Chan v. Cresdon Pty Ltd
168 CLR 24289 ALR 522
(Judgment by: TOOHEY J) Court:
Judges:
Mason C.J
Brennan J
Deane J
Toohey JMcHugh J
Judgment date: 14 December 1989
Judgment by:
TOOHEY J
This appeal concerns the enforceability of a guarantee given by the appellants to the respondent.
In early 1984 the respondent was the owner of land on which it was building a retail shopping complex. A company, Sarcourt Pty. Ltd., wished to take a lease of one of the shops. To that end, on 13 March 1984 Sarcourt executed a lease of shop premises for a term of five years commencing on 20 March 1984, with the appellants and others who are not parties to these proceedings also executing the lease as guarantors. The respondent did not execute the lease until some months later. Clause 23.01 of the lease read:
"GUARANTEE AND INDEMNITY The Guarantor ... in consideration of the Landlord entering into this lease at the Guarantor's request jointly and severally GUARANTEES to the Landlord due and punctual performance by the Tenant of the obligations on its part to be performed under this lease AND INDEMNIFIES and agrees to indemnify the Landlord against all loss damage costs and expenses suffered or incurred by the Landlord as a result of any failure by the Tenant to pay any moneys under this lease or any breach by the Tenant of any of the covenants and conditions contained or implied in the Lease ..."
By an agreement, which is undated but was executed at or about the same time as the lease, the respondent agreed to grant Sarcourt "a lease of the demised premises upon the terms and conditions set out in the Annexed Lease". The appellants were also parties to the agreement, cl.2.2 of which read:
"Simultaneously with the making of this Agreement the Grantee and (where appropriate) the Guarantors have executed the Lease and delivered it to the Grantor's solicitors."
The "Lease" referred to in cl.2.2 is the lease mentioned at the outset of these reasons. Although the precise date does not appear, Sarcourt thereafter entered into possession of the premises.
The agreement contained other provisions relating to the position of the guarantors. Because it was the guarantee under the lease upon which the respondent sued the appellants, it is unnecessary to refer to the agreement in any detail though some further reference to that document will be necessary because of the relevance the appellants contend it has in construing their obligations under the lease.
The claim against the appellants was for the sum of $28,877.70 for "arrears of rent, interest and other moneys" due by Sarcourt under the lease for the period 1 March 1986 to 1 October 1986.
The trial judge found against the respondent and he did so for these reasons:
"... the (appellants) entered into the guarantee in consideration of the (respondent) granting to (Sarcourt) a lease for a term of five years. The lease ... has not been registered pursuant to the provisions of The Real Property Act. (Sarcourt) did not get the term for which it contracted. It seems that it has at best a tenancy at will. The promise upon which the (appellants) entered into the guarantee has not been fulfilled. ... the (appellants) are not bound by the guarantee ..."
The Full Court allowed the respondent's appeal and entered judgment for the respondent against the appellants in the sum claimed.
Reduced to its essentials, the appellants' argument was that the consideration for their guarantee was, in terms of cl.23.01 of the lease, "the Landlord entering into this lease"; that it was a condition precedent to the assumption of liability by the guarantors that the respondent granted to Sarcourt a term of years; that the lease, although executed, was not registered under the provisions of the Real Property Act 1861 (Q); that it was therefore void at law; and that, in consequence, the appellants never came under any obligation in terms of their guarantee.
The primary question is one of construction of the lease. As a matter of construction of cl.23.01, the appellants' undertakings were expressed to be "in consideration of the Landlord entering into this lease". The respondent did enter into the lease by executing it, as did Sarcourt. There was therefore no failure of consideration. By the terms of the lease Sarcourt assumed a number of obligations including an obligation to pay rent and other moneys. This it failed to do. It might therefore be thought that that was the end of the matter.
However, the appellants contended that their undertakings were conditional upon registration of the lease. This they sought to demonstrate by adapting for their purpose the observation in Ankar Pty. Ltd. v. National Westminster Finance (Australia) Ltd. (1987) 162 CLR 549 , at pp 555-556, that "when performance by the creditor of a contractual promise is a condition precedent to the liability of the surety under a contract of suretyship ... the creditor's promise is necessarily an essential term of the contract". Of course, the observation necessarily begs the question now before the Court. If there was no condition precedent to the appellants' undertakings other than the respondent entering into the lease, that was done. The appellants must satisfy the Court, because it is their case, that cl.23.01 of the lease has the result that the respondent was bound to register the lease before the appellants came under any liability to the respondent under that document.
The appellants contended that, the lease and agreement for lease having been executed at the same time, it was permissible to look at the terms of the agreement as a guide to construction of the lease. The recital to the agreement speaks of the respondent's agreement "to grant or to procure the grant ... of the ... 'demised premises' ". Clause 2.1 of the agreement provides that the respondent "will grant or procure the grant to and (Sarcourt) will accept a lease of the demised premises upon the terms and conditions set out in the Annexed Lease". In Hoyt's Proprietary Ltd. v. Spencer (1919) single bargain" recorded in contemporaneous documents:
"In such case, if there be an action on the whole agreement as one entire indivisible agreement, the whole of the documents are read together, and the words of one may have to be modified by the words of another."
But that is not the case here. The respondent sued the appellants on the undertaking given by them in the lease, not by reason of any obligation said to have been undertaken under the agreement for lease. There is no warrant for using the latter as a guide to the construction of the former, particularly as the lease is not relevantly ambiguous or uncertain.
The appellants relied, as a further or alternative argument, on the proposition that they assumed no obligations to the respondent by reason of cl.23.01 because, until registration, there was no "lease" obliging Sarcourt to perform obligations. The reference to "under this lease" in cl.23.01, it was said, was a reference to a "legal lease" which could only exist once registration had been effected. Therefore, it was contended, the appellants incurred no liability under the guarantee.
It is common ground that the lease was not registered under the Real Property Act. In Laurinda Pty. Ltd. v. Capalaba Park Shopping Centre Pty. Ltd. (1989) 63 ALJR 372 ; 85 ALR 183 , Brennan J. said, at p 379; p 195 of ALR:
"A covenant by a registered proprietor of land under the Real Property Act 1861 (Qld) to grant a lease of the land for a term exceeding three years is not performed until an appropriate instrument of lease is registered: see ss 43 and 52 and cf the Real Property Act 1877 (Qld), s 18. ... a covenant to grant a legal lease of such land for a term exceeding three years necessarily implies that an appropriate instrument of lease will be registered."
With those propositions there can be no quarrel for "grant" carries with it the notion of conveying or transferring an estate in land and s 43 of the Real Property Act expressly ensures that, while unregistered, no lease "shall be effectual to pass any estate or interest" in land under the Torrens system. But the propositions enunciated by Brennan J. do not carry the appellants as far as they need to go. Whatever may be said as to the appropriateness of equating registered and unregistered interests on the one hand with legal and equitable estates on the other, there is a wealth of authority dating back to Barry v. Heider (1914) 19 CLR 197 that an unregistered instrument under the Torrens system may give rise to an equitable interest. National Trustees, Executors and Agency Co. of Australasia Ltd. v. Boyd (1926) 39 CLR 72 is but one example of an unregistered lease being held to give rise to an equitable term of years. There is also a wealth of authority that, pending registration, a lease gives rise to contractual rights and obligations: see, of the more recent decisions, Leitz Leeholme Stud Pty. Ltd. v. Robinson (1977) 2 NSWLR 544 , at pp 549-550.
No doubt it is simplistic to equate an equitable lease, recognized by virtue of the doctrine in Walsh v. Lonsdale (1882) 21 ChD 9, with a lease registered under the Torrens system. Dependent as it is upon recognition in equity, an equitable lease will be upheld only if a court would grant specific performance of a contract for the grant: Moore v. Dimond (1929) 43 CLR 105 , at pp 123-124; Dimond v. Moore (1931) 45 CLR 159 , at pp 169, 170, 186. To that extent an equitable lease is vulnerable. The matter is the subject of detailed analysis by Gardner, "Equity, Estate Contracts and the Judicature Acts: Walsh v. Lonsdale Revisited", (1987) 7 Oxford Journal of Legal Studies 60 and see the later comment by Sparkes, "Walsh v. Lonsdale: The Non-Fusion Fallacy", (1988) 8 Oxford Journal of Legal Studies 350. But that possible complication does not arise here for the question of the parties' entitlement to specific performance formed no part of the proceedings below. That is made clear by Matthews J., with whose judgment the other members of the Full Court agreed. In any event there was no obvious bar to a grant of specific performance of the lease. On the face of it, there is no reason to assume that the lease had come to an end or that it was not registrable at the time proceedings were begun.
As to whether the lease had come to an end, the respondent initiated proceedings seeking the enforcement of the guarantee in 1986. Its claim was later amended to cover the period from March 1986 to October 1986. Although the point was not argued, it would seem that Sarcourt made some payments relating to that period within the period itself. The inference is that the lease was still on foot when the respondent took action.
As to registrability of the lease, s 52 of the Real Property Act demands that a lease for a term exceeding three years be "in the prescribed form"; that means a lease in registrable form. But it was not suggested by the appellants that the lease in this case was not in the prescribed form or that for any formal reason it was not capable of registration. Indeed, the lease was in Form E as prescribed by s 52 of the Act as it stood at the time of execution, and see s 10(4)(c) of the Act as amended by the Real Property Acts and Other Acts Amendment Act 1986 (Q). And although there was in existence, at the time of execution of the lease, a mortgage from the respondent to the Commonwealth Trading Bank of Australia, the bank consented to the lease. The existence of its mortgage was therefore no bar to registration of the lease.
An obligation to obtain or procure registration of an instrument may be inferred from the form of the instrument itself: see Mason C.J. in Laurinda, at p 375; at pp 187-188 of ALR. And it may be inferred from the form of the lease used in this case that it was intended to be registered. But the lease contained no undertaking by the respondent to "grant" a lease to Sarcourt: such an obligation is to be found only in cl.2.1 of the agreement. Moreover, in the absence of any provision whereby the lessee undertook to pay for the costs incurred by the lessor in obtaining registration, it cannot be concluded that the respondent as lessor was obliged to obtain or procure registration rather than to deliver a lease in registrable form to Sarcourt. Nothing said in argument would entitle the Court to find that the respondent was in breach of its obligations under the lease as opposed to its obligations under the agreement. The lease might have been registered at the instance of the lessee as well as of the lessor. "Application to register may be made by any party interested": National Trustees v. Boyd, at p 84.
It is true that while the lease was unregistered there was the risk that some other interest could be registered to its destruction or prejudice. In the events that happened, a mortgage to Citibank Limited was registered, though not until 12 March 1987. The evidence relating to this mortgage was scant. It seems to have been common ground that Citibank did not consent to the lease to Sarcourt but it does not appear whether its consent was ever sought. If the existence of the Citibank mortgage constituted a barrier to registration of the lease, it was for the appellants to make good that proposition. They did not discharge that onus. In any event, proceedings for the recovery of rent were already on foot before the Citibank mortgage was registered.
In the circumstances, this appeal must be disposed of on the footing that Sarcourt and the respondent were each entitled to an order for specific performance of the lease. To do otherwise is to construct a case for the appellants that was not one of their choosing.
On that basis, though unregistered, there is no reason to suppose that the lease document was not effective to give Sarcourt an equitable lease for five years, arising in accordance with Walsh v. Lonsdale, equity considering as done what ought to be done: Progressive Mailing House Pty. Ltd. v. Tabali Pty. Ltd. (1985) 157 CLR 17 , at pp 26-27. As was said by Knox C.J. and Starke J. in York House Pty. Ltd. v. Federal Commissioner of Taxation (1930) 43 CLR 427 , at p 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."
The appellants sought to meet this argument by saying that the doctrine of Walsh v. Lonsdale was confined to the relationship of lessor and lessee and that it had no application where the position of a third party was at issue. It is of course true that there are differences between the legal estate created by a lease and the rights arising under a contract for a lease and that one of these differences relates to the position of third parties: see, by way of example, Chronopoulos v. Caltex Oil (1982) 45 ALR 481 , at p 489. But that does not assist the appellants. They are sued as guarantors of the obligations assumed by Sarcourt when it executed the lease from the respondent. The relationship between the respondent and Sarcourt was in equity that of lessor and lessee. It is no answer to say that, in some other situation, someone else may not have been affected by the relationship between the respondent and Sarcourt because the lease was not registered.
There was some discussion, during argument, of the position of a lessee under an unregistered lease who, unable to obtain specific performance of the lease, has nevertheless entered into possession of the subject land. In those circumstances entry into possession may constitute a tenancy at will and, on payment of rent, a tenancy from year to year: Moore v. Dimond (but see the Property Law Act 1974 (Q), s 129, which abolished yearly tenancies arising by implication of law). In consequence the lessee will be liable for rent, not by reason of the lease, but by reason of the agreement implied between the parties. But when an unregistered lease is specifically enforceable, it is unnecessary to resort to such an implied agreement; both lessor and lessee may sue upon the terms of the lease itself.
Absence of registration does not mean that there were not obligations to be performed by Sarcourt. It has long been held that a lessor may sue for rent on the covenant contained in an unregistered lease: Munro and Baillieu v. Adams (1891) 17 VLR 703 ; Ahern v. L.A. Wilkinson (Northern) Ltd. (1929) St R Qd 66. Absence of registration does of course mean that there is no passing of any registered estate or interest. Moreover, a lease enforceable only in equity, may not answer the description of "lease" in a statute: see, for instance, City Permanent Building Society v. Miller (1952) Ch 840. But this is not always so, as is evidenced by Rickett v. Green (1910) 1 KB 253 ; Rye v. Purcell (1926) 1 KB 446 and also by the reasoning underlying Swain v. Ayres (1888) 21 QBD 289 . Whether the lease was registered or unregistered, Sarcourt was obliged to pay the rent and other moneys for which it was sued. The touchstone of the appellants' liability under cl.23.01 of the lease is whether the obligations to be performed by Sarcourt may be said to arise under that lease.
It may be argued that Sarcourt's obligations arose, not out of the lease, but out of an antecedent agreement which is enforced in equity, and which is merely evidenced by the unregistered instrument. While it is true that equity does not enforce a transfer, as such, but "the transaction behind the instrument" (see Latham C.J. in Brunker v. Perpetual Trustee Co. (Ltd.) (1937) 57 CLR 555 , at p 581), it is apparent that such a transaction need not, and in this case does not, comprise any actual agreement that the parties believed they were entering into. It would be paradoxical to hold that the formal agreement between the parties executed contemporaneously with the lease is irrelevant to the existence and construction of obligations incurred under the lease instrument, while at the same time positing some "transaction behind the instrument" as being the source of the parties' obligations. Whether or not those obligations are said to arise from an antecedent agreement, of which the lease is evidence, or from a transaction behind the instrument, it is the instrument itself which ultimately is the source of those obligations.
In truth, what is at issue here is the construction and enforceability of the document executed by the parties under the heading "Lease". The appellants' undertaking to guarantee Sarcourt's obligations arising "under this lease" is not ambiguous. And Sarcourt's obligations in truth arose "under this lease", an expression which is apt to embrace the lease document even while it was unregistered, particularly as the lease was specifically enforceable.
In some situations it will be necessary to distinguish an unregistered instrument from the transaction behind it. But this is not always the case and where, as here, the question is one of construction of the lease document, there is no unorthodoxy in holding the appellants to their express undertaking to guarantee Sarcourt's obligations.
In my view the decision of the Full Court was correct and this appeal should be dismissed with costs.