Leros Pty Ltd v Terara Pty Ltd

[1991] HCATrans 299

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

Leros(2) 1 23/10/91

DEANE J
DAWSON J
GAUDRON J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON WEDNESDAY, 23 OCTOBER 1991, AT 10.35 AM

Copyright in the High Court of Australia

MR C.J.L. PULLIN, QC: If it please the Court, with

MR D.J. McEVOY, I appear for the appellant.

(instructed by Tolson & Co)

MR E.M. HEENAN, QC:  May it please Your Honours, with my

learned friend, MR D.W. CHANTLER, I appear for the

first respondent. (instructed by Claudio Shaw)

With my learned friend, MR B.S. DODD, I appear for the second respondent. (instructed by Mallesons

Stephen Jaques)

MASON CJ: Yes. Mr Pullin.

MR PULLIN:  Your Honours, I have handed up a bundle of

documents. One is called "Amended outline of

submissions", on the assumption that the Court had

probably received with a folder, a lever arch file,

an earlier outline accompanying that folder. The

changes to the outline, Your Honours, are indicated

by underlining or deletion and consist of the

correction of a few items and some additional

paragraphs. I am not sure whether Your Honours

have had the opportunity of reading the earlier

version.

MASON CJ:  No, I have not read the original, let alone the

amended, Mr Pullin. I think that applies to most

members of the Court. Yes, Mr Pullin.

MR PULLIN:  Thank you, Your Honour. Your Honours, this case

concerns the validity of an option to remove the

lease at what is called Henry Africa's Tavern, in a local shopping centre. More particularly, the case involves the proper interpretation and application

of the facts to section 68 of the Transfer of Land

Act, and also involves the consideration of the

effect of what is called a permissive caveat under

our legislation, an animal which exists in South

Australia at least. The understanding of the

existence of such a creature is necessary to the	understanding of one of the cases which was relied	upon by the Full Court and single judge sitting in
this matter.
If I could turn to section 68, which is in the folder which contains all of the documents and cases that I wish to refer to, and if I could ask
the Court to turn to tab 1, and under tab 1 will be found a photocopy of section 4, the definitions,
and the third page is a copy of section 68, which
is the standard indefeasibility section, and about
half-way through on that first page one sees the
usual provisions, buried in a lot of other words,
that:

the proprietor of land ..... shall ..... hold the

same subject to such encumbrances as may be

Leros(2) 2 23/10/91

notified on the folium of the register

book ..... but absolutely free from all other

encumbrances whatsoever.

Then there are a series of exceptions, and if the

Court could turn over the page to page 28, one then

comes to the usual exception in relation to short

term leases, and it starts at the fourth line.	So
it is, "the indefeasibility is subject to", and
then the fourth line:

to any prior unregistered lease or agreement

for lease or for letting for a term not
exceeding five years to a tenant in actual

possession notwithstanding the same

respectively may not be specially notified as

encumbrances on such certificate -

and then these words -

but no option of purchase or renewal in any

such lease or agreement shall be valid as

against a subsequent registered interest
unless such lease or agreement is registered

or protected by caveat.

Now, this is a provision - the short term

is a similar one, but that refers to a one

lease protection is something that is found in there

legislation throughout Australia. In New South

year term rather than five years - the New South

Wales one is for three years; in Victoria it is

unlimited, that is the interest of the tenant in

possession is protected even though not registered;

and in Queensland there is a protection in relation

to tenants but the registered estate is paramount

over a tenancy for year-to-year not exceeding three

years.

This device of protecting the lease which is

unregistered but not protecting the options of

renewal is also dealt with in different ways in the

legislation of different States, and that is one of

the problems in coming to the cases, to know

exactly what the legislation in each State is

saying. But if I can say this, that New South

Wales deals with it in a different way, it simply

says that the protection for unregistered tenancies

is for a tenancy of three years, including any

options. So it does not do it in the way this does

it, which is to say that the option is not

protected unless the lease is registered or

protected by caveat. But that phrase, "unless the

lease is registered or protected by caveat" appears

in South Australia and in the Northern Territory.

Leros(2) 3 23/10/91

I have included in the bundle of documents which I have handed up, after the outline of

submissions you will come to a history which is in

this form which I will be referring to in a moment,

but under that there is an index of the relevant

legislation from New South Wales, Queensland, South

Australia and Victoria, which is useful when

looking at the cases which I will come to in due

course.

Now, what is to be observed about the section

is that the protection for the option is achieved

by registering a lease or protecting the lease by

caveat. It is not by protecting the option by

caveat; one protects the lease by caveat or

registers the lease. Now, based on that section,

the case involves the effect of two caveats, one

lodged by the first respondent, Terara, and the

other by the second respondent, the Bank.

So far as the Bank is concerned, it claimed

not an interest as lessee, it did not claim to

protect the lease, its caveat claimed to protect

its interest, namely an interest as mortgagee by

way of subdemise. So far as Terara is concerned,

the first respondent, its caveat claimed to protect
the lease, but it did not lodge its caveat at the

time when the granter of the lease was the

registered proprietor, it did not lodge it when the

successor in title became the registered proprietor
and held it for a period of time - that was a

company called Seventy-Fifth Jass - and it did not

lodge it at the time when Western Acquisition

succeeded and became the registered proprietor.	So
there were two changes of registered proprietor

before it suddenly decided that it should move and

protect the lease by caveat. And the effect of the

decisions is that that was sufficient to protect

the caveat, and we say that is wrong.

The case involves, as I say, the proper

interpretation of this section. The court said

that the literal meaning was that if you lodge a

caveat it protects the lease. We say that cannot

be the effect of the section because, really, it
brings about a situation where the opposite effect

has been achieved. So for that reason, I have gone

back to the introduction of this phrase at the end

of section 68, and I can deal with that rather

quickly. By looking under tab 2, it shows the old

section 68 before 1950, and it was amended in 1950

in the way that I have indicated. Now, the opening

of the section is exactly the same, but over the

page, on page 147, it read, the fourth line down,

the last two words, it starts there, the exception.

At that time, before 1950, it read that "the

Leros(2) 4 23/10/91

registered proprietor took subject to" certain

things:

and also -

and really, brackets need to go after the next

words; commencing with "where" there should be a

bracket there -

where the possession is not adverse -

and the bracket should finish there, so that it

reads -

and also (where the possession is not adverse)
to the interest of any tenant of the land

notwithstanding the same respectively may not

be specially notified as encumbrances.

So it is unlimited in time, and the question could

arise about whether or not an option contained in

such an unregistered lease would be good against

the registered proprietor.

One can then see what happened in 1950 by

turning the page. One can see that Act No 17 of

1950 amended to take out those words that I have

just read - this is section 16:

Section sixty-eight of the principal Act is

amended by -

(a) substituting for the words, "and also where the possession is not adverse to the interest of any tenant of the land"

and replacing it with the words -

"and to any prior unregistered lease or

agreement for lease or for letting for a
term not exceeding five years to a tenant

in actual possession".

And then added the words referred to in (b):

"but no option of purchase or renewal in

any such lease or agreement shall be

valid as against a subsequent registered

interest unless such lease or agreement

is registered or protected by caveat".

And lastly on this, if I could refer to the second

reading speech, under tab 3, and turn to page 764,

with the third paragraph:

and the passage is just three short paragraphs, if

Leros(2) 23/10/91

Section 68 is one of the most important

in the Transfer of Land Act. It is a cardinal

principle of the Torrens system that a person

who becomes the registered proprietor of land

under the Act secures an indefeasible title.

This indefeasibility is, however, subject to

certain statutory exceptions which are set out

in that section. One of these exceptions is

"the interest of any tenant".

And then there is an interjection, and going down

to the Attorney-General and missing the first

sentence and then reading from there:

There seems no doubt that this exception was

meant to relieve tenants as such from the

obligation of registering their leases or lodging caveats to protect their tenants'

rights. The courts, however, have tended to

interpret this exception in a much wider

manner than was ever expected. On a similar

section of the Victorian Transfer of Land Act
the Victorian courts held that "the interest
of any tenant" includes unregistered

purchasers, tenants for life, and other rights

quite apart from what are generally understood

as tenants' rights.

It is felt that it would be reasonable to

allow a lease of up to five years to take

priority without registration or lodgment of a

caveat. Under this amendment a lease for more than five years, or a lease containing options of purchase, or options of renewal, would need

to be registered or protected by a caveat.

Then this important sentence:

Otherwise it might be defeated by a subsequent

registered interest.

And we say Terara's caveat was defeated by a

subsequent registered interest and it cannot spring

back to life two registrations on because a caveat

is then lodged.

Now, can I just, before moving from that,

indicate that the reference there in that second-

last paragraph to the Victorian cases, as best we

can work out, the reference to the cases where the
courts have held that the interests of a tenant
includes unregistered purchasers is a reference to

the case of Black v Poole, which is on my list of

authorities, which is at the front of the volume,

which is No 5. The reference to tenants for life

being protected by the section we think is a

reference to - I am sorry, that is the Black v

Leros(2) 6 23/10/91

Poole case; the unregistered purchaser case is

Sandhurst v Gissing, which is No 4 on my list of

authorities; and other rights quite apart from what

are generally understood as tenants rights, we

think is a reference to McMahon v Swan, which is No

6 on the list of authorities. So they are the

Victorian cases which we think are being referred

to by the Attorney-General. I have included copies

of those cases at 4, 5 and 6, and under 7 I have

included, selected at random, a text, 1927, dealing
with these cases which showed the position that

prevailed and, in fact, is still regarded as good

law, subject to a few changes that are irrelevant

for present purposes, in Victoria.

Now, the next thing I have to do is refer to

section 137 of the Act, which is the section which
deals with caveats in this State. That is also

under tab 1, following the present section 68.

Section 137, on page 71, reads - and I will read

this selectively:

Any ..... person claiming any ..... interest in
land ..... or in any lease ..... under any
unregistered instrument ..... may lodge a caveat
with the Registrar in the form of the

Eighteenth Schedule hereto or as near thereto

as circumstances will permit forbidding the

registration of any person as transferee or

proprietor of and of any instrument affecting

such estate or interest either absolutely or

until after notice of the intended

registration or dealing be given to the

caveator or unless such instrument be

expressed to be subject to the claim of the

caveator as may be required in such caveat.

So there are three types of caveat: one

forbidding registration absolutely; another

forbidding registration until after notice has been

given; and a third type, which is called a

permissive caveat:

or unless such instrument be expressed to be
subject to the claim of the caveator as may be
required in such caveat.

So far as Terara is concerned, it is that third type of caveat that was lodged. They lodged

it as against our predecessor in title and we say

and I should add, we became registered proprietor

subject to that caveat, as far as Terara was

concerned, and what we say the position is that

that section means, that we took subject to

whatever claim Terara could establish against our

predecessor in title, that is Western Acquisition;

that that is the effect of it.

Leros(2) 23/10/91

So far as the Eighteenth Schedule is

concerned, could I turn to that, which is the last

document under this tab. The Eighteenth Schedule

shows the form of the caveat, and part of the form
is important because you will see that it shows the
description of the land being caveated, the name of

the caveator, the registered proprietor, and then:

THE CAVEATOR claims an estate or interest -

and there he must set out what claim he makes, and

in this case to protect the lease it would have to

be claiming an estate in leasehold - and I will

talk about the New South Wales cases later that say
that he must also state the quantum of that estate

by stating the number of years - and alongside that

in very small print it reads -

Specify the Estate or Interest claimed.

And that has been recognized in our court here and

in similar circumstances elsewhere, that being a

requirement of the legislation, the form being

referred to in the section. So there has to be a

specification of the estate or interest claimed,

and then, underneath that, after stating the estate

or interest:

as to the estate or interest of the abovenamed

Registered Proprietor in the Land above

described BY VIRTUE OF -

and then it says -

Specify the grounds on which claim is made.

And then:

and FORBIDS the registration of any person as

transferee or proprietor of, and of any

interest - instrument affecting the said estate or

and then alongside it says, in small print -

State whether Absolutely OR unless such

instrument be expressed to be subject to the intended registration or registered dealing to

be given to the Caveator -

so there is the reference to the three types of

caveat and one has to identify which is being

claimed, which type of caveat is being claimed.

Could I then go to the facts in this case and

take Your Honours to a diagram which I prepared

Leros(2) 23/10/91

under the outline of submissions. It is a document

headed up "History" and looks thus. You will see

across the top I have given a date and an appeal

book reference, then the registered proprietor is

shown in the second column, the lessee and

successors in title is then shown in the next

column, and the commentary is on the right-hand

side.

Now, above the dotted line does not really

matter because that is the early history when there

was an earlier lease. The lease that we are

talking about here is the first one under the

dotted line where the University of Western

Australia, who was then the registered proprietor,

granted a lease. It was, in fact, as a result of
an extension of the existing lease, but everyone

would accept that it is the lease that we are

talking about in the case. It was a lease for five

years from 6 December 1987 to 5 December 1992, and

the present tenant, the first respondent, is in

possession under that lease and is protected by the

short term tenancy provision in section 68, and

what we are concerned with is whether or not the
options will be good against my client when it
comes to the end of that five year lease term.

Now, the University continued as registered proprietor, one will see, until Seventy-Fifth Jass

Nominees became registered proprietor on

28 September 1988. In the time when the University

was registered proprietor, Halesworth assigned to

the present first respondent, to Terara - and I

have indicated that by an arrow because it is

Terara stepping into the shoes of Halesworth, but

Terara then carved out of its estate a subordinate

estate, a lesser estate, dependent upon Terara's

estate.	It granted a mortgage by way of subdemise
as security for loan.	I will go to that document a

little later, just to show how that operated.

The next event was the Bank then caveated to protect its interest, and I have quoted that. It

in fact appears as "mortgage", but I assume it

means "mortgagee of leasehold by subdemise", and

that was registered when the granter, the

University of Western Australia, was still the

registered proprietor, but Terara did nothing.

Then Seventy-Fifth Jass took, as I have

indicated. It eventually sold to Western

Acquisition and Western Acquisition became the registered proprietor, and while it was the

registered proprietor it sold to my client, Leros.

Leros bought free of encumbrances, so it is not one

of those cases like Bahr v Nicolay where there was

a contract subject to the tenancy. We purchased

Leros(2) 9 23/10/91

free of encumbrances. We struggled to make Western

Acquisition have the caveat removed - sorry, the

caveat which Terara had lodged, to have it removed.

Western Acquisition refused to do so and in fact

threatened us with default, so we then settled and

the current proceedings then got underway.

There seems no doubt that when Western

Acquisition became the registered proprietor it

took free of encumbrances, including free of

Terara's interest. All of the judges against us have actually observed this. Mr Justice Rowland said that he assumed that was so; the Chief Justice

said it was so; and so did Mr Justice Pidgeon.

Now, the result of the Full Court's determination

is that somehow or other it then sprang back to

life when Terara lodged its caveat after Western

Acquisition had gained its title free of

encumbrances, including free of that encumbrance.

Now, could I just go back to the Bank's mortgage and take the Court to that. It is in

volume 2 of the appeal book, at page 159. At

page 159 one can see the title for the document,

this is Terara and the National Bank and it is, of

course, described as:

Mortgage by way of sub-demise -

If I could then take the Court to page 161, you

will see in covenant 1:

The Mortgagor:

(a) DEMISES to the Bank all the Mortgagor's

right, title and interest in and to the Leased

Premises for the residue of the term of the

Lease as renewed or extended from time to time

except the last day of the term of the Lease;

and

(b) AGREES and DECLARES that it shall stand

possessed of the last day of the term of the

Lease in trust for the Bank to be disposed of

as the Bank shall direct.

And then, at page 165 of the appeal book, at about

line 12:

The Mortgagor -

that is Terara -

covenants and agrees with the Bank that it

will during the continuance of this

Mortgage ..•..

Leros(2) 10 23/10/91

(c) exercise any option to renew or extend the

term of the Lease in accordance with the

procedure set out in the Lease and sign,
execute and deliver to the Bank any documents

required by the Bank to ensure that all the

powers, right and privileges granted to the

Bank by this Mortgage continue to apply during

the extended or renewed term.

So the Bank took a lesser interest - it did not

step into the shoes of the lessee as I indicated -

and all it gained was a contractual right to compel

Terara to exercise the option.

Now, as to this type of security could I just

take the Court to tab 8 in the authorities, which

is some pages of Sykes, The Law of Securities,

Fourth Edition, and under general remarks on

page 334, it reads:

There were and are two methods of effecting

mortgages of such interests, first by

assignment of the whole unexpired term with

proviso for redemption, secondly by

sub-demise, that is by the granting of a term

of years to the mortgagee less by one day or a

few days than the actual term of the lease.

And then the top of the next page:

The second method is the one which even

before 1926 was traditionally favoured in

England. Use of the other method meant that

the mortgagee became an assignee of the

leasehold interest so as to become liable on

the covenants in the lease. A mortgagee of

leaseholds by sub-demise is not liable for the

rent and in respect of the covenants and

conditions in the head lease. He, however, is

subjected to the possibility of two grave

disadvantages, viz. (a) forfeiture of the head

lease by reason of default thereunder by the

mortgagor-lessee and (b) the bankruptcy -

et cetera. And we would say that also applies

where, for some other reason, the head lease

perishes, and we say the interest that the Bank

might have in any extended term that might be

created does not survive if, in fact, Terara's

interest perishes because of the indefeasibility

provisions.

Now, could I next turn to the Bank's caveat so

I can just show the Court the caveat that the Bank

lodged; this is at page 190 volume 2. Now the

document has come somewhat out of order because the

face - it is really the back sheet that we are

Leros(2) 11 23/10/91

looking at here, it is the caveat by the National

Bank, and then turn to page 192 for the first page

of the caveat. So we have a "description of land"

there is the "caveator" and the "registered

proprietor" and one will see that it is the

University of Western Australia, and then:

Specify the Estate or interest claimed -

it says -

THE CAVEATOR claims an estate or interest as mortgage of leasehold by subdemise.

It does not claim an estate or interest as lessee

and, of course, it could not have done so. And

then under that it says against the statement: Specify the grounds on which claim is made.

as to the estate or interest of the abovenamed

Registered Proprietor in the Land above

described BY VIRTUE OF -

and then -

See Annexure "A" .

Then if one goes back to page 191, and 191 spells

out that history as I have shown it in diagrammatic

form, and the relevant document is item 4, that is

the lease which gave Terara its title so that

Terara could then grant a sub-demise, so it is a

lease:

dated 3 December 1987 made between the The

University of Western Australia ("the

Lessor"), the Second Lessee and the First

Covenantors by which the term of the Lease was extended for a further term of five years from

6 December 1987.

There is no reference to an option in any of this but the lease is referred to, and what the Bank's

argument is, "Well, that is good enough, we

referred to the lease under grounds and that is

good enough to protect the lease". We say that is

not good enough because they claimed only an

interest as mortgagee of leasehold by sub-demise

and are not claiming to protect the lease at all.

I will come back to that when I look at the law in

relation to the Bank's caveat.

Now, as I have already said there were two

changes of registered proprietor before Leros

lodged its caveat and it is now the appropriate

time in chronological order to go to that. That

Leros(2) 12 23/10/91

caveat is at pages 84 and 86 in volume 1; page 84

is once against just a cover sheet and page 85 is

the caveat itself; this is the late - I will call

it the late caveat. Once again the land, the

caveator is Terara, the registered proprietor is

now, of course, Western Acquisition and it is shown

as the registered proprietor and it specifies the

estate or interest claimed:

in leasehold as lessee for a term expiring on 5 December 1992 with an option of renewal for

a further term of seven years.

Now, if that had been lodged back when the

University of Western Australia had been the

registered proprietor, Seventy-Fifth Jass would

have taken subject to whatever claim Terara could

have established against the university. If

Western Acquisition had taken, with the caveat

still registered, it would have taken subject to

whatever interest Terara still could establish

against the State of Western Australia, and if we

became registered proprietor the same would

prevail.

We say that is the correct way of looking at

it but by lodging, at this late stage, after the
interest of Terara had been destroyed - and we say
that is what the indefeasibility provision does, it

destroys the interest which had existed beforehand

upon registration of subsequent registered

proprietors - it cannot spring back to life by this

late lodgment. And as I have already said, and I

will go to this later, that the judges against us

all seem to indicate that Western Acquisition would

have had no trouble in having the caveat removed,

if it made its application and we have not settled

until Western Acquisition had applied to the court

that Western Acquisition would have succeeded.	And
we say that would have been right and it must be

wrong then to go the next step, just because we

take somebody who could have freed himself of the

caveat that we cannot do that.

Now, just to complete the history of the matter, if I could go to appeal book page 111, that

is in the first volume. This is the contract where

Leros purchased from Terara and at the top of page 112, you will see the third numbered

paragraph, it is just the second line, about line 6

on page 112:

The Law Society of Western Australia and The

Real Estate Institute of Western

Australia ..... JOINT FORM OF GENERAL

CONDITIONS ..... shall be incorporated herein

and shall apply to this sale.

Leros(2) 13 23/10/91

And I have reproduced those standard conditions

under the last tab, Your Honours do not need to go

to it; it just says that the sale is free of

encumbrances. But as I say, it is not a case like Bahr v Nicolay where the purchaser took subject to the tenancies, and this is a case completely free

of the questions of fraud and notice is completely

irrelevant, we would submit, although the Full

Court, with respect, seems to have become confused

by cases dealing with priority disputes and brought
them in to try and solve the problem in this case,

and I will go to some examples of that in due

course.

So there are no questions of, as in Bahr

v Nicolay, express trusts as some of Your Honours

found. Mr Justice Toohey, I think, found a

constructive trust; and there is no questions of contractual rights between the present parties to

these proceedings, that is, between Leros and

Terara; and there is no equities which arise in any

way.

Now, if we could then go to appeal book 1 at

page 99 and this, I think, completes the history

or the factual history, save for one other matter.

Page 99 is part of an affidavit of Pamela Hine who

was a director of my client, and starting at

paragraph 10 at the bottom of the page:

I am informed by the Defendant's solicitors

Messrs Tolson & Co -

that is the appellant's solicitors -

and verily believe it to be true that in the

course of arranging for the completion of the

purchase of the Tavern Premises by the

Defendant they repeatedly sought to have the

Vendor -

that is Western Acquisition -

secure the withdrawal of the Lessee's Caveat.

11. I am further informed by the Defendant's

solicitors and verily believe it to be true

that the Plaintiff refused to withdraw the

Lessee's Caveat and that the same remains on

the title for the Tavern Premises.

So, Terara refused to withdraw -

12. Notwithstanding the Plaintiff's refusal to

withdraw the Lessee's Caveat the Vendor

insisted that the Defendant complete the

purchase ..... on or before 9th March 1990 (in

Leros(2) 14 23/10/91

compliance with the requirements of a Default

Notice issued by the Vendor to the Defendant).

So, Western Acquisition was putting us under

pressure to settle.

The Vendor threatened to terminate the the purchase of the Tavern Premises on the

said date.

13. Under threat of termination of the

Contract by the Vendor (but with knowledge of

the decision handed down on 15th February 1990

by His Honour Mr Justice Nicholson ..... the

Defendant reluctantly completed the purchase

of the Tavern Premises on 9th March 1990
notwithstanding that the Transfer of Land

prepared ..... noted the Lessee's Caveat in the

"Encumbrances" panel thereof.

So we did settle, and became registered proprietor

with Terara's caveat notified on the title.

The Defendant only agreed to complete the

purchase ..... on the basis of the advice from

its solicitors that if it failed to do so

there was an appreciable risk that the Vendor

might lawfully terminate the Contract.

And we would, respectfully, agree with that advice.

That should have been the position but the Full

Court has really said that that advice was wrong because it was, in effect, the advice that was

being given is, "Well, look, Terara's caveat is not

good against you and we can get it removed because

Western Acquisition could, then you could so,

therefore, there is no basis for you refusing to

settle", but we did settle on that advice and the

Full Court has reached a different view on the

subject.

Now, there is a reference in there to the

judgment of Mr Justice Nicholson; could I just

explain what that was about. That judgment was handed down on 15 February 1990 and it arose in

these circumstances: Terara after seeing that

Western Acquisition was now the registered

proprietor, and perhaps realizing its position,

decided that it would apply to the court and seek a

declaration that its option was valid because of

the Bank's caveat. At that stage it was relying on

what the Bank had lodged because the Bank's caveat

had listed there in those grounds as one of the

documents supporting its claim - a claimed

interest - because the lease was listed, that that

therefore protected the lease in favour of Terara.

Leros(2) 15 23/10/91

Now, His Honour Mr Justice Nicholson dealt

with this and the judgment is reproduced in the

appeal book, if I could take the Court to page 4 of
appeal book 1, and Your Honours will see that it is

Terara as plaintiff against Western Acquisition,

and if I could go to page 5 you will see:

This matter arises by originating summons

pursuant to which the plaintiff -

Terara -

seeks a declaration that it has a valid option

for renewal under the original head lease and

all subsequent assignments thereof relating to

premises ..... known as Henry Africa's Tavern

situated at ..... Subiaco.

And then if I could go to page 9, see line 10:

The plaintiff does not contend there was

any fraud. It contends only that the Caveat -

and that is the Bank's caveat -

by its reference to the Lease and rights of

renewal thereof, has resulted in the Lease

being "protected by caveat" -

that being the phrase in the end of section 68 -

so that the option of renewal contained in it

receives the statutory protection afforded by

s 68.

In my opinion this contention cannot succeed on a plain reading of the requirements

of s 68 of the Act.

And then His Honour's decision is contained from

here to the end of the paragraph -

For an option of renewal to receive the protection of s 68, the object of the

protection afforded by the relevant caveat

must be the lease or agreement containing the

option of renewal in question. This
understanding of s 68 is supported by

reference to s 137 of the Act which bears out

that it is the claimant of the relevant

interest who must lodge a caveat. The Caveat

protects the mortgagee's interest in the Lease

as a consequence of the Charge, that is, the

Bank's rights against the plaintiff. The

Caveat does not "protect" the Lease itself,

that is, it does not protect the plaintiff's

rights against the owner.

Leros(2) 16 23/10/91

MASON CJ:  How can the caveat protect the Bank's interest if

it does not protect the lease to some extent?

MR PULLIN:	The argument is the one that has found approval with the Full Court, Your Honour, and all that the
caveat can do is to protect what it has claimed,
and what it has claimed is the subordinate
interest, that is the interest by way of subdemise; that is all that has been claimed, and it is all
that could be claimed, and it depended, it could
have written into its subdemise, "You will protect
what we the Bank depend upon, namely, your estate
by you lodging a caveat to protect the lease", but it did not do that; Terara did not bother to lodge a caveat itself. But, in our submission, it is not
any protection of the lease to lodge a caveat which
says, "We claim to protect our estate, namely, the
mortgage by way of subdemise which is a subordinate
interest and the other interest, the head interest
of the Bank must be, itself, protected by caveat".

Now, I might say that the decision of

Mr Justice Nicholson stands and it has not been appealed against; therefore, Terara is, we would submit, precluded from contending that the Bank's

caveat protects the lease because there has been a
finding of a court against it. We stand in the

shoes of Western Acquisition, we are a privy to

Western Acquisition, and we would submit that
Terara cannot run any argument at all which is

contrary to the decision of Mr Justice Nicholson. Probably the Bank is not put in that position

because its interest predates the decision; if it

had taken its interest afterwards issue estoppel or

res judicata might have applied but I think the

position is - and I am sorry I could not find an

argument which would have meant that they were

precluded by that judgment, but I think the

position is the Bank is free to have its day in

court. And it was brought in, of course, quite	late because what then happened, the events as I
have described them having taken place, Terara then conunenced proceedings in this matter - who got
in first I suppose.
We could have applied to remove the caveat but Terara conunenced proceedings seeking a declaration
that it had a valid option based on its belated
caveat, it having failed to ride on the coat-tails of the Bank. It then conunenced these proceedings
and saw the declaration; it had a valid option.
We say that there should have been a decision that
it was divested of title, to use the words in
Frazer v Walker, when Seventy-Fifth Jass nominees became the registered proprietor and Western
Acquisition, of course, just doubles the impact.

Leros(2) 17 23/10/91

Mr Justice Rowland found that there was a valid

option, of course, and by a majority the Full Court
agreed with that.

Now, the orders which were made - I wonder if

I could just say what orders were actually made in

the courts. Mr Justice Rowland's judgment - the

judgment, actually, not the reasons for decision -

is to be found at 149. The order was in these

terms after trial before Mr Justice Rowland:

The Plaintiff has a valid option for renewal

under the original head lease and all

subsequent assignments thereof relating to the

premises known as "Henry Africa's Tavern".

It had been agreed between Terara and Leros that if

they had failed to secure that declaration that

they would then have removed the caveat without us

having to commence proceedings to achieve that.

Then when it went on appeal the Full Court then

said, "What about the Bank, doesn't it have an

interest in all of this?", and we had never thought

it did because its interest rode on the Terara

interest and Terara's interest had to be protected

by caveat and the Bank's position stood or fell on that; the Full Court saw otherwise; the National

Bank then was ordered to be joined as a party on

the hearing of the appeal; and the order that the

Full Court made is at page 245, and you will see

paragraph 1, "The appeal" was "dismissed". So, in

other words, Mr Justice Rowland's judgment stands

that there was a valid caveat and 2, this is the

declaration in favour of the Bank:

The lodging of a "subject to claim" caveat no

D 815944 ..... and the options of renewal

contained therein -

and that is a reference to the Bank's caveat -

constitutes protection by caveat of the said

option of renewal so as to make it valid

against a subsequent registered interest

pursuant to the provisions of section 68.

Now, we submit that the judges who constituted the

majority and the trial judge seriously
misunderstood and confuse some quite fundamental

Torrens System principles to lead them into error.

Now, if I could turn to the cases, there is

just a few that I need to refer to and in each of
them I just need to briefly mention the facts

because an understanding of the factual situation

of each is required for the decision. But if I can

deal with eacp of them quite shortly.

Leros(2) 18 23/10/91

MR PULLIN: Dealing first with Terara there are different

considerations because there is one set of cases

dealing with Terara's position and another set of

cases that deal with the Bank's position.	So
starting with Terara and remembering that
section 68 protects short-term leases.	Now very

early in the piece lawyers thought, well if that is

right - - -

DEANE J:  Mr Pullin, can I just take you back a minute; I

think I might have missed something.

MR PULLIN:	Yes, Your Honour.
DEANE J:	On page 245 that you referred us to, the order

says:

by its reference to a lease undated but

stamped on 17 December 1979 and the options of

renewal contained therein -

did the caveat refer to the "options of renewal

contained therein"?

MR PULLIN:  No, in fact they did not, Your Honour; the

Bank's caveat did not. The Bank's caveat - - -

DEANE J: Well that answers, yes.

MR PULLIN:  Now Your Honour, given this protection that is

found throughout Australia for short-term

tenancies, lawyers very early thought well, if that

is right, if the tenancy is protected, even though

not registered, then what about all the covenants

touching and concerning the land? Maybe they are

carried through this gap in the indefeasibility of

title and such an argument was put up in Queensland

on their provision which protects short-term

tenancies in Friedmann v Barrett, which is under
tab 14, and Sir Harry Gibbs was then a member of

that bench and the position there is that the

Queensland provision has a protection for

tenancies; there is no provision like we have in

section 68 protecting options by caveat or

registration.

So the argument that I have just indicated,

obviously advises to the tenant in this case

thought well, carried through with our short-term
tenancy are covenants touching and concerning the

land and one of those is the option to renew. And

by a bit of, I suppose, judicial legislation, the

same result has been achieved in Queensland as has

been achieved by legislation in our State and those

States which deal with options. What the result

was - well I should mention the facts: there was an

unregistered lease for three years, as indicated by

Leros(2) 19 23/10/91

the rubric at the top of the headnote; there was an

option for renewal and there was no caveat or any

other form of protection. The only other form of

protection could be registration. Now the argument

was advanced, well there was an option and renewal,

therefore that is carried through, and the court

found that that was not so, and if I could refer to

Mr Justice Gibbs at page 506 down the bottom of the page, the second-last paragraph:

The principal question that arises is

whether an option for renewal contained in an

unregistered lease for a term of three years

may be effectively exercised by the lessee

after a purchaser for value of the land, with

notice of the lease and of the option, has

become the registered proprietor.

So the standard format for these cases is that

there has been a change of registered proprietor

and the lessee is always trying to enforce its

rights against a subsequent registered proprietor,

because if he was dealing with the original

registered proprietor he would have his rights in

contract and so on. And then His Honour observes:

It was not contested that a covenant for

renewal or an option to renew contained in the

lease runs with the reversion ..... However, the
appellant submitted that the respondent's
right of renewal was not valid as against the

appellant once he became the registered

proprietor of the land.

And then, about half-way down the page:

The respondent submitted that this

section preserved as against the registered

proprietor not only the lease for the term of

three years ..•.. but also all the

covenants •.... touched and concerned the

land ••.. On the other hand, the appellant

contended that, on the exercise of an option -

There was then:

a new tenancy comes into existence, and that

the right given by clause 2(d) of the lease

was a right to demand a new tenancy, but was

not itself a "tenancy" within the meaning of

section 11 -

of the relevant legislation. Now, true it is that

when there is an exercise of an option a new lease

does come into being; there is no doubt about that

and His Honour cites the authority for that. And

Leros(2) 20 23/10/91

then over at page 509 at the bottom of the page,

His Honour, in the last sentence says:

The question remains whether the

intention of section 11 is to protect only the

tenancy itself, or the tenancy with all its

incidents.

And as I say, a policy decision is reached and down

the bottom of page 510, in the last paragraph:

In my opinion the word "tenancy" is

narrower in meaning than the expression

"interest of any tenant" which appears in the

Torrens statutes of some States, and which

might well be wide enough to refer to an

option to renew. (Cf. McMahon v Swan)

And that is one of the cases, the Victorian cases,

that I referred to earlier which our

Attorney-General, when bringing in the amendments,

said, "Well we do not like those results where it

has been given a very broad meaning, so we will

legislate to make sure that the McMahon v Swan type

cases, which protect what might be called

'incidents to tenancy', are not protected by the
legislation which protects short-term unregistered

tenancies", and the Court here is really achieving that result without legislation. His Honour says:

In my opinion the word "tenancy" is

narrower in meaning than the expression

"interest of any tenant" ..... ! consider that

section 11 is intended to protect the tenancy

itself, and that its protection does not

extend to a right of renewal -

And then, down the bottom:

Section 11, which provides an exception to the

fundamental principle, embodied in section 44,

that the registered proprietor shall hold his

land free from unregistered interests, should

not be given an extended construction,

particularly one that would render the title

of the registered proprietor subject to rights
of renewal that might be perpetual, although
those rights were contained in an unregistered

lease and were not protected by caveat.

And that was the concern; to make sure that the

unregistered tenant only stayed in there for a

short time, and as I say, in New South Wales that

is achieved by saying that short-term tenancy and

any options must not exceed three years, and that

is how it is achieved there, without the device

that has been used in Western Australia.

Leros(2) 21 23/10/91

Then if I could go to Mercantile Credits,

which is under tab 20, and this explains how
registration of a lease protects the option. Now the factual background briefly: there was a lease with an option of renewal which was registered - it

was a long-term lease in this case, but it was

registered. The question was, did the option bind

a subsequent registered mortgagee? The argument

the mortgagee was putting up was to say, "Well

look, I am registered; I know the lease was

registered before me, but when the option was exercised, which is after I am the registered

proprietor, a new lease springs into life" - I have

referred to those authorities before - "therefore

that is the effect arising after I became the

registered proprietor as mortgagee and therefore I

can sell the land free of that interest." It was

found that that was not so, and as I say, why I

refer to this case is because it explains how
registration protects, to use the words of

section 68, "protects the option".

If I could take the Court first to page 339,

Sir Garfield Barwick, at the bottom of the page, the last paragraph:

Section 119 gives protection to an

unregistered lease for a term of one year or

less against a subsequently registered dealing

if the tenant under such a lease is in actual

possession of the land, presumably at the date

of the execution of the subsequent dealing.

But, by the proviso to the section, no right

of purchase of the freehold or of renewal of

the term shall be valid against the person

having the benefit of the subsequent dealing unless the instrument from which the term is derived is registered or unless a caveat

protecting the right of purchase or of renewal

is lodged with the Registrar.

This was a South Australian case, which has the

equivalent phraseology in its legislation.

His Honour said:

The proviso in this section was necessary, in

my opinion, because, without it, the effect of

the earlier substantive provision of the

section would have made the subsequent dealing subject to the right of purchase or of renewal

as the case may be -

ie covenants running with the land would go through

the door.

In the result, the person claiming under the subsequent dealing is only affected by a

Leros(2) 22 23/10/91

maximum term of one year in the case of a
tenant in actual occupation under an

unregistered lease or agreement for lease.

Or one that is not protected by caveat.

Now, if I can finally than refer to

Mr Justice Gibbs at page 345, where we still have

this problem: how is it that the new lease created

on exercise of the option is not lost, because it

follows in time from the registration of the

mortgage, and at page 345 His Honour says at the

top, about six lines down:

On the one hand it may be said that the right of renewal is an integral part of the estate vested in the lessee and, upon registration, obtains the same protection as the term

itself.

And then, a little further down:

The right of renewal is adjectival in relation

to the term granted.

So, although on exercise a new lease springs into

life, really what the Court is saying, it relates

back to the date of registration of the original
lease, therefore when the mortgagee became

registered, it took subject to the rights of the

tenant under the registered lease, including the

right to exercise the option. And His Honour deals

with Friedmann v Barrett on page 347 and says in

the second column:

I should also refer to the decision in

Friedmann v Barrett to which I was a party.

It was there held that an option to renew

contained in an unregistered lease for a term

of three years could not be effectively exercised by the lessee after a purchaser of	the land for value had become the registered
proprietor.

And a little further down:

In so far as it dealt with that question the case turns on the meaning of the word

"tenancy" in section 11 and is distinguishable

from the present case.

Which, as I have indicated, was really a policy

decision in Queensland which achieved the same

result as the legislation here.

So that is how Terara could have protected its

position if it had lodged a caveat when the

Leros(2) 23 23/10/91

university was the registered proprietor. If it

had lodged a caveat protecting the lease, and

protection of the lease protects the options also

in the lease, so that later on when they are

exercised, the new lease gains the protection of

the original lease.

Now if I could then turn to the case of Alcova

under tab 13. The facts in this case were that

once again there was an unregistered lease of less

than two years, with an option. The option holder

exercised his option and it was held that he had an

interest which was good against the subsequent

registered proprietor. And the question is, well

how is that so in the light of the cases that I
have referred to? Well, Mercantile Credits could

not assist, because that was a case of a registered

lease. The option was exercised and the answer is

this, that the option was exercised before the

change of registered proprietor, so that it created

a new lease which was itself a short-term tenancy

and so that when the registered proprietor took, he

took subject to that new lease, which was itself

protected by the short-term tenancy legislation.

There are some interesting comments, first,

the historical reasons in relation to all this

legislation on page 59 where Mr Justice Bryson,

just under line E, talks about why this protection

for short-term leases came in and said it was

really to bring it into line with the Statute of

Frauds which provided such protection and it was

thought that Munro v Stuart was the genesis for the

exception for short-term leases. So there was that

problem, but also at page 63, of particular

relevance, the comments that he makes just above

line E, about four lines down from the top of that

large paragraph starting in the middle of the page:

The circumstance that that tenancy was created

pursuant to the exercise of an option, and

that in an earlier stage of the history of the

relationship between the plaintiff and its

first landlord there was a term of two years

and also an agreement or option for an
additional term which when added to the

original term exceeded three years is no

longer of importance; it would have been -

in other words, it exceeded, if you added the two

together, the short-term tenancy protection. What

His Honour then says:

it would have been of high importance if the

freehold had been transferred during the first

two years because registration would have

defeated the option.

Leros(2) 23/10/91

So, in that case the option had been exercised

before the change. We say that that comment that

Mr Justice Bryson makes is apposite here, because

there was a transfer which defeated the option,

namely the Seventy-Fifth Jass and then subsequently

the Western Acquisition.

Then if I could go to Hosking v Barnes under

tab 15. Once again it was an unregistered lease;

there was an option for two years and Hosking,

before it became the registered proprietor, gained

knowledge of the option before it became the

registered proprietor. At page 105, section 119 -

it is reproduced in the booklet, but it is also

referred to at the bottom of page 104 - which reads

that:

"every registered dealing with land shall be

subject to any prior unregistered lease or

agreement for lease or for a letting for a

term not exceeding one year to a tenant in

actual possession thereunder".

And then, at the top of page 105:

To my mind, therefore, the language of

section 119 conveys the implication that if a

lessee in actual occupation under a lease for

a term in excess of one year is to have the

benefit of the Act, that lease must be

registered. Accordingly, I take the view that

upon registration of the transfer ..... to the

plaintiff, its title to the land became

paramount over the interest of the defendants
under the unregistered lease, and that the
covenants contained in the lease, including

the covenant granting the option for renewal,

were not preserved.

And we say that is what happened when

Seventy-Fifth Jass became registered as proprietor;
that the option for renewal was not preserved.	In
fact, if I could just now briefly go to the two
cases that I have listed on the meaning of
"indefeasibility of title" - and forgive me if I
briefly go to these. They are under tabs 10 and
11. First, 10, which is Frazer v Walker, and I
have reproduced just a few pages from it and
relevantly at page 584, just under line D, the
sentence at the end of the paragraph which reads:

As regards all such instruments it is

established that registration is effective to
vest and to divest title and to protect the

registered proprietor against adverse claims.

Leros(2) 25 23/10/91

Now the Full Court seems not to have had

regard to that, that that is the effect of

indefeasibility, because if that is so then when

Seventy-Fifth Jass became the registered proprietor

and Western Acquisition, Terara had been divested

of its title by the fact that it had allowed the

subsequent registered proprietor to take, without

there being any caveat protecting the lease or

without any registration of the lease. The same,

just briefly, Breskvar v Wall, which is under the

next tab, and Justice Windeyer, citing Torrens
himself, at page 400 said, and this is the first

column, at the top of the page just after the

quotation:

Later, using language which has become

familiar, he spoke of "indefeasibility of

title". He noted, as an important benefit of

the new system, "cutting off the retrospective

or derivative character of the title upon each

transfer or transmission, so as that each

freeholder is in the same position as a

grantee direct from the Crown".

If that is so, then Seventy-Fifth Jass was able to give clear title, free of Terara's interest, option

interest, to Western Acquisition and so was Western

Acquisition able to give the same interest.

There is then the interesting case of

Achatz v De Reuver, under tab 16, and I refer to that because the Full Court really confused

priority issues and indefeasibility issues and this

case nicely illustrates the difference between the

two. There was an unregistered lease in this case

containing, not an option to renew the lease, but

in fact an option to purchase in this case. Now,
as is usual, the registered proprietor sells his

land to a third party and after that agreement to

sell, but before registration, the lessee purports
to exercise his option in purchase.	So you have

two claimants to the land: one saying, I have

exercised the option and the other saying, I have

purchased the land, and it does highlight very

clearly the difference between the priority issues

and the indefeasibility issues. There was

registration in fact; one of the parties gained
registration - I think it was the third party, not

the tenant holding the option - but the other party

became registered.

Now, before registration there was a priority

dispute and Justice Hogarth deals with the two

situations at page 248, starting at the foot of the

first column with that last paragraph, where

His Honour says:

Leros(2) 26 23/10/91

It is clear on the authority of the cases

which I have already cited that the defendant

had an equitable interest in the land, an

interest which he was entitled to enforce by

proceedings for specific performance - I think the defendant is the tenant who held the

option to purchase.	So he had an equitable
interest -

and which he was entitled to protect by the

lodging of a caveat. On the plaintiff's

entering into her contract to purchase the

land ..... , she also acquired an equitable

interest in the land, and one which (in the

absence of competition from the defendant),

she also was entitled to enforce against

Loizou by proceedings for specific

performance, and to protect by means of a

caveat. At this stage, and prior to the

registration of her transfer, therefore, who

as between plaintiff and defendant had the

prior right in equity? In my view, clearly

this was the defendant. "As between merely

equitable interests in land the rule is "qui

prior est tempore potior est jure" - the older

equity is better".

So that is the priority battle.

But on the plaintiff's transfer being lodged

for registration, she became entitled to be,

as she subsequently was, registered as the

legal owner of the fee simple. In this
connection Maitland goes on to say: "But let

the purchaser get the legal estate without

notice, there is no place for this maxim. The

rights concerned are, if I may so speak,

rights of different orders; the purchaser is

legal owner and the cestui que trust has no

means of attacking him". It is clear from

what Maitland had said previously that when he

refers to the purchaser getting the legal

estate without notice, he is referring to a

purchaser who had "come to legal ownership
bona fide for value and without

notice .•... This was the rule in equity, but

under the Real Property Act -

this has, of course, been modified in all States by

the section which says, "mere notice does not

constitute fraud". So notice is not effective as

it is in the general law as between competing

equitable interests to affect the rights of the

parties.

Leros(2) 27 , MR PULLIN, QC 23/10/91

In fact, down on page 250 the judge made that

observation, in the second-last paragraph:

Mere notice, even actual knowledge by the

plaintiff or her agent of the defendant's

prior equitable interest, does not of itself

constitute fraud.

Now, if I could also refer briefly to the J.

& H. Just (Holdings) case, which is under tab 17,

this also was a priority dispute and the

Chief Justice in the Full Court in this case, in

the supreme court, relied upon comments in this

case but, in my respectful submission, must have

misunderstood the fact that he was dealing with a
pure indefeasibility question and not a priority

question. In this case the facts were that there

was a vendor who took a mortgage and it was not

registered and there was no caveat lodged, and then

of course someone else came along; loaned money to

the registered proprietor; a second mortgage was

taken and a caveat was lodged and then the lender 1

sought to register its mortgage, and so, before

registration the Court had to sought out the

priority position between the parties and

Sir Garfield Barwick said, at page 552, when

talking about caveats, this is about two-thirds of

the way down the page, the sentence commencing

half-way through the line - and he is talking about

caveats in New South Wales, and I appreciate that

in New South Wales a caveat is a caveat which

forbids registration, it does not have this type of permissive caveat, but we say that does not matter.

The position with a permissive caveat is that you

take titles subject to whatever claim you would be able to establish at the time of registration, and if you do not agree to do that, then it does forbid

registration in the same way as His Honour said,

but the reason I read this passage will become

evident in a moment:

Its purpose is to act as an injunction to the

Registrar-General to prevent registration of dealings with the land until notice has been

given to the caveator. This enables the

caveator to pursue such remedies as he may

have against the person lodging the dealing

for registration. The purpose of the caveat

is not to give notice to the world or to

persons who may consider dealing with the

registered proprietor of the caveator's estate

or interest though if noted on the certificate
of title, it may operate to give such notice.

Now that was picked up in the supreme court as though that was somehow of relevance here. All

that was saying, that if you are dealing with a

Leros(2) 28 23/10/91

priority dispute, and therefore you are concerned

with notice, the fact that there is a caveat on the

title may generate some evidence during the course

of the hearing that, in fact, the party had notice
of the earlier equitable interest and therefore the

usual rules for determining priorities and equity

should be observed, that is, in circumstances where

notice was actually had. But this is not a

priority case. There is no question of priorities.

We became registered proprietor and so had Western

Acquisition become registered proprietor when there was no priority battle on foot.

Now, there are two other cases I wish to refer

to. One is Re Davies in Queensland, and the

judgment of Mr Justice McPherson, under tab 19.

Once again this was a case of an unregistered

lease. There were options to renew the lease.

There was a change of registered proprietor and the

question was whether the covenant for renewal was

good against the subsequent registered proprietor,

so by now a conventional kind of dispute, and

Mr Justice McPherson states the position very

clearly, we say, at page 51. He analyses and

brings together all the cases that we have been

looking at or the effect of them. On page 51, at

the top of the page, first paragraph:

It is well settled that a covenant for

renewal of a lease, such as those contained in

cl.4 .•.. runs both with the land and the
reversion: Mercantile Credits ..... It may be

accepted that the right of renewal conferred

by such a covenant constitutes an interest in

the leased land: Friedman v Barrett ..... and

furthermore, that if the lease is registered,

a right of renewal contained in it gains the

protection afforded to registered interests by

s.	44 of the Real PropertyAct ..... It follows
that the interest in land created by a

covenant for renewal in a registered lease

prevails over the interest of the registered

proprietor of the fee simple estate in

reversion of the land: see Mercantile

Credits .••.. Such an interest is "recorded in

the register" and as such is an interest to

which the estate of the registered proprietor

is subject under s.44 of the Act.

Then His Honour says:

The position is different if the lease is

not registered. In that event, the fee simple
of the registered proprietor is, by force of
s.11 of The Real Property Act of 1877,
admittedly not paramount "over any tenancy

from year to year or for any term not

Leros(2) 29 23/10/91

exceeding three years" created before or after

issue of the certificate of title of the

registered proprietor; that is so

"notwithstanding the provisions of section 44" ..... But what is protected by s.11 is only the

"tenancy" itself and not the tenancy with all

its incidents .....

The present case falls within this class.

The lease from RSL not having been registered,

the applicants were protected by s.11 of the

Act of 1877 in their possession of the

premises ..... for the duration of each

successive three year term as and when it took

effect. So long as RSL remained the

registered proprietor -

and substitute there, so long as the University, in

this case, remained the registered proprietor -

they were entitled to enforce against it their

right under cl.4 of the lease to a renewal or

renewals of the lease. In addition, even the

interest created by that right of renewal was

protected against RSL, although not under s.44

of the Act but because RSL has created it.

The position changed on 24 February 1986 -

and in this case they changed on 28 September 1988

when Seventy-Fifth Jass became registered

proprietor -

when Wickham was registered as proprietor of

the estate in fee simple and the land.

Because of the provisions of s.11 of the Act of 1877, Wickham remained bound by any

subsisting three year tenancy, but not its

incidents, such as the right of renewal

contained in cl.4 of the lease, which it had

not itself created. Any interest in the land

created by that right was unregistered, with	the consequence that under s.44 Wickham held
its registered estate in fee simple free from
that interest.

Now, once that position is accepted and it

certainly applied for Seventy-Fifth Jass and we say

it certainly applied for Western Acquisition and as

I have said now twice before, the judges all

recognized that to be the position, the question is

can that interest spring back to life? Can it be

revived by the late lodgment of Terara's caveat?

And the judge at first instance, Mr Justice Rowland

and the Chief Justice in the Full Court gained what

they thought was guidance from the case of Coles,

which was a South Australian case, with a

permissive caveat and the same sort of

Leros(2) 30 23/10/91

considerations which arise in this case, save that

the facts were different, and they are quite

difficult to follow from the judgment.

If I could turn to that case now. I should,

just before going to Coles, indicate why we say

that if Seventy-Fifth Jass and Western Acquisition
took free of their option, that we should also do

so, is because it is the same under the general

law, and if I could just refer to tab 24, where

that position is very clearly stated. None of this

is going to be a surprise to Your Honours, but if I

can refer to it briefly. It is a passage from

Snell, on page 57 - we reproduced just 57, under

the heading "Successors in Title", and the second

sentence:

Thus a purchaser with notice of an equitable

interest will nevertheless not be bound by it

if he purchases from a person who himself was

a purchaser without notice. Here the second

purchaser may shelter under the first

purchaser, because otherwise a bona fide
purchaser might be unable to deal with his

property, and the sale of property would be

clogged.

Now we say the same effect is achieved once

Seventy-Fifth Jass and Western Acquisition were

registered proprietors free of the option, they

could pass that position on to us.

Now, if I could then go to the Coles case,

which is under tab 18.

McHUGH J:  What about the problem about the fall of the

transfer? Why is it not possible, in view of the

facts, that Western, whatever its rights hitherto

had been, at that time recognized Terara's interest

and you took subject to those interests?

MR PULLIN: Well, the reason not, Your Honour, is because it

is a subject to claim caveat, says, the effect of

it is to say that there can be no dealing with the

land unless the successor becomes a registered

proprietor subject to claiming.	Now, what does
"subject to claim" mean?	We say it must mean

subject to whatever claim could be established as

at the date of registration and lodgment; not

registration, of lodgment under the caveat.	Now
that is what has got to be tested.	Now, what was

the position at the time of lodgment of the caveat?

Well, as I say, it had no rights as against Western

Acquisition. If Western Acquisition had moved in the court and asked for an order removing the

caveat, it must have succeeded.	Now, we cannot be
in any worse position.	We took subject to whatever

Leros(2) 31 23/10/91

claim could be established against Western

Acquisition, and there was none.

McHUGH J: Well, except that as at the date of transfer

Western Acquisition was acknowledging the interest

which was covered by the Terara caveat.

MR PULLIN:  Well no. The contract is the question about

acknowledgment or otherwise. It was sold free of

encumbrances. All that happens at registration is

that the transfer records the fact that there was a
transfer of legal title from one party to another,
subject to such claims as could be established

against Western Acquisition, and we have to wear

that. If they can win the case by showing that

they had a claim against Western Acquisition, we

take subject to that, and let us assume that caveat

had been lodged when the University of Western

Australia was still the registered proprietor and

Seventy-Fifth Jass had taken, subject and with a

transfer which had on it the caveat lodged by

Terara, had it done so at the right time, and then

there had been a sale to Western Acquisition, there

had been no dispute arising, then we took the

position we did, then the issue to be determined

is: what can Terara establish at the time of

lodgment of its caveat against the University of

Western Australia? It would have been able to

establish its entitlement to register the caveat.

Really all that would happen is that the statutory

injunction which is the caveat, preserves the
position so that Terara could then have come down
and registered its lease, and by registering its

lease it would then protect the lease and the

options by virtue of the reasoning in the

Mercantile case.

So, with respect, it cannot be the case that

somehow or other there is a springing back to life

of the option because that really brings about the

result, quite the opposite, of the legislation,

because the legislation says that the registered

proprietor takes free of all encumbrances, except

the short-term tenancies and there is an exception

to that, except for options unless they are

protected by lease or caveat. Well, no lessee need

ever bother about caveat until somebody decides to

fight him, then as soon as somebody, one of the

successors in title, says, "Oh look I do not think

I am going to let you exercise the option", he just

says, "I will go down and register the caveat -

lodge my caveat". That cannot be the proper view

of the section and how the section operates.

It is certainly what the Full Court said.

They said, "Well the section says unless it is

protected by caveat, there is a caveat on there,

Leros(2) 32 23/10/91

that is the end of it", and we say that is a far

too simplistic interpretation of the section and

just cannot be right. It is contrary to the

intention of the Act. It ignores the fact that the

rest of the Act exists, that is section 137 says

that one lodges a caveat and the caveat can be in

various forms and that if you accept my submission

that a subject to claim caveat is to establish

whatever claim existed against the registered shown in the box on the transfer and they took subject to that caveat, but it is not analysing
proprietor at the time of lodgment, then the Full
Court's reasoning must be wrong in my submission,
but it is certainly what the Full Court said,

what is happening, in our respectful submission, to

just say that, well the caveat is referred to. The

caveat does nothing more than give somebody the

right to go down to the Court and establish what

their right was.

DEANE J: What if the caveat had been lodged by agreement

with the registered proprietor?

MR PULLIN: Well you would look, Your Honour, for what the

agreement was, and if it constituted an agreement

to recognize the tenancy, for example, then we

would have a Bahr v Nicolay situation, where it can

either be an express trust, or a constructive

trust, or even fraud, because if by reaching that

agreement and then going and registering and coming
along to the Court and saying, "Well I take free

because of section 68 - - -

DEANE J:  No, I meant by agreement with your predecessor,

registered proprietor.

MR PULLIN:	By Western Acquisition?
DEANE J: Yes.
MR PULLIN:	In my submission it would not have any effect at

all.

DEANE J: Well, you would have to say that, would you not,

because otherwise the documents, as it were, on the

face of the record, would be exactly the same from

the point of view of the subsequent purchaser?

MR PULLIN:  Yes. If the contest is between - it is Terara

who is claiming its interest, therefore it does not

matter what other people agree.	It would have to
be an agreement involving Terara.	It would then

create a Bahr v Nicolay situation. If I could, as

I say, go to Coles and say this, that it should

have afforded no support at all to the Full Court

or to the trial judge, but they said it did.

Leros(2) 33 23/10/91

DEANE J: Which tab is this?

MR PULLIN:  Tab 18. Now, can I go to the facts which as I

say, are at first almost impossible to understand,

but this is what I think happens. They set out on

pages 122 and 123 the judgment of Mr Justice Mohr -

they were a set of agreed facts, and what happened
was, with Coles - and there are various names for

Coles which helps to confuse the matter - but it is

Coles all the way through under various names,

Coles apparently owned the piece of land, sold it

to Swords predecessor in title, I forget its name,

but anyway, Sword Nominees predecessor in title,

and then leased it back. In fact the predecessor

in title to Sword was T & G, and once again T & G

appears under various guises in these facts, and we

start out with agreed fact 2 on page 123:

In pursuance of a "leaseback arrangement" the

said G J Coles ..... transferred its estate and

interest in a portion of the land ..... to

Australian Temperance and General Mutual Life

Assurance Society Ltd. On the same date,

namely 14 January ..... Coles & Co Ltd as lessee

entered into a lease ..... for a term of thirty

years with the same Australasian Temperance

and General Mutual Life Assurance.

Now, paragraph 3 is all about a new title and can

be crossed out, it is irrelevant, it is just a new

title issued. Paragraph 4 can be crossed out.

That was just a new title also. Paragraph 5 is not

really relevant, but it is Coles assigning to one

of its related companies, but it is still the same

party or its privies; 6 can be crossed out because

that is apparently some kind of court

reconstruction where T & G became some other name,

and then 7, T & G sells to Sword. So there is a

contract of sale on 23 November 1983. Before Sword

becomes registered proprietor Sword lodges a

caveat. It is a permissive caveat, the type of

caveat that we have here, subject to claim caveat,

and then it is only after that - and that is shown

from agreed fact 9, and this shows all the signs of

being cobbled together as the case went through

because there are various new paragraphs added in,

but in 9 the transfer between T & G and Sword is

registered, so between the contract of sale and
registration the caveat goes on and could I just

hand up this summary of the facts which summarizes

what I have said, that we have the registered

proprietor, that is T & G, grants a 30 year lease

to Coles and then we have those three events: the

contract of sale - and I might add it is subject to

the tenancy - then we have Coles lodging its caveat

and then we have Sword becoming registered

proprietor, in that sequence.

Leros(2) 34 23/10/91

The fact that it was subject to the tenancies

can be seen at the foot of page 124, you will see

at the bottom there:

So that the matter can be quite clearly

seen the contract note referred to in

par 7 ..... under the heading "the schedule" has

this notation:

"(2) Tenancies and other similar interests to

which the sale is subject -

and then the lease to Coles. Now, presumably if

this had been three years later the judges would

just have said, "This is a Bahr v Nicolay case and

that is the end of it". But there is also another aspect to it and one that makes it quite different

from here. This situation is as variable on our

facts.

There was a contract of sale where

Seventy-Fifth Jass decided to buy from the

University of Western Australia and between the

contract and the date of it becoming the registered

proprietor Terara had slipped in and lodged its

caveat. That would have then made that a case on

all fours with the Coles case, but our case is not

that case and so therefore contrary to what is said

by the Full Court, Mr Justice Rowland, it should
provide no support at all for the decision that they reached, and they are, with respect, quite

difficult judgments to read, but in the end what it

comes down to is that there was a permissive caveat
on and that if a permissive caveat is to have any

meaning, Coles must have been able to succeed so
Mr Justice Jacobs says that he desires to add not much to what Mr Justice Bollen had said, and then

says that he is tempted by just resorting to what a

court of equity would say, which really was

sufficient, as it turns out on the basis of Bahr v

Nicolay, but it is just a bit earlier than Bahr v

Nicolay, and then down the bottom of the page,

about three-quarters of the way down there is a

sentence beginning with the last word of the line:

It is to be observed that not all legislation

elsewhere which is, or claims to be, modelled

upon the The Real Property Act 1886 authorises

a "permissive" caveat; but whether permissive

or absolute, the Registrar-General is

forbidden to register any dealing with the

land, contrary to the requirements of the
caveat, so as, in the instant case, to defeat

the plaintiff's claim as inequitable lessee

under the unregistered instrument of lease.

If the argument for the defendant were to

Leros(2) 35 23/10/91

prevail, a permissive caveat would be quite

meaningless and futile.

It does not really go into the reasoning, but what must be being said is Coles could have established

at the time that its caveat went on, a right to
register the caveat and therefore the permissive

caveat simply allows the change of registered

proprietorship to take place, subject to the

establishment of that claim. Mr Justice Mohr, who

starts at page 122 and recites the facts, at

page 125 said:

The case therefore raises squarely the

effect of what is know as a "permissive"

caveat. Such a caveat is to be clearly

distinguished from a caveat which forbids

dealing with the land at all until such time

of the caveator's interest can be adjudicated

upon. A "permissive" caveat by its terms

allows dealing ..... provided the transferee

acknowledges that he takes such title subject

to the interest claimed in the caveat.

Now that really is not the end of the sentence, it is, "subject to the interest claimed in the caveat

and should add, "such as could be established at

the time of lodgment of the caveat". If one does

not add those words on, it is really what

Your Honour Justice McHugh was putting to me, that

you stop there and it is as simple as that - the

caveat goes on, we took subject to the caveat, and

on the literal wording of section 68 that is it.

They say that just cannot be right, one has to read

that it is subject to the interest claimed in the

caveat as could be established at the date of

lodgment of the caveat.

Mr Justice Bollen, at page 126, just under

half-way down in the new paragraph, talked of

equity frowning on the argument which had been put

up, which is really the Bahr v Nicolay type of

reasoning, and then quotes over the page, really it

is all to do with the equitable approach, and over

the page, at page 128, after referring to Hosking v

Barnes which I have referred Your Honours to, and

Friedman v Barrett and J & H Just (Holdings) and

the like, referred to a case I have not referred

to, that is Andrews v Superannuation Fund, about

two-thirds of the way down page 128, where

Justice Olsson said this:

My researches have failed to reveal the

existence of any authority as to the effect of
registration of a transfer expressed to be

subject to an existing valid caveat.

Leros(2) 36 23/10/91

And that is the critical word we say, "existing

valid caveat". Was the caveat valid as against

Western Acquisition, and that is the word that is

important in that passage.

In Western Australia there has been one case dealing with this provision, Osborne Park Co-

operative Society Ltd v Wilden Pty Ltd, tab 22,

that is a judgment of a single judge who there -

Justice Franklyn simply concluded, in the case of

an unregistered lease with no caveat, the option

was invalid against subsequent registered

proprietors, but it does not go into any analysis

of the question, but that judgment reached what we

say is the correct position.

Could I now go to where we would submit that

the Court went wrong in relation to

Terara's caveat, and then I turn to the Bank's

caveat. The Full Court decision was reached as a

result of reasons of the Chief Justice and Mr

Justice Pidgeon with Mr Justice Wallace dissenting,

and the Chief Justice dealt with, first, the Bank's
caveat, and found support - said that that
protected the lease, and dealt with the Terara

caveat in quite short terms - page 215 - under the

heading "The First Respondent's Caveat", so there

is not a lot to deal with on this subject. His

Honour said:

As to the first respondent's caveat the

foundation of the appellant's argument was

that the option of renewal was an

"encumbrance" within the meaning of s.68 of

the Transfer of Land Act -

That is what we were arguing, and still argue.	It
is an encumbrance, and I have included the
definition of "encumbrance" under tab 1.	The

foundation of our argument was that the option of

renewal was an encumbrance within the meaning of
section 68.	The definition of encumbrance is

included in the front of our booklet under tab 1,

and it would include an option of renewal.
His Honour continued:

That being so, because the lease was not protected by caveat, s.68 operated so that

when SFJ -

that is Seventy-Fifth Jass -

became the registered proprietor it held the
land free of that encumbrance and Western

Acquisition likewise became the registered

proprietor free of that encumbrance.

Leros(2) 37 23/10/91

And then it cites the various authorities.

A number of these cases were referred to in

Coles KHA Ltd v Sword Nominees Pty Ltd above

and distinguished on the ground that in that

case a caveat had been lodged before the

relevant party had become registered

proprietor pursuant to a transfer expressed to

be subject to the unregistered lessee's claim.

That is also the case here.

And that, with respect, shows the misunderstanding

about the difference in the facts here.

Section 68 does not say that the option of

renewal in an unregistered lease it not valid

against all subsequent registered interests.

It provides only that it shall not be valid

against "a subsequent registered interest

unless the said lease is registered or

protected by caveat". This may be tested by

asking whether, given that the transfer to the
appellant was subject to the first
respondent's claim, there was any valid reason

why the lease to the first respondent could

not have been registered, assuming that it was

in registrable form. In my opinion there was

no reason why it should not have been

registered.

Now that, with respect, is quite wrong because

if Terara had turned up at the Titles Office with

the lease and sought to register it at the time of

lodging the caveat, which is when one has to test

it, the Registrar would say, "Well there is no

correspondence between the registered proprietor on

the title and the registered proprietor in the

lease. I see that the University was once a

registered proprietor but you cannot register this

lease unless you come back with an instrument which

has been signed by the University of Western

Australia." So that, with respect, is quite wrong to say that there could have been registration of

the lease at the time when Terara lodged its caveat

because Western Acquisition was on the title.

In any event, the prior lodgment of the Bank's

caveat provided an additional reason for the

efficacy of the first respondent's caveat against

the appellant. So His Honour really spent much of

his time in the judgment talking about the Bank's

caveat, and this is all His Honour had to say on

Terara's caveat.	We say His Honour has gone wrong
there.

Mr Justice Pidgeon, at page 237, based his decision just on a literal interpretation of the

Leros(2) 38 23/10/91

section without considering the aspects that I have

indicated. This is at line 10 on page 237:

A literal interpretation of the relevant part

of s.68 would raise the questions, "Is the

appellant the holder of a subsequent

registered interest?"

that is us -

The answer must be "Yes". "When he took that

registered	interest was there a caveat
protecting	the lease?" The answer must again
be "Yes".	He is therefore bound by that
lease.

Of course, the caveat is merely there to

preserve the status quo until determination of the

underlying interest. That is why it cannot just be

left at saying there was a caveat on the title.

His Honour went on to say:

I do not consider this interpretation is

repugnant to the Act but on the contrary

promotes the purpose and object underlying the

Act. I do not consider it is a case of a

document, which ceases to have validity, being

brought back to life. The document was always

valid and enforceable between the parties who

created it. It was never dead.

I would agree with all of that.	As between the
University and Terara that is so.

Section 68 does no more than identify

particular parties against whom it is not

valid and enforceable.

That is where we part company to say that

subsequent registered proprietors take free of an

interest and once we take free that title can be

passed on. His Honour, over the page at 238, also

talked of Western Acquisition and said, starting at
line 5:

Although this comfortably answers the question so far as subsequent parties are concerned, it does pose difficulties in respect of the first

respondent. It was the party to the option.

that is Terara -

It did not lodge the caveat thus allowing

Western Acquisition Pty Limited to acquire a

title free of that option (disregarding for

the present the effect of the bank's caveat).

Western Acquisition Pty Limited did not

Leros(2) 39 23/10/91

acquiesce by not removing the caveat. It had

successfully resisted a claim to enforce the

option by means of the bank caveat. Is it

open to the first respondent, who could not

enforce it when Western Acquisition Pty

Limited was the registered proprietor, to be

able to enforce it against the appellant? In

these circumstances can it be said that it is
taking advantage of the situation?

There is talk of fairness which, in our

submission, is not relevant, and then His Honour
says:

The statute, as I see it, says that the option

is valid against the subsequent registered

interest of the appellant. This has arisen by

reason of the appellant registering an
instrument subject to that encumbrance. This
brings the appellant within the category of a

person against whom the option is valid.

It was not subject to an encumbrance, it was

subject to a caveat. A caveat is not an

encumbrance, it is the underlying interest which is

the encumbrance and the underlying interest had
been destroyed or divested, to use the wording of

the - it had been divested of its interest, to use

the wording of the Privy Council in Frazer v

Walker.

Can I then turn to the Bank's caveat. I

repeat what I have already said: the Bank chose not

to step into the shoes of Terara. It took a

subordinate interest and Their Honours referred to

the case of Bendall v HcWhirter, which appears in
the volume and on my list of authorities, as

indicating that a subordinate interest will perish

if the head interest perishes, and that case is

Bendall v HcWhirter.	The Bank, however, argued as
follows. It said:
Our caveat affords protection to the lease.

Although it only claims an interest as mortgagee by

way of subdemise we really claim that the lease is

protected because if you go into the documents

listed under the heading "Grounds" for claiming

that interest, you will see a reference to the

lease. That must be its argument, the argument

which is put up.

The first argument, as we have said in our

outline of submissions, is that it simply, if one

stops there, does not claim to protect the lease. The caveat does not claim to protect the lease at

all. It claims that quite limited interest. So

Leros(2) 40 23/10/91

that the first argument we put up is that the Bank

does not claim to protect the lease at all.	The
second one is that it does not even claim to

protect the extended term pursuant to the exercise

of the option, and it could not have done that

because all it had was a contractual right to

compel Terara to exercise the option pursuant to
one of the covenants in the subdemise, so it had no

interest in the land, it had that personal right

that it could have come to court and obtained

specific performance if Terara had chosen not to

and the Bank had wanted it to.

Finally, if, contrary to all of that, the court considers that it is sufficient even though

there has been no claim to an interest by way of

leasehold, even though there has been no reference

to the option, then I retreat to that long line of

New South Wales authorities that says that there

must be precision in the identification of the

claim which is made, that one must not only state

the nature of the interest claimed, that is, fee
simple or leasehold interest, but also the quantum

of that interest, the quantum in this case being a

lease for a term of five years. Then they would

run into difficulties, in any event, because they

would have to define the extended period pursuant
to an option which had not then been exercised. In

any event, there is no attempt at all to define the

quantum.

I have listed the long line of authorities,

and I do not intend going through that list.	I
will refer to one or two of them.	Re Mitchell

(1895) is one of the earliest of the cases on the

list, and it appears in my outline of submissions

on page 5, under the list of cases, where it was

stated very early in the piece that:

The intention of provisions like Section 137

and the 18th Schedule of the Transfer of

Land Act is to inform the applicant as to the

nature of the claim he will have to meet.

In Re Jones, which is at page 4 - these cases

are all under the tabs, but I do not wish to go to

them. I will just read something from Re Jones.

In fact, I would ask the Court to go to tab 28,

that is the only one, save one other decision of

the Full Court, that I would take the Court to.

Re Jones, at tab 28, page 565, about half-way down

the page:

The caveat states that the caveator claims an

estate for a term; and by so doing states the

nature of the estate or interest claimed; it

also indicates or identifies the root of the

Leros(2) 41 23/10/91

caveator's title; but it does not state the

quantum of that estate or interest. An estate

for a term may vary in mighty degree, from a

few days to an almost unlimited extent,

perhaps to perpetuity, at any rate to nine

hundred and ninety-nine years, a term by no

means unknown to conveyancers.

That is the rationale for this line of cases

which says that there must be precision in the

framing of the definition of the interest claimed

and the nature and quantum of the interest claimed.

It has been trenchantly criticized, the list of New

South Wales authorities, in that case of Gasiunas v

Meinhold, which was a decision in the Australian

Capital Territory where Justice Jeske thought that

New South Wales had gone very badly wrong in its consideration of the law based on an incorrect headnote and failure to appreciate that the law had

been changed, and the like, following which a

single judge in New South Wales thought that that

might be a good idea but was then told in no

uncertain terms in Vandyke that the law should be applied. It had stood for 90 years, but until it

was upset by somebody else and all the textbook

writers say until the High Court fixes it up,

drafters of caveats in New South Wales would be

well advised to ignore what Justice Joske had to

say and follow the long line of New South Wales

authorities.

We certainly rely on those, and despite the

criticism of the genesis of these cases, which

starts off with that headnote in Re Spencer which

is where the headnote does appear to be wrong, but

it was then followed later on as being an accurate

statement of the law, we say that given that the

criticisms are good, it is still the case that

there is a requirement for precision and indeed, of

course, it can vary from State to State. In some

places the provisions say you are to state the
nature of the interest.	We say in our Eighteenth

Schedule specify the interest and the textbook

writers talk about whether there is any difference

between those various meanings and, indeed, in New South Wales there was an amendment which looked as though it was going to ease the burden on the

drafters of caveats, but even after that amendment

the New South Wales authorities still continue to

be applied, even in the new legislation, on the

basis that there is good reason for precision and

definition in the interest which has been claimed.

DAWSON J:  Can I take you back just to the first argument.

You say the subdemise was dependent upon the

existence of the lease - - -

Leros(2) 42 23/10/91

MR PULLIN:	That is true.
DAWSON J:	- - - but it was not dependent upon the existence of the option and that to bring the option in you
have to go to the contractual right, but that has
nothing to do with the caveat ..... by the Bank.

MR PULLIN: Yes. That really is all we need to say about

the correct view of the position concerning the

Bank, and I should now like to go to what the Full

Court said about the subject. The Chief Justice,

at page 215, dealt with this. I am sorry, it is at

page 206. I might add there was one other case

that I wish to refer to which is in the volumes

before I go to that. It is an unreported decision,

under tab 37, and it is the case of Kuper. I just

wish to refer to page 26. At the bottom of

page 26, His Honour described what the Registrar

does:

the Registrar merely performs an

administrative function limited to determining

whether the caveat is in proper form.	As
Francis at 337 says:-

" .. a caveat is either lodged or not lodged,

and there is no process of registration which

affords a registrar an opportunity, even if he

had the power of examining its validity."

A caveat which does not comply with the

statutory requirements may be void and of no

effect.

And then His Honour quoted Justice Pring in

Palmer v Wiley:

"The registered proprietor is entitled to

treat the caveat as waste paper if it does not

comply with the Act."

Now that was the advice given to Terara in

this case at the time the transfer of title -

sorry, to Leros - at the time it took and became

registered proprietor from Western Acquisition, and

we would say that is correct, that it is no more

than waste paper in this case, and it was entitled

to treat it as such. His Honour also, at the

bottom of page 18, referred to what is on the

Eighteenth Schedule - you remember that very small

print which says:

Specify the estate or interest claimed.

and His Honour notes that requirement and gives the

not very surprising response that it means what the

dictionary says it means, so it must be

Leros(2) 43 23/10/91

specification, and gives added weight to the need

to the application of the New South Wales
authorities in this State, because there is this

requirement to specify the nature or interest

claimed.

If I could go to the reasoning of the Full

Court, page 206, under the heading "The Bank's refers to Bendall v Mcwhirter which it is our

argument that the Bank's interest perishes if

Terara's interest perishes. His Honour said:

This proposition begs the question regarding the effect of the Bank's caveat in which it set out the lease and other intermediate

transactions in support of its claimed

interest -

We say immediately ~here is a problem here

because His Honour is not identifying what it is

that the caveator must do, and His Honour has

really just accepted the fact that because the

lease ends up in a list under the heading of

"Grounds" that that really is enough, and then goes

on to deal with it as though that is what has been

claimed in the caveat, and that is wrong even at

that point, we say. His Honour then says:

If, on the appellant's argument, the

Bank's caveat was ineffectual to prevent any dealing with the land otherwise than subject to the Bank's claims, this would deprive any

party who acquired a derivative or subordinate

interest from the holder of a prior

unregistered interest of any protection by the

lodgment of a caveat.

And then His Honour gives two different examples

which are not apposite at all, we say, with

respect. He says:

Thus if A, being the registered proprietor of

land agrees to sell it to B by a contract of
sale, B does not lodge a caveat but agrees to
on-sell the land to C by a contract of sale,

and C does lodge a caveat, C would not be

protected.

We say that does not follow from what we are

saying at all. If there is a change of registered
proprietor the late lodgment of the caveat would

not avail C, that is true, but that is the whole

point of the indefeasibility provision. Then

His Honour says:

Leros(2) 44 23/10/91

If A, being the registered proprietor of land gives an equitable mortgage of the land to B,

..... and later executes a mortgage in

registrable form in favour of C expressed to

be subject to the prior equitable mortgage to

B, if B does not lodge a caveat but C does, C

would not be protected ..... would substantially

reduce the protection intended to be afforded

by s.137 of the Act.

With respect, we do not see how they are in

any way analogous of the present situation.

His Honour then goes on to describe the Bank's

interest as subdemise, refers to Sykes, over the

page on 208. Down the bottom of the page he says:

The University was bound notwithstanding the

first respondent's failure to register the

lease or lodge a caveat ..... Barry v Heider -

We agree entirely with that proposition, and it

remained bound, there is no doubt about that, but

the originals are not all bound, and is still bound

in contract. Then His Honour goes on, page 209:

As between the Bank and the University, I

consider that the Bank had effectively
obtained the benefit of the statutory
injunction to prevent the registration of any
dealing in the land otherwise than subject to

the Bank's claim.

We would agree with that, but only in relation

to the subdemise, and really it is a claim as

against Terara. Really, what is happening when the

caveat goes on, the Bank's caveat is claiming to

prevent Terara dealing with the land. Although it

just goes on indiscriminately on to the title, in

fact the interest it is claiming is an interest

against Terara. Then His Honour refers, we say

wrongly, to the J & H Just (Holdings) case, at the

quotes quite large slabs from it. At page 211	bottom of page 209. His Honour refers to that and	there is a reference to Mr Justice Windeyer saying
that "a caveat may give notice to all the world"
and that concludes at page 212.

MASON CJ:  Mr Pullin, we will have to adjourn at this stage.

We will resume at 2.15.

AT 12.44 PM LUNCHEON ADJOURNMENT

Leros(2) 45 23/10/91

UPON RESUMING AT 2.17 PM:

MASON CJ: Yes, Mr Pullin.

MR PULLIN:  Your Honours, I was referring to the

Chief Justice's judgment indicating where, in our submissions, His Honour's reasoning was wrong. I had just taken the Court to pages 209 through to

212 where His Honour referred in detail to the J &

H Just (Holdings) case and to those passages which

talk about a caveat giving notice to all the world.

And as I have submitted, really that case has

nothing to do with this case because questions of

notice are irrelevant.

At page 212 His Honour then continued at

line 10:

In my opinion, the Bank's caveat

conformed in all respects with what was

required to protect its interest as a

mortgagee of the lease to the respondent by

way of sub-demise. That claim necessarily

asserted the validity and efficacy of the

lease as against the registered proprietor and
those dealing with him subsequent to the
lodgment of the Bank's caveat.

It is true that the Bank's position depended upon the efficacy of the lease, but we join issue with

His Honour where he says that the claim made in the caveat "necessarily asserted the validity and

efficacy of the lease". That was not so. It

asserted only a claim in relation to the subdemise,

a subordinate estate.

And His Honour, at the bottom of page 212:

The Bank's caveat was notified as an encumbrance on the register book constituted

by the certificate of title. The appellant's

title to the land was subject to that

encumbrance. In any event the Bank's caveat

necessarily protected the unregistered lease

of the land to the first respondent, with the

consequence that the option of renewal was

valid against the subsequent registered

interests of the successors in title to the

University, including the appellant. The

protection of the lease necessarily protected

the option of the renewal in terms of the
express provisions of s 68 consistently with
Mercantile Credits Ltd v Shell Company of

Australia Ltd and Eastodoro.

Leros(2) 46 23/10/91

I have not referred to the Eastodoro case, but it

was one which followed and applied Mercantile

Credits. That sentence, with respect, confuses the

position about protection of a lease by

registration and how it is that registration

achieves that protection. We say it is nothing to

do with the situation where the protection is in

the form of a caveat. All the caveat does is to

preserve a position until the court can determine

whether there is a valid claim underlying it.	The
caveat itself is not the encumbrance.

His Honour then continued to refer to Hansard

and I have taken the Court to that. Over on

page 214 His Honour referred to the Coles case, and

at line 18 we will see His Honour said:

I find considerable support in that decision for the views that I have expressed.

We would say that His Honour should have said that

Coles is quite distinguishable because the facts

are nothing like the facts in this case, and that case turned on the fact that the caveator got his caveat on before there had been any change of

registered proprietor, that being the important

distinguishing fact taking it away from this case.

So that is the end of His Honour's reasoning on the

subject.

So far as Mr Justice Pidgeon is concerned, I

can take the Court to that. That is at page 241

with the heading, "The Second Respondent's Claim",

and on page 242 His Honour quotes

Mr Justice Nicholson in the earlier proceedings,

the proceedings where Terara had tried to ride on
the Bank's coat tails as against Western

Acquisition, and quotes Mr Justice Nicholson, and

it is those last two sentences in

Mr Justice Nicholson's judgment which we say is

correct:

The Caveat protects the mortgagee's interest

in the lease as a consequence of the charge,

that is, the Bank's rights against the

plaintiff. The Caveat does not "protect" the

Lease itself, that is, it does not protect the plaintiff's rights against the owner."

And Mr Justice Pidgeon says down the bottom:

I have, with respect, reached a different view inasmuch as the Bank's caveat does refer to

the original lease.

Now, that is just a blurring of what is required in

a caveat. It is not good enough that listed in a

Leros(2) 47 23/10/91

schedule setting out the grounds to support the

interest to have a reference to the lease. That is

not the interest the Bank is playing. That is

where His Honour has gone wrong, and having blurred

that position, he then goes on to say that the

caveat protects the head lease. And furthermore,

at line 25 on page 243, this judge also falls into

error because His Honour says:

The caveat gave notice to subsequent

registered proprietors.

That shows the confusion of concepts bringing in

priority questions, questions that would be

relevant in a priority dispute which have no

relevance at all in this indefeasibility dispute.

GAUDRON J:	Mr Pullin, does this all turn on the meaning of the word "protected" to mean "directly and
immediately protected by"?

MR PULLIN: It means, Your Honour, protected at the time

that the registered proprietor who granted the

interest is the registered proprietor. In other

words, one must protect as against the person

against whom you can sustain the claim; otherwise

you cannot protect it by lodging the caveat later

on against somebody against whom you cannot

sustain -

GAUDRON J: But in dealing with the Bank's caveat, we are

dealing with a time when the registered proprietor

was the proprietor who granted the lease?

MR PULLIN: Yes, that is correct.

GAUDRON J:  So that does not really bear on this aspect,

does it?

MR PULLIN:  I am sorry, Your Honour, you are quite correct.

Our argument with the Bank's caveat is simply that

there has been no claim to protect the lease. That

is the problem - - -

GAUDRON J: It might protect some of the lease, might it

not?

MR PULLIN:  We would submit not, Your Honour. What it

protects is an estate or interest, and the estate

or interest is this subordinate estate or interest,

the subdemise.

GAUDRON J: Which only exists if the lease exists.

MR PULLIN: Yes.

Leros(2) 48 23/10/91

GAUDRON J:  So if it is protecting the subordinate estate it

must indirectly at least be protecting the head

estate.

MR PULLIN:	The caveat is really a caveat against the grantor of the lease because it has created the
interest.  Now, it goes on, as I say,
indiscriminately on the title as though affecting the head lessor, that is, the registered
proprietor. But, in fact, it only claims an
interest as against the intermediate owner, to use Your Honour's wording; in other words, against
Terara.

GAUDRON J: Yes, I see what you say. It only protects as

between the Bank and Terara.

MR PULLIN:  Yes, and Terara.

GAUDRON J: Although it is not expressed in that way, is it?

MR PULLIN: Yes, it is, with respect. It says, "We claim an

interest as mortgagee by way of subdemise", and

that is an estate carved out of Terara's estate,

not out of ours. It only stands carved out of Terara's estate, not out of the fee simple, we

would submit.

DAWSON J: What relief would the Bank seek if it sought to

establish its claim and against whom?

MR PULLIN:	It could only seek to establish its claim against Terara and, of course, if it saw trouble
brewing what it should do is to commence
proceedings to obtain equitable relief to compel
Terara to lodge a caveat, because that would be one of the protective devices which would make sure
that the Bank was in a position to exercise its
contractual rights once the option time came up
where it could say to Terara, "Look, you exercise
the option.  I am requiring you to because you have
covenanted to do that, and I want to compel you to do that." But the Bank is not in the position to
claim - the caveator must be the person who seeks to sustain the claim .because all it does is provide for an immediate injunction once the caveat goes on, and then leaves it to the parties.

In the case of New South Wales, or in an

absolute caveat, the matter comes to a head

immediately because there can be no dealing with

the title at all. But in Western Australia, that

debate can be deferred for quite a long time until

someone finally says, "Well, I want to get rid of

the caveat", in which case the parties come to

loggerheads, go down to the court and the court

then looks at the position as at date of

Leros(2) 49 23/10/91

registration of the caveat. It says, ttWell, what interest can you, the caveator - you are claiming

this interest, but can you establish the interest

as against the person who was the registered

proprietor at the time?"

DAWSON J:  Of course, it could never claim an interest in a

registered lease.

MR PULLIN: That is right; or in the lease, in the

unregistered lease, or in the unregistered lease.

DAWSON J: But it is the registration of the lease which

protects the option, and all it can be is a claim

in respect of an unregistered lease.

MR PULLIN:  I am sorry, I am not quite following that,

Your Honour.

DAWSON J:  When you look at section 68, what protects the option is the registration of the lease.

MR PULLIN: Ultimately it is. It says "registration or

caveat", but ultimately, yes.

DAWSON J: Yes, but all the claim of the Bank is an interest

in an unregistered lease.

MR PULLIN: Yes.

DAWSON J:	And all I am saying is can you then say, "Well, it nevertheless is a claim in respect of a lease,
and even though the lease is unregistered it has
the protection of section 68 which would be
afforded to a registered lease."
MR PULLIN:	On the part of the Bank, Your Honour?

DAWSON J: Yes, I am suggesting that perhaps you cannot do

that.

MR PULLIN:  The subsequent registered proprietor takes,

shorn of all other interests, except for a

short-term lease. Now, the only person who stands

in that position is Terara.

DAWSON J: Yes.

MR PULLIN:  As against Terara, if it had registered its

lease and itself had granted a short-term lease to

the Bank, unlikely, but say it granted a short-term
lease, that short-term lease would then be good as

against Terara. But none of that, of course, has

happened in this case.

DEANE J: But it does not need protection against Terara.

It has its rights of contract against Terara. The

Leros(2) 50 23/10/91

whole point of the caveat is to give it protection against people who subsequently become registered.

MR PULLIN: Yes. It is an injunction. What it does is to

make sure that nobody takes without acknowledging

the claim.

DEANE J: But it gives substance to the claim because it

overcomes section 68 to the extent that the caveat

is effective.

MR PULLIN:  So far as the Bank is concerned, the latter part

of section 68 has no relevance at all. We are just

back into the usual situation of what is the
position for someone who - let us assume that this

had happened: the Bank had sought to maintain its

position as covered by the caveat as against one of

the registered proprietors. Now, as against those

registered proprietors it claims no interest. Its

only interest is a claim against Terara. It claims

no interest against the persons who hold the fee

simple, the estate in fee simple at all. It claims

only the estate which exists because of Terara's

lease.

DEANE J: Is "lease" defined so as include sublets? It does

not seem to be defined at all.

MR PULLIN: It is not defined, no. There is a part in the

Act dealing with leases, and what leases gain

protection, but that is merely telling us that the

lease - this is section 91:

The proprietor of any freehold land under

the operation of this Act may lease the same

for any term exceeding three years by signing

a lease thereof in the form in the Eleventh

Schedule.

Then section 99:  The proprietor of any lease under this

Act may subject to any provisions in his lease

affecting his right to do so sub-let for a

term not less than three years by signing a
sub-lease in the form in the Thirteenth

Schedule; but no sub-lease of any land

subject to a mortgage or charge upon the lease

shall be valid or binding against the

mortgagee or annuitant -

et cetera. Then there is a method of registering a

sublease, and there is a separate register for

subleases.

One would expect, using this kind of

legislation, this Torrens legislation, to make sure

Leros(2) 51 23/10/91

the Bank was in a protected position that its
subdemise would say that Terara covenants to lodge
a caveat to protect the lease, and then the Bank,
of course, would lodge its own caveat to protect

the subdemise; and because there was no caveat

lodged by Terara, of course, then are forced into

the position they are of claiming that their own

caveat does the work that would have been done if

Terara had lodged its caveat when the university

was the registered proprietor.

DEANE J: What if there were an unregistered transfer to A

and an unregistered transfer by A to B, and B

lodged a caveat to protect its interest as an owner

of an estate in fee simple under the second

transfer, and there was then a transfer by the

registered proprietor to c. On your argument, the

caveat would be ineffective, would it not?

MR PULLIN: Sorry, the caveat is lodged by C - - -

DEANE J: A is the registered proprietor. He transfers to

B, a transfer unregistered.

MR PULLIN: Agrees to sell to B, Your Honour?

DEANE J: Agrees to sell and executes a transfer; B then

agrees to sell an executes a transfer to C; C

lodges a caveat claiming an interest as owner in

fee under the second transfer, not mentioning the

first;	A then transfers to D who lodges for
registration.	On your argument, the caveat would

have to be ineffective, would it not?

MR PULLIN:  No, it would be effective because at the time

when - if you take the situation of the person who

holds the second contract and lodges its

caveat - let us assume it is a permissive

caveat - but go back to that moment and forget the

fact that there was then a subsequent change of

registered proprietor, at that time, which is how

one judges it, that caveat would successfully

protect the interest of the claim, namely because

it could show the chaing of title from A to B to

him.

DEANE J: But the point is he has not caveated to protect

the transfer from A to B, and his only claim

against the stranger is based on that unregistered

transfer.

MR PULLIN: But, Your Honour, the estate is fee simple.

That is the estate or interest in the land which is claimed. That is the estate. It is not the

protection of the dealings; it is the protection of

the estate which is passed from A to B to c.

Leros(2) 52 23/10/91

DEANE J: But put to one side the option and just look at

the lease and sublease. Why is not the caveat

protecting the sublease which is based on the

unregistered lease in precisely the same position

as the example I have given you? In other words,

why does it not protect the underlying chain of

title?

MR PULLIN:  Your Honour, that is why on this diagram I was

keen to do a little arrow sideways because if the

Bank - this arrow had gone down and not sideways -

in other words it stepped into the shoes of Terara

by taking an assignment, then the interest it would

have claimed then would have been an estate in

leasehold by way of assignment, which is exactly
the same as when Your Honour in the example given

in relation to the fee simple, that estate, passes

from A to B to C, and so at general law - because

you are then talking general law principles, not

anything to do with the Torrens system - that

person says, "Look, I claim chain of title to me,

and therefore I can establish my title by reference

to these various steps", just the old general law in England, a case of piling up the documents and

saying, "This is how I get back and prove my

title".

At that stage the claim can be established,

and the same here. If the National Bank had taken

the assignment it could then have claimed an

interest in leasehold. But, of course, it did not

want to do that, and banks do not want to because

they then become liable on all the covenants under

the lease. So they say, "Well, carve out of what

you have something and give it to me, which is

something less than you have as against the

registered proprietor." And so it is something

less than Terara has, and therefore the Bank cannot

claim it. If the Bank chooses to follow that

course and gain the advantage it cannot say, "Well,

I will not take the lease with all that that

implies, which means that I am linked back to the

registered proprietor, I want to sever that

situation, and I want to take a subdemise, and by

taking a subdemise I then have nothing to do with

the registered proprietor. I only have a title

which depends upon my relationship between the two

of us.", that is, Terara and the Bank. And so that

is the only - - -

DEANE J: It has a title which is traced through Terara's

leasehold interest.

MR PULLIN:	I agree with that, Your Honour.
DEANE J:	I can understand your argument if it was simply

saying it did not protect Terara's lease. I have

Leros(2) 53 23/10/91

difficulty with it when you say it does not protect

the Bank's subdemise.

MR PULLIN: It does protect that, Your Honour, providing its

head lease, Terara's lease, holds good, and if that

perishes - - -

DEANE J: Well, that was where it seems to me what I was

putting to you, that in terms of tracing the title

of the subdemise it is in principle the same as the
example I gave you.

MR PULLIN:  It is if one is talking about tracing how it is that one ended up in the position of the Bank.

DEANE J: It just leads, of course, back to the question

whether the rights in the subdemise in relation to

the option are also protected, but it is contrary

to part of your approach.

MR PULLIN: Well, Your Honour, the distinction between a

successor in title who, if I can use the
expression, steps into the shoes of the person

ahead of him, and what I have called a subordinate

estate such as a subdemise, is the situation that

was dealt with in that case of Bendall v Mcwhirter,

at tab 23. It is only a sentence in that case, but

the Full Court accepted the correctness of it and

no one has said that there is anything wrong with

it. At page 487, a couple of sentences starting

towards the top of the page:

In this connexion Mr Heathcote-Williams relied

on a principle which has been recognized in

Brown v Draper and other cases, namely, that a

wife cannot claim the benefit of her husband's

statutory tenancy after his interest as

statutory tenant has been validly determined.

That, of course, is true; every subordinate

interest must perish with the superior

interest on which it is dependent.

So that is the general law position, and we would

say the same applies here. But Your Honour is

correct. It does lead back to the question of what

"protection" means in the section, and I suppose it
begs the question, we must agree - and it is at

that point that we then go across to the

authorities and say, "Well, you have to say what

you have claimed in the caveat, and there is a very

good reason for that", and all they have claimed

was the subordinate interest.

I suppose what is implicit in what Your Honour

is saying is that you could actually put in the

caveat in the Bank's position, "We claim an estate

or interest in leasehold and an estate or interest

Leros(2) 23/10/91

as mortgagee by way of subdemise." Now, let us

assume they claim that and Western Acquisition went

down and said, or the University went down and

said, "Look, you cannot claim an estate in

leasehold against me because you simply do not have

one.	You do not even claim to have stepped into
the shoes.	You have very carefully not stepped

into the shoes of Terara because if you had done

that we would then have a guarantee from the Bank

because you would be responsible under all the

covenants in the lease. So we certainly do not

want your caveat on claiming that interest." And

the University could have succeeded in removing

that part of the caveat. Or let us assume they had

lodged two caveats saying, "Well, we are claiming

estate or interest in leasehold and an estate or

interest as mortgagee by way of subdemise." The

university must have succeeded in getting rid of

the caveat supporting claiming a leasehold.

Your Honours, I know that in appeals in

circumstances like this the dissenting judge's

judgment must be pressed upon you on many occasions

but on this occasion I would like to submit that

the reasoning in Mr Justice Wallace's judgment is

correct and it succinctly goes through the correct

reasoning, we would submit, proposition by

proposition. It is quite a short judgment and it

is at page 218 of the book. After describing the

history of the matter and the statutory provisions,

His Honour said, at page 222 - he dealt with it,

really, in a series of propositions in this way.
His Honour, at line 5, first referred to Mercantile

Credits and said that if the:

respondent's lease -

had -

been registered -

that is Terara's lease had been registered -

then registration would have protected not

only the lease but the option -

that is Mercantile Credits.

However it is different if the lease is not registered. In those circumstances -

if you do not register. Then, over the

and His Honour quoted the passage I have read from happens

page on 223, there is a reference to all these

cases and the various situations that have been

identified in the Coles case, the Alcova Holdings

Leros(2) 55 23/10/91

case; he refers to Hosking and Bahr v Nicolay.

And then, at line 5, on page 224 says -

But the mere fact that the subsequent

registered proprietor has notice of the

existence of the option is not sufficient to
constitute fraud and does not give rise to

"equities" enforceable against the subsequent

registered proprietor -

and that is section 134, Bahr v Nicolay and the

like. So His Honour did not fall into the error that the other judges did by going to J & H Just

(Holdings), for example.

In the opinion of the learned Judge, the

right of renewal of the lease contained in the

option runs with the land at common law.

And His Honour referred to some cases on this.	In
fact, His Honour was quite correct to say that -

the burden of a covenant runs with the

reversion -

and there is an interesting historical background

set out in Cheshire and Burns on that subject.

Whilst the common law rule that the

burden of a covenant did not run with the

reversion has been ameliorated by statute,
s 78 of the Property Law Act, that provision
must be read and construed subject to s 68 of

the Act -

and I do not intend taking the Court to the

provisions that achieve that unless my learned

friend had something to say to the contrary.

Finally, the learned Judge considered

that it was not necessary for him to have

regard to the position of the appellant's

predecessor in title for the purpose of

determining whether it would have been

successful in removing the caveat. If

his Honour had considered that position, he

must have concluded that the first

respondent's claim could not have been
sustained where its interests had not been

secured by the registration of a caveat, and

the appellant succeeded to its predecessor in

title's unencumbered position.

And then, down the bottom, talking about the Bank, the last three lines -

Leros(2) 56 23/10/91

In my opinion, the position of the second respondent is no better than the position of

the first respondent. Its interest, as its

assignment reveals, is subordinate to that of

the first respondent and thus must perish with

it, Bendall v Mcwhirter.

Assignment is really the wrong word, it is the

subdemise.

And we say that reasoning is all correct and,

for those reasons, we would submit, that the appeal

should be allowed.

McHUGH J: Before you sit down, could you deal with my

problem and that is this: the theory of the

section is that you hold, as registered proprietor,

free of all encumbrances that are not notified on
the register, subject to the proviso which then

deems an unregistered lease of five years or less

to be enforceable against any subsequent

proprietor; and that must mean enforceable with all

its terms and conditions and covenants subject to

an option for purchase or renewal if the lease

itself is not registered against a subsequent

registered proprietor. But the lease itself is

valid and so are all its terms and conditions

except against a subsequent registered proprietor.

And even in the case of the subsequent registered

proprietor it is valid if it is registered or

protected by caveat. Now, in this particular case,

the literal wording of the section seems to me to

be right against your case. I mean, there is this

jargon used, "This is a subject-to-claim caveat",
and "It is not nodus, but its caveat is a statutory

injunction", but if you look at the language of the

section and apply it to the facts of the case - I

must say I have read the judgments carefully, I
have listened to your argument, I have followed the cases and I do not see any answer to the wording of the section itself.

MR PULLIN:  Your Honour, that was the argument that was put

up in Friedman v Barrett where there were no

concluding lines, as we have here in section 68,

where they said, "Well, if tenancies are

protected", exactly what Your Honour has said,

"everything is carried through that opening in the

rule of indefeasibility. We get through not just

with the term but all of the covenants which touch

and concern the land". The Attorney-General in

bringing in the amendments to this provision said,

"We don't ever intend to come through this wall, a

gap in the wall of indefeasibility, those things

which might not be regarded as strict tenant's

rights, so we will add to the end of section 68",

and Parliament did add to the end of section 68,

Leros(2) 57 23/10/91

"the proviso to the proviso which is, 'But you're
not protected in relation to options that are

included in the lease'.".

McHUGH J: But it seems to me that for your argument to be

right the proviso to the proviso would have had to

say, "against all subsequent registered interests",

and it does not say that; it says "against a

subsequent registered interest, unless such lease

is registered or protected by caveat".

MR PULLIN: Yes, Your Honour, but protected by caveat - a

caveat is not a special animal for the purposes of

section 68; it is still a caveat within the

meaning of the Act and a caveat does absolutely

nothing. It is not the encumbrance. A caveat is

just - they could have said, "We won't have caveat

systems. You can rush down to the court and get an

injunction each time if you want to preserve the

position to stop people getting on to the

register".

McHUGH J:  I follow that, Mr Pullin, but it seems to me

that the proviso, it deems the lease to be an

encumbrance and therefore everything that is in

that lease is an encumbrance, save and except the

option of purchase or renewal and even that can be

an encumbrance if it meets the last few words of

the section.

MR PULLIN: If that is right, Your Honour, the result, by

decision of court, is to bring about exactly the

contrary effect that Parliament intended, which

was, "If you don't lodge a caveat, then you lose

your option".	In other words, you must move to
protect the option.	Now, if what Your Honour is

saying is right, what they have done here will

apply in any case. You never need worry about

because you have your lease term, there are 10 lodging a caveat. There is absolutely no risk	changes of registered proprietor and you just do
not worry about it at all until somebody says, "But case the person then says, "Well, I'm going down to the Titles Office and I'll register a caveat", and they will lodge a caveat. It could be a fanciful claim of any kind.

McHUGH J: Well, it may be but it is not enforceable against

the prior registered interest and it seems to me

the policy of the section is against your argument

because in the particular illustration you have

given what is inherently wrong in some subsequent

registered proprietor who, when he comes on the
register, is aware then of the lease and the fact

that it contains the option, what is wrong with him

being bound hr it?

Leros(2) 58 23/10/91

MR PULLIN: 

Your Honour, because he bought and paid his

price free of encumbrances. This is not a case
where any questions of notice - there is not even

any evidence that we had notice.

McHUGH J: 

Your rights are against your vendor.

MR PULLIN: 

Your Honour, can I go back to the position

before Leros became registered proprietor. It

seems that nobody is contending that Western

Acquisition took subject to the option.

McHUGH J: Well, when you say "subject to the option", it

took subject to the lease but - - -

MR PULLIN:	Not the option.
McHUGH J:	- - - the option was not valid against it.

MR PULLIN: That is right.

McHUGH J:  But the lease still existed. The lease bound

your client and arguably, on the wording of the

section, so did the option because, at that stage,

your client did take after the lease or agreement

was registered by caveat or protected by caveat.

MR PULLIN: Well, could I stay, Your Honour, with Western

Acquisition and focus on the position just before

Leros became registered proprietor. Now, Western

Acquisition could have said to Leros, "Look, I won't force you to settle. I'll go down and get rid of this caveat for you". He could have gone

down to court and said to the court, "I'd like an

order removing the caveat". Leros would then have

said, "Well, I'm claiming this option". The court

would have said, "But you haven't protected it by

caveat and I'm ordering it removed". Now, does

that mean we then race back down and try and race -

he lodges it again - - -

McHUGH J: Well, that seems to be the effect of the section.

MR PULLIN: But that means a fanciful claim, Your Honour,

will protect - let us assume there is a fanciful

claim, one where there is no option. Does that

mean it is on and we have taken subject to an

option that never existed?

McHUGH J:	No, it would not, because it was never enforceable against anybody. It must have been
enforceable against the original lessor. So that
is the starting point. But once you have got an
option which was enforceable against the original lessor, then if you follow the wording of the
section through, why should it not apply in a case like this?

Leros(2) 59 23/10/91

MR PULLIN: Because it is giving some kind of magical

meaning to "protected", other than the ordinary
meaning that one has to find from the rest of the

Act. And the rest of the Act is, "Well, all you've

got is an injunction". The caveat is not itself an encumbrance; the caveat is just stopping something

happening. And so you then go to the underlying

interest; that is really what we are concerned

with. So when it says, "protected by caveat", what

does that mean? It says, "Well, it preserves the

status quo until you can go down to the court and
establish whether or not you can sustain your claim

or not", and you cannot sustain your claim.

McHUGH J: Well, supposing the unregistered lease was for a

term of 10 years? Under this section, is it
protected for five years or does it fail

altogether?

MR PULLIN:  I am sorry, Your Honour, there is an

unregistered lease for 10 years?

McHUGH J:  For 10 years, does it fail altogether? I forget

what the effect of the authorities is.	Or is it
enforceable only for five years?

MR PULLIN:  No, the only thing that is protected is a short

term lease, five years here, three in some States,

one in others. So if you have got an unregistered

lease for 10 years, it is not good once there has

been a new registered proprietor. Now, if

Your Honour's comments to me are correct, even that person can sustain his position because he lodges a subject-to-claim caveat, even though he cannot

sustain it. Why should it be different? You see,

it is not - the language here, it is unfortunate but they have used this language, the Parliament

has used this language and it has now been picked

up in South Australia and, also, I think, the

Northern Territory has exactly the same

phraseology. And it is very easy to just stay with

the literal meaning and to say, "Well, that must be
the effect of it", without considering really what

the words are saying and the words are saying no
more than, "Well, go to the provisions about

caveats and you will work out what we mean by

'protect by caveat'". It does not mean just

because it has caveat number (d) and a number, that

we take subject to all that lies under that caveat.

All it means is that we take subject to an

injunction restraining us from dealing with the

land otherwise than in accordance with the claimed

interest which is made against our predecessor in

title.

Even at general law, from that passage in

Snell that I quoted, says, if you really go back

Leros(2) 60 23/10/91

for guidance there, "If I am the purchaser, with
notice that I am buying from a bona fide purchaser

for value without notice, I am in as good a position as the purchaser for value without

notice". I mean, that would be contrary to that,

Your Honour, because, really, you are saying the

option does not exist for an number of years

because when Seventy-Fifth Jass took there was no

interest in the land; there was none when Western

Acquisition was there; and all of a sudden you do

resurrect it as against my client. And that is in

circumstances where we have bought free of

encumbrances at a time when our predecessor could

have removed the caveat and put us in the position

that we say we are in.

McHUGH J:  I am not sure but I think your argument may

require the omission of the words "against a

subsequent registered interest" altogether almost,

except for the - that it might be enforceable

against the original lessor.

MR PULLIN:  I suppose it would mean that, Your Honour, if it

said, "But no option shall be valid as against a

subsequent registered interest unless protected by

caveat but will be valid against some further

registered interest if the caveat is then lodged".

I mean, it is trying to cover the first - it must

be, in my submission, talking about the position at

the moment before the first change in registered

proprietor. Once that occurs - you see, the

problem is that it is a problem of fundamental
concept of indefeasibility and that is why Frazer v

Walker says, "Once you've got registration, there's a divesting of title", and to take Breskvar v Wall, it is like taking a grant from the Crown. Once you have got a registered proprietor then it gets rid

of all this general law nonsense about having to

produce strings of documents to - - -

McHUGH J: That is attractive in principle but this is a bit

of patchwork by the legislature, and they may have

mucked up indefeasibility, maybe they have not, but

MR PULLIN:	Your Honour, if that is right - and I can see the argument, because it is the argument that has
gained favour with the Court - I would then resort
to the Interpretation Act and ask the Court to go
back to what the Attorney-General said and the Attorney-General made it clear beyond question that
if you do not lodge a caveat - if you do not either register the lease or lodge a caveat then the
intention is perfectly clear, the legislature has said that in those circumstances you would lose the
option.  "We are just here to protect, save that
short term tenant", the person who is in there for

Leros(2) 61 23/10/91

a couple of years in a house or the person who is

not going to be able to afford or is not likely to

go and register because it is too costly, "we will

protect him but we are not" - and Mr Justice Gibbs,

in Friedman v Barrett said, "We're not going to

create a situation where, in fact, you can go on

almost in perpetuity, we're not going to allow

that", and that was done by judicial legislation,

in effect, in Queensland, to say, "Well, we'll

bring about this result" and, in Western Australia,

the Parliament did it and said, "You're not

protected in relation to anything more than what

might be called 'strict tenant's rights', namely

the term".

DEANE J: But what has been put to you does not necessarily

run against that. I mean, assume that the transfer

to your client had not been subject to the

encumbrance or the caveat and had been lodged for

registration. The prior registered interest would

prevail and, on challenge, the transfer would be registered over the caveat. But what has led to this situation is, you have accepted a transfer

subject to the caveat and, that being so, you have

to rely on a registered interest which is

subsequent to the caveat.

MR PULLIN:  No, we do not take subject to the - in strict

analysis we take subject to the claim underlying

the caveat.

DEANE J: Yes, but you have to rely on the registered

instrument which is subsequent to the caveat which - I am not saying it is fatal to your argument but which does put it in a very special category of

case where vendor and purchaser have seen fit to

transfer and accept transfer, leaving the caveat on

the title.

MR PULLIN: Well, in fact, there was great protest but, put

it to one side. I know what Your Honour is saying.

DEANE J:  I am not for one moment suggesting any lack of

propriety but that has led to a particular position

which would not necessarily involve a frustration

of the legislative intent, in the ordinary case.

MR PULLIN: But what it then means is that a caveat under

section 68 is some special kind of - I will not

call it instrument - animal quite different from a

caveat for all other purposes because taking

"subject to the caveat" is really just a shorthand.

It is a shorthand method that people use to say -

instead of saying "I'm taking subject to the claim

which is made by the caveator and which could be

sustained if he went down to court", and, in fact,

I notice on my learned friend's list of authorities

Leros(2) 62 23/10/91

a case of Langmuir which was Mr Justice Pidgeon in

1987 and he there dealt with a permissive caveat

and His Honour talked about what a permissive

caveat - what effect it had. I do not know whether

Your Honours have copies of this decision yet because it is in a bundle of my learned friend's

documents.

At page 402, His Honour, in the second full

paragraph, said:

I would therefore turn to s 137. This,

as I mentioned, expressly authorises the

lodging of a caveat. A caveat may be lodged

forbidding registration either absolutely or

until such instrument be expressed to be

subject to the claim of the caveator. It is

easier to equate an absolute caveat with a

statutory injunction retaining the matter in

statu quo until the claim is adjudicated. The

first apparent effect of lodging an instrument

subject to the claim of the caveator is that

there is no immediate requirement for the

claim to be adjudicated. It would not,

however, be preserving the status quo if the

legal charge created by registering that

instrument obtained priority ..... ! would
consider the provisions aim to forbid the
registration of the subsequent interest unless

the holder of that interest is prepared to

yield the priority -

and then these words -

the Act would otherwise give him and he does

this by acknowledging that his instrument is

subject to the claim of the caveator.

So it is real shorthand to say, "We take subject to

the caveat". It is "subject to whatever claim the
Act would otherwise give him".	And then, a little

further down, in fact, down towards the bottom of

the page you will see a reference in there to the

Shorter Oxford Dictionary, to Kissling v

Mitchelson, and then, under that, there is a

sentence that starts -

However, s 137 contains a means by which the

prohibition imposed by the caveat can be

lifted in respect of an instrument expressed

to be conditional upon the claim in the

caveat. This must mean that it is conditional

upon the outcome of the claim. It is

accordingly conditional upon the estate or

interest subject to that claim if the claim is

established.

Leros(2) 63 23/10/91

It is not just, "We took subject to a caveat".

That is shorthand for many more words and, in this

case, the position is, "What claim could have been established against Western Acquisition?", because otherwise we are ignoring the effect of

section 137. If section 137 did not apply and we

were only looking at section 68, trying to work out what it meant, that may be so but section 137 tells

us that the "subject of the claim and caveat" is

one that makes the caveator establish his claim as

at the date of registration, of lodgment.

McHUGH J: There are some words you skipped over at 402,

though. Mr Justice Pidgeon says:

Section 68 makes valid an option of purchase if "protected by caveat", which is an indication that the caveat is not merely a

claim. The matter the subject of the claim

would prevail over what is subsequently on the

register.

MR PULLIN:  Yes, I agree, Your Honour, and that is really

what the Full Court has said in this case, that it

is a special kind of creature for the purpose of

section 68. We say that is quite wrong; the rest

of the Act still prevails. There has been an

attempt to use just a few words to say, really, a

lot more and what the section is saying is that,

"subject to the rest of the Act", which must always

be read in, of course, to any section of an Act

that one is looking at, "protected by caveat means

protection in the form that one usually secures it,

by going to the caveat section".

But if there is - and, obviously, from what

the Bench is putting to me, that there is another

view about it, in which case it may become very

important to go to the second reading speech and
see what was intended.	And we say that is in the

second reading speech, that last sentence that I

have read in the passage in the first column on

page 764, after saying that you would need:

a lease for more than five years, or a lease

containing options of purchase, or options of

renewal, would need to be registered or

protected by a caveat.

And then the Attorney says something more, he

says -

Otherwise it might be defeated by a subsequent

registered interest.

And we say that it was defeated here and the whole

intention is to make sure that if you do not

Leros(2) 64 23/10/91

protect by caveat then you lose that interest. And

it is quite inconsistent to say that it can spring

to life again at some later time when it did not

exist in relation to two predecessors in title.

That is, with respect, a very strange result.	They
are my submissions, may it please the Court.

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

MR HEENAN:  May it please Your Honours, we handed to the

Court this morning a copy of our written outline

and a bundle of decisions, some of those separate

to those referred to by my learned friend.

MASON CJ: Yes, we have your submissions.

MR HEENAN:  Your Honours, acceptance of my learned friend's

submission would give the appellant a windfall

acceleration of the reversionary interest to this

land. I will endeavour to make good why we say it

would be a windfall in due course, but by way of

introduction might I just identify how the

respondents have different but not inconsistent

interests.

We say that the Bank's rights and obligations

are not entirely dependent upon or derivative from

those of Terara, as has been suggested against us.
It is true that the Bank may derive its
unregistered interest as mortgagee by subdemise
from Terara, but we submit that it derives its

protected unregistered title under section 68 from

its own action in lodging a caveat against the

title of the grantor, the university.

So we say that its contractual and

unregistered rights derive from Terara but its

protection from indefeasibility and the subsequent

registered proprietor derives from its caveat. For

that reason, we are not a privy to Terara or

Western Acquisition or SJF and we are not bound by

the declaration made by His Honour action.

We say that, and in paragraph 1 of our outline

we give a whole list of authorities to support the

proposition. They can be summarized by saying that

that declaration by His Honour was a judgment inter

partes rather than a judgment in rem. The tests

are in the celebrated case of Castrique v Imrie in

the House of Lords, and the references are given.

There is more authority on the point in the

reference in Halsbury which has been given.

Leros(2) 65 23/10/91

MASON CJ: Mr Heenan, I have not understood the appellant to

submit that you are bound by Mr Justice Nicholson's

judgment.

MR HEENAN:	No, Your Honour, but it does bear on the question of whether or not we take a derivative
interest.  I accept Your Honour's observations and
I certainly will not press these authorities on the
Court.  My learned friend's concession in that
regard appears to derive from his acceptance of our written submission that the Bank derived its interest earlier in the judgment of His Honour, but we say that there are other reasons as well, they being the absence of privity and the fact that the
interest is derived in a different way. This derivation in a different way via the caveat, as
well as via the contractual claims, is a reason to
differentiate some of my learned friend's
submissions as to why the Full Court was wrong in
vindicating the Bank's caveat.
Can I just take the Court briefly to some of the orders that were made. His Honour
Mr Justice Nicholson's declaration has been identified. In the Full Court the declaration that
was made at pages 245 and 246 was to the effect
that the Bank's caveat protects the options for renewal of the lease and makes the option valid
against a subsequent registered interest.

So the effect of the Full Court decision is to

vindicate the Bank's caveat as a protection for

both Terara and the Bank. I say that because the

declaration seems to be slightly at variance with

the reasoning of the judgment of the majority,

because the Chief Justice was of the view from his

reasons that the Bank's caveat protected both the

Bank and Terara and that Terara's caveat protected

Terara.

Mr Justice Pidgeon was of the same view. The

relevant pages in the Chief Justice's judgment are

at 212 in relation to the Bank's caveat, 209 and

protecting Terara. In relation to

213 in relation to Terara's caveat protecting the

Mr Justice Pidgeon's judgment, at pages 240 and 241

His Honour concluded that Terara's caveat protected

Terara, and at page 243, that the Bank's caveat protected the Bank, and apparently Terara.

The majority of the Full Court expressly disagreed with His Honour Mr Justice Nicholson

about the protection given by the Bank's caveat to

Terara but, of course, as has been remarked,

His Honour's decision was not before the court on

appeal. There is therefore some slight

Leros(2) 66 23/10/91

inconsistency between the declaration made by the Full Court and Mr Justice Nicholson's order in so

far as it extends to Terara.

Unless Mr Justice Nicholson's declaration or

order dismissing the originating summons can be

disregarded, perhaps the Full Court's conclusion

may only mean that the Bank is protected by its

caveat and Terara is protected by its own later

caveat. The situation is confused by the fact that

there was not an appeal heard from the decision of

His Honour Mr Justice Nicholson. I can say that

there have been some recent efforts attempted by

Terara to institute an appeal out of time against that decision and they have revealed that a notice of appeal was lodged in time but a notice of discontinuance of the appeal was filed on

26 July 1991 after the decision of

Mr Justice Rowland was announced in the present

case. But steps may yet be taken to attempt to

have that appeal reinstated or, alternatively, to

allow Leros to be substituted for Western

Acquisition and the appeal reinstated.

Even if Terara cannot appeal successfully

against Mr Justice Nicholson's decision, we submit

that it would derive de facto protection from the

Bank's position so long as the mortgage by subdemise exists.

McHUGH J: That raises a critical question, does it not? I

must say I have real difficulty about this.

Supposing on the last day of the lease Leros moved

to strike your caveat off, you could not resist

that application, could you, on the last day of the

lease?

MR HEENAN:  That would depend upon whether or not there was

a default, because if there had been a default at

any time, we would have been entitled ultimately to

Our access to the right of foreclosure would, if it was granted, give us the right to the last day and put us in possession of the leasehold interest.	approach the court for an order for foreclosure. foreclosure was a factor discerned by the
Chief Justice in the court below as making the
Bank's interest at least coincident with that of
Terara's rather than subordinate.

McHUGH J:	If you look at the language of section 68, which you obviously rely strongly on, and you look at the
terms of your caveat, there is just no identity
between the unregistered lease and the subdemise to which you refer. You have got no caveat protecting
a lease as such; you have got a caveat protecting

Leros(2) 67 23/10/91

a subdemise which is of a period one day short of

the lease. That is what it protects.

MR HEENAN:  Yes, that is so, it does protect that. If we

were in a position where we had to vindicate that interest, we would have all the rights granted by

the subdemise. The subdemise, upon examination,

gives us access to the lease in certain conditions.

Can I just take the Court briefly to the mortgage

documents. It is at page 159, Your Honours,

volume 2 of the appeal book. Your Honours have

been referred to some salient provisions already. A person who was searching this caveat and wished

to inquire after this subdemise would see in

clause 1 on page 161, a demise of all the interest

except the last day of the term and a declaration

that the last day is to be held on trust for the

Bank.

Then on page 165 under clause 5(4)(c), there

is a covenant to exercise the option to renew by

Terara. On page 172 under clause 11(2)(a), the

Bank has the power to enter and take possession in the case of default. Under clause 11(2)(n) on

page 173, line 57, there is power, again in the

case of default, for the Bank to:

do or cause to be done any other acts and

things which the Bank considers expedient for
the protection or enforcement of this Mortgage

or the recovery of the Secured Moneys.

On page 184 there is a power of attorney granted by

Terara to the Bank irrevocably, authorizing the

Bank as Terara's attorney -

to do, at its expense, all acts and things and

execute all documents which it may be obliged

to do or execute under this Mortgage,

including without limitation -

the execution of any document, (ii) -

and perform any act required by the Bank to be

performed by the Mortgagor -

including, we would say, the power to exercise the

option. In those circumstances, Your Honours, we

submit that the Bank's right under this subdemise

is potentially coincident with that of Terara.

McHUGH J: But it just does not answer the description in

the section, does it? There is no caveat arising

from what the Bank has done which protects an

unregistered lease to a tenant in actual

possession. It protects something quite different.

Leros(2) 68 23/10/91

MR HEENAN:  Your Honours, what we would say in response to

Your Honour's question is that the lease containing the option is protected by caveat, because the Bank

has chosen to put on a claim which necessarily

depends on that lease and discloses it. That is

the answer that we would endeavour to make to

Your Honour's question.

The point that we obviously rely on implicitly

in making that submission is that there is nothing
in section 68 to require that the caveator should

be the lessee or the grantee of the option, and

that if the lease is protected by someone with a

derivative or collateral or coincident interest, it

is nevertheless protected, and that that would

satisfy the statutory requirement, bearing in mind
that the purpose of the amendment is to ensure that

the option does not go unnoticed to somebody who

was contemplating dealing with the registered

proprietor.

In our submission, the point of real

difference between the majority and the minority of
the Full Court is that in the dissenting judgment
of Mr Justice Wallace, the learned judge saw that
the Bank's interest was directly subordinate to

that of Terara. This can be seen in His Honour's reasons at pages 221 and 225. His Honour goes on

to reason that because Terara's option was not
protected by caveat so as to satisfy section 68 by

Terara, neither could the Bank have an interest

which was so protected.

This appears to rest, we say, on His Honour's

view of the significance of the Bank's security,

being a mortgage by subdemise, rather than by way

of assignment of the term. His Honour made that
observation twice, first at page 219, line 5.

His Honour says:

Importantly, it was not a mortgage by way of

assignment of the respondent's interest in the

lease.

Again, at page 221, lines 3 to 5, His Honour says:

Nor can it be said that the registration

of the second respondent's caveat by way of

security pursuant to a sub-demise, and not an

assignment of the whole of the first

respondent's interest therein, can assist the

first respondent.

One asks why His Honour chose to make a distinction

between the two types of interest. The answer, we

suggest, although not articulated by His Honour, is

that he saw that the interest by way of subdemise

Leros(2) 69 23/10/91

was limited in that fashion and it was less than

the leasehold interest, as Your Honour Justice

McHugh has been putting to me, but the Chief

Justice, in our respectful submission, answered

that contention in the manner that we have

endeavoured to do here by concentrating on the

right of access to the full term in certain

conditions such as foreclosure.

The discussion by the Chief Justice in that

regard is at pages 207 and 208. It starts at

line 20 on page 207 and proceeds:

The mortgage by sub-demise created an interest

in the land as mortgagee of the original lease

as then extended.

His Honour discusses the method of charging a lease and goes on. At page 208, line 19:

Thus the Bank's claim under the caveat

asserted an interest in the land which

extended to the term, including the option of

renewal, of the original lease.

Also on page 209 at lines 20 to 25:

authority, I would have thought that the	In these circumstances, in the absence of respondent's lease because the Bank's claim as
mortgagee depended upon the existence of the
lease which was the subject matter of the
Bank's mortgage.
In our respectful submission, that paragraph

located where it is says more than its mere words;

it is expressing a conclusion after His Honour has

demonstrated that the Bank has the right to the

entire term in certain instances.

Can I pass over these other difficulties

arising out of the earlier declaration by

His Honour Mr Justice Nicholson, pointing out

simply for notice that it is there as a possible

estoppel by way of res judicata about certain

claims by Terara, even though effect to that has

not been given by the Full Court's declaration, and

ask Your Honours very briefly to contemplate the

positions of the parties under the general law.

We submit that there would be no difficulty in

deciding the priorities of the various interests

under a general law system. We draw attention to

the fact that Terara, and its predecessor

Halesworth, each was at all material times a lessee

Leros(2) 70 23/10/91

in possession under a lease with an option to

renew.

Secondly, the Bank was a mortgagee by a

subdemise, express notice of which had been given

to the proprietor by the lodgment of the caveat.

We know that this would occur because under the

Transfer of Lands Act, sections 138 and 141, on lodgment of a caveat the registrar has to send a

memorandum off to the proprietor. In addition,

this mortgage by subdemise was expressly consented

to by the then registered proprietor, the

university. There is a deed of consent at pages 73

to 81 in the appeal books.

Thirdly, Terara had its lease and option

confirmed by the renewed grant of the extension of

the lease made by the university on

3 December 1987, that was to Halesworth, very

quickly assigned to Terara. The deed of extension

is at pages 59 to 64 and the assignment is at

pages 65 to 72. From then on, all subsequent

purchases of the reversion took with Terara as a

tenant in possession, took with express notice of

the lease and the Bank's mortgage by subdemise.

It has been submitted by my learned friend

that Leros purchased free of encumbrances, had

entered into a contract of sale which was expressed

to be free of encumbrances, but did not take a

transfer or become registered free of encumbrances,

and neither did any of its immediate predecessors.

May I draw Your Honours' attention to page 102 and

103 of volume 1. This shows that the transfer to

the university took place on a title subject to the

Bank's caveat.

The actual transfer to the university is at

page 105, and just above line 30, Seventy-Fifth

Nominees taking from the university takes, subject

to a series of encumbrances, a number of caveats.

The last one, D815944, is the Bank's caveat - it is

a little difficult to discern. The transfer from

Seventy-Fifth Jass Nominees to Western Acquisition

is at page 108.

On page 109, between lines 40 and 45 are the

encumbrances, and there are a series of caveats.

The fourth one, again D815944, is the Bank's caveat and the transfer Western Acquisition to Leros is at

page 90. At line 30 under Encumbrances, Leros

takes, subject to two caveats, (b), caveat D815944,
the Bank's caveat, and (c), caveat E148871,

Terara's caveat.

At 91, between lines 5 and 10, is the operative pro!ision of the transfer which, pursuant

Leros(2) 71 23/10/91

to the legislation, takes effect as a deed on

registration:

THE TRANSFEROR for the consideration herein expressed HEREBY TRANSFERS TO THE TRANSFEREE

the estate and interest herein specified in

the land above described subject to the

encumbrances as shown hereon.

So there is an express transfer by deed subject to

those what are called encumbrances. I will address

the question of whether a caveat in that context

can be an encumbrance.

I have indicated that Leros purported to

acquire the reversion by a contract of sale,
purchasing free of encumbrances. That contract has

already been referred to, but it is at pages 111

and 112, volume 1, just under line 20:

HEREBY OFFER TO PURCHASE ..... the land

described in the Schedule hereto and all

improvements ..... with vacant possession unless

otherwise provided in the Conditions -

There is nothing express about a tenant being in

possession or of there being a lease, but on

page 112 at line 15, there is a special provision

written by the agents who apparently negotiated the

document:

This offer is subject to the vendor

guaranteeing the rental rate on the subject

property at a level of $125,000 per annum plus

all outgoing-.

plainly implying that there was a tenant, at least

an annual tenant, in possession who was expected to

stay.	We respectfully submit that that special
condition implies that the property was sold with a

sitting tenant. In those circumstances, under the

general law we submit that Leros would take,

subject to the lease and subject to the option to

renew contained in the lease. We rely on the

Mercantile Credits Ltd v Shell Co of Australia Ltd decision which has already been cited in that regard and in the judgments of

Chief Justice Barwick at 136 CLR 338 and

Justice Gibbs at 344 and 345. The references

should be in our outline of submissions.

Their Honours make the point that for this

purpose, there is no distinction between the notice

given by a lease, either under the general law or

under the Torrens system. We say that indeed this

is the position which would have existed in this

State prior to the 1950 amendments to section 68 of

Leros(2) 72 23/10/91

the Transfer of Lands Act which we are here

examining.

The authorities relied on this morning by my

learned friend Mr Pullin all support this, and they are set out in paragraph 2 on page 3 of our written
outline of submissions, running from Sandhurst

Mutual Permanent Building Society v Gissing down to

Kerr on the Torrens system, the 1927 edition. But

we have inserted a more recent authority dealing

with the comparable position which then obtained in Victoria in 1976, a decision of this Court, Barba v

Gas & Fuel Corporation of Victoria, 136 CLR 121,

referred to on page 3 of our outline.

It therefore becomes necessary, we

respectfully suggest, to examine what if any

changes are produced by section 68 now applying in

its present form. In this respect, we submit that

it should first be noted that if there is to be,

within the language of the section, an option of

purchase or renewal in any such lease or agreement

which must be, again quoting, "registered or

protected by caveat" in order to be valid as

against a subsequent registered interest, that any

such caveat must necessarily be a subject to claim

caveat, or a permissive caveat, as it has been
called, contemplated by our section 137.

This must be so because an absolute caveat

would deny the possibility of a subsequent

registered interest. A caveat subject to notice

would have no preserving effect. It does seem

strange that there is such an extraordinary paucity
of authority upon the significance and effect of

the subject to claim caveats. They appear only to

exist in three Australian jurisdictions: first of

all in this State under section 137 of our Act,

under section 90(l)(d) of the Transfer of Lands Act	the 1886 Real Property Act, and thirdly in Victoria secondly in South Australia under section 191 of	1958.
There are other provisions in some other jurisdictions where particular dealings can be let
through while a caveat is on the register. These dealings are mainly harmless and insignificant dealings such as transmission applications and name
changes, and they are described in the recent work,
Australian Real Property, by Bradbrook, Maccallum
and Moore, published by the Law Book Company
Limited in 1991. The relevant pages are pages 175
to 176.

Now, we venture to submit that because of the

ability of one of these subject to claim caveats

operating in the circumstances contemplated by

Leros(2) 73 23/10/91

section 68 in relation to options under short-term

leases, to qualify the interest of a subsequent

registered proprietor, if he takes subject to it,

such a caveat is truly an encumbrance or, at least,

a form of contingent encumbrance depending upon the

vindication of the interests which they assert.

Your Honours will have noticed that the

learned Chief Justice in the Full Court was at
pains to identify such a caveat as an encumbrance
within the special definition of "encumbrances" in

section 4 of our Act and in the 1975 reprint, that

is at page 4:

"Encumbrances" shall include all prior estates

interest rights claims and demands which can

or may be had made or set up in to upon or in

respect of the land.

The learned Chief Justice certainly contemplated that such a caveat was an encumbrance although his

decision does not turn on that. It may be, on

close analysis, that it was the equivalent of an

encumbrance or converted the claim, once accepted,

into a form of contingent encumbrance, but because

of the special regime which we have, such a claim

contained in such a caveat has this extra

significance, in our submission.

There are, of course, an abundance of dicta in other jurisdictions which do not provide for these

type of results, that a caveat is not an

encumbrance. An example of that is the judgment of

Chief Justice Barwick in Godfrey Constructions v

Kananagra Park Pty Ltd, which is in our booklet at

authority number 4, and the relevant passage is at

page 537. This was a case, as Your Honours will

recall, about whether or not a purchaser was

justified in refusing to settle because there were

caveats against a title. At the foot of page ·536,

His Honour the former Chief Justice speaks abut the

obligation of a vendor on settlement to give a
clear title and the justification of a purchaser to
refuse to settle if the title was not clear. Then,

at the top of page 537, the Chief Justice went on

to say:

A caveat against dealings, such as the caveat in the present case, is not a defect in

a vendor's title. It is in its nature a

notice to the Registrar-General, which he is

bound to observe, not to register any dealings

without notice to the caveator. I have

pointed out elsewhere (see J & H Just

(Holdings) Pty Ltd v Bank of New South Wales)

that the purpose of such a caveat is not to

give notice of an interest claimed by the

Leros(2) 74 23/10/91

Real
caveator in the land, through the the nature of the interest on the footing of

which he claims to be entitled to lodge the

caveat ..... But the purchaser is clearly

entitled to refuse to settle until the caveat

has been removed or its removal certainly

assured.

Similar observations were passed by
Mr Justice Crockett in the case of Forster v

Finance Corporation of Australia, (1980) VR 63,

which is No 5 on our list. It is a very brief

decision and it was questioned whether or not a

sale by a mortgagee which carried the statutory

right to extinguish subsequent encumbrances on the

register had the effect of discharging subsequent

caveats, and the decision was that it did not

because these caveats were not encumbrances. The

relevant passage is on the last page - I am afraid

the numbering has disappeared. It is in the
right-hand margin at line 9:

The vendor contended that a caveat was an encumbrance and would be expunged upon

registration of a transfer. On the other hand

the purchasers and the Registrar submitted

that there could be no registration until the

caveat had lapsed or been removed.

Alternatively, the Registrar put the view that

a caveat was not an encumbrance within

s.77(4). I am quite satisfied that the

Registrar's two submissions amount to the one

contention. In my view the contention of the
purchasers and of the Registrar of Titles is

manifestly correct -

and His Honour concluded that that caveat was not

an encumbrance.

Those are obviously some of the authorities

which my learned friend draws on for his submission

that this caveat, or the claim, was not an

encumbrance. We say they are distinguishable and

that the special regime contemplated by section 68

gives them this extra significance. An examination

of the language of the section, in our respectful

submission, supports this contention.

The language of section 68, in the passage

that we are examining, speaks about a:

prior unregistered lease ..... for a term not

exceeding five years to a tenant in actual

possession -

Leros(2) 75 23/10/91

being an exception to the indafeasibility doctrine

notwithstanding that it:

may not be specially notified as

encumbrances -

and then it goes on to say that:

no option of purchase or renewal ..... shall be

valid ....• unless such lease or agreement is

registered or protected by caveat.

Now the registration of the lease would be the registration of an encumbrance and the protection

by caveat was treated as the equivalent to an

encumbrance, in our respectful submission, in this

regime. It may not be pure doctrine, but it is a

special somewhat anomalous provision and that, in

our respectful submission, is another reason to

support the characterization of the Chief Justice

below that such a subject to claim caveat,

particularly if acted on as here, constitutes an

encumbrance.

We submit that being within this special

regime of subject to claim caveats and the

significance which they can have for options and

short-term leases under section 68, there are only

three cases of direct application.

First of all, Langmuir's case, to which my

learned friend has already taken the Court.	It is
a decision of His Honour Mr Justice Pidgeon,

(1986) 88 FLR 399, and it is No 6 in our book. It

appears to have got into the Federal Law Reports

simply because it was a case involving the

Commonwealth and the apportionment of compensation

under the Commonwealth Lands Acquisitions Act.

What had happened, as Your Honours may have already noticed, was that the Commonwealth had compulsorily acquired some land. The land was subject to

encumbrances. The interest in the land of all the

proprietors, the encumbrances, converted to a claim

against the compensation moneys. It was inadequate

compensation to satisfy all the mortgagees and it

was a question of whether an intermediate mortgagee
who had not registered but who had lodged a subject

to claim caveat to protect its mortgage was

postponed to a later mortgagee who had become

registered.

His Honour's decision was to the effect that that mortgage was protected because it had been

recognized by the subsequent registered mortgage.

This history can be seen from page 400 and the

schedule shows the three encumbrances lodged on the

title. At the foot of page 400, His Honour said:

Leros(2) 76 23/10/91

I have been informed that there is no direct

authority on what is the effect of a dealing
being so expressed. It is the plaintiff's

given bys 53 of the Transfer of

submission that this would give him priority. priority is

Land Act ..... and that

this is only achieved on actual registration.

Can I just take the Court briefly again to the

passages emphasized by my learned friend on
page 402. At about one-third of the way down the
page, there is the paragraph:

The first apparent effect of lodging an instrument subject to the claim of the

caveator is that there is no immediate

requirement for the claim to be adjudicated.

It would not, however, be preserving the

status quo if the legal charge created by

registering that instrument obtained priority.

It would in fact appear to make the relevant

provisions of s 137 pointless ....• ! would consider the provisions aim to forbid the

registration of the subsequent interest unless

the holder of that interest is prepared to yield the priority the Act would otherwise

give him and he does this by acknowledging

that his instrument is subject to the claim of

the caveator. This is, I consider, consistent

with the policy of the Act that a person

registering an instrument is normally affected

only by what is on the register and is not

affected by any notice not on the

register ..... Section 68 makes valid an option
of purchase if "protected by caveat", which is

an indication that the caveat is not merely a

claim. The matter the subject of the claim

would prevail over what is subsequently on the

register.

Then, at the foot of the page, the passage that has

already been read, that there is a conditional

acceptance of the claim dependent upon its eventual

establishment:

The priority is determined not by the order of

registration but by the act of the second

defendant in subordinating his interest to the

plaintiff's claim, an act which the caveat

required the second defendant to do if it

wished to register its interest.

Now, the second principle case is Coles, which

the Court has already examined. A copy of that is

also in this yolume at page 7. This too was a

Leros(2) 77 23/10/91

subject to claim caveat and the effect of the

judgment was that the subsequent registration by a

proprietor who would otherwise have obtained an

indefeasible interest gave recognition to the claim

which the caveat asserted. It was, as it were, a

voluntary acceptance of that claim. Passages to

that effect are to be found in the judgment of

Mr Justice Jacobs at page 121 at the foot of the

page and in the judgment of Mr Justice Mohr at
page 125 commencing with the paragraph:

The case therefore raises squarely the effect of what is known as a "permissive" caveat.

Running down to the paragraph commencing:

Without setting them out and discussing them -

and also in the judgment of Mr Justice Bollen at

page 127.

On page 127, at the foot of that page, His

says, RM Hosking cases cited by my learned friend:

Honour after referring to

in neither case did the lessee lodge a caveat.

In neither case was there a caveat notified on

the original certificate.

And the distinguishing feature, of course, is that the exception to the interest claimed by the caveat

has the effect of making the registered interest

subject to it.

DEANE J: What does this mean, Mr Heenan, on your

submission? I mean, say a caveat is lodged

protecting the interest or the claimed interest of

the caveator, under a lease for 10 years of the

whole of the premises at a peppercorn per year, and

there is a transfer registered subject to the

caveat. Is the proposition that the caveator has a

10 year leasehold interest, even though no lease

ever existed, from the mere fact of registration?

MR HEENAN:  Your Honour, we would say that if there was an

interest, if a proper interest once existed - - -

DEANE J: Presume there never has been a lease, and that it

is a nuisance caveat.

MR HEENAN:  The cautious answer is to clear it away.

DEANE J: Well, I follow all that, but just on the

assumption I put to you, you have got a nuisance

caveat claiming a leasehold interest of 10 years

under a lease - - -

Leros(2) 78 23/10/91

MR HEENAN: It would not prevail. It could not be an

interest which was created in that fashion.	We
would accept that.

DEANE J: Well, then, what does this mean, if it means more

than the interest protected or the interest claimed

in the caveat is protected from the subsequent

indefeasibility which would have occurred without

the caveat?

MR HEENAN: In our respectful submission, Your Honour, it is

critical to identify the time at which one is

postulating the question, and it must be before the

subsequent proprietor becomes registered, at the

point whether he is deciding whether or not to

subject himself to that claim. If one takes that

point, one has to ask what are the interests that

are in competition, and one is the interest which

is the subject of the caveat, and the second is the

interest of the would-be registered proprietor, and

at that point, both are unregistered interests.

And one has to make a decision as to whether there

will be any recognition.

Now, if one was making that decision on

general law principles, if each was a good

interest, which is behind the question I previously

addressed, their priority would be determined
according to time. So, in this case, the Bank or

Terara would have a prior interest, and it would be

recognized to be good. It would be an unregistered

interest. It would not be one which would prevail

against a registered proprietor unless recognized.

If, in those circumstances, the would-be

registered proprietor makes a deliberate choice to

recognize the claim, then he defers himself to the

claim first in time.

DEANE J:  He does not make a choice to recognize the claim

in any sense beyond accepting registration subject

to the claim with the result that he does not get

indefeasibility of title by reason of registration

against the claim.

MR HEENAN:  We would suggest, with respect, Your Honour,

that there are grounds on which one could see such

a deliberate choice being made, because there is

the option for the registered proprietor to - I

keep calling him the registered proprietor, but the
pending registered proprietor, the person desiring

to take from the registered proprietor. What he

could do and perhaps should do is to insist that

his transferor or vendor clears away this caveat

before he will deal with him.	The passages that we
have cited - - -

Leros(2) 79 23/10/91

DEANE J: It may be just a matter of words, but when you

say, "recognize the claim", are you saying more

than "recognize the existence of the claim for what

it is worth"?

MR HEENAN:	No, "recognize the claim".
DEANE J:	You mean - - -

MR HEENAN: Accept the claim.

DEANE J: And make himself - - -

MR HEENAN: Subject to it.

DEANE J: Then why not, in the case of my example of a

nuisance caveat, claiming a leasehold interest for

10 years?

MR HEENAN:  There can be overtones of fraud or nullity in

that example, and it is to those considerations

which prompted the answer which I gave.

DEANE J: Well, you have answered my question.

MR HEENAN:  Yes. But if the position is that there is a

competition between two unregistered interests, the

caveator's interest and the person who is wishing

to take from the registered proprietor, then the

person who is wishing to take is faced with a

choice. He subjects himself to that claim,

yielding, we would say, an indefeasibility which he

might otherwise obtain, or he can insist that his

vendor or transferor clear the claim away.

If he were to follow the latter course, in

this case, it would have been to insist that

Western Acquisition clear the claim away. Western

Acquisition may well have been able to do it,

because, we are forced to acknowledge, Terara would

not have had a claim against Western Acquisition,

Western Acquisition being a subsequent registered

interest where there was no registration of the

lease or protection of the caveat.

Now, western Acquisition would have the

benefit of section 68, but there is no reason, in
our respectful submission, why, in the situation

that I have postulated, Leros should have that

advantage. There is no public policy reason or

principle of fairness or equality. It has taken an

interest from a - it has contracted to take an

interest from a transferor, it has notice that

there is a claim, it knows that the claim is not

valid against its transferor but the claimant is

asserting that the interest is good against it, and

it is faced with the decision as to whether to

Leros(2) 80 23/10/91

recognize that interest or the claim or to insist

that it be cleared away.

If it accepts the claim, then it is a

voluntary act of submission, in our respectful

submission, and it is tantamount to giving up a

benefit. There is nothing which could force

someone in the position of Leros to make a choice

in these circumstances adverse to itself. It is

not unconscionable to put it in the position that

if it makes that choice it faces the consequences

that we contemplate, and the propositions that we

advance, in our respectful submission, are

consistent with the preservation of interests.

DEANE J:  But would it not be much more sensible to read the

section as enabling the transfer to be registered

on the basis, "We'll fight about the validity of

the claim afterwards"?

MR HEENAN: Well, Your Honour, that would give an

undesirable uncertainty to the register in which

there was a latent defect that would not be

resolved until much litigation -

DEANE J: But that is inherent in the caveat system.

MR HEENAN: Well, not for someone who is dealing with a

register prior to where there is a caveat on the
register. If there is an absolute caveat there can

be no dealing, so it has to be dealt with
instanter. If the caveat lapses, the interest

prevails, but to have a registered proprietor

subject to a dubious claim, which may never go to

court and not go to a court for a long time, in

circumstances where there may be subsequent

interest building up on the register as well would,

in our respectful submission, be contrary to the

principles which the Torrens doctrine stands for.

So, we adhere to our submission that it would

be consistent with the statutory purpose to read

the section in this way and another answer to

Your Honour's question has been posed by a

proposition which Justice McHugh put to my learned

friend, Mr Pullin, that for that to be the case one

would expect the language of section 68 to read

that "no option of purchase or renewal should be

valid" and stop there, and leave out the words "a

subsequent registered interest" with its

qualifications, because that implies a

particularity, limited to a registered interest,

could fulfil those descriptions.
Your Honours, I take my argument a little out of turn to address this point, because it does seem

somewhat central. If one assumes that the

Leros(2) 81 23/10/91

protection by caveat and the registration of the

lease for these purposes are equivalent to

protections - the section seems to envisage that -

let us imagine what the situation would be if, as

the Chief Justice postulated, Terara was asking for

its lease to be registered at the time Leros was

presenting its transfer for registration. Now, if

the lease were to be registered, as has been

pointed out today already, every covenant in the

lease would become binding on the registered

proprietor. Section 58 of our Act has that effect.

If it became binding, the option to renew would be

binding and Terara would be in the position that it

desired.	Now, what answer would Leros offer to a
request to have the lease registered?	No doubt it

would say, "We do not agree to that because it

would prejudice our position. It will give you a

right to an option which you cannot exert against

Western Acquisition and it will become binding on

us. We will take steps to restrain you from

registering your lease." And Leros might well have

been able to succeed in a suit to restrain the

registration of the lease because its registration

would have had a substantial practical impact,

detrimental to Leros.

But if however it was to say, "We acknowledge

your claim under a lease; you may register it. we

acknowledge the interest under the lease; we will take this property, subject to that lease.", they are surrendering that right of objection. Leros

would be making a concession.	Now that concession
would give Terara the access to the option.	Now,

in our respectful submission, that is what, in

substance, has occurred. By Leros electing to take

subject to the caveat, it is taking subject to the

lease and the lease contains the option. Now the

only argument against that is that part of the

lease is not binding against the existing

proprietor, Western Acquisition. Neither it is; we

are not forced into any position where we have to

acknowledge that and that is the measure of the

concession. It is a concession because it is a

recognition that if the lease were registered, the

claim to the option would be good.

Now, implicit in my learned friend's arguments

is the fundamental contention that once the right

to enforce the option against any subsequent

registered proprietor is lost, it is lost forever.

It is divested, to use the language of

Frazer v Walker, was the submission that was put to

the Court, I think. Now, in our respectful

submission, why should that be so? The section does not suggest it and let us put one, perhaps,

somewhat unlikely situation, but nevertheless some

form of test.

Leros(2) 82 23/10/91

Supposing Western Acquisition, in the

circumstances which prevailed here, contemplated

selling the reversion to one of the original

granters of the lease and the option, either the

university or one of its predecessors, and the

university, let us say, agreed to become

registered, subject to Terara's claim.	I stress,
subject to Terara's claim, and it becomes

registered. It has accepted the claim and it is

bound by its antecedent grant of option to honour

it. Why would the doctrine of indefeasibility, in

that case, render that option lifeless? It could

only be on the principle that the transferee takes

an absolutely indefeasible title each time there is

a change in the register. That would be the case

and the university might take free if it took

without being subject to the claim. If the

university was to come along and to repurchase this

reversion and then come registered, without any

subject to claim caveat being acknowledged, it

could rely on section 68, but if it recognized the

claim in such a caveat, is there any reason to

suppose that it would not be bound by its original

personal covenant in its grant?

Now, I acknowledge immediately that it is a

remote likelihood, but the test may be sufficient

to examine whether or not the invalidity

contemplated by section 68, such an option is a

permanent one, or whether that right to an option may be the kind of personal right contemplated by Frazer v Walker and Breskvar v Wall, which can be

asserted against a registered proprietor who will

submit to it.

Now, if there is a submission, in our

respectful submission, the right can be enforced.

I am very conscious of the time, Your Honours, can	I simply submit that a very similar result to that
reached by the Full Court in the present case was reached by the Full Court of the Supreme Court of Queensland in a recent decision of Valbirn Pty Ltd
v Powprop Pty Ltd, (1991) 1 Qd R 295. It is towards
the back of the cases that we have put to the
Court. I am afraid it is not separately indexed. This was a case which was very similar to the
present occurring in a regime where there were no subject to claim caveats, where there was protection for short-term leases but not for
options, and where, before registration, the purchaser of the reversion notified the tenant's
solicitors that he would respect the options that
he bought, subject to the tenant's rights,
including the options. In those circumstances, the
transaction tQok place; the purchaser of the

Leros(2) 83 23/10/91

reversion then attempted to assert his statutory
rights and assert that he had an indefeasible title

and was not bound by the options. The Full Court

of the Supreme Court of Queensland said, "No, he

was bound because he had submitted to them, he had

accepted them.", and it was equivalent to the

situation which occurred in Bahr v Nicolay, with

which Your Honours are obviously entirely familiar.

Now, that was a solution in a situation where

there had been a voluntary acceptance of an

interest which would not otherwise have been

binding, and that is what we say here, there has
been a voluntary acceptance of an interest which

would not otherwise have been binding.

Now, the fact that conduct before registration

can attract these personal actions contemplated in

Frazer v Walker was recognized in Bahr v Nicolay,

was expressly recognized in the judgment of

Chief Justice Mason and Justice Dawson at

164 CLR 613, and was also expressly accepted in the

joint judgment of Justices Wilson and Toohey at

page 638, and in each case those joint judgments

approved the dissenting judgment of His Honour

Mr Justice Mahoney in the Court of Appeal of New

South Wales in Logue v Shoalhaven Shire Council,

(1979) 1 NSWLR 537, the relevant passages being at

562 to 565, and a copy of Logue's case is also in

our materials not separately tabulated and at the

back.

MASON CJ:  Mr Heenan, it may be convenient to adjourn now.

We will adjourn until 9.45 AM tomorrow.

AT 4.28 PM THE MATTER WAS ADJOURNED

UNTIL THURSDAY, 24 OCTOBER 1991

Leros(2) 84 23/10/91