Lean v Clarence Property Corporation Ltd

Nature of the appeal 16Sections 39(1), 40(1) and 41(1) of the Local Court Act 2007 provide: "39 Appeals as of right (1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court may appeal to the Supreme Court, but only on a question of law." "40 Appeals requiring leave (1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court on a ground that involves a question of mixed law and fact may appeal to the Supreme Court but only by leave of the Supreme Court." "41 Determination of appeals (1) The Supreme Court may determine an appeal made under section 39 (1) or 40: (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal." 17It was not clear whether Mr Lean sought to invoke s 40(1). To the extent it is relevant, I will consider that provision in the context of the various challenges made by Mr Lean to his Honour's judgment, bearing in mind that the leave requirement in s 40(1) is meant to operate, inter alia, as a constraint "upon the overall cost of litigation" (Coulter v R [1988] HCA 3; 164 CLR 350 at 359 per Deane and Gaudron JJ).

18Although I have already set out the terms of clause 1.1 of the Deed at [7] above, it is necessary to set it out in the context of the other relevant parts of the Deed: "1. Interpretation For the purposes of this deed: 1.1 'Lessor' means Robina Land Corporation Pty Ltd ACN 010 159 387 together with executor/s, administrator/s, successors or assigns as the case may be. 1.2 'Lessee' means Dog & Parrot Tavern Pty Ltd ACN 098 275 113 together with executor/s administrator/s, successors or permitted assigns as the case may be. 1.3 'Lease' means the lease of the Premises ... between the Lessor and the Lessee and includes any extension renewal or variation of it and any occupancy of the Premises by the Lessee. ... 2. Guarantee The Guarantor hereby jointly and severally unconditionally guarantees to the Lessor that the Lessee shall at all times punctually discharge all its obligations under the Lease. ... 5. Acknowledgement The guarantor expressly acknowledges: ... 5.2 that the transfer of the whole of the Lessor's interest in its reversion will operate to assign the benefit of this Guarantee and Indemnity to the transferee as if the Guarantor and transferee had done so expressly. ... 6. No effect The obligations of the Guarantor will remain in full force and effect until the obligations of the Lessee under the Lease have been fully discharged and satisfied and shall not be abated, suspended, abrogated, varied or affected by: ... 6.3 any variation in the obligations and liabilities contained in the Lease whether made with or without the knowledge or consent of the Guarantor; ..." (emphasis added) 19Under clause 2, the obligation that Mr Lean guaranteed was those of the "Lessee", ie Dog & Parrott, "under the Lease". The definition of "Lease" was potentially very wide in that it embraced "any occupancy of the [p]remises by [Dog & Parrott]". However the obligation was only owed by Mr Lean to someone who answered the description "Lessor" in clause 1.1 i.e. Robina or its "executor/s, administrator/s, successors or assigns". 20As I will explain, there was a debate before me as to the meaning of "successors or assigns". Clause 5.2 partially addresses the position of an incoming purchaser or transferee but only in the case of a party who received the benefit of a "transfer of the whole of the Lessor's interest in its reversion". On either of the constructions put forward by the parties (see below at [39]), such a purchaser or transferee would still answer the description "assignee" in clause 1.1. A transfer of the reversion occurs when the freehold is purchased or transferred subject to the lease (see MacDonald et al, Real Property Law in Queensland, Law Book Co (3rd Ed) 2010 at [14.890]). Thus, even where there is no contractual assignment, the incoming transferee of land burdened by a registered lease effectively receives the benefit (and burden) of an assignment of the lease by operation of law. 21By the time Clarence became the registered proprietor there was a registered lease naming Dog & Parrot as lessee. It was not in dispute that it became bound by that lease. Thus it took a transfer of the whole of the Public Trustee's interest in its reversion and was therefore a successor to or assignee from the Public Trustee within the meaning of the definition of "Lessor" in clause 1.1. However, as I will explain, as the argument developed on the appeal the critical issue became whether the Public Trustee was a successor to or an assignee from Robina.

The judgment below 22Before his Honour, Mr Lean raised two principal defences which were expanded upon in the appeal before me. 23First, Mr Lean contended that, as Robina never executed the lease, it never came into effect and thus there was no obligation that was guaranteed by him under the Deed. As there was no such obligation, he said it was not capable of being transferred or assigned either to the Public Trustee or subsequently to Clarence. He submitted that the subsequent handwritten addition of the words describing the lessor as the Public Trustee could not operate to expand the obligations he guaranteed when he executed the Deed. 24This primary argument of Mr Lean had another component which emerged during argument before his Honour in the following way. In response to the point taken on behalf of Mr Lean that Robina never executed the lease, Counsel for Clarence relied on various extrinsic evidence and the fact of occupation and payment of rent to support a contention that Robina became bound by the lease even though it did not execute it. Counsel for Clarence then contended that Public Trustee was an assignee "of the lessor's right title and interest in the lease" and pointed to clause 5.2 of the Deed. In response to that contention it was submitted on behalf of Mr Lean that there was "no evidence that could possibly support such any such assignment". It was further submitted that, even there was, whatever lease was in force up to September 2007 ceased upon registration of the written lease in 2007 and the Deed did not extend to guarantee that lease. 25Second, it was contended on behalf of Mr Lean that the guarantee effected by the Deed was discharged by reason of the various amendments to the lease that were made after December 2006 which were said to materially alter Mr Lean's position. 26The structure of his Honour's reasons was that his Honour summarised in some detail the case for each party. Then, under the heading "Court's Finding", his Honour stated, inter alia : "Alterations, handwritten alterations, were made to the Lease document after Mr Lean had signed the document. All of the alterations including the limitation provisions were done not only in consultation with, but with the express approval of the Company executing the Lease, Dog and Parrot Tavern Pty Ltd. ... Not one of those amendments, in the view of this court, were material to the respective obligations of the parties under the Agreement. The Lease Agreement remained fundamentally an obligation by the Lessee Dog and Parrot Tavern Pty Ltd to Lease the property at Robina from 10th August, 2006 until 2013 and to pay the agreed Lease Fee. The [Deed], specifically and expressly envisaged in clause 5.1 and 5.2 an assignment of benefit which was clearly the position in this case. The obligations provided for and guaranteed under the Agreement, on the evidence specifically of Mr Karika were complied with from inception or 10th August, 2006 notwithstanding non registration of the Lease Agreement for some appreciable time into 2007. Indeed they continued for some appreciable time, even post Public Trustee of Queensland assuming an interest. There is no contradictory or conflicting evidence to assert otherwise than that Dog and Parrot Tavern Pty Ltd were in possession of the subject property from August 2006 and continued to so occupy or trade from those premises until 2010. There has been no issue that from inception Dog and Parrot Tavern Pty Ltd were honouring the terms of their Agreement or Lease. There is no material to assert or find otherwise than that everyone adhered to the terms and conditions of the Lease. ... The alterations [to the lease] in the present case in no way alter the nature of the obligation which Mr Lean undertook." (emphasis added) 27There was some dispute about the scope and effect of his Honour's findings. I read them as at least including findings that: (i) Dog & Parrott went into possession of the premises in August 2006; (ii) Robina and Dog & Parrott became bound by the terms of the lease; (iii) the Public Trustee and Dog & Parrot became bound by the terms of the lease; and (iv) the alterations to the lease were not material (and thus did not discharge the guarantee within the Deed);

Occupancy and Lease binding on Robina 28The first complaint by Mr Lean concerned his Honour's finding that Dog & Parrot went into possession of the property from August 2006. It was said that there was no evidence to support that finding (see Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; 241 CLR 390). The lease schedule signed by Mr Lean on behalf of Dog & Parrot on 5 December 2006 referred to a commencement date for the term of the lease of 10 August 2006, which suggests that was the date upon which occupation commenced. Further, there was correspondence tendered before his Honour from Dog & Parrot's solicitors referring to an anticipated commencement date for trading of 10 August 2006. 29Accordingly there was some evidence to support the finding that Dog & Parrot went into occupation in August 2006. In fact there was considerable evidential support for it. I reject the challenge to this finding to the extent that it is said to involve an error of law and refuse leave to challenge it on any wider basis. 30Next, counsel for Mr Lean sought to challenge so much of his Honour's judgment as involved a finding to the effect that both Robina and Dog & Parrot became bound by the terms of the lease as recorded in the written document some time prior to the transfer of ownership of the property to the Public Trustee ("everyone adhered to the terms and conditions of the Lease"). This was a finding of mixed fact and law. To the extent it involves questions of law, it involves two propositions. The first is that Robina could have become bound by the lease even though it had not executed it. This is obviously correct. 31The second proposition is that there was some evidence to support the finding that it did become bound by the lease (Kostas). In my view, there clearly was some evidence capable of supporting that finding. 32I have already rejected the challenge to the finding that Dog & Parrot had gone into occupation of the premises in August 2006. Further, there was tendered before his Honour a significant amount of correspondence between the solicitors for Dog & Parrot and their client, and between them and the solicitors first acting for Robina, and then later acting for the Public Trustee. His Honour referred to some of this material in his judgment. It included a letter dated 17 July 2006 from Dog & Parrot's solicitors to Dog & Parrot confirming an understanding that the "Agreement for Lease [was] immediately binding and [bound] the parties contractually prior to the commencement of the Lease". It also included correspondence from Robina's solicitors dated 4 August 2006 enclosing a copy of the lease, and correspondence between Dog & Parrot's solicitors and Robina's solicitors dated 30 November 2006 confirming that they would both exchange executed copies of the lease. This material provided some evidence that, just prior to the date of occupation of the property by Dog & Parrot, both parties were in possession of a form of lease in the same or very similar terms to that executed by Mr Lean on 5 December, that at least by November 2006 both parties were proceeding upon the basis that it was binding, and that by early December 2006 the version signed by Mr Lean had been forwarded to Robina. Further, there was nothing in any of that correspondence to suggest that rent was not otherwise being paid in accordance with the terms of the lease. 33In my view, the combination of this material was more than sufficient to provide some evidence to support his Honour's finding that Robina and Dog & Parrot became bound by a lease in the form of that signed by Mr Lean at some point prior to the Public Trustee becoming the registered proprietor of the premises. To the extent that there was a challenge to his Honour's finding to that effect, then I reject it. It did not involve an error of law. Further no matter has been raised which warrants any grant of leave under s 40(1) to conduct any wider investigation in respect of it. 34Counsel for Mr Lean also submitted that his Honour's finding that Robina became bound by a lease with Dog & Parrot even though it did not execute it, was outside the case pleaded by Clarence and which his client sought to meet. He referred to paragraphs 3 and 5 of the Statement of Claim. Paragraph 3 of the Statement of Claim pleaded that the Public Trustee was the registered proprietor of the premises in August 2006. This was obviously a mistake. At the hearing before his Honour, Clarence relied upon an affidavit which annexed various documents concerning the registered ownership of the premises. This material made it clear that, as at August 2006, Robina was the registered proprietor of the premises. In my view, both parties conducted their cases upon an acceptance that paragraph 3 of the Statement of Claim was incorrect, and that the correct position was as stated in that affidavit. 35Paragraph 5 of the Statement of Claim was as follows: "In or about 10 August 2006 [Dog & Parrot] entered into a lease agreement with the Public Trustee for the lease of the property for a term commencing 10 August 2008 and expiring on 10 August 2013 (the 'lease')." 36To the extent that this refers to the entry into of a lease agreement "with the Public Trustee" on 10 August 2006, then, as I have stated, it was obviously a mistake which both parties recognised and coped with. Otherwise, there is no discrepancy between this paragraph of the pleading and his Honour's finding. This paragraph does not confine itself to a lease that was executed by both parties. Was the Public Trustee a successor or assignee of Robina? 37It follows from the analysis in [19]-[21] above that, for Clarence to succeed before his Honour, it had to demonstrate that the Public Trustee answered the description of "Lessor" in the Deed and, in particular, that it was a "successor or assign" of Robina. The next part of Mr Lean's challenge contended that there was no evidence to support it being so characterised. To the extent that his Honour's findings were to the contrary, it is said by Mr Lean that his Honour erred in law. 38During oral argument on 8 October 2012 both Counsel for the parties and I proceeded on the basis that, if Robina and Dog & Parrott were both bound by an unregistered lease prior to the transfer, then upon the Public Trustee's registration as the new owner it became bound by that lease. If that were so it would become the transferee of Robina's "interest in its reversion" and on any view it would be either a successor or an assignee for the purposes of clause 1.1. To his credit Counsel for Mr Lean thought further about his concession and sought a short adjournment to reconsider his position. He subsequently filed supplementary submissions pointing out that the exceptions to indefeasibility provided for in s 184(3) and s 185 of the Land Title Act 1994 (Qld) would only enable a "short lease" to survive registration of the Public Trustee as the new registered proprietor. A "short lease" is defined in Schedule 2 to the Land Title Act 1994 (Qld) and does not include any lease extending beyond a period of three years. The lease signed by Mr Lean was for seven years. It was therefore submitted that, in the absence of "fraud" for the purposes of s 184(3)(b) of the Land Title Act of which there was no evidence and no finding, the Public Trustee did not became bound by any unregistered lease between Robina and Dog & Parrott (see Leros Pty Ltd v Terara Pty Ltd [1992] HCA 22; 174 CLR 407). I accept this submission. 39It follows that before his Honour there was no evidence that the Public Trustee was the assignee of Robina's "interest in its reversion" within the meaning of clause 5.2 of the Deed. This leads to the question of how the Public Trustee could fall within the definition of "Lessor" in clause 1.1 of the Deed and, in particular, whether it fell within the phrase "successors or assigns" vis-à-vis Robina. This reduced to a question of whether that phrase meant successor or assignee of title to the land, as contended by Clarence, or a successor or assignee of the lessor's rights and obligations under the lease, as contended by Mr Lean. 40Counsel for Clarence referred me to the following passage from Broadwater Hospitality Management Pty Ltd v Primewest (Lot 4 Davidson Street Kalgoorlie) Pty Ltd (No 2) [2010] WASCA 174 at [58] to [59] (per Pullin, Newnes and Murphy JJA): "58. The question then is whether the respondent falls within that description. In PP Consultants Pty Ltd v Finance Sector Union [2000] HCA 59; (2000) 201 CLR 648, the High Court pointed out that decisions on the meaning of 'successor and 'assigns' in other factual situations are of little assistance. The meaning must be determined having regard to the context in which the term is used. 59. In the present context, we do not think any difficulty arises in that respect. In the lease, 'successors and assigns' plainly includes a person who takes a transfer of the fee simple in the land from Kareelya and thereby becomes entitled to the benefit of the covenants entered into between the Lessee and the Lessor. See, for example, Friary Holroyd and Healey's Breweries Ltd v Singleton [1899] 1 Ch 86 at 90. The effect of s 77 of the PLA is that upon becoming registered proprietor of the land, the respondent became entitled to the benefits of the Lessee's covenants under the lease. In our view, the entitlement of the respondent to receive the Additional Rent under cl 3.8 was within the terms of the approval given by the Director." (emphasis added) 41If anything, this passage supports Mr Lean's position. Although the passage refers to someone who, by registration as owner of the fee simple becomes a successor or assignee, it is only in the circumstance where "thereby [they became] entitled to the benefit of the covenants entered into between" a previous owner as lessor and lessee. In effect, this passage from Broadwater is describing the transfer of a reversionary interest. 42Counsel for Mr Lean pointed me to a number of matters indicating that, in context, "successors and assigns" in clause 1.1 could only mean an entity succeeding to or receving an assignment of the benefit of covenants entered into by a lessee. First, clause 1.1 is concerned with the definition of "Lessor". Second there are the provisions of clause 5.2 to which I have referred. Third and most importantly there is the scope of the obligations being guaranteed which are concerned with Dog & Parrot's obligations under a lease. I accept those submissions. 43In Broadwater at [58] the Full Court of the Supreme Court of Western Australia emphasised the need to consider the phrases "successor" and "assignee" in context (apparently citing PP Consultants Pty Ltd v Finance Sector Union of Australia [2000] HCA 59; 201 CLR 648 at [29] per Callinan J). In this case, the context of the Deed points to both the definition of Lessor and Lessee both being concerned with the original lease and those who succeeded to or received an assignment of the benefits and burdens of that lease whether by operation of law or contractual assignment. 44It is not clear whether his Honour purported to make a finding that would bring the Public Trustee within that concept. However, even if his Honour did, based upon my construction of the Deed there was no evidence to support any such finding and it was erroneous in law (Kostas). The more preferable construction of his Honour's reasons is that his Honour only found that, after the Public Trustee became the registered proprietor, the Public Trustee agreed with Dog & Parrot to the terms of a lease which were the same as those which bound Robina. However that did not make the Public Trustee a successor or assignee of Robina and consequently did not make it a "Lessor" as defined in clause 1.1. The consequence of this is that the Public Trustee was not a party to whom Mr Lean agreed to provide any guarantee in favour of. Clarence was in no better position. It was an assignee or successor of the Public Trustee but it could not trace a line of succession or assignment of a lessor's obligations and rights back to Robina. 45The remaining issue for this aspect of the appeal is the effect of the handwritten addition of the words "Public Trustee of Queensland" in the place of Robina on clause 1.1 the Deed. If I had found that the Public Trustee satisfied the definition of "Lessor" in clause 1.1, then this annotation would have simply reflected the operation of law to the events that had transpired. However, as I have reached the opposite conclusion and as his Honour found that the words were included without Mr Lean's knowledge, it follows that, at the very least, they were not operative to make the Public Trustee the "Lessor". This conclusion makes it unnecessary to embark upon the further step of considering whether an application of the rule in Pigot's Case (1614) 11 Co Rep 26b; 77 ER 1177, which I was informed is still applicable in Queensland, meant that annotation rendered the entire Deed void (see Farrow Mortgage Services Pty Ltd (in liq) v Slade & Nelson (1996) 38 NSWLR 636 at 646-647 per Cole JA; cf s 184 Conveyancing Act 1919 (NSW)). 46The end result is that, on the proper construction of the Deed and in the absence of any evidence that the Public Trustee took an assignment of any lease binding on Robina and Dog & Parrot, then Clarence's claim against Mr Lean had to fail. Accordingly I will allow the appeal.

Remaining Issues 47Mr Lean also contended that his Honour's reasons were inadequate in various respects said to warrant interference under ss 39(1) and 41(1) of the Local Court Act (see Pettitt v Dunkley [1971] 1 NSWLR 376 at 389). At their highest these complaints could have only led to the matter being remitted to the Local Court for a further hearing and decision (see Pettitt at 392). As Mr Lean will obtain a verdict in his favour it is not necessary to further consider these complaints about his Honour's reasons. 48Mr Lean also contended that, even if there was a lease in force between the Public Trustee and Dog & Parrot in 2007 that he guaranteed, various amendments agreed to in 2007 operated to discharge the guarantee given in the Deed (see Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; 162 CLR 549 at 557-560). It is unnecessary to detail the changes because this contention is answered by clause 6.3 of the Deed extracted in [18] above (Bond v Hongkong Bank of Australia Ltd (1991) 25 NSWLR 286 at 298E, per Gleeson CJ).

Conclusion 49Mr Lean is entitled to succeed in his appeal and have the verdict against him set aside. Even though the point he succeeded on was not at the forefront of his submissions in the Local Court it was raised. I will order Clarence to pay Mr Lean's costs of these proceedings and in the Local Court. If either party seeks to contend for a different form of costs order then they should make application within the period allowed by the Uniform Civil Procedure Rules 2005 r 36.16(3B). A copy of any notice of motion that is filed should be provided to my Associate. 50Accordingly I order as follows: (1)The Appeal be allowed. (2)The orders made by the Local Court on 3 May 2012 in proceedings number 2011/327799 be set aside. (3)In lieu thereof: (a)judgment for the Defendant in Local Court proceedings 2011/327799. (b)the Defendant in this Court pay the Plaintiff in this Court's costs of Local Court proceedings 2011/327799. (4)The Defendant pay the Plaintiff's costs of these proceedings.

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