G & M Dawson Pty Limited v Cripps, Jones & Anor

[2003] NSWADT 274

CITATION:	G & M Dawson Pty Ltd v Cripps, Jones & Anor [2003] NSWADT 274
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT G & M Dawson Pty Ltd FIRST RESPONDENT Kerrie Frances Cripps SECOND RESPONDENT Madonna Kaye Jones THIRD RESPONDENT H G & R Securities Pty Limited
FILE NUMBER:	025079
HEARING DATES:	14, 15, 16, 26/05/03, 16/07/03
SUBMISSIONS CLOSED:	07/30/2003
DATE OF DECISION:	12/23/2003
BEFORE:	Montgomery S - Judicial Member
APPLICATION:	Claim for payment of money
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Conveyancing Act 1919 Real Property Act 1900 Retail Leases Act 1994
CASES CITED:	Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 Bahr v Nicolay No. 2 (1987-1988) 164 Chaisumdet v Ming On Trading Pty Ltd (1990) NSW ConvR 58 - 518 Crown Street Pty Limited v Hoare [1969] 1 NSWR 193 Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 Heggies Bulkhaul v Global Minerals Australia [2003] NSWSC 851 Hide & Skin Trading Pty Limited v Oceanic Meat Traders Limited (1990) 20 NSWLR 310 Secured Income Real Estate (Australia) Ltd v St. Martins Investments Pty Ltd (1979) 144 CLR Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198 Zaoud v Musico & Anor [2001] NSW ADT 58
REPRESENTATION:	APPLICANT S Y Reuben, counsel FIRST AND SECOND RESPONDENT D Robertson, counsel THIRD RESPONDENT C Champion, counsel
ORDERS:	1 Kerrie Frances Cripps and Maddona Kaye Jones are jointly and severally liable to pay to G & M Dawson Pty Limited the amount of $3,115.00. This amount is to be paid within 21 days of the date of these reasons.; 2 Each party is invited to file written submissions in relation to the issues of interest or costs within 28 days of the date of these reasons. Any submissions in reply are to be filed and served within a further 14 days.

1 This is an application by G & M Dawson Pty Limited (“Dawson”) for orders in relation to a retail shop lease of the premises at Shop 1 Eton Arcade, 754-760 Princes Highway, Sutherland (“the Premises”). The Applicant was the lessee of the Premises under a lease dated 20 November 1991 (“the 1991 Lease”). The 1991 Lease and its options terminated on 20 July 1998 however Dawson remained in possession. As the mortgagee in possession of the Premises H G & R Securities Pty Limited (“HGR”) was the lessor.

2 By a contract of sale dated 21 September 2000 (“the Contract of Sale”) HGR agreed to sell the Premises the freehold land on which the Premises are located (“the Property”) to the First and Second Respondents (“Cripps & Jones”). At that time, Dawson had lodged a caveat on the title in respect of its lease.

3 Dawson and HGR entered negotiations with respect to a new lease for the Premises. By an instrument dated 3 November 2000 ("the Lease") Dawson and HGR purported to enter into a lease of the Premises for a term of 3 years commencing on 16 June 2000 and terminating on 15 June 2003, together with an option to renew for a period of 3 years.

4 Clause 11.4 of the Lease provides that the landlord must ensure that the Lease is registered. On or about 17 October 2000 Dawson forwarded the duly executed Lease together with a cheque in payment of stamp duty to HGR’s solicitors (“Brown”) so they might attend to registration of the Lease.

5 At the request of Brown, Dawson furnished a Withdrawal of Caveat in respect of the Lease on 31 October 2000. The Withdrawal of Caveat was to be held by Brown in escrow pending confirmation that HGR had signed the Lease and that it would be registered on settlement.

6 The transfers of the Property to Cripps & Jones and a mortgage to the in-coming mortgagee (“Westpac”) with respect to the Property have been registered. The Lease has not been registered.

7 On 31 May 2002 Dawson entered an agreement (“the Kilbane Agreement”) to sell its business to John Anthony Kilbane and Tanya Gaye Kilbane (“Kilbane”). The contract price for the sale to Kilbane was $130,000.00. Clause 29 of the Kilbane Agreement provided that the sale was to be subject to the existing lease. A copy of the Lease was attached to the contract. Clause 29.4 of the Kilbane Agreement permitted Kilbane to rescind the agreement if the landlord did not consent to the transfer of the Lease.

8 On 3 June 2002 Dawson requested that Cripps & Jones consent to a transfer of the Lease to Kilbane and requested information as to Cripps’ & Jones’ requirements in respect of the transfer. Cripps’ & Jones’ solicitors (“Holt & Allen”) subsequently advised that there was no lease in registrable form and an assignment was not permissible.

9 By letter of 27 June 2002 Kilbane's solicitors advised Dawson that they would proceed to rescind the contract if the assignment of the Lease was not received by 28 June. The assignment was not received and Kilbane rescinded the contract.

10 Dawson subsequently entered an agreement to sell its business to Mr. Qing Yao Song for a contract price of $28,000. That agreement is dated 7 April 2003.

The orders sought

11 Dawson filed Points of Claim seeking various orders in relation to the Lease and the loss of the sale to Kilbane. The orders sought were set out in paragraph 30 of the Points of Claim in the following terms:

“30 The Applicant claims

(i) A declaration that G & M Dawson Pty Limited has a valid and subsisting lease in respect of all that shop premises being Shop 1, Eton Arcade, 754 Princes Highway, Sutherland for a term of 3 years commencing 16 June 2000 and terminating on 15 June 2003 together with an option to renew for a period of 3 years as set out in the said lease.


(ii) a declaration that the registered proprietors of the reversion, the First and Second Respondents, were in breach of the lease by withholding consent to the assignment of the rights of the applicant as lessee to John Anthony Kilbane and Tania Gaye Kilbane.


(iii) an order that the First and Second Respondents and/or the Third Respondent do all acts and things necessary to cause the said lease to be registered at the Land Titles Office on the title of the land to which the lease relates.


(iv) unliquidated damages against the First and Second Respondents by reason of (a) the failure to register the said lease; (b) unreasonably withholding consent to the assignment of the said lease contrary to the terms thereof or contrary to law.


(v) further or in the alternative unliquidated damages against the Third Respondent arising from its failure to register the said lease.


(vi) costs as against the First and Second Respondents and the Third Respondent as the Tribunal may in the circumstances determine including an order that the First and Second


Respondent pay any costs that the Applicant may otherwise be obliged to pay to the Third Respondent as a result of this application in accordance with the principles in Bullock v London General Omnibus.”

12 The orders sought were subsequently amended as follows:

“3 In these circumstances, if the decision is handed down after the expiry date of the lease, the Applicant may not require an order in terms of paragraph 30(iii) of the Points of Claim (as amended) requiring steps to be taken to obtain the registration of the lease at the Land Titles Office or LPI.


4 This is a matter which the Applicant needs to bring to the Tribunal's attention. It is submitted that the only significance of this matter is that it relieves the Tribunal of having to give consideration to the implications of making an order that the First and Second Respondents and/or the Third Respondent do all acts and things necessary to cause a lease to be registered in accordance with the provisions of the said lease operating between the parties.


5 The Applicant nevertheless still requires a determination to the effect that those matters in paragraph 30(i) of the Points of Claim being a declaration that G & M Dawson Pty Limited had a valid and subsisting lease in respect of all that shop premises being Shop 1, Eton Arcade, 754 Princes Highway, Sutherland for a term of 3 years commencing 16 June 2000 and terminating on 15 June 2003 together with an option to renew for a period of 3 years as set out in the said lease. This will enable consideration to be given to the exercise of the option, as the parties may be advised.”

13 HGR filed a cross claim in which it sought orders against Cripps & Jones to the extent of any liability found against it.

14 It is common ground that the Lease was never registered. It is also common ground that Clause 11.4 of the Lease provided that HGR must ensure that the Lease is registered.

The Contract of Sale

15 HGR entered into the Contract of Sale as mortgagee in possession. Settlement of that sale took place on 20 November 2000. Special Conditions in the Contract of Sale specifically deals with tenancies. Insofar as is relevant to these proceedings the Special Conditions provided:

“29. Definitions

"New Tenancy" means a tenancy affecting the property and entered into after the date of this Contract.


"Tenancies" means each of the tenancies affecting the property certain particulars of which are contained in the Tenancy Schedule and where the context permits any New Tenancies.


"Tenancy document" means each agreement evidencing the Tenancies existing at the date of this contract in the possession of the vendor


"Tenancy Schedule" means the Schedule annexed to the Contract and marked "A"


"Tenants" means each of the tenants, lessees under the Tenancies.



…


33. a) Completion of this Agreement shall take place on or before forty-two (42) days from the date hereof.


b) On completion the Purchaser will accept any or all of the following documents in registrable form as may relate to the title to the property and shall not be entitled to insist upon prior registration thereof:-


i) a withdrawal of any caveat;


ii) a discharge of any mortgage or encumbrance:


iii) a withdrawal of any writ of execution or evidence usually required by the Registrar General to enable removal thereof.



c) The vendor shall on completion allow the appropriate registration fees to the Purchaser in respect of any of the documents referred to in sub-clause (b) hereof.


…


50. Tenancies


50.1 Tenancy Documents


The purchaser acknowledges that before the date of this contract it inspected a copy of the Tenancy Documents which form part of the contract.


50.2 Tenancy terms


The purchaser confirms it has satisfied itself in all respects and made its own investigations and enquiries as to all matters relating to the terms, nature, status and enforceability of each of the Tenancies.


50.3 Sale subject to Tenancies


The property is sold and the purchaser takes title subject to the Tenancies.


50.4 Acceptance of Tenancies


The purchaser is not entitled to rescind, terminate or delay completion of this contract, nor to object, requisition or make any claim (including a claim under clause 6 of this contract) on any of the following grounds:


(a) by reason of any term of any Tenancy Document;


(b) in relation to the use of any premises the subject of the Tenancies;


(c) in relation to any outstanding breach of any Tenancy;


(d) on the grounds that any term of any Tenancy Document is or may be unenforceable or that any Tenancy is unenforceable or open to termination or being avoided;


(e) any failure by the vendor or any Tenant to have obtained any development approval, building approval or other approval required by any Government Agency in respect any Tenancy or anything done by any of the Tenants under any Tenancy;


(f) any failure by the vendor or any Tenant to have complied with any legislation relevant to the Tenancies including without limit the Retail Leases Act 1994 and the Residential Tenancies Act 1987; or


(g) any failure by the vendor to take any action to enforce any term of any Tenancy.



50.5 No warranty


The vendor does not warrant or represent:


(a) that all or any of the Tenancies will be in force as at completion or in existence at completion.


(b) that the Tenants will not be in breach under the Tenancies as at completion.


(c) that the Tenants will be in occupation of any premises as at completion.


(d) the ability of any Tenants to comply with their obligations under the Tenancies.



The purchaser is not entitled to rescind, terminate or delay completion of this contract, nor to object, requisition or make any claim (including a claim under clause 6 of this contract) because of any matter referred to in this clause occurring on or before completion.


50.6 Formalities


(a) The vendor will not be required to take any action to remove from the folio of the Register at the New South Wales Land Titles Office the registration of any lease or tenancy which has terminated or expired on or before completion.


(b) The purchaser is not entitled to rescind, terminate or to delay completion of this contract, nor to object, requisition or make any claim (including a claim under clause 6 of this contract) on the ground that any Tenancy Document is not stamped or registered at the time of completion.


(c) If any Tenancy Document is not stamped or registered at completion, the vendor will allow an adjustment at, completion for any stamp duty and registration fees to the extent received by the vendor from any tenant. The purchaser undertakes to attend to the stamping and registration of those Tenancy Documents promptly after completion and to forward a stamped copy of those registered Tenancy Documents to the Tenant.



50.7 Transfer of obligations


(a) Leases


(i) From completion the vendor transfers to the purchaser all its rights and obligations under the terms of the Tenancies to be performed by the Tenants whether or not such terms touch and concern or run with the Land.


(ii) From completion the purchaser:



(A) will comply with all the obligations of the vendor under the terms of the Tenancies whether or not such terms touch and concern or run with the land and will sign at the request of the vendor any deed or other document with any Tenant under which the purchaser and its successors in title agree to be bound by all terms of the Tenancies whether or not such terms touch and concern or run with the Land. The deed will be in a form reasonably required by the vendor and the vendor will pay the costs of preparation, execution and stamping of that deed; and


(B) will be liable for and indemnifies the vendor against any claim, action, damage, loss, liability, cost, charge, expense, outgoing or payment arising from or in any way connected with any breach, inaction or default of any obligations of the purchaser as lessor, or under any matter or event arising under or in connection with, the Tenancies occurring after completion (including as a result of any action of any transferor or successor in title of the purchaser).



50.8 No dealings


(a) Except where the vendor is required under the terms of any Tenancy, the vendor agrees that after the date of this contract it will not before completion without the prior consent of the purchaser which will not be unreasonably withheld:


(i) negotiate or enter into any New Tenancy including any further lease to an existing Tenant;


(ii) consent to any variation, assignment, transfer or surrender of any Tenancy;


(iii) consent to any sub-lease or sub-tenancy relating to the Tenancies;


(iv) terminate any Tenancy or exercise any right of forfeiture or re-entry or waive any breach of any term of any Tenancy Document; or


(v) carry out any rent review under any Tenancy Document,


(b) the vendor is not under any obligation to take action to enforce any term of any Tenancy prior to completion.



50.9 Rent and arrears


(a) Adjustment


The purchaser must allow to the vendor and the vendor is entitled to (whether or not received by the vendor) all rent, outgoings and other periodic amounts payable under the Tenancies (except for any Bad Debts) for the period up to and including the date of completion.


(b) Recovery of arrears


(i) The vendor assigns to the purchaser on completion its rights to receive all amounts under the Tenancies and which had not been paid to the vendor on or prior to the date of completion.


(ii) The purchaser acknowledges that the vendor reserves at any time after completion the right to pursue proceedings against any Tenant and any guarantor for the recovery of any Bad Debt in the vendor's name.


(iii) The vendor agrees that it will give prior notice to the purchaser of an intending legal action to recover any Bad Debt.


(iv) The purchaser must at the cost and request of the vendor render any reasonable assistance as may be required for the recovery of any Bad Debt, including if required any formal assignment of debt relating to any Bad Debt and the provision of any notice to any Tenant.



(c) Receipts by vendor


The vendor must pay to the purchaser within 7 days of receipt all amounts received on account of rent, outgoings and any other amounts payable under the Tenancies (except for any Bad Debts) which relate to any period after completion and any period before and up to completion where the amount received has been allowed or paid by the purchaser in favour of the vendor.


(d) Receipts by purchaser


The purchaser must pay to the vendor within 7 days of receipt all amounts received on account of rent and any other amounts payable under the Tenancies which relate to any Bad Debt.


(e) Tenant Records


After completion the vendor will provide to the purchaser such tenancy information and records held by the vendor and which may be reasonably required by the purchaser to assist the purchaser in the recovery of any outgoings, operating expenses or similar contributions for the property under the terms of the Tenancies.


(f) Tenant caveats


If any Tenant lodges a caveat on the title to the Land for its interest under any Tenancy then the purchaser must, at the request of the vendor, do all things as may be reasonably required by the vendor to ensure that the rights of the caveator are recognised before completion including the execution of any deed of covenant or other formal acknowledgment so as to allow the withdrawal of the caveat or required to obtain the caveator's consent to transfer the property to the purchaser.”

16 The Tenancy Schedule to the Contract of Sale contains the following provision with respect to the Premises:

Premises
Shop 1
Lessee
G &-M Dawson Pty Ltd – New Lease for current tenant submitted for rental shown
Commence

Terminate

RENT/p.m.
$2,708.33

Correspondence regarding registration of the Lease

17 It is not in dispute that prior to settlement there was correspondence between Brown and Holt & Allen with respect to the registration of the Lease. On 2 November 2000 Holt & Allen wrote to Westpac's solicitor informing him of the stamped leases that would be handed over on settlement, and which `are to be lodged prior to the Transfer to our client and Mortgage to your Bank'. The leases identified in that letter included a lease to Dawson.

18 By letter dated 15 November 2000 Holt & Allen wrote to the solicitor for Westpac providing the same with an undertaking “to use best endeavours and act as expeditiously as possible to comply with any requisition that may be raised by the Land Titles Office regarding any Leases lodged for registration prior to the Transfer to our clients” and that Holt & Allen “would endeavour to have all requisitions complied within fourteen (14) days of such being raised”.

19 By letter dated 16 November 2000 Brown informed Holt & Allen of the proposed agenda for the settlement. The agenda included a reference to the Lease and the following statement: "Please note that these leases all need to be registered prior to the registration of the Transfer to the purchaser''.

20 By letter dated 20 November 2000 Brown informed Holt & Allen of the details of Dawson’s solicitors, and asked that they be provided with a copy of the Lease after Holt & Allen had attended to registration.

21 By letter dated 5 December 2000, Holt & Allen informed Brown that the Land Titles Office had rejected the Lease for the reason that they were not accompanied by a statutory declaration by HGR dealing with certain identified matters. Brown provided Holt & Allen with requisite declaration under cover of a letter dated 8 February 2001.

22 Holt & Allen sent the Lease and the declaration to Westpac on 16 February 2001. On 20 February 2001 Westpac returned the Lease to Holt & Allen as unregistrable because the transfer and mortgage had been registered on 5 February 2001.

The Dispute

23 Dawson asserts that HGR has failed to satisfy its obligation under Clause 11.4 of the Lease to ensure that the Lease is registered. In turn, HGR asserts that Cripps & Jones accepted responsibility for registration of the Lease pursuant to special clause 50 of the Contract of Sale.

24 Dawson further asserts that Cripps & Jones accepted the obligation to register the Lease. Dawson had provided a Withdrawal of Caveat to permit the transfer of the Property to be registered. The failure by Cripps & Jones to recognise that Dawson has an assignable Lease together with an option amounts to an equitable fraud upon the lessee and constitutes an exception to the general provisions relating to indefeasibility of title under Section 42 of the Real Property Act 1900. Consequently relief is available against the party who failed to comply with its obligations.

25 HGR argues that it was obligated to use its best endeavours to ensure that the Lease was registered and that it has met this obligation. Ms Campion’s submission is that, at all relevant times, Dawson was aware and had notice of the fact that HGR was signing the Lease as mortgagee in possession, that it had entered into a contract for the sale of the Property with Cripps & Jones and that the proposed settlement date was in early November 2000. As of 30 October 2000 Dawson was aware that HGR was unable to effect registration of the Lease prior to settlement due to Dawson’s caveat and that Dawson needed to provide HGR with a Withdrawal of Caveat for the settlement. Dawson was also aware that on settlement the Lease would be handed to the solicitor for Cripps & Jones for registration.

26 Dawson forwarded the Withdrawal of Caveat to HGR on 31 October 2000. The covering letter required that the Withdrawal of Caveat be held in escrow pending confirmation that HGR had signed the Lease and that it would be registered on settlement. It is not in dispute that HGR had signed the Lease prior to settlement.

27 HGR further asserts that the Contract of Sale imposed a contractual obligation on Cripps & Jones to attend to the registration of the Lease. It argues that pursuant to clause 50.3 Cripps & Jones took an unencumbered fee simple subject to the Tenancies. Further, pursuant to clause 50.6(c) Cripps & Jones undertook to attend to the stamping and registration of the Tenancy documents not stamped or registered at completion, promptly after completion and to forward a stamped copy of those registered Tenancy documents to the Tenant. It is common ground that the unsigned Lease formed part of the Tenancy documents to the Contract of Sale.

28 Pursuant to clause 50.7(a)(ii)(A) Cripps & Jones agreed that upon completion they would comply with all of HGR’s obligations under the terms of the Tenancies. HGR asserts that one of its obligations under the Lease with which Cripps & Jones agreed to comply was to ensure that the Lease is registered.

29 HGR denies that it failed to respond to requests from Holt & Allen in a timely manner as regards the requisitions raised by the Land Titles Office and submits that it did all acts and things that were within its power to do in order to ensure that Cripps & Jones registered the Lease prior to the Transfer.

30 Cripps & Jones admit that Brown handed the Lease and a Withdrawal of Caveat to Holt & Allen on settlement of their purchase from HGR on 17 November 2000. They also admit that they did not obtain registration of the Lease but deny that they were under any obligation to do so.

31 Cripps & Jones deny that HGR was empowered to grant a lease of the Premises, under section 106 of the Conveyancing Act 1919 or otherwise; do not admit the Lease was in the approved form, for the purposes of section 53 of the Real Property Act; and say that, since the instrument was not registered as provided for under the Real Property Act, it failed to give rise to a valid legal interest pursuant to section 41 of that Act and the transaction therefore could take effect only as an agreement for lease, between HGR and Dawson.

32 Cripps & Jones also assert that the mortgagors of the Property and their estate and interest in the Property was not bound or affected by the Lease, and in particular, by the purported option to renew; and that, upon registration of the Transfer from HGR in favour of Cripps & Jones, Cripps & Jones became vested with the estate and interest of the mortgagors of the Property, pursuant to section 59 of the Real Property Act.

33 Cripps & Jones deny that the Lease purported to operate as a retail shop lease within the meaning of the Retail Leases Act 1994 (“the RLA”) or that it purported to be granted pursuant to the provisions of that Act. They admit that the sale was subject to tenancies, including a tenancy at a monthly rental of $2,708.33 in favour of Dawson, but rely on the contents of the Tenancy Schedule annexed to the contract as showing Dawson as a month-to-month tenant only. Cripps & Jones also rely on the doctrine of privity of contract and deny that the contract between HGR, as vendor, and Cripps & Jones, as purchasers, is capable of conferring any legal or equitable rights in favour of Dawson. They say that Dawson is not entitled to any of the claims for relief it makes against them.

34 In answer to the whole of Dawson’s Points of Claim Cripps & Jones rely upon their status as the registered proprietors of the freehold and the doctrine of indefeasibility of title, in accordance with the provisions of the Real Property Act and, in particular, section 42 of that Act. They argue that the Lease provides for a term in excess of that permitted under section 42(1)(d) of the Real Property Act and as such, the estate and interest of Cripps & Jones in the Property is paramount to and has priority over and is absolutely free from any estate or interest of Dawson in the Property.

35 Further, Cripps & Jones argue that even if they were bound by the Lease and the option to renew contained in it, they deny that it was inevitable or probable that they would have been required to give or that they would have given their consent to a transfer of Dawson's interest to Kilbane unless it can be shown that Kilbane could have demonstrated financial resources and retailing skills which were not inferior to those of Dawson. Cripps & Jones also deny that Dawson has suffered any loss by reason of the facts alleged by Dawson or any loss that was a natural or usual consequence of the alleged default of Cripps & Jones or any loss that was in the contemplation of the parties at the time of execution of the Lease. Cripps & Jones argue that the sale price of $130,000 under the Kilbane Agreement was a price corresponding to the value of Dawson's equipment and there was no amount for goodwill payable under the terms of that Agreement.

36 Mr Robertson also submits that on 7 April 2003 Dawson received payment under the contract with Mr Song and handed the business and the Premises over to Mr Song. Mr Dawson has not been back to the Premises in any proprietorial context. Mr Robertson argues that there is repudiatory conduct by Dawson, and surrender of the Premises and demand of repayment of rent. Dawson has effectively abandoned the Premises. Mr Dawson purported to acknowledge that he remained liable for the Lease, but that would be the case whether or not an assignment had been granted. In seeking what is effectively an order of specific performance of an agreement for the Lease, Dawson must be put in a position to comply with its obligations pursuant to the Lease. Pursuant to clause 6 of the Lease one of Dawson’s obligations is that it conducts the business and keep the shop open. Equally, Dawson must retain possession. To abandon possession to a third party puts it out of the hands of Dawson to obtain a legal lease of the Premises.

Findings with respect to HGR’s obligations under the Lease

37 Contrary to the argument raised by Cripps & Jones, it is my view that HGR was authorised to enter into the Lease as mortgagee in possession under the relevant registered Mortgage. HGR and Dawson negotiated the Lease on commercially viable terms in accordance with HGR's authority. In my view the Lease did not contravene the provisions of section 106(3) of the Conveyancing Act 1919, as the Lease term did not exceed 5 years. Unlike section 42(d) of the Real Property Act the five-year provision referred to in section 106(3) of the Conveyancing Act does not take account of any additional term that may be acquired by the exercise of an option.

38 The Lease is a retail shop lease for the purposes of the RLA.

39 Clause 11.4 of the Lease clearly imposes an obligation on HGR to ensure that the Lease is registered. There is no doubt that HGR failed to meet this obligation. It is equally clear that Dawson has no direct relationship with Cripps & Jones that would provided it with a basis for action to compel Cripps & Jones to register the Lease.

40 Nevertheless, I am satisfied that at all relevant times Dawson was aware that HGR was negotiating for the sale of the Property to Cripps & Jones and that the Lease was to be registered at the time of settlement of that sale.

Findings with respect to the construction of the Contract of Sale

41 As noted above, HGR asserts that the Contract of Sale imposed a contractual obligation on Cripps & Jones to attend to the registration of the Lease. Cripps & Jones admit that they did not obtain registration of the Lease but deny that they were under any obligation to do so. In order to resolve this impasse it is necessary to consider the relevant provisions of the Contract of Sale and determine whether or not it imposes such an obligation on Cripps & Jones.

42 I agree with HGR’s submission that the Contract of Sale should be construed with a view to making commercial sense of it. In the Court of Appeal decision in Hide & Skin Trading Pty Limited v. Oceanic Meat Traders Limited (1990) 20 NSWLR 310 Kirby P stated at 313-314:

“Whoever may be the parties to the agreement, it is the fundamental rule, that a court should give the words of a written agreement the natural meaning that they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, courts will endeavour to avoid a construction which makes commercial nonsense or is shown to be commercially inconvenient. This is because courts will infer that commercial parties will not themselves normally agree in such away.”

43 I am satisfied that on its proper construction the Contract of Sale imposes on Cripps & Jones the obligation as asserted by HGR. Clause 50.3 of the Contract of Sale provides that Cripps & Jones took the Property subject to the Tenancies. The date of the Contract of Sale was 21 September 2000. The Lease had not been finalised on 21 September 2000. However, the definition of "Tenancies" in clause 29 of the Contract of Sale indicates that it was intended that the sale be subject to at least some tenancies entered after 21 September 2000. These “new tenancies” were to be included within the meaning of the expression “tenancies” “where the context permits”.

44 I am satisfied that Cripps & Jones were aware that HGR was a mortgagee in possession, that Dawson occupied the Premises under a previous tenancy, and that HGR and Dawson were negotiating for a new lease. The Contract of Sale included a copy of the previous lease to Dawson, the caveat placed on the title by Dawson, a copy of the draft Lease submitted to Dawson, and a Tenancy Schedule that included a reference to the draft Lease. In my view the inclusion of those documents in the Contract of Sale put Cripps & Jones on notice of the terms of the Lease.

45 The context permits a construction that would include the Lease within the definition of Tenancies. This construction also makes commercial sense of the document.

46 I find as a fact that the Lease was a "Tenancy document" in the context of the Contract of Sale. The effect of clauses 50.3, clause 50.6(c) and 50.7 of the Contract of Sale is to shift HGR’s obligations with respect to the Lease onto Cripps & Jones. Clearly, this obligation included the obligation to register the Lease.

Findings with respect to the provisions of the Real Property Act 1900

47 Section 53(1) of the Real Property Act provides that a lease for any term of years exceeding 3 years is to be executed in the approved form. For the purposes of section 53 a lease for less than 3 years with an option to renew is not required to be registered: 195 Crown Street Pty Limited v Hoare [1969] 1 NSWR 193.

48 Sections 41 and 42 the Real Property Act provide:

“41 Dealings not effectual until recorded in Register

(1) No dealing, until registered in the manner provided by this Act, shall be effectual to pass any estate or interest in any land under the provisions of this Act, or to render such land liable as security for the payment of money, but upon the registration of any dealing in the manner provided by this Act, the estate or interest specified in such dealing shall pass, or as the case may be the land shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such dealing, or by this Act declared to be implied in instruments of a like nature.”


“42 Estate of registered proprietor paramount

(1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except:


(a) the estate or interest recorded in a prior folio of the Register by reason of which another proprietor claims the same land,


(a1) in the case of the omission or misdescription of an easement subsisting immediately before the land was brought under the provisions of this Act or validly created at or after that time under this or any other Act or a Commonwealth Act,


(b) in the case of the omission or misdescription of any profit à prendre created in or existing upon any land,


(c) as to any portion of land that may by wrong description of parcels or of boundaries be included in the folio of the Register or registered dealing evidencing the title of such registered proprietor, not being a purchaser or mortgagee thereof for value, or deriving from or through a purchaser or mortgagee thereof for value, and


(d) a tenancy whereunder the tenant is in possession or entitled to immediate possession, and an agreement or option for the acquisition by such a tenant of a further term to commence at the expiration of such a tenancy, of which in either case the registered proprietor before he or she became registered as proprietor had notice against which he or she was not protected: Provided that:


(i) The term for which the tenancy was created does not exceed three years, and


(ii) in the case of such an agreement or option, the additional term for which it provides would not, when added to the original term, exceed three years.


(iii) (Repealed)


(2) In subsection (1), a reference to an estate or interest in land recorded in a folio of the Register includes a reference to an estate or interest recorded in a registered mortgage, charge or lease that may be directly or indirectly identified from a distinctive reference in that folio.”

49 The combined effect of these provisions is that, in the absence of fraud, Cripps & Jones are entitled to rely upon their status as the registered proprietors of the freehold and the doctrine of indefeasibility of title as the Lease provides for a term in excess of that permitted under section 42(1)(d). It is therefore necessary to consider whether the conduct of Cripps & Jones amounts to fraud within the meaning of that term in section 42 of the Real Property Act.

50 Clause 11.4 of the Lease clearly imposes an obligation on HGR to ensure that the Lease is registered. I have found that the contractual arrangement between HGR and Cripps & Jones required that the Lease would be registered upon settlement. Dawson’s Withdrawal of Caveat was specifically furnished to permit Cripps & Jones’s registration. Dawson has argued that the failure to recognise that it has an assignable lease together with an option amounts to an equitable fraud upon the lessee of the kind discussed in Bahr v Nicolay No. 2 (1987-1988) 164 CLR 604 and constitutes an exception to the general provisions relating to indefeasibility of title under Section 42 of the Real Property Act.

51 Dawson also relies on the decision in Chaisumdet v Ming On Trading Pty Ltd (1990) NSW ConvR 58 – 518 as authority for the principle that Cripps & Jones’s obligations in respect of the Lease run with the land. Dawson asserts that Cripps & Jones’s conduct in refusing to recognise that the Lease was assignable was a breach of their obligations to recognise that as the registered proprietor of the reversion the rent and the benefit of the lessee's covenants contained in the Lease together with the obligations of the lessor are to run with the reversion pursuant to the provisions of sections 117 and 118 of the ConveyancingAct.

52 In Bahr v Nicolay, the High Court held that a purchaser had undertaken to honour a third party's unregistered interest in the land, and so was bound by that interest. It was a case of more than mere notice of the interest - the purchaser took subject to a trust in favour of the third party.

53 After an analysis of the facts, Wilson and Toohey JJ at 636-637 found that the evidence fell short of establishing that the designed object of the transfer was to cheat the third party of a known existing right. However, it did establish that the purchaser took a transfer, knowing of and accepting an obligation to the third party. At 638-639 their Honours concluded:

"By taking a transfer of lot 340 on that basis, and the appellants' interest under cl 6 constituting an equitable interest in the land, the second respondents became subject to a constructive trust in favour of the appellants: Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044; [1982] 2 All ER 953; Binions v Evans [1972] Ch 369, at 368. If it be the position that the appellants' interest under cl 6 fell short of an equitable estate, they none the less had a personal equity enforceable against the second respondents. In either case ss 68 and 134 of the Act would not preclude the enforcement of the estate or equity because both arise, not by virtue of notice of them by the second respondents, but because of their acceptance of a transfer on terms that they would be bound by the interest the appellants had in the land by reason of their contract with the first respondent."

54 Brennan J observed at 653:

“Registration of the transfer is not fraudulent merely because the transferee knows that an antecedent interest of which he has notice will be defeated thereby. … However, the title of a purchaser who not only has notice of an antecedent unregistered interest but who purchases on terms that he will be bound by the unregistered interest is subject to that interest. Equity will compel him to perform his obligation.”

55 In Chaisumdet v Ming On Trading Pty Ltd (1990) NSW ConvR 58 - 518 Lusher AJ considered a lease of property held under the Real Property Act, for a term of three years, to the defendants as lessees, containing an option for renewal for a further term of three years. The plaintiffs were the purchasers of the reversion from the original lessor. They purchased subject to existing tenancies listed in a schedule to the purchase contract, including the defendants' lease. They were even allowed a fee for registration of the Lease on settlement of the purchase. The lease was never registered. The defendants purported to exercise the option for renewal, after the plaintiffs had become registered proprietors. The plaintiffs refused to recognise this, and sought possession. The defendants cross-claimed, seeking specific performance.

56 The plaintiffs relied on section 42 of the Real Property Act and their registered title, contending that in the absence of fraud, their title was free of the Lease because, the combined term of the Lease and option exceeding three years, section 42(1)(d) did not apply. The defendants contended that the plaintiffs' conduct amounted to fraud, on the authority of Bahr v Nicolay. Lusher AJ held that it was open to the defendants to assert that they had validly exercised their option to renew the Lease, and that equity would grant specific performance of the agreement to grant a new lease for a further three years. He then said (at 58,868):

"The plaintiffs answer this approach by submitting that the plaintiffs are not parties to the original lease containing the option and there was no assignment, and there is no privity of contract between then, hence there is no equity raised as against the plaintiffs. However s117 and s118 of the Conveyancing Act 1919 in my opinion operate, particularly s118, to enable the defendant lessee to enforce the option covenant against the plaintiff lessors. That section expressed shortly enables the obligation of a covenant by a lessor may be taken advantage of and enforced by the person in whom the term is vested against the person from time to time entitled to the revision expectant on the lease. Both the sections apply to land under the Real Property Act.


These sections in my opinion together with the exercise of the option are sufficient to dispose of the matter in favour of the defendants. There is moreover the further aspect of the payment of rent by the defendant under the lease and the acknowledgment of the lease by acceptance of registration fees. However, in respect of its reliance of fraud under the sections the defendant fails.”

57 In Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198 Wood J. expressed doubt about whether Chaisumdet was correctly decided. He concluded that in any event, it was distinguishable on its facts. In Snowlong the purchaser agreed to buy a property that was tenanted under an unregistered five-year lease. The property had been transferred a number of times since the grant of the Lease, and those transfers had been registered. Accordingly, under section 127 of the Conveyancing Act 1919 the Lease had been reduced to a tenancy at will terminable on one month's notice. The contract sale provided that the Property was sold "subject existing tenancies ... particularised in the Schedule and Special [Condition] ... 19". The Third Schedule set out details of the lease, an Special Condition 19 provided that the purchaser would "abide by" the terms of the lease. A copy of the Lease was annexed to the contract. After completion, the purchaser became the registered proprietor and, relying on indefeasibility of title" sought to evict the tenant.

58 The tenant's argument was that the purchaser had bought agreeing to recognise the lease, and so, in accord with Bahr v Nicolay, held the property subject to a trust in favour of the tenant; alternatively, the purchaser's subsequent repudiation of its agreement to "abide by" the lease constituted "fraud" and brought the case within the fraud exception to indefeasibility. The purchaser's counter-argument was that before the sale, the lease was no more than a tenancy at will, and to enforce it, as the tenant sought would restore it to a five-year lease - it would give the lease a greater effect than it had before the sale.

59 Wood J. held for the tenant. He found that the purchaser had done more than merely acknowledge the existence of, and agree to abide by, the tenancy. In his Honour's view, the real question was whether, as a matter of construction of the contract for sale, the purchaser had undertaken to recognise the interest that the tenant claimed, namely a lease for five years. Wood J concluded that the contractual provisions constituted an undertaking to recognise the rights that had been spelled out in the original lease. This, he held, gave rise to a trust or a personal equity in favour of the tenant or for the purchaser to repudiate the undertaking would be "fraud". On any ground, registration of the transfer did not free the purchaser of the obligation to honour the lease as originally executed. The consequence flowed from the wording of the contract itself: the contract disclosed an intention to secure to the tenant the full rights initially conferred by the lease, even though in the interim those rights had lapsed.

60 In Heggies Bulkhaul v Global Minerals Australia [2003] NSWSC 851 Austin J stated:

“93 In the Snowlong case Wood J expressed the opinion that Chaisumdet was not correctly decided, insofar as it allowed s 118 to displace the indefeasibility provisions of the Real Property Act. I respectfully agree. The Chaisumdet case is contrary to the proposition subsequently adopted by the High Court in the Leros case, that the particular provision in s 42 overrides the general provision in s 118. It is contrary to the reasoning in Bryson J in Alcova Holdings , to the extent that his Honour asserted (at 57 and 63) that the tenant could not have obtained specific performance of the option if the freehold had been transferred during the original term - in Chaisumdet , as in Alcova Holdings , the option was for an additional term which, when added to the original term, exceeded three years and was therefore not protected by sub-paragraph (d).


94 In summary, s 118 cannot be used in the present case to give priority to HBL's equitable interest over Global's title as registered proprietor, unless there is fraud, or some other circumstances that would entitle HBL to assert its unregistered interest against Global as registered proprietor.”

61 Austin J then undertook an analysis of the principles governing the fraud exception to section 42, and governing the other circumstances in which an unregistered interest may be asserted against the registered proprietor. His Honour observed:

“96 Several propositions are clear. First, there is no fraud for the purposes of s 42 if a person does no more than to acquire title and become the registered proprietor with notice of a prior unregistered interest, and assert that his title is free of that interest: Mills v Stokman (1967) 116 CLR 61, at 78 per Kitto J; the Leros case, 174 CLR at 418 per Mason CJ, Dawson and McHugh JJ; Friedman v Barrett [1962] Qd R 498. Secondly (though not directly applicable here), once the unregistered interest is defeated by registration of an inconsistent dealing in favour of a new proprietor, it is extinguished for all purposes and cannot be asserted against any later proprietor: the Leros case, 174 CLR at 418-9 per Mason CJ, Dawson and McHugh JJ. Thirdly, ss 42 and 43 do not prevent an equitable claim being made against the registered proprietor based on the assertion that the conduct of the registered proprietor has given rise to the equity: Barry v Heider (1914) 19 CLR 197; Breskvar v Wall (1971) 126 CLR 376; Frazer v Walker [1967] 1 AC 569.


97 There is some uncertainty about the scope of the fraud exception to s 42. One view is that it is confined to fraud relating to the circumstances in which the person against whom the unregistered interest is asserted became the registered proprietor. Another view is that fraud for the purposes of s 42 extends to the registered proprietor's subsequent conduct. In Bahr v Nicolay (No 2) (1988) 164 CLR 604 the Bahrs sold land to Mr. Nicolay, who leased it back to them for three years. Their contract provided, in clause 6, that on the expiration of the lease, the Bahrs would enter into a contract to re-purchase the land. Mr. Nicolay sold the land to the Thompsons by a contract containing a provision (clause 4) by which the Thompsons acknowledged the existence of the re-purchase provision of the earlier contract. The Thompsons became the registered proprietors and informed the Bahrs that they recognised the re-purchase clause and would agree to re-sell the land on the terms of that provision. But they subsequently refused to do so.


98 The High Court held that the Bahrs were entitled against the Thompsons to specific performance of the agreement to re-sell the land. All members of the Court took the view that the agreement between Mr. Nicolay and the Thompsons, especially clause 4, involved more than a mere acknowledgement of the existence of the rights of the Bahrs under clause 6 of their contract. This was therefore not a case of a person becoming registered proprietor merely with notice of an unregistered interest. From that point the reasoning of the members of the High Court was not uniform.


99 Mason CJ and Dawson J held (at 618-9) that the Thompsons' acknowledgement created an express trust by which they held the land subject to the rights of the Bahrs under the first contract. Wilson and Toohey JJ held (at 638-9) that when they took a transfer of the land knowing of and accepting the obligation to re-sell, the Thompsons became subject to a constructive trust in favour of the Bahrs, and they remained bound by their undertaking to hold their title subject to the rights of the Bahrs notwithstanding registration of the transfer.


100 Mason CJ and Dawson J also held that the conduct of the Thompsons in repudiating their recognition of the Bahrs' equitable interest constituted fraud for the purposes of the provisions of the Transfer of Land Act of Western Australia, equivalent to ss 42 and 43 of the Real Property Act. They expressed the view that fraud, for the purpose of the statutory exception to indefeasibility, is not confined to fraud in obtaining a transfer or securing registration of it. They said (at 615):


"The section restricts, in the interest of indefeasibility of title, rights which would exist otherwise at law or in equity. And granted that an exception is to be made for fraud why should the exception not embrace fraudulent conduct arising from the dishonest repudiation of a prior interest which the registered proprietor has acknowledged or has agreed to recognise as a basis for obtaining title, as well as fraudulent conduct which enables him to obtain title or registration? In the context of a s 68 [of the Transfer of Land Act, broadly comparable with s 42 of the Real Property Act] there is no difference between the false undertakings which induced the execution of the transfer in Loke Yew [ Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491] and an undertaking honestly given which induces the execution of a transfer and is subsequently repudiated for the purpose of defeating the prior interest. The repudiation is fraudulent because it has as its object the destruction of an unregistered interest notwithstanding that the preservation of the unregistered interest was the foundation or assumption underlying the execution of the transfer."


101 Wilson and Toohey JJ did not agree with this view, because in their Honours' opinion the fraud to which the statutory exceptions relate is "fraud committed in the act of acquiring a registered title" (at 633). The evidence did not establish, in their Honours' view (at 636-7), that the transfer from Mr. Nicolay to the Thompsons was undertaken to deprive the Bahrs of their existing right to repurchase the land. The evidence showed, however, that the Thompsons took their transfer with knowledge of clause 6 and accepted an obligation to re-sell to the Bahrs, and in the circumstances they became subject to a constructive trust in favour of the Bahrs (at 638). They said (at 68-9):

"If it be the position that the appellants' interest under clause 6 fell short of an equitable estate, they nonetheless had a personal equity enforceable against the second respondents [the Thompsons]. In either case ss 68 and 134 of the Act would not preclude the enforcement of the estate or equity because both arise, not by virtue of notice of them by the second respondents, but because of their acceptance of a transfer on terms that they would be bound by the interest the appellants had in the land by reason of the contract with the first respondent."


102 Brennan J found that there was a contractual stipulation between Mr. Nicolay and the Thompsons, by which the Thompsons undertook to Mr. Nicolay hold their title subject to the Bahrs' interest, either arising out of clause 4 of their agreement or by a collateral agreement (at 651-2). He said (at 654):

"A registered proprietor who has undertaken that his transfer should be subject to an unregistered interest and who repudiates the unregistered interest when his transfer is registered is, in equity's eye, acting fraudulently and he may be compelled to honour the unregistered interest. A means by which equity prevents the fraud is by imposing a constructive trust on the purchaser when he repudiates the unregistered interest. That is not to say that the registration of the transfer to such a proprietor is affected by such fraud as may defeat the registered title: the fraud which attracts the intervention of equity consists in the unconscionable attempt by the registered proprietor to deny the unregistered interest to which he has undertaken to subject his registered title."


103 For present purposes, what emerges from the judgments is that:

(i) an unregistered interest may be asserted against the registered proprietor if there was fraud at the time of transfer or registration, under the fraud exception to s 42;


(ii) if the registered proprietor subsequently engages in unconscionable conduct intended to deny or defeat the unregistered interest, the holder of the unregistered interest may obtain relief against the registered proprietor, either because the registered proprietor's conduct comes within the fraud exception to s 42, or because the conduct creates an equity which the holder of the unregistered interest may assert against the registered proprietor;


(iii) but such an equity will not be created merely because the registered proprietor asserts his registered title after acquiring it with notice of the unregistered interest, the additional ingredient being some form of acknowledgement of the unregistered interest, or an agreement or undertaking to act in accordance with it, from which the registered proprietor later resiles.



104 The Snowlong case is an example of facts held to contain the "additional ingredient". In that case the contract of sale of land disclosed the existence of an unregistered lease agreement for a term of five years plus options. A copy of the unregistered lease agreement was annexed to the contract, and under the contract the purchaser agreed to abide by the terms and conditions of the lease. Wood J carefully analysed the judgments in Bahr v Nicolay (No 2) . His Honour found that the contract of sale gave rise to an undertaking by the purchaser to take title subject to a lease in the terms annexed to the contract. The case was not merely one of a purchaser having notice of a third party's rights, but rather it was a case where the purchaser agreed or undertook to recognise those rights. Applying the reasoning of Mason CJ and Dawson J, he found that the facts gave rise to an express trust, or in the alternative, the purchaser's subsequent repudiation of the undertaking would constitute fraud for the purposes of s 42. He expressed the view that the same result would be achieved if the reasoning of Wilson and Toohey JJ, or the reasoning of Brennan J, were to be applied.”

62 In this matter the Contract of Sale included a copy of the previous lease to Dawson, the caveat placed on the title by Dawson, a copy of the draft Lease submitted to Dawson, and a Tenancy Schedule that included a reference to the draft Lease. Under the Contract of Sale Cripps & Jones agreed to abide by the terms and conditions of the Lease. The Contract of Sale gave rise to an undertaking by Cripps & Jones to take title subject to a lease in the terms of the annexed draft Lease. This case is not merely one of a purchaser having notice of a third party's rights, but rather it is a case where the purchaser agreed or undertook to recognise those rights. In my view the "additional ingredient" referred to by Austin J is present.

63 The application of these principles to the facts that I have found in the present case leads to the view that Dawson’s unregistered interest may be asserted against Cripps & Jones’s registered interest.

64 Accordingly I declare that G & M Dawson Pty Limited had a valid and subsisting lease in respect of all that shop premises being Shop 1, Eton Arcade, 754 Princes Highway, Sutherland for a term of 3 years commencing 16 June 2000 and terminating on 15 June 2003 together with an option to renew for a period of 3 years as set out in the Lease.

65 While I am satisfied that HGR has failed to satisfy its obligation under Clause 11.4 of the Lease to ensure that the Lease is registered, Cripps & Jones accepted responsibility for registration of the Lease. I am satisfied that HGR and Brown did all acts and things that were within their power to do in order to ensure that Cripps & Jones registered the Lease prior to the Transfer. The failure of the registration of the Lease was a matter clearly within the control of Holt & Allen as solicitors for Cripps & Jones. HGR is therefore entitled to succeed in its cross claim seeking orders against Cripps & Jones to the extent of any liability found against it.

Withholding consent to the assignment to Kilbane

66 Dawson has also sought a declaration that Cripps & Jones were in breach of the Lease by withholding consent to the assignment of its rights as lessee to Kilbane. Part 5 of the RLA governs assignment of leases. Sections 39 and 41 of the RLA provide:

“39 Grounds on which consent to assignment can be withheld

(1) The lessor is entitled to withhold consent to the assignment of a retail shop lease in any of the following circumstances (and is not entitled to withhold that consent in any other circumstances):


(a) if the proposed assignee proposes to change the use to which the shop is put,


(b) if the proposed assignee has financial resources or retailing skills that are inferior to those of the proposed assignor,


(c) if the lessee has not complied with section 41 (Procedure for obtaining consent to assignment),


(d) ...



(2) This section does not preclude any right of the lessor to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with the consent, so long as the lessor has substantiated those expenses to the lessee at the request of the lessee.”


“41 Procedure for obtaining consent to assignment


A retail shop lease is taken to include the following provisions:


(a) A request for the lessor's consent to an assignment of the lease must be made in writing and the lessee must provide the lessor with such information as the lessor may reasonably require concerning the financial standing and business experience of the proposed assignee. The lessee may provide the lessor with a copy of a statement in writing that contains the information that is contained in or required to complete the form set out in Schedule 2A that has been provided to the proposed assignee. The statement may be provided if the assignment is in connection with the lease of a retail shop that will continue to be an ongoing business. The layout of the statement need not comply with that of the form set out in Schedule 2A.


(b) Before requesting the consent of the lessor to a proposed assignment of the lease, the lessee must furnish the proposed assignee with a copy of any disclosure statement given to the lessee in respect of the lease, together with details of any changes that have occurred in respect of the information contained in that disclosure statement since it was given to the lessee (being changes of which the lessee is aware or could reasonably be expected to be aware). The lessee may provide the proposed assignee with a copy of a statement in writing that contains the information that is contained in or required to complete the form set out in Schedule 2A. The statement may be provided if the assignment is in connection with the lease of a retail shop that will continue to be an ongoing business. The layout of the statement need not comply with that of the form set out in Schedule 2A.

(c) For the purpose of enabling the lessee to comply with paragraph (b), the lessee is entitled to request the lessor to provide the lessee with a copy of the disclosure statement concerned and, if the lessor is unable or unwilling to comply with such a request within 14 days after it is made, paragraph (b) does not apply to the lessee.


(d) The lessor must deal expeditiously with a request for consent and is taken to have consented to the assignment if the lessee has complied with paragraphs (a) and (b) and the lessor has not within 42 days after the request was made given notice in writing to the lessee either consenting or withholding consent.”

67 Pursuant to section 39 of the RLA Cripps & Jones were only entitled to refuse consent if Kilbane proposed to change the use to which the shop is put; or if Kilbane has financial resources or retailing skills that are inferior to those of Dawson or if Dawson had not complied with section 41 of the RLA.

68 I do not understand that it is argued that Kilbane proposed to change the use to which the shop is put. The main area of contention is whether Kilbane has financial resources or retailing skills that are inferior to those of Dawson.

69 It is conceded that Dawson had very limited financial resources and there is no evidence before this Tribunal to suggest that Kilbane did not have equal or superior financial resources. It was not a very high threshold to meet.

70 Mr Kilbane appeared and gave evidence with respect to his experience. Mr Robertson submits that the evidence does not demonstrate that Mr Kilbane did not have inferior retailing skills to those of Dawson. He submits that Mr Dawson had been in the retailing business for a very long time and knew the camera business inside out. In contrast, he submitted, Mr Kilbane claimed a knowledge of cameras and photography, but he did not have the knowledge of retailing, the experience of retailing cameras or the knowledge of cameras that Mr Dawson possesses.

71 Mr Robertson submits that a lessor is entitled to withhold consent if in fact a proposed assignee has inferior retailing skills. That entitles the lessor to withhold consent notwithstanding that objectively it might be thought the proposed assignee had reasonable retailing skills. Mr Robertson referred to views expressed by the Chief Justice in Secured Income Real Estate (Australia) Ltd. v. St. Martins Investments Pty. Ltd. (1979) 144 CLR 596 as a strong authority for the proposition that the fact that Mr Kilbane’s inferior retailing skills were not referred to in any correspondence at the time of the alleged rejection of the assignment does not prevent Cripps & Jones from relying on that proposition. He argued that Cripps & Jones were not given any information about Mr Kilbane’s retailing skills, and that was a failure by Dawson to comply with Section 41 of the RLA.

72 Mr Robertson further submits that if it could be shown that if Cripps & Jones had made further inquiries of Mr Kilbane’s retailing skills and having done so could have identified that they were inferior to Mr Dawson and therefore would have refused consent, then no damages can be shown to have flown from the refusal of consent to the assignment even if that refusal could be said to have been a breach of the contract. Mr Steege’s evidence was that he would have made such inquiries and that he would have recommended to Cripps & Jones that they not consent to an assignment of the Lease because the proposed tenant did not have sufficient retail skills.

73 As previously noted, Mr Kilbane appeared and gave evidence with respect to his experience. On the basis of that evidence I am not satisfied that of Mr Kilbane’s retailing were inferior to those of Mr Dawson. I am also satisfied that Dawson had complied with the requirements of section 41 of the RLA. It follows that I am not satisfied that Cripps & Jones were entitled to withhold consent to the assignment of the Lease.

Dawson’s claim for damages

74 Dawson has sought unliquidated damages against Cripps & Jones by reason of their failure to register the Lease and their withholding consent to the assignment of the Lease. This claim includes the costs associated with the lost sale to Kilbane as well as the difference between the sale price that would have been received from that sale and the price subsequently obtained by the sale to Mr. Song. Dawson has also sought damages as a result of its loss of profit during the period it continued to trade following the loss of the sale to Kilbane.

75 I agree with Dawson’s submission that the failure by the lessor to consent to an assignment on valid grounds will sound in damages: Zaoud v Musico & Anor [2001] NSW ADT 58. I also agree that Dawson is entitled to recover from Cripps & Jones those losses are attributable to Cripps & Jones’s failures. However, the losses that are recoverable must be directly attributable to those failures.

76 A schedule filed in the proceedings sets out a summary of Dawson’s claim relating to loss of profit. That schedule is in the following terms:

Loss of Profit to G & M Dawson Pty Limited

Legal costs on the failed sale to Kilbane

As per evidence of P Walton

Total $3,115.00 including disbursements.
Amount claimed

Exhibit A15 $3,100.00


Cost of running the business for 10 months

From 1 July 2002 to 30 April 2003.
2002

Net profit before Finance and

Owners salaries (12 months $54,182.00) $45,151.00

2003

Net loss (10 months) ($30,925.00)

Add Back

Interest payments $24,849.00

Owners salaries $21,686.00

Legal $ 6,100.00 $52,635.00

Net profit before Finance &

Owners salaries 10 months $21,710.00

Net loss for period $23,441.00

77 This item was subsequently amended to show the total loss as $26,541

78 Walton’s written outline of submissions as to damages asserted:

“30 The Kilbain's solicitors, by letter of 27 June (page 34 of the affidavit of P Walton) indicated that if the assignment of the lease was not received by 28 June as per the Contract of Sale of Business that they would proceed to rescind the contract pursuant to clause 29.4.1 of the contract. They, in fact, did rescind the contract (pursuant to clause 29.4 of the Contract of Sale of Business dated 31 May 2002) on 1 July 2002. They also made a claim against the Applicant (Ex.A2.C) for -

Legal costs thrown away at $6,330.58

and accounting fees thrown away at $1,300.00

$7,630.58

31 The economic loss sustained by the Applicant is a direct result of the First and Second Respondent's refusal to consent to the assignment of lease with the consequence that they have only been able to now sell their business for a contract price of $28,000 pursuant to a contract to Qing Yao Song. It follows from the difference in the contract price to the Kilbains, together with the valuation evidence supplied, that the loss to the Applicant is as follows:


Contract price to Kilbain $130,000.00
Less contract price to Song $ 28,000.00
$102,000.00
Claimed by Kilbains $ 7,630.58

$109,630.58”

79 As I understand it, Dawson’s argument is that it incurred legal costs on the failed sale to Kilbane in an amount of $3,115.00 including disbursements. These costs would have been incurred had the sale gone ahead but as it did not they were wasted. I agree with that argument and find that Dawson is entitled to recover that amount from Cripps & Jones.


80 Dawson also seeks to offset a claim by Kilbane's solicitors for an amount of $7,630.58. These are the legal costs and accounting fees thrown away by Kilbane because that sale did not go ahead. I have already indicated that it is my view that Dawson was entitled to assign the Lease. It is therefore doubtful that Dawson has any liability to Kilbane for this amount. Accordingly, this aspect of the claim must fail.


Loss sustained because of the difference in the contract prices


81 Dawson also seeks to recover an amount of $102,000.00 being the difference between the Contract price to Kilbane ($130,000.00) and the contract price to Mr Qing Yao Song ($28,000.00).


82 There is no doubt that Kilbane agreed to purchase the business inclusive of equipment for a figure of $130,000.00. It is equally clear that the price that Kilbane was prepared to pay was inclusive of stock and that no amount was included for goodwill. The clear evidence in this case was there was no goodwill attaching to the business. Between the time of the sale to Kilbane and the time of the sale to Mr Song the value of the stock had dropped significantly. Dawson submits that the valuation evidence was clear and consistent, and that it justifies the fall-off in value in respect of the photographic equipment. Further, Dawson’s ability to sell the business was affected by the uncertainty as to whether any assignment of the Lease was possible. Consequently a contract price of only $28,000 was possible at the date that the contract to Mr Song occurred.


83 Mr Robertson submits that the damages sought by Dawson are too remote. The damage that Dawson claims is the loss of the opportunity to realise the value of its equipment at a high price in June 2000. He argues that it is clear from both the Kilbane Agreement and the agreement for sale to Mr Song and from other evidence going to the value of the equipment that the business itself had no value at all at 31 May 2002 or at 8 April 2003. What was being sold to Mr Kilbane and to Mr Song was the equipment. Mr Robertson submits that that is damage that is too remote from a breach of a covenant in relation to an assignment of the Lease.


84 In support of that submission Mr Robertson referred to the principles set out in Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 and comments in relation to that decision by McHugh J in Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310. He submitted that the proposition in Hadley v Baxendale is that there are two types of damages that are recoverable in a suit for breach of contract. One is damages as may fairly and reasonably be considered as arising naturally, i.e., according to the usual course of things from such breach of contract itself, or such as may reasonable be supposed to have been in the contemplation of both parties at the time they made the contract as a probable result of the breach of it.


85 Mr Robertson submits that the second limb, that is, what was in the contemplations of parties, really can’t assist Dawson. It would not be reasonably supposed that the parties entering into a lease in November 2000 would have anticipated that a breach of the terms of that lease might result in the lessee losing the opportunity to sell a piece of equipment that the lessee was in the course of acquiring on hire purchase two years later.


86 Further, in Mr Robertson’s submission, there is no basis upon which it could be said that such damage may fairly and reasonably be considered as arising naturally according to the usual course of things from a breach of contract. The breach of contract of a covenant to assign might be apprehended as likely to give rise to the loss of a contract of sale of the business but not a loss of the opportunity to sell equipment at a significant value. The loss of the opportunity to sell the business is not what caused the damage. It’s the loss of the opportunity to sell the equipment at a particularly good price in June 2002.


87 In Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 McHugh J said at pages 365 – 366:


“The actual decisions in Hadley v Baxendale and Victoria Laundry (Windsor) Ltd v Newman Industries Ltd bear out the proposition that the contemplation test limits the area of potential liability. For it was surely reasonably foreseeable as a serious possibility that the millshaft was required for the operation of the mill and that a launderer and dyer might have special contracts with a lucrative profit margin. Yet the losses of the plaintiffs arising from those circumstances were not recoverable.


An important matter in ascertaining whether the loss or damage is too remote is the extent to which the parties may be taken to have contemplated the events giving rise to that loss or damage. The parties need not contemplate the degree or extent of the loss or damage suffered: Wroth v Tyler [1974] Ch 30 at 61-62; H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd at 813 and South Coast Basalt Pty Ltd v R W Miller and Co Pty Ltd [1981] 1 NSWLR 356 at 364. Nor need they contemplate the precise details of the events giving rise to the loss. It is sufficient that they contemplate the kind or type of loss or damage suffered.


The most difficult question in determining the relevant kind of damage concerns the level of classification of the damage which the parties must have contemplated. Clearly the level must not be so high that the parties are required to contemplate the very loss in question or the precise manner of its occurrence. Nor must it be so low that any loss or damage, no matter how unusual in nature or occurrence, would fall within the classification.”



88 I agree with Mr Robertson’s submissions. There was no goodwill attaching to this business. What Dawson did was to sell the stock including the equipment, which had lost a significant portion of its former value. In my view, the loss that Dawson sustained because of the difference in the Contract price to Kilbane and the contract price to Mr Qing Yao Song is attributable to the loss of the opportunity to sell equipment. I do not accept that the parties may be taken to have contemplated that kind or type of loss or damage. In my view it is too remote. Accordingly, this aspect of the claim must fail.


The costs of running the business from 1 July 2002 to 30 April 2003


89 One factor that influenced Dawson’s decision to sell the business was Mrs Dawson’s health issues. These issues continued and impacted on Dawson’s ability to continue to run the business from 1 July 2002 until it was sold to Mr Qing Yao Song in April 2003. Dawson asserts that it incurred a net loss for the period of $23,441.


90 Mr Reuben relies on figures provided by Mr Greg Thomson. For the year 2002 the profit before finance was expressed as $7,081. The combined figure for profit before finance and the owner’s salaries was $54,182. A comparable figure for a 10-month period of operation is $45,151.


91 The figures for the period 1 July 2002 to 30 April 2003 show a loss of $30,925. If allowance is made for bank interest or the interest payments, a profit before finance figure can be obtained. To reach a figure that can be compared to the year 2002 figure Mr Reuben then added the owner’s salaries and $6,100 in legal costs, which owners would have taken as wages i.e. $52,635. The combined figure for loss and the owner’s salaries was then $21,710.


92 If the difference between the $21,710 figure for 2003 and the $45,151 figure from 2002 is calculated, the result is a net loss for the period of $23,441. Mr Reuben argues that Dawson is entitled to recover this amount from Cripps & Jones.


93 Mr Robertson submits that the questions for the calculation of damages are: what would Dawson’s position have been if the business had been sold at 30 June 2002? How much worse off is the company as a result of conducting the business over those months, or as a result of not being able to sell the business at that stage?


94 Mr Robertson’s submissions on this point are based on the schedule of “Loss of Profit to G & M Dawson Pty Limited” set out above and Dawson’s “Profit and Loss Statement” for the period 1 July 2002 to 30 April 2003. From the total sales less cost of goods sold Mr Robertson deducted the profit that would not have resulted if the business had not been carried on. Mr Robertson submits that the depreciation expense effectively reflects the diminution in the value of the assets that were subsequently sold. Therefore if one is seeking to measure a loss by reference to the diminution in value of the assets sold in the business, one cannot include the depreciation expense in the calculation of loss of profit. So that needs to be deducted from the expenses.


95 Mr Robertson further submits that Mr Reuben’s calculations do not properly address the matter of interest payments. The equipment was subject to a hire purchase agreement from AGC. At all times right up until just before the sale of the business Dawson had a liability to AGC in respect of that equipment. That liability was reducing month by month as payments were made. The payout figure at June 2002 and at April 2003 represented the full value of remaining payments. Every payment that Dawson made to AGC between June 2002 and April 2003 in fact reduced their eventual payout liability by an equivalent amount. During that period there was payment of $27,000, excluding stamp duty.


96 During the course of the period in question there was a reduction in payout figure by the full amount of that $27,000 of which $24,849 appears in the profit and loss account. It is therefore necessary to eliminate that $24,849 interest costs from the calculation of the net expenses to the operation of the business, because those payments would have been made anyway. They would have been made up front in June 2002 or in the event they were made over time up to April 2003.


97 Therefore, Mr Robertson submits, the interest cost does not reflect the true element of damage suffered by Dawson during the period July 2002 to April 2003. It reflects a payment over time of a liability that Dawson already had and would have had to pay out in June 2002 if not paid out in April 2003. Mr Robertson argues that the net expense attributable to the operation of the business is therefore $73,575. That is the true measure of expenditures by Dawson that would not have been incurred if it had sold the business in June 2002.


98 In order to do a proper calculation you also have to take out the expenses that would have been incurred in any event. The extent to which Dawson is better off from running the business is $105,600. The extent to which Dawson is worse off from running the business is $73,575. Therefore, Mr Robertson submits, the net difference by which Dawson is better off from running the business is actually $32,023.87.


99 Mr Robertson further submits that it is important to recognise that because Dawson was going to have to pay out the AGC hire purchase agreement in June 2002 pursuant to the Kilbane agreement, it suffered no cash loss until it was required to borrow money to pay out that agreement in April 2003.


100 With respect to the question of how much worse off Dawson is as a result of conducting the business or as a result of not being able to sell the business to Kilbane Mr Robertson submits that it was better off by the fact that in cash terms it operated the business to achieve a $32,000 profit over that period and so improve its position.


101 Again I agree with Mr Robertson on this point. I prefer his analysis of the financial information to that proffered by Mr Reuben. While I accept that the business was affected by Mrs Dawson’s health issues it is my view that any loss that Dawson suffered as a consequence of those issues are too remote to allow Dawson to recover that loss. Accordingly, this aspect of the claim must also fail.


102 Given the findings that I have made, while Dawson has succeeded on the principal issue, it is only entitled to recover its costs associated with the loss of the sale to Kilbane. The figure that can be recovered from Cripps & Jones is an amount of $3,115.00.


Costs and interest


103 The matter of costs and interest remain to be determined. In the absence of agreement between the parties on these issues, and unless any party wishes to be heard on the matters, I propose that they be dealt with by way of written submissions. Each party is invited to file and serve submissions within 28 days of these reasons being published. Any submissions in reply are to be filed and served within a further 14 days.


Orders


1 Kerrie Frances Cripps and Madonna Kaye Jones are jointly and severally liable to pay to G & M Dawson Pty Limited the amount of $3,115.00. This amount is to be paid within 21 days of the date of these reasons.

2 Each party is invited to file written submissions in relation to the issues of interest or costs within 28 days of the date of these reasons. Any submissions in reply are to be filed and served within a further 14 days.