BETWEEN : SWANVILLE INVESTMENT PTY LTD (ACN 078 967 343)

Landlord and tenant - Agreements for lease - Lease of retail premises - Exercise of option of renewal for three years - Proposals for amendment of lease by lessor rejected - Notice by tenant calling for extension of lease as provided in existing lease - Document submitted by lessors not conforming to what was required - New document prepared by solicitors for lessors - Not executed by lessees - Whether failure to execute entitled lessor to terminate lessees' tenancy - Whether lessees entitled to a stay of execution pending hearing and determination of appeal to District Court - Merits of the appeal fully considered

Commercial Tenancy (Retail Shops) Act 1985 (WA), s 13

Conveyancing Act 1919 (NSW), s 23B, s 54A, s 127(1)

District Court of Western Australia Act 1969 (WA), s 79(1)(b), s 79(2)

Local Court Act 1904 (WA), s 33, s 34(1), s 107(3)

Property Law Act 1969 (WA), s 71

Real Property Act 1900 (NSW), s 41

Rules of the Supreme Court 1971 (WA), O 63 r 15(1)(a), O 63A

Supreme Court Act 1935 (WA), s 60(1), s 25(12)

Leave to appeal granted, appeal allowed and stay of execution ordered pending appeal to the District Court

Cox v Simeon, unreported; FCt SCt of WA; Library No 5063; 7 September 1983

Federal Commissioner of Taxation v Myer Emporium [1986] HCA 13; (1986) 160 CLR 220

Hamersley Iron Pty Ltd v Lovell (No 2) (1998) 20 WAR 79

1 MALCOLM CJ: This matter came before the Full Court originally as an application for leave to appeal from the refusal on 25 February 2003 by Judge Williams in the District Court in an appeal from the Local Court against the refusal of an application for a stay of execution of the orders made by his Worship Mr Roberts SM on 19 February 2003 in the Local Court at Midland. The stay of proceedings sought was to prohibit the respondent from enforcing, by way of a warrant of possession or otherwise, the orders made by the Magistrate pending the determination of the appeal.

2 In the result, the merits of the matter having been fully canvassed, at the conclusion of the argument on 13 March 2003, the Court was unanimously of the opinion that leave to appeal should be granted on the grounds set out in the proposed notice of appeal against the orders of the learned District Court Judge, the appeal should be heard at once and the appeal allowed. The orders made by his Honour were set aside. In lieu thereof, it was ordered that there be a stay of execution prohibiting the respondent by way of warrant of possession or otherwise, enforcing the order made by the learned Magistrate on 19 February 2003 pending the determination of the appeal to the District Court. It was also ordered that the costs of the application for leave to appeal and the appeal to the Full Court be costs in the cause in the appeal to the District Court.

3 These are my reasons for joining in the making of those orders.

4 The application for leave to appeal to the Full Court was made pursuant to s 79(1)(b) of the District Court of Western Australia Act 1969 (WA) ("District Court Act") which provides that a party dissatisfied with a judgment or order of the District Court that is not a final judgment may appeal, by leave, to the Full Court. In addition, s 107(3) of the Local Court Act 1904 (WA), provides that a party to an appeal to the District Court from the Local Court, dissatisfied with a judgment of the District Court may, by leave, appeal to the Full Court. Any such appeal is required to be made in the same way and follow the same procedure as an appeal to the Full Court from a Judge of the Supreme Court by s 79(2) of the District Court Act. An appeal against an interlocutory order requires the leave of the Full Court or the Judge who made the order: s 60(1) of the Supreme Court Act 1935 (WA). Such application may be made ex parte unless the Full Court otherwise directs. In the present case, the respondent appeared and there was full argument on the merits of the proposed appeal. In those circumstances, at the conclusion of the argument, the Court was satisfied that the decision of the learned District Court Judge was wrong and that substantial injustice would be done if it remained unreversed: Wilson v Metaxas [1989] WAR 285 at 294 per Malcolm CJ (with whom Brinsden and Smith JJ agreed); Niemann v Electronic Industries Ltd [1978] VicRp 44; [1978] VR 431 per Murphy J at 436 - 437.

5 In this context, the discretion to grant a stay of proceedings pending an appeal is unfettered, but the Court must be satisfied that the appeal has not been instituted merely for the purposes of delay: Croney v Nand [1998] QCA 367; [1999] 2 Qd R 342 at 349 per McPherson JA, Pincus JA and Jones J. It is necessary to balance the convenience and the rights of the parties: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 694 per Kirby P, Hope and McHugh JJ. This is a case in which the appeal may be nugatory if a stay is not granted: cf Wilson v Church (No 2) (1879) 12 Ch D 454 at 458. In the absence of a stay, the appellants would be required to quit the subject premises pursuant to the order of the Local Court. Their tendered cheque for the March 2003 rent was returned on behalf of the respondent on 4 March 2003 with a note stating:

"Returning March rent cheque due to the fact that you will be vacating my property."

6 While O 63 r 15(1)(a) of the Rules of the Supreme Court 1971 (WA) provides that unless the Full Court otherwise directs, an appeal shall not operate as a stay of execution, a stay will be granted if the interlocutory order is of central significance to the progress of the substantive litigation; it may be appropriate to grant a stay pending the hearing of the appeal, if that is the most timely and efficient means of advancing the proceedings generally.

7 In the present case, the Court concluded that the full merits of the case having been canvassed in the argument, the appellants were entitled to succeed on the merits, the grant of a stay was warranted, and the Court went on to allow the appeal. In this context the balance of convenience was substantially in favour of the Full Court not only to grant a stay, but to deal with the merits of the appeal against a refusal of the stay.

8 In summary, the grounds on which leave to appeal was sought and granted were that:

1. The learned Judge erred in law in refusing to grant a stay of execution because:

1.1 it was not necessary for his Honour to find exceptional circumstances before exercising the unfettered discretion to grant a stay under O 8 r 20(2) of the District Court Rules 1996;

1.2 Once it was accepted that it was likely that the appellants had an equitable lease of the premises, having exercised an option to renew the term for a period of 3 years commencing 14 December 2001, there was a prima facie entitlement to a stay of execution on the judgment in the Local Court.

(a) the learned Judge should have found that if a stay was not granted, there was a real risk that in the event that the appellants were successful, it would not be possible that they could be restored substantially to their former position by an order of the District Court;

(b) the loss of the proprietary rights associated with possession of the premises by the appellants was not a loss which could necessarily be made good by an order of the District Court given the nature of the District Court appeal and the cause of action.

1.4 The possibility that the loss of such rights referred to in par 1.3 is not a loss that could or would be the subject of an award of damages in the District Court, constituted special circumstances requiring the exercise of the discretion to grant a stay of execution.

2. The learned Judge erred in law in refusing to exercise his discretion to grant a stay of the orders made by his Worship Mr Roberts SM in that the preservation of the ability of the District Court to do justice between the parties required the grant of a stay of execution.

9 By a lease dated 12 December 1998, the appellants leased the land, buildings and other improvements on the land from the respondent for a term of three years commencing on 14 December 1998 and terminating on 13 December 2001. Clause 9.3 of the lease contained an option to renew the term of the lease which was in the following terms:

"Option to Renew

The Tenant not being in default under the Lease in the payment of the rental reserved or in the performance or observance of the terms and conditions contained or implied on the Tenant's part to be performed and observed will have the option to be exercised by giving the Landlord at their address appearing in this lease (or at any other address as the Landlord notifies the Tenant in writing for that purpose) not less than three (3) calendar months written notice prior to the expiration of the term of renewing the term from the expiration of the term for the Further Term on the same terms and conditions as are contained or implied in this lease (save and except this option of renewal which will be deemed expressly excluded) at the annual rental to be determined in accordance with clause 3.3 of this lease."

10 Item 4 of the schedule to the lease specified that the further term of the lease would be three years from the date of termination in Item 3 of the Schedule, namely 13 December 2001. While neither party relied on any of the provisions of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), I note that the original term of three years with an option to renew for a further term of three years complied with the minimum term of five years as required by s 13 of that Act.

11 By a notice dated 19 September 2001, the appellants gave notice of their intention to renew the lease for the term of three years as stated in the Schedule Item 4. By a letter dated 8 October 2001, the respondent, represented by Ms Harris, accepted the exercise of the option for the further term of three years, but added that:

"In addition to clause 3-5 of the Lease it is to be re-amended for the New Option Term as follower [sic]:

Local Authority Rates and including Goods and Services Tax to be paid by the Tennant.

I will cover the cost of the amendments to the Lease to be amended. I am prepared to offer you a further 3 years option on the Lease if required.

12 By a letter dated 17 October 2001, the appellants replied to the letter from Ms Harris as follows:

"Thank you for your renewal for the next 3 years as per clause 9-3 of the original lease.

As at this stage, as we do not require an extension for a further 3 years, there will be no need for any other amendment's [sic] as suggested."

13 By a notice dated 4 January 2002, the appellants gave notice to the respondent that the respondent was in breach of the agreement to deliver a document for the extension of the lease pursuant to cl 9.3. By a letter dated 11 February 2002, the respondent indicated that the appellants were in breach of certain terms of the lease. Subsequently, however, an amended form of lease was prepared and signed. By a letter to the respondent's solicitors dated 21 March 2002, however, the appellants drew attention to an error in the documents which had been signed providing for a further option to renew the lease. The original option contemplated only one right of renewal. They also raised matters related to the alleged intention of the respondent to issue a notice to quit to a subtenant of part of the premises.

14 On 15 April 2002, the respondent's solicitors forwarded a new deed of extension of lease incorporating the necessary amendments to the appellants for execution and return, confirming that on completion of the documents, "The term of your lease will then expire on 13 December 2004." For reasons not entirely clear, the appellants did not then execute and return the documents. It appears that this had something to do with a difficulty with a subtenant of the appellants. By a notice dated 10 July 2002, the respondent served on the appellants a notice to quit the leased premises within one calendar month of the date of service of the notice. The notice was served on the appellants on 10 July 2002.

15 In September 2002, the respondent commenced the proceedings against the appellants for recovery of possession in the Local Court. The relevant summons was served on the appellants on 5 October 2002. Shortly afterwards, there was an offer to settle on certain terms and conditions.

16 These were that the appellants immediately forward to the respondent's solicitors the executed duplicate copies of the deed of extension and variation of lease document previously sent to them, pay the costs of $848.58, the subject of an account sent previously to them and pay certain other costs for the preparation of a deed of sublease in an amount of $949.85 also previously sent to them.

17 By a letter dated 3 October 2002, the appellants agreed to pay the $848.59 and confirmed that Mr Max Healy who was involved in the subtenancy had agreed to pay the $949.85. It was also confirmed that the lease extension documents had been signed and returned by post on 3 October 2002. By a letter dated 4 October 2002 from the respondent's solicitors, receipt was acknowledged of the executed deed of extension and renewal of the lease. Receipt of these documents was acknowledged by the respondent in a letter to the appellants dated 28 October 2002, from the respondent's solicitors.

18 In that letter, it was also stated by the respondent's solicitors that:

"I acknowledge receipt of the signed deed of extension and renewal of lease. As previously advised, my client will only sign that document upon receipt of payment of its costs which you have undertaken to pay and payment of additional costs which have yet to be quantified.

Those costs cannot be quantified until the costs which your sub-tenant is liable to pay my client have been assessed and agreed by the Court. I will advise as soon as I know what the amount of the costs will be.

In the meantime please forward your cheque for the legal costs you have agreed to pay as described in items 2 and 3 of my letter dated 2 October 2002."

19 The costs payable by the sub-tenant were due to be taxed on 31 March 2003. What then transpired is not clear, except that the appellants changed their solicitors in February 2003. This followed the order for possession made by the Local Court on 15 February 2003 and the refusal by Williams DCJ of the stay of proceedings on 25 February 2003.

20 In the meantime, the monthly rent was duly paid except that a cheque for rent dated 27 February 2003 was returned by the respondent as, in the meantime, the appellants had vacated the subject premises pursuant to the order of the Local Court following the refusal of their application for a stay pending their appeal.

21 It is clear from the above that the option to renew was validly exercised by the appellants and accepted as such by the respondent on the same terms and conditions as the original lease. No consequences followed from the refusal by the appellants of the respondents' offer of a further option of renewal to be included in the renewal of the lease pursuant to the exercise of the option.

22 As a matter of law, the acceptance by the respondent of the exercise of the option created an agreement for a lease for a further term of three years. In equity, as from 13 December 2001, the appellants were in possession under the agreement for a new lease for that term. They paid the rent as required under the terms of the new lease. As Jessel MR said in a passage frequently cited in Walsh v Lonsdale (1882) 21 Ch D 9 at 14 - 15:

"There is an agreement for a lease under which possession has been given. Now since the Judicature Act the possession is held under the agreement. There are not two estates as there were formerly, one estate at common law by reason of the payment of the rent from year to year, and an estate in equity under the agreement. There is only one Court, and the equity rules prevail in it. The tenant holds under an agreement for a lease. He holds, therefore, under the same terms in equity as if a lease had been granted, it being a case in which both parties admit that relief is capable of being given by specific performance. That being so, he cannot complain of the exercise by the landlord of the same rights as the landlord would have had if a lease had been granted. On the other hand, he is protected in the same way as if a lease had been granted; he cannot be turned out by six months' notice as a tenant from year to year. He has a right to say, 'I have a lease in equity, and you can only re-enter if I have committed such a breach of covenant as would if a lease had been granted have entitled you to re-enter according to the terms of a proper proviso for re-entry.' That being so, it appears to me that being a lessee in equity he cannot complain of the exercise of the right of distress merely because the actual parchment has not been signed and sealed."

23 The position was put shortly by Isaacs J in Gerraty v McGavin [1914] HCA 23; (1914) 18 CLR 152 at 163 when he said:

"Now what is the position of a lease obtained by the exercise of an option to renew? Clearly it is a new lease, a new demise."

24 The same view was expressed by Gillis J in Friedman v Barrett; Ex parte Friedman [1962] Qd R 498 at 507 - 508; and Mercantile Credits Ltd v Shell Company of Australia Ltd [1976] HCA 9; (1976) 136 CLR 326 at 344 - 345 per Gibbs J. There are many decisions to the same effect including Moss v Barton (1866) LR 1 Eq 474; Buckland v Papillon (1866) LR 1 Eq 477; In re Leeds and Batley Breweries and Bradbury's Lease [1960] 2 Ch 474; Rider v Ford [1923] 1 Ch 641; Yulin Pty Ltd v Japan Building Projects (Aust) Pty Ltd [1991] ANZ Conv R 390.

25 While there has been some discussion about the precise scope of the decision in Walsh v Lonsdale (supra), its application to an agreement for a lease has not been doubted. That is an agreement for a lease constituted by the exercise of an option to renew constitutes a lease in equity, under which the lessee was obliged to pay the rent and the lessor was bound to observe the covenant of quiet enjoyment, so long as the lessees performed their obligations under the equitable lease: Re Eastdoro Pty Ltd [1989] 2 Qd R 182 per Williams J at 184, and (on appeal) Re Eastdoro Pty Ltd [1990] 1 Qd R 424.

26 In the Local Court, the appellants contended that they were entitled to a renewal of the lease by virtue of the exercise of the option. That contention is repeated in ground 3 of the grounds of appeal to the District Court. It was contended, on behalf of the respondent before the District Court, that the failure of the appellants to execute the new lease for the extended term extinguished their lease in equity, so that they became monthly tenants holding over at common law. In my opinion, the law is clear that they were in possession pursuant to the exercise of the option to renew as lessees in equity on the terms of the renewed lease, as provided for in the original lease. So long as they performed the relevant terms, the lessor's remedy was to seek an order compelling them to execute a new lease on the agreed terms and conditions.

27 If the respondent called upon the appellants to execute a lease in accordance with the agreed terms and conditions, they could be compelled to do so: cf Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242. In that case, at 250 - 251, Mason, Brennan, Deane and McHugh JJ noted that in England in Walsh v Lonsdale (supra), Jessel MR had regarded a lease in equity as the equivalent of a lease at law, giving rise to a liability for rent for which the common law remedy of distress could be levied. Their Honours noted that Cotton and Lindley LLJ expressed themselves more cautiously, with Lindley LLJ observing that, at the hearing, a proper form of lease would be settled.

28 Their Honours in the High Court went on in Chan v Cresdon Pty Ltd (supra) at 250 - 251 to review the authorities and concluded at 251 that:

" ... this Court, while acknowledging that an agreement for a lease will be treated as giving rise to a lease in equity in accordance with the doctrine in Walsh v Lonsdale, has always rejected the notion that the lessee has a legal interest in the term."

29 Their Honours also referred to National Trustees Executors and Agency Co Ltd v Boyd [1926] HCA 44; (1926) 39 CLR 72 at 82; Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 at 25 - 26; and York House Pty Ltd v Federal Commissioner of Taxation [1930] HCA 7; (1930) 43 CLR 427 at 435 - 436. In the latter case, Knox CJ and Starke J, in the context of an unregistered lease for 10 years of Torrens system land, quoted with approval the following passage in Swain v Ayres (1888) 21 QBD 289 at 293:

"[W]hen there is such a state of things that a Court of Equity would compel specific performance of an agreement for a lease by the execution of a lease, both in the Equity and Common Law Divisions the case ought to be treated as if such a lease had been granted and was actually in existence. There would then be the equivalent of a lease, that is to say, the lease of which equity would compel the execution in specific performance of the agreement."

30 This passage was also cited with approval in Chan v Cresdon Pty Ltd (supra) at 251 - 252 by Mason CJ, Brennan, Deane and McHugh JJ, who noted that in Swain v Ayres, it was acknowledged that a lease and an agreement for a lease were "two different things" and that a party to an agreement to a lease had "no legal interest in the term", although the agreement to lease could be specifically enforced, saying in York House (supra) at 436:

"If the agreement can be specifically enforced, the landlord has the same rights as if a lease had been granted, and the tenant is protected in the same way as if a lease had been granted. There is thus the equivalent of a lease, and the tenant is the lessee in equity (Walsh v Lonsdale (5); Swain v Ayres). It is not in opposition to ordinary legal parlance to describe such an agreement as a lease, and the person entitled thereunder as a lessee."

31 See also Williams v Frayne [1937] HCA 16; (1937) 58 CLR 710 at 721 per Latham CJ; and at 730 per Dixon J.

32 After referring to these cases, Mason CJ, Brennan, Deane and McHugh JJ said in Chan at 252:

"For present purposes these authorities establish two propositions. First, the court's willingness to treat the agreement as a lease in equity, on the footing that equity regards as done what ought to be done and equity looks to the intent rather than the form, rests upon the specific enforceability of the agreement. Secondly, an agreement for a lease will be treated by a court administering equity as an equitable lease for the term agreed upon and, as between the parties, as the equivalent of a lease at law, though the lessee does not have a lease at law in the sense of having a legal interest in the term."

33 It follows that in the present context, where there is an enforceable agreement for the renewal of a lease and the tenant is in possession and paying the rent, the equitable doctrine that equity regards as being done that which ought to have been done applies, so that the new lease will be enforceable in the same manner as if a new lease had been entered into for a term of three years commencing on 14 December 2001: Re Eastdoro Pty Ltd [1989] 2 Qd R 182 at 184.

34 Russell J in Rider v Ford [1923] 1 Ch 541 at 547 observed:

"But the right to renew is a right to call for a fresh lease. The new lease is the result of a fresh demise. Even if all the provisions in the fresh lease were the same as in the old lease it would nonetheless be a fresh demise, and a fresh term with fresh covenants."

35 The exercise of an option to renew creating in equity an agreement to lease constituted by the exercise of the option was a good defence to an action for ejectment. Specific performance will be granted if an agreement to lease is constituted by the exercise of an option to renew: Verrall v Great Yarmouth Borough Council [1981] QB 202. That case involved a licence to enter land for the purpose of holding a conference. The Court of Appeal was unanimously of the opinion that the Court should order specific performance of an agreement by which a local authority agreed to grant a political party a licence to hold a conference on premises owned and controlled by the authority. Roskill LJ said at 220:

"I find it difficult to believe that a court in those circumstances could not, let alone would not, grant equitable relief by way of specific performance or a mandatory injunction to require the licensor to fulfill his obligations. How much more is that so, in my judgment, where, as here, there has been a longstanding contract entered into by the licensee for which that licensee has given valuable consideration. We were referred to a 19th century decision of Kay J in Hart v Hart [(1881) 18 Ch D 670 at 685], where he referred to the judgment of Turner LJ in Wilson v West Hartlepool Railway Co [(1852) 2 De J & SM 475 at 494 - 497; 46 ER 489 at 466 - 467]:

'... that when an agreement for valuable consideration between two parties has been partly performed, the Court ought to do its utmost to carry out that agreement by a decree for specific performance.' "

36 In my opinion, while these comments were made in the context of an agreement to grant a licence, they are equally applicable to an agreement to lease.

37 It may well be that there is an implied obligation in equity that the tenant will execute a renewal of the lease but, in the meantime, the lease is taken to have been renewed as a result of the exercise of the option and its terms enforceable in equity.

38 It was in this context that on 20 November 2001, the respondent delivered a deed of extension to the appellants. As already mentioned, there was some correspondence between the parties in relation to this deed and, on 15 April 2002, the respondent delivered a second deed of extension. The appellants did not execute this deed. On 28 July 2002, the respondent served a notice to quit on the appellants. Again, the appellants did not act. On 5 October 2002, the respondent commenced proceedings against the appellants seeking recovery of possession of the property.

39 The matter was heard in the Local Court at Midland on 19 February 2003, where the learned Magistrate made orders that, firstly, the appellants deliver up possession of the premises; and secondly, that the appellants pay the respondent's costs of the application.

40 The appellants then appealed against that decision to the District Court and sought a stay of execution pending the hearing of the appeal. It was in that context that Williams DCJ ordered that the application for a stay of execution be dismissed.

41 It was contended on behalf of the respondent that while the appellants asserted a proprietary interest in the land as lessees in equity, "... it was only a leasehold interest of a commercial building used as a warehouse and with only 21 months to run", so that they had an insufficient interest to warrant the grant of a stay. It was acknowledged that the learned Judge held that the appellants had an arguable case on the appeal, but it was contended that this constituted a finding that was unduly favourable to the appellants.

42 The contention on behalf of the respondent was that the appellants' case was very weak because, while upon exercise of the option the appellants had an equitable interest in a tenancy for a new term and either party was entitled to call for the execution of a lease, at the same time as the equitable interest came into existence there was also created a tenancy at law from month to month which was terminable by a notice to quit of one month's duration, which had been given. The authority for that proposition was said to be found in Butterworths Australian Tenancy Practice and Precedents (1987) V1 at [14 75] and at [1 55].

43 The authorities cited in support include Moore v Dimond [1929] HCA 43; (1929) 43 CLR 105. In that case, Dimond had been a tenant under a lease of a shop for five years and eight months which expired on 30 November 1927. In May of that year the parties agreed to a renewal of the lease for a further period of five years at a new weekly rent. The tenant remained in possession and paid the weekly rent up to 17 November 1928 when he abandoned the shop and did his best to put the appellant in possession. The appellant claimed the rent for the week ended 24 November 1928 or, alternatively, as upon a tenancy from year to year. Knox CJ, Rich and Dixon JJ held at 117 that, where the intention of the parties was that the term would be longer than a yearly tenancy would give them, and this intention failed "because of the want of expression as a formal demise, the presumption or assumption that a general holding is from year to year supplies the term": Ex parte Murphy (1856) 2 Legge (NSW) 976; Bloomfield v Bloomfield (1893) 9 WN (NSW) 188; Bank of Victoria v M'Hutchison [1881] VicLawRp 134; (1881) 7 VLR (L) 452; Box v Attfield [1886] VicLawRp 122; (1886) 12 VLR 574; Morison v Edmiston [1907] VicLawRp 35; [1907] VLR 191; Beattie v Fine [1925] VicLawRp 47; (1925) VLR 363; Marshall v Coupon Furniture Co Ltd [1916] St R Qd 120 at 125; and Styles & Co Ltd v Richardson (1915) 17 WALR 81. In the latter case, in particular, it was held that an agreement for a lease for a term exceeding three years, which was not under seal as required by the relevant statute and was void at law, created a liability at law on the part of the tenants as tenants from year to year with all the terms of the agreement applicable to a yearly tenancy: Martin v Smith (1915) 17 WALR 81.

44 All of these cases rest on the common law implication of a tenancy from year to year where there is no specified periodic term and the term is otherwise of uncertain duration. This rule of the common law was abolished in Western Australia by s 71 of the Property Law Act 1969 (WA). Section 72 of the Act provides that a periodic tenancy or a tenancy of uncertain duration may be terminated by one month's written notice by either party to the other expiring at any time, whether at the end of a rent period or not. The lease in question in this case was neither a periodic tenancy, nor a tenancy of uncertain duration for the purposes of the common law rule. It follows that the rule had no application to this case.

45 Counsel for the respondent also relied upon Carberry v Gardiner (1936) SR (NSW) 559. In that case, at 567 - 568, so far as land under common law title was concerned, Jordan CJ (with whom Stephen J agreed) considered the application of s 3 of the Statute of Frauds, which was replaced in New South Wales by s 23B of the Conveyancing Act 1919 (NSW) ("Conveyancing Act")which, in turn, adopted a provision introduced in England by 8 and 9 Vic Chap 106. This required that no assurance of land shall be relied upon to pass an interest at law unless by deed, except for relevant purposes, a lease or tenancy not required by law to be in writing. Agreements to grant a lease, as distinct from the grant itself, came within the Statute of Frauds, as replaced by s 54A of the Conveyancing Act, which required that no action could be brought to charge any person upon any contract or sale of land, or any interest therein, unless the agreement or some memorandum or note thereof was in writing and duly signed. Where the agreement for a lease was not in writing, it followed from the Statute of Frauds that the lease could create a tenancy at will at common law. If, however, the lessee entered into an oral lease for a term, he became a tenant at will by virtue of his entry. If he then paid rent in circumstances that would lead to a different conclusion, that would proceed. If nothing else appeared, but the rental payment implied a yearly tenancy, the tenancy at will would be substituted by a common law tenancy from year to year.

46 By s 41 of the Real Property Act 1900 (NSW), no instrument until registered in the manner prescribed is effectual to pass any estate or interest in land under the Act. No instrument is registrable unless it is in accordance with the Act. An informal instrument, however, may be evidence of an agreement to lease for which a court of equity would grant specific performance by execution of a registrable instrument of lease: Wellington City Corporation v Public Trustee [1921] NZLR 1086.

47 In Dockrill v Cavanagh (1944) 45 SR (NSW) 78, it was held that, where an option to renew for a specified term is exercised, but no formal lease is executed and the tenant continues in occupation and pays the rent pursuant to the agreement to renew, there is brought into existence at common law a lease at will on such of the terms and conditions as are applicable, including the provision for termination at the end of the specified period. Such a renewed term expires by effluxion of time at the end of the specified period, without notice to quit. It was also held, however, that the term was liable to be earlier terminated by one month's notice under s 127(1) of the Conveyancing Act to which reference has already been made. No consideration appears to have been given in that case to the position in equity.

48 By virtue of s 127 of the Conveyancing Act, the common law tenancy from year to year was replaced by a statutory tenancy at will, terminable only by one month's notice. The position in South Australia was stated in Moore v Dimond (supra) in which Starke J said at 124 that the equitable doctrine that a person who has an agreement for a lease can be treated as if he had a lease could only be applied:

"... if the Court in which an action is brought upon the agreement to decree specific performance: Focter v Reeves [1892] 2 QB 255."

49 In Western Australia, the position is currently dealt with similarly by s 71 of the Property Law Act 1969 (WA) which provides that no tenancy from year to year is implied by payment of rent. This abolished the common law. Section 72 of the Act provides that:

(1) Without prejudice to any other lawful mode of termination available or to any express agreement by the parties to a periodic tenancy or tenancy of uncertain duration as to its termination, a periodic tenancy or a tenancy of uncertain duration may be terminated by one month's written notice by either party thereto to the other expiring at any time whether at the end of a rent period or not.

(2) Notwithstanding anything in this section any mode of termination of a periodic tenancy or a tenancy of uncertain duration that was lawful before the date of the coming into operation of this Act whether by shorter notice than that provided for by subsection (1) or otherwise is as effectual as if this Act had not come into operation."

50 The present case did not involve either a periodic tenancy or a tenancy of uncertain duration so that s 72(1) is not applicable. On the face of it, the appellants were in occupation for a renewed fixed term of three years pursuant to the exercise of the option. Subject to any issue the respondent may be entitled to raise, the appellants had a prima facie right to remain. The respondent contends that the steps taken by the appellants to return the executed deed of extension of the lease were too late, because by then the tenancy had been determined and no steps had been taken by them to enforce or perfect their equitable interest.

51 Furthermore, the respondent contended that had the appellants taken such steps on receipt of the notice to quit and sought specific performance, a number of "strong defences", were open to the respondent including lack of clean hands and laches, ie unreasonable delay. It was submitted that one of the appellants had sworn that the reason the appellants did not execute the deed of extension of lease dated 15 April 2001 was to "support the sub-tenant" in relation to a dispute on fact between the respondent and the sub-tenant.

52 It was contended that in the period from the notice of exercise of the option to renew in September 2001 until October 2002, the appellants did not execute the new lease, although a lease in the form required was tendered to them for execution by 15 April 2002. There was, however, an issue about the content of that lease which the appellants appear to have been entitled to raise. Be that as it may, the lease was executed in October following the issue of the notice to quit. It was contended that this was "too late". The question is, however, whether in the circumstances, the respondent was entitled to give notice to quit. By the exercise of the option to renew, the lease had been brought into existence in equity. The notice to quit is founded on the proposition in recital N of the notice, namely:

"By reason of the Tenant's failure and refusal to execute a formal instrument effecting the renewal of the lease, there is a tenancy, at law, which is terminable by either party on one month's notice."

53 The notice required the appellants to deliver up possession of the premises within one calendar month of the date of service. The notice was served on 28 July 2002.

54 Their Honours in the joint judgment in Chan (supra) said at 252, that a court of equity would regard an equitable lease for the term agreed upon, as between the parties, as the equivalent of a lease at law in circumstances where equity will prevail over the common law to the extent of any conflict, so as to enable the appellants to specifically enforce the agreement for the lease.

55 On the face of it, the steps alleged to have been taken by the appellants to protect the interests of their sub-tenant do not appear to have had the effect that the appellants could be said to have disqualified themselves from equitable relief on the grounds that they did not have clean hands. While they did not execute the form of lease subsequently sent to them, the respondent clearly accepted that the option to renew had been validly exercised so as to bring into operation an agreement to a lease for the renewed term of three years.

56 In my opinion, having accepted the monthly rental as they did until the judgment for possession was obtained in the Local Court, I have great difficulty in understanding on what basis the mere fact that the tenant refused or neglected to sign the lease in the terms agreed had the effect that the tenant was liable to have the agreement for the lease terminated, thereby losing his equitable interest in the land as a tenant in equity. As a result of the exercise of the option by the appellants by the notice dated 19 October 2001, which was accepted by the respondent as effective, the respondent became bound by an agreement enforceable in equity to grant a new lease for the further term.

57 It was contended by counsel for the respondent that the refusal to sign the deed operated as a repudiation of the agreement to lease. In my opinion, however, there was no repudiation in fact or law. The appellants performed all of their obligations under the agreement, in accordance with its terms. It was not necessary for the purposes of enforcement for there to be a new lease in writing to make the agreement to grant by the respondent and the agreement by the appellants to lease the premises mutually enforceable as an agreement to lease on the relevant terms and conditions. There is no doubt, however, that the Court would grant the lessor the remedy of specific performance, including the execution of a new lease for the relevant term, had that remedy been sought.

58 In my opinion, it is, at the least, strongly arguable that the appellants had a good defence to the action in the Local Court based on the agreement to lease constituted by the due exercise of their option to renew the original lease. By s 33 of the Local Court Act 1904 (WA) ("Local Court Act"), the Local Court had the power to give effect to every ground of defence or counterclaim, equitable as well as legal, "in as full and ample a manner as might be done in the like case by the Supreme Court". Section 34(1) of the Local Court Act makes it clear that where any defence involves matters beyond the jurisdiction of the Court, the defence "shall not affect the competence or the duty of the Court to dispose of the whole matter of controversy so far as relates to the demand of the plaintiff and the defence thereto ...". It is clear, however, from the proviso to s 34(1) that the Local Court could not make an order for specific performance of the agreement for lease. Provision is made in s 34(3) for a counterclaim involving matters beyond the jurisdiction of the Local Court. In that event, the Court may adjourn the proceedings to enable a party to apply to remove the proceedings into this Court to enable the defendant to prosecute the counterclaim by an action in this Court.

59 As has been seen, the effect of the provisions in the Local Court Act is that the Local Court could give effect to a defence to a claim of ejectment or to possession of land that was in the defendant's possession, pursuant to an enforceable agreement for a lease for an extended term. Moore v Dimond (supra) involved an action to recover rent. In the present case, the existence of the lease in equity is raised as a defence to the action for re-possession which is in the nature of an action for ejectment.

60 Counsel for the respondent submitted, however, that as stated in Butterworths Australian Tenancy Practice and Precedents (1987) V1 at [14 75]:

"At the same time as this equitable term comes into existence there is also created a tenancy at law which is terminable by notice to quit cf, in New South Wales, Queensland and Western Australia, one month's duration."

61 The authorities cited in support of that proposition are Moore v Dimond (supra); Carberry v Gardiner (supra); Dockrill v Cavanagh (1944) SR (NSW) 78; and Todburn Pty Ltd v Taormina International Pty Ltd (1990) ANZ Conv R 567 (Ext).

62 In my opinion, on the face of it, these authorities have no application to the present case. As the appellants were in possession of the subject property pursuant to a lease enforceable in equity in accordance with its terms, the claim at law that the original lease had expired and that the renewed lease was, at law, not legally enforceable, was met by the plea that the occupation of the premises was pursuant to an agreement for a lease for a further term constituted by the due exercise of the option of renewal. Whether the appellants had done or not done anything required of them which would disentitle them to a decree of specific performance was the issue which was required to be litigated. It is not apparent from the papers before us whether or not this issue was properly addressed in the Local Court.

63 If I am wrong at law, and the appellants were, as a matter of law, in occupation by virtue of the statutory monthly tenancy, at equity they were entitled to occupy the premises as tenants under the terms and conditions of the unexecuted lease. In my opinion, subject to any valid and effective reply to the defence, which would entitle the respondent to eject the appellants, on the face of it, the appellants had an arguably good defence to the claim. Section 25(12) of the Supreme Court Act 1935 (WA) provides that, subject to the provisions of any other Act, any conflict or variance between the rules of equity and the rules of the common law with respect to the core subject matter, the rules of equity shall prevail.

64 At all events, the issue was one which should be fully tested on the appeal to the District Court. In order to preserve the subject matter of the litigation, the necessary and appropriate remedy was to grant a stay of proceedings in the Local Court pending the hearing and determination of the appeal in the District Court.

65 In the circumstances, I would order that leave to appeal should be granted and the appeal allowed, setting aside the orders of the learned District Court Judge.

66 MURRAY J: The reasons for decision of Malcolm CJ and Anderson J express sufficiently for me the reasons why I joined in the orders made by the Court on the hearing of this application.

67 ANDERSON J: The appellants were lessees of commercial premises at Binda Place, Bindoon for a term of 3 years expiring on 13 December 2001. Part of the building was sublet to a real estate agent and the appellants used the rest as a warehouse to service their Foodlands store

nearby. The lease contained an option of renewal for a further term of 3 years. This option was duly exercised by notice dated 19 September 2001. It was understood on both sides that the appellants would be required to execute a new lease with respect to the extended term but difficulties arose between the parties concerning the form and content of it. Eventually, on 15 April 2002, the respondent landlord sent a deed which was in appropriate form, and called on the appellants to execute and return it. The appellants did not do so. The appellants were of course bound to do so in order to completely perform the agreement constituted by the due exercise of the option: Swain v Ayres (1888) 20 QBD 585. On 28 July 2002, the deed still not having been executed and returned, the respondent landlord gave one months notice to quit on the following ground:

"By reason of the Tenant's failure and refusal to execute a formal instrument effecting the renewal of the lease, there is a tenancy, at law, which is terminable by either party on one months notice."

68 The appellants refused to quit the premises and in September 2002 the respondent landlord issued a plaint out of the Local Court for recovery of possession based on the notice to quit. There were settlement negotiations pursuant to which on 3 October 2002 the appellants executed the deed which the respondent landlord had forwarded (called a "deed of extension of lease") and returned it to the respondent. However, the settlement negotiations broke down in other areas, the respondent refused for its part to execute the deed and the respondent's plaint in the Local Court for recovery of possession proceeded to a hearing on 15 February 2003. Although we do not have the Magistrate's reasons for decision we can take it that the Magistrate upheld the respondent's case that at the time when the notice to quit was served there was a tenancy from month to month which was terminated by the notice to quit. He ordered the appellants to deliver up possession of the premises and to pay the respondent's costs. The appellants appealed to the District Court against that decision on grounds arising from the exercise of the option of renewal. They sought a stay of execution in the District Court pending the hearing of the appeal. The stay application was refused by Williams DCJ. Although he considered that the appellants had an arguable case on appeal, the Judge did not consider the appellants had demonstrated that there were exceptional circumstances. His Honour held in effect that there were no circumstances which were sufficiently exceptional to justify the grant of a stay of execution.

69 Whether the jurisdiction to grant a stay of execution in the Local Court pending an appeal to the District Court depends on exceptional circumstances being shown is doubtful but need not be decided in this case. One of the appellants' grounds of appeal (ground 3) is to the effect that the Magistrate should have held that the appellants were in occupation of the premises pursuant to a new lease for 3 years as from 14 December 2001 and were not merely tenants from month to month. In my respectful opinion, this ground of appeal is sufficiently strong to amount to an exceptional circumstance if that be required, when it is put together with the likelihood that the refusal to grant a stay will render the appeal nugatory.

70 The general rule is that the exercise of an option of renewal creates an enforceable contract to grant a new lease: Walsh v Lonsdale (1882) 21 Ch D 9. On the face of it the due exercise of the option of renewal in this case had the consequence that immediately upon the expiration of the original lease the appellants were in occupation for a new fixed term pursuant to an equitable lease for the period the subject of the option of the renewal ie, 3 years. Recovery of possession of land is a common law remedy but courts of law recognise that an equitable lease is a good defence in such an action. As Jessel MR said in Walsh v Lonsdale (supra) at 14:

"There is only one court, and the rules of equity prevail in it."

71 See also Swain v Ayres (supra). Although the Local Court is a court of limited jurisdiction and has no general jurisdiction to entertain a claim for equitable relief there is no doubting its power to give effect to a defence based on equitable doctrines: Local Court Act s 34(1). The basis of the defence is the right to possession and the covenant for quiet enjoyment in the agreement for the new lease, which is enforceable in equity, as long as the lessee performs the lessee's covenants. In short, on the face of it, the appellants had a good defence to the claim for recovery of possession in that they had an enforceable equitable lease for a fixed term of 3 years from the expiration of the original term.

72 There was no finding so far as I can see that the appellants were in breach of any covenant in the lease. Although it is by no means clear that the Magistrate proceeded on such a basis, it would have been a misconception to regard the initial failure of the appellants to execute the deed of renewal as a breach of covenant. The obligation on the appellants to execute the deed arose in equity in the sense that a court having equitable jurisdiction would order the execution of the deed as specific performance of the agreement. The obligation to execute the deed of renewal is not to be found in the lease covenants. The provisions in the lease entitling the landlord to re-enter for breach of covenant did not entitle the respondent to forfeit this lease, on the known facts.

73 Whether the refusal to execute the deed was a repudiation of the agreement is, to my mind, a difficult question which has not really been explored. Repudiation seems not to have been an issue in the Local Court nor was it the basis on which the order for possession was made. It was raised by counsel for the respondent in his oral argument before us as a new point. Even if it is nevertheless open to the respondent to rely on repudiation in the hearing of the District Court appeal I am not persuaded that a case for repudiation is likely to succeed. Whilst it is now settled that a lease may be rescinded by an acceptance of a repudiation (Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17) there are considerable difficulties in the way of the contention that a tenant in occupation pursuant to the due exercise of an option to renew and who is faithfully performing all the lessee's covenants on his part to be performed and intends to continue to do so should be regarded as having thrown up the lease by declining to execute the formal deed. At the very least there would have to be a close examination of the circumstances surrounding the non-execution of the deed as those circumstances were known to the landlord. No such inquiry has taken place, so far as appears from the material before this Court. Therefore I do not think it was open to the respondent to contend before us that the appeal against the Judge's refusal to grant a stay should be dismissed on the ground that there was repudiatory conduct on the part of the appellants.

74 It was submitted on behalf of the respondent landlord that the appellants had disentitled themselves to equitable relief on discretionary grounds by refusing to execute the deed promptly on its presentation. This submission also raises questions of fact and law which were not (so far as I can see) raised in the Local Court. The plain fact of the matter is that the appellants were not seeking equitable remedies in the Local Court. They simply answered the respondent's plaint for recovery of possession based on a notice to quit which alleged that they were monthly tenants by proving that they were in occupation for a fixed term of 3 years pursuant to an agreement for lease.

75 Counsel for the respondent tried to persuade us that until the execution of the deed of renewal the most that the appellants had obtained by exercise of the option of renewal was a tenancy at law from month to month terminable on one months notice; and that as one months notice had been given, the notice to quit had effectively terminated the tenancy. Reliance was mostly placed on Moore v Dimond [1929] HCA 43; (1929) 43 CLR 105 but other authorities were cited. I do not think that any of the authorities clearly support counsels contentions.

76 The judgment in Moore v Dimond (supra) is to be understood in the light of the particular facts of that case including the course of the proceedings. In May 1927 during the term of the original lease which expired on 30 November 1927 the landlord and tenant made an arrangement for a renewal of the lease for a further 5 years from 1 December 1927 at an increased weekly rental. They had difficulty in agreeing on the terms of the formal instrument for the new lease and there was a dispute as to whether complete agreement had been reached. The tenant remained in possession, paying the increased rental until 17 November 1928 but then abandoned the premises. The landlord sued the tenant in the Local Court of Adelaide to recover the rental at the increased rate for the week ending 24 November 1928 ie, another week. This claim was based on the agreement for lease made in May 1927 and alternatively upon a legal tenancy from year to year said to arise at law from the holding over.

77 On a case stated to the Supreme Court it was held that a complete agreement for a new lease had been reached but that the action in so far as it was based on the agreement was in truth a claim for specific performance and hence beyond the jurisdiction of the Local Court. The remaining question was whether there was in law a tenancy from year to year arising from the holding over - a cause of action that was within the jurisdiction of the Local Court. The Supreme Court held that there was not a tenancy from year to year and the landlord's claim was in effect dismissed.

78 The landlord appealed to the High Court only on the question as to whether or not there was a tenancy at law from year to year. As the High Court (Knox CJ, Rich and Dixon JJ) were at pains to point out at 111:

"The appellant now, by special leave, appeals against the second of these answers, but she has prosecuted no appeal against the first answer. We must therefore assume that the rights of the parties in these proceedings are to be determined at law and not by reference to their equitable position, as would be the case if the action were brought in a court with complete jurisdiction in equity as well as at law."

79 In proceeding to uphold the appeal and to hold that in the circumstances there was at law a tenancy from year to year the Court made it clear that it was not at liberty to go beyond the case stated and was concerned only with the position at law which was that where parties enter under a mere agreement for a future lease they are tenants at will and if rent is paid under the agreement they become tenants from year to year determinable on the execution of the lease contracted for. That of course, is not the position in equity, as the High Court itself said in Moore v Dimond (supra) at 112.

80 In my opinion, it is a misunderstanding of this case to draw from it the proposition that a tenant who has duly exercised an option of renewal for a further fixed term only has a tenancy at will until a new deed of lease is executed. I can find no support for the proposition in the cases cited by counsel and it is not a proposition which is so self-evidently true that it should be held to be fatal to what is otherwise a soundly based application for a stay of execution on the order for recovery.

81 As I see it, the appellants have a strongly arguable case that the plaint for recovery of possession should have been dismissed in the Local Court on the ground that they were in lawful occupation of the premises pursuant to an equitable lease for a fixed term of 3 years containing a covenant for quiet enjoyment. Whist it is neither possible nor desirable in an appeal of this sort to come to any final conclusions as to the merits of the opposing cases I am of the opinion that, prima facie, the respondent's case in all its aspects lacks substance. If the appellants must remain out of possession until what is likely to be a judgment in their favour in the District Court their right of appeal would be almost certainly nugatory. Their interest in the land would have been defeated.

82 These are the reasons why I joined in the decision to allow the appeal.