Bresimark Nominees Pty Ltd v Smart World Enterprises Pty Ltd - [2008] SADC 14

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
BRESIMARK NOMINEES PTY LTD v SMART WORLD ENTERPRISES PTY LTD AND ORS
[2008] SADC 14
Judgment of His Honour Judge Barrett
22 February 2008
GUARANTEE AND INDEMNITY - ACTIONS AGAINST SURETY
Whether there was a legal or equitable assignment of guarantees in the absence of written assignment.
Held: there was both legal and equitable assignment.
Law of Property Act (SA) 1939 s 15; Conveyancing Act 1919-1932 (NSW) s 12; Real Property Act 1900 (NSW) , referred to.
The Modern Contract of Guarantee Phillips and O'Donovan, Third Edition, [10.2700]; Kumar v Dunning [1989] 1 QB 193 and 187; Geroff v CAPD Enterprises Pty Ltd [2002] QSC 269; Moxton v Moir (1914) 18 CLR 360; Housing Guarantee Fund Ltd v Yusef [1999] VR 17; Re Perkins [1898] 2 Ch 182; British Union & National Insurance v Rawson [1916] 2 Ch 476; Raiffeisen Zentralbank Osterreich AG v Five Star General Trading LLC [2001] 2 WLR 1344; Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 426 at 436; Tessari v Bais Pty Ltd (1990) 54 SASR 274 at 283; General Motors Acceptance Corporation v Johnson (1930) 4 DLR at 297; McIntosh v Shashova (1931) 46 CLR 494 at 515 per Evatt J; Zaknic Pty Ltd v Svelte Corporation Pty Ltd Unreported, Federal Court Australia, Lehane J, 14 August 1996 at 39; Wenkart v Abigmano Unreported Federal Court Australia, Hill J, 28 August 1998; Westpac Banking Corporation v Market Services International Pty Ltd Unreported, Supreme Court of Victoria, Batt J, 1 October 1996; Wheatley v Bastow (1855) 7 De GM & G 261, 279; (1855) 44 ER 102, 109; Halsbury's Laws of Australia [185-475]; Farrow Mortgage Services Pty Ltd v Hogy (1995) 64 SASR 450 and 480; (1994) 178 LSJS 462; Three Rivers District Council v Bank of England [1996] QB 292; Long Leys Co Pty Ltd v Silkdale Pty Ltd [1992] NSW Conv R 59; Reale Bros Pty Ltd v Reale [2003] NSWSC 666; Last v Rosenfeld [1972] 2 NSWLR 923; Holroyd v Marshall (1862) 10 HL Cas 191; (1861-73] All ER Rep 414; (1862) 11 ER 999; Tailby v Official Receiver (1888) 13 App Cas 523; [1886-90] All ER Rep 486; Re Androma Pty Ltd [1987] 2 Qd R 134; BP Refinery (Wesstern Port) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283; Codelfa Constructions Pty Ltd v State Rale of New South Wales (1982) 149 CRL 337; Pyramid Building Society (In Liquidation) and Anor v Walker and Ors Unreported, Supreme Court of NSW, 1 December 1993; Norman v Federal Commission of Taxation (1963) 109 CLR 9 at 32; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd and Ors [1976] 1 NSWLR 5; at 10-11; Halsbury's Laws of England 1995 Vol 11, part 1 section 3-546 at 339, considered.

DEEDS - COVENANTS
Whether deed of guarantee operates as a deed poll, enforceable by purchaser/landlord not a party to the deed, or as a deed inter partes, enforceable only by parties to the deed.
Held: deed operated as a deed poll enforceable by the purchaser/landlord as an assign of the vendor/landlord.
Property Law Act 1958 (No.6344) s 56; Grantees of Reversion Act 1540 , referred to.
Chelsea and Walham Green Building Society v Armstrong [1951] CH 853; [1951] 2 All ER 250; Re A & K Holdings Pty Ltd [1964] VR 257; Moody and Ano v Condor Insurance Ltd and Ano [2006] 1 WLR 1847; Norton on Deeds, 2nd ed, 28-9; 195; Gresty v Gibson (1866) LR 1 Ex 112; Sunderland Marine Insurance Co v Kearney (1851) 16 QB 925 at 938; 117 ER 1136; 936; 1141; Green v Horne (1694) 1 Salk 197; 91 ER 177; Lowther v Kelly (1723) 8 Mod 115 at 118; 88 ER 91 per Pratt CJ; Halsbury's Laws of England 3rd ed, vol 11, 339-40; Farrow Mortgage Services Pty Ltd v Hogg and Ano (1995) 64 SASR 450; Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd and Ors [1976] 1 NSWLR 5; Lang v Asemo (1989) VR 773; Ryde Joinery Pty Ltd v Zisti (1997) ANZ Conv R 481; Simmons v Leigh (1997) 2 QDR 671; North Terrace Properties Pty Ltd v Lawbitax Pty Ltd [2005] SADC 69 at [145] and [146]; Kumar v Dunning [1989] 1 QB 193; PA Swift Investments v Combined English Stores Group PLC [1988] 2 All ER 885 at 887; [1989] 1 AC 632; Coronation Street Industrial Properties Ltd v Ingall Industries Pty Ltd [1989] 1 WLR 304; Landlord 5th ed Professor P Butt at 364-365; 507; O'Donovan Guarantees of leases; the problems of assignments 23 WALH 144; Sunbird Plaza Pty Ltd v Maloney and Ano (1987-1988) 166 CLR 245 at 255; RM Hoskings Properties Pty Ltd v Barnes and Ors [1971] SASR 100; Breams Property Investment Co Ltd v Stougler [1948] 2 KB 1, considered.

LANDLORD AND TENANT - COVENANTS - RUNNING WITH LAND OR REVERSION
Claim by purchaser/landlord against guarantors of vendor/landlords' lessees - no written assignment of guarantees - whether guarantees touched and concerned the land and ran with the land on transfer inuring to the benefit of purchaser/landlord.
Held: guarantees did run with the land.
Grantees of Reversion Act 1540 ; Law of Property Act (SA) 1936 ; Law of Property Act 1925 , referred to.
Landlord, 5th Ed Peter Butt at 364-365; Breams Property Investment Co Ltd v Stougler [1948] 2 KB 1; RM Hoskings Properties Pty Ltd v Barnes and Ors [1971] SASR 100; Kumar v Dunning [1989] 1 QB 193 at [63]; Hua Chiao Commercial Bank Ltd v Chiaphua Industries Ltd [1987] 1 AC 99; Guarantees of Lease: the problem of assignment (1993) 23 WALR 143 at 148; Lang v Asemo Pty Ltd [1989] VR 773; P & A Swift v Combined English Stores Group PLC [1998] 2 All ER 885 at 891; 890; Mayor of Congleton v Pattison (1808) 10 East 130 at 138; It's not just cricket! - The efficacy of guarantees of lease upon assignment (1999) 7 APLJ 1 at 14 by Ward; London and Country (A&D) Ltd v Wilfred Sportsmen Ltd [1971] Ch 764; Coastplace Ltd v Hartley [1987] 1 QB 948 at 959; Pinemain Ltd v Welbeck International Ltd (1984) 2 EGLR 91, considered.

BRESIMARK NOMINEES PTY LTD v SMART WORLD ENTERPRISES PTY LTD AND ORS
[2008] SADC 14

This matter raises questions of legal principle in respect of leases and guarantees. It arises out of a transfer of land subject to a lease. The matter for decision is whether the incoming landlord can claim the benefit of guarantees entered into with the previous landlord.
Background
The plaintiff, Bresimark Nominees Pty Ltd is a company involved in the purchase of rental properties. During the course of 2003 the plaintiff became interested in a commercial office complex for sale at 195-196 Fullarton Road, Dulwich. The property was owned by Kyren Pty Ltd and Theodore Samaras, the second and third defendants by counterclaim, who had engaged Negotiators (Real Estate) Pty Ltd to conduct the sale.
There were four tenants in the office complex with leases over parts of the property on various terms and conditions. One of these tenants was the first defendant, Smart World Enterprises Pty Ltd. The lessors named in the Memorandum of Lease are Kyren Pty Ltd and Theodore Samaras. The lease is dated 22 May 2003 and was registered on 26 May 2003. The term of the lease was for five years commencing on 7 February 2003 with a right to extend for a further five years. The lease was registered on the title of the property.
On the same day that the lease was entered into, Panagiotis Galanis and Sophie Takmakis, the second and third defendants, who were directors of the first defendant entered into a Deed of Guarantee and Indemnity with the landlords, Kyren Pty Ltd and Theodore Samaras. By this deed the second and third defendants undertook jointly and severally to guarantee:
(1)The payment by the Lessee to the Lessor of all rental and/or other monies payable to the Lessor by the Lessee by virtue of the tenancy created between the Lessor and the Lessee or expressed to be payable to the Lessor by the Lessee under or by virtue of the Lease or otherwise payable by the Lessee to the Lessor by virtue of the occupancy of the said premises by the Lessee as tenant or on any other basis whatsoever.
(2)The performance and observance by the Lessee of the covenants terms and conditions and restrictions expressed or implied in respect of or applicable to the said tenancy or the Lease and on the part of the Lessee to be observed or performed…
and:
… further undertake to indemnify and keep indemnified the Lessor against all damages and or losses which the Lessor may suffer by reason of any failure by the Lessee to pay any such rental and/or other monies or to perform or observe any of such covenants terms or conditions and or the premature determination of repudiation of the said tenancy or of the Lease;…
On request Negotiators (Real Estate) Pty Ltd sent to the plaintiff an Information Memorandum which provided particulars relating to the property, its tenancy structure and mode of sale. Part 9.0 of the Memorandum contained basic information about each of the leases. The information with respect to the first defendant’s lease included a notation that, “The lease is guaranteed by Directors of Lessee Company”.
On 20 August 2003 the plaintiff purchased the property at auction and entered into a contract of sale with the second and third defendants by counterclaim. Annexure ‘A’ of the contract of sale contained information on each of the leases similar to that which had been provided to the plaintiff prior to the auction. This included the notation in respect of the first defendant’s lease that it was guaranteed by the Directors of the Lessee.
The plaintiff became the registered proprietor of the property pursuant to a Memorandum of Transfer on 18 September 2003. At settlement the original certificates of title were received by the plaintiff, along with the original memoranda of lease relating to the four leases on the property. The original Deed of Guarantee and Indemnity was also handed over at settlement. At the time no notice of assignment of the guarantee was given to the guarantors, the second and third defendants.
On 3 June 2003 one of the guarantors, Sophie Takmakis, ceased to be a director of the first defendant. There was a dispute between the third defendant and the first defendant, which was resolved by way of a Deed of Settlement on 24 April 2004. The parties to this deed were Sophie Takmakis, the third defendant, Smart World Enterprises Pty Ltd, the first defendant, Peter Galanis, the second defendant, Accordent Pty Ltd, the first third party in these proceedings, and Portellos, a director of the first defendant and the second third party in these proceedings. By the terms of the Deed of Settlement it was agreed that the first defendant, the second defendant, and the first and second third parties, would attempt to secure the release of the third defendant from her liabilities under the Deed of Guarantee and Indemnity from the landlord, the plaintiff.
The first and second defendants, and the first and second third parties, agreed that if the plaintiff did not approve a release of the guarantee, they would indemnify the third defendant for any amounts she might be liable to pay under the Deed of Guarantee. The effect of this is that if the plaintiff can claim the benefit of the Deed of Guarantee and Indemnity, the liability of the third defendant will ultimately attach to the second defendant and the first and second third parties, pursuant to the terms of the Deed of Settlement signed on 24 April 2004.
At some stage there was a conversation at the property between Mr Galanis and Mr Musolino, a director of the plaintiff. Ms Helen Miller, Mr Musolino’s office manager was also present. Mr Galanis enquired whether Ms Takmakis could be released from her guarantee, as she was no longer a director of the first defendant. Mr Musolino replied that the plaintiff would have no problem releasing Ms Takmakis, as long as she was replaced by another acceptable guarantor, or by a bank guarantee. It appears this did not occur. There is some disparity in the evidence as to when this meeting occurred; Mr Musolino places this conversation in about March or April 2005, while Ms Miller places it earlier, in about September 2004. I proceed on the basis that it occurred in late 2004, early 2005.
During the term of the lease the first defendant fell behind in its rent. On 25 July 2005 solicitors for the plaintiff wrote to the first defendant stating that arrears had reached $59,481.15, and that unless full payment was made within 3 days proceedings would be issued. On the same day solicitors for the plaintiff sent a letter to the guarantors enclosing the letter sent to the first defendant, advising them that in the event the first defendant failed to pay the arrears, that plaintiff would act to enforce the guarantee.
The first defendant failed to pay the arrears and the plaintiff claims the benefit of the Deed of Guarantee and Indemnity to recover the outstanding sums from the guarantors. The second and third defendants, the guarantors, deny that the plaintiff is entitled to the benefit of the guarantee, as the plaintiff was not a party to the Deed which had not been assigned. Issues of quantum were resolved by consent orders made at the start of the trial, so the sole issue for determination is whether the plaintiff can rely on the Deed of Guarantee and Indemnity.
The Plaintiff’s Claims
The plaintiff claims it is entitled to the benefit of the guarantee on a number of grounds. The first ground is that the Deed of Guarantee and Indemnity touches and concerns the land, and therefore the benefit passed automatically with the reversion by virtue of the purchase of the land by the plaintiff.
The second ground is that the deed is properly characterised as a Deed Poll rather than a Deed Inter Partes, and therefore it is enforceable by whoever is the lessor of the property from time to time.
The third ground is that there was an assignment in law or in equity, explicit or implicit, of the rights under the deed from the vendors to the plaintiff.
The fourth ground is that the plaintiff is in the position of a third party beneficiary of the deed within the principle in Trident v McNeice (1988) 165 CLR 107. This ground was not advanced in argument before me, so I will say no more about it.
The fifth ground is that the first and second defendants are estopped from denying liability under the deed to the plaintiff by virtue of their conduct in purporting to seek the consent of the plaintiff to the release of the third defendant from the guarantee. As I have said I accept the evidence of Mr Musolino and Ms Miller as to their conversation with the first defendant in late 2004 early 2005, however this ground was also not advanced in argument before me, so I will again say no more about it.
The plaintiff will succeed if it is able to establish any one of the first three grounds.
The Defendants’ Responses
The second and third defendants argue that they are not liable to the plaintiff. They meet each of the first three grounds as follows:
1.The Deed of Guarantee and Indemnity does not touch and concern the land (first ground).
2.The Deed of Guarantee is a deed inter partes not a deed poll and, since the defendants were not parties to the deed, they are not liable under it (second ground).
3.There was no assignment in law or in equity of the deed to the plaintiff (third ground).
Assignment in Law
I shall deal first with the plaintiff’s third ground, the question as to whether there was an assignment of the deed of guarantee. There is no doubt that a deed of guarantee and indemnity is assignable as a legal chose in action[1]. It may be assigned either at law or in equity[2].
[1] Philips and O’Donovan, The Modern Contract of Guarantee, 3rd Ed [10.2700]; Kumar v Dunning [1989] QB 193; 187; Geroff v CAPD Enterprises Pty Ltd [2002] QSC 269; Law of Property Act 1939 (SA) s15; Moxton v Moir (1914) 18 CLR 360; Housing Guarantee Fund Ltd v Yusef [1991] VR 17; Re Perkins [1898] 2 Ch 182; British Union & National Insurance v Rawson [1916] 2 Ch 476.
[2] Raiffeisen Zentralbank Osterreich AG v Five Star General Trading LLC [2001] 2 WLR 1344
An assignment at law would have to comply with the Law of Property Act (SA) 1939 (“the Act”). Section 15(1) of the Act outlines the requirements of a legal assignment of a chose in action:
15    Assignment of debts and choses in action
(1)     Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be effectual in law (subject to equities having priority over the right of the assignee), to pass and transfer from the date of such notice –
(a)    The legal right to such debt or chose in action; and
(b)    All legal and other remedies for the same; and
(c)The power to give a good discharge for the same, without the concurrence of the assignor.
The section provides three requirements for an effective assignment of a chose in action at law. First the assignment must be in writing under the hand of the assignor. Second it must be an absolute assignment and not merely by way of security. Third express notice in writing of the assignment must be given to the debtor.
The terms of the guarantee define “Lessor” as meaning Kyren Pty Ltd and Theodore Samaras. They go on to include, “the Lessor’s successors and assigns heirs executors and administrators as appropriate.” Clearly the terms of the guarantee contemplate that it may be assigned.
The plaintiff submits the contract of sale effects such an assignment. Whether or not it does is a question of construction. As I have said, the contract of sale of the building contains an annexure marked ‘A’ with a summary of the tenancies on the land which existed at the date of the contract. Clause 4.7 of the contract grants the plaintiff free and vacant possession of the land with the exception of the tenancies described in the Schedule. When describing the tenancies, the schedule states: “refer annexure ‘A’”. By Clause 8.10.3, the Second and Third defendants by counterclaim undertook to carry on leasing the property until settlement.
Annexure ‘A’ of the contract begins by saying:
As from the date of settlement, the Vendor shall assign to the Purchaser and the Purchaser must accept an assignment from the Vendor of all the Vendor’s rights and obligations pursuant to any lease in respect of the tenancies referred to and as detailed hereunder.
The plaintiff submits that this clause, along with the reference to directors’ guarantees in Annexure ‘A’, and clauses 4.7 and 8.10.3 together have the effect of assigning the rights in respect of the guarantee, as well as the lease document itself. The plaintiff concedes the provisions of the contract of sale do not expressly mention the benefit of the deed of guarantee, but submits the provisions of the contract are expressed in more general terms.
The plaintiff relies on a passage of Dixon and Evatt JJ in Consolidated Trust Company Limited v Naylor[3],
Unless, therefore, the circumstance that it is taken from a statutory form makes it proper to place some artificial limitation upon the natural meaning which the memorandum read in this manner would be, the assignment of all moneys secured by the mortgage would be interpreted as an assignment of all the rights to recover such moneys which the instrument bearing the indorsement gave. An assignment of moneys that are secured by personal obligations means an assignment of the obligations securing them.
[3] (1936) 55 CLR 423 at 436
In Naylor the assignor transferred “all moneys secured by the written contract of mortgage and all my rights, power and remedies thereunder.” This was held sufficient to transfer to the assignee the benefit of the guarantee as well as the mortgage.

The plaintiff’s argument runs thus; the contract of sale creates an assignment of all rights pursuant to any lease, the contract includes reference in annexure ‘A’ to the lease being guaranteed by directors of the lessee, therefore the contract should be interpreted as assigning all rights under the Deed of Guarantee to the plaintiff (Naylor).
The defendants submit that the words, “pursuant to any lease” in Annexure ‘A’ mean that only those rights which appear in the memorandum of lease were assigned, and not the rights under the guarantee, which is a separate document and a separate agreement between the previous landlord and the guarantors. There is no reference to the guarantee in the contract of sale and the definitions in the contract of “the property” or “the assignments” make no mention of it. They distinguish Naylor on the ground that the mortgage document itself contained the guarantee.
The defendants also point to page 3 of the Memorandum of Lease, which incorporates terms and conditions from another document, a Memorandum of Standard Terms of Conditions of Lease deposited with the Registrar-General. They point to the fact that page 3 does not assert that the terms of the guarantee are incorporated into the lease.
It was also argued that, as guarantees should be interpreted strictly in favour of the surety, the terms of the contract should not be construed as having the effect of assigning the guarantee.
Finally, the defendants point to Clause 10 of the Contract of Sale (Exhibit P3), which reads:
The other terms and conditions set out in the Schedule ‘Other Conditions’ form part of this Agreement.
The defendants accept that that Clause is not expressed so as to exclude covenants outside of the Schedule, but it is expressed so as to simply incorporate those covenants in the Schedule into the contract. However, they submit that, as a principle of construction, if the contract recites what is included, then there is an inference that what is not mentioned is not included. There are no items included under “Other Conditions” in the Schedule.
It is clear from the authority of the High Court in Naylor that the words of assignment expressed in the contract should be given their natural meaning. The High Court interpreted, “all moneys secured by the written contract of mortgage and all my rights, power and remedies thereunder” as assigning both the moneys and the obligations securing them. The words used in the present case “of all the Vendor’s rights and obligations pursuant to any lease in respect of the tenancies referred to and as detailed hereunder” are not materially different in their natural meaning. There is no reason why they should not be interpreted in the same way. In particular I see no reason why the words, “pursuant to any lease” should be interpreted narrowly as being limited to the Memorandum of lease document. The guarantee in favour of Kyren Pty Ltd and Theodore Samaras is in their capacity as lessors, and is given in consideration of the lessors granting a lease to the first defendant. The fact that in Naylor the guarantee was in the same document as the mortgage itself is a factor to be considered, but not, I think, a determinative one. It is an accepted principle of interpretation that transactions entered into with the same parties at the same time should be read together (Tessari v Roeder Bais Pty Ltd[4]). The assignment expressed in Naylor specifically referred to the “written contract of mortgage”, which suggests an assignment of the covenants in that particular document. However in the present case the words, “pursuant to any lease” suggest a wider application. They do not refer to a particular document. They appear to refer instead to a particular state of affairs, ie. any lease over the property.
[4] (1990) 54 SASR 274 at 283
Even if it were appropriate to give the words “pursuant to any lease” a narrow interpretation, the words “tenancies referred to and as detailed hereunder” incorporate the reference in Annexure ‘A’ to directors’ guarantees, and so detail a tenancy protected by a guarantee as being assigned. It would follow that for this to be so, the contract would have to have the effect of assigning both the lease document and the guarantee. If the contract did not have this effect, the reference to director’s guarantees in Annexure ‘A’ would serve no purpose.
The fact that the deed of guarantee is not specifically incorporated in the lease on page 3 is of no moment if the effect of the contract of sale is an assignment of the both the Memorandum of Lease and the Deed of Guarantee. Likewise the fact that the deed of guarantee is not referred to in the contract of sale where reference may conceivably have been made to it is of no moment if other terms in the contract are expressed widely enough to encapsulate it and there is no reason why their interpretation should be artificially limited.
In addition, in this instance it is the terms of the contract of sale which are being interpreted, not the terms of the guarantee itself. This is a transaction between two parties for the purchase of property, not as between the landlord and the guarantors. Whether or not the benefit of the guarantee has been transferred to a third party is not a question of the interpretation of the guarantee itself, and so the argument that the effect of this transaction be interpreted strictly falls away.
The argument that Clause 10 should, by its presence, impliedly exclude the guarantee does not, I think, have application here. Clause 4.7 of the contract of sale incorporates the Schedule, which incorporates Annexure ‘A’ into the contract. In turn it includes the reference to director’s guarantees. So even if Clause 10 were to be construed as excluding any other terms not incorporated elsewhere in the contract, it would not effect the incorporation into the contract of the deed of guarantee by virtue of Clause 4.7 and Annexure ‘A’.
I therefore find that the contract of sale is an assignment in writing of the deed of guarantee and indemnity under the hand of the assignor. That is the first requirement of s 15 of the Law of Property Act.
It is not in dispute that if there is an assignment, it is an absolute assignment of rights under the guarantee. It is not suggested it is merely given by way of charge or security. That is the second requirement of s 15 of the Act.
The third requirement for a legal assignment is that express written notice of the assignment must be given to the guarantors.
The plaintiff submits that the letter dated 25 July 2005 advising the guarantors of the outstanding rent owed constituted the express notice in writing required by the Act. The letter states that in the event of default by the first defendant the plaintiff would seek to recover those moneys from the guarantors. In support of this contention the plaintiff again relies on the joint judgment of Dixon and Evatt JJ in Naylor.
Their Honours considered the requirement of express notice in writing of an assignment under s 12 of the Conveyancing Act 1919-1932 (NSW), an equivalent provision to s 15(1) of the Law of Property Act 1939 (SA). Their Honours said at 437‑38:
This document acquaints the defendant with the fact that the plaintiff company is or claims to be the transferee of the mortgage, and is or claims to be entitled to the rights and remedies the mortgages confer against the defendant. But it does not identify any particular document or documents are instruments constituting the transfer.
Their Honours cited General Motors Acceptance Corporation v Johnson[5] where Hyndman JA said:
It seems clear from these authorities that no special form of notice is necessary, it being sufficient if the effect upon the debtor is to convey to him with sufficient certainty the fact that the obligation is transferred to a third person as assignee.
[5] (1930) 4 DLR at 297
The notice in Naylor had these features;
1.It identified, with particulars, the transferee of the mortgages and the mortgages which were transferred.
2.It gave notice to the guarantor that the transferee intended to exercise its rights and remedies under the guarantee against the guarantor within a specified time and as payment was made.
3.The notice did not identify the transfer document(s).
Notwithstanding that last feature of the notice, their Honours held that the notice satisfied the requirements of the Act. They arrived at that conclusion as follows[6]
The object of the requirement made by the words “of which express notice in writing has been given” is, we think, correctly stated in Warren’s Chose in Action (1899), at pp 177, 178. The term ‘express notice’ is doubtless employed by way of opposition to notice arising by implication or operation of law, and to what was known in equity as constructive notice. It means a notice which indicates an express intention – a direct and definite statement of a thing, as distinguished from supplying materials from which the existence of such a thing may be inferred. The purpose is to make essential actual notice that the debt has been assigned. One of the objects of the giving of notice to the debtor is that he shall ‘know with certainty’ in whom the legal right to sue him is vested. (McIntosh v Shashova[7]). The purpose does not extent to giving the debtor particulars of the assignment.
[6]at 438-9
[7] (1931) 46 CLR 494 at 515 per Evatt J
The letter sent to the guarantors in this case advised them that the plaintiff would seek to rely on their guarantee. Attached to the letter were copies of correspondence between the solicitors for the plaintiff and the first defendant. This correspondence identifies the plaintiff as the registered proprietor of the premises, identifies the lease number and refers to the deed of guarantee.
The defendants submitted that there was no notice given to the guarantors of an assignment, and that the letter to them of 25 July 2005 could not constitute such notice. They submit that at least one of the guarantors was by then not a director of the first defendant, and had no notice of the change in landlord, let alone an assignment of the guarantee.
In addition the defendants submit that even if the letters could be characterised as the express notice required by the Act, they were not sent until nearly two years after the alleged assignment and after the first defendant had defaulted on the payment of rent.
Upon receipt of the correspondence on 25 July it would have been clear to the guarantors that the person to whom their guarantee was owed had changed, and was now the plaintiff. Naylor is authority for the preposition that particulars of the assignment are not required, but it must be actual notice, and not merely something from which an assignment could possibly be implied.
The notice given in Naylor is very similar to the notice given in the present case. The letter acquaints the guarantors with the fact that the plaintiff is, or claims to be, the registered proprietor of the land, and is or claims to be entitled to the rights and remedies contained in the guarantee. In material terms it is the same. The fact that notice was given two years after the assignment does not seem to make any difference. The guarantors were bound to guarantee the first defendant’s obligations under the lease no matter who the lessor was during the currency of the lease. I therefore find that the letter from the plaintiff’s solicitors to the guarantors dated 25 July 2005, together with its attachment, constitutes the express notice in writing required by the s 15(1) of the Act.
It is therefore my view that the requirements of s 15(1) have been met, and the deed of guarantee was assigned in law pursuant to the terms of the contract of sale.
Assignment in Equity
I turn to the question as to whether there has been an equitable assignment of the guarantee. Naylor is relevant to this question as well.
When an assignment of a guarantee does not satisfy the requirements of Section 15(1) of the Act (for example, if no written express notice has been given to the guarantor) it may take effect as an equitable assignment. This is so even if the relevant chose in action is a legal chose in action[8], provided it is supported by consideration[9].
[8] Zaknic Pty Ltd v Svelte Corporation Pty Ltd (Unreported FCA Lehane J 14 August 1996 at 39
[9] Wenkart v Abigmano (Unreported FCA Hill J, 28 August 1998); Westpac Banking Corporation v Market Services International Pty Ltd (Unreported, SCV, Batt J, 1 October 1996)
In equity, notice to the relevant debtor or promisor is not an essential component of an effective assignment. Notice is essential only for the purpose of securing priority among the assignees.[10] There is no suggestion of competing interests in this case.
[10] Wheatley v Bastow (1855) 7 De GM & G 261, 279; 44 ER 102, 109
Both a legal and an equitable assignee may sue on the guarantee in its own name.[11]
[11] Farrow Mortgage Services Pty Ltd v Hogy (1995) 64 SASR 450; Three Rivers District Council v Bank of England [1996] QB 292; Long Leys Co Pty Ltd v Silkdale Pty Ltd [1992] NSW Conv R 59, Reale Bros Pty Ltd v Reale [2003] NSWSC 666
Equitable assignment is discussed in Halsbury’s Laws of Australia:
[185-475] Assignment of legal property for valuable consideration
Where one party agrees to assign legal property to another in return for valuation consideration, the vendor will be a constructive trustee of the property. This rule will apply notwithstanding to comply with any statutory requirement that the agreement concerned be in writing or some other particular form.[12] Where equity recognises an assignment for value of legal property, the consideration must be paid or executed.[13] This is an illustration of the maxim that equity regards as done that which ought to have been done.
[12] Last v Rosenfeld [1972] 2 NSWLR 923 As to constructive trusts see [185-810] and generally see TRUSTS
[13] Holroyd v Marshall (1862) 10 HL Cas 191; [1861-73] All ER Rep 414; (1862) 11 ER 999; Tailby v Official Receiver (1888) 13 App Cas 523; [1886-90] All ER Rep 486; Re Androma Pty Ltd [1987] 2 Qd R 134
The plaintiff submits that, in addition to the terms of the contract, there is evidence of the intention of the parties to effect an assignment of the deed of guarantee. The original deed of guarantee was handed over by the vendor’s agent to the plaintiff at settlement on 18 September 2003 which was also when the consideration passed. The plaintiff submits that in those circumstances, there is an equitable assignment.
In support of this contention the plaintiff cites Norman v Federal Commissioner of Taxation[14] where Windeyer J said:
Rather it is that, in cases where value is not so required but a clear expression of intention is, the delivery of a deed couched in terms of present gift manifests, in the best possible way, the intention of the assignor to make an immediate and irrevocable transfer.
[14] (1963) 109 CLR 9 at 32
I accept this submission. The presentation of the deed at settlement at the same time as the transfer of the property is in my opinion an expression of intention to make an immediate and irrevocable transfer. The presentation and handing over of the deed would serve no purpose in the absence of an intention to transfer.
The plaintiff further points to various clauses of the Deed of Guarantee in support of its contention. Clause 1 guarantees the payment of not merely rent but all financial obligations of the tenant towards Lessor. Clause 2 guarantees performance and observance by the Lessee of all its obligations in respect of the lease. Clauses 3 and 4 create indemnities by the guarantors in favour of the Lessor. Clause 4.1.1 states that the liability of the guarantors will be join and several, and clause 4.12 puts the guarantors in a position where they have primary liability to the lessor. Finally clauses 4.4 and 7 make it clear the guarantee would remain active for as long as the first defendant was the tenant or in possession of the premises. The plaintiff argues that this, combined with the definition of lessor under the guarantee, which is expressed to include the lessor’s “assigns”, means that the guarantors did not commit themselves merely to a particular lessor. The terms of the guarantee are expressed to endure for so long as the transaction embodied in the memorandum of lease subsists.
The plaintiff also submits that the behaviour of the plaintiff, the second and the third defendants is some evidence that they believed an assignment had been made. The conduct the plaintiff relies on is the entering into the deed of settlement dated 24 April 2004 between the second and third defendants and the first and second third parties, and the later conversation with Mr Musolino and Ms Miller regarding the release of Ms Sophie Takmakis from her guarantee obligations.
The defendants submitted that a prudent purchaser would have asked to see the lease document itself, or the deed of guarantee itself. If they had done so the plaintiff would have discovered that the guarantee did not form part of the lease. A prudent purchaser would have requested that the contract of sale include a clause requiring the guarantee to be assigned and making the sale subject to that assignment. As the plaintiff did not do this, the defendants submit equity should not go the plaintiff’s aid.
In addition the defendants submitted that following the sale the plaintiff’s conveyancer did not arrange with the vendor for an assignment of the guarantee.
The defendants also submitted that the guarantors did not make any representations to the plaintiff about the guarantee prior to contract of sale or settlement. There is therefore nothing in the conduct of the guarantors to make it unconscionable for the plaintiff to be deprived of the guarantee.
While it is true that that the plaintiff could have requested an explicit clause assigning the guarantee before settlement, and that no representations were made by the guarantors, it does not follow that equity should not go to the aid of the plaintiff. If this was a dispute between the plaintiff and Kyren Pty Ltd as purchaser and vendor, then these matters might be relevant. However, in this case it is not the vendor disputing the assignment, but the guarantors, who were not party to that transaction. The defendants seek to avoid liability from a guarantee freely entered into, which, but for the transfer of the lease, would make them plainly liable.
It is not necessary for the plaintiff to establish unconscionable conduct on behalf of the guarantors to rely upon an equitable assignment because the guarantors are not party to the transaction. Questions of unconscionable conduct would only arise for consideration if the vendor were disputing the alleged assignment, which it is not.
Finally, the defendants submitted on this question that there was no evidence of the subjective intention of the original lessor, nor would such evidence be admissible. There is nothing in the contract of sale to indicate that the guarantee would be assigned. The defendants submitted that to find an equitable assignment would be to make an agreement that the parties have not actually reached.[15]
[15] BP Refinery (Western Port) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283; test endorsed in Codelfa Construction Pty Ltd v State Rail of New South Wales (1982) 149 CLR 337.
In fact, there is evidence of the intention of the original lessor. It consists of the handing over of the deed of guarantee at settlement. The question of the intention of the parties requires further consideration.
Both counsel referred to the case of Farrow Mortgage Services Pty Ltd v Hogg and Ano[16] on this topic. That case involved a transfer of the benefit of a mortgage to the plaintiff, but no express assignment of the benefit of a guarantee. The defendants, who were directors of the mortgagor, were the guarantors. In this respect the case is similar to the present case. The mortgage in that case defined the mortgagee as including, “the executors administrators and assigns of any such person and the successors and assigns of any such corporation.”The instrument of guarantee was annexed to the Memorandum of Mortgage and was part of the mortgage document which was registered at the Lands Titles Office. In considering whether the guarantee was assigned along with the mortgage Nyland J said:[17]
It seems to me that on its construction a reasonable person in the position of all the contracting parties would have understood that at the time of the formation of the contract of loan and the execution of the mortgage, the benefit of the covenants of the guarantee would run with the mortgage debt from time to time.
[16] (1994) 178 LSJS 462
[17] at 478

The plaintiff asks me to adopt this reasoning. Her Honour went on to consider the judgment of Rolfe J in Pyramid Building Society (In Liquidation) & Anor v Walker & Ors[18]. She noted[19] the factors which Rolfe J considered and summarised as follows:
[18] Unreported, Supreme Court of New South Wales, 1 December 1993
[19] see Farrow Mortgage Services at 480
(a)the guarantee was contained in the mortgage;
(b)that clause 8 of the mortgage precluded the guarantors raising any complaint of the guarantees being transferred if the mortgage was transferred;
(c)that under the transfer that which was transferred was ‘all the estate, interest, rights and powers as mortgagee. This was not relied upon as seeking to overcome Naylor, but as showing independently, the intention of the parties;
(d)that the transferee had paid full consideration for the security, and in the circumstances, there was no conceivable reason why it would either be prepared or required to take anything less than the whole security; and
(e)that once split the debt and the guarantee the consequence was that action on the guarantee was suspended, which could not have been a consequence for which the transferee bargained.
Her Honour continued:
“He (Rolfe J), was satisfied that he could infer an intention of the parties to assign the benefit of the guarantee, that is, the rights under the guarantee, and that there being consideration, he upheld the agreement to assign.
In my view the reasoning of Rolfe J in that case is relevant to the case at bar. …. The Memorandum of Transfer of Mortgage (P1/20) discloses consideration for the transfer. The continued provision of credit to the defendants by way of the extensions establishes consideration for the guarantee. I believe therefore that it is possible to infer an intention of the parties to assign the mortgage debt and the benefit of all other securities which the original credit provider had, including its personal rights to sue the guarantors under the guarantee annexed to the mortgage.”
On appeal the Full Court upheld the reasoning and decision of Nyland J[20].
[20] see Farrow Mortgage Service Pty Ltd v Hogg and Ano (1995) 64 SASR 450
The defendants submit that the circumstances in Farrow are different. In that case there was an extensive period of negotiations. Heads of agreement were drawn up leading to the final contract. The difficulty was that the final contract did not give effect to what had been agreed. The defendants contrast that with the present case where there were no negotiations at all. The defendants therefore submit that there has been no clear expression of intention. The defendants argue that merely having an intention to assign is not sufficient. There must be a clear expression of that intention. They submit that is lacking in this case, both in the contract of sale, and in the any of the dealings between the parties. The defendants rely on the remarks of Windeyer J in Norman v Federal Commissioner of Taxation in paragraph [60] above.
In addition the defendants submitted that in Farrow it was the continued provision of credit to the defendants by way of extensions that established consideration for the guarantee. That led to the finding that the guarantee was transferred along with the mortgage. The defendants argue there is no separate consideration for the guarantee itself.
The defendants also submitted that in Farrow the guarantee formed part of the mortgage document, as it did in Naylor. Those cases can therefore be distinguished.
That distinguishing feature is relevant, but not, in my view, determinative.
Both the lease itself and the deed of guarantee are capable of being assigned, so the guarantors could not raise a complaint if the lease and guarantee were transferred.
The terms of the transfer in this case are not materially different from that in Naylor, or that in Pyramid Building Society.
The plaintiff provided consideration for its purchase of the property. I see no reason why that consideration would not be sufficient to cover an assignment of the deed of guarantee, particularly given my findings as to the proper construction of the contract of sale. Unlike in Farrow there was no separate consideration for the assignment of the guarantee, but I am not persuaded that separate consideration is necessary for there to be consideration.
If the lease and the guarantee were split it is clear the guarantee would be completely ineffective, and as a result, on a practical level, suspended. In the event of default the original landlord would not be able to sue on the guarantee because it would not have suffered any loss. However the new landlord would be unable to sue on the guarantee as it would not be a party to the deed of guarantee. This could hardly be the result contemplated by either the original landlord or the plaintiff.
I accept the submission of the plaintiff that the terms of the deed clearly allow for the possibility that the guarantee will be assigned. The possibility arises from the definition of lessor. The guarantee is drafted in such a way as to anticipate its continuation for so long as the tenant was leasing the premises. I am satisfied that a reasonable person in the position of all the contracting parties would have understood that, at the time of the formation of the lease agreement and the deed of guarantee, the benefit of the covenants of the guarantee would run with the lease from time to time.
I am not persuaded that because there was an absence of negotiations as was the case in Farrow there is no clear expression of intention to assign. When the terms of the contract of sale, the terms of deed of guarantee, and the fact that the deed of guarantee was handed over at settlement are looked at in combination, there is sufficient evidence to find on expression of an intention to assign the benefit of the guarantee.
The conduct of the defendants after the transfer of the lease, (ie the entering into the deed of settlement on 24 April 2004), and the subsequent conversation of the first defendant with Mr Musolino and Ms Miller regarding the release of Ms Sophie Takmakis from her guarantee obligations, shows a belief on the part of the parties that there had been an assignment of the guarantee.
The defendants submitted that even if the plaintiff could show that there was an agreement with the original lessor to assign the guarantee that ought to be enforced in equity, the plaintiff has not taken any action to obtain that assignment. However if the parties had in fact effected an assignment, either at law or in equity, there is no reason why any further action would have been necessary. This is particularly so where there is no dispute between the original landlord and the plaintiff over such an assignment.
The defendants cited Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd and Others[21]. The facts of that case are similar to those in the present case. Both involve the transfer of a guarantee in the context of a lease. The defendants cite Sacher for the proposition that a guarantee will not pass with the parent transaction, merely because a guarantor covenants expressly with the lessors and its successors and assigns. That appears to be correct.
[21] [1976] 1 NSWLR 5
However, in that case the plaintiff relied only on the operation of the Real Property Act1900 NSW in effecting a transfer of the guarantee along with the lease. That being so the principle outlined in Naylor regarding the effect of the Real Property Act applies. The Real Property Act will not operate to transfer the guarantee by operation of law unless there is an assignment. The plaintiff in Sacher did not rely on any express or implied assignment, despite an invitation to do so by the trial judge[22].
[22] at 10-11
In my view Sacher does not stand in the way of there being an equitable assignment.
I find that there has been an equitable assignment of the benefit of the deed of guarantee to the plaintiff.

Deed Poll or Deed Inter Partes

I turn now to the question as to whether the deed of guarantee should be characterised as a deed poll or a deed inter partes[23].
[23] see discussion Halsbury’s Laws of England 1955 Vol 11 Pt 1 s 3-546 at 339
Mr Lazarevich for the defendant submits that because the guarantee is between two parties it is a deed inter partes and not a deed poll. The deed is between the sureties and the two lessors. The term “lessor” is expressed to include “the lessors’ successors and assigns, heirs, executors and administrators as appropriate”. He submitted that the word “successor” is more apt to a succession law context, and heirs, executors and administrators are not relevant. In relation to the term “assigns” he submits that that would not help in resolution of this aspect of the case. That submission is dependent on whether or not there has been an assignment. He submitted that the guarantee is personal to the obligations of the named defendant. He submitted I should give short shift to any suggestion that the deed operates as a deed poll rather than a deed inter partes.
Mr McNamara submitted that the designation of the deed either as a deed poll or as a deed inter partes does not depend on whether or not it involves one or more parties. One looks beyond the form of the document to its substance to determine its character. See Chelsea and Walham Green Building Society v Armstrong[24] and Moody and Ano v Condor Insurance Ltd and Ano[25].
[24] [1951] CH 853 (also [1951] 2 All ER 250)
[25] [2006] 1 WLR 1847
In Moody, Park J posed and answered the question which the plaintiff raises in this case. His Honour said:
In my judgment it is necessary to consider, not just whether one or two persons executed the documents, and not just whether the word “between” appears. It is necessary to examine what the parties who execute the document, saying they are executing it “as a Deed” (the modern equivalent of affixing a wax seal), set out to do by it. Does one or more of them in fact make promises to the other or others (as one would expect of a Deed inter partes), or do they rather seek to use the document as a means for each of them to make unilateral promises to a person who is not a party to it (or to persons who are not parties to it)? When the conventional word “between” appears, is it an appropriate word given the content of what appears in the document that follows? When those questions are asked in this case it becomes, in my judgment, clear that the loan note and guarantee instrument and the guarantee were the types of Deeds which not merely were intended to create rights enforceable by non parties …, but which in law achieved that intention.[26]
[26] see 1854.
Mr McNamara submitted that even though both the lessor and the guarantors are described as parties, the Deed of Guarantee should be characterised as a deed poll because all of the covenants in the deed are unilateral on the part of the guarantors. The deed names both parties, and then states that in return for the lessor granting a lease to the first defendant, the guarantors make a series of covenants. Mr McNamara referred to the decision of Scholl J in Re A & K Holdings Pty Ltd[27]. That case involved the characterisation of a Deed of Guarantee in which the guarantors guaranteed a sum owed by a company to its unsecured creditors. The deed was entered into on condition that the unsecured creditors allowed a scheme of arrangement to be entered into, avoiding the liquidation of the company. His Honour characterised the deed as a deed poll. The deed went into details as to who was defined to be an unsecured creditor of the company. His Honour outlined the effect of his characterisation of the deed as a deed poll[28]:
If the deed had been an indenture inter partes – that is to say, a bilateral deed – it is clear that the covenant of guarantee would be unenforceable if purporting to be made with a person or persons not named as a party to the deed, save in the case of covenants running with the land and covenants within s 56 of the Property Law Act 1958 (No.6344), which is not this case: see Norton on Deeds, 2^nd ed, pp28-9. But the words “all a man’s creditors” may be a sufficient description of parties to a deed, if they are actually intended to be present parties as such: see Norton, page 195; Gresty v Gibson (1866), LR 1 Ex 112
The position, however is different in the case of a deed poll, the distinction between deeds poll, or deeds which operate as such, on the one hand, and deeds inter partes on the other hand, being still important for that purpose: see Norton, pp 28-9; and Chelsea and Walham Green Building Society v Armstrong, [1951] Ch 853 at 856; [1951] 2 All E 250, per Vaisey J. A person for whose benefit a covenant in a deed poll is expressed to be made, at any rate if sufficiently named by reference, can sue on it: Norton, pp 28-9, Sunderland Marine Insurance Co v. Kearney (1851) 16 QB 925 at 938; 117 ER 1136, explaining Green v Horne (1694), 1 Salk 197; 91 ER 177; and see Lowther v Kelly (1723) 8 Mod 115 at 118; 88 ER 91 per Pratt CJ; and Halsbury’s Laws of England, 3^rd Ed Vol 11 339 40.
[27] [1964] VR 257
[28] at 261
The plaintiff submits that if the deed of guarantee is held to be a deed poll, then, if it can establish it is a party for whose benefit a covenant in the deed is expressed to be made, or if it is sufficiently named by reference, it can sue on the guarantee despite not being a party to it, even in the absence of an assignment.
Farrow Mortgage Services Pty Ltd v Hogg and Ano[29] is authority for the proposition that an assignee is entitled to sue even in the absence of privity. After finding that the instrument of guarantee was a deed, Olsson J (with whom Mohr and Bollen JJ agreed) said[30]:
In such circumstances the situation patently attracted the reasoning of Lord Campbell CJ in Sunderland Marine Insurance Co v Kearney (1851) 16 QB 925 at 936; 117 ER 1136 at 1141. It is beyond question that the beneficiary of the guarantee was designated as embracing both the then Mortgage Services (South Australia) Pty Ltd and its successors and assigns. There is no question but that the present respondent is the assignee taking from that company and thus is entitled to sue for breach of covenant to pay on the deed, regardless of the absence of any original privity between it and the appellants.
[29] (1995) 64 SASR 450
[30] at 459
In my view the Deed does operate as a deed poll. The obligations of the guarantees are unilateral (characteristic of a deed poll) despite the Deed being expressed to be between parties (characteristic of a Deed inter partes). In those circumstances the plaintiff is entitled to sue on the Deed without the requirement of privity if it is sufficiently described or referred to in the Deed. I have already found that there was both a legal assignment and an equitable assignment of the guarantee[31] I find that the plaintiff is here an assign as contemplated by the Deed. In those circumstances the plaintiff has this additional route to recovery.
[31] see [53] and [88] respectively.
Touch and concern the land
I turn finally to the first ground relied upon by the plaintiff.
I deal first with the submissions of Mr Lazarevich for the defendant. He submitted that there were conflicting authorities as to whether the guarantee runs with the land. On the one hand there are the decisions of, first, the High Court in Naylor[32] and, second, the more recent decision of the Supreme Court of New South Wales in Sacher[33].
[32] (1936) 55 CLR 423
[33] [1976] 1 NSWLR 5
On the other hand there is a line of English authorities[34] which have been applied in Victoria (Lang v Asemo[35]), New South Wales (Ryde Joinery PtyLtdv Zisti[36]) and in Queensland (Simmons v Leigh[37]).
[34] Kumar v Dunning [1989] 1 QB 193; PA Swift Investments (1989) 1 AC 632; Coronation Street Industrial Properties Ltd v Ingall Industries Pty Ltd (1989) 1 WLR 304
[35] (1989) VR 773
[36] (1997) ANZ Cond R 481
[37] (1997) 2 QDR 671
Mr Lazarevich drew attention to the decision of North Terrace Properties Pty Ltd v Lawbitax Pty Ltd[38] in which Judge Herriman declined to follow those Australian cases which followed the English cases, holding he was bound to follow the High Court in Naylor.
[38] [2005] SADC 69 at para 145 and 146
Mr Lazarevich also drew attention to academic articles in which the application of English authorities in Australia is criticised[39].
[39] Ward, It’s just not cricket. The efficacy of guarantees of lease upon assignment (1999) 7 APLJ 1 and O’Donovan, Guarantees of leases; the problem of assignments [1993] 23 WALR 144
The difference between the Australian and the English law as to the position of a guarantor is put thus; the English authorities see the guarantor as standing in the shoes of the tenant. By distinction, the Australian approach is that a guarantee operates merely as a form of collateral security giving the landlord the right to sue for damages for breach of a lease covenant[40]. Mr Lazarevich cited a passage from the book entitled Landlord by Professor Peter Butt[41]:
The benefit of a covenant does not run unless the covenantor and covenantee, when creating the covenant, intended that the benefit should run with a covenantees land so as to be enforceable by the covenantee’s successors in title. No particular form of words is necessary to express the intention. But the words used must show an intent that the covenant is to enure for the benefit of the covenantees land, as distinct from a mere personal benefit for the covenantee.
To illustrate: The necessary intention is displayed by stating that the covenant is made for the benefit of the land, or is made with a covenantee in his or her capacity as owner of that land. Again a formula along these lines is sufficient: with the intent that the covenant may enure to the benefit of the [covenantees] their successors and assigns and others claiming under them to all or any of their lands adjoining. But sometimes fine distinctions are called for. Thus, it is not enough to provide merely that the covenant is made with the covenantees and “heirs and assigns”, or with covenantees and “their heirs, executors, administrators and assigns”; in particular, the word “assigns” does not sufficiently indicate that the land is to benefit.
[40] see outline [46.4]
[41] at 507
Mr Lazarevich submitted that words such as these last referred to are used in this particular guarantee, and, simply to recite such words is insufficient to show an intention that the covenant runs with the land as distinct from being a mere covenant between the parties. The simple device of a deed of assignment would have achieved what the words in the covenant failed to do.
Mr Lazarevich developed the argument that there was no liability on the part of the guarantors by first recalling that there was no privity of contract between the plaintiff and the guarantors. The Guarantors’ obligations in contract were to the vendor not the purchaser. He then submitted that there was no privity of estate between the guarantors and the plaintiff. Privity of estate, he said, exists between parties who stand in the relationship of landlord and tenant. On the assignment of the reversion (the transfer of the land) the guarantors are strangers to the lease and therefore not in any relationship of landlord and tenant. Covenants in the lease are enforceable if they touch and concern the land but the guarantors are not affected.
Mr Lazarevich then dealt with what he submitted were the fundamental differences between the law in Australia and in England concerning guarantees. In England the guarantor is a “quasi tenant”. Illustrating the position in England he cited the passage of Lord Templeton in P & A Swift Investments (a firm) v Combined English Stores Group[42]:
A covenant by a surety that a tenant’s covenant which touches and concern the land shall be performed and observed must itself be a covenant which touches and concerns the land; the benefit of that surety’s covenant will run with the reversion, and the covenant is therefore enforceable without express assignment… A surety for a tenant is a quasi tenant who volunteers to be a substitute or twelfth man for the tenant’s team and is subject to the same rules and regulations of the player he replaces. A covenant which runs with the reversion against the tenant runs with the reversion against the surety.
[42] [1988] 2 All ER 885 at 887; see also [1989] 1 AC 632

At page 890, Lord Oliver noted that there are covenants by tenants which undoubtedly touch and concern the land. His Lordship gave as an example the tenant’s covenant to keep the premises in repair. The guarantor is surety for the tenant’s obligation. In that way, if the tenant’s obligation touches and concerns the land then:
That of the surety must … equally do so.
His Lordship provided a non-exhaustive list, what he described as a “satisfactory working test”, to determine whether a covenant touched or concerned the land. That list is as follows:
1.The covenant benefits only the reversioner for the time being, and if separated from the reversion ceases to be of benefit to the covenantee.
2.The covenant affects the nature, quality, mode of user or value of the land of the reversioner.
3.The covenant is not expressed to be personal (that is to say neither being given only to a specific reversioner nor in respect of the obligations only of a specific tenant).
4.The fact that a covenant is to pay a sum of money will not prevent it from touching and concerning the land so long as the three foregoing conditions are satisfied and the covenant is connected with something to be done on, to or in relation to the land.
That position is to be contrasted with the position in Australia. Mr Lazarevich went first to the High Court case of Sunbird Plaza Pty Ltd v Maloney & Ano[43]. After referring to the history of the English cases on the obligations of guarantors, Mason CJ said[44]:
It may be that as a matter of history the view that the guarantor has an obligation “to see to it” that the debtor performs his obligation explains why the guarantor is not entitled to notice of the debtor’s default and why the creditor’s cause of action arises on that default. But the view certainly does not accord with the nature with the guarantor’s obligation as it is understood today. Rarely do guarantors have control of, or a capacity to influence, the principal debtor such that they would willingly assume an obligation to ensure that he performs his primary obligation. It is fictitious and quite unrealistic to suggest that this version of the guarantor’s undertaking, rather than a promise to “answer for” the debt or default of the debtor, is the true nature of the guarantor’s obligation …
[43] (1987-1988) 166 CLR 245
[44] at 255
Mr Lazarevich submitted that the position of Ms Takmakis well illustrated how inappropriate was the test applied in the English authorities. How could she, for example, who had ceased to be a director of Smart World prior to the plaintiff acquiring the property, be expected to undertake as guarantor, the tenant’s obligations to repair. She was powerless to require Smart World to do anything. She no longer had any right to be on the property. (Of course, as a matter of fact she became indemnified by other parties to the proceedings after she resigned her directorship.
He then submitted that it was too simplistic to suggest that if covenants touch and concern the land then they automatically bind the new owner. The Torrens system of land does not operate in that way. By way of illustration, a purchaser of Torrens Title land is not bound by an unregistered and uncaveated lease[45].
[45] RM Hoskings Properties Pty Ltd v Barnes and Ors [1971] SASR 100
The next submission by Mr Lazarevich was that the Grantees Of Reversion Act 1540, which became part of the received law in South Australia, overcame the common law principle that neither the burden nor the benefit of express covenants pass to the assignee of the landlord even when the covenants “touched and concerned” the land. However the Act is silent about the consequences of covenants with strangers such as guarantors (see Peter Butt Landlord 5^th Edition[46]). The position remains that of the common law namely that only the obligations of the tenant pass under the lease and not covenants given by third parties[47].
[46] at 364-365
[47] see outline [63]
What is meant by the phrase “touch and concern the land”?
Mr Lazarevich cited the definition suggested by Scott LJ in Breams Property Investment Co Ltd v Stougler[48]. To be a covenant touching and concerning the land it must affect the landlord and tenant in their respective capacities.
[48] [1948] 2 KB 1
Mr Lazarevich then went on to discuss the High Court case of Naylor (supra). In that case the plaintiff was the assignee of a mortgage rather than a lease but Mr Lazarevich suggested that did not matter. In fact, he submitted, the transferee of the mortgage was arguably in a better position than that of the plaintiff in this case, because the terms of the guarantee were included in the registered mortgage. Here, the guarantee is not referred to at all in the registered lease. Nevertheless the High Court held that the guarantee of the mortgage did not run with the land when the transfer took place. Mr Lazarevich submitted that the House of Lords was in error in Kumar v Dunning (“Kumar”)[49] in distinguishing Naylor simply on the basis that, Kumar was dealing with a lease and Naylor was dealing with a mortgage. He argued that the consequences of the breach of the terms of a mortgage are very similar to the consequences of a breach of the terms of a lease. In each case the mortgagee or the landlord can take possession of the land. Notwithstanding the resumption of the premises by a mortgagee or a landlord, the guarantor in each case is not discharged from its monetary obligations.
[49] [1989] 1 QB 193
In Sacher Yeldham J held that an express assignment of a guarantee of lease would be necessary for the benefit of the guarantee to pass with the reversion. The definition of lessors to include “successors and assigns” did not of itself assign the right to enforce the guarantee. Mr Lazarevich submitted that both Naylor and Sacher were consistent with the Privy Council’s decision in Hua Chiao Commercial Bank Ltd v Chiaphua Industries Ltd[50] (“Hua Chiao”). That case concerned a deposit paid by a tenant at the commencement of a lease to secure performance of the tenant’s covenant. The tenant complied with the terms of the lease and sought return of the deposit at the expiry of the lease. In the meantime the mortgagee bank entered into possession of the premises when the landlord defaulted on its mortgage. The Privy Council held that the obligations of the tenant to pay the deposit and of the landlord to return it were merely personal obligations between the original parties to the lease. In the absence of express assignment to their successors, the tenant could only recover the deposit from the original landlord.
[50] [1987] 1 AC 99
Mr Lazarevich referred to the article Guarantees of Lease: the problem of assignment by O’Donovan[51]. There the learned author criticises the decision of the Full Court of the Supreme Court of Victoria in Lang v Asemo Pty Ltd[52], for its following the English cases of Kumar and Swift and for distinguishing Naylor solely on the ground that Naylor concerned a mortgage debt and Lang concerned a lease. The article noted that the court did not refer to the Privy Council decision in Hua Chiao.
[51] (1993) 23 WALR 143 at 148
[52] [1989] VR 773
Mr Lazarevich then returned to the Swift decision and the non-exhaustive list of four characteristics of a covenant touching and concerning the land postulated by Lord Oliver[53]. To repeat, the four tests are:
1.The covenant benefits only the reversioner for the time being, and if separated from the reversion, ceases to be of benefit to the covenantee;
2.The covenant affects the nature, quality, mode of user or value of the land of the reversion;
3.The covenant is not expressed to be personal (that is to say neither being given only to a specific reversioner nor in respect of the obligations only of a specified tenant).
[53] [1998] 2 All ER 885 at 891
At this point Mr Lazarevich submitted that even if the English authorities applied this third test, it is not made out because in the subject lease the obligations were expressed only for this specific tenant and not to the tenant’s “heirs, executors and assigns”.
4.The fact that a covenant is to pay a sum of money will not prevent it from touching and concerning the land so long as the three foregoing conditions are satisfied and the covenant is connected with something to be done on, or to or in relation to the land.
As foreshadowed earlier Mr Lazarevich distinguished the English cases on the basis that in England the guarantor is seen as standing in the shoes of the tenant. Mr Lazarevich submitted that the reasoning in Swift is not persuasive. First he submitted, the test is too widely stated unlike in the cases of Breams Property Investment Co Ltd v Stougle[54] and Mayor of Congleton v Pattison[55]. The test included this criterion:
Covenants which run with the land have the following characteristic:
1.They must be made with the covenantee who has an interest in the land to which they refer …
[54] ibid
[55] (1808) 10 East 130 at 138
In Swift that condition has been dropped. In this case the guarantors have no interest in the land. The only rationale for a guarantor having an interest in the land is the reference discussed already to a guarantor standing in the shoes of the tenant as quasi tenant, a rationale contrary to High Court authority in Naylor. Relying on the article “It’s just not cricket! – the efficacy of guarantees of lease upon assignment” by Ward[56], Mr Lazarevich argued that it was untenable that a guarantee of a covenant that itself touches and concerns the land also touches and concerns the land. The learned author cites the case of London and Country (A & D) Ltd v Wilfred Sportsmen Ltd [1971] Ch 764. The learned author said:
In that case, upon non-payment of rent by the tenant, the guarantor paid the rent and it was then argued for the tenant that because the arrears of rental had been paid there had been no default warranting forfeiture. The Court of Appeal rejected this submission…
The court held that the payments were in law payments under the guarantee and as such they did not release the tenant from his obligations to pay the rent. In those circumstances it cannot be said the guarantee touches and concerns the land.
[56] (1999) 7 APLJ 1 at 14
Mr Lazarevich’s next point is that the guarantee does not necessarily increase the value of the land. For example, a tenant who never defaulted is more valuable to the landlord even without a guarantee than say, a defaulting tenant with a penniless guarantee. In the case of Coastplace Ltd v Hartley[57] French J concluded that “in those circumstances the value of the guarantee lay in a collateral circumstance” rather than in the guarantee per se. In this way the covenant of the guarantee does not run with the land because it does not affect the value of the land directly.
[57] [1987] 1 QB 948 at 959
In conclusion Mr Lazarevich submitted that the proposition that a guarantee touches and concerns the land should be rejected on two grounds, first, because it is erroneous in principle and second, because it is contrary to High court authority of Naylor.
Submission by Mr McNamara for the Plaintiff
The plaintiff’s response to the first of the defendant’s grounds in the above paragraph is that, far from being an error in principle to assert that a guarantee touches and concerns the land, that was the settled law and practice in England until 1984. In that year the case of Pinemain caused a wrong diversion in the law which was corrected in 1989 by, first, the Court of Appeal in Kumar and then by the House of Lords in Swift. That corrected line of authority has been applied three times in Australia by the cases already mentioned in par [98] viz Lang v Asemo, Ryde Joinery v Zisti and Simmons v Leigh. As to the second of the defendant’s grounds the plaintiff asserted that Naylor’s case was misunderstood in Pinemain and misapplied in Sacher. Properly understood Naylor does not stand in the plaintiff’s way.
Mr McNamara began setting the scene for his submissions by observing that if the defendant’s submissions are correct there must be a very limited utility in director’s guarantees. To obtain the benefit of a guarantee the purchaser would always have to take special steps to secure the benefit of the guarantees. He asserted that the law and practice of conveyancers was to quite the contrary effect until 1984 when everything changed in the United Kingdom. Mr McNamara began his account of the development of the law by referring to the address to the House of Lords by Colyer QC, counsel for the successful plaintiff in Swift[58], partly because the address itself explained the history of the case and partly because much of the submissions found their way into the judgment of Lord Oliver. Lord Templeman, in a separate speech, took the same approach and the other members of the House of Lords agreed with them both in the decision. Colyer QC[59] submitted that until the decision in Pinemain Ltd v Welbeck International Ltd[60] (“Pinemain”), it had been traditionally assumed that the covenant of a surety ran with the reversion. Accordingly it was not the practice of conveyancers to make an express assignment of the covenant upon the purchase of the land. Mr McNamara submitted that in Pinemain the acting judge mistakenly applied the decisions of Sacher and Naylor. That decision was followed by two other judges in England. Mr McNamara described the decision in Pinemain as destabilising centuries of jurisprudence in England which was corrected by the Court of Appeal in Kumar and by the House of Lords in Swift. Colyer submitted that a covenant touched and concerned the land if certain conditions were fulfilled. These essentially became the four non-exhaustive conditions referred to by Lord Oliver at page 642.
[58] [1989] 1 AC 632
[59] at 635
[60] (1984) 272 EGLR 91
Mr McNamara described as a fundamental truth the following submission:
The concept of covenants which do or do not “touch and concern” the land is one which is ancient and which cannot be explained by reference to a defined set of modern principles. Rather, it is a phenomenon whose limits have to be considered by reference to the state of the law in the era wherein it evolved.
Mr McNamara then referred to s 15 of the Law of Property Act (SA) 1936. Until its English predecessor, the Law Property Act 1925, the benefit of the covenant could not be assigned. Guarantees ceased to be effective when the fee simple estate passed. A purchaser could sue for the rent because that was an implied covenant but it could not sue on the guarantee. That gave rise to the cases determining whether a covenant touched and concerned the land. Pinemain was a departure from the mainstream of authority.
Mr McNamara then turned in more detail to Pinemain. The facts were that the defendants appealed against a decision that they should pay the plaintiffs as sureties under a lease which had become vested in the plaintiffs. The guarantee was a guarantee that the lessee would pay the rent and observe all other covenants. The lease and the freehold had subsequently been transferred to other people. Mr McNamara submitted that the facts of this case were on all fours with the present case except that the guarantee was part of the lease and not a collateral document. As in the present case the defendant asserted that the benefit of the guarantee contained in the lease had not become vested in the plaintiff. The argument put in that case by the appellants is essentially that put by the defendants here.
On this appeal Mr Dowding raised a more formidable argument. Assuming, he said, that on the true construction of the lease, the guarantee was expressed to be made with the original lessor and its successors in title, nevertheless a successor in title cannot enforce the guarantee unless the benefit of it has been expressly assigned to him; and there was not express assignment in the present case, or at any rate, no evidence has been produced of any express assignment. The guarantee, he submitted, was a purely personal covenant, collateral to the lease, which did not relate to or touch and concern any land of the lessor, and therefore none of the provisions contained in the Law of Property Act 1925 under which persons other than the original covenantee can enforce a covenant applied to it[61].
[61] at 92 [C]
Mr McNamara then cited the passages of the judgment which, he submitted, were rejected by the Court of Appeal in Kumar and the House of Lords in Swift. The propositions are as follows[62]:
Where the covenantor owns no land, it is in my judgment necessary, in order that the covenant should be capable of running with the land of the covenantee without express assignment, that the observance of it should affect the land itself. This is in my view what is meant by saying that the covenant must either affect the land as regards the mode of occupation or be such as per se affects the value of the land. For this purpose a covenant by the third person that the lessee with pay the rent does not in my judgment affect the value of the land per se, within the meaning which the courts have given to that expression. The sum which is the surety is liable to pay under the covenant, in default of the lessee paying the rent, cannot itself be rent in the strict sense of a payment issuing out of the land, for the surety has no interest in the land.
[62] at 92
Mr McNamara submitted that the fundamental mistake made is to be found on page 93 in the following passage:
I find further support in the decision of the High Court of Australia in Consolidated Trust Company Ltd v Naylor (1936) 55 CLR 423. In that case, the question was whether the benefit of the covenant by a surety contained in a mortgage passed on a transfer of the mortgage without express assignment by virtue of the general words implied in the transfer of a registered mortgage by sections 51 and 52 of the Real Property Act 1900 of New South Wales.
The error is that the passage cited refers to only one question or component of Naylor, when in fact there were three (see later discussion of Naylor).
The Acting Judge in Pinemain then referred to the application of Naylor by the Supreme Court of New South Wales in Sacher. Mr McNamara submitted that Sacher also misapplied Naylor (see later discussion of Sacher). Mr McNamara submitted that the success of the sureties in Pinemain was for the wrong reasons and was corrected by the Court of Appeal in Kumar[63].
[63] [1989] 1 QB 193
In that case, Vice Chancellor Browne-Wilkinson found Pinemain difficult to reconcile with cases which established the tenant’s covenant did touch and concern the land[64]. He put the issue rhetorically thus:
Why should the position between the original tenant and sureties be rendered completely different just because the reversion has been assigned, a transaction wholly outside the control of the original tenant and a sureties?
[64] see 201
Mr McNamara submitted that the tenant is a bystander when a property is sold. The transaction is between vendor and purchaser. How is it then that the surety, who is equally a stranger, gains “by a side wind” the benefit of a release from obligation unless all the “i's are dotted and the t’s are crossed”?
Mr McNamara followed through the cases then referred to by the learned Vice Chancellor which he described as the “contamination in the stream of jurisprudence”, which the House of Lords put right in Swift’s case.
The Vice Chancellor approved the test for covenants which touch and concern the land laid down by Best J in Vyvyan v Arthur[65]:
The general principle is, that if the performance of the covenant be beneficial to the reversioner, in respect of the lessor’s demand and to no other person, his assignee may sue upon it; but if it be beneficial to the lessor, without regard to his continuing owner of the estate, it is a mere collateral covenant, upon which the assignee cannot sue.
The Vice Chancellor said that that was a sound differentiation between covenants which touch and concern the land and those which are merely collateral. He referred to cases which approved the test.
[65] (1832) 1B and C 410 at 417

Contrary to the submission by the defendant[66] the difference between covenants which touch and concern the land (which pass with the reversion) and covenants which are merely collateral (which do not pass) is not dependent upon a characterisation of the guarantee as placing the guarantor “in the shoes of the tenant (the so called English position) or as providing a collateral security (the so called Australian position). The difference is instead between who is in a position to sue and who is not.
[66] see outline at [43]
Mr McNamara submitted that on that test the plaintiffs must succeed. Upon the sale of the property the vendor lost all interest in the land, including the building, the lease and the guarantee. Only the plaintiff purchaser can sue. Therefore, the guarantee’s covenant touches and concerns the land and runs with it.
Before dealing with Swift’s case[67] , Mr McNamara summarised the application of that case to the issue in this case.
[67] [1989] 1 AC 632
In respect of the premises, there is a tenancy which was guaranteed by the defendants. The memorandum of transfer did not contain any specific assignment of the guarantor’s covenants. The House of Lords in Swift held that in just such a situation the purchaser could sue on the guarantee. Mr McNamara submitted that the case cannot be distinguished and indeed the defendant has not sought to distinguish it. If the defendant is to succeed, then Swift must have been wrongly decided.
The facts and arguments in Swift are summarised by Lord Templeman[68] as follows:
In the present case, the original landlord assigned the reversion to the respondent landlord; there was no express assignment to the benefit of the tenant’s covenants or of the benefit of the surety covenant. The tenant defaulted in payment of the rent reserved by the lease, and thereby committed a breach of the covenant which touched and concerned the land. The respondent landlord, failing to recover the rent from the tenant, brings these present proceedings against the surety to recover the amount of unpaid rent. The surety denies liability, pleading that the surety covenant does not touch and concern the land and does not run with the reversion so as to be enforceable by the respondent landlord. The respondent landlord replies that a covenant by a surety, in whatever form or expression the surety covenant may take, is a covenant that the tenant’s covenants shall be performed and observed. A covenant by a surety that a tenant’s covenant which touches and concerns the land shall be performed and observed must itself be a covenant which touches and concerns the land; the benefit of that surety’s covenant will run with the reversion, and the covenant is therefore enforceable without express assignment.
[68] at 637, FH
His Lordship agreed with the respondent’s argument[69].
[69] see 638
Lord Oliver stated the issue and referred to Kumar thus:
The appeal raises the much debated question whether the benefit of a covenant by a surety for the performance in the tenant’s obligations under a lease is one which is capable of running with the reversion so as to be available without express assignment to the successor in title of the original landlords. The point had been decided in favour of the landlord by the Court of Appeal in Kumar (reference deleted) at the time of the hearing before Judge Oddie and his order was accordingly made without hearing the full argument since he was, in any event, bound by that decision[70].
[70] see 638
On page 639, Lord Oliver noted that the underlease was a full repairing and insuring underlease. It is essentially the same as the present case except for the indemnity. His Lordship noted that in the lease the reference to tenant did not include any such expression as “successors or heirs”. His Lordship noted that the purchaser could not there rely on the Grantees of Reversions Act, he had to rely on the common law[71]. His Lordship cited with approval Vice Chancellor Browne-Wilkinson’s decision in Kumar (supra). His Lordship effectively adopted the submissions of Colyer QC relating to the four part test of “touching and concerning the land”[72].
[71] at 399H
[72] see [1], 642, E
Mr McNamara invited me to adopt the Vice Chancellor’s reasoning in Kumar and Swift.
In my view the reasoning in Kumar and Swift is persuasive. Leaving aside for the moment the effect of the Australian cases of Naylor and Sacher, the English authorities, culminating in Swift, support the principle put forward by the plaintiffs that guarantors’ covenants of the sort found in the present deed do touch and concern the land and inure to the benefit of the purchaser of the fee simple.
Mr McNamara then moved to a discussion of Naylor. Naylor’s case was concerned with the transfer of a mortgage rather than a lease. He submitted there were three components to the decision in Naylor and a proper understanding of those three separate components demonstrates that the reasoning in Naylor does not bear on the present case.
He said the first component was a consideration of the Real Property Act1900 (NSW). The second component concerned the assignment of an old system mortgage and the third component concerned what form of notice was required under the Real Property Act to effect a legal assignment of a chose in action. He submitted that the defendant, like the acting judge in Pinemain, had referred only to the first of these components and had overlooked important passages in the reasoning of the majority judges.
So far as the first component is concerned, the whole court decided that the mere registration of a memorandum of transfer of a mortgage under the Real Property Act did not transfer the benefit of a guarantor’s covenant. This component is not challenged by the plaintiff. The judgement of the majority judges, Dixon and Evatt JJ sets out, first, the principles applicable to the Real Property Act mortgage[73]:
Under this count, therefore, the plaintiff’s title to sue must rest upon the provisions of the Real Property Act which, upon registration of transfer of mortgage, vests the mortgage in the transferee.
[73] at 433 and following
Mr McNamara submitted that a mortgage of Real Property Act land had an entirely different effect from a lease, and the defendants’ reliance on that difference is erroneous because it had no regard to the common law. In my view that submission is correct.
The second component is described at page 435:
The second count in the declaration sets out the terms of the document relied upon as effecting an assignment of the covenant contained in the mortgage under the general law. (italics added)
The majority judges said:
An assignment of monies that are secured by personal obligations means an assignment of the obligations securing them. The same monies could not have been intended to belong to the transferee, the plaintiff, if paid by the mortgagor, but to the transferor, the mortgagor is paid by the surety, the defendant.
Mr McNamara submitted that, if, as in the present case, there are words in the contract of sale by which the vendor expressed an intention to pass to the plaintiff the benefit of the personal obligations of the guarantors, then the plaintiff would succeed because an assignment of monies that is secured by personal obligations means an assignment of the obligations securing them. In this component of the decision, Starke J was in the minority.
The third component of the case was whether express notice in writing of the assignment had been given[74]. The majority judges concluded that the benefit of the defendant’s covenant was included in the assignment expressed by the endorsed memorandum. This is the general law mortgage. It became necessary to determine whether express written notice had been given of the assignment. In that case the notice was not so much a notice of the assignment but rather it was a notice of demand and intention to enforce the rights. In doing so it referred to the fact of the assignment. The majority judges held that was sufficient written notice. I have already referred to this component of the decision in my discussion of the legal assignment (see pars [44] to [52]).
[74] see 437 and following
Recapitulating on Naylor, Mr McNamara made several points. The first was that insofar as the case deals with the Real Property Act in the first component, it is binding authority for the proposition that the Act operates to assign only the rights contained in a registered instrument, be it a mortgage or a lease. The Act does not of its own force assign the benefit of any contract of guarantee of any mortgage debt which happens to be contained in the registered instrument of mortgage since no guarantee is capable of registration under the Act. No guarantee is capable of being transferred by an instrument under the Act. However the High Court said nothing about what might be done outside the scope of the Act. The High Court said nothing about the running of covenants. The High Court said nothing about the topic of landlord and tenant nor about dealings between them. This first component of the decision has no application to the present case.
In my view that is a correct reading of Naylor.
In the second component the majority judges held that an endorsement on a common law mortgage could operate as an assignment in writing of the covenant of a guarantor. That is so even though the assignment was directed in its terms only for the benefit of the mortgage debt itself. The majority judges held that by implication the assignment carried the benefit of the guarantee without express mention. This component does have application to the present case. In my view the plaintiffs are entitled to rely on it. It is not direct authority concerning a guarantee under the lease, but by analogy it supports the plaintiff's case.
The third component is that a Notice of Demand can qualify as a notice of assignment for the purposes of the New South Wales equivalent of the South Australian s 15 of the Law of Property Act. In other words it is sufficient to constitute a legal assignment if the debtor receives a written Notice of Demand, so long as it refers to there having been an assignment. It is not necessary that the Notice of Demand give particulars of the assignment, it is sufficient if it amounts to a reference to the fact of the assignment. I have already discussed this topic[75].
[75] par [44] to [52]
Sacher was argued on the narrow basis that the mere registration of a transfer assigned the benefit of a guarantee. That argument was unsuccessful but the present case is argued on another, broader, basis, namely that at common law the benefit of the guarantee touches and concerns the land and passes with the reversion. That distinction between the narrow and the broader question in Sacher was noted in Ryde Joinery Pty Ltd v Zisti[76]. The broader basis was simply not argued. Despite the court’s express reliance on Naylor[77] in reality the only part of Naylor it was relying on was the first component, the operation of the Real Property Act. Sacher is thus not an authority bearing on the question in this case.
[76] (1997) ANZ Conv R 481 at 488-489
[77] see 10 E to G
Mr McNamara then dealt with the defendant’s submissions about the Real Property Act, in particular the submission about what kinds of interest bind a purchaser of land under the Torrens system. One of those submissions appears in paragraph 58 page 16 of the defendant’s written outline. Mr McNamara submitted that the fallacy was there apparent. The submission by the defendants is that it is erroneous to reason that covenants which touch and concern the land “bind” a new owner (with the emphasis on “bind”). Purchasers are only “bound” by registered interests. The fallacy in the defendant’s reasoning is said to be this. To hold that covenants that touch and concern the land pass on a reversion would lead to the consequence that a purchaser would always be bound by an unregistered and uncaveated lease. The answer to that submission, or the flaw in that submission, according to Mr McNamara, is that this case has nothing to do with whether a purchaser is bound by anything. The question is whether the purchaser takes the benefit of covenants and that question is determined by reference to common law principles. The case does not concern whether the plaintiff purchaser is bound by a burden imposed by an instrument. It is whether the purchaser can take the benefit of covenants in the guarantee . Mr McNamara submitted that RM Hoskings Property Pty Ltd v Barnes and Ors[78] is the only authority for the proposition put by the defendants, but that proposition is irrelevant to this case. I accept that submission.
[78] [1971] SASR 100
In my view Mr McNamara’s analysis of Naylor is correct. So too is his submission that Sacher’s reliance upon Naylor does not bind me. I find that the guarantor’s covenants do touch and concern the land so that they inure to the benefit of the purchaser/plaintiff upon the transfer.
Submissions on behalf of the second defendant
Mr Riggall made submissions on behalf of the second defendant Mr Galanis. In a concise form he presented his case in the same substantive terms as that put by Mr Lazarevich on behalf of the first defendant and the first and second third parties. That being so I will not revisit my reasons for rejecting the case put on behalf of those parties.
Submissions by the Third Defendant
Ms Takmakis was unrepresented and, quite understandably, relied expressly on the submission made by Mr Lazarevich and Mr Riggall. I need not revisit those submissions.
Conclusion
I find as follows:
1) That there was an assignment of the deed of guarantee both in law and equity.
2) That the Deed of Guarantee is a deed poll upon which the plaintiff as an assign is entitled to sue.
3) That the Deed of Guarantee does touch and concern the land and that the benefit passes to the plaintiff on the transfer.
I will hear the parties as to the precise orders which must be made. I will also hear the parties as to costs.