Epworth Group Holdings Pty Ltd (ACN 119 300 104) v Permanent Custodians Limited (ACN 001 426 384) (No 2) - [2011] SASC 81

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
EPWORTH GROUP HOLDINGS PTY LTD (ACN 119 300 104) & ANOR v PERMANENT CUSTODIANS LIMITED (ACN 001 426 384) (No 2)
[2011] SASC 81
Reasons for Decision of The Honourable Justice Sulan
11 May 2011
PROCEDURE - JUDGMENTS AND ORDERS - ENFORCEMENT OF JUDGMENTS AND ORDERS - EXECUTION AGAINST PROPERTY - OTHER MATTERS
HIGH COURT AND FEDERAL COURT - HIGH COURT OF AUSTRALIA - APPELLATE JURISDICTION - PROCEDURE - STAY OF PROCEEDINGS - PENDING SPECIAL LEAVE APPLICATION
Application for stay of an order requiring applicant to give up possession of premises - or alternatively an extension of compliance from 14 days to 60 days - further, that certain monies paid to the respondent be repaid - application made pending special leave application to High Court.
Application follows Full Court determination that conclusion of Chief Justice that Permanent Custodians is entitled to possession of premises by virtue of its registered mortgage was correct.
Whether an order for possession should be stayed pending the making of an application to the High Court - whether substantial prospect that special leave will be granted - whether stay will cause loss to successful party - balance of convenience.
Application refused.
Retail and Commercial Leases Act 1995 (SA) s 20B, s 3; Real Property Act 1886 (SA) s 119, referred to.
Politarhis & Anor v Westpac Banking Corporation (No 2) [2009] SASC 109; Epworth Group Holdings Pty Ltd v Permanent Custodians Limited [2010] SASC 327, applied.
Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681; Re The Duke Group Ltd (In Liq) and Corporations Law of South Australia; Gerah Imports Pty Ltd v The Duke Group Ltd (In Liq) (1994) 119 ALR 401; Bryant v Commonwealth Bank of Australia Ltd & Ors (1996) 134 ALR 460; Zollo v National Australia Bank Ltd & Ors; National Australia Bank Ltd v Zollo (Unreported, Supreme Court of South Australia, Doyle CJ, 12 June 1997); South-Eastern Drainage Board (SA) v Savings Bank of South Australia (1939) 62 CLR 603, considered.

EPWORTH GROUP HOLDINGS PTY LTD (ACN 119 300 104) & ANOR v PERMANENT CUSTODIANS LIMITED (ACN 001 426 384) (No 2)
[2011] SASC 81
Civil

SULAN J: Epworth Group Holdings Pty Ltd (“Epworth Group”) seeks a stay of an order made by the Chief Justice on 15 December 2010 requiring Epworth Group to give up possession of premises at Suite 8, Ground Floor, Epworth Building, 33 Pirie Street, Adelaide (“the premises”). In the alternative, Epworth Group seeks to vary the order to require it to give up possession of the premises within 60 days of the service of a copy of the order, as varied, by this Court. Further, in the alternative, Epworth Group seeks an order extending compliance with the 15 December 2010 order from 14 days to 60 days. It also seeks repayment of certain monies paid by it to Permanent Custodians Limited (“Permanent Custodians”) pursuant to orders of the Chief Justice made on 9 December 2010 and 15 December 2010.
Background
Y H Epworth Pty Ltd is the registered proprietor of land in Adelaide. On the land is a building containing leased offices.
On 15 August 2008, Epworth Group entered into a Memorandum of Lease with Y H Epworth to lease the premises, being one of the suite of offices contained within the building. The lease was for a period of two years and one day, commencing on 18 August 2008 and expiring on 19 August 2010. It included five rights of renewal, each for one year. The lease was unregistered and no caveat was lodged to protect the interest granted by the lease.
On 18 August 2008, Y H Epworth consented to Epworth Group sub‑leasing the premises to Commercial and General Law (SA) Pty Ltd (“C&G”). On 3 March 2009, Y H Epworth was granted a registered mortgage over the land at 33 Pirie Street to Permanent Custodians. Y H Epworth defaulted under the mortgage.
On 1 October 2009, Permanent Custodians, pursuant to its powers under a charge granted in its favour by Y H Epworth, appointed receivers and managers to Y H Epworth’s property and assets. Permanent Custodians appointed the same receivers and managers as receivers and managers of the mortgaged property.
On 18 March 2010, Epworth Group gave Y H Epworth notice of its intention to extend the lease for a period of one year, upon the expiry of the original term of the lease. At trial, the case was conducted on the basis that a lease for a period of one year came into force on 20 August 2010.
On 24 June 2010, Permanent Custodians served notice on Epworth Group to vacate and deliver up possession of the premises. On 16 September 2010, Permanent Custodians entered into possession of 33 Pirie Street, Adelaide. Permanent Custodians, however, did not attempt to enter into possession of the premises at that time, and C&G remained in occupation.
On 24 September 2010, Permanent Custodians served a notice to vacate and deliver up possession of the premises on both Epworth Group and C&G. In the notice, it was asserted that the lease between Y H Epworth and Epworth Group over the premises was unregistered and was for a term longer than one year. Permanent Custodians asserted that it had not consented to the lease or the occupation of the premises, and that it was not bound by the lease by virtue of its subsequent registered mortgage over 33 Pirie Street, Adelaide.
Permanent Custodians, by way of counterclaim against Epworth Group and C&G, claimed that Epworth Group was in possession of the premises, pursuant to an unregistered lease for the term of two years; that Permanent Custodians’ consent was never sought or obtained to Epworth Group’s occupation of the premises; and that Permanent Custodians was not bound by an unregistered interest that Epworth Group may have in the premises. It claimed that it was entitled to enter into possession of the premises and, having served notice on 24 September 2010 upon Epworth Group and C&G to vacate and deliver up the premises, they refused to yield up possession. It sought a declaration that Permanent Custodians is not bound by the lease, and that it is entitled to possession of the premises. Permanent Custodians sought orders that Epworth Group and C&G be ejected from the premises, and that they deliver up vacant possession of the premises. Epworth Group and C&G, in its defence, contended that Permanent Custodians is not entitled to enter into possession of the premises, and claimed that Permanent Custodians was bound and subject to the unregistered lease dated 15 August 2010 and, further, that Epworth Group and C&G were entitled to remain in possession pursuant to section 20B of the Retail and Commercial Leases Act 1995 (SA) (“RCL Act”).
Epworth Group sought an injunction restraining Permanent Custodians from interfering with Epworth Group’s possession of the premises, pending determination of the issues between the parties.
On 15 October 2010, the Chief Justice ordered that, upon an undertaking by Epworth Group and Mr Stephen McNamara, a director of C&G to pay damages, and upon condition that Epworth Group pay to the Supreme Court Suitors Fund the sum of $5500 by 22 October 2010 in respect of the period of occupation by C&G of the premises for the period 1 October 2010 to 31 October 2010 and, thereafter, $5500 on the first day of each month, that Permanent Custodians be restrained from interfering with Epworth Group’s possession of the land leased by it, pursuant to the lease granted by Y H Epworth to Epworth Group. He ordered an early trial to commence on 9 November 2010. The trial proceeded on that day.
On 9 December 2010, the Chief Justice dismissed the claim and ordered that Epworth Group and C&G give up to Permanent Custodians possession of the premises within 14 days of the service of a copy of the order upon them. He further ordered that the Registrar of the Court make payment to Permanent Custodians of the amounts held in the Supreme Court Suitors Fund, payment to be made to Kelly & Co Trust Account, solicitors for Permanent Custodians, for the period of occupancy from 16 September 2010 to 31 December 2010.
Epworth Group and C&G sought a stay of the order requiring them to give up possession of the premises to Permanent Custodians, pending an appeal.
On 15 December 2010, the Chief Justice made the following orders:
1The injunction granted by the order dated 15 October 2010 in this action whereby the Defendant (Permanent Custodians) was restrained whether by itself its agents or servants workmen or otherwise from interfering with the Plaintiff’s (Epworth Group’s) quiet possession and enjoyment of the land leased by the Plaintiff (Epworth Group) pursuant to a Memorandum of Lease dated 15 August 2008 between the Plaintiff (Epworth Group) and YH Epworth Pty Ltd for certain premises being a portion of the land comprised in Certificate of Title register Books Volume 5152 Folio 951 and Volume 5153 Folio 85 (Land) known as Suite 8, Ground Floor, Epworth Building 33 Pirie Street, Adelaide SA being portion of the ground floor of Epworth Building and 5 car parks in the basement of Epworth Building (Premises) be dissolved.
2That the Plaintiff (Epworth Group) and Mr Stephen McNamara be released from the undertaking as to damages given by them in connection with the order dated 15 October 2010, such release to operate prospectively only.
3Upon the condition that:
3.1On or before 21 December 2010 the Plaintiff and/or the Second Defendant by Counterclaim (Epworth Group and/or C&G) do file and serve on the Defendant (Permanent Custodians) by its solicitors Kelly & Co a Notice of Appeal from the judgment in this action dated 30 November 2010;
3.2On or before 17 January 2011 Plaintiff and/or the Second Defendant by Counterclaim (Epworth Group and/or C&G) do set down for hearing any appeal from the judgment in this action dated 30 November 2010;
3.3That any appeal from the judgment in this action dated 30 November 2010 be set down for hearing in the next sitting of the Full Court of this Honourable Court;
3.4The Plaintiff (Epworth Group) pay to Kelly & Co Trust Account for and behalf of the Defendant (Permanent Custodians) the sum of $5,365.65 plug GST in the amount of $536.57 on the first day of each calendar month, together with any telephone, gas and electricity charges (including air-conditioner running costs) relating to the Premises including any GST in respect of those charges, such payments continuing until further order;
3.5The Plaintiff (Epworth Group) and the Second Defendant by Counterclaim (C&G) undertake to vacate the Premises (including to the extent necessary, removal of furniture, fixtures and effects) on or before completion of any sale of the Land by the Defendant (Permanent Custodians) subject to the Defendant (Permanent Custodians) giving 14 days prior written notice to the Plaintiff (Epworth Group) of the completion date of any sale of the Land;
3.6On or before 17 January 2011, the Plaintiff (Epworth Group) and Defendants by Counterclaim (C&G) pay into the Supreme Court Suitors Fund the name of this action the sum of $10,000.000 such amount to constitute security for costs of any appeal from the judgment in this action dated 30 November 2010;
order 2 of the order dated 9 December 2010 and orders 1 and 2 of these orders be stayed until conclusion of the hearing of the appeal.
Order 2 of 9 December 2010 required Epworth Group and C&G to give up possession of the premises to Permanent Custodians within 14 days of the service of the order upon them.
On 29 April 2011, the Full Court (Gray, Sulan and Vanstone JJ), dismissed the appeal of Epworth Group and C&G. As a consequence, Epworth Group and C&G were required to give up possession of the subject premises within 14 days of the service upon them of the order.
The Full Court determined that the conclusion of the Chief Justice that Permanent Custodians was entitled to the possession of the premises by virtue of its registered mortgage was correct. The Chief Justice had considered the application of the RCL Act which regulates the relationship between landlords and retail tenants. Section 20B of that Act provides:
20B – Minimum 5 year term
(1) The term for which a retail shop lease is entered into must be at least fives years.
The term of a retail shop lease is worked out under this section on the assumption that any right or option of renewal or extension under the lease or a collateral agreement will in fact be exercised. However, a right or option of renewal or extension will not be taken into account if it is given after the lease is entered into.
(2) A lease is not invalidated by contravention of this section but the term of the lease is extended to bring the term (or aggregate term) to five years.
Example –
If a lease is entered into for a term of three years, its term is extended by two years to five years. If a lease is entered into for a term of two years with an option for a further one year after that initial two years, the term of the lease is extended to four years (with the option for a further one year after that initial four years).
The Chief Justice concluded that the RCL Act applies to the lease by the registered proprietor to the Epworth Group. He noted, however, that the RCL Act says nothing about the relationship between it and the provisions of the Real Property Act 1886 (SA). He concluded that the RCL Act is not to be read as intending to confer on a lessee rights that would take priority over registered interests under the Real Property Act, contrary to that Act. Further, if there were an inconsistency, section 6 of the Real Property Act, which provides that no law or future law which is inconsistent with the Real Property Act shall apply to land subject to the provisions of the Real Property Act applied to defeat any interest created by the RCL Act.
The Full Court determined that Permanent Custodians did not grant or propose to grant a right to occupy the premises as a lessor. It simply allowed C&G to remain in occupancy for a short period. Secondly, the Court found that there was no inconsistency between the Real Property Act and the RCL Act and, even if there were a perceived inconsistency, the provisions of the Real Property Act would prevail and apply. The Court concluded that the appeal should be dismissed.
This application seeks a stay of the judgment, pending an appeal to the High Court.
In support of the application, the Court received an affidavit of John Viscariello, a director of C&G. The proposed application for special leave to appeal to the High Court is an exhibit to the affidavit.
The application contends that the Full Court was in error in concluding that the RCL Act does not apply to a registered mortgagee in possession, that Permanent Custodians is a mortgagee in possession and is a lessor within the meaning of the that Act, and that the statutory right of security of tenure granted to lessees by that Act does not require registration of the lease and is effective against mortgagees in possession.
Permanent Custodians opposes the application for a stay. Its grounds of opposition are, first, that the Epworth Group is in breach of the orders of the Chief Justice of 15 December 2010, in that it has failed to pay to Kelly & Co Trust Account the amounts referred to in paragraph 3.4 of the order for the months of April and May 2011. On 10 May 2001, Mr McNamara, a director of C&G, deposed that C&G has recently paid $11,804.44 to Kelly & Co to maintain occupancy of the premises to 31 May 2011. The breach of paragraph 3.4 has been remedied. Secondly, Permanent Custodians contend that there is no substantial or realistic prospect that the application for special leave to appeal to the High Court will be granted. Thirdly, it is contended that Permanent Custodians will suffer loss in the event that the stay is granted and that, if the appeal to the High Court were to succeed, Epworth Group and C&G will have an action in damages for any loss suffered as a consequence of having to vacate the premises.
In response to the first contention, C&G wrote to Kelly & Co on 5 May 2011 indicating that it will attend to any non-payment by it and any failure to comply with condition 3.4 referred to in the orders of 15 December 2010. Counsel for C&G repeated that if the failure to comply with the orders had not been remedied at the time of the application, he was instructed that payment of the arrears would be made forthwith.
Mr Stevens, who appeared for the applicant, contends that there are real prospects that the applicant will obtain special leave of the High Court. He conceded that ground 1.3, being that Epworth Group has an unregistered interest which is protected by the provisions of the RCL Act, subject to section 119 of the Real Property Act, cannot succeed on the basis that the ground was abandoned during the course of the appeal to the Full Court. He submits, however, that the grounds upon which it relies that a mortgagee in possession is a lessor, as defined in section 3 of the RCL Act, and that the Act grants a statutory right of security to a retail tenant has good prospects of obtaining special leave to appeal. Further, the contention that, insofar as the RCL Act is inconsistent with provisions of the Real Property Act, the rights of the lessee prevails, whether registered or otherwise, has a real prospect of being granted special leave to appeal.
In Politarhis & Anor v Westpac Banking Corporation (No 2),[1] the Full Court considered whether an order for possession should be stayed pending the making of an application to the High Court for special leave to appeal against a decision of the Full Court. In considering that question, the Chief Justice observed that there are three questions to be considered. First, the question of whether there is a substantial or realistic prospect that special leave to appeal will be granted by the High Court. Second, whether the grant of a stay will cause loss to the successful party. Third, the balance of convenience.[2]
[1] [2009] SASC 109.
[2] See also Jennings Constructions Ltd v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681, 685; Re The Duke Group Ltd (In Liq) and Corporations Law of South Australia; Gerah Imports Pty Ltd v The Duke Group Ltd (In Liq) (1994) 119 ALR 401, 403; Bryant v Commonwealth Bank of Australia Ltd & Ors (1996) 134 ALR 460, 461; Zollo v National Australia Bank Ltd & Ors; National Australia Bank Ltd v Zollo (Unreported, Supreme Court of South Australia, Doyle CJ, 12 June 1997).
As observed by Doyle CJ in Politarhis, the question of the prospects of the application for special leave to appeal succeeding in the High Court is one to which the Court must have regard. However, it is not appropriate for this Court to embark upon a detailed consideration of this question. I do not intend to embark upon such a detailed consideration, but I do conclude that the prospects of the applicant being granted special leave to appeal are remote, for the following reasons. First, the conclusion that the RCL Act does not create statutory rights that prevail over the interest of a third party holding a registered interest under the Real Property Act is compelling. Both the Chief Justice and the Full Court addressed the question. The Chief Justice, after considering the RCL Act in detail, concluded:[3]
There is nothing in its purposes, objects or scheme that indicates an intention to create statutory rights for a lessee that prevail over the interest of a third party holding a registered interest under the RPA.
[3] Epworth Group Holdings Pty Ltd v Permanent Custodians Limited [2010] SASC 327, 11 [65], [67].

He concluded that the RCL Act is to be read as operating as between lessor and lessee, and as striking a balance between their interests. It is not to be read as conferring on a lessee rights that would take priority over registered interests under the Real Property Act, contrary to the provisions of the Real Property Act. Second, even if there were an inconsistency, section 6 of the Real Property Act 1886 (SA) provides a complete answer. That section was considered by the High Court in South-Eastern Drainage Board (SA) v Savings Bank of South Australia.[4] Dixon J observed:
In interpreting any later enactment which might otherwise be construed as affecting land under the Act in a manner inconsistent with the Real Property Act, in order to give effect to sec.6 the court should, in the absence from the enactment of the prescribed words, treat the general expressions as not including land under the Act. But, if the later enactment contains clear language from which it is plain that its provisions were intended to apply to land under the Act and to apply in a manner inconsistent with the Real Property Act, then they must operate according to their meaning. For the later enactment of the legislature must be given effect at the expense of the earlier. But, unless it is found impossible to reconcile the later statute with sec. 6, there is no room for the conclusion that the later Act must be regarded as meaning to operate upon land under the earlier Act and to do so inconsistently therewith. …[5]
[4] (1939) 62 CLR 603.
[5] South-Eastern Drainage Board (SA) v Savings Bank of South Australia (1939) 62 CLR 603, 625, as cited in Epworth Group Holdings Pty Ltd & Anor v Permanent Custodians Ltd [2011] SASFC 32, 11 [46].
In my view, the appeal is unlikely to obtain special leave to appeal.
Further, the applicant has failed to comply with the conditions of orders made by the Chief Justice. It now seeks to submit that the monies paid pursuant to the condition, which specifically provides that the monies be paid into Court and to Kelly & Co for and on behalf of Permanent Custodians, are monies to which Permanent Custodians are not entitled. It seeks to challenge Permanent Custodians’ right to receive those monies. I consider the submission is untenable. The condition to which the applicant agreed is unambiguous. The monies the subject of condition 3.4 are to be paid by Epworth Group to Kelly & Co Trust Account for and on behalf of Permanent Custodians. If the applicant considered that Permanent Custodians were not entitled to receive those monies, it should not have agreed to the condition or, at the very least, indicated its position to the Chief Justice. The position it now pursues demonstrates that it has not been consistent in its approach to resist Permanent Custodians taking possession.
As to the question of whether Permanent Custodians will suffer loss if the order is made, Permanent Custodians relies upon the affidavit of Christopher Robert Powell, who is a joint and several receiver and manager of Y H Epworth. He deposes that the debt owed as at 5 May 2011 by Epworth Group to Permanent Custodians is $9,670,877.80. Interest on that debt accrues at $88,966.72 per month. According to Mr Powell, the value of the land is substantially less than the debt secured by the mortgage over the land. It follows that Permanent Custodians is therefore prejudiced by any further delay in obtaining possession. He deposes that he has received advice from Philip Rundle of CB Richard Ellis, agents retained to sell the land, who has indicated that, in order for the mortgagee to obtain the best price for the property, it is necessary to have tenants paying rent pursuant to a commercial lease or, alternatively, to have vacant possession. To have the Epworth Group in possession, denying its liability to pay rent, would seriously and adversely affect the purchase price in respect of the property.
Mr Stevens, in response to that submission, submits that the applicant would be prepared to enter into negotiations with any prospective purchaser to enter into a new lease. Therefore, the position of Permanent Custodians in respect of the sale is not prejudiced. I reject that submission. I am satisfied that, in order for Permanent Custodians to obtain the best price for the building, vacant possession is required. Alternatively, the premises should be leased under commercial terms at market rate.
Further, I conclude that the applicant has not prosecuted its application for special leave expeditiously. Mr Stevens submitted that the application had not been lodged because Senior Counsel has not had an opportunity to settle the application. Mr Stevens was unable to tell me when it is likely that an application for special leave might be considered by the High Court. In my view, there has been a failure by the applicant to pursue its remedy in the High Court expeditiously.
A further factor to which I have regard is that the applicant has failed to comply the condition 3.4 of the orders made by the Chief Justice on 15 October 2010 until 10 May 2011. The granting of a stay pending an application for special leave is an exceptional remedy. In my view, the balance of convenience favours Permanent Custodians. Permanent Custodians will continue to suffer loss until the premises are vacated. If the appeal to the High Court is successful, the applicants have their remedy in damages.
In an affidavit of Mr McNamara of 10 May 2011, he deposes that the applicant, C&G, expects to finalise negotiations for the lease of alternative premises during the week commencing 8 May 2011. He deposes that, in order for those premises to be fit for occupation by a legal firm, it will take approximately 14 days to install telephone and computer services. A further seven days is sought to move files and furniture and to set up the office. He seeks a variation of the order to vacate the premises on 31 May 2011.
The applicant seeks repayment of monies paid to Kelly & Co Solicitors for Permanent Custodians, pursuant to the orders of the Chief Justice. The application should be refused. Epworth Group and C&G agreed to the conditions which provided that the monies were to be paid for and on behalf of Permanent Custodians. The monies were paid as a price for C&G to continue to occupy the premises. For Epworth Group and C&G to now suggest that Permanent Custodians has no entitlement to those monies is inconsistent with its position taken before the Chief Justice. If that were their contention, the Chief Justice should have been advised and they should have declined to agree to paragraph 3.4 of the condition in its terms. I therefore reject the application.
The application for a stay is refused. Having regard to the affidavit of Mr McNamara, I will hear the parties on the question of a variation of the order to extend the time within which the applicant is required to deliver up possession of the premises.