Mercantile Credits Ltd v Shell Co Of Australia Ltd

High Court of Australia|1976-07-01|Before: Stephen JJ

High Court of Australia Barwick C.J. Gibbs and Stephen JJ. Mercantile Credits Ltd v Shell Co Of Australia Ltd [1976] HCA 9

On 28th October 1958, the then registered proprietor under the provisions of the Real Property Act, 1886-1945 S.A. ("the Act") of the fee simple in land situate at the corner of Main South Road and English Avenue, South Road Park, by memorandum of lease, leased that land to the respondent in this appeal for a term commencing on 1st March 1959 and expiring on 28th February 1969, with certain rights of renewal. These rights are contained in cl. 2 (d) and 2 (e) of the memorandum. I set them out in full:

(d) The lessee duly paying the rent hereby reserved and otherwise performing and observing the covenants and other conditions hereof upon its part to be performed and observed shall by notice given to the lessor prior to the expiration of the term hereby granted be entitled to renew such term for the further term of five years commencing at the expiration of the term hereby granted the said renewed term to be at the same rental and upon the same terms and conditions as are herein contained including this clause for renewal but so that the term hereby granted shall not be renewed more than twice by the lessee pursuant to this clause for renewal.

(e) If the lessee shall have twice renewed the term hereby granted pursuant to the provisions of the foregoing clause for renewal and shall have duly paid the rent hereby reserved and otherwise performed and observed the covenants and other conditions hereof upon its part to be performed and observed the lessee shall by notice given to the lessor prior to the expiration of the last renewed term be entitled to further renew such term for a further term of five years commencing at the expiration of such last renewed term the said further term to be at a rental to be determined by mutual agreement and failing such agreement by reference to a licensed valuer appointed for the purpose by the President for the time being of the Real Estate Institute of South Australia Incorporated whose decision shall be final and failing such appointment by reference to arbitration under the Arbitration Act for the time being in force in South Australia and otherwise upon the same terms and conditions as are herein contained except this and the fore-going clauses for renewal.

This memorandum of lease was duly registered under the provisions of the Act. The memorial of that registration indorsed on the relevant certificate of title noted the dates of the commencement and of the expiration of the term but made no reference to the rights of renewal.

On 3rd February 1961, a document headed "Extension of Lease" was duly registered and a notation made on the certificate of title as follows, omitting identifying numbers: "Extension of lease for 1 day with varied covenants." The registered document was a memorandum of agreement made on 19th September 1960, whereby it was agreed between the registered proprietor of the fee simple and the respondent that the term of the lease should be extended for one day, i.e. to 1st March 1969, and that certain new covenants as to insurance should apply from 19th September 1960. By the memorandum it was further agreed that the extension should have the same force as if it were indorsed on the registered memorandum of lease pursuant to ss. 153 and 154 of the Act.

On 18th July 1969, the same parties entered into a further memorandum of agreement whereby, after reciting the due exercise by the respondent of its right of renewal contained in the lease and that the parties had agreed "to record and register the renewed tenancy by means of this extension", it was agreed that the lease "be extended for five years commencing on the 2nd day of March 1969 and expiring on the 1st day of March 1974 upon the same terms and conditions as are expressed or implied" in the registered memorandum of lease.

The memorandum was duly registered on 30th August 1969, the memorial indorsed on the certificate of title was (again omitting identifying numbers): "Extension of lease for 5 years commencing on 2.3.69 and expiring on 1.3.74 with varied covenants."

By 3rd August 1973, the proprietorship of the fee simple of the leased land, after various mesne transfers, had become vested in Celtic Agencies Pty. Ltd ("Celtic Agencies") which was registered as such proprietor on that day, but subject to the said memorandum of lease.

By memorandum of mortgage bearing date 30th July 1973, Celtic Agencies, described as "being registered as the proprietor of an estate in fee simple subject however to such encumbrances liens and interests as are notified by memorandum underwritten or endorsed hereon in the whole of the land ", in consideration of $80,000 that day lent to it by the appellant in this appeal, mortgaged all its estate or interest in the land to the appellant. There were no encumbrances, liens or interests notified by memorandum underwritten or indorsed on the memorandum of mortgage: at that time the lease and its extensions were duly noted in the certificate of title pursuant to the exercise of the option in the registered lease.

On 15th February 1974 the respondent, by notice to Celtic Agencies, exercised its option of renewal to extend the terms of the lease for a further five years. On 23rd April 1974, Celtic Agencies and the respondent entered into a memorandum of extension of lease (in pursuance of the exercise of the option) by which it was agreed that the term of the lease should be extended for five years commencing on 2nd March 1974 and expiring on 1st March 1979 on the same terms and conditions expressed or implied in the lease. It was further agreed that the extension should have the same force and effect as if it were indorsed on the memorandum of lease pursuant to ss. 153 and 154 of the Act. This memorandum has not been registered under the Act.

Default having been made by Celtic Agencies under the mortgage, the appellant on 31st May 1974 gave notice to that company that it intended forthwith to sell the land under its power of sale in the mortgage.

On 12th July 1974 a caveat lodged by the respondent, claiming to be entitled to the registration of such last mentioned extension of lease and forbidding the registration of any dealing with the estate and interest of Celtic Agencies in the land unless such dealing be expressed to be subject to the claims of the respondent, was duly registered.

It appeared, by the evidence of a valuer given in the Supreme Court, that the difference in value between the land subject to the term created by the unregistered memorandum of agreement of 23rd April 1974 and the land not so subject was in the order of $53,700.

On 6th November 1974, the appellant took out an originating summons under the provisions of O. 54A of the Rules of the Supreme Court of South Australia, seeking the following declarations:

A declaration that upon the proper interpretation of s. 154 of the Act, a certain extension of memorandum of lease dated 23rd April 1974 between Celtic Agencies as lessor of the one part and the respondent as lessee of the other part, is not binding upon the appellant as mortgagee of the land unless the appellant shall have first consented thereto in writing.

Further or in the alternative, a declaration that the appellant as mortgagee under and by virtue of memorandum of mortgage is entitled in exercise of its rights as such mortgagee to sell the land not subject to any estate or interest of the respondent in the said land as lessee under and by virtue of memorandum of lease or any extension of the said lease granted pursuant to the right of renewal contained in the said lease and registered subsequent to the registration of the said mortgage.

2a. Further or in the alternative, a declaration that: (1) The rights conferred upon the respondent by cl. 2 (d) of the memorandum of lease to obtain renewals of the term of the said lease was not an estate or interest registrable pursuant to or under the provisions of the Act. (2) In the event that the said right is a registrable estate or interest, the same was not as at 3rd August 1973 (being the date upon which the appellant's said mortgage was accepted for registration) registered pursuant to or under the provisions of the Act in consequence of the registration or alternatively the acceptance for registration on 30th August 1969 of memorandum of extension of lease dated 18th July 1969. (3) The rights of the appellant as mortgagee as aforesaid are not subject to any estate or interest of the respondent in the land in that: (a) the rights of the respondent to obtain a renewal as aforesaid was not a registrable estate or interest: (b) in the event that it was a registrable estate or interest the same was not registered on 3rd of August 1973: or (c) in the event that the same was registered by the memorandum of extension of lease dated 18th July 1969 the memorandum of extension of lease dated 23rd April 1974 was not first consented to in writing by the appellant as required by the provisions of s. 154 of the Act.

An order that the caveats registered by the respondent on the certificate of title register be removed from the register book.

The originating summons, being contested by the respondent, was heard by the Supreme Court (Sangster J.), and on 28th April 1975 the Court dismissed the summons with costs. The learned judge, relying as he said heavily on s. 119 of the Act, held that the respondent was entitled to the registration of the extension of lease agreed in the memorandum of extension of lease of 23rd April 1974. He refused to make the declarations or to remove the caveats.

The sections of the Act, to which reference need be made in the decision of this appeal, are as follows: ss. 54-69, 116-119, 153-154.

There is no question in this case that, as between the registered proprietor and the lessee, the covenants for renewal or extension of the term of the lease contained in the registered memorandum of lease were binding. No such question as arose in Travinto Nominees Pty. Ltd. v. Vlattas [1] is present in this case. It is not suggested in this case that the covenants were either void or illegal. Further, both covenant 2(d) and covenant 2(e) are covenants which run with the land: see Richardson v. Sydenham [2] and notes thereto; also Simpson v. Clayton [3] ; Roe d. Bamford v. Hayley [4] , per Lord Ellenborough C.J. and cases there cited; Weg Motors Ltd. v. Hales [5] , per Danckwerts J., whose judgment was affirmed by the Court of Appeal [6] ; also Miller v. Trafford, per Farwell J. [7] .

(1973) 129 C.L.R. 1. 2. (1703) 2 Vern. 447 [23 E.R. 885]. 3. (1838) 4 Bing. N.C. 758, at p. 780 [132 E.R. 981, at p. 989]. 4. (1810) 12 East 464, at p. 469 [104 E.R. 181, at p. 183]. 5. [1961] Ch. 176, at p. 193. 6. [1962] Ch. 49. 7. [1901] 1 Ch. 54, at p. 61.

The question is whether by dint of the registration of the memorandum of lease containing the rights of renewal, the mortgagee under the subsequently registered memorandum of mortgage is bound by the unregistered extension of the lease effected in pursuance of the exercise of the rights in the registered memorandum of lease.

Before dealing with that question, I should say something about ss. 153 and 154 of the Act.

Section 153 provides a means whereby a lease may be extended by mere indorsement upon the lease signed by lessor and lessee. Section 154 makes the indorsement effective upon registration and requires a memorial of the extension to be made on the certificate of title in the Register Book and upon the lease. However, it provides that no extension of a lease of mortgaged land shall be binding on the morgagee unless he shall have consented thereto.

These sections, in my opinion, are not directed to the case of an extension of lease effected pursuant to a right of renewal or extension contained in the registered lease. They are concerned with extensions of lease which, though consensual, are not made in the exercise of such a right. Accordingly, in my opinion, if for other reasons the right of renewal in the registered memorandum bound the mortgagee, the exercise of that right did not, by virtue of these sections, require the consent of the appellant.

The Act does not prescribe what interests in land may be the subject of registration. It defines land very widely and provides for the registration of instruments affecting land. Consequently, rather than registrable interests in land, there are registrable instruments purporting to deal with any estate or interest in land.

Section 54 forbids the registration of any instrument purporting to transfer or deal with or affect any estate or interest in land under the provisions of the Act unless the instrument is in accordance with the provisions of the Act. It is quite clear that a memorandum of lease in the form prescribed in the Eighth Schedule of the Act is registrable: s. 116. That form provides for the inclusion of covenants, both by lessor and by lessee. No limitation is placed by the Act or in the form of memorandum of lease upon the nature of the covenants upon which the lease is granted and which may be included in the memorandum. There is no need in this case to explore the possibility that such a limitation may be inherent in the description of the covenants as covenants in a lease. Here the covenants for renewal are quite clearly covenants of a kind which the Act and its scheduled form authorizes to be contained in the registrable instrument: they satisfy the description of covenants subject to which the lease is granted and accepted: they are covenants appropriate to a lease of land. In my opinion, the lease granted in October 1958 was a registrable instrument in its entirety. None of the covenants could be said, in my opinion, to be other than covenants appropriate to be found in a memorandum of lease of land under the Act.

Section 56 gives to the registered instrument in respect of the estate or interest with which it deals priority over any later instrument affecting the same estate or interest. In this connexion, the width of the definition of land in s. 3 should be observed.

By virtue of s. 67, upon registration of the memorandum of lease, the "estate or interest specified in such instrument" passed to the lessee subject to the covenants set forth in the memorandum and to those implied by the Act. Again, it is important to observe the definition of land in s. 3 of the Act, including as it does "every estate and interest in land". A right of renewal of a lease contained in the registered instrument, if when exercised it would create a specifically enforceable agreement for a further term in the land, does constitute, in my opinion, a present interest in the land within the scope of the Act. As to the effect of an option to purchase with which an option to renew is comparable in relevant respects, see Laybutt v. Amoco Australian Pty. Ltd. [8] and cases there cited. A covenant giving a right of renewal of the term, in my opinion, forms part of the delineation of the lessee's total interest in the land. Indeed, the basis of the doctrine that such a covenant runs with the land is that the covenant is "so annexed to the land as to create something in the nature of an interest in the land", per Farwell J. in Muller v. Trafford [9] .

(1974) 132 C.L.R. 57, at pp. 71-72. 2. [1901] 1 Ch., at p. 61.

In Travinto Nominees Pty. Ltd. v. Vlattas [10] , the Court decided that a covenant which was illegal when made obtained no validity or protection from the registration of the instrument in which it was found because its illegality denied the possibility of its specific performance. The position of covenants for renewal of the term of the lease which are not illegal was left as an open question. It now falls for decision.

It is now settled that an estate or interest purportedly created by an instrument, void under the general law, derives validity and indefeasibility from the registration of the instrument purporting to create that estate or interest. See Frazer v. Walker [11] and the New Zealand decisions of which their Lordships there approved. But the specific enforceability of the covenant for renewal, assuming its validity either under the general law or because of its presence in the registered instrument, will be decided under the general law. The interest in the land derived from the covenant will be coextensive with the extent to which the covenant could be ordered to be specifically performed. We are not troubled in this case with a question which on occasions can arise, namely, whether, upon its proper construction, the covenant is merely personal to the covenantee or runs with the land. Here, clearly, the right of renewal is not personal and does run with the land. Further, the lease had not been transferred: the lessee was at all times the registered proprietor of the interest in the land created by the memorandum of lease.

Section 118, requiring the consent of a mortgagee to the memorandum of lease, of necessity applies to a mortgagee under a memorandum of mortgage registered at the time of the execution of the memorandum of lease. Here that situation did not exist. The appellant's interest as mortgagee was created subsequent to the registration of the memorandum of lease. I have already pointed out that no consent of the mortgagee was required by s. 154 for the exercise of the right of renewal, a right which antedated the registration of the mortgage.

In my opinion, because of the specific enforceability of the right to renew, if exercised, the registration of the memorandum of lease containing the covenant for renewal created an interest in the land commensurate with the extent of the covenant. The memorandum of lease in its entirety so far as it affected any estate or interest in the land obtained the priority given by s. 56, and the title of the registered proprietor of the lease, including that interest in the land derived from the covenant for renewal, became absolute and indefeasible by virtue of s. 69.

Section 119 of the Act may be regarded as confirmatory of this conclusion. Part XI of the Act, in which s. 119 occurs, permits of, but does not require, the registration of a lease for a term of one year or less (see s. 116). An express permission is given by s. 117 for the inclusion in a registered lease of a right or covenant to purchase the leased land. There is, in my opinion, no relevance in the absence from this section of an express reference to a right of renewal. It is clear from the terms of s. 119 that the presence of such a right in a registered lease is contemplated, although the reference in that section is only to a lease for a term of one year or less. It could scarce be said that a right of renewal could be included in the registered lease for a term of one year or less but not in a registered lease granting a longer term.

Section 119 gives protection to an unregistered lease for a term of one year or less against a subsequently registered dealing if the tenant under such a lease is in actual possession of the land, presumably at the date of the execution of the subsequent dealing. But, by the proviso to the section, no right of purchase of the freehold or of renewal of the term shall be valid against the person having the benefit of the subsequent dealing unless the instrument from which the term is derived is registered or unless a caveat protecting the right of purchase or of renewal is lodged with the Registrar. The proviso in this section was necessary, in my opinion, because, without it, the effect of the earlier substantive provision of the section would have made the subsequent dealing subject to the right of purchase or of renewal as the case may be. In the result, the person claiming under the subsequent dealing is only affected by a maximum term of one year in the case of a tenant in actual occupation under an unregistered lease or agreement for lease. Section 119 seems to me to have been enacted against the background of the assumed validity as against the subsequent dealing of the right of purchase or of renewal contained in a registered instrument. In that sense, the section is not only consistent with the conclusion I have expressed but, in my opinion, is confirmatory of it.

The learned judge of the Supreme Court found in s. 119 itself an implication that a right of renewal in a registered lease was entitled to priority and indefeasibility. I do not think this result flows from s. 119. It is the result, in my opinion, of the other provisions and factors to which I have referred.

Submissions were made on behalf of the appellant based on the view that the right of renewal was not itself an interest in land which could be registered under the Act. But, in my opinion, this was not a relevant approach to the problem posed in this case. As I have said, the Act deals with registrable instruments, not with registrable interests. Of course, a promise to renew a lease not contained in a conforming memorandum of lease but as a disjoint promise in a separate instrument, could not be registered. In that sense, it may be correct to say that a written covenant to renew a lease is not itself a registrable instrument. But when the covenant is part of a memorandum of lease in due form, it cannot be said, in my opinion, that any interest in the land which the instrument as a whole intends and is effective to create, is not included within the ambit of ss. 54 and 69.

No practical difficulties arise from the view of the operation of the Act which I have expressed. The memorial of the memorandum of lease gives a dealing number which any person intending to deal with the registered proprietor of the fee would inevitably examine. The full extent of the lessee's interest in and rights with respect to the land would thus be seen, even though the existence of the right of renewal does not itself extend the term. Whilst the right created by the registered memorandum of lease remains exerciseable, the estate created by the subsequently registered memorandum is subject to the right of renewal. The consequences are not dependent on the registration of an extension of lease.

My conclusion that the Act gives priority and indefeasibility to the right of renewal contained in the registered memorandum of lease in this case conforms to the line of decision in New Zealand on the counterpart provisions of the Land Transfer Act, 1885 N.Z.. In this connexion, I refer to Rutu Peehi v. Davy [12] ; Fels v. Knowles [13] ; Horne v. Horne [14] to the extent to which it adopted Fels v. Knowles [13] ; Roberts v. District Land Registrar at Gisborne [15] ; and Pearson v. Aotea District Maori Land Board [16] ; all of which cases, in so far as they decided that a memorandum of lease may contain a right of purchase or of renewal and that such rights, having no illegality in their creation, obtain priority and indefeasibility by the registration of the memorandum, were, in my respectful opinion, correctly decided.

(1891) 9 N.Z.L.R. 134. 2. (1906) 26 N.Z.L.R. 604. 3. (1907) 26 N.Z.L.R. 1208. 4. (1906) 26 N.Z.L.R. 604. 5. (1909) 28 N.Z.L.R. 616. 6. [1945] N.Z.L.R. 542.

Reference is made in the judgment of the Supreme Court to a number of decisions and to the works of textwriters and commentators. I have studied all these for the purposes of preparing these reasons and, as well, the following: Hogg, Ownership and Encumbrances of Registered Land (1906), pp. 106-107, 344; Hogg, Registration of Title to Land throughout the British Empire (1920), p. 91; Francis, Law and Practice Relating to Torrens Title in Australasia (1972), vol. 1, p. 281; Carberry v. Gardiner [17] ; Shearer v. Wilding [18] ; and Crowley v. Templeton [19] . The textwriters and commentators are not unanimous in their views but I find no need to discuss their writings and particularly the writings of those who would differ from my conclusion. There is nothing, in my opinion, in any of the cases to which I have referred which would deny that conclusion.

(1936) 36 S.R. (N.S.W.) 559. 2. (1915) 15 S.R. (N.S.W.) 283. 3. (1914) 17 C.L.R. 457.

In my opinion, for these reasons, the declaration and order sought by the summons ought not to be made. The summons was rightly dismissed. This appeal should be dismissed.

The respondent is the lessee of land at Adelaide, now owned by Celtic Agencies Pty Ltd., on which is erected a service station and garage. The appellant is the mortgagee of that land. The lease to the respondent was registered under the Real Property Act, 1886-1967 S.A. ("the Act") on 2nd February 1969. It contained two covenants under which the lessee was entitled upon notice to renew the term for three successive periods each of five years. That right of renewal was exercised with the result that the term of the lease was extended so that it would expire on 1st March 1974 and that extension was registered on 30th August 1969. The mortgage in favour of the appellant was registered on 3rd August 1973. Subsequently, on 15th February 1974, the respondent gave notice to Celtic Agencies Pty. Ltd. that it exercised its right to renew the term of the lease for a further five years and on 23rd April 1974 Celtic Agencies Pty. Ltd. executed an extension of the lease in registrable form. This extension has not been registered. Celtic Agencies Pty. Ltd. defaulted in its obligations under the mortgage and on 31st May 1974 the appellant gave notice of its intention to sell the land. The appellant now claims to be entitled to exercise its power of sale under the mortgage free from any leasehold interest in the respondent. The respondent on the other hand claims to be entitled to have the extension registered. The question is which prevails - the title of the respondent arising from the exercise of the right of renewal or the title of the appellant under the mortgage.

It is not in doubt that the lease is entitled to priority over the mortgage since the former was registered before the latter: see s. 56 of the Act. The appellant however contends that the right of renewal was not an integral part of the lease, and was not registrable, and that priority is given by s. 56 only to the term of the lease and not to the right of renewal or to any extended term resulting from the exercise of that right. By s. 54 of the Act the Registrar-General is forbidden to register any instrument which is not in accordance with the provisions of the Act. No provision is made for the registration of a covenant for renewal as such. However, by s. 116, provision is made for the execution of a lease in the form of the Eighth Schedule and that form makes provision for the insertion of "special covenants, if any". In my opinion, the memorandum of lease, including the covenants for renewal, was in the form of the Eighth Schedule and was a registrable instrument. That, however, does not necessarily conclude the matter. The registration of an instrument does not in all cases give priority or the quality of indefeasibility to every right which the instrument creates. The Act is primarily concerned with title to and dealings in land. The effect of the registration of an instrument is described by s. 67 as follows:

upon the registration of any instrument in manner herein prescribed, the estate or interest specified in such instrument shall pass, or, as the case may be, the land shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such instrument or by this Act declared to be implied in instruments of a like nature. By s. 69 the title of every registered proprietor shall, subject to such encumbrances, liens, estates or interests as may be notified on the original certificate of such land, be absolute and indefeasible, subject to certain qualifications which it is immaterial to mention. The principles to which the Act gives effect were stated in Fels v. Knowles [20] , in words which, subject to one minor emendation, were adopted by the Judicial Committee in Waimiha Sawmilling Co. Ltd. v. Waione Timber Co. Ltd. [21] . I need quote part only of the passage: "Nothing can be registered the registration of which is not expressly authorized by the statute." (Their Lordships considered that "by statute" would be more correct.) "Everything which can be registered gives, in the absence of fraud, an indefeasible title to the estate or interest, or in the cases in which registration of a right is authorized, as in the case of easements or incorporeal rights, to the right registered." Speaking generally, the Act would not appear to be intended to render indefeasible a personal right created by a covenant which, although contained in a registered instrument, in no way affects the estate or interest in land with which the instrument deals. An example is a covenant of guarantee contained in an instrument of mortgage: see Consolidated Trust Co. Ltd. v. Naylor [22] , although in that case the Court was concerned with the effect of a transfer of the mortgage rather than with the effect of its registration. If the right of renewal created by the covenant can rightly be said to be part of the estate or interest specified in the lease, or if it is a right whose registration is authorized by the Act, it will take priority over the mortgage which was subsequently registered, but otherwise it will not, unless, in either case, the Act contains a particular indication of intention to the contrary. 1. (1906) 26 N.Z.L.R. 604, at p. 620. 2. [1926] A.C. 101, at p. 106. 3. (1936) 55 C.L.R. 423.

The Act does not expressly provide for the registration of a right given by a covenant for renewal. As I have said, such a covenant may be contained in a registered lease but the covenant itself cannot be separately registered. The Act contains no provision in relation to covenants for renewal similar to that which is made by s. 117 in relation to rights to purchase. That section, which deals with the contents of leases, provides (inter alia) as follows:

a right for or covenant by the lessee to purchase the land therein described may be specified in such lease, and shall be binding. In New Zealand it has been held that the effect of similar statutory provisions is that a right to purchase contained in a lease becomes indefeasible upon the registration of the lease: Rutu Peehi v. Davy [23] ; Fels v. Knowles [24] . In the latter case, it was said in the joint judgment of the majority of the Court delivered by Edwards J. that "the registration of the lease is a registration of every right given by it" [25] . Too much significance should not be attached to the generality of those words for present purposes because Edwards J. went on to indicate that the case of a covenant for renewal might be distinguishable from that of a right to purchase [26] . In Roberts v. District Land Registrar at Gisborne [27] , Edwards J. said that rights given to a lessee under provisions for renewal would, upon the registration of the lease in which they were contained, be entitled to the same protection as the term granted by the lease, and for this proposition he cited Rutu Peehi v. Davy and Fels v. Knowles. His conclusion may be correct but (as he himself appears to have recognized in the judgment in Fels v. Knowles [27a] which he delivered three years earlier) it does not inevitably follow from those decisions which were given with respect to rights to purchase. In my opinion, it cannot be said that the registration of a right of renewal is "authorized" in the sense in which that word was used in the passage cited in Waimiha Sawmilling Co. Ltd. v. Waione Timber Co. Ltd. [28] . 1. (1890) 9 N.Z.L.R. 134. 2. (1906) 26 N.Z.L.R. 604. 3. (1906) 26 N.Z.L.R., at p. 621. 4. (1906) 26 N.Z.L.R., at pp. 622-623. 5. (1909) 28 N.Z.L.R. 616, at p. 617. 6. (1906) 26 N.Z.L.R., at pp. 617-624. 7. [1926] A.C., at p. 106.

It then becomes necessary to consider the nature of a covenant for renewal. It is well settled that such a covenant runs both with the land and with the reversion. In Muller v. Trafford [29] Farwell J., in the course of explaining why a covenant for renewal is not void for remoteness, described the effect of such a covenant in the following words [30] :

It must bind the land from its inception, because it would otherwise be an executory interest in land arising in futuro, and therefore obnoxious to the rules against perpetuity. Perpetuity has no application to covenants which run with the land, because they are so annexed to the land as to create something in the nature of an interest in the land. As between lessor and lessee, therefore, the lessee accepts and the lessor grants something which is more or less, according to the point of view from which you look at it, than the actual term or interest granted. It is a term subject to something and with the benefit of something. It is a reversion subject to something and with the benefit of something, and those two somethings are annexed to and form part of the land from the beginning of the term in such a sense that the doctrine of perpetuity has no application. It follows from this statement that the right of renewal is an incident of the lease and directly affects the nature of the term itself. However, it is clear that when the right is exercised "a new lease, a new demise" comes into being: see Gerraty v. McGavin [31] ; Friedmann v. Barrett; Ex parte Friedmann [32] and 195 Crown Street Pty Ltd. v. Hoare [33] . 1. [1901] 1 Ch. 54. 2. [1901] 1 Ch., at p. 61. 3. (1914) 18 C.L.R. 152, at p. 163. 4. [1962] Qd. R. 498, at pp. 507-508. 5. [1969] 1 N.S.W.R. 193, at p. 199.

The question whether the right of renewal gained priority over the mortgage by reason of the prior registration of the lease is, in my opinion, by no means an easy one. On the one hand it may be said that the right of renewal is an integral part of the estate vested in the lessee and, upon registration, obtains the same protection as the term itself. This was the view taken in Pearson v. Aotea District Maori Land Board [34] by Finlay J. He said [35] : "A right of renewal is something which affects and is, in a sense, definitive of the term of a lease." He went on [36] : "The right of renewal is adjectival in relation to the term granted. It constitutes a material qualification of the term, and is therefore something more than a mere ancillary right. It is in other words an integral part of the estate shown by the Register as vested in the lessee." On the other hand, it might be said that what the lessee seeks in substance is to have priority accorded to the new lease which came into existence as a result of the exercise of the right of renewal, and that the new lease is not itself registered and gains no priority because it has its origin in a right conferred by a registered instrument.

[1945] N.Z.L.R. 542. 2. [1945] N.Z.L.R., at p. 550. 3. [1945] N.Z.L.R., at pp. 550-551.

It does not appear ever to have been found necessary in Australia to decide whether Roberts v. District Land Registrar at Gisborne [37] and Pearson v. Aotea District Maori Land Board [34] should be followed and that question was left open by members of this Court in Travinto Nominees Pty. Ltd. v. Vlattas [38] . The present case, unlike those two New Zealand cases, is not one in which the grant of the right of renewal was illegal or void and we are concerned not with a question of indefeasibility but with one of priority; although the two questions appear to depend on the same considerations, it is unnecessary to consider what the position would have been if the covenant had been void before the registration of the lease. In my opinion the judgment of Finlay J. in Pearson v. Aotea District Maori Land Board [34] , so far as it is relevant to the present case, was correct. The right of renewal is so intimately connected with the term granted to the lessee, which it qualifies and defines, that it should be regarded as part of the estate or interest which the lessee obtains under the lease, and on registration is entitled to the same priority as the term itself. I am assisted to this conclusion by two further considerations. First, it would be unjust and inconvenient if a right to renew contained in a registered lease could be defeated by the subsequent registration of a mortgage, and it is difficult to attribute to the legislature the intention that rights of renewal, which of course are a common incident of leases and are often of considerable value, should be liable to be defeated in this way. If the provisions of the Act are ambiguous, they should be construed in a way that will avoid inconvenience and injustice. Secondly, the provisions of s. 119 of the Act appear to me strongly to support the view that it was intended that rights of renewal contained in a lease should be protected by the registration of the lease. Section 119 provides as follows:

Every registered dealing with land shall be subject to any prior unregistered lease or any agreement for lease or letting for a term not exceeding one year to a tenant in actual possession thereunder: provided that no right or covenant to purchase the freehold contained in any such unregistered lease or agreement, nor any right or covenant for renewal of any such lease or agreement shall be valid as against any subsequent purchaser of the reversion, lessee, mortgagee, or encumbrancee, unless such lease or agreement be registered or protected by caveat. Under this section, a right to renewal contained in a lease for a term not exceeding one year to a tenant in actual possession is valid as against (inter alios) a subsequent mortgagee if the lease is registered or protected by caveat and it would be an extraordinary anomaly if a similar right contained in a registered lease for a greater term received no protection. 1. (1909) 28 N.Z.L.R. 616. 2. [1945] N.Z.L.R. 542. 3. (1973) 129 C.L.R. 1, at pp. 18, 35. 4. [1945] N.Z.L.R. 542.

On behalf of the appellant, reliance was placed on the express provision in s. 117 of the Act that a right to purchase contained in a lease shall be binding, and it was submitted that this implies that it was intended that a right to renew should not be binding. However, a covenant giving a right to purchase is essentially different in character from a covenant for renewal. It is "not a covenant concerning the tenancy or its terms"; it does not "directly affect or concern the land" and it is "not a provision for the continuance of the term, like a covenant to renew": Woodall v. Clifton [40] . It is "a separate and independent contract": Sherwood v. Tucker [41] . Since such a covenant is collateral, and does not affect the estate or interest in land granted by the lease, the registration of the lease, in the absence of a provision such as that contained in s. 117, would not (or at least might not) confer any priority or indefeasibility upon the covenant or the right which it creates. The provisions of s. 117 were necessary to make it clear that the protection of the Act extends to a right for or covenant to purchase the land described in a lease but the same reason did not exist to make specific provision for the protection of covenants for renewal.

[1905] 2 Ch. 257, at p. 279. 2. [1924] 2 Ch. 440, at p. 444.

In the first edition of Baalman's Torrens System in New South Wales (1951), at p. 233 , the opinion was expressed that the decision of this Court in Crowley v. Templeton [42] contains dicta contrary to Pearson v. Aotea District Maori Land Board [43] . Those remarks of the learned author were not repeated in the second edition of his work. Crowley v. Templeton was simply a decision that the lease there under consideration was not in registrable form. That lease varied in a number of respects from the form prescribed by the Transfer of Land Act, 1890 Vict. and it was held that the variations together amounted in all to a variation in substance and that the Registrar was justified in refusing to register the lease. Nothing was said about covenants for renewal, and no such covenant was included in the lease there under consideration. The decision appears to have no bearing on the present question.

(1914) 17 C.L.R. 457. 2. [1945] N.Z.L.R. 542.

I should also refer to the decision in Friedmann v. Barrett; Ex parte Friedmann [44] to which I was a party. It was there held that an option to renew contained in an unregistered lease for a term of three years could not be effectively exercised by the lessee after a purchaser of the land for value had become the registered proprietor. Section 11 of the Real Property Act of 1877 Q. provided, inter alia, that "the estate of the registered proprietor shall not be paramount or have priority over any tenancy from year to year or for any term not exceeding three years ". It was held that although the right to renew was an incident of the tenancy, s. 11 protected only the tenancy itself, and not the tenancy with all its incidents. In so far as it dealt with that question the case turns on the meaning of the word tenancy in s. 11 and is distinguishable from the present case.

Finally, I should mention s. 154 of the Act, which provides (inter alia) that "no extension of a lease of land mortgaged or encumbered shall be binding upon the mortgagee or encumbrancee unless he shall have consented thereto in writing". This provision does not in my opinion affect any vested right or interest which takes priority over the mortgage or encumbrance by virtue of the prior registration of the instrument creating it; in particular it does not apply to an extension granted pursuant to the valid exercise of a right to renewal contained in a lease registered before the mortgage or encumbrance.

For these reasons I consider that the respondent's right of renewal prevails over the appellant's mortgage. The appellant's rights as mortgagee can only be exercised subject to the respondent's right of renewal and any extension resulting from its valid exercise.

This appeal raises a short but important point concerning the Torrens registration of title system as it operates in its birth-place, South Australia, under the provisions of the Real Property Act, 1886-1969. In issue are the conflicting interests arising, on the one hand, under a registered lease containing an option to renew and, on the other, under a registered mortgage subsequent in date to the lease. The mortgagee seeks to avail itself of its power of sale free of the interest of the lessee in the renewed term and the question is, in essence, whether registration of such a lease is effective to confer upon the lessee rights in respect of a renewed term as against a subsequent registered encumbrancer.

The matter arose before Sangster J. in the Supreme Court of South Australia, the mortgagee, Mercantile Credits Ltd. ("Mercantile") having sought declarations which would have the effect of denying to the lessee, the Shell Co. of Australia Ltd. ("Shell"), the enjoyment of its rights as lessee under its renewed lease.

When Mercantile's mortgage was first registered, in August 1973, Shell had already long been lessee; its original lease, duly registered so as to appear on title, was for a term of ten years which had commenced in March 1959. That lease contained covenants under which Shell might renew for three further successive terms of five years each. In 1969 Shell exercised its first right of renewal so that when the then owner of the land, Celtic Agencies Pty. Ltd. ("Celtic"), mortgaged it to Mercantile in 1973, Shell was lessee under a lease the original term of which had expired but the renewal of which for a term of five years expiring in March 1974 had been registered so as to appear as an indorsement on the relevant certificate of title. Moreover under that lease Shell had the right to renew its term for two further periods of five years each, extending until 1984.

In 1974 a series of events occurred which brought matters to a head; in February of that year Shell exercised its right to renew the lease for a second term of five years, until 1979, an appropriate memorandum of agreement in registrable form being executed between Shell and Celtic in April 1974 to give effect to Shell's exercise of its right to renew; this memorandum was not registered. Then in May 1974, Celtic being in default under the terms of its mortgage to Mercantile, Mercantile gave notice of its intention to exercise the power of sale conferred upon it as mortgagee, whereupon Shell lodged a caveat to protect its estate and interest as lessee under its lease as so renewed; by that caveat it claimed that it was entitled to registration of its memorandum of agreement without the consent of the mortgagee, Mercantile. In November 1974 Mercantile instituted the present proceedings.

Sangster J., after a detailed examination of the authorities, refused to make the declarations sought by Mercantile. He concluded that Shell was entitled to have registered the memorandum recording the renewal of its term, the rights of Shell under its lease as originally renewed in 1969 prevailing over those of Mercantile. The practical effect of this upon Mercantile, which desires to exercise its power of sale in respect of the land free of Shell's leasehold interest, was demonstrated by the evidence that if sold free of Shell's leasehold interest the land was likely to bring some $98,000 whereas if sold subject to Shell's leasehold interest its market value would be only about $44,000.

The Real Property Act provides no explicit answer to the problem presented by the conflicting claims of Shell and Mercantile but an examination of its provisions reveals the area in which that answer is to be found. Part II of the Act is devoted to the "Objects of this Act", which are described as including the simplification of the title to land and the securing of indefeasibility of title. The establishing of a register book is central to the attaining of these objects; registration in it of an estate or interest in land is made to confer absolute and indefeasible title, subject only to presently irrelevant exceptions - s. 69. Control over what may be registered is, then, essential and s. 54 effects this control; only instruments which deal with or affect estates or interests in land "in the manner herein provided" may be registered and then only if the instrument in question accords with the provisions of the Act.

The question, then, is whether a right of renewal conferred upon a tenant by a lease may be included in a memorandum of lease for registration under the Act and, if it may be, whether such registration confers upon any resultant renewed term the benefits of indefeasibility and priority which registration gives to estates and interests the subject of registered instruments.

Section 116 and succeeding sections of Pt XI of the Act regulate the content of the memorandum of lease by which the estate of a lessee may be placed on the register book. Section 116 prescribes the form of lease set out in the Eighth Schedule, a form which contemplates that a lease may include "covenants, conditions and restrictions", described generically as "special covenants". A covenant for renewal would therefore seem to be capable of inclusion; it readily enough answers the description "special covenant", it is a common form of lease covenant and the rights and obligations with which it is concerned affect the parties in their capacity as lessor and lessee.

Sections 117 and 119 confirm the impression conveyed by s. 116 and the Eighth Schedule. Section 117 expressly permits of the inclusion in registered leases of another type of covenant, that conferring "a right for or covenant by the lessee to purchase" the leased land, while s. 119 goes rather further and authorizes, in a limited class of case, the registration of leases containing rights of renewal as well as options to purchase. The prime purpose of s. 119 is to create, in favour of a tenant in actual possession for a term not exceeding a year under an unregistered lease, an exception to the general rule that registered dealings are not to be subject to prior unregistered interests. But it is the concluding words of its proviso which are presently of significance. The proviso denies, both to an option to purchase the freehold and to a right of renewal of the term, validity against those who subsequently deal with the land and concludes with the words "unless such lease or agreement be registered or protected by caveat".

The legislation thus expressly recognizes not only that an option to purchase and, in the case of short term leases, also a right of renewal may properly be the subject of registration when included in a registered memorandum of lease. It goes further and declares the option to purchase to be "binding" - s. 117 - and the right of renewal to be "valid" as against subsequent dealings in the land - s. 119. In this sense these two sections not only confirm that rights of renewal may properly be entered in the register book as special covenants in registered leases but also that when registered they will confer the benefits of registration upon the renewed terms resulting from their exercise.

The contrast between these express references and the Act's scheme concerning rights of renewal in leases for terms in excess of a year provides no occasion for doubts as to the registrability of the latter or as to the effect which such registration will have upon them.

The express references in s. 117 and s. 119 meet special needs which do not exist in the case of rights of renewal generally. Were it not for s. 117 it would be doubtful whether an option to purchase might properly be included in a registered memorandum of lease and whether, if included, its registration would confer indefeasibility upon a renewed term arising from its exercise. Such an option is of its nature unrelated to the tenant's estate or interest under the lease; it has no closer connexion with that estate or interest than that the parties to it happen also to be in the relationship of lessor and lessee of the subject land. With it may be contrasted a right of renewal, which is intimately concerned with the existing relationship between lessor and lessee and which, as Finlay J. said in Pearson v. Aotea District Maori Land Board [45] , "is, in a sense, definitive of the term of a lease is adjectival in relation to the term granted". Hence, no doubt, the need felt for express reference if an option to purchase were to be permitted to appear on the Register Book and to receive the benefits conferred by registration.

A rather different reason accounts for the express provison in s. 119. The ordinary rights of tenants under the short term leases to which the section applies are preserved, despite non-registration, by the opening words of s. 119; but the proviso makes it clear that neither rights of renewal nor options to purchase, although terms of a lease, come within the scope of this particular concession to unregistered interests which is strictly confined to the leasehold estate or interest itself. However, the proviso recognizes that registration entirely alters the position. Section 116 permits of the registration of short term leases and if such a lease be registered both a right of renewal and an option to purchase contained in it will be "valid as against" those who subsequently deal with the registered proprietor.

An appreciation of the reasons for the express mention of rights of renewal of short term leases and of options to purchase leads to recognition that in dealing with them as it does the legislation evinces a clear intention that rights of renewal may be registered and, when registered, will attract to renewed terms all the advantages of registration. It cannot be supposed that registration of a memorandum of lease containing an option to purchase, or, if it be a short term lease, a right of renewal, is permitted and that by registration the rights which their exercise will create will be good as against subsequent dealings with the land while a right of renewal will generally be treated less favourably. It would require the clearest of words in these circumstances to deprive rights of renewal contained in long term leases of the benefits of registration and these are nowhere to be found; on the contrary s. 116 and the Eighth Schedule are consistent with the bestowal of these benefits upon rights of renewal generally.

To confer indefeasibility upon rights of renewal contained in registered leases does violence neither to the general scheme of the Act nor to the objects which it seeks to attain. The existence of such rights of renewal will be apparent upon any inspection of the register and those who deal in the land may thus learn of the extent to which the reversion is thereby contingently affected. What will be registered, and protected by that registration, is a right conferred by covenant which touches and concerns the land and runs with the land - Weg Motors Ltd. v. Hales [46] , affirmed on appeal - [47] ; it is an incident of the lease creating an interest in the land and forming a part of the lessee's interest in that land. To accord it the protection afforded by registration is thus in no way inconsistent with the tenor of the legislation and gives rise to no anomalies. New Zealand courts have, over the years, had occasion to consider the matter here in issue as it has arisen under their own Torrens system legislation, with the consequences discussed in the judgments of the other members of this Court. It is satisfying to note that the decision in this case will accord with the pattern of New Zealand decisions.

[1961] Ch. 176, at p. 193 et seq. 2. [1962] 1 Ch. 49.

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