Ashton & Ors v Hunt [1998] QCA 308

Court of Appeal (Qld)|1998-10-13|Before: Thomas JA, Ambrose J, Cullinane J

1 This is an appeal against a decision in the District Court dismissing an action by the plaintiffs on the ground that the plaint disclosed no reasonable cause of action. Leave to appeal against this apparently interlocutory judgment was granted on 25 May 1998 under s.118(3) of the District Court Act 1967.

2 The appellants commenced proceedings claiming $104,945.66 as money payable under a guarantee. There were three defendants, but the present proceedings relate only to one of them, the present respondent Ms Hunt. She and the other defendants were guarantors in respect of certain obligations of a company ("Northland").

3 The document in issue in these proceedings is a lease for five years in registerable form, dated 21 November 1994. It is between the appellants as lessor and Northland as lessee, and it incorporates a guarantee signed by Ms Hunt and two other guarantors. The guarantee (expressed as cl.12 of the lease) relevantly included the following:

"12. The Lessee acknowledges that the Lessor has agreed to enter into this Lease at the request of REGINALD GEORGE HUNT, MARGARET WINIFRED HUNT and JANINE ANNE HUNT as the Guarantors and the Guarantors do hereby:-

(a) guarantee to the Lessor the due and punctual performance by the Lessee of each and every of the obligations of the Lessee under the terms of this Lease including in particular (but without limiting the generality hereof) the obligations of the Lessee for payment of the rent and all other monies which shall become payable by the Lessee to the Lessor pursuant to the said Lease and the due and punctual performance by the Lessee of all the covenants and provisions on the part of the Lessee to be performed and observed;

(b) indemnify the Lessor and agree at all times hereafter to keep the Lessor indemnified from and against all losses and expenses which the Lessor may suffer or incur consequent upon any breach of non-observance or any of the covenants and provisions of the said Lease and on the part of the Lessee to be performed and observed . . .".

It is common ground that the parties intended the lease to be registered. This can be inferred from the lessee's covenant "To pay all costs . . . of and incidental to the . . . registration of this Lease". It would seem that the parties intended the document to operate as a lease at law, and that the lessor was under an implied obligation to register it or to procure its registration.[1]

4 Northland entered into possession of the premises but defaulted in payment of rental and eventually vacated the premises in November 1996. The appellants have since sold the property.

6 The learned primary judge held that the obligation undertaken by guarantor was in respect of the obligations of the lessee "under the terms of this lease" and that in the event no rent or other relevant obligations arose under "this lease" because that lease was never registered. The rental obligations of the lessee arose only because, at least until such time as the lease was actually registered, Northland by entering into possession and paying rent became subject to a common law tenancy at will which imported a covenant to pay rent in the terms of the covenant in the unregistered lease.

7 An obligation to pay rent under such a covenant in a common law tenancy has been held by the High Court, in indistinguishable circumstances, not to be an obligation "under this lease" that is to say within the meaning of those words in the unregistered lease.[2] It was similarly held in that case that the lessee's equitable rights and interests, even assuming that specific performance would be awarded in favour of the lessee, would not be enough to establish liability on the part of guarantors who had guaranteed the lessee's obligations "under this lease". Those words were taken to refer to the instrument of lease "in its character as a lease". In the view of the High Court, "only a lease at law would meet this description for the purposes of the guarantee".[3]

8 In Chan s.43 of the Real Property Act 1861-1990 was regarded as presenting an insuperable obstacle to the lessor's success. That section provides that, until registration, no instrument is effectual to pass an estate or interest in the land. Leases of the present kind which are for a period exceeding three years do not obtain the exception from indefeasibility made in favour of leases for three years or less.[4] The majority in Chan concluded that any equitable estate or interest was created by the "antecedent agreement [of the parties] evidenced by the unregistered instrument, not the instrument itself".[5] Toohey J, in dissent, stated:

"Whether or not those obligations are said to arise from an antecedent agreement, of which the lease is evidence, or from a transaction behind the instrument, it is the instrument itself which ultimately is the source of those obligations . . . and . . . [the lessee's] obligations in truth arose `under this lease'."[6]

9 Unless the documents in the present case are distinguishable, we are of course bound by the construction given by the majority in Chan.

10 Mrs Mullins who appeared for the appellants, conceded, correctly I think, that the guarantee and the material parts of the lease in the present case are indistinguishable from the document that was before the court in Chan. Her submission is confined to a short but interesting point, namely that s.71 of the Land Title Act 1994, which has been enacted since Chan, makes a material difference. In her submission it has the effect that an unregistered lease for a term greater than three years is a valid lease at law between the parties.

11 The Land Title Act enacted in 1994 replaced the former Real Property Acts of 1861 and 1877. Section 181 of the Land Title Act states "an instrument does not transfer or create an interest in a lot at law until it is registered". There is no material distinction between this section and s.43 of the 1861 Act. Section 71 of the Land Title Act states "an unregistered lease of a lot or part of a lot is not invalid merely because it is unregistered". This section has no counterpart in the previous legislation. Indeed it apparently has no counterpart in any other Torrens title legislation in Australia.

12 Sections 64 to 66 of the Land Title Act reproduce the substance of the two separate provisions contained in s.52 of the Real Property Act 1861 to 1990. This is mentioned merely to indicate that apart from the inclusion of s.71 in the Land Title Act 1994, the legislation is not materially different to that considered by the High Court in Chan.

13 The combined effect of ss.71 and 181 of the Land Title Act seems to be that an unregistered instrument fails to transfer an interest at law, but the instrument is not rendered invalid merely because of lack of registration. One immediately notes the use of the double negative in "not invalid merely because . . .". What validity might this section confer upon an unregistered lease that it did not already possess? One possible answer is that suggested by the appellants, namely that it has validity between the immediate parties but that it fails to obtain any of the benefits of indefeasibility. The other answer is that it retains the same limited effect as that recognised for such a document in Chan. It will be remembered that Chan did not hold the document to be void or totally ineffective. It remains the document which will become valid for all purposes if and when registered. It is also the source of equitable rights and is a reference source for the ascertainment of the conditions of the common law tenancy that usually exists up until the time of registration.

14 Mrs Mullins referred the Court to the report of the Queensland Law Reform Commission which preceded the adoption of the Land Title Act. In the Draft Bill recommended by the Commission[7] it suggested a clause in the following terms: "An unregistered lease of land is valid to the extent specified in s.115" (it is noted that draft section 115 was the forerunner of ss.184 and 185 of the Land Title Act which are the principal indefeasibility provisions). The commentary in the report continued:

"Because of the wording used in the first paragraph of s.52 of the Real Property Act 1861-1990, an unregistered lease that is not short term will be void (Hill v Cox (1882) 1 QLJ 78). This has not been adopted in cl.42 of the Bill. An unregistered long-term lease will not be void at law. To obtain the protection of indefeasibility, however, the long-term lease must still be registered."

Further reference was made to the explanatory memorandum for the Land Title Bill, where it was said with respect to cl.71 "This clause allows an unregistered long-term lease to be valid at law. To obtain the protection of indefeasibility however the long-term lease must still be registered."

15 Resort may be had to the above materials if s.71 is ambiguous or obscure, or if the ordinary meaning would lead to a result that is manifestly absurd or unreasonable, or to confirm the interpretation conveyed by the ordinary meaning of the provision.[8] Section 71 is not ambiguous. It may arguably be said to be obscure, but only inasmuch as it fails to spell out the nature and extent of validity or invalidity intended to be conferred or recognised. More pertinently, even if one refers to the report and the explanatory memorandum, one does not discern any intention to overrule the effect of Chan. Expressions such as "an unregistered long-term lease will not be void at law" and "this clause allows an unregistered long-term lease to be valid at law" do not clearly confront the real question - "are long term unregistered leases to be immediately valid for all purposes between the immediate parties?" If the Commission's approach was diffident, that of the draftsperson of s.71 was even more so. In the context of a major exercise by the Law Reform Commission in converting the Real Property Acts into a new statute, one would have expected a more specific indication than the above statements if it had actually intended to overrule the effect of a leading decision of the High Court on this particular subject.

16 In my view the natural construction of s.71 falls short of declaring that unregistered leases are valid for all purposes between the parties. If that had been the intention of the framers of the statute, it would not have been difficult to say so. Apparently the legislators were not prepared to go so far.

17 The conclusion in Chan is not based on any conclusion of invalidity of such leases other than invalidity at law until such time as they are registered. The fact that such leases may be used for other purposes by the parties including as the foundation for an action for specific performance is expressly recognised. The limited kind of invalidity recognised by the High Court in Chan therefore seems to be able to co-exist with s.71 of the Land Title Act. I am unable to see how s.71, properly construed, permits this Court to construe the lease in the present case in any different way than the construction given to the lease in Chan by the High Court.

18 Accordingly the appeal fails on the principal point raised.

19 The appellants also relied upon the two following grounds of appeal:

"5. Alternatively, if Section 71 of the Land Title Act 1994 does not have the meaning contended for by the Appellants, the Appellants have a prima facie claim that the Respondent should be estopped from relying on the lack of registration of the Lease.

6. If such an estoppel were able to be relied upon by the Appellants against the Respondent, the action should not have been summarily dismissed."

Affidavits were presented containing what was said to be fresh evidence to support these grounds. Put at its highest the affidavits suggest that registration of the lease was delayed due to inactivity of the lessee's solicitors and that the appellants were ignorant of this. The evidence would seem to have neither the cogency nor the freshness necessary in order for it to be received upon an appeal. It will be remembered that the litigation with which we are concerned is a claim by a lessor against a guarantor, the latter not being directly involved in the registration process. No attempt was made to litigate an issue of this kind at the time of hearing, and there is no evidence that such material could not reasonably have been obtained. Quite apart from that, it would not establish an estoppel against the guarantor contending that the lease was unregistered. Moreover the appellants would still have no cause of action, because, on the proper construction of the document of lease, the guarantee did not cover the common law obligations to pay rent which were all that can be proved to have arisen.

20 During argument Mrs Mullins applied on behalf of the appellants for leave to re-plead, apparently in the hope that further enquiries might discover evidence that would enable a positive cause of action to be pleaded stemming from Amadio's Case[9] or Waltons Stores (Interstate) Ltd v Maher.[10] Without suggesting that it was favourably disposed to the application, the Court intimated that if such leave were to be granted it was likely that conditions would be imposed including the payment of indemnity costs of the respondent with respect to the previous proceedings below. Mrs Mullins indicated that if this was to be a term of the order she was instructed to withdraw the application.

21 Having considered the application and the circumstance that at this very late stage the appellants are unable to suggest any basis for litigating such claims there is no good reason for this Court sanctioning what is plainly a fishing expedition. I consider that there is no substance in grounds 5 and 6, and would refuse the oral application.

1 I have had the advantage of reading the reasons for judgment of Thomas J.A. I agree with the conclusions that he has reached and the orders that he proposes.

2 I propose only to refer to some additional considerations which to me seem to support those conclusions.

3 Section 64 of the Land Title Act 1994 provides:-

"64. A lot or part of a lot may be leased by registering an instrument of lease for the lot or part."

4 Section 65 then sets forth the "requirements" of an Instrument of Lease. If these

requirements are not met presumably it may not be registerable. Vide s.s. 10, 11 and 12 of the

"66. A lease or amendment of a lease executed after registration of a mortgage of a lot is valid against the mortgagee only if the mortgagee consents to the lease or amendment before its registration."

"71. An unregistered lease of a lot or part of a lot is not invalid merely because it is unregistered."

"181. An instrument does not transfer or create an interest in a lot at law until it is registered".

"182. On registration of an instrument that is expressed to transfer or create an interest in a lot the interest -

(a) is transferred or created in accordance with the instrument; and

9 Sections 184 and 185 of the Land Title Act 1994 provide for the indefeasibility of registered interests but that consideration I think is not critical to the determination of the principal point argued in this case which seeks to avoid the ratio of Chan v Creston Pty. Ltd. (1989) 68 C.L.R. 242 at 249 discussed by Thomas J.A.

10 In the dictionary to the Act (Schedule 2) "instrument" is defined to include:

"(c) A deed that relates to or may be used to deal with a lot;".

11 Read together sections 64 and 181 of the Act in my view, make it clear that until an Instrument of Lease complying with the requirements of s.65(1) of the Act is registered, the execution of the Instrument of Lease does not create any legal interest. It is only registration pursuant to s. 182 that has the effect of creating the legal interest "expressed" in the instrument which then vests in the lessee named in that instrument.

12 What then is the effect of s.71 of the Act? That section provides that an unregistered

lease "is not invalid" merely because it is unregistered. The wording of this section may be compared with that in s.66 of the Act to which I have referred. That section talks about a lease being "valid against the mortgagee only if the mortgagee consents to the lease before its registration". While s.65(1)(a) requires that an Instrument of Lease "be validly executed" (and requirements that other instruments be "validly executed" as a pre-condition for registration are to be found also in ss.61(1)(a), 73(1)(a), 97B(1)(a) etc.) the context in which the term "valid" is used in those sections in my view gives no assistance in determining the meaning or effect of the words "not invalid" in s.71.

13 An unregistered Instrument of Lease may be one which has not been validly executed as required by s.65(1)(a). Perhaps that is why s.71 provides that an unregistered lease is not invalid "merely because" it is unregistered. It may be invalid and incapable of registration because it was not "validly executed" as required by s.65(1)(a) (and c.f. s.11(1).)

14 In my view one effect of s.71 read in the context of the other sections to which I have referred is to confirm that an unregistered lease which meets the requirements of an Instrument of Lease specified under s.65 of the Act remains capable of registration at least during the term specified in it. Compliance with the requirements of ss. 64 and 181 is necessary to create the legal interest contemplated by the parties executing that document; it emerges clearly from the express terms of ss. 181 and 182 of the Act that that legal interest will only be created when the instrument of lease is registered.

15 I find it difficult to attribute any other legislative effect to s.71.

16 I have discovered no authority of direct assistance in construing s. 71. In Pease v Norwood & Ors [1869] 4 C.P. 235 the Court of Common Pleas considered whether petitioners under the Parliamentary Elections Act 1868 who were required to give security for costs either by a deposit of money or by the provision of sureties might enter into reconnaissances personally. The point was taken that petitioners could not become their own sureties and consideration was given to whether such reconnaissances as had been given by the petitioners personally should be described as "invalid" or "insufficient" having regard to statutory provisions referring to those characteristics. Bovil C.J. at 249 observed:-

"Then arises the question what is the nature of the objection whether it is an objection to the validity or to the sufficiency of the security

Under that section there are two classes of objections referred to - first that the reconnaissance is invalid or has not been duly entered into or received by the examiner - secondly that the sureties or any of them are insufficient or that a surety is dead etc. ---".

The learned Chief Justice then considered aspects of the legislation distinguishing objections

as to validity from those as to sufficiency and at 251 observed:-

"Here there was a reconnaissance in point of fact and a valid one in the sense that it might be enforced by the ordinary remedies. Further it is a reconnaissance which is good upon the face of it. It seems to be in the nature of a suretyship. It is further a reconnaissance which even looking at it as the reconnaissance of some of the petitioners is at all events a security for the other petitioners; and it creates a different degree of liability and constitutes additional security for the petitioners themselves who sign it. If that can be so can it be said that it is an objection to the validity of the reconnaissance that the parties to it are principals as well as sureties?

It does not appear with certainty that the four persons who signed this reconnaissance were four of the petitioners; indeed the names and descriptions upon the two documents are not identical. And even if they were does that make the reconnaissance invalid on the face of it?

It seems to me that this objection is one which goes only to the sufficiency of the sureties ---."

17 I would adopt a similar approach to reconcile s. 71 with ss. 181 and 182.

18 An unregistered lease which satisfies the requirements of s. 65 is a valid lease.

19 Until registered, however, it is insufficient to create and vest in the lessee the interest which on its face it creates. To the extent that it "creates" an interest it does so only provisionally or conditionally upon its registration as required by s. 64, s.181 and s. 182.

20 Such an approach in my view sits comfortably with legal rules relating to the delivery of deeds in escrow - i.e. delivery on a suspensory condition, performance of which is necessary for the delivery to become absolute and thus make the deed effective in operation. In this regard I refer to Xenos v Wickham [1866] L.R. 2 H.L. 296 and Vincent v Premo Enterprises Ltd [1969] 2 Q.B. 609.

21 Under the Land Title Act 1994 an instrument of lease is similar in form to a deed (c.f. the definition of "instrument" in (c) in the Schedule 2 Dictionary to the Act) and it is appropriate to adopt an approach in construing s. 71 which conforms with that taken as to the effect of delivery of a deed in escrow.

22 In my view the effect of ss. 64, 71, 181 and 182 is to impose a suspensory condition upon a valid instrument of lease becoming effective to create and vest the interest with which it deals : that suspensory condition is satisfied by registration of that valid instrument of lease.

1 I adopt the recitation of the facts and the issues as they appear in the judgment of Thomas JA. As I agree in substance with his reasons, it will only be necessary to state my own reasons briefly.

2 Because the facts of this case cannot be distinguished from those in Chan & Anor. v. Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242, there must be a similar outcome here unless s.71 of the Land Title Act 1994 brings about the change which the Appellants contend for.

3 The argument that the effect here of s.71 is that an unregistered lease of five years takes effect at law as a lease at the time of its execution although it does not until registration have the benefit of the indefeasibility provisions of the Act, is first met by the terms of s.181 of the Act:

"An instrument does not transfer or create an interest in a lot at law until it is registered."

4 As the majority in their joint judgment explain in _Chan'_s case, the effect of s.43 of the Real Property Act 1861 was that an unregistered instrument is ineffective to create a legal or equitable estate in the land until it is registered. This is also plainly the effect of s.181 of the Land Title Act. The agreement which is evidenced by it will be effective to bring into existence an equitable estate or interest in the land and as the source of a right in appropriate circumstances to obtain an order in the nature of specific performance requiring the taking of the necessary steps to effect registration. See Chan at p.248

5 Section 71 is expressed in negative terms and its area of operation is not made explicit. However it can and in my view should be construed as providing no more than a statutory recognition of the rights and liabilities which an agreement evidenced by an unregistered lease of the kind under consideration here gives rise to in accordance with the principles expressed in Chan's case.

6 The alternative view is that the section brings about a change which can properly be described as far reaching in the law relating to title by registration.

7 Apart from the terms of s.181 to which I have already referred I think it would be improbable that the legislature would have sought to achieve this by a provision couched in the negative terms of s.71. It is also improbable that such a significant change to the law as it has been for so long would not have been expressly discussed in the report of the Law Reform Commission which preceded the enactment of the Land Title Act.

8 I agree with what Thomas JA says in relation to the claim of estoppel which is the subject of the second ground of appeal.

[1] Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623, 642, 650, 661.

[2] Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242, 249.

[4] Real Property Act 1877-1990 s.11. Compare s.185(1)(b) of the Land Title Act 1994.

At a glance

Court

Decision date

Before

Source

Judgment (80 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (4)