Svenson v Payne [1945] HCA 43; (1945) 71 CLR 531 (19 December 1945)

Appeal from a decree of the Supreme Court of New South Wales in its equitable jurisdiction (Roper J.) declaring that an indenture of lease of the Court House Hotel, Wellington, dated 25th June 1934 and made between John Sutton Payne (of whose will the plaintiffs are the executrices) and the defendants Svenson and Tooth & Co. Ltd. is void, and that it should be delivered up for cancellation. The defendant Svenson is the lessee under the lease, Tooth & Co. Ltd. are the mortgagees of his leasehold interest, the Commonwealth Savings Bank, the other defendant, is the mortgagee of the freehold and, as the land is under the old law, has the legal estate.

J. S. Payne was the executor of the will of his father John Payne, who died on 28th May 1919. The plaintiffs, as executrices of the will of J. S. Payne, are the executrices also of the will of John Payne, and they sue in that capacity. Mrs. Furnell also sues in her personal capacity. J. S. Payne was entitled under the will of his father to a life interest in residue, which included the Court House Hotel, Wellington. After his death, his children were entitled to the property upon attaining the age of 21 years. In fact he had only one child, the plaintiff, Mrs. G. F. E. Furnell. The interest of Mrs. Furnell in the property is equitable, the legal estate being in the Commonwealth Savings Bank. J. S. Payne died on 15th February 1943. His father's will provided that his trustee should have power to grant leases for terms not exceeding seven years.

On 16th October 1933, J. S. Payne gave a lease to the defendant Svenson for a term of ten years, commencing on 1st February 1934. The Licensing Court required the expenditure of a considerable sum of money in renovations and improvements to the hotel—Liquor Act 1912 N.S.W., s. 40A. An arrangement was made under which Svenson agreed to spend a sum which ultimately amounted to £2,555 in complying with the requirements of the court. As part of this arrangement, J. S. Payne on 25th June 1934 granted to him a lease for fifteen years to commence at the date of expiry of the ten-year lease already granted. No searches of title were made on behalf of Svenson. He knew, however, that J. S. Payne was a trustee of the land. He had constructive notice of what a search would have disclosed—i.e. of the limitation upon the trustee's power of leasing.

It is not disputed that J. S. Payne had no power to grant either of the leases. They were valid during his life, but did not bind the remainderman: See cases cited in Halsbury's Laws of England, 2nd ed., vol. 20, pp. 29-30.

The defendants, however, claimed that the second lease (the term of the first having expired) should be held to be binding on the remainderman, Mrs. Furnell, on the principle of Ramsden v. Dyson[1]. That principle is stated in the following words:—"If a stranger begins to build on any land supposing it to be his own, and I, perceiving his mistake, abstain from setting him right, and leave him to persevere in his error, a Court of equity will not allow me afterwards to assert my title to the land on which he had expended money on the supposition that the land was his own. It considers that, when I saw the mistake into which he had fallen, it was my duty to be active and to state my adverse title; and that it would be dishonest in me to remain wilfully passive on such an occasion, in order afterwards to profit by the mistake which I might have prevented"[2]. See also Willmott v. Barber[3].

The lease which is now in question was executed in June 1934 and Svenson began the work of repairs &c. in October 1934. It was contended for Svenson that Mrs. Furnell knew that he was spending money on the hotel premises in consideration of receiving the fifteen-year lease, and that she allowed him to proceed with that expenditure without informing him of her rights (of which, it was contended, she was aware), and that therefore she was estopped by her acquiescence and concurrence in his actions from contending that the lease is void.

The learned trial judge found that Svenson did make a mistake as to his rights, in that he believed, though erroneously, that J. S. Payne had power to grant the lease. This finding has been attacked by the respondent because Svenson, though called as a witness, was not asked, and accordingly did not answer, the simple question whether he did believe that he had a valid lease. The inference drawn by the learned judge is, however, open upon the facts. It is prima facie improbable that Svenson would have agreed to incur so substantial an expenditure unless he thought that he was getting a good lease, especially when he was already in possession under an existing lease for ten years, and under s. 40A of the Liquor Act, if the owner had not complied with the requirements of the licensing authority, he could have applied to the Licensing Court for authority to do the work himself and then have recouped himself by deductions of the amount expended from the rent accruing due from time to time in the future. We do not think that we should disturb the finding of the learned judge upon this point.

His Honour also found that Svenson expended his money on the faith of his belief.

The evidence which was accepted by his Honour showed that Mrs. Furnell was not a party in any sense to the negotiations for the lease. She was aware that some negotiations were going on, but she was not regarded by either Svenson or her father as interested in the matter. Her father assumed complete control, and she, his Honour found, believed that he was entitled to exercise complete control during his life. Mrs. Furnell was informed of the execution of the lease before Svenson began his expenditure of money. She admitted that, after she knew that the lease had been executed and before Svenson had expended any money in making the repairs &c. to the hotel, she became aware through her husband, who was at the time a law student, and who made a search of her grandfather's will in the Probate Office, that her father's powers of leasing as trustee were limited to seven years and that he had no power to grant the fifteen years' lease (although she apparently understood that a twenty-five years' lease had been granted). But she also gave evidence, which the learned judge accepted, that she thought that she could not do anything to protect her rights during her father's lifetime.

The defendant Svenson adduced evidence with the object of showing that Mrs. Furnell said in his presence that whatever her father decided would be acceptable to her, but this evidence was not believed by the learned judge. There was no other evidence that Svenson was in any way induced to act by anything that Mrs. Furnell said or did or by any supposed concurrence on her part in the granting of the lease.

But the principle of Ramsden v. Dyson[4], as we have said, is that, where the owner of the land sees the mistake into which the stranger has fallen, he must not abstain from setting him right, for it is his duty to be active and to state his adverse title. It is on this ground mainly that the appellant has contended that Mrs. Furnell is estopped from denying that Svenson is entitled in equity to the lease for fifteen years. On this aspect of the case, his Honour made two important findings of fact which have been strongly attacked by the appellant. These findings were that (1) "Mrs. Furnell did not know that Svenson held a mistaken belief of his own rights. She had no means of knowing that the usual course of investigation undertaken in such a transaction had not been followed, and his action in spending the money was not inconsistent with knowledge of the true position because he may have been taking a deliberate risk on the duration of her father's life"; and (2) "having discovered the existence of her interest in remainder before the money was expended by Svenson, Mrs. Furnell did nothing until after her father died ... not with the idea of encouraging Svenson to expend the money on the property which was ultimately to come to her, but because she believed that there was nothing which she could do."

Both findings were, in our opinion, open to his Honour on the evidence. It would have been a simple and prudent, and, on the evidence, a usual, course for Svenson, and Tooth & Co. Ltd., who were financing him, to search the title. No doubt in 1934 the father was sixty-two years of age, but he was in good health and the existing and further leases were binding during his life. On Mrs. Furnell's understanding of the transaction, the expenditure was referable to the grant of a lease for twenty-five years, and many licensees might well think that it was worth while to expend the money on modernizing a hotel in consideration of such an extended term and to take the risk of a healthy life tenant living for the necessary period. They would get an immediate benefit from the expenditure, and it would be a simple precaution for the licensee and the tenant for life to agree that the latter should insure his life for the amount expended and assign the policy to the licensee in the event of his death during the term of the lease. It is clear from the evidence that Mrs. Furnell had practically no knowledge of the details of the transaction. She said that no business at all was done in her presence. It was her husband who, knowing that it was usual to grant leases of hotels only for short terms, became disturbed at the length of the leases granted to Svenson, and communicated his anxiety to his wife, and this led him to the search of the will. It is clear from their evidence that he advised her, and she believed that, since she was not entitled in possession during her father's lifetime, she could do nothing until after his death, so that when, at one stage of her cross-examination, she said that she had decided that she would do nothing she meant, we think, in the light of a fair reading of the whole of her evidence, that she had decided to do nothing during his life-time, and did not mean that she had decided to acquiesce in the lease. It is true, as Mr. Taylor said, that, even if she were unable to take any legal proceedings to avoid the lease at the time, she could at least have warned Svenson that she would not recognize the lease in the event of her father's death. But, with her knowledge and her belief, there was no reason why this aspect of the matter should present itself to her mind.

On the evidence which his Honour accepted, it was simply a case of a lease granted by a life tenant to a lessee who agreed to expend money on the faith of the lease without the concurrence of the remainderman, the term of which the remainderman ascertained, subsequently to the grant of the lease but before the expenditure was incurred, exceeded the period authorized by the will. A person must be deemed in law to intend the natural and probable consequences of his acts. Therefore, a person entitled to the immediate possession of property who sees a stranger spending money on that property under such circumstances that he must be aware that the stranger is doing so in the mistaken belief that it is his own property and does nothing to make the stranger aware of his mistake will be prevented from exercising his legal rights to the prejudice of rights held in equity to have been created in the stranger as the consequence of his conduct. But a remainderman who finds a stranger expending money on property by agreement with the life tenant may well believe that the stranger is prepared to accept such title as the life tenant can bestow. As Fry J. pointed out in Willmott v. Barber[5], where the requisites necessary to raise the estoppel are set out, a person is not deprived of his legal rights unless he has acted in such a way as to make it fraudulent in the equitable sense for him to set up those rights. If Mrs. Furnell had not caused any search to be made and had remained unaware that she was entitled in remainder under her grandfather's will to the hotel, and that her father as trustee had no power to grant a lease for more than seven years which would be binding after his death, there would have been no case against her based on estoppel. As the result of the search, she ascertained that the lease would not be binding except during her father's lifetime, but she also honestly believed that she could do nothing until after his death. To act on this belief would not, in our opinion, be conduct on her part which would make it fraudulent for her not to assert her rights until after his death. The only case of which we are aware in which the estoppel was enforced against a remainderman in respect of a lease granted by a tenant for life is Stiles v. Cowper[6]. But there the lessee had not only expended money during the lifetime of the tenant for life in building upon the demised premises on the faith of a lease which became void upon his death, but after his death the remainderman permitted the lessee to remain in possession and accepted rent for six years, and during this period the lessee at his own expense built new offices. In Dann v. Spurrier[7], Lord Eldon said that "the party setting up the estoppel must prove the case by strong and cogent evidence." Svenson did not know Mrs. Furnell in the matter at all, and in all the circumstances we fail to see how she could be said to have done or omitted to do anything to encourage him. Svenson, we think, took the ordinary risk of any lessee that the landlord with whom he contracted could give him a good title.

Alternatively, the appellant asks for an order that Mrs. Furnell should repay the amount he expended on the hotel on the faith of receiving a lease for fifteen years on the determination of the existing lease. We think that, strictly, the defendant Svenson (the defendants Tooth & Co. Ltd. and the Commonwealth Savings Bank of Australia submitting) should have counterclaimed for a new lease of the hotel to himself for the same term of fifteen years but containing the usual and proper covenants for leases of hotels as was done in the case of Stiles v. Cowper[8], and that in this counterclaim he could have prayed, as was done in Dann v. Spurrier[9], for an order that such a lease be executed, or, in the alternative, that the plaintiffs should pay him the moneys he had expended in improving the hotel. But we are of opinion that either form of relief depends upon the appellant bringing himself within the principles of Ramsden v. Dyson[10]. In that event, the court of equity has a wide discretion to grant the relief which is appropriate in all the circumstances (Plimmer v. Mayor &c. of Wellington[11]). The proper relief in the present proceedings, if the appellant had succeeded in bringing himself within the principles of Ramsden v. Dyson[12], would have been to grant him a lease for fifteen years as was done in Stiles v. Cowper[13].

As, however, the appellant has failed to bring himself within this principle, the appeal fails and must be dismissed with costs.

[1] (1865) L.R. 1 H.L. 129.

[2] (1865) L.R. 1 H.L., at pp. 140, 141.

[3] (1880) 15 Ch. D. 96.

[4] (1865) L.R. 1 H.L. 129.

[5] (1880) 15 Ch. D., at pp. 105, 106.

[6] [1748] EngR 333; (1748) 3 Atk. 692 [26 E.R. 1198].

[7] [1802] EngR 233; (1802) 7 Ves. Jun. 231 [32 E.R. 94].

[8] [1748] EngR 333; (1748) 3 Atk. 692 [26 E.R. 1198].

[9] [1802] EngR 233; (1802) 7 Ves. Jun. 231 [32 E.R. 94].

[10] (1865) L.R. 1 H.L. 129.

[11] (1884) 9 App. Cas. 699, at pp. 713, 714.

[12] (1865) L.R. 1 H.L. 129.

[13] [1748] EngR 333; (1748) 3 Atk. 692 [26 E.R. 1198].

High Court of Australia

Svenson v Payne [1945] HCA 43; (1945) 71 CLR 531 (19 December 1945)

HIGH COURT OF AUSTRALIA