N & J Efkarpidis Holdings Pty Limited v Tancred Brothers Pty Limited [1986] ACTSC 58 (2 July 1986)

SUPREME COURT OF THE ACT

N. & J. EFKARPIDIS HOLDINGS PTY. LIMITED v. TANCRED BROTHERS PTY. LIMITED
S.C. No. 859 of 1986
Caveats

COURT

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

CATCHWORDS

Caveats - application for removal - nature of proceedings - onus on the caveator - serious question to be tried - agreement for lease - whether part performance

Veloudos v. Young [1981] FCA 217; (1981) 56 FLR 182

Municipal District of Concord v. Coles [1905] HCA 35; (1903) 3 CLR 96

Dwyer v. Caird (1888) 9 NSWLR (Eq.) 119

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

Eng Mee Yong v. Letchumanan s/o Velayutham (1980) AC 331

Maddison v. Alderson (1883) 8 App Cas 467

Cooney v. Burns [1922] HCA 8; (1922) 30 CLR 216

Francis v. Francis (1952) VLR 321

Whalan: The Torrens System in Australia, p 190

Fry on Specific Performance, 6th Ed., sec.580

HEARING

CANBERRA
2:7:1986

ORDER

Caveats Nos. 538529 and 541378 be removed.

DECISION

By originating summons issued on 22 May 1986 the plaintiff seeks orders, inter alia, that the defendant show cause why caveat No. 538529 in respect of dealings affecting memorandum of sub-lease No. 404356 should not be removed. The defendant entered an appearance to the summons on 23 May 1986 and the matter came on for hearing without further pleadings on 27 May 1986.

2. I make the following findings of fact, which were not really in dispute. Savvas Holdings Pty Ltd is the registered lessee of premises known as Block 24, Section 32, Fyshwick, under Crown lease dated 1 January 1979. By memorandum of sub-lease registered No. 404356 dated 8 June 1982, Savvas Holdings Pty Ltd sub-let to Cannon Family Investments Pty Ltd a portion of the premises referred to in the said Crown lease, being Units 5, 6, 7, 8, 9 and 10 in sub-leasing plan No. 1336 for a term of 5 years commencing on 1 August 1982 at an agreed rental.

3. By memorandum of under-lease No. 520424 dated 19 July 1985 Cannon Family Investments Pty Ltd sub-let to the defendant Unit 9 in sub-leasing plan No. 1336, together with a right of access through Unit 5, for a period of 5 years computed from 1 September 1982 at a rental of $13,000. However, pursuant to the terms thereof, Cannon Family Investments Pty Ltd agreed to accept in lieu of the rental specified, certain other arrangements set out in clause 5 of the said under-lease, including a provision that it retain 5% of turnover of sales of meat from the defendant's butcher shop located in Unit 9. The said memorandum of under-lease contained no option for renewal and according to its terms expires on 31 August 1987.

4. The Canberra manager of the defendant company deposed to the following facts in his affidavit sworn 23 May 1986. There was no evidence to the contrary and I find those additional facts for the purposes of the application.

5. The defendant was anxious to obtain an option to renew the lease after its expiry on 31 August 1987. Discussions took place between the Canberra Manager of the defendant and the Managing Director of Cannon Family Investments Pty Ltd during the latter half of 1985 and came closer to final agreement on 13 February 1986. On that day Cannon Family Investments Pty Ltd agreed to grant to the defendant an option for renewal for five years provided that the percentage of turnover was increased by 1% and that Cannon Family Investments Pty Ltd could remove the defendant as its under-lessee in the event of a sale by Cannon Family Investments Pty Ltd. The defendant, through its Canberra Manager, declined this proposal and no agreement was reached at that meeting.

6. At a subsequent meeting, however, the precise date of which is not identified on the evidence, it was agreed that Cannon Family Investments Pty Ltd would grant to the defendant a new under-lease to replace the existing under-lease and also to expire on 31 August 1987 with an option to renew for a further period of five years from 1 September 1987. It was further agreed that the percentage of turnover to be paid by the defendant would increase from 5% to 6% and that the new lease would be registered. The defendant then instructed its solicitors to prepare a memorandum of sub-lease and on 18 March 1986 the solicitors sent the draft memorandum of sub-lease to Cannon Family Investments Pty Ltd for execution. The document was never executed by Cannon Family Investments Pty Ltd.

7. By memorandum of transfer of sub-lease No. 538332 dated 21 April 1986 Cannon Family Investments Pty Ltd transferred to the plaintiff all its estate and interest in sub-lease registered No. 404356 for a consideration of $1. On 21 April 1986 the Manager of the defendant became aware that the plaintiff was the proposed transferee of the sub-lease from the Crown lessee to the Cannon Family Investments Pty Ltd and instructed the defendant's solicitors to lodge a caveat on the title to the Crown lease. On 23 April 1986 the defendant lodged a caveat on the title of the Crown lease claiming an "estate or interest as sub-lessee pursuant to a memorandum of sub-lease registered No. 520424 of Unit 9 in sub-leasing plan 1336 under sub-lease registered No. 404356 with an option to renew for a further 5 year period later negotiated as part of the under-lease".

8. When the matter came on for hearing on 27 May 1986 counsel for the defendant announced that another caveat had been lodged by the defendant that day. He referred to the caveat as "more accurately describing the estate or interest claimed" by the defendant. A copy of the new caveat was in evidence as Exhibit 1 and claims an "estate or interest as under-lessee pursuant to an unregistered agreement for an under-lease commencing on 17 February 1986 until 31 August 1987 with an option to renew for a further five (5) year period". In the light of that recent development I was invited by counsel for both parties to resolve the question whether the plaintiff is entitled to the order sought in the originating summons and the determination of that question would resolve the fate of both caveats. Since judgment was reserved, however, the plaintiff has applied for leave to amend the originating summons so as to seek an order for removal of both caveats and the defendant has consented to that amendment. I give leave to the plaintiff to amend the originating summons accordingly by adding after "Caveat No. 538529" in paragraph (i) thereof the words and figures "and Caveat No. 541378" and by adding the letter "s" to the word "Caveat" where it appears in paragraph (ii) and (iii) thereof.

9. Once a caveat has been lodged s.105(1) of the Real Property Ordinance 1925 (the Ordinance) provides for the Registrar to give notice to the registered proprietor that the caveat has been lodged. Section 105(2) provides that the registered proprietor may summon the caveator to attend before the court or the judge thereof to show cause why the caveat should not be removed and s.105(3) provides that the court or judge may make such order as to the court or judge seems fit.

10. Section 58 of the Ordinance provides that a person becoming registered as a proprietor of land shall, except in case of fraud, hold the land, estate or interest subject to any encumbrances, liens, estates or interests as are notified on the Folium of 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.

11. The complimentary provision to s.58 is s.85, which reads:

"85.(1) Every registered dealing with land shall

be subject to any prior unregistered lease or any
agreement for a lease or for letting from year to year
or for a term not exceeding three years affecting the
land.
(2) No right or covenant to purchase the freehold
or to assign the reversionary interest of the lessor
contained in any lease or agreement, and no right or
covenant to or for the renewal of any lease or
agreement, shall be valid as against any subsequent
purchaser of the reversion, lessee, mortgagee or
emcumbrancee unless the lease or agreement is
registered."

12. The plaintiff claims to be entitled to have the defendant's caveat removed because it is based upon an estate or interest as under-lessee pursuant to an unregistered agreement for an under-lease commencing on 17 February 1986 until 31 August 1987 with an option to renew for a further five year period. The plaintiff submits that as the under-lease is not registered the plaintiff is protected by the operation of ss.58 and 85 and, in particular, the alleged right or covenant to or for the renewal of the under-lease for a further period of five years is not valid against the plaintiff. It is submitted that that right or covenant to or for renewal of the under-lease cannot be protected by a caveat on the title and the caveat should be removed.

13. In my view the plaintiff's submissions about the operation of ss.58 and 85 are correct. The plaintiff has become registered as a proprietor of land and by the fact of registration has obtained indefeasibility of title subject only to the exceptions set out in s.58. Such exceptions include any prior tenancy from year to year or for any term not exceeding three years. The plaintiff would take title subject to such a tenancy not exceeding three years, whether it was registered or not, because of the provisions of s.85(1). If the lease for a term not exceeding three years also happened to be registered then any right or covenant to or for the renewal of the lease would also be valid against the plaintiff by the operation of the provisions of s.85(2). Such a right or covenant to or for the renewal of the lease is not valid against the plaintiff unless the lease is registered. Section 58 renders nugatory against a registered dealing any right or covenant for renewal unless the lease is registered (Whalan: The Torrens System in Australia, p 190; see also Veloudos v. Young [1981] FCA 217; (1981) 56 FLR 182 per Davies J. at 188). Prima facie, therefore, the plaintiff is entitled to have the caveats removed.

14. However, s.58 only gives indefeasibility of title to the person becoming registered in the absence of fraud. Counsel for the defendant has submitted that as proceedings under s.105 for the removal of a caveat are interlocutory in nature, the court should not order that a caveat be summarily removed, unless it is satisfied that the caveator will not be able to make out a case for relief and the court should give the fullest possible opportunity for the matter to be fully litigated. Counsel cited a number of authorities: In re Stewart & Co.; ex parte Piripi Te Maari (No. 2) (1892) 11 NZLR 745; Scott v. Broadlands Finance Ltd (1972) NZLR 268; Plimmer Bros v. St. Maur (1906) 26 NZLR 294; In re Thompson & Chipps; ex parte Findlay (1886) NZLR 5SC 52; In re Greer; ex parte Knight (1900) 18 NZLR 686; In re Faulke's Caveat (1906) 26 NZLR 392; Hakaraia Te Whenua v. Bevan (1907) 27 NZLR 56; In re Peychers' Caveat (1954) NZLR 285.

15. It was submitted on behalf of the defendant that in the circumstances the appropriate order for the court to make is that the caveats be removed, unless the defendant commences proceedings for specific performance of the agreement for lease with the option for renewal of five years within a stated time. It was submitted that a conditional order of that type would enable the defendant to join Cannon Family Investments Pty Ltd in the proceedings, to seek relief in the nature of rectification of the under-lease, specific performance of the amended under-lease, cancellation and delivery up of the sub-lease and damages, to file pleadings raising an allegation of fraud against the plaintiff and seeking relief by way of damages, and to join the Registrar of Titles and seek relief by way of rectification of the Register pursuant to s.160(1)(c) of the Ordinance.

16. In such proceedings, it was said, discovery and interrogatories against Cannon Family Investments Pty Ltd and the plaintiff would enable the defendant to determine whether or not there was fraud sufficient to enable the court to order that the Registrar rectify the Register to strike out the impugned lease.

17. It was conceded in the course of the hearing that, notwithstanding cross-examination of Mr T. Efkarpidis, a director of the plaintiff company, the defendant had not thus far established fraud on the part of the plaintiff or Cannon Family Investments Pty Ltd.

18. The lodging of a caveat is really in the nature of the initiation of litigation (Municipal District of Concord v. Coles [1905] HCA 35; (1903) 3 CLR 96 per Griffith CJ at 108). A caveat neither confers nor takes away any right. It is simply a statutory injunction (Dwyer v. Caird (1888) 9 NSWLR (Eq.) 119 per Owen CJ in Eq. at 122). It is 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).

19. In Eng Mee Yong v. Letchumanan s/o Velayutham (1980) AC 331 at 337 the Privy Council noted the analogy between the effect of a caveat and that of an interlocutory injunction obtained by the plaintiff in an action for specific performance of a contract for the sale of land restraining the vendor, in whom the legal title is vested, from entering into any disposition of the land pending the trial of the action. In an application by the caveatee for the removal of the 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 the land to some third party (Eng Mee Yong v. Letchumanan s/o Velayutham, supra, at p 337).

20. The court's jurisdiction to order the removal of a caveat is, of course, discretionary. What the defendant is seeking to do here in resisting the plaintiff's application for removal of the caveats is to maintain the status quo while the defendant investigates whether Cannon Family Investments Pty Ltd and the plaintiff, or either of them, fraudulently entered into their agreement for transfer of the sub-lease to the plaintiff. On the present state of the evidence there is no suggestion of fraud. The consideration of $1 for the transfer to the plaintiff of the estate or interest in the sub-lease by Cannon Family Investments Pty Ltd is a normal amount of consideration in dealings of this nature. So much is established from the evidence of the defendant's solicitor, who agreed that in acting for purchasers of businesses in Canberra over a number of years he has inserted an amount of $1 as the consideration in the Memorandum of Transfer of Sub-Lease of premises.

21. It seems to me that the court should keep in mind the distinction between claiming a caveatable estate or interest and establishing such an interest (as referred to by Professor Whalan in The Torrens System in Australia, at p.227). The defendant should not be permitted to prohibit all dealings while it casts about for a cause of action to support its claimed caveatable estate or interest. The fact is that Cannon Family Investments Pty Ltd never executed the draft memorandum of under-lease to give effect to the oral agreement between Cannon Family Investments Pty Ltd and the defendant on the date not identified on the evidence, but probably shortly before 10 March 1986, when the defendant gave instructions to its solicitors to prepare the document.

22. Nor is there sufficient evidence of part performance of the oral agreement by Cannon Family Investments Pty Ltd. The only evidence which could be relied upon as part performance so as to take the case out of the Statute of Frauds is the acceptance by Cannon Family Investments Pty Ltd of the increased rent at 6% of turnover of meat sales. The evidence in that respect is that immediately after the oral agreement was reached the defendant commenced paying the higher amount as agreed and has continued to pay it.

23. The acts relied upon as part performance must be unequivocal and in their own nature referable to some such agreement as that alleged. The acts proved must be such as to render it a fraud in the defendant to take advantage of the contract not being in writing (Fry on Specific Performance, 6th Ed., sec.580). A plaintiff relying on part performance in order that he may succeed must establish by clear evidence the agreement alleged by him and it must appear that the acts relied on as acts of part performance were done for the purpose and in the course of performing that agreement and with no other view or design than to perform it. It is settled that payment of part of the purchase money is not of itself, and apart from other circumstances e.g. delivery of possession, a sufficient act of part performance to take a case out of the Statute. The best explanation of this doctrine is said by Lord Selborne in Maddison v. Alderson (1883) 8 App Cas at 479 to be that the payment of money is an equivocal act and not in itself, until the connection is established by parallel testimony, indicative of a contract concerning land (Cooney v. Burns [1922] HCA 8; (1922) 30 CLR 216 per Knox CJ at 222-223; see also Francis v. Francis (1952) VLR 321 at 333).

24. Applying these tests, I am of the opinion that the payment by the defendant of the increased turnover percentage is entirely equivocal and does not point necessarily to an oral agreement with Cannon Family Investments Pty Ltd. I hold, therefore, that there is insufficient evidence of part performance of any oral agreement.

25. I find that the defendant has at best an agreement for lease with Cannon Family Investments Pty Ltd. Such an agreement for lease cannot be registered notwithstanding the language of s.85(2) of the Ordinance.

26. Counsel for the defendant referred to the "Report on The Law Relating to Conveyancing" by the Law Reform Commission of the Australian Capital Territory (Blackburn J., Professor Whalan and R.B. Topfer) in 1976, where the Commission referred to the absurdity introduced by the phrase "unless the lease or agreement is registered". The report observes that the agreement, as distinct from the lease, cannot possibly be registered. It was submitted that as the above phrase is both absurd and severable from s.85(2), it should be severed and the remaining words are clear and effective.

27. Interesting though this exercise in statutory construction may be, I do not think that it is necessary to embark upon it. Section 85(2) in its terms states that an option to renew a lease contained in an unregistered (even though unregisterable) agreement for lease is unenforceable against a subsequent purchaser. The defendant's option to renew is contained in an unregistered (and unregisterable) agreement for lease and is unenforceable against the plaintiff.

28. In the exercise of my discretion I order that both caveats be removed. I shall hear counsel on the imposition of time limits for the removal of the caveats. I shall also hear counsel on the question of costs.