Radaich v Smith

101 CLR 209

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(Judgment by: Taylor J)

Radaich v Smith

Court:

Judges: Dixon CJ
McTiernan J

Taylor JMenzies J
Windeyer J

Subject References:
Leases and tenancies
Lease or licence
Test
Exclusive possession

Judgment date: 20 August 1959

SYDNEY

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Judgment by:
Taylor J

TAYLOR J. The question in this case is whether at the time when an application was made by the appellant for the determination of the "fair" rent of certain premises at Mosman the relationship of lessor and lessee existed between her and the respondents, with respect to those premises. If so, then it was competent for a fair rents board to determine, as it did, the "fair" rent of the subject premises pursuant to the provisions of the Landlord and Tenant (Amendment) Act 1948-1954. Upon appeal to the Supreme Court the respondents succeeded in their contention that the critical relationship was that of licensor and licensee only and this appeal is now brought by special leave from the order which answered the question raised by the case stated in their favour.

As appears from the case the appellants and the respondent became the parties to a deed dated 29th May 1954 which witnessed that the respondents, as licensors, thereby granted to the appellant, as licensee, for a term of five years from the date of the deed, "the sole and exclusive license and privilege to supply refreshments to the public admitted to premises situated at ... Mosman and to carry on the business of a milk bar therein (hereinafter called the building) in such rooms as are shown in sketch contained in Schedule one annexed hereto." The sketch merely shows the outline of a block of land 18' x 34' situated at the corner of Parriwi Street and a lane along which the longer side of the land extends. Perusal of the deed shows that it contains a number of provisions designed to regulate the mutual rights and obligations of the parties and it is desirable that these should be scrutinised in order to see just what rights the appellant obtained under the instrument. Some, at least, of the several provisions of the deed may be said to savour more of a lease than of a licence but the instrument itself consistently avoids the use of the expressions "lease", "lessors", and "lessee" and carefully uses the words "licence", "licensors", and "licensee". But it is readily discoverable upon examination of the deed that it contemplated that the so-called licensee would carry on upon the premises the business of a milk bar and cafe subject to the restriction which is imposed by cl. 7 that she should not serve meals consisting of, or containing, cooked poultry, fish, oysters or prawns. It is also apparent from this same clause that the appellant was to carry on this business on the "premises occupied by her" and, from cl. 3 that she was under an obligation to "keep open her business at all times allowed by law". Obviously it was contemplated that she was to occupy the subject premises and that, subject to her obligations under cl. 3, she was to have the control of the premises in the sense that she was to close them and open them at the appropriate times. We are not told what the precise character of the premises were but it sufficiently appears from the "rent" receipts which are an annexure to the case that the means of closing and opening the premises were to be within the disposition of the appellant. From cl. 2 it is apparent that the appellant was to have the use of the gas, electricity and water service on the premises for the purpose of conducting her business and from cl. 6 that it was contemplated that she should keep her stock-in-trade and other chattels necessary for the conduct of her business upon the premises. Further she undertook upon the expiration or sooner determination of the licence immediately to "give up possession of the said building occupied by her for the purpose of the said business". According to the case it was found as a fact in the course of the proceedings before the Fair Rents Board that the appellant entered into occupation of the premises pursuant to this instrument.

So far I have not referred to the provisions of cl. 10 of the deed and I do so now only for the purpose of dismissing them from consideration. That clause provided that "The licence herein granted shall be deemed to be a lease as defined in the Landlord and Tenant (Amendment) Act 1948-1952". Before the Supreme Court it was suggested that the word "not" had been omitted after the word "deemed" in this clause and there was some speculation as to whether this was so. But since the question whether a lease or a licence was granted must be determined having regard to the substance and effect of the instrument itself this is of no consequence and it is unnecessary to make any further reference to this problem.

I have no doubt that the substance and effect of the instrument in question here was to grant to the appellant a right to the exclusive possession of the subject premises upon the specified conditions for the prescribed term. The deed obviously contemplated that the appellant should have the right to occupy the premises for the purposes of her business and the business was to be carried on upon the premises at all times when they might lawfully be kept open. The character of the business was such that it could only be effectively carried on if the appellant had exclusive occupation and it seems clear that, even at times when they could not lawfully be kept open for the purposes of the business, the premises were to remain under her effective control. That being so it is inevitable that we should hold that the instrument created a leasehold interest and that at the material time the relationship of lessor and lessee existed between the parties.

It will be seen that I have treated the question in the case as concluded by the fact that the instrument conferred upon the appellant the right to exclusive possession for the specified term. And, it seems to me, that where, as in cases such as the present, it becomes necessary to identify a particular transaction as either a lease or a licence this factor must be decisive. The instrument either makes a grant of an interest in the land or it does not; if it does a leasehold interest is created and if it does not then nothing more than a licence is given. I do not, of course, overlook that an interest in land-for example, an easement or a profit a prendre-may be created without a grant of possession. Nor do I wish to assert that whenever a legal owner admits another to possession of his land a leasehold interest is necessarily created. For instance, possession given to a builder under the terms of a building contract does not create such an interest. What I have in mind is that where there is a grant of a right for a determinate period in respect of land and the question is posed whether the grant creates a lease or a licence the question may be resolved by considering whether the right in question is a right to exclusive possession.

In recent years, however, some doubt has been thrown upon the validity of this proposition and in Errington v Errington and Woods ^[F9] . Denning L.J. (as he then was) expressed the view that the test of exclusive possession is by no means decisive ^[F10] . Immediately before this pronouncement his Lordship had said: "The classic definition of a licence was propounded by Vaughan C.J. in the seventeenth century in Thomas v Sorrell ^[F11] . `A dispensation or licence properly passeth no interest nor alters or transfers property in any thing, but only makes an action lawful, which without it had been unlawful' <sup>[F12]</sup> . The difference between a tenancy and a licence is, therefore, that, in a tenancy, an interest passes in the land, whereas, in a licence, it does not. In distinguishing between them, a crucial test has sometimes been supposed to be whether the occupier has exclusive possession or not. If he was let into exclusive possession, he was said to be a tenant, albeit only a tenant at will (See Doe v Chamberlaine <sup>[F13]</sup> , and Lynes v Snaith <sup>[F14]</sup> ), whereas if he had not exclusive possession he was only a licensee: Peakin v Peakin <sup>[F15]</sup> . This test has, however, often given rise to misgivings because it may not correspond to realities. A good instance is Howard v Shaw <sup>[F16]</sup> , where a person was let into exclusive possession under a contract for purchase. Alderson B. said that he was a tenant at will; and Parke B., with some difficulty, agreed with him, but Lord Abinger said that `while the defendant occupied under a valid contract for the sale of the property to him, he could not be considered as a tenant'. Now, after the lapse of a hundred years, it has become clear that the view of Lord Abinger was right" ^[F17] . Then he added: "The test of exclusive possession is by no means decisive" (2). This statement seems to have been reaffirmed in Cobb v Lane ^[F18] but it was pointed out that it was in conflict with the test applied in older cases though in conformity with the decisions in Foster v Robinson ^[F19] and Marcroft Waggons Ltd v Smith ^[F20] . But Facchini v Bryson ^[F21] was made the occasion by Denning L.J. to mention that many cases had lately come before the courts where an occupier had been held to be a licensee and not a tenant. In addition to those noted in Errington v Errington and Woods ^[F22] he mentioned three others, two of which were unreported, and then went on to say that in all the cases where an occupier had been held to be a licensee there had been "something in the circumstances, such as a family arrangement, an act of friendship or generosity, or such like to negative any intention to create a tenancy". Thereafter he added: "In such circumstances it would be obviously unjust to saddle the owner with a tenancy, with all the momentous consequences that that entails nowadays, when there was no intention to create a tenancy at all. In the present case, however, there are no special circumstances. It is a simple case where the employer let a man into occupation of a house in consequence of his employment at a weekly sum payable by him. The occupation has all the features of a service tenancy, and the parties cannot by the mere words of their contract turn it into something else. Their relationship is determined by the law and not by the label which they choose to put on it." ^[F23] . Subsequently, Viscount Simonds in Wheeler v Mercer ^[F24] denied the validity of the conclusion of Lord Abinger to which Denning L.J. gave his assent in Errington's Case ^[F25] and, finally, in Addiscombe Garden Estates Ltd v Crabbe ^[F26] , Jenkins L.J. said: "We were also referred by Mr. Blundell to Errington v Errington and Woods ^[F27] . In that case it was held that in very unusual circumstances a lady was a licensee, and entitled to remain in occupation of premises so long as she paid the instalments on a certain mortgage; and in the course of his judgment, Denning L.J. said: `The test of exclusive possession is by no means decisive' ^[F28] . I think that wide statement must be treated as qualified by his observations in Facchini v Bryson ^[F29] ; and it seems to me that, save in exceptional cases of the kind mentioned by Denning L.J. in that case, the law remains that the fact of exclusive possession, if not decisive against the view that there is a mere licence, as distinct from a tenancy, is at all events a consideration of the first importance. In the present case there is not only the indication afforded by the provision which shows that exclusive occupation was intended, but there are all the various other matters which I have mentioned, which appear to me to show that the actual interest taken by the grantees under the document was the interest of tenants, and not the interest of mere licensees." ^[F30] . With the legal propositions involved in this statement Parker and Pearce L.JJ. agreed and it must be taken as beyond doubt that in cases where there is a real contest between the issues of lease and licence the problem may be solved by considering whether the right which is conferred is a right to the exclusive possession of the property in question. This, however, does not deny that exceptional cases may arise in which it will be seen that a right to exclusive occupation or possession has been given without the grant of a leasehold interest. But if, as Denning L.J. himself agreed, the relationship created between the parties by a particular transaction is to be determined by its substance and not by its mere form, I am unable to see that the fact that a particular transaction may have been induced by ties of kinship, or by friendship or generosity could operate to bring it within this exceptional class. Such considerations cannot operate to transmute a lease into a licence or a licence into a lease. Indeed, one might venture to observe that until the effect of the transaction had been determined it would be impossible to appreciate the extent of the grantor's generosity or to know how far the ties of kinship or friendship had carried him. Upon examination it will, I think, be seen that this exceptional category is constituted by cases in which the facts do not give rise to a contest of the character abovementioned. The present case is clearly not such a case and the conclusion is inevitable that the relationship of landlord and tenant existed between the parties at the relevant time. Accordingly, the appeal should be allowed and the order of the Supreme Court set aside.