Nirina P/L v Tynte P/L, Hardy & Registrar-General No. Scciv-02-1111

NIRINA PTY LTD v TYNTE PTY LTD, HARDY & THE REGISTRAR-GENERAL
[2003] SASC 8
Civil

MULLIGHAN J The plaintiff is the proprietor of the business known as Café Paesano which is located at premises at 100 O’Connell Street, North Adelaide. The defendant Tynte Pty Ltd (“Tynte”) is the registered proprietor of the land at that address being the whole of the land comprised in Certificates of Title Register Book Volume 5496 Folio 125 and Register Book Volume 5311 Folio 188 together with the improvements thereon which consist of a building of two stories. I shall refer to the land and improvements as the “ground floor premises” and to the first floor part of the land and improvements as the “the upstairs premises”.
By memorandum of lease executed on 30 August 1992 the plaintiff became the lessee of the ground floor premises for a period of five years commencing on 1 July 1992 and expiring on 30 June 1997. This lease was registered and was extended for a period of five years commencing on 1 July 1997 and expiring at midnight on 30 June 2002 on the same terms and conditions as the initial lease with a right of renewal for five years commencing on 1 July 2002 and a further right of renewal commencing on 1 July 2007. I shall refer to this lease as extended on 1 July 2002 as the “ground floor lease”.
On 16 July 1999 the plaintiff became the lessee of the upstairs premises. That lease was to expire on 31 January 2002 and also contained rights of renewal. I shall refer to this lease as “the upstairs lease”. The business known as Café Paesano is conducted at both the ground floor premises and the upstairs premises.
Tynte sold the land and improvements to the second defendant Ms Hardy. The contract for sale and purchase is dated 5 July 2002, was varied on 11 July 2002 and again on 15 July 2002.
The plaintiff claims that both leases had been renewed before the premises were sold or, alternatively, with respect to the upstairs premises, that there was a new lease. Ms Hardy disputes those claims. She lodged a caveat to prevent the registration of the lease documents and claims that there has been no such extension of the leases or a new lease for the upstairs premises prior to her acquisition of the property and that she is entitled to possession.
The plaintiff lodged caveats to protect its claimed leasehold interests pending registration of the lease documents and brought this action on 8 August 2002 seeking orders that Ms Hardy’s caveats be removed and that the Registrar-General cancel her caveats and enter lease documents on the respective Certificates of Title. The Registrar-General is a defendant in this action but played no part in the trial having intimated that he would abide the judgment and orders of the Court.
The action came to trial as a matter of urgency and I gave judgment for the plaintiff and made the orders sought by it. I said that I would give my reasons for judgment later and I now proceed to do so.
Two witnesses gave evidence. Mr Maio is a director of the plaintiff and is actively involved in the business of Café Paesano. Mr Ma is a director of Tynte. Both men were actively involved in the negotiations leading to the new lease and the extension of lease. I received their respective affidavits as evidence which was supplemented by their oral evidence.
I found both witnesses to be honest and truthful. There are some differences in their evidence about events common to both of them. Whilst I found that both witnesses did their best to recall these events accurately, I was able to decide what evidence to accept where the differences existed. The following narrative of events represents the findings which I made.
The plaintiff observed all of the terms and conditions of both the ground floor lease and the upstairs lease, including the payment of rent during the periods of the leases and after the first renewal term of the ground floor lease expired and the term of the upstairs lease expired. The ground floor lease provided that if the lessor desired to sell the ground floor premises at any time during the term of the lease, provided the plaintiff was not in breach of the lease, it had the right of first refusal to purchase the premises subject to certain covenants and conditions which are not relevant for present purposes. The upstairs lease contained a holding over provision to the effect that if the lessee held over after the expiration of the lease the lessee became a monthly tenant. Also, the lease provided for renewal upon the written request of the lessee made not less than three months nor more than six months before the expiration of the term of the lease. The plaintiff did not give notice of request of renewal of the upstairs lease within the required period.
The ground floor lease contained a provision for renewal of the lease upon the written request of the lessee made not less than six months nor more than nine months before the expiration of the term of the lease. The plaintiff did not make such a written request.
In early July Mr Maio was informed by Mr Ma that someone was interested in purchasing the ground floor premises and the upstairs premises. Mr Maio said that this conversation occurred at Café Paesano in early July but he could not remember the date. A price of $6m was mentioned. He was aware of the plaintiff’s right of first refusal and told Mr Ma that he was not interested. An amount of about $5m was mentioned on other occasions. Mr Maio made it clear that the plaintiff did not want to purchase the property.
I accept the evidence of Mr Maio that he and Mr Ma enjoyed a good relationship. Mr Ma visited Café Paesano for lunch from time to time including during the period after the upstairs lease expired in January 2002 until late June 2002. On those occasions they usually discussed putting the leases in order. There was never any issue between them and it was accepted that Tynte would grant an extension of the ground floor lease and a new lease of the upstairs premises to the plaintiff. On 27 June 2002 Mr Ma told Mr Maio that he had to get the leases in order. Mr Maio’s evidence was that they did not discuss the terms and conditions of the proposed leasing arrangements because there was no need to do so. They were to be in the same terms as before. He understood that both the ground floor lease and the upstairs lease had existing rights of renewal for five years each. It was agreed that the periods be brought together so that they would run for 15 years concurrently. It was left that Mr Ma would prepare the documents and get back to him. He said there was no problem because they trusted each other.
The appropriate documents to extend the ground floor lease and effect a new lease of the upstairs premises were prepared upon the instructions of Mr Ma. He said in evidence that he had discussions with Mr Maio about leases for the ground floor premises and the upstairs premises before 1 July 2002. He said that he first spoke to him about renewal of the ground floor lease in about May 2002 or earlier. It was agreed that the period of the leases of the respective premises be made the same to commence on 1 July 2002. The other terms and conditions of the leases were to be the same as before except that the plaintiff was to have two rights of renewal with respect to the ground floor lease.
Ms Ma is the wife of Mr Ma and is a registered conveyancer. She prepared the documents upon the instructions of Mr Ma. I accept the evidence of Mr Ma that Tynte executed the extension of the ground floor lease and the lease for the upstairs premises on 1 July 2002. Although the plaintiff had not made a request in writing for renewal of the ground floor lease, Mr Ma treated his negotiations with Mr Maio as negotiations with respect to the renewal of that lease.
Mr Taddeo acted as agent for Ms Hardy with respect to the purchase of the premises. Mr Ma first spoke to him about the possible sale of the premises in about March 2002 and in May 2002 provided him with a schedule of tenancies which included the plaintiff’s lease of the ground floor premises and the upstairs premises as expiring on 30 June 2007 with rights of renewal. That schedule, with one alteration relating to review of rent of the ground floor premises was annexed to the contract for sale of the premises to Ms Hardy. It was established that Ms Hardy was aware of the leasehold interest of the plaintiff in the ground floor premises and the upstairs premises.
After the initial discussions with Mr Taddeo the interest of Ms Hardy in purchasing the premises increased with the consequence that Mr Maio and Mr Ma saw the need to resolve the plaintiff’s leasehold interests promptly.
According to Mr Maio the plaintiff received the lease documents on 5 July 2002. They were received by the co-director of the plaintiff, Mr De Battista. Mr Maio’s evidence is that the documents presented to the plaintiff had not been executed by Tynte which is contrary to the evidence of Mr Ma. I did not accept the evidence of Mr Maio as to that matter. Whilst he was an honest witness I found him to be vague about when some events occurred and I preferred the precise evidence of Mr Ma as to when Tynte signed the lease documents.
I found that on 5 July 2002 Tynte wrote to and informed the plaintiff that it had entered into the contract for sale subject to the plaintiff’s first right of refusal, at the purchase price of $4.9m and asked that the plaintiff inform Tynte of its intention within 14 days. Mr Ma’s evidence is that he sent that letter. Mr Maio said that he did not receive it. He said that he received a letter in similar terms when the lease documents were sent to the plaintiff. I accept that on 8 July the plaintiff wrote to Tynte acknowledging receipt of the letter and advising that it would not purchase the premises and that Tynte was at liberty to sell. I accepted the evidence of Mr Ma that he did send the letter.
Mr Maio said that he saw the lease documents on 6 July 2002 when he considered them with Mr De Battista. The upstairs lease contained a clause restricting redevelopment which had not been the subject of agreement between Mr Maio and Mr Ma and the further extension of the downstairs lease contained only one renewal of five years contrary to what had been agreed. According to Mr Maio it had been agreed in 1999 that there would be two periods of renewal each of five years. The documents were referred to the plaintiff’s solicitors on 8 July 2002 and after discussion with Mr Ma on 8 July 2002 it was accepted that they should be altered accordingly. Mr Ma initialled the amendments to the lease for the upstairs premises on 9 July 2002. The memorandum of extension of lease of the ground floor premises indicates that it was made on 10 July 2002 which accords with Mr Maio’s evidence as to when it was executed by the plaintiff. Mr Ma’s evidence was that it was executed on 9 July 2002. The date of execution is of no significance to any matter in issue in this action and it is not necessary to resolve that conflict in the evidence of the witnesses. The memorandum of lease of the upstairs premises was executed by the plaintiff on the same occasion. Both documents were in registrable form subject to consents of others which were subsequently given.
The contract for sale and purchase was amended on 11 July 2002 to correct the description of the premises. It was further amended on 15 July 2002, inter alia, to re-affirm the attached tenancy schedule and acknowledge that the first floor lease is on the same terms as the registered lease dated 16 July 1999 except that the redevelopment clause had been deleted. The plaintiff was not given notice of any of these alterations. These amendments are set out in an addendum and a subsequent addendum to the contract which are annexed to it.
The contract for sale and purchase of the premises between Tynte and Ms Hardy was prepared by Mr Taddeo. It was signed by Ms Hardy on 1 July 2002 and by Tynte on 5 July 2002. The addendum to the contract specifies the date of the contract as 5 July 2002 and the settlement date as 30 September 2002. Consequently, it is clear that Ms Hardy did not have any interest in the premises before 5 July 2002 when Tynte executed the contract. When Ms Hardy signed the contract on 1 July 2002 it specified a purchase price of $4.5m which was not accepted by Tynte. The offer was increased to $4.9m on 5 July 2002 and was accepted by Tynte which then executed the contract with the amended purchase price.
Ms Hardy lodged the caveat, which are permissive caveats, on 16 July 2002 relying upon the contract for sale of the land and improvements and the two addenda. Ms Hardy did not consent to the registration of the lease documents. On 1 August 2002 the plaintiff lodged his caveats which are absolute caveats over the land, one on each Certificate of Title. But for the caveat lodged by Ms Hardy, the lease documents could have been registered.
The plaintiff paid the agreed rent for the ground floor premises and the upstairs premises as specified in the lease documents and performed all of its obligations as set out in them.
I summarize the relevant findings which I made. The plaintiff and the defendant at all relevant times prior to expiration of the ground floor lease on 30 June 2002 agreed that this lease would be extended with the variation of the right of renewal at the option of the plaintiff for two periods of five years each. There was agreement as to the terms and conditions of the lease as renewed and the period of the lease was to commence on 1 July 2002. There was agreement between the plaintiff and Tynte about the lease of the upstairs premises in terms of the Memorandum of Lease which was prepared with the exception of the redevelopment clause. The method employed was that there was to be a new lease to commence on 1 July 2002 rather than an extension of the earlier lease.
The agreement between the plaintiff and Tynte was reached on 27 June 2002 after earlier discussions from time to time between Mr Maio and Mr Ma which concluded on that date. Mr Ma was to have the lease documents prepared. He did so and Tynte executed them on 1 July 2002. These documents evidence the new upstairs lease and the renewal of the lease of the ground floor premises. Ms Hardy was aware of the leasehold interest of the plaintiff as can be seen from the schedule of tenancies attached to the contract of sale. She obtained an equitable interest in the land and improvements at the earliest on 5 July 2002. It is arguable that she did not obtain that interest until the contract was completed on 11 July 2002 or 15 July 2002 but I did not think it was necessary to resolve that issue.
The plaintiff and Tynte did not regard the formality of the procedure for renewal of the original leases as of significance. It is clear from the evidence of Mr Maio and of Mr Ma that they regarded both leases as continuing as if renewed and the purpose of the lease documents was to formalize their agreement.
Clearly if the plaintiff had a legal or equitable interest in the land before the equitable interest obtained by Ms Hardy in July 2002, its interest must prevail over her interest.
What then is the significance of these findings?
The plaintiff contended that there were four bases for the conclusion that it was entitled to register the lease documents in priority to the Memorandum of Transfer from Tynte to Ms Hardy.
The first is that the plaintiff had a legal interest as lessee in the ground floor premises and the upstairs premises which existed prior to, and continued until and beyond Ms Hardy obtained her equitable interest. As has been mentioned Mr Maio and Mr Ma regarded the negotiations between them as the exercise of the option to renew the ground floor lease which had not expired and regarded the upstairs lease as having been renewed.
It was submitted by Mr Robertson, who appeared for the plaintiff, that a right of renewal is an integral and indivisible incident of the registered interests as lessee and are therefore clothed in the character of the registered interests and are therefore legal interests. The initial leases of the ground floor premises and the upstairs premises were registered. As has been seen both contained the option of the plaintiff to renew. The plaintiff had exercised that option with respect to the ground floor lease. It was understood by the parties to the lease and agreed by them that the lease was to be renewed. With respect to the upstairs lease it was understood by the parties and agreed that it had been renewed and continued after the initial term expired on 31 January 2002.
In Mercantile Credits Limited v The Shell Company of Australia Limited (1975‑1976) 136 CLR 326 the lessee had given notice to the lessor that it exercised its right to renew the term of the lease and an extension of the lease was executed but not registered. It was held that a right of renewal of a lease contained in a registered instrument when exercised creates a specifically enforceable agreement for a further term and constitutes a present legal interest in the land: see Barwick CJ at 337‑338, 339. He said at 340:
" Submissions were made on behalf of the appellant based on the view that the right of renewal was not itself an interest in land which could be registered under the Act. But, in my opinion, this was not a relevant approach to the problem posed in this case. As I have said, the Act deals with registrable instruments, not with registrable interests. Of course, a promise to renew a lease not contained in a conforming memorandum of lease but as a disjoint promise in a separate instrument, could not be registered. In that sense, it may be correct to say that a written covenant to renew a lease is not itself a registrable instrument. But when the covenant is part of a memorandum of lease in due form, it cannot be said, in my opinion, that any interest in the land which the instrument as a whole intends and is effective to create, is not included within the ambit of ss. 54 and 69.
No practical difficulties arise from the view of the operation of the Act which I have expressed. The memorial of the memorandum of lease gives a dealing number which any person intending to deal with the registered proprietor of the fee would inevitably examine. The full extent of the lessee’s interest in and rights with respect to the land would thus be seen, even though the existence of the right of renewal does not itself extend the term. Whilst the right created by the registered memorandum of lease remains exercisable, the estate created by the subsequently registered memorandum is subject to the right of renewal. The consequences are not dependent on the registration of an extension of lease."
Gibbs J reached the same conclusion. He said that the “right of renewal is an incident of the lease and directly affects the nature of the term itself”: 344 He said at 345-346:
" The right of renewal is so intimately connected with the term granted to the lessee, which it qualifies and defines, that it should be regarded as part of the estate or interest which the lessee obtains under the lease, and on registration is entitled to the same priority as the term itself."
The other member of the Court, Stephen J, agreed: see pp 350-352. The same view was expressed by the Full Court of this Court in Tessari & Anor v Bais Pty Ltd & Ors (1992) 60 SASR 59 and by the Full Court of Queensland in Re Eastdoro Pty Ltd (No 2) [1990] 1 Qd R 424.
A lease is a contract between the parties which may be varied or modified as they agree. The plaintiff and Tynte through their representatives Mr Maio and Mr Ma were entitled to agree to modify the procedure for the exercise of the renewal and in fact did so. The consequence is that the plaintiff had a legal interest as lessee in the ground floor premises and the upstairs premises after the expiration of the term in each lease. The preparation of lease documents does not indicate to the contrary. They were prepared for registration prior to the sale of the premises to Ms Hardy although they were not registered before the contract was completed.

I reject the submission on behalf of Ms Hardy that the plaintiff’s interest in the premises arises from the lease documents executed on 10 July 2002 after Ms Hardy obtained her equitable interest. As I have said, I do not think it is necessary to decide whether Ms Hardy obtained that interest on 5, 11 or 15 July 2002 because in any event it was obtained after the plaintiff obtained its legal interest in the land for the reasons which I have mentioned. I also reject the submission that the leases for the upstairs premises and the downstairs premises had not been renewed.
The plaintiff was entitled to have Ms Hardy’s caveat removed to enable registration of the lease documents.
It is unnecessary to consider the other leases of the plaintiff’s contention.
If the verbal indication by Mr Maio that the plaintiff wanted to renew both leases and the acceptance of that indication should not be regarded as a request for renewal of the leases, it must be accepted that the plaintiff and Tynte agreed before and on 27 June 2002 that the plaintiff would have the leasehold interest in the ground floor premises and the upstairs premises on the same terms and conditions as in the previous leases with the exception of the additional right of renewal in the ground floor lease. That agreement was concluded on 27 June 2002 and is evidenced by the lease documents which were executed by Tynte on 1 July 2002. If the plaintiff did not have a legal interest as lessee in the premises at that time, contrary to what I have decided, it had an equitable lease for each of the ground floor premises and the upstairs premises. There was agreement between the plaintiff and Tynte as to all aspects of the leases including the right to exclusive possession of the premises, the rent to be paid and all of the terms of the occupation and all of the rights and obligations of both parties to the lease. The development clause inserted in the written lease for the upstairs premises had not been the subject of agreement and therefore its exclusion is irrelevant. The omission of the second right of renewal in the ground floor lease was a mistake and was rectified. The two documents reflected the agreement between the plaintiff and Tynte which, as I have said, was concluded on 27 June 2002.
The next question is whether the interest of the plaintiff in the premises pursuant to the equitable leases should prevail over the equitable interest of Ms Hardy pursuant to the contract of sale. The plaintiff has the prior equitable interest. There is no conduct on the part of the plaintiff which would disentitle it to this priority. On the other hand Ms Hardy entered into the contract of sale and knew of the plaintiff’s leasehold interests. In Abigail v Lapin & Anor: Lapin & Anor v Abigail (1934) 51 CLR 58 Lord Wright who delivered the judgment of the Privy Council said at 63:
"The decisions in Shropshire Union Railways and Canal Co v The Queen (1875) LR 7 HL 496, Carritt v Real and Personal Advance Co (1889) 42 Ch D 263, and Taylor v London and County Banking Co (1901) 2 Ch 231, and the observations of Farwell J in Rimmer v Webster (1902) 2 Ch 163, at p 172 and Burgis v Constantine (1908) 2 KB, at p 501, seem to me to indicate that the possessor of the prior equity is not to be postponed to the possessor of a subsequent equity unless the act or omission proved against him has conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it, that the prior equity was not in existence."
See also Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326. There is no reason why the prior equity of the plaintiff should not prevail.
For these reasons I made the orders as sought by the plaintiff and intimated that I would hear the parties upon any application for costs after the reasons for judgment had been considered by the parties.

[2003] SASC 8

20 January 2003