Canterbury Law Review
|
|
Home
| Databases
| WorldLII
| Search
| Feedback
Canterbury Law Review |
|
What is the result when two individuals bargain over the distribution of a resource between them? The answer, according to the American property scholar, Carol Rose, will depend on the way in which each individual ranks his or her own welfare against the welfare of the other. Rose has developed[1] a typology of six ideal personality types with differing sets of preferences that reflect the relative ranking of the person's own welfare and the welfare of the other bargainer. Rose calls these types John Doe, King of the Mountain, Malice Aforethought, Mom/Good Citizen, Portnoy's Mom and Hit Me.
The purpose of this article is to examine the representation of Rose's personality types in the cases concerning the compulsory imposition of easements by the Supreme Court in New South Wales and Queensland. Legislation in each state allows this when private bargaining has failed. In Queensland the relevant provision is s 180 of the Property Law Act 1974 (Qld),[2] and in New South Wales it is s 88K of the Conveyancing Act 1919 (NSW).[3] Using s 88K as representative of both statutory regimes, each provision allows the relevant Supreme Court to impose an easement over a parcel of land ('servient land') in favour of other land ('dominant land') where:
• the easement is reasonably necessary for the effective use and development of the dominant land;
• the use of the dominant land would not be contrary to the public interest;
• the owner of the servient land would be able to be adequately compensated for the grant of the easement; and
• the owner of the dominant land has made all reasonable attempts to acquire the easement but was unsuccessful.[4]
Where the court imposes an easement, the general rule is that the owner of the dominant land is to pay:
• appropriate compensation to the owner of the servient land; and
• the legal costs of the owner of the servient land.[5]
A wide range of easements has been granted under New South Wales' s 88K. These include rights of way,[6] easements for the flow of light and air,[7] drainage easements,[8] permanent easements for encroachment onto the servient land[9] and temporary easements for encroachment onto the servient land in order to facilitate construction of a building on the dominant land.[10] A much more limited range of easements has been granted under Queensland's s 180.[11] Overwhelmingly, these have been rights of way. The orthodox justification for the enactment of provisions such as ss 88K and s 180 is that they are needed to prevent the owner of the putative servient land from demanding an extortionate payment from the owner of the putative dominant land as the price for granting the easement.[12] Because there is usually no other parcel of land available to provide an alternate easement,[13] the person who desires the easement is forced to pay that price, or to abandon altogether the project for which the easement is required. A colourful articulation of this justification is Young's J statement that:
The background to s 88K is that without it situations could develop ... where owners of adjoining land could hold developers to ransom by not granting access during building operations and the like. The purpose of the section was that the court should grant access on the basis of just compensation, rather than allowing people to be held to ransom in those circumstances.
The structure of the section seems to me to recognise that ordinarily the owner of a legal right is to receive a just sum... for what he or she has to give over, rather than being able to demand the earth.[14]
This view of the function of the statutory provisions that empower courts to compulsorily impose easements can be seen in economic terms. Where the putative dominant owner values the right to an easement more than the putative servient owner values the right to be free of the easement, it is possible for them to agree to the grant of the easement in return for a money payment. Both parties would profit from the bargain. However, where either party seeks to capture an unfair share of the gains from trade, or the 'cooperative surplus',[15] there is the possibility that a bargain will not be achieved. The orthodox justification for ss 88K and 180 contemplates that, absent the existence of the provision, it would be the putative servient owner who would seek to capture an excessive share of the cooperative surplus by demanding an extortionate price for granting the easement. However, there is no reason why the putative dominant owner could not also attempt to capture an excessive share of the gains from trade by offering a miserly price for the easement. In any case, where a mutually beneficial agreement can be achieved, but it has not because of the behaviour of one or both of the parties, the court can intervene by imposing the easement and ordering the payment of compensation. This article tests the orthodox justification for the existence of the statutory provisions against the actual facts of the cases in which the provisions have been applied. This will be done by using Professor Rose's typology of personality types and their preferences as a template to characterise the behaviour of the parties to the litigation on ss 88K and180. By doing this, we will see that although a substantial number of cases do support the orthodox justification for the statutory provisions, a sizeable number of other cases do not.
This article will proceed as follows. First, Rose's typology will be outlined and explained. Second, Rose's ideal characters will be located in a more general economic debate about the nature of human behaviour. Third, the factual settings of the cases on ss 88K and 180 will be examined in detail in order to see which characters are represented.
Professor Rose contemplates how a resource ('X') might be divided between two people (‘I’ and 'you'). The alternates she identifies, which are not meant to be exhaustive, are:
• I get a lot of X and so do you;
• I get pretty much of X (something in excess of 50% of a lot of X) and so do you;
• I get a little of X and so do you;
• I get a lot of X and you get nothing;
• I get nothing and you get a lot of X.[16]
Whether the parties can agree on how X is to be divided between them depends upon how each party ranks his or her own welfare against the welfare of the other. Rose calls these rankings 'preferences', and the various ways in which these preferences are ordered define Rose's six personality types. These personality types are: John Doe; King of the Mountain; Malice Aforethought; Mom/Good Citizen; Portnoy's Mom; and Hit Me. The preferences of these characters for the relative weighting of their own and the other's welfare are set out below.[17]
Using my terminology, Rose's personality types can be summarised as:
• John Doe, who desires (primarily) to maximise his or her own welfare, and (secondarily) to maximise the welfare of the other.
• King of the Mountain, who desires (primarily) to maximise his or her own welfare, and (secondarily) to minimise the welfare of the other.
• Malice Aforethought, who desires (primarily) to minimise the other's welfare, and (secondarily) to maximise his or her own.
• Mom/Good Citizen, who desires (primarily) to maximise the joint welfare of herself or himself and the other, and (secondarily) to maximise the welfare of the other.
• Portnoy 's Mom, who desires (primarily) to maximise the other's welfare, and (secondarily) to minimise her or his own.
• Hit Me, who desires (primarily) to minimise his or her own welfare, and (secondarily) to maximise the welfare of the other.
In order to get a better picture of Rose's personality types, we will now see how they correspond to assumptions about human behaviour found in various strands of economic thought.
Rose claims that only John Doe and King of the Mountain sit comfortably with neo-classical economic thinking. (She intends this as a criticism of neo-classical thinking, and not of her typology.) This is because only these characters are consistent maximisers of their own welfare (or utility), which is one of the basic assumptions of this form of economics.[18] The majority of Rose's other characters — Malice Aforethought, Mom/Good Citizen and Portnoy's Mom — are primarily 'other-focused', rather than 'self-focused'. As Rose says, they are 'distracted by interpersonal matters.'[19] Hit Me is 'self-focused', but in a welfare minimising, rather than a welfare maximising, fashion. Thus, Hit Me is the character most out of accord with economic theory.[20] We now turn to examine Rose's assertions about how her characters align with economic assumptions about human behaviour. In so doing, we will note two versions of law and economics theory, one based on neo-classical economics and the other on behavioural economics.
Rose is certainly correct in her claim that something like the preference schedules of John Doe and King of the Mountain have loomed large in neo-classical economic thinking. A prominent setting for this sort of analysis is the consideration of the explanatory power of the Coase Theorem. One leading expression of the Theorem is that
the structure of the law which assigns property rights and liability does not matter so long as transaction costs are nil; bargaining will result in an efficient outcome no matter who bears the burden of liability.[21]
One of the areas of difficulty surrounding the perceived validity of the Coase Theorem is dividing the cooperative surplus, which is an integral part of the bargaining process. The fact that a buyer values a resource more than the seller creates the opportunity for successful bargaining and sets out the lower and upper ranges of the sale or purchase price. However, that fact does not uniquely indicate what the price should be. Assume that the owner of the (currently unburdened) putative servient land values the right to be free of an easement at $100, and the owner of putative dominant land would value an easement burdening the putative servient land at $120. Provided transaction costs are low, the Coase Theorem suggests that the parties would reach an agreement whereby the easement would be granted for a price between $101 and $119. However, there is no authoritative rule for setting the price and thus dividing the cooperative surplus between the parties.[22] If the parties agree on the price, an efficient use of resources (land and money) results by the granting of the easement. But if they do not agree, because each wants to maximise his or her share of the cooperative surplus, then the resources will remain in an inefficient use and no easement will be granted.
The Coase Theorem impliedly takes an optimistic attitude to the problem of the distribution of the cooperative surplus. It assumes that rational parties will ultimately reach a mutually beneficial agreement.[23] This attitude envisages that the participants to the bargaining process are John Doe characters. The participants are seen as being willing to divide the resource between them in a way where both parties win. John Doe is likely to agree on a price that means a gain for him or herself, rather than risk the deal falling through. A more pessimistic view of the distribution problem is that the parties will not necessarily reach an agreement because one or both of them will try to capture the maximum possible share of the cooperative surplus. This is attempted by the use of threats of non-cooperation, by which one party attempts to convince the other that no agreement will be reached unless the party's terms are met.[24] Economists refer to such conduct as 'strategic behavior'.[25] Central to the concept is the desire to keep one's true intentions secret by misrepresenting the minimum amount of gain that is acceptable, in the hope of forcing the other to accept a lower share of the surplus.[26] The danger of this strategy, however, is that it might lead to a failure to agree altogether because the other party is also engaging in strategic behaviour. Although a rational party who intends to engage in strategic behaviour will employ a strategy that is optimal against the possible range of the other party's strategies, it may not be optimal against the particular strategy employed by that particular other party. The risk is that if one or both parties are disguising their true intentions about the maximum price one will pay, or the minimum price one will accept, the whole deal will fall through.[27] Cooter labels this pessimistic perspective of the distribution problem the 'Hobbes Theorem', because it is based on the assumption that people will make threats against each other and fail to cooperate unless forced to do so by a stronger third party. This Theorem holds that the efficient use of resources will not inevitably arise through private bargaining, even when transaction costs are low.[28] Provisions such as ss 88K and 180 are needed to achieve through coercion the result that should have been, but was not, achieved by bargaining.
Rose's King of the Mountain character ('KOM') is the type of person who would participate in strategic behaviour. This is the means by which he or she maximises his or her share of the cooperative surplus at the expense of the other party. Unlike Malice Aforethought, KOM desires that an agreement be reached, as this is the only way in which he or she can 'win' (ie, improve his or her welfare). However, unlike John Doe, KOM is not content to divide the gains from trade in a manner that will make both parties happy. KOM wants to strike a deal that the other party accepts only grudgingly. We have seen that Rose's John Doe and KOM characters do act in such a way that is recognisable to neo-classical economic theory. We now turn to Mom/Good Citizen and Malice Aforethought to see if their preference schedules are, contrary to Rose's view, also recognised in economic thinking.
I have made the point that the 'other-focused' preference schedules of these characters are out of step with the assumption of traditional economics that people are rational maximisers of their own utility. However, just as the law is not a monolithic discipline, neither is the sub-discipline of the economic analysis of law. In recent times an alternate school of law and economics — known as behavioural law and economics — has gained more prominence. Like traditional law and economics, this approach seeks to advance an understanding of law through the application of the standard tools of economic analysis to legal issues. However, it differs from its traditional counterpart by eschewing the assumptions about human behaviour found in neo-classical economics. Instead, it adopts more realistic perspectives about actual human behaviour.[29] Whereas traditional law and economics is based on the ideas of 'utility maximizaion, stable preferences, rational expectations, and optimal processing of information', behavioural law and economics accepts that people display 'bounded rationality, bounded willpower, and bounded self-interest'. It is this last concept that is relevant to our exploration of the preference schedules of Mom/ Good Citizen (hereafter 'Mom') and Malice Aforethought. Behavioural law and economics argues that individual self-interest is actually moderated by various factors. Some of these factors are self-focused, such as a person's regard for their own reputation (how other's regard them), and a person's own conception of what kind of person they want to be (for example, an honest, principled person; or someone who is neither a doormat nor a dupe).[31] Aperson might be restrained in seeking to maximise their own welfare by these factors. Additionally, people have regard to the welfare of others, based upon the perceived fairness of the other's actions. So, we are willing to sacrifice our own interests to promote the well-being of those who have been kind to us or whom we think have acted fairly towards us. Similarly, we are willing to sacrifice our own self-interest in order to punish those who have been unkind to us or whom we think have treated us unfairly.[32] However, the limitation this places on the pursuit of self-interest is restricted by the tendency of people to distort the concept of fairness by seeing things in a light most favourable to themselves.[33] We can see that behavioural law and economics can more comfortably accommodate Mom and Malice Aforethought than can its neo-classical counterpart. Mom is someone who is willing to curb her own natural self-interest in response to her perceived fair treatment by others. Mom wants to promote the welfare of those who have been kind to her: a 'one good turn deserves another' philosophy. And perhaps Mom is someone who takes a generous view of what is fair, and is less likely to interpret what is fair from her own perspective.
Equally at home in behavioural law and economics is Malice Aforethought, who is someone who wishes to punish others because of some perceived grievance. For Malice Aforethought, punishing the other represents a gain to him or her, even though on an objective basis he or she has acted contrary to his or her self-interest. The emotion that we would most closely associate with Malice Aforethought—spite—is one that is familiar, at least on a professional level, to the behavioural economist. Behavioural law and economics recognises that spiteful behaviour is a common response to a disagreement or argument. This is particularly so when litigation is involved, when it is extremely unlikely that parties will bargain around hard-won injunctive or damages orders.[34] In our examination of the cases on ss 88K and 180, we will see that this acrimony also extends to post litigation dealings between the parties.
We now turn to examine the factual settings of the cases on ss 88K and 180 to see to what extent John Doe, King of the Mountain and Malice Aforethought are represented. We do so to test the orthodox justification for the provisions: that the putative servient owner is a King of the Mountain character who is bargaining strategically to capture an inordinate share of the cooperative surplus. Our analysis will not detect a party who is a Mom, Portnoy's Mom or Hit Me. These personality types would grant the easement in an effort to promote the welfare of the other, even if this did not promote their own welfare, and thus no litigation on ss 88K or 180 would be involved.
As the orthodox justification for the statutory provisions envisages the involvement of King of the Mountain, we will commence our analysis with that character. We will then move on to Malice Aforethought, who we might also expect to be unwilling to engage in mutually beneficial exchange. Lastly, we turn to John Doe, who we might expect to reach a mutually beneficial agreement regarding the grant of an easement without the need for the other party resorting to litigation.
There are numerous examples of the owner of the putative servient land acting as a King of the Mountain character would act: engaging in strategic behaviour to maximise their share of the cooperative surplus. Where this occurred, the party was usually a commercial entity, either a company or the principal of a business.
A usual prerequisite to a finding of strategic behaviour is the willingness of the defendant to bargain over the grant of the easement. This is what occurred in Coles Myer NSW Ltd v Dymocks Book Arcade Ltd[35] and Katakouzinos v Roufir Pty Ltd.[36] Both of these cases involved an application under s 88K for the imposition of an easement allowing the temporary encroachment of scaffolding into the airspace over the defendant's land. The scaffolding was needed in order to facilitate construction on the plaintiff's land. In both cases the defendants made counter-offers following the plaintiff's offer to purchase the easement. In Coles Myer the plaintiff indicated that it would pay the defendant $300,000 for the grant of the easement that was needed for plaintiff's redevelopment to proceed.[37] The defendant indicated that it would require the staggering sum of $15,000,000.[38] The Court did impose the easement, but the issue of compensation was not dealt with as the parties agreed that the defendant could make a claim for specific compensation from time to time.[39] In Katakouzinos v Roufir, at the time negotiations had broken down, the plaintiff had offered $500 per week for the defendant to grant the easement, whereas the defendant said that it would require $5,000 per day for this.[40] The easement was imposed and Hodgson CJ in Eq awarded compensation in the amount of $300 per day from the granting of the easement until five weeks after the removal of the scaffolding. Although this was more than the plaintiff offered, it was much less than the amount demanded by the defendant. Strategic behaviour can also be seen in the context of the Queensland provision. In Nelson v Calahorra Properties Pty Ltd[41] the parties owned neighbouring premises in the business sector of Cairns. The plaintiff sought an easement to provide vehicular access to the rear of her premises. The easement was needed over various parcels of land, which were owned by the defendants. The defendants offered to grant the easement to the plaintiff for a payment to each of them of $24,333. The plaintiff was unwilling to pay this amount and applied for the grant of an easement under s 180. At trial and on appeal the plaintiff was awarded the easement, and the compensation that was ordered to be paid to each defendant was $ 12,000.[42] The Court clearly thought that the amounts demanded by the defendants were exorbitant. Queensland also provides perhaps the clearest example of strategic behaviour: a case in which the putative servient owner admitted to engaging in it. In Re Seaforth Land Sales Pty Ltd's Land (No 2) negotiations for the grant of an easement had taken place between the owners of industrial land. The plaintiff company had purchased land and had partly constructed a factory on it, incorrectly believing that the land had the benefit of an easement over land owned by the defendants. (Although an easement did exist over the defendants' land, the easement benefited other land rather than the plaintiff's.) When the plaintiff discovered the true position it approached the defendants seeking the grant of an easement.[43] The defendants initially offered to grant the plaintiff an easement in return for a payment of $8,000. When the plaintiff indicated that it could not pay that amount, the defendants' offer increased to $12,000, and then $18,000 and two car-parking spaces on the plaintiff's land.[44] The plaintiff brought an action for the grant of the easement. The plaintiff was successful at trial[45] and again on appeal. The amount of compensation ordered at trial was $3,500.[46] This was increased on appeal to $8,000,[47] but it was still substantially less than that ultimately demanded by the defendants. The trial judge and the Full Court held that the defendants' final offer to grant the easement was unconscionable, and constituted an unreasonable refusal to grant the easement.[48] In cross-examination at trial one of the defendants admitted that the defendants were trying to extract as much money as possible from the plaintiff.[49] In the Full Court, Stable J characterised the defendants' actions as follows:
In other words the [defendants] evidently considered that they had the [plaintiff] company over a barrel and demanded what I would call an extortionate sum for compensation.[50]
What generally makes strategic bargaining possible is the private nature of each of the parties' respective conceptions of the value of the resource to them; because neither party knows how much the other truly values the resource, each party is able to misrepresent their own valuation of the resource.[51] Both Coles Myer v Dymocks Book Arcade and Katakouzinos v Roufir reflect the problem of private information and the tendency of 'self-interested bargainers to misrepresent their private valuations so as to capture a larger share of the bargaining surplus.'[52] In Coles Myer, during the negotiations for the grant of the easement, when the defendant mentioned the $15,000,000 amount the plaintiff asked for a justification for the figure. The defendant replied: 'We are not prepared to provide a rationale for our price.'[53]
This form of strategic bargaining by the defendant was also evident in Katakouzinos, where the defendant seemed intent on keeping relevant information private, even during the trial itself. The defendant, who conducted the business of a private hotel on its land, asserted that the grant of the easement would cause it financial loss in the order of $150,000 because many of the rooms would not be able to be let at full price during the construction.[54] The veracity of this figure depended on several factors, including the vacancy rate of the hotel. Hodgson CJ in Eq stated that during the trial the principal of the defendant indicated that there was a book 'from which the vacancies of particular rooms on particular days could be established'. This book was never produced at trial, despite the fact that its production was, in his Honour's opinion, 'required by a notice to produce served on the defendant.'[55] Hodgson CJ in Eq stated that the defendant's principal was evasive in the witness box and did not provide a satisfactory explanation for not producing the primary evidence regarding vacancy rates.[56]
These cases show that the orthodox justification for the statutory regimes allowing courts to impose easements does have merit. Some putative servient landowners will exaggerate the value to them of the land being free of the easement. Yet, the same can be said of putative dominant owners, who typically keep private their valuation of the easement's worth by not publicising the full value of the easement to them.[57] Thus the cases show that where the parties are prepared to bargain — the cases where the landowner is a commercial entity—both the plaintiff and the defendant may engage in strategic bargaining. This suggests that some provision like ss 88K or 180 is necessary to bring about an efficient allocation of resources. The sections do this by testing the defendant's valuation of being free of the easement in court. They do this in two ways. The potential adverse impact of the easement on the defendant is relevant, first, to the question of whether the easement should be imposed and, second, to the question of the amount of compensation that should be ordered.
At this point we should note that sometimes it is difficult to ascertain whether a party to the ss 88K or 180 litigation is a King of the Mountain or a Malice Aforethought character. That is, it is hard to tell whether we are witnessing a fervent strategic bargainer willing to push the limits, or a spiteful party whose focus is on causing hurt to the other rather than capturing a benefit for themself. One such case is the Queensland case of De Pasquale Bros Pty Ltd v NJF Holdings Pty Ltd.[58] If the s 180 dispute between the parties is looked at in isolation from its wider context, the defendant seems to be a classic Malice Aforethought character. In this case the plaintiff and the defendant were owners of neighbouring commercial buildings. The plaintiff informed the defendant that it was planning to conduct repair work on its building. The defendant objected to the plaintiff's plans on the basis that the repair work would damage its own building. The defendant refused to cooperate with plaintiff, or even engage in negotiations about how the repair work might be carried out without damaging the defendant's building. The plaintiff managed to get the necessary Council consent to undertake the work, but on the condition that the effect of the work on the defendant's building was monitored, and that work would immediately cease if it appeared that the defendant's building was being damaged. The plaintiff offered to consult with the defendant's engineers with respect to the intended repair work and offered to pay $2,500 towards the defendant's consultancy costs. Again the defendant refused to cooperate. When the plaintiff's engineers sought access to the defendant's building to install monitoring devices and so comply with the consent condition, the defendant refused access. The plaintiff then commenced proceedings for a statutory right of user under s 180 to allow the monitoring devices to be installed. From the foregoing facts, the defendant appeared to be single minded in its attempt to frustrate the plaintiff's plans to repair its building,[59] even at the expense of putting at risk the structural integrity of its own building. The sole purpose of the plaintiff seeking limited access for a temporary period was to protect the defendant's building.[60] The defendant seems to have totally lost sight of its own self-interest in its attempt to inflict pain on the plaintiff. However, when the wider circumstances are taken into account, the defendant might be viewed as the consummate strategic bargainer. When the plaintiff first informed the defendant of its repair plans, the defendant commenced an action against the plaintiff claiming damages for already existing damage to the defendant's building allegedly caused by the plaintiff. Before this action and the s 180 proceedings were determined, the parties settled. The compromise allowed the plaintiff's repair work to go ahead, provided that the plaintiff also undertook restoration and repair of the defendant's building.[61] So, in the end, apart from having to pay the plaintiff's costs in relation the originating summons of the aborted s 180 proceedings,[62] the defendant got what it wanted. The defendant obtained an agreement for the repair of its building at the plaintiff's cost, without having ever produced cogent evidence that the damage to its building was caused by the plaintiff.[63] The defendant was successful in capturing the lion's share of the cooperative surplus.
We have seen that the orthodox justification for the existence of s 88K and 180 finds support in several cases. These cases involve a King of the Mountain — almost always the owner of the servient putative land — who is willing to agree to the grant of the easement, but only on terms that involve him capturing an excessive amount of the cooperative surplus. In these circumstances, a statutory regime allowing the court to impose an easement is justified. Although the scheme does militate against the realisation of King of the Mountain's secondary purpose — having the other party lose — it does so in circumstances where seeking to achieve that secondary purpose prevents the realisation of the King's primary purpose: the advancement of his own welfare.
However, there are other cases where King of the Mountain is not present. We now turn to these cases.
It appears that in several cases the failure to reach an agreement for the grant of an easement may not have been the result of strategic bargaining, but rather animosity between the parties because of a problem in their preexisting relationship. Frequently, this animosity involved prior litigation between the parties.
In Goodwin v Yee Holdings, Windeyer J characterised the relationship between the parties as being marked by 'a lack of goodwill'.[64] The builders retained by the plaintiff had been engaged in January 1997, but had made no attempt reach agreement with the defendants about access to the defendant's land until September, when the need for access was imminent if construction was to continue. On 1 September, the builders wrote to the defendants requesting an easement to allow scaffolding to encroach into their airspace and asking for a response by 3 September. Windeyer J described this as indecent haste, and raised the possibility that this may have been one reason why the defendants had refused to give access. Matters were also muddied by a dispute between the parties concerning access to the roof on the defendants' land, so as to allow the builders to dismantle a chimney on the plaintiff's land that joined the chimney on the defendants' land. The defendants commenced an action in trespass against the plaintiff in the midst of the negotiations between the parties for the grant of the easement.[65] In Durack v De Winton, the s 88K application was only one aspect of litigation between the parties. The defendant to the s 88K application wished to construct a new dwelling on his land. The plaintiff sought to obstruct this on the basis that it would interfere with a drainage easement that burdened the defendant's land and benefited the plaintiff's land. The defendant tried to negotiate the relocation of the easement with the plaintiff so that the construction of the new dwelling could proceed. The plaintiff refused to agree to the relocation unless the defendant agreed to the widening of a right of carriageway over the defendant's land in favour of the plaintiff's land. The plaintiff told the defendant that 'he had always seen the [drainage] easement as a way of controlling the development of [the defendant's land]'. The defendant accused the plaintiff of 'blackmail'.[66] The defendant refused to widen the existing right of way and the plaintiff brought an action under s 88K for the court to do so.
In Grattan v Simpson, Young J described the pre-existing relations between the parties, who were related to each other, as 'bad'.[67] This had led to the termination by the plaintiffs of a lease over land in favour of the defendant, and a 'large amount of litigation' between the parties, which included a Family Provision Act claim and apprehended violence order proceedings. The application under s 88K was for an easement that would have formalised access to the plaintiffs' land across the defendant's land. This access had once been enjoyed permissively, until terminated by the defendant at the same time as her lease had been terminated.[68]
Although there was no pre-existing litigation in Simpson v Bagnall, the relationship between the parties was described by Bergin J as 'acrimonious and sometimes violent'.[69] Firearms were discharged across the plaintiff's property and damage was inflicted on the defendants' home, although there was not sufficient evidence for Bergin J to make a finding as to who was responsible for these acts.[70]
Queensland can also provide an example of a successful application for a court-imposed easement that was unable to be negotiated because of ill-feeling between the parties. In Re Kindervarter,[71] the plaintiff sought the permission of the defendant to use a driveway on the defendant's land to gain access to a carport on the plaintiff's land. (When the plaintiff had purchased the land she mistakenly believed that she had the right to use the driveway.) One of the reasons for the defendant refusing to grant an easement was because of the poor relationship that existed between the defendant and the plaintiff's tenant. The tenant was the brother of the defendant's former de facto wife. Additionally, the tenant and his visitors obstructed from time to time the defendant's driveway with their vehicles, which exacerbated an already tense situation. Section 180 was needed to overcome the intransigence of the defendant brought about by his ill-will.
We have seen that most of the unambiguous Malice Aforethought cases, where the putative servient owner appeared focused on hurting the putative dominant owner rather than pursuing a potentially mutually beneficial exchange, involved disputes between residential neighbours. A variation on this theme is the case of Busways Management Pty Ltd v Milner.[72] In this case the plaintiff was a company that owned a large factory complex. The plaintiff wanted to convert the complex into a strata subdivision. However, in order to do so the plaintiff needed to obtain an easement over neighbouring land owned by the defendant, onto which the footings of the factory encroached by no more than 14 centimetres. The facts of the case reveal that the defendant was an individual, but not the nature of the defendant's land, other than that there was a large brick building on it.[73] As the building was not described as a house, this suggests that neither of the parcels of land were private residences. In any case, in refusing to grant the easement the defendant was clearly influenced by acrimony towards the plaintiff. Not only was the encroachment minimal, and outside the fence on the defendant's land that ran inside the boundary, on numerous occasions the plaintiff had offered to remove the encroachment at its own cost, but the defendant refused to allow access for this purpose.[74] There appears no other explanation than that the defendant was the classic Malice Aforethought, blinded by ill-will toward the plaintiff. The ubiquitous pre-existing legal dispute was also present in this case; the defendant had previously brought Encroachment of Buildings Act proceedings against the plaintiff, but was unsuccessful in obtaining compensation.[75]
Without doubt, the concept of strategic bargaining cannot explain many of the ss 88K and 180 cases in which an easement was granted against the wishes of the servient owner. In many cases, the putative servient owner refused to grant an easement because of spite felt towards the putative dominant owner. (The presence of ill-will is, however, not a sufficient basis for granting the easement as in some cases the easement was not granted because of the failure to satisfy the relevant statutory prerequisites.[76] ) In several cases, the ill-will arose because of, or was at least manifested by, prior litigation. We have seen that the case for compulsorily imposing an easement against a King of the Mountain is justified; King of the Mountain wishes to act in his[77] own interest, but his own conduct militates against this. Malice Aforethought, however, does not primarily wish to act in his own interest; his primary desire is to hurt others. Applying the statutory regime in this context requires a different justification. That justification must be based on the belief that it is better to promote the actual welfare of the parties[78] — as determined objectively, and not through the lens of ill-will — rather than fulfilling their subjective preferences. This is a belief that many would share, especially when those subjective preferences are based on spite.[79]
In several cases the court did impose an easement under ss 88K or 180 where the refusal by the putative servient owner to grant the easement cannot be attributed to strategic behaviour or any obvious acrimony. These cases can only be explained on the basis that the putative servient owner sincerely believed that the granting of an easement would not increase their welfare, even after receiving compensation. What this means is that such people cannot be characterised as Kings of the Mountain or Malice Aforethoughts, but rather as Joe Does who place a higher value of peace, quiet and privacy than on financial gain.[80]
In most of the cases in which the easement was imposed, and in which the defendant did not engage in strategic behaviour, the defendant was the owner and occupier of residential land.[81] Although in both Tregoyd Gardens and King v Carr-Gregg there was negotiation about whether the easement would be granted, this negotiation did not involve strategic bargaining by the defendant in order to secure a higher price.
In Tregoyd Gardens the defendants did engage in protracted negotiations with the plaintiff regarding the granting of the easement. The judgment of Hamilton J does not disclose what the defendants were asking for, other than an initial request for the plaintiff to grant the defendants a right of carriageway across the plaintiff's land, which the plaintiff refused as impracticable.[82] However, the judgment makes clear that negotiations broke down because the defendants opposed the plaintiff's proposed subdivision of the plaintiff's land into 15 residential lots and because they feared the destruction of a Canary Island Palm on their land to which they claimed sentimental attachment.[83] This suggests a sincere and unambiguous rejection of the plaintiff's proposal, rather than mere 'haggling'. This conclusion is reinforced by the position taken by the defendants on compensation. When Hamilton J suggested that $10,000 would be an appropriate amount of compensation payable to the defendants if an easement were imposed, the defendants stated that they would not seek a higher amount.[84] In not objecting to this figure — even though the plaintiff had offered $15,000 in the negotiations leading up to their s 88K application[85] — the defendants cannot be regarded as trying to maximise their share of the potential gains from trade.
There is another clear indication that the defendants in Tregoyd were not trying to hold the plaintiff property developer to ransom, but were sincere in the reasons they gave for refusing to grant the easement. There was another parcel of land available — not owned by the defendants — that would provide a suitable alternate site for the drainage easement. Given that there was an alternate party with whom the plaintiff could bargain, this would have reduced the opportunity of the defendants to engage in strategic behaviour. If the plaintiff valued the easement more highly than at least one of the set of neighbours valued the right to be free of the easement, then an efficient use of resources should have be attained through private agreement alone. However, the other potential grantor of the drainage easement — whose land was not subject to the s 88K application—rejected the plaintiff's offer to purchase the easement and refused to enter into negotiations.[86] This indicates that neither putative servient owner was trying to hold the plaintiff to ransom.[87]
In King v Carr-Greg,[88] the defendant was prepared to negotiate granting the plaintiff various permissive rights, rather than the easement requested by the plaintiff. Two aspects of the case clearly indicate that the defendant was not attempting to achieve an extortionate amount of the potential gains from trade, but was sincere in wishing to retain his land free from the easement. First, the defendant was prepared to grant these rights without payment by the plaintiff.[89] Second, at trial, on the issue of compensation payable to the defendant because of the 'blot' on defendant's title caused by the easement, the valuation put into evidence by the defendant was lower than the valuation put into evidence by the plaintiff.[90] Again, the defendant's refusal had nothing to do with trying to maximise the price payable by the plaintiff.
There are possible exceptions to the proposed 'rule' that residential defendants do not engage in strategic behaviour in order to maximise their share of the potential gains from trade. In 117 York Street,[91] there were negotiations for the grant of an easement that apparently failed because the plaintiff offered $23,000 for the easement, whereas the defendant demanded $400,000. The building on the defendant's land consisted of residential strata title units, the majority of which were under lease: only two were owner occupied. However, we must note the following facts about the case. The defendant's building was located in the centre of Sydney; the easement was sought over the common property of the strata development; and the owners' corporation, rather than the owners of the units, conducted the negotiation. These factors can be seen as endowing the case with a commercial, rather than a residential flavour. Perhaps another possible exception to the rule that residential defendants do not engage in strategic behaviour is Mitchell v Boutagy.[92] In that case the putative servient land was residential in nature. Negotiations for the grant of an easement took place, but the judgment does not disclose the terms of those negotiations.[93] On the issue of compensation at trial the plaintiff led evidence that the appropriate amount payable was $7,900; the defendants' figure was $83,000.[94] Austin J held that $26,556 was the appropriate amount.[95] This suggests that the defendants were trying to maximise their own share of the cooperative surplus to an unreasonable degree.
It should be noted, however, that the defendants were the executors of the estate of the deceased owner of the putative servient land. One can only speculate whether it was the fear of breaching their executorial duty that motivated them to seek an amount that was ultimately found to be excessive, or whether they were also beneficiaries of the estate, and thus had a self-interested reason for trying to obtain an excessive share of the cooperative surplus. In either case, unless the defendants intended to live on the putative servient land, it is arguable that they were not in fact residential owners. Thus the rule that defendants who are owners and occupiers of residential land rarely, if ever, engage in strategic behaviour, but rather genuinely place a high value on privacy, probably remains intact. This being so, it is a major blow to the orthodox justification for the regime under which easements may be compulsorily imposed by the court. If the defendant is not engaging in strategic bargaining, but is a John Doe who values the right to be free of the easement more than the plaintiff values the right to obtain the easement, then the granting of the easement by the court is not efficient, at least in terms of the subjective welfare of the parties. The justification for imposing the easement in this context must rely on an argument about promoting the objective welfare of the parties.[96] However, it is much harder to ignore the actual preferences of a John Doe than to ignore those of a Malice Aforethought. Unlike Malice Aforethought, John Doe seeks to maximise his or her own welfare, so there is nothing obviously perverse about his or her view of the state of affairs that would have this effect.
The orthodox justification for ss 88K and 180 is that courts should be able to impose easements when it is efficient to do so, even when private bargaining fails because of strategic behaviour. That rationale is supported by some of the cases, but we have seen that only putative servient owners who are commercial entities do engage in King of the Mountain behaviour. Further, a close examination of the cases shows that where the owner of the putative servient land is a residential owner, the reason for the failure of private bargaining is not the presence of strategic behaviour. Instead, the reason is either that (i) there is pre-existing hostility between the parties; or (ii) the servient landowner prefers privacy to economic gain. In the former case, the servient landowner could be characterised as a Malice Aforethought, and in the latter, a John Doe who values things other than money. Although there is a justification for extending the statutory scheme to the spiteful Malice Aforethought, extending it to the peace and quiet loving John Doe is more problematic.
[*] BA LLB (Hons) Macquarie; LLM British Columbia. Lecturer, Faculty of Law, University of Wollongong. Email: sgrattan@uow.edu.au. This article is a revised version of a paper presented at the Australasian Real Property Law Teachers' Conference held at the University of Canterbury, 1-3 July 2004.
[1] Carol Rose, 'Property as Storytelling: Perspectives from Game Theory, Narrative Theory, Feminist Theory' reprinted in Carol Rose, Property and Persuasion: Essays on the History, Theory and Rhetoric of Ownership (1994) 30-33.
[2] This provision reflects the recommendation of the Queensland Law Reform Commission in A Report of the Law Reform Commission on a Bill to Consolidate, Amend, and Reform the Law Relating to Conveyancing, Property, and Contract and to Terminate the Application of Certain Imperial Statutes, Report No 16 (1973) 102-103 (referred to below as the 'QLRC Report').
[3] Section 88K was inserted into the Conveyancing Act 1919 (NSW) by the Property Legislation Amendment (Easements) Act 1995, following a recommendation of the New South Wales Land Titles Office. See New South Wales Land Titles Office, Review of Easements Discussion Paper (1990) 33-34.
[4] Conveyancing Act 1919 (NSW), s 88K (1), (2). In the context of s 180 of the Property Law Act 1974 (Qld), the use of the dominant land must be consistent with the public interest, and the putative servient owner must have unreasonably refused to grant the easement: s 180(3)(a), (c).
[5] Conveyancing Act 1919 (NSW), s 88K (4), (5). In context of the Property Law Act 1974 (Qld), the general rule is that the dominant owner is to pay compensation to the servient owner (s 180(4)(a)) and that no costs order is to be made against the servient owner (s 180 (6)).
[6] A recent example is Foster v Hidden Valley Owners' Co-operative Society [2002] NSWSC 1120; (2002) 11 BPR 20,899.
[7] Most recently in Pasade Holdings Pty Ltd v Sydney City Council [2003] NSWSC 515; (2003) 11 BPR 21,001.
[8] For example, King v Carr-Gregg [2002] NSWSC 379.
[9] For example, Busways Management Pty Ltd v Milner [2002] NSWSC 969; (2002) 11 BPR 20,385 (easement for the encroachment by footings of building on dominant land onto servient land by up to 14 cm).
[10] 117 York Street Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504 (crane); Wilson v Forrester-Babcock [2000] NSWSC 1208; (2000) 10 BPR 18,377 (scaffolding).
[11] This is despite the fact that the right that can be conferred under the Queensland provision is not limited to an easement, but extends to a 'statutory right of user', which 'may take the form of any easement, licence or otherwise': Property Law Act 1974 (Qld), s 180(1), (2).
[12] See the Second Reading Speech of The Hon JW Shaw (Attorney General), Hansard, Legislative Council, 4 December 1995, 4000; Wilson v Forrester-Babcock [2000] NSWSC 1208; (2000) 10 BPR 18,377, 18,378 (per Young J); Blulock Pty Ltd v Majic [2001] NSWSC 1063; (2001) 10 BPR 19,143, 19,150 (per Windeyer J). The Queensland Law Reform Commission, however, did not use 'the holding to ransom' justification. Instead, it simply alluded to the possibility that an agreement for the grant of the easement might not be achieved. See QLRC Report, above n 2, 102.
[13] This is not always the case. See text accompanying notes 86 and 87 below.
[14] Wengarin Pty Ltd v Byron Shire Council [1999] NSWSC 485; (1999) 9 BPR 16,985, 16,987.
[15] Robert Cooter and Thomas Ulen, Law and Economics, (2nd ed, 1997) 73.
[16] Rose, above n 1, 30.
[17] Ibid 31 - 32.
[18] Rose, above n 1, 33. For examples of the centrality of this assumption to economic theory, see Paul Burrows and Cento Veljanovski, 'Introduction: The Economic Approach to Law' in Paul Burrows and Cento Veljanovski (eds), The Economic Approach to Law (1981) 3; Cooter and Ulen, above n 15, 10 -11.
[19] Rose, above n 1, 32.
[20] Ibid 33.
[21] Robert Cooter, 'The Cost of Coase' (1982) 11 Journal of Legal Studies 1, 15.
[22] D Regan, 'The Problem of Social Cost Revisited' (1972) 15 Journal of Law and Economics 427, 429; Cooter, above n 21, 17.
[23] Cooter, above n 21, 17.
[24] See Regan, above n 22, 429.
[25] See Stewart Sterk, 'Neighbors in American Land Law' (1987) 87 Columbia Law Review 55, 70.
[26] Cooter, above n 21, 23.
[27] Ibid.
[28] Ibid 17-18.
[29] Christine Jolls, Cass Sunstein and Richard Thaler, 'A Behavioral Approach to Law and Economics' (1988) 50 Stanford Law Review 1471, 1547.
[30] Ibid 1476.
[31] Ibid 1494-1495.
[32] Ibid 1495.
[33] Ibid 1501.
[34] Ibid 1495, 1498-1500.
[35] (1996) 7 BPR 14,638.
[36] [1999] NSWSC 1045; (1999) 9 BPR 17,303.
[37] This included not only granting an easement to allow hoarding and scaffolding to encroach upon the defendant's airspace, but also varying or releasing an easement for light which, assuming it was valid, benefited the defendant's land: (1996) 7 BPR 14,638, 14,650.
[38] Ibid 14,649 - 14,650.
[39] Ibid 14,655.
[40] [1999] NSWSC 1045; (1999) 9 BPR 17,303, 17,304 - 17,305.
[41] (1985) Q ConvR 54-202 (Full Court of the Supreme Court of Queensland).
[42] Ibid 57,340, 57,343.
[43] [1977] Qd R 317 (Full Court of the Supreme Court of Queensland), 318 - 19, 321 (Hanger CJ).
[44] Ibid 327 (Stable J).
[45] Re Seaforth Land Sales Pty Ltd's Land [1976] Qd R 190.
[46] Ibid 195.
[47] [1977] Qd R 317, 335 (Campbell J).
[48] [1976] Qd R 190, 195; [1977] Qd R 317, 325 (Hanger CJ), 327 - 328 (Stable J), 333 (Campbell J).
[49] [1977] Qd R 317, 327 (Stable J).
[50] Ibid.
[51] Cooter and Ulen, above n 15 84 - 85.
[52] Ian Ayres and Eric Talley, 'Solomonic Bargaining: Dividing a Legal Entitlement to Facilitate Coasian Trade' (1995) 104 Yale Law Journal 1027, 1030.
[53] (1996) 7 BPR 14,638, 14,649.
[54] [1999] NSWSC 1045; (1999) 9 BPR 17,303, 17,309.
[55] Ibid 17,310.
[56] Ibid.
[57] Coles Myer v Dymocks Book Arcade seems the only case where the putative dominant owner explained to the servient landowner why a particular amount was being offered: (1996) 7 BPR 14,638, 14,649 - 14,650. This veracity explanation was not tested at trial.
[59] Ibid 60,395.
[60] Ibid 60,392.
[61] Ibid 60,391.
[62] Ibid 60,396
[63] Ibid 60,394.
[64] (1997) 8 BPR 15,795 at 15,798.
[65] Ibid 15,797-15,798.
[66] (1998) 9 BPR 16,403, 16,409.
[67] Ibid 16,649-16,650.
[68] Ibid 16,650.
[69] [2000] NSWSC 930, [1].
[70] [2000] NSWSC 930, [47]-[48].
[71] (Unreported, Supreme Court of Queensland, Derrington J, 2 August 1995).
[72] [2002] NSWSC 969; (2002) 11 BPR 20,385.
[73] Ibid 20,385-20,386.
[74] Ibid 20,387.
[75] Ibid 20,386.
[76] For example, Grattan v Simpson (1998) 9 BPR 16,649 and Simpson v Bagnill [2000] NSWSC 930.
[77] The routine use of the masculine pronoun in this paragraph is for convenience.
[78] Or at least promote the welfare of the dominant owner by granting the easement and leaving the servient owner no worse off once compensation is paid. 79 Jolls, above n 29, 1499.
[80] The objection may not necessarily be to the easement itself, but to the development that is to be facilitated by the easement. So, in Debbula Pty Ltd v The Owners - Strata Plan 6964, the objection was not so much to the proposed drainage easement, but to the proposed demolition of a single storey house and the construction of three two-storey units. The defendant's opposition to the s 88K action was funded by adjoining owners whose views would be adversely affected by the development. See [2003] NSWSC 189, [3], [26].
[81] Ex parte Edward Street Properties Pty Ltd [1976] Qd R 86; Re Wooler (1990) Q ConvR 54-361; Tregoyd Gardens Pty Ltd v Jervis [1996] HCA 20; (1997) 8 BPR 15,845; Wilson v Forrester-Babcock [2000] NSWSC 1208; (2000) 10 BPR 18,377; King v Carr-Gregg [2002] NSWSC 379.
[82] [1996] HCA 20; (1997) 8 BPR 15,845, 15,848.
[83] Ibid 15,848-15,849.
[84] Ibid 15,851-15,852.
[85] Ibid 15,848.
[86] Ibid 15,849.
[87] The availability of alternate servient land was also present in Ex parte Edward Street Properties Pty Ltd [1976] Qd R 86.
[89] [2002] NSWSC 379, [24]-[25].
[90] Ibid [67]. The defendant's valuation was $20,000; plaintiff’s valuation was $27,000. The Judge decided on an amount of $23,000.
[91] 117 York Street Pty Ltd v Proprietors of Strata Plan No 16123 (1998) 43 NSWLR 504.
[92] [2001] NSWSC 1045; (2001) 10 BPR 19,187.
[93] Ibid 19,188.
[94] Ibid.
[95] Ibid 19,196-19,197.
[96] See above n 79 and accompanying text.
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/journals/CanterLawRw/2004/14.html