The Effect of the Contract of Sale
64 The defendants assert that the contract between Ceedive and Tagus required Ceedive to recognise the rights of the persons described in the Schedule 1 to the contract. Ceedive, having acknowledged or agreed, it is submitted, to recognise such interests as the residents had in relation to the houses, took the land subject to an express or constructive trust on those terms. Special condition 1, set out above in paragraph 6, created an obligation, it is argued, not to repudiate or derogate from the interest of any resident which may be enforced against Ceedive by the person for whose benefit the condition is inserted: the defendants rely upon the decision of the High Court Bahr & Anor v Nicolay & Ors (No 2) (1988) 164 CLR 604 and the decision of Wood J in Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198. To these I shall return shortly.
65 The proper construction of special condition 1, the defendants argue, is that it expresses the parties' intention that Ceedive undertakes obligations as might be enforceable against the vendor. It expresses the convention on which the tenants and the landowner have ordered their affairs, in that it expressly states that the ownership of the land is separate from the ownership of the dwellings. The words of the condition reveal, the defendants argue, an intention that Ceedive will be bound by "whatever rights" the persons have in relation to those dwellings. This obligation goes beyond that imposed under the doctrine of constructive notice, in which a purchaser of land is fixed with notice of matters they might have learned had they made the sort of inquiries a reasonably prudent purchaser would be expected to make (Hunt v Luck [1902] 1 Ch 428, Marsden v Campbell (1897) 18 LR(NSW)Eq 33). The plaintiff argues that if a person other than the owner of land is in possession of land the obligation of a reasonably prudent purchaser is to make inquiries of the person in possession; Mr O'Connor admitted that he did not make those inquiries. Constructive notice, it is argued, is not enough by itself to subject a registered proprietor to prior interests of which they had quote "mere" notice before becoming registered: s 43 Real Property Act. Ceedive had not only agreed to protect the rights of the owners of the houses described in the Schedule but it agreed not to require the vendor to provide information in respect of them. It is argued for the defendants that Ceedive cannot now shelter behind any ignorance or misunderstanding as to the defendants' rights: "it took the risk, in failing to enquire, that those would be more substantial than they had assumed".
66 These submissions, with respect to the defendants, present an optimistic construction of special condition 1. I find that on its proper construction it does no more than contain an acknowledgment by the plaintiff that there were 29 "dwellings" erected on the property. Ownership of those "dwellings, as distinct from the land on which they stand" is vested in persons other than the vendor. The condition provides that Ceedive purchased the "land" subject to whatever rights those respective persons shown in the Schedule have in relation to "those dwellings" and will not call upon the vendor to provide any information other than what is contained in the agreement itself. As a matter of construction and consistency of construction, the second reference to "those dwellings" must refer to "those dwellings, as distinct from the land on which they stand", referred to on the first occasion in the "acknowledgement". I hold that all the special condition amounts to is a contractual obligation as between the vendor and purchaser Ceedive, which gave rights to no one else. It was restricted to protecting Tagus, the vendor, from having the plaintiff complain about the listed persons' rights in their "dwellings as distinct from the land on which they stand". The plaintiff, in other words, could not decline to complete the purchase, or seek to terminate the contract, because it discovered that Tagus did not have title to such dwellings in the distinct sense, or because one of the named persons in the Schedule claimed to own a dwelling (in the same distinct sense) on the land listed against that person by reference to rate notice number in the Schedule. Ceedive never failed to recognise the rights of the defendants in the "dwellings as distinct from the land on which they stand", so no issue arose between contract and completion of the transfer. There being no express provision to the contrary, the special condition would have merged on completion in any event.
67 Thereupon, on registration, the plaintiff obtained indefeasibility of title pursuant to s 42 of the Real Property Act.
68 I do not consider it to be in any way anything other than the implicit right of the lessor to increase the ground rent under a weekly tenancy. Indeed it was consistent to a great extent insofar as it is relevant to the course adopted by Ceedive's predecessors. There is no conflict in that history and the steps taken by Ceedive with the acknowledgement in special condition 1. The defendants have chosen to ignore their understood obligations to pay rent. It can be held, and I do so hold, that not paying rent was a breach of their weekly ground leases of which they had knowledge with the consequence at law of termination, which could be effected and proceedings for possession instituted. The plaintiff has not breached special condition 1: it has and continues to recognise the defendants' interest in the "dwellings" - "as distinct from the land" on which the dwellings sit.
69 Bahr (No 2), supra, is a very difficult case which must be understood in the light of its very particular and different facts, which involved conduct of the purchaser / registered proprietor outside the contract. The relevant facts have been usefully summarised by Wood J in Snowlong at 205 B - C:
"In Bahr v Nicolay [No 2] , the facts shortly stated were as follows: The appellants, the Bahrs, by contract sold a parcel of land to the first respondent, Nicolay, who leased it back to them for three years. That contract (by cl 6) provided that upon expiration of the lease, the Bahrs would enter into a contract to re-purchase the land. Nicolay then sold the land to the second respondents, the Thompsons, under a further contract which contained a provision (cl 4) by which they acknowledged the existence of the re-purchase provision of the earlier contract. The Thompsons became registered as proprietors and informed the Bahrs that they recognised the re-purchase clause and would agree to re-sell the land on its terms. Subsequently they refused to sell the land."
70 His Honour, with respect, usefully analyses the various approaches taken by their Honours in the High Court.
71 At 206 A - D, his Honour said this in relation to the judgments in Bahr (No 2):
"All members of the court (Mason CJ and Dawson J (at 613), Wilson J and Toohey J (at 630-631) and Brennan J (at 652-653)) confirmed the well recognised principle that there is no fraud on the part of a registered proprietor in merely acquiring title with notice of an existing unregistered interest, and then refusing to acknowledge its existence, or in taking a transfer with knowledge that its registration will defeat such an interest: Mills v Stokman ; Waimiha Sawmilling Co v Waione Timber Co ; Oertel v Hordern ; Friedman v Barrett; Ex parte Friedman and Achatz v De Reuver .
Similarly, all members of the court (Mason CJ and Dawson J (at 613), Wilson J and Toohey J (at 637-638) and Brennan J (at 653-654)) confirmed that neither of the relevant sections, nor the principles of indefeasibility, preclude a claim to an estate or interest in land being asserted against a registered proprietor, where it arises out of the acts of the registered proprietor himself : Barry v Heider ; Breskvar v Wall and Frazer v Walker . This applies both to equities arising out of transactions with or conduct by the registered proprietor occurring before registration ( Logue v Shoalhaven Shire Council , as well as afterwards ( Barry v Heider ), so long as the recognition and enforcement of the equity does not involve a conflict with the indefeasibility provisions." (Citations omitted).
72 These principles are apposite here. I am of the view that there was no majority of the Court in Bahr that reached agreement that could be identified as the ratio of the decision itself.
73 In Snowlong, in the end, an alternative ground for his Honour's decision also involved fraud. I am of the view that Bahr and Snowlong are distinguishable.
74 To the extent that the defendants suggest that special condition 1 imposes some obligation upon the purchaser (Ceedive) to make enquiries about the terms on which the tenants claim to hold "the land", that is a misconstruction of the special condition. Further, I am of the view that special condition 1 does not impose any obligation on Ceedive to investigate that matter. What the contract, including special condition 1, disclosed via the Schedule was that at least as at 25 May 1999 the land described by the various listed rate notice numbers were on weekly ground leases led to the persons listed. As the plaintiff has argued, in any event, the vendor was saying that they still led to those persons on 12 August 1999 by weekly ground leases at those rentals. If that is the situation, it does not matter: the purchaser was on notice under s 42(1)(d) of the listed weekly ground tenancies. In such circumstances there was no obligation on Ceedive to make further enquiries. Beyond that, the plaintiff was protected by s 43(1). As to the defendants' submissions as to constructive notice being insufficient, that I accept, as the plaintiff submits, misstates the effect of the special condition. The highest that s 42(1)(d) of the Real Property Act takes the defendants is that the plaintiff held the land on registration subject to the weekly ground tenancies of which it had notice. Section 42(1)(d) refers to a "tenancy" - it does not refer to other "rights" or "interest". Thus s 43 as well as s 42 itself protects against those in any event: none has been proved to my mind.