BETWEEN : LIGHTING BY DESIGN (AUST) PTY LTD (ACN 080 322 354)

Landlord and tenant - Lease of premises for more than five years - Lease not registered - Effect of transfer of freehold on lease - Whether other grounds for saying lease on foot

Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485

Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604

Burton v Arcus [2006] WASCA 71

Cook v Chas E Blanks Pty Ltd (1968) 3 NSWR 356

Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd [2003] NSWSC 851; (2003) 59 NSWLR 312

Leros Pty Ltd v Terara Pty Ltd [1992] HCA 22; (1992) 174 CLR 407

Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198

Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387

1 MASTER SANDERSON: This case raises, among other things, a short but important question to do with unregistered leases over land. Prior to trial the parties were able to agree almost all of the facts and most of the relevant documents were tendered by consent. The place to start then is with a summary of the relevant factual situation.

2 On 26 May 2004, the plaintiff entered into a lease of certain premises in Cannington which were then owned by Parkworld Holdings Pty Ltd ("Parkworld"). The lease was for a term of seven years commencing on 26 May 2004. The lease contained an option for a further five year term and depending on the proper construction of the lease, perhaps an option for a further five years thereafter.

3 At all material times, Colliers International (WA) Pty Ltd ("Colliers") was Parkworld's managing agent for the premises. Tendered as part of the agreed bundle of documents was correspondence passing between Colliers and the plaintiff intended to evidence that Colliers was indeed the agent of Parkworld. However, this point was not seriously contested.

4 On 3 July 2006, Parkworld sold the property to the defendant. Prior to and at the time of the purchase of the property by the defendant, it received legal advice to the effect that it was not bound by the terms of the Parkworld lease. The plaintiff, through its directors, was aware of the sale of the property. The directors assumed that the defendant as new owner of the property would take the place of Parkworld and would be bound by the terms of the Parkworld lease. The plaintiff did not register the Parkworld lease or lodge a caveat to protect its interest and was not aware that it could take that step.

5 By a written management agreement between Colliers and the defendant dated 1 July 2006, Colliers agreed to provide management services in respect of the property on terms and conditions set out in that agreement.

6 As at the date of the transfer of the property to the defendant, the market rental for the premises was in the range of $190,000 to $210,000 per annum. The rent payable by the plaintiff under the Parkworld lease was $148,478.88 per annum.

7 Soon after settlement, the defendant, acting through its director, Mr Baldev Singh Bagga ("Mr Bagga"), advised Colliers that the defendant considered it was not bound by the Parkworld lease and proposed to re-let the premises at the prevailing market rental. Colliers did not immediately advise the plaintiff that this was the defendant's position. Rather, it continued to manage the property pursuant to its management agreement. Again, there have been put into evidence a series of letters designed to demonstrate the continuation of this management regime. Once again, it is not in contest that Colliers continued to act as the defendant's managing agent. Precise details of what was undertaken by Colliers in the period subsequent to the defendant acquiring the property, is, on the plaintiff's case, important to determining whether it has equitable rights in relation to the property. I will have more to say about Colliers' involvement with the plaintiff later in these reasons.

8 On 15 September 2006 and 6 October 2006, the defendant appointed as joint agents CB Richard Ellis and Colliers to lease the premises under a new lease for a rental of $239,940 per annum and $266,940 respectively. On 9 February 2007, the defendant's solicitors wrote to the plaintiff purporting to terminate any lease held by the plaintiff. It was as a consequence of that notice that the plaintiff issued these proceedings. It seeks an order, inter alia, that the Parkworld lease is still on foot.

9 It was agreed between the parties that as of 28 March 2007 the market rental for the premises was $233,700 per annum. As at that date, the rent being paid by the plaintiff was $155,481.64.

10 For the purposes of discussing the effect of various statutory provisions on the parties' positions, three things must be borne in mind. First, this was a lease for a period of more than five years. Second, the lease contained an option provision allowing in certain circumstances for the lease to be extended. Third, the lease was not registered and was not protected by a caveat.

11 Section 68 of the Transfer of Land Act 1893 (WA) embodies what is sometimes referred to as the indefeasibility provisions of the Torrens Title system. It is in the following terms:

"(1) Notwithstanding the existence in any other person of any estate or interest whether derived by grant or transfer of the fee simple from the Crown or otherwise which but for this Act might be held to be paramount or to have priority the proprietor of land or of any estate or interest in land under the operation of this Act shall except in case of fraud hold the same subject to such encumbrances as may be notified on the registered certificate of title for the land; but absolutely free from all other encumbrances whatsoever except the estate or interest of a proprietor claiming the same land under a prior registered certificate of title and except as regards any portion of land that may by wrong description of parcels or boundaries be included in the certificate of title or instrument evidencing the title of such proprietor not being a purchaser for valuable consideration or deriving from or through such a purchaser. Provided always that the land which shall be included in any certificate of title or registered instrument shall be deemed to be subject to the reservations exceptions conditions and powers (if any) contained in the grant thereof or transfer of the fee simple or otherwise and to any rights subsisting under any adverse possession of such land and to any public rights of way and to any easements acquired by enjoyment or user or subsisting over or upon or affecting such land and to any unpaid rates and to any mining lease or licence issued under the provisions of any statute and to any prior unregistered lease or agreement for lease or for letting for a term not exceeding 5 years to a tenant in actual possession notwithstanding the same respectively may not be specially notified as encumbrances on such certificate or instrument but no option of purchase or renewal in any such lease or agreement shall be valid as against a subsequent registered interest unless such lease or agreement is registered or protected by caveat.

(2) Notwithstanding the existence in any other person of any interest in Crown land which but for this Act might be held to be paramount or to have priority, the holder of an interest in Crown land shall, except in case of fraud, hold that interest -

(a) subject to such encumbrances as may be notified on the registered certificate of Crown land title for the Crown land; but

(b) absolutely free from all other encumbrances whatsoever, except -

(i) the interest of a proprietor claiming the same Crown land under a prior registered certificate of Crown land title; and

(ii) as regards any portion of Crown land that may by wrong description of parcels or boundaries be included in the certificate of Crown land title or other instrument evidencing the Crown title of that proprietor, not being a purchaser for valuable consideration or deriving from or through such a purchaser.

(3) Notwithstanding subsection (2), the Crown land included in any registered certificate of Crown land title, registered qualified certificate of Crown land title or registered instrument shall be deemed to be subject to -

(a) any reservation, exception, condition, covenant or power to which the relevant interest in Crown land is subject;

(c) any easement subsisting over or upon or affecting that Crown land;

(e) any mining tenement within the meaning of the Mining Act 1978; and

(f) any prior unregistered lease or agreement for lease or for letting for a term not exceeding 5 years to a tenant in actual possession,

even if it is, or they are, not specially notified as an encumbrance on that certificate of Crown land title or instrument, but no option of purchase or renewal of any lease or agreement referred to in paragraph (f) shall be valid as against a subsequent registered interest unless that lease or agreement is registered or protected by a caveat.

(4) In subsections (2) and (3), a reference to a certificate of Crown land title or registered instrument does not include a reference to a qualified certificate of Crown land title."

12 It was common ground between the parties that absent any other statutory provision, the Parkworld lease would have been unenforceable by the plaintiff against the defendant. In fact, the act of registration under the terms of the section destroys the plaintiff's proprietary interest in the land. That interest cannot be revived or rekindled by some subsequent act, save a fresh agreement between the plaintiff and the defendant.

13 In Breskvar v Wall (1971) 126 CLR 376, Barwick CJ (at 385 - 386) said the Torrens system is:

"not a system of registration of title but a system of title by registration. That which the certificate of title describes is not the title which the registered proprietor formerly had, or which but for registration would have had. The title it certifies is not historical or derivative. It is the title which registration itself has vested in the proprietor."

14 The plaintiff says this is not the end of the matter. It refers to the Property Law Act 1969 (WA). Section 6 of the Property Law Act provides that except as otherwise provided in the Act, the provisions of the Act do not apply to land that is under the provisions of the Transfer of Land Act where there is any inconsistency. Section 69 of the Property Law Act provides that Pt VII of the Act dealing with leases and tenancies applies to leases and to sub-leases of the Transfer of Land Act "notwithstanding anything contained in that Act". There then follows s 77 and s 78 of the Act. Both of these are in Pt VII. They read as follows:

"77. Rent and benefit of lessee's covenants to run with reversion

(1) Rent reserved by a lease, and the benefit of every covenant or provision contained in the lease, having reference to the subject-matter thereof, and on the lessee's part to be observed or performed, and every condition of re-entry and other condition contained, shall be annexed and incident to and shall go with the reversionary estate in the land, or in any part thereof, immediately expectant on the term granted by the lease, notwithstanding severance of that reversionary estate, and without prejudice to any liability affecting a covenantor or his estate.

(2) Any rent, covenant or provision referred to in subsection (1) is capable of being recovered, received, enforced and taken advantage of by the person from time to time entitled, subject to the term, to the income of the whole or of any part as the case may require, of the land leased.

(3) Where that person becomes entitled by conveyance or otherwise, the rent, covenant or provision referred to in subsection (1) may be recovered, received, enforced or taken advantage of by him notwithstanding that he becomes so entitled after the condition of re-entry or forfeiture has become enforceable, but this subsection does not render enforceable any condition of re-entry or other condition waived or released before that person becomes so entitled.

(4) This section applies to leases made before or after the date of the coming into operation of this Act, but does not affect the operation of -

(b) any acquisition by conveyance or otherwise of the right to receive or enforce any rent, covenant or provision, effected before that date.

78. Obligation of lessor's covenants to run with reversion

(1) The obligation under a condition or of a covenant entered into by a lessor with reference to the subject-matter of the lease shall, if and as far as the lessor has power to bind the reversionary estate immediately expectant on the term granted by the lease, be annexed and incident to and shall go with that reversionary estate, or the several parts thereof, notwithstanding severance of that reversionary estate, and may be taken advantage of and enforced by the person in whom the term is from time to time vested by conveyance, devolution in law, or otherwise; and if and as far as the lessor has power to bind the person from time to time entitled to that reversionary estate, that obligation may be taken advantage of and enforced against any person so entitled.

(2) This section applies to leases made before or after the date of the coming into operation of this Act but not to any severance of the reversionary estate which was effected before that date.

(3) This section takes effect without prejudice to any liability affecting a covenantor or his estate."

15 It is the plaintiff's submission that the combined effect of s 77 and s 78 of the Property Law Act is that upon assignment of the reversion - that is, the sale of the Cannington property - all of the covenants under the lease will go with the reversion. The effect, on the plaintiff's case, is that the assignee of the reversion holds his interest subject to the lease. The defendant, on the other hand, says that s 68 of the Transfer of Land Act prevails. It submits that as the lease was unregistered, the plaintiff's interest was destroyed at the time the property was transferred to the defendant.

16 There are two important cases which bear upon this question. The first and most important of the two is the High Court decision in Leros Pty Ltd v Terara Pty Ltd [1992] HCA 22; (1992) 174 CLR 407. The facts of that case are as follows. The respondent was the assignee of an unregistered lease for five years with an option to renew for a further seven years. There were two subsequent transfers of the land and then a transfer to the appellant. The question was whether the respondent could assert its interest under the unregistered lease against the appellant as the present registered proprietor of the land having regard to the effect of certain caveats.

17 It can be seen immediately that the question in Leros was not the same as the question in this case. Leros had to do with the effectiveness of an option contained in a lease. It was not considering whether or not an unregistered lease might be effective after a transfer of the property to a third party.

18 The plaintiff relied, in particular, on the following passage from the judgment of the majority (at 416 - 417):

"A covenant in a lease giving a right of renewal of the term runs with the land so that the covenant is so annexed to the land as to create an interest in the leased land. Generally speaking, such a covenant runs with the reversion as well as the land. Whether such a covenant in an unregistered lease of land under the Act runs with the reversion depends upon the provisions of the Property Law Act 1969 (WA). Section 78 of the Property Law Act provides that a covenant runs with the reversion. However, by virtue of s 6 of the Property Law Act, in the absence of express provision, the Property Law Act, so far as it is inconsistent with the Act, does not apply to land under the Act. Section 69, which, like s 78, is in Pt VII of the Property Law Act, provides that the provisions of Pt VII 'apply to leases and sub-leases of land under the Transfer of Land Act 1893, notwithstanding anything contained in that Act'. Section 7 of the Property Law Act defines the expression 'land under the Transfer of Land Act 1893' in these terms: 'any estate or interest registered under that Act.' As the fee simple of the land in question is an estate registered under the Act, Pt VII of the Property Law Act, including s 78, applies to leases of the land. Accordingly, contrary to the submission made on behalf of Leros, we take the view that an unregistered lease of land under the Act is a lease which satisfies the definition and that the option runs with the reversion. But this is not to say that Pt VII of the Property Law Act overrides the specific provision made in the concluding words of s 68 of the Act with respect to the invalidity of an option to renew. It would not be right to attribute to the general words of s 69 of the Property Law Act an intention to repeal the specific provision in s 68 of the Act."

19 The part of that statement which was focused upon by counsel for the plaintiff was the statement that "... an unregistered lease of land under the Act is a lease which satisfies the definition ..." Counsel submitted that thereafter the reasoning and the eventual conclusion could be explained by reference to the fact that it was an option which was the subject of the action. Section 68 of the Transfer of Land Act deals specifically with options. The same section does not deal specifically with leases for a term of more than five years. Hence, although it may be proper to conclude that the general terms of s 78 of the Property Law Act do not override the specific provisions of s 68 of the Transfer of Land Act with respect to options, no similar conclusion is required with respect to leases for more than five years. Rather, counsel submits, the provisions of s 78 of the Property Law Act as they are specified in that Act - a later Act than the Transfer of Land Act - to apply the covenants in the lease will run with the reversion and bind the defendant.

20 For the defendant it was argued that the Leros decision is directly applicable to this case. Section 68 protects leases which are for a period of less than five years and which are unregistered. That is a specific provision in the section and it means that those leases and only those leases are protected. It was submitted that to hold otherwise would mean any lease for whatever period would run with the reversion and the reference to leases for a period of five years or less would be rendered meaningless. To pick up the words used by the majority in Leros, it would not be right to attribute to the general words of s 69 an intention to override the specific provisions of s 68.

21 It seems remarkable that over the life of the Transfer of Land Act this question has not arisen directly in this State. But the extensive researches of counsel have indicated that there is no case which deals directly with the question. There has, of course, been some speculation in the texts as to how sections such as s 68 of the Transfer of Land Act and s 77 and s 78 of the Property Law Act interact. For example, Professor Peter Butt in "Land Law", 4th ed Thompson, LBC, 2001, says this (at [15119]):

"Still dealing with Torrens title land: if the lease is unregistered, does s 118 bind a registered assignee of the reversion to comply with the landlord's covenants in the lease? Where the lease falls within s 42(1)(d) of the Real Property Act, 1900 the answer is clear: the lease is enforceable against the registered assignee. But what if the lease does not fall within s 42(1)(d) - for example, where it exceeds three years? Here, there is some authority suggesting that the registered assignee of the reversion is bound by the covenants of the lease (provided that they touch and concern the land), even though the lease is unregistered; examples include the covenant for quiet enjoyment and a covenant entitling the tenant to renew the lease. However, the conventional view is that the registered assignee of the reversion acquires (under s 42 of the Real Property Act) an indefeasible title, free from the unregistered lease and all the landlord's obligations under it. Nevertheless, a contrary argument cannot be ignored based on the words of s 116 of the Conveyancing Act. That section makes s 118 (and s 117) applicable to leases of Torrens title land 'notwithstanding anything in' the Real Property Act. This may allow s 118 to overtop the indefeasibility of title otherwise conferred by s 42."

22 (All the references in this quote are to New South Wales Acts. There is no material difference between s 42 of the Real Property Act (NSW) and s 68 of the Transfer of Land Act. Nor is there any material difference between the Conveyancing Act (NSW) and our Property Law Act.)

23 It is interesting to note that Professor Butt refers to the Leros decision as authority for his proposition that the assignee of the reversion is bound by the covenants and for the proposition that they may not be so bound. There are references to a number of other cases including the decision in Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198. However, both the Snowlong decision and other decisions to which Professor Butt refers were decided before the High Court decision in Leros. In my view, they are of limited assistance.

24 Provisions such as s 77 and s 78 of the Property Law Act have a long history. A convenient summary of this history is found in Stein & Stone, "Torrens Title", Butterworths, 1991 at page 322. Under the heading "An Assignment of the Reversion" the learned authors say:

"At common law, covenants which touched and concerned would run with the lease but not with the reversion. However, the assignee of the reversion could proceed against or be sued on the obligations inherent in the relationship of landlord and tenant in the nature of privity of estate - these covenants were sometimes called 'implied'; for example, to pay rent. The position was altered by statute during the reign of Henry VIII in the case of deeds. Although this statute is in force in New South Wales, its provisions have been broadened by the Conveyancing Act, ss 117 and 118. Under these provisions, in essence, if the covenants have 'reference to the subject-matter of the lease', the covenant will run with the reversion. Having 'reference to the subject-matter of the lease' has been taken to mean to 'touch and concern'. If the reversion is severed (that is, if there is a lease of the reversion for longer than the lease), the immediate reversioner is bound. The provisions apply to all leases by deed or in writing but not to oral leases. It should be remembered that the original lessor remains liable on his or her covenants notwithstanding an assignment of the reversion. Conditions also run with the land and a breach will come within the provisions."

25 The legislative history of the Western Australian Property Law Act seems consistent with what happened in New South Wales. The parliamentary debates make interesting reading. The Bill was actually drafted by Mr Phillip Adams QC rather than the Attorney General's Department. A reading of the parliamentary debates makes it clear that the Bill was not intended to enact radical changes to the law of property in Western Australia. Indeed, the explanatory memorandum says of s 78 that it is:

"a codification of the existing law and provides that the burden of covenants by the lessor also passes with the reversion and continue in favour of the lessee."

26 The second case which is of relevance is the decision of Austin J in Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd [2003] NSWSC 851; (2003) 59 NSWLR 312. The facts of the case are not important for present purposes. During the course of his judgment, Austin J deals directly with the interaction between the New South Wales equivalent of our s 68 of the Transfer of Land Act and s 77 and s 78 of the Property Law Act. His Honour says (at 332 - 333):

"Nevertheless, if it is read literally, s 118 might appear capable of overriding the normal priority rules, so that the person entitled to enforce the lessor's obligation may enforce it as a right annexed to the residuary estate, even by a decree of specific performance, and even in circumstances where his proprietary interest does not have priority over the interest of the subsequent taker of the residuary estate. It is important to note, however, that s 118 creates a general rule, which applies to all lessor obligations, regardless of whether the obligation creates a proprietary interest. Whatever may be the position for old system land, the High Court has held, in Leros Pty Ltd v Terara Pty Ltd [1992] HCA 22; (1992) 174 CLR 407, that the indefeasibility provisions of the Torrens system (especially the provision that is s 42 of the Real Property Act of New South Wales) set up special rules for priority between competing proprietary interests in Torrens land, and in so doing they override the general rule created by s 118. The High Court's reasoning applies even though s 116 says that s 118 applies to leases of land under the provisions of the Real Property Act 'notwithstanding anything in that Act contained'."

27 Not surprisingly, counsel for the defendant contended that this passage provided strong judicial support for the defendant's position. Counsel for the plaintiff submitted that in the passage quoted, Austin J stated the effect of the Leros decision too widely. Counsel submitted his Honour had ignored the fact that Leros dealt with an option and options were specifically covered by the final part of s 68; not so leases for a period of greater than seven years. Counsel submitted the Heggies decision should not be followed.

28 In reaching a conclusion on this matter, there are a number of other factors to be borne in mind. The first is that although indefeasibility is an essential element of the Torrens system, it is not inviolate. In Burton v Arcus [2006] WASCA 71, the Court of Appeal was dealing with a managed investment scheme. Participants in that scheme had entered into a mortgage. Some of the members of the scheme wished to have it wound up. It was submitted by other members that the rights of the parties were governed by the mortgage and that to wind up the scheme and sell the property would violate their rights as registered mortgagees. Buss JA summarised the argument in the following way (at [138]):

"If this Court were to appoint a receiver to wind up the scheme, with power to sell the East Perth land under the mortgage, the capacity of the first respondents to maintain the deadlock which has arisen in relation to the realisation of the investors' security would, of course, be defeated. Presumably, the learned Judge, in referring to the subversion of the 'indefeasible rights' of the first respondents, had in mind their power to prevent a sale of the East Perth land, or otherwise prevent the realisation of the investors' security under the mortgage, in consequence of the requirement that the investors act unanimously."

29 Having set out the argument, his Honour went on to say (at [139]):

"Parliament may, by a clearly expressed intention in a subsequent enactment, qualify or override rights and powers which a registered mortgagee would otherwise have under the Transfer of Land Act or the mortgage."

30 So it is by no means the case that the legislature could, by the provisions of the Property Law Act, override the indefeasibility provisions of s 68. Indeed, Buss JA specifically refers to exceptions to indefeasibility which are found in the Transfer of Land Act itself: see [135]. The question here then is whether it was the intention of parliament to provide an exception to the indefeasibility principle.

31 One way of looking at this question is to ask what would the effect of s 78 be if it did not apply to a lease such as this one. It might apply to land not under the Torrens system. But there is so little land in this State not under the Torrens system that the section would have virtually no effect. This question was answered by Austin J in the Heggies decision. His Honour said (at 334):

"I therefore conclude that s 42 overrides s 118 in circumstances where they are both otherwise applicable and would produce inconsistent outcomes, but s 118 is still capable of applying where it does not operate inconsistently with s 42."

32 In my view, s 68 prevails in this case and the lease, being a lease for more than five years, was destroyed upon the defendant becoming the registered proprietor of the land. That conclusion is based upon my understanding of the decision of the High Court in the Leros case; I accept the argument put by the defendant. I have also followed the decision of Austin J in Heggies. In doing so, I am mindful that although the provisions of the Transfer of Land Act and the Property Law Act are not statutes of national application, there is sufficient identity between the regimes they embody to warrant a consistent national approach: see Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485.

33 Accordingly, under the prevailing statutory provisions, the plaintiff is not entitled to a declaration that it holds a valid lease enforceable against the defendant. I now turn to consider other grounds advanced by the plaintiff to support its position.

Fraud under s 68 of the Transfer of Land Act

34 The plaintiff's argument on this point is in two parts. First, it is said that properly construed, the contract for the sale of the land obliged the defendant to honour the Parkworld lease. By demanding vacant possession of the premises, it is said the defendant repudiated the sale contract and thereby engaged in conduct which was unconscionable and which amounted to equitable fraud under s 68 of the Transfer of Land Act. Second, and in the alternative, it is said that the unconscionable conduct arose out of the repudiation given the knowledge of the defendant of certain matters pleaded in the statement of claim. It is appropriate to deal with each of these two arguments in turn.

35 The property was sold by auction and the documents evidencing the sale include documents entitled Auction Particulars and Conditions of Sale of Freehold Property, General Conditions of Auction and the Joint Form of General Conditions for the Sale of Land. Clause 4 of the Auction Particulars refers to "leases" and notes the plaintiff's lease which is said to expire on 30 June 2011. Clause 12 of the General Conditions of Auction provides that the buyer is entitled to vacant possession of the property upon settlement "unless existing Leases are referred to in the Particulars". By cl 14 of the General Conditions of Auction, the Joint Form of General Conditions for the Sale of Land form part of the sale contract.

36 Clause 6 of those General Conditions deals with "possession and rent". Clause 6.9(a)(6) provides that on settlement of the property, the seller must provide a notice addressed to each tenant in which the seller notifies the tenant of the sale and directs the tenant to pay rent as from the date of settlement to the buyer. There is nothing in either the General Conditions or elsewhere in the sale documents which specifies whether a lease is to be enforced or not enforced post settlement.

37 It is alleged on the part of the plaintiff that the contract terms, taken together, go much further than mere notice for the purposes of immediate possession after settlement and give rise to an obligation by the defendant to honour the lease.

38 This submission from the plaintiff relied on the decision in Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604. The facts in that case are these. In order to raise funds to develop his land, the registered proprietor of land in Western Australia sold it to another, who leased it back to him for three years. The contract provided that upon expiration of the lease, the vendor would enter into a contract to re-purchase the land for $45,000 payable by a deposit of 10 per cent and the balance within 30 days. The land was subsequently sold under a contract that contained a provision by which the purchaser acknowledged the existence of the re-purchase provision of the earlier contract. The purchaser became registered as proprietor. He then told the owner that he "recognised" the re-purchase clause and would agree to sell the land for $45,000. The original owner later paid the deposit but the registered proprietor refused to sell the land.

39 The Court found that the original owner was entitled to specific performance against the registered proprietor. Various members of the High Court came to the same conclusion for different reasons. The Court was divided on whether the registered proprietor's repudiation of his recognition of the original owner's equitable interest was "fraud" for the purposes of s 68 and s 134 of the Transfer of Land Act. Mason CJ and Dawson J found that fraud can arise out of post-contract conduct. Wilson and Toohey JJ found that the relevant fraud must be fraud committed in the act of acquiring the registered title. The difference between that case and this is that there was no doubt in Bahr that there existed the re-purchase contract. Here, in my view, there is no warrant for concluding that the sale documentation, taken together, amounts to a promise on the part of the defendant to honour the plaintiff's lease. For that to be so, the issue would need to be directly addressed - perhaps even to the point of there being a clause dealing with the issue. In my view, it is not possible to draw out of the documentation in this case the contractual promise which the plaintiff seeks to rely upon.

40 By par 34.1 to par 34.8 of the statement of claim, the plaintiff pleads certain matters which it is said taken together with the contractual terms mean that it would be unconscionable for the defendant to contend that the lease was at an end. These pleaded matters really amount to the parties continuing to interact as if the lease was on foot.

41 In my view, none of these matters could justify a conclusion that there was fraud on the part of the defendant. In Leros, the majority said (at 418):

"A purchaser who takes with notice of an antecedent equitable interest, who becomes registered without fraud, takes free from that interest. To become registered with notice of a prior unregistered interest does not constitute fraud."

42 In my view, that is exactly what has happened here. It is common ground that as at the date of purchase of the property by the defendant, Mr Bagga, a director of the defendant, was well aware that the plaintiff's lease could not be enforced by the plaintiff against the defendant subsequent to the sale. Mr Bagga had legal advice to that effect. In my view, he was not obliged to tell the plaintiff of the position. Really, what the plaintiff is saying is that for the defendant to have allowed the parties to proceed as if the lease was on foot was some form of fraud. In my view, that conclusion is simply not open on the facts.

43 The plaintiff submits that there was an implied novation of the Parkworld lease arising from the terms of the sale contract and this was evidenced by the plaintiff's conduct in continuing to occupy the premises and comply with the terms of the Parkworld lease on an ongoing basis. In particular, it is said that the plaintiff's conduct in paying the increased rent and complying with other demands would be seen as implied consent. To the extent to which the contract of novation is not in writing, the plaintiff says that its conduct in complying with the request from Colliers to pay the reviewed rent and its share of outgoings is sufficient part performance within the meaning of s 34(6) of the Property Law Act. It is further said that this conduct - complying with the terms of the lease - is not explicable on the basis of holding over because the defendant did not advise the plaintiff that the lease had come to an end and that any payment of rent was on the basis of a holding over.

44 In my view, it cannot be said that there was a novation in this case. A novation, to be effective, must be a contract entered into between at least three parties. That is, there must be a meeting of minds and agreement between three parties to complete the novation: see Olsson v Dyson (1969) 120 CLR 365 at 388. In my view, there is no way in which it could be said here that there was a meeting of the minds of all three of the parties - that is, the defendant, the vendor of the property and the plaintiff. There was no participation in the agreement between the defendant as purchaser and the seller of the property.

45 Furthermore, the plaintiff says that its agreement to the novation is to be implied by its own conduct. A contract of novation cannot be based upon implied conduct: see Cook v Chas E Blanks Pty Ltd (1968) 3 NSWR 356. In my view, this claim by the plaintiff fails.

46 The plaintiff alleges that a new contract arose between the defendant and the plaintiff by the defendant's conduct in asserting the terms of the Parkworld lease against the plaintiff and the plaintiff's unqualified compliance. This conduct is not explicable on the basis of the plaintiff occupying the premises as part of a holding over or on any other basis. It is said that this conduct would constitute sufficient part performance.

47 In dealing with this and other claims by the plaintiff, it is important to bear in mind the legal position as at the moment the transfer of the property of the plaintiff was registered and thereafter. As I have indicated above, the fact of registration destroyed the plaintiff's lease of the premises. Thereafter, the plaintiff could be seen as a trespasser. But the defendant took no steps to remove the plaintiff from the premises and the parties interacted on the basis that they were landlord and tenant. And doubtless that is what they were. Initially, the plaintiff may have been a tenant at will and, when it continued to pay rent on a monthly basis, it probably became a monthly tenant. That tenancy may have been subject to all the implied rights and liabilities that are an incidence of a tenancy relationship. Or it may be that on a proper consideration of the relationship between the parties, the tenancy embodied the terms of the earlier lease. But in my view, whatever be the correct position it cannot be said that there was anything other than a landlord tenant relationship.

48 From a date prior to the purchase of the property Mr Bagga believed that on registration of the defendant's purchase of the property it would not have a lease with the plaintiff. He was right. The plaintiff may have believed it did have a lease with the defendant. Nothing in those respective positions can be so construed as to amount to a meeting of the minds which would give rise to a contractual relationship. True it is that there need not be a readily identifiable offer and acceptance before it can be said there is a concluded contract between the parties. But the parties must act in a fashion consistent with a concluded agreement. That did not happen in this case.

49 Based upon the decision of Brennan J in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, there can be said to be six elements which go to establish estoppel. First, the plaintiff must prove that it assumed a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship. Second, the plaintiff must establish that the defendant has induced the plaintiff to adopt that assumption or expectation. Third, the plaintiff must act or abstain from acting in reliance upon the assumption or expectation. Fourth, it must be shown that the defendant knew or intended that the plaintiff would so abstain from acting. Fifth, the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled. Finally, the defendant must have failed to act to avoid that detriment, whether by fulfilling the expectation or otherwise.

50 In Ramsden v Dyson (1866) LR 1 HL 129, Lord Kingsdown said that proprietary estoppel arises in these circumstances:

"The rule of law applicable to the case appears to me to be this: If a man under a verbal agreement with the landlord for certain interest in land, or, what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest, takes possession of such land, with the consent of the landlord, and upon faith of such promise or expectation, with knowledge of the landlord and without objection by him, lays out money upon the land, a Court of equity will compel the landlord to give effect to such promise or expectation."

51 Before dealing further with this aspect of the plaintiff's claim, it is necessary to return to the facts. Despite having legal advice to the effect that the lease was no longer of any force and effect, the defendant took no steps to advise the plaintiff that this was its view. Rather, it retained Colliers as its agent and Colliers proceeded to deal with the plaintiff in precisely the way that they had dealt with the plaintiff when they were acting for the previous owner. That state of affairs continued from the date upon which the property was settled until the date of issue of the termination notice. In my view, it is irrelevant when Colliers became aware that the defendant believed that there was no lease on foot. Up until the plaintiff received the notice of termination, it interacted with the plaintiff as if the plaintiff and the defendant were bound by the terms of the lease.

52 The difficulty for the plaintiff in this case is that the assumption it made as to the particular legal relationship between the parties was based upon its own misunderstanding of the position at law. That can be contrasted with what was said by Lord Kingsdown. There was no verbal agreement here between the plaintiff and the defendant pursuant to which the defendant said that the plaintiff would have an interest in the land. The plaintiff believed its interest in the land arose from the lease. That belief arose from what might be called legal self-delusion rather than a representation on the part of the defendant. True it is that the defendant continued to treat the plaintiff as though the lease was on foot. But it was not that action on the part of the defendant which led the plaintiff to its belief. It was the plaintiff's assessment of its position made in light of what it believed was a valid lease.

53 The plaintiff has a further difficulty. It is said that in consequence upon the alleged representation by the defendant that there was a valid lease, the plaintiff abstained from finding alternative premises perhaps at a rental less than the market rental applicable from July 2006. But the plaintiff did not move because it believed that its lease with the defendant was legally binding. It did not rely upon anything said or done by the defendant - at least not in any direct sense.

54 For these reasons, I am not satisfied that the defence of estoppel is made out.

55 The defendant, by its counterclaim, alleges that the plaintiff, pursuant to the termination notice, ought to have vacated the premises by 9 March 2007. Given that I have concluded that there was a monthly tenancy, I am satisfied that pursuant to the termination notice, the plaintiff should have vacated the premises.

56 For these reasons then, I am satisfied that the plaintiff's claim ought be dismissed. There ought be judgment for the defendant on its counterclaim with damages to be assessed. I will hear the parties as to the precise form of orders and as to costs.