I have set out the provisions of s 8(1)(g) above. In determining whether this provision applies, two questions arise. First, does the agreement between the parties constitute a mortgage and, second, can the Tenancy Agreement be described as an agreement that arises under a term of a mortgage which confers a right to occupy residential premises on a party to the mortgage.
Although s56 of the Real Property Act 1900 (NSW) makes provision for the manner in which a mortgage of land under the Act is to be created, it has been recognised that a mortgage can be created by registering an instrument of transfer of the legal title from the mortgagor and, at the same time, entering into an agreement that the transfer was by way of security only: Abigail v Lapin [1934] AC 491; 51 CLR 58 at 65; Currey (Registrar of Titles) v The Federal Building Society [1929] HCA 28; 42 CLR 421 at 434. The equitable interest in the mortgagor to redeem the property would be recognised at least inter parties, Barry v Heider [1914] HCA 79; 19 CLR 197 at 204-208, 213-216, and can be protected by a caveat.
The Act does not contain any definition of 'mortgage'. In Santley v Wilde [1899] 1 Ch 474 at 474-475, Lindley MR described a mortgage as a conveyance of land as security for the payment of a debt or the discharge of an obligation for which it is given.
It is well established that in considering whether a conveyance or transfer of land is in fact by way of mortgage, regard is to be had to the substance of the transaction and extrinsic evidence is admissible in cases where the real intention is in doubt: G&C Kreglinger v New Patagonia Meat and Cold Storage Company Ltd [1914] AC 25 at 36, 47; Barton v Bank of New South Wales (1890) 15 App Cas 379 at 380-381; Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98 ('Gurfinkel') at 108 per Barwick CJ (in dissent); at 115 per Windeyer J.
That the mere fact that a conveyance is coupled with an option to repurchase does not, of itself, lead to the conclusion that the transaction constituted a mortgage, even if the transaction is entered into in the confident expectation that the option will be exercised: Gurfinkel at 113 per Windeyer J citing Manchester, Sheffield and Lincolnshire Railway Company v North Central Wagon Company (1888) 13 App Cas 554 at 567, 568 and Beckett v Tower Assets Co [1891] 1 QB 1 at 25.
In the present case, there are further indications that the transaction was one by which the land was transferred as security for a loan. In particular, the failure to exercise the option, subject to one exception, did not entitle the respondent to retain title to the property. Clause 7 of the Option Agreement entitled the respondent to sell the property if the option was not exercised and to account to the applicant for any surplus over the amount owing and default interest. I have set out the definition of 'amount owing' in par [16] above. It relates effectively to the respondent's costs of the transaction, rent arrears, plus the owner's fee, which was 10% of the purchase price. This tends to suggest that the transaction was one of loan with the provision of security rather than one of sale with the option to repurchase.
The provision in cl 2(d) of the Option Agreement, to the effect that the respondent may terminate the option deed if there is a material breach of the Tenancy Agreement, and that in those circumstances the respondent has no obligation to distribute any part of the sale proceeds of the property to the applicant, in my opinion, does not alter this conclusion. Whether such a provision would constitute a penalty does not need to be considered. The clause does not alter the substance of the transaction.
The fact that the transaction is, in substance, a loan with provision of security is supported by the proposal provided by the respondent to the applicant in its letter of 22 October 2012. The proposal that was outlined in the letter was the one that was subsequently entered into. Although the proposal is described in the letter as "a purchase of your property (s) which is a commercial arrangement that provides relief to property owners in financial distress with adequate security and a return to the ARAP group of companies", the letter describes the proposal as follows:
"The ARAP Company enters into a contract for the purchase of property from the seller. The contract is designed to pay out the seller's existing debts and provide a rebate of the purchase price to give the ARAP company adequate equity to obtain finance. The seller is given an option to buy the property back from the ARAP company under the terms of the agreement. The seller is required to rent the property from the ARAP company pursuant to a Tenancy Agreement for an amount of rent adequate to cover the holding costs of the ARAP company under the Option Expiry Date. If the seller does not exercise the option to buy back the property or defaults under the tenancy agreement, the ARAP company will sell the property to a third party and retain monies owed on account of the purchase costs, holding costs (including unpaid rent, repairs, maintenance and improvements as required) and costs of sale together with the specified ARAP fee as outlined in the indicative proposal. The balance i.e. seller's retained equity if any, is distributed to the seller after the sale to a third party, providing the seller is co-operative throughout the process."
In these circumstances, it is my opinion that the transaction in question was in substance a mortgage. The property was transferred as security for the amount paid to the applicant pursuant to the contract and the additional amount to which the respondent was entitled under the Option Agreement and the Tenancy Agreement.
It remains to be considered whether the Tenancy Agreement is one which arises under a term of the mortgage.
In my opinion, this question should be answered in the affirmative. Absent the Tenancy Agreement, the effect of the transfer was that the respondent was entitled to possession of the property. Having regard to the nature of the transaction (akin to a common law mortgage), the Tenancy Agreement was a necessary ingredient to enable the applicant as mortgagor to retain possession of the premises. Although such an agreement was not necessary in the case of a mortgage entered into in accordance with the provisions of s 56 of the Real Property Act, such an instrument may provide for the registered proprietor to attorn as tenant and a rental payment to be accepted. The object of such a clause is to give to the mortgagee the remedies of a landlord as well as that of mortgagee, albeit operating by way of estoppel in the case of a Real Property Act mortgage: Partridge v McIntosh & Sons Ltd [1933] HCA 38; 49 CLR 453 at 468; Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd [1999] HCA 20; 196 CLR 245 at [24].
It follows, in my opinion, that the Tenancy Agreement arose under the terms of the mortgage and conferred the right to occupy the premises on the applicant, a party to the mortgage.
In these circumstances, s 8(1)(g) of the Act applies and the Tribunal had no jurisdiction to make the orders sought. The challenged orders therefore should be quashed.
[2]
Orders
Notwithstanding the consent orders sought, it seems to me that the conclusion I have reached and the manner in which the parties now wish the issue to be disposed of can be accommodated by making an order under s 69 of the Supreme Court Act that the decisions of the Tribunal in question be quashed. In these circumstances, I make the following orders.
1. Order that the decisions of the New South Wales Civil and Administrative Tribunal, in proceedings between the parties dated 1 July 2014, 21 August 2014 and 15 October 2014, be quashed.
2. No order as to costs.
EMMETT JA: On 19 November 2012, Mr Geoffrey Hudson and Arap 1 NSW Pty Ltd (Arap) entered into a contract (the Contract) whereby Mr Hudson agreed to sell premises located in Burraneer, New South Wales (the Premises) to Arap. Contemporaneously with the entry into of the Contract, Arap and Mr Hudson entered into a call option (the Option Agreement), whereby Arap granted to Mr Hudson the option for Mr Hudson to repurchase the Premises from Arap. The Option Agreement contained provisions whereby Arap was to sell the Premises if the option granted by the Option Agreement was not exercised. Any surplus after Arap had been repaid the amounts paid out by it were for the benefit of Mr Hudson. On completion of the Contract, Arap, as landlord, and Mr Hudson, as tenant, entered into a residential tenancy agreement in respect of the Premises (the Tenancy Agreement).
On 21 August 2014, the NSW Civil and Administrative Tribunal (NCAT) made orders that Mr Hudson's tenancy of the Premises under the Tenancy Agreement was terminated in accordance with s 84 of the Residential Tenancies Act 2010 (NSW) (the Tenancies Act) and that Mr Hudson give possession of the Premises to Arap. Mr Hudson thereupon commenced proceedings in the Common Law Division, which were transferred to this Court. By his second further amended summons filed on 11 March 2015, Mr Hudson seeks relief both under s 69 of the Supreme Court Act 1970 (NSW) and by way of appeal under s 83 of the Civil and Administrative Tribunal Act 2013 (NSW) (the NCAT Act). He asks that the relevant orders made by NCAT be quashed or set aside.
The question in the proceedings is whether NCAT had jurisdiction to make an order for the termination of the tenancy under the Tenancy Agreement. Under s 84(1) of the Tenancies Act, a landlord may, at any time before the end of the fixed term of a fixed term agreement, give a termination notice for the agreement that is to take effect on or after the end of the fixed term. Under s 84(3), NCAT must, on application by a landlord, make a termination order if it is satisfied that a termination notice was given in accordance with s 84 and the tenant has not vacated the premises as required by the notice. Under s 187(1)(i), NCAT may, on application by a landlord, make a termination order or an order for the possession of the premises. Section 28(1) of the NCAT Act provides that NCAT has such jurisdiction and functions as may be conferred or imposed on it by or under the NCAT Act or any other legislation.
The question of whether NCAT had jurisdiction to make the orders presently under challenge depends upon whether the Tenancy Agreement arose under a term of a mortgage within the meaning of s 8(1)(g) of the Tenancies Act. The Tenancies Act applies to residential tenancy agreements in respect of residential premises (s 6). However, under s 8(1)(f), the Tenancies Act does not apply to an agreement for the sale of land that confers a right to occupy residential premises on a party to the agreement. Under s 8(1)(g), the Tenancies Act does not apply to an agreement that arises under a term of a mortgage and confers a right to occupy residential premises on a party to the mortgage. Under s 13, a residential tenancy agreement is an agreement under which a person grants to another person for value a right of occupation of residential premises for the purpose of use as a residence. The Premises are residential premises for the purposes of the Tenancies Act.
I have had the advantage of reading in draft form the proposed reasons of the Chief Justice for concluding that the transaction in question was, in substance, a mortgage. On completion of the Contract, the legal estate to the Premises was transferred to Arap as security for the amount paid to Mr Hudson pursuant to the Contract and the additional amounts to which Arap was entitled under the Option and the Tenancy Agreement. The Option Agreement, in effect, constituted a proviso for redemption of the mortgage, and the Tenancy Agreement an attornment by Mr Hudson as tenant to Arap as landlord, since Mr Hudson was to remain in possession of the Premises following the transfer of the legal estate to Arap. I also agree with the Chief Justice that the Tenancy Agreement arose under the terms of that mortgage and conferred the right to occupy the Premises on Mr Hudson as a party to the mortgage.
In those circumstances, I agree that s 8(1)(g) of the Tenancies Act applies and that NCAT had no jurisdiction to make the relevant orders. I agree with the orders proposed by the Chief Justice.
BERGIN CJ in Eq: I agree with Bathurst CJ.
[3]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 14 May 2015
Solicitors:
David Robert Legg, Burridge & Legg (Applicant)
Kemp Strang and Sarina Roppolo, Kemp Strang Lawyers (First Respondent)
File Number(s): 2014/309582
Decision under appeal Court or tribunal: New South Wales Civil and Administrative Tribunal
Jurisdiction: Appellate Interlocutory; Divisional Final; Appeal Panel
Citation: [2014] NSWCATAP 30; [2014] NSWCATAP 61
Date of Decision: 1 July 2014; 21 August 2014; 15 October 2014
Before: S Westgarth, Deputy President, A Scahill, Senior Member; K Rosser, Tribunal Member; Wright J, President, M Harrowell, Principal Member
File Number(s): AP14/0017; RT13/66464; AP14/0371
Do the agreements fall within s 8(1)(f) of the Act
The principles concerning construction of statutory provisions are well established. As was stated by the plurality of the High Court in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) [2009] HCA 41; 239 CLR 27 at [47], "the task of statutory construction must begin with a consideration of the text itself. … The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy." See also Certain Lloyd's Underwriters v Cross [2012] HCA 56; 248 CLR 378 at [23]; Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [69].
In the present case, the section is designed to exclude from the protective provisions of the Act an agreement which confers a right to occupy a residential premises where the right is not conferred by an agreement operating as a lease or licence, but by a contract for the sale of land.
In this context, the section may be contrasted with its predecessor, s 6(1)(a) of the Residential Tenancies Act 1987 (NSW), which provided that the Act did not apply to a residential tenancy agreement if the tenant was party to an agreement made in good faith for the sale or purchase of residential premises.
Although neither the Second Reading Speech which introduced the 2010 Act nor the Law Reform papers referred to in that Speech made any reference to the reason for the change in the provision, it seems to me that the amendment makes it clear that the right to occupy must be conferred by the contract for the sale of land itself.
In the present case, the applicant submitted that there were two bases on which the Tribunal mischaracterised the agreement in reaching its conclusion. The first was that the Tenancy Agreement was a constituent part of the contract. The second was that the Tenancy Agreement did no more than regulate a pre-existing right of occupancy conferred by the contract.
I do not think, as a matter of construction, that either of these submissions can be made out. The contract itself confers no right of occupancy. Clause 41.1 first contains an acknowledgement that the vendor occupies the property at the date of the contract. That part of the provision does not confer any right to possession but simply acknowledges the position that the applicant was entitled to possession as registered proprietor of the land.
The latter part of cl 41.1 of the contract makes it clear that the position of the parties post-completion was subject to the parties entering into a Tenancy Agreement. Although the contract for sale provided in cl 41.2 that completion of the contract was subject to the parties entering into such agreement, there was no express obligation in the contract for this to occur.
If in fact there was no contractual obligation to enter into the Tenancy Agreement, but it was merely a pre-condition to completion, then it could not be said that the contract for sale conferred the right to occupy.
It is by no means clear in the present case whether the contract contained an implied term that the parties would co-operate to give each other the benefit of the contract for sale by entering into the Tenancy Agreement. Terms will readily be implied that neither party to a contract will do anything calculated to hamper the other in the performance of the contract: Stirling v Maitland & Boyd (1864) 5 B&S 840 at 852. Further, in circumstances where parties have agreed that something shall be done that cannot be done unless both parties concur in doing it, a term will be implied that each party will co-operate in doing all that is necessary on his or her part for the carrying out of the agreement: Mackay v Dick (1881) 6 App Cas 251. However, as Mason J pointed out in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; 144 CLR 596 at 607-608, it is not as easy to make this implication where certain acts are necessary to entitle the other contracting party to the benefit of the contract but are not essential to the performance of that party's obligations. His Honour pointed out that the implication depends on the intention of the parties as manifested by the contract itself. See also Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 at 124-125.
In the present case, where no deposit was required to be paid and, in a very real sense, no contractual obligation arose until the Tenancy Agreement and Option Agreement were signed, it may be doubtful that the contract of sale imposed an implied obligation on the parties to sign the Tenancy Agreement. However, even if it did, the right of occupancy post-completion would be conferred by the Tenancy Agreement not the contract for sale itself. In these circumstances, the exclusion contained in s 8(1)(f) of the Act does not apply.
In the written submissions filed by the applicant, it was contended, in the alternative, that the contract conferred an equitable lease for the term of the Tenancy Agreement under the principle in Walsh v Lonsdale (1882) 21 Ch D 9 at 14-15. However, for such an equitable lease to exist, it would be necessary to imply a term in the contract for sale that the respondent was obliged to enter into the Tenancy Agreement. This obligation must have been capable of being specifically enforced: Chan v Cresdon (1989) 168 CLR 242 at 252-253. This in turn depends whether there was an implied obligation to enter into the Tenancy Agreement (see pars [33] and [34] above). However, even if there was, the right of occupancy would be conferred by that Tenancy Agreement not by the contract itself.
It follows that the Tribunal was correct in concluding that the exception in s 8(1)(f) of the Act did not apply.