Commonwealth v Orr

[1981] FCA 178

Re: THE COMMONWEALTH OF AUSTRALIA
And: PAMELA DALE ORR (1981) 58 FLR 219
No. ACT G11 of 1981
Mortgage by Lessee - Mortgages

COURT

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Fox(1), Lockhart(2) and Sheppard(3) JJ.

CATCHWORDS

Mortgage by Lessee - Covenant Not to Exercise Statutory Power to Sub-lease Without Consent - Whether Statutory Power Exists in A.C.T. - Effect of Sub-lease Without Consent - Whether Breach of Covenant.

Real Property Ordinance (A.C.T.) 1925, Sects. 22, 84, 88, 92, 93, Div. 3, Part X

City Area Leases Ordinance (A.C.T.) 1936-64, Sects. 19, 28A, 29, 71

Conveyancing Act (N.S.W.) 1919, s.106

Conveyancing and Law of Property Act 1884 (Tasmania) Sects. 19, 20

Real Property Act 1900 (N.S.W.) s.53

Property Law Act 1958 (Victoria), s.99

Law of Property Act 1925 (Eng.), Sects. 85, 86, 99

Mortgages - Leasehold - Covenant - "Mortgagor shall not exercise any statutory power of . . . sub-leasing" - Mortgagor sub-leased property without mortgagee's consent - Whether mortgagor breached covenant - Intention of covenant - City Area Leases Ordinance 1936 (A.C.T.), s. 29 (2) - Conveyancing Act, 1919 (N.S.W.), s. 106.

HEADNOTE

The appellant granted the respondent a lease of premises in the Australian Capital Territory and, on the same day, the respondent mortgaged her interest in the property to the appellant. The mortgage contained the following covenant: "That the mortgagor shall not exercise any statutory power of . . . sub-leasing . . . conferred on the mortgagor by law without having obtained the written consent of the Commonwealth. . . ."

Without having sought the appellant's consent and without such consent having been given, the respondent sub-leased the premises. The appellant's allegation that the respondent had breached the covenant was rejected by the Supreme Court of the Australian Capital Territory. The appellant appealed to the Full Court of the Federal Court of Australia.

Held: (1) The respondent was not in breach of the covenant even if s. 29 (2) of the City Area Leases Ordinance 1936 was the sole source of statutory power, as this was not intended to limit the right of the respondent to sub-let at general law.

(2) The purpose of the covenant would be limited by provisions similar to s. 106 of the Conveyancing Act, 1919, for which there was no Australian Capital Territory equivalent.

Corbett v. Plowden (1884), 25 Ch D 678; Australia & New Zealand Bank Ltd. v. Sinclair (1968), 88 WN (Pt 1) (NSW) 117; Iron Trades Employers Insurance Association Ltd. v. Union Land and House Investors Ltd., (1937) 1 Ch 313, referred to.

HEARING

Canberra, 1981, June 17; October 23. #DATE 23:10:1981

APPEAL.

Appeal from a declaration of the Supreme Court of the Australian Capital Territory (Blackburn C.J.) to the Full Court of the Federal Court of Australia.

J. R. Dunford Q.C. and R. D. Giles, for the appellant.

J. P. Hamilton, for the respondent.

Cur. adv. vult.

Solicitor for the appellant: B. J. O'Donovan, Commonwealth Crown Solicitor.

Solicitors for the respondents: Pamela Coward & Associates.

E. F. FROHLICH

ORDER

THE COURT ORDERS THAT the appeal be dismissed with costs.

JUDGE1

This is an appeal from the Supreme Court of the Australian Capital Territory (Blackburn CJ). His Honour made a declaration in favour of the respondent in the following terms:

"that the plaintiff did not, by granting any of the sub-leases dated 16 December 1976, 9 September 1978, and 20 February 1979 respectively, commit any breach of the memorandum of mortgage registered no. 93832 dated 24 June 1969."

The Commonwealth on 30 March 1969 granted the respondent a lease of land for a term of ninety-nine years commencing on 17 October 1967. The lease was expressed to be granted pursuant to the City Area Leases Ordinance 1936- 1964. One incidental matter is that it was expressed to be subject to the application of s.28A of that Ordinance, which deals with dwelling houses and provides that a lease to which it applies shall not for a period of five years be transferred or assigned, except that a mortgage is permitted (sub-sections (2), (3)). By memorandum of mortgage bearing date the same day (although there is evidence that execution by the mortgagor was on 24 June 1969), the respondent mortgaged the land to the Commonwealth for the balance of purchase moneys, repayable, with interest, by instalments. The mortgage bore the sub-title "Real Property Ordinance 1925-1963", and accorded with the form in the ninth schedule thereto (see s.92 of the Ordinance). The mortgage was expressed to be in exercise of the mortgagor's right to mortgage the land under the City Area Leases Ordinance 1936- 1964. The principle references here are probably to s.19 (2)(e) and s.29(2) of the Ordinance, but may include s.28A (2), to which I have referred.

Without the consent of the Commonwealth, the lessee/mortgagor sub-leased the land on three separate occasions, and the Commonwealth has as a result threatened to exercise its power of sale. Each lease was for a term of less than three years. The question is whether by sub-leasing the respondent has committed a breach of any covenant of the mortgage. The particular covenant relied upon is in the following terms:

"That the Mortgagor shall not exercise any statutory power of transferring or sub-leasing for the time being conferred on the Mortgagor by law without having obtained the written consent of the Commonwealth to any transfer or sub-lease proposed to be granted or entered into."

The argument for the Commonwealth (appellant) does not depend upon the terms of the sub-leases; it is, simply, that the covenant comprehends any power of sub-leasing the respondent has. It is said that the only power is contained in s.29(2) of the City Area Leases Ordinance, or, if there is a common law power it is "co-extensive" with this statutory power and therefore also excluded by the covenant. I must say at once that I do not appreciate the logic of this latter argument. Section 29(2) is as follows:

"Subject to this Ordinance, the land may be sub-let and the lease and any interest therein may be assigned, transferred or mortgaged."

Much of the argument seemed to me to blur distinctions between a number of matters:

(a) The general law power of a mortgagor to lease without the consent of the mortgagee;

(b) The statutory power of a mortgagor to lease without consent;

(c) The effect of (b) and (c) on the estate or interest of the mortgage;

(d) The effect of excluding the statutory power;

(e) Whether to lease without consent is a breach of the mortgage.

Under the old system of titles, when the mortgagor conveyed such legal estate as he had to the mortgagee, he could not grant a lease because he did not have the estate to do so. He could nevertheless grant an effective lease if given power to do so under the mortgage document. The mortgagor had his equity of redemption and could, without the consent of the mortgagee, and if in possession himself, make a disposition in the nature of a lease which would be binding on himself and his "tenant", usually by way of estoppel. Such a dealing had many of the aspects of a tenancy but was voidable by the mortgagee, and therefore was regarded as a precarious interest (see per Lord Selborne LC in Corbett v Plowden (1884) 25 Ch.D. 678, 681). The position from the point of view of the mortgagor and his "tenant" was alleviated in England in 1881 by giving the mortgagor statutory power to lease so as to bind the mortgagee without his consent. This power, which is now to be found in s.99 of the Law of Property Act 1925 (Eng.), is subject to qualifications and limitations, and can be excluded by agreement. A closely similar provision is s.106 of the Conveyancing Act, 1919 (NSW). Legislation to the same effect is found in other States, e.g. Victoria (Property Law Act 1958, s.99) and Tasmania (Conveyancing and Law of Property Act 1884, secns. 19,20). There is no counterpart in the Australian Capital Territory. The sections also give regulated leasing powers to a mortgagee in possession.

There has never been any doubt that the general law power has remained, notwithstanding the introduction of the statutory power (see Halsbury's Laws of England, 4th edn. Vol. 32 paras. 619, 625; Coote on Mortgages, 9th edn. Vol. 1, pp. 697, 708; Francis, Mortgages and Securities 2nd edn. pp. 155-159). They are used in different situations and have different results.

The effect of the grant of a lease by a mortgagor, without the consent of the mortgagee, has altered in those jurisdictions (e.g. those having a Torrens system of title registration) where the mortgage (i.e. a legal mortgage) does not convey the legal estate but instead operates as a statutory charge. The mortgagor can grant a lease because he has the estate to do so, but the grant is subject to defeasance by the mortgagee if he has not consented. Section 93(1) of the Real Property Ordinance is a provision such as I have mentioned, being in the following terms:

"Any mortgage or encumbrance under this Ordinance shall, when registered under this Ordinance, have effect as a security but shall not operate as a transfer of the land thereby charged."

This does not mean however that leases can be granted which will be binding upon the mortgagee without his consent. Because of the changes effected by the English Law of Property Act 1925 in relation to grants of mortgages, Coote (op. cit. p.697) says:

"It is surmised, however, that as the mortgagor will have, after the 1st of January, 1926, the legal estate in the mortgaged land (Law of Property Act, 1925, ss. 85 and 86), a lease granted by him will be good against all the world except the mortgagee and his assigns, but liable to be set aside by the mortgagee unless he is bound by his own concurrence, or the statute. In other words, after 1925 a mortgagor can make any lease he pleases of the mortgaged land subject to the risk of its being defeated by the mortgagee on proper grounds."

Francis (op. cit. p.156) is to the same effect when dealing with mortgages by demise and mortgages under the Torrens system.

One therefore comes to the position that a mortgagor can lease without consent, but without binding the mortgagee, and that he can, if he uses an available statutory power, lease without consent so as to bind the mortgagee. It has been held in New South Wales that the power to bind a mortgagee by a mortgage given without his consent by a mortgagor in possession is exclusively to be found in s.106 of the Conveyancing Act (Australia and New Zealand Bank Ltd. v Sinclair (1968) 88 WN (Pt.1) (NSW) 117). As there is no corresponding section in the Australian Capital Territory, this decision has no application here, but it is relevant to note that (at p.124) Lee J made the following observation:

"Before passing from the subject, I think it should be said that the conclusion at which I have arrived in no way affects the power of a mortgagor or mortgagee to grant a lease which will not bind the other (Iron Trades Employers Insurance Association Ltd. v Union Land and House Investors Ltd. (1937) 1 Ch. 313)). Section 106 is concerned only to declare what lease granted by a mortgagor or mortgagee will bind the other, notwithstanding the absence of consent of the other to that lease. Leases granted outside the section will still be good inter partes."

The power given by s.29(2) of the City Area Leases Ordinance is a power given to lessees, and not to mortgagors. A sub-lease which accords with the power may be granted before or after a mortgage. The sub-section is in substance an affirmation of some of the principle rights appurtenant to a leasehold estate. It does not in any way define them, but leaves the general law to apply, subject only to special requirements foun elsewhere in the Ordinance. None of those are relevant for present purposes. For the most part, the statutory provisions affecting mortgages (in relation to land held in fee simple, land formerly held under the Real Property Act, 1900 (NSW) and land held under Crown lease) are found in Division 3 of Part X of the Real Property Ordinance. For that matter, transfers and leases are dealt with at some length in that Part, and s.71(1) contains what could be regarded as another source of power. The fact is that the City Area Leases Ordinance deals with a few subjects only of those affecting Crown leases, more particularly those relating to term and rent, and to user of the land.

I am not able to find that s.29(2) is, or is the core of, an exclusive code dealing with mortgages by mortgagors. It is not a code at all. Whether or not it is "declaratory" in any relevant sense seems to me to be beside the point. It does not purport to deal with many of the transactions to which a leasehold interest may be subject, let alone subordinate situations, such as a mortgage of a sub-lease, or a transfer of a mortgage, or of an equity of redemption. Section 88(2) of the Real Property Ordinance, which corresponds with s.53(4) of the Real Property Act, 1900 (NSW), a sub-section which was referred to in Australia and New Zealand Bank Ltd. v Sinclair (supra), seems clearly enough to proceed on the basis that leases may be granted, in accordance with long established principles, without the mortgagee's consent, - but without being binding on him. If the sub-section was to be the sole source of the basic rights to which it refers, it may just as well be asked whether they can be abridged in the way suggested on behalf of the Commonwealth.

It is then said that the covenant in the mortgage, already set out, must apply to something specific when it refers to "any statutory power". Having in mind the indefinite article "any" this is in itself not a convincing proposition. A mortgagee might well wish to protect himself or itself against being or becoming bound under existing or future legislation by a sub-lease to which he or it has not consented, - or by a transfer of the mortgagor's interest or liability to which it has not agreed. I do not think that the covenant can be construed as if the word "statutory" did not appear.

The reality of the situation was in my opinion that the respondent created interests in the nature of sub-leases which were binding on her, and the "tenants", but which were defeasible upon the lawful intervention of the Commonwealth. The sub-leases did not constitute breaches; there are many cases in the reports where by express or implied conduct a mortgagee has adopted what has been done.

No other basis for opposing the declaration has been advanced, and no question has been raised as to its terms.

I am therefore of the view that the appeal should be dismissed with costs.

JUDGE2

On 30 March 1969 the Commonwealth of Australia ("the appellant") granted a lease to Pamela Dale Orr ("the respondent") of premises in the Australian Capital Territory known as 79 Ainsworth Street, Mawson for a term of 99 years commencing on 17 October 1967. The lease is expressed to be granted pursuant to the City Area Leases Ordinance 1936-1964 ("the Ordinance") and Regulations thereunder. It is registered under the Real Property Ordinance 1925 (A.C.T.).

By memorandum of mortgage, also dated 30 March 1969, the respondent mortgaged to the appellant her interest in the said lease. It too is registered.

The mortgage contains a convenant by the respondent in these terms:-

"That the Mortgagor shall not exercise any statutory power of transferring or sub-leasing for the time being conferred on the Mortgagor by law without having obtained the written consent of the Commonwealth to any transfer or sub-lease or agreement for a transfer or sub-lease proposed to be granted or entered into."

I shall refer to this convenant as "the convenant".

On 16 December 1976, 9 September 1978 and 20 February 1979 respectively, the respondent granted three successive sub-leases of the whole of the land the subject of the lease. The Appellant's consent to the sub-leases was neither sought nor given.

The appellant claimed that the respondent had breached the convenant and told her that it intended to exercise its statutory power of sale of the premises unless the whole of the balance of the loan secured by the mortgage was paid.

The respondent sought a declaration from the Supreme Court of the Australian Capital Territory that she had not, by granting any of the sub-leases, committed any breach of the covenant.

The Supreme Court found in her favour and made the declaration sought. The appellant appeals therefrom.

The learned trial Judge held that there was no statutory power which fell within the covenant. He considered s. 29 (2) of the Ordinance which provides:-

"Subject to this Ordinance, the land may be sub-let and the lease and any interest therein may be assigned, transferred or mortgaged."

His Honour said that s. 29 (2) did not create a power at all; it only made clear that the common law power exists, and that it is limited by the provisions of the Ordinance. His Honour also considered s. 84 of the Real Property Ordinance but rejected it as a source of power to which the covenant could apply.

As I see it, the only question to be decided is whether s. 29 (2) answers the description, within the terms of the covenant, of "any statutory power of. . . sub-leasing for the time being conferred on the Mortgagor by law. . ".

There is a deal of freehold land in the Australian Capital Territory; but most land there is Crown land under lease.

Leasehold tenure was adopted for the Australian Capital Territory for a number of reasons; one being to defray the expense of establishing Canberra as the National Capital; another being to avoid speculation in undeveloped land. Leases were first offered in Canberra in 1924 and many of the basic conditions applying to leases then, continue to apply today. For example, distinctions are drawn between residential and various types of business leases; terms of leases do not exceed ninety-nine years; leases are disposed of by auction or tender subject to reserve prices; land rents are a fixed percentage of the unimproved values and those values are reappraised periodically.

Special Ordinances have over the years related to the leasing of Commonwealth land in the "City Area" of the Australian Capital Territory. It is the Ordinance that is currently in force. The Ordinance contains a large number of provisions covering a wide range of diverse matters relating to leases of land within the "City Area" of Canberra.

These matters were relied upon by the appellant to found an argument before us that the Ordinance creates an elaborate self-contained code, exclusive of the common law. It was contended that s. 29 (2) must be construed as a power exclusive of any power existing at common law and that the grant of the sub-leases by the respondent was an exercise of that statutory power. The trial Judge rejected this proposition.

It is one thing to say that the Ordinance contains many and elaborate provisions relating to leases of land within the "City Area" of the A.C.T.; but quite a different thing to say that the Ordinance exists independently of the common law. At various points the Ordinance assumes the existence and the application of the common law. For example, the very definition of "lease" itself cannot be properly understood without recourse to common law principles. So it is with s. 29 (2) itself which confers in general terms the power of a lessee to sub-lease land and to assign, transfer or mortgage his interest in the lease. It leaves unsaid many of the rights, liabilities and duties of a lessee and sub-lessee; to determine what they are one must look to the principles of the general law applicable to leasehold tenure.

One of the rights of a mortgagor at common law is to lease the mortgaged property without the mortgagee's consent but not so as to bind him. Fox J. refers to this in his judgment, which I have had the advantage of reading. It is unnecessary for me to say anything further about this common law right except to express my agreement with what Fox J. says with respect to it.

Nor is the Ordinance the only Ordinance dealing with leases of Crown land in the Australian Capital Territory including land within the "City Area". Part X of the Real Property Ordinance deals with Crown leases. I cannot accept the argument as to exclusivity.

It was submitted by the respondent that sub-s. (2) is declaratory; but this proposition requires examination.

The classification of statutes is important primarily because of the different interpretations adopted by the courts to various classes of statutes. Statutes are classified according to their objects and are commonly described as declaratory, codifying or consolidating, remedial or penal. Consolidating Acts "are Acts which gather together and combine in one Act all other Acts in force relating to a particular topic": Pearce on Statutory Interpretation at p. 8. Examples are the Uniform Companies Acts and Bankruptcy legislation. Codifying Acts are passed to gather together and incorporate within one Act all legislation and all common law upon a particular matter. Examples are the Sale of Goods Acts, the Bills of Exchange Acts and the Partnership Acts. Codifying Acts are in one sense declaratory in that they declare in the form of a code all the law upon a particular subject.

As to declaratory Acts,

"If a doubt is felt as to what the common law is on some particular subject and an Act is passed to explain and declare the common law, such an Act is called a Declaratory Act."

Craies on Statute Law, 7th ed. p. 58. Declaratory Acts are an exception to the presumption against retrospectivity because they are not regarded as altering the law, but as making its meaning clear. Sometimes declaratory Acts are passed:

"to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes"

Craies at p. 58.

But to say that a statute is declaratory is not to deny that it is itself the source of legal rights and powers. The Sale of Goods Acts, although not declaratory in the sense I last mentioned, generally declare the existing law; but it is by force of the legislation itself that rights and powers arise. Implied undertakings as to ownership and possession of goods, conditions that goods shall correspond with their description, conditions of fitness for purpose and of merchantable quality - are all to be found in the Sale of Goods legislation and are substantially declaratory; but it is not the existing law that operates to confer rights upon buyers and sellers of goods, it is the statute itself. Similarly in the case of legislation such as Bills of Exchange Acts and Partnership Acts.

Even if s. 29 (2) is correctly described as a declaratory provision (and I must confess to considerable doubt about this), in my opinion it is nevertheless a source of the lessee's power to sub-let and to assign, transfer or mortgage his interest in the lease. It may be that, had the sub-section not been enacted, a lessee of land in the City area would have had the ordinary rights of a lessee save for some express limitation to be found in another provision of the Ordinance; but this says nothing relevant because s. 29 (2) was in fact enacted. Its presence cannot be ignored. It is itself a source of the powers which, by its very terms, it purports to confer upon lessees.

It is as well to remeber that the primary question involved in this case is one of construction of the convenant. The inquiry is to determine what the parties meant when they chose to use the words they did in fact use in the covenant. The mortgage provides that the respondent mortgages her interest in the lease "in the exercise of his right under the City Area Leases Ordinance 1936-1964". Pausing here for a moment, this must be a reference to the right to mortgage referred to in s. 29 (2) itself, so the parties must be taken to have had that provision in contemplation. Reference is made in other parts of the mortgage to the Ordinance for other purposes, and the concluding provision of the mortgage states:-

". . . this mortgage is executed in favour of the Commonwealth pursuant to the provisions of Section 29 of the City Area Leases Ordinance 1936-1964 to secure payment of the balance which is the principal sum hereinbefore referred to."

When the parties spoke in the mortgage of the respondent not exercising "any statutory power of . . . sub-leasing for the time being conferred on the Mortgagor by law without first having obtained the written consent of the Commonwealth to any . . . sub-lease . . . " it is perhaps tempting to conclude on first impression that they had in mind the power of sub-leasing conferred by s. 29 (2). But that conclusion would be erroneous. The covenant is directed to the power of sub-leasing conferred by statute upon mortgagors, not lessees. Section 29 (2) confers powers upon lessees, not mortgagors. I agree with Fox J. that the sub-section is in substance an affirmation of some of the principal rights appurtenant to a leasehold estate.

A provision such as s. 106 of the Conveyancing Act, 1919 (N.S.W.), which empowers a mortgagor of land to lease so as to bind the mortgagee without his consent, readily answers the description of a statutory power of leasing conferred on mortgagors by law. It is the very kind of statutory power one would expect parties to have in mind when inserting a provision in a mortgage such as the covenant. But there is no comparable provision presently in force in the Australian Capital Territory.

What then does the covenant mean? I have had the advantage of reading the judgment of Sheppard J. and I agree with him that there is much force in the view of the trial Judge that the covenant:

". . . was apparently based on a precedent which was designed for the law resulting from a statutory provision which is not in force in the Territory, and which does not apply to registered lands."

I also agree with the trial Judge and Sheppard J. that the phrase "for the time being", and with Sheppard J. that the word "any", suggest that the draftsman envisaged possible future changes in the statute law.

The fact that the powers to which s. 29 (2) is directed are powers of lessees, not mortgagors, is in my view determinative of this appeal. It is not to the point that one of the powers conferred by sub-s. (2) is the power of a lessee to mortgage his interest in the lease.

When the respondent granted the three sub-leases of the premises she was exercising her common law right to do so; but not so as to bind the appellant as mortgagee. This was not the exercise by her as mortgagor or any statutory power of sub-leasing conferred on mortgagors by law.

The appeal should be dismissed with costs.

JUDGE3

The question is whether the sub-lease entered into by the respondent was entered into by her in breach of the covenant in the mortgage which forbids her from exercising "any statutory power of transferring or sub-leasing for the time being conferred" on her. In the submission of the appellant the only power which the respondent had was that conferred by s.29(2) of the City Area Leases Ordinance 1936 which provides that, subject to the Ordinance, the land may be sub-let and the lease and any interest therein may be assigned, transferred or mortgaged. Since that power was statutory, so the appellant submitted, the respondent was in breach of her obligation under the covenant.

The system of title in the Australian Capital Territory is statutory. But in that respect it is to be regarded no differently from other statutory systems of title, particularly those created by Torrens legislation in the States of the Commonwealth and New Zealand. The only practical difference, a difference not material for present purposes, is that title in the Territory is almost all, if not entirely, leasehold rather than freehold.

The fact that there is a statutory system of title does not mean that many of the concepts and principles of the general law relating to real property are not imported into the system. For instance, it is necessary to understand and apply general law concepts of what are comprehended as being transfers, assignments, mortgages and leases before one can properly construe the legislation. And, under statutory systems of title such as I have mentioned, it is possible to create as between parties both legal and equitable interests in land which are not provided for in the legislation and may not be the subject of any entry or notation (e.g. by way of caveat) on the register.

Under the general law a mortgagor may lease - in the case of leasehold land, sub-lease - the land the subject of the mortgage. The lease may not bind the mortgagee but it is effective to bind the lessor and lessee; cf. Iron Trades Employers Insurance Association Limited v. Union Land and House Investors Limited (1937) Ch. 313 and Waldock on The Law of Mortgages (1950) pp.216-217. These principles of the general law apply not only to land under common law title but also to land under Torrens title; see Baalman's Torrens System in New South Wales, 2nd edn. (1974) p.265 and s.53(4) of the Real Property Act 1900 (N.S.W.) which acknowledges that a mortgagor may grant a lease. All it is concerned to do is to provide that no such lease will be valid and binding against the mortgagee unless it is consented to by him. A similar provision is contained in s.84 of the Real Property Ordinance 1925 (A.C.T.). The provision applies in terms to leases but I would construe it so as to apply to sub-leases as well.

It follows that the respondent in the present case had power to sub-lease irrespective of the operation which should be accorded s.29(2) of the City Area Leases Ordinance. The power conferred by that section ought not therefore be regarded as the sole or only source of her power as was submitted by the appellant. Of that matter I shall say a little more later.

The question to be determined is one of construction. What meaning and effect should be accorded the words "any statutory power of transferring or sub-leasing". In the context of the covenant, it being included in a mortgage, it would not readily occur to one that the power which was being excluded was the general power of sub-leasing (and transferring) conferred by the general law as the result of the operation of the Real Property Ordinance or the very general powers which, along with powers to assign and mortgage, were conferred by s.29(2) of the City Area Leases Ordinance. One's mind would more readily turn to a provision such as s.106 of the Conveyancing Act 1919 (N.S.W.) which empowers a mortgagor of land in possession to grant a lease for any term not exceeding five years. The lease will bind the mortgagee. The provisions of the section may be excluded by the agreement of the parties. The section applies to land under the Real Property Act 1900, s.53(4) of which is not to apply to leases authorised by it.

If there were a provision such as s.106 of the Conveyancing Act in force in the Territory I would have had little hesitation in concluding that the parties had that provision in mind when they provided as they did in the relevant covenant. The mortgagee by insisting on such a provision would have been concerned to prevent the creation of sub-leases which would be binding on it without its consent.

Such a view would be strengthened by the consideration that power conferred by s.29(2) of the City Area Leases Ordinance is not a power conferred with special reference to mortgagors and their relationship with their mortgagees. In the context of a mortgage one would expect a covenant containing a prohibition such as is here in question to be concerned with a power conferred, whether by statute or otherwise, upon mortgagors in their capacity as such.

However, standing in the path of treating considerations such as I have so far mentioned as determinative of the question to be decided, is the fact that there never has been in force in the Territory any provision comparable to s.106 of the Conveyancing Act 1919 (N.S.W.). The covenant was included in a mortgage of land in the Territory. Its provisions show that it was drawn with the provisions of the relevant legislation well in mind. Moreover, it refers not only to sub-leasing, but also to transferring, another word used in s.29(2) of the City Area Leases Ordinance. In the absence of a provision comparable with s.106 of the Conveyancing Act, what operation and effect can be given the covenant if the view is not taken that it applies to the power conferred by s.29(2) of the City Area Leases Ordinance.

The learned trial judge's explanation for this apparent dilemma was that the covenant was inept. He said:

"It was apparently based on a precedent which was designed for the law resulting from a statutory provision which is not in force in the Territory, and which does not apply to registered land".

He added that the covenant did, of course, look to the future, and provided for possible changes in statute law in that it included the words "for the time being". In this regard I think it also relevant to note the use of the word "any" in the covenant. Those latter considerations would tend to lead one to the conclusion that the covenant was not so much inept as precautionary. It was designed to deny to the respondent any power to grant a sub-lease which would bind the mortgagee in the event that such a power should be conferred upon her by some change in the law effected after the date of the mortgage.

With respect to his Honour I think there is much force in the views which he has expressed, particularly the latter. I say that notwithstanding that one has to take into account the use of the word "sub-lease" rather than "lease" and also the presence of the word "transferring". The presence of those words is explained by the fact that the draftsman was conscious that he was dealing with leasehold rather than freehold title. If he were intending to affect the powers conferred by s.29(2) of the Ordinance, it might have been expected that he would have used the word "assigning" as well. The powers to assign and mortgage are the other powers conferred by s.29(2). I should add that the absence of a prohibition on the power further to mortgage the land is not significant either way because a separate covenant forbids the respondent from charging or further mortgaging the land without the consent of the appellant.

One could dispose of the problem on the basis of those considerations. But I think, as did the learned trial judge, that there are other matters to be taken account of. It was the appellant's submission that the City Area Leases Ordinance provided a code for dealing with land to which it applied. The power conferred by s.29(2) was the only source of power to sub-lease or to assign, transfer or mortgage. I do not accept that argument. The City Area Leases Ordinance was intended to make special provisions relating to leases of land in the city area. But the leases themselves would still be granted and dealt with pursuant to the provisions of the Real Property Ordinance which is plainly intended to govern and affect leases issued pursuant to the City Area Leases Ordinance. I refer, for example, to s.22 of the latter Ordinance. As earlier mentioned, s.84 of the Real Property Ordinance contemplates that a mortgagor may grant a sub-lease which will not be binding upon his mortgagee. The plain intention is, subject to that restriction, to enable a mortgagor to sub-let.

It follows, in my opinion, that if it is wrong to treat the covenant as a piece of inept draftsmanship, or as providing for a contingency which has not yet arisen, with the result that it should be ignored or put on one side, the most it can do is to take away the power conferred by s.29(2) of the City Area Leases Ordinance to sub-lease. It will leave unaffected the power conferred by the general law.

Some may say that the respondent is then in a quandary. If she had two powers, which was she exercising. Perhaps the view should be taken that she was exercising both powers enabling her to grant the sub-lease If that were so, she would be in breach of the covenant because she would be taken to have exercised her statutory power as well as her power under the general law. In my opinion the better view is that she should be taken to have been acting pursuant to the power which would not involve her in a breach of covenant. Doubtless her mind was not directed to the problem and one must deal in presumptions. In my opinion she should be presumed not to have intended any breach of covenant which would jeopardise her lease and involve her also in a breach of her obligation to the sub-lessee.

However that may be, I think, on reflection, that the better view is that the covenant was probably included to guard against the possibility of a provision along the lines of s.106 of the Conveyancing Act 1919 (N.S.W.) becoming part of the law of the Territory. Since there is no such provision in force, there is nothing which the covenant can affect.

For the reasons I have given I am of opinion that the respondent was not in breach of the covenant in question. The appeal should be dismissed with costs.