In major infrastructure projects, landowners rarely open the door to proponents without seeking some sort of control. These restrictions on dealing clauses try to balance the needs of a proponent’s contractors or other third parties to access land against the landowner’s rights. But how far does a restriction on dealing go?
This is not an academic question. Access to the land is core to the success of a project, and both sides need clarity and certainty on it. A recent case in NSW gave some valuable insights and guidance for project proponents and counterparties, and serves as a cautionary reminder to parties to draft restrictions on dealings carefully. On complex projects courts will construe the rights and obligations under one document by reference to the broader suite of project documents (White Rock Wind Farm v Dulhunty [2024] NSWCA 202).
The suite of project documents
In 2014, White Rock entered into a suite of contracts for the purpose of constructing and operating a wind farm. This suite included leases in favour of White Rock and a restriction on dealings under which White Rock agreed that it would not “deal with its interest in the Lease or any of its rights and obligations under the Lease, for example, by subleasing, sharing or licensing such rights and obligations to a third party, without the Lessor’s written consent, not to be unreasonably withheld”.
This obviously had the potential to restrict White Rock’s ability to build infrastructure on the land using third parties. The leases however also created several option agreements under which White Rock could require the landowners to grant access easements (at no charge).
White Rock then entered into an agreement with TransGrid in 2015. White Rock agreed to procure easements to enable TransGrid to build and gain access to certain transmission infrastructure required for the wind farm. Unfortunately it did not do so before the options to procure easements expired.
It clearly needed an alternative way to procure the access TransGrid needed. It chose to do so by way of a licence from White Rock to TransGrid. Initially it sought the landowners’ consent to the TransGrid licence under the restriction on dealings clause, which said written consent could not be unreasonably withheld. The landowners refused, but said they would be prepared to grant access by way of easements (as per the expired option agreements), but only in return for additional consideration. White Rock then tried Plan B: challenging the application of the restriction on dealings clause to this licence.
The principal issues on appeal were:
- did the restriction on dealings apply to the proposed TransGrid licence;
- if it did not, was White Rock otherwise restricted from granting the licence; and
- if it did apply, was it unreasonable for the landowners to withhold consent?
Did the restriction on dealings apply to a licence?
White Rock submitted that the restriction on dealings needed to be read in the context of the surrounding clauses, which related to restrictions on White Rock assigning its rights under the leases. In this sense the restriction on “licensing [its] rights and obligations” should be read to restrict White Rock from granting a licence enabling a third party to acquire or share White Rock’s rights and obligations under the leases, but should not restrict White Rock from exercising its rights (as a tenant) to grant a licence to a third party.
While noting that the language of the restriction on dealings clause left “something to be desired in terms of clarity”, the Court ultimately accepted White Rock’s submission. Additional support for this conclusion came from other provisions in the lease which specifically restricted the granting of access licences in particular circumstances without landowner consent. The Court considered that it would be “odd” to include such specific consent requirements for certain licences, if the restriction on dealings clause were to be interpreted as a broader restriction on the granting of any licences.
Also relevant is that during the appeal the landowners did not contest White Rock’s submission that the restriction on dealings did not apply to the licence.
Accordingly, although by the time of the appeal the parties and the Court had all reached the view that the clause did not apply to the licence, considerable time and money could have been saved had the original drafting of the restriction been clearer in its application, noting that White Rock had originally sought consent under the clause and proceeded in the court at first instance, on the basis that it did apply.
Could White Rock grant the licence if the restriction did not apply?
Having found that the restriction on dealings clause did not apply to the proposed TransGrid licence, and notwithstanding that there was no other clause specifically restricting the granting of such a licence, the Court nevertheless found that White Rock could not validly grant a licence to TransGrid. In reaching this conclusion the Court construed the leases as part of the broader suite of project documents, and held that:
- at the time of executing the suite of project documents, the parties envisaged that third party access would be dealt with by access easements (as per the option agreements to which the landowners were party), rather than by licence solely between White Rock and a third party (other than in specific cases set out in the leases);
- the landowners possessed a natural interest and concern in having their rights and interests protected in any enduring access arrangement with a third party, as the suite of project documents reflected that access to many parts of the land would be shared between White Rock and the landowners; and
- accepting the licence arrangement would mean that White Rock could have effectively bypassed the option agreements altogether (prior to their expiry) by granting a licence – this could not have been the objective intention of the parties.
What if the restriction had applied?
The Court also considered the question of whether, had the restriction on dealings applied to the proposed licence, it would be reasonable for the landowners to withhold consent. On this question the Court found in favour of the landowners that it would be reasonable to withhold consent. Central to this decision was the Court’s view referred to above that the licence was not an arrangement contemplated in the original suite of project documents, and gave rise to a different set of rights and obligations among the parties to what was envisaged for access under the easement options. Accordingly, it would not be unreasonable to refuse consent to a licence, or to offer a separate right of access via easement at an additional cost.