Robinson v Young

Frank Herbert Robinson & Geoffrey Lee Hilzinger v Gregory John Young PARTIES : Gregory John Young v Frank Herbert Robinson & Geoffrey Lee Hilzinger Nasser Holdings Pty Ltd v Robinson, Hilzinger & Young

I Wales SC for plaintiffs M Bradford for 1st defendant/cross-claimant COUNSEL : G A Moore for 3rd cross-claimant (2nd cross-claim` settled)

Pltfs: Brennan Tipple Partners SOLICITORS : 1st deft/1st cross-claimant: Alex Ilkin & Co 3rd cross-claimant: Jacovou & Co

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION SMART AJ Tuesday, 2 August 2005

2819/05: ROBINSON & HILZINGER v YOUNG YOUNG v ROBINSON & ANOR (1st cross-claim) NASSER HOLDINGS PTY LTD v ROBINSON, HILZINGER & YOUNG (3rd cross-claim) JUDGMENT

1. These proceedings arise out of a lease of lockup shop premises at 17 Morts Road, Mortdale, from Geoffrey Lee Hilzinger, the executor of the will of Harry Bertram Woodward and Helen Jean Robinson to Gregory Young (in the proceedings called Gregory John Young) for a period of five years commencing 1 June 2002 with an option to renew for a period of five years at a yearly rental of $41,712, subject to review in later years (the 2002 lease).

That lease was entered into as a result of Mr Young exercising an option to renew contained in a lease bearing date 5 November 1997 of the same premises from Harry Bertram Woodward and Helen Jean Robinson for five years commencing on 1 July 1997 (the 1997 lease) although on one approach the 2002 lease could be described as a new lease. For example, on exercising the option to renew in the 1997 lease Mr Young was not entitled to a further option to renew. He is under the 2002 lease. The 1997 lease contained what is there described as Annexure C. That annexure contained an important provision in that the lessors covenanted and agreed to permit the lessee to occupy five parking spaces at the rear of the shop as licensee only during the term of that lease and any extension thereof or any holding over period for the exclusive use of the lessee's staff or employees. Mr Young covenanted that he would not permit the parking area at the rear of the shop to be used by his customers, clients or visitors.

A dispute has arisen whether the equivalent of Annexure C to the 1997 lease was: (a) attached or annexed to the 2002 lease, or (b) was incorporated , by reference, into the 2002 lease.

If the answer to both (a) and (b) is in the negative, there is a further question whether the 2002 lease should be rectified by adding the equivalent of Annexure C to the 1997 lease.

There is a further complication. On 19 April 2005 Frank Herbert Robinson, the executor of the will of Helen Jean Robinson and Geoffrey Lee Hilzinger entered into two contracts for the sale of land with Nasser Holdings Pty Limited, one for the sale of Lots 2, 3, 4 and 5, Section DP 2921 on which are erected "4 Rental Outlets, 6 Home Units" and one for the sale of Lot A, DP110055. Whereas Lots 2, 3, 4 and 5 had frontages to Morts Road, the main commercial street in Mortdale and which led to the nearby Mortdale Railway Station, Lot A consisted of a narrow strip of land 16 feet wide by 117 feet 6 inches in length which ran from Martin Place, a secondary street behind Lots 1, 2, 3 and 4. This narrow strip was an access way leading to a substantial parking area containing parking for 23 vehicles and situated behind Lots 2, 3 and 4. Mr Young traded as Mortdale Wholesale. The five car parking spaces used by Mortdale Wholesale were mainly on Lot A. but small sections were on Lots 3 and 4. These car parking spaces adjoined the rear fence and each had erected on the fence a sign bearing the words "Mortdale Wholesale Private Parking."

The contracts of sale were voluminous, that relating to Lots 2, 3, 4 and 5 comprising 155 pages and that relating to Lot A 107 pages. At p 79 of the larger contract there was a tenancy schedule setting out very brief details of the six residential tenancies and four commercial tenancies. Copies of the various leases were attached, including a copy of the 2002 lease to Mr Young. That copy lease contained no annexure C.

With the consent of the parties, on 30 June 2005 I ordered, pursuant to Pt 31, r 2 that the decision on the following questions, namely: 1. Whether the lease dated 25 July 2002 ("the 2002 lease") contains an express or implied term which entitles the First Cross-Claimant (Mr Young) to occupy the 5 car spaces which are identified in the de Nett survey on the conditions specified in cl C.3.1 of Annexure C to the lease dated 5 November 1997 ("the 1997 lease"). 2. If No to question 1,m whether the First Cross-Claimant is entitled to have the 2002 lease rectified so as to confer on him the right to occupy the car spaces on the terms contained in cl C.3.1 of the 1997 lease be tried separately from any other question.

The plaintiffs contested that the equivalent of Annexure C to the 1997 lease was attached or annexed to the 2002 lease. However, they did not contest that the equivalent of Annexure C was incorporated by reference into the 2002 lease. The plaintiffs accepted that Question 1 should be answered in the affirmative. The plaintiffs did not dispute that as between themselves and Mr Young the lease should be rectified so as to confer on Mr Young the right to occupy the car spaces on the terms contained in cl C.3.1 of the 1997 lease.

The main contest was between Mr Young and Nasser Holdings Pty Limited, which contested all issues, and it centred upon the terms of the 2002 lease and whether Mr Young was entitled to occupy five car parking spaces.

The 2002 Lease 9. On 1 June 2002 the managing agent wrote to Mr Young requesting him to confirm his acceptance of this proposal; "Lessee: Gregory Young Lease date: 1st June 2002 Term: 5 years Option: 5 years Rental: $3476 [monthly] Inclusive of G.S.T. Review: 5 % annual increases." The letter was headed "Lease renewal"

10. The letter continued: "… all the other Terms & Conditions of your current lease will remain the same, with the possible exception of the Owners intention to request that payment may be made electronically on a determined date, once the installation of this facility is complete in our office.

Following your reply & acceptance I will immediately contact the Owners Solicitor to arrange for the preparation of the documents." 11. After discussion "5% annual increases" on review was amended to 3%. That conformed with what was stated in Item 15 of Annexure A of the 1997 Lease. Mr Young thought that the parties should follow the terms of the option provisions of the 1997 lease.

On 16 July 2002 the managing agent wrote to Garden & Montgomerie, Solicitors, Cowra, requesting them to prepare the lease documents re "Lease renewal at 19 Morts Rd, Mortdale." The lessee was stated to be Gregory Young. By letter of 13 August 2002 to Garden & Montgomerie, the managing agent accepted that the correct address was 17 Morts Road. About 5 September 2002 Garden & Montgomerie sent the lease documents and their account direct to Mr Young. Apparently there was some delay in Mr Young signing the lease documents and returning them to Garden & Montgomerie. About 16 January 2002 the lease documents were sent back to Garden & Montgomerie with Mr Young's cheque in payment of their costs and disbursements., Apparently the lease documents had not been signed on all the required pages so that on 29 January 2003 Garden & Montgomerie sent them to Mr Young with the request to do so and have the lease stamped. He did so, paid the stamp duty and arranged with the agent for the lease documents to be stamped. It seems that sometime in February 2003 the executed and stamped leases were returned to Garden & Montgomerie. They forwarded the leases to Doyle & Associates, the solicitors for Mr Hilzinger, Mr Woodward having died on 16 September 2002 and Probate of his will being granted on 17 December 2002 to Mr Hilzinger. It further appears that Mrs Robinson met with the agent in November 2002. The death and the meeting may explain some of the delay in the execution of the leases. Neither Mr Young nor Garden & Montgomerie noticed that the 2002 lease did not contain an "Annexure C".

By letter of 6 May 2003 Doyle & Associates forwarded the lease in duplicate received from Garden & Montgomerie duly signed by Mr Hilzinger to Brennan Blair & Tipple, the solicitors for Mrs Helen Jean Robinson. Mr J F Doyle made a copy of one of those leases before doing so and it does not contain an Annexure C. Mr Doyle did not notice that Annexure C was missing from the lease or the duplicate. Mr Doyle's role was essentially to have Mr Hilzinger sign the lease and counterpart with Garden & Montgomerie having the primary responsibility for the terms of the lease.

Mr S G H Tipple, solicitor, of Brennan Blair & Tipple, saw his client, Mrs H J Robinson, shortly after receiving the lease and the duplicate. She was concerned about the rent payable and the rental provisions. By letter of 13 May 2003 to Doyle & Associates, Mr Tipple raised this and a number of matters.

By letter of 20 May 2003 to Mr Hilzinger the managing agent responded to the queries in Mr Tipple's letter of 13 May 2003. By letter of 3 June 2003 Doyle & Associates responded to Mr Tipple's letter by enclosing a copy of the letter of the managing agent, together with a 5-page information sheet referred to therein. The letter of Doyle & Associates specifically addressed the fixing of the commencing rent under the lease prepared pursuant to the option's exercise.

Further correspondence ensued as to the rental. Ultimately, by letter of 18 July 2003 to Doyle & Associates, Mr Tipple returned the lease executed by Mrs Robinson stating that she had "decided to proceed with the lease as is." By letter of 25 July 2003 Doyle & Associates forwarded the lease and the duplicate to Garden & Montgomerie.

Neither Mr Doyle nor Mr Tipple noticed that the 2002 lease signed by Mr Young and sent by Garden & Montgomerie to Doyle & Associates and then by that firm to Mr Tipple's firm, did not contain Annexure C. Both were somewhat embarrassed that they had not noticed this omission. Each insisted that he had not removed Annexure C from the lease. Each believed that no-one in his respective office had done so. Each believed that the primary responsibility for preparing the lease and its terms lay with Garden & Montgomerie. Mr Doyle had a very limited retainer, namely, to have Mr Hilzinger sign the lease. Mr Tipple also had a limited retainer. Initially it was to have Mrs Robinson sign the lease. However, she raised matters about the rent payable and how it was fixed as well as other specified matters and Mr Tipple attended to these. Neither had a retainer to advise generally as to the terms of the lease.

Mr Young did not become aware that the 2002 lease contained no Annexure C until the matter was mentioned by the plaintiff's legal advisers at court on 23 May 2005. Mr Young did not obtain legal advice prior to executing the 2002 lease. He did not regard that as necessary, as everything seemed straightforward at the time he signed the lease.

It was common ground that the preparation of the 2002 lease was based on the terms of the 1997 lease.

Item 11 of Annexure A to the 2002 standard Law Society lease and cl 4 of Annexure B to that lease deal with the exercise of the option to renew the lease and the terms which apply upon renewal. The new lease is to "be the same as this lease except for" some specified changes which might fairly be expected. The specified changes do not include the deletion of Annexure C. Annexure C is not a standard Law Society lease document.

Page 1 of Annexure A to the 2002 lease contains the entry:

Mr Young pointed to a number of alterations to the lease stamped as the original and that as the duplicate: 1. Initially the lease stamped as the original and that stamped as the duplicate was stated to contain 20 pages in all. The printed numbering has been altered and is numbered in handwriting as containing 16 pages - see the bottom of each page. 2. The clauses on p 1 of Annexure 'A' have been renumbered in handwriting so that the item numbers on that Annexure respond with the references in Annexure B. 3. The 1997 lease consisted in all of 20 pages but there does not appear to be any numbering at the bottom of the pages.

4. The lease stamped as the original as copied by Mr Doyle, contains no handwritten alterations to the page numbering at the bottom of the pages and concludes with "page 14 of 20" with two front pages which are not included in this sequence. That brings the total number of pages to 16. Nor were there any handwritten changes to the numbering of the items on p 1 of Annexure A.

5. When Mr Doyle made that copy only Mr Young had signed the lease and the duplicate.

6. Mr Tipple said that when he had the lease and the duplicate there were no handwritten changes to the numbering of the items on p 1 of Annexure A.
7. It is most unlikely that Mr J F Doyle made the changes given his approach to the leases and their execution. It is probable that the changes were made after the lease and the duplicate were returned to Garden & Montgomerie. Somebody must have noticed that the item numbers on p 1 of Annexure A did not correspond with the item numbers contained in Annexure B and changed them. The discrepancies in the page numbering were also noticed and the page numbering was altered by hand.

24. Counsel for Mr Young submitted that if Annexure C had been omitted from the 2002 lease prepared by Garden & Montgomerie it is improbable that three solicitors of experience would have failed to notice that omission. He submitted that this was especially so when there was a specific reference on p 1 of Annexure A to "See Annexure C".

25. The draftsperson of the 2002 lease slipped in not inserting an Annexure C or including the applicable terms of Annexure C of the 1997 lease. Neither Mr Doyle nor Mr Tipple regarded it as part of his function to check the terms of the lease. It seems that the handwritten alterations to the lease and the duplicate were made after the return of those documents to Garden & Montgomerie. Somebody made a pre-registration check both as to the item and page numbers without realising the significance of the reduction in the number of pages.

26. I do not accept that Mr Tipple, in the final result, understated his retainer. Despite the strong attack on Mr Tipple in cross-examination by Mr Young's counsel I thought that Mr Tipple was a reliable witness. While Mr Doyle's memory of events was not complete I thought that his evidence, as far as it went, was reliable. I accepted the evidence of both of them.

27. I find that the 2002 lease contained no Annexure C and no equivalent of Annexure C of the 1997 lease.

Incorporation 28. The next issue is whether the 2002 lease, on its true construction incorporated Annexure C to the 1997 lease or its verbatim equivalent.

The strongest arguments against an affirmative answer to that question are that Annexure C was not annexed to the 2002 lease despite it having passed through so many hands and being signed by Mr Young and the lessors and the omission on the front page of the lease in (G)7 of any reference to Annexure C when the provisions of Annexures A and B are incorporated.

Counsel for Nasser Holdings Pty Limited pointed out: (a) Mr Young signed the 2002 lease before either of the lessors and when he signed it, there was no Annexure C.

(b) The reference to Annexure C has been omitted from (G)7 on the front page of the lease. That defines what is included in the lease. (Nasser Holdings submitted that this was a conscious not an inadvertent omission; I do not accept that submission).

(c) Inadvertently, "See Annexure C" was not deleted from Annexure A. In any event that is equally as possible as Mr Young's argument that "C" was inadvertently omitted from item (G)7 on the front page of the lease.

(d) It does not follow that Annexure C to the 2002 lease would have been in the same terms as Annexure C to the 1997 lease.

(e) Nasser Holdings does not accept that there was an intention to incorporate Annexure C to the 1997 lease or its verbatim equivalent in the 2002 lease.

(f) The cross-claim of Mr Young of 9 May 2005 did not seek rectification. It was not until the parties were at Court on 23 May 2005 and the plaintiffs pointed out that the 2002 lease contained no Annexure C that Mr Young realised that this was so and sought rectification.

Counsel for Nasser Holdings submitted, in effect, that Mr Young's contentions as to incorporation were really a "back door" way of obtaining rectification. They were tantamount to an equity for rectification.

Mr Young should have picked up that there was no Annexure C when he signed the lease, but he did not obtain legal advice. He thought that the matter was straightforward and that his tenancy was proceeding as previously. This was not an unreasonable approach, especially in view of the correspondence with the managing agents. He was not told he could no longer have the use of the car parking spaces.

The argument as to the omission from (G)7 on the front page of the lease of "C" loses a lot of its force by the presence of the ampersand after "B" and the blank which follows. In view of the alterations to p1 of Annexure A I do not find the argument that there was an inadvertent failure to strike out the reference to "See Annexure C" as persuasive.

While Annexure C to the 2002 lease could have been in different terms to Annexure C to the 1997 lease, the correspondence from the managing agents suggest that the terms of the 1997 lease applied. I do not agree that Mr Young's contentions as to incorporation are tantamount to an equity for rectification. The incorporation contentions depend on the correct construction of the 2002 lease having regard to the matrix of surrounding circumstances in which it was made.

The following matters support the conclusion that Annexure C to the 1997 lease, or its verbatim equivalent are incorporated into the 2002 lease on its correct construction:

1. In paragraph (G) on p 1 of the 2002 lease this appears:

"7. Incorporate the provisions set out in Annexure 'A' 'B' & hereto"

The presence of the ampersand and the blank after the ampersand indicates that an annexure has been accidentally omitted. 2. The entry on p 1 of Annexure A "Additional leased property: See Annexure C". This was not struck out despite other alterations to the same page of Annexure A.

There is a relevant factual matrix. At all times since 1997 Mr Young has occupied, as licensee, 5 car parking spaces at the rear of the shop he leases at no additional cost to the rental payable under the lease. These car parking spaces are clearly identified, being marked out by lines on the ground. On the fence which adjoins the car parking spaces there is a sign in front of each car parking space reading "Mortdale Wholesalers Private Parking". The signs are in large letters and clearly visible to anyone walking through the parking area. They could not be missed.

As the 2002 lease was based on the 1997 lease and flowed from its terms and it contained Annexure C, an important clause of which granted Mr Young a licence to use 5 car parking spaces on the terms therein specified, the reference to Annexure C in the 2002 lease must be to an equivalent of Annexure C to the 1997 lease.

The initial printed pagination of the 2002 lease as signed by Mr Young indicated that that lease comprised 20 pages. That would have incorporated the equivalent of Annexure C

Annexure C of the 1997 lease could be incorporated into the 2002 lease without altering its terms and without doing violence to the terms of the 2002 lease.

Mr Young and the lessors intended Annexure C of the 1997 lease or its verbatim equivalent to form part of the 2002 lease. This appears from the managing agent's letters and, on the expiry of the 1997 lease in 2002, Mr Young continued to occupy and use the car parking spaces without any query being raised until after the sale to Nasser Holdings Pty Limited 36. The arguments supporting incorporation outweigh those against incorporation of the verbatim equivalent of Annexure C to the 1997 lease. One possible explanation for the draftsperson accidentally omitting Annexure C is that Annexures A and B are standard Law Society forms which need to be filled in. Annexure C of the 1997 Lease is not a standard Law Society form but was drafted to meet the parties' agreement and requirement.

In Pagano & Anor v Cama (1995) NSW Conv R 55-755 the defendant gave the plaintiffs an option to purchase a property. The option was in the printed form distributed by the Real Estate Institute. A note on the form said that it was intended to be used with "the Agreement for Sale of Land last issued as copyright of the Real Estate Institute and the Law Society, a duly completed copy of which should be annexed to this form." Clause 3 of the option said:

"The exercise of this option shall create a contract between the Grantor and the Grantee … for the sale of the property on the terms and conditions as described in the form of contract annexed to this option."

Details of the parties, the property, the agent and the price had been filled in on the option. However the parties had not annexed a contract for sale to the option. The plaintiffs exercised the option and paid the 10 per cent deposit.

Brownie J, after noting that the draftsmen of the printed form intended it to be used in conjunction with the standard form of contract but the parties did not annex such a form, held that the parties intended to enter into a binding contract and they should be taken to have referred to the 1988 Agreement for Sale of Land.

There are notable differences between Pagano and the present case. The incorporation of the contract which was not, but should have been annexed, was more clearly identified, stronger and clearer. That case demonstrates that where the language is reasonably clear a document stated to be annexed, but not annexed, may be incorporated into the contract between the parties. External evidence was admitted to identify the Agreement for Sale of land last issued as copyright of the Real Estate Institute and the Law Society.

When regard is had to the terms of the 2002 lease and the factual matrix it is reasonably clear that Mr Young and the lessors intended to incorporate into the 2002 lease as part of the lease the verbatim equivalent of Annexure C to the 1997 lease

I answer the first question in the affirmative.

Question 2 - Rectification 43. In case my answer to the first question is wrong, I proceed to deal with the second question.

The LPI (Land and Property Information) on lodgement of the original lease with the Department identified a discrepancy which prevented registration. The discrepancy came about because in June 2002 Harry Woodward severed the joint tenancy which had existed between himself and the other lessor, Helen Robinson, as to various Lots except Lot A. Consequently Lot A was acquired by survivorship when Mr Woodward died in September 2002.

The 2002 lease was intended by the parties to be registered and steps were taken by the lessors to do that in August 2003. However, the matter dragged on unremedied with the 2002 lease unregistered.

By letter of 9 March 2005 the managing agent advised Mr Young's solicitor briefly of the history of the preparation of the lease and the difficulties which had arisen. Mr Young was concerned, amongst other things, about the non-registration of his lease.

The managing agent recorded that now that the property was to be sold Mr Young had no current lease and this created a problem. The managing agent continued that he had spoken to the executors of both Harry Woodward and Helen Robinson and that it had been agreed that the best that could be done was to have leases prepared as per the previous leases from Garden & Montgomerie, have them submitted to the solicitors for the executors and "get some security for these long term occupiers of Morts Road". (The letter referred to the position of both Mr Young and Mr Paton).

Caveats were lodged by Mr Young in late March 2005 when it became apparent that the proposed contracts for sale did not protect his interests and that the purchaser could acquire title to the land free of that interest by virtue of ss 42 and 43 of the Real Property Act. Mr Young's solicitor wrote to the plaintiff's solicitors about the problems prior to the auction sale. By letter of 28 April 2005 Mr Young's solicitor set out the "brief facts" and endeavoured to suggest solutions to the problems which had arisen which would result in the registration of Mr Young's lease. I am not aware of any reply to this letter.

The background provides some explanation of the unhappy history lying behind the non-registration of the 2002 lease to Mr Young.

As earlier mentioned, the plaintiffs did not oppose rectification of the 2002 lease. There was a common intention that the equivalent of Annexure C to the 1997 lease be included in the 2002 lease. See, for example, the letter of 1 June 2002 from the managing agent to Mr Young and that of 16 July 2002 from the Managing Agent to Garden & Montgomerie, the inclusion of Annexure C in the 1997 lease and the reference in Annexure A to the 2002 lease of the words "See Annexure C". The terms of the 2002 lease were based on those of the 1997 lease subject to agreed alterations, principally in the amount of the rent. There was also the actual use of the car parking spaces by Mr Young from 1997 to March 2005 without dissent from the lessors.

Mr Young also mounted a case for rectification based on a unilateral mistake on his part. He contended that if the lessors never intended to include the car spaces in the 2002 lease they were under an equitable obligation in the circumstances of the present case to disabuse Mr Young of his belief. Mr Young relied on Bates (Thomas) & Son Pty Ltd v Wyndhams (Lingerie) Ltd 1981 1 WLR 505 at 516, Taylor & Ors v Johnson (1983) 151 CLR 422 at 431 and Misiaris & Anor v Saydels Pty Ltd (1989) NSW Conv R 55-474, Walton Stores (Interstate) Ltd v Maher & Anor (1988) 164 CLR 387 at 404, Muschinski v Dodds (1985) 160 CLR 583 at 616. I have not summarised all the plaintiff's detailed submissions on this point. It is unnecessary for me to consider this point further in view of my conclusion that there was a mutual mistake.

The real issue was whether Mr Young's equity to have the 2002 lease rectified was enforceable against Nasser Holdings?

Mr Young did not dispute that Nasser Holdings has an equitable interest in the land under the Contracts for Sale: See Brown v Heffer (1967) 116 CLR 344 at 349. Nor was there any relevant unfulfilled condition. Mr Young further contended that Nasser Holdings did not have a registered interest in the land and that consequently ss 42 and 43 of the Real Property Act do not protect it from Mr Young's equity to have the 2002 lease rectified. The Court was referred to Ong & Anor v Luong & Anor (1991) NSW Conv R 55.597 and Ryan v Starr & Ors [2005] NSWSC 170.

Mr Young accepted that his equity to have the 2002 lease rectified was a personal equity as envisaged in Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liquidation) (1965) 113 CLR 265. Consequently Mr Young submitted that the question was whether Nasser Holdings has taken its interest subject to Mr Young's equity.

Mr Young submitted that Nasser Holdings had actual or constructive notice of Mr Young's equity. The 2002 lease was annexed to the contracts of sale and Nasser Holdings thus acquired its interest in the land with actual or constructive notice of the terms of the 2002 lease. A prospective purchaser who read the copy 2002 lease annexed to the contract should have noticed the words near the start of Annexure A of the 2002 lease:

"Item 10 Additional leased property See Annexure C" (cl 3)"

That prospective purchaser should also have noticed that there was no Annexure C. As Annexure C purported to relate to Additional Leased Property the prospective purchaser would be put upon enquiry to ascertain the terms of Annexure C. It could well have related to the car parking area or some other area connected to the use of the shop occupied by Mortdale Wholesalers. Annexure C in fact creates a licence but the printed form "Additional Leased Property" is a technically inaccurate, but sufficiently close general description of the valuable right to occupy the five car parking spaces.

Mr Young submitted that a purchaser, which in the course of a transaction receives notice of a relevant fact (i.e., that "Annexure C" was missing) is also affected with notice of all other facts which it could have discovered by proper investigation. Reliance was placed upon Lyons v Imperial Land & Buildings C. (1894) 15 NSWLR (Eq) 64. Mr Young submitted that Nasser Holdings was to be imputed with notice of all facts which its solicitors, Javcovou & Co., knew or ought to have known had due enquiries been made on its behalf. Due enquiries would have revealed that Mr Young had been in occupation of the car spaces from 1997 and that the intention of the vendors and lessors and Mr Young was to confer on Mr Young the same rights in relation to them which he had under the 1997 lease.

Mr Young contended that Nasser Holdings had failed to prove that it acquired its interest in the land without notice of the facts which underpin Mr Young's equity to have the lease rectified. Mr Young pointed out that Nasser Holdings was by the Third Cross-Claim seeking declarations that in specifically performing the Contracts of Sale of 19 April 2005 of Lot A DP 110055 and Lots 2, 3, 4, 5 Section DC DP 2921, Nasser Holdings was only required to complete subject to the lease in favour of Mr Young which was annexed to the said contracts (i.e., the lease which did not include the proposed Annexure C) and that Mr Young was not entitled to have his lease rectified by the addition of the proposed Annexure C. Mr Young submitted that Nasser Holdings had the onus of proving those matters which are necessary to the granting of the relief it sought against Mr Young. Reliance was placed on Black v British American Tobacco Australia Services Ltd [2005] NSWSC 241 per Young CJ in Eq at [7].

Mr Young contended that Nasser holdings had failed to discharge the onus which rested on it. It had led no evidence from any of its officers or any other person who might reasonably be expected to have given evidence of what they knew about Mr Young's rights under the 2002 lease prior to its entry into the contracts for sale. Mr Young further contended that Nasser Holdings could not discharge its onus of proof without leading any evidence establishing that it entered into the Contracts for Sale without actual or constructive notice of the facts which underpin Mr Young's equity.

Mr Young contended that in the absence of any explanation as to why no evidence had been led showing that Nasser Holdings had no actual or constructive notice of Mr Young's entry when it entered into the Contracts for Sale, a Jones v Dunkel inference should be drawn to reinforce the conclusion that Nasser Holdings has not proved that it took without actual or constructive notice of that equity. Evidence on what its officers or agents knew or ought to have known about the 2002 lease prior to the auction and whether the five car spaces were covered by the lease should have been led. It was submitted hat as the 2002 lease contains a noticeable defect on its face Nasser Holdings was required to lead some evidence as to what it knew about the lease. Mr Young relied on Manly Council v Byrne & Anor (2004 NSWCA 123 per Campbell J at [51] and LKT v Chun (2004) NSWSC 820 per McDougall J at [39].

Mr Young also drew my attention to s 164 of the Conveyancing Act, 1919 (as amended).

Nasser Holdings submitted that even if Mr Young was otherwise entitled to rectification, that remedy should be refused because Nasser Holdings was a bona fide purchaser for value without notice of any equity of rectification. It submitted that it was important that when Mr Young signed the 2002 lease it contained no Annexure C, he raised no objection and returned the lease duly signed and stamped to the lessor's solicitors.

It was pointed out that the Contracts for Sale had been signed and the parts exchanged in April 2005. Mr Young did not become aware until 23 May 2005 that the 2002 lease did not contain Annexure C. Hence, it was argued that because of this lack of awareness of Mr Young, Nasser Holdings could not have had notice of any possible equity of rectification of Mr Young. It was submitted that if Mr Young was not aware of his equity of rectification in April 2005 Nasser Holdings could not have been aware of it. Mr Young had not asserted his equity in or prior to April 2005.

This submission does not sufficiently take into account the facts of the present case. There were three important matters. First, the terms of the copy 2002 lease attached to the Contracts for Sale alerted the prospective purchaser that there was "Additional Leased Property" and for the details he she or it should look at Annexure C. That raised in an acute form what Annexure C provided. Secondly, there was the marking out of the five car parking spaces in the car parking area and the very clear signage that they were occupied by Mortdale Wholesale as Private Parking. They had been so occupied since 1997, a period of nearly eight years. Thirdly, Mr Young had an equity of rectification as at April 2005, even though he was not personally aware of it. The presence of the words "Additional Leased Property: See Annexure C" would have prompted enquiry and that would have revealed facts pointing to Mr Young having an equity of rectification.

Nasser Holdings submitted that as it was a bona fide purchaser for value which had acquired an interest in 17 Morts Road rectification should not be decreed as it would prejudice its rights.

The sheet anchor of its submission was the decision of Upjohn J (as he then was) in Smith v Jones 1954 2 All ER 823. The facts there were somewhat complicated and I will only refer to some of them. The plaintiff became the tenant of S farm, the terms of the tenancy agreement providing "The Tenant to keep the house, cottages, and all buildings, walls, fences, gates … and the premises generally in good order and condition … the landlord providing … the materials necessary therefor … and to keep all ditches, watercourses and drains … properly scoured and cleaned out."

From 1921 for previous tenants the landlord carried out repairs to the houses and buildings but was under no obligation to do so. During the tenancy negotiations the sub-agent to the estate told the plaintiff that the landlord was responsible for repairs to the farm and the buildings and that the tenant was required to keep them clean and tidy and to repair the fences and ditches. The sub-agent had no authority to alter the terms of the form of agreement used on the estate. At a public auction the landlord offered the farm for sale subject to the existing tenancy. Before the auction the defendant saw a copy of the plaintiff's tenancy agreement at the auctioneer's premises and concluded from it that the plaintiff was liable for repairs and that the landlord had to supply the material. The defendant agreed to purchase S farm and it was conveyed to him. The defendant having required the plaintiff to carry out repairs to the buildings, the plaintiff maintained that he was not responsible for those repairs. However, at the hearing of the action before Upjohn J and as a result of various earlier proceedings, it was not disputed that under the repairs clause as it stood, the plaintiff was responsible for the repairs of the house, cottages and buildings. In the plaintiff's action for rectification the defendant pleaded, inter alia, that he was a bona fide purchaser for value without notice of the equity claimed by the plaintiff. It was contended, inter alia, for the plaintiff that as he was in occupation as tenant when the plaintiff purchased the farm, the defendant was affected with notice of all his rights and equities, including an equity to rectify the tenancy agreement.

The judge held that the claim for rectification failed as the parties had intended that their agreement should be in the form commonly used on the Parmoor Estate. Although it did not arise for decision, but because it had been fully argued, his Lordship dealt with the second defence that the defendant was a bona fide purchaser for value without notice of the plaintiff's equity: Upjohn J adopted these statements of principle from Barnhart v Greenshields (1853) 9 Moo PC C 32, 14 ER 204 (citations omitted):

"With respect to the effect of possession merely, we take the law to be, that if there be a tenant in possession of land, a purchaser is bound by all the equities which the tenant could enforce against the vendor, and that the equity of the tenant extends not only to interests connected with his tenancy, as in Taytlor v Stibbert, but also to interests under collateral agreements, as in Daniels v Davidson, Allen v Anthony, the principle being the same in both classes of cases; namely, that the possession of the tenant is notice that he has some interest in the land, and that a purchaser having notice of that fact, is bound, according to the ordinary rule, either to inquire what that interest is, or to give effect to it, whatever it may be."

And continued: "Later in the judgment Mr Pemberton Leigh cited a passage from the judgment in Allen v Anthony where Lord Eldon, LC said:

'It is so far settled as not to be disputed, that a person purchasing, when there is a tenant in possession, if he neglects to inquire into the title, must take, subject to such rights as the tenant may have'."

"… it would be extending the doctrine of notice and the obligation to make inquiry far too much if the doctrine was extended to cover an equity of rectification."

70. Upjohn J explained that the purchaser was bound by the rights of the tenant in occupation and must look at and is bound by the tenancy agreement.

"… a purchaser is not only entitled but bound to assume, when he is looking at the agreement under which the tenant holds, that the agreement correctly states the relationship between the tenant and the landlord and he is not bound to ask or make inquiry whether the tenant has any rights which would entitle him to have the agreement rectified."

In Smith Upjohn J was not dealing with a case where extrinsic evidence was admissible to resolve an ambiguity nor with a case where the written agreement specifically referred to another document (Annexure C) and to additional leased property. On its face the 2002 lease suggested that there was a document missing. Mr Young contended that even if the verbatim equivalent of Annexure C was not incorporated in the 2002 lease nevertheless the references in it pointed to a document which should have been included and should have formed part of the 2002 lease and, at the very least, required inquiries to be made to ascertain the true position.

Another distinguishing feature was that in Smith initially the debate was as to the true meaning of the provisions of the lease. I respectfully agree that a purchaser does not have to go searching or enquiring whether the lessee has an equity to have the lease rectified to include provisions more favourable to him and correspondingly disadvantageous to the purchaser. In the present case that is not suggested. What is suggested is that the reference to "Additional Leased Property: See Annexure C" in the 2002 lease coupled with the five highly visible car parking spaces with the signs reading "Mortdale Wholesalers Private Parking" gave the purchaser Nasser Holdings express notice that it was occupying these car spaces in conjunction with the shop or at least put the purchaser upon notice that this was probably so.

Nasser Holdings also relied on Ong & Anor v Luong & Anor (1991) NSW Conv R 55-597. The plaintiffs were the lessees of premises "Lock-up" shop known as 38 Canley Vale Road, Canley Vale for three years with an option to renew for a further three years. The owners of the property agreed to sell the land, part of which comprised Shop 38, to the defendants. Before their entry into possession the plaintiff lessees were told by the agent for the then owners that the yard behind Shop 38 belonged to the shop. After they took possession, the plaintiffs made use of the rear yard for storage and parking purposes. The plaintiffs also occasionally brought customers' cars into the rear yard for the purpose of fitting or repairing car stereos or alarms. After the defendants completed their purchase they removed the fence separating the yards behind Shops 36 and 38 and carried out other alterations. They claimed that the yard behind Shop 38 did not form part of the property leased to the plaintiffs.

McLelland J held that as to the true construction of the lease the issue was not what property the previous owner and the plaintiffs intended should be included in the leased property, but the true meaning of the words used in the lease to describe the leased property. Conversations between the plaintiffs and the previous owner's agent could not be considered for this purpose. That judge further held that the rear yard was not included in the description in the lease of the lock-up shop. To attempt to enlarge the ambit of the leased property beyond the shop would be to vary or contradict the language of the lease rather than to construe it.

As to the claim for rectification of the lease McLelland said:

"The defendants as registered proprietors of the subject land have the benefit of the protective provisions of ss 42 and 43 of the Real Property Act 1900. Under s 42(1) they hold the subject land, except in case of fraud, absolutely free from unregistered estates and interests with certain specified exceptions, none of which are relevant. That section does not however protect them from personal equities arising from transactions entered into by themselves, and the acknowledged obligation to recognise the plaintiffs' rights as lessees on the terms of the lease … is such a personal equity. The extent of that equity is to require them to give effect to the plaintiffs' lease in the same way as if that lease had been registered prior to the registration of the transfer to the defendants. However s 42 protects the defendants from any equity, such as an equity to rectification, arising between the plaintiffs and the predecessors in title of the defendants, and even if they were to be held to have had notice of any such equity prior to becoming registered proprietors of the subject land (and this has not in my opinion been established), they are, by the express terms of s 43(1), except in the case of fraud, not to

'be affected by notice direct or constructive of any … unregistered interest, any rule of law or equity to the contrary notwithstanding, and the knowledge that any such … unregistered interest is in existence shall not of itself be imputed as fraud'

No basis has been shown for a finding of fraud against the defendants. Therefore the defendants, while bound in equity to recognise the plaintiffs' interest in terms of the lease … are not affected by any equity for the rectification of that lease."

In the present case Nasser Holdings has not been registered as the proprietor of the land in question and it is not sought to give the words "lock up shop premises" an extended meaning. Instead reliance is placed upon the words in the lease annexed to the contract "Additional Leased Property See Annexure C". It was submitted that applying Codelfa Constructions (1982) 149 CLR 337 at 352 this was a case in which evidence of surrounding circumstances was admissible to assist in the interpretation of the language as it was at he very least, susceptible of more than one meaning because of the reference to Annexure C and its non inclusion. I agree.

While the statements of general principle in Ong are helpful, the present case is somewhat different.

In Coolibah Pastoral Co v The Commonwealth & Anor (1967) 11 FLR 173 the Court was concerned with a pastoral lease over Crown land described as delineated on the plan thereon and an antecedent notice under the Crown Lands Ordinance. The plan recorded that it was issued on the distinct understanding that the Government did not guarantee the plan's accuracy as to boundaries and that such boundaries were liable to correction on completion of surveys. In the statutory notice under s 48C pursuant to the conditions of which the lease was granted, the eastern boundary of the land was shown as the meridian of a place called Boundary Springs. On a public map the eastern boundary of the land was shown to be a meridian which was both the 131st meridian and the meridian of Boundary Springs. Boundary Springs was five miles east of the 131st meridian. An authorised survey fixed the eastern boundary of the lessee's land at the 131st meridian.

Blackburn J held that the lease was to be construed with the statutory notice pursuant to which it was granted and, accordingly, upon the true construction of the lease the eastern boundary of the land comprised in the lease was the meridian of Boundary Springs. Evidence of the use and occupation by the owners of the land comprised in the lease was admissible to establish that the eastern boundary of the land was the meridian of Boundary Springs and the reference in the public map to the 131st meridian was to be rejected as falsa demonstratio.

The judge further held that the grant by a lessor of land, of a lease of adjoining land to a third party, the common boundary being described in the same terms in both leases, precludes rectification of the first lease (p190). Blackburn J noted two general approaches of equity, namely, it refuses to apply the remedy of rescission when the rights of third parties have intervened and the protection given to a bona fide purchaser for value without notice of the plaintiff's equitable right. In Coolibah ss 48A to 48D of the Crown Lands Ordinance and action taken thereunder governed the terms of the Crown lease and the terms of the Ordinance excluded the possibility of rectification of a lease granted thereunder. Blackburn J commented

"If the case is one only of a divergence between the notice and the lease eventually granted the remedy of rectification can have no application …What the plaintiff has received is not a lease which unless rectified will be effective according to its tenor but a nullity."

Coolibah is of limited assistance in the circumstances of the present case. Nasser Holdings stressed that equity is reluctant to grant rectification where the rights of third parties may be affected. That is true as a general proposition but there are circumstances where exceptions operate. See Longtom Pty Limited v Oberon Shire Council, 29 August 1996 per Young CJ in Eq, Butterworths Conv R p14799 at pp 14813-14.

As earlier mentioned, whether rectification should be granted depends upon whether Nasser Holdings had notice of the equity of Mr Young. Nasser Holdings, through the contract of sale had notice from the copy lease attached to the contract for sale of the tenancy of Mr Young. That copy lease was, on its face, incomplete because of the absence of Annexure C and the reference to Additional Leased Property. That should have prompted an inquiry by the purchaser, that is, could it sight a copy of Annexure C. Any inquiry would almost certainly have led to the true position being disclosed and ascertained. The creation of the car parking spaces and the signs erected made it clear that they were being used in conjunction with the business carried on as Mortdale Wholesalers. In my opinion, the combination of these two factors brought about a situation where Nasser Holdings was put on notice that it ought to make enquiries and if it had done so Mr Young's equity would have been apparent. No evidence was called on behalf of Nasser Holdings. There was thus no positive evidence that they were not aware of Mr Young's entitlement to use the five car parking spaces in connection with the business of Mortdale Wholesalers. This was consistent with the approach of Nasser Holdings, based on Smith v Jones that regard is had to the terms of the lease alone.

If I had been of a different view on the incorporation point I would have been prepared to grant rectification.

Costs 84. Mr Young submitted that all his costs should be paid by either the plaintiffs or Nasser Holdings. Mr Young was unsuccessful on the issue that Annexure C was annexed to the 2002 lease when he signed it and when the lease and the duplicate were sent to the solicitors for Mr Hilzinger , the executor of Mr Woodward's will and thence to the solicitors for Mrs H J Robinson. Mr Tipple, the solicitor for Mrs Robinson and Mr Doyle, the solicitor for Mr Hilzinger were cross-examined, mostly on this issue, from 2.18pm to 3.45pm. on 30 June, 2005. Counsel for Mr Young addressed at some length on this issue on the second day of the hearing. If this issue had not been litigated the hearing would have concluded in one day. I propose to award Mr Young his costs of the hearing limited to one day.

85. The plaintiffs pointed out that at the hearing they played a dormant role. They did not contest the issues of incorporation and rectification. They only wished to be heard on the issue that Annexure C was annexed to the 2002 lease. I did not need to hear them on that issue. The plaintiffs set out their position in a facsimile dated 29 June 2005. The hearing commenced on 30 June 2005. Counsel for Nasser Holdings told the Court that the plaintiff's position was made clear on 20 June 2005 when the matter was listed before the Duty Judge. Counsel for Mr Young complained of the "late notification" of the plaintiffs' position, The bulk of the preparatory costs had been incurred by 20 June 2005 and briefs had been delivered and almost all its costs before receipt of the facsimile transmission on 29 June 2005.

86. Apart from the issue as to the annexing of Annexure C to the 2002 lease the real contest was between Mr Young and Nasser Holdings.

87. I was reminded that once I have resolved the issues the subject of the proceedings before me there may be further matters to be litigated in these proceedings, namely depending on the result, claims for damages by either Nasser Holdings or Mr Young.

88. I decide the questions asked as follows: Q.1 Whether the lease dated 25 July 2002 ("the 2002 lease") contains an express or implied term which entitles the First Cross Claimant (Mr Young) to occupy the 5 car parking spaces identified in the de Nett survey on the conditions specified in cl C.3.1 of Annexure C to the lease dated 5 November 1997 (the 1997 lease). A. Yes.

Q.2 If no to question 1 whether the First Cross-Claimant is entitled to have the 2002 lease rectified so as to confer on him the right to occupy the car spaces on the terms contained in C.3.1 of the 1997 lease. A. Unnecessary to answer in view of the affirmative answer to Question 1. However, if I am wrong in that answer I would answer Question 2 'Yes'. 89. I make the following orders: 1. Within 7 days hereof the plaintiffs, Mr Young and Nasser Holdings are each to advise the others in writing of any further issues to be litigated between them.

2. List these proceedings for directions before a Registrar on 12 August 2005 or on such later day as the Registrar may appoint.

3. Order that Nasser Holdings pay three-quarters of the costs of Mr Young of the proceedings to date so far as they relate to the determination of the separate questions specified above other than those related to the issue that Annexure C was annexed to the 2002 lease and that the costs so payable by Nasser Holdings be limited to a hearing lasting one day.

4. Order that the plaintiffs pay out of their respective estates one quarter of the costs of Mr Young of the proceedings to date so far as they relate to the determination of the separate questions specified above other than those related to the issue that Annexure C was annexed to the 2002 lease and that the costs so payable by the plaintiffs be limited to a hearing lasting one day.

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