John Lampard Pfeiffer and Dp Kirk Holdings Pty Limited v Colin James Cummins and Daryl Stanley Arnold [1986] ACTSC 57 (2 July 1986)

SUPREME COURT OF THE ACT

JOHN LAMPARD PFEIFFER and D.P. KIRK HOLDINGS PTY LIMITED v. COLIN JAMES
CUMMINS and DARYL STANLEY ARNOLD
S.C. No. 652 of 1986
S.C. No. 703 of 1986
Real Property - Contract - Landlord and Tenant

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Gallop J.(1)

CATCHWORDS

Real Property - Application for removal of caveat - interlocutory nature of proceedings - principles to be applied - whether caveator had established a serious question to be tried.

Contract - whether negotiations resulted in a concluded agreement - test to be applied.

Landlord and Tenant - notice to quit - adequacy and date of expiration of notice.

Martyn and Anor. v. Glennan and Anor. (1979) 2 NSWLR 234

Eng Mee Yong v. Letchumanan s/o Velayutham (1980) AC 331 195 Crown St. Pty Ltd v. Hoare (1969) 1 NSWR 193

Masters v. Cameron [1954] HCA 72; (1954) 91 CLR 353

Governor & c. of the Poor of Kingston-upon-Hull v. Petch (1854) 10 Exch 610; 156 ER 583

Zimin v. Wentworth Properties Pty Ltd (1959) 76 WN 54

Queen's Club Garden Estates Ltd v. Bignell (1924) 1 KB 117

HEARING

CANBERRA
2:7:1986

ORDER

The further hearing of the matter be adjourned so that the plaintiffs may bring in short minutes of orders.

DECISION

By originating summons issued on 24 April 1986 the plaintiffs instituted proceedings for the following orders against the defendants:

1.That COLIN JAMES CUMMINS attend before the Court

to show cause why Caveat registered number 536558
registered on Volume 225 Folio 4 should not be
removed.
2.That DARYL STANLEY ARNOLD attend before the Court
to show cause why Caveat registered number 537814
registered on Volume 225 Folio 4 should not be
removed.
3.Judgment for possession of the said land.
4.An Order that a Writ of possession issue forthwith
upon judgment.
5.Damages or mesne profits including same at the
rate of $1,950.00 per month against the Defendant
COLIN JAMES CUMMINS from 31st March, 1986, until
the Plaintiffs are put into possession.
6.Damages or mesne profits including same at the
rate of $1,200.00 per month from 31st March, 1986,
against the Defendant DARYL STANLEY ARNOLD until
the Plaintiffs are put into possession.
7.Interest.
8.Costs.

2. Appearances to each originating summons were entered by the respective defendants. On 13 June 1986 the plaintiffs applied in both matters by notice of motion for the orders set out above. By consent both applications were heard together. The basic facts are not in dispute and I make the following findings of fact.

3. On 17 December 1985 the plaintiffs contracted to purchase the land contained in Block 36, Section 22, Fyshwick and known as 85-91 Newcastle Street, Fyshwick from John Holman O'Donnell (the deceased) and Brian James O'Donnell, the registered proprietors. The contract of sale contained the following special condition:

"2.- This Contract is subject to the tenancies of
DARRYL ARNOLD in respect of No. 85 at $1,200 per month
and in favour of COLIN CUMMINS in respect of Nos. 89
and 91 at the rentals of $750.00 per month and
$1,200.00 per month such rentals in each case being
payable on the First day of each month. There are no
written Agreements in respect of the above tenancies,
the Tenants holding the subject premises as monthly
Tenants. Upon exchange of this Agreement, the Sellers
shall cause a Notice to Quit to be served upon the
subject Tenants requiring them to vacate and deliver up
vacant possession on 31st March, 1986. A copy of such
Notice shall be forwarded by the sellers solicitors to
the buyers solicitors."

4. Pursuant to the special condition 2. set out above, notices to quit dated 14 January 1986 were served upon the defendants on 15 January 1986. Under the terms of the notice to quit the defendants were required to deliver up possession of the premises on 31 March 1986. Settlement of the sale of the premises to the plaintiffs took place on 6 February 1986. The vendor John Holman O'Donnell had died on 4 February 1986. The plaintiffs then caused to be served upon both defendants another notice to quit on 20 February 1986 requiring that they vacate by the same date, 31 March 1986.

5. By letters dated 25 March 1986 from their solicitors, the defendants disputed the validity of the notice to quit and claimed to be entitled to retain possession of their respective premises under a lease for three years expiring 31 March 1987 with an option to renew for a further three years granted by the deceased on or about 28 March 1984.

6. On 26 March 1986 the defendant Colin James Cummins (Cummins) lodged a caveat on the title of the subject land and on 7 April 1986 the defendant Daryl Stanley Arnold (Arnold) did likewise. Each defendant claimed an estate or interest as equitable sub-lessee by virtue of an agreement made on or about 28 March 1984 between himself and the deceased on behalf of himself and as agent for Brian James O'Donnell in respect of their respective tenancies. It was not disputed that prior to the purchase of the subject land by the plaintiffs the defendant Cummins was the lessee of two shops under a monthly tenancy and that the defendant Arnold was the lessee of one such shop under a monthly tenancy.

7. Following the settlement of the purchase the plaintiffs were entered on the register as proprietors on 26 February 1986. The defendants did not quit the premises on 31 March 1986 and, as recited earlier, the plaintiffs instituted the present proceedings on 24 April 1986.

8. Section 58 of the Real Property Ordinance 1925 provides that a person becoming registered as a proprietor of land or of any estate or interest in land under the provisions of the Ordinance shall, except in case of fraud, hold the land, estate or interest subject to such encumbrances, liens, estates or interests as are notified in the Register Book constituted by the grant or certificate of title of the land but absolutely free from all other encumbrances, liens, estates or interests whatsoever except as to, inter alia, any prior tenancy from year to year or for any term not exceeding three years.

9. Under sub-section 105(2) of the Ordinance the registered proprietor may summon a caveator to attend before the court or the judge thereof to show cause why the caveat should not be removed and thereupon the court or judge may make such order as to the court or judge seems fit.

10. In support of the motions the plaintiff John Lampard Pfeiffer deposed by affidavit of 23 April 1986 that the plaintiffs purchased the subject land in order to redevelop it as a service station and showroom and sales office for the sale of four-wheel drive vehicles, parts, accessories and equipment. He said that plans for rebuilding and demolition had been submitted to the National Capital Development Commission for design and siting approval and had been approved in principle. He said that at the date of the hearing of the applications the plaintiff would be in a position to commence rebuilding in six weeks and that in the meantime if granted possession the plaintiffs would be partly operational. Completion of the rebuilding and remodelling of the premises should be completed in 14 weeks from the date of approval of the plans and specifications by the Department of Territories. He gave an estimate of the loss which the plaintiffs would suffer if unable to carry out their plans within that time frame.

11. The defendants both showed cause why their caveats should not be removed by filing affidavits both sworn 3 June 1986. The defendant Cummins deposed that as the proprietor of a business known as Col Cummins Motors under two tenancies on the subject land, he has used the premises since February 1980 for a business of used car sales. His oral agreement with the deceased was that he would rent the premises from month to month for a rent of $800 per month. He initially only occupied one shop on the premises. There was no written lease. After about nine months another shop became vacant and in February 1981 he came to an oral agreement with the deceased that he would rent that shop as well from month to month for a rent of $600 per month, making a total rent of $1400 for the two shops. He sublet one of the shops for $375 per month. The deceased attended each month to collect the rent which was paid promptly. Cummins spent a considerable sum of money both for maintenance and improvement of the property.

12. He deposed further that on 28 March 1984 the deceased came to the premises by himself and they had a conversation at the front of the premises in company with the other defendant Arnold. The deceased said "The rent has to go up". They negotiated for a time and eventually it was agreed that Cummins would pay rent of $1200 per month for one tenancy and $750 per month for the other. Arnold said "What about a lease?". They then had discussions about entering into a written lease. The deceased said "I will give you both a three year lease with a three year option to begin on 1 April 1984. I will draw it up myself in order to save expense". As he was a real estate agent Cummins accepted that the deceased was able to do this. Nothing further happened. Cummins kept mentioning to the deceased about drawing up the lease when he came to collect the rent each month. The deceased would answer "I am fixing it up". Cummins continued to mention it for some time and then the matter lapsed.

13. He further stated that he continued to spend money on the maintenance and improvement of the premises in the belief that he had secure tenure. He deposed to the details of some money spent. He said that he trusted the deceased and was not worried about not having a written lease. In early December 1985 the deceased came to the premises and spoke to Cummins. He said "I have cancer and I am winding up all my affairs. I am selling the building and you have to be out by the end of March 1986. I am going to put the property up for auction at the end of March".

14. The deceased refused to negotiate with Cummins so that Cummins could purchase the premises. Cummins said he was very angry and said "I won't be going because I've got over 12 months to go of the lease plus the option". The deceased said "That is bad luck, there is nothing in writing. What would you do if you were in my position? I have to clear everything up". Cummins said that he saw the deceased a few times after that conversation prior to Christmas. The deceased had come to check up on some painters whom he had arranged to paint the premises prior to the sale. On one such occasion Cummins said to the deceased "I won't be moving. I've got a lease". The deceased said "I know you've got a lease, but in my position I have got to tidy up everything". Cummins said "Well I'll still be here. Get out of here".

15. The affidavit goes on that the deceased never told Cummins that the premises had been sold. The first he knew of the sale was when he received a notice to quit after the last conversation in December 1985. In early March 1986 a person known to Cummins only as Allan attended the premises to collect the rent on behalf of the purchasers and Cummins told him he would not be moving out. That person was later identified as Allan Myers.

16. The defendant Arnold deposed that he is the proprietor of a business known as Arnold's Autos conducted at the premises under a tenancy from month to month for a rent of $800 per month. The tenancy commenced in November 1979 pursuant to an oral arrangement with the deceased. There was no written lease. The rent was paid promptly direct to the deceased. He said that on 28 March 1984 the deceased came to the premises and spoke to the defendant Cummins and Arnold about the rent having to go up. They negotiated for a time and eventually it was agreed that Arnold would pay a rent of $1200 per month. Arnold then deposed that he asked the deceased about a lease, to which the deceased replied "I will give you both a three years lease with a three year option to begin on 1 April 1984. I will draw it up myself in order to save expense". In very similar terms to the affidavit of Cummins, Arnold deposed that he accepted the deceased's ability to do so. The deceased kept turning up each month to collect the rent and Arnold mentioned to him the matter of the formal lease on a number of occasions. The deceased would dismiss the matter by answering "I am fixing it up" and on one occasion answered jokingly, "It's in my drawer at work". Arnold was not concerned about the delay in obtaining a written lease.

17. In February 1985 Arnold was intending to sell his business. He spoke to the deceased in the presence of his intended purchaser to discuss the matter. He deposed that the deceased said "I agree to transfer your existing lease to the purchaser. However, if the purchaser wants a new lease I will grant him a three year lease with a three year option but the rent will increase from $1200 to $1500 per month". Following this further negotiations took place but eventually the proposed sale of Arnold's business did not proceed. Arnold spent a considerable sum of money on maintenance and improvement of the property and deposed to the details thereof.

18. He then deposed to a conversation with the deceased in early December 1985 in the following terms. The deceased said "I have only a couple of months to live. I am putting the building up for auction on 31 March 1986 and you have to be out by then. If it doesn't sell you can come back in". Arnold said "I've still got another year to go on my lease plus the option". The deceased replied "Bad luck; there is nothing in writing". There was another conversation between Arnold and the deceased which need not be recited.

19. Arnold further deposed that the deceased never told him that the premises had been sold, that the first he knew of the sale was when he received a notice to quit on or about 15 January 1986. At no stage prior to March 1986 did the plaintiffs discuss with him the state of his tenancy or make any contact with him.

20. Both defendants were cross-examined on their affidavits. It is necessary to refer only to their evidence relating to the conversation with the deceased on 28 March 1984. Cummins said that the conversation occurred at the premises and those present were Arnold, the deceased and himself. He could not remember the precise conversation that took place but said that Arnold had asked the deceased about a lease. He said the deceased had agreed in the following words, "Yes, that'll be alright. I'll get the lease drawn up".

21. Arnold gave evidence of the conversation as follows: Arnold said "Well if the rent is going up we will have to have a lease". The deceased said "I will give you three with three". Asked whether the deceased had said that he would give an option for three or just three with three, Arnold said he was not one hundred percent sure on that. He agreed that the deceased would have indicated that he would let them have a formal written lease document in due course containing various terms of the lease for their consideration, and that if those terms were acceptable to them the lease would be executed.

22. Some important additional evidence was furnished by Mr Allan Clarence Myers (Myers) concerning his conversations with the two defendants in March 1986 when he called at the premises to collect the rent from the two defendants. He said that he called at the premises on 3 March 1986 and spoke to the defendant Cummins about collecting the rent on behalf of the plaintiffs. He said that Cummins had refused to pay the rent and had asked him to come back on the following Friday, which was 7 March 1986. He said that Cummins had told him that they would sort it out at the end of March, that he had a tape recording of a conversation with the deceased and that that was the basis upon which he would not be getting out.

23. In relation to the defendant Arnold, Myers said that when he asked him for the rent Arnold had asked him what Cummins was doing and he replied that Cummins had said to come back at the end of the week. Arnold then adopted that position and said that they would sort it out then. When Myers returned at the end of the week he was unsuccessful in obtaining payment of the rent. He immediately sent a registered letter to each defendant and received the rent in one common envelope about 10 days later. Myers denied that either defendant had made any mention to him about holding a three year lease from the deceased.

24. Cummins was recalled to traverse the evidence of Myers. He admitted that he had told Myers that he had a tape of his conversation with the deceased and said that at the time, he believed that he did have such a tape, but found out later that he had failed to operate the recorder properly and the conversation was not recorded. But, in any event, he was not referring to the conversation with the deceased on 28 March 1984. He was referring to the conversation in December 1985.

25. It now seems to be established principle that a caveat should be removed unless the caveator can establish that he would be entitled to an injunction restraining the registered proprietor from dealing with the land until the determination of the proceedings brought by the caveator (Martyn and Anor. v. Glennan and Anor. (1979) 2 NSWLR 234). Furthermore, in an application by the caveatee for the removal of a caveat, the caveator must first satisfy the court that, on the evidence presented, his claim to an interest in the property does raise a serious question to be tried; and having done so, he must go on to show that on the balance of convenience it would be better to maintain the status quo until the trial of the action by preventing the caveatee from disposing of his land to some third party (Eng Mee Yong v. Letchumanan s/o Velayutham (1980) AC 331).

26. There was no evidence in the present case that the plaintiffs were seeking to have the caveats removed so that they could dispose of their interest in the land to some third party. However, it is a reasonable deduction from the evidence relating to their plans to redevelop the land that they may wish to raise finance, using the land as security for that purpose. The defendants' caveats would be an impediment to that course.

27. It was submitted on behalf of the defendants that they had shown that there is a serious question to be tried about whether they each held a lease for three years with an option for three years. Such a lease, which is a lease for a term not exceeding three years (195 Crown St. Pty Ltd v. Hoare (1969) 1 NSWR 193), is not required to be registered. Pursuant to s.85(1) of the Ordinance every registered dealing with land shall be subject to any prior unregistered lease or any agreement for lease or for renting from year to year or for a term not exceeding three years affecting the land. It was submitted that the evidence of the defendants, the uncontradicted evidence of an increase in rent under both monthly tenancies at the time when the lease agreement was made, namely on or about 28 March 1984, and of the improvements made by both defendants at their own expense since that date, raised a serious issue that the lease for three years with an option of three years was granted by the deceased to both defendants. It was submitted that the only contrary evidence is to be found in the terms of the contract between the plaintiffs and the deceased and another for the purchase of the premises.

28. The plaintiffs' answer to that submission was that even accepting the defendants' evidence, the court could not find that there was any concluded agreement for a three year lease with an option, because important matters had not been agreed upon between the deceased and the defendants. It was submitted that the negotiations between those parties had not resulted in a concluded agreement. On the contrary, the negotiations were made expressly subject to a formal lease being drawn up and until then there was no intention to create legal relations. Counsel referred to the evidence of both defendants, which was that the deceased was to submit a document and, if the terms of the document were agreed upon, it was to be executed by the parties. But it was submitted that in any event the court should not be satisfied that anything was said by the deceased about granting a three year lease.

29. The leading authority on the test to be applied in determining whether negotiations between parties have resulted in a concluded agreement is Masters v. Cameron [1954] HCA 72; (1954) 91 CLR 353. In that matter the vendor had agreed to sell a certain farming property to the defendant "subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions", and the purchaser agreed to purchase such property "on the above terms and conditions". The High Court held that the document did not constitute a binding contract between the parties. In the joint judgment of Dixon CJ, McTiernan and Kitto JJ. the High Court reviewed the three different situations which may arise. The court said that the case may belong to any one of three classes:

"It may be one in which the parties have reached
finality in arranging all the terms of their bargain
and intend to be immediately bound to the performance
of those terms, but at the same time propose to have
the terms restated in a form which will be fuller or
more precise but not different in effect. Or,
secondly, it may be a case in which the parties have
completely agreed upon all the terms of their bargain
and intend no departure from or addition to that which
their agreed terms express or imply, but nevertheless
have made performance of one or more of the terms
conditional upon the execution of a formal document.
Or, thirdly, the case may be one in which the intention
of the parties is not to make a concluded bargain at
all, unless and until they execute a formal contract.

In each of the first two cases there is a binding
contract: in the first case a contract binding the
parties at once to perform the agreed terms whether the
contemplated formal document comes into existence or
not, and to join (if they have so agreed) in settling
and executing the formal document; and in the second
case a contract binding the parties to join in bringing
the formal contract into existence and then to carry it
into execution. Of these two cases the first is the
more common."

30. At p.361 the Court said that cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have and therefore do not have any binding effect of their own (Governor & c. of the Poor of Kingston-upon-Hull v. Petch (1854) 10 Exch 610; 156 ER 583). The parties may have so provided either because they dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. (See also Zimin v. Wentworth Properties Pty Ltd (1959) 76 WN 54).

31. In my view the circumstances of the present case, even accepting the defendants' evidence without qualification, demonstrate that the deceased reserved to himself the right to withdraw at any time until the formal document was signed. It does not appear that he ever prepared the formal document. His reference to having done so and left it in his drawer at work seems to have been an offhand way of concluding his conversation with Arnold. Certainly from December 1985 until his death the deceased acted in such a way as to negate the formation of any concluded agreement with the defendants. His conduct in that respect was maintained in his concluded agreement with the plaintiffs and in particular in special condition 2. of the contract of sale of the premises. It may well be that as a result of the conversation with the deceased on 28 March 1984 both defendants assumed that they had some sort of gentlemen's agreement that they would be given a three year lease with an option for renewal for three years, but as is often the case where parties come to an agreement which they regard as morally binding, there was no concluded agreement giving rise to legal obligations. Consequently, I am not satisfied that there is a serious issue whether the defendants held a lease for three years with an option for three years.

32. Next it was submitted on behalf of the defendants that at least they held a monthly tenancy from the previous owners and that the notices to quit served upon them on 15 January 1986 requiring that they deliver up possession of the premises on 31 March 1986 did not give adequate notice to vacate and had not been shown to expire at the end of a completed period of the tenancy. It is clear law that in respect of short periodical tenancies, notice equal to the length of the period is required, expiring at the end of a completed period of the tenancy (Queen's Club Garden Estates Ltd v. Bignell (1924) 1 KB 117). Accordingly notice to quit purporting to terminate a monthly tenancy must give one month's notice expiring at the end of a particular month.

33. It was submitted that there is no evidence of the particular date being the end of the monthly term under the tenancy. In my view the evidence establishes that the notice to quit served upon the defendants on 15 January 1986 gave proper notice in that it allowed until 31 March 1986 as the date upon which possession of the premises had to be surrendered. Furthermore, the evidence establishes that the tenancies were calendar monthly expiring on the last day of each successive calendar month. Payment of the rent was made, on the evidence, on that basis. The deceased would go to the premises towards the end of the month and collect the rent for the following month (para.6 of Cummins' affidavit and para.5 of Arnold's affidavit).

34. I therefore reject the defendants' second submission. The defendants should remove their respective caveats on the title within a reasonable time and an order for possession should issue requiring the defendants to surrender possession of the premises to the plaintiffs. I propose to adjourn the further hearing of the matter so that the plaintiffs may bring in short minutes of orders to give effect to these reasons.