Quickenden v Commissioner O'Connor & Ors
[2002] HCATrans 208
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S286 of 2001
B e t w e e n -
BIG COUNTRY DEVELOPMENTS PTY LIMITED
Appellant
and
JOHN WILLIAM WALL and CECILIA ELAINE WALL
First Respondents
J.W. WALL INVESTMENT CO PTY LIMITED (In Liquidation)
Second Respondent
JEFFREY HOLLINGSWORTH
Third Respondent
GILLIAN GAI HOLLINGSWORTH
Fourth Respondent
NICHOLAS KARACOMINAKIS
Fifth Respondent
CHADLACE PTY LIMITED
Sixth Respondent
GLEN JOHNSTON
Seventh Respondent
KAREN SCHMITZ
Eighth Respondent
GLEESON CJ
GAUDRON J
GUMMOW J
HAYNE J
CALLINAN J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 1 MAY 2002, AT 10.19 AM
Copyright in the High Court of Australia
________________
MR B.A.J. COLES, QC: May it please the Court, I appear with MR P.P. STRASSER for the appellant. (instructed by Denes Ebner)
MR J.C. KELLY, SC: May it please the Court, I appear with MR L.V. GYLES for the first respondents. (instructed by David Hand)
GLEESON CJ: I understand, Mr Coles, there is an application to add some respondents who, for their part, do not wish to take any part in the proceedings. Is that right?
MR COLES: I think, as I understand it, your Honour, it was suggested to my instructing solicitors that the other parties in the proceedings in the Court of Appeal should be added as respondents to the appeal.
GLEESON CJ: Is there an application for that?
MR COLES: We have not made that application, your Honour. I think it was suggested by the Registry to my instructing solicitor.
GAUDRON J: I saw an application.
MR COLES: I am sorry, I ‑ ‑ ‑
GAUDRON J: I saw an application somewhere. Notice of motion, undated, page 625 of the appeal book.
MR COLES: I do apologise. There is a document filed in the Court on 13 February 2002 that, in fact, asks for an order that the other parties be added as respondents to the appeal.
GLEESON CJ: And are you making that application?
MR COLES: I am, your Honour. Apparently my instructing solicitor was led to understand that that application should be made and I accordingly make it. He swore an affidavit ‑ ‑ ‑
GLEESON CJ: Is that opposed, Mr Kelly?
MR KELLY: No, your Honour.
GLEESON CJ: Yes, we will make that order.
MR COLES: Thank you, your Honours.
GLEESON CJ: Now, there is a certificate from the Deputy Registrar that she has been informed by the solicitors for the then proposed second, third, fourth, sixth, seventh and eighth respondents that in the event that the orders sought in your notice of motion dated 13 February 2002 were made, those respondents do not wish to be represented at the hearing of the matter and will submit to any order of the Court. There is also a certificate that she has been informed by the solicitor for the then proposed fifth respondent that the respondent would not be appearing in the matter.
MR COLES: Thank you, your Honour.
GUMMOW J: Now, is there some question about the Wall Company being in liquidation?
MR COLES: I believe there is no issue about it.
GUMMOW J: If so, it should appear in the description of the parties, should it not?
MR COLES: Yes, indeed, that is so, your Honour.
GLEESON CJ: Well, is it in liquidation?
MR COLES: Yes, it is, your Honour.
GLEESON CJ: Well, then should we amend it?
MR COLES: Formally I should ask your Honours’ leave to amend the order your Honours just made to add after the name of the first‑added party the words “in Liquidation”.
GLEESON CJ: Then we will alter the description of the appellant to add after the name as it stands at present the words “(in Liquidation)”.
MR COLES: If your Honours please.
GAUDRON J: Perhaps a question arises, was it served on the liquidator?
MR COLES: No, your Honour.
GAUDRON J: It was only served on the company, was it?
MR COLES: My learned friend understands the liquidator may, in fact, have filed a submitting appearance. I do not know that for a fact myself.
GLEESON CJ: I am not issuing a challenge to your retainer, Mr Coles, but presumably you appear for the company in liquidation.
MR COLES: No, no, I am sorry. The company in liquidation is the lessee company.
GLEESON CJ: Is the lessee company?
MR COLES: Yes, the appellant is the lessor company. I should say, your Honour, there is an appearance filed by the company under the name “J.W. Wall Investment Co Pty Limited (in Liquidation)” which, as I understand it, may have been filed only this morning.
GLEESON CJ: Then I will amend what I said earlier about the order that we make concerning names. We will amend the description, not of the appellant, but of the respondent, “J.W. Wall Investment Co Pty Limited” to “J.W. Wall Investment Co Pty Limited (in Liquidation)”.
MR COLES: If your Honour pleases.
GLEESON CJ: Now, were you proposing to pursue an appeal in this matter?
MR COLES: Yes.
GLEESON CJ: Yes.
MR COLES: If your Honours please. Your Honours, the appellant, Big Country Developments, appeals from a decision of the Court of Appeal of the Supreme Court of New South Wales in connection with the, in effect, dismissal of its claim against the active respondents, Mr and Mrs Wall, who were guarantors of the obligations of the lessee company, Wall Investment Co Pty Limited.
The Court of Appeal held, reversing the trial judge, Justice Bainton, that the guarantee upon which Big Country sued, did not or never had had a subject matter, that is to say the subject matter did not exist. The Court of Appeal’s conclusion in that regard is to be found in volume 3 of the appeal book respectively at pages 504, where, at the letter 20, Justice Giles on behalf of the court said:
At the time the lease was executed by the Wall parties –
that being a reference to the Wall Investment Company as lessee and the active respondents as guarantors –
and returned to Big Country’s solicitors, thereby accepting Big Country’s offer of a lease on the terms of the lease document, the lease was not to be with a mortgage noted as a prior encumbrance, but with the consent of the mortgagees. That was the lease the Walls guaranteed. They did not guarantee the altered lease which came about following the addition of mortgage T424525 as a prior encumbrance ‑ ‑ ‑
GAUDRON J: Could I just ask you something? That alteration or addition was made after the subsequent assignment of the lease by the Wall Company, is that right?
MR COLES: No, it was made ‑ ‑ ‑
GAUDRON J: The lease was not registered at the time it was assigned.
MR COLES: That is right. Yes, I am sorry, the alteration was made after, I think, the date on which the assignment documentation was signed but before the assignment documentation was registered. The sequence of registration was the lease and then, I think a day or so later, the transfer of lease.
GLEESON CJ: Mr Coles, can I ask you a question about the passage that you have just read? Where do we find the lease?
MR COLES: Your Honours will find the clearest copy of it in a supplementary set of appeal papers filed with the Court, I think, within the last week, if your Honours have that.
GLEESON CJ: Yes. Can I ask you a question about this form? It is not entirely clear from this paper, it may be clear from the original: is this form of lease prescribed by statute or regulation?
MR COLES: Not by the Real Property Act itself, but it is a form which is the form which is required to be used in the Land Titles Office. Precisely the regulation that ordains it, I cannot tell your Honour at the moment.
GLEESON CJ: I would be obliged if you would find that out and tell us because I want to ask you a question about this reference to prior encumbrances.
MR COLES: Yes.
GLEESON CJ: You see on the left‑hand side of the front page it refers to “PRIOR ENCUMBRANCES” and it has a Note (d). Where do we find the Note (d)?
MR COLES: I fear it has been omitted from the ‑ ‑ ‑
GLEESON CJ: What does Note (d) say? What I want to know is what is the purpose of the reference to prior encumbrances in the form?
MR COLES: I think I can answer that, your Honour. The purpose of the reference to prior encumbrances is to ensure that the lease, when registered, will either be noted as subject to prior encumbrances or not subject to prior encumbrances, in the sense that the ‑ ‑ ‑
GLEESON CJ: I would take leave to think that we – we need to be a little more precise about it.
MR COLES: Your Honour is correct.
GLEESON CJ: This says that:
(the abovenamed LESSOR) hereby leases to the LESSEE . . . the premises above described, subject to the following PRIOR ENCUMBRANCES –
What is the meaning of that expression, “subject to the following PRIOR ENCUMBRANCES”?
MR COLES: It is an expression that really comes from section 42 of the Real Property Act, whereby the estate of a holder of an interest recorded under that Act holds the relevant interest subject to such other interests as are noted in the register.
CALLINAN J: That is a paramountcy provision, is it not?
MR COLES: That is a paramountcy provision.
GLEESON CJ: We know, do we not, that the consenting mortgagee gave its consent subject to conditions?
MR COLES: That is right.
GLEESON CJ: And we find that under the heading “CONSENT TO LEASE” of Esanda Finance Corporation.
MR COLES: That is right, your Honour, yes.
GLEESON CJ: I thought I read somewhere in the papers that the mortgage to Esanda Finance Corporation excluded the statutory power to lease.
MR COLES: It did.
GLEESON CJ: Did the same apply to the mortgage to FCA?
MR COLES: Yes, it did, but nothing presently turns on the statutory power to lease because ‑ ‑ ‑
GLEESON CJ: I understand that, but is it the case that both mortgages, the mortgage to Esanda and the mortgage to FCA, excluded the power to lease given under the Real Property Act?
MR COLES: Yes, it is.
GLEESON CJ: And that is why the consent of the mortgagees was required.
MR COLES: Not only that, your Honour. One is not concerned one way or the other with the statutory power to lease under section 106 because that is only concerned with leases of five years or less.
GLEESON CJ: I am not talking about 106 of the Conveyancing Act. I am talking about the Real Property Act.
MR COLES: The statutory power to lease is the power contained in the Conveyancing Act. Under the Real Property Act, the relevant provision is, of course, section 53 which requires leases of five years or more to be registered.
GLEESON CJ: Yes.
MR COLES: And subsection (4) provides that if the mortgagee has not consented in writing to the registration of the lease, then the lease does not bind the mortgagee. So it is that provision that really renders the mortgagee’s prior written consent, if available, requisite to the priority which – it is really a question of priorities between registered interests.
GLEESON CJ: What I want to understand is the relationship between the reference in the form to prior encumbrances and the matter of consent. Perhaps I could put the question this way: why was it not necessary to refer in the form to the mortgage to Esanda?
MR COLES: The practical reason for that, although not necessarily a satisfactory legal one, was that it appears to be the practice of the Land Titles Office not to require the notation of what is otherwise, in any event, a prior encumbrance if there is evidence either on the lease document itself or in some other written form to the effect that the relevant mortgagee has consented to the registration of the lease. It seems to be a practical matter, your Honour, that the Land Titles Office does not require such a recording.
GLEESON CJ: But the consent of Esanda was conditional.
MR COLES: It was, your Honours, yes.
GLEESON CJ: And it was a prior encumbrance.
MR COLES: It was. I think your Honours may find – and perhaps we will need to say a little more about this later – historically the Real Property Act itself made provision for the recording of prior encumbrances and the relevant provision, which I think may have been section 46, was taken out quite some years ago, but it is possible that the forms have survived the statute.
GLEESON CJ: Well, I thought Note (d) might throw some light on this.
MR COLES: I am hoping it may, your Honour. Your Honour, I am unhappily unable to assist immediately on that, but we do not overlook the matter.
GLEESON CJ: I presume that Note (d) is some form of instruction to the person who fills out this form.
MR COLES: Yes. Note (d) will be an instruction to the person filling out the form and one would have supposed it would have been on the reverse of the relevant page ‑ ‑ ‑
GUMMOW J: Well, exactly. Was the lease ever put in evidence?
MR COLES: Yes.
GUMMOW J: As distinct from a photocopy of part of it?
MR COLES: I cannot answer that, your Honour. I think the only evidence of the lease at the trial was in the form of photocopies annexed to exhibits of affidavits, unfortunately.
GUMMOW J: Yes, that is right. It happens all the time.
GAUDRON J: I am wondering why the issue is the insertion of the notation of the prior encumbrances rather than the failure to obtain consent of FCA.
MR COLES: We are inclined to agree with your Honour.
GAUDRON J: Well, it does not help you, I should not have thought.
MR COLES: Well, it does not, as we will be submitting, adversely affect us, but the reality of the position ‑ ‑ ‑
GAUDRON J: No, I would have thought it does not help you.
MR COLES: I will have to develop my response ‑ ‑ ‑
GAUDRON J: I mean, at least in terms of the liability of guarantors and the correspondence, it seemed to me, indicated that the consent of the mortgagee was to be obtained – would be obtained. There seemed to have been a representation – I mean, I know ‑ ‑ ‑
MR COLES: That is an issue that is contested, of course, in the appeal, but we agree with your Honour to this extent, that it is not really the recording of the prior encumbrance that has very much significance. Really, what is significant, if at all, is the existence of the prior encumbrance and, if it matters, the absence of consent ‑ ‑ ‑
GAUDRON J: No, not the existence, but the failure – was not it not at least conveyancing practice for the lessor to obtain the consent of mortgagees? Is that much not clear?
MR COLES: The evidence is a little bit equivocal. Mr Moses said that the matter of the consent of the mortgagees would always be a matter of importance to the lessees’ solicitor, that there was evidence of that. What is probably ‑ ‑ ‑
GAUDRON J: Did the lessees have solicitors?
MR COLES: Yes, they did.
GAUDRON J: And did the guarantors have solicitors?
MR COLES: The same solicitors.
GAUDRON J: And the lease was returned to your client for registration and for obtaining – why did it go to your clients for registration? It seems to me to be only one reason: to obtain the consent of the mortgagees.
MR COLES: The evidence seemed to support this proposition – and this is why we do cavil with the Court of Appeal’s conclusion, which your Honour has really summarised, to the effect that there was, in effect, a contractual requirement for the lessor to obtain the mortgagee’s consent. The sequence of events was, of course, that, as your Honours will see chronicled in the correspondence, the lease was sent in the form which left the relevant blanks. The lease was sent to the lessee’s solicitors. They signed it and sent it back.
The evidence on all sides – and this is an important feature, we think ‑ was that it seems to have been the practice, at least, at the time, of all solicitors in such transactions to submit the lease for signature, to have it sent back, duly signed, and then – but not beforehand – to seek the consent of any mortgagee. Now, that rather tells against, we submit, the proposition that sending a lease with nothing in particular mentioned about the availability or otherwise of the mortgagee’s consent is some sort of representation that the consent was available, because the practice was not to seek the consent until the signed lease was returned to the lessor’s solicitor.
GAUDRON J: Did you need to lodge a certificate of title with a memorandum of lease to effect its registration?
MR COLES: Yes. The process would then involve the lessor’s solicitor arranging for the relevant mortgagee, if there were more than one, to produce the certificate of title at the Land Titles Office for the registration of the lease.
GUMMOW J: Was there in evidence either of these mortgages?
MR COLES: Yes, the mortgages are in evidence, your Honour.
GUMMOW J: Are they?
MR COLES: The mortgage documents are not, your Honour. What is before your Honours is the conditions which were attached to the mortgage. They are, in fact, conveniently summarised in the trial judge’s ‑ ‑ ‑
GUMMOW J: No, I want to see the document. I do not want to see a summary.
MR COLES: Neither of the actual mortgages has been ‑ ‑ ‑
GUMMOW J: Well, at least, the text. What was the exhibit?
MR COLES: Your Honours will not find in the appeal books copies of the two registered mortgages. They were, seemingly, in evidence, but your Honours will find no more in the appeal books – and your Honours will find this at the beginning of volume 2, the various conditions to which those respective mortgages were subject. That is to say, at page 270, there is a copy of the memorandum Q860000, which was part of the first mortgage ‑ which is incorporated in the first mortgage to FCA. At 271, your Honours will see the memorandum incorporated in the mortgage to FCA, that is to say, the mortgage that was thereafter transferred to Esanda.
GUMMOW J: So, 270 ‑ ‑ ‑
MR COLES: 270 and 271 and following are the incorporated memoranda, though not the mortgages themselves.
GLEESON CJ: These two mortgages were registered on what dates?
MR COLES: The first mortgage, to Finance Corporation of Australia, was registered on 28 January 1983, and the second mortgage, also originally to FCA, but later transferred to Esanda, was registered on 19 April 1985.
GLEESON CJ: Now, your instructing solicitor obtained the consent of the second mortgagee, Esanda, is that right?
MR COLES: Yes, in effect, that is right – well, obtained the consent in the form annexed to the lease instrument.
GLEESON CJ: Of the second mortgagee?
MR COLES: Of the second mortgagee, yes.
GLEESON CJ: Why did he obtain the consent of the second mortgagee and not obtain the consent of the first mortgagee?
MR COLES: The evidence did not really explore that. As his Honour the trial judge noted that matter does not seem to have been explored. It was a curiosity that it was the second mortgagee who, in fact, produced the certificate of title to enable the registration of the mortgage.
GLEESON CJ: Why was it the second mortgagee and not the first mortgagee who had the certificate of title?
MR COLES: Again unexplored, your Honours, but some indication in the evidence that there was a close relationship, if not an identity, between the two mortgagees, at least commercially, in the sense that the second mortgage, but not the first, had been assigned by FCA to Esanda, which produced the document, and as was pointed out, I think, in the Court of Appeal, there was a relationship disclosed on the evidence between those parties. At page 465, if your Honours please, in the Court of Appeal’s judgment in volume 3 it was observed that:
The transfer of mortgage V747997 by FCA to Esanda was expressed to be for a consideration of $1.00. It was executed by the same person as attorney for both FCA and Esanda, the person’s description being that of an officer of Esanda.
The Court of Appeal observed that:
It is tolerably clear that, at least as at June 1987, there was a relationship of some kind between FCA and Esanda. This was not explored in the evidence.
GLEESON CJ: Was there any exploration in the evidence or argument of the question whether consent having been obtained from Esanda, that consent bound FCA?
MR COLES: No, regrettably not. Mr Ebner, the solicitor, was cross‑examined – the lessor’s solicitor was cross‑examined but the topic was not raised.
GLEESON CJ: So, were the proceedings conducted below on the basis that, for whatever reason, there were two mortgagees and only one of them consented to the lease?
MR COLES: Partly correct. The proceedings below appear to have been conducted on the basis that there were two mortgages, one of whom consented in a written form, that is to say the second mortgagee, and the consent was annexed physically to the lease. The other one was simply the subject of a notation as to a prior encumbrance and your Honours well understand ‑ and this is, indeed, one of our complaints ‑ that the trial at first instance was conducted on the basis of no more than the proposition that those events constituted a material alteration.
GLEESON CJ: I understand that, but should we deal with this appeal upon the basis that in relation to the matter of presence or absence of consent, all we know is that there were two mortgagees; that one of them consented to the lease and the other one did not, full stop?
MR COLES: That is right, that there was no written consent of the other mortgagee.
GLEESON CJ: You use the word “written”. I will ask the question again. Are we to deal with this appeal on the basis that, so far as the matter of consent or absence of consent is concerned, all we know is that there were two mortgagees, one of whom consented to the lease and the other of whom did not?
MR COLES: That is right. I cannot put to your Honours that there is anything at all in the evidence, or any findings of the trial judge, that there was any consent at all.
GLEESON CJ: So you agree.
MR COLES: I said “written”, your Honour ‑ not to cavil with your Honour’s question, but because it is written consent that section 53(4) of the Real Property Act actually requires and I would not be ‑ ‑ ‑
GLEESON CJ: But, what I have said is correct?
MR COLES: Yes, and I would not be in a better position, your Honour, if I could point to some other consent that was not a prior consent in writing. It would be unavailing so far as the priorities in the Real Property Act are concerned.
HAYNE J: Can I just, at the risk of requiring Real Property 101, Mr Coles, go back several steps and just see if I understand it. The land is registered land; there are two registered mortgages. Section 53 of the Act provides for leases for terms exceeding three years. This lease was such a dealing. Whether or not the instrument tendered for registration bore a notation of what mortgages had been registered, the effect of 53(4) would be, would it not, that a lease registered in respect of which the mortgagee had not consented – I noticed not consented in writing – but had not consented before registration, the lease would not be valid or binding on that mortgagee.
MR COLES: That is right, that is right.
HAYNE J: Do you point to any other provision of the Act which would give any significance to noting, recording, writing on the lease instrument tendered for registration under the Act what is described as a prior encumbrance, namely the earlier registered mortgage?
MR COLES: No, your Honour.
HAYNE J: What I do not understand, then, is where this began, what is the point or significance of noting “PRIOR ENCUMBRANCES” T whatever?
MR COLES: It does no more than records simply that fact, in our submission, that ‑ ‑ ‑
GLEESON CJ: For what purpose? Who is being given the information? Who wants to know?
MR COLES: The Registrar‑General.
HAYNE J: Why does the Registrar-General need to know? Does the tendering of the lease for registration so long as it is accompanied by either duplicate certificate or it would be necessary to produce the duplicate, would it not?
MR COLES: Yes.
HAYNE J: So long as it is accompanied by the duplicate certificate, does the Registrar‑General have to notify mortgagees?
MR COLES: He does not.
GLEESON CJ: I notice that the current edition of Baalman & Wells deals with this subject very briefly. It says:
Section 53(4) of the Real Property Act provides that the proprietor of a mortgage or charge will not be bound by any lease to which he or she did not consent. This provision must now be read subject to . . . s 106 of the Conveyancing Act . . .
The absence of a mortgagee’s consent is not regarded by the Registrar-General as a ground for refusing to register a lease by a mortgagor and the recording of the lease will be silent as to the matter of consent.
Is that new or was that ‑ ‑ ‑?
MR COLES: I think that is a later development in the registration process.
GLEESON CJ: At the time with which we are concerned in this case, what was the purpose that was served by completing the information as to prior encumbrances in the standard form of lease?
MR COLES: The only purpose that was seen as served, your Honour, and was served was that it satisfied a written requisition from the Registrar‑General requiring that notation to be made. That is in the evidence, your Honour, the ‑ ‑ ‑
HAYNE J: Do we have the requisition?
MR COLES: Yes, you do. The requisition is to be found in volume 1 at page 164.
GLEESON CJ: That says both mortgages “are to be noted as prior encumbrances”.
MR COLES: Indeed.
GLEESON CJ: Is V747997 the second mortgage?
MR COLES: It is the second mortgage, yes.
GLEESON CJ: Well, that was the question I asked you earlier: why did not both mortgages have to be noted as prior encumbrances?
MR COLES: There is no answer to that that one knows, your Honour, but presumably the registering official was content not to insist on that notation when he saw or was shown the form of conditional consent from Esanda.
GLEESON CJ: I presume that, in practice, what would prompt a requisition like this is the certificate of title showing two mortgages ‑ ‑ ‑
MR COLES: I would have thought so, your Honour.
GLEESON CJ: ‑ ‑ ‑ remaining undischarged.
MR COLES: That is right.
GLEESON CJ: And somebody in the Land Titles Office responds to that by, in effect, saying, “You ought to be referring to those mortgages as prior encumbrances.”
MR COLES: Yes.
HAYNE J: Now, was there any publication, whether form of Act, regulation, or simple unofficial publication, that would reveal to us what lay behind this requisition? Yes, it is TO practice, but why?
MR COLES: None that I am aware of presently or that the evidence revealed, but we may when we get the instruction sheet that deals with the relevant note, which is coming to Court, your Honour ‑ ‑ ‑
HAYNE J: In Victoria I would be going to Vance on Examination of Title but there is no equivalent text that tells ‑ ‑ ‑
MR COLES: Yes.
HAYNE J: Other than Baalman?
MR COLES: No. There is a Land Titles Office practice but ‑ ‑ ‑
CALLINAN J: Subsection (1), I think, refers to a form as “approved”. Is it on the “approved form” – there is ‑ ‑ ‑
MR COLES: The approved form is the lease document.
CALLINAN J: But where is it approved? Is there a regulation, a schedule, that sets out a form? How does the registrar approve the form and where do we find the form as approved?
MR COLES: I think at the time, your Honour, it was probably a schedule or certainly a prescribed form that ‑ ‑ ‑
GLEESON CJ: Mr Coles, if we could lay our eyes on the original document, I would lay a fair bet that up the top in the middle of the page there would be a reference to the Real Property Act and a section and, perhaps, a regulation. These forms are purchased from law stationers and they are not composed by barristers or solicitors.
MR COLES: No.
CALLINAN J: It would be form L, or form N, or something of that kind.
MR COLES: It would. I am sure that is right.
CALLINAN J: Surely we can get that, can we not?
MR COLES: We can, your Honour, I am sure. I cannot, of course, offer your Honour an assurance it will be available within any certain number of minutes but we will certainly have it to your Honour with due dispatch.
Your Honours pending that, the contention then was that because the lease was necessarily subject to the first of the two mortgages it was, so the Court of Appeal reasoned, a different lease to the lease which the guarantors guaranteed. That founded in the Court of Appeal’s reasoning the proposition that the guarantee lacked the subject matter. I took your Honours to page ‑ ‑ ‑
GLEESON CJ: Why was the lease not also subject to the second encumbrance? The consent of the second encumbrancer was conditional.
MR COLES: Yes, it was, that is right. One might have expected that the requisition would have been satisfied in the terms that the requisitioning officer indicated, that is to say one would have thought that both of the mortgages should have been recorded as prior encumbrances for no better reason than the fact that they were.
GLEESON CJ: What, in your submission, was the legal consequence of the fact that the land was subject to two mortgages and one mortgagee consented to the lease and the other mortgagee did not?
MR COLES: Our submission is that so far as the liability of guarantors is concerned, and the liability of the lessee none at all.
GLEESON CJ: Just before we get to the liability of the guarantors, what was the legal consequence for anybody of the fact that the land was subject to two mortgages and only one mortgagee consented to the lease?
MR COLES: The legal consequence was that, leaving aside matters of conditions of consent so far as the consenting mortgagee is concerned, that mortgagee, in effect, became bound by the lease. In other words, the lessee’s entitlements under the lease, in effect, enjoyed priority as against that mortgagee. So far as the non‑consenting mortgagee is concerned, the position was otherwise; that is to say that, for example, in the event of the mortgagors defaulting and the mortgagee exercising its power of sale, for example, the consenting mortgagee could be bound by the lease, the non‑consenting one would not.
GLEESON CJ: Do you mean by that, that if there had been default under the first mortgage and the first mortgage had decided to exercise its power of sale, it could have ejected the lessee?
MR COLES: That is right; that, in our respectful submission, is plain. I need to develop what is the legal consequence of that so far as the relation between the lessor and the lessee is concerned, because that in turn impacts, and is really our first point, on the legal relation and obligation of the guarantors, because of what they guarantee. Perhaps it is to that point I should now proceed, if your Honours please.
GAUDRON J: Well it also impacts on the value of their rights of subrogation, does it not?
MR COLES: We submit not, but that is a separate question to which I should return.
GAUDRON J: Yes, very well.
MR COLES: The contention, in our submission, is this, that the question really is as to what was it that the guarantors guaranteed is, of course, a question to be answered, in our submission, in the first instance, by looking at the terms of the guarantee, which your Honours will find fully set out in the supplementary documents and, in particular, the registered memorandum incorporated in the lease and, in particular ‑ ‑ ‑
GAUDRON J: Is it not a question of what they agreed to guarantee as distinct from what they guaranteed? I mean at least in terms of general equitable principle would it not be correct to say that the question is what they agreed to guarantee, because other notions will come into play if the executed deed departs from their agreement.
MR COLES: Quite, and that is something I need to address in the course of the appeal. What they guarantee or what they agreed to guarantee, in our respectful submission, is set out in Part 21 of the relevant instrument, which is page 40 of the incorporated memorandum in the supplementary documents.
GAUDRON J: Clause ‑ ‑ ‑?
MR COLES: It is Part 21 on page 40 and clause 21.1 provides that:
In consideration of the Lessor at the request of the Guarantor entering into this Lease . . . guarantees and indemnities the Guarantor does hereby covenant and agree with the Lessor that the Guarantor will be jointly with the Lessee and severably liable to the Lessor for the due and punctual performance by the Lessee of all the terms covenants and conditions to be observed fulfilled and performed on the part of the Lessee contained in the Lease and in particular but without limiting the generality –
of particular matters of which, amongst others, 21.1.3 is relevant; there is a specific guarantee. The guarantee extends by its terms specifically to actions or specifically for moneys payable by the lessee to the lessor by way of damages and the like.
Now, the first question that then arises, in our submission, is to what if, at all, can one say that the obligations of the lessee, they being the obligations guaranteed ‑ ‑ ‑
CALLINAN J: Mr Coles, I am unfamiliar with the New South Wales provisions. Perhaps there is an easy answer to this, but how do you reconcile section 106 of the Conveyancing Act with section 53 of the Real Property Act? Because section 106, on a first reading, suggests to me that a mortgagor not in default is entitled simply to lease land and that the mortgagee cannot prevent ‑ ‑ ‑
MR COLES: Yes. That is right.
CALLINAN J: Well, how do you reconcile that with section 53?
MR COLES: That, I think, is resolved by section 106 in effect making section 53(4) of the Real Property Act inapplicable in the circumstances to which section 106 applies, so that is to say ‑ ‑ ‑
CALLINAN J: Section 106 simply seems to apply, at first sight, to a mortgagor not in default, because it says, “A mortgagor of land while in possession”. Presumably, that is a synonym for “not in default”.
MR COLES: Well, it may be, your Honour.
CALLINAN J: If that is right – I am not suggesting it is, but if that reading is right, what happens in relation to section 53(4)?
MR COLES: It works this way, in my submission, your Honour. Under section 106(3) a mortgagor is authorised by the terms of the section to lease land in certain circumstances. Subsection (3) ‑ ‑ ‑
CALLINAN J: I am sorry. This applies only to a lease for less than five years.
MR COLES: For less than five years. The other respect in which ‑ ‑ ‑
CALLINAN J: That is the answer, I think, is it not?
MR COLES: Yes.
CALLINAN J: And these were leases for 10 years, anyway.
MR COLES: That is right. This is a 10‑year lease.
CALLINAN J: Sorry. Yes, that is the answer.
MR COLES: And I think, your Honour, under section 106(17), section 106 “applies to land under the provisions of the Real Property Act”, but section 53(4) of the Real Property Act does not apply, if the five year lease ‑ ‑ ‑
CALLINAN J: I follow that.
MR COLES: ‑ ‑ ‑ is authorised under section 106, which really is why we have offered this observation, that 106 does not, in the present circumstances, loom relevantly.
GUMMOW J: Was it not excluded?
GLEESON CJ: I thought it was excluded.
MR COLES: Excluded?
GUMMOW J: The power under 106 may be excluded.
GLEESON CJ: Yes. I thought I read somewhere in the papers that both of these mortgages excluded section 106.
MR COLES: They do, yes. So that even if this were a lease of less than five years, then it would not avail the ‑ ‑ ‑
CALLINAN J: We can forget about section 106.
MR COLES: In short, one can forget about section 106, is our submission. Your Honours, the position is this, that a lease as between the parties – lessor and lessee – enjoys, so far as the operation of its covenants and their enforcement is concerned, the same status or condition, whether or not the land being leased is subject to a mortgage and whether or not the mortgagee of that land, in fact, consents or not.
GUMMOW J: I understand that, but just looking at 21.1, assume the guarantee is called on and the guarantors pay the overdue rent, say, what is the content of their subrogation rights? What are they subrogated to, that is of any use to them?
MR COLES: For example, if they need to enforce their right of indemnity against the lessee, perhaps they could take steps in that behalf.
GUMMOW J: That is a right of indemnity.
MR COLES: Yes.
GUMMOW J: But what rights against third parties are they subrogated to, of any use, rights of the lessee?
MR COLES: It is difficult to see any, really, in that situation, in our submission.
GUMMOW J: It looks as if we are talking about their right of indemnity against ‑ ‑ ‑
MR COLES: It would relevantly and in practical terms be a right of indemnity against the principal debtor.
GAUDRON J: Why not? Why is that? Let us assume that they paid the rent, that the mortgagors were called upon to pay the rent – the guarantors sorry – and they did pay the rent. Would they not have an equitable right to the lease?
MR COLES: To call for an assignment of it to them? In our submission probably not.
GAUDRON J: Why not?
MR COLES: It would be an unusual equity if, for example, the lessee was in default for one month and the guarantors paid one month. It is not clear how a right to call for an assignment to them, in effect, to stand in the shoes of the lessee.
GAUDRON J: Because would not they have the same rights as the lessor, that is to say the lessor would be entitled to terminate the lease?
MR COLES: The lessor is not entitled to terminate the lease.
GAUDRON J: For default in rent?
MR COLES: If the rent is not paid for the relevant period.
GAUDRON J: Yes.
MR COLES: The lessor can…..and terminate the lease.
GAUDRON J: Yes. But we are assuming for present purposes that the mortgagor prevents that happening by paying the rent. Why would it not then have the right, as against the lessee, to say, “For all practical purposes this lease would have been terminated, could have been terminated but for the action that I took. I now call for an assignment on terms which would of course involve the guarantors then being personally liable pursuant to the assignment”. Why not? Why have they just got an indemnity? Why could they not for example – let us say they paid three months rent ‑ say, “I now demand that you assign this lease to an assignee of my nomination”? Surely they have some rights other than mere indemnity.
MR COLES: It does seem, in my submission, a curious thing to think that the entire lease could become listed in the paying guarantor’s ‑ ‑ ‑
GAUDRON J: Why? It does not seem curious to me. They must have some – upon making good a default which would otherwise or could otherwise result ‑ ‑ ‑
MR COLES: Could.
GAUDRON J: Yes, could otherwise result in forfeiture of the lease. I think ‑ ‑ ‑
MR COLES: The “could” could be the problem, yes. The mortgagee might not have intended necessarily to exercise its rights to evict the lessee. One would not necessarily know that in every case.
GUMMOW J: There might be a relief against forfeiture question ‑ ‑ ‑
MR COLES: Indeed, yes. Yes, the guarantor might be entitled to that, as might the lessee. So there might be factual questions which might tell against an automatic right to call for an assignment of the lessee’s interest if the guarantor paid some part of the obligation.
GLEESON CJ: Are the guarantors’ interests adversely affected by the circumstance that the position of the lessee is more precarious than it would have been if the consent of both mortgagees had been obtained?
MR COLES: We submit not for this reason, that the guarantors’ obligation, of course, is only for so long as the lessee’s obligations are on foot and if, for some reason, the mortgagee evicted the lessee, then that foreshortened rather than burdened the guarantors. Their obligations simply came to an end sooner. In our respectful submission, that is not the sort of burden that a surety is normally complaining of.
GLEESON CJ: Did the Court of Appeal or the trial judge consider this question of what, if any, adverse consequences might have been suffered by the guarantors as a result of the fact that the consent of only one of the mortgagees was obtained?
MR COLES: No. That is not the subject of discussion or analysis, in our submission. Indeed, the Court of Appeal, perhaps, in one passage, preferred its own analysis to going into that analysis in the sense that it preferred to deal with the matter on the basis that the guarantee lacked subject matter rather than on an alternative basis which was put to them that there was some variation in the contractual arrangements between lessor and lessee which adversely affected the guarantors.
GAUDRON J: That was put in the Court of Appeal, was it?
MR COLES: In substance, yes.
GLEESON CJ: Is that expression, “a guarantee lacking subject matter”, a term of art?
MR COLES: No, your Honour, it is not. It is borrowed, if I can say this respectfully, by analogy but not by application with this Court’s decision in Chan v Cresdon Pty Limited. We criticise, for reasons that will be plain, the application or the purported application of that decision to these facts.
GLEESON CJ: In all events, neither Justice Bainton nor the Court of Appeal addressed the question whether there was any adverse consequence, actual or potential, to the guarantors by reason of the non‑consent of the first mortgagee.
MR COLES: No, that was not analysed.
GLEESON CJ: Mr Coles, I am not sure I understand exactly what the guarantors were made liable for in the events that happened.
MR COLES: In the events that happened the guarantors were made liable for what was found to be the lessee’s repudiation of its obligations under the lease – the repudiation by the lessee and others of the obligation under the lease when the, in effect, ultimate assignee abandoned the position ‑ ‑ ‑
GUMMOW J: It is 21.1.3, is it?
MR COLES: Yes.
GUMMOW J: That was the hook.
MR COLES: That caught it in terms, yes. The guarantee was sufficiently explicit in its drafting ‑ ‑ ‑
GUMMOW J: Yes, “all moneys by way of damages” ‑ ‑ ‑
MR COLES: ‑ ‑ ‑ to engage a liability not only for – the structure of it shortly was this, that the lessee was obliged not only to pay rent but also covenanted, amongst other things, to pay damages in the event of a repudiation and the guarantors’ guarantee explicitly extended to make them liable for not only the lessee’s general covenants or payments but, expressly, a covenant indeed to pay damages. So, all other things being equal, there was no separate suggestion from the guarantors that the lease and the guarantee did not – the provisions were not engaged to impose liability upon them in the events that happened.
GLEESON CJ: And that was the amount that Justice Bainton described as “X dollars”?
MR COLES: That is right. Some $500,000 was, in effect, damages for repudiation of the lease before its expiry. So, our point – and it is, with respect, your Honours, a short one – we say when one looks at the agreement the guarantors and the lessee made, it was an agreement by the guarantors to be responsible for anything the lessee had to pay, in terms. The lessee had to pay damages in the amount found.
The only question then is, what effect, if any, does the lack of consent on the mortgagee’s part to the registration of the lease, have on that state of affairs, and for the reasons we have put we say none. Two authorities only I would ask your Honours to note in support of that proposition ‑ ‑ ‑
GUMMOW J: I suppose it has to be said against you that these circumstances relied upon, whether it is Pigot’s Case or however it is put, meant that there was no lease. In other words, there was nothing to repudiate, there was nothing done that was wrong. Therefore, there was no liability in damages. Therefore, there was nothing guaranteed. Does it not have to come to that?
MR COLES: Really that was the argument put before Justice Bainton that because of the suggested material alterations, there was no lease and for that reason there was nothing ‑ ‑ ‑
GUMMOW J: Void.
MR COLES: Void or at least voidable.
HAYNE J: Though it is registered?
MR COLES: Albeit registered, and the Court of Appeal held – the trial judge held, of course, that it was not rendered void because of the suggested material alterations because ‑ ‑ ‑
GUMMOW J: There would be a further question that I think Chief Justice Bray flagged in that South Australian case it did not have to come to, namely, the effect of the Torrens system registration on the Pigot doctrine.
MR COLES: The Court of Appeal has resolved that issue favourably to the lessor in this case by saying that upon registration, whatever Pigot’s Case infirmities may have attended the lease were, in effect, wiped out by its registration and by the effect of section 42 of the Real Property Act on that state of affairs. There is no issue about that in these proceedings.
GAUDRON J: It is theoretically possible, though, is it not, at least that upon registration, the lessee took a leasehold estate but that was a different leasehold estate from that for which the lessee had contracted and which the lessors had contracted to guarantee?
MR COLES: That is really what the Court of Appeal held.
GAUDRON J: But there is no incongruity in those notions, is there?
MR COLES: If the proposition is right, the appeal, I suppose, fails on that ground, but our contention is that there is not two separate notions. A lease as between lessor and lessee, there is not a notion on the one hand of a lease with a mortgagee’s consent and a lease without a mortgagee’s consent.
GAUDRON J: No, we are talking about the precise estate that is taken.
MR COLES: Yes, quite, exactly.
GAUDRON J: It does seem to me necessary, I think, to analyse differently the actual estate and the contractual obligations.
MR COLES: I agree with that, your Honour, but the only point we are presently making at the moment is that the precise estate, that is to say, the leasehold estate ‑ ‑ ‑
GAUDRON J: But the estate is different.
MR COLES: ‑ ‑ ‑ the leasehold estate is the same as between lessor and lessee.
GAUDRON J: Not exactly. The nature of the estate is different by reason of 53(4) depending upon whether the mortgagee consents or not or the incidents of the estate which passes are different.
MR COLES: We, of course, submit to the contrary. We say that the fact that there is a possibility that the estate could be brought to an end sooner than the parties contracted does not affect the quality of the estate. It may affect its duration but only if and when the mortgagee intervenes. The two passages I would ask your Honours to just briefly note in support of that submission ‑ there are a number of cases we mention but in Dudley and District Benefit Building Society v Emerson (1949) 1 Ch 707 the mortgagor/lessor had leased without the consent of the mortgagee and the mortgagee wished possession of the property. The issue was whether the mortgagee was entitled to possession, notwithstanding certain rent restriction legislation which is not presently material.
GUMMOW J: This is old system land, is it not?
MR COLES: Yes.
GUMMOW J: The mortgage is a different creature, is it not?
MR COLES: It is, but the same follows under Real Property Act land we will be putting. At page 713, Lord Evershed posed the question:
What therefore is the effect, first in general, and secondly – and this is the main point – for the purposes of the Rent Acts, of the demise of the mortgaged property made by a mortgagor who, according to the terms of the mortgage, has no power to make a lease which will bind the mortgagee?
Then perhaps if I can go straight to the passage we rely on on the following page, at page 714 in the second full paragraph, the Master of the Rolls said:
It will not be thought by Mr Heathcote‑Williams, I am sure, disrespectful to his argument if I do not refer to all the cases. I am content to take the language of Lord Selbourne LC in the case of Corbett v Plowden: “If a “mortgagor,” says the Lord Chancellor, “left in possession “grants a lease without the concurrence of the mortgagees “(and for this purpose it makes no difference whether it is “an equitable lease by an agreement under which possession “is taken, or a legal lease by actual demise” the lessee has a “precarious title, inasmuch as, although the lease is good “as between himself and the mortgagor who granted it, the “paramount title of the mortgagees may be asserted against “both of them.”
I am content, for the purpose of the question which we have to consider, to take as the correct relevant statement the passage from Lord Selbourne LJC’s judgment, which I have just read, and to assume, therefore, to borrow his language, that Mr Goodlad, the tenant in this case, has a precarious title, good as between himself and the mortgagor Emerson, but liable to be defeated on the assertion by the mortgagee of his paramount title. Until that happens, Mr Goodlad can remain lawfully in possession.
Now we submit it follows from that reasoning that as between lessor and lessee, the lessee has a ‑ have obligations as between themselves governed by the terms of the lease, and that there is nothing flawed, to use the Court of Appeal’s expression, in the leasehold estate, at anytime before the moment, if ever it happens, that the mortgagee asserts his paramount title. That is to say, so far as the interests in land is concerned.
GLEESON CJ: Tell me, did the lessee in the present case have a right to assign the lease?
MR COLES: Yes.
GLEESON CJ: Well now ‑ ‑ ‑
HAYNE J: Not without consent.
MR COLES: No, not without consent and, indeed, perhaps it is one of the many things that were unexplored in the case, but there were successive assignments, as your Honours have seen.
GLEESON CJ: Yes, I just wanted to ask you whether or not an assignee would pay less for a precarious title than one which was not precarious?
MR COLES: It is a difficult question, your Honour, in the present case, because the ‑ ‑ ‑
GLEESON CJ: Well, I was then going to ask you whether that could not affect the interests of the guarantors?
MR COLES: The value of the leasehold estate as an assigned asset?
GLEESON CJ: Yes.
MR COLES: Well there is certainly no evidence ‑ the evidence in the present case seems to have not gone so far as to say that was the case and, indeed, may tell against it.
GLEESON CJ: If it is the case that self‑evidently an assignee would be prepared to pay less for this title than the assignee would have been prepared to pay if the mortgagee had consented to the lease, does that not have some bearing on the approach taken by the Court of Appeal?
MR COLES: Well, it may simply suggest that the leasehold interest is less valuable, I agree with that, but for the purposes of the argument at present, what we are concerned with is the effect, if any, on the obligations as between lessor and lessee, they being the obligations as guaranteed, and it is simply our submission that those obligations, for so long as they subsist as such, represent, contrary to the Court of Appeal’s view, the true subject matter of the guarantee.
So that for as long as the mortgagee does not intervene, then the lessee, undoubtedly, has an obligation to pay the rent, and the guarantor, undoubtedly, in our submission, has an obligation to pay it if the lessee fails to pay it. Indeed, the only other case – though there are a number to which I refer your Honours – simply illustrates that. That is a decision of the Court of Appeal – of the Full Court – of the Supreme Court of New South Wales, to which I would briefly refer, in Daniher v Fitzgerald (1919) 19 SR (NSW) 260. Again, factually, circumstances were a little different but the principle that emerges, in our respectful submission, is in point.
The plaintiff lessor sued for rent. The defendant lessee, in defence of the lessor’s claim for rent, pleaded that the lease was a lease of land subject to mortgage, and the mortgagee’s consent had not been obtained. Unsurprisingly, the court did not find that defence made out. Some observations appear which are in point as to section 53. The only passage I would take your Honours to is on page 265, where Justice Sly said:
Starting with that, it is said here that this property was under the Real Property Act, and that the plaintiff had mortgaged it. There is no question that there was a proper mortgage under the Real Property Act, but then it is said it was not proved that the consent of the mortgagee was given to that lease. Well, first of all, in my view, speaking for myself, I do not think it has anything to do with the case whatever. As there was no covenant for title, the question of title does not arise in this case. There is a valid lease and there was an opportunity for the person to enter into and enjoy that land, and after the period is over (12 months here) if rent is sued for, the question of title of the plaintiff is absolutely immaterial in my view. There is no covenant for title, but one for quiet enjoyment. It is clear on the case I cited during the argument that there is implied knowledge on the part of the tenant of the title of the landlord when a man takes –
as it was, in that case –
a verbal lease, and if he does not take the trouble to see what title there is, that is his look-out. But suppose it has some bearing on the case, we must remember in this case that the plaintiff here has a perfectly good title, that is to say, he has possession, he has a perfectly good mortgage and there is no suggestion that he is not entitled to the enjoyment of the property.
Then he makes some comments about the application of section 53. If I could read just from the last line on the page:
What it says is –
that is section 53, that it, that is to say the lease –
“shall not be valid and binding against the mortgagee,” but it is perfectly good against all the world. It is not like a man in the street making a lease when he has no property. In this case there is no suggestion that anyone came and objected; there is no suggestion that he could not have enjoyed this land during the whole period, and he does not ‑ ‑ ‑
GLEESON CJ: But this is the basis on which the Court of Appeal held that the company that is now in liquidation could not resist the claim against it.
MR COLES: Yes, and the submission, shortly, is if Wall Investments – the lessee company – was liable, notwithstanding the absence of mortgagee’s consent, to pay the various amounts which contractually and under the general law it was liable for, then, on the proper construction of the guarantee, the liability of the guarantors was extended in its language to the lessor’s entitlement against the lessee. The question then is, was it qualified in any respect by the absence of the mortgagee’s consent? Our answer to that is, no, it was not, as a matter of construction of the document.
GUMMOW J: Can we look at ‑ ‑ ‑
MR COLES: To round off the point ‑ I am sorry, your Honour.
GUMMOW J: Go ahead.
MR COLES: We say that what the guarantors guaranteed was in terms obligations which were completely and exclusively contained in the agreement between the parties.
GAUDRON J: And you would make that same argument even if there had been no consent by any mortgagee?
MR COLES: By any mortgagee, that is right, because it is a good leasehold estate as between the lessor and the lessee bound to pay the rent and the guarantor bound to pay if he does not and only ceases to be so, in my submission the authorities make clear, if and when, but only if and when, the mortgagee intervenes.
GAUDRON J: That overlooks, I should have thought, a commercial practicality. People want long leases of commercial premises from which they are conducting a business because they do not want to move from those premises or they do not want to lose the goodwill it develops by reason of the association of the business with the premises. There was a greater security of possession with the consent of the mortgagees than there was without it. That is right, is it not? The security of their possession was less.
MR COLES: It was precarious in the sense that it was not immune from the interference of a mortgagee in the event of default, absolutely
CALLINAN J: Justice Gummow said that they could not get guarantors subrogated, could not get relief against forfeiture.
MR COLES: One thing, of course ‑ ‑ ‑
CALLINAN J: But they could not, could they? If the mortgagee were in possession, there would not be any right to relief against forfeiture. Is that not right?
MR COLES: The lessee might have a right.
HAYNE J: Why?
MR COLES: I am sorry, no ‑ ‑ ‑
HAYNE J: The lease does not bind the mortgagee.
MR COLES: No, that is absolutely right.
CALLINAN J: And that makes it really much less valuable, does it not?
MR COLES: It may but that, in our respectful submission ‑ ‑ ‑
CALLINAN J: And precarious?
MR COLES: The guarantor was in that situation – one is always looking, in our submission, firstly, to the content of the guarantee.
GLEESON CJ: But what would have caused the default on the part of the mortgagor? What would have caused the exercise of a power of sale by the first mortgagee was not default by the Wall Company; it was default by your client. That is what would have given the mortgagees the right to intervene, is it not? The mortgage was from your client to FCA.
MR COLES: That is right.
GLEESON CJ: So it would have been default by your client, not default by the Wall Company ‑ ‑ ‑
MR COLES: Quite. Absolutely.
GLEESON CJ: ‑ ‑ ‑ that would have left the guarantors in this position.
MR COLES: And the lessee in that position, yes, quite. That is absolutely correct.
GLEESON CJ: Does that not emphasise the precarious nature of the position in which the guarantors found themselves as a result of the failure to obtain consent?
MR COLES: It certainly describes it, in our respectful submission, your Honour. The question then is whether that can affect the operation of the guarantee contracted for, when the guarantee contracted for takes the form in which it does.
GAUDRON J: Well, at least somewhere along the line one would have thought it would be necessary for the lessor to make disclosure of the precarious nature of the right to possession that was being taken by the lessee, whose obligations the Walls were guaranteeing, would it not?
MR COLES: That may have been so if the lessor had reason ‑ ‑ ‑
HAYNE J: Why? Why would it be so? You are dealing with registered land. You are dealing with land where the precarious nature of the title is evident from a search of the register.
MR COLES: Is evident from the – yes.
GUMMOW J: Not only that, it is evident from the very instrument itself which contains the guarantee.
GAUDRON J: Let me put it in a different text. Having sent a memo of costs saying mortgagee consent to costs, having taken the money from the solicitor – well, having taken the money from the lessee, and it then emerges that there is the consent of one, is there no obligation at that stage to draw it to the attention of the guarantors?
MR COLES: So far as the evidence in this case was concerned, the only evidence as to who – was Mr Moses’ evidence, that it would always be a matter of concern to the lessee’s solicitor to know about the consent.
HAYNE J: Do we need to begin the inquiry by identifying the obligations as between lessor and lessee and in particular whether the lessee was to obtain a title that was not a precarious title?
MR COLES: If he wanted it.
HAYNE J: Was that agreed between those parties? Or am I starting at an offstage left?
MR COLES: No. Your Honour, in my submission, an analysis of that kind is permissible. Unfortunately, it was not the subject of the inquiry at the trial and, indeed, the ‑ ‑ ‑
HAYNE J: One wonders what was the subject of inquiry at this trial - an idle speculation about Pigot’s Case in relation to registered land where it is ‑ ‑ ‑
MR COLES: That was the subject of the trial, as we followed it.
GLEESON CJ: That was the subject of the pleading.
MR COLES: That was the only subject of the pleading, in our submission. The defence in Pigot’s Case. Your Honours will find ‑ ‑ ‑
GLEESON CJ: The defence which appears at pages 19 and 20 of the appeal book was and was only, as I understand it, that the lease was “null and void and of no effect”.
MR COLES: Yes. There was conspicuously no plea, for example, that it was a condition precedent to the liability of the guarantors that the consent of the mortgagee should be obtained.
HAYNE J: Or that the lessor and lessee had agreed that the estate that would be created would be not a precarious one.
MR COLES: Yes, your Honour, and, indeed, the lessee’s own solicitor was not called to give any evidence at the trial. Indeed, on these pleadings he did not need to. On the expanded view the Court of Appeal took of the case, he was obviously a very relevant witness.
HAYNE J: Was there anything in the lease instrument other than its face page which is apt to registration which deals with whether the instrument would become a registered instrument? Was there any obligation to register?
MR COLES: There can be no doubt about that, in my submission, if only for the fact that it was a 10‑year lease and because section ‑ ‑ ‑
HAYNE J: Well, you say the fact that it is a 10‑year lease meant that it had to be registered. That it could be registered; that rights followed if it were registered are both propositions I can readily accommodate. That it had to be registered is a much larger proposition which is not self‑evidently true.
MR COLES: This Court has held that it is the duty of the lessor of a lease for more than three years to obtain the registration of that lease.
CALLINAN J: It is Laurinda, is it, Laurinda Park?
MR COLES: Your Honours have the reference to Chan v Cresdon (1989) 168 CLR 242 where an observation to that effect appears. Can I mention it now? The relevant passage is at the foot of 247 where the Court said, in the last paragraph of the page:
Without looking to cl. 2.2 of the agreement for lease, it is obvious that the parties intended that the lease was to be registered. The lease was not, until registration, “effectual to pay any estate or interest in” the land: s. 43 ‑ ‑ ‑
HAYNE J: Their Honours, I take it, are not to be understood as denying the efficacy and equity of agreements pending registration.
MR COLES: Certainly not, no. No, quite, and, indeed, such an issue was debated in that case, it would seem. Their Honours then go on to say ‑ that is the first consideration, no registration, no interest. Secondly, in effect:
the lease was in the form appropriate for registration –
as plainly was the case here –
so that it was in registrable form –
as, indeed, was the lease here, if only for the reasons of the notations complained of. Then their Honours said:
In these circumstances the respondent –
that is, the respondent lessor –
by executing a lease which was intended to operate as a lease at law, was under an obligation to register, or procure the registration of, the lease ‑ ‑ ‑
HAYNE J: That is satisfied, is it not, by registering it with or without consent?
MR COLES: Quite. That really is a point upon which we place some reliance because we had a legal obligation as lessor to register that lease, lest as happened in Laurinda v Capalaba, another case to which the Court refers in Chan, we would be liable for loss of bargain, damages for repudiation if we failed to procure that registration.
GAUDRON J: Except you did send a memo of fees, or your client’s solicitor’s fees, for mortgagee consent and ‑ ‑ ‑
MR COLES: Well, I do not wish to – could I ask your Honours to look at page 131 of volume 1.
GAUDRON J: ‑ ‑ ‑ the question really then is, in the face of that, one might well infer, and in the face of it being commercial premises at which a business was to establish, that one would be expecting that the original agreement was to obtain registration with the consent of the mortgagees.
MR COLES: Well, in my respectful submission, one would not glean that self‑evidently from the document at 131, which is the statement of account. It simply refers to “Mortgagee solicitors fees (estimated)”. It does not constitute a representation that a consent will, without more, necessarily be available or – I mean, one can send the bill in that form, only to find ‑ ‑ ‑
HAYNE J: But is the lessee to be understood as stipulating for a particular kind of estate?
MR COLES: In my submission, not.
HAYNE J: So your proposition is that the lessee has not stipulated for a tenancy that is not precarious?
MR COLES: That is right.
GLEESON CJ: It is of some interest perhaps that in the defence filed one of the grounds on which the lease is said to have been null and void is that it contained the consent of the second mortgagee.
MR COLES: Yes, that was a matter of objection.
GLEESON CJ: Well, it was the pleading. The lease was said to have been rendered null and void by the annexing to it of the consent of Esanda.
MR COLES: Yes, that is right. That was said to be a material alteration which, without more, affected the lease. But there was in this case, your Honour, as, in our respectful submission, there would have had to have been if the Court of Appeal’s reasoning could be justified, no evidence at all that the lessee’s solicitor stipulated, or otherwise made it a term of the bargain, outside the lease itself, some collateral agreement that there was to be a lease which would take effect only with the consent of the mortgagees, both of them.
HAYNE J: But once you went down the path of securing consent as to one, what then, if anything, follows from starting down that path and doing so imperfectly?
MR COLES: Going down that path produced at least this much in this case, namely, the production by Esanda of the certificate of title, and that, in our submission, must have been enough.
GLEESON CJ: Well, you had to do that to get the thing registered.
MR COLES: Absolutely, and it was our job to get it registered. We went down that path and got it registered, in our submission.
GUMMOW J: Chan v Cresdon, you took us to page 247 – nothing may turn on this, but I think there is an error – about six lines from the bottom of the page there is a reference to “section 43 of the Act”.
MR COLES: Yes, that is a Queensland Act.
GUMMOW J: That is the Queensland Act.
MR COLES: Yes.
GUMMOW J: So that is the equivalent to New South Wales 41?
MR COLES: That is right.
GUMMOW J: Right.
GLEESON CJ: However, that is interesting. It refers to:
the form appropriate for registration (Form E) –
Are we making any progress in finding out anything about this form?
HAYNE J: Or has your solicitor simply departed to slash his wrists?
MR COLES: Well, the absence of my instructing solicitor is equivocal, but it suggests he is doing something about it, your Honours.
HAYNE J: The optimism of counsel is bounded.
MR COLES: And I am told my learned friend has some progress to report upon.
GLEESON CJ: I would be more impressed if the colour of what Mr Kelly had in his hand was green.
MR COLES: Your Honours, I have put the proposition thus far that the legal relation of landlord and tenant and guarantor of lessee’s obligation remain the same with or without registration ‑ with or without the mortgagee’s consent. That leads next to the next proposition which is really what, in our submission, was the unwarranted error into which the Court of Appeal fell in imposing on the lessor a suggested contractual obligation to obtain, in all circumstances, that consent, and to regard that as having consequences, even if there was such a contractual term.
One of the things the lease as submitted requires, or provided for ‑ and which the guarantors were, in effect, a party – was a clause, 15.3, which your Honours will see on page 33 of the lease document, which said that:
The covenants and provisions contained in the Lease expressly or by statutory implication cover and comprise the whole of the agreement between the parties to the Lease and it is expressly agreed and declared that no further or other covenants or provisions whether in respect of the demised premises or otherwise shall be deemed to be implied in the Lease or to arise between the parties to the Lease by way of collateral or other agreement by reason of any promise representation warranty or undertaking –
Now, those words are not, in our respectful submission, mere boilerplate. They were part of the total bargain submitted to the lessee, along with the blank.
GAUDRON J: Except that when so submitted, there were blanks.
MR COLES: Yes, that is right. One cannot ‑ ‑ ‑
GAUDRON J: What can we make of that?
MR COLES: Well, that is very important, because the Court of Appeal acted not only on the bases we complain about in the conduct of the case, but they there departed from the evidence. The evidence in the case boiled down to this: Mr Moses countenanced, Mr Cornelius said it, and Mr Ebner swore to it in terms, that it is the practice of solicitors at that time in New South Wales to submit the lease document without having, by that time, yet obtained the consent of the mortgagee. Only when the lease document, duly executed by the lessee – and once supposedly the guarantors come back – then, and only then, does the solicitor for the lessor seek the mortgagee’s consent.
Now, his Honour Justice Bainton examined why that was a reasonable and sensible practice, and while Mr Ebner, the lessor’s solicitor, was correct to follow it – because, as a matter of commonsense, if one goes to all the bother and some expense, as is plain, of seeking the mortgagee’s consent, and then, for some reason, the bargain falls over and the lessee does not execute the lease, then that is effort and money wasted – so one waits ‑ ‑ ‑
GLEESON CJ: That evidence appears to have been specifically aimed at the defence as pleaded.
MR COLES: That is right.
GLEESON CJ: Indeed, it appears to have been particularly aimed at the complaint about adding the consent.
MR COLES: There is no doubt about that. Even the respondent’s expert solicitor, Mr Cornelius, in terms – and we have set out the passage in our written submissions – he, in terms, observes that one might, in order to gain registration, add a note of those prior encumbrances. The point about that, though, is this: that if it is the common understanding of solicitors doing this business at the time, that there is no inquiry even yet made as to the availability of mortgagees’ consent. How can one reasonably construe, or how can one identify, as the Court of Appeal did, an express agreement between intending lessor and intending lessee to the effect that the lessor will, without more, furnish and supply and procure that consent? It might never be forthcoming.
GAUDRON J: Were there no requisitions? Was that simply by the evidence?
MR COLES: Again, none that the evidence revealed because no one was directing their intentions to these very issues which is our complaint about the process the Court of Appeal followed in another context. But how can it be, we say, that there could be, in effect, foisted upon a lessor a contractual provision that he is bound under all circumstances to obtain the mortgagee’s consent when it is a known circumstance that he is not even going to seek it until the lessee returns the signed document. Such a conclusion, in our respectful submission, would ‑ ‑ ‑
GAUDRON J: It does raise questions about what the lessor, who also holds guarantees in the lease document, can do against the guarantors. It does raise a question whether, in the absence of some indication or some prior contractual basis, it is unconscionable to hold the guarantors to their terms.
MR COLES: It may be that they might have asserted that had they chosen but they never did and the question never arose for consideration, in our submission. Can I advance one possibility, lest your Honours think that that is too harsh of me to take: it may be that in circumstances where the mortgagee has not consented to the lease, the lessee whose occupation in effect is precarious may be content to rest, depending on his view of the commercial circumstances, on damages ‑ ‑ ‑
GUMMOW J: Particularly if they knew Esanda and FCA were in the same camp.
MR COLES: That is not an irrelevant commercial circumstance in terms of people’s overview of things.
GLEESON CJ: But there is also a relevant procedural consideration, is there not? This lease had to be registered, it was for ten years.
MR COLES: It must.
GLEESON CJ: It could not have been registered without the certificate of title being produced at the Land Titles Office. The certificate of title was in the possession of a mortgagee. You would normally ‑ ‑ ‑
MR COLES: Nominally the second mortgagee, yes, that is right.
GLEESON CJ: ‑ ‑ ‑ have thought it would in possession of the first mortgagee. Was it a practical possibility that the lease could be registered without the consent of the mortgagee who had possession of the certificate of title?
MR COLES: No, subject to one qualification, there is power under the Conveyancing Act to compel a mortgagee to produce a title to facilitate the registration of authorised dealings. That, in effect, begs the question. I think it is section 96 of the ‑ ‑ ‑
GLEESON CJ: Was it a theoretical possibility that even though no mortgagee consented to this lease, the lease could be registered?
MR COLES: Yes, quite, it was a practical possibility. If neither of them had consented, the lease would have been registered if Esanda produced, as it did, the certificate of title to enable that to happen.
HAYNE J: But could it produce without impliedly consenting?
MR COLES: One would be inclined to think not, but I have to accept that does not solve the apparent legal difficulty that the absence of consent of the prior in time mortgagee, the value of his mortgage one does not know except that the Esanda mortgage was assigned for a nominal consideration, when obviously there is some relation, as the court found, between the two entities but ‑ ‑ ‑
HAYNE J: Can I go back a stage. The mortgagee would ordinarily hold the certificate of title.
MR COLES: Ordinarily, the first mortgagee.
HAYNE J: Yes. The mortgage for bad leasing without consent, correct?
MR COLES: It did.
HAYNE J: If the mortgagee produced the title in order to permit a lease to be registered and that is all that is known, what conclusion would one reach about the mortgagee consenting to the transaction?
MR COLES: The only rational inference would be that the mortgagee so consented, in our submission.
HAYNE J: Given that 53(4) does not in its terms, I think, require consent in writing ‑ ‑ ‑
MR COLES: No, I was in error when I said that a little while ago.
HAYNE J: ‑ ‑ ‑ what does one conclude from the fact of production by a mortgagee?
MR COLES: You conclude that the mortgagee producing must have consented, at least in the absence of any evidence that his production was in some sense qualified or under pressure.
HAYNE J: Let it be assumed then that the mortgagee has not consented. If the mortgagee, on default by the mortgagor lessor, re‑enters possession and terminates the lease which does not bind it, as between lessor and lessee, what consequence, if any, follows from the “QUIET ENJOYMENT” covenant, 9.1, page 24, that the lessor, amongst other things, will allow enjoyment of the premises without “disturbance from the Lessor” or another person “lawfully claiming . . . under the lessor”?
MR COLES: Yes, it must be that if the mortgagee re‑entered and evicted the lessee, the lessee would have an action against the lessor for breach of the covenant of quiet enjoyment, one to which one supposes the guarantors would also, I suppose, if they are entitled to be subrogated to anything, succeed too. It may be – and I was about to put this to your Honours – that when lessees are not too concerned, as perhaps they were not here, to see the mortgagee’s consent produced, it may be that they are, amongst other things, content, for what it may be worth, to rely on their right of action under the covenant for quiet enjoyment.
HAYNE J: But is the consequence for the guarantee the consequence that the precarious nature of the title will or will not redound to the detriment of the guarantors?
MR COLES: Not to the detriment, in our submission. If all that happens is that the mortgagee enters and evicts the lessee, that of itself creates plainly no liability on the part of the guarantors to the lessor. That is the first thing it does. Secondly, of course, the guarantors themselves are instantly let off the hook, years ahead perhaps of the engagement they otherwise were prepared to make. It foreshortens their burden rather than increases it.
CALLINAN J: Mr Coles, could I draw your attention to clause 15.26 in the lease. Now, it refers in terms to the lessee’s obligation to pay the costs of obtaining the mortgagee’s approval.
MR COLES: Yes.
CALLINAN J: I think those costs were, in fact, paid, were they?
MR COLES: They were.
CALLINAN J: If you look at Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited 166 CLR 623, Chief Justice Mason at page 631 said that such a clause – a clause, in that case, was not quite as fulsome as this one – imposed an obligation upon the lessor to do what the clause contemplated and what the lessee was paying for. Now, if one applied that reasoning to this clause, then why should the guarantors not be entitled to assume that everything would be regularly done to obtain the mortgagee’s consent so that their title or their rights of subrogation would not in any way be impaired?
MR COLES: There may be two possible answers to that. One is, of course, they knew there were two mortgages but they were only asked to pay for one fee ‑ ‑ ‑
CALLINAN J: But Laurinda does not deal with a case in which the obligation was to obtain a mortgagee’s consent. His Honour thought that the obligation stemmed from a clause – the obligation that existed there stemmed from a similar clause to this one. What the clause contemplated and what the lessees were paying for would be done.
MR COLES: Yes.
CALLINAN J: Why are they not entitled to assume that it would be done in all respects regularly by the lessor? After all, they were paying for it.
MR COLES: They would be entitled to assume that their money would be well spent and if they paid money for one mortgagee’s consent, they would be entitled to assume that the money was spent on that purpose. They may be led to wonder if they were only charged for one mortgagee’s consent and there are two mortgagees ‑ ‑ ‑
GAUDRON J: There was no apostrophe. I know not a lot of attention is given to apostrophes these days, but it is ‑ ‑ ‑
MR COLES: It is a singular expression, “Mortgagee solicitor fees (estimated)”.
GUMMOW J: What page are we looking at?
MR COLES: That is page 131.
GLEESON CJ: You will have noticed that clause 15.26 refers to “the obtaining of any mortgagee’s approval”.
MR COLES: Indeed.
GLEESON CJ: Not to the obtaining of “the” mortgagee’s approval.
MR COLES: No, I accept that.
GLEESON CJ: Does that mean that it is leaving open the possibility that there might or night not be a mortgagee’s approval?
MR COLES: It leaves open the possibility. One must accept, in our submission, that a mortgagee, when asked for his approval ‑ ‑ ‑
GLEESON CJ: I thought we had just agreed that, as a practical matter, this lease was never going to get registered unless at least the mortgagee who had possession of the certificate of title approved.
MR COLES: Quite.
GLEESON CJ: So there was going to have to be some mortgagee’s approval?
MR COLES: That is right.
GLEESON CJ: Otherwise the lease could not be registered?
MR COLES: Absolutely, that is right, in our submission.
CALLINAN J: The Chief Justice in Laurinda has effectively treated the clause of that kind as a covenant binding the lessor, that it creates reciprocal obligations not simply an obligation upon the lessee that once the lessee is paid then what the lessee has paid for will be regularly done, and that is obtaining any, that is to say all, mortgagees consents.
MR COLES: Yes. One possible difficulty with that analysis may be what happens if the lessor, using its best endeavours and negotiating vigorously with the solicitors for the mortgagee in terms that expend both of their foreseen estimates of the costs of doing so, is simply wholly unable to obtain the mortgagee’s consent.
CALLINAN J: On the way in which the Chief Justice treated it, the lessee could probably repudiate it, and, indeed, repudiation was held to be available for that very reason in Laurinda. There was a little more to it than that but substantially that is what it was.
GLEESON CJ: Mr Coles, I understand, correct me if I am wrong, one of your complaints to be that the defence relied upon in the pleadings was covered by the evidence that was led before Justice Bainton and, in particular, by the evidence of Mr Moses and Mr Cornelius of that conveyancing practice. If you get into the kind of area that we have been talking about and because of the way the Court of Appeal decided the case, there is an absence of any evidence from the most obvious witness who could explain what happened, that is to say, the solicitor for the lessee.
MR COLES: That is right, indeed.
GLEESON CJ: What I wanted to ask you is this. In the Court of Appeal was any reference made to the pleadings in the course of argument?
MR COLES: In the course of argument, yes.
GLEESON CJ: Was it pointed out to the Court of Appeal that the evidence covered the defence as pleaded and that there was an absence of evidence relevant to the way they ‑ ‑ ‑
MR COLES: I appeared in the matter in the Court of Appeal, your Honour, and I, if I may say so, protested with such vigour as decorum allowed as to the court’s seeking to deal with it on a basis not covered by the pleading. We did not assent ‑ ‑ ‑
GLEESON CJ: More importantly, I would have thought, not covered by the pleading and evidence.
MR COLES: And, necessarily, of evidence, yes.
GAUDRON J: Then the pleadings were changed. The summons, at least, was changed, was it not? You were in trouble yourself as I understand it. The case you put was not covered by your pleadings.
MR COLES: We had to amend and were granted leave to do so.
GAUDRON J: Yes.
MR COLES: No application was made to amend the defence or bring the defence into line and would have been precluded ‑ ‑ ‑
GAUDRON J: Gives cause for concern as to the way cases are conducted these days, does it not? I mean, there you are, you are in the Court of Appeal, you have to amend your summons and then you say no application was made to amend theirs. I do not know. It should all have been done at the beginning. You should have had it all properly sorted out before Justice Bainton, should you not?
MR COLES: It certainly should have, your Honour.
GAUDRON J: And that includes you.
MR COLES: I was not at the trial before. Neither Mr Kelly nor I were before Justice Bainton.
GLEESON CJ: May I inquire whether there was any argument before Justice Bainton about the matters that we have been discussing this morning?
MR COLES: Mr Strasser’s recollection is that there was an observation as to the failure to call the solicitor, but as I think he understands it, the territory we have been traversing this morning was not the subject of debate before Justice Bainton. Justice Bainton makes that quite clear in his judgment, in our submission.
GLEESON CJ: Where do we find that?
MR COLES: In a couple of places. Can I just take your Honour to volume 2? The reference is in my written outline, your Honour. I will have to get it from there. Yes, at AB 328, point 35, his Honour refers to:
Wall Investment’s primary defence –
and at 338 ‑ ‑ ‑
GUMMOW J: Wait a minute, 328?
MR COLES: Page 338.
GLEESON CJ: Did you not say page 328, line 35?
MR COLES: Yes, your Honour, that is the first reference, and the second reference is at 338, line ‑ ‑ ‑
GUMMOW J: About line 35, is it?
MR COLES: Yes. His Honour says:
The conclusion which I have reached on the question of authority to fill up the omitted entries in the document executed by Wall Investment disposes of what was the argument principally relied upon ‑ ‑ ‑
GLEESON CJ: I notice that this decision was reserved for more than two years.
MR COLES: Yes. A point of importance, of course, which we have referred to in our written submissions, is that apart from not calling the lessee’s solicitor, the lessor’s solicitor, Mr Ebner, was cross‑examined and, as his Honour the trial judge recorded, nobody suggested to him ‑ nobody of the various parties involved in this, suggested to him that he had done anything at all out of the ordinary or amiss by filling in the prior encumbrance. We have set that out ‑ again, the reference to that in our written submissions, your Honours will find ‑ that appears at AB 335 point 40, just below the passage that I have ‑ ‑ ‑
GUMMOW J: I think what his Honour said at 330 might be important, line 25.
MR COLES: Yes, where he refers to “no attention” being paid “during the hearing” to the particular circumstances.
GUMMOW J: Yes.
MR COLES: The passage I was referring to on 335, where his Honour is really summing up the basis for his conclusion that Mr Ebner, the lessor’s solicitor, was justified in filling in the reference to the prior encumbrance in order to accomplish the common objective of securing registration of the lease and, amongst other factors, his Honour says, at line 40:
Finally, no Counsel suggested to Mr Ebner in cross examination that he was not entitled to make, or ought not have made, the relevant additions to the lease as executed by Wall Investment.
In our respectful submission, that rather powerfully underscores the ‑ ‑ ‑
GLEESON CJ: What page is that, Mr Coles?
MR COLES: That is at page 335, your Honour, in volume 2, at line 40.
GLEESON CJ: Thank you.
MR COLES: And he goes on to say:
That facilitates a conclusion that none of those Counsel were instructed that Mr Ebner’s practice was out of the ordinary. Mr Ebner’s statement of his evidence was filed and served three weeks before the commencement of the hearing.
All of which one would be fortified in concluding that no one at this trial was concerned to contend that it was a matter of deep concern to the guarantors that somehow their obligations had been burdened or they had been defeated by – or that their liabilities were defeated by some unformulated condition precedent to that coming about.
Now, I think I had put in passing, your Honours, what we say about the other features of the – I do apologise. The Court of Appeal reached the conclusion which it applied as to the absence of suggested subject matter of the guarantee ‑ ‑ ‑
GLEESON CJ: Just before you go further, was there any evidence as to how much money was owing under the first mortgage?
MR COLES: No, there was not.
GLEESON CJ: Was there any evidence as to ‑ ‑ ‑
MR COLES: I am sorry, there was evidence of how much had been lent under the first mortgage only, not how much was owing.
GLEESON CJ: So we do not know whether there was any money owing under the first mortgage?
MR COLES: We do not.
GLEESON CJ: That just occurred to me as a possible explanation of how the second mortgagee might have come to have the certificate of title.
MR COLES: Well, it is a very probable explanation, we would think, because the certificate of title was in the presence of the second mortgagee, not the first mortgagee, where you would expect it to be, but, sadly, your Honour, we cannot claim that as a proved fact because the ‑ ‑ ‑
GLEESON CJ: Do we have the mortgage, the first mortgage? Do we have that?
MR COLES: No. You only have the incorporated memorandum. I was going to just tell your Honours that it is at page 494 of the third volume of the appeal book in paragraph 75, line 14, that the Court of Appeal advanced its analysis of the problem in terms of offer and acceptance. Now I have put some submissions as to why that cannot be right, the main points being that the offer contained the clause 15.3 and, more importantly, the solicitors knew that the mortgagee’s consent would not have at that time have been sought let alone obtained and you just would not have a situation, in our respectful submission, where a lessor would be, in effect, exposing itself immediately to an action for breach of contract, if the lessee returns the lease duly executed and, for some reason, the mortgagee just withholds its consent. That would be an unreasonable conclusion in the light of the evidence and in the light of the clause.
GLEESON CJ: If you look at the sentence that begins at line 31, with the words, “The fact that”. I am sorry to keep nagging at this point, Mr Coles, but I do not know whether that is right or wrong.
MR COLES: Well, we submit, it is wrong, of course.
GLEESON CJ: If, according to the way these forms were meant to be completed, there should have been a reference to any prior encumbrance, even though the prior incumbrancee consented, then that would be incorrect, would it not? It gets back to the question ‑ ‑ ‑
MR COLES: It would.
GLEESON CJ: ‑ ‑ ‑ of Note (d), and what you are supposed to fill in in this form.
MR COLES: Well, that mystery now seems to be revealed – and we do have some copies of the lease. Could I have your Honour’s leave to hand up ‑ ‑ ‑?
GLEESON CJ: Yes, thank you.
MR COLES: Note (d), I fear your Honours will not – I do not think I get much joy out of Note (d), your Honour. But I am not sure it necessarily matters. In other words, you do not have to fill in Note (d). I am sorry, you do not have to fill in the ‑ ‑ ‑
GLEESON CJ: Where is Note (d)?
MR COLES: I am sorry. It seems to be on the second – and I do apologise that your Honours have ‑ ‑ ‑
GLEESON CJ: It has some asterisks alongside it.
MR COLES: Somebody has put the asterisk beside it:
In the memorandum of encumbrances, state only the registered number of any mortgage, lease or charge ‑ ‑ ‑
GLEESON CJ: “Except where the consent ‑ ‑ ‑
MR COLES:
(except where the consent of the mortgagee, lessee or chargee is furnished) ‑ ‑ ‑
GLEESON CJ: That is what I have been trying to find out.
MR COLES: That really answers your Honour’s earlier question – the question a moment ago as to what the Land Titles Office wants from you.
GLEESON CJ: And it explains why he only filled in one number.
MR COLES: It does, because he had the consent otherwise annexed, and the Land Titles Office was therefore content not to press its requisition ‑ ‑ ‑
GAUDRON J: But in the absence of any notation there, and in the face of clause 15.13, I think it is, why would you not take the offer contained in the document to have been an offer for a lease with consent of mortgagees?
MR COLES: Firstly, because of the practice of solicitors not to seek that consent and therefore the known circumstance that, at the date the lease is submitted for execution ‑ ‑ ‑
GAUDRON J: That is right, but ‑ ‑ ‑
MR COLES: ‑ ‑ ‑ no one knows whether the consent is available or not.
GAUDRON J: Well, all of that may be right, but it at least gives you an opportunity then to – if the consent is not forthcoming, presumably, you would be notified and you would have an opportunity to repudiate.
MR COLES: Not on the Court of Appeal’s reasoning. On the Court of Appeal’s reasoning, if they sent back the lease, duly signed, with the blanks, and those blanks are, in effect, a warranty that this is a lease with consent, the failure to get that consent – when everybody knows it has not even been asked for – will put the lessor immediately in radical breach, which is an unreasonable conclusion.
GAUDRON J: Well, exactly. I am saying, why? When you look at the note and clause 15 – I think it is 1(c) ‑ ‑ ‑
GLEESON CJ: Clause 15.26.
GAUDRON J: Clause 15.26.
MR COLES: Point 26, your Honour.
GAUDRON J: Yes. I mean, this is the offer you make. The offer you make is this document with Note (d) and containing 15.26. It is really a question just of construing the offer. That is what is accepted, is it not?
MR COLES: If submitting the lease in draft form is an offer, which may or may not be right, in our respectful submission. It may well be no more than an invitation to the lessees to sign the document and send it back by way of offer from them – the offer being accepted by the lessor, which, for at least the reasons I have mentioned, would be the preferred analysis.
GUMMOW J: I am not sure there is an executory contract, really.
MR COLES: I mean, the lessor has signed nothing on this theory, that the ‑ ‑ ‑
GAUDRON J: But he has submitted the lease.
MR COLES: He has submitted the lease, but there is no note or memorandum in writing from the lessor on the lease assenting to be bound by its terms, so one would suppose that ‑ ‑ ‑
GAUDRON J: But one would have thought it was an offer if you send the lease. The lessor prepares it, sends it to the lessee.
MR COLES: It is not the case in an ordinary contract for sale, in our respectful ‑ ‑ ‑
GAUDRON J: We are talking about, if you ‑ ‑ ‑
MR COLES: The same mechanism happens with an ordinary contract for sale and you send it for approval and ‑ ‑ ‑
GAUDRON J: That is because there is exchange and because there is a notion of exchange that does not necessarily attach to a lease, does it?
MR COLES: If this had been an issue in the trial, there might have been evidence as to whether it is the practice of solicitors to formally exchange leases. Now, I do not know the answer to that and I am not sure there is, but ‑ ‑ ‑
GLEESON CJ: I am just wondering, Mr Coles - and I have no clear idea about this - whether or not the defence that was pleaded and the defence that was found by the Court of Appeal are not just two sides of the one coin. In other words, when you look at this Note (d) and you see that inserting a reference to an encumbrance in the space provided is a means of indicating that there is no consent from that mortgagee, then to insert a reference to the first mortgage in the present case was to do something that was unauthorised, unless you come to the conclusion that there was nothing in the arrangement between the parties that required the lessor to obtain the consent of all mortgagees. So the pleader of the defence, in effect, confronted you with one arm of a dilemma and the Court of Appeal confronted you with the other.
MR COLES: Perhaps your Honour is suggesting that the pleaded defence really in a sort of veiled way raised the sort of issue the Court of Appeal decided which we ‑ ‑ ‑
GLEESON CJ: I am just wondering whether or not there is that much difference between the way the defence was pleaded and the way the Court of Appeal decided the matter. They both seem to me to be alternative aspects of the one problem if it is a problem.
MR COLES: If it is one, but can I make this submission about the submission of the lease with the blanks, in effect. Two points, in our submission, can be made: one, of course, at the time the lease was submitted in draft form, the mortgagee, as the parties would have expected but whether they expected it or not, the mortgagee in fact had not consented and had not even been asked. So that at that stage, if nothing more happened, at the stage the document was submitted, there was no consent of the mortgagee.
Now, if the mortgagee did or did not consent, steps would be taken to record that. The filling in the blank in a sense is really to be seen, in our submission, as more a representation to facilitate registration to the Registrar‑General rather than any warranty or representation as to the condition of the lease.
GLEESON CJ: If you look at Note (d), the filling in of the blank records a fact. It records that there is a mortgagee who has not consented to this lease.
MR COLES: That is right. Now, that literally was the fact. It is really perhaps a source of some confusion to say that the actual recording of the prior encumbrance somehow changed anything. It did not. What was absent was the mortgagee’s consent in fact. Now, that is what made the tenancy the subject of the mortgagee’s rights, the fact that the mortgagee had not in fact consented, not the recording of that fact itself, which is a mere recording, in the memorandum of prior encumbrances. All the prior encumbrance did ‑ ‑ ‑
GLEESON CJ: To ask whether or not the lessor’s solicitor was authorised to fill in that blank by putting the number of the first mortgage in, is only another way of asking whether or not the agreement between the parties was that it was unnecessary to obtain the consent of the first mortgagee.
MR COLES: And that is the dividing line. At the trial the agreement between the parties was said to be, and was found by his Honour to be, that the lease should be registered, and in aid of that agreement and to procure that registration the solicitor made the notation.
GUMMOW J: But the lease in what form should be registered? Where is the actual finding?
MR COLES: Of the trial judge?
GUMMOW J: Yes. It may be important.
MR COLES: Part of it is at 335. The factual discussion commences at 334 after the paragraph at 20. At page 335 there is a discussion preceding the passage to which I previously took your Honour. His Honour says – I am reading at 27:
Similarly, if a lessor’s solicitor ascertains that the property to be leased is subject to a subsisting mortgage which the Land Titles Office requires to be noted on the lease before registering it, I can see no reason why he should not insert the appropriate reference into the document. That benefits the lessee: it removes a possible bar to registration.
GUMMOW J: Well, that is part of the story.
MR COLES: It is part of the story. It is not the whole story, no. The story really starts, I suppose, back on the preceding page, where his Honour says ‑ ‑ ‑
GAUDRON J: He said the “lease for execution”. Can we just go back to line 25:
Big Country’s solicitor sent the form of lease . . . for execution –
not for negotiations.
MR COLES: Well, for approval on execution, I think, or something to that effect I think they said.
GAUDRON J: It looks pretty much like an offer, does it not?
MR COLES: The letter is at page 130.
GAUDRON J: It is then really a question of what was constituted by the offer in that form.
MR COLES: It is, indeed.
GAUDRON J: And if it was a lease with mortgagee’s consent, then that is the end of you, is it not?
MR COLES: The Court of Appeal so held and that is right.
GLEESON CJ: The key point in Justice Bainton’s reasoning is at line 36 on 334, is it not? He said:
It is a short step to infer from that a similar authority otherwise to fill up anything left blank in the document ‑ ‑ ‑
MR COLES: Yes. It may be going a little far on one view of it.
GLEESON CJ: When you look at Note (d), this is a fairly significant blank, this one.
MR COLES: Yes. It is a significant blank, your Honour, if ‑ ‑ ‑
GLEESON CJ: It looks as though, does it not, that ‑ ‑ ‑
MR COLES: ‑ ‑ ‑ contrary to our first submission, there is any advantage to the lessee or if the lessee’s obligations are in some sense different. But I have put that submission. As your Honour knows, our submissions are the obligations guarantee were not different obligations.
GLEESON CJ: If you wanted to put it in terms of Pigot’s Case, you would say that from the point of view of the guarantors this was an immaterial alteration.
MR COLES: That is right, yes, for no better reason than that the lease was subject to the mortgage because no consent and all the notation did was to record that fact.
GLEESON CJ: Yes, but to succeed you have to demonstrate or persuade us that the fact that this was a lease without the consent of a mortgagee was immaterial to the guarantors and if that is right, then filling in the blank in terms of the rule in Pigot’s Case was not a material alteration.
MR COLES: It is not material for the reason I have put, that is to say, that if, as a matter of fact, the lease simply by the circumstance of the registration of a prior mortgage, was subject to that mortgage it cannot be material. It just records that matter. Only if one finds some feature of the evidence which supports some particular agreement, dehors the lease instrument itself, does one get into that bother.
GAUDRON J: You have your letters ‑ ‑ ‑
MR COLES: And that is our complaint.
GAUDRON J: Pages 130 and 131 are your letters which attach the memo of costs and disbursements which says “Mortgagee solicitors fees” in a context in which the space is left blank and you have Note (d).
MR COLES: But that is not the whole of the context, I think we would say. The context includes the fact that there are two mortgages. It includes the context that the mortgagee solicitor fee may certainly cover obtaining the consent but it may cover simply seeking it and the production of the document and so forth.
GAUDRON J: There is an ambiguity. The best you can say is there is an ambiguity.
MR COLES: We agree with the Court of Appeal that the evidence was very scanty.
GAUDRON J: Yes.
MR COLES: And we say in the circumstances so scanty ‑ ‑ ‑
GAUDRON J: Well, let us just look to the written evidence. The best you can say is there is an ambiguity. What then is the rule when you are dealing with guarantors? I think they get the benefit of it, do they not? Is not that the normal rule?
MR COLES: There is no doubt about that. That is a different sort of ambiguity, in our submission. This is an ambiguity about the effect of the evidence producing a conclusion as to what the agreement was. It is not an ambiguity about the guarantor’s obligations once that agreement has been identified and established.
GLEESON CJ: Mr Coles, a possible point of view is that there is not really a significant departure from the pleadings, and that if you look at page 19 of the appeal book, that this case all comes down to the issue tendered by the defendant on the third‑last line of page 19 by the use of the word “materially” and that that is what the case is all about. It is about whether or not this alteration, including that referred to in paragraph (a) on the following page was a material alteration.
MR COLES: Yes. Its materiality could only have the quality of materiality if it did more than record the bare fact that this was, in fact, a lease without the mortgagee’s consent.
GLEESON CJ: And that the bare fact was immaterial.
MR COLES: Yes.
GLEESON CJ: So that is what the case turns on, is it not, whether or not it was material to the guarantor’s obligations that there was a non‑consenting mortgagee?
MR COLES: That is right, I agree with that. I think, in the course of your Honours’ various questions, I have put, really, the matters I wanted to put and unless there are any other matters at this stage that I can assist your Honours in, they are my submissions.
GLEESON CJ: Thank you, Mr Coles. Yes, Mr Kelly.
MR KELLY: May I draw your Honours’ attention, first and foremost, to the fact that in the proceedings at first instance the parties provided written submissions to his Honour and we did forward to the Court, I believe yesterday, a copy of a document entitled “Submissions in reply to plaintiff’s submissions”. In that document your Honour will see that at paragraph 1.1.10 written submissions were addressed on the threshold question of common contractual intention which, in turn, boils down to covering the several matters that your Honours have been debating with my learned friend.
GLEESON CJ: What page is that?
MR KELLY: The page with 688cc written in handwriting on the lower right‑hand corner ‑ this is a copy of a number of pages from the appeal books and your Honours will see 1.1.10, the submission that there was no common contractual intention at the time the lessee executed the lease to make it subject to any prior encumbrance.
Your Honours will see that counsel who appeared for my clients at the trial go on to make certain succinct submissions, including at page 688dd, between lines G and M ‑ ‑ ‑
GAUDRON J: Sorry, what ‑ ‑ ‑?
MR KELLY: Between lines G and M, your Honour.
GAUDRON J: At what paragraph?
MR KELLY: Page 688dd, within the body of paragraph 1.1.10. Warburton is distinguished. It is asserted there, your Honours will see, Warburton involved the insertion by the solicitor for the mortgagee of certain dates in the mortgage document. Keyson was distinguished from that situation because it involved, as the present case does, the insertion of a reference to a prior encumbrance which affects the title to be taken by the lessee.
Your Honours will see that counsel who appeared in these submissions goes on to say that the plaintiff’s submission overstates the rule for implied authority to complete blanks in a document which clearly does not extend “to the addition of matters which would evidence something destroying the title purported to be created by that document”.
So the issue of common contractual intention was squarely posed for his Honour’s consideration. What his Honour found ‑ and I think the relevant finding is at page 338, line 24. Justice Bainton says:
On the assumption which I readily make that both Big Country and Wall Investment desired that Big Country should grant and Wall Investment should acquire a valid and enforceable lease of the squash centre –
so far so good, one may say, for that it does appear that his Honour is turning his Honour’s mind to precisely this point –
it follows also from what was said in Warburton that the lessor’s solicitor had the implied authority of both parties to insert into the document the commencement and conclusion dates on which the parties had agreed –
a reference plainly to an element of the common contractual intention, but then his Honour goes on to say –
and reference to subsisting mortgages without which (or the written consent of the mortgagee) the lease could not be registered.
His Honour simply stopped short at dealing with the submission that was put to him in paragraph 1.1.10, which is whether the common contractual intention was, in effect, whether the lease was to be with the consent of mortgagees or without their consent. His Honour simply stopped short at recognising some elements of the common contractual intention, but not dealing with the actual issue posed ‑ ‑ ‑
HAYNE J: Do you say that these parties had agreed on that issue?
MR KELLY: Yes, your Honour.
HAYNE J: And where had they reached that agreement?
MR KELLY: They have reached that agreement in two places. Firstly, on the face of the instrument of lease in its unaltered form. The empty space, if I may use a neutral term, in the relevant box is properly construed as a void, meaning nil, not a blank meaning, fill it in in accordance with the common intention of the parties.
GUMMOW J: Yes, that is why Note (d) is so important.
MR KELLY: Yes, your Honour, and your Honours will see ‑ ‑ ‑
GUMMOW J: The blank assumes then that consent is furnished.
MR KELLY: Precisely, and is not the logic of the instrument simply this, that as between the parties to the lease, it is within their power to agree amongst themselves on what the relative priority will be between the lease, on the one hand, and any mortgage, on the other. So if they can agree that the lease is to be subordinate to the mortgage, then they can simply fill in the space by typing in after the numbers 1, 2 and 3, the relevant entries. It is only if it is intended by the parties that the lease is not to be subordinate to the mortgage that they, as it were, cannot achieve anything by agreement, for indeed there is a third party who needs to be dealt with.
Thus it follows, as night follows day, from the absence of any entry in this space provided, firstly, that these parties were not in a position to reach agreement on priority, vis-a-vis the mortgage, other than that there be no subordination of the lease to the mortgage, hence the need to proceed to deal with the mortgagees.
GUMMOW J: Yes, the inference is that in sending this instrument off in this form with the blank, that the lessor is going to get the consent.
MR KELLY: As night follows day, we would submit. In the Court of Appeal that finding was made and it was expressed by Justice Giles to be made on the basis that his Honour was, firstly, looking at the lease.
GLEESON CJ: Where do we see that, Mr Kelly?
MR KELLY: Your Honours see that at page 494, paragraph 76.
GLEESON CJ: It is line 31.
CALLINAN J: Is that not reinforced by 15.26?
GUMMOW J: Yes.
MR KELLY: Yes, your Honour.
CALLINAN J: Does Justice Giles mention 15.26 anywhere?
MR KELLY: Not to my recollection, your Honour.
GUMMOW J: Or Note (d)?
MR KELLY: Not to my recollection. Indeed, I think I can go further and say that to the best of my recollection, no, no, is an unequivocal answer to your Honours’ several questions, but ‑ ‑ ‑
HAYNE J: Now, can we be told after lunch what the provenance of Note (d) is, whether it is statutory, regulation, endorsed on the form that was executed? It may be that we are going beyond the record, I do not know, but we have been handed Note (d) which seems to be an official or semi‑official document. Presumably after lunch we might be usefully told what its provenance is.
GLEESON CJ: And where the actual original exhibit is.
HAYNE J: Not on a bundle of photocopies that were produced as a book of documents for use by the Court.
GAUDRON J: We should have the original here, should we not? The exhibit should be in Court.
GLEESON CJ: I notice that on a photocopy of the exhibit that I have, which is the one that was supplied yesterday, up the top it has “Lease”, then under that it has “Real Property Act 1900”, and under that “(to be lodged in duplicate)” and under that it has “(See instructions for Completion issued as Form RP 1B)”. Do you see that?
MR KELLY: Yes, your Honour. We shall leave no stone unturned in our search for that regulation we hope.
GLEESON CJ: The document that you have handed us is “INSTRUCTIONS FOR COMPLETION” “RP1A”.
MR KELLY: Your Honour is referring, I believe, to the document handed to your Honours by my learned friend.
GLEESON CJ: Yes.
MR KELLY: We will leave no stone unturned, as I say, your Honour.
GLEESON CJ: All right.
MR KELLY: We will fix that matter up as well, hopefully. May I, in the moment or two remaining, just deal with one small point. My learned friend, having referred your Honours to the pleadings and having attempted to make a point to the effect that this threshold question of the concomitant contractual intention of the parties was not fairly before Justice Bainton, together with the consequence that matters such as cross‑examination may have been different, your Honour, in this case there is a document which contains, in our respectful submission, the plainest possible admission that this lease was to be with the consent of the mortgagees. That document is to be found at page 147.
CALLINAN J: You need the next page too, do you not?
HAYNE J: The errant apostrophe.
MR KELLY: Yes, your Honour, but in this letter Mr Ebner, the solicitor, who not many months into the following year put pen to paper and altered the instrument, he is saying in the clearest possible terms that:
In this regard we would observe that the Transfer cannot be registered until the Lease has been duly stamped and the mortgagee’s consent obtained thereto.
So, no matter how you look at it, it was the expectation of Mr Ebner that mortgagee consent would be obtained.
HAYNE J: Consent to the transfer or to the lease?
MR KELLY: This would be consent to the lease, your Honour. That could only be the relevant consent. In answer to your Honour’s inquiry of my learned friend earlier, what is the ‑ ‑ ‑
GAUDRON J: Mr Kelly, I read that the other way.
GLEESON CJ: And it is reinforced by 148, is it not, “to obtaining mortgagee’s consent thereto”. The word “thereto” means transfer of lease, does it not?
MR KELLY: We would contend that it refers to the lease itself.
GAUDRON J: I would not have, I am sorry. I think you are not on bad ground at 131, where there is not – this is about the transfer of the lease, or assignment of the lease to the Hollingsworths.
MR KELLY: Perhaps I should ‑ ‑ ‑
HAYNE J: Nice try, Mr Kelly, nice try.
MR KELLY: I humbly withdraw my hyperbole, your Honours. In any event, what is plainly contemplated is that a relevant form of mortgagee consent be obtained. That must include all relevant consent. Perhaps that is as far as I can take that point.
GLEESON CJ: Is it the case, Mr Kelly that there was no evidence at all as to the status of the first mortgage except that it existed?
MR KELLY: I do believe that is the case, yes, your Honour. If by “status” your Honour is referring to whether there was any sum ‑ ‑ ‑
CALLINAN J: Was it not assigned to somebody for a dollar, or was that the other one?
MR KELLY: I think that was the other one, your Honour.
HAYNE J: We do not know whether it is all accounts or all moneys mortgage or whether it is defined sum or anything, do we?
MR KELLY: We do not, but we do know of course that it incorporated registered memorandum Q860000, such that under clause 11 of that instrument, a grant of a lease without mortgagee consent would constitute a default under the mortgage. Whether there was a dollar owing or not, the title that was in effect conveyed was not only precarious but it was precarious to the point where without the relevant consent there was a breach, such that the mortgagee literally could have entered at any time.
GLEESON CJ: Now, Mr Kelly, just to ensure that you are not idle over the luncheon adjournment, there is one further thing that we would like you to do for us.
MR KELLY: Yes, your Honour.
GLEESON CJ: I think there is a reference in the judgments to the fact that there was a change in the Land Titles Office Practice of Baalman & Wells and as a means of tormenting ourselves, we only have a loose‑leaf edition of Baalman & Wells and consequently we do not have it in the form in which it stood at the relevant time. Could you see if you could provide us after lunch with the Land Titles Office Practice, the relevant part of the Land Titles Office Practice in the form in which it stood at the time relevant to this litigation.
MR KELLY: We shall endeavour to do that, yes, your Honour.
GLEESON CJ: Thank you. We will adjourn until 2.15.
AT 12.45 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.19 PM:
GLEESON CJ: Mr Kelly, are you able to help us about this form and Note (d)?
MR KELLY: We have had some success, although we have not been completely successful. Firstly, I can say to your Honours that we believe that the provenance of, as it were, approved forms is to be found in section 104 of the Real Property Act and we can make available copies of that ‑ ‑ ‑
GLEESON CJ: Thank you.
MR KELLY: ‑ ‑ ‑ section of the Act, although, unfortunately, we have had to take it out of Butterworths Practice Book. Indeed, Mr Coles informs me that your Honours may already have received a copy, a better copy, of section 104. As your Honours will see, under section 104(1):
The Registrar-General shall cause approved forms to be supplied free of charge or at such moderate charges –
and license approved persons to sell. In subsection (2):
The Registrar-General may register a dealing containing departures, not being in matters of substance, from an approved form and the dealing shall be deemed to be in an approved form when it has been authenticated in accordance with subsection (3).
Your Honours will see, subsection (3) speaks of approved forms being:
sealed with the seal of the Registrar-General –
Doing the best we can, it would appear that, as an incident to that power to bring into existence approved forms, there would ‑ ‑ ‑
GLEESON CJ: Now, are you able to resolve the little problem that we have, that on the heading of the lease, it says “See instructions for Completion issued as Form RP1B” and what we were provided with this morning was Form RP1A?
MR KELLY: We do believe, having checked this with the Registrar‑General, that the forms that your Honours were provided with this morning are, in fact, the correct form and there I am referring to the second page. Indeed, Mr Coles has provided me with some further copies and on that your Honours will see that the heading RP1B was cut off in the photocopying, the second page of the documents I handed to your Honours.
GLEESON CJ: Now was this part of the evidence in the courts below?
MR KELLY: No, it was not.
GLEESON CJ: And was that because the whole lease was not copied?
MR KELLY: I do believe that to be so, yes, your Honour.
GLEESON CJ: So that the instructions for completion were part of the form, were they, just that they were not reproduced?
MR KELLY: That I cannot say. We have before us a document which we are confident is RP1B, but is this the exact obverse of the first page of the lease?
GLEESON CJ: Well the lease did refer to Note (d), so presumably Note (d) was part of the form?
MR KELLY: Yes, your Honour.
GLEESON CJ: And we were handed this morning a document which headed re both forms and it has got (d) in it.
MR KELLY: Yes, your Honour.
GLEESON CJ: Well, should we take it from that that if the original lease had been tendered in the courts below or the whole of the original form of lease had been reproduced, the evidence would have included Note (d)?
MR KELLY: From our side of the Bar table, yes, your Honour.
GLEESON CJ: It would be a pretty funny form, anyway, if it did not.
MR KELLY: But whether there was additional material in exact conformity with this document marked RP1B, we do not know and cannot say.
GLEESON CJ: Can I ask you another question about the forms below. If you look at page 271 of the appeal book, my recollection is that Mr Coles told us that although we do not have the mortgages, some parts of the mortgages are in the appeal book, is that right?
MR KELLY: I believe so, yes.
GLEESON CJ: Does that mean that the whole mortgages were not in evidence below or they are not just reproduced here?
MR KELLY: I think the correct answer to your Honour’s question is that they have not been reproduced.
GLEESON CJ: Thank you. Now, if you look at page 271, somebody has drawn three lines alongside clause 15 which is presumably to indicate to us that that excludes section 106 of the Conveyancing Act.
MR KELLY: Yes, indeed.
GLEESON CJ: This was a mortgage from Big Country Pty Limited to Finance Corporation?
MR KELLY: Yes.
GLEESON CJ: Over the site of the proposed development and squash courts?
MR KELLY: Yes, the whole shopping centre.
GLEESON CJ: Okay, now, Big Country Pty Limited in clause 15 covenanted “to use” this “land as a private residence for” Big Country Pty Limited and its “family”, it appears?
MR KELLY: Yes, indeed.
GLEESON CJ: Do you know what the explanation of that might be?
MR KELLY: No. One would hazard a guess it is some form of neglect on the part of the relevant conveyancer, but there is no suggestion that the subject land was anything other than a shopping centre.
GLEESON CJ: Now, this refers in the plural to “Mortgages”, do you see about line 17?
MR KELLY: Yes, your Honour.
GLEESON CJ: What was the relationship between this memorandum and the mortgages with which we are concerned? How does that come to refer to “Mortgages” in the plural?
MR KELLY: To the best of my understanding of the evidence, that cannot be other than an error.
HAYNE J: Is that right or is there provision under the Real Property Act for filing by financiers of standard form conditions applicable to mortgages which incorporate those standard forms by reference?
MR KELLY: That would be a more rational explanation than my best guess, your Honour.
HAYNE J: That is based on the Transfer of Land Act 1958 Victoria, a brief, infirm foundation for saying Real Property Act of New South Wales.
MR KELLY: Yes, your Honour, but certainly there is provision for the filing of registered memoranda.
GLEESON CJ: What were the respective dates of these two mortgages?
MR KELLY: One was 1983 and the other 1985.
GLEESON CJ: Now, if that is right, that tends to support the suggestion that was just put to you, does it not, because this memorandum was filed on 14 September 1982?
MR KELLY: Yes, your Honour.
GLEESON CJ: Before either of the relevant mortgages was entered into.
MR KELLY: Certainly.
GLEESON CJ: So it looks as though it is boilerplate.
MR KELLY: Yes, your Honour.
GLEESON CJ: I am not saying it is any the worse for that, but that might be just the explanation.
MR KELLY: It could well be. Fundamentally, we contend with the mortgages both in existence as at the date when the lease in its original form was brought into existence, if it had been any part of the intention of the lessor that the lease would be encumbered by one or other or both of these mortgages, then it would have been an easy enough matter to simply type in the relevant dealing numbers and that would have been the end of the matter as, indeed, they chose to type in other matters which were thought sufficiently positively of to include, such as the 10‑year term.
GLEESON CJ: Mr Cornelius was your witness?
MR KELLY: He was.
GLEESON CJ: I got an impression, and it may be a false impression, from his statement at page 228 paragraph (d) that contrary to the inference one might draw from Note (d) on the form, Mr Cornelius was saying that in the ordinary course you would put in a reference to both mortgages on the front cover page.
MR KELLY: Where it is your intention that the lease be subordinated to the mortgages.
GLEESON CJ: No. Just take your time and read the whole of paragraph (d) there. Perhaps he is dealing with two alternative situations in paragraph (d).
MR KELLY: And running them together.
GLEESON CJ: Running them together. Was he cross‑examined?
MR KELLY: No.
GLEESON CJ: It is not 100 per cent clear to me what he is saying there.
MR KELLY: As we would read, especially the opening sentence in (d), he is speaking of a situation where a lease was subject to a mortgage, that is to say was to be subordinated to the mortgage, which was in existence at the time. Perhaps were have misread what he is saying, but we would read it consistently with him asserting that if it was the intention of the parties to make the lease subject to the mortgages instead of the mortgages subject to the lease, then you would type them in and include them in, as it were, the front cover page and submit that to the lessee’s solicitors. That, of course, is not what – what happened here was the precise opposite, and that is the conclusion that one would draw, we say, from the fact that that material was not included.
GLEESON CJ: How did Mr Ebner manage to actually insert this number? Did he attend the Land Titles Office or did he ‑ ‑ ‑
MR KELLY: The evidence is sparse to non‑existent on that point but it would appear that by his registration clerk, Andy, I think is his name, the documents were sent for registration and rejected upon terms set out in the requisition to which my learned friend is drawing your Honour’s attention.
GLEESON CJ: The Land Titles Office sent the documents back with the requisition, did they?
MR KELLY: Yes, and that requisition ‑ ‑ ‑
GUMMOW J: This is at 122, is it? Whereabouts?
MR KELLY: Page 164.
GUMMOW J: Page 164. Yes, I have seen that. I am trying to find some evidence from Mr Ebner himself. It is not dealt with in his affidavit, is it?
MR KELLY: No, your Honour.
GUMMOW J: Right.
GLEESON CJ: The actual physical circumstances in which Mr Ebner, or Andy, inserted the number is not made clear?
MR KELLY: Correct, but it would appear to be a fair inference that ‑ ‑ ‑
GUMMOW J: I do not know. It is all in page 127, is it not, paragraph 18?
MR KELLY: That certainly sets the scene, your Honour. It does not take the next step and confess to the actual occasion, providing details of when pen was – it would have been a stapler, on the one hand, attaching the Esanda conditional consent ‑ and pen in hand, making the notation.
GLEESON CJ: Was Mr Ebner cross‑examined?
MR KELLY: He was.
GLEESON CJ: Was he asked, in cross‑examination, about the circumstances in which he filled this form in?
MR KELLY: I do not believe so. I think he merely conceded that it happened.
GUMMOW J: We had better look it.
MR KELLY: He was not asked in detail about the date and precise occasion.
GLEESON CJ: Is his cross‑examination reproduced?
MR KELLY: No.
GLEESON CJ: Now, how far have you progressed in your submissions, Mr Kelly?
MR KELLY: I was just about to provide answers to two of your Honours’ other questions. Your Honours asked if we could find a copy of the relevant edition of Baalman & Wells; we have failed in that endeavour. We can say to your Honour, however, that at page 498 of the Court of Appeal judgment, there is set out the relevant passage. That is at line 35 to 45. There, your Honours will see that ‑ ‑ ‑
GLEESON CJ: That is consistent with Note (d), is it not?
MR KELLY: Yes, and consistent with a basic position in which, if the parties who are capable of reaching an agreement which subordinates the lease to the mortgage, then they can fill it in, whereas if the agreement is to the opposite effect, a third party is involved, they cannot fill it in ‑ whereupon one needs to proceed and obtain consent. They are the two competing alternatives; the former is our position. Your Honour also asked about the original exhibit, that is to say, the original lease. It is not available, and, as we understand it, was not tendered as an original. The evidence took the form of a photocopy.
GUMMOW J: We have Mr Moses’ evidence, have we not? His cross‑examination, as well as his statement. We were supplied with that.
GLEESON CJ: Yes, that came in yesterday as well.
MR KELLY: Indeed. May I just take your Honours to the three‑page document which was separately provided to your Honours, being pages 99, 100 and 101 of the transcript, where Mr Moses is cross‑examined. I think the critical passage is at page 100, between F and L. Your Honours see that Mr Moses’ answer to the first question is that:
It would be usual to alert the lessee’s solicitor of any unusual requirements of any mortgagee on the title because the consent of the mortgagee is something which the lessee’s solicitor would always be requiring.
And the answer to the next question ‑ ‑ ‑
GUMMOW J: It is, “any mortgage”. It should be, “any mortgage on the title”, should it not be? Not, “mortgagee on the title”, I suppose.
MR KELLY: Yes, I think that is right, your Honour. The answer to the next question:
consent is not required for registration but the problem is that unless the lease is permitted under the mortgage the Real Property Act states that the lease would not be binding on the mortgage –
that, too, is probably a transcript error, which should read, “not be binding on the mortgagee” –
So that if the mortgagee were later to take possession under the mortgage it may be possible for the mortgagee to evict the tenant.
In this case, where one has super‑added the covenant in clause 11 of the registered memorandum ‑ ‑ ‑
GUMMOW J: So it is not bound up simply with production of the duplicate certificate.
MR KELLY: Correct.
GUMMOW J: So what he is talking about would cover first, second or third mortgages, not just the first.
MR KELLY: Yes.
GUMMOW J: I think that is right.
MR KELLY: Indeed, the threshold question in this matter is, “What was the common contractual intention?” Posed in the Court of Appeal, the question was expressed as, “Was it the intention of the parties that the lease be with mortgagee’s consent, or without it?” But your Honours, of course, have the benefit of my learned friend’s submissions. His case really goes one step further, which is that not only was it to be, as it were, without consent, but, at the same time, his client was to be at liberty, literally, to do whatever he liked with the prior encumbrance section.
By those words I mean at liberty to take up inconsistent positions, such as noting one and not the other, or annexing one and not the other, or annexing, as in the case of the Esanda consent, a Clayton’s consent, a consent so heavily burdened with conditions that it does not really provide any form of consent at all unless the lessee, in effect, assumes certain further obligations.
GLEESON CJ: Just excuse me for a moment. Yes, go ahead, Mr Kelly.
MR KELLY: And, in our respectful submission, the evidence, scanty though it be, is all one way for there is no evidence at all which would support a contractual intention of the variety contended for by my learned friend. Indeed, the overwhelming probability is that with a lease of commercial premises for a period of 10 years in mind, no party would be prepared to accept anything less than a title which was not defective in the manner here described. But, of course, once one bears squarely in mind that the common contractual intent is the starting point for analysis, what happened here, as a matter of fact, was that this lessor simply never brought into existence a lease with mortgagee consent. The subject matter of the relevant contract simply never matured. It is on that basis that the Court of Appeal correctly found that there was no subject matter for the guarantee.
HAYNE J: It is an expression that does not convey a great deal to me. What do you say is to be understood by it?
MR KELLY: What we contend is that as a result of the contract entered into between the parties, the offer of a lease in terms which included no prior encumbrances, accepted by execution and return, in terms of that contract what Wall Investments bargained for, and what the Walls guaranteed, was a lease of a particular type, namely a lease with mortgagee consent. That thing, a lease with mortgagee consent, had to be brought into existence.
What the parties had, as it were, was an instrument with certain beginnings, a piece of paper with certain terms upon it, but in order for that thing to mature into and become the product to be delivered pursuant to this contract, it needed to have an unconditional consent attached to it under the hand of each of the mortgagees, and that thing simply never came into existence.
GLEESON CJ: The ultimate result on this part of the case that the Court of Appeal reached was that your corporate client was bound and your individual clients were not.
MR KELLY: Yes.
GLEESON CJ: What was the process of reasoning by which they distinguished between your corporate client and your individual clients?
MR KELLY: The fact of registration of the lease created an estate or interest in land notwithstanding the fact that it was not the estate or interest in land for which Wall Investments bargained and under section 42 that instrument took effect in accordance with its terms but not so the guarantee which was, in effect, never an instrument which had the subject matter for which the Walls bargained.
GLEESON CJ: Now, your corporate client was found liable in damages for repudiation.
MR KELLY: Yes.
GLEESON CJ: And consistently with the decision, as you have explained it, the corporation was found to be bound by the lease which was different from the lease for which it had bargained.
MR KELLY: Yes, as in pursuant to Frazer v Walker and all of those other authorities which, in effect, give effect to a registered instrument notwithstanding fraud or the like. But, in the case of the guarantors, of course, there is Naylor’s Case, which prevents the same effect.
GLEESON CJ: And, presumably, it would have been only if there had been a breach of the covenant of quiet enjoyment by some intrusion on the part of the mortgagee, which never actually happened, that there might have been some remedies in your corporate client for what happened.
MR KELLY: Yes, that is the position, your Honour. Of course, your Honours appreciate that the way we put our case was that really our primary submission was that under Pigot’s Case and Ankar, the guarantee was discharged prior to or on registration when the unauthorised alteration was made. The Court of Appeal preferred to look at the same subject matter from a different angle and conclude that there was never brought into existence a lease in terms of the lease which was the subject of the guarantee. But it is the same subject matter looked at from two different points of view. Whether they failed to bring something into existence, conformably with the common contractual intention, or whether they breached that contract, it amounts to the same thing.
Now, the Ankar Case, of course, is built upon a material alteration as is Pigot’s Case. The materiality, of course, comes down to a number of base factors. At the top of the list is the simple proposition that by adding a reference to the first mortgage as a prior encumbrance the lease was encumbered. That, in itself, is a ‑ ‑ ‑
GLEESON CJ: What if he just left it blank?
MR KELLY: If he had left it blank, that would have been a simple case of a breach of the contract by not bringing into existence a lease with mortgagee consent. But the positive act of inserting the prior encumbrance changed the nature of the priorities.
Of course, in the case that your Honour poses, your Honour assumes that it would be possible to get through the Registrar-General’s officers an instrument which had neither a mortgage noted as a prior encumbrance or the consent of that mortgagee and that is apparently what Andy first attempted to do, or whomsoever attended to the task was met with the requisition. When the requisition emerged, instead of getting the consent of each of the mortgagees and attaching that, a rather more cavalier approach was taken and one was attached and the other was made the subject of a note. In neither case, of course, is there any suggestion that either of those two steps were taken after any communication with Wall Investment through their solicitors. There is no issue in these proceedings that the alteration was a unilateral alteration, as indeed was the ‑ ‑ ‑
GLEESON CJ: Was there no approach to the consenting mortgagee for consent until after the requisition?
MR KELLY: I think the precise dates are available. I think there may have been an approach beforehand. The date, I think, was on 25 October 1989 ‑ this is at page 151 – that Mr Ebner sent a copy of the lease duly stamped and executed for consent by Esanda.
GLEESON CJ: What was the date of the requisition?
MR KELLY: The date of the requisition ‑ ‑ ‑
GUMMOW J: On 27 June, page 164. Now, the requisition was saying ‑ the answer to the Chief Justice’s question, “What would have happened if nothing had been done to fill in the blank?”, is that it would have been rejected.
MR KELLY: Yes, your Honour, this requisition certainly suggests that.
GUMMOW J: It says so at the top.
GLEESON CJ: If they got the consent ‑ when did they get the consent?
MR KELLY: It is not clear precisely when they received it.
HAYNE J: Circa January 1990 according to the chronology we are supplied with in reference to 222, but on what the date is founded I do not know.
GAUDRON J: They sent the $120 in payment of the costs for consent on 25 January 1990.
GLEESON CJ: Although there is no reference to it, it is said that on 11 December the lease was returned by Esanda with form of consent.
MR KELLY: Yes, so it would not appear that – and I do not wish my submission to misrepresent the position – they rushed out, having got the requisition, and sought Esanda’s consent.
GLEESON CJ: What was the date of lodgement of the lease at the Land Titles Office?
MR KELLY: I think it had several trips to the ‑ ‑ ‑
GLEESON CJ: I cannot see it in this chronology, that is all. Andy was being shuttled back and forwards, presumably. I can see on 27 June a requisition from the Land Titles Office but I cannot see when the lease was lodged for registration.
MR KELLY: There is an earlier requisition.
GAUDRON J: At 154.
MR KELLY: At 154, yes, and your Honour sees there is a note in a circle, in the lower right‑hand corner which appears to be “uplifted” on perhaps 26 February, 1992.
GLEESON CJ: 1990?
MR KELLY: Of 1990, I am sorry, your Honour. In fact, there is a note to Andy on the left‑hand side which seems to say, “Please uplift. Thanks, Bob Ebner” and perhaps the date “23/2/90” relates to that and then Andy uplifted it on the 26th.
GLEESON CJ: So what appears on page 154 shows that the lease was lodged first with the Land Titles Office some time before 21 February 1990.
MR KELLY: Yes.
HAYNE J: When do you say these parties made an agreement?
MR KELLY: Upon a date after 12 February 1988 when, by execution and return of the lease instrument in its original unaltered form, the offer contained in the 12 February 1988 letter was accepted. We do not know the exact date when that was returned, but it would be upon that occasion.
HAYNE J: And upon its being executed by the lessor? Or was it tendered for execution by the lessee and guarantor in the executed form?
MR KELLY: The latter, your Honour. No, it was not tendered in executed form, but that would be the occasion when an agreement arose and that agreement became an enforceable agreement when there was later part performance or execution of the instrument under the hand of the lessor. In each of these events, we do not know that Wall Investment went into possession of the premises on or about 1 November. That conduct would also constitute sufficient part performance to make the wholly executory contract enforceable. Upon going into possession, of course, with the instrument not yet registered, pursuant to section 127 of the Conveyancing Act, Wall Investment became a tenant from month to month and, in addition, there may well have been a lease in equity, but, of course, between that date and the occasion of registration, the events complained of took place.
GLEESON CJ: Where on this chronology do we find the lessee going into possession?
MR KELLY: I do not think I see it in the chronology. The lease was dated 1 November to represent the date upon which possession was taken. I think the evidence of that lies in material which is not before your Honours.
GLEESON CJ: 1 November of what year?
MR KELLY: 1988.
GLEESON CJ: On the chronology it says “06/04/88, Commencement of term of lease”.
MR KELLY: I think that that is a typographical error in the chronology.
HAYNE J: I think not. Commencement date of lease is 6/4/88 and expiry 5 April 1998.
MR KELLY: I am sorry, your Honour, I am looking at the wrong section. May I correct myself, 6/4/88.
GLEESON CJ: That was the date they went into possession, was it?
MR KELLY: Yes, your Honour. The way we put the case, your Honour, is whether one looks at it as a material alteration for the purposes of Pigot’s Case or a material alteration for the purposes of Ankar or as a failure to fulfil the contractual obligation to bring into existence a lease of the subject variety, no matter how you look at it, the claim against the guarantors fails. The materiality of the alteration flows from a number of factors, first and foremost amongst which is that the alteration encumbers the lease. Indeed, it encumbers the lease in the same way ‑ ‑ ‑
GLEESON CJ: I have difficulty understanding that, Mr Kelly. The absence of consent is what produced the consequence that the lessee’s title was, in this respect, precarious. It was not the consequence of the fact that somebody wrote something into that blank part of the lease, was it? That is just a piece of information.
MR KELLY: We would submit not, because the true effect of the lease instrument is that it ‑ ‑ ‑
GLEESON CJ: And I might say a piece of true information.
MR KELLY: In one sense only. In our respectful submission, the purpose of the matter following the words “subject to the following PRIOR ENCUMBRANCES”, the purpose of that is to record the terms of an agreement between the lessor and the lessee as to priorities. It is not just a piece of information; it is a term of an agreement. The agreement made had as its term that there should be no prior encumbrances and that follows from the fact that the space was left empty, conformably with an intention that there be nil prior encumbrances.
GLEESON CJ: I see. You say that when you put that into a document that had previously been executed by the lessee, it ‑ ‑ ‑
MR KELLY: Yes, it changes the terms of the agreement. It is not just a piece of information. For example, in the box headed “LESSOR” there is provision for a name. That identifies one party to the agreement. Elsewhere there is provision for insertion of the term. Each of these are terms and conditions of the agreement comprised in the lease, not just a piece of information. When it provides “for a TERM of Ten (10) years”, that is a contractual term; it is not just a piece of information. When it says:
hereby leases to the LESSEE . . . the premises above described, subject to the following PRIOR ENCUMBRANCES 1. T 424525 –
that is not just providing a piece of information; that is altering the term of a contract which, hitherto, had as its term that there would be no prior encumbrances.
GLEESON CJ: Nil, you mean.
MR KELLY: Yes, nil.
GLEESON CJ: I understood you to say before lunch that in the condition in which it stood at the time it was executed by the lessee and by the guarantors, this document should be read as though the word “nil” was written in after the words “prior encumbrances”.
MR KELLY: Yes.
GLEESON CJ: Well, a line had been drawn through it.
MR KELLY: To any extent that the solicitor had any implied authority to alter the instrument conformably with the principle in Armor Coatings, Warburton and the other decisions which have been cited to your Honours, the solicitor would have been entitled to make an alteration which conformed to the common contractual intent. So if he had written in the word nil, having felt uncomfortable about an empty space, one could not say that that was outside the scope of his authority, for indeed it would conform ‑ ‑ ‑
GLEESON CJ: …..in this space has been left blank deliberately.
MR KELLY: Of course, and that is the threshold question; is this empty space a blank with liberty to fill it in, as my learned friend contends, however you like, or is it, as we contend, an empty space being a void with a meaning equivalent to nil.
GLEESON CJ: Which is only another way of asking whether the alteration was material.
MR KELLY: Yes.
GUMMOW J: Yes, now looking at page 20 of the pleading, you complain about four things, I think, as material: (b) and (c) are not a problem, are they? It is only (a) and (d).
MR KELLY: Yes, (b) and (c) have long since been abandoned.
GUMMOW J: Yes, because they are in conformity with the anterior understanding, to put it that way.
GLEESON CJ: And (d) is not a problem, is it?
GUMMOW J: And (d) is not a problem either.
MR KELLY: Yes, (d) is a problem, because annexing the Esanda consent, of course, introduces conditional consent. The consent for which Wall Investment bargained, was not a conditional consent, not a consent expressed on the “without prejudice” basis that this instrument uses.
GUMMOW J: Where is the form of the consent? Where do we see the form of the consent?
MR KELLY: The form of consent is to be found in its most legible form attached to the loose copy of the loose memorandum.
GUMMOW J: Yes.
GLEESON CJ: Was this argument dealt with by the Court of Appeal?
MR KELLY: Yes it was, your Honour.
GLEESON CJ: And what did they say about it?
MR KELLY: They did not proceed to the point of finding that it was necessary to decide whether a consent in this form had the same effect.
GLEESON CJ: It is a very large question, I should have thought.
MR KELLY: Yes, your Honour, but the bottom line is that ‑ ‑ ‑
GLEESON CJ: There is nothing unusual about a mortgagee’s consent being conditional, is there?
GUMMOW J: What would be unusual is the opposite.
MR KELLY: The evidence of Mr Moses was perfectly clear, which was that one would bring any terms to the notice of the lessee and obtain actual consent to those terms and conditions.
GLEESON CJ: What if the lessee did not consent, what happens then?
MR KELLY: The agreement for lease would then be frustrated and brought to an end.
GLEESON CJ: It might depend on the conditions, might it not?
MR KELLY: Yes, your Honour, certainly, but assuming a situation where the mortgagee attaches a conditional consent and the conditions involve the lessee assuming extra obligations ‑ ‑ ‑
HAYNE J: You refer to this as being a conditional consent. What is your best condition of which you complain?
GUMMOW J: Yes. You cannot complain about one.
MR KELLY: I think, in our written submissions, we have set out at page ‑ ‑ ‑
HAYNE J: That may be, but what I want to know is, what is your best point?
MR KELLY: I think that is our best point, your Honour, that the ‑ ‑ ‑
GLEESON CJ: What aspect of the condition that was imposed do you not like?
MR KELLY: The condition which requires us to be responsible for obtaining any consents that may be necessary for anything from the mortgagee.
GUMMOW J: You would need to get the mortgagee’s consent to an assignment, for example.
MR KELLY: And to just about everything else. For example, painting the kitchen.
CALLINAN J: Change of use, perhaps.
MR KELLY: Yes, your Honour. Of course, this was never brought to the attention of Wall Investment.
GLEESON CJ: I was going to ask you about that. When, if at all, did the solicitor for your clients first become aware of the consent that had been given by the consenting mortgagee?
MR KELLY: When these proceedings commenced.
GLEESON CJ: Should we infer from that that the solicitor for your clients was not interested in the subject until these proceedings were commenced?
MR KELLY: No, your Honour, because, as your Honours will see, the lease was made the subject of an assignment to the Hollingsworths, and from them, onto others.
GUMMOW J: Was there any consent sought to that, from the mortgagees, for the assignment to the Hollingsworths?
GAUDRON J: That is what that letter was about that you tried to tell us – it was about other matters.
GUMMOW J: Yes, that is right.
MR KELLY: Yes, your Honour has me with that one.
GAUDRON J: So at least at that stage, somebody might have been aware that there was something required ‑ ‑ ‑
MR KELLY: But that, of course, is a letter from the solicitors for Big Country ‑ ‑ ‑
GAUDRON J: Yes, 161.
MR KELLY: ‑ ‑ ‑ not Norton Smith & Co, who were acting for Wall Investment in the original transaction, some years before.
GLEESON CJ: So until they were stirred by the transferee’s solicitors, the solicitors for Wall Investments and Mr and Mrs Wall did not evince any interest at all in whether there was any consent from either mortgagee, or what the terms and conditions of that consent might have been.
MR KELLY: They assumed, as they were entitled to do, that the contract had been performed by Big Country for its part.
GLEESON CJ: Did they not end up with a copy of the lease?
MR KELLY: There is no evidence suggesting that, no, your Honour.
GLEESON CJ: So in terms of the way the transaction was handled from a conveyancing point of view, it looks as though your clients never got the lease, or a copy of the lease.
MR KELLY: I cannot go so far as to say that, your Honour, but I can direct your Honour’s attention to the reply filed on behalf of Big Country. That commences at page 23 and your Honours will see in various paragraphs by way of reply an estoppel is asserted. His Honour Justice Bainton made no findings pursuant to any of that.
GLEESON CJ: How did your client manage to assign the lease without having to show the assignee’s solicitors what was in the lease?
MR KELLY: That is not at all clear, your Honour. There is no evidence about it.
GAUDRON J: I would infer that your clients had a counterpart bearing the common seal of Big Country Developments, at least, and that it was in the form in which the one signed by your clients was when it left their solicitor’s office, that is to say, you would have had one without ‑ ‑ ‑
MR KELLY: There is certainly evidence that Mr Wall retained a copy of the lease that was sent to him and thus your Honour sees at page 206.
GLEESON CJ: Mr Kelly, at the risk of interrupting you and causing you an inconvenience, I would just like to have a word with Mr Coles for a moment.
MR KELLY: May it please your Honour.
GLEESON CJ: Mr Coles, we have had a pretty good opportunity to have a look now at the merits of this matter, but the deeper we go into it, the more obvious it becomes that the case is highly fact specific and furthermore, that, whichever way you turn, there are gaps and uncertainties in the evidence, perhaps explainable by the fact that we are only looking, as I think I should acknowledge, at a very small part of a much more complex picture, but in those circumstances, why should we not withdraw leave to appeal?
MR COLES: We put it on this basis, your Honour, that if our submissions can find favour with your Honours there is a clear way through the thicket and one just does not need to address these matters of speculation.
GUMMOW J: You had better tell us the clear way through the thicket?
CALLINAN J: But Lord Denning says we have to get out the hacksaws, does he not?
MR COLES: If our submissions be right that you ascertain what the lessee was obliged to do under the lease, with or without consent, and you find that the guarantor’s obligation was to do what the lessee failed to do, then that is a straightforward enough question of construction. The issue of the irrelevance to that analysis of Chan v Cresdon in a different context is straightforward enough, in our submission, and the issue as to the proposition our learned friend has been putting, namely that there was some materiality involved in inserting a prior encumbrance can be resolved because there plainly was not.
Section 42 of the Act ordained the priority between the lease and the mortgages. That was fixed as at the date the lease was sent to the lessee’s solicitor and was the state of affairs then and, in our submission, that is a straightforward enough proposition. So that so understood, your Honours can take into account that nobody led any evidence, for example, of the fact that despite successive assignments, not a single person raised any issue about a matter of public record, namely the form of the registered lease.
HAYNE J: Is that not the difficulty that you confront that the priority of which you speak is priority of registration without regard to the consequences that could be attached to the priority of registration according to presence or absence of consent?
MR COLES: Quite, quite, but we say that is something that the Real Property Act takes care of.
GLEESON CJ: It did not take care of it in relation to the consenting mortgagee.
MR COLES: The consenting mortgagee?
GLEESON CJ: Yes, that position that you say was established by the Real Property Act was altered when some time after the lease was executed the consent of one of the mortgagees was obtained.
MR COLES: Yes, indeed, and because of the provision of the Real Property Act that allowed that alteration in priorities to become effective.
GLEESON CJ: The argument against you is that the deal was that it would be altered in relation to both of the mortgagees.
MR COLES: We have but one short submission about that which perhaps I need to put more clearly. The circumstances which are explained in the evidence and were common enough ground just from the expert evidence each party called was that, firstly, at the time the lease was submitted both parties obviously knew and his Honour readily inferred and he could see from the correspondence that this was property to be leased which was subject to two registered mortgages. He either knew that because his Honour inferred correctly that he would have done a search or he knew that at least because he was put on notice of the fact by the correspondence.
HAYNE J: But again the difficulty lies in what you mean by “subject to” that there was a ‑ ‑ ‑
MR COLES: I am sorry, can I put it neutrally, thank you, your Honour. He knew that there was recorded on the title ‑ ‑ ‑
HAYNE J: Plainly so.
MR COLES: ‑ ‑ ‑ and that, as a matter of law, absent any consent, that the order of priorities as fixed by section 42 would obtain. That could only be displaced by consent. The next thing he knew was that in accordance with the practice of solicitors, as deposed on all sides, the consent would not be sought, let alone obtained, until after the return to the lessor’s solicitor of the documents executed by the lessee.
Now, that must suggest, in our respectful submission, that it would be a dangerous matter indeed to infer a concluded agreement at the moment of return to the lessor’s solicitor of leased documents executed only by the lessee as the foundation for an immediate and effective binding agreement, the content of which was that there was a lease which was to be without more subject to the mortgagee’s consent. For these reasons, if your Honours please ‑ ‑ ‑
GLEESON CJ: What you have just said is inconsistent with Mr Cornelius’ evidence, I think, on page 228, where he said:
Normally, a solicitor acting for a Lessor before submitting the lease to the Lessee’s solicitor would make enquiry from the mortgagee concerning the mortgagee’s requirements concerning the giving of consents.
MR COLES: He says that. One needs to see what he says in the last part of the same paragraph:
the usual practice was to anticipate the requirements of a mortgagee only to the extent indicated above and later to submit the lease ‑ ‑ ‑
GLEESON CJ: He was contradicting Mr Moses’ statement in that respect or supplementing it perhaps.
MR COLES: He went a little further in a passage that commended itself to the judge on page 230 in paragraph 16 where he did say:
The registration of that mortgage pre‑dates the commencement date of the lease by several years and in those circumstances, it would be normal practice to have included it in the reference to prior encumbrances in the lease documents submitted to the Lessee. However, it was not uncommon practice in 1988 to add to a lease after receipt and before registration details of prior encumbrances which had been omitted from the lease were the inclusion of such documents necessary to secure registration and was not prejudicial to a Lessee.
GUMMOW J: The sting is in the last couple of words, is it not?
MR COLES: That last part of course, “prejudicial to the lessee” must mean prejudicial to the lessee apart from the fact of there being prior encumbrances.
CALLINAN J: Is it not also inconsistent with the submission of the memorandum of fees, with the estimate of the mortgagee’s solicitor’s costs with the lease for execution, at page 130.
MR COLES: At best that is a representation that expense will be incurred and met in applying to the mortgagee or a mortgagee for that person’s consideration.
CALLINAN J: That is reading a lot into it, applying to the mortgagee for the mortgagee’s consideration. The lessee is not going to pay for a futility, I would not have thought. The lessee would have a reasonable expectation that the consent is really only a matter of form by that stage.
MR COLES: That is really the point we want to emphasise, that if it be right to say that an agreement is concluded and in effect binding on the parties by nothing more than the return of the executed documents by the lessee to the lessor’s solicitor, the evidence suggests that solicitors generally would know, and indeed sometimes expect, that there may be conditions for example. The possibilities are the mortgagee may simply refuse the consent. No one suggests an obligation on any view would arise before the submission of lease documents. The mortgagee may refuse, or he may consent only subject to conditions which the lessee may then say are unacceptable. If that be right, if I can press this upon your Honours, the burden then falls on the lessor to go and discharge his mortgage in effect, under pain of being in fundamental repudiatory breach of the bargain that he has in effect suffered by virtue of this agreement.
The other possibility is that what you would have to do, in the conveyancing environment described by the witnesses, is you would have to fill out the lease documents as you submitted them to record the “dry bones” facts that there was a lease on the title, and then in effect cross out the notation as to the prior encumbrances once you received the mortgagee’s consent after the return of the executed documents, which would no doubt provoke a variant of Pigot’s Case.
CALLINAN J: It is not the way in which this Court ‑ Chief Justice Mason anyway ‑ read a similar clause in Laurinda, a similar clause, request for payment and payment of the fees. That was treated almost as if it were a covenant by the lessor.
MR COLES: Right. Our only answer to that, your Honour, if that be so in the particular facts of this case ‑ this really was the last point we would make ‑ that one says let us accept for the moment that then there was a binding agreement ‑ ‑ ‑
GUMMOW J: Just stop there for the moment. I do not understand why everyone gets locked into binding agreements.
MR COLES: Because that is what the Court of Appeal found.
GUMMOW J: I know. Perhaps they did not need to. Perhaps what I am going to say is nevertheless against you. Why would there have been an equity to rectify this instrument when T424 or 525 was put in there?
MR COLES: There might have been. Let me suppose ‑ ‑ ‑
GUMMOW J: On no basis, it seems to me, would it represent the anterior understanding of parties informed by the evidence of the way these things are usually done. Why does not that subsistence of the equity rectification then feed into the fallibility of the guarantee?
MR COLES: Well, firstly, the problem with the equity of rectification is that at best it would produce a reformation of the document by the excision of the offending notation. It would not produce the only thing that matters, namely, a reorientation of the statutory order of priorities as between the instruments. The title, in other words, would remain the same. By reforming the instrument, you would not reform the priorities between ‑ ‑ ‑
GUMMOW J: You would not then get registered, would you?
MR COLES: And, of course, there would be the problem that the instrument would have attained registration in the mean time.
GUMMOW J: Well, that would bring it all to a head. People would have known where they stood then.
MR COLES: Yes. But to seek to address the second part of what your Honour asks me, let us suppose that there was a conclusion and binding agreement, a term of which the lessor was obliged, whatever the consequences, to obtain the mortgagee’s consent, even, if necessary, to the point of discharging the mortgage if the conditions imposed were unacceptable, then one says – and it follows from that then that one would conclude such an agreement was breached and perhaps that was a repudiation, but it was not a repudiation which the lessee ever relied upon to bring the agreement to end.
GAUDRON J: Well, at the end though, of course, it was probably estopped from so doing by having transferred it or assigned it.
MR COLES: But the question then, we would pose, is this: why should a variation or even a breach of that kind serve to constitute there and then a material alteration so far as the bargain of the guarantors is concerned, when ‑ ‑ ‑
HAYNE J: Or is the obligation to obtain consent simply a condition?
MR COLES: Well, that is the question, that is the other way of putting it, but to deal with this point first, if the point is simply that there was a breach, a bare breach, in the sense that nothing more was done than a non‑performance of a supposed contractual requirement to obtain the mortgagee’s consent, if that breach occurred, no one relied on it to terminate the lease. Why should it have any consequences at all so far as the guarantors are concerned, unless and until it became material? Our submission is the breach did not itself become material and never became material, if your Honours please, until the mortgagee re‑entered, which it never did.
GAUDRON J: No, that is not entirely correct, Mr Coles, is it? Assuming it to be a breach, the only party who could rely on that breach were the Wall parties. It was not a breach that any of the subsequent transferees or assignees could take advantage of.
MR COLES: Quite, that is right, and indeed the ‑ ‑ ‑
GAUDRON J: Now, this much is clear: be it a breach or be it failure to satisfy a condition, which I think is probably more probable ‑ ‑ ‑
MR COLES: Yes, I have to deal with that yet.
GAUDRON J: Yes. It was not, apparently – the breach or failure to satisfy the condition was not known before – well, one would infer on this evidence, it was not known before, the Wall parties or Mr Wall or the Wall Company had entered into an agreement to transfer it or assign it.
MR COLES: That may or may not be right.
GAUDRON J: On the evidence and ‑ ‑ ‑
MR COLES: Supposing it to be ‑ ‑ ‑
GAUDRON J: On the evidence that we have, it seems that the Wall Company had entered into an agreement at a time – and I thought I ask you this earlier this morning – before the lease was registered.
MR COLES: It is agreement for the sale of the business and the transfer the lease, pre‑dated the registration of the lease, your Honour is perfectly right.
GAUDRON J: There is nothing to suggest, in this evidence, that after the lease, executed by the Wall parties, had been said to Mr Ebner ‑ Mr Ebner ever provided them with information as to the alteration or the change.
MR COLES: There is no evidence on the question.
GAUDRON J: One would infer that he had not, on this evidence, would you not?
MR COLES: That would be dangerous, your Honour, when it was not thought fit ‑ ‑ ‑
GAUDRON J: It may be dangerous but it does ‑ ‑ ‑
MR COLES: ‑ ‑ ‑ for example, to call the solicitor for the party who would have – can I say this to your Honours. The proposition that there was, in effect, an agreement, or as I think our learned friends put it, a notion, or anyway an agreement that the mortgagee must consent, would be a proposition one would expect to be fortified by some evidence going beyond the mere dispatch of the ‑ ‑ ‑
GLEESON CJ: What about the evidence of Mr Moses in cross‑examination when he said, “That is a matter that would always be of concern to a lessee’s solicitor”?
MR COLES: To a lessee’s solicitor and the lessee’s solicitor did not come along and say whether it was of concern to him or not. Indeed, the inference is that it was not because there is nothing to indicate he ever did anything to further or to communicate the fact of that concern if, in his particular case, he was within the class of people to whom it is always of concern. He just did not. One would expect that he night have, but he did not.
Even if it be, in our respectful submission, when one comes to look at the matter from the perspective of whether or not it was a condition of the guarantor’s liability coming into existence that the mortgagee should consent, then that really, in our respectful submission, is a matter of ultimately – firstly, the question of onus arises and we would have thought that some onus on the guarantors’ part to say that they have conditioned their own liability on a relevant matter to them, namely, the consent of the mortgagee, would have been forthcoming. For all your Honours know, it may have been a matter of indifference to the guarantees of the lessee and it may have been a matter, eventually, of indifference to the lessee itself whether the mortgagee consented or not. It certainly seems to have been a matter of indifference to the successive assignees who acquire the business ‑ ‑ ‑
GUMMOW J: We just do not know.
MR COLES: We just do not know. In our respectful submission, even if one accepts the conclusion that there was a breach, albeit not a repudiation relied on by anybody to terminate the agreement, one would not find that the guarantors would thereby be relieved because there was no material effect on their position unless and until the mortgagee intervened and it would be consistent to preserve their liability as guarantors.
GUMMOW J: Well, there was, really, because there was an immediate impact on their assignment potentiality and we know, in fact ‑ ‑ ‑
MR COLES: Well, not so far as the evidence demonstrated or quantified.
GAUDRON J: If anybody had gone to Mr Moses or Mr Neville – yes, Mr Cornelius or Mr Moses as a client on a transfer of this lease, they would have been in trouble.
MR COLES: Could I just pose one final proposition for your Honours’ consideration. Suppose this lease had run its full 10 years and expired by effluxion of time and the lessee had failed to pay the last six months’ rent and the guarantors were sued, the mortgagee never having even given the slightest consideration to re-entering and the whole consideration on the lessor’s part being totally executed, would it be reasonable for the guarantors, in exoneration of their position, to say, “But, look, as a matter of theory, once upon a time” ‑ ‑ ‑
GAUDRON J: Well, there might be a question then – it might be an entirely different question that would then arise.
MR COLES: But, in substance, that is what happened here.
GAUDRON J: No, the question would be different then. It might be whether the guarantors were entitled to assert their right to escape, which
may be a different question about unconscionability, not necessarily a question about the effect of the guarantees, or the effect of failure of a condition or breach on the guarantees. It would be a different question altogether, I think.
MR COLES: It could, but our submission on this final point is really only this, that if the lease comes to an end, for whatever reason – by effluxion of time or through repudiation – and nothing has happened to make material the fact of the mortgagee’s non-consent, then, in our respectful submission, that serves as no justification for exonerating the guarantors, even assuming that there was a breach of the obligation to obtain their consent originally. In other words, they remain liable for so much of the obligation as remains undisturbed by the supposed precariousness of the title.
GLEESON CJ: Thank you. We will adjourn for a short time to consider the course we will take in this matter.
AT 3.33 PM SHORT ADJOURNMENT
UPON RESUMING AT 3.36 PM:
GLEESON CJ: The course of oral argument has revealed that the evidence called, and the arguments advanced, at trial took a course unlikely to form a useful basis for the consideration of general principles. We refer in this regard, but only by way of example, to the absence of inquiry at trial about how it was that no consent was obtained from the registered first mortgagee and about some aspects of apparently applicable conveyancing practice, including the instructions for completion of lease forms that were forms approved by the Registrar‑General under section 104 of the Real Property Act 1900 of New South Wales.
In these circumstances, being of the opinion that the orders of the Court of Appeal which the appellant seeks to have set aside have occasioned no miscarriage of justice, special leave to appeal is revoked. In taking this course, we are not to be understood as endorsing all that is said in the reasons of the Court of Appeal. The applicant/appellant must pay the costs of the respondents.
AT 3.38 PM THE MATTER WAS CONCLUDED
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