Town of Gawler v Impact Investment Corporation Pty Ltd - [2007] SASC 326

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
FARMER NO 1 PTY LTD v RIGNANESE PTY LTD (IN LIQ) & ORS
[2007] SASC 326
Judgment of The Honourable Justice Vanstone
11 September 2007
REAL PROPERTY - GENERAL PRINCIPLES - EJECTMENT
Application by registered mortgagee for order for possession after liquidation of mortgagor company - unregistered lease over portion of land - lessee claiming plaintiff estopped from denying effect of lease or alternatively counterclaiming against company directors for repayment of rental monies - whether company directors unjustly enriched by receipt of rental monies paid and improvements made to land by lessees. Held: mortgagee entitled to possession; counterclaim not made out.
Real Property Act 1886 (SA), Part XVII, s 118, s 192, s 193, s 195; Development Act 1993 (SA), referred to.
Ramsden v Dyson & Thornton (1866) LR 1 HL 129; Dillwyn v Llewelyn (1862) 4 De G F & J 517, applied.
Bahr v Nicolay (No 2) (1988) 164 CLR 604, distinguished.

FARMER NO 1 PTY LTD v RIGNANESE PTY LTD (IN LIQ) & ORS
[2007] SASC 326
Civil
VANSTONE J:
Introduction

The registered mortgagee applies under Part XVII of the Real Property Act 1886 (SA) for possession of certain agricultural land, with a dwelling, located at Virginia. The contentious issues are a claim that the plaintiff is estopped from denying the effect of an unregistered lease relating to part of the land and, in the alternative, a counterclaim filed by the lessee seeking as against the lessor’s representatives repayment of monies paid by way of rental.
Background
The first defendant, Rignanese Pty Ltd (“the company”), which is in liquidation, is the registered proprietor of the land contained in Certificate of Title Register Book Volume 5916 Folio 594. Counsel for the liquidator appeared before me prior to trial only to say that he did not oppose the application for possession and had no wish to appear at trial. The third and fourth defendants, Mr and Mrs Rignanese, were the directors of the company. On their application they were joined as defendants on the basis that they live on part of the land. The second defendant is Mr Dung Van Nguyen. Together with Phuc Dan Nguyen, Thuan Dai Nguyen and Thong Bao Thi Ho, he holds an unregistered 99 year lease granted by the company over a separate 10 acre portion of the land. They use that land to grow cucumbers. I shall refer to these persons as “the lessees”.
This action occurs against the following history, which, as will be seen, becomes relevant. In March 2001, the company borrowed over $1 million from the financier Flexible Finance Pty Ltd, which was secured by a registered mortgage over the land and adjacent land also owned by the company. The company defaulted in repayment of the mortgage and in February 2003 Flexible Finance commenced proceedings in this court seeking possession. These were discontinued after Flexible Finance assigned the mortgage to the plaintiff, Farmer No 1 Pty Ltd on 4 April 2003. The assigned mortgage was registered in the name of the plaintiff. Rignanese made no further payments to either mortgagee. On 10 August 2004, a liquidator was appointed by order of this court.
The lease was executed on 15 September 2002, long before the mortgage was assigned to the plaintiff. Contrary to the terms of the mortgage, there was no prior written consent by the mortgagee to the leasing of any part of the land. Since entering into possession, the lessees have undertaken work on the land at their own expense, including erection of a significant number of glass and plastic growing houses.
Under the terms of the mortgage the appointment of a liquidator entitled the mortgagee to take possession of the land. Originally the third and fourth defendants disputed that entitlement, but they abandoned that position at trial. They sought to argue that if an order for possession were made, it should be accompanied by orders directing that the property be sold and determining what rate of interest should be applied to the debt and the extent of the arrears. In my view these issues do not arise on this application and I declined to hear evidence touching them.
Part XVII of the Real Property Act deals with ejectment from land. A registered mortgagee is a person who can bring an application for possession: s 192(b). Under s 193, the summons must contain a description of the land. Section 193 also provides for the manner of service of the summons and for adequate notice to be given to the person summoned. Satisfaction of these conditions is sufficient to justify making an order for possession. The court has a discretion as to the terms of the orders: s 195. Given the prerequisites for an order for possession were plainly met and that the contentious issues arose on the second defendant’s counterclaim, I required that the second defendant be dux litis.
I turn to the defence and counterclaim of the second defendant. In essence the second defendant alleges that at the time the mortgage was assigned the plaintiff was aware that the second defendant was occupying part of the land and had made improvements to it. It was asserted that the plaintiff did not ask the second defendant to stop making improvements or to leave the property. It took no action in respect of the second defendant. (So much was admitted by the plaintiff in its Reply.) It was further alleged as follows:
The plaintiff’s knowledge and conduct in relation to the discontinuance of [the earlier possession proceedings] and the Second Defendant’s continued occupation, improvements, and use of the land:
amount to an acquiescence by the Plaintiff of the Second Defendant’s continued occupation pursuant to the lease;
which acquiescence was relied upon by the Second Defendant in continuing to occupy, improve and use the land;
and accordingly the Plaintiff ought to be estopped from denying the effect of the Second Defendant’s lease; …
In essence, the second defendant submitted that the plaintiff’s omission to take any action against the second defendant and to state its adverse title gave rise to a personal equity such that the plaintiff should be estopped from thereafter asserting title as against him; that it would be unconscionable for the plaintiff to assert its rights insofar as they were inconsistent with actions of the lessees in which there had been acquiescence. Counsel relied on Bahr v Nicolay (No 2) (1988) 164 CLR 604, 638 and Ramsden v Dyson & Thornton (1866) LR 1 HL 129, 140.
The second defendant and another lessee, Mr Thuan Nguyen gave evidence before me. Very little of what they said was contentious. Mr and Mrs Rignanese also gave evidence. Similarly, little of it was in dispute. Ultimately the case turns on uncontested matters of fact and the application of principles which need not be precisely formulated.
Analysis
The starting point would appear to be s 118 Real Property Act 1886. It provides as follows:
118. No lease of mortgaged or encumbered land shall be valid and binding against any mortgagee or encumbrancee of the land unless such mortgagee or encumbrancee shall have consented in writing to such lease prior to the same being registered.
Here the lessees are claiming pursuant to a lease for which no consent was given and which is unregistered. That makes the lessees’ argument all the more difficult.
I do not accept that the equitable principle can be framed as widely as suggested above. In Bahr v Nicolay there was an express acknowledgment by the defendant of the claimant’s interest (being a right to repurchase the land). This alone distinguishes that case. In Meagher, Gummow & Lehane’s Doctrines & Remedies (4^th ed, LexisNexis Butterworths, Australia, 2002) at [17-105] the authors suggest that the line of authorities descending from Dillwyn v Llewelyn (1862) 4 De G F & J 517 and Ramsden v Dyson could be reduced to these common factors:
(a) an expectation or belief by A as to the property of B, …;
(b) knowledge by B of this expectation or belief of A;
(c)activity of A in reliance upon his expectation or belief whether by expenditure upon the property …;
(d)the interest or expectation of A must be one which B could lawfully satisfy …;
(e)encouragement by B of the activities of A under (c) or at least knowledge of those activities with failure to assert his title to his property when they are adverse to it so that he ‘dishonestly remained wilfully passive’ and therefore it is fraudulent for him to rely on his legal rights to defeat the expectation encouraged by his conduct or lack of it; and
(f)knowledge by B of his property rights as under his enjoyment, control and disposition.
(citations omitted)
As can be seen one necessary ingredient is some encouragement by B, or at least some dishonesty in remaining silent, such that it would be unconscionable for him to assert his title.
On this aspect the second defendant’s case did not rise above the pleadings and the admissions made in respect of them. There was evidence that far from acquiescing in or encouraging the second defendant’s occupation of the land and the improvements made to it, a request for the plaintiff to secure that occupation by consenting to registration of the lease fell on deaf ears.
In fact the evidence showed that a similar request had been communicated to the original mortgagee, Flexible Finance, by the second defendant’s solicitor in a letter dated 23 December 2002. That letter, sent by facsimile, was met by a response from Flexible Finance bearing the same date. The author stated that there was currently “no possibility that Flexible Finance will agree to the registration of the lease”. The author suggested that further communication should be addressed to the solicitors of Flexible Finance. The second defendant’s solicitor followed up the issue. On 8 January 2003 he wrote to Mr Luckhurst-Smith of Hunt & Hunt Solicitors. He asked to be informed of the basis upon which Flexible Finance maintained its refusal to allow registration. On 13 January 2003 Mr Luckhurst-Smith responded with advice which included the statement:
The mortgagee has no wish to be bound by the lease nor to encumber the title. The lease does not bind or encumber the title unless the mortgagee consents.
It was against that background that the second defendant’s solicitors renewed the request after the time when the mortgage was assigned. On this occasion the second defendant’s solicitor wrote to Mr Hollidge of Scammell & Co Solicitors, who, it is admitted, acted for the plaintiff. A copy of that letter is also before me. It appears that no response to that letter was ever received. In my view it is, for these reasons, impossible to argue that there was any acquiescence by the plaintiff in the improvements to the land made by the lessees. The same sequence of correspondence tends to undermine any suggestion that the second defendant believed he had rights as against the plaintiff. That being the case, it is unnecessary to consider the plaintiff’s further argument that, in any event, the interest or expectation of the lessees (a 99 year lease) was not one which could be lawfully satisfied, having regard to the provisions of the Development Act 1993 (SA) and the fact that subdivision of this land (defined to include a lease of more than six years) was not permitted. In these circumstances the second defendant’s defence of the claim must fail.
As an alternative to his answer to the plaintiff’s summons, the second defendant claims that he is entitled to the return from the third and fourth defendants of that part of the monies which he has paid as rent, referable to the period during which he will not enjoy possession of the land under the lease. In this regard he purports to invoke a principle of “unjust enrichment”.
There were some difficulties with the formulation of this claim. As I understand it, it rested on the following matters. First, it was put to the fourth defendant that he told the second defendant and his legal advisers that Flexible Finance had consented to the lease. That was denied. Then it was proved through the third and fourth defendants that most of the rental payments were made in cash to Mr and Mrs Rignanese. It was admitted by Mrs Rignanese that in most instances that money was not paid into the company accounts and, after appointment of the liquidator, was not paid to him. Mrs Rignanese said that, instead, all the money was passed on to their son, to whom the company was in debt. She said that the liquidator had recognised the son’s claim and was agreeable to the rental moneys being paid directly to the son. As I understand it, the suggestion by the second defendant was that the third and fourth defendants in fact benefited from the rental payments and, due to their misrepresentation as to consent, the second defendant was left in a position whereby his quiet enjoyment of the land was dependent on the company’s fortunes. Ultimately his enjoyment lasted for only a small part of the lease term. Further, it was suggested that the lessees had made significant improvements to the land.
Leaving aside the difficulties with identifying any principle of law which could avail the second defendant, the factual basis for any such claim was not made out. In the first place the second defendant himself denied that he was told that the mortgagee had consented to the lease. His evidence was to the effect that he was not aware that there was a mortgage on the land until much later, when he learned that “the finance company was suing the landowner”. Once a new finance company was in place he understood that this problem had resolved. Therefore there is no evidence of any misrepresentation.
As to the payments of rent, the second defendant always dealt with the third and fourth defendants. He was not to know whether either of them accounted to the company for the rent. However, it seems to me that he having paid the third and fourth defendants and they having accepted moneys on behalf of the company, the second defendant cannot now claim that his dealings were with them personally. Had there been a dispute about whether rental was owing to the company, the second defendant could have relied upon the payments he made to the third and fourth defendants. I do not consider the fact that those moneys never reached the company’s accounts to be of any advantage to the second defendant in this claim.
As to the improvements made by the lessees on the property, it seems clear from the correspondence between the lessees’ solicitor and Flexible Finance and then with the plaintiff that the second defendant must have known – at least in the early stages of the transaction – that his landlord was the company. He certainly knew later that his claim (if any) was against the company in liquidation. That is demonstrated by correspondence from the second defendant’s solicitor to the liquidator dated 6 September 2006, asserting his interest and filing a proof of debt based on the lease. He must also have known that the lease was not registered. Therefore he must have chosen to rely upon the company making its mortgage payments and continuing to hold the land. Unfortunately that was not to be.
Accordingly I find that the lessees knew throughout that the landowner and lessor was the company; they knew throughout that there was no consent to the registration of the lease and they knew that the company’s financial position was not secure. They made improvements to the land against this background. If the benefit of these is now lost to them, that is a function of the risk they took. Any claim they might have had was against the company.
For these reasons the second defendant’s claim against the third and fourth defendants is not made out.
Conclusion
Accordingly I find that the plaintiff has made good its entitlement to orders for possession of the land. The second defendant’s counterclaim against the third and fourth defendants must fail.
It remains to settle the terms of the possession order. The requirements of the second, third and fourth defendants in terms of time necessary to vacate the premises were the subject of evidence during the trial. Moreover, counsel for the plaintiff was instructed to agree to the request that the lessees should have a period of 90 days from the date of any order, to allow harvest of their current cucumber crop and dismantling of their greenhouses. In my view that is appropriate. As to the third and fourth defendants, I consider it is not demonstrated that they need such a long period. I shall allow them 30 days in which to give up possession of their part of the allotment.
There will be orders that all the defendants, as well as the other lessees, give up possession of the land to the plaintiff.