form of implied term applicable, but not one which, on the facts of the case, went as far as the licensee would have desired.

VI. Conclusion

All this makes a conceptual analysis and systematisation of the law in this area possible. It should now be accepted that, if there are no express provisions to the ~ontrary,"~ every contractual licence has terms implied in law which equate to the covenants for quiet enjoyment and non-derogation implied in favour of a lessee. Of course, what will count

115 B.P. R~fiileiy (Weste17zport) Pty Ltd v Pre.\ideizt, Councillors aitd Ratepc~yecs of' Hastiiigs Covrzcil (1977) 180 CLR 266 at 283, condition (2).

116 Wilkinson, 'Fitness of Land for Purpose' [I9831 h w Society'.\ Gazette 2195 at 2196.

Implied Terms in Licences over Land 7 97

as a breach of these terms cannot be decided without taking into account the facts of each individual case and the surrounding circumstances, such as the purpose of the licence.

Further terms will be implied in fact if necessary to give (business) efficacy to the contract in accordance with the usual rules of contract law. In Australia, that will involve consideration not just of the Moorcock, but of the checklist provided by the Privy Council in R.P. Refiner?. (Westernport) v Hastings ~ o u n c i l " ~ and of Byme & Anor v Australian Airlines Ltd.lls This should not lead to a discrepancy with terms implied into leases having regard to Australian authority, especially if the process of 'contractualisation' of leases continues and implied terms come to be used in relation to leases to the same extent as they are used for other contracts. As we have seen, authority prohibits only a general, across-the-board implication by law of fitness for purpose, not an implication, on the facts of the individual case, of such a term in fact. That is precisely what is advocated here in relation to contractual licences. It is what was done for a licence in Wettern. But even if this is not so, the view of Judge Newey QC in Wettern deserves endorsement: the variety of licences that can be granted is so great that it would not be wise to constrain them, in this respect, by anachronistic and possibly no longer valid rules that, if they still exist, apply to leases only.

What terms will be implied in fact into a licence will depend, of course, on what is necessary to give (business) efficacy to the contract in the individual case. Licences can vary from a permission of a few minutes' or hours' duration to remain on property in order to view a spectacle, to arrangements that are intended to last for some years. The type of conditions that will need to be implied into a licence of the latter sort might vary greatly from those which should be implied into a licence of the former sort. But in all cases, whether such an implication can be made depends on the rules of contract law that apply to all other forms of contract - including, it may be hoped, to leases.

117 (1977) 180 CLR 266, 283. 118 (1995) 185 CLR 410.