Sandhurst Trustees Ltd v Tame Holdings Pty Ltd & Ors - [2005] SADC 16

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
SANDHURST TRUSTEES LTD v TAME HOLDINGS PTY LTD & ORS
Judgment of His Honour Judge Clayton
24 February 2005
DEEDS - ESCROW
EQUITY-ESTOPPEL
Defendant contracted to purchase business and executed Deed of Assignment of Lease which was produced by her conveyancer to vendor and then lessor in "readiness for settlement".
Held: Deed was an escrow and would not become binding until settlement of purchase of the business, which never occurred. Claims for equitable relief based on Walsh v Lonsdale and estoppel dismissed.
Plaintiff's claim dismissed.
On counterclaim defendant entitled to repayment of bank guarantee and interest.
Law of Property Act 1936 (SA); s 41; s 41(3) s 41(4); s 41(1)(a), referred to.
Walsh v Lonsdale (1882) 21 Ch D9; Xenos v Wickham (1863) 14QB; Monarch Petroleum NL v Citco Australia Petroleum Ltd & Ors [1986] WAR 310; Murray v Earl of Stair (1823) 2 BC 82; Nash v Finn [1844] 1 Jo. & La T. 162; Watkins v Nash (1875) LR 20 EQ.262; Re Goile [1963] NZLR 666; Poole & Anor v Neely & Ors [1976] 1 NZLR 529; Vella v Wah Lai Investment (Aust) [2004] NSW SC 748; Ball v Stephenson [1935] NZLR 616, considered.

SANDHURST TRUSTEES LTD v TAME HOLDINGS PTY LTD & ORS
[2005] SADC 16

The plaintiff is the owner of Shop T34 in the Hollywood Plaza Shopping Centre. In the year 2000 the plaintiff leased the shop to Tame Holdings Pty Ltd for a period of six years expiring on 30 September 2006. The lease contained the provisions normally found in a shopping centre lease.
Tame Holdings conducted the business of a food outlet known as “Hollywood Carvery” on the premises. By an agreement, dated 22 April 2002, Tame Holdings agreed to sell the business to Robert Anthony Coleman or his nominee. Mr Coleman nominated his wife Sharon Maree Coleman to be the purchaser.
The Business Sale Agreement was in a standard form approved by the Real Estate Institute of South Australia Inc. The agreement provided for the sale of legal ownership of the business and stock in trade at the time of settlement which was fixed for 3 June 2002. The date fixed by the agreement for possession of the premises was 1 June 2002. It is not clear why the date for possession was two days earlier than the date fixed for settlement. Special Condition 1 made the agreement conditional upon Tame Holdings obtaining an assignment of its leasehold interest in the premises to Mrs Coleman. Special Condition 2 made the agreement conditional upon Mrs Coleman obtaining finance on the terms which are set out in the agreement.
The deposit was paid on 2 May 2002. An application for finance was made to the Adelaide Bank and the consent of the plaintiff as Lessor to the assignment of the lease was sought.
On 15 May 2002, Mr Mario Boscaini, of Byvan (SA) Pty Ltd which was the manager of the Shopping Centre, wrote to a representative of the plaintiff recommending that the plaintiff consent to the assignment of the lease. On the same day the approval of the plaintiff was transmitted by facsimile to Mr Boscaini.
On 27 May 2002 the loan required by Mrs Coleman was approved by the Adelaide Bank, subject to satisfactory completion of the bank’s documentation.
On 29 May 2002, Mr Boscaini wrote to Mr Greg O’Brien, a conveyancer acting for Mrs Coleman, and advised that consent to the proposed assignment had been granted. He suggested that Mr O’Brien should contact the plaintiff’s solicitors. On the same day Mr Boscaini wrote to Mrs Coleman advising that consent to the assignment of the lease had been granted. He raised a number of other matters that required attention, “before this transfer can be settled and before occupation of the premises can be granted to you”. The matters included the preparation and stamping of the Transfer of Lease and the provision of a bank guarantee and a Certificate of Currency of Public Liability Insurance cover.
On 29 May 2002 Mr Boscaini also wrote to the land broker representing Tame Holdings. He confirmed that consent had been granted to assign the lease, but advised that consent was conditional upon payment of outstanding accounts. The amounts outstanding under the lease totalled $5,154 and fees associated with the transfer amounted to a further $954.00. Finally, Mr Boscaini wrote to the solicitor for the Lessor giving instructions for the preparation of the necessary documentation.
In accordance with the instructions, the solicitors for the plaintiff prepared a Deed of Assignment of Lease. The Recitals noted that the Assignor had agreed inter alia subject to the consent of the Landlord to assign to the Assignee the benefit of the Lease with effect from the Assignment Date. The Assignment Date was 3 June 2002. Clause 2 provided that the deed would take effect as at and from the Assignment Date. As I have mentioned, 3 June 2002 was also the date fixed for settlement of the Business Sale Agreement. By Clause 3 Tame Holdings assigned to Mrs Coleman “all of its right title and interest and estate in the lease and the premises on and from the Assignment Date .....” By Clause 5 Mrs Coleman covenanted with the Assignor that she would pay the rent and observe the conditions of the lease and by Clause 6 Mrs Coleman “by way of separate covenant” agreed to pay the rent to the Landlord. The “separate covenant” was said to be in consideration of the landlord granting its consent to the assignment. Clause 7 records the consent of the Landlord to the assignment and Clause 11 contemplates the execution of a Transfer of Lease.
Mrs Coleman signed the Deed of Assignment of Lease in the presence of her broker, Mr O’Brien. In paragraph 19 of the Defence in this action, Mrs Coleman admits that she signed the Deed of Assignment of Lease on or about 30 May 2002 and forwarded it to Ms Beecroft, the conveyancer acting for Tame Holdings. In paragraph 22 she admits that she signed a Memorandum of Transfer of Lease on the same day and forwarded that also to Ms Beecroft.
Mrs Coleman entered into possession of the premises on 3 June 2002 and carried on the business of “Hollywood Carvery” but settlement did not take place on that day as contemplated by the documents. There was no evidence as to the circumstances in which Mrs Coleman entered into possession. Mrs Coleman’s application to the Adelaide Bank for finance was held up by the bank’s requirement that the Landlord sign a waiver in respect of equipment which was to be the subject of a loan.
On 3 June 2002, the plaintiff’s solicitor advised the Adelaide Bank of amendments which were required to a form of waiver which had been provided by the bank. The bank agreed to the amendments on the same day, but the amended document was not executed by the plaintiff. On 3 June 2002, the bank also wrote to Mrs Coleman offering the loan facility and enclosing the formal documents.
On 4 June 2002, Mr O’Brien, the conveyancer acting for Mrs Coleman, wrote to Ms Beecroft in the following terms:
“Returned herewith are assignment of lease, transfer of lease and guarantee documents executed by my client in readiness for settlement” (emphasis added).
On 5 June 2002, Ms Beecroft wrote to the plaintiff’s solicitors:
“MANY THANKS FOR YOUR PROMPT ATTENTION TO THE ABOVE DOCUMENTATION WHICH HAS NOW BEEN EXECUTED BY THE ASSIGNOR AND ASSIGNEE AND IS ENCLOSED HEREWITH.
HAVEN’T MADE A SETTLEMENT TIME YET, SOME HOLD UP WITH THE USUAL REQUIREMENT OF A BANK TO BE ABLE TO BREAK DOWN THE DOORS TO ENTER IN THE EVENT OF DEFAULT.
I WILL ADVISE GREG O’BRIEN, WHO ACTS FOR THE PURCHASER TO SEND YOU THE STAMPED COPY OF CONTRACT WHEN WE EVENTUALLY SETTLE.”
Although the “hold up” was a reference to the waiver required by the bank the delay was caused by the fact that the plaintiff itself had not executed the waiver. The documents enclosed with Ms Beecroft’s letter included the Deed of Assignment of Lease upon which the plaintiff’s claim depends, executed by Mrs Coleman.
Settlement on the Business Sale Agreement never took place. The conditions imposed by the plaintiff in Mr Boscaini’s two letters of 29 May 2002 to Mrs Coleman and Ms Beecroft respectively and special conditions 1 and 2 of the Business Sale Agreement were never satisfied.
On 2 July 2002, Ms Beecroft emailed Mr Boscaini:
“Subject: the ruddy Carvery.
Dear Mario,
Did you get any joy when you enquired about the consent for the above. David Tame is about to hang himself and I would not want that on my conscience ..... please advise a.s.a.p.. Shirle the Conveyancer.”
Mr Boscaini gave evidence. He said he did not know what the “consent”, which was the subject of the email, was. However, given the context, it is clear that the “consent” was the executed waiver required by the Adelaide Bank. The email also indicates that the vendor was eager to settle on the Business Sale Agreement and that the parties were waiting on Mr Boscaini and the lessor for the waiver to be completed before settlement could take place.
Mr & Mrs Coleman became concerned about the disclosure of trading results by Tame Holdings. There was a question as to whether the figures which had been provided allowed for GST. On 12 July 2002, Mrs Coleman disclosed her misgivings to the Adelaide Bank and on 15 July 2002 the bank advised that the revised figures did not meet the bank’s minimum credit requirements and the bank withdrew its approval of the loan. Accordingly, special condition 2 of the Business Sale Agreement was not satisfied.
Mrs Coleman remained in possession until 30 August 2002 when she terminated the Business Sale Agreement for non‑satisfaction of both special condition 1 and special condition 2. She had given advice of her intention on about 15 July 2002, but continued trading until she gave up possession.
The rent for the shop was payable monthly in advance. Mrs Coleman paid the rent for the period during which she was in possession.
On 12 September 2002, the plaintiff advised Mrs Coleman and Tame Holdings that it had distrained the goods in the premises. The Warrant to Distrain was signed by the plaintiff’s solicitors for the landlord on 6 September 2002. That was the day before the lessee became in default. The warrant referred to $3,531.58 being “the amount of rent due for the period September 2002”. The distraint was carried out by a commercial agent on 9 September 2002.
One of the documents served by the plaintiff following the distraint was a Notice of Termination and Re‑entry signed by the plaintiff’s solicitors on 6 September 2002. The notice was addressed to both “Sharon Maree Coleman and/or Tame Holdings Pty Ltd”. The recitals in the notice asserted that both Mrs Coleman and Tame Holdings were the lessee of Shop 34, that a monthly instalment of rent was payable, that Mrs Coleman and Tame Holdings had breached the terms of the lease in that they were currently in arrears of rental and that the plaintiff was entitled to terminate the lease and re‑enter upon the premises immediately. Notice was given that the “Lessor hereby terminates the Lease and re‑enters upon the Premises”.
The documents treated both the vendor, Tame Holdings and Mrs Coleman as the lessee. The lease required the rental to be paid monthly in advance on the first day of each month. Accordingly, the rent for the month of September was only six days in arrears when the Notice of Termination and Re‑entry was signed. The default period in Clause 4(a)(i) of the lease is the space of seven days.
One of the requirements of the plaintiff was a bank guarantee for two months base rental of $7,769.48. By that guarantee the Adelaide Bank agreed to pay to the plaintiff the whole or part of the specified sum upon request. On 12 September 2002 the plaintiff called on the Adelaide Bank to pay and payment of $7,769.48 was duly made on 16 September 2002. At that time, the September rental instalment of $3531.58 only had been in arrears for 12 days.
The plaintiff also required the obligations of Mrs Coleman under the lease to be guaranteed by her husband. A deed of Guarantee and Indemnity was prepared by the plaintiff’s solicitors and signed as a deed by Mr Coleman in the presence of Mr O’Brien, the conveyancer. That deed formed part of the suite of documents forwarded by Mr O’Brien to Ms Beecroft on 4 June 2002 “in readiness for settlement”. By the deed, Mr Coleman guaranteed payment of the rent and other payments by his wife to the plaintiff. In this action the plaintiff claims from Mr Coleman the amount alleged to be due by Mrs Coleman under the lease. The parties have acknowledged that the liability of Mr Coleman will follow the result of the claim against Mrs Coleman. If Mrs Coleman is liable for the claim of the plaintiff, then Mr Coleman will also be liable. If Mrs Coleman has no liability, then the guarantee will be of no effect. On 9 April 2003, the plaintiff’s solicitors wrote to Mr Coleman demanding payment of $60,833.46.
I digress to mention a peripheral issue. The Deed of Assignment of Lease and the Deed of Guarantee and Indemnity were signed by Mrs Coleman and Mr Coleman respectively in the presence of their broker, who forwarded the documents to the vendor’s brokers on 4 June 2002 “in readiness for settlement”. Tame Holdings also executed the documents which required its signature. They included a Memorandum of Transfer of the lease. The executed documents were then forwarded by Ms Beecroft to the plaintiff’s solicitors on 5 June 2002. However, the Deed of Assignment of Lease and Deed of Guarantee and Indemnity were not executed by the plaintiff until much later. There is confusion about the date on which the plaintiff did sign because while 3 September 2002 was initially written on the document in black ink, but then crossed out, the date 3 January 2003 has been written in blue ink and initialled by an unidentified person. It was common ground that the deeds had not been executed by the plaintiff at the time when Mrs Coleman terminated the Business Sale Agreement and vacated the premises. The documents were stamped on 5 March 2003.
The plaintiff has claimed from Tame Holdings and Mr and Mrs Tame who guaranteed the obligations of Tame Holdings the unpaid rent and other payments due under the lease, together with damages for the continuing loss allegedly suffered following the re‑letting of the premises. None of those defendants appeared at the trial and judgment was entered against them in default. The plaintiff claims the same monies from Mr & Mrs Coleman. The plaintiff bases its claim on the deeds signed by Mr & Mrs Coleman. There is no dispute that if the Deed of Assignment of Lease is a binding deed, Mr & Mrs Coleman are liable for the claim. Their defence is that, for the reasons which are discussed below, the Deed of Assignment of Lease is not binding.
At the first level the plaintiff’s claim relies on the simple fact that Mrs Coleman executed the deed. It is contended that the signing of the Deed of Assignment by Mrs Coleman was sufficient to create a liability on her part the moment the deed was signed. The plaintiff also relies on the fact that Mrs Coleman performed obligations under the deed. For a period over two months she occupied the premises, paid the rent and performed the obligations of lessee.
There is no contest between the parties as to the relevant facts. The contest relates to the way in which the facts should be interpreted.
The Plaintiff argued in the alternative that if the execution of either of the deeds was defective, external evidence could be introduced and any imperfection cured by s 41(4) of the Law of Property Act 1936 (SA). Counsel for the Plaintiff also argued that equity should provide relief pursuant to the doctrine in Walsh v Lonsdale (1882)21 Ch D9 and that Mr and Mrs Coleman are estopped from denying the assignment of the lease.
The Plaintiff did not seek to challenge the termination of the Business Sale Agreement by Mrs Coleman. Instead the Plaintiff argued that the Deed of Assignment was independent of the Business Sale Agreement and created obligations which stood aside from the Business Sale Agreement.
The Defendant’s case is that the deeds are not binding. It was argued that Mr and Mrs Coleman did not intend that the deeds were to take effect when they were produced to the plaintiff because bank finance had not been obtained, the Business Sale Agreement had not settled and the plaintiff’s consent to the transaction remained conditional. Mr and Mrs Coleman argued that the deeds were delivered conditionally and would not come into effect until the condition was fulfilled. The condition was finalisation of the Business Sale Agreement. They argued that until the completion of the Business Sale Agreement the deeds were held in escrow. It was argued that whether the delivery of the deeds was conditional depends upon what the parties intended, which must be gathered from the circumstances surrounding the execution of the deeds. It was argued that if the Business Sale Agreement was to fall down, as it did, Mr and Mrs Coleman did not intend to be bound by either of the deeds. That intention can be inferred from the fact that Mr and Mrs Coleman had no reason to lease Shop 34 if they did not acquire the business of Hollywood Carvery. As I have mentioned, when the signed deeds were produced by Mr O’Brien, the conveyancer, on 4 June 2002 they were produced “in readiness for settlement”.
The plaintiff’s argument is that Mr and Mrs Coleman became bound as soon as they signed the documents. The rules governing the execution of deeds are set out in s 41 of the Law of Property Act 1936 (SA). Subsection (3) provides that “delivery and indenting are not necessary in any case”. Subsection (4) provides that notwithstanding the defective execution of a deed it will be taken to be valid if it appears from external evidence that the party intended to be bound by it. The present case is the converse of the situation contemplated by sub-s (4). There is no defect in the execution of the deed and Mr and Mrs Coleman argued that they did not intend to be immediately bound.
What are the requirements for a valid deed? After discussing a number of other definitions Norton on Deeds, 2^nd ed states at p3 that the correct definition is:
“A deed is a writing (i) on paper, vellum or parchment (ii) sealed and (iii) delivered, whereby an interest, right or property passes, or an obligation binding on some person is created, or which is an affirmance of some act whereby an interest, right, or property is passed.”
Sub-s 41(1)(a) of the Law of Property Act 1936 (SA) provides that “a natural person executes by signing the deed. An instrument is a deed if it is expressed to be a deed. The Deed of Assignment of Lease meets the requirements: it is expressed to be a deed and it is signed.
Their counsel argued that Mr and Mrs Coleman were not bound because the deeds had not been “delivered”. As I have mentioned, the requirement that a deed be delivered has been abolished and I reject that argument.
At common law delivery was essential to a deed. In Xenos v Wickham (1863) 14QB. (new series) where 435 Martin B said at 473:
“Where a contract is to be by deed, there must be delivery to perfect it. …This is a positive absolute rule of the common law, which nothing but an Act of Parliament can alter, and which in my opinion ought not to be frittered away” also Norton p10.
I do not think that when it enacted s 41 of the Law of Property Act 1936 (SA) Parliament intended to abolish the practice of determining the time of commencement of the deed by reference to the intention of the parties. In my opinion it is now appropriate to have regard to the intention of the parties at the time of the operative event, namely the signing of the deed.

Norton says at p 20:
“Whether the document was delivered as an escrow or as a deed is a question of what the parties intended, and that intention may appear either from their statements or the circumstances. “You are to look at all the facts attending the execution, to all that took place at the time, and to the result of the transaction, and therefore though it is in form an absolute delivery, if it can reasonably be inferred that it was delivered not to take effect as a deed till a certain condition was performed, it will nevertheless operate as an escrow”.
The same principle can be applied where the operative event is the signing of the deed instead of delivery of the deed.
Counsel for Mr and Mrs Coleman argued that notwithstanding sub-s 41(3) of the Law of Property Act 1936 (SA) delivery of a deed is still required. The submission relied upon the decision of Kennedy J in Monarch Petroleum NL v Citco Australia Petroleum Ltd & Ors [1986] WAR 310 (at 353 FF). In Western Australia the common law requirement for delivery was dispensed with by s 9 of the Property Law Act 1969 which is a rough equivalent to s 41 of the South Australian Law of Property Act 1936 (SA). However, sub-s (3) of the Western Australian Act stipulates that “formal” delivery and indenting are not necessary. Kennedy J referred to Martin B in Xenos v Wickham and held (at 353) that it was only “formal” delivery which had been dispensed with. His Honour said that the Western Australian Act did not dispense with any requirement for delivery.
The South Australian legislation can be distinguished from the Western Australian legislation because of the absence of any reference to “formal” delivery.
However, even if I am wrong about delivery being unnecessary, the ultimate result remains the same. If the delivery of the document was conditional, the document is an escrow.
The plaintiff argued that Mrs Coleman did intend to be bound by the deed because she signed it and entered into possession. I reject the submission that she intended to be immediately bound by the deed. The evidence does not establish that.
I find that when Mrs Coleman signed the deed she did so in the expectation that the Business Sale Agreement would settle. I find that when she signed the deed it was to be held in escrow pending settlement of the Business Sale Agreement. Mrs Coleman had no reason to enter into an unconditional lease of the shop if she did not own the business.
The plaintiff’s case requires consideration of whether a person becomes bound immediately upon signing a document expressed to be a deed. Norton on Deeds, 2^nd ed 1928 says at p 18:
“If an instrument be delivered to take effect on the happening of a specified event, or upon condition that it is not to be operative until some condition is performed, then pending the happening of the event or the performance of the condition the instrument is called an escrow. “The maker [of a deed] may so deliver it as to suspend or qualify its binding effect. He may declare that it shall have no effect until a certain time has arrived, or till some condition has been performed, but when the time has arrived, or the condition has been performed, the delivery becomes absolute, and the maker of the deed is absolutely bound by it, whether he has parted with the possession or not. Until the specified time has arrived, or the condition has been performed, the instrument is not a deed. It is a mere escrow”.
See also Laws of Australia vol 28.2 para [23].
At one time it was necessary for the instrument to be delivered “as an escrow” and not “as a deed” but Norton noted that requirement was no longer the law. Norton states that it is not necessary that any express words should be used at the time of delivery of the document and refers to Murray v Earl of Stair (1823) 2BC 82 (at 88) where Abbott CJ said:
“It was not necessary that any express words should be used at the time. The conclusion was to be drawn from all the circumstances. It obviated all question as to the intention of the party if at the time of the delivery he expressly declared that he delivered it as an escrow; but that was not essential to make it an escrow”.
Norton also refers to Nash v Finn [1844]) 1 Jo. & La T. 162 (at 175) where Sugden LC said “It is quite settled that it is not necessary, in delivering an instrument as an escrow, to say that it is an escrow”, and to Watkins v Nash (1875) LR 20 EQ.262 (at 266) where Hall V.- C said:
“If upon the whole of the transaction it be clear that the delivery was not intended to be a delivery to the grantee at that time, but that it was to be something different, then you must not give effect to the delivery as being a complete delivery, that not being the intent of the persons who executed the instrument”.
Those statements were made in the context of the act of delivery of the Deed being the operative event. Now that the requirement for delivery has been dispensed with, the signing of the deed is the operative event.
There are many examples of documents which have been held to be in escrow. They include the common situation where money has yet to be paid to transfer a mortgage or as consideration for the conveyance of land. See Norton on Deeds p 20. With a simple sale of land it is common for the vendor to sign the Memorandum of Transfer which is held by his solicitor or conveyancer in escrow pending a settlement at which the signed transfer is exchanged for payment of the consideration for the transaction.
In New Zealand, where the requirement for delivery of a deed has also been abolished by legislation Sim J said in Ball v Stephenson [1935] NZLR 616 [at 617]:
“It is true that the plaintiff, in anticipation of the advance being made, signed the securities prepared by the solicitors. In the circumstances these must be treated, I think, as signed in escrow, and as held by the solicitors in an incomplete state for the benefit of all parties, pending the completion of the transaction – Watkins v Nash – for a deed may be executed as an escrow in New Zealand, although the necessity for delivery was abolished by the Conveyancing Ordinance: Ani Waata v Grice.
As the money agreed to be advanced was never paid to the plaintiff or applied for his benefit, no interest passed to the defendant by virtue of the securities: Wall v Cockerell. The solicitors were not entitled, therefore, to register either of the securities without the consent of the plaintiff, and that consent was never given.”
Later in Re Goile (1963) NZLR 666 the Court of Appeal had occasion to deal with an argument which was similar to the argument put forward by the plaintiff in the present case in the following terms: Turner J said at 682:
“The appellant’s next submission under this head related to the effect in New Zealand of s. 4 (3) of the Property Law Act 1952. This subsection, which has remained in its present form since 1883, is part of a section exclusively devoted to the operation of deeds, and provides that “formal delivery and indenting are not necessary in any case”. Mr Patterson contended that the effect of this subsection is that where the signatory to the deed is a real person and not a corporation, then if the formalities of execution and attestation prescribed by subs. (1) are completed, the deed thereupon becomes binding and irrevocable.
It is clear from the terms of the subsection that in New Zealand something less than the formal rite of delivery historically required by the common law is sufficient to render a deed operative. This is not to say, however, that it becomes operative- at least in the case if deeds of mutual obligation – on execution and attestation without any further act on the part of the signatory. Something more must undoubtedly be said or done indicative of his intention to be bound.”
Re Goile was followed in Poole & Anor v Neely & Ors [1976] 1 NZLR 529.
I find that the Deed of Assignment of Lease was executed by Mrs Coleman as an escrow. The condition was settlement on the Business Sale Agreement. The conveyancer’s letter of 4 June 2002 is express evidence that the deeds were to be held “in readiness for settlement”. I acknowledge that the production of the documents by the representative of Mrs Coleman and the intention of Mrs Coleman herself at the time that she signed the documents may not be one and the same. However, I note that the conveyancer was the witness to Mrs Coleman’s signature.
I think there is a more fundamental basis for finding that the document was an escrow. Mrs Coleman had no reason to take an unconditional assignment of the shop T34 in the Hollywood Plaza Shopping Centre if she did not settle and become entitled to the “Hollywood Carvery” business. The assignment of the lease was one of the prerequisites of the Business Sale Agreement.
I find that when Mrs Coleman signed the Deed of Assignment it was on the implied condition that the lease would be transferred to her at the time of settlement of the Business Sale Agreement. That intention is consistent with Mr O’Brien’s letter of 4 June 2002.
The position is complicated by the fact that Mrs Coleman entered into possession and conducted the business from the premises. I find that the entry into possession by Mrs Coleman was not inconsistent with an intention that the Deed of Assignment of Lease was only to become effective on settlement of the Business Sale Agreement. There is no evidence of the circumstances in which Mrs Coleman entered into possession and her entry into possession was not by itself evidence of any different intention or any other reason to convert the document from an escrow into a binding deed. When she entered into possession of the premises Mrs Coleman may have been a sub tenant of Tame holdings which still owned the business and was still the lessee, or Mrs Coleman may have been a tenant at will of the plaintiff; but it is unnecessary to make any finding beyond those which I have already made..
Unlike the Business Sale Agreement, the Deed of Assignment of Lease was not subject to special conditions. It is not necessary for me to consider the defendants’ arguments that the special conditions 1 and 2 of the Business Sale Agreement had not been met. The escrow was subject to the condition that it would become operative on the settlement of the Business Sale Agreement. The fact is that settlement never took place. I need not consider the reasons why settlement never took place or whether Mrs Coleman was justified in terminating the Business Sale Agreement for non satisfaction of the special conditions. The plaintiff has not argued that the termination of the Business Sale Agreement by Mrs Coleman was not justified.
I do not think that the defendant’s argument that the landlord knew that settlement had not occurred, that it knew that it was still required to execute a bank waiver and that the finance condition had not been executed takes the matter further. It was said that the landlord continued to treat Tame Holdings as the tenant because of the wording of the distraint documents and the fact that the landlord had not opened a new file.
If the Deed of Assignment upon which the plaintiff relies was an escrow the document was not operative for that reason alone and it is unnecessary to deal with the other arguments put on behalf of Mrs Coleman.
I turn now to consider the plaintiff’s arguments.
For the reasons which I have already expressed, I reject the argument that there was a validly executed Deed of Assignment of Lease and Deed of Guarantee. Both documents were held in escrow. Also if the Deed of Assignment of Lease is ineffective there is no debt to which the guarantee can attach.
The plaintiff’s alternative argument was that if the execution of the Deed of Assignment of Lease and Deed of Guarantee was defective, evidence external to the deed shows that the parties intended to be bound by the deed and any imperfection can be cured by sub-s 41(4) of the Law of Property Act 1936 (SA). In this case there is no defect in the execution and there is no reason to invoke s 41(4). Additionally, I have found that Mrs Coleman did not intend to be bound by the Deed of Assignment in a way that was unconditional. I have found that she intended the document to be held in escrow pending settlement of the Business Sale Agreement. I reject the plaintiff’s suggestion that the plaintiff did not understand that settlement of the Business Sale Agreement was a condition precedent. The understanding of the plaintiff is irrelevant. What is relevant is the intention of Mrs Coleman at the time she signed the deed.
The plaintiff also claimed relief pursuant to the equitable principle in Walsh v Lonsdale. This is not a case where the deed is invalid as a matter of law. It is not a case where equity should substitute a remedy for an unenforceable deed. If the Deed of Assignment of Lease is an escrow equity should respect the condition on which the deed was executed. There is no reason why equity should overrule the condition. I accept there was an intention to create a new proprietary right, but that was conditional upon settlement of the purchase of the business.
The plaintiff’s claim that it is entitled to relief on the basis of Walsh v Lonsdale does not rely upon the execution of the Deed of Assignment of Lease by Mrs Coleman but upon her subsequent conduct. After she had signed the escrow Mrs Coleman entered into possession and performed obligations of the lessee such as paying the rent, up until the time when she vacated the premises. Does that conduct entitle the plaintiff to relief on the basis of Walsh v Lonsdale?
The evidence does not establish how Mrs Coleman entered into possession. It is common ground that when Mrs Coleman entered into possession, all parties knew that settlement of the contract had not taken place. The plaintiff had not executed the waiver required by the Adelaide Bank or the other documentation and the plaintiff knew that settlement had not taken place. The plaintiff continued to treat Tame Holdings as tenant. The parties must have known that the entry into possession by Mrs Coleman and the payment of rent by her was not in performance of the Lease but was only a temporary arrangement pending settlement.
For the rule in Walsh v Lonsdale to apply, the landlord must do all that is necessary to perfect the assignment of the lease. The plaintiff had not done that. Settlement of the Business Sale Agreement was delayed by the plaintiff’s failure to provide the waiver to the bank, the plaintiff had not executed the documentation itself and the plaintiff continued to treat Tame Holdings Pty Ltd as the tenant by distraining against items of property which at that time were still owned by Tame Holdings. Some of the conditions in Mr Boscaini’s two letters of 29 May 2002 remained unsatisfied and the plaintiff had not waived compliance with those conditions.
I do not think that either the signing of the Deed of Assignment of Lease by Mrs Coleman or the subsequent events are sufficient to give rise to an entitlement to relief under the rule in Walsh v Lonsdale.
The evidence does not establish the basis on which Mrs Coleman entered into possession. The evidence does not establish that the parties believed Mrs Coleman wished to be bound by the Deed of Assignment of Lease, notwithstanding the fact that settlement had not taken place on the contract for sale of the business. It would have been illogical for her to do that prior to settlement of the contract for the sale of the business. There was no evidence of a waiver of the condition on which the Deed of Assignment of Lease was held in escrow, that is that the Deed would only operate from settlement.
I reject the plaintiff’s submission that the deed evidenced an intention to create a new proprietary right. I find that the parties intended that there should be a settlement of the contract before any new proprietary right was created. I also reject any suggestion that the plaintiff had done all that it was required to do to effectuate the assignment. The plaintiff was required to sign the waiver and to execute the documents. The plaintiff did not execute the documentation at least until 3 September.
I find that the entry into possession did not amount to a waiver of the condition on which the Deed of Assignment was held in escrow and I decline to order relief on the equitable principle enunciated in Walsh v Lonsdale.
Tame Holdings was unlikely to hand over ownership of its business and transfer the lease until Mrs Coleman had paid the purchase price. Settlement could not take place at least until the plaintiff provided the waiver to the Adelaide Bank and the bank made the finance available. It was the plaintiff itself which held up the settlement. Mrs Coleman never became the owner of the business.
The plaintiff did not suffer prejudice as a consequence of Mrs Coleman entering into possession, because the plaintiff retained all of its rights against Tame Holdings. In reality it was Tame Holdings, as lessee, who permitted Mrs Coleman to enter into possession in advance of the settlement.
Finally the plaintiff asserts that Mr and Mrs Coleman are estopped from asserting that they are not bound by the respective deeds.
It was argued that the execution of the deeds by Mr and Mrs Coleman in addition to taking possession of the premises and paying rent constituted a representation to the plaintiff that they had assumed the rights and obligations under the lease, that the plaintiff reasonably relied on the representation and acted to its detriment by not holding the three Tame defendants to their obligations under the lease or not seeking another tenant given the desire of Tame Holdings to lease the premises.
The plaintiff referred to Vella v Wah Lai Investment (Aust)[2004] NSWSC 748. In that case a lessee and landlord agreed to assign a lease to the purchaser of a business, but the transfer of the lease was never registered. The purchaser asserted that the landlord was estopped from denying the existence of the tenancy. It was the converse of the present situation. Campbell J summarised the case law as follows:
“Another way in which Mr Vella puts his case to have, as against Wah Lai, the rights of an equitable assignee is by saying that Wah Lai is estopped from denying that he is an equitable assignee of the Lease.
The caselaw recognises that, where land has been leased to one person, and another person has entered into possession of the land, the lessor, and the lessee, can both become estopped from denying that there has been an effective assignment of the lease: Rodenhurst Estates, Ltd v W H Barnes, Ltd [1936] 2 All ER 3; Tichborne v Weir (1892) 67 LT 735; Official Trustee of Charity Lands v Ferriman Trust, Ltd [1937] 3 All ER 85; Williams v Heales (1874) LR 9 CP 177; Brown & Root Technology Ltd v Sun Alliance and London Assurance Co Ltd [2001] Ch 733. Precisely what estoppels exist depends in part upon precisely what representations have been made between the landlord and the person claiming to be an assignee. Mere payment of rent, and taking of possession, is not enough to amount to a representation by a person in possession that he was assignee of the lease (as opposed to a sub-lessee), and hence is not enough to establish that the person in possession is liable to the landlord on the covenants of the lease, although it is enough to establish an estoppel against the person in possession from denying the title of the landlord: Official Trustee of Charity Lands v Ferriman Trust, Ltd [1937] 3 All ER 85. There can be circumstances where a person in possession cannot deny that he is a tenant, and therefore bound to pay rent to the landlord, but can deny that he is bound by all the covenants of the original lease: Tichborne v Weir (1892) 67 LT 735. However, if the representation by a person in possession is that he is tenant on the terms of a particular lease, then he can be estopped from denying that he is liable to pay damages for breach of covenants, such as to repair, contained in the lease: Williams v Heales (1874) LR 9 CP 177. If someone requests a landowner to consent to an assignment of a lease to him, and thereafter goes into possession and pays rent, that is a representation of being in possession on the terms of the lease: Official Trustee of Charity Lands v Ferriman Trust, Ltd [1937] 3 All ER 85 at 90-91, explaining Rodenhurst Estates, Ltd v W H Barnes, Ltd [1936] 2 All ER 3.
Whether an estoppel exists also depends upon whether there has been any detrimental reliance on a representation. Thus, even if a person in possession has represented that it is an assignee of a lease, before that person is estopped from denying that there has been an effective assignment of the lease, and that it is bound by all the covenants of the lease, it is necessary for the landlord to have acted to its detriment on the basis of that representation: Brown & Root Technology Ltd v Sun Alliance and London Assurance Co Ltd [2001] Ch 733. Conversely, even if a landlord has represented that there has been an assignment of a lease to a particular person, before the landlord is estopped from denying that there has been an effective assignment of the lease, it is necessary for that particular person to have acted to his detriment on the basis of that representation.
Further, the fact that, as at one point of time, two such parties are estopped from denying that there has been an effective assignment of lease does not necessarily mean that that estoppel will endure indefinitely into the future. If one party, who has encouraged another to act on the basis that a particular state of affairs exists, gives notice that that state of affairs should no longer be regarded as existing then, unless the other party has already irretrievably prejudiced himself by acting on the assumption that that state of affairs exists, the estoppel will cease to bind, either immediately or after the other party has been given reasonable notice. This is the result of the principle that the relief which is appropriate to give effect to an estoppel is the minimum relief which would prevent the injustice arising by the person estopped departing from the assumption or expectation which has been induced: The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 413, 429, 442-3, 487 and 501; Giumelli v Giumelli (1999) 196 CLR 101 at 113-14 and 119; Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 at 516-518.”

I find that there was no representation that Mrs Coleman had assumed the rights and obligations under the lease. As I have said, there was no evidence as to the circumstances in which Mrs Coleman entered into possession, but everybody knew that the settlement had to take place before Mrs Coleman could become entitled to the business and the right to an assignment of the lease. There was no reason for the plaintiff to assume that the conduct amounted to a representation that Mrs Coleman intended to be bound by the document which was held in escrow pending settlement.
There is no evidence that the plaintiff relied on the conduct of Mrs Coleman either to its detriment or otherwise. The plaintiff retained its rights against the Tame defendants and it has held the three Tame defendants to their obligations and obtained judgment against them.
If the plaintiff refrained from seeking another tenant that has not caused any detriment. Mrs Coleman paid the rent during her occupancy and the plaintiff suffered no detriment as a consequence of any delay during that period. When Mrs Coleman vacated the premises the plaintiff was in the same position that it would have been if Mrs Coleman had never gone into possession. The plaintiff would have had to find a new tenant in either event.
Finally, if there was an estoppel, there is no reason why it should endure indefinitely.
I reject the plaintiff’s estoppel argument.
For these reasons I find that the deed was executed as an escrow. I find that the condition, namely settlement on the Business Sale Agreement was never fulfilled. I find that Mrs Coleman is not liable on the Deed of Assignment of Lease. I find that Mr Coleman is not liable on the Deed of Guarantee. I find that the plaintiff is not entitled to relief on the basis of the principle of equity enunciated in Walsh v Lonsdale and I find that Mrs Coleman is not estopped from denying liability under the Deed.
The plaintiff’s claim will be dismissed and there will be judgment for Mr and Mrs Coleman.
On the counter claim I find that the plaintiff had no entitlement to the guarantee amount and was not entitled to call up the guarantee on 16 September 2002. There will be judgment on the counter claim in the sum of $7,769.48.
Mr and Mrs Coleman are also entitled to interest on $7,769.48 from 16 September 2002. I will hear counsel as to the rate of interest, but subject to what counsel may say the rate charged by the Adelaide Bank would appear to be appropriate.
I will hear counsel as to costs.