One of the crucial requirements for successful and profitable property development is the obtaining of development consent. Where a landowner has obtained development consent, the value of the land is enhanced and makes it an attractive prospect for potential investors and developers.
As the benefit of the development consent runs with the land, it might be thought that all the new owner has to do is hand over the purchase price and get on with the development. However, a prudent investor/developer will want assurance that the project covered by the development consent can be implemented as intended. This includes having the right to make use of the plans used in the development consent application.
Does the purchaser obtain an implied licence to use the architectural plans and drawings in connection with which the consent had been granted? The decision of the High Court of Australia in Concrete Pty Limited v Parramatta
Design & Developments Pty Ltd [2006] HCA 55 (6 December 2006) has provided further clarity for land developers.
Background
An architecture firm, Parramatta Design & Developments (Parramatta), prepared two sets of plans for the development of land owned by itself and its joint venture partners. Parramatta received a nominal sum for the first set of plans and nothing for the second, on the understanding that it would share in the proceeds from the sale of the property development. The plans were utilised in a successful application for development consent.
The relationship between the parties to the joint venture deteriorated and the land was subsequently sold to a property developer Concrete Pty Ltd (Concrete). The land was sold with the benefit of the development consent. However, the contract for sale specifically disclaimed any warranty that the purchaser would receive a licence to utilise the plans lodged with the council as part of the application for development consent.
Concrete offered to pay Parramatta for a licence to use the plans. Parramatta refused and threatened Concrete with legal action for breach of copyright should Concrete attempt to use the plans. Concrete then asserted that it possessed an implied licence to use the copyright in the plans under s15 of the Copyright Act 1968 (Cth) and sued Parramatta for unjustifiable threats of legal action for breach of copyright under s202 of that Act.
Findings
The High Court found unanimously (albeit for different reasons in favour of Concrete.
Fiduciary obligations
Gummow ACJ, Hayne and Callinan JJ (in separate judgments) considered the fiduciary nature of the joint venture relationship between Parramatta and its partners. They held that the joint venture arrangement could be classified as a fiduciary relationship and hence Parramatta and its partners owed a fiduciary duty to each other, to maximize the profitability of the joint venture. The justices recognised that the sale of land with the benefit of the approved plans would result in a higher sale price and thus greater profitability for the joint venture. Hence, Parramatta could not deny use of the plans by a purchaser of the land, as this would constitute the pursuit of its own interests (in maintaining copyright in the plans), in breach of its fiduciary duty to maximize the profitability of the joint venture.
Contractual obligations
Gummow ACJ and Callinan J also focused on the contractual obligations of the joint venturers. Callinan J referred to the principle that parties to a contract owe to each other a duty to co-operate in the doing of acts which are necessary to perform the contract. A corollary of this principle is that a party will not obstruct the performance of the contract. The Justices held that this mutual co-operation term should be implied into the joint venture arrangement. Thus Parramatta could not hinder the sale of the site by denying the purchaser use of the plans, because this would involve a breach of its implied contractual obligation to cooperate with its joint venture partners.
Purpose of the plans
Kirby and Crennan JJ considered the purpose for which the plans were originally prepared. The Justices noted that in the absence of an agreement to the contrary, a co-owner of land who is an architect and prepares development plans free of charge, for himself and other co-owners, implicitly consents to the plans being used for the purposes for which they have been prepared. In this case the plans were prepared for the purpose of obtaining development consent. They were also prepared for the purpose of building a property development for sale, in accordance with the development consent. The purchaser received an implied licence to use the plans because they were using the plans for a purpose to which the architect had previously consented. Moreover, the justices noted that once the development consent had been granted, the implied licence to use the plans was irrevocable, because one of the purposes for which the plans were prepared had been achieved.
Implied licence
Kirby and Crennan and Callinan JJ, (in separate judgments) also discussed the case law concerning implied licences to use architectural plans. They noted that the circumstances of this case (such as the absence of payment for the architect’s work) did not take the case outside of the principle established in Beck v Montana Construction and endorsed in Blair v Osborne & Tomkins, that when land for which architectural plans have been prepared is sold, an implied licence to use the plans generally passes to the purchaser of the land.
Implications for architects and property developers
- Parties involved in property development joint ventures are advised to document clearly their intellectual property and other rights. They should pay particular attention to the rights of the parties in the event of the dissolution of the joint venture.
- This case clearly restates the principle that, once plans have been utilised in a successful application for development consent, an implied licence to utilise these plans runs with the land for the purpose of implementing the development consent.
- It is now more difficult for an architect to maintain intellectual property rights in plans used to obtain development consent, regardless of whether the architect has received payment for the plans.
Special thanks to Alexis Hurwitz for her help in writing this article.
