Hurburgh, Andrew David v Perpetual Trustee (Tas) Ltd

[1998] TASSC 138

138/1998

PARTIES:  HURBURGH, Andrew David
  v
  PERPETUAL TRUSTEE (TAS) LTD

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  M78/1998
DELIVERED:  6 November 1998
HEARING DATE/S:  17 September 1998
JUDGMENT OF:  Slicer J

CATCHWORDS:

Conveyancing - Land titles under the Torrens System - Mortgages, charges and encumbrances - Powers and remedies of a mortgagee - General - Alleged lease granted by a mortgagor company to sole director and shareholder as tenant - Whether lease protects tenant from order to deliver up possession.

Booker Industries Proprietary Limited  v Wilson Parking Proprietary Limited (1981 - 1982) 149 CLR 600, applied.
King v Bird [1909] 1 KB 837; Australia and New Zealand Bank Ltd v Sinclair [1968] 2 NSWR 26, followed.
Jones and Another v ANZ Bank (1987) ANZ Conv R 30, referred to.
Rules of the Supreme Court, O65, r5.
Conveyancing and Law of Property Act 1884 (Tas), s19.
Aust Dig Conveyancing [214]

REPRESENTATION:

Counsel:
             Appellant:  M B Hunniford
             Respondent:  A B Walker
Solicitors:
             Appellant:  Hunnifords
             Respondent:  Dobson Mitchell and Allport

Judgment category classification:
Court Computer Code:  
Judgment ID Number:  138/1998
Number of pages:  5

Serial No 138/1998
File No M78/1998

ANDREW DAVID HURBURGH v
PERPETUAL TRUSTEE (TAS) LTD

REASONS FOR JUDGMENT  SLICER J

6 November 1998

The appellant seeks review of an order by the Master requiring him to deliver up premises which were the subject of mortgage given by Macquarie Law Pty Ltd ("Macquarie Law") to the respondent.  During the course of the hearing of this appeal, it became apparent that Macquarie Law could not sustain its resistance to an order for possession and its appeal was dismissed.  This appeal solely concerns the appellant's contention that the existence of a lease granted to him by Macquarie Law, of which he is the sole shareholder and director, protects him as a tenant from any requirement to deliver up possession of the premises to the mortgagee.

In July 1993, the appellant purchased the property at 266 Macquarie Street, but in accordance with the contract, the estate vested in Macquarie Law.  The appellant initially negotiated for a mortgage to the respondent which was executed, with the knowledge and consent of the respondent, by Macquarie Law.  Clause 3.3 of the mortgage document provided:

"That the Mortgagor will not exercise any power of leasing conferred or that may be conferred on Mortgagors by any Act of Parliament without the consent in writing of the Mortgagee being first obtained."

The mortgage executed in October 1993 was for a period of three years and required the payment of interest on the first days of November, February, May and August of each year.  It is not clear from the material placed before the Court by either party, as to the precise date of execution, but the mortgage was registered on 26 October.  The appellant claims that on or about 1 October, Macquarie Law agreed to lease the property to him for a term of three years with an option to extend that term for two further terms of three years.  He claims to be unable to locate either the original or any copy of the lease document which he says might have been removed by the administrator of his legal practice, who had occupied a portion of the premises for a period of three months following his appointment in December 1996, or by some other unnamed person.  He has not reported the disappearance of the document to police, or made enquiry of the administrator.  He deposes that:

"16The relevant lease agreements were very simple, merely reciting the parties to the lease, the term of the lease, the property being leased, the amount of rental payable and the requisite options to re-lease.  The amount of rental payable was expressed as 'One thousand dollars ($1,000.00) per week or such other sum as may be agreed between the parties from time to time'."

The appellant was cross-examined on his affidavit, but provided little, if any, additional information.  Findings as to his credibility on other matters might weaken the basis for concluding that such a lease agreement was made and reduced to written form.  However, the only evidence is that of the appellant in his capacity as tenant and director of Macquarie Law.  Given other findings, it is not necessary to make a negative finding in relation to this question.  This determination is made on the basis that the lease was executed in October 1993 in the terms stated by the appellant.  The issue contested by the respondent is whether notification had been afforded and whether it had waived its right to written notice.

Basis of application

The title taken by Macquarie Law was one governed by the Conveyancing and Law of Property Act 1884. At the time of registration it was converted to one to which the Land Titles Act 1980 applied. The appellant originally contended that there had not been compliance with either of the legislative provisions governing the obtaining of possession, but in the course of the hearing did not persist with that argument. The respondent relied on the Rules of the Supreme Court, O65, as the basis for its application.  The relevant portion of the Rules of the Supreme Court, O65, r5, provides:

"Any mortgagee … whether legal or equitable … may take out as of course an originating summons … for such relief of the nature or kind following as may by the summons be specified, and as the circumstances of the case may require, that is to say: Sale, foreclosure, delivery of possession by the mortgagor (notwithstanding that possession only is sought) … but, as to any land under the Real Property Act 1862, nothing in this rule shall be construed as to give any right to foreclose or to sell under any mortgage registered under the provisions of that Act otherwise than as by the said Act is provided."

The appellant contends that the rule does not apply to a leasehold tenant.  The original English equivalent was the Rules of the Supreme Court 1883, O55, r5A, United Kingdom, which was considered by the Court of Appeal in Dudley and District Benefit Building Society v Emmerson and Another [1949] 2 All ER 252. In that case, a tenant unsuccessfully resisted the right of a mortgagee to obtain possession. Although the question before the court depended on statutory provisions which are not germane to this case, there was no question that O55, r5A, was the appropriate procedure for the determination of the question. The power of the mortgagee to obtain possession arises from the grant of the title by the mortgagor, and right of a leaseholder to resist a claim is determined by reference to either statute or the knowledge, or its absence, of the mortgagee of the existence of the lease at the relevant time. The leaseholder has those rights afforded by the mortgagor, so that if the mortgagor has breached the term of the mortgage as to notice, the right of the leaseholder is defeated by the mortgagor's conduct. The Rules of the Supreme Court, O65, r5, permits remedy against the mortgagor and through it against a person claiming a right through such a mortgagor.

Notice and waiver

The appellant did not give written notice of the lease to the respondent.  He claims that the respondent was aware that he would conduct his legal practice on the premises and that it was apparent that he would do so as a tenant.  So much may be reasonably inferred from the nature of the dealings between the appellant, Macquarie Law, and the respondent.

However, the appellant claimed that the respondent, through its property manager Dale Hull, had known and approved of the lease.  He deposed:

"11I also explained to Mr Hull that it was my intention to lease the property from the intended company for the purposes of conducting my legal practice, providing a residence for myself and for the purposes of conducting other unrelated business activities.  Because the proposed mortgage loan was for a period of three years it was intended that the lease be for three years with an option to renew on the same terms and conditions.  I also explained to Mr Hull that it was intended to provide for a variation of rental payable under the agreement to reflect any variation in my income from both my legal practice and other ventures.

12Within a short time, Mr Hull of the respondent company contacted me by telephone and advised that pursuant to my advice the respondent company was prepared to amend the original offer of loan agreement to reflect Macquarie Law Pty Ltd as borrower provided I was prepared to personally guarantee the mortgage loan and provided the proposed Deed of Guarantee was approved by the respondent's solicitor's, Messrs Dobson Mitchell & Airport.

131 recall that the amended Offer of Loan Agreement was confirmed by the respondent in writing but at this stage I have been unable to locate the letter."

His deposition did not assert that he had provided details of the amount payable under the lease, nor that Mr Hull specifically agreed to the arrangement.  In an earlier deposition sworn on 1 July 1998, he had averred:

"5The [respondent] has always been aware of the terms of my tenancy of the property and consented to the terms of the lease when initially approving the mortgage loan being the subject of these proceedings."

An affidavit sworn by Dale Hull was tendered at the hearing and both he and the appellant were cross-examined in relation to the issue of notification.  Where there is a difference, the account given by Mr Hull is to be preferred.  The appellant is not able to produce any documentary evidence in support of his claim.  He claims that the "amended offer of loan agreement was confirmed by the respondent in writing", but does not state that the letter contained reference to the lease.  Nor was any such document adduced by the respondent and, short of wilful evasion, it is unlikely that the respondent would fail to make disclosure.  The appellant is unable to recollect whether the lease document had been assessed for stamp duty.  The legal work associated with the mortgagee's interest was completed by its solicitors and it is unlikely that they would provide (as they did) a solicitor's certificate if the existence of a lease comprising unspecified terms had been made known to them.  Mr Hull did not have authority to consent to the alteration which the appellant claims to have sought.  Even had he possessed authority, it is unlikely that he would have consented to the making of a lease without being told of the amount of money which was required to be paid to Macquarie Law in accordance with that lease.  It is more unlikely that he would have consented to a term in which the rental payable was expressed as "One thousand dollars ($1,000.00) per week or such other sum as may be agreed between the parties from time to time".  The appellant stated in cross-examination that he was unable to recollect the amount of rent actually paid in the period between 1993 and 1996.  Mr Hull was unaware of the existence of any tenants other than that the appellant and Macquarie Law were separate entities.  Even knowledge, in general terms, of the existence of a lease might not operate so as to give rise to estoppel or waiver unless there is knowledge of the terms of such lease (Jones and Another v ANZ Bank (1987) ANZ Conv R 30). Mr Hull would have been remiss in accepting or recommending to his Board a term which enabled an alteration of the lease payments without reference to the respondent. But the main basis for preferring the account of Mr Hull is commercial reality. The respondent is a trustee company involved in the lending of moneys on the basis that adequate security is provided. An institution is unlikely to approve a mortgage on the basis that a significant part of that security, namely the rate of leasehold payments, could be varied at the whim of a tenant. An institution is unlikely to require of its solicitors certification of title without disclosing to those solicitors either the existence of a letter setting out the terms of a lease agreement or of a verbal acceptance given by one of its officers.

The Court is not satisfied that notice of the existence or terms of the original lease was provided to, nor consent given by, the respondent.

It is common ground that Macquarie Law is in default of its obligations under the mortgage.  It is also common ground that the appellant has made no payments to Macquarie Law under the lease agreement since December 1996.  The appellant deposes:

"4On or about the 1st of October 1996 the original lease agreement was extended for a further term of three years with an option to extend for a further term of three years at the end of that current term."

In relation to the non-payment of moneys, the appellant further deposed:

"8Due to my 'striking off' in December 1996, it was agreed that the amount of rental payable under the lease would be reduced to whatever I could pay by way of rental until my financial circumstances improved."

and as of the date of that affidavit (1 July 1998)

"9My financial circumstances have now improved and I am in a position to pay rental so that [Macquarie Law] can make monthly payments towards interest payable on the subject mortgage."

The extension granted in October 1996 and the "variation of terms" agreed between the appellant and Macquarie Law in December 1996 were both an exercise of power as provided by the mortgage document at cl 3.3.  No notice of the exercise of power was given to the respondent.  A mortgagor is required to obtain the permission of the mortgagee for any alteration or assignment (New Zealand Fisheries Ltd v The Napier City Council (1990) ANZ Conv R 217). The appellant has not established either waiver or consent.

Conveyancing and Law of Property Act1884

Even assuming that in 1993 the respondent had waived compliance, the purported extension granted in October 1996 does not comply with the Conveyancing and Law of Property Act, s19, the relevant portions of which provide:

"19      (1) A mortgagor of land while in possession shall, as against every incumbrancer, have, by virtue of this Act, power to make any such lease of the mortgaged land, or any part thereof, as is in this section described and authorized.

…

(6) Every such lease shall reserve the best rent that can reasonably be obtained, regard being had to the circumstances of the case, but without any fine being taken.

…

(11) In case of a lease by the mortgagor, he shall, within one month after making the lease, deliver to the mortgagee, or, where there are more than one, to the mortgagee first in priority, a counterpart of the lease duly executed by the lessee; but the lessee shall not be concerned to see that this provision is complied with."

The execution of the lease and its extension, according to the evidence of the appellant, permitted the fixing of the rent at "such other sum as may be agreed between the parties from time to time".  It could not be said that the term provided for the "best rent that can reasonably be obtained".  The equivalent New South Wales provision is the Conveyancing Act 1919, s106, which has been regarded as significantly restricting the right of a mortgagor to enter into a lease binding the mortgagee, Australia and New Zealand Bank Ltd v Sinclair [1968] 2 NSWR 26. The mortgage agreement in that case also stated that the relevant statutory powers of leasing were not to be exercised by the mortgagor without the mortgagee's consent. In considering a similar provision to s19, an English court was of the opinion that:

"I come now to the questions raised in the fourth paragraph of the reply and defence to the counter-claim, which alleges that the lease by Beattie was not a proper exercise by him of his power as mortgagor to lease.  I have already referred to the objections to the lease, and I need not do so again seriatim.

As to the proviso in the lease, that if the lessee should be desirous of continuing the tenancy at the expiration of seven years she should be at liberty to do so and renew for a further seven years at 350% a year on giving the lessor six calendar months' notice in writing of her intention, I think this proviso does not invalidate the lease, because it does not affect the original term of seven years.  The rent to be paid for the second seven years may or may not be the best rent obtainable.  If on such renewal it could be shewn that 350% was not the best rent, then the renewal would, in my opinion, be invalid as against the mortgagee for that reason; but that is not the same thing as holding that the liberty to renew invalidates the lease now, and I do not think it does."  Bucknill J in King v Bird [1909] 1 KB 837 at 844 - 845.

The appellant, as an individual, is seeking to rely on the existence of a lease entered into with a company of which he was the sole director and shareholder, as a basis for denying remedy to a mortgagee.  If such is to be effective, then it is a requirement that the terms of that lease are precisely defined and accord with commercial reality.  As Gibbs CJ stated in Booker Industries Proprietary Limited v Wilson Parking Proprietary Limited (1981 - 1982) 149 CLR 600 at 604:

"It is established by authority, both ancient and modern, that the courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some time in the future.  Consequently, if the lease provided for a renewal 'at a rental to be agreed' there would clearly be no enforceable agreement."

The evidence in this case that at one stage there were other sub-tenants in the premises and that the appellant did not approve the respondent having possession subject to his own right of occupation is an illustration of the proposition.  It would be impossible, by reference to the lease, to ascertain which portions of the premises would be occupied by the mortgagee.

In the circumstances of this case, the appellant ought not have the aid of the Court in defeating the claim for possession.

Conclusion

The appellant has not established consent or waiver.  Notice was not provided to the mortgagee as required by cl 3.3 of the mortgage document in 1993, or at the time of either the extension or claimed subsequent variation.  Further, the terms of the lease did not comply with the Conveyancing and Law of Property Act 1884, s19. The appeal is dismissed.