Leros Pty Ltd v Terara Pty Ltd

[1991] HCATrans 302

~

~ -~~

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No P21 of 1991

B e t w e e n -

LEROS PTY LTD

Appellant

and

TERARA PTY LTD

First Respondent

and

NATIONAL AUSTRALIA BANK LIMITED

Second Respondent

MASON CJ
DEANE J
DAWSON J

Leros(2) 85 24/10/91

GAUDRON J

MCHUGH J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON THURSDAY, 24 OCTOBER 1991, AT 9.48 AM

(Continued from 23/10/91)

Copyright in the High Court of Australia

MASON CJ: Yes, Mr Heenan.

MR HEENAN:  May it please Your Honours. The point that I

was trying to make good at the adjournment is that

Terara's interest in the option, if not enforceable

against Western Acquisition, despite the

Bank's caveat, is not permanently destroyed.	We
submit that if it is destroyed it can only be

destroyed by force of the language of the section

or by its necessary intendrnent, so a question as to

the approach of the construction of that section

arises, and in that regard can I cite briefly a

passage in Bahr v Nicolay - it is not among our

books and it is probably not necessary to take

Your Honours to it.

MASON CJ: It is in the appellant's authorities.

MR HEENAN:  Yes, it is. It is a passage in the joint

judgment of Your Honour the Chief Justice

Mr Justice Dawson at page 615 and it is dealing

with the question of fraud in section 68 and
whether it has to be actual fraud and fraud in the

act of becoming registered and there is a question
as to the approach to be taken to the earlier

authorities, which suggested that that was the

case. At that page Your Honours say:

Nor do we see anything in the language or the

purpose of section 68 which warrants such a

restrictive interpretation. Indeed, we agree

with Justice Higgins in Stuart v Kingston -

(1923) 32 CLR 345 -

when His Honour said that there was much to be

said for the view, expressed by

Chief Justice Stawell on the equivalent

Victorian provision, that the section should

be "construed strictly" and the exception

"liberally". The section restricts, in the

interests of indefeasibility of title, rights

which would exist otherwise at law or in

equity.

And, in our respectful submission, that is an

appropriate posture with which to view the language

which is presently under examination.

Now, if the option of rights under the lease, including the option, do have some continued force

or vitality, even in the face of the section to the

extent it applies, then, as I attempted to

illustrate yesterday afternoon, the option would

have force against the original grantees, if they

ever became registered again, and if it does have

this vitality, we submit that it would be

Leros(2) 86 24/10/91

enforceable against any subsequent proprietor who takes subject to it, even if it was not otherwise

enforceable against him. And it is in that regard

that we rely on the decision of the Supreme Court

of Queensland in Valbirn, which I cited yesterday

afternoon but which I did not develop.

Might I take Your Honours to that in fact. It

is a decision of the Full Court,

Chief Justice Macrossan and Justices Shepherdson

and de Jersey, and what happened there was that

there was a shopping arcade in which there was a

restaurant; the restaurant proprietor had a lease

which contained an option to renew; the lease was

not registered and the option which it had for the

protection from indefeasibility against a

subsequent proprietor. The subsequent proprietor

took the transfer from the reversioner, but before
doing so indicated that he would accept the

interests of the tenants under the leases and thus

recognized, purported to recognize - this was the

issue - an obligation which would not have been

binding on him strictly and the question then
became, when the purchaser of the reversion became
registered, whether he was bound by this
concession, and it was decided that he was. The

judgment was given by Mr Justice de Jersey, with

whom the other judges agreed, and at page 294 at

line 40, the relevant passage - - -

MCHUGH J: Page 294?

MR HEENAN:  Page 294.

MASON CJ: That is the wrong page. It is page 298 or 299, is

it not?

MR HEENAN:  It is the second-last leaf in the photocopy.

MASON CJ: Page 298 or 299.

MR HEENAN:  Yes, I am sorry, page 298: The learned Judge held that because of

that notification, the appellant "had more
than notice of (the respondent's) right; it

purchased on terms that it would be bound by

all the covenants in the lease, including that
in clause 11". Clause 11 contained the

option.

And there is reference to Bahr v Nicolay.	Then at
line 50 is the passage:

This notification of acceptance of the

leases, which I read as an acceptance of their

terms and conditions pursuant to clause 38 of

Leros(2) 87 24/10/91

the contract of sale, may be compared with the

purchaser's contractual "acknowledgment" of

prior unregistered interests in

Bahr v Nicolay, which, read with

correspondence referring to and "recognising"

those interests, the High Court regarded as equivalent to an agreement to recognise the unregistered interests and be bound by them.

And then His Honour goes on to cite extensively

reasoning. And on the final page at line 15, after

from the judgment of Justice Brennan in

that long citation, His Honour says:

As I have said, those passages

demonstrate that the learned Judge correctly

concluded that the appellant is bound by the
option of renewal contained in the lease, and

the second ground of appeal must also

therefore fail.

The significant feature, at least in our submission

about Valbirn's case, is that the lessor tenant,

the grantee of the option, was not the vendor to
the registered proprietor. He was a third party

standing outside the transaction between the vendor

and the purchaser, yet his rights, so recognized,

became enforceable and in our respectful

submission, Leros and the Bank are in those circumstances here. We did not participate

directly in the negotiations between Western

Acquisition and Leros, but nevertheless, the recognition of those in that subject of plain caveat by the act of submissive registration, we say is indistinguishable from what occurred in Valbirn's case.

DAWSON J:  Mr Heenan, what do you say about the proposition

that, if what you say is right, the interest which

the caveat is designed to protect would operate as

a clog on what would otherwise be the clear title

of the previous registered proprietor.

MR HEENAN:  Your Honour, that is the proposition which my

learned friend has taken from Snell, in a passage

which was cited yesterday.

DAWSON J: Well you do not have to use the word "clog"; you

said, just detract from the indefeasibility of the

title which he undoubtedly has.

MR HEENAN:  Our answer to that Your Honour is that the

statute contains a guarantee that that will not

occur and it is the right of Western Acquisition to

clear the caveat away.

Leros(2) 88 24/10/91

DAWSON J:  Yes I appreciate that, but that still means that

he has something less than he would otherwise have.

I mean that is a process that he has to undergo and

it may be something which deters a prospective

purchaser saying, "Well I am not going to go

through all of that; I will not purchase from you

in those circumstances."

MR HEENAN: All of that is true, Your Honour, but there is a

mechanism for compensation to be given to the

registered proprietor against a caveator who lodges

a caveat without sufficient cause.

DAWSON J: But you could not say that in this situation,

could you, because it might be successful, on your

argument.

MR HEENAN: Well, Your Honour, we would say that the caveat,

the claim, could not have been made good against

Western Acquisition.

DAWSON J: Yes, but it could be made good against the

prospective purchaser after the caveat has been

lodged and therefore there would be certainly

sufficient cause for lodging it, would there not?

MR HEENAN:  It would only be a clog or a prejudice if

accepted; it is the voluntary act of

acceptance which results in what we are both

calling a clog.

DAWSON J: Contingently, it is an interest which operates

against the clear title of the previously

registered proprietor. It is not like a caveat

which protects no valid interest at all.

MR HEENAN:  Yes.

DAWSON J: It protects a contingently valid interest and

that operated to detract from the indefeasibility

of title. That is, I imagine, the argument.

MR HEENAN:  Yes, that much we may be forced to concede,

Your Honour, but our answer must be that, as

against Western Acquisition, in truth it is no bar
or clog, because anybody dealing with Western

Acquisition would be entitled to take up the

position of the purchaser, Godfrey v Kanangra

states, and refuse to settle unless the caveat were

cleared away. If the caveat were cleared away,

then they would take the indefeasible title without

any impediment whatever and that it is only by

foregoing that alternative that the result

presently contended for prevails, and that this

must constitute a voluntary acceptance of

submission to that conference.

Leros(2) 89 24/10/91

GAUDRON J:  I must say I have some difficulty with what you

have just said. Does it follow, from what you have

just said, that there can be a sort of continuous

process of lodging and having caveats removed?

MR HEENAN:  Under the legislation there is a prohibition

against lodging a caveat in the same interest that

has been already - - -

GAUDRON J: Well does that not tell against your argument?

I mean, how can it be, that if the caveat could

have been removed by order of the court, and that

having been done you could not do it, you could

still secure the situation that you claim now?

MR HEENAN: Well Your Honour, the answer to the question is

involved in what we are forced to acknowledge, the

fortuitous recognition of our claim. Our claim is

only good if recognized. Now, the illustration

which Your Honour has put, and other illustrations,

could be multiplied to demonstrate that, in a whole

series of contingencies, our interest could be

eliminated.	We do not cavil with that possibility
at all.	We accept that our interest could have

been eliminated.

GAUDRON J: You accept that it was.

MR HEENAN:  Only against Western Acquisition.

GAUDRON J: Yes.

MR HEENAN:	And it is the act of registration - - -
GAUDRON J:	If it was eliminated against Western Acquisition

and had the time been different, that is to say,

had things proceeded so that your caveat was

removed and you were thereafter precluded from

lodging another one, it would have been eliminated

entirely.

MR HEENAN:  Yes, but it was not. I think that is the

position we are forced in, but it was not.

DEANE J:  Mr Heenan, did I understand you to say that your

case collapsed unless your claim was recognized or

was accepted?

MR HEENAN: 

Your Honour, our position is that it is the

recognition of the claim, subject to the caveat,
which ensures its continuation -

DEANE J: Using recognition in the sense we discussed

yesterday.

MR HEENAN:  Yes.

Leros(2) 90 24/10/91

DEANE J: That is acceptance of the underlying right as

distinct from recognition that there is a claim;

that there is an assertion.

MR HEENAN:  No, we would say the recognition of the

assertion of the bona fide claim is sufficient. If

I have given Your Honour the contrary impression, it was unintentional. And the only reason to

construe the destruction of the interest in the

manner contended for would be the language of the

section, and we rely on the approach to

construction which I have already cited in that

regard and also the purpose of the legislation is

that people dealing with the registered proprietor

should only be affected by notice of matters on the

register or referred to on the register. Now, the

subject of such a claim is noted on the register,

so the purpose of the 1950 amendment, as explained

by the Attorney-General in the House, in the

debates, is secured.

Your Honours, might I also briefly take the

Court to the dissenting judgment of Justice Mahoney

in Logue v Shoalhaven. The relevant passage is at

page 563. This was a case about compulsory sale of

land for non-payment of rates under a statutory

regime which required the service of notices

specifying the amount necessary to satisfy the

outstanding liability to the council, and there was

an allegation that the requisite statutory

procedure had not been observed, that the sale had

not been conducted according to the statutory

framework and that consequently the indefeasibility

provisions protecting the result of the sale did

not come into place.

I have already mentioned that His Honour is

writing in dissent, but his reasoning appears to

have been approved by the Court in Bahr v Nicolay,

although not the result. At the foot of page 562,

His Honour addresses the concept of fraud under

section 42 of the New South Wales Real Property Act

as affecting indefeasibility and then, on page 563,

in the first full paragraph, speaks about the types
of matters, apart from fraud, which can attract
access to remedies against the registered

proprietor personally on the Frazer v Walker

doctrine. And then at line C says:

The kind of interest which can, in this

way, be enforced against a registered

proprietor is not limited. In Frazer v Walker

Lord Wilberforce was careful not to limit the

"actions of a personal character" which could

be brought. His Lordship referred to two

decisions by way of illustration. In

Boyd v Mayor etc. of Wellington Justice Adams

Leros(2) 91 24/10/91

had said that the equivalent section left
unrestricted obligations arising in relation

to trusts, express or implied, the performance

of contracts, and the rectification of

transactions for mistake. In Tataurangi

Tairukena v Hua Carr, the court set aside

registration of a transfer where the

transferee had occupied a fiduciary position

qua the transferor.

Then it goes on to speak about the fact of notice not being sufficient and in the final paragraph

addresses a series of factors which, under the

general law, short of fraud, but greater than

notice, would allow the existence of the remedy:

But there were, under the general law,

reasons other than mere notice upon the basis

of which a legal or equitable interest might

be postponed to or qualified by another

interest. The various kinds of equitable

fraud are examples of this.

And His Honour goes on to identify them and says on page 564:

There are, in my opinion, kinds of

equitable fraud in which the interests arising

from what has happened may be enforced against

a registered proprietor, notwithstanding that

there has been no fraud within the meaning of

that term in section 42. I think that, in the

kind of situation illustrated by Nocton v

Lord Ashburton, if the land had been

transferred to the solicitor, the court would

have interfered to enforce equitable rights

against him. Such equity would not depend

upon any intention to defraud; and may arise

merely because the defendant has, however

innocently, misunderstood the obligation which

equity imposes upon him.

Now, I again turn ever so briefly to a passage in

Bahr v Nicolay - it is not necessary for

Your Honours to get out the passage - this time in

the joint judgment of Justices Wilson and Toohey,

at pages 636 and 637, dealing with the question of

whether the Thompsons, in that case, were guilty of

fraud in resiling from their undertaking to

re-transfer the property to the Nicolays so it

could be sold back to the Bahrs, and Their Honours

say:

Notwithstanding the various matters to which

we have referred, we think the evidence falls

short of establishing that case.

Leros(2) 92 24/10/91

This is the case of actual fraud.

The second respondents agreed to buy lot 340

in the hope, even the expectation, that the

appellants would not be able to buy back lot

340. But the evidence does not justify a

finding that it was their intention to ensure

that the appellants did not do so. However it

does establish that the second respondents

took a transfer of lot 340, knowing of
clause 6, accepting an obligation to resell to

the appellants and communicating that

acceptance to Mr Callard, but banking on the

appellants' inability to find the $45,000

necessary to implement the clause. What are

the consequences of that finding?

And then Their Honours go on to deal with the

analysis of fraud within the section. Now, in our

respectful submission, what has happened by the

appellant here is that it has, in effect, gambled

on the interest which it has expressed notice on,

being destroyed by virtue of the section and took

knowingly in the hope that its opinion would be

vindicated. Now that may not constitute fraud

within section 68 and 134, but it is the kind of conduct short of fraud but more than mere notice

which, in Mr Justice Mahoney's test or in the

Valbirn case, or in Coles v Sword Nominees, would

be sufficient to attract the intervention of the
personal remedy against the registered proprietor.

That is the submission that we make in that regard.

DEANE J: But how could you move into fraud territory here

where, on your submission, if one accepts your

argument as the effect of the caveat, your client

put on a caveat that it was not entitled to
maintain against the registered proprietor and
thereby created a situation in which a purchaser

from the registered proprietor either could not

complete the purchase or conferred upon your client

a benefit? I mean, what you are really saying is,

in the situation that you created on your

construction of the Act, you were entitled to put

on a caveat, which was bad against the registered

proprietor, for the purpose of creating a situation

where the purchaser either could not complete or

had to confer an interest on you.

MR HEENAN:  The answer to the question all depends on the

last three lines of section 68, whether

or not - - -

DEANE J: It all depends, I would have thought, on whether

one accepts your argument that to put on a caveat

is not only to recognize that there is an

allegation of right to be sorted out, but creates

Leros(2) 93 24/10/91

the situation that anyone who takes a transfer

subject to that caveat is acknowledging that the

underlying right is correct.

MR HEENAN: Well, Your Honour, if we had had a letter from

Leros before registration saying, "I know of your

lease and its option to renew and I will respect

it", we would be squarely within Valbirn and, in my

respectful submission, the situation is not

dissimilar.

DEANE J:  It is the exact opposite. You knew that your

right to an option was denied and you had express

notice that it was not accepted or acknowledged.

MR HEENAN:  I cannot immediately identify any evidence to

the effect that we had noticed that the option was

not recognized. We knew that Western Acquisition

did not recognize us.

DEANE J:  Had taken you to court.

MR HEENAN:  Yes. We knew - - -

DEANE J:  I thought there was a letter in which you were

requested to remove the caveat.

MR HEENAN: There might have been, Your Honour; I am not

able to say.

DEANE J: Well I am more likely to be mistaken than you,

Mr Heenan.

MR HEENAN:  No, I do not accept that for a moment,

Your Honour, with respect. We will look at the

record, but even if it were so, the point that the
matter was in contest is, with respect, we would
say neither here nor there; it is the actions of

the party in taking the registration subject to the

claim which is determined. Now, I cannot shrink

from that; I have to put our position in that

regard. If Leros has submitted, then we say there

is the recognition.

DEANE J:  I was simply taking you up on the suggestion that

Leros had taken a gamble and at one stage you

suggested that Leros would get a windfall.

MR HEENAN:  Yes.

DEANE J: It seems to me that, whatever the legal position

is, that sort of suggestion just is not warranted

on the facts of this case.

MR HEENAN:  Yes. Your Honour, I think the letter to which

you are referring may be the one at page 95 where

there is reference to the effect that Your Honour

Leros(2) 94 24/10/91

has indicated. Our position in that regard is, as

I have said, that it is the actions of the parties in taking. Now, if our argument is correct, it can

hardly matter that Leros had a mistaken view; it we

are wrong, then our hope that our interest was

preserved will not aid us.	The letter is dated 12
April - - -

DEANE J:	I do not think you need take it further.
MR HEENAN:	Yes, very well, Your Honour.
DEANE J:	But if you are wrong on your argument of the

effect of the transfer, subject to recognition of

the caveat, do you not then move to the last three

lines of section 68, rather than give up the fight,

as it were. I thought that was when you had come

to the questions that Mr Justice McHugh was

raising.

MR HEENAN: That is certainly so, Your Honour, although I

must say I have tended to see the two arguments as

being all part of the one contention, but if one
divides them, then we would contend that the

exception from the obligation of the option extends

only to a subsequent registered interest unless the

lease or agreement is registered or protected by

caveat.

DEANE J: That raises immediately the question of what is

the time reference for protection by caveat. It

obviously cannot be subsequent to the creation of

the subsequent registered interest, but is it at

the time the subsequent registered interest was

registered, because if it is, you come within the

literal words of the exception to the proviso.

MR HEENAN:  Yes, Your Honour, and it would mean that there

was nothing to stop us putting a caveat on which
would not bind the existing registered proprietor

but would bind a successor.

DEANE J: If he elected to take a transfer without the

caveat being removed.

MR HEENAN:  Yes, and that is part of what we have been contending. Can I just deal with the final case in

the trilogy that we say deals with this section in

this State, and that is Osborne Park Co-Operative

Society Limited v Wilden, which is No 8 in our

booklet, (1989) 2 WAR 77. This was a case in which

there was no caveat. There was a lease with an

option to renew which had not been registered. A

new proprietor came along and became registered and

the question was whether he was bound by the option

to renew. On all the conventional principles, it

Leros(2) "'' 95 24/10/91

was held that it was clear that he was not unless

there was something aliter to compel him.

There was an argument that there had been some

ambivalent conduct on the new proprietor's part at

the time the option came to be exercised and that, because of this, he was put in a position where he

had to elect to honour the option or not and that,

because of the conduct, there had been some species

of estoppel to encourage an expectation that he had

honoured the option to renew and was bound by it.

All those arguments in the result failed, but there

is a passage in the judgment of Justice Franklyn at

pages 83 and following where His Honour addresses

the significance of section 68 in this context. At

page 83, about line 12, His Honour says:

Plaintiff's counsel submits that on its proper

interpretation, although an option for renewal

granted in an unregistered lease which is not

protected by caveat is not enforceable against

a subsequent registered proprietor, the option

remains "live" in all other respects and such

subsequent registered proprietor may at his

option enforce the same against the lessee if

the lessee were to purport to exercise the

same. His argument proceeds that the lessor

in such case is entitled to "affirm the
lease", which I understand to be a reference

to the extended term.

Then His Honour goes on to elaborate further on the

contentions which were being put. At line 46

His Honour says:

I have difficulty with this submission

although there is nothing objectionable in the

proposition that the lessor might willingly

grant the renewed term even though by virtue

of the section he is not obliged to do so.

What is invalid under the section as against

the subsequent registered proprietor is the

option of renewal.

His Honour goes on to analyse the result, depending upon whether an option is regarded as a conditional

contract or a contingent interest.	He says on
page 84 that on one view the option:

creates a proprietary right enforceable

against the lessor. It is that right which is

invalidated bys 68 in the circumstances there

provided for and, as a consequence in such

case in my opinion no such proprietary right

exists as from the date of acquisition of

title by the subsequent registered proprietor.

Leros(2) 96 24/10/91

There are similar dicta at the foot of page 84.	It
is implicit in His Honour's reasoning that the
operation of section 68 in those circumstances terminates the right. That, we acknowledge, is against us but we submit that what was said went
further than was necessary for the decision, that
His Honour was only examining the position as

against the rights of the new proprietor, in this

case the equivalent of Western Acquisition, and the

point currently under examination, namely whether

there was yet another proprietor who came along and who, subject to this claim, was not under scrutiny,

and that therefore His Honour's remarks should not

be regarded as closing the door to the argument

that we are trying to advance. But that is a

decision which we feel Your Honours should

consider.

As to the question of construction and whether

section 68 could have this destructive effect, we say that it does not expressly require that to be

done, but it is imperative is directed only against

subsequent registered interests and that,

consistently with the purpose of the amendment, it

is not necessary for the section to destroy an
interest of which a dealer with a title had clear

notice.

To return to the question of the clog on the

title and the reference to Snell which was put up

by my learned friend Mr Pullin yesterday, we can

say that, in addition to the reasons given this

morning, the illustration is not apt. That

illustration was dealing with the situation of a
bona fide purchase of a value without notice. It

contains the well known principle that a purchaser

with notice of an interest from a bona fide

purchaser without notice nevertheless takes a clear

title notwithstanding his own notice.

We do not quarrel with that as a principle,

but it could not be suggested that any of the

successors in title to the university here were

bona fide purchasers for value without notice.

Each of them in fact did have notice because they

took expressly subject to the Bank's caveat and, in

Leros' case, to Terara's caveat.

McHUGH J: But has that principle really got anything to do

with with this case? It is really a question of

the construction of the statute, is it not?

MR HEENAN:  Yes, Your Honour. We would seek to dismiss the

submission on the grounds that Snell is dealing
with an entirely different concept and that we are

dealing with a very qualified protection

contemplated by the section itself.

Leros(2) 97 24/10/91

McHUGH J: But if upon its proper construction section 68

comes to the same effect as the principle expounded

in Snell, so be it. If it does not, it does not.

MR HEENAN:  Yes. Your Honours, that leaves me only with the

task of distinguishing between Terara's caveat and
the Bank's caveat. There can be no doubt that

Terara's caveat identifies the interest in a manner

which we would say is sufficient to satisfy all the

tests as to the stringency of formalities required

of caveats, but the difficulty with the Terara

caveat is whether, as we have already seen, the

interest claimed had by then perished.

In relation to the Bank's caveat, it of course

was there from the commencement and all parties

took subject of it. If it is a good caveat then,

in our respectful submission, it serves the purpose

which the section requires. The only thing that can be said against the Bank's caveat is matters

concerning its formal inadequacy. The caveat has

been drawn to Your Honours' attention repeatedly,
but the relevant passages are at pages 192 and 191,

of the annexure at 191. The claim is:

mortgage of leasehold by subdemise

as to the estate or interest of the abovenamed

Registered Proprietor ..... BY VIRTUE OF -

the matters set out in the annexure. That is at

page 192, left lines 30 to 35. The clear language

of the claim is a mortgagee of leasehold, so it

does identify a leasehold interest. If one looks

at the annexure at page 191, the original lease
including its terms, that is its duration, is set

out between lines 10 and 17. The then term of the

lease is stated between lines 30 and 34 and in

subparagraph (6)(a) between lines 40 and 47, it

refers to:

a deed of mortgage by way of subdemise dated

2 October 1987 by which the Lessee:

(a) demised to the Caveator all the Lessee's

right, title and interest in and to the Leased

Premises for the residue of the term of the except the last day of the term of the Lease -

so there is an express reference to the possibility

of renewal and extension in that caveat.

GAUDRON J: That does not matter in any event, does it? It

is only the lease that must be protected under

section 68, not the option.

Leros(2) 98 24/10/91

MR HEENAN: 

Yes, Your Honour, but it is being put against

us, as I understand the argument, that our caveat
did not show any interest in the lease as such.

McHUGH J: 

I thought it was rather put that there is no

reference to the option. I may be wrong.

MR HEENAN:  Some of the argument has proceeded on the basis

that -

MASON CJ: That is how I understood it, that there was no

reference to the option.

MR HEENAN:	There is a reference to the possibility of extension which we say is not so oblique as to
mislead any researcher of the document. If this
caveat discloses the existence of a lease as a necessary ingredient of the claim which it puts on the title, we would say that that constitutes
protection by caveat within section 68 and that section 137 requires a beneficial construction in
order to uphold the principle behind caveats.

DEANE J: What if the estate or interest was specified as a

tenancy under a subdemise of the subject premises

for a term of two years, would you still say it was

effective to protect the lease for - what was it? -

five years, and an option at the end of the lease

of five years?

MR HEENAN:  I am not sure that we would need to say that,

Your Honour.

DEANE J: What if one construes this caveat read as a whole

as claiming only a lesser term than the leasehold term, would the analogy not carry through to - - -

MR HEENAN:  We would say, with respect, no, Your Honour.

The purpose is to give notice of the lease, and

notice of the lease is notice of all its terms.

That is certainly the position in the general law,

under the Torrens System or under the Mercantile

Credit case.

DAWSON J:  You cannot protect half the lease or three-

quarters of the lease.

MR HEENAN:	Exactly. As to the question of the formal requirements and the New South Wales line of
authority, Your Honours may be reassured to
appreciate that I have no intention of going to all
those cases detailed.  The position is that under
section 137 of the Transfer of Land Act in this
State, there is only abbreviated significance given to the actual formulation of the estate or interest
being claimed in the caveat itself.  If one looks
at the section, one sees that:

Leros(2) 99 24/10/91

Any beneficiary or other person claiming any estate or interest ..... may lodge a caveat with the Registrar in the form in the Eighteenth

Schedule -

and it is only when one goes to the schedule and

looks at the marginal note that there is the

obligation to specify the interest, but the section

itself contemplates that the registrar may call

upon the caveator to lodge a declaration -

stating the nature of the estate or interest

claimed and the title thereto -

The relevant passage is at page 72 in the 1975

reprint:

The person lodging such caveat shall if

required by the Registrar support the same by

a statutory declaration stating the nature of

the estate or interest claimed and the title

thereto -

So the obligation to state the nature or interest

claimed by declaration is only at the option of the

registrar, thus indicating a regime of caveats as a

quick and effective method by which a terse

statement identifying the interest claimed can be
put down on the caveat itself and then, if

required, the registrar may require definition and

evidence to support that.

As a matter of practice in this State, the

registrar will almost invariably require a

statutory declaration to support a caveat or a

caveat to be accompanied by some document such as a

contract of sale or deed of unregistered mortgage

disclosing an interest, but the statutory regime is

that the caveat can be lodged and it may be seven

days or more later before the statutory declaration

has to come in, thus indicating, in our respectful

submission, a subordinate importance to the claim

stated in the caveat itself.

For those reasons, we would respectfully

contend that all the New South Wales authorities,

with what conviction they may still have in the

light of the criticisms that have been passed

against them, are not germane to the position in

this State, and that this practice of supporting

the content and nature of the interest by statutory

declaration has been recognized in this State in

the case of Kuper and Kuper v Keywest, the
unreported decision of our Full Court, to which my

learned friend, Mr Pullin, has already referred the

Court.

Leros(2) 100 24/10/91

The consequence, Your Honours, is that if the

Bank's caveat is good then all succeeding

proprietors including Leros have taken subject to

it, for the reasons given by the learned

Chief Justice below, we see no reason to construe

that reference in section 68 as protecting the

interest only of the person lodging the caveat.	We
respectfully submit that the majority of the
Full Court was correct in disagreeing with
Mr Justice Nicholson's view in that regard and
that, on that footing, both Terara and the Bank

have their interest in the option protected by the

Bank's caveat.

As the second string to our bow, we say that

each is also protected by Terara's caveat for the

reasons that I have been taking such an

unconscionable time to develop. The only

difficulty is that the undisturbed declaration of

Mr Justice Nicholson has said that Terara cannot

rely on the Bank's caveat, so we have some species

of res judicata which may not have been fully

recognized by the Full Court's declaration. For

those reasons we ask Your Honours to affirm the

decision of the majority.	May it please
Your Honours.

MASON CJ: Thank you, Mr Heenan. Yes, Mr Pullin?

MR PULLIN:  Your Honours, in relation to Terara's caveat, my

learned friend has said that the caveat is a claim

and that the claim is an encumbrance because when

one goes to the definition of encumbrance, that is

what it says. Of course, we are happy to take

subject to the claim and we did take it subject to

the claim. Really we adopt what Your Honour

Mr Justice Deane has said. That is, that we took

subject to the claim but not to the underlying

interest. The question is now whether or not that

underlying claim is good or not, and that is what

we have come to Court to determine. That is what

is now being debated. Really what my learned friend is arguing, is	forced to argue, in relation to Terara's caveat is
that Frazer v Walker, where it says that
indefeasibility means divesting of title, the destruction of title, is not to apply in this case.
What indefeasibility means here is dormancy of
title. So that it is like a train going along; it
goes into a tunnel and re-emerges in the sunlight
some time later when the caveat is lodged, as in
this case.

That is against the whole understanding of

indefeasibility and we would submit that cannot

have been intended. If there is any doubt about

Leros(2) 101 24/10/91

it, the second reading speech makes it absolutely

clear that the fundamental principles of

indefeasibility are to apply.

McHUGH J: But it does not cut down the indefeasibility of

the proprietor who takes title without notice. If
the lease is not registered or protected by caveat,

then the option is unenforceable against the

subsequent registered proprietor, but if

subsequently a caveat is lodged and somebody takes

with notice, then no question of indefeasibility

arises, does it?

MR PULLIN:  But that is the point, Your Honour, that really

what is being said there is that indefeasibility

here means dormancy, because it was dormant and is

conceded to be dormant as against Western

Acquisition. Therefore, what Your Honour is really

putting to me is that the indefeasibility achieved
by Seventy-Fifth Jass and by Western Acquisition is

a special kind of indefeasibility; it is a
dormancy rather than a destruction that is worked

at the time of registration of each.

It does come down to the meaning of: when is this section speaking? At what time is it

speaking? We say it speaks only once, and that is

during the lifetime of the grantor's registered

proprietorship, and not afterwards. The reason for

those words as against a subsequent registered

interest is to make it absolutely clear that there

is no destruction of contractual rights. Let us

assume it read without the words "as against the

subsequent registered interest". It would then
read, "but no option of purchase or renewal in any

such lease or agreement shall be valid unless such

lease or agreement is registered or protected by

caveat."

That would have brought everyone down to Court

arguing that even contractual rights were destroyed

as between when there had been no change, even

between registered - so that the registered

proprietor was still on the title and the lessee

was holding - he would then say, "I seek to

exercise my option", and the registered proprietor

would say, "No, it's not good because that's what

the section says." ·

McHUGH J: As I put to you yesterday, you have got to read

the words "as against a subsequent registered

interest" as meaning as against all subsequent

registered interests.

MR PULLIN: Yes, indeed.

Leros(2) 102 24/10/91

DAWSON J: But why do you concentrate on the transferee? If

you look at Western Acquisition, it may be that it

gets something less than an indefeasible title.

True it is that if the caveat is lodged, it can

take action to remove it; presumably another

caveat could be lodged immediately, and so on and

so on. It cannot really, whilst the caveat is

there, transfer a clear title. That must be

something less than the clear title, so the

argument would go, that the Act envisages.

MR PULLIN:	I appreciate, Your Honour, that this could go on ad infinitum with the lodgment of caveats and then
removal, but that cannot be -

DAWSON J: But what I am suggesting is you may concentrate

on Western Acquisition rather than the transferee
from Western Acquisition, because it is not

contested that Western Acquisition should have a

clear indefeasible title. In this situation it

gets something less.

MR PULLIN: Yes. Of course, we adopt that, Your Honour, and

we say that then it just follows, the ordinary
principles apply, that we are in the same - and

that is why we referred to Snell, which was just to

say it is then exactly the same as a person at

general law. We are only using it by analogy, to

say that at general law, once you have someone with

the legal title and once he has legal title - he

can pass his shares of all other claims that might

have stood against it and which might have been in

contest if the equity courts had been involved

where there had been no legal title but we were

talking about equitable title.

Once you have secured legal title, that is the

end. It is like a grant from the Crown, as it is

said in Breskvar v Wall. You end up with a fresh

title. It is as though the Crown is then granted
title to Western Acquisition or to Seventy-Fifth

the registrar, and that is against the whole	really being suggested is that one can go behind Jass. Everything that goes behind - what is
concept of indefeasibility under the Torrens
System.

Indeed, the argument that has been advanced

and Your Honours are now putting to me is against

the whole drift of Australian legislative action

and judicial action, putting aside Victoria. It is

only in Victoria that there has been any effort to

expand the meaning of tenancy and to let through

the wall of indefeasibility, as I have said, these

things that might be regarded as non-tenants'

rights.

Leros(2) 103 24/10/91

So we have had legislative action in all

States, I think, to cut this off, except in

Queensland, where Queensland has said by judicial

policy decision that all that is protected are what

are called strict tenants' rights. That is why in

Friedman v Barrett, the option of renewal was said

to be no good, because although there was no

legislation as there is here, the courts achieved

the same result.

The decision that has been made by the

Full Court of the Supreme Court here is set against
all of that trend. For those reasons we say it is
a result which is contrary to the clear course of
the unfolding of the Torrens System.

McHUGH J: Except that the proviso itself is a significant

interference with indefeasibility of title. You

are a registered proprietor and you are subject to

an unregistered lease for up to five years with all

its terms and conditions. So that is a very

significant interference with your indefeasibility

of title.

MR PULLIN:	I accept that, Your Honour, but then, as I say, both parliaments and courts throughout Australia
have said that is only to protect the term where
the tenant is in possession. It is not to protect
an option which could then grant rights in
perpetuity. You could have a five year lease and a 999 year option.
McHUGH J:	I know, but that is picked up by the exception to the proviso. But what do you say about the passage
at 615 in Bahr v Nicolay where it was said that the
proviso should be construed liberally?
MR PULLIN:	Your Honour, first it is a question of saying

what it means rather than construing it liberally

or otherwise. One has to say what it means, and we

say that it does not do anything other than say

that - the words "as against a subsequent registered interest", which are the words that were	really used against us, are there only to make sure
that the original granter does not say, "I'm free
as well, because I would be bound contractually to recognize the option." What has happened here is
that the draftsman has said, "We don't intend that
result", so we are only talking about the
subsequent registered interest. We are talking
about the situation - we are still preserving the contractual rights which would otherwise exist
between the parties.

So that is the argument as we see it and if

that is right, it is not necessary to say, "We can

tend towards a more liberal construction." If it

Leros(2) 104 24/10/91

is necessary to choose, then it is acceptable of

course to go to the second reading speech, and that

makes it absolutely clear what the position is, we

would say.

The other interesting thing is that if the

argument is right, you could lose the right to

registration, as here. When Seventy-Fifth Jass

became a registered proprietor and then Western

Acquisition, any attempt to register the caveat

would have been unsuccessful, because you turn up

at the Titles Office and say, "Here is a lease",

and the registrar would say, "But this is just by a

stranger. This is a grant of a lease by someone

who is nothing to do with this title", and you say,

"Yes, but if you look back two or three registered

proprietors, it was him that granted the lease."

That person is indeed a stranger, so you would not

get the lease registered.

So, the position is that once Seventy-Fifth

Jass became the registered proprietor, registration of the lease became an option not available. So,

therefore what has been said is that there is this

very special strength given to the caveat. In

other words, the caveat becomes the best means of

all to secure protection when, in fact, you would

think that registration would be the better means,

but that is the consequence of accepting the

argument. If you lose the right to register they

could never have gone down and registered the lease

against us, or against Western Acquisition or against Seventy-Fifth Jass, but what is being

argued is that, all of a sudden, a caveat can be

lodged. Now that cannot be right. It just

indicates that there must be some fallacy that

should be looked for in the argument that is

presented.

McHUGH J: Supposing a caveat was on before a person took

title and then after that person took title a

caveat was withdrawn. Could the caveat be lodged

again afterwards?

MR PULLIN:  Was the caveat lodged at the time that the

original granter was the registered proprietor,

Your Honour?

McHUGH J: Yes, it was lodged then. Somebody takes, with

notice; then the caveat is withdrawn, for some

reason. Could a fresh caveat be lodged?

MR PULLIN:  No, because all it is is a claim. All it is is

it is said, "Well I have this claim".	It is like -
and I think Hoskins is a case - - -

Leros(2) 105 24/10/91

McHUGH J: Not even during the proprietorship of the

subsequent proprietor who took with notice?

MR PULLIN: Well, yes. There is no doubt that while the

original registered proprietor - the original
granter remains the registered proprietor, this

section continues to speak. It is once there is a

change of registered proprietor that the ordinary

principles of indefeasibility apply and there is a

destruction of the interest, not a dormancy, a

destruction, and so in the example given by

Your Honour - you can go on forever lodging caveats

and withdrawing them so long as there was no change

in registered proprietorship. As soon as there is

a change the answer is, "He could not". Well, he

could lodge it, but down at the court he would be

ordered to remove it, we would submit.

Now, my learned friend referred to the case of

Valbirn, and that appears, with respect, to be a

straight Bahr v Nicolay case. My learned friend

sought to distinguish it by saying there was some

third party, but as I read the facts, it is the
classic case - the case that appears in all of
these cases, that is, you have the original granter
of the lease who sells to somebody who then does

not want to recognize it and Valbirn was a case

where it was not just a recognition in some general

terms; in the contract there was a reference to the

lease. So, passing between granter and the

subsequent registered proprietor in that contract

there was a reference to the lease, and so it is a

straight Bahr v Nicolay case. This is a case where

you have granter, successor in title, successor in

title, successor in title. It is only that third

contract which was quite clearly free of all

encumbrances, and there was great action to resist

the existence of a caveat. In no circumstances can

this be brought within Bahr v Nicolay; it is not a

Bahr v Nicolay case, in our respectful submission.

My learned friend referred to section 137 and

said that, really, in Western Australia, one can

simply lodge a caveat, say what one could do given

that there was this provision for a declaration,

and what he is suggesting is, you just lodge a

caveat which really does not say anything, you just
lodge the blank form and then the specification of

the interest comes as a result of the declaration

being called for by the registrar. In my

submission, that is not the reading of the section.

The section is quite clear.

MASON CJ: Well, you dealt with that in-chief and you rely

on the instructions in the Eighteenth

Schedule - - -

Leros(2)	106	24/10/91
MR PULLIN:	Yes, and Cooper case confirms that.	So I will

not repeat that, Your Honour. And then, finally,

could I just hand up, in case there is any need to

look at this question of covenants running with

reversion, just to save research time on that

point, if I could just hand to the Court - I do not

know to what extent this will be important, but it

would be appreciated that the burden of covenants,

everyone recognizes burden of covenants running

with the land is an expression, but that is talking

about the lessee's side. On the reversionist side

the position was at common law that the burden of

covenant did not run with the reversion, and I have

shown the passage from Cheshire & Burns that makes

that clear. There was then legislative action in

the 1500s to create the situation where the burden

of covenants did run with the reversion, and I have

given the reference to that.

There was then a repeal in England in 1881, of the Grantees of Reversion Act and a replacement by

the English Law of Property Act 1925. Now, we do

not need to go into the question about whether or

not this law was carried to Western Australia with

the invisible baggage of the first settlers,

because in fact there has been legislative action

in Western Australia and section 78 repeats the
effect of the equivalent provision in the Grantees

of Reversion Act and I have reproduced the page out

of Hazelwood v Webber which says that this means

that that enactment in Western Australia in

substantially the same terms operates as an implied

repeal. So, really you go the Western Australian

legislation to find that there is a provision that

says the burden of covenants runs with the

reversion.

Now, what about the relationship between the

Transfer of Land Act, which was an earlier Act than

our Property Law Act, which was in 1969. Well,

section 6, and I have shown that in paragraph 5,

says: 

Except as in this Act expressly provided, this

Act -

(a) so far as inconsistent with the Transfer

of Land Act ..... does not apply to land that is

under the provisions of either of those Acts;

And that is the Transfer of Land Act and another

Act, the Strata Titles Act. So you start out with

this basic proposition that the Property Law Act

does not apply to land that is under the provisions

of the Transfer of Land Act. Then one goes to

Part VII which contains this provision that says

Leros(2) 107 24/10/91

the burden of covenants runs with the reversion,

and it says:

the provisions of this Part apply to leases

and sub-leases of land under the Transfer of

Land Act 1893, notwithstanding anything

contained in that Act.

And that would appear to set aside even perhaps the

indefeasibility section, but that expression "land

under the Transfer of Land Act" is defined in

section 7 to mean:

any estate or interest registered under that

Act.

Well this lease is not registered - the estate or

interest we are talking about is not registered

under the Act and we would say that therefore the

Transfer of Land Act prevails. So, in other words

the end result is the indefeasibility of title

provisions in the Transfer of Land Act prevail over

any common law notion of the burden of covenant

running with the reversion. So, it is a question

of looking at just the Transfer of Land Act and its

interpretation. There is no contest or overriding

of the TLA by the proposition that burden of

covenants run with the reversion in any event.

And finally, could I just mention the Bank's

lease: my learned friend never actually confronts

the problem that the Bank's caveat does not claim a

leasehold interest. He never confronts that. It

drifts into the fact that listed in the grounds is

the lease and that, in our submission, is not good

enough. It is like a pleading point. It is no

good saying, "I have got the evidence", without the
pleading. The caveat is the pleading. The
pleading here is that they are claiming not a

leasehold interest but a subdemise and it is no

good saying, "We have some evidence that would have

supported a caveatable interest in terms of

leasehold". They have not claimed it, therefore

the Bank's caveat is bad, in our submission.

DEANE J:  Mr Pullin, that aspect of the case leaves open a

possible area in which submissions have not been

addressed. I mean all the case is concerned about

is whether the option can be exercised. Now,

assume against your argument and also against

Mr Heenan's argument that the Bank's caveat, quite

apart from Mr Justice Nicholson's decision, does

not protect Terara, but does protect the Bank's

interest and protects it to the extent necessary to

give full protection, that is, in terms of the

example I put to you in-chief, it protects the

underlying interests of Terara from the Bank's

Leros(2) 108 24/10/91

point of view. Well then, if one were to reach

that result, and I am not suggesting it is the

right result, the question would then arise in that

particular circumstance, where Terara has for

itself no protection, but the Bank has protection

and is entitled to insist that Terara exercise the

option, whether an exercise of the option by Terara will protect the Bank's interest for so long as the

Bank's interest remains a real one?

MR PULLIN: Well, I can understand that, Your Honour, and we

just go to Bendall v Mcwhirter, and if that is

accepted as having application here, then the

Bank's interest is good, but would unfortunately

perish if Terara's interest is not protected or

perishes.	Now if that is right, that is the answer
to that argument that could be run.	It is really

an argument that I was dealing with without, I

suppose, enunciating what Your Honour has said.	We
just say Bendall v McWhirter deals with that.	It

seems to be accepted as correct and that would seem

to be the answer.

DEANE J:  Thank you.

MR PULLIN: They are my submissions, may it please the

Court.

MASON CJ: Thank you, Mr Pullin. The Court will consider

its decision in this matter.

AT 11.03 AM THE MATTER WAS ADJOURNED SINE DIE

Leros(2) 109 24/10/91